<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 1999.
REGISTRATION NO. 333-65615
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
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(2)
<TABLE>
<S> <C> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE(1) REGISTRATION FEE(3)
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Common Stock, $0.01 par value.............. 3,000,000 shares $52,218,750 $15,404.53
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based on the average high and low sales prices
of the Common Stock reported by the Nasdaq National Market on October 9,
1998.
(2) The Prospectus included in this Registration Statement also relates to
2,478,857 shares registered under Registrant's Registration Statement on
Form S-4 (Registration No. 333-59199), with respect to which Registrant paid
a filing fee of $13,665.48, and to 644,165 shares registered under
Registration Statement on Form S-4 filed under Rule 462(b) on October 13,
1998, with respect to which Registrant paid a filing fee of $3,307.69.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
Pursuant to Rule 429, the Prospectus included in this Registration Statement
also relates to Registrant's Registration Statement on Form S-4 (Registration
No. 333-59199) and to Registrant's Registration Statement on Form S-4 filed on
October 13, 1998, under Rule 462(b) to increase the number of shares covered by
the Registration Statement on Form S-4, Registration No. 333-59199.
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<PAGE> 2
WASTE CONNECTIONS, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY FORM S-4
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Back Cover Page
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Cover Page; Prospectus Summary; Risk
Charges and Other Information Factors; 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 Outstanding Securities Covered by this
Reoffering by Persons and Parties Deemed Prospectus*
Underwriters
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 Prospectus Summary; Summary Historical and
Other Than 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.
** 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. of
shares of its Common Stock at various times as consideration for the Company's
acquisition of solid waste collection, transportation, disposal and recycling
businesses. The prices of these shares will be reasonably related to the Common
Stock's market prices when the parties agree to an acquisition or when the
Company delivers the shares. Each time the Company sells shares under this
Prospectus, it will provide a supplement (a "Prospectus Supplement") or a
post-effective amendment (a "Post-Effective Amendment") to this Prospectus,
which will specify the number of shares issued and the issue price per share,
and will update the information in this Prospectus.
On January 4, 1999, the Company had 9,314,290 shares of Common Stock
outstanding. The Company's Common Stock is traded on the Nasdaq National Market
(symbol: WCNX). On December 31, 1998, the last sale price of the Common Stock on
the Nasdaq National Market was $18.375 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 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
PROSPECTIVE INVESTORS IN COMMON STOCK SHOULD CONSIDER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January , 1999.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (the "Registration
Statement"). This Prospectus, which forms a part of the Registration Statement,
omits some of the information included in the Registration Statement. You should
refer to the Registration Statement and its exhibits for further information.
The Company files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy the Registration
Statement and any reports, statements or other information on file at the
Commission's public reference rooms in Washington, D.C., Chicago, Illinois and
New York, New York. Please call the Commission at 1-800-732-0330 for further
information on the public reference rooms. You can also request copies of those
documents by writing to the Commission; you will be charged a duplicating fee.
The Company's Commission filings are also available to the public from
commercial document retrieval services and at the web site the Commission
maintains at "http://www.sec.gov." The Company's Common Stock is listed on the
Nasdaq National Market, and you may also inspect and copy the Company's
Commission filings at the offices of the National Association of Securities
Dealers, Inc., located at 1735 K Street, N.W., Washington, D.C. 20549.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may not
contain all of the information that is important to you. To understand this
offering fully, you should read the entire Prospectus carefully, including the
risk factors and the financial statements. Unless otherwise specified, 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 January 4, 1999, the Company served
more than 230,000 commercial, industrial and residential customers in
California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South Dakota, Utah,
Washington and Wyoming. The Company currently owns and operates 27 collection
operations, seven transfer stations and one Subtitle D landfill, and operates an
additional five transfer stations, one Subtitle D landfill and four 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 42 solid waste services related businesses since its formation. It has
identified more than 300 independent operators of such businesses in the states
where it currently operates and believes many of those may be suitable for the
Company to acquire. The Company is also currently assessing potential
acquisitions of solid waste services operations in Colorado, Montana and Texas.
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
3
<PAGE> 6
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 give the Company 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.
RECENT DEVELOPMENTS SINCE MAY 1998 INITIAL PUBLIC OFFERING
PROPOSED MERGER
On October 22, 1998, the Company and Murrey's Disposal Company, Inc., American
Disposal Company, Inc., D. M. Disposal Co., Inc. and Tacoma Recycling Company,
Inc. (together, the "Murrey Companies") entered into a merger agreement under
which the Murrey Companies would become wholly owned subsidiaries of the
Company. The Murrey Companies, with approximately $35 million in annual revenue,
provide solid waste services to more than 65,000 customers in the
Seattle-Tacoma, Washington area.
The aggregate consideration to be paid by the Company to the shareholders of the
Murrey Companies is 2,750,000 to 3,250,000 shares of the Company's Common Stock,
depending on the Common Stock's closing price immediately prior to the closing
date. The merger is subject to several conditions, including approval of the
Company's stockholders. If these conditions are satisfied, the Company expects
to consummate the merger with the Murrey Companies in January 1999. The
statistical information about the Company given in this Prospectus does not
include the Murrey Companies. However, the financial statements included in this
Prospectus include historical financial statements for the Murrey Companies and
pro forma financial statements that give effect to the Company's acquisition of
the Murrey Companies as if such acquisition had occurred on January 1, 1997, or
on September 30, 1998, as poolings-of-interests.
RECENT ACQUISITIONS
From its initial public offering in May 1998 to January 4, 1999, the Company
acquired 32 solid waste services businesses, including 17 collection operations,
one Subtitle D landfill, six transfer stations and three recycling operations
representing approximately $50.0 million in annual revenue. These acquisitions
took the Company into five new markets in five new states: Kansas, Nebraska,
Oklahoma, Oregon and Utah. The acquired businesses included "tuck in"
acquisitions in pre-existing markets, new market entries and "tuck in"
acquisitions in the new markets.
4
<PAGE> 7
EXPANDED CREDIT FACILITY
On November 23, 1998, the Company entered into a new credit facility with a
syndicate of banks led by BankBoston, N.A., which among other things, increased
the Company's borrowing capacity from $60.0 million to $115.0 million, modified
certain covenants and lowered the Company's overall borrowing costs. As of
December 31, 1998, the aggregate outstanding principal indebtedness under the
credit facility was approximately $57.3 million. The credit facility allows the
Company to elect to increase its borrowing capacity thereunder to $125.0
million.
5
<PAGE> 8
WASTE CONNECTIONS, INC.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PRO FORMA NINE MONTHS ENDED
INCEPTION COMBINED SEPTEMBER 30, 1998
(SEPTEMBER 9, 1997) YEAR ENDED -----------------------
THROUGH DECEMBER 31, PRO FORMA
DECEMBER 31, 1997 1997(1) ACTUAL COMBINED(1)
------------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 6,237 $ 90,221 $ 35,336 $ 75,551
Cost of operations.............. 4,703 67,694 24,007 53,855
Selling, general and
administrative................ 619 9,735 3,518 7,415
Depreciation and amortization... 354 5,710 2,693 5,678
Start-up and integration........ 493 493 -- --
Stock compensation.............. 4,395 4,395 561 561
--------- --------- --------- -----------
Income (loss) from operations... (4,327) 2,194 4,557 8,042
Interest expense................ (1,035) (6,429) (1,427) (4,285)
Other income (expense), net..... (36) 596 -- 60
--------- --------- --------- -----------
Income (loss) before income
taxes......................... (5,398) (3,639) 3,130 3,817
Income tax (provision)
benefit....................... 332 (232) (1,513) (1,659)
--------- --------- --------- -----------
Net income (loss) before
extraordinary Item............ (5,066) (3,871) 1,617 2,158
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $165.... -- -- (815) (815)
--------- --------- --------- -----------
Net income (loss)............... $ (5,066) $ (3,871) $ 802 $ 1,343
========= ========= ========= ===========
Redeemable convertible preferred
stock accretion............... (531) (531) (917) (917)
--------- --------- --------- -----------
Net income (loss) applicable to
common stockholders........... $ (5,597) $ (4,402) $ (115) $ 426
========= ========= ========= ===========
Basic earnings (loss) per common
share:
Income (loss) before
extraordinary item........ $ (2.99) $ (0.81) $ 0.13 $ 0.14
===========
Extraordinary item............ -- -- (0.15)
--------- --------- ---------
Net loss per common share..... $ (2.99) $ (0.81) $ (0.02)
========= ========= =========
Diluted earnings (loss) per common
share:
Income (loss) before
extraordinary item........ $ (2.99) $ (0.81) $ 0.09 $ 0.12
===========
Extraordinary item............ -- -- (0.11)
--------- --------- ---------
Diluted net income (loss) per
common share............... $ (2.99) $ (0.81) $ (0.02)
========= ========= =========
Shares used in calculating basic
earnings (loss) per share..... 1,872,567 5,450,306 5,476,532 8,819,350
Shares used in calculating
diluted earnings (loss) per
share......................... 1,872,567 5,450,306 7,438,658 10,404,186
Pro forma basic net income
(loss)
per share(2).................. $ (1.16) $ 0.11
========= =========
Shares used in calculating pro
forma basic net income (loss)
per share..................... 4,372,565 7,117,557
Pro forma diluted net income per
share(2)...................... $ 0.09
=========
Shares used in calculating pro
forma diluted net income per
share......................... 8,702,393
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
DECEMBER 31, PRO FORMA
1997 ACTUAL COMBINED(3)
------------ -------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents............................ $ 820 $ 1,090 $ 1,781
Working capital (deficit)....................... 836 (1,482) (10,922)
Property and equipment, net..................... 4,185 18,438 42,494
Total assets.................................... 18,880 114,495 151,048
Long-term debt(4)............................... 6,762 40,404 59,897
Redeemable convertible preferred stock.......... 7,523 -- --
Total stockholders' equity (deficit)............ (551) 59,822 61,397
</TABLE>
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(1) Assumes the Company's acquisitions of Arrow Sanitary Service, Inc.
("Arrow"), B&B Sanitation, Inc. and Red Carpet Landfill, Inc., and Darlin
Equipment, Inc. (together with B&B Sanitation, Inc. and Red Carpet Landfill,
Inc., "B&B") J&J Sanitation, Inc. and Big Red Roll Off, Inc. (together with
J&J Sanitation, Inc. "J&J"), Contractor's Waste Removal, L.C.
("Contractors"), Curry Transfer & Recycling, Inc. ("Curry"), Shrader Refuse
and Recycling Service Company ("Shrader"), Amador Disposal Service,
Inc./Mother Lode Sani-Hut, Inc. ("Amador"), Butler County Landfill,
Inc./Kobus Construction, Inc. ("Butler"), Madera Disposal Systems, Inc.
("Madera"), and WCI predecessors and the mergers with the Murrey Companies
(accounted for as poolings-of-interests) occurred as of January 1, 1997. See
"Unaudited Pro Forma Financial Statements" included elsewhere herein.
(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 nine months ended September 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 for an explanation of the
pro forma historical per share calculations.
(3) Assumes WCI's acquisitions of Amador and Butler occurred on September 30,
1998 and reflects the mergers of WCI and Murrey Companies as
poolings-of-interests. See "Unaudited Pro Forma Financial Statements"
included elsewhere herein.
(4) Excludes redeemable convertible preferred stock.
7
<PAGE> 10
RISK FACTORS
You should carefully consider the following factors and other information in
this Prospectus 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 are 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 apply 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, but not limited to, 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 on which you may
evaluate its business and its prospects. You should consider the disclosures
about the Company in this Prospectus in light of the risks, expenses and
difficulties that companies frequently encounter in their early stages of
development. The Company's recently assembled senior management team may not be
able to manage the Company successfully or to implement the Company's operating
and growth strategies effectively.
The Company's growth and future financial performance depend significantly on
its ability to integrate acquired businesses into its organization and
operations. Part of the Company's strategy is to achieve economies of scale and
operating efficiencies by increasing its size through acquisitions. The Company
may not achieve these goals unless it effectively combines the operations of
acquired businesses with its existing operations. The Company's recently
assembled senior management team may not be able to integrate the Company's
completed and future acquisitions. Any difficulties the Company encounters in
the integration process could materially and adversely affect its business,
financial condition and operating results.
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. Whether the Company can execute its growth strategy depends on
several 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 January 4, 1999, the Company acquired 42 solid
waste services related business. The Company may grow rapidly at times, which
could significantly strain its management, operational, financial and other
resources. To maintain and manage its growth, the Company will need to expand
its management information systems capabilities and its operational and
financial systems and controls. The Company will also need to attract, train,
motivate, retain and manage additional senior managers, technical professionals
and other employees. Failure to do any of these things would materially and
adversely affect the Company's business, financial condition and operating
results. See "Business -- Strategy."
8
<PAGE> 11
Availability of Acquisition Targets. Although the Company has identified
numerous acquisition candidates that it believes are suitable, the Company may
not be able to acquire them at prices or on terms and conditions favorable to
the Company. The Company's failure to make acquisitions would limit its growth.
See "Business -- Strategy" and "-- Acquisition Program."
The Company competes for acquisition candidates with other entities, some of
which have greater financial resources than the Company. Increased competition
for acquisition candidates may make fewer acquisition opportunities available to
the Company, and may cause acquisitions to be made on less attractive terms,
such as higher purchase prices. Acquisition costs may increase to levels that
are beyond the Company's financial capability or that would adversely affect the
Company's operating results and financial condition. The Company's ability to
make acquisitions will depend in part on the relative attractiveness of shares
of the Company's Common Stock as consideration for potential acquisition
candidates. This attractiveness may depend largely on the relative market price
and capital appreciation prospects of the Common Stock compared to the stock 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.
Some 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 operators may have
financial advantages over the Company, because of their access to user fees and
similar charges, tax revenues and tax-exempt financing. Some 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 materially and adversely affect the Company's
business, financial condition and operating results.
The Company derives a substantial portion of its revenue from exclusive
municipal contracts and franchise agreements. Many of these 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. However, the Company may not be the successful bidder to obtain or
retain contracts that come up for competitive bidding. In addition, some of the
Company's customers may terminate their contracts 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,
legislative action could amend or repeal the laws governing G Certificates,
which could materially and adversely affect the Company. See "Business -- G
Certificates." If the Company were not able to replace revenues from contracts
lost through competitive bidding or early termination or the renegotiation of
existing contracts with other revenues
9
<PAGE> 12
within a reasonable time period, the lost revenues could materially and
adversely affect the Company's business, financial condition and operating
results.
Intense competition exists not only to provide services to customers but also to
acquire other businesses within each market. Other companies have adopted or
will probably adopt the Company's strategy of acquiring and consolidating
regional and local businesses to develop a national presence. The Company
expects that increased consolidation in the solid waste services industry will
increase competitive pressures. See "Business -- Competition."
Potential Inability to Finance the Company's Potential Growth. The Company
expects to finance future acquisitions 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 have
to use more of its available cash resources or borrowings under its credit
facility to fund acquisitions. If cash from operations and borrowings under the
credit facility are insufficient to fund acquisitions, the Company will need
additional equity and/or debt financing. The Company will also need to make
substantial capital expenditures to fund the development or acquisition of new
landfills, transfer stations and other facilities and the maintenance of such
properties. The Company may not have enough capital or be able to raise enough
additional capital on satisfactory terms to meet its capital requirements.
The Company's credit facility requires the Company to obtain the consent of the
lending banks before acquiring any other business for more than $10.0 million in
cash (including all liabilities assumed). If the Company is not able to obtain
such consent, it may not be able to complete certain acquisitions, which could
inhibit the Company's growth. The Company's credit facility also contains
financial covenants based on the Company's current and projected financial
condition after completing an acquisition. If the Company cannot satisfy these
financial covenants on a pro forma basis after completing an acquisition, it
would not be able 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 what the Company expects, 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 would allow the Company's banks to accelerate the
date for repayment of debt incurred under the credit facility and materially and
adversely affect the Company's business, financial condition and operating
results. 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 departure of any of those persons
might materially and adversely affect the Company's business, financial
condition and operating results. 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." These agreements may not be enforceable
by the Company.
10
<PAGE> 13
Geographic Concentration. The Company's operations and customers are located in
California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South Dakota, Utah,
Washington and Wyoming. The Company expects to focus its operations on the
Western U.S. for at least the foreseeable future. The Company estimates that
more than 50% of its pro forma revenues for the nine months ended September 30,
1998, were derived from Washington. If the Company completes its proposed merger
with the Murrey Companies, approximately 60% of its total annualized revenues
will come from customers in Washington immediately after the merger. Therefore,
the Company's business, financial condition and operating results would be
negatively affected by 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. The Company may not complete
enough 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 expects its operating results to 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,
because of decreased 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 the
Company expects most of its operating expenses to remain fairly constant
throughout the fiscal year, it expects operating income to be generally lower in
the winter months. Future seasonal and quarterly fluctuations may materially and
adversely affect the Company's business, financial condition and operating
results. 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. These have been enforced more and more
stringently in recent years because 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, federal, state and local
governments may change the rights they grant to and the restrictions they impose
on solid waste services companies, and such changes could have a material
adverse effect on the Company.
To own and operate landfills, the Company must obtain and maintain licenses or
permits and zoning, environmental and/or other land use approvals. These
licenses or permits and approvals are difficult and time-consuming to obtain and
renew, and elected officials and citizens' groups frequently oppose them. See
"Business -- Legal Proceedings." The Company may not be able to obtain and
maintain the permits and approvals it needs to own or operate landfills
(including increasing their capacity), and failing to do so could materially and
adversely affect the Company's operating results and financial condition.
11
<PAGE> 14
Extensive regulations govern the design, operation and closure of landfills.
These regulations include the regulations ("Subtitle D Regulations") that
establish 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"). If the Company fails to comply
with these regulations, it could be required to undertake investigatory or
remedial activities, curtail operations or close a landfill temporarily or
permanently. Future changes to these regulations may require the Company to
modify, supplement or replace equipment or facilities at substantial costs. 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 materially and adversely affect the
Company's business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Companies in the solid waste services business 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, 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 to require the
Company to remediate potential environmental problems relating to waste that the
Company or its predecessors collected, transported, disposed of or stored. The
Company may also be subject to actions brought by individuals or community
groups in connection with its operations. Any adverse outcome in these
proceedings could have a material adverse effect on the Company's business,
financial condition and operating results and create adverse publicity about the
Company. See "Potential Environmental Liability" below and "Business -- Legal
Proceedings."
Potential Environmental Liability. The Company is liable for any environmental
damage that its solid waste facilities 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 may be
liable for damage resulting from conditions existing before it acquired such
facilities. The Company may also be liable for any off-site environmental
contamination caused by pollutants or hazardous substances whose transportation,
treatment or disposal the Company or its predecessors arranged. Any substantial
liability of the Company for environmental damage could materially and adversely
affect the Company's business, financial condition and operating results. 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.
12
<PAGE> 15
CERCLA imposes similar liability on 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, liability under CERCLA can be based on the existence of even very
small amounts of hazardous substances; unlike most of the other laws 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 that the Company owns or operates. If any of the Company's sites or
operations ever experiences environmental problems, the Company could be subject
to substantial liability, which could materially and adversely affect its
business, financial condition and operating results. The Company has not been
named as a PRP in any action brought under CERCLA. See "Business -- Regulation."
Each business that the Company acquires or has acquired may have liabilities
that the Company fails or is unable to discover, including liabilities that
arise from prior owners' failure to comply with environmental laws. As a
successor owner, the Company may be legally responsible for these liabilities.
Even if the Company obtains legally enforceable representations, warranties and
indemnities from the sellers of such businesses, they may not cover fully the
liabilities. Some environmental liabilities, even if the Company does not
expressly assume them, may be imposed on the Company under various legal
theories, 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. A successful uninsured claim against the Company could
materially and adversely affect the Company's business, financial condition and
operating results. 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 January 4, 1999, the
estimated total remaining permitted disposal capacity of the Fairmead Landfill
in Madera County, California operated by the Company was approximately 550,000
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 625,000 tons, with
approximately 1.7 million additional tons of disposal capacity in various stages
of permitting. The Company may not be able to obtain new landfill sites or
expand the permitted capacity of the Fairmead and Red Carpet Landfills when
necessary.
In some areas in which the Company operates, suitable land for new sites or
expansion of existing landfill sites may be unavailable. Operating permits for
landfills in states where the Company operates must generally be renewed at
least every five years. 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. It often
takes several years, requires numerous hearings and compliance with zoning,
environmental and other requirements and is resisted by citizen, public interest
or other
13
<PAGE> 16
groups. The Company may not be able to obtain or maintain the permits it
requires to expand, and such permits may 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. 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 materially and adversely affect
the Company's business, financial condition and operating results. 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 require 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 reduce the volume of waste 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
materially and adversely affect the Company's business, financial condition and
operating results.
Potential Inadequacy of Accruals for Closure and Post-Closure Costs. The Company
may be required to pay closure and post-closure costs of landfills and any
disposal facilities that it owns or operates. The Company accrues for future
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. The Company's obligations to pay closing or post-closing costs may
exceed the amount the Company accrued and reserved and other amounts available
from funds or reserves established to pay such costs. This could materially and
adversely affect the Company's business, financial condition and operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Services -- Landfills."
Charges Related to Capitalized Expenditures. In accordance with generally
accepted accounting principles, the Company capitalizes some expenditures and
advances relating to acquisitions, pending acquisitions and landfill development
projects. As of September 30, 1998, the Company had no capitalized expenditures
relating to landfill development projects and $32,610 in capitalized
expenditures relating to acquisitions and pending acquisitions. The Company
expenses indirect acquisition costs such as executive salaries, general
corporate overhead, public affairs and other corporate services as it incurs
those costs. The Company charges against earnings any unamortized capitalized
expenditures and advances (net of any portion thereof that the Company estimates
it will recover, through sale or otherwise) that relate to any operation that is
permanently shut down, any pending acquisition that is not consummated and any
landfill development project that the Company does not expect to complete.
Therefore, the Company may incur charges against earnings in future periods,
which could materially and adversely affect the Company's business, financial
condition and operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
14
<PAGE> 17
Potential Inability to Obtain Performance or Surety Bonds, Letters of Credit or
Insurance. Municipal solid waste services contracts and landfill closure
obligations may require the Company to obtain performance or surety bonds,
letters of credit, or other means of financial assurance to secure its
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 is not able to obtain performance or
surety bonds or letters of credit in sufficient amounts or at acceptable rates,
it may not be able to enter into additional municipal solid waste services
contracts or obtain or retain landfill operating permits. Any future difficulty
in obtaining insurance could also make it more difficult for the Company to
secure future contracts conditioned on the contractor's having adequate
insurance coverage. The Company's failure to obtain means of financial assurance
or adequate insurance coverage could materially and adversely affect its
business, financial condition and operating results. See "Business -- Risk
Management, Insurance and Performance Bonds."
Commodity Risk On 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, are frequently volatile and may affect the
Company's operating results. See "Business -- Services -- Recycling and Other
Services."
Potential Anti-Takeover Effect of Certain Charter and By-Law Provisions and
Delaware Law. Under the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") and Amended and
Restated By-Laws (the "Restated By-Laws"), the Company's Board of Directors is
divided into three classes of directors who serve staggered three-year terms. As
a result, approximately one-third of the Company's Board is elected each year.
The classified Board is intended to ensure continuity and stability in the
Board's composition and policies if another party attempts a hostile takeover of
the Company or initiates a proxy contest. The classification of the Board
extends the time required to change the control of the Board and may discourage
any hostile takeover bid for the Company. The classified Board may also make it
harder to remove the Company's incumbent management, even if such removal would
generally benefit stockholders. Therefore, it may discourage some tender offers.
The authorized capital of the Company includes 10,000,000 shares of "blank
check" Preferred Stock. No shares of Preferred Stock are currently outstanding.
The Company may issue Preferred Stock and determine its price, rights,
preferences, privileges and restrictions, including voting and dividend rights,
without stockholder approval. The rights of holders of Preferred Stock that the
Company may issue in the future may adversely affect the rights of the holders
of Common Stock. The issuance of Preferred Stock may make it more difficult for
a third party to acquire the Company. The Company has no present plan to issue
Preferred Stock.
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. That section generally prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for
three years after the time that such stockholder became an interested
stockholder. Section 203 also could delay or prevent 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 be paid more than current market prices for their
shares.
15
<PAGE> 18
These provisions may also limit stockholders' ability to approve transactions
that they believe are 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 market price of
the Company's Common Stock could drop if a large number of shares of Common
Stock are sold in the public market, or if market participants believe that such
sales could occur, or if the Company issues a large number of shares in
acquisitions. Such issuances could also make it more difficult for the Company
to fund acquisitions by issuing Common Stock. Shares issued under this
Registration Statement may generally be sold in the public market immediately
after they are issued. See "Shares Eligible for Future Sale."
Fluctuations in Quarterly Results; Potential Stock Price Volatility. The Company
believes that investors should not rely on period-to-period comparisons of its
operating results as an indication of future performance. Many factors,
including general economic conditions, government regulatory action,
acquisitions, capital expenditures and other costs related to expanding
operations and services, pricing changes and adverse weather conditions, may
cause the Company's operating results to fall below the expectations of
securities analysts and investors in future quarters. This would likely cause
the price of the Company's Common Stock to drop. In addition, the stock market
sometimes experiences large price and volume fluctuations generally. Although
these broad market fluctuations may not relate to the operating performance of
companies whose securities are publicly traded, they may cause the market price
of such companies' stock, including the Company's Common Stock, to drop. After
periods of volatility in the market price of a company's securities,
shareholders often bring class action lawsuits against that company. The Company
may be the target of such lawsuits in the future, which could be expensive and
divert management's attention and resources. This could materially and adversely
affect the Company's business, financial condition and operating results. In
addition, any adverse determination in any such lawsuit could subject the
Company to significant liabilities.
No Dividends. The Company does not intend to pay cash dividends on the Common
Stock. In addition, the Company's credit facility prohibits the Company from
paying dividends 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 afterwards. The Company expects to
complete those modifications and upgrades during 1999, at a total cost of
approximately $100,000. The Company has spent part of its Year 2000 budget on
replacing its billing systems in Maltby and Vancouver. Because the Company's
operations rely primarily on mechanical systems such as trucks to collect solid
waste, the Company does not expect its operations to be significantly affected
by Year 2000 issues. The Company's customers may need to make Year 2000
modifications to software and hardware that they use to generate records, bills
and payments relating to the Company. The Company does not rely on vendors on a
routine basis except for providers of disposal services. The Company takes waste
to a site and is normally billed based on tonnage received. The Company believes
that if its disposal vendors encounter Year 2000 problems, they will convert to
manual billing based on scale recordings until they resolve those issues.
In assessing the Company's exposure to Year 2000 issues, management believes its
biggest challenges lie in the following areas: Year 2000 issues at the Company's
banks, large
16
<PAGE> 19
(typically municipal) customers, and acquired businesses between the time the
Company acquires them and the time the Company implements its own systems. The
Company is obtaining Year 2000 compliance certifications from its vendors, banks
and customers. If the Company and its vendors, banks and customers do not
complete the required Year 2000 modifications on time, the Year 2000 issue could
materially affect the Company's operations. The Company believes, however, that
in the most reasonably likely worst case, the effects of Year 2000 issues on its
operations would be brief and small relative to the Company's overall
operations. The Company has not made a contingency plan to minimize operational
problems if the Company and its vendors, banks and customers do not timely
complete all required Year 2000 modifications.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company does
not currently anticipate paying any cash dividends on the Common Stock. The
Company intends to retain all earnings to fund the operation and expansion of
its business. In addition, the Company's credit facility restricts 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 shows the 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 December 31, 1998.
<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- ------- -------
<S> <C> <C>
Second Quarter (from May 22, 1998).......................... $20.75 $13.75
Third Quarter............................................... $23.375 $17.75
Fourth Quarter.............................................. $21.125 $15.875
</TABLE>
On December 31, 1998, the last sale price of the Common Stock as reported by the
Nasdaq National Market was $18.375 per share. See "Description of Capital
Stock."
17
<PAGE> 20
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 as the Company's predecessors. BFI acquired the predecessors during
1995 and 1996. Before 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 is based
on 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, is
based on 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 is based
on financial statements that have not been audited. The Company's selected
financial information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is based on unaudited financial statements included
elsewhere in this Prospectus. The Company's management believes that the
unaudited financial data include all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the financial position and
operating results for the unaudited periods. The Company's operating results for
the nine months ended September 30, 1998 do not necessarily indicate 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Basis of Presentation" and "-- Results of Operations" for
additional information about the Company and its predecessors.
The selected pro forma financial information for the nine months ended September
30, 1998 and for the year ended December 31, 1997, has been adjusted to reflect
the Company's acquisitions of Arrow, B&B, J&J, Contractors, Curry, Shrader,
Amador, Butler, Madera (accounted for as purchases) and the Company's
predecessors and the mergers with the Murrey Companies (accounted for as
poolings-of-interests) as of the dates and for the periods indicated. This
information is based on unaudited pro forma financial statements included
elsewhere in this Prospectus. The pro forma financial information does not
represent what the Company's results actually would have been had those events
occurred on the dates indicated, and it does not project the Company's future
results.
You should read the selected historical and pro forma financial information with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the audited and unaudited Financial Statements and Notes of the
Company and its predecessors, and the Unaudited Pro Forma Financial Statements
and Notes included in this Prospectus.
18
<PAGE> 21
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
THE GROUP
DISPOSAL COMBINED
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>
(See footnotes on page 21)
19
<PAGE> 22
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC.
PREDECESSORS PERIOD FROM
COMBINED INCEPTION PRO FORMA
NINE MONTHS (SEPTEMBER 9, PRO FORMA COMBINED YEAR
ENDED 1997) THROUGH YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997(2) 1997(3)
------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues......................... $ 18,114 $ 6,237 $ 61,347 $ 90,221
Cost of operations............... 14,753 4,703 44,561 67,694
Selling, general and
administrative................. 3,009 619 7,412 9,735
Depreciation and amortization.... 1,083 354 4,339 5,710
Start-up and integration......... -- 493 493 493
Stock compensation............... -- 4,395 4,395 4,395
---------- ---------- ---------- ----------
Income (loss) from operations.... (731) (4,327) 147 2,194
Interest expense................. (456) (1,035) (6,049) (6,429)
Other income (expense), net...... 14 (36) 313 596
---------- ---------- ---------- ----------
Income (loss) before income
taxes.......................... (1,173) (5,398) (5,589) (3,639)
Income tax (provision) benefit... -- 332 402 (232)
---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item............. (1,173) (5,066) (5,187) (3,871)
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $165..... -- -- -- --
---------- ---------- ---------- ----------
Net income (loss)................ $ (1,173) $ (5,066) $ (5,187) $ (3,871)
========== ========== ========== ==========
Redeemable convertible referred
stock accretion................ (531) (531) (531)
---------- ---------- ----------
Net income (loss) applicable to
common stockholders............ $ (5,597) $ (5,718) $ (4,402)
========== ========== ==========
Basic earnings (loss) per common
share:
Income (loss) before
extraordinary item........... $ (2.99) $ (2.12) $ (0.81)
Extraordinary item............. -- -- --
---------- ---------- ----------
Net income (loss) per common
share........................ $ (2.99) $ (2.12) $ (0.81)
========== ========== ==========
Diluted earnings (loss) per
common share:
Income (loss) before
extraordinary item........... $ (2.99) $ (2.12) $ (0.81)
Extraordinary item............. -- -- --
---------- ---------- ----------
Diluted net income (loss) per
common share................. $ (2.99) (2.12) $ (0.81)
========== ========== ==========
Shares used in calculating basic
earnings (loss) per share...... 1,872,567 2,700,306 5,450,306
Shares used in calculating
diluted earnings (loss) per
share.......................... 1,872,567 2,700,306 5,450,306
Pro forma basic net income (loss)
per share(4)................... $ (1.16)
==========
Shares used in calculating pro
forma basic net income (loss)
per share...................... 4,372,565
Pro forma diluted net income per
share(4).......................
Shares used in calculating pro
forma diluted net income per
share..........................
<CAPTION>
WASTE CONNECTIONS, INC.
NINE MONTHS ENDED
SEPTEMBER 30, 1998
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) COMBINED(3)
---------- ------------ -----------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues......................... $ 35,336 $ 51,019 $ 75,551
Cost of operations............... 24,007 34,518 53,855
Selling, general and
administrative................. 3,518 5,545 7,415
Depreciation and amortization.... 2,693 4,038 5,678
Start-up and integration......... -- -- --
Stock compensation............... 561 561 561
---------- ---------- -----------
Income (loss) from operations.... 4,557 6,357 8,042
Interest expense................. (1,427) (3,862) (4,285)
Other income (expense), net...... -- 157 60
---------- ---------- -----------
Income (loss) before income
taxes.......................... 3,130 2,652 3,817
Income tax (provision) benefit... (1,513) (1,245) (1,659)
---------- ---------- -----------
Net income (loss) before
extraordinary item............. 1,617 1,407 2,158
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $165..... (815) (815) (815)
---------- ---------- -----------
Net income (loss)................ $ 802 $ 592 $ 1,343
========== ========== ===========
Redeemable convertible referred
stock accretion................ (917) (917) (917)
---------- ---------- -----------
Net income (loss) applicable to
common stockholders............ $ (115) $ (325) $ 426
========== ========== ===========
Basic earnings (loss) per common
share:
Income (loss) before
extraordinary item........... $ 0.13 $ 0.08 $ 0.14
========== ===========
Extraordinary item............. (0.15)
----------
Net income (loss) per common
share........................ $ (0.02)
==========
Diluted earnings (loss) per
common share:
Income (loss) before
extraordinary item........... $ 0.09 $ 0.06 $ 0.12
========== ===========
Extraordinary item............. (0.11)
----------
Diluted net income (loss) per
common share................. $ (0.02)
==========
Shares used in calculating basic
earnings (loss) per share...... 5,476,532 6,069,350 8,819,350
Shares used in calculating
diluted earnings (loss) per
share.......................... 7,438,658 7,654,186 10,404,186
Pro forma basic net income (loss)
per share(4)................... $ 0.11
==========
Shares used in calculating pro
forma basic net income (loss)
per share...................... 7,117,557
Pro forma diluted net income per
share(4)....................... $ 0.09
==========
Shares used in calculating pro
forma diluted net income per
share.......................... 8,702,393
</TABLE>
(See footnotes on following page)
20
<PAGE> 23
<TABLE>
<CAPTION>
FIBRES THE DISPOSAL FIBRES THE DISPOSAL
INTERNATIONAL, GROUP INTERNATIONAL, GROUP PREDECESSORS
INC. COMBINED INC. COMBINED COMBINED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1994 1995
-------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and equivalents.................... $ 3 $ 196 $ 321 $ 203 $ 184
Working capital (deficit)............... 494 (1,497) 155 (4,279) 90
Property and equipment, net............. 1,454 2,440 3,810 2,771 4,035
Total assets............................ 3,325 7,455 6,317 7,318 9,151
Long-term debt(7)....................... 1,167 1,258 2,353 90 149
Redeemable convertible preferred
stock................................. -- -- -- -- --
Total stockholders' equity (deficit).... 991 (163) 3,045 (1,486) --
<CAPTION>
WASTE CONNECTIONS, INC.
THE DISPOSAL ----------------------------------------------------
GROUP PREDECESSORS SEPTEMBER 30, 1998
COMBINED COMBINED ----------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, PRO FORMA
1995 1996 1997 ACTUAL PRO FORMA(5) COMBINED(6)
------------ ------------ ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and equivalents.................... $ 961 $ 102 $ 820 $ 1,090 $ 1,376 $ 1,781
Working capital (deficit)............... 2,498 695 836 (1,482) (1,073) (10,922)
Property and equipment, net............. 2,221 5,069 4,185 18,438 28,123 42,494
Total assets............................ 6,942 15,291 18,880 114,495 131,140 151,048
Long-term debt(7)....................... 6,890 89 6,762 40,404 55,850 59,897
Redeemable convertible preferred
stock................................. -- -- 7,523 -- -- --
Total stockholders' equity (deficit).... (2,067) -- (551) 59,822 59,822 61,397
</TABLE>
- ---------------
(1) The entities the Company acquired in September 1997 from BFI are
collectively called the Company's predecessors. BFI acquired the
predecessors 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 predecessors.
(2) Assumes the Company's acquisitions of Arrow, B&B, J&J, Contractors, Curry,
Shrader, Amador, Butler, Madera and the Company's predecessors occurred as
of the beginning of the periods presented. See "Unaudited Pro Forma
Financial Statements" included elsewhere herein.
(3) Assumes the Company's acquisitions of Arrow, B&B, J&J, Contractors, Curry,
Shrader, Amador, Butler, Madera and the Company's predecessors occurred as
of the beginning of the periods presented and reflects the mergers with the
Murrey Companies (accounted for as poolings-of-interests). See "Unaudited
Pro Forma Financial Statements" included elsewhere herein.
(4) 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 nine months ended
September 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.
(5) Assumes WCI's acquisition of Amador and Butler occurred on September 30,
1998. See "Unaudited Pro Forma Financial Statements" included elsewhere
herein.
(6) Assumes the Company's acquisitions of Amador and Butler occurred on
September 30, 1998, and reflects the mergers with the Murrey Companies as
poolings-of-interests. See "Unaudited Pro Forma Financial Statements"
included elsewhere herein.
(7) Excludes redeemable convertible preferred stock.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion in conjunction with the audited and unaudited
financial statements and other financial information 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 because of various factors,
including, but not limited to, those listed in "Risk Factors" and the matters
discussed 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.
The Company generally intends to pursue an acquisition-based growth strategy and
has acquired 42 companies since its inception in September 1997. The Company
accounted for all of these acquisitions as purchases. Accordingly, the Company
has included the operating results of these acquired businesses in the Company's
financial statements only from the dates that the Company acquired them. The
Company expects a substantial part of its future growth to come from acquiring
additional solid waste collection, transfer and disposal businesses. Additional
acquisitions could continue to affect period-to-period comparisons of its
operating results. The Company also 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 expects to fund
future acquisitions 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. As of January 4, 1999, the Company had consummated the following
acquisitions:
Initial Acquisitions. 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
southwestern 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 north central 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.
California Acquisitions. Effective February 1, 1998, the Company acquired the
stock of Madera, an integrated solid waste services company operating in north
central California. 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. On September 9, 1998, the Company acquired certain
collection assets from Youngclaus Enterprises, which "tuck in" to its Madera
operations. On September 22, 1998, Curry Transfer and Recycling, a wholly
22
<PAGE> 25
owned subsidiary of the Company, acquired certain business assets of Harrell's
Septic, which provides portable toilet and septic services in northwestern
California and southwestern Oregon (see "Oregon Acquisitions" below). On
December 30, 1998, the Company acquired the stock of Amador Disposal Service,
Inc. and Mother Lode Sani-Hut, Inc., which provide solid waste collection,
recycling and disposal services to approximately 11,000 customers in north
central California.
Idaho Acquisitions. On January 30, 1998, the Company acquired the stock of Waste
Connections of Idaho, Inc., which provides solid waste collection services to
more than 10,000 customers in eastern 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 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 October 15,
1998, the Company acquired the stock of R&N, LLC, which provides solid waste
collection and transportation services to approximately 4,300 customers in
southwestern Idaho.
Kansas Acquisition. On December 21, 1998, the Company acquired the assets of
Heartland Waste Management, Inc., which provides solid waste collection services
to approximately 2,500 customers in southern Kansas. These assets "tuck in" to
the Company's western Oklahoma operations.
Nebraska Acquisitions. On July 31, 1998, a wholly owned subsidiary of the
Company merged into Shrader, which 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. (together, "J&J"), which together serve more than 9,500 customers in
eastern Nebraska. On September 18, 1998, Waste Connections of Nebraska, Inc., a
wholly owned subsidiary of the Company, acquired substantially all the assets of
Affiliated Waste Services, L.L.C., which provides solid waste collection and
transportation services to approximately 4,700 customers in eastern Nebraska. On
the same date, Waste Connections of Nebraska, Inc. acquired substantially all of
the assets of Wolff's Trashmasher and Haul It All Sanitary Service, two sole
proprietorships that provide solid waste collection and transportation services
to approximately 1,400 customers in eastern Nebraska.
Oklahoma Acquisitions. On June 5, 1998, the Company acquired the stock of B&B
Sanitation, Inc., Red Carpet Landfill, Inc. and Darlin Equipment, Inc.
(together, "B&B"), which together provide solid waste and recyclables collection
and transportation, landfill, and equipment leasing services to more than 2,600
customers in western Oklahoma.
Oregon Acquisitions. 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 northwestern Oregon and
southwestern Washington. On June 25, 1998, the Company acquired the stock of
Curry Transfer and Recycling, Inc. ("Curry") and certain real estate located in
Curry County, Oregon and used in that business. Curry provides solid waste and
recyclables collection and transportation services to more than 5,400 customers
in southwestern Oregon. On September 25, 1998, Curry acquired certain business
assets of Westlane Disposal, which provides solid waste collection and
transportation services to approximately 2,200 customers in southwestern Oregon.
On
23
<PAGE> 26
November 5, 1998, the Company acquired the stock of Siuslaw Disposal, Inc.,
which provides solid waste collection services to approximately 1,800 customers
in southwestern Oregon. On November 12, 1998, Curry acquired certain business
assets of Veneta Garbage Service, which provides solid waste collection services
to approximately 1,800 customers in southwestern Oregon. On November 13, 1998,
Curry acquired certain assets of B&G Sanitation, which provides solid waste
collection services to approximately 1,000 customers in southwestern Oregon. On
November 23, 1998, the Company acquired the stock of Columbia Sanitary Services,
Inc. and Moreland Sanitary Service, Inc., which provide solid waste collection
services to an aggregate of approximately 4,800 customers in northwestern Oregon
and southwestern Washington.
Utah Acquisitions. On June 1, 1998, the Company acquired substantially all of
the business assets of Contractor's Waste Removal, L.C. ("Contractor's"), a
provider of solid waste collection and transportation services to more than 450
customers in central Utah. 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 central Utah and
"tuck in" to the Company's Utah operations. On September 21, 1998, Waste
Connections of Utah, Inc., a wholly owned subsidiary of the Company, acquired
certain assets of Country Garbage Services, Inc., which provides solid waste
collection and transportation services in central Utah. On December 30, 1998,
the Company acquired the stock of City Sanitation, Inc., which provides solid
waste collection services to more than 4,200 customers in central Utah.
Wyoming and South Dakota Acquisitions. 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 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 August 3, 1998, the Company acquired
certain assets of a South Dakota waste collection business owned by the
shareholders of J&J, which "tucks in" to the Company's Wyoming and South Dakota
operations. (See "Nebraska Acquisitions" above).
Washington Acquisitions. On September 21, 1998, a wholly owned subsidiary of the
Company merged into Evergreen Waste Systems, Inc. As a result of this merger,
Evergreen Waste Systems, Inc. became a wholly owned subsidiary of the Company
that provides solid waste and recyclables collection and transportation services
to more than 6,500 customers in southwestern Washington and northwestern Oregon.
In addition, on October 22, 1998, the Company and the Murrey Companies entered
into a merger agreement under which the Murrey Companies would become wholly
owned subsidiaries of the Company. The Murrey Companies, with approximately $35
million in annual revenue, provide solid waste services to more than 65,000
customers in the Seattle-Tacoma, Washington area. The merger is subject to
several conditions, including the approval of the Company's stockholders. If
these conditions are satisfied, the Company expects to consummate the merger in
January 1999.
On December 11, 1998, the Company entered into an agreement to purchase the
stock of Butler County Landfill, Inc. and certain assets of Kobus Construction,
Inc., which provide
24
<PAGE> 27
solid waste disposal and transportation services to approximately 300 customers
in eastern Nebraska. The acquisition in contingent on satisfaction of several
conditions. If these conditions are satisfied, the Company expects the
acquisition to be consummated in January 1999.
The Company's management does not believe that consummation of any acquisitions
other than the Butler County/Kobus and Murrey's transactions is probable as of
the date of this prospectus.
GENERAL
The Company's revenues consist mainly of fees it charges customers for solid
waste collection, transfer, disposal and recycling services. A large part of the
Company's collection revenues come from commercial, industrial and residential
services. The Company frequently performs these services under service
agreements or 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. These
exclusive arrangements are awarded, at least initially, on a competitive bid
basis and subsequently on a bid or negotiated basis. The Company also provides
residential collection services on a subscription basis with individual
households. The Company provides a large part of its collection services in
Washington under G certificates awarded by the Washington Utilities and
Transportation Commission. G certificates grant the Company collection rights in
certain areas, which 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 the Company bills most residential customers on a
subscription basis quarterly, subscription agreements also are a stable source
of revenues for the Company. The Company's collection business also generates
revenues from the sale of recyclable commodities.
The Company charges transfer station and landfill customers a tipping fee on a
per ton basis for disposing of their solid waste at the transfer stations and
disposal facility the Company operates in Madera, California and the landfill
the Company owns and operates in Major County, Oklahoma. Most 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 typically determines the prices for its solid waste services 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 terms of
the Company's contracts sometimes limit its ability to pass on price increases.
Long-term solid waste collection contracts typically contain a formula,
generally based on a published price index, that automatically adjusts 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 12 transfer stations, which reduce
the Company's costs by allowing it to use collection personnel and
25
<PAGE> 28
equipment more fully and by consolidating waste to gain the more favorable
disposal rates that may be available for larger quantities of waste.
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
amortization of goodwill and other intangible assets over the estimated period
of benefit using the straight line method.
The Company capitalizes some third party expenditures related to pending
acquisitions or development projects, such as legal and engineering expenses.
The Company expenses indirect acquisition costs, such as executive and corporate
overhead, public relations and other corporate services, as they are incurred.
The Company charges against net income any unamortized capitalized expenditures
and advances (net of any portion that the Company believes it may recover,
through sale or otherwise) that relate to any operation that is permanently shut
down and any pending acquisition or landfill development project that is not
completed. The Company routinely evaluates all capitalized costs, and expenses
those related to projects that the Company believes are not likely to succeed.
As of September 30, 1998, the Company had no capitalized expenditures relating
to landfill development projects and $32,610 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
applicable regulations, the Company and Madera County, as operator and owner,
respectively, are jointly liable for closure and post-closure liabilities with
respect to the Fairmead landfill. The Company has not accrued for such
liabilities because Madera County, as required by state law, has established a
special fund, into which it deposits a portion of tipping fee surcharges, 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. In such case, the Company will
accrue for those obligations, based on engineering estimates of consumption of
permitted landfill airspace over the useful life of any such landfill.
BASIS OF PRESENTATION
The entities the Company acquired in September 1997 from BFI are collectively
called the Company's predecessors. BFI acquired the predecessors at various
times during 1995 and 1996. Before 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. BFI
allocated charges for interest expense to the
26
<PAGE> 29
Company's predecessors as disclosed in the statement of operations data. The
interest expense allocations from BFI are based on formulas that may not
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 indicate 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 which the Company's management believes are
reasonable.
During the periods before they were acquired by BFI, the Company's predecessors
operated as separate stand-alone businesses. BFI accounted for the acquisitions
of the predecessors using the purchase method of accounting and allocated the
respective purchase prices to the fair values of the assets acquired and
liabilities assumed. Similarly, the Company accounted for its acquisitions of
the predecessors from BFI in September 1997 using the purchase method of
accounting and allocated the purchase price 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 resulted from changes
in ownership that occurred during those periods. In addition, because the
predecessors operated independently and were not under common control or
management during these periods, and because different tax strategies may have
influenced their operating results, the data may not be comparable to or
indicative of their operating results after their acquisition by BFI.
RESULTS OF OPERATIONS
The financial information for the Company and its predecessors included in this
section and in the audited financial statements included elsewhere in this
Prospectus 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)
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C>
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 before their acquisition by BFI: Diamond Fab and Welding Service, Inc.,
Buchmann Sanitary Service, Inc., and The Disposal Group.
Because the predecessors existed for different periods, year-to-year comparisons
are not meaningful and therefore the Company has not included discussions of
SG&A, depreciation and amortization and interest expense in this Prospectus.
WASTE CONNECTIONS, INC. -- NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. PREDECESSORS
COMBINED -- NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue. Revenues for the nine months ended September 30, 1998 increased $17.2
million, or 95.1%, to $35.3 million from $18.1 million for the nine months ended
September 30, 1997. The increase was primarily attributable to the inclusion of
the acquisitions closed since the beginning of 1998 ($16.2 million) and growth
in the base business ($964,000).
Cost of Operations. Cost of operations for the nine months ended September 30,
1998 increased $9.3 million, or 62.7%, to $24.0 million in 1998 from $14.8
million for the nine months ended September 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
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 was essentially the same in
1997 and 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
28
<PAGE> 31
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. Cost of operations as a percentage
of revenue increased because of reductions in prices of recyclable materials in
1996, but that was 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
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operate two transfer stations, one Subtitle D landfill and one recycling
facility. Selected historical financial data for Madera follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues.......................................... $7,008 $7,770 $7,845
Operating expenses:
Cost of operations............................. 5,288 5,512 5,289
Selling, general and administrative............ 996 969 1,041
Depreciation and amortization.................. 467 585 627
------ ------ ------
Income from operations......................... 257 704 888
Interest expense............................... (237) (259) (280)
Other income, net.............................. 68 113 173
------ ------ ------
Net income..................................... $ 88 $ 558 $ 781
====== ====== ======
Pro forma income taxes(1)...................... $ (30) $ (208) $ (295)
------ ------ ------
Pro forma net income(1)........................ $ 58 $ 350 $ 486
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $1,064 $1,527
Working capital........................................... 622 942
Property and equipment, net............................... 3,800 3,636
Total assets.............................................. 6,004 6,297
Long-term obligations, net of current portion............. 2,194 1,894
Total shareholders' equity................................ 2,264 2,800
</TABLE>
- ---------------
(1) Before 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. Madera's Subchapter S election was terminated when the Company
acquired it.. 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 in this Prospectus.
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%
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<PAGE> 33
from 70.9% in 1996. The percentage decrease was primarily due to the elimination
of PCD.
SG&A. SG&A expenses increased approximately $72,000 to $1.0 million in 1997 from
$969,000 in 1996. As a percentage of revenues, SG&A increased to 13.3% from
12.5% in 1996.
Depreciation and Amortization. Depreciation and amortization expense increased
approximately $42,000 to $627,000 in 1997 from $585,000 in 1996. Depreciation
and amortization increased as a percentage of revenues to 8.0% from 7.5%.
Interest Expense. Interest expense increased approximately $21,000 to $280,000
in 1997 from approximately $259,000 in 1996. Interest expense as a percentage of
revenues increased to 3.6% in 1997 from 3.3% in 1996.
MADERA 1996 VS. 1995
Revenue. Total revenues increased $762,000, or 10.9%, to $7.8 million in 1996
from $7.0 million in 1995. Exclusive of PCD, revenues increased $508,000, or
7.8%, to $7.0 million in 1996 from $6.5 million in 1995. This increase was
primarily attributable to increased landfill and collection volumes resulting
from existing franchise contracts and landfill construction revenues. This was
partially offset by decreased revenue from sales of recyclable materials due to
a decrease in the pricing associated with recyclable materials.
Cost of Operations. Total cost of operations increased $224,000 to $5.5 million
in 1996 from $5.3 million in 1995. The principal reason for the increase was the
start up of the PCD. Cost of operations as a percentage of revenues decreased to
70.9% from 75.5% in 1996. The decrease was primarily due to the increased volume
of proportionately higher margin services.
SG&A. SG&A expenses decreased approximately $27,000 to $969,000 in 1996 from
$996,000 in 1995. As a percentage of revenues, SG&A decreased to 12.5% from
14.2% in 1996 due to improved economies of scale in the Company's landfill and
collections operations as a result of additional volumes from existing
customers.
Depreciation and Amortization. Depreciation and amortization expense increased
approximately $118,000 to $585,000 in 1996 compared to $467,000 in 1995.
Depreciation and amortization increased as a percentage of revenues to 7.5% in
1996 from 6.7% in 1995.
Interest Expense. Interest expense increased approximately $22,000 to $259,000
in 1996 from approximately $237,000 in 1995. Interest expense as a percentage of
revenues decreased to 3.3% in 1996 from 3.4% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive. The Company's capital requirements
include acquisitions and fixed asset purchases. The Company expects that in the
future it will also make 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 September 30, 1998, the Company had a working capital deficit of $1.5
million, including cash and cash equivalents of $1.0 million. In managing its
working capital, the Company generally applies 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
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<PAGE> 34
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. In May and June 1998, the Company received approximately $23.9
million in net proceeds from the sale of 2,300,000 shares in its initial public
offering (including exercise by the underwriters of that offering of their
overallotment option). As of January 4, 1999, the Company had sold or issued an
additional 2,214,292 shares of Common Stock at a weighted average value of
$10.38 per share, and had outstanding options and warrants to purchase 2,442,699
shares of Common Stock at a weighted average exercise price of $4.94 per share.
The weighted average value at which shares were issued, and the weighted average
exercise price of the outstanding options and warrants, are significantly below
the $12.00 initial public offering price per share of Common Stock. The
Company's liquidity and capital resources would be greater if the Company had
sold shares at higher prices and issued options and warrants with higher
exercise prices. In addition, the Company's earnings per share would be higher
if there were fewer shares outstanding. See "Risk Factors -- Subsequent Share
Issuances; Shares Eligible for Future Sale."
The Company has a $115.0 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 2003 and bears interest at a rate
per annum equal to, at the Company's discretion, either: (i) the BankBoston Base
Rate plus applicable margin; 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
December 31, 1998, an aggregate of approximately $57.3 million was outstanding
under the Company's credit facility, and the interest rate on outstanding
borrowings under the current credit facility was approximately 6.7%. The credit
facility allows the Company to elect to increase its borrowing capacity
thereunder to $125.0 million.
For the nine months ended September 30, 1998, net cash provided by operations
was approximately $4.4 million, of which $3.5 million was provided by operating
results for the period exclusive of non-cash charges, and $839,000 was provided
by a decrease in working capital (net of acquisitions) for the period.
For the nine months ended September 30, 1998, net cash used by investing
activities was $46.1 million. Of this, $44.2 million was used to fund the cash
portion of acquisitions, with the rest invested in management information
systems, trucks and containers.
For the nine months ended September 30, 1998, net cash provided by financing
activities was $42.0 million, which included net borrowings under the Company's
debt arrangements and $23.5 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 the Company believes it will likely be used when existing
temporary differences reverse.
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<PAGE> 35
The Company made approximately $5.6 million in capital expenditures in 1998. The
Company expects to make capital expenditures in 1999 of approximately $5.5
million in connection with its existing business. The Company intends to fund
its planned 1999 capital expenditures principally through existing cash,
internally generated funds, and borrowings under its existing credit facility.
In addition, the Company may make substantial additional capital expenditures in
acquiring solid waste collection and disposal businesses. If the Company
acquires 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
Company cannot currently determine the amount of these expenditures, 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.
Goodwill represents the excess of the purchase price over the fair value of the
net assets of the acquired entity and is amortized on a straight line basis over
the period of expected benefit of 40 years. Within the purchase price of an
acquired company, the Company first assigns value to the tangible assets,
followed by intangible assets, including covenants not to compete and certain
contracts and customer lists that are determinable both in terms of size and
life. Value of the other intangible assets is determined by considering, among
other things, the present value of the cash flows associated with those assets.
The Company continually evaluates the value and future benefits of its
intangible assets. The Company assesses the recoverability from future
operations using income from operations of the related acquired businesses 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 over the remaining amortization period would be less than the
carrying amount of the intangible assets. As of September 30, 1998, there have
been no adjustments to the carrying amounts of intangibles resulting from these
evaluations. As of September 30, 1998, the Company's goodwill represented
approximately 71% of its total assets and 136% of stockholder's equity.
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 10.1% during the nine months ended September 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 nine months ended September 30, 1998 or is material to its
liquidity and cash flow.
INFLATION
To date, inflation has not significant affected the Company's operations.
Consistent with industry practice, many of the Company's contracts allow the
Company to pass through certain costs to the customers, including increases in
landfill tipping fees and, in some
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<PAGE> 36
cases, fuel costs. Therefore, the Company believes that it should be able to
increase prices to offset many cost increases that result 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 expects its operating results 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. See "Risk
Factors -- Seasonality of Business."
YEAR 2000 ISSUES
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 afterwards. The Company expects to complete those
modifications and upgrades during 1999, at a total cost of approximately
$100,000. The Company has spent part of its Year 2000 budget on replacing its
billing systems in Maltby and Vancouver. Because the Company's operations rely
primarily on mechanical systems such as trucks to collect solid waste, the
Company does not expect its operations to be significantly affected by Year 2000
issues. The Company's customers may need to make Year 2000 modifications to
software and hardware that they use to generate records, bills and payments
relating to the Company. The Company does not rely on vendors on a routine basis
except for providers of disposal services. The Company brings waste to a site
and is normally billed based on tonnage received. The Company believes that if
its disposal vendors encounter Year 2000 problems, they will convert to manual
billing based on scale recordings until they resolve those issues.
In assessing the Company's exposure to Year 2000 issues, management believes its
biggest challenges lie in the following areas: Year 2000 issues at the Company's
banks, large (typically municipal) customers, and acquired businesses between
the time the Company acquires them and the time the Company implements its own
systems. The Company is obtaining Year 2000 compliance certifications from its
vendors, banks and customers. If the Company and its vendors, banks and
customers do not complete the required Year 2000 modifications on time, the Year
2000 issue could materially affect the Company's operations. The Company
believes, however, that in the most reasonably likely worst case, the effects of
Year 2000 issues on its operations would be brief and small relative to the
Company's overall operations. The Company has not made a contingency plan to
minimize operational problems if the Company and its vendors, banks and
customers do not timely complete all required Year 2000 modifications.
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<PAGE> 37
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 January 4, 1999, the Company served
more than 230,000 commercial, industrial and residential customers in
California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South Dakota, Utah,
Washington and Wyoming. The Company currently owns and operates 27 collection
operations, seven transfer stations and one Subtitle D landfill and operates an
additional five transfer stations, one Subtitle D landfill and four 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 42 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, 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 been significantly consolidated and integrated
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 caused operating and capital costs to rise 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
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<PAGE> 38
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. Competitive pressures are
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 by
vertically integrating their operations. These integrated companies have made
more acquisitions and expanded the breadth of services and density in their
market areas. Control of the waste stream in these market areas, combined with
access to significant financial resources to make acquisitions, has allowed
larger solid waste collection and disposal companies to be more cost-effective
and competitive.
Despite the considerable consolidation and integration that has occurred in the
solid waste industry since 1990, the industry remains primarily regional in
nature and highly fragmented. Based on published industry sources, approximately
27% of the total revenues of the U.S. solid waste industry is accounted for by
more than 5,000 private, predominantly small, collection and disposal
businesses, approximately 41% by publicly traded solid waste companies and
approximately 32% by municipal governments that provide collection and disposal
services. The Company expects the current consolidation trends in the solid
waste industry to continue, because many independent landfill and collection
operators lack the capital resources, management skills and technical expertise
necessary to comply 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 offers significant
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.
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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 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, Kansas, Nebraska, Oklahoma, Oregon, South Dakota,
Utah, Washington and Wyoming and is
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<PAGE> 40
assessing potential acquisitions of solid waste services operations in Colorado,
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 increase 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 12
transfer stations. By operating transfer stations, the Company also engages in
direct communications with municipalities and private operators that deliver
waste to its transfer stations. This better positions the Company to gain
additional business in its markets if any municipality privatizes its solid
waste operations or rebids existing contracts, and it increases the Company's
opportunities to acquire private collection operations.
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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 the
Company's existing operations employ. 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, to further
improve operating efficiencies and increase the volume of solid waste collected
by the acquired operations.
ACQUISITION PROGRAM
The Company currently operates in California, Idaho, Kansas, 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 help
management evaluate 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
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<PAGE> 42
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 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 must be evaluated and approved by the Company's management.
Ronald J. Mittelstaedt is authorized to approve acquisitions with consideration
of up to $1.0 million; the Executive Committee of the Board of Directors must
approve all other acquisitions. 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.
The following table sets forth the Company's acquisitions completed from its
inception in September 1997 through January 4, 1999:
<TABLE>
<CAPTION>
ACQUIRED BUSINESS MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION MARKET AREA
----------------- -------------- ------------------ -------- -----------
<S> <C> <C> <C> <C>
City Sanitation, Inc. December 1998 Collection Layton, UT Central Utah
Amador Disposal Service, Inc. December 1998 Collection Ione, CA North Central California
and Mother Lode Sani-Hut, Inc.
Heartland Waste Management, December 1998 Collection Arkansas City, KA Southern Kansas
Inc.
Columbia Sanitary Services, November 1998 Collection Portland, OR Northern Oregon and
Inc. and Moreland Sanitary Southwestern Washington
Services, Inc.
B&G Sanitation November 1998 Collection Cottage Grove, OR Southwestern Oregon
Veneta Garbage Service November 1998 Collection Veneta, OR Southwestern Oregon
Siuslaw Disposal, Inc. November 1998 Collection Florence, OR Southwestern Oregon
R&N, LLC October 1998 Collection Mountain Home, ID Southwestern Idaho
Westlane Disposal September 1998 Collection Florence, OR Southwestern Oregon
Harrell's Septic Service September 1998 Septic Services Crescent City, CA Northwestern California
and Southwestern Oregon
Evergreen Waste Systems, Inc. September 1998 Collection Washougal, WA Southwestern Washington
and Northwestern Oregon
Wolff's Trashmasher and Haul It September 1998 Collection Stanton, NE Eastern Nebraska
All Sanitary Service
Country Garbage Services, Inc. September 1998 Collection Salt Lake City, UT Central Utah
Youngclaus Enterprises September 1998 Collection Madera, CA North Central California
Affiliated Waste LLC September 1998 Collection Norfolk, NE Eastern Nebraska
J&J Sanitation, Inc. August 1998 Collection O'Neill, NE Eastern Nebraska
Contractors Waste, Inc. August 1998 Collection Salt Lake City, UT Central Utah
Big Red Roll Off, Inc. August 1998 Collection O'Neill, NE Eastern Nebraska
ABC Waste, Inc. August 1998 Collection Salt Lake City, UT Central Utah
Miller Containers, Inc. July 1998 Collection Salt Lake City, UT Central Utah
Shrader Refuse and Recycling July 1998 Collection Papillion, NE Eastern Nebraska
Service Company
Red Carpet Landfill, Inc. June 1998 Landfill Enid, OK Western Oklahoma
B&B Sanitation, Inc. June 1998 Collection Enid, OK Western Oklahoma
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
ACQUIRED BUSINESS MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION MARKET AREA
----------------- -------------- ------------------ -------- -----------
<S> <C> <C> <C> <C>
Darlin Equipment, Inc. June 1998 Equipment leasing Enid, OK Western Oklahoma
Oregon Waste Technology June 1998 Collection Brookings, OR Southwestern Oregon
Curry Transfer and Recycling June 1998 Collection Brookings, OR Southwestern Oregon
Contractors' Waste Removal, L.C June 1998 Collection Orem, UT Central Utah
Arrow Sanitary Services, Inc. June 1998 Collection Portland, OR Northwestern Oregon and
Southwestern Washington
T&T Disposal, Inc. May 1998 Collection Gillette, WY Northeastern Wyoming
Sunshine Sanitation May 1998 Collection Spearfish, SD Western South Dakota
Incorporated
Sower's Sanitation, Inc. May 1998 Collection Belle Fourche, SD Western South Dakota
Jesse's Disposal April 1998 Collection Gillette, WY Northeastern Wyoming
A-1 Disposal, Inc. April 1998 Collection Gillette, WY Northeastern Wyoming
Hunter Enterprises, Inc. March 1998 Collection Shelley, ID Eastern Idaho
Madera Disposal Services Inc. February 1998 Collection and Madera, CA North Central California
Landfill
Waste Connections of Idaho, January 1998 Collection Idaho Falls, ID Eastern Idaho
Inc.
Fibres International, Inc. September 1997 Collection Issaquah, WA North Central Washington
and Central Oregon
Browning-Ferris Industries of September 1997 Collection Clark County, WA Southwestern Washington
Washington, Inc.
</TABLE>
SERVICES
COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES
The Company serves more than 230,000 commercial, industrial and residential
customers. Of these, the Company serves more than 49,000 under G certificates
that grant the Company rights, which are generally perpetual and exclusive, to
provide services within specified areas, more than 26,500 under exclusive
franchise agreements with remaining terms ranging from seven to 18 years, and
more than 98,700 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 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, the Company installs stationary compactors that compact waste prior to
collection on the premises of a substantial number of large volume customers.
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<PAGE> 44
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
three transfer stations in California, two transfer stations in Nebraska, one
transfer station in Washington and six transfer stations in Oregon, which
receive, compact, and transfer solid waste to be transported by larger vehicles
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. As of January 4, 1999, 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 550,000 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 January 4, 1999, 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 625,000 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
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<PAGE> 45
requirements, to seek to expand or change the permitted waste streams or to seek
other permit modifications.
The Company seeks to identify solid waste landfill acquisition candidates to
achieve vertical integration in markets where the economic and regulatory
environment makes such acquisitions attractive. The Company believes that in
some markets, acquiring landfills would provide opportunities to vertically
integrate its collection, transfer and disposal operations while improving
operating margins. The Company evaluates landfill candidates by determining,
among other things, the amount of waste that could be diverted to the landfill
in question, whether access to the landfill is economically feasible from the
Company's existing market areas either directly or through transfer stations,
the expected life of the landfill, the potential for expanding the landfill, and
current disposal costs compared to the cost of acquiring the landfill. Where the
acquisition of a landfill is not attractive, the Company pursues long term
disposal contracts with facilities located in proximity to its markets.
RECYCLING AND OTHER SERVICES
The Company offers municipal, commercial, industrial and residential customers
recycling services for a variety of recyclable materials, including cardboard,
office paper, plastic containers, glass bottles and ferrous and aluminum metals.
The Company operates four recycling processing facilities 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. This 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
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<PAGE> 46
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 27 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 help
identify acquisition candidates. Once the Company begins an acquisition,
business development managers, under the supervision of district and executive
managers, obtain the permits and other governmental approvals required for the
Company to operate the acquired business, including those related to zoning,
environmental and land use.
The Company's financial management, accounting, management information systems,
environmental compliance, risk management and certain personnel functions are
centralized and shared among locations to improve productivity, lower operating
costs and stimulate internal growth. The Company has installed a Company-wide
management information system that assists district personnel in making
decisions based on centralized, real-time financial, productivity, maintenance
and customer information. While district management operates with a high degree
of autonomy, the Company's senior officers monitor district operations and
require adherence to the Company's accounting, purchasing, marketing and
internal control policies, particularly with respect to financial matters. The
Company's executive officers regularly review the performance of district
managers and operations.
G CERTIFICATES
The Company performs a substantial portion of its collection business in
Washington 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.
The WUTC and the Washington Legislature have generally construed G certificates
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
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<PAGE> 47
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 used 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 has grown to date primarily 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.
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.,
Browning-Ferris Industries, Inc., Republic Services Inc., and Waste Management,
Inc. (which has announced an impending merger with Eastern Environmental
Services, Inc.) Several other public companies have annual revenues in excess of
$100 million, including 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
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<PAGE> 48
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 Company provides the balance of its
services 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's landfill operations and non-landfill operations, including waste
transportation, transfer stations, vehicle maintenance shops and fueling
facilities, are all 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. The WUTC regulates the
portion of the Company's collection business in Washington performed under G
certificates, 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. The Company 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.
The principal federal, state and local statutes and regulations that apply to
the Company's operations are described below. All of the federal statutes
described below contain provisions that authorize, under certain circumstances,
lawsuits by private citizens to enforce the provisions of the statutes. In
addition to a penalty award by the United States, some of those statutes
authorize an award of attorneys' fees to parties that successfully bring such an
action. Enforcement actions under these statutes may include both civil and
criminal penalties, as well as injunctive relief in some instances.
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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 modeled 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 January 4, 1999, the
Company did not, to its knowledge, transport hazardous wastes under
circumstances that would subject the Company to hazardous waste regulations
under RCRA. Some of the Company's ancillary operations (e.g., vehicle
maintenance operations) may generate hazardous wastes. The Company manages these
wastes in substantial compliance with applicable laws.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA on landfill owners and operators in that state.
Each state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills in the state comply with the
Subtitle D Regulations. Various states in which the Company operates or in which
it may operate in the future have adopted regulations or programs as stringent
as, or more stringent than, the Subtitle D Regulations.
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RCRA also regulates underground storage of petroleum and other regulated
materials. RCRA requires registration, compliance with technical standards for
tanks, release detection and reporting, and corrective action, among other
things. Certain of the Company's facilities and operations are subject to these
requirements.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972, AS AMENDED
(THE "CLEAN WATER ACT")
The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from the Company's transfer stations or run-off
or collected leachate from the Company's owned or operated landfills is
discharged into streams, rivers or other surface waters, the Clean Water Act
would require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the EPA's storm water regulations issued in November 1990, which are
designed to prevent contaminated landfill storm water runoff from flowing into
surface waters. The Company believes that its facilities comply in all material
respects with the Clean Water Act requirements. Various states in which the
Company operates or in which it may operate in the future have been delegated
authority to implement the Clean Water Act permitting requirements, and some of
these states have adopted regulations that are more stringent than the federal
requirements. For example, states often require permits for discharges to ground
water as well as surface water.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND
LIABILITY ACT OF 1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide for the
investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities. CERCLA also imposes liability for
the cost of evaluating and remedying any damage to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend on the existence or disposal of "hazardous waste" as
defined by RCRA; it can also be based on the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party for a CERCLA cleanup,
the enforcing agency could hold the Company, or any other generator, transporter
or the owner or operator of the contaminated facility, responsible for all
investigative and remedial costs, even if others were also liable. CERCLA also
authorizes the imposition of a lien in favor of the United States on all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA gives a responsible party the right to bring a
contribution action against other responsible parties for their allocable shares
of investigative and remedial costs. The Company's ability
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<PAGE> 51
to obtain reimbursement from others for their allocable shares of such costs
would be limited by its ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties. Various state laws also impose liability for investigation, cleanup and
other damages associated with hazardous substance releases.
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 factors such as the date of the landfill construction and volume per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet 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 potential air emissions. State air regulatory programs may
implement the federal requirements but may impose additional restrictions. For
example, some state air programs uniquely regulate odor and the emission of
toxic air pollutants.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 (THE "OSH ACT")
The OSH Act is administered by the Occupational Safety and Health Administration
("OSHA"), and in many states by state agencies whose programs have been approved
by OSHA. The OSH Act establishes employer responsibilities for worker health and
safety, including the obligation to maintain a workplace free of recognized
hazards likely to cause death or serious injury, to comply with adopted worker
protection standards, to maintain certain records, to provide workers with
required disclosures and to implement certain health and safety training
programs. Various OSHA standards may apply to the Company's operations,
including standards concerning notices of hazards, safety in excavation and
demolition work, the handling of asbestos and asbestos-containing materials, and
worker training and emergency response programs.
FLOW CONTROL/INTERSTATE WASTE RESTRICTIONS
Certain permits and approvals, as well as certain state and local regulations,
may limit a landfill or transfer station to accepting waste that originates from
specified geographic areas, restrict the importation of out-of-state waste or
wastes originating outside the local jurisdiction or otherwise discriminate
against non-local 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
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 could 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, its business, financial
condition and operating results could be adversely affected.
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Certain state and local jurisdictions may also seek to enforce flow control
restrictions through local legislation or contractually. In certain cases, the
Company may elect not to challenge such restrictions. These restrictions could
reduce the volume of waste going to landfills 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, its business, financial condition and
operating results 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. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. 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 the
Company's operations. These include zoning and health measures that limit solid
waste management activities to specified sites or activities, flow control
provisions that direct or restrict 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
prevent the Company from operating its facilities at their full capacity.
Some state and local authorities enforce certain federal laws in addition to
state and local laws and regulations. For example, in some states, RCRA, the OSH
Act, parts of the Clean Air Act and parts of the Clean Water Act are enforced by
local or state authorities instead of by the EPA, and in some states those laws
are enforced jointly by state or local and federal authorities.
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<PAGE> 53
PUBLIC UTILITY REGULATION
In many states, public authorities regulate the rates that landfill operators
may charge. The rates that the Company may charge at the 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 adversely
affect the Company's business, financial condition and operating results.
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 it cannot
predict whether future acquisitions will cause such costs to increase. 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 its management considers
adequate to protect the Company's assets and operations. The coverage includes
general liability, comprehensive property damage, workers' 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 January 4, 1999, the Company had provided customers
and various regulatory authorities with surety bonds and letters of credit in
the aggregate amount of approximately $1.9 million to secure its obligations.
The Company's credit facility provides for the issuance of letters of credit in
an amount up to $15 million, but any letters of credit issued reduce the
availability of borrowings for acquisitions and other general corporate
purposes. If the Company were
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<PAGE> 54
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 January 4, 1999, the Company owned and operated 27 collection operations,
seven transfer stations and one Subtitle D landfill and operated an additional
five transfer stations, one Subtitle D landfill and four 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 additional
investments in property and equipment for expansion and replacement of assets
and in connection with future acquisitions.
EMPLOYEES
At January 4, 1999, the Company employed approximately 627 full-time employees,
including approximately 41 persons classified as professionals or managers,
approximately 525 employees involved in collection, transfer, disposal and
recycling operations, and approximately 61 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.
Approximately 65 drivers at Murrey's Disposal Company and American Disposal
Company are represented by the Teamsters Union, with which those companies
entered into a three-year collective bargaining agreement in June 1996. 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 employees at Issaquah have filed to decertify the union, and the
union has filed a claim with the National Labor Relations Board to attempt to
block the decertification. 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
The Company is a party to various legal proceedings in the ordinary course of
business and as a result of the extensive governmental regulation of the solid
waste industry. Management does not believe that these proceedings, either
individually or in the aggregate, are likely to have a material adverse effect
on the Company's business, financial condition, operating results or cash flows.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of January 4, 1999:
<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)......... 51 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................ 32 Treasurer and Assistant Corporate
Controller
David M. Hall................ 41 Vice President -- Business Development
Michael W. Harlan(1)(2)(3)... 37 Director
William J.
Razzouk(1)(2)(3)........... 51 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
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<PAGE> 56
Polytechnic Institute and an M.B.A. in Finance from the Wharton School. He has
been a Chartered Financial Analyst since 1990.
Eugene V. Dupreau has been Vice President -- Madera and a director of the
Company since February 23, 1998. Mr. Dupreau served as President and a director
of Madera Disposal Systems, Inc. beginning in 1981 and 1985, respectively, and
held both positions until the Company acquired Madera in 1998. Mr. Dupreau holds
a B.S. in Business Administration from Fresno State University and has completed
advanced coursework in waste management. He serves as a director of several
civic and charitable organizations in Madera County.
Charles B. Youngclaus has been Vice President -- Madera and an advisory director
of the Company since February 23, 1998. Mr. Youngclaus founded Madera Disposal
Systems, Inc. in 1981 and was its Chief 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.). In that position, he oversaw all
operations and business development in six Rocky Mountain states. Prior to
Sanifill, Mr. Hall held various management positions with
54
<PAGE> 57
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 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.
The Company has agreed to appoint a representative of the shareholders of the
Murrey Companies to Company's Board of Directors. The Murrey Companies' nominee
would be appointed after completion of the acquisition of the Murrey Companies
to a class of directors whose term of office ends at the annual meeting of
stockholders for the fiscal year
55
<PAGE> 58
ending December 31, 2000. The Murrey Companies' shareholders have not yet
decided who they intend to nominate as their representative on the Board of
Directors.
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. 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, stockholders will elect successors to the directors of the
class whose term expires at such meeting, 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 who are officers or employees of the Company do not currently receive
any compensation for attending meetings of the Board of Directors. Each
independent director receives a fee of $1,500 for attending 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.
Beginning in 1999, the Company will grant each independent director, on February
1 of each year during which such person serves on the Board, an option to
purchase 7,500 shares of the Company's Common Stock. All such options will have
an exercise price equal to the fair market value of the Common Stock on the
grant date, will vest in full on the grant date, and will expire upon the
earlier to occur of ten years after the grant date or one year after the
director ceases to be a member of the Board.
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<PAGE> 59
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The Company was incorporated in September 1997. The following table contains
information about the annual and long-term compensation earned in 1997 and 1998
by the Chief Executive Officer and the other Executive Officers who were paid or
earned more than $100,000. The persons named in the table are sometimes referred
to herein as the "named executive officers." No officer other than Mr.
Mittelstaedt was paid or earned more than $100,000 in 1997. 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
TERM SALARY(1) BONUS(1) OTHER STOCK GRANTED(2) COMPENSATION(3)
---- --------- -------- ------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald J.
Mittelstaedt....... 1997 $ 39,903 $ 25,000 -- -- 200,000 $10,000
Ronald J.
Mittelstaedt....... 1998 176,577 100,000 $10,254 -- -- --
Steven F. Bouck...... 1998 92,887 150,000 -- -- 250,000 --
Darrell W.
Chambliss.......... 1998 89,972 76,822 -- -- -- --
Michael R. Foos...... 1998 89,809 66,933 -- -- -- --
Eric J. Moser........ 1998 74,115 31,563 -- -- -- --
</TABLE>
- -------------------------
(1) Mr. Mittelstaedt's salary and bonus figures for 1997 reflect employment from
October 1, 1997 through December 31, 1997. His bonus figure for 1997
reflects portion earned during 1997; such bonus was paid 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 during 1998 to the named executive officers of options and warrants to
purchase shares of the Company's Common Stock. No options or warrants were
granted to Messrs. Mittelstaedt, Chambliss, Foos or Moser in 1998.
1998 OPTION 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(3)
NAME OF WARRANT EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
BENEFICIAL OWNER GRANTED(1) 1998 PER SHARE(2) DATE 5% 10%
---------------- ---------- ------------ -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven F. Bouck...... 150,000 29.4 $ 2.80 Jan. 31, 2008 $3,873,956 $6,134,140
- -- 50,000 9.8 $ 9.50 Jan. 31, 2008 $ 956,319 $1,709,713
- -- 50,000 9.8 $12.50 Jan. 31, 2008 $ 806,319 $1,559,713
</TABLE>
- -------------------------
(1) All options vested 33% on October 1, 1998 and will vest an additional 33% on
October 1, 1999 and 34% on October 1, 2000.
(2) The options and warrant were granted at or above fair market value as
determined by the Board of Directors on the date of grant.
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<PAGE> 60
(3) Amounts reported in these columns represent amounts that the named executive
officer could realize on exercise of options and warrant immediately before
they expire, assuming that the Company's Common Stock appreciates at 5% or
10% annually. These amounts do not take into account taxes and expenses that
may be payable on such exercise. The amount actually realized will depend on
the price of the Common Stock when the options or warrants are exercised,
which may be before the term expires. The Commission requires the table to
reflect 5% and 10% annualized rates of stock price appreciation; the Company
does not project those rates. The Common Stock may not appreciate at those
rates.
Option and Warrant Values. The following table shows the value of the named
executive officers' exercises of options during 1998 and the value of their
unexercised options and warrants outstanding as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END 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
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED VALUE ---------------------------- ----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J.
Mittelstaedt......... -- -- 133,000 67,000 $2,071,475 $1,043,525
Steven F. Bouck........ 92,919 $502,311 23,749 133,332 160,711 1,529,985
Darrell W. Chambliss... -- -- 50,000 100,000 650,422 1,300,828
Michael R. Foos........ -- -- 50,000 100,000 650,422 1,300,828
Eric J. Moser.......... -- -- 36,666 48,334 351,466 702,909
</TABLE>
- -------------------------
(1) Based on the Common Stock's closing price of $18.375 on the Nasdaq National
Market on December 31, 1998.
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 was adjusted to
$200,000 on October 1, 1998.
The agreement has an initial five-year term, and then 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 terminate the agreement with or
without cause at any time. 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. A change of control of the Company (as defined in the agreement) is
generally treated as a termination of Mr. Mittelstaedt without cause.
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<PAGE> 61
Under 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 has 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. When 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.
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 January 4, 1999, the Company had outstanding options to purchase 978,764
shares of Common Stock at a weighted average exercise price of $7.30 per share.
The Compensation Committee of the Board of Directors currently administers the
Stock Option Plan. The administrator of the Stock Option Plan determines 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 may 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 must be at least 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 after retirement or disability, the Optionee may
exercise his or her options, but generally only within the period ending on the
earlier of: (i) six months after retirement or disability; or (ii) the
expiration of the option set forth in the option
59
<PAGE> 62
agreement. If the Optionee does not exercise his or her options within that time
period, the options terminate, and the shares of Common Stock subject to the
options 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 generally
terminate on the date such relationship terminates, and the shares of Common
Stock subject to the options become available for issuance under the Stock
Option Plan. Each option agreement may give the Company the right to repurchase
shares acquired by an Optionee under the Stock Option Plan upon termination of
the Optionee.
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<PAGE> 63
CERTAIN TRANSACTIONS
INITIAL FUNDING
In September and October 1997, the Company sold 2,300,000 shares of Common Stock
at $0.01 per share and 2,499,998 shares of Series A Preferred Stock at $2.80 per
share to 19 accredited investors, including certain officers and directors of
the Company, in a private placement. The sales were made in accordance with
Regulation D 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.
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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,
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 he 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 purchase price was $3,000, which was the
aggregate price that Messrs. Mittelstaedt, Bishop and Cutler had paid initially
for the 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.
Pursuant to the agreement under which the Company acquired Madera, the Company
paid contingent consideration to certain former Madera shareholders, including
Messrs. Dupreau and Youngclaus, with respect to their participation in certain
business transactions that the Company entered into after acquiring Madera.
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PURCHASE OF YOUNGCLAUS ENTERPRISES.
On September 9, 1998, the Company purchased the business assets of Youngclaus
Enterprises, a proprietorship, from Charles B. Youngclaus. The aggregate
purchase price was $139,000, which was paid through the issuance of Common
Stock.
TRANSACTIONS WITH FIBRES INTERNATIONAL.
The Company has entered into certain transactions with Continental Paper, LLC,
an Oregon limited liability company doing business as Fibres International
("Fibres"). J. Bradford Bishop and James N. Cutler, Jr. own 60% of the
membership interests in Fibres, were directors of the Company when some of these
transactions occurred and may be deemed promoters of the Company. In markets
where Fibres has processing facilities (which include three of the Company's
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 Company received approximately $222,701 in gross revenues from
Fibres from the Company's inception through December 31, 1997. After deducting
the fees the Company paid to Fibres for the right to collect the recyclables,
the Company retained approximately $10,860. The Company made net payments of
$87,506 to Fibres for the nine-month period ending September 30, 1998.
MERGERS WITH THE MURREY COMPANIES.
The Company has entered into an agreement to merge with the Murrey Companies.
The merger is expected to be consummated in January 1999. Donald J. Hawkins is
the President, Chief Executive Officer and a 5% shareholder of the Murrey
Companies, and Irmgard R. Wilcox is the Chief Financial Officer, Treasurer,
Secretary and a 5% shareholder of the Murrey Companies. Mr. Hawkins and Ms.
Wilcox will receive shares of the Company's Common Stock in exchange for their
shares of the Murrey Companies. The Company will engage Mr. Hawkins as Vice
President -- Operations -- Northern Washington division and Ms. Wilcox as Vice
President -- Controller -- Northern Washington division, and each of Mr. Hawkins
and Ms. Wilcox will receive a $2,000,000 signing bonus pursuant to their
employment agreements with the Company. The Company has agreed to appoint a
representative of the shareholders of the Murrey Companies, which may be Mr.
Hawkins or Ms. Wilcox, to the Company's Board of Directors, upon the
consummation of the merger with the Murrey Companies.
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PRINCIPAL STOCKHOLDERS
The following table shows the amount of the Company's Common Stock beneficially
owned, as of January 4, 1999, by: (i) each person or entity that the Company
knows owns 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 10.2%
J. Bradford Bishop(2)(3)................................ 916,607 9.6
Ronald J. Mittelstaedt(2)(4)............................ 1,058,376 11.2
Frank W. Cutler(2)(3)................................... 672,246 7.0
Eugene V. Dupreau(2)(5)................................. 402,000 4.3
Kieckhefer Partnership 84-1(2).......................... 562,104 6.0
Michael W. Harlan(2)(6)................................. 20,000 0.2
William J. Razzouk(2)(7)................................ 15,000 0.2
Eugene P. Polk(2)(8).................................... 749,470 8.1
All executive officers and directors as a group (10
persons).............................................. 2,225,092 22.7
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In general, a person who has voting power and/or investment
power with respect to securities is treated as the beneficial owner of those
securities. Shares of Common Stock subject to options and/or warrants
currently exercisable or exercisable within 60 days of the date of this
Prospectus count as outstanding for computing the percentage beneficially
owned by the person holding such options. Except as otherwise indicated by
footnote, the Company believes that the persons named in this table 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
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 5915 River Oaks
Road, Memphis, Tennessee 38120.
(3) Includes 247,000 shares purchasable under currently exercisable warrants.
(4) Includes 100,000 shares purchasable under currently exercisable warrants and
33,333 shares purchasable under currently exercisable options. 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
and 5,000 shares purchasable under immediately exercisable options.
(6) Includes 5,000 shares purchasable under immediately exercisable warrants and
15,000 shares purchasable under immediately exercisable options
(7) Includes 15,000 shares purchasable under immediately exercisable options.
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(8) Includes 297,704 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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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 January 4, 1999,
there were 9,314,290 shares of Common Stock outstanding and no shares of
Preferred Stock outstanding.
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 any preferences to
which holders of Preferred Stock are entitled, the holders of outstanding shares
of Common Stock are entitled to receive ratably any dividends that the Board of
Directors declares. If the Company liquidates, dissolves or winds up, the
holders of shares of Common Stock are entitled to receive pro rata all assets of
the Company that are available for distribution to stockholders. The holders of
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. The Board determines the rights, privileges and limitations of
Preferred Stock, including dividend rights, voting rights, conversion
privileges, redemption rights, liquidation rights and/or sinking fund rights.
Preferred Stock may be issued in the future in connection with acquisitions,
financings or such other matters as the Board of Directors believes appropriate.
There are no shares of Preferred Stock outstanding, and the Company has no
current plans to issue Preferred Stock.
One effect of having Preferred Stock authorized is that the Company's Board of
Directors alone may be able to authorize the issuance of Preferred Stock in ways
that render more difficult or discourage an attempt to obtain control of the
Company by a tender offer, proxy contest, merger or otherwise, and thereby
protect the continuity of the Company's management. The issuance of shares of
Preferred Stock may adversely affect the voting and other rights of holders of
Common Stock. For example, Preferred Stock may rank prior to the Common Stock as
to dividend rights, liquidation preferences or both, may have full or limited
voting rights and may be convertible into Common Stock. Accordingly, the
issuance of Preferred Stock may discourage bids for the Common Stock or
otherwise adversely affect the market price of the Common Stock.
CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS
Classified Board of Directors. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that the Board will be
divided into three classes serving staggered terms, and that the number of
directors in each class will be as nearly equal as is possible based on the
number of directors constituting the entire
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Board. 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.
The classification of directors makes 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 change the majority
of the Board. This 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 and available alternatives and to act in
what they believe to be the best interests of the stockholders. However, such
classification could also discourage 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 benefit the Company and its
stockholders. The classification of the Board could thus make it more likely
that incumbent directors will retain their positions.
Number of Directors; Removal; Filling Vacancies. The Restated Certificate
provides that the number of directors will be fixed from time to time by a
majority of the directors then in office. In no event may there be less than
three or more than nine directors, unless approved by at least two-thirds of the
directors then in office. In addition, the Restated Certificate provides that
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), if 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.
The Restated Certificate allows directors to 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 discourage a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
gain control of the Company, or attempting to change the composition or policies
of the Board, even though such attempts might benefit 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 Amended and Restated By-laws (the "Restated
By-laws") provide that: (i) only a majority of the Board of Directors or the
President or Chairman of the Board may call a special meeting of stockholders;
(ii) only matters stated in the notice of meeting or properly brought before the
meeting by or at the direction of the Board of Directors may be transacted at
the meeting; and (iii) 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 of stockholder proposals over the opposition of the Board,
except at an annual meeting.
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Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Restated By-laws establish an advance notice procedure for
stockholders to make nominations of candidates for election as director, or to
bring other business before an annual meeting of stockholders of the Company
(the "Stockholder Notice Procedure"). In general, 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, may be elected as directors. At an annual meeting, only business that
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, may be conducted. 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 before 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 the day such notice was mailed or the day such
public disclosure was made).
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure gives the Board an opportunity to consider the qualifications
of the proposed nominees and inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure provides a more orderly procedure for conducting annual meetings of
stockholders. It also gives the Board an opportunity to inform stockholders in
advance of any business proposed to be conducted at such meetings, together with
the Board's recommendations 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 Stockholder Notice Procedure may preclude a contest for the
election of directors or the consideration of stockholder proposals. It may also
discourage or deter a third party from soliciting proxies to elect its own slate
of directors or to approve its own proposal, even though consideration of such
nominees or proposals might benefit 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 determines to be reasonably necessary or desirable to encourage any
person or entity to enter into negotiations with the Board and management about
transactions that may result in a change of control of the Company. The Board
and its committees may also contest or oppose any such transaction that the
Board determines to be unfair, abusive or otherwise undesirable to the Company,
its business, assets, properties or stockholders. The Board or any Board
committee may adopt plans or to issue securities of the Company, and to
determine the terms and conditions on which such securities may be exchangeable
or convertible into cash or other securities. In addition, the Board or Board
committee may treat any holder or class of holders of such designated securities
differently than all other security holders in respect of the terms, conditions,
provisions and rights of such securities.
This authority is intended to give the Board flexibility to act in the best
interests of stockholders in the event of a potential change of control. Such
provisions may, however,
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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 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 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. Section 203
generally prevents a person who, together with affiliates and associates, owns,
or within the past three years did own, 15% or more of the outstanding voting
stock of a corporation (an "Interested Stockholder") from engaging in certain
business combinations with the corporations for three years after the date such
person became an Interested Stockholder, subject to certain exceptions. Business
combinations covered by section 203 include a wide variety of transactions with
or caused by an Interested Stockholder, including mergers, asset sales and other
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A., c/o Boston EquiServe, L.P., serves as transfer agent and
registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 4, 1999, the Company had 9,314,290 shares of Common Stock
outstanding. Of those shares, the 2,300,000 sold in the Company's initial public
offering and an additional 5,329,053 shares are freely saleable in the public
market, unless acquired by affiliates of the Company. An additional 1,000,000 of
the currently outstanding shares will become eligible for resale in the public
market in February 1999, an additional 635,237 of the currently outstanding
shares will become eligible for resale in the public market later
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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 promulgated under the
Securities Act. Shares of Common Stock held by affiliates of the Company are
subject to certain volume and other limitations discussed below under Rule 144.
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 may sell in any
three-month period a number of shares equal to the greater of 1% of the
outstanding shares of the Common Stock (93,142 shares as of January 4, 1999) 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 may sell such shares under Rule 144 without regard
to the limitations discussed above.
The Common Stock has been publicly traded only since May 22, 1998, and it is
possible that no 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 cause the market price of the Common Stock to
decline and impair the Company's ability to raise capital or fund acquisitions
by issuing Common Stock.
In July 1998, the Company filed a registration statement on Form S-4 under the
Securities Act to register up to 3,000,000 shares issuable from time to time in
connection with the Company's acquisitions of solid waste services businesses.
In October 1998, the Company filed an additional registration statement on Form
S-4 under the Securities Act to increase by 20% the number of shares covered by
the previous registration statement. Also in October 1998, the Company filed a
third registration statement on Form S-4 to register up to 3,000,000 shares
issuable from time to time in connection with acquisitions of solid waste
services businesses. As of January 4, 1999, the Company had issued 521,143
shares under the original registration statement on Form S-4, and an additional
6,123,022 shares were issuable under the three Form S-4 registration statements.
In September 1998, the Company filed 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 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.
OUTSTANDING SECURITIES COVERED BY THIS PROSPECTUS
Persons who receive shares of Common Stock covered by the Registration Statement
in acquisitions of businesses by the Company, or their transferees ("Selling
Stockholders"), may use this Prospectus and Post-Effective Amendments and
Prospectus Supplements to sell such shares.
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
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underwriting discounts and commissions under the Securities Act. The Company
will pay printing, certain legal, filing and other similar expenses of this
offering. Selling Stockholders will bear all other expenses of this offering,
including any brokerage fees, underwriting discounts or commissions.
If a Selling Stockholder notifies the Company of an arrangement with a
broker-dealer to sell shares through a block trade, special offering, exchange
distribution or secondary distribution, the Company will file a Prospectus
Supplement pursuant to Rule 424 under the Securities Act. The Prospectus
Supplement will set 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 through this Prospectus
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 or at negotiated prices. Selling Stockholders may
sell the shares in transactions involving broker-dealers, who may act as agents
and/or acquire shares as principals. Broker-dealers who participate 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
they are unable to do so acting as agents for the Selling Stockholders, to
purchase as principals any unsold shares at the price required to fulfill their
commitments to the Selling Stockholders.
The Selling Stockholders may also sell shares by or through other broker-dealers
in special offerings, exchange distributions or secondary distributions pursuant
to the rules of the Nasdaq National Market or on a securities exchange on which
the Company's Common Stock may then be listed. They may pay commissions in
excess of the customary commission prescribed by the rules of such securities
exchange to participating broker-dealers. In 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 may subsequently resell such shares in transactions
(which may involve crosses and block transactions and which may involve sales to
and through other broker-dealers) 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 or at negotiated prices.
In connection with such resales, the broker-dealers 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.
71
<PAGE> 74
The statements pertaining to the Company's G certificates awarded by the WUTC
under "Risk Factors -- Highly Competitive Industry," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General,"
"Business -- Industry Overview," and "Business -- G Certificates" will be passed
upon for the Company by Williams, Kastner & Gibbs PLLC, Seattle, Washington.
EXPERTS
The following financial statements 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:
(a) 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;
(b) combined financial statements of The Murrey Companies (which
consist of Murrey's Disposal Company, Inc., American Disposal Company,
Inc., D.M. Disposal Co., Inc. and Tacoma Recycling Company, Inc.) as of
December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997;
(c) 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;
(d) financial statements of Arrow Sanitary Service, Inc. as of
September 30, 1997, and for the year then ended;
(e) financial statements of Contractors Waste Removal, L.C. as of
December 31, 1997, and for the year then ended;
(f) consolidated financial statements of Curry Transfer and Recycling,
Inc. as of December 31, 1997 and for the year then ended; and
(g) combined financial statements of Butler County Landfill, Inc. and
Kobus Construction, Inc. as of December 31, 1997 and for the year then
ended.
Such financial statements have been included in this Prospectus and Registration
Statement in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The following financial statements appearing in this Prospectus and Registration
Statement have been audited by Grant Thornton LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere in this Prospectus and
Registration Statement:
(a) financial statements of Shrader Refuse and Recycling Service
Company as of September 30, 1996 and 1997, and for the years then ended;
(b) combined financial statements of B&B Sanitation (consisting of B&B
Sanitation, Inc., Red Carpet Landfill, Inc. and Darlin Equipment, Inc.) as
of December 31, 1997, and for the year then ended; and
(c) combined financial statements of J&J Sanitation (consisting of J&J
Sanitation, Inc., Big Red Roll Off, Inc., and J&J Sanitation of South
Dakota) as of December 31, 1997, and for the year then ended.
72
<PAGE> 75
Such financial statements have been included in this Prospectus and Registration
Statement in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The combined financial statements of Amador Disposal Service, Inc. and Mother
Lode Sani-Hut, Inc. at June 30, 1998 and for the year then ended appearing in
this Prospectus and Registration Statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this Prospectus and Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
73
<PAGE> 76
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-4
Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1997................................ F-5
Unaudited Pro Forma Statement of Operations for the nine
months ended September 30, 1998........................ F-6
Notes to Unaudited Pro Forma Statements of Operations..... F-7
Unaudited Pro Forma Balance Sheet as of September 30,
1998................................................... F-12
Notes to Unaudited Pro Forma Consolidated Balance Sheet... F-13
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors......... F-14
Combined Balance Sheet of Predecessors as of December 31,
1996................................................... F-15
Consolidated Balance Sheet of Waste Connections, Inc. as
of December 31, 1997 (Audited) and September 30, 1998
(Unaudited)............................................ F-15
Combined Statement of Operations of Predecessors for the
nine months ended September 30, 1997................... F-16
Consolidated Statement of Operations of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 (Audited) and the nine months
ended September 30, 1998 (Unaudited)................... F-16
Combined Statement of Operations of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-17
Combined Statement of Operations of Predecessors for the
period ended December 31, 1996......................... F-17
Combined Statement of Operations of The Disposal Group for
the year ended December 31, 1995....................... F-18
Statement of Operations of Fibres International, Inc. for
the period from January 1, 1995 through November 30,
1995................................................... F-18
Statement of Operations of Predecessors for the one month
ended December 31, 1995................................ F-18
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 nine months
ended September 30, 1998 (Unaudited)................... F-19
Combined Statement of Cash Flows of Predecessors for the
nine months ended September 30, 1997................... F-20
Consolidated Statement of Cash Flows of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 (Audited) and the nine months
ended September 30, 1998 (Unaudited)................... F-20
Combined Statement of Cash Flows of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-21
Combined Statement of Cash Flows of Predecessors for the
period ended December 31, 1996......................... F-21
Combined Statement of Cash Flows of The Disposal Group for
the year ended December 31, 1995....................... F-22
Statement of Cash Flows of Fibres International, Inc. for
the period from January 1, 1995 through November 30,
1995................................................... F-22
Statement of Cash Flows of Predecessors for the one month
ended December 31, 1995................................ F-22
Notes to Financial Statements............................. F-23
</TABLE>
F-1
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE MURREY COMPANIES
Report of Ernst & Young LLP, Independent Auditors......... F-44
Combined Balance Sheets as of December 31, 1996 and 1997
(Audited) and September 30, 1998 (Unaudited)........... F-45
Combined Statements of Income and Retained Earnings for
the years ended December 31, 1995, 1996 and 1997
(Audited) and for the nine months ended September 30,
1997 and 1998 (Unaudited).............................. F-46
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 (Audited) and for the
nine months ended September 30, 1997 and 1998
(Unaudited)............................................ F-47
Notes to Combined Financial Statements.................... F-48
MADERA DISPOSAL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-57
Balance Sheets as of December 31, 1996 and 1997........... F-58
Statements of Income and Retained Earnings for the years
ended December 31, 1995, 1996 and 1997................. F-59
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-60
Notes to Financial Statements............................. F-61
ARROW SANITARY SERVICE, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-67
Balance Sheets as of September 30, 1997 (Audited) and
March 31, 1998 (Unaudited)............................. F-68
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-69
Statements of Cash Flows for the year ended September 30,
1997 (Audited) and the six months ended March 31, 1997
and 1998 (Unaudited)................................... F-70
Notes to Financial Statements............................. F-71
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
Report of Grant Thornton LLP, Independent Auditors........ F-77
Balance Sheets as of September 30, 1996 and 1997 (Audited)
and June 30, 1998 (Unaudited).......................... F-78
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-79
Statement of Stockholders Equity for the years ended
September 30, 1996 and 1997 (Audited) and the nine
months ended June 30, 1998 (Unaudited)................. F-80
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-81
Notes to Financial Statements............................. F-82
CONTRACTOR'S WASTE REMOVAL, L.C.
Report of Ernst & Young LLP, Independent Auditors......... F-89
Balance Sheets as of December 31, 1997 (Audited) and March
31, 1998 (Unaudited)................................... F-90
Statements of Operations and Change in Members' Deficit
for the year ended December 31, 1997 (Audited) and the
three months ended March 31, 1997 and 1998
(Unaudited)............................................ F-91
Statements of Cash Flows for the year ended December 31,
1997 (Audited) and the three months ended March 31,
1997 and 1998 (Unaudited).............................. F-92
Notes to Financial Statements............................. F-93
</TABLE>
F-2
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CURRY TRANSFER AND RECYCLING, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-97
Consolidated Balance Sheets as of December 31, 1997
(Audited) and March 31, 1998 (Unaudited)............... F-98
Consolidated Statements of Income and Retained Earnings
for the year ended December 31, 1997 (Audited) and the
three months ended March 31, 1997 and 1998
(Unaudited)............................................ F-99
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 (Audited) and the three months ended
March 31, 1997 and 1998 (Unaudited).................... F-100
Notes to Consolidated Financial Statements................ F-101
B&B SANITATION
Report of Grant Thornton, LLP, Independent Auditors....... F-108
Combined Balance Sheets as of December 31, 1997 (Audited)
and March 31, 1998 (Unaudited)......................... F-109
Combined Statements of Earnings for the year ended
December 31, 1997 (Audited) and the three months ended
March 31, 1997 and 1998 (Unaudited).................... F-110
Combined Statement of Stockholders' Deficit for the year
ended December 31, 1997 (Audited) and the three months
ended March 31, 1998 (Unaudited)....................... F-111
Combined Statements of Cash Flows for the year ended
December 31, 1997 (Audited) and the three months ended
March 31, 1997 and 1998 (Unaudited).................... F-112
Notes to Combined Financial Statements.................... F-113
J & J SANITATION
Report of Grant Thornton LLP, Independent Auditors........ F-117
Combined Balance Sheets as of December 31, 1997 (Audited)
and June 30, 1998 (Unaudited).......................... F-118
Combined Statements of Operations for the year ended
December 31, 1997 (Audited) and the six months ended
June 30, 1997 and 1998 (Unaudited)..................... F-119
Combined Statement of Stockholders' and Partners' Equity
for the year ended December 31, 1997 (Audited) and the
six months ended June 30, 1998 (Unaudited)............. F-120
Combined Statements of Cash Flows for the year ended
December 31, 1997 (Audited) and the six months ended
June 30, 1997 and 1998 (Unaudited)..................... F-121
Notes to Combined Financial Statements.................... F-122
AMADOR DISPOSAL SERVICES, INC. AND MOTHERLODE SANI-HUT, INC.
Report of PricewaterhouseCoopers LLP, Independent
Auditors............................................... F-127
Combined Balance Sheets as of June 30, 1998, (Audited) and
September 30, 1998 (Unaudited)......................... F-128
Combined Statements of Operations and Retained Earnings
for the year ended June 30, 1998 (Audited) and the
three months ended September 30, 1997 and 1998
(Unaudited)............................................ F-129
Combined Statements of Cash Flows for the year ended June
30, 1998 (Audited) and the three months ended September
30, 1997 and 1998 (Unaudited).......................... F-130
Notes to Combined Financial Statements.................... F-131
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-138
Combined Balance Sheets as of December 31, 1997 (Audited)
and September 30, 1998 (Unaudited)..................... F-139
Combined Statements of Income and Retained Earnings for
the year ended December 31, 1997 (Audited) and the nine
months ended September 30, 1997 and 1998 (Unaudited)... F-140
Combined Statements of Cash Flows for the year ended
December 31, 1997 (Audited) and the nine months ended
September 30, 1997 and 1998 (Unaudited)................ F-141
Notes to Combined Financial Statements.................... F-142
</TABLE>
F-3
<PAGE> 79
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Statements of Operations for the year ended
December 31, 1997 and the nine months ended September 30, 1998, give effect to
the business combinations involving WCI, its predecessors, Madera Disposal
Systems, Inc. ("Madera"), Arrow Sanitary Service, Inc. ("Arrow"), Shrader Refuse
and Recycling Service Company ("Shrader"), Curry Transfer and Recycling, Inc.
("Curry"), Contractors Waste Removal L.C. ("Contractors"), J & J Sanitation ("J
& J"), B&B Sanitation ("B&B"), Amador Disposal Service, Inc./Mother Lode
Sani-Hut, Inc. ("Amador"), and pending business combination involving Butler
County Landfill, Inc./Kobus Construction, Inc. ("Butler") as if such business
combinations occurred on January 1, 1997 and were accounted for using the
purchase method of accounting. In addition to reflecting the business
combinations involving WCI, its predecessors, Madera, Arrow, Shrader, Curry,
Contractors, J & J, B & B, Amador and Butler, the following Unaudited WCI and
the Murrey Companies Pro Forma Combined Statements of Operations for the year
ended December 31, 1997 and the nine months ended September 30, 1998 reflect the
merger with the Murrey Companies as poolings-of-interests.
The following Unaudited Pro Forma Balance Sheet as of September 30, 1998
assumes WCI's acquisition of Amador and pending acquisition of Butler occurred
on September 30, 1998. In addition to reflecting the business combinations
involving WCI, Amador and Butler, the following Unaudited Pro Forma Combined
Balance Sheet as of September 30, 1998 reflects the mergers with the Murrey
Companies as poolings-of-interests.
WCI has preliminarily analyzed the savings that it expects to be realized
by consolidating certain operational and general and administrative functions.
WCI has not and cannot quantify all of these savings due to the short period of
time since the predecessor, Madera, Arrow, Shrader, Curry, Contractors, J & J,
B&B, Amador and Butler 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 WCI'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 Financial Statements.
The Unaudited Pro Forma Financial Statements include certain adjustments to
the historical financial statements, including adjusting depreciation expense to
reflect purchase price allocations of the entities acquired by WCI, 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 Financial Statements do not purport
to represent what WCI's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates or
to project WCI's financial position or results of operations for any future
period. Because WCI, its predecessors, the Murrey Companies, Madera, Arrow,
Shrader, Curry, Contractors, J & J, B&B, Amador and Butler 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
Financial Statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere herein, 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-4
<PAGE> 80
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS,
INC. ARROW
PERIOD FROM MADERA SANITARY
INCEPTION PREDECESSORS DISPOSAL SERVICE, INC.
(SEPTEMBER 9, COMBINED NINE SYSTEMS, INC. YEAR
1997) TO MONTHS ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1997 1997 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 6,237 $18,114 $ 7,845 $6,209
Operating expenses:
Cost of operations.................................... 4,703 14,753 5,289 4,970
Selling, general and administrative................... 619 3,009 1,041 776
Depreciation and amortization......................... 354 1,083 627 143
Start-up and integration.............................. 493 -- -- --
Stock compensation.................................... 4,395 -- -- --
--------- ------- ------- ------
Income (loss) from operations.......................... (4,327) (731) 888 320
Interest expense....................................... (1,035) (456) (280) (72)
Other income (expense), net............................ (36) 14 173 (2)
--------- ------- ------- ------
Income (loss) before (provision) benefit for income
taxes................................................. (5,398) (1,173) 781 246
(Provision) benefit for income taxes................... 332 -- -- (117)
--------- ------- ------- ------
Net income (loss)...................................... $ (5,066) $(1,173) $ 781 $ 129
========= ======= ======= ======
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 CURRY
REFUSE AND TRANSFER CONTRACTORS
RECYCLING AND WASTE J & J B&B
SERVICE RECYCLING, REMOVAL, SANITATION SANITATION
COMPANY INC. L.C. COMBINED COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................................... $6,896 $3,617 $1,903 $2,346 $1,965
Operating expenses:
Cost of operations.................................... 4,601 2,259 1,234 1,789 1,074
Selling, general and administrative................... 567 655 359 319
Depreciation and amortization......................... 770 260 202 197 259
Start-up and integration.............................. --
Stock compensation.................................... --
------ ------ ------ ------ ------
Income (loss) from operations.......................... 958 443 108 41 312
Interest expense....................................... (292) (50) (178) (108) (108)
Other income (expense), net............................ 59 64 -- -- 1
------ ------ ------ ------ ------
Income (loss) before (provision) benefit for income
taxes................................................. 725 457 (70) (67) 205
(Provision) benefit for income taxes................... (183) -- -- --
------ ------ ------ ------ ------
Net income (loss)...................................... $ 725 $ 274 $ (70) $ (67) $ 205
====== ====== ====== ====== ======
Redeemable convertible preferred stock accretion.......
Net loss applicable to common
stockholders..........................................
Basic net loss per common share........................
Shares used in the per share calculation...............
<CAPTION>
AMADOR BUTLER
DISPOSAL COUNTY
SERVICE, INC. LANDFILL, INC.
COMBINED COMBINED PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................................... $3,205 $3,010 $ -- $ 61,347
Operating expenses:
Cost of operations.................................... 2,432 1,898 (146)(a) 44,561
(195)(b)
(100)(c)
Selling, general and administrative................... 480 236 (570)(d) 7,412
(132)(e)
(267)(j)
Depreciation and amortization......................... 317 631 (102)(f) 4,339
(2,022)(k)
1,620(l)
Start-up and integration.............................. -- -- -- 493
Stock compensation.................................... -- -- -- 4,395
------ ------ ------- ----------
Income (loss) from operations.......................... (24) 245 1,914 147
Interest expense....................................... (77) (180) 456(g) (6,049)
(218)(g)
1,345(m)
(4,796)(n)
Other income (expense), net............................ (3) 43 -- 313
------ ------ ------- ----------
Income (loss) before (provision) benefit for income
taxes................................................. (104) 108 (1,299) (5,589)
(Provision) benefit for income taxes................... (2) -- (92)(h) 402
(618)(o)
1,082(l)
------ ------ ------- ----------
Net income (loss)...................................... $ (106) $ 108 $ (927) $ (5,187)
====== ====== ======= ==========
Redeemable convertible preferred stock accretion....... (531)
----------
Net loss applicable to common
stockholders.......................................... $ (5,718)
==========
Basic net loss per common share........................ $ (2.12)
==========
Shares used in the per share calculation............... 2,700,306
==========
<CAPTION>
THE MURREY PRO FORMA
COMPANIES COMBINED
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1997
------------ ------------
<S> <C> <C>
Revenues............................................... $28,874 $ 90,221
Operating expenses:
Cost of operations.................................... 23,133 67,694
Selling, general and administrative................... 2,323 9,735
Depreciation and amortization......................... 1,371 5,710
Start-up and integration.............................. -- 493
Stock compensation.................................... -- 4,395
------- ----------
Income (loss) from operations.......................... 2,047 2,194
Interest expense....................................... (380) (6,429)
Other income (expense), net............................ 283 596
------- ----------
Income (loss) before (provision) benefit for income
taxes................................................. 1,950 (3,639)
(Provision) benefit for income taxes................... (634) (232)
------- ----------
Net income (loss)...................................... $ 1,316 $ (3,871)
======= ==========
Redeemable convertible preferred stock accretion....... (531)
----------
Net loss applicable to common
stockholders.......................................... $ (4,402)
==========
Basic net loss per common share........................ $ (0.81)
==========
Shares used in the per share calculation............... 5,450,306
==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 81
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CURRY
TRANSFER
WASTE MADERA ARROW SHRADER REFUSE AND
CONNECTIONS, DISPOSAL SANITARY AND RECYCLING RECYCLING,
INC. CONSOLIDATED SYSTEMS, INC. SERVICE, INC. SERVICE INC.
NINE MONTHS ONE MONTH FIVE MONTHS COMPANY FIVE MONTHS
ENDED ENDED ENDED SIX MONTHS ENDED
SEPTEMBER 30, JANUARY 31, MAY 31, ENDED MAY 31,
1998 1998 1998 JUNE 30, 1998 1998
----------------- ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 35,336 $ 611 $2,508 $3,505 $1,408
Operating expenses:
Cost of operations.................. 24,007 412 1,836 2,264 837
Selling, general and
administrative.................... 3,518 112 385 310 270
Depreciation and amortization....... 2,693 69 67 471 124
Stock compensation.................. 561 -- -- -- --
--------- ----- ------ ------ ------
Income (loss) from operations........ 4,557 18 220 460 177
Interest expense..................... (1,427) (289) (14) (191) (33)
Other income, net.................... -- 16 2 11 41
--------- ----- ------ ------ ------
Income (loss) before (provision)
benefit for income taxes............ 3,130 (255) 208 280 185
(Provision) benefit for income
taxes............................... (1,513) -- (89) -- --
--------- ----- ------ ------ ------
Income (loss) before extraordinary
item................................ 1,617 $(255) $ 119 $ 280 $ 185
===== ====== ====== ======
Extraordinary Item -- early
extinguishment of debt, net of tax
benefit of $165..................... (815)
---------
Net income (loss).................... $ 802
=========
Redeemable convertible preferred
stock accretion..................... $ (917)
---------
Net loss applicable to common
stockholders........................ $ (115)
=========
Basic earnings per common share:
Income (loss) before extraordinary
item................................ $ 0.13
=========
Extraordinary item................... (0.15)
=========
Basic net income (loss) per common
share............................... $ (0.02)
=========
Diluted earnings per common share:
Income (loss) before extraordinary
item................................ $ 0.09
=========
Extraordinary item................... (0.11)
---------
Diluted net loss per common share.... $ (0.02)
=========
Shares used in the per share
calculations:
Basic............................... 5,476,532
=========
Diluted............................. 7,438,658
=========
<CAPTION>
CONTRACTORS AMADOR BUTLER
WASTE J & J B&B DISPOSAL COUNTY
REMOVAL SANITATION SANITATION SERVICE, INC LANDFILL, INC.
L.C. COMBINED COMBINED COMBINED COMBINED
FIVE MONTHS SIX MONTHS FIVE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
MAY 31, JUNE 30, MAY 31, SEPTEMBER 30, SEPTEMBER 30, PRO FORMA
1998 1998 1998 1998 1998 ADJUSTMENTS
----------- ----------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 791 $1,210 $876 $2,355 $2,419 $ --
Operating expenses:
Cost of operations.................. 543 854 464 1,642 1,659 --
Selling, general and
administrative.................... 182 213 136 400 130 (111)(j)
Depreciation and amortization....... 94 107 110 229 408 (334)(l)
Stock compensation.................. -- -- -- -- -- --
----- ------ ---- ------ ------ -------
Income (loss) from operations........ (28) 36 166 84 222 445
Interest expense..................... (90) (53) (46) (88) (109) 624(m)
(2,146)(n)
Other income, net.................... -- -- -- (22) 109 --
----- ------ ---- ------ ------ -------
Income (loss) before (provision)
benefit for income taxes............ (118) (17) 120 (26) 222 (1,077)
(Provision) benefit for income
taxes............................... -- -- -- (1) 358(o)
----- ------ ---- ------ ------ -------
Income (loss) before extraordinary
item................................ $(118) $ (17) $120 $ (27) $ 222 $ (719)
===== ====== ==== ====== ====== =======
Extraordinary Item -- early
extinguishment of debt, net of tax
benefit of $165.....................
Net income (loss)....................
Redeemable convertible preferred
stock accretion.....................
Net loss applicable to common
stockholders........................
Basic earnings per common share:
Income (loss) before extraordinary
item................................
Extraordinary item...................
Basic net income (loss) per common
share...............................
Diluted earnings per common share:
Income (loss) before extraordinary
item................................
Extraordinary item...................
Diluted net loss per common share....
Shares used in the per share
calculations:
Basic...............................
Diluted.............................
<CAPTION>
THE MURREY PRO FORMA
PRO FORMA COMPANIES COMBINED
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................. $ 51,019 $24,532 $ 75,551
Operating expenses:
Cost of operations.................. 34,518 19,337 53,855
Selling, general and
administrative.................... 5,545 1,870 7,415
Depreciation and amortization....... 4,038 1,640 5,678
Stock compensation.................. 561 -- 561
---------- ------- -----------
Income (loss) from operations........ 6,357 1,685 8,042
Interest expense..................... (3,862) (423) (4,285)
Other income, net.................... 157 (97) 60
---------- ------- -----------
Income (loss) before (provision)
benefit for income taxes............ 2,652 1,165 3,817
(Provision) benefit for income
taxes............................... (1,245) (414) (1,659)
---------- ------- -----------
Income (loss) before extraordinary
item................................ 1,407 $ 751 2,158
======= ===========
Extraordinary Item -- early
extinguishment of debt, net of tax
benefit of $165..................... (815) (815)
---------- -----------
Net income (loss).................... $ 592 $ 1,343
========== ===========
Redeemable convertible preferred
stock accretion..................... $ (917) $ (917)
---------- -----------
Net loss applicable to common
stockholders........................ $ (325) $ 426
========== ===========
Basic earnings per common share:
Income (loss) before extraordinary
item................................ $ 0.08 $ 0.14
========== ===========
Extraordinary item...................
Basic net income (loss) per common
share...............................
Diluted earnings per common share:
Income (loss) before extraordinary
item................................ $ 0.06 0.12
========== ===========
Extraordinary item...................
Diluted net loss per common share....
Shares used in the per share
calculations:
Basic............................... 6,069,350 8,819,350
========== ===========
Diluted............................. 7,654,186 10,404,186
========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 82
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma statements of operations for the year
ended December 31, 1997 and for the nine months ended September 30, 1998 are
presented as if the acquisitions of the Company's predecessors, Madera, Arrow,
Shrader, Curry, Contractors, J & J, B&B, Amador and pending acquisition of
Butler had occurred on January 1, 1997. In addition, the unaudited WCI and the
Murrey Companies pro forma combined statements of operations for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 combine the
pro forma statements of operations for those respective periods with the
historical statements of operations for the Murrey Companies for the year ended
December 31, 1997 and for the nine months ended September 30, 1998,
respectively.
BUSINESS COMBINATIONS. The acquisitions of Madera, Arrow, Shrader, Curry,
Contractors, J & J, B&B, Amador and pending acquisition of Butler 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 consist of the following:
<TABLE>
<CAPTION>
MADERA ARROW SHRADER CURRY CONTRACTORS J & J B&B AMADOR BUTLER
------- ------- ------- ------- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash paid to
shareholders....... $6,949 $ 7,537 $ 8,106 $ 6,347 $ 2,442 $ 2,074 $ 3,321 $ 5,581 $ 7,013
Common stock
issued............. 7,500 3,045 9,997 -- 1,000 -- -- -- --
Liabilities assumed.. 4,256 769 2,102 1,298 2,561 1,372 1,723 1,428 2,219
Sellers notes........ -- -- 378 25 166 93 24 -- 172
Acquisition costs.... 180 125 225 90 73 80 170 100 132
Common stock warrants
issued............. 954 -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
$19,839 $11,476 $20,808 $ 7,760 $ 6,242 $ 3,619 $ 5,238 $ 7,109 $ 9,536
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company has preliminarily allocated the purchase prices as follows:
<TABLE>
<CAPTION>
MADERA ARROW SHRADER CURRY CONTRACTORS J & J B&B AMADOR BUTLER
------- ------- ------- ------- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible assets
purchased.......... $4,534 $ 898 $ 4,378 $ 2,877 $ 1,506 $ 687 $ 2,611 $ 1,935 $ 9,265
Goodwill............. 14,580 10,528 16,300 4,583 4,686 2,892 2,577 5,144 251
Covenants not to
compete............ -- 50 130 100 50 40 50 30 20
Long-term franchise
agreements and
contracts.......... 725 -- -- 200 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
$19,839 $11,476 $20,808 $ 7,760 $ 6,242 $ 3,619 $ 5,238 $ 7,109 $ 9,536
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The valuation of the Company's common stock issued in connection with the
acquisitions was determined based on the market price of the securities over a
reasonable period of time before and after the two companies reached agreement
on the purchase price and, if applicable, after the proposed transaction is
announced. The valuation of common stock issued with contractual trading
restrictions is discounted to reflect the specific features of the stock issued.
WCI's mergers with the Murrey Companies are assumed to be accounted for
under the pooling of interests method of accounting for business combinations.
The pro forma financial statements assume the issuance of 2,750,000 shares,
which represents the expected number of shares to be exchanged. The actual
F-7
<PAGE> 83
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
number of share of WCI's common stock to be exchanged for all of the outstanding
stock of the Murrey Companies will be determined at the closing date.
PRO FORMA ADJUSTMENTS. The unaudited pro forma statements of operations do
not reflect non-recurring costs resulting directly from the merger between the
Company and the Murrey Companies. The management of the Company estimates that
these costs will approximate $6,500 and will be charged to operations in the
quarter that the merger is consummated. The amount includes costs to merge the
companies, signing bonuses to be paid to Murrey Company officers, and
professional fees. The following adjustments have been made to the unaudited pro
forma 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) To decrease goodwill amortization for the lower goodwill amount
recorded by the Company in connection with its acquisition of the
predecessor operations.
(g) 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.
(h) To record the estimated tax provision associated with the proforma
adjustments for the Company's predecessors net of the tax benefit for
the net operating loss for the nine months ended September 30, 1997
using the Company's effective tax rate.
(i) To record the estimated tax benefit for the year ended December 31,
1997 associated with the pro forma adjustments for the Madera $198,
Arrow $226, Shrader $60, Curry $177, Contractors $96, J&J $76, B&B
$93, Amador $144 and Butler $12 acquisitions using the Company's
estimated effective tax rates.
(j) To reduce 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
$83 and the Shrader acquisition $184 for the year ended 1997 and
Madera $19 and Shrader $92 for the nine months ended September 30,
1998.
F-8
<PAGE> 84
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(k) To reduce depreciation for the reduction in the property and
equipment's carrying value to fair value related to the acquisition of
Madera $377, Arrow $78, Shrader $585, Curry $130, Contractors $48, J&J
$130, B&B $82, Amador $180 and Butler $412 for the year ended December
31, 1997.
(l) To increase amortization for the increase in goodwill and other
intangibles resulting from the acquisition of Madera $364, Arrow $265,
Shrader $439, Curry $130, Contractors $128, J&J $80, B&B $69, Amador
$135 and Butler $10 for the year ended December 31, 1997. To increase
(decrease) depreciation and amortization for effects of the purchase
for Madera ($19), Arrow $90, Shrader ($160), Curry ($4), Contractors
$47, J&J ($33), B&B ($2), Amador ($25) and Butler ($228) for the nine
months ended September 30, 1998. Goodwill is amortized over a term of
40 years and the covenant not to compete is amortized over a term of
five years.
(m) To eliminate interest expense associated with the outstanding debt
obligations of Madera $280, Arrow $72, Shrader $292, Curry $50,
Contractors $178, J&J $108, B&B $108, Amador $77 and Butler $180 which
were paid-off in connection with the acquisitions for the year ended
December 31, 1997 and Arrow $14, Shrader $191, Curry $33, Contractors
$90, J&J $53, B&B $46, Amador $88 and Butler $109 for the nine months
ended September 30, 1998.
(n) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the acquisition
of Madera $897, Arrow $606, Shrader $771, Curry $493, Contractors
$338, J&J $244, B&B $354, Amador $481 and Butler $612 for the year
ended 1997 and Arrow $239, Shrader $372, Curry $247, Contractors $169,
J&J $122, B&B $177, Amador $361 and Butler $459 for the nine months
ended September 30, 1998. In the aggregate the Company incurred or
refinanced long-term debt obligations of approximately $64,469 related
to these acquisitions; with a weighted average interest rate of 7.4%.
(o) To record C corporation income tax (provision) benefit for the year
ended December 31, 1997 for Madera ($297), Shrader ($290), Contractors
$28, J&J $27, B&B ($82), Amador $41 and Butler $(45), which were
subchapter S corporations LLC or partnerships for income tax purposes
for all periods prior to their acquisition by the Company. To record
the estimated C corporation tax (provision) benefit and tax effect of
pro forma adjustments for Madera $83, Arrow $118, Shrader ($64), Curry
$10, Contractors $97, J&J $42, B&B $4, Amador $110 and Butler ($42)
for the nine months ended September 30, 1998.
F-9
<PAGE> 85
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
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 periods ended December 31, 1997, and the nine
months ended September 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>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------------
<S> <C> <C>
Basic Share Count:
Company weighted average shares outstanding............... 1,872,567 5,476,532
Shares issued in connection with the acquisition of
Arrow.................................................. 213,750 131,538(1)
Shares issued in connection with the acquisition of
Contractors............................................ 76,423 43,829(2)
Shares issued in connection with the acquisition of
Shrader................................................ 537,566 417,451(3)
---------- ----------
Shares used in calculating proforma basic income (loss)
per share.............................................. 2,700,306 6,069,350
Shares to be issued in exchange for the Murrey Companies'
stock(4)............................................... 2,750,000 2,750,000
---------- ----------
Shares used in calculating pro forma combined basic net
income (loss) per share................................ 5,450,306 8,819,350
========== ==========
Diluted Share Count:
Shares used in calculating pro forma basic income (loss)
per share.............................................. 2,700,306 6,069,350
Dilutive effect of stock options and warrants
outstanding............................................ -- 1,584,836
---------- ----------
Shares used in calculating pro forma dilutive income
(loss)................................................. 2,700,306 7,654,186
Shares to be issued in exchange for the Murrey Companies'
stock(4)............................................... 2,750,000 2,750,000
---------- ----------
Shares used in calculating pro forma combined diluted net
income (loss) per share................................ 5,450,306 10,404,186
========== ==========
</TABLE>
- ---------------
(1) Includes only incremental shares issued for acquisition of Arrow because
82,212 shares are already included in the Company's weighted average shares
outstanding for the nine months ended September 30, 1998.
(2) Includes only incremental shares issued for acquisition of Contractors
because 39,094 shares are already in the Company's weighted average shares
outstanding for the nine months ended September 30, 1998.
(3) Includes only incremental shares issued for acquisition of Shrader because
120,115 shares are already in the Company's weighted average for the nine
months ended September 30, 1998.
(4) The shares of the Company's common stock to be issued in exchange for the
Murrey Companies stock included in the above table represents the expected
number of shares to be exchanged. The actual number of shares of the
Company's common stock to be exchanged for all of the outstanding stock of
the Murrey Companies will be determined at the closing date.
F-10
<PAGE> 86
In the event that the Company is required to exchange an additional 500,000
shares of its common stock to consummate the merger with the Murrey Companies
the effect on pro forma net loss per share amounts are as follows:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Basic earnings per common share:
Income (loss) before extraordinary item................... $(0.74) $ 0.13
Diluted earnings per common share:
Income (loss) before extraordinary item................... $(0.74) $ 0.11
</TABLE>
ACQUISITION COSTS. The Company incurred costs of $180, $125, $225, $90,
$73, $80, $170, $100 and $132 related to the Madera, Arrow, Shrader, Curry,
Contractors, J&J, B&B, Amador and Butler acquisitions, respectively, which have
been factored into the respective purchase agreements. Costs incurred by Madera,
Arrow, Shrader, Curry, Contractors, J&J, B&B, Amador and Butler were expensed as
incurred.
No adjustments have been made in these pro forma statements of operations
to conform accounting policies of the Murrey Companies with those of the
Company. The nature and extent of such adjustments, if any, are not expected to
be significant.
CONTINGENT PAYMENTS. In connection with the Madera, Shrader and J & J
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.
Contingent payments relating to these acquisitions total $5.5 million, are
payable primarily in cash, and are earned based upon the achievement of certain
milestones. Of the total contingent payments, $3.5 million relates to the
achievement of certain operational and financial performance goals, and $2
million relates to the consummation of future acquisitions. The Company believes
that the probability of paying these contingent payments is remote and that the
impact of any contingent payments required will not have a material impact on
its financial statements.
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-11
<PAGE> 87
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMADOR BUTLER
WASTE DISPOSAL COUNTY
CONNECTIONS, INC. SERVICE, INC. LANDFILL, INC. PRO FORMA THE MURREY
CONSOLIDATED COMBINED COMBINED ADJUSTMENTS PRO FORMA COMPANIES
----------------- ------------- -------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................ $ 1,090 $ 239 $ 47 $ --(2)(5)(6) $ 1,376 $ 405
Accounts receivable,
net............... 9,046 190 428 -- 9,664 3,364
Prepaid expenses and
other current
assets............ 773 76 154 -- 1,003 10
-------- ------ ------ ------- -------- -------
Total current
assets...... 10,909 505 629 -- 12,043 3,779
Property and
equipment, net...... 18,438 2,107 3,124 4,454(3) 28,123 14,371
Goodwill, net......... 81,294 -- -- 5,395(4) 86,689 1,758
Other assets.......... 3,854 30 351 50(4) 4,285 --
-------- ------ ------ ------- -------- -------
$114,495 $2,642 $4,104 $ 9,899 $131,140 $19,908
======== ====== ====== ======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings........ $ -- $ -- $ -- $ -- $ -- $ 620
Accounts payable.... 6,123 87 107 -- 6,317 2,217
Advance from a
related party..... -- -- -- -- -- 543
Deferred revenue.... 1,501 -- -- -- 1,501 1,432
Accrued
liabilities....... 3,165 145 214 -- 3,524 1,288
Income taxes
payable........... -- -- -- -- -- 277
Current portion of
notes payable..... 1,256 38 608 (474)(5)(8) 1,428 751
Other current
liabilities....... 346 -- -- -- 346 --
Accrued merger
related
expenses.......... -- -- -- -- -- --
-------- ------ ------ ------- -------- -------
12,391 270 929 (474) 13,116 7,128
Other long-term
liabilities......... 1,499 -- 474 -- 1,973 --
Long-term debt, net... 40,404 1,158 816 13,472(5)(6) 55,850 4,047
Deferred income
taxes............... 379 -- -- -- 379 658
Stockholders' equity:
Common stock........ 92 188 10 (198)(7) 92 45
Additional paid-in
capital........... 65,944 118 2 (120)(7) 65,944 455
Deferred stock
compensation...... (499) -- -- -- (499) --
Retained earnings
(deficit)......... (5,715) 908 1,873 (2,781)(7) (5,715) 7,575
-------- ------ ------ ------- -------- -------
Total
stockholders'
equity...... 59,822 1,214 1,885 (3,099) 59,822 8,075
-------- ------ ------ ------- -------- -------
$114,495 $2,642 $4,104 $ 9,899 $131,140 $19,908
======== ====== ====== ======= ======== =======
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................ $ -- $ 1,781
Accounts receivable,
net............... -- 13,028
Prepaid expenses and
other current
assets............ -- 1,013
------- --------
Total current
assets...... -- 15,822
Property and
equipment, net...... -- 42,494
Goodwill, net......... -- 88,447
Other assets.......... -- 4,285
------- --------
$ -- $151,048
======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings........ $ -- $ 620
Accounts payable.... -- 8,534
Advance from a
related party..... -- 543
Deferred revenue.... -- 2,933
Accrued
liabilities....... -- 4,812
Income taxes
payable........... -- 277
Current portion of
notes payable..... -- 2,179
Other current
liabilities....... -- 346
Accrued merger
related
expenses.......... 6,500(1) 6,500
------- --------
6,500 26,744
Other long-term
liabilities......... -- 1,973
Long-term debt, net... -- 59,897
Deferred income
taxes............... -- 1,037
Stockholders' equity:
Common stock........ (17)(1) 120
Additional paid-in
capital........... 17(1) 66,416
Deferred stock
compensation...... -- (499)
Retained earnings
(deficit)......... (6,500)(1) (4,640)
------- --------
Total
stockholders'
equity...... (6,500) 61,397
------- --------
$ -- $151,048
======= ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 88
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. The unaudited pro forma balance sheet as of September 30, 1998
combines the historical balance sheet of Waste Connections, Inc. with the
historical balance sheets of Amador and Butler to be accounted for as purchases,
and the historical balance sheet of the Murrey Companies to be accounted for as
poolings-of-interests as of September 30, 1998.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet.
(1) To record Merger related entries consisting of estimated non-recurring
costs of the Merger with the Murrey Companies and the issuance of
2,750,000 shares of the Company's common stock. The management of the
Company estimates that the non-recurring costs will approximate $6,500
and will be charged to operations in the quarter the merger is
consummated. This estimated expense, has been charged to retained
earnings on the accompanying unaudited pro forma balance sheet.
(2) Cash payments to former shareholders of Amador ($5,581) and payment of
acquisition costs ($100). Cash payments to the former shareholders of
Butler ($7,013) and payment of acquisition cost of ($132).
(3) To increase (reduce) property, plant and equipment ($707) and $5,161 of
Amador and Butler, respectively to its estimated fair market value.
(4) To increase goodwill and other intangible assets for excess of the
purchase prices over the net assets acquired from Amador of $5,144 and
$30 and Butler of $251 and $20, respectively.
(5) Pay off outstanding debt obligations ($1,196) of Amador and debt
obligations ($1,424) of Butler.
(6) To record additional long term debt associated with the acquisition of
Amador and Butler of $6,877 and $8,569 respectively.
(7) To eliminate the equity accounts of Amador and Butler.
(8) To record Seller Notes Payable issued in connection with the
acquisition of Butler of $172.
No adjustments have been made in the unaudited pro forma balance sheet to
conform accounting policies of the Murrey Companies with those of the Company.
The nature and extent of such adjustments, if any, are not expected to be
significant.
F-13
<PAGE> 89
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-15
through F-22 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.
/s/ ERNST & YOUNG LLP
Sacramento, California
March 6, 1998
F-14
<PAGE> 90
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, SEPTEMBER 30,
1996 (NOTE 1) 1997 1998
------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 102 $ 820 $ 1,090
Accounts receivable, less allowance for doubtful accounts
of $390 at September 30, 1998 and $19 at December 31,
1997 ($81 in 1996)...................................... 2,650 3,940 9,046
Prepaid expenses and other current assets................. 339 358 773
------- ------- --------
Total current assets................................ 3,091 5,118 10,909
Property and equipment, net................................. 5,069 4,185 18,438
Goodwill, net............................................... 6,762 9,408 81,294
Other assets................................................ 369 169 3,854
------- ------- --------
$15,291 $18,880 $114,495
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,025 $ 2,609 $ 6,123
Deferred revenue.......................................... 564 597 1,501
Accrued liabilities....................................... 634 825 3,165
Current portion of notes payable.......................... -- -- 1,256
Current portion of long-term debt......................... 54 -- --
Other current liabilities................................. 119 251 346
------- ------- --------
Total current liabilities........................... 2,396 4,282 12,391
Other long term liabilities................................. -- 702 1,499
Long-term debt.............................................. 89 6,762 40,404
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; no shares issued and
outstanding at September 30, 1998 (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................. -- -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 2,300,000 shares issued and outstanding at
December 31, 1997; 9,204,632 shares issued and
outstanding at September 30, 1998....................... -- 23 92
Additional paid-in capital................................ -- 5,105 65,944
Stockholder notes receivable.............................. -- (82) --
Deferred stock compensation............................... -- -- (499)
Accumulated deficit....................................... -- (5,597) (5,715)
------- ------- --------
Total stockholders' equity (deficit)................ -- (551) 59,822
------- ------- --------
$15,291 $18,880 $114,495
======= ======= ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 91
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
PREDECESSORS CONNECTIONS, INC.
COMBINED CONSOLIDATED PERIOD WASTE
NINE MONTHS FROM INCEPTION CONNECTIONS, INC.
ENDED (SEPTEMBER 9, 1997) CONSOLIDATED NINE
SEPTEMBER 30, THROUGH MONTHS ENDED
1997 (NOTE 1) DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------- ------------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
- --------------------------------------------------------
Revenues................................................ $18,114 $ 6,237 $ 35,336
Operating expenses:
Cost of operations.................................... 14,753 4,703 24,007
Selling, general and administrative................... 3,009 619 3,518
Depreciation and amortization......................... 1,083 354 2,693
Start-up and integration.............................. -- 493 --
Stock compensation.................................... -- 4,395 561
------- ---------- ----------
Income (loss) from operations........................... (731) (4,327) 4,557
Interest expense........................................ (456) (1,035) (1,427)
Other income (expense), net............................. 14 (36) --
------- ---------- ----------
Income (loss) before income taxes....................... (1,173) (5,398) 3,130
Income tax (provision) benefit.......................... -- 332 (1,513)
------- ---------- ----------
Income (loss) before extraordinary item................. $(1,173) (5,066) 1,617
=======
Extraordinary item -- early extinguishment
of debt, net of tax benefit of $165................... -- (815)
---------- ----------
Net income (loss)....................................... $ (5,066) $ 802
========== ==========
Redeemable convertible preferred stock
accretion............................................. (531) (917)
---------- ----------
Net loss applicable to common stockholders.............. $ (5,597) $ (115)
========== ==========
Basic loss per common share:
Income (loss) before extraordinary item............... $ (2.99) $ 0.13
Extraordinary item.................................... -- (0.15)
---------- ----------
Net loss per common share............................. $ (2.99) $ (0.02)
========== ==========
Diluted earnings per common share:
Income before extraordinary item...................... $ (2.99) $ 0.09
Extraordinary item.................................... -- (0.11)
---------- ----------
Net loss per common share............................. $ (2.99) $ (0.02)
========== ==========
Shares used in calculating basic net loss per share..... 1,872,567 5,476,532
========== ==========
Shares used in calculating diluted net loss per share... 1,872,567 7,438,658
========== ==========
Pro forma basic net income (loss) per share............. $ (1.16) $ 0.11
========== ==========
Shares used in calculating pro forma basic net income
(loss) per share...................................... 4,372,565 7,117,557
========== ==========
Pro forma diluted net income (loss) per share........... $ 0.09
==========
Shares used in calculating pro forma diluted net income
(loss) per share...................................... 8,702,393
- --------------------------------------------------------
==========
</TABLE>
See accompanying notes.
F-16
<PAGE> 92
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-17
<PAGE> 93
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-18
<PAGE> 94
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 NINE MONTHS ENDED SEPTEMBER 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 -- 140 --
Payment of stockholder notes
receivable....................... -- -- -- -- -- -- -- 82
Issuance of redeemable common
stock (unaudited)................ -- -- 1,000,000 7,500 -- -- -- --
Issuance of common stock warrants
(unaudited)...................... -- -- -- -- -- -- 2,388 --
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)...................... -- -- -- -- 1,054,634 11 17,783 --
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 September 30, 1998
(unaudited)...................... -- $ -- -- $ -- 9,204,632 $92 $65,944 $ --
========== ======= ========== ======= ========= === ======= ====
<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
Payment of stockholder notes
receivable....................... -- -- 82
Issuance of redeemable common
stock (unaudited)................ -- -- --
Issuance of common stock warrants
(unaudited)...................... -- -- 2,388
Accretion of redeemable
convertible preferred stock
(unaudited)...................... -- (917) (917)
Deferred stock compensation
associated with stock options
(unaudited)...................... (821) -- --
Amortization of deferred stock
compensation (unaudited)......... 322 -- 322
Common stock sold in connection
with IPO (unaudited)............. -- -- 23,986
Issuance of common stock
(unaudited)...................... -- -- 17,794
Preferred stock dividend
(unaudited)...................... -- -- --
Conversion of redeemable preferred
stock (unaudited)................ -- -- 8,279
Conversion of redeemable common
stock (unaudited)................ -- -- 7,500
Net income (unaudited)............ -- 802 802
----- ------- -------
Balances at September 30, 1998
(unaudited)...................... $(499) $(5,715) $59,822
===== ======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE> 95
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS CONSOLIDATED
COMBINED PERIOD FROM
NINE MONTHS INCEPTION WASTE CONNECTIONS, INC.
ENDED (SEPTEMBER 9, 1997) CONSOLIDATED NINE
SEPTEMBER 30, THROUGH MONTHS ENDED
1997 (NOTE 1) DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------- ----------------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C>
- ------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,173) $ (5,066) $ 802
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 2,693
Deferred income taxes................................... -- (369) --
Amortization of debt issuance costs, debt guarantee fees
and accretion of discount on long-term debt........... -- 860 176
Stock compensation...................................... -- 4,395 562
Extraordinary item -- extinguishment of debt............ -- -- 981
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net.............................. (604) (1,021) (989)
Prepaid expenses and other current assets............. (74) (51) (249)
Accounts payable...................................... (221) 2,607 492
Deferred revenue...................................... (137) 169 326
Accrued liabilities................................... (450) 801 (178)
Accrued losses on acquired contracts.................. -- (65) (241)
------- ---------- --------
Net cash provided by (used in) operating activities....... (1,580) 2,614 4,375
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 188 -- 58
Payments for acquisitions, net of cash acquired........... -- (11,493) (44,185)
Prepaid acquisition costs................................. -- (20) --
Capital expenditures for property and equipment........... (735) (264) (2,068)
Decrease (increase) in other assets....................... 22 (19) --
Proceeds from stockholder notes receivable................ -- -- 82
Issuance of stockholder notes receivable.................. -- (82) --
------- ---------- --------
Net cash used in investing activities....................... (525) (11,878) (46,113)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance.................................. 2,142 -- --
Proceeds from short-term borrowings....................... -- 600 --
Proceeds from long-term debt.............................. -- 5,500 57,703
Principal payments on notes payable....................... (38) (2,724) (407)
Principal payments on long-term debt...................... -- (157) (38,653)
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) (600)
------- ---------- --------
Net cash provided by financing activities................... 2,104 10,084 42,008
------- ---------- --------
Net increase (decrease) in cash............................. (1) 820 270
Cash at beginning of period................................. 102 -- 820
------- ---------- --------
Cash at end of period....................................... $ 101 $ 820 $ 1,090
======= ========== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for income taxes................................ $ -- $ -- $ 887
======= ========== ========
Cash paid for interest.................................... $ -- $ 183 $ 791
======= ========== ========
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 $ 91,103
Cash paid for acquisitions (including acquisition
costs)................................................ (11,493) (44,185)
---------- --------
Liabilities assumed, stock and notes payable to
seller................................................ $ 5,547 $ 46,918
========== ========
</TABLE>
See accompanying notes.
F-20
<PAGE> 96
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-21
<PAGE> 97
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-22
<PAGE> 98
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 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 which the Company's management believes are
reasonable.
During the periods prior to their acquisition by BFI, the Company's
predecessors operated as separate stand-alone businesses. The acquisitions of
the predecessors by BFI were accounted for using the purchase method of
accounting, and the respective purchase prices were allocated to the fair values
of the assets acquired and liabilities assumed. Similarly, the Company's
acquisitions of the predecessors from BFI in September 1997 were accounted for
using the purchase method of accounting, and the purchase price was allocated to
the fair value of the assets acquired and liabilities assumed. Consequently, the
amounts of depreciation and amortization included in the statements of
operations for the periods presented reflect the changes in basis of the
underlying assets that were made as a result of the changes in ownership that
occurred during the periods presented. In addition, because the predecessor
companies operated independently and were not under common control or management
during these periods, and because different tax strategies may have influenced
their results of operations, the data may not be comparable to or indicative of
their operating results after their acquisition by BFI.
Due to the manner in which BFI intercompany transactions were recorded as
described above, it is not feasible to present a detailed analysis of
transactions reflected in the net intercompany balance with BFI. The
F-23
<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 SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
change in the predecessors' combined intercompany balance with BFI (net of
income (loss) and initial investment in the acquired companies) was $642 and
$2,142 during the period ended December 31, 1996 and the nine months ended
September 30, 1997, respectively.
The accompanying statements of operations and cash flows for the Company
and its predecessors for the years ended December 31, 1995, 1996 and 1997 are
comprised of the following entities for the periods indicated:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1995:
The Disposal Group Combined Year ended December 31, 1995
Fibres International, Inc. January 1, 1995 through November 30, 1995
(BFI acquisition date)
Predecessors One month ended December 31, 1995 (represents the
results of operations of Fibres International,
Inc. subsequent to the BFI acquisition date)
YEAR ENDED DECEMBER 31, 1996:
The Disposal Group Combined January 1, 1996 through July 31, 1996
(BFI acquisition date)
Predecessors Combined Period ended December 31, 1996 (represents the
combined results of operations of The Disposal
Group subsequent to the BFI acquisition date and
the operations for the year ended December 31,
1996 of Fibres International, Inc. which was
acquired by BFI in 1995)
YEAR ENDED DECEMBER 31, 1997:
Predecessors Combined Nine months ended September 30, 1997 (represents the
combined results of operations for the nine month
period of the entities acquired by BFI in 1995 and
1996 described above)
Waste Connections, Inc. Period from inception (September 9, 1997) through
December 31, 1997
</TABLE>
The Disposal Group Combined consists of three entities that were under
common control prior to their acquisition by BFI: Diamond Fab and Welding
Service, Inc., Buchmann Sanitary Service, Inc., and The Disposal Group.
Interim Financial Information
The unaudited interim consolidated financial statements as of September 30,
1998 and for the nine months ended September 30, 1998 have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary
F-24
<PAGE> 100
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
for a fair presentation have been included. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
\ Common Stock Valuation
In connection with the Company's organization and initial capitalization in
September 1997, the Company sold 2.3 million shares of common stock for $.01 per
share to certain directors, consultants, and management. As a result, the
Company recorded a non-recurring, non-cash stock compensation charge of $4,395
in the accompanying consolidated statement of operations, representing the
difference between the amount paid for the shares and the estimated fair value
of the shares of $1.92 per share on the date of sale. The estimated fair value
of the common shares was determined by the Company based on an independent
valuation of the common stock.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risks consist primarily of accounts receivable. Credit
risk on accounts receivable is minimized as a result of the large and diverse
nature of the Company's customer base. The Company maintains an allowance for
losses based on the expected collectibility of accounts receivable. Credit
losses have been within management's expectations.
Property and Equipment
Property and equipment are stated at cost. Improvements or betterments
which significantly extend the life of an asset are capitalized. Expenditures
for maintenance and repair costs are charged to operations as incurred. The cost
of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment........ 3 - 10 years
Rolling stock.................. 10 years
Containers..................... 5 - 12 years
Furniture and fixtures......... 3 - 6 years
</TABLE>
In connection with the BFI acquisitions (Note 2) the Company acquired
certain used property and equipment. This used property and equipment is being
depreciated using the straight-line method over its estimated remaining useful
lives, which range from one to nine years.
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
F-25
<PAGE> 101
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 nine months ended September
30, 1998. Landfill permitting, acquisition and preparation costs, excluding the
estimated residual value of land, are amortized as permitted 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 September 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.
F-26
<PAGE> 102
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Start-Up and Integration Expenses
During the period from inception (September 9, 1997) through December 31,
1997, the Company incurred certain start-up expenses relating to the formation
of the Company, primarily for legal and other professional services, and the
costs associated with recruiting the Company's initial management team. In
addition, the Company incurred certain integration expenses relating to the
Acquisitions (Note 2). These start-up and integration expenses have been charged
to operations as incurred.
As described in Note 9, the Company issued warrants during the period from
inception (September 9, 1997) through December 31, 1997 to a bank in connection
with a line of credit and term loan payable, and to certain directors and
stockholders of the Company in connection with their guarantee of certain of the
Company's debt obligations. The fair value of these warrants is being amortized
into interest expense. During the period from inception (September 9, 1997)
through December 31, 1997, $710 relating to these warrants is included in
interest expense in the accompanying statement of operations of the Company.
Stock-Based Compensation
As permitted under the provisions of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"), the Company has elected
to account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board's Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"). Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price or fair value of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. None of the predecessor entities awarded
stock-based compensation to employees. Consequently, the related disclosures in
the accompanying financial statements and notes relate solely to the Company.
Per Share Information
In 1997, the Financial Accounting Standards Board ("FASB")issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been presented on the
basis set forth in Statement 128 (Note 11). Earnings per share data have not
been presented for the predecessor operations because such data is not
meaningful.
Pro-forma basic net income (loss) per share is computed by dividing the net
income (loss) by the sum of the weighted average number of shares of common
stock outstanding and common 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.)
F-27
<PAGE> 103
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Closure and Post-Closure Costs
The Company does not accrue for closure and post-closure costs related to
the Fairmead 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 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. As of September 30, 1998, the Company estimates that total closure and
post closure costs relating to the Red Carpet Landfill will be approximately
$929,000, of which approximately $491,000 has been accrued as of September 30,
1998 and included in other long-term liabilities in the accompanying balance
sheet. 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
F-28
<PAGE> 104
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
services, geographic areas and major customers. Statement 131 is effective for
fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years must be restated. The
Company anticipates that implementing the provisions of Statement 131 will not
have a significant impact on the Company's existing disclosures.
2. ACQUISITIONS
Browning-Ferris Industries Related
On September 29, 1997, the Company purchased all of the outstanding stock
of Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc.
from BFI (collectively the "Acquisitions"). The total purchase price for the
Acquisitions was approximately $15,036, comprised principally of $11,493 in cash
and promissory notes payable to BFI totaling $3,543. Of the combined $15,036
purchase price, $9,578 was recorded as goodwill and $150 was assigned to a
non-competition agreement. The Acquisitions were accounted for in accordance
with the purchase method of accounting and, accordingly, the net assets acquired
were included in the Company's consolidated balance sheet based upon their
estimated fair values on the date of the Acquisitions. The Company's
consolidated statement of operations includes the revenues and expenses of the
acquired businesses after the effective date of the transaction.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation as of
December 31, 1997 for the Acquisitions is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable.................................... $ 2,919
Prepaid expenses and other current assets.............. 287
Property and equipment................................. 4,106
Goodwill............................................... 9,578
Non-competition agreement.............................. 150
Assumed liabilities:
Deferred revenue....................................... (428)
Accounts payable and accrued liabilities............... (26)
Accrued losses on acquired contracts................... (1,018)
Deferred income taxes.................................. (532)
-------
$15,036
=======
</TABLE>
During the nine months ended September 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
F-29
<PAGE> 105
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
at $4.00 per share with a fair market value of $954 (the "Warrants") and other
contingent consideration. The Agreement provides that in the event the Company
does not complete an initial public offering ("IPO") of its stock by March 31,
1999, with aggregate gross proceeds of at least $5,000, the Company may be
required to repurchase the Stock and the Warrants from the former shareholders
of Madera for $2,800 in cash if certain other conditions are also met.
The Madera acquisition has been accounted for in accordance with the
purchase method of accounting. The total purchase price and the excess of the
purchase price over the fair value of the net assets acquired in the Madera
acquisition were approximately $18,213 and $14,580, respectively.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation for the
Madera acquisition is as follows:
<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.
F-30
<PAGE> 106
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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. 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 September 30,
1998 consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings................ $2,314 $ -- $ 3,737
Machinery and equipment........... 146 60 1,461
Rolling stock..................... 2,068 2,353 8,165
Containers........................ 1,084 1,995 6,408
Furniture and fixtures............ 137 67 851
------ ------ -------
5,749 4,475 20,622
Less accumulated depreciation..... (680) (290) (2,184)
------ ------ -------
$5,069 $4,185 $18,438
====== ====== =======
</TABLE>
F-31
<PAGE> 107
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Combined depreciation expense for the predecessor operations was $1,304,
$1,101, and $789 for the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997, respectively. The Company's depreciation
expense for the period from inception (September 9, 1997) through December 31,
1997 was $290.
4. OTHER ASSETS
Other assets as of December 31, 1996 and 1997 and September 30, 1998
consist of the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Long-term franchise agreements and
contracts............................... $ -- $ -- $1,048
Non-competition agreement, net............ -- 142 585
Restricted Cash........................... -- -- 1,895
Other..................................... 369 27 326
---- ---- ------
$369 $169 $3,854
==== ==== ======
</TABLE>
Related to certain of the Acquisitions (Note 2), the Company acquired
certain long-term franchise agreements and contracts and entered into a
non-competition agreement. The estimated fair value of the acquired long-term
franchise agreements and contracts was determined by management based on the
discounted net cash flows associated with the agreements and contracts. The
amounts assigned to the franchise agreements and contracts is being amortized on
a straight-line method over the remaining term of the related agreements (11
years). Accumulated amortization amounted to $62 as of September 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 $36 as of September 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.
F-32
<PAGE> 108
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
6. OTHER LONG-TERM DEBT
Other long-term debt consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Term loan payable to the Bank bearing interest at the Bank's
prime rate plus 2.0% (aggregating 10.5% as of December 31,
1997); monthly principal payments of $76 plus interest
beginning October 1997 through August 2002; all
outstanding principal and interest are due September 2002;
secured by substantially all of the Company's assets;
subordinate to the notes payable to BFI with respect to
certain specified assets.................................. $5,343
Note payable to BFI bearing interest at 6.0%; all
outstanding principal and interest are due December 1997;
secured by substantially all of the Company's accounts
receivable................................................ 319
Note payable to BFI bearing interest at 10.0%; quarterly
payments of interest beginning December 1997; all
outstanding principal and interest are due March 1998;
secured by substantially all of WCII's assets............. 500
------
$6,162
======
</TABLE>
The term loan payable to the Bank and the notes payable to BFI were
personally guaranteed by certain officers and stockholders of the Company (Note
9).
As of December 31, 1997, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998................................ $1,736
1999................................ 917
2000................................ 917
2001................................ 917
2002................................ 917
Thereafter.......................... 758
------
$6,162
======
</TABLE>
Management used borrowings from a new credit facility obtained in January
1998 (Note 12) to pay off all amounts outstanding under the term loan payable to
the Bank and all notes payable to BFI, and as such, these amounts have been
classified as long-term debt as of December 31, 1997.
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.
F-33
<PAGE> 109
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under
non-cancelable operating leases for periods ranging from one to five years.
Combined rent expense for the predecessor operations was $398, $412, and $441
for the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997, respectively. The Company's rent expense under operating
leases during the period from inception (September 9, 1997) through December 31,
1997 amounted to $52.
As of December 31, 1997, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1998.................................. $206
1999.................................. 196
2000.................................. 192
2001.................................. 140
2002.................................. 10
----
$744
====
</TABLE>
Performance Bonds and Letters of Credit
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. As of
December 31, 1997, the Company had provided customers and various regulatory
authorities with bonds and letters of credit of approximately $800 to secure its
obligations. The Company's new credit facility (Note 12) provides for the
issuance of letters of credit in an amount up to $5,000, but any letters of
credit issued reduce the availability of borrowings for acquisitions or other
general corporate purposes. If the Company were unable to obtain surety bonds or
letters of credit in sufficient amounts or at acceptable rates, it 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 September 30, 1998, the Company is not
aware of any such environmental liabilities.
F-34
<PAGE> 110
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 September 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 Company, 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 employees at Issaquah have filed to
decertify the union, and the union has filed a claim with the National Labor
Relation Board to attempt to block the decertification. 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
F-35
<PAGE> 111
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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>
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 September 30, 1998,
F-36
<PAGE> 112
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
35,000 options to purchase common stock were exercisable under the Option Plan.
In addition, as of December 31, 1997 and September 30, 1998, options for 671,500
and 160,450 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 nine months ended September 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)................... 511,050 9.59
Forfeited (unaudited)................. -- --
Exercised (unaudited)................. -- --
---------
Outstanding as of September 30, 1998
(unaudited)......................... 1,039,550 7.21
=========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 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 19.00................ -- -- 95,750 17.24
$21.00 to 22.13................ -- -- 36,500 21.90
------- ----- --------- -----
528,500 4.92 1,039,550 7.21
======= ===== ========= =====
</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.
F-37
<PAGE> 113
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 nine months ended September 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 $322 was recorded
during the nine months ended September 30, 1998 relating to these options, and
the remaining $499 will be amortized into expense in future periods.
Stock Purchase Warrants
In September 1997, the Company issued a warrant to purchase 200,000 shares
of the Company's common stock to the Bank that provided the Line and term loan
payable (Notes 5 and 6). The exercise price of the warrant is $.01 per share.
The warrant was valued at $382 on its date of issuance using the Black-Scholes
pricing model with an assumed stock price volatility of .40, risk-free interest
rate of 6.0%, estimated fair value of the common stock of $1.92 per share and an
expected life of 7 years. The value assigned to the warrant was reflected as a
discount on long-term debt. The discount was fully accreted to interest expense
using the straight-line method over the expected term of the debt agreements
(approximately three months).
In connection with their guarantee of certain of the Company's debt
obligations (Notes 5 and 6), the Company issued warrants to purchase 841,000
shares of the Company's common stock to certain directors and stockholders of
the Company. The exercise price of the warrants is $2.80 per share. The warrants
were valued at $328 on their date of issuance using the Black-Scholes pricing
model with an assumed stock price volatility of .40, risk-free interest rate of
6.0%, estimated fair value of the common stock of $1.92 per share and expected
lives of 3 years. The value assigned to these warrants was fully amortized to
interest expense over the expected term of the debt agreements (approximately
three months).
In December 1997, the Company issued to consultants warrants to purchase
15,000 shares of the Company's common stock. Warrants to purchase 10,000 and
5,000 shares of common stock had exercise prices of $5.00 per share and $2.80
per share, respectively.
In February 1998, the Company granted warrants to an employee to purchase
50,000 shares of the Company's common stock at $2.80 per share. The Company
recorded stock compensation expense of approximately $235 relating to these
warrants.
F-38
<PAGE> 114
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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>
Significant components of the Company's deferred income tax assets and
liability were as follows as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED COMPANY
1996 1997
------------ -------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves......................... $ 32 $ 8
Amortization......................................... -- 290
Accrued expenses..................................... 4 --
Vacation accrual..................................... 2 15
Net operating losses................................. 208 54
------ ------
Total deferred income tax assets....................... 246 367
Deferred income tax liability:
Depreciation......................................... -- (529)
------ ------
Net deferred income tax asset (liability).............. 246 (162)
Less valuation allowance............................... (246) --
------ ------
$ -- $ (162)
====== ======
</TABLE>
F-39
<PAGE> 115
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The differences between the Company's provision (benefit) for income taxes
as presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income (loss):
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------------------------------------------------
THE DISPOSAL
FIBRES GROUP
THE DISPOSAL INTERNATIONAL, INC. COMBINED
GROUP PERIOD FROM PERIOD FROM
COMBINED JANUARY 1, 1995 PREDECESSORS JANUARY 1, 1996
YEAR ENDED THROUGH ONE MONTH ENDED THROUGH
DECEMBER 31, 1995 NOVEMBER 30, 1995 DECEMBER 31, 1995 JULY 31, 1996
----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income tax provision (benefit)
at the statutory rate........ (34.0%) 34.0% 34.0% 34.0%
Effect of valuation
allowance.................... -- -- (34.0%) (16.0%)
------- ------- ------- --------
(34.0%) 34.0% -- 18.0%
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------
PREDECESSORS WASTE CONNECTIONS, INC.
COMBINED CONSOLIDATED
PREDECESSORS NINE MONTHS PERIOD FROM INCEPTION
COMBINED ENDED (SEPTEMBER 9, 1997)
PERIOD ENDED SEPTEMBER 30, THROUGH
DECEMBER 31, 1996 1997 DECEMBER 31, 1997
----------------- ----------------- -----------------------
<S> <C> <C> <C>
Income tax benefit at the statutory rate... (34.0%) (34.0%) (34.0%)
Effect of valuation allowance.............. 34.0% 34.0% --
Stock compensation expense................. -- -- 28.0%
-------- -------- --------
-- -- (6.0%)
======== ======== ========
</TABLE>
F-40
<PAGE> 116
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
11. NET INCOME (LOSS) PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and
denominator used in the computation of basic and diluted net loss per share and
pro forma basic and diluted net income (loss) per share for the period from
inception (September 9, 1997) through December 31, 1997 and the nine months
ended September 30, 1998. The pro forma basic and diluted 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 nine
months ended September 30, 1998, as if such conversions occurred as of the first
day of each period presented or the actual date of issuance, if subsequent to
the first day of the period presented.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
DECEMBER 31, 1997 ----------------------------------------------
--------------------- (UNAUDITED)
PRO FORMA PRO FORMA PRO FORMA
BASIC BASIC BASIC DILUTED BASIC DILUTED
NET LOSS NET LOSS NET LOSS NET LOSS NET LOSS NET LOSS
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Income (loss) before
extraordinary item......... $ (5,066) $ (4,788) $ 1,617 $ 1,617 $ 1,617 $ 1,617
Redeemable convertible
preferred stock
accretion.................. (531) -- (917) (917) -- --
--------- --------- --------- --------- --------- ---------
Income (loss) applicable to
common stockholders before
extraordinary item......... $ (5,597) $ (4,788) $ 700 $ 700 $ 1,617 $ 1,617
========= ========= ========= ========= ========= =========
Extraordinary item............ -- -- (815) (815) (815) (815)
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable
to common stockholders..... $ (5,597) $ (4,788) $ (115) $ (115) $ 802 $ 802
========= ========= ========= ========= ========= =========
Denominator:
Weighted average common shares
outstanding................ 1,872,567 1,872,567 5,476,532 5,476,532 5,476,532 5,476,532
Dilutive effect of stock
options and warrants
outstanding................ -- -- -- 1,584,836 -- 1,584,836
Incremental common shares
issuable upon redemption of
redeemable common stock.... -- -- -- 377,290 377,290 377,290
Incremental common shares
issuable upon conversion of
preferred stock............ -- 2,499,998 -- -- 1,263,735 1,263,735
--------- --------- --------- --------- --------- ---------
1,872,567 4,372,565 5,476,532 7,438,658 7,117,557 8,702,393
========= ========= ========= ========= ========= =========
</TABLE>
F-41
<PAGE> 117
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 revolving credit facility from
BankBoston (the "Credit Facility"). The maximum amount available under the
Credit Facility was $25,000 including stand-by letters-of-credit and the
borrowings bore interest at various fixed and/or variable rates at the Company's
'option. The Credit Facility allowed for the Company to issue up to $5,000 in
stand-by letters-of-credit. The Credit Facility required quarterly payments of
interest. The Credit Facility required the Company to pay an annual commitment
fee equal to 0.5% of the unused portion of the Credit Facility. 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 "May
Credit Facility"). The maximum amount available under the May Credit Facility
was $60 million (including stand-by letters of credit) and the borrowings bore
interest at various fixed and/or variable rates at the Company's option
(approximately 7.49% as of September 30, 1998). The May Credit Facility replaced
an existing revolving credit facility. The May Credit Facility allowed for the
Company to issue up to $5 million in stand-by letters-of-credit. The May Credit
Facility required quarterly payments of interest. Borrowings under the May
Credit Facility were secured by virtually all of the Company's assets. The May
Credit Facility required the Company to pay an annual commitment fee equal to
0.375% of the unused portion of the Credit Facility.
On November 20, 1998, the Company entered into a new revolving credit
facility with a syndicate of banks for which BankBoston N.A. acts as agent (the
"November Credit Facility"). The maximum amount available under the November
Credit Facility is $125 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 7.0% as of September 30, 1998). The November Credit
Facility replaced an existing revolving credit facility. The November Credit
Facility allows for the Company to issue up to $15 million in stand-by
letters-of-credit. The November Credit Facility requires quarterly payments of
interest and it matures in November 2003. Borrowings under the November Credit
Facility are secured by virtually all of the Company's assets. The November
Credit Facility requires the Company to pay an annual commitment fee equal to
0.375% of the unused portion of the November Credit Facility. The November
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 November
Credit Facility also requires that specified financial ratios and balances be
maintained. Management of the Company expects to record an extraordinary charge
of approximately $211 (net of income tax) in the fourth quarter of 1998 related
to the extinguishment of the May Credit Facility.
F-42
<PAGE> 118
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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-43
<PAGE> 119
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Murrey's Disposal Company, Inc.
American Disposal Company, Inc.
D.M. Disposal Co., Inc.
Tacoma Recycling Company, Inc.
We have audited the accompanying combined balance sheets of Murrey's
Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co.,
Inc., and Tacoma Recycling Company, Inc. (collectively the "Murrey Companies")
as of December 31, 1996 and 1997, and the related combined 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 Murrey Companies' 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 combined financial position of the Murrey
Companies at December 31, 1996 and 1997, and the combined 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.
/s/ ERNST & YOUNG LLP
Sacramento, California
October 2, 1998,
except for Note 12, as to
which the date is
October 22, 1998
F-44
<PAGE> 120
THE MURREY COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 81 $ 126 $ 405
Accounts receivable, less allowance for doubtful accounts
of $62 in 1996, $74 in 1997 and $82 in 1998........... 2,333 2,779 3,364
Prepaid expenses and other current assets................ 119 79 10
------- ------- -------
Total current assets....................................... 2,533 2,984 3,779
Property, plant and equipment, net......................... 12,529 14,819 14,371
Intangible assets, net..................................... -- 1,862 1,758
Other assets............................................... 3 31 --
------- ------- -------
$15,065 $19,696 $19,908
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................................... $ 1,609 $ 1,628 $ 620
Accounts payable......................................... 1,108 1,617 2,217
Advances from a related party............................ 818 543 543
Deferred revenue......................................... 765 919 1,432
Accrued liabilities...................................... 705 832 1,288
Income taxes payable..................................... 321 228 277
Current portion of long-term debt........................ 928 873 751
------- ------- -------
Total current liabilities.................................. 6,254 6,640 7,128
Long-term debt............................................. 1,851 4,907 4,047
Deferred income taxes...................................... 702 658 658
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock at par value; 60,500 shares authorized;
1,470 shares issued and outstanding................... 45 45 45
Additional paid-in capital............................... 455 455 455
Retained earnings........................................ 5,758 6,991 7,575
------- ------- -------
Total shareholders' equity................................. 6,258 7,491 8,075
------- ------- -------
$15,065 $19,696 $19,908
======= ======= =======
</TABLE>
See accompanying notes.
F-45
<PAGE> 121
THE MURREY COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................. $27,786 $25,024 $28,874 $21,477 $24,532
Operating expenses:
Cost of operations..................... 20,859 20,465 23,133 16,933 19,337
Selling, general and administrative.... 2,101 2,142 2,323 1,653 1,870
Depreciation and amortization.......... 923 1,236 1,371 1,350 1,640
------- ------- ------- ------- -------
Income from operations................... 3,903 1,181 2,047 1,541 1,685
Interest expense......................... (198) (284) (380) (247) (423)
Other income (expense), net.............. 210 309 283 150 (97)
------- ------- ------- ------- -------
Income before income taxes............... 3,915 1,206 1,950 1,444 1,165
Income tax provision..................... (690) (543) (634) (512) (414)
------- ------- ------- ------- -------
Net income............................... 3,225 663 1,316 932 751
Retained earnings, beginning of period... 1,920 5,095 5,758 5,758 6,991
Dividends................................ (50) -- (83) -- (167)
------- ------- ------- ------- -------
Retained earnings, end of period......... $ 5,095 $ 5,758 $ 6,991 $ 6,690 $ 7,575
======= ======= ======= ======= =======
Pro forma income taxes (unaudited -- Note
11).................................... $(1,338) $ (432) $ (697) $ (522) $ (421)
------- ------- ------- ------- -------
Pro forma net income (unaudited -- Note
11).................................... $ 2,577 $ 774 $ 1,253 $ 922 $ 744
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-46
<PAGE> 122
THE MURREY COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 3,225 $ 663 $ 1,316 $ 932 $ 751
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 923 1,236 1,371 1,056 1,640
Deferred income taxes............................... 147 (19) (44) -- --
Gain on sale of land................................ -- -- -- -- (8)
Changes in operating assets and liabilities:
Accounts receivable, net......................... (31) 63 (446) (562) (585)
Prepaid expenses and other assets................ (83) (36) 40 (616) 69
Accounts payable................................. (156) 932 509 1,004 600
Deferred revenue................................. 68 42 154 95 513
Accrued liabilities.............................. (352) 129 127 26 456
Income taxes payable............................. 383 (232) (93) 426 49
------- ------- ------- ------- -------
Net cash provided by operating activities................ 4,124 2,778 2,934 2,361 3,485
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions................................ -- -- (2,900) (100) --
Capital expenditures for property and equipment.......... (3,025) (4,790) (2,108) (2,106) (1,731)
Proceeds from sale of land............................... -- -- -- -- 625
Net change in other assets............................... (18) 31 (28) (117) 57
------- ------- ------- ------- -------
Net cash used in investing activities...................... (3,043) (4,759) (5,036) (2,323) (1,049)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................. 750 1,418 3,414 2,021 550
Principal payments on long-term debt..................... (1,383) (615) (928) (302) (1,532)
Net change in short-term borrowings...................... (77) 659 19 (812) (1,008)
Net change in advances from a related party.............. 189 (259) (275) (275) --
Payment of dividends..................................... (50) -- (83) -- (167)
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities........ (571) 1,203 2,147 632 (2,157)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents....... 510 (778) 45 670 279
Cash and cash equivalents:
Beginning of period................................... 349 859 81 81 126
------- ------- ------- ------- -------
End of period......................................... $ 859 $ 81 $ 126 $ 751 $ 405
======= ======= ======= ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
AND NON-CASH TRANSACTIONS:
Cash paid for interest................................ $ 198 $ 284 $ 358 $ 247 $ 423
======= ======= ======= ======= =======
Cash paid for income taxes............................ $ 160 $ 792 $ 744 $ 277 $ 10
======= ======= ======= ======= =======
Issuance of notes payable for land and buildings...... $ -- $ 260 $ 315 $ -- $ --
======= ======= ======= ======= =======
In connection with acquisitions (Note 3) the Murrey
Companies acquired assets and issued notes payable
to sellers as follows:
Fair value of assets acquired.................... $ -- $ -- $ 3,100 $ 300 $ --
Notes payable to sellers......................... -- -- (200) (200) --
------- ------- ------- ------- -------
Cash paid for acquisitions....................... $ -- $ -- $ 2,900 $ 100 $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-47
<PAGE> 123
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Murrey's Disposal Company, Inc. ("Murrey's"), American Disposal Company,
Inc. ("American"), D.M. Disposal Co., Inc. ("DM"), and Tacoma Recycling Company,
Inc. ("Tacoma") (collectively the "Murrey Companies") are regional, integrated,
non-hazardous solid waste services companies that provide collection, transfer,
and disposal of solid waste and recyclables to residential and commercial
customers in and around the Tacoma, Washington area. Murrey's, American, DM and
Tacoma were incorporated in Washington on March 13, 1963, October 27, 1966, July
12, 1979 and January 30, 1990, respectively.
Each of the Murrey Companies' Common Stock is owned 90% by one or both of
two trusts. The beneficiary of both trusts is also an officer and director of
the Murrey Companies. The remaining stock is owned by two individuals (5% each)
who are also officers and directors of the Murrey Companies.
BASIS OF COMBINATION
The combined financial statements of the Murrey Companies include the
accounts of Murrey's, American, DM and Tacoma as a result of their common
management which exercises significant influence over their operations.
Significant intercompany balances and transactions between the Murrey Companies
have been eliminated in combination.
INTERIM FINANCIAL INFORMATION
The unaudited interim combined financial statements as of September 30,
1998 and for the nine months ended September 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 September 30
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Murrey Companies considers all highly liquid investments with a
maturity of three months or less at purchase to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Murrey Companies 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 Murrey Companies' customer base. The Murrey Companies maintain
allowances for
F-48
<PAGE> 124
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
losses based on the expected collectibility of accounts receivable. Credit
losses have been within management's expectations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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>
Buildings............................................... 20 years
Machinery and equipment................................. 5 - 15 years
Rolling stock........................................... 10 years
Containers.............................................. 5 - 15 years
Furniture and fixtures.................................. 3 - 5 years
</TABLE>
In connection with the Acquisitions (Note 3) the Murrey Companies 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 twelve years.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired (Notes 3 and 4), and is amortized on a straight-line
basis over the period of expected benefit of 40 years.
The Murrey Companies continually evaluate the value and future benefits of
its goodwill. The Murrey Companies assess 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 Murrey Companies' best estimate for expected future cash flows of the
related business would be less than the carrying amount of the goodwill over the
remaining amortization period. For the period ending December 31, 1997, there
were no adjustments to the carrying amount of goodwill resulting from these
evaluations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents approximate their fair
values as of December 31, 1996 and 1997. The carrying values of short-term
borrowings (Note 5) and long-term debt (Note 6) 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
The Murrey Companies recognize 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-49
<PAGE> 125
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
INCOME TAXES
DM 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.
Murrey's, American and Tacoma operate 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 these companies' operations
flow through to the individual shareholders.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1996 and 1997 and
September 30, 1998 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings......................... $ 6,316 $ 6,668 $ 6,111
Machinery and equipment.................... 3,518 3,780 3,883
Rolling stock.............................. 6,134 7,570 8,315
Containers................................. 3,140 4,380 5,224
Furniture and fixtures..................... 231 255 242
------- ------- -------
19,339 22,653 23,775
Less accumulated depreciation.............. (6,810) (7,834) (9,404)
------- ------- -------
$12,529 $14,819 $14,371
======= ======= =======
</TABLE>
3. ACQUISITIONS
During 1997, the Murrey Companies purchased substantially all of the assets
of Island Disposal (effective May 2, 1997) and Environmental Waste Systems and
Olympic Disposal (both effective December 1, 1997) (collectively the
"Acquisitions"). The total purchase price for the Acquisitions was approximately
$3,100, comprised of $2,900 in cash and promissory notes payable to the sellers
totaling $200. Of the combined $3,100 purchase price, $1,791 was recorded as
goodwill and $80 was assigned to non-competition agreements. The Acquisitions
were accounted for in accordance with the purchase method of accounting and,
accordingly, the net assets acquired were included in the Murrey Companies'
combined balance sheet based upon their estimated fair values on the date of the
Acquisitions. The Murrey Companies' combined statement of operations includes
the revenues and expenses of the acquired businesses after the effective date of
the transactions.
F-50
<PAGE> 126
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 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 as of
December 31, 1997, for the Acquisitions is as follows:
<TABLE>
<S> <C>
Acquired assets:
Property and equipment.................................... $1,229
Goodwill.................................................. 1,791
Non-competition agreements................................ 80
------
$3,100
======
</TABLE>
The following unaudited pro forma information shows the results of the
Murrey Companies' operations as though the Acquisitions had occurred as of
January 1, 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenue................................................ $27,485 $31,106
======= =======
Net Income............................................. $ 706 $ 1,094
======= =======
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
Acquisitions occurred on January 1, 1996, or the results of future operations of
the Murrey Companies. Furthermore, the pro forma results do not give effect to
all cost savings or incremental costs that may occur as a result of the
integration and consolidation of the Acquisitions.
4. INTANGIBLE ASSETS
Intangible assets as of December 31, 1996 and 1997 and September 30, 1998
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill, net................................ $ -- $1,783 $1,691
Non-competition agreement, net............... -- 79 67
------ ------ ------
$ -- $1,862 $1,758
====== ====== ======
</TABLE>
Accumulated amortization on intangible assets amounted to $9 as of December
31, 1997 (none in 1996) and $113 as of September 30, 1998.
5. SHORT-TERM BORROWINGS
Short-term borrowings consist of various revolving and non-revolving
lines-of-credit with banks, bearing interest at variable rates (ranging from
9.0% to 9.25% as of December 31, 1997) and mature at various dates through
November 30, 1998. The lines of credit are secured by all cash accounts held
with the banks, which totaled $126 as of December 31, 1997. All available
amounts under these lines-of-credit were outstanding as of December 31, 1997.
F-51
<PAGE> 127
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
Certain of these lines-of-credit contain certain restrictive covenants,
which among other things require that specified financial balances and ratios be
maintained. As of December 31, 1997, the Murrey Companies were in compliance
with the covenants.
6. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997 and September 30, 1998
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank bearing interest at a variable
rate (approximately 8.5% as of December 31, 1997);
monthly payments of principal and interest of $25;
maturing in November, 2007; secured by certain cash
accounts and a pledge of one of the Murrey
Companies exclusive franchise agreements........... $ -- $2,000 $1,901
Note payable to a bank bearing interest at 8.6%;
monthly payments of principal and interest
aggregating $13; maturing in October, 2001; secured
by equipment with a net book value of approximately
$533 as of December 31, 1997 and certain cash
accounts........................................... $ -- $ 632 $ 542
Notes payable to a bank bearing interest at various
fixed rates (ranging from 9.1% to 9.2% as of
December 31, 1997); monthly payments of principal
and interest aggregating $25 and one-time payments
of $470 and $751 in September, 2000 and May, 2001,
respectively; maturing at various dates between
September, 2000 and May, 2001; secured by land and
buildings with a net book value of approximately
$2,548 as of December 31, 1997..................... 1,752 1,544 1,393
Equipment financing notes payable bearing interest at
various rates (ranging from 8.6% to 8.8% as of
December 31, 1997); monthly payments of principal
and interest aggregating $25; maturing at various
dates through September, 2001; secured by equipment
with an aggregate net book value of approximately
$984 as of December 31, 1997....................... 567 822 479
Notes payable to sellers bearing interest at various
rates (ranging from 8.5% to 9.0% as of December 31,
1997); monthly principal and interest payments of
$9; maturing at various dates between February,
2001 and October, 2007; secured by land and
buildings with a net book value of approximately
$908 as of December 31, 1997....................... 218 471 295
Unsecured notes payable to seller bearing interest at
8.0% as of December 31, 1997; monthly principal and
interest payments of $4; maturing in June, 2002.... -- 189 100
Others............................................... 242 122 88
------ ------ ------
2,779 5,780 4,798
Less: current portion................................ 928 873 751
------ ------ ------
Long-term debt....................................... $1,851 $4,907 $4,047
====== ====== ======
</TABLE>
F-52
<PAGE> 128
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 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........................................................ $ 873
1999........................................................ 780
2000........................................................ 1,056
2001........................................................ 1,232
2002........................................................ 408
Thereafter.................................................. 1,431
------
$5,780
======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Murrey Companies lease certain equipment and facilities under
non-cancelable operating leases. Rent expense under all operating leases during
the years ended December 31, 1995, 1996 and 1997 amounted to $319, $170 and
$183, respectively.
As of December 31, 1997, future minimum lease payments under these
operating leases, by calendar year, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 187
1999........................................................ 186
2000........................................................ 167
2001........................................................ 107
2002........................................................ 87
Thereafter.................................................. 355
------
$1,089
======
</TABLE>
CONTINGENCIES
Environmental Risks
The Murrey Companies are subject to liability for any environmental damage
that the solid waste facilities they operate 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 operation of such facilities by the Murrey Companies. The Murrey Companies
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 Murrey Companies. Any substantial liability for
environmental damage incurred by the Murrey Companies could have a material
adverse effect on the Murrey Companies' combined financial condition, results of
operations or cash flows.
F-53
<PAGE> 129
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
Legal Proceedings
In the normal course of their business and as a result of the extensive
governmental regulation of the solid waste industry, the Murrey Companies 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 or to revoke or deny renewal of an operating permit held by
the Murrey Companies. From time to time the Murrey Companies may also become
parties to various claims or suits for alleged damages to persons and property,
alleged violations of certain laws and alleged liabilities arising out of
matters occurring during the normal course of operating a waste management
business. However, as of December 31, 1997 and September 30, 1998, there is no
current proceeding or litigation involving the Murrey Companies that the Murrey
Companies believe will have a material adverse impact on the Murrey Companies'
business, financial condition, results of operations or cash flows.
Disposal Site
The Murrey Companies have been informed that the Hidden Valley Landfill
which is currently utilized by them for disposal of waste collected in Pierce
County is currently operating under a Consent Decree with the Washington State
Department of Ecology and the Environmental Protection Agency. Under the terms
of the Consent Decree the Hidden Valley Landfill is required to be closed on or
before December 31, 1998; after which all of the waste collected by the Murrey
Companies in Pierce County will be long hauled to an alternate disposal site
until the new solid waste landfill in Pierce County is opened. The new landfill
is projected to open in November 1999. Management of the Murrey Companies does
not believe that the closure of the Hidden Valley Landfill will have a material
adverse impact on the Murrey Companies' business, combined financial position,
results of operations or cash flows.
Employees
Approximately 44 of the Murrey Companies' route drivers are represented by
the Teamsters Union. The Murrey Companies have a collective bargaining agreement
that expires in June 1999. The Murrey Companies are not aware of any other
organizational efforts among their employees and believes that their relations
with their employees are good.
8. RELATED PARTY TRANSACTIONS
OPERATING LEASE
The Murrey Companies lease land on which certain of their facilities are
located from a shareholder of the Murrey Companies. This lease is pursuant to an
informal arrangement whereby the Murrey Companies pay all of the property taxes
and other expenses associated with the leased land in lieu of monthly rent.
These payments totaled approximately $10 during each of the years ended December
31, 1995, 1996, and 1997.
ADVANCES
As of December 31, 1996 and 1997, the Murrey Companies had non-interest
bearing advances payable to one of their shareholders totaling $818 and $543,
respectively.
F-54
<PAGE> 130
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
DISPOSAL FEES
During the years ended December 31, 1995, 1996 and 1997, the Murrey
Companies paid $7,355, $7,730, and $8,592, respectively, in disposal fees to a
landfill that is owned and operated by a company in which one of the Murrey
Companies shareholders has an approximate 33% ownership interest.
9. 401(k) PLAN
The Murrey Companies have a voluntary savings and investment plan (the
"401(k) Plan"). The 401(k) Plan is available to all eligible, non-union
employees of the Murrey Companies. Under the 401(k) Plan the Murrey Companies'
contributions are at the discretion of management of the Murrey Companies.
During the years ended December 31, 1995, 1996 and 1997, the Murrey Companies'
401(k) Plan expense was approximately $246, $267 and $316, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes for the Murrey Companies pertains
solely to DM and consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal:
Current................................................... $543 $562 $678
Deferred.................................................. 147 (19) (44)
---- ---- ----
$690 $543 $634
==== ==== ====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain expense items for income tax and financial reporting purposes. The
Murrey Companies' deferred taxes as of December 31, 1996 and 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 federal statutory
income tax rate and the effective income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ----- -----
<S> <C> <C> <C>
Federal expense expected at statutory rates on combined
income before income taxes................................ $1,331 $410 $663
Tax effect of companies reporting under Subchapter S........ (645) 124 (42)
Other....................................................... 4 9 13
------ ---- ----
$ 690 $543 $634
====== ==== ====
</TABLE>
11. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in Note 1, Murrey's, American, and Tacoma (the "S
Corporations") operate under Subchapter S of the Internal Revenue Code and are
not subject to federal income taxes. In connection with the Murrey Companies'
proposed merger with Waste Connections, Inc. ("WCI") (Note 12), the Subchapter S
election will be terminated. As a result, the S Corporations (as wholly-owned
subsidiaries of
F-55
<PAGE> 131
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
WCI) will be subject to corporate income taxes subsequent to the termination of
S corporation status. The Murrey Companies had combined income for income tax
purposes of $2,769, $2,135 and $1,941 for 1995, 1996 and 1997, respectively. Had
the Murrey Companies filed federal income tax returns as regular corporations
for 1995, 1996 and 1997, income tax expense under the provisions of Financial
Accounting Standards No. 109 would have been $1,338, $432 and $697,
respectively.
The following unaudited pro forma information reflects income tax expense
(benefit) for the Murrey Companies as if the S Corporations had also been
subject to federal income taxes:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1995 1996 1997
------ ----- ----
<S> <C> <C> <C>
Federal:
Current................................................... $ 941 $ 726 $660
Deferred.................................................. 397 (294) 37
------ ----- ----
Pro forma income taxes...................................... $1,338 $ 432 $697
====== ===== ====
</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
certain non-deductible expenses.
The Murrey Companies pro forma deferred income tax asset of approximately
$98 and $71 as of December 31, 1996 and 1997, respectively, relates principally
to differences in the recognition of bad debt expenses, vacation accruals, and
certain other temporary differences. The Murrey Companies also had pro forma
deferred tax liabilities as of December 31, 1996 and 1997 of approximately
$1,322 and $1,332 which relate to differences between tax and financial methods
of depreciation and the use of the cash method of accounting for tax purposes by
certain of the S Corporations.
12. SUBSEQUENT EVENT
MERGER OF THE MURREY COMPANIES
On October 22, 1998, the Murrey Companies and WCI jointly announced that
they had signed a definitive agreement under which the Murrey Companies will
merge with wholly-owned subsidiaries of WCI. Under the terms of the agreement,
substantially all shares of common stock of the Murrey Companies will be
exchanged for 2.75 million shares of WCI common stock (subject to adjustment at
the date of consummation of the Merger). The transaction is expected to be
accounted for as a pooling of interests and is expected to close during the
fourth quarter of calendar 1998.
13. YEAR 2000 (UNAUDITED)
The Murrey Companies will need to modify or replace portions of their
software so that their computer systems will function properly with respect to
dates in the year 2000 ("Year 2000") and thereafter. To date, the Murrey
Companies have not incurred any costs related to the Year 2000 project. The
Murrey Companies do not believe that their 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 their operations.
F-56
<PAGE> 132
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.
/s/ ERNST & YOUNG LLP
Sacramento, California
February 20, 1998
F-57
<PAGE> 133
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-58
<PAGE> 134
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-59
<PAGE> 135
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-60
<PAGE> 136
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-61
<PAGE> 137
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-62
<PAGE> 138
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-63
<PAGE> 139
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-64
<PAGE> 140
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-65
<PAGE> 141
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-66
<PAGE> 142
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.
/s/ ERNST & YOUNG LLP
Sacramento, California
July 8, 1998
F-67
<PAGE> 143
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-68
<PAGE> 144
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-69
<PAGE> 145
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-70
<PAGE> 146
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-71
<PAGE> 147
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-72
<PAGE> 148
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-73
<PAGE> 149
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-74
<PAGE> 150
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-75
<PAGE> 151
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-76
<PAGE> 152
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-77
<PAGE> 153
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-78
<PAGE> 154
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-79
<PAGE> 155
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-80
<PAGE> 156
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-81
<PAGE> 157
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-82
<PAGE> 158
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-83
<PAGE> 159
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-84
<PAGE> 160
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-85
<PAGE> 161
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-86
<PAGE> 162
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-87
<PAGE> 163
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-88
<PAGE> 164
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Members
Contractor's Waste Removal, L.C.
We have audited the accompanying balance sheet of Contractor's Waste
Removal, L.C. as of December 31, 1997, and the related statements of operations
and change in members' deficit 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 Contractor's Waste Removal,
L.C. at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Sacramento, California
August 26, 1998
F-89
<PAGE> 165
CONTRACTOR'S WASTE REMOVAL, L.C.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $75........................................ $ 256 $ 222
Property and equipment:
Containers................................................ 1,332 1,703
Furniture and fixtures.................................... 104 104
Vehicles.................................................. 454 562
------ ------
1,890 2,369
Less: accumulated depreciation and amortization............. 316 375
------ ------
1,574 1,994
Other assets................................................ 34 14
------ ------
$1,864 $2,230
====== ======
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Overdraft on bank balance................................. $ 35 $ 38
Accounts payable.......................................... 291 135
Accrued liabilities....................................... 121 71
Lines of credit........................................... 392 392
Current portion of long-term debt......................... 510 1,025
Current portion of notes payable to members............... 50 50
Current portion of capital lease obligations.............. 59 59
------ ------
Total current liabilities......................... 1,458 1,770
Long-term debt.............................................. 375 518
Notes payable to members.................................... 95 95
Capital lease obligations................................... 180 178
Commitments and contingencies (Note 6)
Members' deficit............................................ (244) (331)
------ ------
$1,864 $2,230
====== ======
</TABLE>
See accompanying notes.
F-90
<PAGE> 166
CONTRACTOR'S WASTE REMOVAL, L.C.
STATEMENTS OF OPERATIONS AND CHANGE IN MEMBERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $1,903 $ 377 $ 438
Operating expenses:
Cost of operations........................................ 1,234 262 315
Selling, general and administrative....................... 359 67 97
Depreciation and amortization............................. 202 48 59
------ ----- -----
Income (loss) from operations............................... 108 -- (33)
Interest expense............................................ (178) (40) (54)
------ ----- -----
Net loss.................................................... (70) (40) (87)
Members' withdrawals........................................ (14) -- --
------ ----- -----
Net change in members' deficit.............................. (84) (40) (87)
Members' deficit, beginning of period....................... (160) (160) (244)
------ ----- -----
Members' deficit, end of period............................. $ (244) $(200) $(331)
====== ===== =====
</TABLE>
See accompanying notes.
F-91
<PAGE> 167
CONTRACTOR'S WASTE REMOVAL, L.C.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (70) $ (40) $ (87)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 202 48 59
Changes in operating assets and liabilities:
Accounts receivable, net............................. (83) (18) 34
Other assets......................................... (27) (1) 20
Accounts payable..................................... 105 (81) (156)
Accrued liabilities.................................. 18 (13) (50)
----- ----- -----
Net cash provided by (used in) operating activities.... 145 (105) (180)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (235) -- --
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and notes payable to
members................................................ 435 229 208
Principal payments on long-term debt and notes payable to
members................................................ (309) (146) (29)
Principal payments on capital lease obligations........... (45) (12) (2)
Member withdrawals........................................ (14) -- --
----- ----- -----
Net cash provided by financing activities................... 67 71 177
----- ----- -----
Net change in overdraft in bank balances.................... (23) (34) (3)
Overdraft in bank balances at beginning of period........... (12) (12) (35)
----- ----- -----
Overdraft in bank balances at end of period................. $ (35) $ (46) $ (38)
===== ===== =====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 151 $ 40 $ 54
===== ===== =====
</TABLE>
See accompanying notes.
F-92
<PAGE> 168
CONTRACTOR'S WASTE REMOVAL, L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Contractor's Waste Removal, L.C. (the "Company") is a Utah limited
liability company. The Company is a non-hazardous solid waste services company
that provides collection, hauling and disposal of materials primarily for
commercial customers in various counties in the State of Utah.
Upon the sale or liquidation of the Company, the members have verbally
agreed that each member will receive an amount equal to their original
contribution basis in the Company as a first priority distribution after payment
of all debt and other obligations of the Company including any notes payable to
members. Remaining proceeds, if any, will be split between the members based
upon their respective ownership percentages of the Company.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 does maintain an allowance
for such credit losses. 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.
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>
Containers.............................................. 10-12 years
Furniture and fixtures.................................. 3-5 years
Vehicles................................................ 5 years
</TABLE>
F-93
<PAGE> 169
CONTRACTOR'S WASTE REMOVAL, L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
REVENUE RECOGNITION
The Company recognizes revenues as services are provided.
INCOME TAXES
In conformity with the Internal Revenue Code and applicable state and local
tax statutes, taxable income or loss of the Company is required to be reported
in the tax returns of the individual members and, accordingly, no provision has
been made in the accompanying financial statements for any federal, state, or
local income taxes.
2. SHORT-TERM BORROWINGS
The Company maintains four revolving lines of credit (the "Lines") with a
financial institution. Under the Lines, the Company may borrow an amount up to
$410. Borrowings under the Lines bear interest at the financial institution's
prime rate (8.5% at December 31, 1997) plus 3.25%. The Lines are secured by the
Company's accounts receivable and equipment and are personally guaranteed by the
members. The Lines had $392 in the aggregate outstanding at December 31, 1997.
3. LONG-TERM DEBT
Long-term debt as of December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Unsecured notes payable to private individuals bearing
interest at 10%; payable in monthly installments of
interest with the principal amount due at maturity;
maturing on May 31, 1998 and July 3, 2010................. $ 282
Equipment financing notes payable; bearing interest at rates
ranging from 8.9% to 13%; payable in monthly installments
of principal plus interest; maturing June 4, 2000 through
June 1, 2003; secured by property and equipment and
personally guaranteed by the members...................... 584
Other....................................................... 19
------
885
Less: current portion....................................... 510
------
Long-term debt.............................................. $ 375
======
</TABLE>
As of December 31, 1997, aggregate contractual future principal payments by
fiscal year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 510
1999........................................................ 101
2000........................................................ 101
2001........................................................ 54
2002........................................................ 14
Thereafter.................................................. 105
------
$ 885
======
</TABLE>
F-94
<PAGE> 170
CONTRACTOR'S WASTE REMOVAL, L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. NOTES PAYABLE TO MEMBERS
The Company has various notes payable to members which bear interest at
rates ranging from 11% to 13% payable in monthly installments of principal and
interest. The notes mature on January 1, 1998 through July 1, 2005.
As of December 31, 1997, aggregate contractual future principal payments by
fiscal year on notes payable to members are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 50
1999........................................................ 15
2000........................................................ 13
2001........................................................ 15
2002........................................................ 14
Thereafter.................................................. 38
------
$ 145
======
</TABLE>
5. CAPITAL LEASE OBLIGATION
Property and equipment includes $443 of equipment under capital lease as of
December 31, 1997. Accumulated amortization for such equipment was $47 as of
December 31, 1997.
The future minimum lease payments under the capital lease along with the
present value of the minimum lease payments as of December 31, 1997 are as
follows:
Minimum lease payments
Year ending December 31:
<TABLE>
<S> <C>
1998........................................................ $ 83
1999........................................................ 77
2000........................................................ 77
2001........................................................ 53
----
Total minimum lease payments................................ 290
Less amount representing interest........................... 51
----
Present value of minimum lease payments..................... 239
Current portion............................................. 59
----
Amounts due after one year.................................. $180
====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases its facilities and certain equipment under
non-cancellable operating leases for periods ranging from 1 to 3 years. Rent
expense under operating leases was approximately $31 for the year ended December
31, 1997. The future minimum lease payments under operating leases are $28, $29
and $15 for the years ended December 31, 1998, 1999, and 2000, respectively.
F-95
<PAGE> 171
CONTRACTOR'S WASTE REMOVAL, L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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, 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 and cash flows.
7. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Company purchased
approximately $98 of containers from a Company 50% owned by a member.
8. 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.
9. SUBSEQUENT EVENTS
ACQUISITION OF UTAH DUMPSTER
The Company entered into an agreement effective January 1, 1998 to purchase
the assets of Utah Dumpster, a non-hazardous solid waste services company, for
total consideration of $600 (consisting primarily of assumed liabilities of Utah
Dumpster). The acquisition will be accounted for as a purchase. No amounts have
been included in the accompanying December 31, 1997 financial statements with
respect to the assets, liabilities, or operations of Utah Dumpster. The
operations of Utah Dumpster have been included in the Company's unaudited
statements of operations for the three months ended March 31, 1998.
SALE OF THE COMPANY
On June 1, 1998, the Company's Members entered into an agreement to sell
all of the Company membership interests to Waste Connections, Inc. ("WCI") for
cash and stock of WCI.
F-96
<PAGE> 172
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Curry Transfer and Recycling, Inc.
We have audited the accompanying consolidated balance sheet of Curry
Transfer and Recycling, Inc. as of December 31, 1997, and the related
consolidated statements 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 consolidated financial position of Curry Transfer
and Recycling, Inc. at December 31, 1997, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Sacramento, California
July 31, 1998
F-97
<PAGE> 173
CURRY TRANSFER AND RECYCLING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE ACCOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 225 $ 297
Marketable securities..................................... 460 478
Accounts receivable....................................... 388 379
Prepaid expenses and other current assets................. 78 49
------ ------
Total current assets.............................. 1,151 1,203
Property and equipment, net................................. 1,244 1,269
Intangible assets, net...................................... 110 107
Other assets................................................ 185 167
------ ------
$2,690 $2,746
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 122 $ 114
Accrued expenses.......................................... 97 104
Accrued income taxes...................................... 159 172
Deferred revenue.......................................... 205 206
Current portion of long-term debt......................... 213 200
Current portion of capital lease obligations.............. 90 101
------ ------
Total current liabilities......................... 886 897
Long-term debt, net of current portion...................... 222 175
Capital lease obligations, net of current portion........... 141 141
Deferred income taxes....................................... 85 85
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock; no par value; 2,500 shares authorized,
issued and outstanding................................. 67 67
Retained earnings......................................... 1,604 1,660
Unrealized holding gains on marketable securities......... 39 75
Treasury stock agreement.................................. (354) (354)
------ ------
Total stockholders' equity.................................. 1,356 1,448
------ ------
$2,690 $2,746
====== ======
</TABLE>
See accompanying notes.
F-98
<PAGE> 174
CURRY TRANSFER AND RECYCLING, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $3,617 $ 800 $ 795
Operating expenses:
Cost of operations........................................ 2,259 548 481
Selling, general and administrative....................... 655 147 159
Depreciation and amortization............................. 260 61 69
------ ------ ------
Income from operations...................................... 443 44 86
Other income (expense):
Interest and dividend income.............................. 25 2 7
Interest expense.......................................... (75) (9) (12)
Gain on sale of assets.................................... 41 -- 9
Other income.............................................. 23 -- --
------ ------ ------
Income before income taxes.................................. 457 37 90
Income tax provision........................................ 183 15 34
------ ------ ------
Net income.................................................. 274 22 56
Retained earnings, beginning of period...................... 1,330 1,330 1,604
------ ------ ------
Retained earnings, end of period............................ $1,604 $1,352 $1,660
====== ====== ======
</TABLE>
See accompanying notes.
F-99
<PAGE> 175
CURRY TRANSFER AND RECYCLING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------
1997 1997 1998
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 274 $ 22 $ 56
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 260 61 69
Deferred income taxes..................................... 9 -- --
Gain on sale of assets.................................... (41) -- (9)
Changes in operating assets and liabilities:
Accounts receivable.................................... (26) (22) 9
Prepaid expenses and other assets...................... (16) (29) 29
Accounts payable....................................... (3) (21) (8)
Accrued expenses....................................... 16 44 7
Accrued income taxes................................... 88 15 13
Deferred revenue....................................... 17 5 1
----- ---- ----
Net cash provided by operating activities................... 578 75 167
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (218) (9) (19)
Proceeds from sale of property and equipment.............. 89 -- 22
Purchases of marketable securities........................ (125) (52) (18)
Proceeds from sale of marketable securities............... 72 -- --
----- ---- ----
Net cash used in investing activities....................... (182) (61) (15)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ $(156) $(14) $(51)
Proceeds from long-term debt.............................. -- --
Payments of revolving line of credit...................... (32) (23) --
Payments for acquisition of treasury stock................ (30) (8)
Payments on capital lease obligations..................... (71) (6) (29)
----- ---- ----
Net cash used in financing activities....................... (289) (51) (80)
----- ---- ----
Net increase (decrease) in cash and cash equivalents........ 107 (37) 72
Cash and cash equivalents, beginning of period.............. 118 118 225
----- ---- ----
Cash and cash equivalents, end of period.................... $ 225 $ 81 $297
===== ==== ====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest.................................... $ 49
=====
Cash paid for income taxes................................ $ 131
=====
Purchase of equipment with capital lease obligations...... $ 182
=====
Sale of land for note receivable............................ $ 27
=====
</TABLE>
See accompanying notes.
F-100
<PAGE> 176
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Curry Transfer and Recycling, Inc. ("CTR") provides full service waste
disposal to residential and commercial customers in the Curry County, Oregon
area including the cities of Brookings, Gold Beach, and Port Orford and the
unincorporated areas of Curry County under exclusive franchise agreements that
expire from 2009 to 2011.
Oregon Waste Technology, Inc. ("OWT"), a wholly-owned subsidiary of CTR,
provides sani-can rentals, septic tank pumping, and drain maintenance to the
general public in the Curry County area including the cities of Brookings, Gold
Beach, and Port Orford and the unincorporated areas of Curry County.
SALE OF THE COMPANY
On June 25, 1998, the Company's stockholders entered into an agreement to
sell all capital stock in the Company to Waste Connections, Inc. ("WCI") for
cash.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements includes the accounts of CTR and OWT
(collectively, "the Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance,
repairs, and minor renewals are charged to operations as incurred. Improvements
and betterments that significantly extend the life of an asset are capitalized.
F-101
<PAGE> 177
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
Depreciation is calculated using the straight-line method over the
estimated useful life of the asset. Machinery and equipment have lives between 5
and 10 years. Buildings and improvements have lives between 15 and 30 years.
Assets purchased under capital leases are depreciated using the straight-line
method over the estimated useful life of the asset or the lease term, whichever
is shorter.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company grants credit to qualified local customers and generally does not
require collateral. 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.
INTANGIBLE ASSETS
Intangible assets are comprised of the following at December 31, 1997:
<TABLE>
<S> <C>
Goodwill.................................................... $ 137
Franchise agreements........................................ 235
Covenants not to compete.................................... 27
Other....................................................... 1
-----
400
Accumulated amortization.................................... (290)
-----
$ 110
=====
</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.
Franchise agreements are amortized on a straight-line basis over the period of
expected benefits of 9 to 10 years. The covenants not to compete are amortized
on a straight-line basis over the period of expected benefit.
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.
F-102
<PAGE> 178
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
2. MARKETABLE SECURITIES
Marketable securities consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL FAIR MARKET
NUMBER OF SHARES COST VALUE
---------------- -------- -----------
<S> <C> <C> <C>
Nuveen Municipal Bond Fund................. 30,640 $298 $340
====== ==== ====
Putnam Investments Mutual funds............ 4,351 $ 96 $ 96
====== ==== ====
Nuveen Growth and Income Fund.............. 835 $ 21 $ 19
====== ==== ====
Certificate of deposit..................... N/A $ 5 $ 5
====== ==== ====
</TABLE>
For the year ended December 31, 1997, a gain of $3 was realized using the
average cost of shares sold.
The Nuveen Municipal Bond Fund shares are classified as available for sale
marketable debt securities.
Total approximate fair market values of marketable securities at December
31, 1997 were $460, and were determined using quoted market prices. The net
unrealized holding gains on available for sale securities have been included as
a separate component of stockholders' equity and increased $9 during 1997.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land................................................ $ 112 $ 112
Buildings........................................... 340 340
Machinery and equipment............................. 2,080 2,170
Leased machinery and equipment...................... 423 424
------- -------
2,955 3,046
Less: accumulated depreciation...................... (1,711) (1,777)
------- -------
Total fixed assets, net................... $ 1,244 $ 1,269
======= =======
</TABLE>
F-103
<PAGE> 179
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Mortgage payable to an individual; bearing interest at
10.25%; payable in monthly installments of $1 through June
26, 2001; secured by land with a net book value of $12 at
December 31, 1997......................................... $ 32
Notes payable to lending institutions; bearing interest
ranging from 8.75 to 11%; payable in monthly installments
ranging from $1 to $2 through December 18, 1999; secured
by various equipment and vehicles with a net book value of
$104 at December 31, 1997................................. 54
Note payable to banks; bearing interest ranging from 1.75%
over prime to 14%; payable in one payment of $112 on
September 18, 1998 and monthly installments ranging from
$1 to $2 through February 10, 1999; secured by equipment
and various vehicles with a net book value of $18 at
December 31, 1997, and 30,424 shares of marketable
securities (Note 2)....................................... 135
Note payable to an individual interest imputed at 8%,
payable in monthly installments of $2,500 through December
15, 2007 under a stock purchase agreement secured by
treasury stock............................................ 214
-----
Total long-term debt.............................. 435
Less: current portion....................................... (213)
-----
$ 222
=====
</TABLE>
As of December 31, 1997, the Company has the ability to borrow an
additional $65 on one of its notes payable to a bank.
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........................................................ $213
1999........................................................ 60
2000........................................................ 37
2001........................................................ 30
2002........................................................ 30
Thereafter.................................................. 65
----
$435
====
</TABLE>
CAPITAL LEASE OBLIGATIONS
Capital lease obligations consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Capital lease obligations payable to banks at an imputed
interest rate ranging from 9.75% to 13% payable in monthly
installments ranging from $0.5 to $2 through June 14,
2002; secured by various equipment. vehicles and buildings
with a net book value of $365 at December 31, 1997........ $231
----
Total present value of capital lease obligations............ 231
Less: current portion....................................... (90)
----
$141
====
</TABLE>
F-104
<PAGE> 180
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
As of December 31, 1997, aggregate contractual future lease payments on
capital lease obligations by calendar year are due as follows:
<TABLE>
<S> <C>
1998........................................................ $107
1999........................................................ 75
2000........................................................ 60
2001........................................................ 13
2002........................................................ 7
----
Total payments on capital lease obligations................. 262
Less: amount representing interest.......................... (31)
----
Present value of capital lease obligations.................. $231
====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office equipment. Office equipment and property
is rented under cancellable, month-to-month leases.
The Company currently leases land, under a month-to-month operating lease,
from a stockholder. The monthly rent expense is $3.
The Company leases two garbage trucks under a month-to-month operating
lease from an affiliated company. The monthly rent expense is $5.
The Company leases a transfer station, under an operating lease which
terminates in December 1998. Future minimum rental payments required under the
transfer station lease are $7 in 1998.
Rent expense for the year ended December 31, 1997 was $133.
ENVIRONMENTAL RISKS
The Company is subject to liability for environmental damage that the solid
waste facilities it operates 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 use 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.
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
F-105
<PAGE> 181
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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, 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.
6. TREASURY STOCK AGREEMENT
In November 1993, CTR entered into an agreement to purchase 1,225 shares of
common stock held by one of its stockholders at $368 per share. At December 31,
1997, CTR had paid $139 for 378 shares of stock. The agreement allows for
adjustments to the price per share based on certain future events and requires
the shares to be held in an escrow account pending the Company's payments on a
note payable issued to the former shareholder in connection with the agreement.
As of December 31, 1997, 928 shares were held in escrow.
At December 31, 1997, $354 has been recorded as a contra-equity account,
which reflects $139 of payments made to the former stockholder through December
31, 1997 and a $215 note payable due to the former stockholder (discounted to
its net present value assuming 8% imputed interest).
Subsequent to December 31, 1997, CTR made five payments totaling $13 under
the terms of this agreement, and the entire balance was paid in connection with
the sale of the Company on June 25, 1998.
7. INCOME TAXES
The provision for income taxes for the year ended December 31, 1997
consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $140
State..................................................... 34
Deferred:
Federal................................................... 8
State..................................................... 1
----
$183
====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The Company's deferred taxes as of December 31, 1997 are substantially
comprised of depreciation deducted for tax purposes that will be recorded in
future periods for financial reporting purposes.
F-106
<PAGE> 182
CURRY TRANSFER AND RECYCLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
The 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................. $155
State and local income taxes, net of Federal benefit........ 23
Other....................................................... 5
----
$183
====
</TABLE>
8. 401(k) PLAN
The Company has a voluntary savings and investment plan (the "Plan"). The
Plan is available to all eligible employees of the Company. Eligible employees
are those which have been employed with the Company for a year or more. The
employees are not required to contribute to the Plan. During the year ended
December 31, 1997, twelve of the nineteen eligible employees participated in the
Plan and the Company's expense was $11.
9. TRUST AGREEMENTS
During 1997, the Company acted as an agent for Curry County, Oregon,
pursuant to two trust agreements by and between the Company, various local
governmental agencies, and a national bank (the "Agreements"). The Agreements
require the Company to collect rates established by Curry County from customers
and remit such funds to the trusts established to provide closure/post closure
funding for two landfills located in or around Curry County, Oregon. No trust
assets or liabilities have been recorded in the Company's financial statements
as of December 31, 1997.
10. 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-107
<PAGE> 183
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
B&B Sanitation
We have audited the accompanying combined balance sheet of B&B Sanitation
(See Note A1) as of December 31, 1997, and the related combined statements of
earnings, stockholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Companies' 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of B&B
Sanitation as of December 31, 1997, and the combined results of their operations
and their combined cash flows for the year then ended in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
October 1, 1998
F-108
<PAGE> 184
B&B SANITATION
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 28 $ 2
Accounts receivable....................................... 200 194
------ ------
Total current assets.............................. 228 196
PROPERTY AND EQUIPMENT -- AT COST, net...................... 925 975
RESTRICTED INVESTMENTS...................................... 41 41
OTHER ASSETS................................................ 32 26
------ ------
$1,226 $1,238
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable.......................................... $ 26 $ 75
Current portion of long-term debt......................... 364 371
Accrued liabilities....................................... 33 26
------ ------
Total current liabilities......................... 423 472
LONG-TERM DEBT, less current maturities..................... 798 774
LANDFILL CLOSURE LIABILITY.................................. 458 477
COMMITMENTS AND CONTINGENCIES (note F)...................... -- --
STOCKHOLDERS' DEFICIT
Common stock.............................................. $ 3 $ 3
Accumulated deficit....................................... (456) (488)
------ ------
(453) (485)
------ ------
$1,226 $1,238
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-109
<PAGE> 185
B&B SANITATION
COMBINED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------
1997 1997 1998
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $1,965 $439 $497
Operating expenses
Cost of operations........................................ 1,074 262 275
Selling, general, and administrative expenses............. 320 75 91
Depreciation.............................................. 259 58 63
------ ---- ----
Total Operating Expenses.......................... 1,653 395 429
------ ---- ----
Operating income.................................. 312 44 68
Other income (expense)
Interest.................................................. (108) (25) (27)
Other..................................................... 1 -- --
------ ---- ----
Total other income (expense)...................... (107) (25) (27)
------ ---- ----
NET EARNINGS...................................... $ 205 $ 19 $ 41
------ ---- ----
Pro forma income tax expense (unaudited) (Note I)........... $ 78 $ 7 $ 16
------ ---- ----
Pro forma net earnings (unaudited) (Note I)................. $ 127 $ 12 $ 25
====== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-110
<PAGE> 186
B&B SANITATION
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
------ ----------- -----
<S> <C> <C> <C>
Balance at January 1, 1997.................................. $3 $(532) $(529)
Distributions............................................... -- (139) (139)
Contributions............................................... -- 10 10
Net earnings................................................ -- 205 205
-- ----- -----
Balance at December 31, 1997................................ 3 (456) (453)
Distributions, net (unaudited).............................. -- (73) (73)
Net earnings (unaudited).................................... -- 41 41
-- ----- -----
Balance at March 31, 1998 (unaudited)....................... $3 $(488) $(485)
== ===== =====
</TABLE>
The accompanying notes are an integral part of this statement.
F-111
<PAGE> 187
B&B SANITATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings.............................................. $ 205 $ 19 $ 41
Adjustments to reconcile net earnings to net cash provided
by operations
Depreciation........................................... 259 57 63
Change in assets and liabilities
Accounts receivable.................................. (45) (18) 6
Other assets......................................... (19) (20) 6
Accounts payable..................................... 10 61 49
Accrued liabilities.................................. 16 2 (7)
Landfill closure liability........................... 56 11 19
----- ----- -----
Net cash provided by operations................... 482 112 177
Cash flows from investing activities
Purchase of property and equipment........................ (383) (120) (113)
Purchase of investments................................... (41) -- --
----- ----- -----
Net cash used in investing activities............. (424) (120) (113)
Cash flows from financing activities
Proceeds from long-term debt.............................. 329 39 --
Payments on long-term debt................................ (253) -- (17)
Distributions to stockholders............................. (139) (24) (73)
Contributions by stockholders............................. 10 -- --
----- ----- -----
Net cash provided by (used in) financing
activities...................................... (53) 15 (90)
----- ----- -----
NET INCREASE (DECREASE) IN CASH................... 5 7 (26)
Cash at beginning of period................................. 23 23 28
----- ----- -----
Cash at end of period....................................... $ 28 $ 30 $ 2
----- ----- -----
Cash paid during the period for interest.................... $ 109 $ 25 $ 27
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-112
<PAGE> 188
B&B SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE A -- BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying combined financial statements include the accounts of B&B
Sanitation, Inc. ("B&B"), Red Carpet Landfill, Inc. ("Red Carpet"), and Darlin
Equipment, Inc. ("Darlin"), collectively referred to as "B&B Sanitation" or the
"Company" which are all owned by the same two shareholders. All significant
intercompany balances and transactions have been eliminated.
B&B's principal operations consist of collection, transfer, and disposal of
nonhazardous solid waste for commercial and residential customers. Red Carpet's
principal operations consist of the operation of the landfill in which B&B
disposes of waste. Darlin's principal operations consist of leasing heavy
equipment to Red Carpet.
NOTE B -- SUMMARY OF ACCOUNTING POLICIES
The summary of the significant accounting policies applied in the
preparation of the accompanying combined financial statements follows.
1. Property and Equipment
Depreciation is provided principally on accelerated methods over estimated
useful lives ranging from three to ten years.
2. Income Taxes
In accordance with B&B's, Red Carpet's, and Darlin's elections under
Subchapter S of the Internal Revenue Code, corporate taxable income is generally
treated as passing directly through to the owners and is not subject to income
tax at the corporate level. Accordingly, no provision has been made for income
taxes.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures; accordingly,
actual results could differ from those estimates.
4. Revenue Recognition
Revenues are recognized as services are provided.
5. Closure and Post-Closure Costs
The Companies have a financial obligation relating to closure and
post-closure costs of its disposal facilities. The Companies have accrued for
these future obligations relating to closure and post-closure costs of its
landfill (generally for a term of thirty years after final closure of the
landfill), based on engineering estimates of current costs of remediation and
consumption of permitted landfill airspace and the remaining useful airspace
volume on the landfill.
6. Restricted Investments
The Companies have placed certain monies to be used only for landfill
closure and post-closure liabilities in a trust account for the benefit of the
State of Oklahoma. The Companies' securities held as restricted investments are
classified as trading and are recorded at fair value on the balance sheet with
the change in fair value for the period included in earnings. The securities
have a fair value of $40 at December 31, 1997 with gross unrealized gains of $0
and gross unrealized losses of $1.
F-113
<PAGE> 189
B&B SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE B -- SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
7. Accounts Receivable
The Companies consider accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
8. Interim Financial Information
The unaudited interim financial statements as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
NOTE C -- PROPERTY AND EQUIPMENT
At December 31, 1997, property and equipment consisted of the following:
<TABLE>
<S> <C>
Equipment................................................... $2,140
Landfill.................................................... 83
Modular buildings........................................... 14
------
2,237
Less accumulated depreciation............................. 1,385
------
852
Land........................................................ 73
------
$ 925
======
</TABLE>
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to bank; payable in monthly installments of
$29, including interest at prime plus 1% (9.5% at December
31, 1997) through May 2001; collateralized by equipment,
accounts receivable, land, and stock of the Companies....... $ 983
Line of credit with bank, monthly interest payments at 9.5%
with principal due May 1998; collateralized by trucks and
equipment................................................... 80
Note payable to individual; payable in monthly installments
of principal and interest at 10.06% through June 2006;
uncollateralized............................................ 34
Note payable to individual; payable in monthly installments
of principal and interest at 8% through March 2001;
uncollateralized............................................ 30
Note payable to individual; payable in monthly installments
of principal and interest at 9% through July 2002;
uncollateralized............................................ 22
Note payable to finance company, payable in monthly
installments of principal and interest at 4.8% through May
2000; collateralized by vehicle............................. 13
----------
1,162
Less current maturities................................... 364
----------
$ 798
==========
</TABLE>
F-114
<PAGE> 190
B&B SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE D -- LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt for years ending December 31
are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 364
1999........................................................ 312
2000........................................................ 338
2001........................................................ 113
2002........................................................ 6
2003 and thereafter......................................... 29
------
$1,162
======
</TABLE>
The note payable to bank contains certain covenants, the most significant
of which are restrictions on personal draws and salaries of the owners and
maintaining no less than a 125% debt service coverage ratio, as defined.
NOTE E -- COMMON STOCK
The following is a description of the common stock for the Companies:
<TABLE>
<S> <C>
B&B $1 par value; authorized, 50,000 shares; issued and
outstanding, 500 shares
Red Carpet $1 par value; authorized, 1,000 shares; issued and
outstanding, 1,000 shares
Darlin $1 par value; authorized, 1,000 shares, issued and
outstanding, 1,000 shares
</TABLE>
NOTE F -- COMMITMENTS AND CONTINGENCIES
The Companies are 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. The Companies may also be subject to
liability for any off-site environmental contamination caused by pollutants or
hazardous substances whose transportation, treatment, or disposal was performed
by the Companies. Any substantial liability for environmental damage incurred by
the Companies could have a material adverse effect on their financial condition,
results of operations, or cash flows. As of December 31, 1997, the Companies are
not aware of any such environmental liabilities.
The Companies have four operating lease agreements under which the
Companies lease heavy trucks over periods ranging from 48 to 60 months. These
agreements provide for monthly lease payments over the term of the leases and
options to purchase the trucks for fair value at the end of the lease term.
Lease expense was approximately $97 for the year ended December 31, 1997. The
future minimum annual rental commitments on operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1998............................................... $ 91
1999............................................... 76
2000............................................... 46
2001............................................... 4
----
$217
====
</TABLE>
F-115
<PAGE> 191
B&B SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE G -- EMPLOYEE BENEFIT PLAN
The Companies have a defined contribution 401(k) savings and retirement
plan in effect for all qualifying employees. General and administrative expense
includes $18 for the year ended December 31, 1997 for this plan. The Companies
match employee contributions at rates determined by management.
NOTE H -- SUBSEQUENT EVENT
On June 5, 1998, the Companies were acquired by Waste Connections, Inc. for
approximately $4,600, including liabilities of the Companies of approximately
$1,400 which were paid off at closing.
NOTE I -- PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
Unaudited pro forma information reflects income tax expense as if the
Companies had been subject to federal and state income taxes on a combined
basis. The pro forma provisions for income taxes for the year ended December 31,
1997 and the three month period ended March 31, 1997 and 1998 differ from the
amounts computed by applying the applicable statutory federal income tax rate
(34%) to income before income taxes primarily due to state income taxes.
The following is a summary of pro forma income taxes for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 85
State..................................................... 5
Deferred:
Federal................................................... (11)
State..................................................... (1)
----
Pro forma income taxes...................................... $ 78
====
</TABLE>
The Companies' pro forma deferred income tax assets of approximately $268
at December 31, 1997 relate principally to the use of the cash method of
accounting for income tax purposes and certain landfill closure liabilities not
recognized for tax purposes.
F-116
<PAGE> 192
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
J & J Sanitation
We have audited the accompanying combined balance sheet of J & J Sanitation (See
Note A 1.) as of December 31, 1997, and the related combined statements of
operations, stockholders' and partners' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of J & J
Sanitation'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 combined financial position of J & J Sanitation at
December 31, 1997, and the combined results of their operations and their
combined cash flows for the year then ended in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Lincoln, Nebraska
October 7, 1998
F-117
<PAGE> 193
J & J SANITATION
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 28 $ 48
Accounts receivable, less allowance for doubtful accounts
of $14 at December 31, 1997............................ 184 220
Prepaid expenses.......................................... 9 14
------ ------
Total current assets.............................. 221 282
Property and equipment, net................................. 1,120 1,054
------ ------
$1,341 $1,336
====== ======
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 96 $ 154
Deferred revenue.......................................... 28 14
Accrued liabilities....................................... 53 54
Note payable.............................................. -- 9
Current portion of long-term debt......................... 67 60
Current portion of capital lease obligations.............. 129 112
------ ------
Total current liabilities......................... 373 403
Long-term debt, net of current portion...................... 616 647
Capital lease obligations, net of current portion........... 372 323
Commitments and contingencies (Note D)
Stockholders' and partners' deficit:
J & J Sanitation Inc. -- common stock: $10 par value;
1,000 shares authorized, issued and outstanding........ 10 10
Big Red Roll Off Inc. -- common stock: $10 par value;
1,000 shares authorized, issued and outstanding........ 10 10
Paid in capital........................................... 77 77
Accumulated deficit....................................... (40) (62)
Partners' deficit -- J & J Sanitation of South Dakota..... (77) (72)
------ ------
Total stockholders' and partners' deficit......... (20) (37)
------ ------
$1,341 $1,336
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-118
<PAGE> 194
J & J SANITATION
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------
1997 1997 1998
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $2,346 $1,162 $1,210
Operating expenses:
Cost of operations........................................ 1,789 884 854
Selling, general and administrative....................... 319 135 213
Depreciation and amortization............................. 197 101 107
------ ------ ------
2,305 1,120 1,174
------ ------ ------
Income from operations................................. 41 42 36
Interest expense............................................ 108 55 53
------ ------ ------
Loss before income taxes............................... (67) (13) (17)
Income tax benefit.......................................... -- -- --
------ ------ ------
NET LOSS............................................... $ (67) $ (13) $ (17)
====== ====== ======
Pro forma income tax benefit (unaudited) (Note E)........... $ -- $ -- $ --
====== ====== ======
Pro forma net loss (unaudited) (Note E)..................... $ (67) $ (13) $ (17)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-119
<PAGE> 195
J & J SANITATION
COMBINED STATEMENT OF STOCKHOLDERS' AND PARTNERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND THE SIX MONTHS ENDED JUNE 30, 1998
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
J & J BIG RED STOCKHOLDERS'
SANITATION, INC. ROLL OFF INC. AND
COMMON STOCK COMMON STOCK PARTNERS' PARTNERS'
----------------- --------------- PAID-IN ACCUMULATED EQUITY EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT) (DEFICIT)
------- ------- ------ ------ ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... -- $-- -- $-- $-- $ -- $ 11 $ 11
Issuance of common stock....... -- -- 1,000 10 15 -- -- 25
Exchange of partners' equity
for common stock............. 1,000 10 -- -- 46 -- (56) --
Net loss....................... -- -- -- -- -- (40) (27) (67)
Partners' drawings............. -- -- -- -- -- -- (5) (5)
Contributions from
stockholders................. -- -- -- -- 16 -- -- 16
----- --- ----- --- --- ---- ---- ----
Balance at December 31, 1997... 1,000 10 1,000 10 77 (40) (77) (20)
Net income (loss).............. -- -- -- -- -- (22) 5 (17)
----- --- ----- --- --- ---- ---- ----
Balance at June 30, 1998....... 1,000 $10 1,000 $10 $77 $(62) $(72) $(37)
===== === ===== === === ==== ==== ====
</TABLE>
The accompanying notes are an integral part of this statement.
F-120
<PAGE> 196
J & J SANITATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ----- ----
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (67) $ (13) $(17)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 197 101 107
Changes in operating assets and liabilities:
Accounts receivable, net............................... (6) (17) (36)
Prepaid expenses....................................... (3) (10) (5)
Accounts payable....................................... 16 85 58
Deferred revenue....................................... 4 (12) (14)
Accrued liabilities.................................... 15 2 1
----- ----- ----
Net cash provided by operating activities......... 156 136 94
----- ----- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (138) (4) (53)
----- ----- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and notes payable............ 635 -- 76
Principal payments on long-term debt and capital lease
obligations............................................ (694) (142) (97)
Issuance of common stock.................................. 25 25 --
Contributions from stockholders........................... 16 -- --
Partners' drawings........................................ (5) -- --
----- ----- ----
Net cash used in financing activities............. (23) (117) (21)
----- ----- ----
Net change in cash and cash equivalents..................... (5) 15 20
Cash and cash equivalents:
Beginning of period....................................... 33 33 28
----- ----- ----
End of period............................................. $ 28 $ 48 $ 48
===== ===== ====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest.................................... $ 108 $ 55 $ 53
Capital lease obligations incurred for the purchase of
property and equipment................................. 88 88 --
Partners' equity exchanged for J & J Sanitation Inc.
common stock........................................... 56 56 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-121
<PAGE> 197
J & J SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE A -- ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation and Organization and Business
The combined financial statements include the accounts of J & J Sanitation
Inc., Big Red Roll Off Inc. and J & J Sanitation of South Dakota (a
partnership), collectively referred to as "J & J Sanitation". These entities are
under common control. All material intercompany accounts and transactions have
been eliminated.
J & J Sanitation 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 and South Dakota.
J & J Sanitation 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. J & J Sanitation intends to bid on additional
municipal contracts as a means of adding customers. There can be no assurance
that J & J Sanitation will be the successful bidder to obtain or retain
contracts that come up for competitive bidding.
2. Sale of J & J Sanitation
On July 31, 1998, all capital stock and partnership net assets of J & J
Sanitation were sold 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
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 ending December 31,
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
J & J Sanitation 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 J & J Sanitation 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 J & J Sanitation's customer base. Credit losses have been within
management's expectations.
F-122
<PAGE> 198
J & J SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE A -- ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
7. 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>
Machinery and equipment................................. 3 - 10 years
Rolling stock........................................... 5 - 10 years
Containers.............................................. 5 - 12 years
</TABLE>
8. Revenue Recognition
J & J Sanitation 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.
9. Income Taxes
Big Red Roll Off Inc. 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.
J & J Sanitation Inc. operates under Subchapter "S" of the Internal Revenue
Code and J & J Sanitation of South Dakota operates as a partnership for federal
and state income tax reporting purposes. Consequently, all of the income tax
attributes and liabilities from the operations of J & J Sanitation Inc. and
J & J Sanitation of South Dakota flow through to the individual shareholders or
partners.
10. Fair Value of Financial Instruments
The carrying values of the long-term debt (Note C) and capital lease
obligations (Note D) approximate their fair values as of December 31, 1997 based
on current incremental borrowing rates for similar types of borrowing
arrangements.
11. Significant Customer
The Company has one major customer which represents 11% of total revenues
for the year ended December 31, 1997.
F-123
<PAGE> 199
J & J SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rolling stock....................................... $1,107 $1,074
Containers.......................................... 287 287
Other............................................... 161 214
------ ------
1,555 1,575
Less accumulated depreciation and amortization...... 435 521
------ ------
$1,120 $1,054
====== ======
</TABLE>
NOTE C -- FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Notes payable to banks bearing interest at fixed and
variable rates ranging from 7.9% to 10% at
December 31, 1997, payable in monthly installments
of principal and interest; maturing through
January 2008...................................... $683 $707
Less current portion................................ 67 60
---- ----
Long-term debt, net of current portion.............. $616 $647
==== ====
</TABLE>
At the end of 1997, J & J Sanitation entered into a new credit arrangement
with a bank which included a $60 line of credit maturing December 31, 1998 and a
term note for $625 maturing January 2008. Borrowings bear interest at a variable
rate based on the bank's index rate less 1.75% to 1.80%. The initial rates of
the line of credit and term note were 10% and 9.95%, respectively. The term note
was used for refinancing certain notes payable to banks, equipment purchases and
general operating purposes. At December 31, 1997, no amounts were outstanding on
the line of credit.
The notes payable to banks and the line of credit are collateralized by
substantially all of J & J Sanitation's assets. J & J Sanitation is subject to
certain restrictive covenants with its primary lender, which among other things,
limit the incurring of additional indebtedness without the lender's written
approval.
Subsequent to December 31, 1997, aggregate contractual future principal
payments by year are $67 in 1998, $63 in 1999, $49 in 2000, $54 in 2001, $57 in
2002 and $393 thereafter.
In conjunction with the acquisition of J & J Sanitation by WCI on July 31,
1998, all of the outstanding long-term debt of J & J Sanitation was repaid.
NOTE D -- COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
J & J Sanitation leases certain rolling stock under long-term leases
expiring through 2002 which have been capitalized. The related assets and
obligations have been recorded using J & J Sanitation's implicit
F-124
<PAGE> 200
J & J SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE D -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
borrowing rate at the inception of the leases. At the expirations of such
leases, J & J Sanitation has the option to purchase the rolling stock at an
agreed-upon residual value.
The following amounts are included in property and equipment as rolling
stock under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rolling stock....................................... $690 $657
Less accumulated amortization....................... 200 236
---- ----
$490 $421
==== ====
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $171
1999........................................................ 131
2000........................................................ 148
2001........................................................ 133
2002........................................................ 18
----
Total minimum lease payments................................ 601
Less amount representing interest........................... 100
----
$501
====
Current portion............................................. $129
Long-term portion........................................... 372
----
$501
====
</TABLE>
J & J Sanitation also leases certain facilities and other equipment under
operating leases expiring through 1999. Minimum rental payments under such
operating leases in 1998, 1999 and in the aggregate are $5, $2 and $7,
respectively. J & J Sanitation recognized rent expense under these operating
leases totaling $39 in 1997.
In conjunction with the acquisition of J & J Sanitation by WCI on July 31,
1998, the rolling stock under capital leases was acquired at values
approximating the capital lease obligation at that date and the related leases
were terminated.
CONTINGENCIES
Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, J & J Sanitation 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 J & J Sanitation or to revoke or deny renewal of an
operating permit held by J & J Sanitation. From time to time J & J Sanitation
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 J & J Sanitation operates.
F-125
<PAGE> 201
J & J SANITATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE D -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, J & J Sanitation 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. As of December 31, 1997,
there is no current proceeding or litigation involving J & J Sanitation that
management believes will have a material adverse impact on J & J Sanitation's
business, financial condition, results of operations or cash flows.
NOTE E -- INCOME TAXES
Unaudited pro forma information reflects income taxes as if all of J & J
Sanitation had been subject to federal and state income taxes.
The income tax benefit and unaudited pro forma income tax benefit for the
year ended December 31, 1997 differs from the amounts computed by applying the
applicable statutory federal income tax rate (34%) to loss before income taxes
as follows:
<TABLE>
<CAPTION>
PRO FORMA
INCOME TAX INCOME TAX
BENEFIT BENEFIT
---------- -----------
(UNAUDITED)
<S> <C> <C>
Income tax benefit at the statutory rate................ 34.0% 34.0%
Income taxed at shareholder level....................... (34.0) --
Valuation allowance..................................... -- (34.0)
----- -----
--% --%
===== =====
</TABLE>
Unaudited pro forma deferred income tax assets at December 31, 1997 are
fully offset by a valuation allowance as there is no assurance the deferred tax
assets would be realized. Unaudited pro forma deferred tax assets arise
principally from the loss in the current year, 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 F -- RELATED PARTY TRANSACTIONS
Great Plains Recycling Inc. (GPR) has an arrangement with J & J Sanitation
to perform solid waste processing, recyclable recovery, transfer and disposal
services. J & J Sanitation's stockholders and partners are majority owners of
GPR. Cost of operations in the combined statement of operations for 1997
includes a charge of $672 for these services. At December 31, 1997, J & J
Sanitation owes GPR $84 which is included in accounts payable.
In conjunction with the acquisition of J & J Sanitation by WCI on July 31,
1998, WCI entered into a long-term agreement with GPR to provide comparable
services. WCI also has the option to acquire GPR effective November 1999
provided GPR achieves defined levels of profitability.
F-126
<PAGE> 202
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Amador Disposal Services, Inc. and
Mother Lode Sani-Hut, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the combined financial position of
Amador Disposal Services, Inc. and Mother Lode Sani-Hut, Inc. (collectively, the
Companies) at June 30, 1998, and the combined results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Companies' management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
December 30, 1998
F-127
<PAGE> 203
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
---------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 162,963 $ 239,048
Trade accounts receivable, net............................ 183,369 190,386
Prepaid expenses and other current assets................. 17,680 76,202
---------- ----------
Total current assets.............................. 364,012 505,636
Property, plant and equipment, net.......................... 2,174,042 2,106,705
Other assets................................................ 30,000 30,000
---------- ----------
Total assets...................................... $2,568,054 $2,642,341
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... 42,631 38,055
Accounts payable.......................................... 95,249 86,984
Accrued liabilities....................................... 100,251 144,640
---------- ----------
Total current liabilities......................... 238,131 269,679
Long-term debt, net......................................... 1,164,720 1,157,766
---------- ----------
Total liabilities................................. 1,402,851 1,427,445
---------- ----------
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, no par value; 2,500 shares authorized,
issued and outstanding................................. 181,000 181,000
Common stock, $100 par value; 5,000 shares authorized, 75
shares issued and outstanding.......................... 7,500 7,500
Additional paid-in capital................................ 118,430 118,430
Retained earnings......................................... 858,273 907,966
---------- ----------
Total stockholders' equity........................ 1,165,203 1,214,896
---------- ----------
Total liabilities and stockholders' equity........ $2,568,054 $2,642,341
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-128
<PAGE> 204
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, ----------------------
1998 1997 1998
---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................................ $2,996,013 $ 758,169 $845,601
OPERATING EXPENSES:
Cost of operations.................................... 2,123,800 532,296 563,277
General and administrative............................ 507,256 110,777 129,165
Depreciation and amortization......................... 311,731 70,562 73,656
---------- ---------- --------
Income from operations........................ 53,226 44,534 79,503
OTHER INCOME AND EXPENSE:
Interest expense...................................... (115,702) (25,929) (29,220)
Other (expense) income, net........................... (18,810) 721 1,010
---------- ---------- --------
(Loss) income before income taxes............. (81,286) 19,326 51,293
Income tax provision.................................... 1,600 1,600 1,600
---------- ---------- --------
Net (loss) income............................. (82,886) 17,726 49,693
Balance of retained earnings, beginning of period....... 991,159 989,823 858,273
Dividends paid........................................ (50,000) -- --
---------- ---------- --------
Balance of retained earnings, end of period............. $ 858,273 $1,007,549 $907,966
========== ========== ========
Pro forma income tax (benefit) provision (unaudited)
(Note 6).............................................. $ (19,224) $ 4,059 $ 10,901
========== ========== ========
Pro forma net (loss) income (unaudited) (Note 6)........ $ (62,062) $ 15,267 $ 40,392
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-129
<PAGE> 205
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, ---------------------
1998 1997 1998
---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income...................................... $ (82,886) $ 17,726 $ 49,693
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization....................... 311,731 70,562 73,656
Loss (gain) on disposals of property and
equipment......................................... 21,152 204 (159)
Cash provided by or (used in) changes in operating
assets and liabilities, net:
Accounts receivable............................... (21,226) 2,323 (7,018)
Prepaid expenses.................................. 7,597 (54,963) (58,520)
Other assets...................................... -- 8,367 --
Accounts payable.................................. 8,671 13,030 (8,265)
Accrued liabilities............................... (1,283) 29,807 44,389
--------- --------- --------
Net cash provided by operating activities...... 243,756 87,056 93,776
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment................. (306,658) (256,727) (9,160)
Proceeds from the sale of equipment.................... 1,180 700 3,000
--------- --------- --------
Net cash used in investing activities.......... (305,478) (256,027) (6,160)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................... 258,000 258,000 --
Principal payments on long-term debt................... (67,893) (14,640) (11,531)
Dividends paid......................................... (50,000) -- --
--------- --------- --------
Net cash provided by (used in) financing
activities................................... 140,107 243,360 (11,531)
--------- --------- --------
Net increase in cash balance................... 78,385 74,389 76,085
Cash and cash equivalents at beginning of period......... 84,578 84,578 162,963
--------- --------- --------
Cash and cash equivalents at end of period............... $ 162,963 $ 158,967 $239,048
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 115,136 $ 26,042 $ 29,220
========= ========= ========
Cash paid for income taxes............................. $ 2,412 $ 683 $ 400
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-130
<PAGE> 206
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF COMBINATION
The combined financial statements include the accounts of Amador Disposal
Services, Inc. (Amador Disposal) and Mother Lode Sani-Hut, Inc. (Mother Lode)
(and collectively, the Companies). Amador Disposal and Mother Lode have common
management which exercise significant influence over their operations. All
material intercompany balances and transactions have been eliminated in
combination.
BUSINESS AND ORGANIZATION
The Companies, both California corporations, are regional, integrated,
non-hazardous solid waste services companies that provide containers,
collection, transfer, disposal, recycling and landfill services to commercial
and residential customers in Northern California.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The interim combined financial statements as of September 30, 1998 and for
the three month periods ended September 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 three months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1999.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with maturities of 3
months or less when purchased to be cash equivalents for purposes of the
combined statements of cash flows.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Improvements or
betterments which significantly extend the life of the assets are capitalized.
Interest costs are also capitalized on self-constructed assets. Expenditures for
maintenance and repairs are charged against 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 or losses
resulting from property disposal are included in other income (expense).
Depreciation is computed using the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Building................................................. 30 years
Containers, machinery and equipment...................... 3-10 years
Rolling stock and vehicles............................... 5-7 years
</TABLE>
F-131
<PAGE> 207
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized as services are provided.
INCOME TAXES
The Companies have elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code for federal and California state income tax
purposes. Under S corporation status, the Companies' income is taxable to the
stockholders, with only minimal state income taxes charged to the Companies.
CLOSURE AND POST-CLOSURE COSTS
Pursuant to a contract with Amador County to operate the Amador County
Solid Waste Sanitary Landfill (Landfill), Amador Disposal is responsible to
provide specified levels of cover on designated cells on the Landfill in the
normal course of operations; however, the Companies are not responsible for
closure and post-closure activities. The responsibility for closure and
post-closure liabilities is that of Amador County. Consequently, the management
does not believe the Companies have any material financial obligation for
closure and post-closure costs for the Landfill.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents approximates fair value
because of the short-term maturity of these instruments. The carrying values of
the notes payable approximate their fair values as of June 30, 1998, and
September 30, 1997 and 1998, based on current incremental borrowing rates for
similar types of borrowing arrangements.
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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Companies to
concentrations of credit risks consist primarily of accounts receivable. Credit
risk on accounts receivable is minimized as the Companies' customer base
consists largely of numerous customers with small individual balances. The
Companies maintain allowances for losses based on the expected collectibility of
accounts receivable. Credit losses have been within management's expectations.
The Companies operate under various franchise agreements with local
municipalities. Approximately $1,693,000 or 56% of revenues for the year ended
June 30, 1998, was earned from customers in municipalities covered by five
franchise agreements, which expire from 1998 through 2022, inclusive of options
to extend. One of the five franchise agreements was not renewed upon its
expiration on June 30, 1998. For the year ended June 30, 1998, revenue earned
under this franchise agreement was approximately $425,000.
F-132
<PAGE> 208
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable is presented net of an allowance for doubtful accounts
of approximately $15,000 each at June 30, 1998, and September 30, 1997 and 1998.
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Land and buildings................................ $ 1,268,548 $ 1,271,910
Containers, machinery and equipment............... 652,069 652,069
Rolling stock and vehicles........................ 1,760,102 1,735,761
----------- -----------
3,680,719 3,659,740
Less accumulated depreciation..................... (1,506,677) (1,553,035)
----------- -----------
$ 2,174,042 $ 2,106,705
=========== ===========
</TABLE>
4. LONG-TERM DEBT:
Long-term debt as of June 30 and September 30, 1998, consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
---------- -------------
(UNAUDITED)
<S> <C> <C>
Notes payable to individuals, interest at prime plus 1.5%
(10% at June 30, 1998 and September 30, 1998), payable in
monthly installments, principal due September 2001,
guaranteed by the stockholders of Amador Disposal........ $ 950,000 $ 950,000
Notes payable to individuals, interest at prime (8% at June
30, 1998 and September 30, 1998), payable in monthly
installments of principal and interest of $2,208 through
September 2007, collateralized by a deed of trust on
certain real property.................................... $ 172,804 $ 169,614
Note payable, interest at prime plus 2% (10.5% at June 30,
1998 and September 30, 1998), payable in monthly
installments of principal and interest of $655 through
April 1999, collateralized by certain equipment.......... $ 6,106 $ 4,285
Note payable, interest at 10.5%, payable in monthly
installments of principal and interest of $560 through
October 2002, collateralized by certain equipment........ $ 23,306 $ 22,229
Contract payable, interest at 10.5%, payable in monthly
installments of principal and interest of $1,078 through
October 2002, collateralized by certain equipment........ $ 44,873 $ 42,797
Contract payable, interest at prime plus 2% (10.25% at June
30, 1998 and September 1998), payable in monthly
installments of principal and interest of $1,200 through
March 1999, collateralized by certain equipment.......... 10,262 6,896
---------- ----------
1,207,351 1,195,821
Less current portion 42,631 38,055
---------- ----------
Total long-term debt $1,164,720 $1,157,766
========== ==========
</TABLE>
F-133
<PAGE> 209
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ----------
<S> <C>
1999................................................... $ 42,631
2000................................................... 28,799
2001................................................... 981,585
2002................................................... 34,647
2003................................................... 24,485
Thereafter............................................. 95,204
----------
$1,207,351
==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Franchise Agreements, Contracts and Permits
The Companies have various franchise agreements with the counties and cities
that they serve. These franchise agreements typically require a franchise fee of
two to five percent of gross annual revenues earned in that jurisdiction, or a
fee per collection truck operated in that jurisdiction during the year, to be
paid to the municipality. These franchise agreements expire between April 2000
and October 2022, inclusive of options to extend.
The Companies also have contracts to operate the Landfill and a Materials
Recovery Facility (Facility) at the Landfill, expiring July 2002 and March 2016,
respectively, with an option to extend for the Facility. The disposal fee at the
Landfill and the related surcharge fees vary with the type of refuse. Surcharge
fees collected as a part of the landfill revenue are payable to Amador County.
The landfill rate schedule for the Facility is determined by Amador County
annually.
CONTINGENCIES
Environmental Risks
The Companies may be subject to liability for any environmental damage that
their 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 land and facilities by the Companies.
The Companies may also be subject to liability for any off-site environmental
contamination cause by pollutants or hazardous substance whose transportation,
treatment or disposal was arranged by the Companies. Any substantial liability
for environmental damage incurred by the Companies could have a material adverse
effect on the Companies' combined financial condition, results of operations or
cash flows. As of June 30, 1998 and September 30, 1998, the Companies are not
aware of any such environmental liabilities.
Legal Proceedings
In the normal course of their business and as a result of the extensive
governmental regulations of the solid waste industry, the Companies are
periodically 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 Companies or to revoke or deny renewal of an
operating permit held by the Companies. From time to time the Companies are also
subject to actions brought by citizens' groups or adjacent
F-134
<PAGE> 210
AMADOR DISPOSAL SERVICES, INC. AND MOTHER LODE SANI-HUT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
landowners or residents alleging environmental damage or violations of the
permits and licenses pursuant to which the Companies operate. In addition, the
Companies are parties 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 June 30, 1998 and September 30, 1998, there
is no current proceedings or litigation involving the Companies that the
Companies believe will have a material adverse impact on the Companies'
business, combined financial position, results of operations and cash flows.
6. PENSION PLAN:
Amador Disposal has a defined contribution pension plan for eligible
employees with at least 1,000 hours within one year of employment. Amador
Disposal contributes up to 10% of participants' compensation, which vest based
on years of employment over seven years. Pension expense was approximately
$49,000 for the year ended June 30, 1998, and approximately $12,000 and $13,000
for the three months ended September 30, 1997 and 1998, respectively.
7. SALE OF THE COMPANIES:
On December 30, 1998, the shareholders of the Companies sold their stock to
Waste Connections, Inc. (WCI), a publicly traded company. WCI intends to account
for the acquisition using the purchase method.
8. PRO FORMA INCOME TAX INFORMATION (UNAUDITED):
As described in Note 1, the Companies operate under Subchapter S of the
Internal Revenue Code and are not subject to federal or state income taxes. Upon
the sale of the Companies stock by the Companies stockholders to WCI (Note 7),
the Subchapter S election will be terminated. As a result, the Companies will be
subject to corporate income taxes subsequent to the termination of the S
corporation status.
The following unaudited pro forma information reflects income tax (benefit)
expense for the year ended June 30, 1998 as if the Companies had been subject to
federal and state income taxes:
<TABLE>
<S> <C>
Federal taxes:
Current................................................. $ --
Deferred................................................ (15,887)
State taxes:
Current................................................. 1,600
Deferred................................................ (4,937)
--------
Pro forma income tax benefit.................... $(19,224)
--------
</TABLE>
The pro forma provision for income taxes for the year ended June 30, 1998
differs from the amounts computed by applying the applicable statutory federal
income tax rate (34%) to loss before income taxes due to graduated income tax
rates.
The Companies' unaudited pro forma deferred tax liability at June 30, 1998
would be approximately $11,000 which relates primarily to differences between
tax and financial methods of depreciation.
F-135
<PAGE> 211
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Butler County Landfill, Inc.
Kobus Construction, Inc.
We have audited the accompanying combined balance sheet of Butler County
Landfill, Inc. and Kobus Construction, Inc. (collectively the "Companies") as of
December 31, 1997, and the related combined statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Companies' 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 combined financial position of the Companies at
December 31, 1997, and the combined results of their operations and their cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Sacramento, California
December 30, 1998
F-136
<PAGE> 212
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 33 $ 47
Short-term investments.................................... 28 47
Accounts receivable....................................... 344 428
Prepaid expenses and other current assets................. 84 107
------ ------
Total current assets.............................. 489 629
Property, plant and equipment, net.......................... 3,219 3,124
Restricted assets........................................... 352 331
Other assets................................................ 18 20
------ ------
$4,078 $4,104
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 27 $ --
Accounts payable.......................................... 114 107
Accrued liabilities....................................... 280 168
Current portion of closure and post closure costs......... 94 46
Current portion of long-term debt......................... 452 608
------ ------
Total current liabilities......................... 967 929
Long-term debt.............................................. 960 816
Closure and post closure costs.............................. 361 474
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock: at par value; 10,100 shares authorized; 300
shares issued and outstanding.......................... 10 10
Additional paid-in capital................................ 2 2
Retained earnings......................................... 1,778 1,873
------ ------
Total shareholders' equity........................ 1,790 1,885
------ ------
$4,078 $4,104
====== ======
</TABLE>
See accompanying notes.
F-137
<PAGE> 213
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $3,010 $2,470 $2,419
Operating expenses:
Cost of operations........................................ 1,898 1,604 1,659
Depreciation and amortization............................. 631 470 408
Selling, general and administrative....................... 236 183 130
------ ------ ------
Income from operations...................................... 245 213 222
Interest expense............................................ (180) (137) (109)
Other income (expense), net................................. 43 5 109
------ ------ ------
Net income.................................................. 108 81 222
Retained earnings, beginning of period...................... 1,820 1,820 1,778
Distributions to shareholders............................... (150) (121) (127)
------ ------ ------
Retained earnings, end of period............................ $1,778 $1,780 $1,873
====== ====== ======
Pro forma income taxes (unaudited -- Note 6)................ $ (42) $ (32) $ (86)
====== ====== ======
Pro forma net income (unaudited -- Note 6).................. $ 66 $ 49 $ 136
====== ====== ======
</TABLE>
See accompanying notes.
F-138
<PAGE> 214
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1997 1997 1998
------------ -------- ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 108 $ 81 $ 222
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 631 470 408
Gain on sale of property, plant and equipment.......... (5) -- --
Closure and post closure expenses...................... 101 75 65
Changes in operating assets and liabilities:
Accounts receivable.................................. (38) (46) (83)
Prepaid expenses and other current assets............ 20 34 (24)
Accounts payable..................................... (17) 38 (7)
Accrued liabilities.................................. 106 105 (112)
----- ------- -----
Net cash provided by operating activities................. 906 757 469
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant and equipment.... (385) (206) (331)
Proceeds from the sale of property, plant and equipment... 162 -- --
Change in restricted assets............................... (237) (198) 21
Change in other assets.................................... (3) (3) (2)
----- ------- -----
Net cash used in investing activities..................... (463) (407) (312)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 608 1,601 436
Principal payments on long-term debt...................... (972) (1,828) (452)
Distributions to shareholders............................. (150) (121) (127)
----- ------- -----
Net cash used in financing activities....................... (514) (348) (143)
----- ------- -----
Net (decrease) increase in cash and cash equivalents........ (71) 2 14
Cash and cash equivalents, beginning of period.............. 104 104 33
----- ------- -----
Cash and cash equivalents, end of period.................... $ 33 $ 106 $ 47
===== ======= =====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest...................................... $ 180 $ 137 $ 109
===== ======= =====
</TABLE>
See accompanying notes.
F-139
<PAGE> 215
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Butler County Landfill, Inc. ("Butler") is a solid waste company that owns
and operates a landfill in Butler County, Nebraska. Kobus Construction Inc.
("Kobus") is a solid waste company that provides collection, transfer and
disposal services to residential and commercial customers in Butler County,
Nebraska.
BASIS OF COMBINATION
The combined financial statements include the accounts of Butler and Kobus
(collectively, the "Companies") as a result of their common ownership.
Significant inter-company balances and transactions between the Companies have
been eliminated in combination.
SALE OF THE COMPANIES
On December 11, 1998, the Companies' shareholders entered into an agreement
to sell all capital stock of the Companies to Waste Connections, Inc. ("WCI")
for cash and common stock of WCI.
INTERIM FINANCIAL INFORMATION
The unaudited interim combined financial statements as of September 30,
1998 and for the nine months ended September 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 September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Companies consider all highly liquid investments with an original
maturity of three months to be cash equivalents.
F-140
<PAGE> 216
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Companies 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 Companies' customer bases. Historically, credit losses have been
immaterial.
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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 of property, plant and equipment (excluding
landfill related assets) are as follows:
<TABLE>
<S> <C>
Building and land improvements....................... 15 - 39 years
Equipment and vehicles............................... 3 - 7 years
</TABLE>
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 Companies'
weighted average cost of indebtedness. Landfill permitting, acquisition and
preparation costs, excluding the estimated residual value of land, are amortized
as permitted 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
Companies' operating landfill. The rates are based on estimates provided by the
Companies' outside engineers and consider the information provided by surveys
which are performed at least annually.
LONG-LIVED ASSETS
The Companies continually evaluate the value and future benefits of their
long-lived assets. The Companies assess recoverability based on estimates of
future undiscounted cash flows. Under this approach, the carrying value would be
reduced to fair value if it becomes probable that the Companies' best estimates
for expected undiscounted future cash flows would be less than the carrying
amount of the long-lived assets. Through December 31, 1997, there were no
adjustments to the carrying amounts of long-lived assets resulting from these
evaluations.
F-141
<PAGE> 217
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
RESTRICTED ASSETS
The Companies are required to fund certain portions of its estimated
closure and post closure liabilities. These amounts are held in a trust account
restricted for expenditures on closure and post closure costs.
During 1997, the Companies were awarded two grants from the Nebraska
Department of Environmental Quality ("DEQ") totaling $184 for the purchase of
composting and recycling equipment. Grant funds of $96 were received in 1997,
however at year end no expenditures had been made. During 1996, the Companies
received a $25 grant from the DEQ for the abatement of scrap tires collected at
the landfill. As of December 31, 1997, $17 had been received under this grant
and had not been spent.
As of December 31, 1997, restricted assets consist of the following:
<TABLE>
<S> <C>
Unspent funds received under DEQ grants..................... $113
Closure and post closure trust fund amounts................. 239
----
$352
====
</TABLE>
CLOSURE AND POST CLOSURE COSTS
Accrued closure and post-closure costs include the current and non-current
portion of accruals associated with obligations for closure and post-closure
monitoring and maintenance of the landfill. The Companies, based as input from
outside engineers, estimate future closure and post-closure monitoring and
maintenance costs for sold 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 Companies' operating
landfills are performed by the Companies' consulting engineers at least annually
and are the basis upon which the Companies' estimates of these future costs and
the related accrual rates are revised. The Companies provides accruals for these
estimated costs as the remaining permitted airspace of such facilities is
consumed. The State of Nebraska requires a specified portion of these accrued
closure and post-closure obligations to be funded at any point in time.
REVENUE RECOGNITION
The Companies recognize revenues as services are provided related to
hauling and disposal and upon the receipt and acceptance of waste material at
its landfill and materials recovery facility.
F-142
<PAGE> 218
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
INCOME TAXES
The Companies operate 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 Companies' operations flow through to the
individual shareholders and no provision for income taxes has been made in the
combined financial statements.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and September 30,
1998 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Buildings and land improvements.................... $ 737 $ 870
Landfill related assets............................ 2,982 2,982
Equipment and vehicles............................. 1,796 1,780
------- -------
5,515 5,632
Less accumulated depreciation and amortization..... (2,296) (2,508)
------- -------
$ 3,219 $ 3,124
======= =======
</TABLE>
3. SHORT-TERM BORROWINGS
The Companies maintain an equipment line of credit (the "Line") with a
financial institution. Under the Line, the Companies may borrow an amount up to
$100 for the purchase of equipment. Interest on the Line is payable at 9.5%
semi-annually. All outstanding principal plus accrued interest was paid off on
January 15, 1998. The Line was secured by substantially all of the Companies'
assets and was also guaranteed by the Companies' shareholders.
F-143
<PAGE> 219
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
4. LONG-TERM DEBT
Long-term debt as of December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Construction note payable bearing interest at 10.75%;
payable in monthly installments of principal and interest
of $30; maturing December 2000; secured by the landfill
and MRF with a net carrying value of $854 as of December
31, 1997.................................................. $ 908
Notes payable bearing various rates of interest (ranging
from 8.75% to 9.5%), payable in monthly installments of
principal and interest (aggregating $23), maturing at
various dates through February 2002; secured substantially
all of the Companies' assets.............................. 308
Note payable bearing interest at 6%; payable in annual
installments of principal and interest of $10; maturing
February 1, 2012; secured by land with a net carrying
value of $125 as of December 31, 1997..................... 97
Equipment financing notes payable bearing interest at
various rates (ranging from 9.5% to 9.9%); payable in
monthly installments of principal and interest
(aggregating $4); maturing through November 2000; secured
by substantially all of the Companies' assets............. 99
------
1,412
Less current portion........................................ 452
------
Long-term debt.............................................. $ 960
======
</TABLE>
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........................................................ $ 452
1999........................................................ 465
2000........................................................ 392
2001........................................................ 18
2002........................................................ 10
Thereafter.................................................. 75
------
$1,412
======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Companies leases certain equipment under cancelable and noncancelable
operating leases. Rent expense under these agreements amounted to $106 for the
year ended December 31, 1997.
F-144
<PAGE> 220
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
As of December 31, 1997, future minimum lease payments under these
noncancelable operating leases, by calendar year, are as follows:
<TABLE>
<S> <C>
1998........................................................ $18
1999........................................................ 18
2000........................................................ 18
2001........................................................ 9
---
$63
===
</TABLE>
CONTINGENCIES
Environmental Risks
The Companies are subject to liability for any environmental damage that
the solid waste facilities they operate 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 operation of
such facilities by the Companies. The Companies 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
Companies. Any substantial liability for environmental damage incurred by the
Companies could have a material adverse effect on the Companies' combined
financial condition, results of operations or cash flows.
Legal Proceedings
In the normal course of their business and as a result of the extensive
governmental regulation of the solid waste industry, the Companies 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 Companies or to revoke or deny renewal of an
operating permit held by the Companies. From time to time the Companies 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 Companies operates.
In addition, the Companies 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 September 30 1998, there are no current proceeding or litigation
involving the Companies that the Companies believes will have a material adverse
impact on the Companies' business, financial condition, results of operations or
cash flows.
6. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in Note 1, the Companies operate under Subchapter S of the
Internal Revenue Code and are not subject to Federal income taxes. The pro form
income taxes represent estimates of income tax expense had the Companies filed
income tax returns as regular corporations.
F-145
<PAGE> 221
BUTLER COUNTY LANDFILL, INC. AND KOBUS CONSTRUCTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
The pro forma provisions for income taxes for the year ended December 31,
1997 and the nine months ended September 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 franchise taxes.
7. YEAR 2000 (UNAUDITED)
The Companies 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 Companies have not incurred
any costs related to the Year 2000 project. The Companies do not believe that
their 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
Companies' operations.
F-146
<PAGE> 222
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Waste Connections, Inc.
We have audited the supplemental consolidated balance sheets of Waste
Connections, Inc., and Predecessors (resulting from the consolidation of Waste
Connections, Inc. and Murrey's Disposal Company, Inc., American Disposal
Company, Inc., D.M. Disposal Co., Inc. and Tacoma Recycling Company, Inc.,
collectively the "Murrey Companies") as of December 31, 1996 and 1997 and the
related supplemental consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1997 which appear on pages
F-148 through F-155 herein as listed in the accompanying Index to Financial
Statements. The supplemental consolidated financial statements give retroactive
effect to the mergers of Waste Connections, Inc. and the Murrey Companies in
January 1999, which have been accounted for using the pooling-of-interests
method as described in the notes to the supplemental consolidated financial
statements. These supplemental financial statements are the responsibility of
the management of Waste Connections, Inc. Our responsibility is to express an
opinion on these supplemental 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, based on our audits, the supplemental consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Waste Connections, Inc. at December 31,
1996 and 1997, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, after giving
retroactive effect to the mergers of the Murrey Companies, as described in the
notes to the supplemental consolidated financial statements, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Sacramento, California
March 6, 1998
except for the first four paragraphs of Note 2,
as to which the date is January , 1999
F-148
<PAGE> 223
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS SUPPLEMENTAL CONSOLIDATED
COMBINED -------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 (NOTE 1) 1996 1997 1998
------------- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 102 $ 81 $ 946 $ 1,495
Accounts receivable, less allowance for doubtful
accounts of $472 at September 30, 1998 and $93
and $62 at December 31, 1997 and 1996,
respectively ($81 predecessors combined in
1996).......................................... 2,650 2,333 6,719 12,410
Prepaid expenses and other current assets........ 339 119 437 783
------- ------- ------- --------
Total current assets...................... 3,091 2,533 8,102 14,688
Property and equipment, net........................ 5,069 12,529 19,004 32,809
Intangible assets, net............................. 6,762 -- 11,412 84,685
Other assets....................................... 369 3 58 2,221
------- ------- ------- --------
$15,291 $15,065 $38,576 $134,403
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................ $ -- $ 1,609 $ 1,628 $ 620
Accounts payable................................. 1,025 1,108 4,226 8,340
Advances from a related party.................... -- 818 543 543
Deferred revenue................................. 564 765 1,516 2,933
Accrued liabilities.............................. 634 705 1,657 4,453
Income taxes payable............................. -- 321 228 277
Current portion of notes payable................. -- -- -- 1,256
Current portion of long-term debt................ 54 928 873 751
Other current liabilities........................ 119 -- 251 346
------- ------- ------- --------
Total current liabilities................. 2,396 6,254 10,922 19,519
Other long term liabilities........................ -- -- 702 1,499
Long-term debt..................................... 89 1,851 11,669 44,451
Deferred income taxes.............................. -- 702 820 1,037
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock: $.01 par
value; 2,500,000 shares authorized; 2,499,998
shares issued and outstanding at December 31,
1997; no shares issued and outstanding at
September 30, 1998 (aggregate liquidation
preference of $10,500 at December 31, 1997)...... -- -- 7,523 --
Net intercompany balance........................... 12,806 -- -- --
Stockholders' equity:
Preferred stock: $.01 par value; 7,500,000 shares
authorized at December 31, 1997, 10,000,000
shares authorized at September 30, 1998; none
issued and outstanding......................... -- -- -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 2,750,000, 5,050,000 and 11,954,632
shares issued and outstanding at December 31,
1996 and 1997, and September 30, 1998,
respectively................................... -- 28 51 120
Additional paid-in capital......................... -- 472 5,577 66,416
Stockholder notes receivable....................... -- -- (82) --
Deferred stock compensation........................ -- -- -- (499)
Retained earnings.................................. -- 5,758 1,394 1,860
------- ------- ------- --------
Total stockholders' equity................ -- 6,258 6,940 67,897
------- ------- ------- --------
$15,291 $15,065 $38,576 $134,403
======= ======= ======= ========
</TABLE>
See accompanying notes.
F-149
<PAGE> 224
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS SUPPLEMENTAL CONSOLIDATED
COMBINED NINE --------------------------------------------
MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 YEAR ENDED ------------------------
(NOTE 1) DECEMBER 31, 1997 1997 1998
------------- ----------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................. $18,114 $ 35,111 $ 21,477 $ 59,868
Operating expenses:
Cost of operations...................... 14,753 27,836 16,933 43,344
Selling, general and administrative..... 3,009 2,942 1,653 5,388
Depreciation and amortization........... 1,083 1,725 1,350 4,333
Start-up and integration................ -- 493 -- --
Stock compensation...................... -- 4,395 -- 561
------- ---------- ---------- -----------
Income (loss) from operations............. (731) (2,280) 1,541 6,242
Interest expense.......................... (456) (1,415) (247) (1,850)
Other income (expense), net............... 14 247 150 (97)
------- ---------- ---------- -----------
Income (loss) before income taxes......... (1,173) (3,448) 1,444 4,295
Income tax provision...................... -- (302) (512) (1,927)
------- ---------- ---------- -----------
Income (loss) before extraordinary item... (1,173) (3,750) 932 2,368
Extraordinary item -- early extinguishment
of debt, net of tax benefit of $165..... -- -- -- (815)
------- ---------- ---------- -----------
Net income (loss)......................... $(1,173) $ (3,750) $ 932 $ 1,553
======= ========== ========== ===========
Redeemable convertible preferred stock
accretion............................... (531) -- (917)
---------- ---------- -----------
Net income (loss) applicable to common
stockholders............................ $ (4,281) $ 932 $ 636
========== ========== ===========
Basic income (loss) per common share:
Income (loss) before extraordinary
item................................. $ (0.93) $ 0.34 $ 0.18
Extraordinary item...................... -- -- (0.10)
---------- ---------- -----------
Net income (loss) per common share...... $ (0.93) $ 0.34 $ 0.08
========== ========== ===========
Diluted income (loss) per common share:
Income (loss) before extraordinary
item................................. $ 0.93 $ 0.34 $ 0.14
Extraordinary item...................... -- -- (0.08)
---------- ---------- -----------
Net income (loss) per common share...... $ (0.93) $ 0.34 $ 0.06
========== ========== ===========
Shares used in calculating basic net
income (loss) per share................. 4,622,567 2,750,000 8,226,532
========== ========== ===========
Shares used in calculating diluted net
income (loss) per share................. 4,622,567 2,750,000 10,188,658
========== ========== ===========
Pro forma basic net income (loss) per
share................................... $ (0.53) $ 0.16
========== ===========
Shares used in calculating pro forma basic
net income (loss) per share............. 7,122,565 9,867,557
========== ===========
Pro forma diluted net income per share.... $ 0.06
===========
Shares used in calculating pro forma
diluted net income per share............ 11,452,393
===========
</TABLE>
See accompanying notes.
F-150
<PAGE> 225
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
-----------------------------------
THE DISPOSAL
GROUP
COMBINED PREDECESSORS WASTE CONNECTIONS, INC.
PERIOD FROM COMBINED PERIOD SUPPLEMENTAL
JANUARY 1, 1996 ENDED CONSOLIDATED
THROUGH DECEMBER 31, 1996 YEAR ENDED
JULY 31, 1996 (NOTE 1) DECEMBER 31, 1996
--------------- ----------------- -----------------------
<S> <C> <C> <C>
Revenues..................................... $8,738 $13,422 $ 25,024
Operating expenses:
Cost of operations......................... 6,174 11,420 20,465
Selling, general and administrative........ 2,126 1,649 2,142
Depreciation and amortization.............. 324 962 1,236
------ ------- ----------
Income (loss) from operations................ 114 (609) 1,181
Interest expense............................. (12) (225) (284)
Other income (expense), net.................. 2,661 (147) 309
------ ------- ----------
Income (loss) before income taxes............ 2,763 (981) 1,206
Income tax (provision) benefit............... (505) -- (543)
------ ------- ----------
Net income (loss)............................ $2,258 $ (981) $ 663
====== ======= ==========
Basic and diluted net income per share....... $ 0.24
==========
Shares used in per share calculation......... 2,750,000
==========
</TABLE>
See accompanying notes.
F-151
<PAGE> 226
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
----------------------------------------------
FIBRES
INTERNATIONAL, WASTE
INC. CONNECTIONS,
THE DISPOSAL PERIOD FROM INC.
GROUP JANUARY 1, PREDECESSORS SUPPLEMENTAL
COMBINED 1995 ONE MONTH CONSOLIDATED
YEAR ENDED THROUGH ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 (NOTE 1) 1995
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $19,660 $7,340 $595 $ 27,786
Operating expenses:
Cost of operations......................... 16,393 5,653 527 20,859
Selling, general and administrative........ 3,312 823 72 2,101
Depreciation and amortization.............. 628 715 74 923
------- ------ ---- ----------
Income (loss) from operations................ (673) 149 (78) 3,903
Interest expense............................. (206) (162) (1) (198)
Other income, net............................ -- 98 5 210
------- ------ ---- ----------
Income (loss) before income taxes............ (879) 85 (74) 3,915
Income tax (provision) benefit............... 298 (29) -- (690)
------- ------ ---- ----------
Net income (loss)............................ $ (581) $ 56 $(74) $ 3,225
======= ====== ==== ==========
Basic and diluted net income per share....... $ 1.17
==========
Shares used in per share calculation......... 2,750,000
==========
</TABLE>
See accompanying notes.
F-152
<PAGE> 227
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENT OF REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
REDEEMABLE --------------------------------
CONVERTIBLE REDEEMABLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ---------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................. -- $ -- -- $ -- 2,750,000 $ 28 $ 472
Dividends paid......... -- -- -- -- -- -- --
Net income............. -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------
Balance at December 31,
1995................. -- -- -- -- 2,750,000 28 472
Net income............. -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------
Balance at December 31,
1996................. -- -- -- -- 2,750,000 28 472
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..... -- -- -- -- -- -- --
Accretion of redeemable
convertible preferred
stock................ -- 531 -- -- -- -- --
Dividends paid......... -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------
Balances at December
31, 1997............. 2,499,998 7,523 -- -- 5,050,000 51 5,577
Exercise of warrants
(unaudited).......... -- -- -- -- 50,000 -- 140
Payment of stockholder
notes receivable..... -- -- -- -- -- -- --
Issuance of redeemable
common stock
(unaudited).......... -- -- 1,000,000 7,500 -- -- --
Issuance of common
stock warrants
(unaudited).......... -- -- -- -- -- -- 2,388
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
---------------------------------------------------
STOCKHOLDERS' EQUITY
---------------------------------------------------
RETAINED
STOCKHOLDER DEFERRED EARNINGS
NOTES STOCK (ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT) TOTAL
----------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Balance at December 31,
1994................. $ -- $ -- $ 1,920 $ 2,420
Dividends paid......... -- -- (50) (50)
Net income............. -- -- 3,225 3,225
---- ----- ------- -------
Balance at December 31,
1995................. -- -- 5,095 5,595
Net income............. -- -- 663 633
---- ----- ------- -------
Balance at December 31,
1996................. -- -- 5,758 6,258
Sale of redeemable
convertible preferred
stock................ -- -- -- --
Sale of common stock... -- -- -- 4,418
Issuance of common
stock warrants....... -- -- -- 710
Issuance of stockholder
notes receivable..... (82) -- -- (82)
Accretion of redeemable
convertible preferred
stock................ -- -- (531) (531)
Dividends paid......... -- -- (83) (83)
Net loss............... -- -- (3,750) (3,750)
---- ----- ------- -------
Balances at December
31, 1997............. (82) -- 1,394 6,940
Exercise of warrants
(unaudited).......... -- -- -- 140
Payment of stockholder
notes receivable..... 82 -- -- 82
Issuance of redeemable
common stock
(unaudited).......... -- -- -- --
Issuance of common
stock warrants
(unaudited).......... -- -- -- 2,388
</TABLE>
F-153
<PAGE> 228
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENT OF REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
REDEEMABLE --------------------------------
CONVERTIBLE REDEEMABLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ---------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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)........ -- -- -- -- 1,054,634 11 17,783
Preferred stock
dividend
(unaudited)........ -- -- -- -- -- -- --
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
Dividends paid
(unaudited)........ -- -- -- -- -- -- --
Net income
(unaudited)........ -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------
Balances at September
30, 1998
(unaudited)........ -- $ -- -- $ -- 11,954,632 $120 $66,416
========== ======= ========== ======= ========== ==== =======
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
---------------------------------------------------
STOCKHOLDERS' EQUITY
---------------------------------------------------
RETAINED
STOCKHOLDER DEFERRED EARNINGS
NOTES STOCK (ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT) TOTAL
----------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Accretion of
redeemable
convertible
preferred stock
(unaudited)........ -- -- $ (917) $ (917)
Deferred stock
compensation
associated with
stock options
(unaudited)........ -- (821) -- --
Amortization of
deferred stock
compensation
(unaudited)........ -- 322 -- 322
Common stock sold in
connection with IPO
(unaudited)........ -- -- -- 23,986
Issuance of common
stock
(unaudited)........ -- -- -- 17,794
Preferred stock
dividend
(unaudited)........ -- -- -- --
Conversion of
redeemable
preferred stock
(unaudited)........ -- -- -- 8,279
Conversion of
redeemable common
stock
(unaudited)........ -- -- -- 7,500
Dividends paid
(unaudited)........ -- -- (167) (167)
Net income
(unaudited)........ -- -- 1,553 1,553
---- ----- ------- -------
Balances at September
30, 1998
(unaudited)........ $ -- $(499) $ 1,863 $67,900
==== ===== ======= =======
</TABLE>
See accompanying notes.
F-154
<PAGE> 229
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS SUPPLEMENTAL CONSOLIDATED
COMBINED ----------------------------------
NINE NINE MONTHS ENDED
MONTHS ENDED YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, DECEMBER 31, ------------------
1997 (NOTE 1) 1997 1997 1998
-------------- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $(1,173) $ (3,750) $ 932 $ 1,553
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 1,725 1,056 4,333
Deferred income taxes.................................... -- (413) -- --
Amortization of debt issuance costs, debt guarantee fees
and accretion of discount on long-term debt............ -- 860 -- 176
Stock compensation....................................... -- 4,395 -- 562
Gain on sale of land..................................... -- -- (8)
Extraordinary item -- extinguishment of debt............. -- -- -- 981
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net............................... (604) (1,467) (562) (1,574)
Prepaid expenses and other current assets.............. (74) (11) (616) (180)
Accounts payable....................................... (221) 3,116 1,004 1,092
Deferred revenue....................................... (137) 323 95 839
Accrued liabilities.................................... (450) 928 26 278
Accrued losses on acquired contracts................... -- (65) -- (241)
Income taxes payable..................................... -- (93) 426 49
------- -------- ------- --------
Net cash provided by (used in) operating activities........ (1,580) 5,548 2,361 7,860
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment............... 188 -- -- 58
Payments for acquisitions, net of cash acquired............ -- (14,393) (100) (44,185)
Prepaid acquisition costs.................................. -- (20) -- --
Capital expenditures for property and equipment............ (735) (2,372) (2,106) (3,799)
Proceeds from sale of land................................. -- -- -- 625
Net change in other assets................................. 22 (47) (117) 57
Proceeds from stockholder notes receivable................. -- -- -- 82
Issuance of stockholder notes receivable................... -- (82) -- --
------- -------- ------- --------
Net cash used in investing activities....................... (525) (16,914) (2,323) (47,162)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance................................... 2,142 -- -- --
Proceeds from short-term borrowings........................ -- 600 -- --
Proceeds from long-term debt............................... -- 8,914 2,021 58,253
Principal payments on notes payable........................ (38) (2,724) -- (407)
Principal payments on long-term debt....................... -- (1,085) (302) (40,185)
Proceeds from sale of redeemable convertible preferred
stock.................................................... -- 6,992 -- --
Proceeds from sale of common stock......................... -- 23 -- 24,126
Net change in short term borrowings........................ -- 19 (812) (1,008)
Net change in advances from a related party................ -- (275) (275) --
Payment of dividends....................................... -- (83) -- (328)
Debt issuance costs........................................ -- (150) -- (600)
------- -------- ------- --------
Net cash provided by financing activities................... 2,104 12,231 632 39,851
------- -------- ------- --------
Net increase (decrease) in cash............................. (1) 865 670 549
Cash at beginning of period................................. 102 81 81 946
------- -------- ------- --------
Cash at end of period....................................... $ 101 $ 946 $ 751 $ 1,495
======= ======== ======= ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AN
NON-CASH TRANSACTIONS:
Cash paid for interest..................................... $ -- $ 541 $ 247 $ 1,214
======= ======== ======= ========
Cash paid for income taxes................................. $ -- $ 744 $ 277 $ 897
======= ======== ======= ========
Redeemable convertible preferred stock accretion........... $ 531 $ -- $ 917
======== ======= ========
Issuance of notes payable for land and buildings........... $ 315 $ -- $ --
======== ======= ========
In connection with acquisitions, the Company assumed
liabilities as follows:
Fair value of assets acquired.............................. $ 20,140 $ 300 $ 91,103
Cash paid for acquisitions (including acquisition costs)... (14,393) (100) (44,185)
-------- ------- --------
Liabilities assumed, stock and notes payable to sellers.... $ 5,747 $ 200 $ 46,918
======== ======= ========
</TABLE>
See accompanying notes.
F-155
<PAGE> 230
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
------------------------------- WASTE
THE DISPOSAL CONNECTIONS, INC.
GROUP COMBINED PREDECESSORS SUPPLEMENTAL
PERIOD FROM COMBINED CONSOLIDATED
JANUARY 1, PERIOD ENDED YEAR ENDED
1996 THROUGH DECEMBER 31, DECEMBER 31,
JULY 31, 1996 1996 (NOTE 1) 1996
-------------- ------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $2,258 $ (981) $ 663
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 324 962 1,236
Deferred income taxes...................... 298 -- (19)
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable, net................. 1,201 (1,992) 63
Prepaid expenses and other current
assets................................ (2) (104) (36)
Accounts payable......................... (45) 713 932
Deferred revenue......................... (522) 421 42
Accrued liabilities...................... (987) 428 129
Income taxes payable..................... -- -- (232)
------ ------- -------
Net cash provided by (used in) operating
activities................................. 2,525 (553) 2,778
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.................................. -- 117 --
Capital expenditures for property and
equipment.................................. (7) (282) (4,790)
Net change in other assets.................... -- 33 31
------ ------- -------
Net cash used in investing activities........... (7) (132) (4,759)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance...................... -- 642 --
Proceeds from long-term debt.................. 142 -- 1,418
Principal payments on long-term debt.......... (427) -- (615)
Principal payments on notes payable........... -- (39) --
Net change in short-term borrowings........... -- -- 659
Net change in advances to related party....... -- -- (259)
------ ------- -------
Net cash provided by (used in) financing
activities.................................... (285) 603 1,203
------ ------- -------
Net increase (decrease) in cash................. 2,233 (82) (778)
Cash at beginning of period..................... 961 184 859
------ ------- -------
Cash at end of period........................... $3,194 $ 102 $ 81
====== ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for interest........................ $ -- $ -- $ 284
====== ======= =======
Cash paid for income taxes.................... $ -- $ -- $ 792
====== ======= =======
Issuance of notes payable for land and
buildings.................................. $ -- $ -- $ 260
====== ======= =======
</TABLE>
See accompanying notes.
F-156
<PAGE> 231
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------------------- WASTE
FIBRES CONNECTIONS,
THE DISPOSAL INTERNATIONAL, INC. INC.
GROUP PERIOD FROM PREDECESSORS SUPPLEMENTAL
COMBINED JANUARY 1, 1995 ONE MONTH CONSOLIDATED
YEAR ENDED THROUGH ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 (NOTE 1) 1995
------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (581) $ 56 $(74) $ 3,225
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 74 923
Deferred income taxes................. (298) -- -- 147
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable, net........... 592 59 10 (31)
Prepaid expenses and other
current assets..................... (18) -- (30) (83)
Accounts payable................... (49) 53 (30) (156)
Deferred revenue................... 65 30 (26) 68
Accrued liabilities................ 2,218 47 20 (352)
Income taxes payable............... -- -- -- 383
------- ------- ---- -------
Net cash provided by (used in)
operating activities............... 2,575 1,023 (56) 4,124
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment.......................... (87) (827) -- (3,025)
Net change in other assets............ -- 3 10 (18)
------- ------- ---- -------
Net cash provided by (used in)
investing activities............... (87) (824) 10 (3,043)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.......... 306 -- -- 750
Principal payments on long-term
debt............................... (2,037) (288) -- (1,383)
Net change in short-term borrowings... -- -- -- (77)
Net change in advances from a related
party.............................. -- -- -- 189
Payment of dividends.................. -- -- -- (50)
Principal payments on notes payable... -- -- (2) --
------- ------- ---- -------
Net cash used in financing
activities......................... (1,731) (288) (2) (571)
------- ------- ---- -------
Net increase (decrease) in cash......... 757 (89) (48) 510
Cash at beginning of period............. 204 321 232 349
------- ------- ---- -------
Cash at end of period................... $ 961 $ 232 $184 $ 859
======= ======= ==== =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for interest................ $ -- $ -- $ -- $ 198
======= ======= ==== =======
Cash paid for income taxes............ $ -- $ -- $ -- $ 160
======= ======= ==== =======
</TABLE>
See accompanying notes.
F-157
<PAGE> 232
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 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
These supplemental consolidated financial statements include the accounts
of WCI and its wholly-owned subsidiaries. The consolidated entity is referred to
herein as the Company. All intercompany accounts and transactions have been
eliminated in consolidation.
As more fully described in Note 2, during January, 1999, the Company
entered into a business combination with the Murrey Companies. The business
combination has been accounted for as pooling-of-interests and the historical
consolidated financial statements of the Company and its predecessors for all
years prior to the business combination have been restated in the accompanying
supplemental consolidated financial statements to include the financial
positions, results of operations and cash flows of the Murrey Companies. The
supplemental financial statements will become the historical financial
statements of the Company upon issuance of financial statements for a subsequent
period that includes the date of the merger.
The supplemental consolidated financial statements of the Company include
reclassifications made to conform financial statement presentation of the Murrey
Companies to that of Waste Connections, Inc.
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
F-158
<PAGE> 233
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
operations include amounts allocated by BFI to the predecessors for selling,
general and administrative expenses based on certain allocation methodologies
which management of the Company believes are reasonable.
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 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's
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)
</TABLE>
F-159
<PAGE> 234
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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.
For periods prior to WCI's incorporation on September 9, 1997, the
supplemental consolidated financial statements of the Company consist solely of
the Murrey Companies. The financial statements of the Murrey Companies include
the combined accounts of Murrey's Disposal Company, Inc. ("Murrey's"), American
Disposal Company, Inc. ("American"), D.M. Disposal Co., Inc. ("DM"), and Tacoma
Recycling Company, Inc. ("Tacoma") as a result of their common management which
exercises significant influence over their operations. Significant intercompany
balances and transactions between the Murrey Companies have been eliminated in
combination.
Interim Financial Information
The unaudited interim consolidated financial statements as of September 30,
1998 and for the nine months ended September 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 September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at purchase to be cash equivalents.
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 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.
F-160
<PAGE> 235
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 maintain allowances 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>
Buildings............................................... 20 years
Machinery and equipment................................. 3 - 15 years
Rolling stock........................................... 10 years
Containers.............................................. 5 - 15 years
Furniture and fixtures.................................. 3 - 6 years
</TABLE>
In connection with 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 twelve 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
nine months ended September 30, 1998. Landfill permitting, acquisition and
preparation costs, excluding the estimated residual value of land, are amortized
as permitted 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.
F-161
<PAGE> 236
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the net assets of the acquired entities (Note 2), and is amortized on a
straight-line basis over the period of expected benefit of 40 years.
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. Through September 30, 1998, there were no adjustments to
the carrying amounts of intangibles resulting from these evaluations.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents approximate their fair
values as of the periods presented. The carrying values of the line of credit
(Note 7), short-term borrowings (Note 6) and other long-term debt (Note 8)
approximate their fair values as of December 31, 1997 and September 30, 1998,
based on current incremental borrowing rates for similar types of borrowing
arrangements.
Income Taxes
The Company, The Disposal Group, Fibres International, Inc., and DM 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.
Murrey's, American and Tacoma operate 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 these companies' operations
flow through to the individual shareholders.
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
F-162
<PAGE> 237
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
professional services, and the costs associated with recruiting the Company's
initial management team. In addition, the Company incurred certain integration
expenses relating to the Acquisitions (Note 2). These start-up and integration
expenses have been charged to operations as incurred.
As described in Note 12, 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 14). 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 11) 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 11) 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.)
F-163
<PAGE> 238
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Closure and Post-Closure Costs
The Company does not accrue for closure and post-closure costs related to
the Fairmead 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 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. As of September 30, 1998, the Company estimates that total closure and
post closure costs relating to the Red Carpet Landfill will be approximately
$929,000, of which approximately $491,000 has been accrued as of September 30,
1998 and included in other long-term liabilities in the accompanying balance
sheet. 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
F-164
<PAGE> 239
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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. BUSINESS COMBINATIONS AND ACQUISITIONS
The Murrey Companies
During January, 1999, the Company consummated a business combination with
the Murrey Companies which included the exchange of 2,750,000 shares of Waste
Connections, Inc. common stock for all outstanding shares of the Murrey
Companies. This business combination will be accounted for as pooling-of
interests, and accordingly, the historical financial statements of the Company
have been restated on a supplemental basis to include the consolidated financial
statements of Waste Connections, Inc. and the Murrey Companies for all periods
presented.
The supplemental consolidated financial statements have been prepared to
give retroactive effect to the business combination with the Murrey Companies.
Generally accepted accounting principles prohibit giving effect to a consummated
business combination accounted for by the pooling-of-interests method in
financial statements that do not include the date of consummation. The
accompanying supplemental consolidated financial statements do not extend
through the date of consummation, however, they will become the historical
consolidated financial statements of the Company after financial statements
covering the date of consummation of the business combinations are issued.
In connection with the business combination with the Murrey Companies, the
Company incurred transaction related costs of approximately $6.5 million which
will be to charged to operations in the period during which the merger is
consummated.
F-165
<PAGE> 240
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The table below sets forth the combined revenues and net income (loss) for
the years ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
WASTE THE MURREY SUPPLEMENTAL
CONNECTIONS, INC. COMPANIES CONSOLIDATED
----------------- ---------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Revenues...................................... $ -- $27,786 $27,786
Net income.................................... -- 3,225 3,225
YEAR ENDED DECEMBER 31, 1996:
Revenues...................................... -- 25,024 25,024
Net income.................................... -- 663 663
YEAR ENDED DECEMBER 31, 1997:
Revenues...................................... 6,237 28,874 35,111
Net income (loss)............................. (5,066) 1,316 (3,750)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED):
Revenues...................................... -- 21,477 21,477
Net income.................................... -- 932 932
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED):
Revenues...................................... 35,336 24,532 59,868
Net income.................................... 802 751 1,553
</TABLE>
Browning-Ferris Industries Related
On September 29, 1997, the Company purchased all of the outstanding stock
of Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc.
from BFI (collectively the "Acquisitions"). The total purchase price for the
Acquisitions was approximately $15,036, comprised principally of $11,493 in cash
and promissory notes payable to BFI totaling $3,543. Of the combined $15,036
purchase price, $9,578 was recorded as goodwill and $150 was assigned to a
non-competition agreement. The Acquisitions were accounted for in accordance
with the purchase method of accounting and, accordingly, the net assets acquired
were included in the Company's consolidated balance sheet based upon their
estimated fair values on the date of the Acquisitions. The Company's
consolidated statement of operations includes the revenues and expenses of the
acquired businesses after the effective date of the transaction.
F-166
<PAGE> 241
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 nine months ended September 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-167
<PAGE> 242
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 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>
F-168
<PAGE> 243
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Island Disposal
During 1997, the Murrey Companies purchased substantially all of the assets
of Island Disposal (effective May 2, 1997) and Environmental Waste Systems and
Olympic Disposal (both effective December 1, 1997) (collectively the "Murrey
Acquisitions"). The total purchase price for the Murrey Acquisitions was
approximately $3,100, comprised of $2,900 in cash and promissory notes payable
to the sellers totaling $200. Of the combined $3,100 purchase price, $1,791 was
recorded as goodwill and $80 was assigned to non-competition agreements. The
Murrey Acquisitions were accounted for in accordance with the purchase method of
accounting and, accordingly, the net assets acquired were included in the Murrey
Companies' combined balance sheet based upon their estimated fair values on the
date of the Acquisitions. The Murrey Companies' combined statement of operations
includes the revenues and expenses of the acquired businesses after the
effective date of the transactions.
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 Murrey Acquisitions is as follows:
<TABLE>
<S> <C>
Acquired assets:
Property and equipment.................................... $1,229
Goodwill.................................................. 1,791
Non-competition agreements................................ 80
------
$3,100
======
</TABLE>
The following unaudited pro forma information shows the results of the
supplemental consolidated operations as though the Murrey Acquisitions had
occurred as of January 1, 1996:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenue............................................ $27,485 $37,343
======= =======
Net income (loss).................................. $ 706 $(3,972)
======= =======
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
Murrey Acquisitions occurred on January 1, 1996, or the results of future
operations. Furthermore, the pro forma results do not give effect to all cost
savings or incremental costs that may occur as a result of the integration and
consolidation of the Murrey Acquisitions.
F-169
<PAGE> 244
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Predecessor Acquisitions
As described in Note 1, BFI acquired for cash and debt Fibres
International, Inc. on November 30, 1995 and The Disposal Group Combined on July
31, 1996 in transactions that were accounted for as purchases. Accordingly, the
respective purchase prices were allocated to the fair values of the assets
acquired and liabilities assumed. The following presents purchase price
information for these acquisitions:
<TABLE>
<CAPTION>
FIBRES THE DISPOSAL
INTERNATIONAL, INC. GROUP 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. INTANGIBLE ASSETS
Intangible assets as of December 31, 1996 and 1997 and September 30, 1998
consist of the following:
<TABLE>
<CAPTION>
PREDECESSORS WCI SUPPLEMENTAL CONSOLIDATED
COMBINED -----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill, net........................ $6,762 $11,191 $82,985
Long-term franchise agreements and
contracts.......................... -- -- 1,048
Non-competition agreement, net....... -- 221 652
------ ------- -------
$6,762 $11,412 $84,685
====== ======= =======
</TABLE>
Related to certain of the acquisitions (Note 2), the Company acquired
certain long-term franchise agreements and contracts. The estimated fair value
of the acquired long-term franchise agreements and contracts was determined by
management based on the discounted net cash flows associated with the agreements
and contracts. The amounts assigned to the franchise agreements and contracts is
being amortized on a straight-line method over the remaining term of the related
agreements (11 years).
Related to certain of the acquisitions (Note 2), the Company entered into
non-competition agreements. 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 on intangible assets amounted to $ as of
December 31, 1997 ($279 in 1996) and $ as of September 30, 1998.
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<PAGE> 245
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1997 and September 30,
1998 consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS WCI SUPPLEMENTAL CONSOLIDATED
COMBINED ---------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1997 1998
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and buildings.............. $2,314 $ 6,316 $ 6,668 $ 9,848
Machinery and equipment......... 146 3,518 3,840 5,344
Rolling stock................... 2,068 6,134 9,923 16,480
Containers...................... 1,084 3,140 6,375 11,632
Furniture and fixtures.......... 137 231 322 1,093
------ ------- ------- --------
5,749 19,339 27,128 44,397
Less accumulated depreciation... (680) (6,810) (8,124) (11,588)
------ ------- ------- --------
$5,069 $12,529 $19,004 $ 32,809
====== ======= ======= ========
</TABLE>
5. OTHER ASSETS
Other assets as of December 31, 1996 and 1997 and September 30, 1998
consist of the following:
<TABLE>
<CAPTION>
PREDECESSORS THE MURREY WCI SUPPLEMENTAL CONSOLIDATED
COMBINED COMPANIES -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1997 1998
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Restricted cash................. $ -- $-- $-- $1,895
Other........................... 369 3 58 326
---- --- --- ------
$369 $ 3 $58 $2,221
==== === === ======
</TABLE>
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of various revolving and non-revolving
lines-of-credit with banks, bearing interest at variable rates (ranging from
9.0% to 9.25% as of December 31, 1997) and mature at various dates through
November 30, 1998. The lines of credit are secured by all cash accounts held
with the banks by the Murrey Companies, which totaled $126 as of December 31,
1997. All available amounts under these lines-of-credit were outstanding as of
December 31, 1997.
Certain of these lines-of-credit contain certain restrictive covenants,
which among other things require that specified financial balances and ratios be
maintained by the Murrey Companies. As of December 31, 1997, the Murrey
Companies were in compliance with the covenants.
7. LINE OF CREDIT
On September 30, 1997, WCI 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
F-171
<PAGE> 246
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 WCI's
assets and were subordinate to the notes payable to BFI (Note 8) with respect to
certain specified assets. The Line was personally guaranteed by certain officers
and stockholders of WCI (Note 12). As of December 31, 1997, $600 was outstanding
under the Line.
Management of WCI used borrowings from a new credit facility obtained in
January 1998 (Note 15) 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.
8. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <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 WCI's assets; subordinate
to the notes payable to BFI with respect to certain
specified assets.......................................... $ -- $ 5,343
Note payable to a bank bearing interest at a variable rate
(approximately 8.5% as of December 31, 1997); monthly
payments of principal and interest of $25; maturing in
November, 2007; secured by certain cash accounts and a
pledge of one of the Murrey Companies exclusive franchise
agreements................................................ -- 2,000
Notes payable to a bank bearing interest at various fixed
rates (ranging from 9.1% to 9.2% as of December 31, 1997);
monthly payments of principal and interest aggregating $25
and one-time payments of $470 and $751 in September, 2000
and May, 2001, respectively; maturing at various dates
between September, 2000 and May, 2001; secured by land and
buildings with a net book value of approximately $2,548 as
of December 31, 1997...................................... 1,752 1,544
Equipment financing notes payable bearing interest at
various rates (ranging from 8.6% to 8.8% as of December
31, 1997); monthly payments of principal and interest
aggregating $25; maturing at various dates through
September, 2001; secured by equipment with an aggregate
net book value of approximately $984 as of December 31,
1997...................................................... 567 822
Note payable to a bank bearing interest at 8.6%; monthly
payments of principal and interest aggregating $13;
maturing in October, 2001; secured by equipment with a net
book value of approximately $533 as of December 31, 1997
and certain cash accounts................................. -- 632
Notes payable to sellers bearing interest at various rates
(ranging from 8.5% to 9.0% as of December 31, 1997);
monthly principal and interest payments of $9; maturing at
various dates between February, 2001 and October, 2007;
secured by land and buildings with a net book value of
approximately $908 as of December 31, 1997................ 218 471
Note payable to BFI bearing interest at 6.0%; all
outstanding principal and interest are due December 1997;
secured by substantially all of WCI's accounts
receivable................................................ -- 319
</TABLE>
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<PAGE> 247
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
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 WCI's assets.............. -- 500
Unsecured notes payable to seller bearing interest at 8.0%
as of December 31, 1997; monthly principal and interest
payments of $4; maturing in June, 2002.................... -- 189
Line of credit (Note 7)..................................... -- 600
Others...................................................... 242 122
------ -------
2,779 12,542
Current portion............................................. 928 873
------ -------
$1,851 $11,669
====== =======
</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
12).
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....................................................... $ 2,609
1999....................................................... 1,697
2000....................................................... 1,973
2001....................................................... 2,149
2002....................................................... 1,325
Thereafter................................................. 2,789
-------
$12,542
=======
</TABLE>
Management used borrowings from a new credit facility obtained in January
1998 (Note 15) 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 balance sheet.
The capital expenditures funded by the bonds are expected to be substantially
completed by December 31, 1998.
F-173
<PAGE> 248
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
9. 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 supplemental consolidated rent
expense under operating leases during the years ended December 31, 1995, 1996
and 1997 was $319, $170 and $235, respectively.
As of December 31, 1997, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 393
1999........................................................ 382
2000........................................................ 359
2001........................................................ 247
2002........................................................ 97
Thereafter.................................................. 355
------
$1,833
======
</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, WCI had provided customers and various regulatory authorities
with bonds and letters of credit of approximately $800 to secure its
obligations. The Company's new credit facility (Note 15) 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
F-174
<PAGE> 249
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 September 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 September 30, 1998 there is no current proceeding or litigation that
the Company believes will have a material adverse impact on it'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.
Disposal Site
The Company has been informed that the Hidden Valley Landfill which is
currently utilized by the Murrey Companies for disposal of waste collected in
Pierce County, Washington is currently operating under a Consent Decree with the
Washington State Department of Ecology and the Environmental Protection Agency.
Under the terms of the Consent Decree the Hidden Valley Landfill is required to
be closed on or before December 31, 1998; after which all of the waste collected
by the Murrey Companies in Pierce County will be long hauled to an alternate
disposal site until the new solid waste landfill in Pierce County is opened. The
new landfill is projected to open in November 1999. Management of the Company
does not believe that the closure of the Hidden Valley Landfill will have a
material adverse impact on it's business, financial position, results of
operations or cash flows.
Employees
Approximately 55 drivers and mechanics at WCI'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
F-175
<PAGE> 250
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1997. Approximately 11 drivers at Arrow Sanitary Services, Inc. ("Arrow"), a
wholly owned subsidiary of the Company, 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 employees at Issaquah have filed to
decertify the union, and the union has filed a claim with the National Labor
Relation Board to attempt to block the decertification. The Company is not aware
of any other organizational efforts among its employees and believes that its
relations with its employees are good.
Approximately 44 of the Murrey Companies' route drivers are represented by
the Teamsters Union. The Murrey Companies have a collective bargaining agreement
that expires in June 1999. The Murrey Companies are not aware of any other
organizational efforts among their employees and believes that their relations
with their employees are good.
10. EMPLOYEE BENEFIT PLAN
The Murrey Companies have a voluntary savings and investment plan (the
"401(k) Plan"). The 401(k) Plan is available to all eligible, non-union
employees of the Murrey Companies. Under the 401(k) Plan, the Murrey Companies'
contributions are at the discretion of management. During the years ended
December 31, 1995, 1996 and 1997, the Murrey Companies' 401(k) Plan expense was
approximately $246, $267 and $316, respectively.
11. 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.
F-176
<PAGE> 251
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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.
12. STOCKHOLDERS' EQUITY
Common Stock
Of the 47,759,030 shares of common stock authorized but unissued as of
December 31, 1997, the following shares were reserved for issuance:
<TABLE>
<S> <C>
Preferred Stock........................................... 2,521,874
Madera acquisition (Note 2)............................... 1,200,000
Stock option plan......................................... 1,200,000
Stock purchase warrants................................... 1,056,000
---------
5,977,874
=========
</TABLE>
Stockholder Notes Receivable
In December 1997, the Company provided loans in the aggregate amount of $82
to certain employees, who are also common stockholders, for the purchase of
shares of the Company's Preferred Stock. The notes bear interest at 8%, are due
on January 1, 1999 and are secured by the Preferred Stock purchased and common
stock owned by the employees.
Stock Options
In November 1997, WCI'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, WCI's Board of Directors approved the
reservation of 1,200,000 shares of common stock for issuance thereunder. As of
December 31, 1997 and September 30, 1998, 35,000 options to purchase common
stock were exercisable under the Option Plan. In addition, as of December 31,
1997 and September 30, 1998, options for 671,500 and 160,450 shares,
respectively of common stock were available for future grants under the Option
Plan.
F-177
<PAGE> 252
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
A summary of WCI's stock option activity and related information during the
period from inception (September 9, 1997) through December 31, 1997 and the nine
months ended September 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)............................. 511,050 9.59
Forfeited (unaudited)........................... -- --
Exercised (unaudited)........................... -- --
---------
Outstanding as of September 30, 1998
(unaudited)................................... 1,039,550 7.21
=========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 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 19.00............................... -- -- 95,750 17.24
$21.00 to 22.13............................... -- -- 36,500 21.90
------- ----- --------- -----
528,500 4.92 1,039,550 7.21
======= ===== ========= =====
</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.
F-178
<PAGE> 253
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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 year ended
December 31, 1997 were $(3,754) and $(0.93) per share, respectively.
During the nine months ended September 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 $322 was recorded
during the nine months ended September 30, 1998 relating to these options, and
the remaining $499 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 7 and 8). The exercise price of the warrant is $.01 per share.
The warrant was valued at $382 on its date of issuance using the Black-Scholes
pricing model with an assumed stock price volatility of .40, risk-free interest
rate of 6.0%, estimated fair value of the common stock of $1.92 per share and an
expected life of 7 years. The value assigned to the warrant was reflected as a
discount on long-term debt. The discount was fully accreted to interest expense
using the straight-line method over the expected term of the debt agreements
(approximately three months).
In connection with their guarantee of certain of the Company's debt
obligations (Notes 7 and 8), 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.
F-179
<PAGE> 254
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
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.
13. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS
---------------------------------------- PREDECESSORS
FIBRES ------------------ WCI
INTERNATIONAL, INC. THE DISPOSAL GROUP SUPPLEMENTAL
PERIOD FROM WCI COMBINED CONSOLIDATED
THE DISPOSAL GROUP JANUARY 1, 1995 SUPPLEMENTAL PERIOD FROM YEAR ENDED
COMBINED THROUGH CONSOLIDATED JANUARY 1, 1996 DECEMBER 31,
YEAR ENDED NOVEMBER 30, YEAR ENDED THROUGH ------------
DECEMBER 31, 1995 1995 DECEMBER 31, 1995 JULY 31, 1996 1996 1997
------------------ ------------------- ----------------- ------------------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............ $ -- $29 $543 $207 $562 $716
State.............. -- -- -- -- -- --
Deferred:
Federal............ (298) -- 147 298 (19) (414)
State.............. -- -- -- -- -- --
----- --- ---- ---- ---- ----
$(298) $29 $690 $505 $543 $302
===== === ==== ==== ==== ====
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
WCI SUPPLEMENTAL
PREDECESSORS CONSOLIDATED
COMBINED ----------------
1996 1996 1997
------------ ----- -------
<S> <C> <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................................ -- (702) (1,187)
------ ----- -------
Net deferred income tax asset (liability)..... 246
Less valuation allowance...................... (246) -- --
------ ----- -------
$ -- $(702) $ (820)
====== ===== =======
</TABLE>
F-180
<PAGE> 255
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The differences between the Company's provision (benefit) for income taxes
as presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income (loss):
<TABLE>
<CAPTION>
PREDECESSORS
---------------------------------------------------------------------------
FIBRES THE DISPOSAL
INTERNATIONAL, GROUP
THE DISPOSAL 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 PREDECESSORS
COMBINED COMBINED
PERIOD ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Income tax benefit at the statutory rate........... (34.0%) (34.0%)
Effect of valuation allowance...................... 34.0% 34.0%
Stock compensation expense......................... -- --
----- -----
-- --
===== =====
</TABLE>
<TABLE>
<CAPTION>
WCI SUPPLEMENTAL
CONSOLIDATED
-------------------------
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ----- ------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory rate........ 34.0% 34.0% (34.0%)
Tax effect of companies reporting under Subchapter S........ (17.0%) 10.0% (1.0%)
Stock compensation expense.................................. -- -- 44.0%
Other....................................................... 1.0% 1.0% --
----- ---- -----
18.0% 45.0% 9.0%
===== ==== =====
</TABLE>
F-181
<PAGE> 256
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
14. NET INCOME (LOSS) PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and
denominator used in the computation of basic and diluted net loss per share and
pro forma basic and diluted net income (loss) per share for the years ended
December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1997
and 1998. The pro forma basic and diluted 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 nine
months ended September 30, 1998, as if such conversions occurred as of the first
day of each period presented or the actual date of issuance, if subsequent to
the first day of the period presented.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, 1997 SEPTEMBER 30, 1997
----------------------- ----------------------- -----------------------
(UNAUDITED)
1995 1996
---------- ---------- PRO FORMA
BASIC BASIC BASIC BASIC BASIC DILUTED
NET INCOME NET INCOME NET LOSS NET LOSS NET INCOME NET INCOME
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary
item................................ $ 3,225 $ 663 $ (3,750) $ (3,750) $ 932 $ 932
Redeemable convertible preferred stock
accretion........................... -- -- (531) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) applicable to common
stockholders before extraordinary
item................................ $ 3,225 $ 663 $ (4,281) $ (3,750) $ 932 $ 932
========== ========== ========== ========== ========== ==========
Extraordinary item.................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders........................ $ 3,225 $ 663 $ (4,281) $ (3,750) $ 932 $ 932
========== ========== ========== ========== ========== ==========
Denominator:
Weighted average common shares
outstanding......................... 2,750,000 2,750,000 4,622,567 4,622,567 2,750,000 2,750,000
Dilutive effect of stock options and
warrants outstanding................ -- -- -- -- -- --
Incremental common shares issuable
upon redemption of redeemable common
stock............................... -- -- -- -- -- --
Incremental common shares issuable
upon conversion of preferred
stock............................... -- -- -- 2,499,998 -- --
---------- ---------- ---------- ---------- ---------- ----------
2,750,000 2,750,000 4,622,567 7,122,565 2,750,000 2,750,000
========== ========== ========== ========== ========== ==========
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
---------------------------------------------------
(UNAUDITED)
PRO FORMA PRO FORMA
BASIC DILUTED BASIC DILUTED
NET INCOME NET INCOME NET INCOME NET INCOME
PER SHARE PER SHARE PER SHARE PER SHARE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary
item................................ $ 2,368 $ 2,368 $ 2,368 $ 2,368
Redeemable convertible preferred stock
accretion........................... (917) (917) -- --
---------- ----------- ---------- -----------
Income (loss) applicable to common
stockholders before extraordinary
item................................ $ 1,451 $ 1,451 $ 2,368 $ 2,368
========== =========== ========== ===========
Extraordinary item.................... (815) (815) (815) (815)
---------- ----------- ---------- -----------
Net income (loss) applicable to common
stockholders........................ $ 636 $ 636 $ 1,553 $ 1,553
========== =========== ========== ===========
Denominator:
Weighted average common shares
outstanding......................... 8,226,532 8,226,532 8,226,532 8,226,532
Dilutive effect of stock options and
warrants outstanding................ -- 1,584,836 -- 1,584,836
Incremental common shares issuable
upon redemption of redeemable common
stock............................... -- 377,290 377,290 377,290
Incremental common shares issuable
upon conversion of preferred
stock............................... -- -- 1,263,735 1,263,735
---------- ----------- ---------- -----------
8,226,532 10,188,658 9,867,557 11,452,393
========== =========== ========== ===========
</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.
F-182
<PAGE> 257
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
15. NEW CREDIT FACILITY
On January 30, 1998, the Company obtained a revolving credit facility from
BankBoston (the "Credit Facility"). The maximum amount available under the
Credit Facility was $25,000 including stand-by letters-of-credit and the
borrowings bore interest at various fixed and/or variable rates at the Company's
option. The Credit Facility allowed for the Company to issue up to $5,000 in
stand-by letters-of-credit. The Credit Facility required quarterly payments of
interest. The Credit Facility required the Company to pay an annual commitment
fee equal to 0.5% of the unused portion of the Credit Facility. 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 "May
Credit Facility"). The maximum amount available under the May Credit Facility
was $60 million (including stand-by letters of credit) and the borrowings bore
interest at various fixed and/or variable rates at the Company's option
(approximately 7.49% as of September 30, 1998). The May Credit Facility replaced
an existing revolving credit facility. The May Credit Facility allowed for the
Company to issue up to $5 million in stand-by letters-of-credit. The May Credit
Facility required quarterly payments of interest. Borrowings under the May
Credit Facility were secured by virtually all of the Company's assets. The May
Credit Facility required the Company to pay an annual commitment fee equal to
0.375% of the unused portion of the Credit Facility.
On November 20, 1998, the Company entered into a new revolving credit
facility with a syndicate of banks for which BankBoston N.A. acts as agent (the
"November Credit Facility"). The maximum amount available under the November
Credit Facility is $125 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 7.0% as of September 30, 1998). The November Credit
Facility replaced an existing revolving credit facility. The November Credit
Facility allows for the Company to issue up to $15 million in stand-by
letters-of-credit. The November Credit Facility requires quarterly payments of
interest and it matures in November 2003. Borrowings under the November Credit
Facility are secured by virtually all of the Company's assets. The November
Credit Facility requires the Company to pay an annual commitment fee equal to
0.375% of the unused portion of the November Credit Facility. The November
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 November
Credit Facility also requires that specified financial ratios and balances be
maintained. Management of the Company expects to record an extraordinary charge
of approximately $211 (net of income tax) in the fourth quarter of 1998 related
to the extinguishment of the May Credit Facility.
16. RELATED PARTY TRANSACTIONS
WCI has entered into certain transactions with Continental Paper, LLC
("Continental"), in which WCI delivers to Continental all of it's collected
recyclable materials in areas in which Continental has processing facilities and
Continental pays WCI market rates for the recyclable materials. Certain of
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<PAGE> 258
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO SEPTEMBER 30, 1998 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
WCI's stockholders are the majority owners of Continental. During the year ended
December 31, 1997, WCI received approximately $223 from Continental in these
transactions.
Operating Lease
The Murrey Companies lease land (on which certain of their facilities are
located) from a shareholder of the Murrey Companies. This lease is pursuant to
an informal arrangement whereby the Murrey Companies pay all of the property
taxes and other expenses associated with the leased land in lieu of monthly
rent. These payments totaled approximately $10 during each of the years ended
December 31, 1995, 1996, and 1997.
Advances
As of December 31, 1996 and 1997, the Murrey Companies any had non-interest
bearing advances payable to one of their shareholders totaling $818 and $543,
respectively.
Disposal Fees
During the years ended December 31, 1995, 1996 and 1997, the Murrey
Companies paid $7,355, $7,730, and $8,592, respectively, in disposal fees to a
landfill that is owned and operated by a company in which one of the Murrey
Companies' shareholders has an approximate 33% ownership interest.
F-184
<PAGE> 259
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------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS.
NEITHER THE COMPANY NOR ANY SELLING STOCKHOLDER HAS AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND IT DOES NOT SEEK AN OFFER TO BUY,
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF WHEN THIS PROSPECTUS IS DELIVERED OR THESE SECURITIES
ARE SOLD.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............... 2
Prospectus Summary.................. 3
Risk Factors........................ 8
Dividend Policy..................... 17
Price Range of Common Stock......... 17
Selected Historical and Pro Forma
Financial and Operating Data...... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Business............................ 35
Management.......................... 53
Certain Transactions................ 61
Principal Stockholders.............. 64
Description of Capital Stock........ 66
Shares Eligible for Future Sale..... 69
Outstanding Securities Covered by
This Prospectus................... 70
Legal Matters....................... 71
Experts............................. 72
Index to Financial Statements....... F-1
</TABLE>
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3,000,000 SHARES
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
DECEMBER , 1998
------------------------------------------------------
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<PAGE> 260
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
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<PAGE> 261
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the Delaware Law provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the Delaware Law states that any indemnification under
subsections (a) and (b) of section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Section 145(e) of the Delaware Law provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of section 145 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the Delaware Law provides that a corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of section 145.
Section 145(j) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, section 145 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
II-2
<PAGE> 262
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+ Amended and Restated Revolving Credit Agreement, dated as of
November 20, 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 Third Amended and Restated Investors' Rights
Agreement dated as of December 31, 1998(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
</TABLE>
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<PAGE> 263
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
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
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
</TABLE>
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<PAGE> 264
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
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
10.40## Asset Purchase Agreement, dated as of September 18, 1998, by
and among the Company, Waste Connections of Nebraska, Inc.,
Affiliated Waste Services, L.L.C., Leroy's Sanitary Service,
Inc., Elden's Sanitary Service, Inc., Dennis' Sanitary
Service, Inc., LeRoy Hintz and Janice Hintz, Dennis J. Mrsny
and Mary Mrsny, and Elden W. Mrsny and Doris Mrsny
10.41## Asset Purchase Agreement, dated as of September 9, 1998, by
and among the Company, Madera Disposal Systems, Inc. and
Charles B. Youngclaus
10.42## Asset Purchase Agreement, dated as of September 21, 1998, by
and among the Company, Waste Connections of Utah, Inc.,
Country Garbage Service Inc., Jay Mecham, Karl Bankowski,
and Robert Lopez
10.43## Asset Purchase Agreement, dated as of September 18, 1998, by
and among the Company, Waste Connections of Nebraska, Inc.,
Gary D. Wolff and Elizabeth L. Wolff
</TABLE>
II-5
<PAGE> 265
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
10.44## Agreement and Plan of Merger, dated as of September 21,
1998, by and among the Company, WCI Acquisition Corporation,
Evergreen Waste Systems Inc., Keith H. Alexander and Todd D.
Alexander
10.45## Asset Purchase Agreement, dated as of September 22, 1998, by
and among the Company, Curry Transfer & Recycling, Inc.,
Harrell's Septic, Ralph Hirt and Renate Hirt
10.46## Asset Purchase Agreement, dated as of September 25, 1998, by
and among the Company, Curry Transfer & Recycling, Inc.,
Westlane Disposal, Loren Parker and Roberta Parker
10.47+ Asset Purchase Agreement, dated as of October 15, 1998, by
and among the Company, Waste Connections of Idaho, Inc., R&N
LLC, Rumsey Sanitation, Inc., NADL Sanitation Inc., Bradley
D. Rumsey, Emil Nejdl, and Kathy K. Rumsey
10.48+ Purchase and Sale Agreement, dated as of October 15, 1998,
by and between R&N LLC and Waste Connections of Idaho, Inc.
10.49+ Agreement and Plan of Merger dated as of October 22, 1998,
by and among Waste Connections, WCI Acquisition Corporation
I, WCI Acquisition Corporation II, WCI Acquisition
Corporation III, WCI Acquisition Corporation IV, Murrey's
Disposal Company, Inc., American Disposal Company, Inc.,
D.M. Disposal Co., Inc., Tacoma Recycling Company, Inc., the
Murrey Trust UTA August 5, 1993, as amended, the Bonnie L.
Murrey Revocable Trust UTA August 5, 1993, as amended,
Donald J. Hawkins and Irmgard R. Wilcox
21.1## Subsidiaries of the Registrant
23.1## Consent of Shartsis, Friese & Ginsburg LLP (included in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Grant Thornton LLP, Independent Auditors
23.4 Consent of PricewaterhouseCoopers LLP, Independent Auditors
23.5## 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.
II-6
<PAGE> 266
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
*** Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, Registration No. 333-59199.
## Previously filed.
(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;
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<PAGE> 267
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is part
of this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
The undersigned Registrant undertakes that every prospectus that (i) is filed
pursuant to the immediately preceding paragraph, or (ii) purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, 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
II-8
<PAGE> 268
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-9
<PAGE> 269
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 January , 1999.
WASTE CONNECTIONS, INC.
By: /s/ RONALD J. MITTELSTAEDT
------------------------------------------
Ronald J. Mittelstaedt
President, Chief Executive Officer and
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on January , 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. MITTELSTAEDT President, Chief Executive January , 1999
- --------------------------------------------- Officer and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU* Director and Vice January , 1999
- --------------------------------------------- President -- Madera
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN* Director January , 1999
- ---------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK* Director January , 1999
- ---------------------------------------------
William J. Razzouk
/s/ STEVEN F. BOUCK* Executive Vice President and January , 1999
- --------------------------------------------- Chief Financial Officer
Steven F. Bouck
/s/ MICHAEL R. FOOS* Vice President and Corporate January , 1999
- --------------------------------------------- Controller
Michael R. Foos
* /s/ RONALD J. MITTELSTAEDT January , 1999
- ---------------------------------------------
Ronald J. Mittelstaedt
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 270
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> 271
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
- --------- ----------------------- ------
<C> <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+ Amended and Restated Revolving Credit Agreement, dated as
of November 20, 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 Third Amended and Restated Investors' Rights
Agreement dated as of December 31, 1998(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..............................
</TABLE>
<PAGE> 272
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
- --------- ----------------------- ------
<C> <S> <C>
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....................
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...............
</TABLE>
<PAGE> 273
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
- --------- ----------------------- ------
<C> <S> <C>
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......................................
10.40## Asset Purchase Agreement, dated as of September 18, 1998,
by and among the Company, Waste Connections of Nebraska,
Inc., Affiliated Waste Services, L.L.C., Leroy's Sanitary
Service, Inc., Elden's Sanitary Service, Inc., Dennis'
Sanitary Service, Inc., LeRoy Hintz and Janice Hintz,
Dennis J. Mrsny and Mary Mrsny, and Elden W. Mrsny and
Doris Mrsny..............................................
10.41## Asset Purchase Agreement, dated as of September 9, 1998,
by and among the Company, Madera Disposal Systems, Inc.
and Charles B. Youngclaus................................
10.42## Asset Purchase Agreement, dated as of September 21, 1998,
by and among the Company, Waste Connections of Utah,
Inc., Country Garbage Service Inc., Jay Mecham, Karl
Bankowski, and Robert Lopez..............................
10.43## Asset Purchase Agreement, dated as of September 18, 1998,
by and among the Company, Waste Connections of Nebraska,
Inc., Gary D. Wolff and Elizabeth L. Wolff...............
</TABLE>
<PAGE> 274
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
- --------- ----------------------- ------
<C> <S> <C>
10.44## Agreement and Plan of Merger, dated as of September 21,
1998, by and among the Company, WCI Acquisition
Corporation, Evergreen Waste Systems Inc., Keith H.
Alexander and Todd D. Alexander..........................
10.45## Asset Purchase Agreement, dated as of September 22, 1998,
by and among the Company, Curry Transfer & Recycling,
Inc., Harrell's Septic, Ralph Hirt and Renate Hirt.......
10.46## Asset Purchase Agreement, dated as of September 25, 1998,
by and among the Company, Curry Transfer & Recycling,
Inc., Westlane Disposal, Loren Parker and Roberta
Parker...................................................
10.47+ Asset Purchase Agreement, dated as of October 15, 1998,
by and among the Company, Waste Connections of Idaho,
Inc., R&N LLC, Rumsey Sanitation, Inc., NADL Sanitation
Inc., Bradley D. Rumsey, Emil Nejdl, and Kathy K.
Rumsey...................................................
10.48+ Purchase and Sale Agreement, dated as of October 15,
1998, by and between R&N LLC and Waste Connections of
Idaho, Inc...............................................
10.49+ Agreement and Plan of Merger dated as of October 22,
1998, by and among Waste Connections, WCI Acquisition
Corporation I, WCI Acquisition Corporation II, WCI
Acquisition Corporation III, WCI Acquisition Corporation
IV, Murrey's Disposal Company, Inc., American Disposal
Company, Inc., D.M. Disposal Co., Inc., Tacoma Recycling
Company, Inc., the Murrey Trust UTA August 5, 1993, as
amended, the Bonnie L. Murrey Revocable Trust UTA August
5, 1993, as amended, Donald J. Hawkins and Irmgard R.
Wilcox...................................................
21.1## Subsidiaries of the Registrant...........................
23.1## Consent of Shartsis, Friese & Ginsburg LLP (included in
Exhibit 5.1).............................................
23.2 Consent of Ernst & Young LLP, Independent Auditors.......
23.3 Consent of Grant Thornton LLP, Independent Auditors......
23.4 Consent of PricewaterhouseCoopers LLP, Independent
Auditors.................................................
23.5## 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.
<PAGE> 275
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
*** Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, Registration No. 333-59199.
## Previously filed.
(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.
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of November 23, 1998
by and among
WASTE CONNECTIONS, INC.
AND ITS SUBSIDIARIES
(the "Borrowers")
THE LENDING INSTITUTIONS PARTY HERETO
(the "Banks")
and
BANKBOSTON, N.A., AS AGENT
With
BANCBOSTON ROBERTSON STEPHENS INC., as Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. DEFINITIONS AND RULES OF INTERPRETATION......................................................................1
Section 1.1. Definitions..........................................................................................1
Section 1.2. Rules of Interpretation..............................................................................19
Section 2. THE REVOLVING CREDIT FACILITY................................................................................20
Section 2.1. Commitment to Lend...................................................................................20
Section 2.2. Reduction and Increase of Total Commitment...........................................................20
Section 2.2.1. Reduction of Total Commitment........................................................................20
Section 2.2.2. Increase of Total Commitment.........................................................................20
Section 2.3. The Revolving Credit Notes...........................................................................21
Section 2.4. Interest on Revolving Credit Loans...................................................................21
Section 2.5. Election of Eurodollar Rate; Notice of Election; Interest Periods; Minimum Amounts...................21
Section 2.6. Requests for Revolving Credit Loans..................................................................22
Section 2.7. Funds for Revolving Credit Loans.....................................................................23
Section 2.8. Maturity of the Loans................................................................................24
Section 2.9. Mandatory Repayments of the Revolving Credit Loans...................................................24
Section 2.10. Optional Prepayments or Repayments of Revolving Credit Loans.........................................24
Section 3. LETTERS OF CREDIT............................................................................................24
Section 3.1. Letter of Credit Commitments.........................................................................24
Section 3.2. Reimbursement Obligation of the Borrowers............................................................25
Section 3.3. Letter of Credit Payments............................................................................26
Section 3.4. Obligations Absolute.................................................................................26
Section 3.5. Reliance by Agent....................................................................................27
Section 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY..........................................27
Section 4.1. Fees.................................................................................................27
Section 4.2. Payments.............................................................................................28
Section 4.3. Computations.........................................................................................28
Section 4.4. Capital Adequacy.....................................................................................29
Section 4.5. Certificate..........................................................................................29
Section 4.6. Interest on Overdue Amounts..........................................................................29
Section 4.7. Interest Limitation..................................................................................29
Section 4.8. Eurodollar Indemnity.................................................................................30
Section 4.9. Illegality; Inability to Determine Eurodollar Rate...................................................30
Section 4.10. Additional Costs, Etc................................................................................30
Section 4.11. Replacement of Banks.................................................................................31
Section 4.12. Concerning Joint and Several Liability of the Borrowers..............................................32
Section 5. REPRESENTATIONS AND WARRANTIES...............................................................................33
Section 5.1. Corporate Authority..................................................................................34
Section 5.2. Governmental Approvals...............................................................................34
Section 5.3. Title to Properties; Leases..........................................................................34
Section 5.4. Financial Statements; Solvency.......................................................................34
Section 5.5. No Material Changes, Etc.............................................................................35
</TABLE>
<PAGE> 3
-ii-
<TABLE>
<S> <C> <C>
Section 5.6. Permits, Franchises, Patents, Copyrights, Etc........................................................35
Section 5.7. Litigation...........................................................................................35
Section 5.8. No Materially Adverse Contracts, Etc.................................................................35
Section 5.9. Compliance With Other Instruments, Laws, Etc.........................................................36
Section 5.10. Tax Status...........................................................................................36
Section 5.11. No Event of Default..................................................................................36
Section 5.12. Holding Company and Investment Company Acts..........................................................36
Section 5.13. Absence of Financing Statements, Etc.................................................................36
Section 5.14. Employee Benefit Plans...............................................................................36
Section 5.15. Use of Proceeds......................................................................................38
Section 5.15.1. General.............................................................................................38
Section 5.15.2. Regulations U and X.................................................................................38
Section 5.15.3. Ineligible Securities...............................................................................38
Section 5.16. Environmental Compliance.............................................................................38
Section 5.17. Perfection of Security Interests.....................................................................39
Section 5.18. Transactions with Affiliates.........................................................................39
Section 5.19. Subsidiaries.........................................................................................40
Section 5.20. True Copies of Charter and Other Documents...........................................................40
Section 5.21. Disclosure...........................................................................................40
Section 5.22. Capitalization.......................................................................................40
Section 5.23. Year 2000 Issue......................................................................................41
Section 6. AFFIRMATIVE COVENANTS OF THE BORROWERS.......................................................................41
Section 6.1. Punctual Payment.....................................................................................41
Section 6.2. Maintenance of Offices...............................................................................41
Section 6.3. Records and Accounts.................................................................................41
Section 6.4. Financial Statements, Certificates and Information...................................................41
Section 6.5. Corporate Existence and Conduct of Business..........................................................43
Section 6.6. Maintenance of Properties............................................................................43
Section 6.7. Insurance............................................................................................43
Section 6.8. Taxes................................................................................................43
Section 6.9. Inspection of Properties, Books, and Contracts.......................................................44
Section 6.10. Compliance with Laws, Contracts, Licenses and Permits; Maintenance of Material Licenses and Permits..44
Section 6.11. Environmental Indemnification........................................................................44
Section 6.12. Further Assurances...................................................................................45
Section 6.13. Notice of Potential Claims or Litigation.............................................................45
Section 6.14. Notice of Certain Events Concerning Insurance and Environmental Claims...............................45
Section 6.15. Response Actions.....................................................................................46
Section 6.16. Notice of Default....................................................................................46
Section 6.17. New Subsidiaries.....................................................................................46
Section 6.18. Employee Benefit Plans...............................................................................47
Section 6.19. Notice of Loss of Material Contracts.................................................................47
Section 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS.................................................................47
Section 7.1. Restrictions on Indebtedness.........................................................................47
</TABLE>
- -
<PAGE> 4
-iii-
<TABLE>
<S> <C> <C>
Section 7.2. Restrictions on Liens................................................................................48
Section 7.3. Restrictions on Investments..........................................................................49
Section 7.4. Merger, Consolidation and Disposition of Assets......................................................50
Section 7.4.1. Mergers and Acquisitions.............................................................................50
Section 7.4.2. Disposition of Assets................................................................................51
Section 7.5. Sale and Leaseback...................................................................................51
Section 7.6. Restricted Distributions and Redemptions.............................................................52
Section 7.7. Employee Benefit Plans...............................................................................52
Section 7.8. Negative Pledges.....................................................................................52
Section 7.9. Business Activities..................................................................................53
Section 7.10. Transactions with Affiliates.........................................................................53
Section 8. FINANCIAL COVENANTS..........................................................................................53
Section 8.1. Leverage Ratio.......................................................................................53
Section 8.2. Funded Debt to Capitalization Ratio..................................................................53
Section 8.3. Interest Coverage Ratio..............................................................................53
Section 8.4. Profitable Operations................................................................................53
Section 8.5. Capital Expenditures.................................................................................53
Section 9. CLOSING CONDITIONS...........................................................................................54
Section 9.1. Corporate Action.....................................................................................54
Section 9.2. Loan Documents, Etc..................................................................................54
Section 9.3. Certificate of Secretary; Good Standing Certificates.................................................54
Section 9.4. Validity of Liens....................................................................................54
Section 9.5. Perfection Certificates and UCC Search Results.......................................................55
Section 9.6. Certificates of Insurance............................................................................55
Section 9.7. Legal Opinions.......................................................................................55
Section 9.8. Environmental Permit Certificate.....................................................................55
Section 9.9. Payment of Fees......................................................................................55
Section 9.10. Closing Certificate..................................................................................55
Section 9.11. Contracts............................................................................................55
Section 10. CONDITIONS OF ALL LOANS.....................................................................................55
Section 10.1. Representations True; No Event of Default............................................................55
Section 10.2. Performance; No Event of Default.....................................................................56
Section 10.3. No Legal Impediment..................................................................................56
Section 10.4. Governmental Regulation..............................................................................56
Section 10.5. Proceedings and Documents............................................................................56
Section 11. COLLATERAL SECURITY.........................................................................................56
Section 11.1. Security of Borrowers................................................................................56
Section 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT..................................................57
Section 12.1. Events of Default and Acceleration...................................................................57
Section 12.2. Termination of Commitments...........................................................................60
Section 12.3. Remedies.............................................................................................60
Section 13. SETOFF......................................................................................................60
Section 14. THE AGENT...................................................................................................61
Section 14.1. Appointment of Agent, Powers and Immunities..........................................................61
</TABLE>
<PAGE> 5
-iv-
<TABLE>
<S> <C> <C>
Section 14.2. Actions By Agent.....................................................................................62
Section 14.3. INDEMNIFICATION......................................................................................62
Section 14.4. Reimbursement........................................................................................62
Section 14.5. Documents............................................................................................63
Section 14.5.1. Closing Documentation..............................................................................63
Section 14.5.2. Other Documents....................................................................................63
Section 14.6. Non-Reliance on Agent and Other Banks................................................................63
Section 14.7. Resignation or Removal of Agent......................................................................64
Section 14.8. Consents, Amendments, Waivers, Etc...................................................................64
Section 14.9. Delinquent Banks.....................................................................................65
Section 15. EXPENSES AND INDEMNIFICATION................................................................................65
Section 15.1. Expenses.............................................................................................66
Section 15.2. Indemnification......................................................................................66
Section 15.3. Survival.............................................................................................66
Section 16. SURVIVAL OF COVENANTS, ETC...........................................................................67
Section 17. ASSIGNMENT AND PARTICIPATION.........................................................................68
Section 18. PARTIES IN INTEREST..................................................................................68
Section 19. NOTICES, ETC.........................................................................................68
Section 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION........................................................68
Section 20.1. Sharing of Information with Section 20 Subsidiary....................................................68
Section 20.2. Confidentiality......................................................................................69
Section 20.3. Prior Notification...................................................................................69
Section 20.4. Other................................................................................................69
Section 21. MISCELLANEOUS........................................................................................69
Section 22. ENTIRE AGREEMENT, ETC................................................................................70
Section 23. WAIVER OF JURY TRIAL.................................................................................70
Section 24. GOVERNING LAW........................................................................................70
Section 25. SEVERABILITY.........................................................................................70
</TABLE>
<PAGE> 6
SCHEDULES & EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Loan and Letter of Credit Request
Exhibit C Form of Compliance Certificate
Exhibit D Form of Environmental Compliance Certificate
Exhibit E Form of Assignment and Acceptance
Schedule 1 Banks; Addresses; Commitment Percentages
Schedule 2 Subsidiaries
Schedule 5.7 Litigation
Schedule 5.9 Material Contracts
Schedule 5.16 Environmental Matters
Schedule 5.18 Transactions with Affiliates
Schedule 7.2(f) Existing Liens
Schedule 7.2(j) Scheduled Contracts
Schedule 7.3 Existing Investments
</TABLE>
<PAGE> 7
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of
November ____, 1998 (the "Credit Agreement"), by and among (a) WASTE
CONNECTIONS, INC., a Delaware corporation (the "Parent"), the subsidiaries of
the Parent identified on Schedule 2 hereto (the "Subsidiaries," and collectively
with the Parent, the "Borrowers"), (b) BANKBOSTON, N.A., a national banking
association having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110 (acting in its individual capacity, "BKB") and the
other BANKS and lending institutions which become parties hereto (collectively,
the "Banks"), and (c) BANKBOSTON, N.A., as agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers and the Agent are party to that certain
Revolving Credit Agreement dated as of May 29, 1998, (as amended and in effect
as of the date hereof, the "Prior Credit Agreement"); and
WHEREAS, the Borrowers have requested, among other things, additional
financing and the Banks are willing to provide such financing on the terms and
conditions set forth herein to amend and restate the Prior Credit Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements set forth herein below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that on the Closing Date the Prior Credit Agreement shall
be amended and restated in its entirety by this Credit Agreement, the terms of
which are as follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
SECTION 1.1. DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Credit
Agreement referred to below:
A-1. A-1 Disposal, Inc.
Accountants. An independent accounting firm of national standing
reasonably acceptable to the Banks and the Agent.
Affected Bank. See Section 4.11.
Agent. See Preamble.
<PAGE> 8
-2-
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or such other location as the Agent may
designate from time to time.
Applicable Base Rate Margin. The applicable margin with respect to
Base Rate Loans as set forth in the Pricing Table.
Applicable Commitment Rate. The applicable rate with respect to the
Commitment Fee as set forth in the Pricing Table.
Applicable Eurodollar Margin. The applicable margin with respect to
Eurodollar Loans as set forth in the Pricing Table.
Applicable Laws. See Section 6.10.
Applicable L/C Margin. The applicable margin with respect to the
Letter of Credit Fee as set forth in the Pricing Table.
Arranger. BancBoston Robertson Stephens Inc.
Assignment and Acceptance. See Section 17.
Balance Sheet Date. December 31, 1997.
Banks. See Preamble.
Base Rate. The higher of (a) the annual rate of interest announced
from time to time by the Agent at the Agent's Head Office as its "base rate" (it
being understood that such rate is a reference rate and not necessarily the
lowest rate of interest charged by the Agent) or (b) one percent (1%) above the
overnight federal funds effective rate, as published by the Board of Governors
of the Federal Reserve System, as in effect from time to time.
Base Rate Loans. Loans bearing interest calculated by reference to
the Base Rate.
BKB. See Preamble.
Borrowers. See Preamble.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, New York, New York; Chicago, Illinois; and Los Angeles,
California are open for the transaction of banking business.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and goodwill); provided that Capital Assets shall not
include (a) any item customarily charged directly to expense or depreciated over
a useful life of twelve (12)
<PAGE> 9
-3-
months or less in accordance with generally accepted accounting principles, or
(b) any item obtained through an acquisition permitted by Section 7.4 hereof.
Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrowers and their Subsidiaries in connection with (i) the purchase or lease of
Capital Assets that would be required to be capitalized and shown on the balance
sheet of such Person in accordance with GAAP or (ii) the lease of any assets by
the Borrowers or any Subsidiary as lessee under any Synthetic Lease to the
extent that such assets would have been Capital Assets had the Synthetic Lease
been treated for accounting purposes as a Capitalized Lease.
Capitalized Leases. Leases under which any Borrower is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with GAAP.
CERCLA. See definition of Release.
Certified. With respect to the financial statements of any Person,
such statements as audited by a firm of independent auditors, whose report
expresses the opinion, without qualification, that such financial statements
present fairly the financial position of such Person.
CFO. See Section 6.4(b).
Closing Date. The date on which the conditions precedent set forth in
Section 9 are satisfied.
Code. The Internal Revenue Code of 1986, as amended and in effect
from time to time.
Collateral. All of the property, rights and interests of the
Borrowers (other than Excluded Assets, Scheduled Contracts and Excluded
Contracts) that are or are intended to be subject to the security interests
created by the Security Documents.
Commitment. With respect to each Bank, the amount determined by
multiplying such Bank's Commitment Percentage by the Total Commitment specified
in Section 2.1 hereof, as the same may be reduced from time to time.
Commitment Fee. See Section 4.1.
Commitment Percentage. With respect to each Bank, the percentage
initially set forth beside its name on Schedule 1 (subject to adjustment in
accordance with Section 2.2.2 and Section 17).
Compliance Certificate. See Section 6.4(c).
<PAGE> 10
-4-
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrowers and
their Subsidiaries consolidated in accordance with GAAP.
Consolidated Earnings Before Interest and Taxes or EBIT. For any
period, the Consolidated Net Income (or Deficit) of the Borrowers determined in
accordance with GAAP, plus (a) interest expense, (b) income taxes, (c) for the
fiscal quarter ending December 31, 1997, start-up and integration expenses taken
as a special charge in such quarter of up to $500,000 (pre-tax) in the
aggregate, (d) non-cash stock compensation charges of up to $4,500,000 in the
aggregate taken during the fiscal quarter ending December 31, 1997 and up to
$325,000 taken during the fiscal quarter ending March 31, 1998 and no more than
$745,000 in the aggregate thereafter, to the extent that each was deducted in
determining Consolidated Net Income (or Deficit), all as determined in
accordance with GAAP, (e) non-cash special charge for interest expense
attributable to loan fees paid, and warrants issued to BKB in connection with
the Prior Credit Agreement of up to $1,100,000 in the aggregate taken during the
fiscal quarter ending June 30, 1998 and up to $325,000 in the aggregate taken
during the fiscal quarter ending December 31, 1998, and (f) for a Compliance
Certificate delivered in connection with a Material Acquisition, the following
adjustments, as applicable, for purposes of calculating Section 8.3:
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter ending Fiscal Quarter
ending June 30, ending Sept. 30, ending Dec. 31, 1998 March 31, 1999 ending June 30, 1999
1998 1998
--------------- ---------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
Madera $ 570,000 $ 570,000 $ 143,000 $ 0 $ 0
Jesse's $ 176,000 $ 176,000 $ 88,000 $ 0 $ 0
& A-1
Sunshine & Sowers $ 194,000 $ 194,000 $ 111,000 $ 28,000 $ 0
T&T $ 51,000 $ 51,000 $ 29,000 $ 7,000 $ 0
OPF $ 845,000 $ 845,000 $ 529,000 $ 212,000 $ 0
Shrader $ 0 $1,398,000 $1,398,000 $ 979,000 $ 559,000
Curry $ 0 $ 627,000 $ 392,000 $ 157,000 $ 0
B&B Sanitation, $ 0 $ 313,000 $ 196,000 $ 78,000 $ 0
Inc
Contractor's $ 0 $ 241,000 $ 150,000 $ 60,000 $ 0
Waste Removal,
L.C
</TABLE>
<PAGE> 11
-5-
<TABLE>
<S> <C> <C> <C> <C> <C>
ABC Waste $ 0 $203,000 $142,000 $ 81,000 $ 20,000
Inc./Miller
Containers, Inc.
J&J Sanitation, $ 0 $364,000 $255,000 $146,000 $ 36,000
Inc
Westlane Disposal $ 0 $ 63,000 $ 43,000 $ 23,000 $ 3,000
Evergreen Waste $ 0 $397,000 $272,000 $146,000 $ 21,000
Systems Inc.
Harrell's Septic $ 0 $ 37,000 $ 25,000 $ 14,000 $ 2,000
Affiliated Waste $ 0 $216,000 $148,000 $ 80,000 $ 11,000
Services, L.L.C
R&N, LLC $ 0 $279,000 $191,000 $103,000 $ 15,000
Wolff's $ 0 $ 83,000 $ 57,000 $ 31,000 $ 4,000
</TABLE>
Consolidated Earnings Before Interest, Taxes, Depreciation, and
Amortization or EBITDA. For any period (without duplication), EBIT plus (a)
depreciation expense and amortization expense, to the extent that each was
deducted in determining Consolidated Net Income (or Deficit), determined in
accordance with GAAP, and (c) as applicable, the following adjustments for
purposes of calculating EBITDA in Sections 8.1 and 7.1(d) and the Pricing
Ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter
ending June 30, ending Sept. 30, ending Dec. 31, ending ending
1998 1998 1998 March 31, 1999 June 30, 1999
--------------- ---------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Madera $ 726,667 $ 726,667 $ 181,667 $ 0 $ 0
Jesse's $ 181,000 $ 181,000 $ 91,000 $ 0 $ 0
& A-1
Sunshine & Sowers $ 266,000 $ 266,000 $ 152,000 $ 38,000 $ 0
</TABLE>
<PAGE> 12
-6-
<TABLE>
<S> <C> <C> <C> <C> <C>
T&T $ 75,000 $ 75,000 $ 43,000 $ 11,000 $ 0
OPF $1,083,000 $1,083,000 $ 677,000 $ 271,000 $ 0
Shrader $ 0 $1,917,000 $1,917,000 $1,342,000 $ 767,000
Curry $ 0 $ 801,000 $ 501,000 $ 200,000 $ 0
B&B Sanitation, $ 0 $ 526,000 $ 329,000 $ 132,000 $ 0
Inc
Contractor's $ 0 $ 427,000 $ 267,000 $ 107,000 $ 0
Waste Removal,
L.C
ABC Waste $ 0 $ 282,000 $ 197,000 $ 113,000 $ 28,000
Inc./Miller
Containers, Inc.
J&J Sanitation, $ 0 $ 503,000 $ 352,000 $ 201,000 $ 50,000
Inc
Westlane Disposal $ 0 $ 89,000 $ 61,000 $ 33,000 $ 5,000
Evergreen Waste $ 0 $ 512,000 $ 350,000 $ 189,000 $ 27,000
Systems Inc.
Harrell's Septic $ 0 $ 47,000 $ 32,000 $ 17,000 $ 2,000
Affiliated Waste $ 0 $ 284,000 $ 194,000 $ 105,000 $ 15,000
Services, L.L.C
R&N, LLC $ 0 $ 368,000 $ 252,000 $ 136,000 $ 19,000
Wolff's $ 0 $ 108,000 $ 74,000 $ 40,000 $ 6,000
</TABLE>
For purposes of calculating EBITDA in Sections 8.1 and 7.1(d)
and the Pricing Ratio, the Borrowers may include the EBITDA for the prior twelve
(12) months of companies acquired by the Borrowers since September 30, 1998
(without duplication with respect to the adjustments set forth in the table
above) only if (A) the financial statements of such acquired Borrowers have been
audited for the period sought to be included by an independent accounting firm
satisfactory to the Agent, or (B) the Agent consents to such
<PAGE> 13
-7-
inclusion after being furnished with other acceptable financial statements. Such
acquired EBITDA may be further adjusted to add-back non-recurring private
company expenses which are discontinued upon acquisition (such as owner's
compensation), as approved by the Agent.
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrowers after deduction of all expenses, taxes, and other
proper charges, determined in accordance with GAAP.
Consolidated Net Worth. The excess of Consolidated Total Assets over
Consolidated Total Liabilities, less, to the extent otherwise includable in the
computation of Consolidated Net Worth, any subscriptions receivable.
Consolidated Total Assets. All assets of the Borrowers and their
Subsidiaries determined on a consolidated basis in accordance with GAAP, plus
(i) without duplication, all assets leased by the Borrowers or any Subsidiary as
lessee under any Synthetic Lease to the extent that such assets would have been
consolidated balance sheet assets had the Synthetic Lease been treated for
accounting purposes as a Capitalized Lease, plus (ii) without duplication, all
sold receivables referred to in clause (vii) of the definition of the term
"Indebtedness" to the extent that such receivables would have been consolidated
balance sheet assets had they not been sold.
Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrowers and their
Subsidiaries during such period on all Indebtedness of the Borrowers and their
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of any
Capitalized Lease or any Synthetic Lease and including commitment fees, agency
fees, facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money.
Consolidated Total Liabilities. All liabilities of the Borrowers
determined on a consolidated basis in accordance with GAAP and classified as
such on the consolidated balance sheet of the Borrowers.
Credit Agreement. This Amended and Restated Revolving Credit
Agreement, including the Schedules and Exhibits hereto, as amended and in effect
from time to time.
Curry. Curry Transfer & Recycling, Inc., an Oregon corporation and a
wholly-owned Subsidiary of the Parent.
Default. See Section 12.
Delinquent Bank. See Section 14.9.
Disposal (or Disposed). See definition of Release.
<PAGE> 14
-8-
Distribution. The declaration or payment of any dividend or
distribution on or in respect of any shares of any class of capital stock, any
partnership interests or any membership interests of any Person (other than
dividends or other distributions payable solely in shares of common stock,
partnership interests or membership units of such Person, as the case may be);
the purchase, redemption, or other retirement of any shares of any class of
capital stock, partnership interests or membership units of such Person,
directly or indirectly through a Subsidiary or otherwise; the return of equity
capital by any Person to its shareholders, partners or members as such; or any
other distribution on or in respect of any shares of any class of capital stock,
partnership interest or membership unit of such Person.
Dollars or $. Dollars in lawful currency of the United States of
America.
Drawdown Date. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with Section 2.5.
Eligible Assignee. Any of (i) a commercial bank organized under the
laws of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted accounting
principles; (iii) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development (the "OECD"), or a political subdivision of any such country, and
having total assets in excess of $1,000,000,000, provided that such bank is
acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution
approved by the Agent, such approval not to be unreasonably withheld.
Eligible Foreign Bank. (a) Any commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, provided that such bank is acting through a branch or agency located in
the country in which it is organized or another country which is also a member
of the OECD; or (b) the central bank of any country which is a member of the
OECD.
Employee Benefit Plan. Any employee benefit plan within the meaning
of Section 3(3) of ERISA maintained or contributed to by the Borrowers or any
ERISA Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See Section 5.16(a).
EPA. See Section 5.16(b).
<PAGE> 15
-9-
Equipment Financing. Indebtedness of the Borrowers with respect to
equipment leases or equipment chattel mortgages, including any such Indebtedness
assumed in connection with an acquisition permitted under Section 7.4.
ERISA. The Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer
with the Borrowers under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder.
Eurodollar Business Day. Any Business Day on which dealings in
foreign currency and exchange are carried on among banks in London, England.
Eurodollar Interest Determination Date. For any Interest Period, the
date two Eurodollar Business Days prior to the first day of such Interest
Period.
Eurodollar Loans. Revolving Credit Loans bearing interest calculated
by reference to the Eurodollar Rate.
Eurodollar Offered Rate. The rate per annum at which deposits of
dollars are offered to the Agent by prime banks in whatever Eurodollar interbank
market may be selected by the Agent, in its sole discretion, acting in good
faith, at or about 11:00 a.m. local time in such interbank market, on the
Eurodollar Interest Determination Date, for a period equal to the requested
Interest Period in an amount substantially equal to the principal amount
requested to be loaned at or converted to a rate based on the Eurodollar Rate.
Eurodollar Rate. The rate per annum, rounded upwards to the nearest
1/16 of 1%, determined by the Agent with respect to an Interest Period in
accordance with the following formula:
Eurodollar Rate = Eurodollar Offered Rate
1 - Reserve Rate
Event of Default. See Section 12.
Excluded Assets. The containers, vehicles, equipment and inventory as
such assets are used in accordance with any Scheduled Contract during the term
of such Scheduled Contract.
Excluded Contracts. The (a) Contract for Curbside and Drop Box
Recycling Services among (i) the Six East Snohomish County Cities of Snohomish,
Monroe, Lake Stevens, Sultan, Granite Falls and Gold Bar (Operating as ESCARC)
and (ii) Fibres
<PAGE> 16
-10-
International, Incorporated d.b.a. Pacific Resource Management/Bill's Disposal,
dated as of September 1, 1995, and (b) Single Family Recyclables Collection
Contract between City of Vancouver and Browning Ferris Industries of Washington,
Inc., dated as of December 2, 1996, each as amended and in effect from time to
time.
Financial Letter of Credit. A Letter of Credit where the event which
triggers payment is financial, such as the failure to pay money, and not
performance-related, such as failure to ship a product or provide a service, as
set forth in greater detail in the letter dated March 30, 1995 from the Board of
Governors of the Federal Reserve System or in any applicable directive or letter
ruling of the Board of Governors of the Federal Reserve System issued subsequent
thereto.
Funded Debt. Consolidated Indebtedness of the Borrowers for borrowed
money, the net present value (using the Base Rate as the discount rate) of every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (including securities repurchase agreements but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good faith), and
guarantees of such Indebtedness, recorded on the Consolidated balance sheet of
the Borrowers, including reimbursement obligations of the Borrowers with respect
to letters of credit and the amount of any Indebtedness of such Persons for
Capitalized Leases which corresponds to principal.
generally accepted accounting principles or GAAP. When used in
general, generally accepted accounting principles means (1) principles that are
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, as shall be concurred in by independent
certified public accountants of recognized standing whose report expresses an
unqualified opinion (other than a qualification regarding changes in generally
accepted accounting principles) as to financial statements in which such
principles have been applied; and (2) when used with reference to the Borrowers,
such principles shall include (to the extent consistent with such principles)
the accounting practices reflected in the consolidated financial statements for
the year ended on the Balance Sheet Date.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrowers
or any ERISA Affiliate, the benefits of which are guaranteed on termination in
full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Hazardous Substances. See Section 5.16(b).
Indebtedness. As to any Person and whether recourse is secured by or
is otherwise available against all or only a portion of the assets of such
Person and whether or not contingent, but without duplication:
(i) every obligation of such Person for money borrowed,
<PAGE> 17
-11-
(ii) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or
businesses,
(iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person,
(iv) the net present value (using the Base Rate as the
discount rate) of every obligation of such Person issued or assumed
as the deferred purchase price of property or services (including
securities repurchase agreements but excluding (A) trade accounts
payable or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good
faith and (B) contingent purchase price obligations solely to the
extent that the contingency upon which such obligation is conditioned
has not yet occurred),
(v) every obligation of such Person under any
Capitalized Lease,
(vi) every obligation of such Person under any Synthetic
Lease,
(vii) all sales by such Person of (A) accounts or general
intangibles for money due or to become due, (B) chattel paper,
instruments or documents creating or evidencing a right to payment of
money or (C) other receivables (collectively, "receivables"), whether
pursuant to a purchase facility or otherwise, other than in
connection with the disposition of the business operations of such
Person relating thereto or a disposition of defaulted receivables for
collection and not as a financing arrangement, and together with any
obligation of such Person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in
connection therewith, provided, however, that sales referred to in
clauses (B) and (C) shall not constitute Indebtedness to the extent
that such sales are non-recourse to such Person;
(viii) every obligation of such Person (an "equity related
purchase obligation") to purchase, redeem, retire or otherwise
acquire for value any shares of capital stock of any class issued by
such Person, any warrants, options or other rights to acquire any
such shares, or any rights measured by the value of such shares,
warrants, options or other rights,
(ix) every obligation of such Person under any forward
contract, futures contract, swap, option or other financing agreement
or arrangement (including, without limitation, caps, floors, collars
and similar agreements), the value of which is dependent upon
interest rates, currency exchange rates, commodities or other
indices,
(x) every obligation in respect of Indebtedness of any
other entity (including any partnership in which such Person is a
general partner) to the extent that such Person is liable therefor as
a result of such Person's ownership interest in or other relationship
with such entity, except to the extent that the terms of such
<PAGE> 18
-12-
Indebtedness provide that such Person is not liable therefor and such
terms are enforceable under applicable law,
(xi) every obligation, contingent or otherwise, of such
Person guaranteeing, or having the economic effect of guarantying or
otherwise acting as surety for, any obligation of a type described in
any of clauses (i) through (x) (the "primary obligation") of another
Person (the "primary obligor"), in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such
Person (A) to purchase or pay (or advance or supply funds for the
purchase of) any security for the payment of such primary obligation,
(B) to purchase property, securities or services for the purpose of
assuring the payment of such primary obligation, or (C) to maintain
working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (v) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (w) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (x) any sale of receivables shall be the amount of unrecovered capital
or principal investment of the purchaser (other than the Borrowers) thereof,
excluding amounts representative of yield or interest earned on such investment,
(y) any Synthetic Lease shall be the stipulated loss value, termination value or
other equivalent amount and (z) any equity related purchase obligation shall be
the maximum fixed redemption or purchase price thereof inclusive of any accrued
and unpaid dividends to be comprised in such redemption or purchase price.
Ineligible Securities. Securities which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of the
Banking Act of 1993 (12 U.S.C. Section 24, Seventh), as amended.
Initial Public Offering. The initial underwritten public offering of
the common stock of the Company registered under the Securities Act of 1933.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of the making
of a Eurodollar Loan or the conversion from a Base Rate Loan into a Eurodollar
Loan and ending one (1), two (2), three (3), or six (6) months thereafter, as
selected by the Borrowers in a Loan and Letter of Credit Request; and
(b) thereafter, each subsequent Interest Period shall begin on
the last day of the preceding Interest Period and shall end one (1), two (2),
three (3), or six (6) months thereafter, as selected by the Borrowers in a Loan
and Letter of Credit Request;
<PAGE> 19
-13-
provided, however, that whenever the first day of any Interest
Period occurs on a day of an initial calendar month for which there is no
numerically corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in such
Interest Period, such Interest Period shall end on the last Business Day of such
succeeding calendar month.
Jesse's. The sole proprietorship of Gwendolyn L. Sullivan d.b.a.
Jesse's Disposal Service.
Letter of Credit Applications. Letter of Credit Applications in such
form as may be agreed upon by the Borrowers and the Agent from time to time
which are entered into pursuant to Section 3 hereof, as such Letter of Credit
Applications are amended, varied or supplemented from time to time.
Letter of Credit Fee. See Section 4.1(b).
Letter of Credit Participation. See Section 3.1(b).
Letters of Credit. Standby Letters of Credit and the Madera Letter of
Credit issued or to be issued by the Agent under Section 3 hereof for the
account of the Borrowers.
Leverage Ratio. See Section 8.1.
Loan and Letter of Credit Request. See Section 2.6.
Loan Documents. This Credit Agreement, the Notes, the Letter of
Credit Applications, the Letters of Credit, and the Security Documents, each as
amended and in effect from time to time.
Loans. The Revolving Credit Loans.
Madera. Madera Disposal Systems, Inc., a California corporation and a
wholly-owned Subsidiary of the Parent.
Madera Bond. The $1,800,000 Variable Rate Demand Solid Waste Disposal
Revenue Bonds, Madera Disposal Systems, Inc. Project, Series 1998A, issued by
the California Pollution Control Financing Authority.
Madera Bond Documents. The documentation executed in connection with
the Madera Bond.
Madera Letter of Credit. The direct pay letter of credit to support
the Madera Bond.
Majority Banks. As of any date, the Banks holding sixty-six and
two-thirds percent (66-2/3%) of the outstanding principal amount of the Loans on
such date; and if no such principal is outstanding, the Banks whose aggregate
Commitments constitute sixty-six and two-thirds percent (66-2/3%) of the Total
Commitment.
<PAGE> 20
-14-
Material Acquisition. See Section 7.4.1.
Material Contract. Any contract, franchise agreement or G Permit from
which the Borrowers derived more than five percent (5%) of their consolidated
revenues for the fiscal year most recently ending.
Maturity Date. November _____, 2003.
Maximum Drawing Amount. The maximum aggregate amount from time to
time that the beneficiaries may draw under outstanding Letters of Credit.
Maximum Rate. With respect to each Bank, the maximum lawful
nonusurious rate of interest (if any) which under Applicable Law such Bank may
charge the Borrowers on the Loans and other Obligations from time to time.
Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrowers or any
ERISA Affiliate.
Notes. The Revolving Credit Notes.
Obligations. All indebtedness, obligations and liabilities of the
Borrowers to any of the Banks or the Agent, individually or collectively,
existing on the date of this Credit Agreement or arising thereafter, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract, operation
of law or otherwise, arising or incurred under this Credit Agreement or any of
the other Loan Documents, or under any Swap Contract between the Borrowers and
any Bank, or in respect of any of the Loans made or Reimbursement Obligations
incurred or the Letters of Credit, the Notes or any other instrument at any time
evidencing any thereof.
OPF. Arrow Sanitary Service, Inc., an Oregon corporation doing
business under the assumed name of Oregon Paper Fiber and a wholly-owned
Subsidiary of Parent.
Oregon Waste. Oregon Waste Technology, Inc., an Oregon corporation
and a wholly-owned Subsidiary of Curry.
Parent Stock Pledge Agreement. The Amended and Restated Stock Pledge
Agreement, to be dated as of the Closing Date, as amended and in effect from
time to time, between the Parent and the Agent, pursuant to which 100% of the
capital stock of the Subsidiaries (other than W.C. International and Oregon
Waste) is pledged to the Agent for the benefit of the Banks.
PBGC. The Pension Benefit Guaranty Corporation created by Section
4002 of ERISA and any successor entity or entities having similar
responsibilities.
Performance Letter of Credit. A Letter of Credit which is not a
Financial Letter of Credit.
<PAGE> 21
-15-
Permitted Liens. See Section 7.2.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Preferred Stock. The Series A Preferred Stock issued by the Parent
pursuant to the Certificate of Designations, Preferences and Rights of Preferred
Stock, Series A, dated as of September 29, 1997, consisting of not more than
2,500,000 shares.
Pricing Ratio. As at the end of any fiscal quarter, the ratio of (a)
Funded Debt to (b) EBITDA for the four fiscal quarters ending on such date.
Pricing Table:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE APPLICABLE
PRICING RATIO EURODOLLAR BASE RATE APPLICABLE COMMITMENT
MARGIN MARGIN L/C MARGIN RATE
(PER ANNUM) (PER ANNUM) (PER ANNUM) (PER ANNUM)
------------- ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Less than 2.50:1 1.75% 0.00% 1.75% 0.375%
Greater than or equal to 2.00% 0.00% 2.00% 0.375%
2.50:1 but less than 3.00:1
Greater than or equal to 2.25% 0.25% 2.25% 0.50%
3.00:1 but less than 3.50:1
Greater than or equal to 2.50% 0.50% 2.50% 0.50%
3.50:1
Initial Pricing 1.75% 0.00% 1.75% 0.375%
</TABLE>
Any change in the applicable margin shall become effective on the first day
after receipt by the Banks of financial statements delivered pursuant to
Section 6.4(a) or (b) which indicate a change in the Pricing Ratio or, with
respect to the Eurodollar Applicable Margin, on the first day of each Interest
Period which begins three (3) or more days after receipt of such financial
statements. If at any time such financial statements are not delivered within
the time periods specified in Section 6.4(a) or (b), the applicable margin shall
be the highest rate set forth in the respective column of the Pricing Table,
subject to adjustment upon actual receipt of such financial statements. The
initial pricing set forth in the table above shall be effective until the
Borrowers deliver to the Agent a calculation of the Pricing Ratio for the fiscal
quarter ending September 30, 1998.
Notwithstanding the foregoing, after consummation of the Washington
Merger and receipt by the Banks of financial statements recalculating the
Pricing Ratio, after taking into account the Washington Merger, the table above
will be replaced in its entirety with the table below:
<PAGE> 22
-16-
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE APPLICABLE
PRICING RATIO EURODOLLAR BASE RATE APPLICABLE COMMITMENT
MARGIN MARGIN L/C MARGIN RATE
(PER ANNUM) (PER ANNUM) (PER ANNUM) (PER ANNUM)
------------- ---------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
Less than 2.50:1 1.5% 0.00% 1.50% 0.375%
Greater than or equal to
2.50:1 but less than 3.00:1 1.75% 0.00% 1.75% 0.375%
Greater than or equal to
3.00:1 but less than 3.50:1 2.00% 0.00% 2.00% 0.50%
Greater than or equal to 2.25% 0.25% 2.25% 0.50%
3.50:1
</TABLE>
Upon consummation of the Washington Merger and the Stock Offering,
the preceding tables will be replaced in their entirety with the table below:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE APPLICABLE
PRICING RATIO EURODOLLAR BASE RATE APPLICABLE COMMITMENT
MARGIN MARGIN L/C MARGIN RATE
(PER ANNUM) (PER ANNUM) (PER ANNUM) (PER ANNUM)
------------- ---------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
Less than 2.00:1 1.25% 0.00% 1.25% 0.375%
Greater than or equal to
2.00:1 but less than 2.50:1 1.50% 0.00% 1.50% 0.375%
Greater than or equal to
2.50:1 but less than 3.00:1 1.75% 0.00% 1.75% 0.375%
Greater than or equal to
3.00:1 but less than 3.50:1 2.00% 0.00% 2.00% 0.50%
Greater than or equal to 2.25% 0.25% 2.25% 0.50%
3.50:1
</TABLE>
Prior Credit Agreement. That certain Revolving Credit Agreement among
the Borrowers and the Agent, dated as of May 29, 1998, as amended and in effect
as of the date hereof.
Pro Forma Interest Expense (as used in a Compliance Certificate
delivered in connection with a Material Acquisition). The annual interest
obligations at the current rates of interest on existing Indebtedness of the
Borrowers and the Indebtedness to be assumed or incurred in connection with an
acquisition.
RCRA. See definition of Release.
<PAGE> 23
-17-
Real Property. All real property heretofore, now, or hereafter owned
or leased by the Borrowers.
Reimbursement Obligation. The Borrowers' obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 3.2.
Release. Shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601 et seq. ("CERCLA") and the term "Disposal" (or "Disposed")
shall have the meaning specified in the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Sections 6901 et seq. ("RCRA") and regulations
promulgated thereunder; provided that in the event either CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply as of the effective date of such amendment and provided
further, to the extent that the laws of a state wherein the property lies
establishes a meaning for "Release" or "Disposal" which is broader than
specified in either CERCLA or RCRA, such broader meaning shall apply.
Replacement Bank. See Section 4.11.
Replacement Notice. See Section 4.11.
Reserve Rate. The rate, expressed as a decimal, at which the Banks
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any subsequent or similar regulation
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
such term is defined in Regulation D), or against any other category of
liabilities which might be incurred by the Banks to fund Eurodollar Loans, if
such liabilities were outstanding.
Revolving Credit Loans. Revolving credit loans made or to be made by
the Banks to the Borrowers pursuant to Section 2.
Revolving Credit Notes. The promissory notes of the Borrowers
evidencing the Revolving Credit Loans hereunder, dated as of the date hereof and
in substantially the form of Exhibit A hereto.
Scheduled Contracts. The certain contracts referenced in Schedule
7.2(b) to this Agreement, on terms and conditions and as in effect on the date
hereof.
Section 20 Subsidiary. A subsidiary of the bank holding company
controlling any Bank, which subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Security Agreement. The Security Agreement among the Borrowers and
the Agent, to be dated as of the Closing Date, as amended and in effect from
time to time.
<PAGE> 24
-18-
Security Documents. The Security Agreement, Stock Pledge Agreements,
and any other instruments or documents evidencing or perfecting the Agent's lien
on the assets of the Borrowers for the benefit of the Banks.
Seller Debt. Indebtedness of the Borrowers, including assumed
obligations, incurred in connection with acquisitions after May 7th, 1998 of any
stocks of, partnership or joint venture interests in, or assets of any Person
and owing to the seller(s) of such stocks, partnership or joint venture
interests, or assets (excluding Indebtedness of acquired companies which is
discharged within 30 days of such acquisition); provided that such acquisitions
are otherwise permitted pursuant to Section 7.4.
Shrader. Shrader Refuse and Recycling Service Company, a Nebraska
corporation and a wholly-owned Subsidiary of Parent.
Stock Offering: The public offering by the Parent of its common stock
within 180 days after the Closing Date, the net proceeds of which exceed
$30,000,000.
Stock Pledge Agreements. Collectively, (a) the Parent Stock Pledge
Agreement, (b) the Amended and Restated Stock Pledge Agreement between W.C. of
Washington and the Agent, pursuant to which 100% of the stock of W.C.
International is pledged to the Agent for the benefit of the Banks, and (c) the
Stock Pledge Agreement between Curry and the Agent, pursuant to which 100% of
the stock of Oregon Waste is pledged to the Agent for the benefit of the Banks,
each to be dated as of the Closing Date, as amended and in effect from time to
time.
Subsidiary. Any corporation, association, trust, or other business
entity of which any Borrower shall at any time own directly, or indirectly
through a Subsidiary or Subsidiaries, at least a majority of the outstanding
capital stock or other interest entitled to vote generally.
Sunshine. Sunshine Sanitation, Incorporated, a South Dakota
corporation and a wholly-owned Subsidiary of the Parent.
Sowers. Sowers' Sanitation, Inc., a South Dakota corporation and a
wholly-owned Subsidiary of the Parent.
Swap Contracts. Any agreement (including any master agreement and any
agreement, whether or not in writing, relating to any single transaction) that
is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or other similar agreement (including any
option to enter into any of the foregoing).
Synthetic Lease. Any lease treated as an operating lease under
generally accepted accounting principles and as a loan or financing for U.S.
income tax purposes.
<PAGE> 25
-19-
Total Commitment. See Section 2.1.
T&T. T & T Disposal, Inc., a Wyoming corporation and a wholly-owned
Subsidiary of the Parent.
Washington Merger. The pooling-of-interests merger among Murrey's
Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co.,
Inc., Tacoma Recycling Company, Inc. and certain Subsidiaries of Parent pursuant
to that certain Agreement and Plan of Merger, dated as of October 22, 1998.
W.C. International. Waste Connections International, Inc., a
Washington corporation and a wholly-owned Subsidiary of W.C. of Washington.
W.C. of Washington. Waste Connections of Washington, Inc., a
Washington corporation and a wholly-owned Subsidiary of the Parent.
Year 2000 Issue. The risk that computer applications used by the
Borrowers may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to, and any date after, December 31,
1999.
SECTION 1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural
includes the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms capitalized but not otherwise defined
herein have the meanings assigned to them by generally accepted accounting
principles applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include," "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by
generally accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have the
meanings assigned to them therein.
(h) Reference to a particular "Section" refers to that
Section of this Credit Agreement unless otherwise indicated.
<PAGE> 26
-20-
(i) The words "herein," "hereof," "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to any
particular Section or subdivision of this Credit Agreement.
(j) Unless otherwise expressly indicated, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including," the words "to" and "until" each mean
"to but excluding," and the word "through" means "to and including."
SECTION 2. THE REVOLVING CREDIT FACILITY.
SECTION 2.1. COMMITMENT TO LEND. Subject to the terms and conditions
set forth in this Credit Agreement, each of the Banks severally agrees to lend
to the Borrowers and the Borrowers may borrow, repay, and reborrow from time to
time from the Closing Date to the Maturity Date, upon notice by the Borrowers to
the Agent given in accordance with Section 2.6, its Commitment Percentage of the
Revolving Credit Loans as are requested by the Borrowers, provided that the
outstanding amount of Revolving Credit Loans, unpaid Reimbursement Obligations,
and the Maximum Drawing Amount shall not exceed a maximum aggregate amount
outstanding of $115,000,000 at any time, as such amount may be reduced or
increased, as the case may be, pursuant to Section 2.2 hereof (the "Total
Commitment"). The Revolving Credit Loans shall be made pro rata in accordance
with each Bank's Commitment Percentage. Each request for a Loan hereunder shall
constitute a representation and warranty by the Borrowers that the conditions
set forth in Section 9 and Section 10, as the case may be, have been satisfied
on the date of such request.
SECTION 2.2. REDUCTION AND INCREASE OF TOTAL COMMITMENT.
SECTION 2.2.1. REDUCTION OF TOTAL COMMITMENT.
a) The Borrowers shall have the right at any time and from time to
time upon five (5) Business Days' prior written notice to the Agent to reduce by
$1,000,000 or integral multiples of $500,000 in excess thereof, or terminate
entirely, the Total Commitment, whereupon the Commitments of the Banks shall be
reduced pro rata in accordance with their respective Commitment Percentages of
the amount specified in such notice or, as the case may be, terminated. The
Agent will notify the Banks promptly after receiving any notice of the Borrowers
delivered pursuant to this Section 2.2.1.
(b) No reduction or termination of the Commitments once made may be
revoked; the portion of the Commitments reduced or terminated may not be
reinstated; and amounts in respect of such reduced or terminated portion may not
be reborrowed.
SECTION 2.2.2. INCREASE OF TOTAL COMMITMENT. Unless a Default or
Event of Default has occurred and is continuing, the Borrowers may request that
the Total Commitment be increased by an aggregate amount of up to $10,000,000
provided that the Total Commitment shall not in any event exceed $125,000,000
hereunder, subject to the approval of the Agent, provided, however, that (i) any
Bank which is a party to this Credit Agreement prior to such increase shall have
the first option, and
<PAGE> 27
-21-
may elect, to fund its pro rata share of the increase, thereby increasing its
Commitment hereunder, but no Bank shall be required to do so, (ii) in the event
that it becomes necessary to include a new Bank to provide additional funding
under this Section 2.2.2, such new Bank must be reasonably acceptable to the
Agent and the Borrowers, and (iii) Banks' Commitment percentages shall be
correspondingly adjusted, as necessary, to reflect any increase in the total
commitment and Schedule 1 shall be amended to reflect such adjustments.
SECTION 2.3. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans
shall be evidenced by separate promissory notes of the Borrowers in
substantially the form of Exhibit A hereto (each a "Revolving Credit Note"),
dated as of the Closing Date and completed with appropriate insertions. One
Revolving Credit Note shall be payable to the order of each Bank in a principal
amount equal to such Bank's Commitment or, if less, the outstanding amount of
all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as
set forth below. The Borrowers irrevocably authorize each Bank to make or cause
to be made, in connection with a Drawdown Date of any Revolving Credit Loan or
at the time of receipt of any payment of principal on such Bank's Revolving
Credit Note, an appropriate notation on such Bank's records reflecting the
making of such Loan or the receipt of such payment (as the case may be). The
outstanding amount of the Loans set forth on such Bank's record shall be prima
facie evidence of the principal amount thereof owing and unpaid to such Bank,
but the failure to record, or any error in so recording, any such amount shall
not limit or otherwise affect the obligation of the Borrowers hereunder or under
any Revolving Credit Note to make payments of principal of or interest on any
Revolving Credit Note when due.
SECTION 2.4. INTEREST ON REVOLVING CREDIT LOANS. The outstanding
principal amount of the Revolving Credit Loans shall bear interest at the rate
per annum equal to (a) the Base Rate plus the Applicable Base Rate Margin on
Base Rate Loans or (b) the Eurodollar Rate plus the Applicable Eurodollar Margin
on Eurodollar Loans. Interest shall be payable (i) quarterly in arrears on the
first Business Day of each calendar quarter, commencing January 1, 1999, on Base
Rate Loans, (ii) on the last day of the applicable Interest Period, and if such
Interest Period is longer than three (3) months, also on the day which is three
(3) months after the commencement of such Interest Period, on Eurodollar Loans,
and (iii) on the Maturity Date for all Revolving Credit Loans.
SECTION 2.5. ELECTION OF EURODOLLAR RATE; NOTICE OF ELECTION;
INTEREST PERIODS; MINIMUM AMOUNTS.
(a) At the Borrowers' option, so long as no Default or
Event of Default has occurred and is then continuing, the Borrowers may (i)
elect to convert any Revolving Credit Loan which is a Base Rate Loan or a
portion thereof to a Eurodollar Loan, (ii) at the time of any Loan and Letter of
Credit Request, specify that a requested Revolving Credit Loan shall be a
Eurodollar Loan, or (iii) upon expiration of the applicable Interest Period,
elect to maintain an existing Eurodollar Loan as such, provided that the
Borrowers give notice to the Agent pursuant to Section 2.5(b) hereof. Upon
determining any Eurodollar Rate, the Agent shall forthwith provide notice
thereof to the
<PAGE> 28
-22-
Borrowers and the Banks, and each such notice to the Borrowers and the Banks
shall be considered prima facie correct and binding, absent manifest error.
(b) Three (3) Eurodollar Business Days prior to the making
of any Eurodollar Loan or the conversion of any Base Rate Loan to a Eurodollar
Loan, or, in the case of an outstanding Eurodollar Loan, the expiration date of
the applicable Interest Period, the Borrowers shall give telephonic notice
(confirmed by telecopy on the same Eurodollar Business Day) to the Agent not
later than 11:00 a.m. (Boston time) of their election pursuant to Section
2.5(a). Each such notice delivered to the Agent shall specify the aggregate
principal amount of the Loans to be borrowed or maintained as or converted to
Eurodollar Loans and the requested duration of the Interest Period that will be
applicable to such Eurodollar Loan, and shall be irrevocable and binding upon
the Borrowers. If the Borrowers shall fail to give the Agent notice of their
election hereunder together with all of the other information required by this
Section 2.5(b) with respect to any Revolving Credit Loan, such Loan shall be
deemed a Base Rate Loan. In the event that the Borrowers fail to provide any
such notice with respect to the continuation of any Eurodollar Loan as such,
then such Eurodollar Loan shall be automatically converted to a Base Rate Loan
at the end of the then expiring Interest Period relating thereto.
(c) Notwithstanding anything herein to the contrary, the
Borrowers may not specify an Interest Period that would extend beyond the
Maturity Date.
(d) All Revolving Credit Loans shall be in a minimum amount
of $500,000 or integral multiples of $100,000 in excess thereof. In no event
shall the Borrowers have more than five (5) different maturities of Eurodollar
Loans outstanding at any time.
SECTION 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrowers shall
give to the Agent written notice in the form of Exhibit B hereto (or telephonic
notice confirmed by telecopy on the same Business Day in the form of Exhibit B
hereto) of each Revolving Credit Loan requested hereunder (a "Loan and Letter of
Credit Request") not later than (a) 11:00 a.m. Boston time one (1) Business Day
prior to the proposed Drawdown Date of any Revolving Credit Loan which is a Base
Rate Loan, or (b) 11:00 a.m. Boston time three (3) Eurodollar Business Days
prior to the proposed Drawdown Date of any Eurodollar Loan. Each such notice
shall be given by the Borrowers and shall specify the principal amount of the
Revolving Credit Loan requested and shall include a current Loan and Letter of
Credit Request reflecting the Maximum Drawing Amount. Each Loan and Letter of
Credit Request shall be irrevocable and binding on the Borrowers and shall
obligate the Borrowers to accept the Revolving Credit Loan requested from the
Banks on the proposed Drawdown Date. Each of the representations and warranties
made by or on behalf of the Borrowers to the Banks or the Agent in this Credit
Agreement or any other Loan Document shall be true and correct in all material
respects when made and shall, for all purposes of this Credit Agreement, be
deemed to be repeated on and as of the date of the submission of any Loan and
Letter of Credit Request and on and as of the Drawdown Date of such Revolving
Credit Loan, or the date of issuance of such Letter of Credit (except to the
extent of changes resulting from transactions contemplated or permitted by
<PAGE> 29
-23-
this Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, or to the extent that such representations and warranties expressly
relate solely to an earlier date). The Agent shall promptly notify each Bank of
each Loan and Letter of Credit Request received by the Agent.
SECTION 2.7. FUNDS FOR REVOLVING CREDIT LOANS.
(a) Not later than 1:00 p.m. (Boston time) on the proposed Drawdown
Date of any Revolving Credit Loan, each of the Banks will make available to the
Agent, at the Agent's Head Office, in immediately available funds, the amount of
such Bank's Commitment Percentage of the amount of the requested Revolving
Credit Loans. Upon receipt from each Bank of such amount, and upon receipt of
the documents required by Sections 9 and 10 and the satisfaction of the
other conditions set forth therein, to the extent applicable, the Agent will
make available to the Borrowers in immediately available funds the aggregate
amount of such Revolving Credit Loans made available to the Agent by the Banks.
The failure or refusal of any Bank to make available to the Agent at the
aforesaid time and place on any Drawdown Date the amount of its Commitment
Percentage of the requested Revolving Credit Loans shall not relieve any other
Bank from its several obligation hereunder to make available to the Agent the
amount of such other Bank's Commitment Percentage of any requested Revolving
Credit Loans.
(b) The Agent may, unless notified to the contrary by any Bank prior
to a Drawdown Date, assume that such Bank has made available to the Agent on
such Drawdown Date the amount of such Bank's Commitment Percentage of the
Revolving Credit Loans to be made on such Drawdown Date, and the Agent may (but
shall not be required to), in reliance upon such assumption, make available to
the Borrowers a corresponding amount. If any Bank makes available to the Agent
such amount on a date after such Drawdown Date, such Bank shall pay to the Agent
on demand an amount equal to the product of (i) the average computed for the
period referred to in clause (iii) below, of the weighted average interest rate
paid by the Agent for federal funds acquired by the Agent during each day
included in such period, times (ii) the amount of such Bank's Commitment
Percentage of such Revolving Credit Loans, times (iii) a fraction, the numerator
of which is the number of days that elapse from and including such Drawdown Date
to the date on which the amount of such Bank's Commitment Percentage of such
Revolving Credit Loans shall become immediately available to the Agent, and the
denominator of which is 365. A statement of the Agent submitted to such Bank
with respect to any amounts owing under this paragraph shall be prima facie
evidence, absent manifest error, of the amount due and owing to the Agent by
such Bank. If the amount of such Bank's Commitment Percentage of such Revolving
Credit Loans is not made available to the Agent by such Bank within three (3)
Business Days following such Drawdown Date, the Agent shall be entitled to
recover such amount from the Borrowers on demand, with interest thereon at the
rate per annum applicable to the Revolving Credit Loans made on such Drawdown
Date.
<PAGE> 30
-24-
SECTION 2.8. MATURITY OF THE LOANS. The Revolving Credit Loans shall
be due and payable on the Maturity Date. The Borrowers jointly and severally
promise to pay on the Maturity Date all Revolving Credit Loans outstanding on
such date, together with any and all accrued and unpaid interest thereon.
SECTION 2.9. MANDATORY REPAYMENTS OF THE REVOLVING CREDIT LOANS. If
at any time the outstanding amount of the Revolving Credit Loans plus the
Maximum Drawing Amount plus unpaid Reimbursement Obligations exceeds the Total
Commitment, whether by reduction of the Total Commitment or otherwise, then the
Borrowers shall immediately pay the amount of such excess to the Agent for
application to the Revolving Credit Loans, or if no Revolving Credit Loans shall
be outstanding, to be held by the Agent as collateral security for the
Reimbursement Obligations, provided, however, that if the amount of cash
collateral held by the Agent pursuant to this Section 2.9 exceeds the amount of
the Obligations, the Agent shall return such excess to the Borrowers.
SECTION 2.10. OPTIONAL PREPAYMENTS OR REPAYMENTS OF REVOLVING CREDIT
LOANS. The Borrowers shall have the right, at their election, to repay or prepay
the outstanding amount of the Revolving Credit Loans, as a whole or in part, at
any time without penalty or premium (other than the obligation to reimburse the
Banks and the Agent pursuant to Section 4.8 hereof). The Borrowers shall give
written notice to the Agent (or telephonic notice confirmed in writing) no later
than (a) 1:00 p.m. (Boston time) on the Business Day of the proposed prepayment
or repayment of any Base Rate Loan or (b) 1:00 p.m. (Boston time) three (3)
Eurodollar Business Days prior to the proposed prepayment or repayment of any
Eurodollar Loan, in each case specifying the proposed date of prepayment or
repayment of Revolving Credit Loans and the principal amount to be paid. Each
such partial repayment of the Revolving Credit Loans shall be $500,000 or
integral multiples of $500,000 in excess thereof, and shall be accompanied by
the payment of accrued interest on the principal prepaid to the date of
repayment and shall be applied, in the absence of instruction by the Borrowers,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Loans. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Loans, with adjustments to the extent
practicable to equalize any prior repayments not exactly in proportion.
SECTION 3. LETTERS OF CREDIT.
SECTION 3.1. LETTER OF CREDIT COMMITMENTS.
(a) Subject to the terms and conditions hereof and the
execution and receipt of a Loan and Letter of Credit Request reflecting the
Maximum Drawing Amount of all Letters of Credit (including the requested Letter
of Credit) and a Letter of Credit Application, the Agent, on behalf of the Banks
and in reliance upon the agreement of the Banks set forth in Section 3.1(b) and
upon the representations and warranties of the Borrowers contained herein,
agrees to issue standby letters of credit, in such form as may be requested from
time to time by the Borrowers and agreed to by the Agent; provided, however,
that, after giving effect to such request, the Maximum Drawing Amount shall
<PAGE> 31
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not exceed the lesser of (i) $15,000,000 or (ii) the Total Commitment minus the
aggregate outstanding amount of the Revolving Credit Loans. No Letter of Credit
shall have an expiration date later than the earlier of (i) one (1) year after
the date of issuance of the Letter of Credit (which may incorporate automatic
renewals for periods of up to one (1) year, provided that the Agent may, upon 30
days' notice to the beneficiary, cancel such Letter of Credit which has been
renewed beyond its initial one (1) year term), or (ii) thirty (30) days prior to
the Maturity Date.
(b) Each Bank severally agrees that it shall be absolutely
liable, without regard to the occurrence of any Default or Event of Default or
any other condition precedent whatsoever, to the extent of such Bank's
Commitment Percentage thereof, to reimburse the Agent on demand for the amount
of each draft paid by the Agent under each Letter of Credit issued in accordance
with the terms hereof to the extent that such amount is not reimbursed by the
Borrowers pursuant to Section 3.2 (such agreement for a Bank being called herein
the "Letter of Credit Participation" of such Bank).
(c) Each such payment made by a Bank shall be treated as
the purchase by such Bank of a participating interest in the Borrowers'
Reimbursement Obligation under Section 3.2 in an amount equal to such payment.
Each Bank shall share in accordance with its participating interest in any
interest which accrues pursuant to Section 3.2.
(d) The parties hereby agree that the Letters of Credit
issued under the Prior Credit Agreement shall be Letters of Credit under this
Credit Agreement. In addition, this Credit Agreement shall constitute the
Reimbursement Agreement referred to in the Madera Bond Documents.
SECTION 3.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to
induce the Agent to issue, extend and renew each Letter of Credit and the Banks
to participate therein, the Borrowers hereby agree to reimburse or pay to the
Agent with respect to each Letter of Credit issued, extended or renewed by the
Agent hereunder as follows:
(a) on each date that any draft presented under any Letter
of Credit is honored by the Agent or the Agent otherwise makes payment with
respect thereto, (i) the amount paid by the Agent under or with respect to such
Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs
and expenses whatsoever incurred by the Agent or any Bank in connection with any
payment made by the Agent or any Bank under, or with respect to, such Letter of
Credit; provided however, if the Borrowers do not reimburse the Agent on the
Drawdown Date, such amount shall, provided that no Event of Default under
Sections 12.1(h) or 12.1(i) has occurred, become automatically a Revolving
Credit Loan which is a Base Rate Loan advanced hereunder in an amount equal to
such sum; and
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(b) upon the Maturity Date, or the termination of the Total
Commitment, or the acceleration of the Reimbursement Obligations in accordance
with Section 12, an amount equal to the Maximum Drawing Amount, which amount
shall be held by the Agent for the benefit of the Banks and the Agent as cash
collateral for all Reimbursement Obligations.
SECTION 3.3. LETTER OF CREDIT PAYMENTS. If any draft shall be
presented or other demand for payment shall be made under any Letter of Credit,
the Agent shall notify the Borrowers of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to pay
such draft or honor such demand for payment. On the date that such draft is paid
or other payment is made by the Agent, the Agent shall promptly notify the Banks
of the amount of any unpaid Reimbursement Obligation. No later than 3:00 p.m.
(Boston time) on the Business Day next following the receipt of such notice,
each Bank shall make available to the Agent, at the Agent's Head Office, in
immediately available funds, such Bank's Commitment Percentage of such
Reimbursement Obligation, together with an amount equal to the product of (a)
the weighted average, computed for the period referred to in clause (c) below,
of the interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, times (b) the amount equal to such
Bank's Commitment Percentage of such unpaid Reimbursement Obligation, times (c)
a fraction, the numerator of which is the number of days that have elapsed from
and including the date the Agent paid the draft presented for honor or otherwise
made payment until the date on which such Bank's Commitment Percentage of such
unpaid Reimbursement Obligation shall become immediately available to the Agent,
and the denominator of which is 365. The responsibility of the Agent to the
Borrowers and the Banks shall be only to determine that the documents (including
each draft) delivered under each Letter of Credit in connection with such
presentment shall be in conformity in all material respects with such Letter of
Credit.
SECTION 3.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of the occurrence of any Default or Event of
Default or any condition precedent whatsoever or any setoff, counterclaim or
defense to payment which the Borrowers may have or have had against the Agent,
any Bank or any beneficiary of a Letter of Credit. Subject to the obligations of
the Banks pursuant to Article V of the Uniform Commercial Code and the
obligations of the Agent pursuant to the last sentence of Section 3.3, the
Borrowers further agree with the Agent and the Banks that the Agent and the
Banks shall not be responsible for, and the Borrowers' Reimbursement Obligations
under Section 3.2 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even if such documents
should in fact prove to be in any or all respects invalid, fraudulent or forged,
or any dispute between or among the Borrowers, the beneficiary of any Letter of
Credit or any financing institution or other party to which any Letter of Credit
may be transferred or any claims or defenses whatsoever of the Borrowers against
the beneficiary of any Letter of Credit or any such transferee. The Agent and
the Banks shall not be liable for any error, omission, interruption or delay in
transmission, dispatch
<PAGE> 33
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or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. The Borrowers agree that any action taken or omitted by
the Agent or any Bank under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be binding upon the
Borrowers and shall not result in any liability on the part of the Agent or any
Bank to the Borrowers.
SECTION 3.5. RELIANCE BY AGENT. To the extent not inconsistent with
Section 3.4, the Agent shall be entitled to rely, and shall be fully protected
in relying upon, any Letter of Credit, draft, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants or other experts selected by the Agent.
SECTION 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL
LIABILITY.
SECTION 4.1. FEES.
(a) COMMITMENT FEE. The Borrowers jointly and severally
agree to pay to the Agent, for the respective account of each Bank, a fee (the
"Commitment Fee") equal to the Applicable Commitment Rate multiplied by the
average daily amount of the unused portion of such Bank's Commitment during each
calendar quarter or portion thereof from the Closing Date to the Maturity Date
(or to the date of termination in full of the Total Commitment, if earlier). The
Commitment Fee shall be payable quarterly in arrears on the first day of each
calendar quarter for the immediately preceding calendar quarter commencing on
January 1, 1998, with a final payment on the Maturity Date.
(b) LETTER OF CREDIT FEES. The Borrowers shall pay a fee
(the "Letter of Credit Fee") equal to (i) the Applicable L/C Margin multiplied
by the Maximum Drawing Amount of each Financial Letter of Credit plus (ii) 50%
of the Applicable L/C Margin multiplied by the Maximum Drawing Amount of each
Performance Letter of Credit. Such Letter of Credit Fee shall be payable to the
Agent for the account of the Banks, to be shared pro rata by the Banks in
accordance with their respective Commitment Percentages. The Borrowers shall
also pay a fee (the "Issuance Fee") to the Agent, for its own account, equal to
0.125% per annum on the Maximum Drawing Amount of all Letters of Credit issued
by such Bank, plus its customary administrative charges. The Letter of Credit
Fee and the Issuance Fee shall be payable for the number of days each Letter of
Credit is outstanding, and shall be payable quarterly in arrears on the first
day of each calendar quarter for the immediately preceding calendar quarter, and
on the Maturity Date.
<PAGE> 34
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SECTION 4.2. PAYMENTS.
(a) All payments of principal, interest, Reimbursement
Obligations, fees and any other amounts due hereunder or under any of the other
Loan Documents shall be made to the Agent, for the respective accounts of the
Banks and the Agent, to be received at the Agent's Head Office in immediately
available funds by 12:00 p.m. (Boston time) on any due date.
(b) All payments by the Borrowers hereunder and under any
of the other Loan Documents shall be made without setoff or counterclaim and
free and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof or taxing or other authority therein unless
the Borrowers are compelled by law to make such deduction or withholding. If any
such obligation is imposed upon the Borrowers with respect to any amount payable
by them hereunder or under any of the other Loan Documents, the Borrowers will
pay to the Agent, for the account of the Banks or (as the case may be) the
Agent, on the date on which such amount is due and payable hereunder or under
such other Loan Document, such additional amount in Dollars as shall be
necessary to enable the Banks or the Agent to receive the same net amount which
the Banks or the Agent would have received on such due date had no such
obligation been imposed upon the Borrowers. In the event that the Borrowers are
required to make such deduction or withholding as a result of the fact that a
Bank is organized outside of the United States, such Bank shall use its
reasonable best efforts to transfer its Loans to an affiliate organized within
the United States if such transfer would have no adverse effect on such Bank or
the Loans. The Borrowers will deliver promptly to the Bank certificates or other
valid vouchers for all taxes or other charges deducted from or paid with respect
to payments made by the Borrowers hereunder or under such other Loan Document.
(c) Whenever a payment hereunder or under any of the other
Loan Documents becomes due on a day that is not a Business Day, the due date for
such payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension; provided that any Interest Period for any
Eurodollar Loan which ends on a day that is not a Eurodollar Business Day shall
end on the next succeeding Eurodollar Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding
Eurodollar Business Day.
SECTION 4.3. COMPUTATIONS. All computations of interest on Base Rate
Loans and of Commitment Fees, Letter of Credit Fees or other fees shall, unless
otherwise expressly provided herein, be based on a 365-day year (or 366-day
year, as applicable) and paid for the actual number of days elapsed. All
computations of interest on Eurodollar Loans shall, unless otherwise expressly
provided herein, be based on a 360-day year and paid for the actual number of
days elapsed.
<PAGE> 35
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SECTION 4.4. CAPITAL ADEQUACY. If any present or future law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required or expected to be maintained by any Bank or the Agent or any
corporation controlling such Bank or the Agent, and such Bank or the Agent
determines that the amount of capital required to be maintained by it is
increased by or based upon the existence of such Bank's or the Agent's Loans,
Letter of Credit Participations or Letters of Credit, or commitment with respect
thereto, then such Bank or the Agent may notify the Borrowers of such fact. To
the extent that the costs of such increased capital requirements are not
reflected in the Base Rate (if relating to Base Rate Loans), the Borrowers and
such Bank or (as the case may be) the Agent shall thereafter attempt to
negotiate in good faith, within thirty (30) days of the day on which the
Borrowers receive such notice, an adjustment payable hereunder that will
adequately compensate such Bank or the Agent in light of these circumstances. If
the Borrowers and such Bank or the Agent are unable to agree to such adjustment
within thirty (30) days of the date on which the Borrowers receive such notice,
then commencing on the date of such notice (but not earlier than the effective
date of any such increased capital requirement), the fees payable hereunder
shall increase by an amount that will, in such Bank's or the Agent's reasonable
determination, provide adequate compensation. Each Bank and the Agent shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
SECTION 4.5. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Section 4.4 and a reasonable explanation of such
amounts which are due, submitted by any Bank or the Agent to the Borrowers,
shall be conclusive, absent manifest error, that such amounts are due and owing.
SECTION 4.6. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to
the extent permitted by applicable law) interest on the Loans and all other
overdue amounts payable hereunder or under any of the other Loan Documents shall
bear interest compounded monthly and payable on demand at a rate per annum equal
to the Base Rate plus the Applicable Base Rate Margin plus two (2) percentage
points (2.00%) until such amount shall be paid in full (after, as well as
before, judgment).
SECTION 4.7. INTEREST LIMITATION. Notwithstanding any other term of
this Credit Agreement or any Note or any other document referred to herein or
therein, the maximum amount of interest which may be charged to or collected
from any person liable hereunder or under any Note by any Bank shall be
absolutely limited to, and shall in no event exceed, the maximum amount of
interest which could lawfully be charged or collected under applicable law
(including, to the extent applicable, the provisions of Section 5197 of the
Revised Statutes of the United States of America, as amended, 12 U.S.C. Section
85, as amended), so that the maximum of all amounts constituting interest under
applicable law, howsoever computed, shall never exceed as to any Person liable
therefor such lawful maximum, and any term of this Credit Agreement, the Notes,
the Letter of Credit Applications, or any other document referred to herein or
therein which
<PAGE> 36
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could be construed as providing for interest in excess of such lawful maximum
shall be and hereby is made expressly subject to and modified by the provisions
of this paragraph.
SECTION 4.8. EURODOLLAR INDEMNITY. The Borrowers agree to indemnify
the Banks and the Agent and to hold them harmless from and against any loss,
cost or expenses (including loss of anticipated profits) that the Banks and the
Agent may sustain or incur as a consequence of (a) default by the Borrowers in
payment of the principal amount of or any interest on any Eurodollar Loans as
and when due and payable, including any such loss or expense arising from
interest or fees payable by any Bank or the Agent to lenders of funds obtained
by it in order to maintain its Eurodollar Loans, (b) a prepayment of principal
on any Eurodollar Loan, including prepayments which are the result of
acceleration by the Banks, or (c) default by the Borrowers in making a borrowing
or conversion after the Borrowers have given (or are deemed to have given)
notice pursuant to Section 2.5 or Section 2.6, the making of any payment of a
Eurodollar Loan or the making of any conversion of any such Eurodollar Loan to a
Base Rate Loan on a day that is not the last day of the applicable Interest
Period with respect thereto, including interest or fees payable by any Bank to
lenders of funds obtained by it in order to maintain any such Loans.
SECTION 4.9. ILLEGALITY; INABILITY TO DETERMINE EURODOLLAR RATE.
Notwithstanding any other provision of this Credit Agreement, if (a) the
introduction of, any change in, or any change in the interpretation of, any law
or regulation applicable to the Agent or any Bank shall make it unlawful, or any
central bank or other governmental authority having jurisdiction thereof shall
assert that it is unlawful, for any Bank or the Agent to perform its obligations
in respect of any Eurodollar Loans, or (b) if any Bank or the Agent shall
reasonably determine with respect to Eurodollar Loans that (i) by reason of
circumstances affecting any Eurodollar interbank market, adequate and reasonable
methods do not exist for ascertaining the Eurodollar Rate which would otherwise
be applicable during any Interest Period, or (ii) deposits of Dollars in the
relevant amount for the relevant Interest Period are not available to such Bank
or the Agent in any Eurodollar interbank market, or (iii) the Eurodollar Rate
does not or will not accurately reflect the cost to such Bank or the Agent of
obtaining or maintaining the applicable Eurodollar Loans during any Interest
Period, then such Bank or the Agent shall promptly give telephonic, telex or
cable notice of such determination to the Borrowers (which notice shall be
conclusive and binding upon the Borrowers). Upon such notification by such Bank
or the Agent, the obligation of such Bank or the Agent to make Eurodollar Loans
shall be suspended until such Bank or the Agent determines that such
circumstances no longer exist, and the outstanding Eurodollar Loans shall
continue to bear interest at the applicable rate based on the Eurodollar Rate
until the end of the applicable Interest Period, and thereafter shall be deemed
converted to Base Rate Loans in equal principal amounts.
SECTION 4.10. ADDITIONAL COSTS, ETC. If any present or future
applicable law, which expression, as used herein, includes statutes, rules and
regulations thereunder and interpretations thereof by any competent court or by
any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time
<PAGE> 37
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hereafter made upon or otherwise issued to any Bank by any central bank or other
fiscal, monetary or other authority (whether or not having the force of law),
shall impose on any Bank any tax, levy, impost, duty, charge fees, deduction or
withholdings of any nature or requirements with respect to this Credit
Agreement, the other Loan Documents, the Loans, such Bank's Commitment, the
Letters of Credit or any class of loans or commitments or letters of credit of
which any of the Loans, the Commitments or the Letters of Credit forms a part,
and the result of any of the foregoing is:
(i) to increase the cost to such Bank of making, funding,
issuing, renewing, extending or maintaining the Loans, such Bank's Commitment,
or the Letters of Credit; or
(ii) to reduce the amount of principal, interest or other
amount payable to such Bank hereunder on account of such Bank's Commitment, the
Loans, or drawings under the Letters of Credit, or
(iii) to require such Bank to make any payment or to forego
any interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross amount of
any sum receivable or deemed received by such Bank from the Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by such Bank
at any time and from time to time and as often as the occasion therefor may
arise, pay to such Bank such additional amounts as will be sufficient to
compensate such Bank for such additional cost, reduction, payment or foregone
interest or other sum (after such Bank shall have allocated the same fairly and
equitably among all customers of any class generally affected thereby).
SECTION 4.11. REPLACEMENT OF BANKS. If any Bank (an "Affected Bank")
(i) makes demand upon the Borrowers for (or if the Borrowers are otherwise
required to pay) amounts pursuant to Sections 4.4 or 4.10 or (ii) is
unable to make or maintain Eurodollar Loans as a result of a condition described
in Section 4.9, the Borrowers may, within 90 days of receipt of such demand or
notice (or the occurrence of such other event causing the Borrowers to be
required to pay such compensation or causing Section 4.9 to be applicable), by
notice in writing to the Agent and such Affected Bank (a "Replacement Notice")
(A) request the Affected Bank to cooperate with the Borrowers in obtaining a
replacement bank satisfactory to the Agent and the Borrowers (the "Replacement
Bank"); (B) request the non-Affected Banks to acquire and assume all of the
Affected Bank's Loans and Commitment, as provided herein, but none of such Banks
shall be under an obligation to do so; or (C) designate a Replacement Bank
reasonably satisfactory to the Agent. If any satisfactory Replacement Bank shall
be obtained, and/or any of the non-Affected Banks shall agree to acquire and
assume all of the Affected Bank's Loans and Commitment, then such Affected Bank
shall, so long as no Event of Default shall have occurred and be continuing,
assign, in accordance with Section 17, all of its Commitment, Loans, Notes and
other rights and obligations under this Credit Agreement and all other Loan
Documents to such Replacement Bank or non-Affected Banks, as the case may be, in
exchange for
<PAGE> 38
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payment of the principal amount so assigned and all interest and fees accrued on
the amount so assigned, plus all other Obligations then due and payable to the
Affected Bank; provided, however, that (i) such assignment shall be without
recourse, representation or warranty and shall be on terms and conditions
reasonably satisfactory to such Affected Bank and such Replacement Bank and/or
non-Affected Banks, as the case may be, and (ii) prior to any such assignment,
the Borrowers shall have paid to such Affected Bank all amounts properly
demanded and unreimbursed under Sections 4.4, 4.8, 4.9 and 4.10. Upon the
effective date of such assignment, the Borrowers shall issue replacement Notes
to such Replacement Bank and/or non-Affected Banks, as the case may be, and such
institution shall become a "Bank" for all purposes under this Credit Agreement
and the other Loan Documents.
SECTION 4.12. CONCERNING JOINT AND SEVERAL LIABILITY OF THE
BORROWERS.
(a) Each of the Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the financial
accommodations to be provided by the Banks under this Credit Agreement, for the
mutual benefit, directly and indirectly, of each of the Borrowers and in
consideration of the undertakings of each other Borrower to accept joint and
several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Borrowers with respect to the payment
and performance of all of the Obligations (including, without limitation, any
Obligations arising under this Section 4.12), it being the intention of the
parties hereto that all of the Obligations shall be the joint and several
Obligations of each of the Borrowers without preferences or distinction among
them.
(c) If and to the extent that any of the Borrowers shall fail to make
any payment with respect to any of the Obligations as and when due or to perform
any of the Obligations in accordance with the terms thereof, then in each such
event the other Borrowers will make such payment with respect to, or perform,
such Obligation.
(d) The Obligations of each of the Borrowers under the provisions of
this Section 4.12 constitute full recourse Obligations of each of the Borrowers
enforceable against each such corporation to the full extent of its properties
and assets, irrespective of the validity, regularity or enforceability of this
Credit Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this Credit Agreement,
each of the Borrowers hereby waives notice of acceptance of its joint and
several liability, notice of any Loans made under this Credit Agreement, notice
of any action at any time taken or omitted by the Banks under or in respect of
any of the Obligations, and, generally, to the extent permitted by applicable
law, all demands, notices and other formalities of every kind in connection with
this Credit Agreement. Each of the Borrowers hereby assents to, and waives
notice of, any extension or postponement of the time for the payment of any of
the Obligations, the acceptance of any payment of any
<PAGE> 39
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of the Obligations, the acceptance of any partial payment thereon, any waiver,
consent or other action or acquiescence by the Banks at any time or times in
respect of any default by any of the Borrowers in the performance or
satisfaction of any term, covenant, condition or provision of this Credit
Agreement, any and all other indulgences whatsoever by the Banks in respect of
any of the Obligations, and the taking, addition, substitution or release, in
whole or in part, at any time or times, of any security for any of the
Obligations or the addition, substitution or release, in whole or in part, of
any of the Borrowers. Without limiting the generality of the foregoing, each of
the Borrowers assents to any other action or delay in acting or failure to act
on the part of the Banks with respect to the failure by any of the Borrowers to
comply with any of its respective Obligations, including, without limitation,
any failure strictly or diligently to assert any right or to pursue any remedy
or to comply fully with applicable laws or regulations thereunder, which might,
but for the provisions of this Section 4.12, afford grounds for terminating,
discharging or relieving any of the Borrowers, in whole or in part, from any of
its Obligations under this Section 4.12, it being the intention of each of the
Borrowers that, so long as any of the Obligations hereunder remain unsatisfied,
the Obligations of such Borrowers under this Section 4.12 shall not be
discharged except by performance and then only to the extent of such
performance. The Obligations of each of the Borrowers under this Section 4.12
shall not be diminished or rendered unenforceable by any winding up,
reorganization, arrangement, liquidation, re-construction or similar proceeding
with respect to any of the Borrowers or the Banks. The joint and several
liability of the Borrowers hereunder shall continue in full force and effect
notwithstanding any absorption, merger, amalgamation or any other change
whatsoever in the name, membership, constitution or place of formation of any of
the Borrowers or the Banks.
(f) The provisions of this Section 4.12 are made for the benefit of
the Banks and their successors and assigns, and may be enforced in good faith by
them from time to time against any or all of the Borrowers as often as the
occasion therefor may arise and without requirement on the part of the Banks
first to marshal any of their claims or to exercise any of their rights against
any other Borrower or to exhaust any remedies available to them against any
other Borrower or to resort to any other source or means of obtaining payment of
any of the Obligations hereunder or to elect any other remedy. The provisions of
this Section 4.12 shall remain in effect until all of the Obligations shall have
been paid in full or otherwise fully satisfied. If at any time, any payment, or
any part thereof, made in respect of any of the Obligations, is rescinded or
must otherwise be restored or returned by the Banks upon the insolvency,
bankruptcy or reorganization of any of the Borrowers, or otherwise, the
provisions of this Section 4.12 will forthwith be reinstated in effect, as
though such payment had not been made.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and
severally represent and warrant to the Banks that on and as of the date of this
Credit Agreement, each Drawdown Date, and the date of issuance of any Letter of
Credit (with any disclosure on a schedule pursuant to this Section 5 applying to
all relevant representations and warranties, regardless of whether such schedule
is referenced in each relevant representation):
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SECTION 5.1. CORPORATE AUTHORITY.
(a) INCORPORATION; GOOD STANDING. Each Borrower (i) is a corporation
duly organized, validly existing and in good standing or in current status under
the laws of its respective state of incorporation, (ii) has all requisite
corporate power to own its property and conduct its business as now conducted
and as presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction in which
its property or business as presently conducted or contemplated makes such
qualification necessary except where a failure to be so qualified would not have
a material adverse effect on the business, assets or financial condition of such
Borrower.
(b) AUTHORIZATION. The execution, delivery and performance of the
Loan Documents and the transactions contemplated hereby and thereby (i) are
within the corporate authority of each Borrower, (ii) have been duly authorized
by all necessary corporate proceedings, (iii) do not conflict with or result in
any material breach or contravention of any provision of law, statute, rule or
regulation to which any Borrower is subject or any judgment, order, writ,
injunction, license or permit applicable to any Borrower so as to materially
adversely affect the assets, business or any activity of the Borrowers, and (iv)
do not conflict with any provision of the corporate charter or bylaws of any
Borrower or any agreement or other instrument binding upon them.
(c) ENFORCEABILITY. The execution, delivery and performance of the
Loan Documents will result in valid and legally binding obligations of the
Borrowers enforceable against each in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
SECTION 5.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Borrowers of the Loan Documents and the transactions
contemplated hereby and thereby do not require any approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
SECTION 5.3. TITLE TO PROPERTIES; LEASES. The Borrowers own all of
the assets reflected in the consolidated balance sheets as at the Balance Sheet
Date or acquired since that date (except property and assets sold or otherwise
disposed of in the ordinary course of business since that date), subject to no
mortgages, capitalized leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
SECTION 5.4. FINANCIAL STATEMENTS; SOLVENCY.
(a) There has been furnished to the Banks audited
consolidated financial statements of the Borrowers dated the Balance Sheet Date.
Said financial
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statements have been prepared in accordance with GAAP and fairly present in all
material respects the financial condition of the Borrowers on a consolidated
basis, as at the close of business on the date thereof and the results of
operations for the period then ended. There are no contingent liabilities of the
Borrowers involving material amounts, known to the officers of the Borrowers,
which have not been disclosed in said balance sheets and the related notes
thereto or otherwise in writing to the Banks.
(b) The Borrowers on a consolidated basis (both before and
after giving effect to the transactions contemplated by this Credit Agreement)
are and will be solvent (i.e., they have assets having a fair value in excess of
the amount required to pay their probable liabilities on their existing debts as
they become absolute and matured) and have, and expect to have, the ability to
pay their debts from time to time incurred in connection therewith as such debts
mature.
SECTION 5.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date,
there have occurred no material adverse changes in the financial condition or
businesses of the Borrowers, taken as a whole, as shown on or reflected in the
consolidated balance sheet of the Borrowers as of the Balance Sheet Date, or the
consolidated statement of income for the fiscal year then ended. Since the
Balance Sheet Date, there have not been any Distributions other than as
permitted by Section 7.6 hereof.
SECTION 5.6. PERMITS, FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each
Borrower possess all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for the
conduct of their businesses substantially as now conducted without known
conflict with any rights of others.
SECTION 5.7. LITIGATION. Except as shown on Schedules 5.7 and 5.16
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the knowledge of any Borrower, threatened against any Borrower
before any court, tribunal or administrative agency or board which, if adversely
determined, might, either in any individual case or in the aggregate, materially
adversely affect the properties, assets, financial condition or business of the
Borrowers, taken as a whole, or materially impair the right of the Borrowers,
taken as a whole, to carry on business substantially as now conducted, or result
in any substantial liability not adequately covered by insurance, or for which
adequate reserves are not maintained on the consolidated balance sheet or which
question the validity of any of the Loan Documents or any action taken or to be
taken pursuant hereto or thereto.
SECTION 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. No Borrower is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Borrowers'
officers has or is expected in the future to have a materially adverse effect on
the business, assets or financial condition of the Borrowers, taken as a whole.
No Borrower is a party to any contract or agreement which in the judgment of the
Borrowers' officers has or is expected to have any materially adverse effect on
the business of the Borrowers, taken as a whole, except as otherwise reflected
in adequate reserves.
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SECTION 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. No
Borrower is violating any provision of its charter documents or by-laws or any
agreement or instrument by which any of them may be subject or by which any of
them or any of their properties may be bound or any decree, order, judgment, or
any statute, license, rule or regulation, in a manner which could result in the
imposition of substantial penalties or materially and adversely affect the
financial condition, properties or business of any Borrower. All Material
Contracts (a complete and accurate list of which is attached hereto as Schedule
5.9) are in full force and effect, and no default or event of default has
occurred and is continuing under any Material Contract.
SECTION 5.10. TAX STATUS. Each Borrower has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which any of them is subject (unless and only to the extent
that such Borrower has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes); and have paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith; and have set aside on their books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrowers know of no basis for any
such claim.
SECTION 5.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing as of the date of this Credit Agreement.
SECTION 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. No
Borrower is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," as such terms are defined in
the Public Utility Holding Company Act of 1935; nor is any of them a "registered
investment company," or an "affiliated company" or a "principal underwriter" of
a "registered investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
SECTION 5.13. ABSENCE OF FINANCING STATEMENTS, ETC. Other than
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, which purports to cover,
affect or give notice of any present or possible future lien on, or security
interest in, any assets or property of any Borrower, or any rights relating
thereto.
SECTION 5.14. EMPLOYEE BENEFIT PLANS.
(a) Each Employee Benefit Plan and each Guaranteed Pension Plan has
been maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited transactions and the
bonding of fiduciaries and other persons handling plan funds as required by
Section 412 of ERISA. Each Borrower has
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heretofore delivered to the Agent the most recently completed annual report,
Form 5500, with all required attachments, and actuarial statement required to be
submitted under Section 103(d) of ERISA, with respect to each Guaranteed Pension
Plan.
(b) No Employee Benefit Plan, which is an employee welfare benefit
plan within the meaning of Section 3(1) or Section 3(2)(B) of ERISA, provides
benefit coverage subsequent to termination of employment, except as required by
Title I, Part 6 of ERISA or the applicable state insurance laws. A Borrower may
terminate each such Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in the discretion of such
Borrower without liability to any Person other than for claims arising prior to
termination.
(c) Each contribution required to be made to a Guaranteed Pension
Plan, whether required to be made to avoid the incurrence of an accumulated
funding deficiency, the notice or lien provisions of Section 302(f) of ERISA, or
otherwise, has been timely made. No waiver of an accumulated funding deficiency
or extension of amortization periods has been received with respect to any
Guaranteed Pension Plan, and no Borrower nor any ERISA Affiliate is obligated to
or has posted security in connection with an amendment to a Guaranteed Pension
Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. No
liability to the PBGC (other than required insurance premiums, all of which have
been paid) has been incurred by any Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event
(other than an ERISA Reportable Event as to which the requirement of 30 days
notice has been waived), or any other event or condition which presents a
material risk of termination of any Guaranteed Pension Plan by the PBGC. Based
on the latest valuation of each Guaranteed Pension Plan (which in each case
occurred within twelve months of the date of this representation), and on the
actuarial methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the meaning of
Section 4001 of ERISA did not exceed the aggregate value of the assets of all
such Guaranteed Pension Plans, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in excess of
benefit liabilities.
(d) No Borrower nor any ERISA Affiliate has incurred any material
liability (including secondary liability) to any Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan under
Section 4201 of ERISA or as a result of a sale of assets described in Section
4204 of ERISA. No Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and within the
meaning of Section 4241 or Section 4245 of ERISA or is at risk of entering
reorganization or becoming insolvent, or that any Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA.
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SECTION 5.15. USE OF PROCEEDS.
SECTION 5.15.1. GENERAL. The proceeds of the Loans shall be
used solely as follows: (a) to finance acquisitions permitted pursuant to
Section 7.4; and (b) for capital expenditures, working capital, and general
corporate purposes.
SECTION 5.15.2. REGULATIONS U AND X. No portion of any Loan
is to be used, and no portion of any Letter of Credit is to be obtained, for the
purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
SECTION 5.15.3. INELIGIBLE SECURITIES. No portion of the
proceeds of any Loans is to be used, and no portion of any Letter of Credit is
to be obtained, for the purpose of (a) knowingly purchasing, or providing credit
support for the purchase of, Ineligible Securities from a Section 20 Subsidiary
during any period in which such Section 20 Subsidiary makes a market in such
Ineligible Securities, (b) knowingly purchasing, or providing credit support for
the purchase of, during the underwriting or placement period, any Ineligible
Securities being underwritten or privately placed by a Section 20 Subsidiary, or
(c) making, or providing credit support for the making of, payments of principal
or interest on Ineligible Securities underwritten or privately placed by a
Section 20 Subsidiary and issued by or for the benefit of the Borrowers or other
Affiliate of the Borrowers.
SECTION 5.16. ENVIRONMENTAL COMPLIANCE. Each Borrower has
investigated the past and present condition and usage of the Real Property and
the operations conducted thereon and, based upon such diligent investigation,
has determined that, except as shown on Schedule 5.16:
(a) No Borrower, nor any operator of the Borrowers' properties, is in
violation, or alleged violation, of any judgment, decree, order, law, permit,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under RCRA, CERCLA, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean
Air Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or the
environment (the "Environmental Laws"), which violation would have a material
adverse effect on the business, assets or financial condition of the Borrowers
on a consolidated basis.
(b) No Borrower has received notice from any third party, including,
without limitation: any federal, state or local governmental authority, (i) that
any of the Borrowers has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C.
Section 6903(5), any hazardous substances as defined by 42 U.S.C.
Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
Section 9601(33) or
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any toxic substance, oil or hazardous materials or other chemicals or substances
regulated by any Environmental Laws ("Hazardous Substances") which any of the
Borrowers has generated, transported or disposed of has been found at any site
at which a federal, state or local agency or other third party has conducted or
has ordered that any Borrower conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is or shall
be a named party to any claim, action, cause of action, complaint, legal or
administrative proceeding arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances.
(c) Except where it would not have a material adverse effect on the
value of the Real Property, (i) no portion of the Real Property has been used
for the handling, processing, storage or disposal of Hazardous Substances; and
no underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the course of any activities
conducted by the Borrowers, or operators of the Real Property, no Hazardous
Substances have been generated or are being used on such properties; (iii) there
have been no unpermitted Releases or threatened Releases of Hazardous Substances
on, upon, into or from the Real Property; (iv) to the best of the Borrowers'
knowledge, there have been no Releases on, upon, from or into any real property
in the vicinity of the Real Property which, through soil or groundwater
contamination, may have come to be located on such properties; and (v) in
addition, when required under applicable Environmental Laws, any Hazardous
Substances that have been generated on the Real Property have been transported
offsite only by carriers having an identification number issued by the EPA,
treated or disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities, to the best of the Borrowers' knowledge, have been
and are operating in material compliance with such permits and applicable
Environmental Laws.
(d) None of the Real Property is or shall be subject to any
applicable environmental clean-up responsibility law or environmental
restrictive transfer law or regulation, by virtue of the transactions set forth
herein and contemplated hereby.
SECTION 5.17. PERFECTION OF SECURITY INTERESTS. All filings,
assignments, pledges and deposits of documents or instruments have been made and
all other actions have been taken that are necessary or advisable under
applicable law to establish and perfect the Agent's security interest in the
Collateral. The Collateral and the Agent's rights with respect to the Collateral
are not subject to any setoff, claims, withholdings or other defenses.
SECTION 5.18. TRANSACTIONS WITH AFFILIATES. Except as disclosed in
Schedule 5.18 or filings made by the Borrowers under the Securities Exchange Act
of 1934 prior to the Closing Date, and except for arm's length transactions
pursuant to which a Borrower makes payments in the ordinary course of business
upon terms no less favorable than such Borrower could obtain from third parties,
none of the officers, directors, or employees of any Borrower is presently a
party to any transaction with another Borrower
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(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of any Borrower, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
SECTION 5.19. SUBSIDIARIES. Schedule 2 sets forth a complete and
accurate list of the Subsidiaries of the Parent, including the name of each
Subsidiary, the location of its chief executive office, and its jurisdiction of
incorporation, together with the number of authorized and outstanding shares of
each Subsidiary. Each Subsidiary listed on Schedule 2 is (a) wholly owned by the
Parent (except as noted in such Schedule) and (b) is a Borrower hereunder, 100%
of the assets and stock of which have been pledged to the Agent on behalf of the
Banks (subject to Section 7.2(h)) pursuant to the Security Documents. The Parent
has good and marketable title to all of the shares it purports to own of the
stock of each such Subsidiary, and each other Borrower has good and marketable
title to all of the shares it purports to own of the stock of such Subsidiary,
free and clear in each case of any lien. All such shares have been duly issued
and are fully paid and non-assessable.
SECTION 5.20. TRUE COPIES OF CHARTER AND OTHER DOCUMENTS. Each
Borrower has furnished the Agent copies, in each case true and complete as of
the Closing Date, of its (a) charter and other incorporation documents and (b)
by-laws, each including any amendments thereto.
SECTION 5.21. DISCLOSURE. Neither this Credit Agreement, nor any of
the other Loan Documents, nor any document or information furnished by the
Borrowers in connection therewith contains any untrue statement of a material
fact or omits to state a material fact (known to any Borrower in the case of any
document or information not furnished by the Borrowers) necessary in order to
make the statements herein or therein not misleading. There is no fact known to
any Borrower which materially adversely affects, or which is reasonably likely
in the future to materially adversely affect, the business, assets, or financial
condition of any Borrower, exclusive of effects resulting from changes in
general economic conditions, legal standards or regulatory conditions.
SECTION 5.22. CAPITALIZATION.
(a) As of October 31, 1998, the authorized capital stock of the
Parent consists of 50,000,000 shares of common stock (par value $0.01 per share)
of which 9,314,964 shares were outstanding as of such date. All of such
outstanding shares are fully paid and non-assessable. In addition, as of October
31, 1998, the Board of Directors of the Parent has duly reserved 1,401,000
shares of the Parent's common stock for issuance pursuant to outstanding
warrants, and has reserved 1,200,000 shares of the Parent's common stock for
issuance upon the exercise of outstanding employee stock options.
<PAGE> 47
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(b) The shares of the capital stock of the Subsidiaries pledged to
the Agent pursuant to the Stock Pledge Agreements are held of record as set
forth on the respective Annex A to each Stock Pledge Agreement. Such capital
stock constitutes, of record, 100% of the outstanding capital stock of each such
Subsidiary, and, to our knowledge, on a fully-diluted basis, 100% of such
outstanding capital stock.
SECTION 5.23. YEAR 2000 ISSUE. The Borrowers have reviewed the areas
within their business and operations which could be adversely affected by, and
have developed or are developing a program to address on a timely basis, the
Year 2000 Issue. Based on such review and program, the Year 2000 Issue will not
have a material adverse effect on their business and operations.
SECTION 6. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers
jointly and severally covenant and agree that, so long as any Loan or Note is
outstanding or the Banks have any obligation to make Loans or the Agent has any
obligation to issue, extend, or renew any Letters of Credit hereunder:
SECTION 6.1. PUNCTUAL PAYMENT. The Borrowers will duly and punctually
pay or cause to be paid the principal and interest on the Loans, all
Reimbursement Obligations, fees and other amounts provided for in this Credit
Agreement and the other Loan Documents, all in accordance with the terms of this
Credit Agreement and such other Loan Documents.
SECTION 6.2. MAINTENANCE OF OFFICES. The Parent will maintain its
chief executive offices at 2260 Douglas Boulevard, Suite 280, Roseville,
California 95661, and each Subsidiary will maintain its chief executive offices
at the location set forth on Schedule 2, or at such other place in the United
States as the Borrowers shall designate upon 30 days' prior written notice to
the Agent.
SECTION 6.3. RECORDS AND ACCOUNTS. Each Borrower will (i) keep true
and accurate records and books of account in which full, true and correct
entries will be made in accordance with generally accepted accounting
principles, (ii) maintain adequate accounts and reserves for all taxes
(including income taxes), depreciation, depletion, obsolescence and amortization
of its properties, contingencies, and other reserves, and (iii) at all times
engage the Accountants as the independent certified public accountants of the
Borrowers.
SECTION 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrowers will deliver to the Banks:
(a) as soon as practicable, but, in any event not later than 90 days
after the end of each fiscal year of the Borrowers, the consolidated and
consolidating balance sheets of the Borrowers as at the end of such year,
statements of cash flows, and the related consolidated and consolidating
statements of operations, each setting forth in comparative form the figures for
the previous fiscal year, all such consolidated and consolidating financial
statements to be in reasonable detail, prepared in accordance with GAAP and,
with respect to the consolidated financial statements, certified by the
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Accountants. In addition, simultaneously therewith, the Borrowers shall use
reasonable efforts to provide the Banks with a written statement from the
Accountants to the effect that the Borrowers are in compliance with the
covenants set forth in Section 8 hereof, and that, in making the examination
necessary to said certification, nothing has come to the attention of the
Accountants that would indicate that any Default or Event of Default exists, or,
if the Accountants shall have obtained knowledge of any then existing Default or
Event of Default they shall disclose in such statement any such Default or Event
of Default; provided that the Accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than 45 days
after the end of each fiscal quarter of the Borrowers, copies of the
consolidated and consolidating balance sheets and statement of operations of the
Borrowers as at the end of such quarter, subject to year end adjustments, and
the related statement of cash flows, all in reasonable detail and prepared in
accordance with GAAP, with a certification by the principal financial or
accounting officer of the Borrowers (the "CFO") that the consolidated financial
statements are prepared in accordance with GAAP and fairly present the
consolidated financial condition of the Borrowers as at the close of business on
the date thereof and the results of operations for the period then ended;
(c) simultaneously with the delivery of the financial statements
referred to in (a) and (b) above, a statement in the form of Exhibit C hereto
(the "Compliance Certificate") certified by the CFO that the Borrowers are in
compliance with the covenants contained in Sections 6, 7 and 8 hereof as
of the end of the applicable period setting forth in reasonable detail
computations evidencing such compliance, provided that if the Borrowers shall at
the time of issuance of such certificate or at any other time obtain knowledge
of any Default or Event of Default, the Borrowers shall include in such
certificate or otherwise deliver forthwith to the Banks a certificate specifying
the nature and period of existence thereof and what action the Borrowers propose
to take with respect thereto and a certificate of the Borrowers' Chief Operating
Officer in the form attached hereto as Exhibit D with respect to environmental
matters;
(d) contemporaneously with or promptly following the delivery thereof
to the boards of directors of the Borrowers, copies of the financial statements,
financial projections and annual budget concerning the Borrowers in
substantially the same form in which such information is supplied to the boards
of directors of the Borrowers;
(e) contemporaneously with, or promptly following, the filing or
mailing thereof, copies of all material of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of the Borrowers;
and
(f) from time to time, such other financial data and other
information (including accountants' management letters) as the Banks may
reasonably request.
The Borrowers hereby authorize the Banks to disclose any information
obtained pursuant to this Credit Agreement to all appropriate governmental
regulatory authorities
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where required by law; provided, however, that this authorization shall not be
deemed to be a waiver of any rights to object to the disclosure by the Banks of
any such information which the Borrowers have or may have under the federal
Right to Financial Privacy Act of 1978, as in effect from time to time.
SECTION 6.5. CORPORATE EXISTENCE AND CONDUCT OF BUSINESS. Each
Borrower will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, corporate rights and
franchises; effect and maintain its foreign qualifications, licensing,
domestication or authorization except as terminated by such Borrower's Board of
Directors in the exercise of its reasonable judgment and except where the
failure of a Borrower to remain so qualified would not materially adversely
impair the financial condition of the Borrowers on a consolidated basis; use its
best efforts to comply with all applicable laws; and shall not become obligated
under any contract or binding arrangement which, at the time it was entered into
would materially adversely impair the financial condition of the Borrowers on a
consolidated basis. Each Borrower will continue to engage primarily in the
businesses now conducted by it and in related businesses.
SECTION 6.6. MAINTENANCE OF PROPERTIES. The Borrowers will cause all
material properties used or useful in the conduct of their businesses to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrowers may be necessary so that the businesses carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Borrowers
from discontinuing the operation and maintenance of any of their properties if
such discontinuance is, in the judgment of the Borrowers, desirable in the
conduct of their business and which does not in the aggregate materially
adversely affect the businesses of the Borrowers on a consolidated basis.
SECTION 6.7. INSURANCE. The Borrowers will maintain with financially
sound and reputable insurance companies, funds or underwriters' insurance of the
kinds, covering the risks (other than risks arising out of or in any way
connected with personal liability of any officers and directors thereof) and in
the relative proportionate amounts usually carried by reasonable and prudent
companies conducting businesses similar to that of the Borrowers, but in no
event less than that required under Section 7 of the Security Agreement. In
addition, the Borrowers will furnish from time to time, upon the Agent's
request, a summary of the insurance coverage of each of the Borrowers, which
summary shall be in form and substance satisfactory to the Agent and, if
requested by the Agent, will furnish to the Agent copies of the applicable
policies.
SECTION 6.8. TAXES. The Borrowers will duly pay and discharge, or
cause to be paid and discharged, before the same shall become overdue, all
taxes, assessments and other governmental charges (other than taxes, assessments
and other governmental charges imposed by foreign jurisdictions which in the
aggregate are not material to the business or assets of any Borrower on an
individual basis or of the Borrowers on a consolidated
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basis) imposed upon it and its real properties, sales and activities, or any
material part thereof, or upon the income or profits therefrom, as well as all
claims for labor, materials, or supplies, which if unpaid might by law become a
lien or charge upon any material portion of its property, unless such lien is a
Permitted Lien; provided, however, that any such tax, assessment, charge, levy
or claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower shall
have set aside on its books adequate reserves with respect thereto; and
provided, further, that the Borrowers will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
SECTION 6.9. INSPECTION OF PROPERTIES, BOOKS, AND CONTRACTS. The
Borrowers will permit the Banks, the Agent or any of their designated
representatives, upon reasonable notice and during normal business hours, to
visit and inspect any of their properties, to examine their books of account
(including the making of periodic accounts receivable reviews), or contracts
(and to make copies thereof and extracts therefrom), and to discuss their
affairs, finances and accounts with, and to be advised as to the same by, their
officers, all at such times and intervals as the Banks may reasonably request.
SECTION 6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS;
MAINTENANCE OF MATERIAL LICENSES AND PERMITS. The Borrowers will (i) comply with
the provisions of their charter documents and by-laws and all agreements and
instruments by which they or any of their properties may be bound; and (ii)
comply with all applicable laws and regulations (including Environmental Laws),
decrees, orders, judgments, licenses and permits, including, without limitation,
all environmental permits hereto ("Applicable Laws"), except where noncompliance
with such Applicable Laws would not have a material adverse effect in the
aggregate on the consolidated financial condition, properties or businesses of
the Borrowers. If at any time while the Notes, or any Loan or Letter of Credit
is outstanding or any Bank or the Agent has any obligation to make Loans or
issue Letters of Credit hereunder, any authorization, consent, approval, permit
or license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrowers may fulfill any of
their obligations hereunder, the Borrowers will immediately take or cause to be
taken all reasonable steps within the power of the Borrowers to obtain such
authorization, consent, approval, permit or license and furnish the Banks with
evidence thereof.
SECTION 6.11. ENVIRONMENTAL INDEMNIFICATION. Each Borrower covenants
and agrees that it will indemnify and hold the BAnks harmless from and against
any and all claims, expense, damage, loss or liability incurred by the Banks
(including all costs of legal representation incurred by the Banks) relating to
(a) any release or threatened release of hazardous substances on the Real
Property; (b) any violation of any Environmental Laws with respect to conditions
at the Real Property or the operations conducted thereon; or (c) the
investigation or remediation of offsite locations at which any Borrower or its
predecessors are alleged to have directly or indirectly disposed of hazardous
substances. It is expressly acknowledged by each Borrower that this covenant of
indemnification shall include claims, expense, damage, loss or liability
incurred by the Banks based upon
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the Banks' negligence, and this covenant shall survive any foreclosure or any
modification, release or discharge of the Loan Documents or the payment of the
Loans and shall inure to the benefit of the Banks, their successors and assigns.
SECTION 6.12. FURTHER ASSURANCES. The Borrowers will cooperate with
the Banks and execute such further instruments and documents as the Banks shall
reasonably request to carry out to the Banks' satisfaction the transactions
contemplated by this Credit Agreement and the Loan Documents.
SECTION 6.13. NOTICE OF POTENTIAL CLAIMS OR LITIGATION. The Borrowers
will deliver to the Banks, within 30 days of receipt thereof, written notice of
the initiation of any action, claim, complaint, or any other notice of dispute
or potential litigation (including without limitation any alleged violation of
any Environmental Law), wherein the potential liability is in excess of
$250,000, together with a copy of each such notice received by any Borrower.
SECTION 6.14. NOTICE OF CERTAIN EVENTS CONCERNING INSURANCE AND
ENVIRONMENTAL CLAIMS.
(a) The Borrowers will provide the Banks with written
notice as to any material cancellation or material change in any insurance of
the Borrowers within ten (10) Business Days after the Borrowers' receipt of any
notice (whether formal or informal) of such cancellation or change by any of
their insurers.
(b) The Borrowers will promptly notify the Banks in writing
of any of the following events:
(i) upon any Borrower obtaining knowledge of
any violation of any Environmental Law regarding the Real Property or any
Borrower's operations, which violation could have a material adverse effect on
the Real Property or on such Borrower's operations; (ii) upon any Borrower
obtaining knowledge of any potential or known Release or threat of Release of
any Hazardous Substance at, from, or into the Real Property which any Borrower
reports in writing or is reportable by it in writing to any governmental
authority and which is material in amount or nature or which could materially
affect the value of the Real Property; (iii) upon any Borrower's receipt of any
notice of violation of any Environmental Laws or of any Release or threatened
Release of Hazardous Substances, including a notice or claim of liability or
potential responsibility from any third party (including without limitation any
federal, state or local governmental officials) and including notice of any
formal inquiry, proceeding, demand, investigation or other action with regard to
(A) any Borrower's or any Person's operation of the Real Property, (B)
contamination on, from or into the Real Property, or (C) investigation or
remediation of offsite locations at which any Borrower or any of its
predecessors is alleged to have directly or indirectly Disposed of Hazardous
Substances, which violation or Release in any such case could have a material
adverse effect on the Real Property or on any Borrower's operations; or (iv)
upon any Borrower obtaining knowledge that any material expense or loss has been
incurred by such governmental authority in connection
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with the assessment, containment, removal or remediation of any Hazardous
Substances with respect to which any Borrower may be liable or for which a lien
may be imposed on the Real Property.
SECTION 6.15. RESPONSE ACTIONS. The Borrowers covenant and agree that
if any Release or Disposal of Hazardous Substances shall occur or shall have
occurred on the Real Property, the Borrowers will cause the prompt containment
and removal of such Hazardous Substances and remediation of the Real Property as
necessary to comply with all Environmental Laws or to preserve the value of the
Real Property.
SECTION 6.16. NOTICE OF DEFAULT. The Borrowers will promptly notify
the Banks in writing of the occurrence of any Default or Event of Default. If
any Person shall give any notice or take any other action in respect of a
claimed default (whether or not constituting an Event of Default) under this
Credit Agreement or any other note, evidence of Indebtedness, indenture or other
obligation evidencing Indebtedness in excess of $250,000 as to which any
Borrower is a party or obligor, whether as principal or surety, the Borrowers
shall forthwith give written notice thereof to the Banks, describing the notice
of action and the nature of the claimed default.
SECTION 6.17. NEW SUBSIDIARIES.
(a) Any newly-created or acquired Subsidiaries permitted under
Section 7.4 shall become Borrowers hereunder by (i) signing a joinder agreement
or entering into an amendment to this Credit Agreement and the Security
Documents, as applicable, with the other parties hereto and thereto, in form and
substance satisfactory to the Agent, providing that such Subsidiary shall become
a Borrower hereunder, 100% of the stock and assets of which shall be pledged to
the Agent for the benefit of the Banks (subject to Section 7.2(h)), and (ii)
providing such other documentation as the Banks or the Agent may reasonably
request, including, without limitation, documentation with respect to the
conditions specified in Section 9 hereof. In such event, the Agent is hereby
authorized by the parties to amend Schedule 2 to include such new Subsidiary.
(b) The Parent shall at all times directly or indirectly through a
Subsidiary own all of the shares of capital stock of each of the Subsidiaries
which are corporations, and such shares shall at all times be pledged to the
Agent pursuant to the Stock Pledge Agreements. The Parent shall at all times
directly or indirectly through a Subsidiary own all of the partnership or joint
venture interests in each of the Subsidiaries which are partnerships or joint
ventures, and such interests shall at all times be pledged to the Agent pursuant
to a partnership pledge agreement in form and substance satisfactory to the
Agent.
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SECTION 6.18. EMPLOYEE BENEFIT PLANS. The Borrowers will (i) promptly
upon filing the same with the Department of Labor or Internal Revenue Service,
upon request of the Agent, furnish to the Agent a copy of the most recent
actuarial statement required to be submitted under Section 103(d) of ERISA and
Annual Report, Form 5500, with all required attachments, in respect of each
Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to
the Agent any notice, report or demand sent or received in respect of a
Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065,
4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under
Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA.
SECTION 6.19. NOTICE OF LOSS OF MATERIAL CONTRACTS. The Borrowers
will promptly (and in any event within fifteen (15) Business Days after the
occurrence thereof) notify the Banks in writing of the termination, or (if
earlier) the receipt of a notice of termination of, or any default by any
Borrower under, any Material Contract.
SECTION 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. Each Borrower
agrees that, so long as any Loan or any Note or other Obligation is outstanding
or the Banks have any obligation to make Loans or the Agent has any obligation
to issue, extend or renew any Letters of Credit hereunder:
SECTION 7.1. RESTRICTIONS ON INDEBTEDNESS. No Borrower shall become
or be a guarantor or surety of, or otherwise create, incur, assume, or be or
remain liable, contingently or otherwise, with respect to any Indebtedness, or
become or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services or otherwise) with respect to any undertaking
or Indebtedness of any other Person, or incur any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under this Credit
Agreement or the Loan Documents;
(b) incurrence of guaranty, suretyship or indemnification obligations
in connection with the Borrowers' performance of services for their respective
customers in the ordinary course of their businesses;
(c) Indebtedness of one Borrower to another Borrower;
(d) Equipment Financing (subject to Section 8.6), Seller Debt, and
other Indebtedness, in an aggregate amount not to exceed 65% of EBITDA for the
four fiscal quarters ending on such date;
(e) Indebtedness of the Borrowers with respect to performance bonds
existing as of the Closing Date, including extensions and renewals thereof, in
an aggregate amount not to exceed $1,500,000;
(f) Indebtedness represented by the Madera Bond.
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SECTION 7.2. RESTRICTIONS ON LIENS. No Borrower shall create or incur
or suffer to be created or incurred or to exist any LIen, encumbrance, mortgage,
pledge, charge, restriction or other security interest of any kind upon any
property or assets of any character, whether now owned or hereafter acquired, or
upon the income or profits therefrom; or transfer any of such property or assets
or the income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors; or sell, assign, pledge or otherwise transfer any
accounts, contract rights, general intangibles or chattel paper, with or without
recourse, except as follows (the "Permitted Liens"):
(a) Liens to secure taxes, assessments and other government charges
in respect of obligations not overdue or liens on properties to secure claims
for labor, material or supplies in respect of obligations not overdue;
(b) Deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or other
social security obligations;
(c) Liens in respect of judgments or awards which have been in force
for less than the applicable period for taking an appeal so long as execution is
not levied thereunder or in respect of which the applicable Borrower shall at
the time in good faith be prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been obtained pending such
appeal or review and in respect of which such Borrower maintains adequate
reserves;
(d) Liens of carriers, warehousemen, mechanics and materialmen, and
other like liens, in existence less than 120 days from the date of creation
thereof in respect of obligations not overdue, provided that such liens may
continue to exist for a period of more than 120 days if the validity or amount
thereof shall currently be contested by the applicable Borrower in good faith by
appropriate proceedings and if such Borrower shall have set aside on its books
adequate reserves with respect thereto as required by GAAP and provided further
that such Borrower will pay any such claim forthwith upon commencement of
proceedings to foreclose any such lien;
(e) Encumbrances on Real Property consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and defects
and irregularities in the title thereto, landlord's or lessor's liens under
leases to which any Borrower is a party, and other minor liens or encumbrances
none of which in the opinion of such Borrower interferes materially with the use
of the property affected in the ordinary conduct of the business of such
Borrower, which defects do not individually or in the aggregate have a
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material adverse effect on the business of such Borrower individually or of the
Borrowers on a consolidated basis;
(f) Liens existing as of the date hereof and listed on Schedule
7.2(f) on the terms and conditions in effect as of the date hereof;
(g) Liens securing Equipment Financing permitted under Section 7.1(d)
incurred in connection with the lease or acquisition of property or fixed assets
useful or intended to be used in carrying on the business of the Borrowers,
provided that such Liens shall encumber only the property or assets so acquired
and shall not exceed the fair market value thereof;
(h) First-priority liens securing Seller Debt and other Indebtedness
permitted by Section 7.1(d), provided that liens securing Seller Debt shall
encumber only the property or assets so acquired or the property or assets of
any Subsidiary whose stock is so acquired and shall not exceed the fair market
value thereof;
(i) Liens in favor of the Agent for the benefit of the Banks and the
Agent under the Loan Documents; and
(j) Liens granted in favor of certain governmental entities pursuant
to any Scheduled Contract listed on Schedule 7.2(j); provided, that such liens
(i) encumber only the containers, bins and carts used in connection with such
Scheduled Contract and (ii) are promptly released as soon as such release is not
prohibited under the terms of such Scheduled Contract.
SECTION 7.3. RESTRICTIONS ON INVESTMENTS. No Borrower shall purchase
or acquire, or make any commitment therefor, any capital stock, equity interest,
or other obligations or securities of, or any interest in, any other Person, or
make or commit to make any acquisition under Section 7.4, or make or commit to
make any advance, loan, extension of credit or capital contribution to or any
other investment in, any other Person, other than:
(a) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase;
(b) demand deposits, certificates of deposit, bankers acceptances and
time deposits of United States banks or Eligible Foreign Banks having unimpaired
capital and surplus in excess of $250,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated and
the ratings for which are not less than "P 1" if rated by Moody's Investors
Service, Inc., and not less than "A 1" if rated by Standard and Poor's Rating
Group;
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(d) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(e) investments existing on the date hereof and listed on Schedule
7.3;
(f) loans and advances by any Borrower to another Borrower;
(g) investments with respect to Seller Debt permitted under Section
7.1(d);
(h) investments permitted under Section 7.4;
(i) loans to employees of the Parent for the purpose of financing
such employees' acquisition of equity of the Parent (through the exercise of
stock options or otherwise) or for relocation costs and expenses in an aggregate
principal amount not to exceed $200,000 at any time outstanding.
SECTION 7.4. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
SECTION 7.4.1. MERGERS AND ACQUISITIONS. The Borrowers will
not become a party to any merger or consolidation, or agree to or effect any
asset acquisition or stock acquisition (other than the acquisition of assets in
the ordinary course of business consistent with past practices) except the
merger or consolidation of, or asset or stock acquisitions between existing
Borrowers and except as otherwise provided in this Section 7.4.1. The Borrowers
may purchase or otherwise acquire all or substantially all of the assets or
stock or other equity interests of any other Person provided that:
(a) the Borrowers are in current compliance with and, giving effect
to the proposed acquisition (including any borrowings made or to be made in
connection therewith), will continue to be in compliance with all of the
covenants in Section 8 hereof on a pro forma historical combined basis as if the
transaction occurred on the first day of the period of measurement;
(b) at the time of such acquisition, no Default or Event of Default
has occurred and is continuing, and such acquisition will not otherwise create a
Default or an Event of Default hereunder;
(c) the business to be acquired is predominantly in the same lines of
business as the Borrowers, or businesses reasonably related or incidental
thereto (e.g., non-hazardous solid waste collection, transfer, hauling,
recycling, or disposal);
(d) the business to be acquired operates predominantly in the
continental United States;
(e) all of the assets to be acquired shall be owned by an existing or
newly created Subsidiary of the Parent which Subsidiary shall be a Borrower,
100% of the assets and stock or other equity interests of which have been or,
simultaneously with such
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acquisition, will be pledged to the Agent on behalf of the Banks (subject to
Section 7.2(h)) or, in the case of a stock or OTher equity interest acquisition,
the acquired company, simultaneously with such acquisition, shall become a
Borrower or shall be merged with and into a wholly owned Subsidiary that is a
Borrower and such newly acquired or created Subsidiary shall otherwise comply
with the provisions of Section 6.17 hereof;
(f) not later than seven (7) days prior to the proposed acquisition
date, a copy of the purchase agreement and financial projections, together with
audited (if available, or otherwise unaudited) financial statements for any
Subsidiary to be acquired or created, for the preceding two (2) fiscal years or
such shorter period of time as such Subsidiary has been in existence shall have
been furnished to the Agent, only in cases of Material Acquisitions or upon
request by the Agent;
(g) not later than seven (7) days prior to the proposed acquisition
date, (1) a summary of the Borrowers' results of their standard due diligence
review, and (2) in the case of a landfill acquisition, a review by a Consulting
Engineer and a copy of the Consulting Engineer's report shall have been
furnished to the Agent, only in cases of Material Acquisitions or upon request
by the Agent;
(h) the board of directors and (if required by applicable law) the
shareholders, or the equivalent thereof, of the business to be acquired has
approved such acquisition;
(i) if such acquisition is made by a merger, a Borrower, or a
wholly-owned Subsidiary of the Parent which shall become a Borrower in
connection with such merger, shall be the surviving entity; and
(j) cash consideration to be paid by such Borrower in connection with
any such acquisition or series of related acquisitions (including cash deferred
payments, contingent or otherwise, and the aggregate amount of all Funded Debt
assumed), shall not exceed $10,000,000 without the consent of the Agent and the
Majority Banks after a Compliance Certificate demonstrating compliance with
Sections 8.1-8.3 on a pro forma historical combined basis as if the
transaction occurred on the first day of thE period of measurement as set forth
in (a) of this Section 7.4.1 has been provided to the Banks (any acquisition
requiring cash consideratioN in excess of $10,000,000 being referred to as a
"Material Acquisition").
SECTION 7.4.2. DISPOSITION OF ASSETS. No Borrower will
become a party to or agree to or effect any dispositioN of assets in excess of
$250,000 in the aggregate (the "Basket"), provided that the proceeds of any such
disposition shall be applied toward repayment of the Revolving Credit Loans.
Notwithstanding the foregoing, the sale of inventory, the licensing of
intellectual property and the disposition of obsolete assets, in each case in
the ordinary course of business consistent with past practices, are permitted
hereunder without being charged against the Basket.
SECTION 7.5. SALE AND LEASEBACK. The Borrowers shall not enter into
any arrangement, directly or indirectly, wherebY any Borrower shall sell or
transfer any property owned by it in order then or thereafter to lease such
property or lease other property which such
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Borrower intends to use for substantially the same purpose as the property being
sold or transferred, without the prior written consent of the Majority Banks.
SECTION 7.6. RESTRICTED DISTRIBUTIONS AND REDEMPTIONS. The Borrowers shall
not redeem, convert, retire or otherwise acquire shares of any class of its
capital stock, or make any Distributions, except that any Borrower may make
Distributions to another Borrower. In addition, the Borrowers shall not effect
or permit any change in or amendment to any document or instrument pertaining to
the terms of any Borrower's capital stock. Notwithstanding the foregoing, no
Borrower shall make any Distribution under this Section 7.6 if a Default or
Event of Default exists or would be created by the making of such Distribution.
SECTION 7.7. EMPLOYEE BENEFIT PLANS. No Borrower nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code which could result in a
material liability for any Borrower; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could result
in the imposition of a lien or encumbrance on the assets of any Borrower
pursuant to Section 302(f) or Section 4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to Section 307 of ERISA or Section 401(a)(29) of
the Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (within the meaning of Section 4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of such
Plans, disregarding for this purpose the benefit liabilities and assets of any
such Plan with assets in excess of benefit liabilities.
SECTION 7.8. NEGATIVE PLEDGES. Except as required by any Scheduled
Contract in effect on the date hereof, no Borrower shall enter into or permit to
exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits such Borrower from creating or incurring any
lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest in favor of the Agent for the benefit of the Banks and the Agent under
the Loan Documents other than customary anti-assignment provisions in leases and
licensing agreements entered into by such Borrower in the ordinary course of its
business.
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SECTION 7.9. BUSINESS ACTIVITIES. No Borrower will engage directly or
indirectly (whether through Subsidiaries or otherwise) in any type of business
other than the businesses conducted by such Borrower on the Closing Date and in
related businesses.
SECTION 7.10. TRANSACTIONS WITH AFFILIATES. No Borrower will engage
in any transaction with any Affiliate (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such Affiliate or, to the knowledge of the Borrowers, any corporation,
partnership, trust or other entity in which any such Affiliate has a substantial
interest or is an officer, director, trustee or partner, on terms more favorable
to such Person than would have been obtainable on an arm's-length basis in the
ordinary course of business.
SECTION 8. FINANCIAL COVENANTS. The Borrowers covenant and agree
that, so long as any Loan, any Note, or any reimbursement Obligation is
outstanding or the Banks have any obligation to make Loans or the Agent has any
obligation to issue, extend or renew any Letters of Credit hereunder:
SECTION 8.1. LEVERAGE RATIO. As of the end of any fiscal quarter of
the Borrowers commencing with the fiscal quarter ending December 31, 1998, the
ratio of Funded Debt to EBITDA shall not exceed 4.00:1. For the purposes of this
Section 8.1, EBITDA shall be calculated for the four fiscal quarters ending on
such date.
SECTION 8.2. FUNDED DEBT TO CAPITALIZATION RATIO. The Borrowers shall
not at any time permit the ratio of (a) Funded debt to (b) the sum of Funded
Debt plus Consolidated Net Worth to exceed 65%.
SECTION 8.3. INTEREST COVERAGE RATIO. As of the end of any fiscal
quarter of the Borrowers commencing with the fiscal quarter ending December 31,
1998, the ratio of (a) EBIT to (b) Consolidated Total Interest Expense shall not
be less than 2.00:1. The Interest Coverage Ratio shall be calculated for the
four fiscal quarters ending on such date.
SECTION 8.4. PROFITABLE OPERATIONS. The Borrowers will not permit
Consolidated Net Income to be less than $1.00 for any fiscal quarter, provided
that Consolidated Net Income may exclude (a) non-cash charges for interest
expense attributable to loan fees paid, and warrants issued to, BKB in
connection with the Prior Credit Agreement of up to $325,000 in the aggregate
taken in the fiscal quarter ending December 31, 1998, and (b) non-cash stock
compensation charges of up to $745,000 in the aggregate (to the extent deducted
in determining Consolidated Net Income).
SECTION 8.5. CAPITAL EXPENDITURES. The Borrowers will not make
Capital Expenditures in fiscal year 1998 in excess of $6,000,000, in the
aggregate, and in any fiscal year thereafter, in excess of, in the aggregate,
2.0 times the actual depreciation expenses for such fiscal year.
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SECTION 9. CLOSING CONDITIONS. The obligations of the Banks to make
the Loans and the Agent to issue Letters of Credit on the Closing Date and
otherwise be bound by the terms of this Credit Agreement shall be subject to the
satisfaction of each of the following conditions precedent:
SECTION 9.1. CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance bY the Borrowers of the Loan Documents
shall have been duly and effectively taken, and satisfactory evidence thereof
shall have been provided to the Agent.
SECTION 9.2. LOAN DOCUMENTS, ETC. Each of the Loan Documents shall
have been duly and properly authorized, executed and delivered by the respective
parties thereto and shall be in full force and effect in a form satisfactory to
the Banks.
SECTION 9.3. CERTIFICATE OF SECRETARY; GOOD STANDING CERTIFICATES.
The Agent shall have received from each Borrower a certificate as to the good
standing of each from the Secretary of State or other appropriate official of
the state of its organization, dated no earlier than January 9, 1998. The Agent
shall also have received from each Borrower a certificate of its Secretary
certifying the following attachments thereto: (a) a copy of its certificate or
articles of incorporation or constitutive documents, in each case as amended to
date, certified as of a recent date by the Secretary of State or other
appropriate official of the state of its organization, (b) a true and correct
copy of its by-laws, including all amendments thereto, (c) a true and correct
copy of the resolutions of its board of directors authorizing the transactions
contemplated hereunder and under the other Loan Documents. Such Secretary's
Certificate shall also give the name and bear a specimen signature of each
individual who shall be authorized (i) to sign the Loan Documents on behalf of
the Borrowers; (ii) to make Loan and Letter of Credit Requests; and (iii) to
give notices and to take other action on the Borrowers' behalf under the Loan
Documents. A Secretary's certificate stating that there have been no changes to
the applicable Borrower's charter documents and by-laws since (q) January 30,
1998 with respect to Waste Connections of Idaho, Inc., Waste Connections of
Washington, Inc. and Waste Connections International, Inc., (r) February 23,
1998 with respect to Madera, (s) April 8, 1998 with respect to Waste Connections
of Wyoming, Inc., (t) May 29, 1998 with respect to Sunshine, Sowers and T&T, (u)
June 5, 1998 with respect to Waste Connections of Utah, Inc., Darlin Equipment,
Inc., B & B Sanitation, Inc. and Red Carpet Landfill, Inc., (v) June 18, 1998
with respect to OPF, (w) June 25, 1998 with respect to Curry and Oregon Waste,
(x) July 31, 1998 with respect to Shrader, (y) August 3, 1998 with respect to
Big Red Roll Off, Inc., J & J Sanitation, Inc. and Waste Connections of
Nebraska, Inc., and (z) September 22, 1998 with respect to Evergreen Waste
Systems Inc., will satisfy the requirements of this Section 9.3(a) and (b).
SECTION 9.4. VALIDITY OF LIENS. The Security Documents shall be
effective to create in favor of the Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the Agent
to protect and preserve such security interests shall have been
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duly effected. The Agent shall have received evidence thereof in form and
substance satisfactory to the Agent.
SECTION 9.5. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The
Agent shall have received from each Borrower a completed and fully executed
Perfection Certificate and the results of UCC searches with respect to the
Collateral, indicating no liens other than Permitted Liens and otherwise in form
and substance satisfactory to the Agent.
SECTION 9.6. CERTIFICATES OF INSURANCE. The Agent shall have received
a certificate of insurance signed by the insurer or an agent authorized to bind
the insurer dated as of the Closing Date, or within 15 days prior thereto,
identifying insurers, types of insurance, insurance limits, and policy terms,
and otherwise describing the Borrowers' insurance coverage.
SECTION 9.7. LEGAL OPINIONS. The Agent shall have received a
favorable legal opinion from counsel to the Borrowers, addressed to the Agent
and the Banks, dated as of the Closing Date, in form and substance satisfactory
to the Agent.
SECTION 9.8. ENVIRONMENTAL PERMIT CERTIFICATE. The Banks shall have
received an environmental permit certificate from the Borrowers satisfactory to
the Agent concerning principal operating permits at the Borrowers' principal
operating facilities.
SECTION 9.9. PAYMENT OF FEES. The Borrowers shall have paid any fees
owing to any of the Banks.
SECTION 9.10. CLOSING CERTIFICATE. The Borrowers shall have delivered
to the Agent a certificate, dated as of the Closing Date, stating that, as of
such date (a) the representations and warranties set forth herein or in any
other Loan Document are true and correct (b) no Default or Event of Default has
occurred and is continuing, and (c) each Material Contract is in full force and
effect, and no default or event of default has occurred and is continuing under
any Material Contract.
SECTION 9.11. CONTRACTS. The Agent shall have received copies of all
Material Contracts.
SECTION 10. CONDITIONS OF ALL LOANS. The obligations of the Banks to
make any Loan (including without limitation the obligation of the Agent to
issue, extend or renew any Letter of Credit) on and subsequent to the Closing
Date is subject to the following conditions precedent:
SECTION 10.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of the Borrowers contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall be true as of the date as of which
they were made and shall also be true at and as of the time of any Drawdown Date
or the issuance of any Letter of Credit with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and changes occurring in the
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ordinary course of business which singly or in the aggregate are not materially
adverse, or to the extent that such representations and warranties relate solely
and expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing.
SECTION 10.2. PERFORMANCE; NO EVENT OF DEFAULT. The Borrowers shall
have performed and complied with all terms and conditions herein required to be
performed or complied with by the Borrowers prior to or at the time of any Loan,
and at the time of any Loan, there shall exist no Event of Default or condition
which would result in an Event of Default upon consummation of such Loan
(including without limitation any amounts to be drawn under a Letter of Credit).
Each request by the Borrowers for a Loan (including without limitation each
request for issuance of a Letter of Credit) subsequent to the first Loan shall
constitute certification by the Borrowers that the conditions specified in
Sections 10.1 and 10.2 will be duly satisfied on the date of such Loan or
Letter of Credit issuance.
SECTION 10.3. NO LEGAL IMPEDIMENT. No change shall have occurred in
any law or regulations thereunder or interpretations thereof which in the
reasonable opinion of the Banks would make it illegal for the Banks to make
Loans hereunder.
SECTION 10.4. GOVERNMENTAL REGULATION. The Banks shall have received
such statements in form and substance reasonably satisfactory to the Banks as
they shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
SECTION 10.5. PROCEEDINGS AND DOCUMENTS. All proceedings in
connection with the transactions contemplated by this Credit Agreement and all
documents incident thereto shall have been delivered to the Banks as of the date
hereof in form and substance satisfactory to the Banks, including without
limitation a Loan and Letter of Credit Request in the form attached hereto as
Exhibit B, and the Banks shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Banks may reasonably request.
SECTION 11. COLLATERAL SECURITY.
SECTION 11.1. SECURITY OF BORROWERS.
(a) The Obligations shall be secured by a (i) perfected
first priority security interest (subject only to Permitted Liens entitled to
priority under applicable law or under Section 7.2(h)) in all of the assets of
the Borrowers (other than Excluded Assets, Scheduled Contracts and Excluded
Contracts), whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which the Borrowers are a party, and (ii) a pledge of
all of the stock of each Subsidiary pursuant to the terms of the Stock Pledge
Agreements.
(b) The Borrowers hereby acknowledge that (i) any and all
Uniform Commercial Code financing statements filed in connection with the Prior
Credit Agreement naming BankBoston, N.A., as Agent, as secured party, and such
Borrower, as
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debtor, shall be effective to perfect the Agent's security interest granted by
such Borrower pursuant to this Credit Agreement to the extent that such security
interest may be perfected by the filing of Uniform Commercial Code financing
statements and (ii) such prior filings represent pre-filings of Uniform
Commercial Code financing statements for purposes of so perfecting the security
interest granted by the Borrowers hereunder. Until all of the Obligations have
been finally paid and satisfied in full, the provisions of this Section 11.1(b)
shall continue to apply, and such pre-filings shall continue to be effective and
not subject to any right of termination in respect of the security interests
granted herein, whether any obligations under the Prior Credit Agreement are to
be discharged with the proceeds of any of the Loans or are to continue
independently or otherwise.
SECTION 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF
COMMITMENT.
SECTION 12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the
following events ("Events of Default" or, if the giving of notice or the lapse
of time or both is required, then, prior to such notice and/or lapse of time,
"Defaults") shall occur:
(a) if the Borrowers shall fail to pay any principal of the Loans or
any Reimbursement Obligation when the same shall become due and payable, whether
at the Maturity Date or any accelerated date of maturity or at any other date
fixed for payment;
(b) if the Borrowers shall fail to pay any interest or fees or other
amounts owing hereunder within five (5) Business Days after the same shall
become due and payable whether at the Maturity Date or any accelerated date of
maturity or at any other date fixed for payment;
(c) if the Borrowers shall fail to comply with the covenants
contained in Sections 6.1, 6.7, 6.8, 6.10, 6.13, 6.14, 6.16, 6.17, 6.19,
7 or 8;
(d) if the Borrowers shall fail to comply with the covenants
contained in (i) Sections 6.2, 6.3, 6.5, 6.6, 6.9, 6.11, 6.12, 6.15, or
6.18 within thirty (30) days of the Borrowers' knowledge of a violation of such
covenants or (ii) Section 6.4 within five (5) Days of the Borrowers' knowledge
of a violation of such covenant;
(e) if the Borrowers shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other than
those specified in subsections (a), (b), (c) and (d) above) within 30 days
after written notice of such failure has been given to the Borrowers by the
Agent or any Bank;
(f) if any representation or warranty contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall prove to have been false in any
material respect upon the date when made or repeated;
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(g) if any Borrower shall fail to pay at maturity, or within any
applicable period of grace, any and all obligations for borrowed money (other
than the Obligations) or any guaranty with respect thereto in an aggregate
amount greater than $250,000 or fail to observe or perform any material term,
covenant or agreement contained in any agreement by which it is bound,
evidencing or securing borrowed money in an aggregate amount greater than
$250,000 for such period of time as would, or would have permitted (assuming the
giving of appropriate notice if required) the holder or holders thereof or of
any obligations issued thereunder to accelerate the maturity thereof, unless the
same shall have been waived by the holder(s) thereof; or
(h) if any Borrower makes an assignment for the benefit of creditors,
or admits in writing its inability to pay or generally fails to pay its debts as
they mature or become due, or petitions or applies for the appointment of a
trustee or other custodian, liquidator or receiver of any Borrower or of any
substantial part of the assets of any Borrower or commences any case or other
proceeding relating to any Borrower under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law of any jurisdiction, now or hereafter in effect, or takes any action
to authorize or in furtherance of any of the foregoing, or if any such petition
or application is filed or any such case or other proceeding is commenced
against any Borrower or such Borrower indicates its approval thereof, consent
thereto or acquiescence therein, or such petition or application shall not have
been dismissed within sixty (60) days following the filing thereof;
(i) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any Borrower bankrupt or
insolvent, or approving a petition in any such case or other proceeding, or a
decree or order for relief is entered in respect of any Borrower in an
involuntary case under federal bankruptcy laws as now or hereafter constituted;
(j) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any final
judgment against any Borrower which, with other outstanding final judgments
against the Borrowers, exceeds in the aggregate $250,000 after taking into
account any undisputed insurance coverage;
(k) any Borrower or any ERISA Affiliate incurs any liability to the
PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate
amount exceeding $250,000, or any Borrower or any ERISA Affiliate is assessed
withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan
requiring aggregate annual payments exceeding $250,000, or any of the following
occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event,
or a failure to make a required installment or other payment (within the meaning
of Section 302(f)(1) of ERISA), provided that the Agent determines in its
reasonable discretion that such event (A) could be expected to result in
liability of any Borrower to the PBGC or such Guaranteed Pension Plan in an
aggregate amount exceeding $250,000 and (B) could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC, for the appointment by
the appropriate United States District Court of a trustee to administer such
Guaranteed
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Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension
Plan; or (ii) the appointment by a United States District Court of a trustee to
administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of
proceedings to terminate such Guaranteed Pension Plan;
(l) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests or liens in a substantial
portion of the Collateral shall cease to be perfected, or shall cease to have
the priority contemplated by the Security Documents, in each case otherwise than
in accordance with the terms thereof or with the express prior written
agreement, consent or approval of the Banks, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of any Borrower or any stockholder
of any Borrower who is an officer or director of such Borrower, or any court or
any other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment, order, decree
or ruling to the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(m) (i) the Parent shall at any time, legally or beneficially own
less than one hundred percent (100%) of the shares of the capital stock of each
other Borrower (directly or indirectly in accordance with Section 6.17), or (ii)
any person or group of persons (within the meaning of Section 13 or 14 of the
Securities Exchange Act of 1934, as amended) other than existing shareholders of
the Parent as of the Closing Date shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under said Act) of 20% or more of the outstanding shares of common
stock of the Parent; or, during any period of twelve consecutive calendar
months, individuals who were directors of the Parent on the first day of such
period shall cease to constitute a majority of the board of directors; provided,
however, that any such change of control resulting from an acquisition permitted
under Section 7.4 shall not constitute a Default or an Event of Default
hereunder; or
(n) the early termination or cancellation of, or any material default
by a Borrower under, any Material Contract;
then, and in any such event, so long as the same may be continuing, the Agent
may, and at the request of the Majority Banks shall, by notice in writing to the
Borrowers, declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents and all Reimbursement Obligations to be, and
they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in Sections 12.1(h) or 12.1(i), all such
amounts shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank. Upon demand by the Banks after
the occurrence of any Event of Default, the Borrowers shall immediately provide
to the Agent cash in an amount equal to the Maximum Drawing Amount, to be held
by the Agent as collateral security for the Obligations, provided that in the
event of any Event of
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Default specified in Sections 12.1(h) or 12.1(i), all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Bank.
SECTION 12.2. TERMINATION OF COMMITMENTS. If any Event of Default
shall occur, the Agent may, and at the request of the Majority Banks shall, by
notice to the Borrowers, terminate the unused portion of the Total Commitment
hereunder, and upon such notice being given, such unused portion of the Total
Commitment hereunder shall terminate immediately and the Banks shall be relieved
of all further obligations to make Loans to or issue Letters of Credit for the
account of the Borrowers hereunder, provided that in the event of any Event of
Default specified in Sections 12.1(h) or 12.1(i), all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Bank. No termination of any portion of the Total
Commitment hereunder shall relieve the Borrowers of any of their existing
Obligations to the Banks hereunder or elsewhere.
SECTION 12.3. REMEDIES. Subject to Section 13, in case any one or
more Events of Default shall have occurred and be continuing, and whether or not
the Banks shall have accelerated the maturity of the Loans pursuant to Section
12.1, each Bank, if owed any amount with respect to the Loans or the
Reimbursement Obligations, may, with the consent of the Majority Banks but not
otherwise, and if the Agent shall have received opinions of nationally
recognized law firms specializing in California law, Louisiana law, and the law
of any other state, as applicable, having a one form of action rule to the
effect that actions by such Bank under such circumstances shall not constitute
an action for purposes of such state's one form of action rule or in any other
way impair the Collateral or the other Banks' rights hereunder or under the
other Loan Documents, proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Credit Agreement and
the other Loan Documents or any instrument pursuant to which the Obligations to
such Bank are evidenced, including, without limitation, as permitted by
applicable law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any legal or equitable right of such Bank. No
remedy herein conferred upon any Bank or the Agent or the holder of any Note or
purchaser of any Letter of Credit Participation is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provision of law.
SECTION 13. SETOFF. Regardless of the adequacy of any collateral,
during the continuance of an Event of Default, any deposits or other sums
credited by or due from any Bank to the Borrowers and any securities or other
property of the Borrowers in the possession of such Bank may be applied to or
set off against the payment of the Obligations and any and all other
liabilities, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrowers to the Banks. The Banks
agree among themselves that, if a Bank shall obtain payment on any Obligation
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outstanding under this Credit Agreement through the exercise of a right of
offset, banker's lien or counterclaim, or from any other source including under
Section 12.3 (other than by way of a pro rata payment under this Credit
Agreement), it shall promptly make such adjustments with the other Banks as
shall be equitable to the end that all the Banks shall share the benefits of
such payments pro rata in accordance with the aggregate unpaid amount of the
Revolving Credit Notes held by each Bank immediately prior to the payment
obtained by such Bank as aforesaid. The Banks further agree among themselves
that if any payment to a Bank obtained by such Bank through the exercise of a
right of offset, banker's lien or counterclaim, or from any other source (other
than by way of a pro rata payment) as aforesaid shall be rescinded or must
otherwise be restored, the Banks who shall have shared the benefit of such
payment shall return their share of that benefit to the Bank whose payment shall
have been rescinded or otherwise restored.
SECTION 14. THE AGENT.
SECTION 14.1. APPOINTMENT OF AGENT, POWERS AND IMMUNITIES. Each Bank
hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents, provided, however, the Agent is
hereby authorized to serve only as an administrative and collateral agent for
the Banks and to exercise such powers as are reasonably incidental thereto and
as are set forth in this Credit Agreement and the other Loan Documents. The
Agent hereby acknowledges that it does not have the authority to negotiate any
agreement which would bind the Banks or agree to any amendment, waiver or
modification of any of the Loan Documents or bind the Banks except as set forth
in this Credit Agreement or the Loan Documents. Except as provided in this
Section 14 and in the other Loan Documents, the Agent shall take action or
refrain from acting only upon instructions of the Banks and no action taken or
failure to act without the consent of the Banks shall be binding on any Bank
which has not consented. Each Bank irrevocably authorizes the Agent to execute
the Security Documents and all other instruments relating thereto and to take
such action on behalf of each of the Banks and to exercise all such powers as
are expressly delegated to the Agent under the Loan Documents and all related
documents, together with such other powers as are reasonably incidental thereto.
It is agreed that the duties, rights, privileges and immunities of BKB, in its
capacity as issuer of Letters of Credit hereunder, shall be identical to its
duties, rights, privileges and immunities as a Bank as provided in this
Section 14. The Agent shall not have any duties or responsibilities or any
fiduciary relationship with any Bank except those expressly set forth in this
Credit Agreement. Neither the Agent nor any of its affiliates shall be
responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrowers or any other Person whether contained herein or
otherwise or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Credit Agreement, the other Loan Documents or any other
document referred to or provided for herein or therein or for any failure by the
Borrowers or any other Person to perform its obligations hereunder or thereunder
or in respect of the Notes. The Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care. The Agent shall
exercise the same care in administering the Loans as it exercises with respect
to similar transactions entered into solely for its own account; however,
neither the Agent
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nor any of its directors, officers, employees or agents shall be responsible for
any action taken or omitted to be taken in good faith by it or them hereunder or
in connection herewith, except for its or their own gross negligence or willful
misconduct. The Bank in its separate capacity as a Bank shall have the same
rights and powers hereunder as any other Bank.
SECTION 14.2. ACTIONS BY AGENT. The Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement as it
reasonably deems appropriate unless it shall first have received such advice or
concurrence of the Banks and shall be indemnified to its reasonable satisfaction
by the Banks against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Credit Agreement or any of the Loan Documents in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and all future holders of the
Notes or any Letter of Credit Participation.
SECTION 14.3. INDEMNIFICATION. Without limiting the obligations of
the Borrowers under this Credit Agreement or any other Loan Document, the Banks
ratably agree hereby to indemnify and hold harmless the Agent, the Arranger, and
their affiliates from and against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses (including any
expenses for which the Agent, the Arranger or such affiliate has not been
reimbursed by the Borrowers as required by Section 15), and liabilities of every
nature and character arising out of or related to this Credit Agreement, the
Notes, or any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall be directly caused
by the Agent's willful misconduct or gross negligence, it being the intent of
the parties hereto that all such indemnified parties shall be indemnified for
their ordinary sole or contributory negligence.
SECTION 14.4. REIMBURSEMENT. Without limiting the provisions of
Section 14.3, the Banks and the Agent hereby agree that the Agent shall not be
obliged to make available to any Person any sum which the Agent is expecting to
receive for the account of that Person until the Agent has determined that it
has received that sum. The Agent may, however, disburse funds prior to
determining that the sums which the Agent expects to receive have been finally
and unconditionally paid to the Agent, if the Agent wishes to do so. If and to
the extent that the Agent does disburse funds and it later becomes known that
the Agent did not then receive a payment in an amount equal to the sum paid out,
then any Person to whom the Agent made the funds available shall, on demand from
the Agent, refund to the Agent the sum paid to that Person. If, in the opinion
of the Agent, the distribution of any amount received by it in such capacity
hereunder or under the Loan Documents might involve it in liability, it may
refrain from making distribution until its right to make distribution shall have
been adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Agent
is to be repaid, each Person to whom any such distribution
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shall have been made shall either repay to the Agent its proportionate share of
the amount so adjudged to be repaid or shall pay over the same in such manner
and to such Persons as shall be determined by such court.
SECTION 14.5. DOCUMENTS.
SECTION 14.5.1. CLOSING DOCUMENTATION. For purposes of
determining compliance with the conditions set forth in Section 9, each Bank
that has executed this Credit Agreement shall be deemed to have consented to,
approved or accepted, or to be satisfied with, each document and matter either
sent, or made available, by the Agent or the Arranger to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to such Bank, unless the Agent
shall have received notice from such Bank prior to the Closing Date specifying
such Bank's objection thereto and such objection shall not have been withdrawn
by notice to the Agent to such effect on or prior to the Closing Date.
SECTION 14.5.2. OTHER DOCUMENTS. The Agent will forward to
each Bank, promptly after the Agent's receipt thereof, a copy of each notice or
other document furnished to the Agent for such Bank hereunder; provided,
however, that notwithstanding the foregoing, the Agent may furnish to the Banks
a monthly summary with respect to Letters of Credit issued hereunder in lieu of
copies of the related Letter of Credit Applications.
SECTION 14.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank
represents that it has, independently and without reliance on the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of the financial condition and affairs of
the Borrowers and decision to enter into this Credit Agreement and the other
Loan Documents and agrees that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own appraisals and
decisions in taking or not taking action under this Credit Agreement or any
other Loan Document. The Agent shall not be required to keep informed as to the
performance or observance by the Borrowers of this Credit Agreement, the other
Loan Documents or any other document referred to or provided for herein or
therein or by any other Person of any other agreement or to make inquiry of, or
to inspect the properties or books of, any Person. Except for notices, reports
and other documents and information expressly required to be furnished to the
Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning any person which may come into the possession of the Agent or any of
its affiliates. Each Bank shall have access to all documents relating to the
Agent's performance of its duties hereunder at such Bank's request. Unless any
Bank shall promptly object to any action taken by the Agent hereunder (other
than actions to which the provisions of Section 14.8 are applicable and other
than actions which constitute gross negligence or willful misconduct by the
Agent), such Bank shall conclusively be presumed to have approved the same.
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SECTION 14.7. RESIGNATION OR REMOVAL OF AGENT. The Agent may resign
at any time by giving 60 days' prior written notice thereof to the Banks and the
Borrowers. Upon any such resignation, the Banks shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Banks (and, provided that no Default or Event of Default shall have occurred and
be continuing, approved by the Borrowers, such approval not to be unreasonably
withheld) and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a financial
institution having a combined capital and surplus in excess of $150,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation, the provisions of this Credit Agreement shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent. Any new Agent appointed pursuant to
this Section 14.7 shall immediately issue new Letters of Credit in place of
Letters of Credit previously issued by the Agent (to the extent such Letters of
Credit are returned by the beneficiaries for purposes of such exchange).
SECTION 14.8. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or
approval required or permitted by this Credit Agreement to be given by the Banks
may be given, and any term of this Credit Agreement, the other Loan Documents or
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrowers of any terms of this Credit
Agreement, the other Loan Documents or such other instrument or the continuance
of any Default or Event of Default may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Borrowers and the written consent of the
Majority Banks, provided however, that the Agent may, in its reasonable
discretion, release Collateral with an aggregate value of $500,000 or less in
any calendar year. Notwithstanding the foregoing, no amendment, waiver or
consent shall do any of the following unless in writing and signed by the
Borrowers and each of the Banks affected thereby: (a) increase the Commitments
of the Banks or subject any Bank to any additional obligations (other than in
accordance with Section 2.2.2. hereof), or (b) reduce the principal of or the
rate of interest on the Notes (including, without limitation, interest on
overdue amounts) or any fees payable hereunder; and FURTHER, no amendment,
waiver or consent shall do any of the following unless in writing and signed by
ALL of the Banks: (c) postpone the Maturity Date or any date fixed for any
payment in respect of principal or interest (including, without limitation,
interest on overdue amounts) on the Notes, (d) change the definition of
"Majority Banks" or the number of Banks which shall be required for the Banks or
any of them to take any action under the Loan Documents; (e) amend Section
2.2.2, this Section 14.8 or Section 18; (f) release any Collateral with an
aggregate value exceeding $500,000 in any calendar year or (g) release any
Borrower from its obligations hereunder.
No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay or
omission on the part of
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the Agent or any Bank in exercising any right shall operate as a waiver thereof
or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
SECTION 14.9. DELINQUENT BANKS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan Documents,
any Bank that fails (i) to make available to the Agent its pro rata share of any
Loan or to purchase any Letter of Credit Participation or (ii) to comply with
the provisions of Section 13 with respect to making dispositions and
arrangements with the other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of its pro rata share of
such payments due and payable to all of the Banks, in each case as, when and to
the full extent required by the provisions of this Credit Agreement, shall be
deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank
until such time as such delinquency is satisfied. A Delinquent Bank shall be
deemed to have assigned any and all payments due to it from the Borrowers,
whether on account of outstanding Loans, Reimbursement Obligations, interest,
fees or otherwise, to the remaining nondelinquent Banks for application to, and
reduction of, their respective pro rata shares of all outstanding Loans and
Reimbursement Obligations. The Delinquent Bank hereby authorizes the Agent to
distribute such payments to the nondelinquent Banks in proportion to their
respective pro rata shares of all outstanding Loans and Reimbursement
Obligations. A Delinquent Bank shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the assigned payments to
all outstanding Loans and Reimbursement Obligations of the nondelinquent Banks,
the Banks' respective pro rata shares of all outstanding Loans and Reimbursement
Obligations have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
SECTION 15. EXPENSES AND INDEMNIFICATION.
SECTION 15.1. EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers agree to pay (i) the reasonable costs
of producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (ii) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrowers hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (iii) the reasonable fees, expenses and disbursements of counsel to
the Agent incurred in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments
mentioned herein, each closing hereunder, any amendments, modifications,
approvals, consents or waivers hereto or hereunder, or the cancellation of any
Loan Document upon payment in full in cash of all of the Obligations or pursuant
to any terms of such Loan Document providing for such cancellation, (iv) the
reasonable fees, expenses and disbursements of the Agent, the Arranger, or any
of their affiliates incurred by the Agent, the Arranger, or such affiliate in
connection with the preparation, syndication, administration or interpretation
of the Loan Documents and other instruments mentioned herein, including
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all title insurance premiums and surveyor, engineering and appraisal charges,
(v) all reasonable out-of-pocket expenses (including without limitation
reasonable attorneys' fees and costs, which attorneys may be employees of any
Bank or the Agent, and reasonable consulting, accounting, appraisal, investment
banking and similar professional fees and charges) incurred by any Bank or the
Agent in connection with (A) the enforcement of or preservation of rights under
any of the Loan Documents against the Borrowers or the administration thereof
after the occurrence of a Default or Event of Default and (B) any litigation,
proceeding or dispute whether arising hereunder or under any of the other Loan
Documents, in any way related to any Bank's or the Agent's relationship with the
Borrowers and (vi) all reasonable fees, expenses and disbursements of the Agent
incurred in connection with UCC searches and UCC filings.
SECTION 15.2. INDEMNIFICATION. The Borrowers agree to indemnify and
hold harmless the Agent, the Arranger, their affiliates and the Banks from and
against any and all claims, actions and suits whether groundless or otherwise,
and from and against any and all liabilities, losses, damages and expenses of
every nature and character arising out of this Credit Agreement or any of the
other Loan Documents or the transactions contemplated hereby including, without
limitation, (i) any actual or proposed use by the Borrowers of the proceeds of
any of the Loans or Letters of Credit, (ii) the Borrowers entering into or
performing this Credit Agreement or any of the other Loan Documents or (iii)
with respect to the Borrowers and their respective properties and assets, the
violation of any Environmental Law, the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release or threatened release of any
Hazardous Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Substances (including, but not limited
to, claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Banks and the Agent, the Arranger,
and their affiliates shall be entitled to select their own counsel and, in
addition to the foregoing indemnity, the Borrowers agree to pay promptly the
reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrowers under this Section 15.2 are unenforceable for any
reason, the Borrowers hereby agree to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law.
SECTION 15.3. SURVIVAL. The covenants contained in this Section 15
shall survive payment or satisfaction in full of all other Obligations.
SECTION 16. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated
herein, all covenants, agreements, representations and warranties made herein,
in the other Loan Documents or in any documents or other papers delivered by or
on behalf of the Borrowers pursuant hereto shall be deemed to have been relied
upon by the Banks and the Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Banks of the
Loans and the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full
<PAGE> 73
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force and effect so long as any amount due under this Credit Agreement, any
Letter of Credit or the Notes remains outstanding and unpaid or any Bank has any
obligation to make any Loans or issue any Letters of Credit hereunder. All
statements contained in any certificate or other paper delivered by or on behalf
of the Borrowers pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrowers hereunder.
SECTION 17. ASSIGNMENT AND PARTICIPATION. It is understood and agreed
that each Bank shall have the right to assiGN or participate at any time all or
a portion of its Commitment and interests in the risk relating to any Loans and
outstanding Letters of Credit hereunder in an amount equal to or greater than
$5,000,000 (which assignment shall be of an equal percentage of such Bank's
Commitment, the Revolving Credit Loans and outstanding Letters of Credit) to
Eligible Assignees with the prior written consent of the Agent and, unless a
Default or an Event of Default shall have occurred and be continuing, the
Borrowers, which approvals shall not be unreasonably withheld. It is further
agreed that each Eligible Assignee which executes and delivers to the Banks and
the Borrowers an Assignment and Acceptance in substantially the form of Exhibit
E (an "Assignment and Acceptance") shall, on the date specified in such
Assignment and Acceptance, become a party to this Credit Agreement and the other
Loan Documents for all purposes of this Credit Agreement and the other Loan
Documents, and its Commitment shall be as set forth in such Assignment and
Acceptance. Upon the execution and delivery of such Assignment and Acceptance
and payment by the assigning bank of an assignment fee in the amount of $3,500
to the Agent, (a) the Borrowers shall issue to such Eligible Assignee a
Revolving Credit Note in the amount of such Eligible Assignee's Commitment dated
the Closing Date or such other date as may be specified by the Agent and
otherwise completed in substantially the form of Exhibit A hereto and, to the
extent any assigning Bank has retained a portion of its obligations hereunder, a
replacement Revolving Credit Note to the assigning Bank; (b) the Agent shall
distribute to the Borrowers, the Banks and such Eligible Assignee a schedule
reflecting such changes; (c) this Credit Agreement shall be appropriately
amended to reflect (i) the status of such Eligible Assignee as a party hereto
and (ii) the status and rights of the Banks and Agent hereunder; and (d) the
Borrowers shall take such action as the Agent may reasonably request to perfect
any security interests in favor of the Banks, including any Eligible Assignee
which becomes a party to this Credit Agreement. The documents evidencing any
such participation may provide that, except with the consent of the bank or
financial institution that is a party thereto, such Bank will not consent to (a)
the reduction in or forgiveness of the stated principal of or rate of interest
on or Commitment Fee with respect to the portion of any Loan subject to such
participation or assignment, (b) the extension or postponement of any stated
date fixed for payment of principal or interest or Commitment Fee with respect
to the portion of any Loan subject to such participation or assignment, or (c)
the waiver or reduction of any right to indemnification of such Bank hereunder.
Notwithstanding the foregoing, no syndication or participation shall operate to
increase the Total Commitment hereunder or otherwise alter the substantive terms
of this Credit Agreement, except as contemplated under Section 2.2.2. Anything
contained in this Section 17 to tHE contrary notwithstanding, any Bank may at
any time pledge all or any portion of its interest and rights under this Credit
Agreement
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(including all or any portion of its Notes) to any of the twelve Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.
SECTION 18. PARTIES IN INTEREST. All the terms of this Credit
Agreement and the other Loan Documents shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto and thereto; provided that the Borrowers shall not assign or
transfer their rights hereunder without the prior written consent of each Bank.
SECTION 19. NOTICES, ETC. Except as otherwise expressly provided in
this Credit Agreement, all notices and other communications made or required to
be given pursuant to this Credit Agreement or the other Loan Documents shall be
in writing and shall be delivered in hand, mailed by United States first-class
mail, postage prepaid, or sent by telex or facsimile and confirmed by letter,
addressed as follows:
(a) if to the Borrowers, at Waste Connections, Inc., 2260 Douglas
Boulevard, Suite 280, Roseville, California 95661, Attention: Steven F. Bouck,
Executive Vice President and Chief Financial Officer, telephone number
916-772-2221, fax number 916-772-2920;
(b) if to the Agent or BKB, at 100 Federal Street, Boston,
Massachusetts 02110, Attention: Timothy M. Laurion, Director, telephone number
617-434-9689, telecopy number 617-434-2160;
or such other address for notice as shall have last been furnished in
writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand to a responsible
officer of the party to which it is directed, at the time of the receipt thereof
by such officer, (b) if sent by registered or certified first-class mail,
postage prepaid, five Business Days after the posting thereof, (c) if sent by
telex or cable, at the time of the dispatch thereof, if in normal business hours
in the country of receipt, or otherwise at the opening of business on the
following Business Day, and (d) if sent by facsimile, when transmitted,
confirmation received.
SECTION 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
SECTION 20.1. SHARING OF INFORMATION WITH SECTION 20
SUBSIDIARY. The Borrowers acknowledge that from time to time financial advisory,
investment banking and other services may be offered or provided to the
Borrowers, in connection with this Credit Agreement or otherwise, by a Section
20 Subsidiary. The Borrowers hereby authorize (a) such Section 20 Subsidiary to
share with the Agent and each Bank any information delivered to such Section 20
Subsidiary by the Borrowers, and (b) the Agent and each Bank to share with such
Section 20 Subsidiary any information delivered to the
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Agent or such Bank by the Borrowers pursuant to this Credit Agreement, or in
connection with the decision of such Bank to enter into this Credit Agreement;
it being understood, in each case, that any such Section 20 Subsidiary receiving
such information shall be bound by the confidentiality provisions of this Credit
Agreement. Such authorization shall survive the payment and satisfaction in full
of all of the Obligations.
SECTION 20.2. CONFIDENTIALITY. Each of the Banks and the
Agent agrees, on behalf of itself and each of THeir affiliates, directors,
officers, employees and representatives, to use reasonable precautions to keep
confidential, in accordance with their customary procedures for handling
confidential information of the same nature and in accordance with safe and
sound banking practices, any non-public information supplied to it by the
Borrowers pursuant to this Credit Agreement that is identified by such Person as
being confidential at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any such information
(a) after such information shall have become public other than through a
violation of this Section 20, (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for any of the Banks or the
Agent, (d) to bank examiners or any other regulatory authority having
jurisdiction over any Bank or the Agent, or to auditors or accountants, (e) to
the Agent, any Bank or any Section 20 Subsidiary, (f) in connection with any
litigation to which any one or more of the Banks, the Agent or any Section 20
Subsidiary is a party, or in connection with the enforcement of rights or
remedies hereunder or under any other Loan Document, (g) to a subsidiary or
affiliate of such Bank as provided in Section 20.1 or (h) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant agrees to be bound by the provisions of this Section 20.
SECTION 20.3. PRIOR NOTIFICATION. Unless specifically
prohibited by applicable law or court order, each of the Banks and the Agent
shall, prior to disclosure thereof, notify the Borrowers of any request for
disclosure of any such non-public information by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Bank by such governmental agency)
or pursuant to legal process.
SECTION 20.4. OTHER. In no event shall any Bank or the
Agent be obligated or required to return any materials furnished to it or any
Section 20 Subsidiary by the Borrowers. The obligations of each Bank under this
Section 20 shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrowers prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans or Reimbursement Obligations from any Bank.
SECTION 21. MISCELLANEOUS. The rights and remedies herein expressed
are cumulative and not exclusive of any other rights which the Banks or Agent
would otherwise have. The captions in this Credit Agreement are for convenience
of reference only and shall not define or limit the provisions hereof. This
Credit Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original,
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but all of which together shall constitute one instrument. In proving this
Credit Agreement it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
SECTION 22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in Section 14.8. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or omission on the part of the
Agent or any Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
SECTION 23. WAIVER OF JURY TRIAL. EACH BORROWER HEREBY WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER
LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. THE BORROWERS (a) CERTIFY THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY BANK OR THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH BANK OR THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS AND (b) ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN
INDUCED TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO
WHICH THEY ARE A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS' WAIVERS
AND CERTIFICATIONS CONTAINED HEREIN.
SECTION 24. GOVERNING LAW. This Credit Agreement and each of the
other Loan Documents are contracts under the laws of the Commonwealth of
Massachusetts and shall for all purposes be construed in accordance with and
governed by the laws of said commonwealth (excluding the laws applicable to
conflicts or choice of law). The Borrowers consent to the jurisdiction of any of
the federal or state courts located in the Commonwealth of Massachusetts in
connection with any suit to enforce the rights of any Bank or the Agent under
this Credit Agreement or any of the other Loan Documents.
SECTION 25. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole
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or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Credit Agreement in any
jurisdiction.
[Signature Pages Follow]
<PAGE> 78
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IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement under seal as of the date first set forth above.
THE BORROWERS:
WASTE CONNECTIONS, INC.
WASTE CONNECTIONS OF WASHINGTON, INC.
WASTE CONNECTIONS OF IDAHO, INC.
WASTE CONNECTIONS INTERNATIONAL, INC.
MADERA DISPOSAL SYSTEMS, INC.
WASTE CONNECTIONS OF WYOMING, INC.
SUNSHINE SANITATION, INCORPORATED
SOWERS' SANITATION, INC.
T & T DISPOSAL, INC.
WASTE CONNECTIONS OF UTAH, INC.
B & B SANITATION, INC.
RED CARPET LANDFILL, INC.
DARLIN EQUIPMENT, INC.
ARROW SANITARY SERVICE, INC.
CURRY TRANSFER & RECYCLING, INC.
OREGON WASTE TECHNOLOGY, INC.
SHRADER REFUSE AND RECYCLING SERVICE
COMPANY
WASTE CONNECTIONS OF NEBRASKA, INC.
J & J SANITATION INC.
BIG RED ROLL OFF INC.
EVERGREEN WASTE SYSTEMS INC.
SIUSLAW DISPOSAL, INC.
By:
--------------------------------
Ronald J. Mittelstaedt
President
THE LENDERS:
BANKBOSTON, N.A.,
individually and as Agent
By:
--------------------------------
Timothy M. Laurion, Director
UNION BANK OF CALIFORNIA, N.A.
By:
--------------------------------
Name:
Title:
<PAGE> 79
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COMERICA BANK - CALIFORNIA, N.A.
By:
--------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:
--------------------------------
Name:
Title:
PARIBAS
By:
--------------------------------
Name:
Title:
LASALLE NATIONAL BANK
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.8
WASTE CONNECTIONS, INC.
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
Dated as of
December 31, 1998
<PAGE> 2
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of December 31, 1998, by and among Waste Connections,
Inc., a Delaware corporation (the "Company"), and the investors listed on
Exhibit A hereto (the "Investors", and individually, an "Investor") with
reference to the following facts:
The Company and the Investors entered into Stock Purchase Agreements,
Asset Purchase Agreements, Warrants or the other stock acquisition agreements
listed on Exhibit A hereto (the "Agreements") with respect to the purchase of
shares of the Common Stock (the "Common Stock") of the Company. In order to
induce the Company to enter into the Agreements and to induce the Investors to
invest funds in, or work for, the Company pursuant to the Agreements, the
Investors and the Company hereby agree that this Agreement shall govern the
rights of certain 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) 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.
(c) The term "HOLDER" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12.
(d) The term "1934 ACT" shall mean the Securities Exchange
Act of 1934, as amended.
(e) The terms "REGISTER", "REGISTERED" and "REGISTRATION"
refer 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.
(f) The term "REGISTRABLE SECURITIES" means the Common
Stock issued pursuant to the Agreements to the Investors listed on Exhibit A
hereto and any other securities issued by the Company from time to time that the
Company's Board of Directors determines should be included in the definition of
"Registrable Securities", excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights
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under this Section 1 are not assigned; provided, however, that shares of Common
Stock or other securities shall not be treated as Registrable Securities for the
purposes of any registration if and so long as at the time of such registration
all transfer restrictions and restrictive legends with respect thereto have been
or, in the opinion of the Company's counsel, may be removed, and all the
Registrable Securities held by such Holder may be sold without restriction
(including any volume limitations) under Rule 144 under the Act. When the
Company adds securities to the definition of Registrable Securities, the holders
of such securities shall be added to Exhibit A hereto.
(g) 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.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
(i) The term "UNDERWRITTEN OFFERING" means an offering of
Common Stock to the public pursuant to an effective Registration statement that
is firmly underwritten by a United States nationally recognized underwriter or
underwriters that are selected or approved by the Company in accordance with
this Agreement.
1.2 Request for Registration.
(a) If the Company shall receive at any time a written
request from Holders holding at least fifty percent (50%) of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Act covering the registration of at least
twenty percent (20%) of the Registrable Securities then outstanding (or a lesser
percent if the anticipated aggregate offering price would exceed $100,000,000),
then the Company shall, within twenty-one (21) days after the receipt thereof,
give written notice of such request to all Holders and shall, subject to the
limitations and pursuant to the provisions of this Section 1.2, use reasonable
efforts to file a registration statement under the Act covering all Registrable
Securities which the Holders request to be registered.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action to effect any such registration pursuant to this
Section 1.2:
(i) if the Initiating Holders propose to dispose of
shares of Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.11;
(ii) if the Holders shall have initiated two
registrations pursuant to this Section 1.2, which have been declared or ordered
effective and pursuant to which securities have been sold or have been withdrawn
by the Holders other than as a result of a material adverse change to the
Company;
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(iii) if the Company has effected a registration
pursuant to this Section 1.2 within one year prior to receipt of a request for
registration made pursuant to Section 1.2(a); or
(iv) after September 30, 1999.
(c) Subject to the provisions of this Agreement,
including, but not limited to, the foregoing Section 1.2(b) and Section 1.4(a),
the Company shall file a registration statement as soon as practicable after
receipt of the request or requests of the Initiating Holders under this Section
1.2, but in any event within ninety (90) days after receipt of such request or
requests.
(d) The right of any Holder to registration pursuant to
this Section 1.2 shall be conditioned on such Holder's participation in an
Underwritten Offering and the inclusion of such Holder's Registrable Securities
to be registered in the Underwritten Offering. The Company shall (together with
all Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company, which underwriter or underwriters shall be
reasonably acceptable to a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 1.2, if the underwriters
advise the Initiating Holders and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten and that the
total amount of securities that all Holders (initiating and noninitiating)
request pursuant to this Section 1.2(d) to be included in such offering exceeds
the amount of securities that the underwriters reasonably believe compatible
with the success of the offering, the Company shall so advise all Holders and
all of the Holders' shares to be included in the registration shall be allocated
among all Holders requesting inclusion (initiating and noninitiating) pro rata
according to the total amount of securities entitled to be included in such
registration owned by each Holder requesting inclusion (initiating or
noninitiating) or in such other proportions as shall be mutually agreed by such
selling shareholders. Shares of Registrable Securities held by the Holders shall
not be subject to cutback following the allocation unless shares of all other
selling shareholders have been eliminated from the offering.
If any Holder does not agree to the terms of any such underwriting, that
person shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration and the number of shares of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion pro rata according
to the total amount of securities entitled to be included in such registration
owned by each such person or in such other proportions as shall be mutually
agreed by such selling shareholders. For purposes of the preceding sentence
concerning apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership, limited liability company or
corporation, the partners, retired partners, members, retired members and
3
<PAGE> 5
shareholders of such holder, or the estates and family members of any such
partners, retired partners, members, retired members and shareholders and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder," as defined in this sentence.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for any shareholders) any of its stock or other
securities under the Act in connection with the public offering of such
securities by the Company solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration.
Registrations effected pursuant to Section 1.11 hereof shall not require notice
to the Holders pursuant to this Section 1.3. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 2.7, the Company shall, subject to the provisions of
Section 1.7, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 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 distribution 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
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<PAGE> 6
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 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 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 to such registration statement 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 to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.
1.5 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
5
<PAGE> 7
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding such Holder, the Registrable Securities held by such
Holder, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
1.6 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 1.12), including (without limitation) all registration,
filing, and qualification fees, printing 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.
1.7 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities that the underwriters
determine in good faith is compatible with the success of the offering, the
number of shares that may be included in the underwriting shall be allocated,
first, to the Company; second, to the Holders on a pro rata basis based on the
total number of Registrable Securities held by the Holders; and third, to any
other shareholder of the Company (other than a Holder) on a pro rata basis. Such
reduction may reduce the amount of securities of the selling Holders included in
the registration to zero. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than two-thirds (66 2/3%) of the Registrable Securities proposed to
be sold in the offering.
If any Holder does not agree to the terms of any such underwriting, the
holder shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration and if the number of shares of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion pro rata according
to the total amount of securities entitled to be included in such registration
owned by each such person or in such other proportions as shall be mutually
agreed by such selling shareholders. For purposes of the preceding sentence
concerning apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership, limited liability company or
corporation, the partners, retired partners, members, retired members and
shareholders of such holder, or the
6
<PAGE> 8
estates and family members of any such partners, retired partners, members,
retired members and shareholders and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.8 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.
1.9 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 1.9(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 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
7
<PAGE> 9
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 1.9(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
1.9(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 1.9(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 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 1.9, 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
1,9, 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 1.9.
(d) If the indemnification provided for in this Section
1.9 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
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 provisions in the underwriting
agreement shall control.
8
<PAGE> 10
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 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 during the term
of this Agreement;
(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, 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.
1.11 Form S-3 Registration. In case the Company shall receive
written request or requests from any of the Holders of the Registrable
Securities that the Company effect a registration on Form S-3 that registers a
number of shares of Registrable Securities for each Holder so requesting equal
to at least one percent (1%) of the outstanding Common Stock (or, with the
consent of the Company, any number of shares of Registrable Securities less than
such amount) and any related qualification or compliance with respect to all or
a part of the Registrable Securities owned by such Holder, the Company will:
(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 1.11: (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 $1,000,000; (iii) as provided in Section 1.4(a) or
Section 1.4(d); or (iv) if the Company shall advise the Holder that it
9
<PAGE> 11
anticipates filing a registration statement covering the sale of Common Stock by
the Company for cash within 60 days after receipt of any request of a Holder
pursuant to this Section 1.11, in which event the Company's obligations under
this Section 1.11 shall be suspended until the earlier of 60 days following such
request without such registration statement having been filed or 90 days after
such registration statement is declared effective by the SEC.
(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. Registrations effected pursuant to this
Section 1.11 shall not be counted as demands for registration effected pursuant
to Section 1.2.
1.12 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 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.
1.13 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 1 after May 21, 2003.
(b) In addition, 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 by such
Holder may immediately be sold under Rule 144 during any 90-day period. The
Registrable Securities held by such holder immediately prior to such date shall
cease to be Registrable Securities on such date.
1.14 Registration of Common Stock. For purposes of Section 1 of
this Agreement, the only securities which the Company shall be required to
register pursuant hereto shall be shares of Common Stock.
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<PAGE> 12
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, 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 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 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. Promptly after effecting any such transfer, the
Holder shall give written notice to the Company of the number of shares
transferred. 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.
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<PAGE> 13
2.4 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of
California, 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 Boulevard, 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.
Telephone: (415) 421-6500
Facsimile: (415) 421-2922
(b) if to the Investors, to the addresses 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.
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<PAGE> 14
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, or in the case of
waiver, by the holders of a majority of the Registrable Securities entitled to
exercise the right being waived. 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 contains 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.
2.15 Termination. This Agreement shall terminate on May 21, 2003.
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<PAGE> 15
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:
---------------------------------------
Lyle G. Hubbard
---------------------------------------
Frank W. Cutler
---------------------------------------
William C. Thomas
Kieckhefer Partnership 84-1
By:
-------------------------------
Eugene P. Polk, Managing Partner
Kieckhefer Trust Partnership 61-1
By:
-------------------------------
Eugene P. Polk, Managing Partner
Eugene P. Polk and Barbara J. Polk Revocable
Trust U/A 11/18/68
By:
-------------------------------
Eugene P. Polk and
Richard L. Menschel, Trustees
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<PAGE> 16
Polk Investment Partnership 93-1
By:
-------------------------------
Eugene P. Polk and Thomas E. Polk
Partnership Managers
Margaret T. Morris Trust U/A 5/1/67
By:
-------------------------------
Eugene P. Polk, Trustee
Margaret T. Morris Trust U/A 4/19/69
By:
-------------------------------
Eugene P. Polk and
Richard L. Menschel, Trustees
Isadore Abrams In Trust
By:
-------------------------------
Isadore Abrams
Westcott W. Price III and Hillary H. Price
Trust (Established July 17, 1997)
By:
-------------------------------
Westcott W. Price III &
Hillary H. Price as Trustees
---------------------------------------
J. Bradford Bishop
---------------------------------------
James N. Cutler, Jr.
The Mittelstaedt Family Trust, dated 6/18/97
By:
-------------------------------
Ron J. Mittelstaedt, Trustee
15
<PAGE> 17
---------------------------------------
Darrell Chambliss
---------------------------------------
Eric Moser
---------------------------------------
Mike Foos
James and Doris L. Cutler Living Trust, dated
5/17/92
By:
-------------------------------
James N. Cutler and Doris L. Cutler,
Trustees
---------------------------------------
J. North Cheatham
---------------------------------------
Sallie C. Cutler
A. Cheatham Trust fbo Colby A. Sigmen
By:
-------------------------------
James N. Cutler, Jr., Trustee
A. Cheatham Trust fbo Shelby L. Sigmen
By:
-------------------------------
James N. Cutler, Jr., Trustee
16
<PAGE> 18
Linda Burns Marshall Revocable Living Trust,
dated 7/27/94
By:
-------------------------------
Linda Burns Marshall, Trustee
Midwest Refrigeration, Inc., Profit-Sharing
Trust Account #31-0121-02-5
By:
-------------------------------
Robert D. Hutton, Trustee
Midwest Refrigeration, Inc., Profit-Sharing
Trust Account # 31-0121-02-7
By:
-------------------------------
Robert D. Hutton, Trustee
---------------------------------------
Steve Bouck
---------------------------------------
Melvin G. Dias
---------------------------------------
Eugene Dupreau
---------------------------------------
Charles B. Youngclaus
17
<PAGE> 19
---------------------------------------
Steven F. Giusto
---------------------------------------
Connie Giusto
---------------------------------------
Michael F. Giusto
---------------------------------------
Rosemary A. Giusto
---------------------------------------
Dennis A. Giusto
---------------------------------------
Barbara Giusto
---------------------------------------
Kenneth Giusto
---------------------------------------
Donna Giusto
---------------------------------------
John Giusto
---------------------------------------
Sally Giusto
18
<PAGE> 20
---------------------------------------
Garry L. Jeffords
---------------------------------------
Leslie J. Jeffords
---------------------------------------
Leland J. Jeffords
---------------------------------------
Bradley Rowan
---------------------------------------
Darin Mueller
Bishop 1998 Children's Trust for the benefit
of John Bradford Bishop
By:
-------------------------------
J. Bradford Bishop, Trustee
Bishop 1992 Family Trust
By:
-------------------------------
J. Bradford Bishop, Trustee
Alexandra Merrill Cutler Trust under the
agreement dated 11/16/94
By:
-------------------------------
James N. Cutler, Trustee
19
<PAGE> 21
---------------------------------------
Steven F. Bouck, as Custodian for Jeffery F.
Bouck under the California Uniform Transfers
to Minors Act
---------------------------------------
Steven F. Bouck, as Custodian for Alexander
B. Bouck under the California Uniform
Transfers to Minors Act
20
<PAGE> 1
EXHIBIT 10.47
ASSET PURCHASE AGREEMENT
Dated as of October 15, 1998, by and among
Waste Connections, Inc.
Waste Connections of Idaho, Inc.
R & N, LLC
Rumsey Sanitation, Inc.
NADL Sanitation, Inc.
Bradley D. Rumsey
Emil Nejdl
Kathy K. Rumsey
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 15, 1998, entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste
Connections of Idaho, Inc., a Delaware corporation ("BUYER"), R & N, LLC, an
Idaho limited liability company ("SELLER"), and Rumsey Sanitation, Inc., NADL
Sanitation, Inc., Bradley D. Rumsey, Emil Nejdl ("EMIL") and Kathy K. Rumsey
(the "MEMBERS").
WHEREAS, Seller is engaged in the collection and transportation of solid
waste in the Cities of Mountain Home, Murphy and Grand View, Idaho, and in
certain unincorporated areas of Elmore and Owyhee County, Idaho, and other
related activities (collectively, the "BUSINESS");
WHEREAS, the Members own all of the limited liability company membership
interests of the Seller; and
WHEREAS, Buyer wishes to purchase, and Seller wishes to sell
substantially all of its assets, properties, rights, privileges and interests
owned leased, held or used by Seller in connection with the operation of the
Business except certain nonbusiness related assets.
WHEREAS, concurrent with the execution of this Agreement, Buyer will
enter into a Real Estate Purchase Agreement (the "REAL ESTATE AGREEMENT") of
certain real estate located in Mountain Home, California, used in the Business
by Seller;
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, 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 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 Business;
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(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");
(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 name "R&N Sanitation";
(f) the goodwill of the Business;
(g) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind, against any person
or entity, including without limitation any liens, security interests,
pledges or other rights to payment or to enforce payment in connection
with products delivered by Seller on or prior to the Closing Date;
(h) 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;
(i) 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, copies of cancelled checks and bank
statements, equipment records, maintenance records, disposal records and
information concerning customers; and
(j) all accounts receivables of Seller. Buyer and
Seller acknowledge that Seller will have been paid before the Closing
Date for certain services to be rendered by Buyer after the Closing Date
with respect to Seller's prepaid customer accounts and Seller will have
rendered services to certain customers prior to the Closing Date who
will be billed by Buyer after the Closing Date with respect to certain
other of Seller's customer accounts that are paid in arrears.
Accordingly, within 30 days after the Closing Date, Buyer and Seller
shall prorate these prepaid and postpaid accounts as of the Closing Date
and shall reconcile the net amount due, whereupon the party owing the
other will immediately pay the net amount due.
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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, liabilities 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) and all of the Closing
Date Debt (as defined in Section 3.19).
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 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 an amount equal to Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000), minus the Closing Date Debt (as defined in
Section 3.19), and shall be paid as provided in Section 1.5. 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. Within 30 days after the Closing Date, the parties will determine the
actual Closing Date Debt and will advise Seller of such actual amount. If the
Purchase Price increases, the Buyer will promptly pay any additional amount due
to Seller; if the Purchase Price declines, Seller will promptly repay any amount
due to the Buyer.
1.5. Payment of Purchase Price. The Purchase Price, as adjusted
pursuant to Section 1.4, shall be paid in cash at the Closing by wire transfer
or check payable in clearinghouse funds, excepting the portion allocated to the
real estate pursuant to Section 1.7, which shall be paid according to the Real
Estate Agreement. WCI shall pay the Closing Date Debt by wire transfer.
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 10.1(a)
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hereof and One Hundred Thousand Dollars ($100,000) shall be allocated to the
subject real estate of the Real Estate Agreement.
1.8. Consulting Relationship. The Members agree to assist Buyer
with the integration of the Business into Buyer by supervising the daily
operations of Buyer and advising and assisting Buyer with customer-related
issues for a period of four (4) weeks commencing on the Closing Date
(hereinafter, the Consulting Period). In exchange for the Members' consulting
assistance during the Consulting Period, WCI shall pay each of them a consulting
fee equal to their current rate of pay for the duration of the Consulting Period
and Buyer shall not, at any time during the Consulting Period, replace any of
the employees of Seller as of the Closing Date.
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 October 15, 1998 (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, 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 October 1, 1998.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
MEMBERS
Seller and the Members, 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
Idaho. 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 Members 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 Members 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 Members, enforceable against Seller and each of the Members in
accordance with its terms.
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3.4. No Breach or Default. Except as disclosed on Schedule 3.4,
the execution and delivery by Seller and each of the Members of this Agreement,
and the consummation by Seller and each of the Members 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 Members is a party,
or by which Seller or the 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;
(c) violate the Articles of Organization of Seller; or
(d) violate any agreements to which any Member 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 two most recent fiscal years, reviewed by Little-Morris, P.A. and interim
financial statements for the period ended August 31, 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 for the years ending 1996 and 1997
were prepared on the accrual basis of accounting, which is a comprehensive basis
of accounting other than generally accepted accounting principles. 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.
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(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 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
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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 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.
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(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, zoning
or land use permits, variances or approvals relating to any
Facility owned by Seller, any of the Members or any Affiliate (as
hereinafter defined) of any of the Members 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. To best of Seller's knowledge, 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.
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(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.
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 Members' 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 Members 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.
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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 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 Members' 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
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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 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
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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.
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 Members 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 Members.
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
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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(c) below) nor has it accepted, processed, handled,
transferred, generated, treated, stored or disposed of asbestos, medical
waste, radioactive waste or municipal waste, except in compliance with
Environmental Laws.
(b) During Seller's ownership of the Facility Property
and to the best of Seller's knowledge prior to Seller's ownership of the
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 ownership of the Facility Property
and to the best of Seller's knowledge prior to Seller's ownership of the
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 Idaho 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
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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 Members 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 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 Members 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, or (b) if not continued in the future,
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 Members 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;
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(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.
4. REPRESENTATIONS AND WARRANTIES OF WCI AND BUYER
WCI and Buyer, jointly and severally, represent and warrant to Seller
and each Member 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 Idaho.
4.2. 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 Seller and each of the Members,
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 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 Buyer or WCI: (b) conflict with any of the provisions of the
Certificate of Incorporation or Bylaws of Buyer or WCI; or (c) conflict with,
result in a breach of or constitute a default under any material agreement or
instrument to which Buyer or WCI is a party or by which either is bound.
4.3. 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 Seller and the Members
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.
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(a) WCI shall deliver the Purchase Price and the WCI
Stock on the Closing Date pursuant to Section 1.5.
(b) WCI and Buyer shall execute and deliver to Seller
counterparts of the Bill of Sale (as defined in Section 5.2(a)) and the
Assignment (as defined in Section 5.2(b)); and
(c) WCI and Buyer shall execute and deliver such other
documents and instruments as are reasonably requested by Seller in order
to consummate the transactions contemplated by this Agreement.
5.2. Seller's Deliveries.
(a) Seller shall deliver to Buyer (and/or its designee)
an executed bill of sale (the "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
(the "ASSIGNMENT") 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 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; and
(f) 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 Seller
(including, without limitation, rights to obtain equity in the Business
or Assets) have been terminated, effective on or before the Closing
Date.
6. INDEMNIFICATION
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6.1. Indemnity by Seller, the Members. Subject to Section 6.2,
Seller and the Members 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 relating to the Assets on
the part of Seller or the Members 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
relating to the Assets, 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 Members 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
Members 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, 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 occurring prior to the Closing Date
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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 Members' 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 Members (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.
(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
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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 Members 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. 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 Members
or their successors.
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7. OTHER POST-CLOSING COVENANTS OF SELLER, THE MEMBERS, WCI
AND BUYER
7.1. Restrictive Covenants. Seller, the Members, the Members' 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 Members, the their Affiliates are
intimately familiar with the Business; (iii) the Business is currently conducted
in the State of Idaho and WCI and Buyer, directly and indirectly through their
Affiliates, currently conduct business in Idaho and intend, by acquisition or
otherwise, to expand the Business into other geographic areas of Idaho where it
is not presently conducted; (iv) Seller, the Members, 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 Members, 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 Members 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 Members, and their Affiliates shall not, anywhere in the
Cities of Mountain Home, Murphy and Grand View, Idaho, or in Elmore or
Owyhee County, Idaho, 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
any of Seller or the Members 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 Members is
a controlling person of, or member of a group which controls, such
business and further provided that Seller and Members 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 Members 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
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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 Members, 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 Members
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 Members 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 Members 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 Members 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, none of Seller nor the Members 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 Member
or Shareholder shall have.
7.2. Rights and Remedies Upon Breach. If Seller, the Members 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:
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(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 Members from any violation thereof.
(b) Accounting. The right and remedy to require Seller
and the Members 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 Members as the result of any
transactions constituting a breach of the Restrictive Covenants.
(c) Severability of Covenants. Seller and Members
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 Members 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, Seller and Members 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.
7.3. Removal of Property. Buyer agrees to remove one (1)
Caterpillar D7E Dozer, VIN #75E1879, from Seller's property located at
Glenns Ferry within ninety (90) days of the Closing Date.
7.4. Real Estate Agreement. Buyer and Seller shall execute and
deliver to one another the Real Estate Agreement within one (1) day of
the Closing Date.
8. GENERAL
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<PAGE> 24
8.1. 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.
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,
Buyer and Seller and the heirs, legal representatives or assigns of the Members;
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.
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, 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: Bradley D. Rumsey
Post Office Box 893
Mountain Home, Idaho 83647
With a copy to: Larry C. Ashcraft, Esq.
Thompson & Ashcraft, L.L.P.
430 North 6th East
Post Office Box 506
Mountain Home, Idaho 83647-0506
If to Buyer: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
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<PAGE> 25
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 WCI or Buyer on the one hand and Seller or Members 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 Idaho 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, the Members,
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 Members, WCI and Buyer
acting through their officers, thereunto duly authorized.
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.
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<PAGE> 26
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 Idaho. 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.
8.15. 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 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.
8.16. Knowledge. Wherever reference is made in this Agreement to
the "knowledge" of Seller or the Members, such term means the actual knowledge
of Seller, the Members 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 Members or such employee upon reasonable inquiry by a
reasonable business person.
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<PAGE> 27
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: R & N, LLC
By:
----------------------------
Bradley D. Rumsey, Manager and
President
By:
----------------------------
Emil Nejdl, Manager
THE MEMBERS: RUMSEY SANITATION, INC.
By:
----------------------------
Bradley D. Rumsey, President
NADL SANITATION, INC.
By:
----------------------------
Emil Nejdl, President
----------------------------
Brad Rumsey
----------------------------
Emil Nejdl
----------------------------
Kathy Rumsey
WCI: Waste Connections, Inc.
By:
----------------------------
Ronald J. Mittelstaedt, President
BUYER: Waste Connections of Idaho, Inc.
By:
----------------------------
Ronald J. Mittelstaedt, President
26
<PAGE> 1
EXHIBIT 10.48
PURCHASE AND SALE AGREEMENT
By and Between
R & N LLC, an Idaho limited liability company
-Seller-
and
WASTE CONNECTIONS OF IDAHO, INC.
-Buyer-
October 15, 1998
<PAGE> 2
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT is made as of October 15, 1998, by and
between, R & N, LLC, an Idaho limited liability company ("Seller"), and WASTE
CONNECTIONS OF IDAHO, INC., a Delaware corporation (the "Buyer").
RECITALS
A. Seller owns all of that certain real property located in Mountain
Home, Elmore County, Idaho, commonly known as 3535 Highway 30, as more
particularly described on Exhibit A attached hereto (the "Real Property").
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, said Real Property and all rights and interests appurtenant thereto, all
on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the respective agreements hereinafter
set forth, Seller and Buyer agree as follows:
1. PROPERTY INCLUDED IN SALE
Seller hereby agrees to sell and convey to Buyer, and Buyer hereby
agrees to purchase from Seller, the following:
1.1 Real Property. All of the parcels of land comprising the Real
Property, as described on Exhibit A attached hereto.
1.2 Appurtenances. All rights, privileges and easements appurtenant to
the Real Property to the extent owned by Seller, including, without limitation,
all minerals, oil, gas and other hydrocarbon substances on the Real Property, as
well as all air rights, solar rights, water, water rights and water stock
relating to the Real Property, and all easements, rights-of-way or other
appurtenances used or intended to be used in connection with the beneficial use
and enjoyment of the Real Property (the "Appurtenances").
1.3 Improvements. All improvements and fixtures located on the Real
Property (the "Improvement").
1.4 Permits, Development Approvals and Fees. All permits and development
rights, agreements, entitlements and approvals relating to the Real Property.
1.5 Studies and Reports. All engineering and other studies, reports,
plans and specifications with respect to the Real Property or any improvements
constructed thereon, including, without limitation, all soils, geotechnical,
hydrology, water quality, environmental, seismic, engineering and site
assessment studies and reports.
All of the items described in Sections 1.1 through 1.5 above are
hereinafter collectively called the "Property."
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<PAGE> 3
2. PURCHASE PRICE
The purchase price for the Property shall be $100,000.00 ("Purchase
Price").
3. TITLE TO THE PROPERTY
3.1 Real Property. On the Closing Date (as hereinafter defined), Seller
shall convey to Buyer marketable and insurable fee simple title to the Real
Property, Appurtenances and Improvements by duly executed and acknowledged
warranty deed in the form attached hereto as Exhibit B (the "Warranty Deed").
Evidence of delivery of marketable and insurable fee simple title shall be the
issuance by Guaranty Title, Inc. ("Title Company") of an ALTA Owner's Policy of
Title Insurance (the "Title Policy") in the amount of the Purchase Price,
insuring fee simple title to the Real Property and Appurtenances in the Buyer.
4. CONDITIONS TO CLOSING
The following conditions are conditions precedent to Buyer's obligation
to purchase the Property:
4.1 Purchase Agreement. The occurrence of the closing (the "Asset
Closing") under that certain Asset Purchase Agreement to be dated on or about
October 15, 1998 ("Asset Purchase Agreement"), by and between Waste Connections,
Inc.; Waste Connections of Idaho, Inc.; R & N, LLC; Rumsey Sanitation, Inc.;
NADL Sanitation, Inc.; Bradley D. Rumsey; Emil Nejkl; and Kathy K. Rumsey.
4.2 Title Policy. Title Company shall issue the Title Policy to Buyer at
the closing of the purchase and sale of the Property (the "Closing").
4.3 Representations and Warranties. All of Seller's representations and
warranties contained in or made pursuant to this Agreement shall have been true
and correct when made and shall be true and correct as of the Closing Date.
The foregoing conditions in this Section 4 are intended solely
for the benefit of Buyer. If any of the foregoing conditions are not satisfied,
Buyer shall have the right at its sole election either to waive in writing the
condition in question and proceed with the purchase or, in the alternative,
terminate this Agreement. The Closing Date may be extended, at Buyer's option,
for a reasonable period of time if required to allow said conditions to be
satisfied, subject to Buyer's further right to terminate this Agreement upon an
expiration of the period of any such extension if all said conditions have not
been satisfied.
5. THE CLOSING
5.1 Closing Date. The Closing hereunder shall be consummated through an
escrow ("Escrow") to be opened with Title Company. All of the documents required
for the Closing and the funds required for the payment of the Purchase Price
shall be delivered into the Escrow on or before the Closing, or such other date
prior thereto as Buyer and Seller may mutually agree in writing (the "Closing
Date"). Such date may not be extended without the approval of both Seller and
Buyer, except as otherwise expressly provided in this Agreement. The Closing
shall
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<PAGE> 4
commence on the Closing Date and shall be completed on the Closing Date or the
business day following the Closing Date upon recordation by the Title Company of
the Warranty Deed and disbursement by the Title Company of the Purchase Price to
Seller. If the Closing does not so commence on the Closing Date, then Title
Company as escrow holder shall, unless it is notified by both parties to the
contrary within five (5) days after the Closing Date, return to the depositor
thereof items which may have been deposited hereunder. Any such return shall
not, however, relieve either party hereto of any liability it may have for its
wrongful failure to close. Buyer and Seller shall each submit to the Title
Company, not less than two (2) days prior to the Closing Date, escrow
instructions consistent with the provisions of this Agreement.
5.2 Seller's Documents. At the Closing, Seller shall deliver to Buyer
through escrow the following:
(a) a duly executed and acknowledged Warranty Deed;
(b) a duly executed counterpart of an Assignment of Permits and Other
Intangible Property in the form of Exhibit C attached hereto;
(c) a duly executed Affidavit of Non-foreign Status in the form of
Exhibit D attached hereto;
(d) any other documents, instruments or agreements called for
hereunder which have not previously been delivered.
Buyer may waive compliance on Seller's part under any of the
foregoing items by an instrument in writing.
5.3 Buyer's Documents and Funds. At the Closing, Buyer shall deliver to
Seller through escrow the following:
(a) the Purchase Price, subject to the prorations and credits
hereinafter provided for; and
(b) any documents, instruments or agreements called for hereunder
which have not previously been delivered.
Seller may waive compliance on Buyer's part under any of the
foregoing items by an instrument in writing.
5.4 Other Documents. Seller and Buyer shall each deposit such other
instruments as are reasonably required by the escrow holder or otherwise
required to close the escrow and consummate the purchase of the Property in
accordance with the terms hereof.
5.5 Prorations. Rents, real property taxes, and other items of income
and expense of ownership of the Property shall be prorated as of 12:01 a.m. on
the date the Warranty Deed is recorded on the basis of a 365-day year.
3
<PAGE> 5
5.6 Closing Costs. Transfer taxes applicable to the sale of the Property
(if any), the fee for the Title Policy, escrow charges and other costs of the
Closing shall be paid one-half (1/2) by the Seller and one-half (1/2) by the
Buyer. Each party shall pay its own attorneys' fees in connection with the sale.
6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represent and warrant to Buyer as follows:
6.1 Seller is a limited liability company duly organized and validly
existing and in good standing under the laws of the State of Idaho, and all
documents executed by Seller which are to be delivered to Buyer at the Closing
are or at the time of Closing will be duly authorized, executed and delivered by
Seller, and are or at the Closing will be legal, valid and binding obligations
of Seller, and do not and at the time of Closing will not violate any provisions
of any agreement, mortgage, deed, note or other document or instrument to which
Seller is a party or to which it is subject.
6.2 There are no claims, suits and proceedings which are pending against
Seller or which relate to the Property or the use or operation thereof and, to
the knowledge of Seller, no such claims, suits or proceedings are threatened or
anticipated against Seller.
6.3 All contracts or documents delivered by Seller to Buyer pursuant to
this Agreement or in connection with the execution hereof are and at the time of
Closing will be true, complete and correct copies, and there do not exist, nor
will there exist as of the time of Closing, any contracts or agreements
regarding the Property entered into by Seller that have not heretofore been
disclosed by Seller to Buyer.
6.4 At the time of Closing there will be no outstanding contracts made
by Seller for any improvements to the Property which have not been fully paid
for and Seller shall cause to be discharged all mechanics' or materialmen's
liens arising from any labor or materials furnished to the Property prior to the
time of Closing.
6.5 There are no other leases or occupancy agreements of any kind
relating to the Real Property or any portion thereof.
6.6 To the knowledge of Seller, with respect to the activities of Seller
at the Property (i) such activities are fully licensed, permitted and authorized
under all applicable federal, state and local statutes, orders, approvals,
zoning or land use requirements, rules and regulations, and (ii) such activities
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;
and Seller are not aware of any circumstances, conditions or reasons which are
likely to be the basis for revocation or suspension of the Property's site
assessment, permits, licenses, consents, authorizations, zoning or land use
permits, variances or approvals.
6.7 To the knowledge of Seller, the Property has been operated in material
compliance with, and is presently in material compliance with, federal, state
and local laws,
4
<PAGE> 6
ordinances, codes, rules, regulations, governmental permits, orders, judgments,
awards, decrees, consent judgments, consent orders and requirements applicable
to the Property (collectively "Laws"), including, but not limited to, Laws
relating to the public health, safety or protection of the environment
(collectively, "Environmental Laws"), and Seller are not aware of any assertion
by any party that the Property is in material violation of any Laws.
Specifically and without limiting the generality of the foregoing, to the
knowledge of Seller:
(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 Property has not accepted, processed,
handled, transferred, generated, treated, stored or disposed of any Hazardous
Material (as defined below) and the Property has not 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) No Hazardous Material, other than that allowed under Environmental
Laws, including, without limitation, RCRA, has been disposed of, or otherwise
released, on the Property.
(c) Seller have not 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 the Property. There are
no pending or 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) As used in this Agreement, "Hazardous Material" shall mean the
substances (i) defined as "Hazardous Waste" in 40 CFR 261, and substances
defined in any comparable Idaho 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.
6.8 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 the Property during Seller's ownership
thereof.
6.9 The Property is not the subject of, or would be affected by, any
pending condemnation or eminent domain proceedings, and to the knowledge of the
Seller, no such proceedings are threatened.
6.10 All documents executed by Seller which are to be delivered to Buyer
at the Closing are or at the time of Closing will be duly authorized, executed
and delivered by Seller, are or at the time of Closing will be legal, valid and
binding obligations of Seller, and do not and at the time of Closing will not
violate any provisions of any agreement, mortgage, deed, note or other document
or instrument to which Seller are a party or to which the Property is subject.
5
<PAGE> 7
7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that Buyer is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware, and all documents executed by Buyer which are to
be delivered to Seller at the Closing are or at the time of Closing will be duly
authorized, executed and delivered by Buyer, and are or at the Closing will be
legal, valid and binding obligations of Buyer, and do not and at the time of
Closing will not violate any provisions of any agreement, mortgage, deed, note
or other document or instrument to which Buyer is a party or to which it is
subject.
8. INDEMNIFICATION
Each party hereby agrees to indemnify the other party and hold it
harmless from and against any and all claims, demands, liabilities, costs,
expenses, penalties, damages and losses, including, without limitation,
reasonable attorneys' fees, resulting from any misrepresentations or breach of
warranty or breach of covenant made by such party in this Agreement or in any
document, certificate, or exhibit given or delivered to the other pursuant to or
in connection with this Agreement. The indemnification provisions of this
section 8 shall survive beyond the delivery of the warranty deed and transfer of
title, or, if title is not transferred pursuant to this Agreement, beyond any
termination of this Agreement.
9. CASUALTY OR CONDEMNATION
In the event that, prior to Closing, the Property, or any material part
thereof, is destroyed or damaged, or if condemnation proceedings are commenced
against the Property or any material part thereof, Buyer shall have the right,
exercisable by giving notice of such decision to Seller within five (5) days
after receiving written notice from Seller of such damage, destruction or
condemnation proceedings, to terminate this Agreement, in which case, neither
party shall have any further rights or obligations hereunder. If Buyer elects to
accept the Property in its then condition, all proceeds of insurance or
condemnation awards payable to Seller by reason of such damage, destruction or
condemnation shall be paid or assigned to Buyer.
10. POSSESSION
Possession of the Property shall be delivered to Buyer on the Closing
Date. Prior to the closing, Seller shall afford authorized representatives of
Buyer reasonable access to the Property for the purposes of conducting soils
tests, surveys or other physical inspections of the Property. Buyer shall
indemnify Seller and hold Seller harmless against all loss, cost, damage and
expenses, including reasonable attorneys' fees arising from or related to Buyer
and its representatives entry onto the Property.
11. BUYER'S CONSENT TO NEW CONTRACTS AFFECTING THE PROPERTY
Seller shall not, after the date of Seller's execution of this
Agreement, enter into any agreement affecting the Property or any aspect thereof
without obtaining Buyer's consent thereto, which consent Buyer may withhold in
its sole discretion.
12. MISCELLANEOUS
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<PAGE> 8
12.1 Notices. Any notice, consent, approval, waiver or other
communication required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered personally or
deposited with the United States Postal Service, all charges and first class
postage prepaid, addressed as follows:
If to Seller:
R & N, LLC
c/o Brad & Kathy Rumsey
P.O. Box 893
Mountain Home, ID 83647
With a copy to:
Emil Nejdl
P.O. Box 923
Mountain Home, ID 83647
If to Buyer:
Waste Connections of Idaho, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
With a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Winnifred C. Ward, Esq.
or such other address as either party may from time to time specify by notice
hereunder to the other.
12.2 Brokers and Finders. Neither party has had any contact or dealings
regarding the Property, or any communication in connection with the subject
matter of this transaction, through any licensed real estate broker or other
person who can claim a right to a commission or finder's fee as a procuring
cause of the sale contemplated herein. If any broker or finder perfects a claim
for a commission or finder's fee based on any such contact, dealings or
communication, the party through whom the broker or finder makes such claim
shall be responsible for said commission or fee and all costs and expenses
(including reasonable attorneys' fees) incurred by the other party in defending
against the same.
12.3 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors, heirs,
administrators and assigns. Without being
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<PAGE> 9
relieved of any liability under this Agreement, Buyer reserves the right to take
title to the Property in a name or assignee other than Buyer.
12.4 Amendments. This Agreement may be amended or modified by, and only
by, a written instrument executed by Seller and Buyer.
12.5 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of Idaho.
12.6 Merger of Prior Agreements. This Agreement contains the entire
agreement of the parties and supersedes all prior negotiations, correspondence,
understandings and agreements between the parties relating to the subject matter
hereof.
12.7 Attorneys' Fees. If any party hereto fails to perform any of its
obligations under this Agreement, or if any dispute arises between the parties
hereto concerning the meaning or interpretation of any provisions hereof, then
the defaulting party or the party not prevailing in such dispute, as the case
may be, shall pay any and all costs and expenses incurred by the other party on
account of such default and/or in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable attorneys'
fees and disbursements. Any such attorneys' fees and other expenses incurred by
any party in enforcing a judgment in its favor shall be recoverable separately
from and in addition to any other amounts included in such judgment, and such
attorneys' fees obligation is intended to be severable from the other provisions
hereof and to survive and not be merged into any such judgment.
12.8 Time of the Essence. Time is of the essence of this Agreement.
12.9 Specific Performance. Seller acknowledge that in the event of a
breach or default or threatened breach or default under this Agreement by Seller
prior to the Closing, damages at law will be an inadequate remedy and,
accordingly, without in any manner limiting any other remedies available to
Buyer, Seller's obligations under this Agreement may be enforced by specific
performance.
12.10 Interpretation. Whenever used herein, the term "including" shall
be deemed to be followed by the words "without limitation." Words used in the
singular number shall include the plural, and vice-versa, and any gender shall
be deemed to include each other gender. The captions and headings of the
Articles and Sections of this Agreement are for convenience of reference only,
and shall not be deemed to define or limit the provisions hereof.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts which together shall constitute the Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BUYER:
WASTE CONNECTIONS OF IDAHO, INC., a
Delaware corporation
By:______________________________________
Its:_____________________________________
SELLER:
R & N, LLC, an Idaho limited liability
company
By:______________________________________
Its:_____________________________________
9
<PAGE> 11
Exhibit A
DESCRIPTION OF REAL PROPERTY
All of that certain real property located in Elmore County, Idaho,
described as follows:
A parcel of land being a portion of the SW 1/4 NE 1/4, Section
7, T.4S., R.7E., B.M., Elmore County, Idaho, said parcel being
more particularly described as follows:
Commencing at the iron pin marking Southwest corner of said NE
1/4, Section 7, T.4S., R.7E., B.M., Elmore County, Idaho, said
point being the REAL POINT OF BEGINNING;
thence, N.0(degree)33'43"W. 330.00 feet along the west line of
said NE 1/4 to an iron pin; thence, N.89(degree)35'06"E. 925.11
feet to an iron pin on the southwesterly right-of-way of Old
U.S. Highway 30;
thence, S.31(degree)03'13"E. 149.74 feet along said right-of-way
to an iron pin;
thence, S.73(degree)22'16:W. 588.91 feet to an iron pin;
thence, S.0(degree)33'43"E. 36.73 feet to an iron pin on the
south line of said NE 1/4;
thence along said south line, 435.19 feet to the REAL POINT OF
BEGINNING, said parcel containing 5.93 acres, more or less.
10
<PAGE> 12
Exhibit B
WARRANTY DEED
For Value Received, R&N LLC, an Idaho limited liability company, whose
address is _________ __________, hereinafter referred to as the "Grantor," does
by these presents grant, bargain, sell, convey and confirm unto WASTE
CONNECTIONS OF IDAHO, INC., a Delaware corporation, whose mailing address is
2260 Douglas Boulevard, Suite 280, Roseville, California 95661, hereinafter
referred to as the "Grantee," that certain land situate, lying and being in the
County of Elmore, State of Idaho, particularly described as follows, to-wit:
[See Exhibit A attached]
TO HAVE AND TO HOLD the same unto said Grantee, and to Grantee's heirs,
successors, administrators and assigns forever. And the said Grantor does hereby
covenant to and with the said Grantee, that Grantor is the owner in fee simple
of said premises; that said premises are free from all encumbrances, and that
Grantor will warrant and defend the same from all lawful claims whatsoever.
IN WITNESS WHEREOF, the said Grantor has executed this deed as of the
day and year first above written.
R & N, LLC, an Idaho Limited Liability
Company
By:______________________________________
Its:_____________________________________
STATE OF _____________)
) ss.
COUNTY OF ____________)
On this ___ day of ________, 1998, before me, a Notary Public in and for
said State, personally appeared _________________________, known to me to be or
proven to me upon satisfactory evidence to be the person who signed his/her name
to the within and foregoing WARRANTY DEED and acknowledged to me that he/she
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal the day and year herein first above written.
_________________________________________
Notary Public
Residing at:
My Commission Expires:
11
<PAGE> 13
Exhibit A
to Warranty Deed
LEGAL DESCRIPTION
All of that certain real property located in Elmore County, Idaho,
described as follows:
A parcel of land being a portion of the SW 1/4 NE 1/4, Section
7, T.4S., R.7E., B.M., Elmore County, Idaho, said parcel being
more particularly described as follows:
Commencing at the iron pin marking Southwest corner of said NE
1/4, Section 7, T.4S., R.7E., B.M., Elmore County, Idaho, said
point being the REAL POINT OF BEGINNING;
thence, N.0(degree)33'43"W. 330.00 feet along the west line of
said NE 1/4 to an iron pin; thence, N.89(degree)35'06"E. 925.11
feet to an iron pin on the southwesterly right-of-way of Old
U.S. Highway 30;
thence, S.31(degree)03'13"E. 149.74 feet along said right-of-way
to an iron pin;
thence, S.73(degree)22'16:W. 588.91 feet to an iron pin;
thence, S.0(degree)33'43"E. 36.73 feet to an iron pin on the
south line of said NE 1/4;
thence along said south line, 435.19 feet to the REAL POINT OF BEGINNING, said
parcel containing 5.93 acres, more or less.
12
<PAGE> 14
Exhibit C
ASSIGNMENT OF PERMITS
AND OTHER INTANGIBLE PROPERTY
THIS ASSIGNMENT dated September , 1998 (the "Assignment"), is made
by R & N, LLC, an Idaho limited liability company ("Assignor") to WASTE
CONNECTIONS OF IDAHO, INC., a Delaware corporation ("Assignee").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, Assignor hereby assigns and transfers unto Assignee all of its
right, title, claim and interest in and under any and all governmental permits
and other intangible property owned by Assignor in connection with that certain
real property described in Exhibit A attached hereto (the "Real Property") or
any improvements or personal property located thereon, including without
limitation, any of Assignor's interest in or rights under licenses or planning
approvals and any contract rights, agreements, utility contracts, warranties,
guaranties, general intangibles or other rights relating to the ownership,
development, use or operation of Real Property, but excluding any tools or
equipment owned by employees of Assignor.
Assignor warrants and represents that as of the date the Real Property
is conveyed to Assignee there are no assignments of or agreements to assign the
foregoing permits and other intangible property to any other party.
The Assignment shall be binding on and inure to the benefit of the
parties hereto and the successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
as of the date and year first above written.
ASSIGNOR:
R & N, LLC, an Idaho limited liability
company
By:______________________________________
Its:_____________________________________
ASSIGNEE:
WASTE CONNECTIONS OF IDAHO, INC., a
Delaware corporation
By:______________________________________
Its:_____________________________________
13
<PAGE> 15
Exhibit A
to Assignment of Permits and Other Intangible Property
LEGAL DESCRIPTION
All of that certain real property located in Elmore County, Idaho,
described as follows:
A parcel of land being a portion of the SW 1/4 NE 1/4, Section
7, T.4S., R.7E., B.M., Elmore County, Idaho, said parcel being
more particularly described as follows:
Commencing at the iron pin marking Southwest corner of said NE
1/4, Section 7, T.4S., R.7E., B.M., Elmore County, Idaho, said
point being the REAL POINT OF BEGINNING;
thence, N.0(degree)33'43"W. 330.00 feet along the west line of
said NE 1/4 to an iron pin; thence, N.89(degree)35'06"E. 925.11
feet to an iron pin on the southwesterly right-of-way of Old
U.S. Highway 30;
thence, S.31(degree)03'13"E. 149.74 feet along said right-of-way
to an iron pin;
thence, S.73(degree)22'16:W. 588.91 feet to an iron pin;
thence, S.0(degree)33'43"E. 36.73 feet to an iron pin on the
south line of said NE 1/4;
thence along said south line, 435.19 feet to the REAL POINT OF
BEGINNING, said parcel containing 5.93 acres, more or less.
14
<PAGE> 16
Exhibit D
AFFIDAVIT OF NON-FOREIGN STATUS
INTERNAL REVENUE CODE SECTION 1445
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax equal to ten percent of the
purchase price if the transferor is a foreign person. Such transferee is exempt
from such obligation to withhold if the transferor provides the transferee an
affidavit that the transferor is not a foreign person.
To induce WASTE CONNECTIONS OF IDAHO, INC., a Delaware corporation
("Transferee"), to not withhold tax under such Section 1445 upon the transfer by
R & N, LLC, an Idaho limited liability company ("Transferor"), of a U.S. real
property interest located in Elmore County, Idaho, as more particularly
described in Exhibit A attached hereto, the following affidavit is made on
behalf of Transferor under penalty of perjury and with knowledge that Transferee
will rely thereon.
1. Transferor is not a foreign person or foreign corporation, foreign
partnership, foreign trust (as those terms are defined in the Internal Revenue
Code);
2. The tax identification number of the Transferor is 82-0495630; and
3. The Transferor resides at the following addresses: Route #1, Box 261,
Glenns Ferry, ID, 83623.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by Transferee, and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury, the undersigned declares that he/she has
examined this certificate and to the best of his/her knowledge and belief it is
true, correct and complete.
Date: September , 1998
R & N, LLC, an Idaho limited liability
company
By:______________________________________
Its:_____________________________________
15
<PAGE> 17
Exhibit A
to Affidavit of Non-foreign Status
Internal Revenue Code Section 1445
LEGAL DESCRIPTION
All of that certain real property located in Elmore County, Idaho,
described as follows:
A parcel of land being a portion of the SW 1/4 NE 1/4, Section
7, T.4S., R.7E., B.M., Elmore County, Idaho, said parcel being
more particularly described as follows:
Commencing at the iron pin marking Southwest corner of said NE
1/4, Section 7, T.4S., R.7E., B.M., Elmore County, Idaho, said
point being the REAL POINT OF BEGINNING;
thence, N.0(degree)33'43"W. 330.00 feet along the west line of
said NE 1/4 to an iron pin; thence, N.89(degree)35'06"E. 925.11
feet to an iron pin on the southwesterly right-of-way of Old
U.S. Highway 30;
thence, S.31(degree)03'13"E. 149.74 feet along said right-of-way
to an iron pin;
thence, S.73(degree)22'16:W. 588.91 feet to an iron pin;
thence, S.0(degree)33'43"E. 36.73 feet to an iron pin on the
south line of said NE 1/4;
thence along said south line, 435.19 feet to the REAL POINT OF
BEGINNING, said parcel containing 5.93 acres, more or less.
16
<PAGE> 1
EXHIBIT 10.49
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 22, 1998, BY AND AMONG
WASTE CONNECTIONS, INC.
WCI ACQUISITION CORPORATION I
WCI ACQUISITION CORPORATION II
WCI ACQUISITION CORPORATION III
WCI ACQUISITION CORPORATION IV
MURREY'S DISPOSAL COMPANY, INC.
AMERICAN DISPOSAL COMPANY, INC.
D. M. DISPOSAL CO., INC.
TACOMA RECYCLING COMPANY, INC.
THE MURREY TRUST
DONALD J. HAWKINS
AND
IRMGARD R. WILCOX
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. MERGERS.............................................................................2
1.1 The Mergers..................................................................2
1.2 Effective Time...............................................................2
1.3 Effects of the Mergers.......................................................2
1.4 Articles of Incorporation and Bylaws of the Surviving Corporation............2
1.5 Directors....................................................................3
1.6 Officers.....................................................................3
1.7 Closing Time and Place.......................................................3
2. MERGER CONSIDERATION; CONVERSION OF SECURITIES; DISSENTING SHARES...................3
2.1 Merger Consideration.........................................................3
2.2 Allocation of Aggregate WCI Stock............................................4
2.3 Conversion of Capital Stock..................................................4
2.4 Exchange of Certificates.....................................................5
2.5 Distributions; Right to Vote.................................................5
2.6 No Further Ownership Rights in Any Corporations' Stock.......................6
2.7 Lost Certificates............................................................6
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE SHAREHOLDERS.............6
3.1 Organization, Standing and Qualification.....................................6
3.2 Capitalization...............................................................7
3.3 No Change in Stock Ownership and Other Pooling Representations...............7
3.4 Authority for Agreement and Filed Plans......................................7
3.5 No Breach or Default.........................................................8
3.6 Subsidiaries.................................................................9
3.7 Financial Statements.........................................................9
3.8 Liabilities..................................................................9
3.9 Accurate and Complete Records...............................................10
3.10 Permits and Licenses........................................................11
3.11 Certain Receivables.........................................................13
3.12 Fixed Assets and Real Property..............................................13
3.13 Related Party Transactions..................................................14
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.14 Contracts and Agreements; Adverse Restrictions..............................15
3.15 Insurance...................................................................15
3.16 Personnel...................................................................16
3.17 Benefit Plans and Union Contracts...........................................16
3.18 Taxes.......................................................................18
3.19 Copies Complete; Required Consents..........................................18
3.20 Customers, Billings, Current Receipts and Receivables.......................19
3.21 No Change With Respect to the Corporations..................................19
3.22 Balance Sheet Date Debt; Balance Sheet Date Current Assets and Balance
Sheet Date Current Liabilities..............................................21
3.23 Bank Accounts...............................................................22
3.24 Compliance With Laws........................................................22
3.25 Powers of Attorney..........................................................24
3.26 Underground Storage Tanks...................................................24
3.27 Patents, Trademarks, Trade Names, etc.......................................25
3.28 Assets, etc. Necessary to Business..........................................26
3.29 Condemnation................................................................26
3.30 Suppliers and Customers.....................................................26
3.31 Absence of Certain Business Practices.......................................26
3.32 No Misleading Statements....................................................27
3.33 Brokers; Finders............................................................27
3.34 S Corporation Matters.......................................................27
3.35 Registration Statements.....................................................27
3.36 Accredited Investors........................................................27
4. REPRESENTATIONS AND WARRANTIES OF WCI AND THE MERGER SUBS..........................27
4.1 Existence and Good Standing.................................................28
4.2 No Contractual Restrictions.................................................28
4.3 Authorization of Agreement..................................................28
4.4 Status of Shares............................................................28
4.5 Governmental Authorities; Consents..........................................29
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.6 SEC Documents...............................................................29
4.7 Capital Stock...............................................................30
4.8 No Misleading Statements....................................................30
4.9 Brokers; Finders............................................................30
4.10 Disclosure Schedules........................................................30
5. COVENANTS OF THE CORPORATIONS AND THE SHAREHOLDERS PRIOR TO EFFECTIVE TIME.........30
5.1 Access; Confidential Information............................................30
5.2 Operations..................................................................31
5.3 No Change...................................................................32
5.4 Obtain Consents.............................................................34
5.5 No Change in Relative Ownership.............................................34
5.6 Control of the Corporations' Operations.....................................34
5.7 Acquisition Transactions....................................................34
5.8 Bonnie Trust Approval.......................................................34
6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI AND THE MERGER SUBS. TO CLOSE............35
6.1 Representations and Warranties..............................................35
6.2 Conditions..................................................................35
6.3 No Material Adverse Change..................................................35
6.4 Certificates................................................................35
6.5 No Litigation...............................................................35
6.6 Other Deliveries............................................................35
6.7 Governmental Approvals......................................................35
6.8 Consents to Transfer........................................................36
6.9 Opinion of Independent Public Accountants...................................36
6.10 WCI Shareholders Approval...................................................36
6.11 NASDAQ Listing..............................................................36
6.12 HSR Waiting Period..........................................................36
6.13 Registration Statements.....................................................36
6.14 Dissenting Shares...........................................................36
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.15 Title Insurance.............................................................36
6.16 Termination of Employment Agreements........................................37
6.17 LeMay Agreement.............................................................37
6.18 All Mergers to Occur........................................................37
6.19 Disposal Arrangements.......................................................37
6.20 Bonnie Trust Approval.......................................................37
6.21 Real Estate Due Diligence...................................................37
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE CORPORATIONS AND THE SHAREHOLDERS TO
CLOSE..............................................................................37
7.1 Representations and Warranties..............................................37
7.2 Conditions..................................................................38
7.3 No Material Adverse Change..................................................38
7.4 Certificate.................................................................38
7.5 No Litigation...............................................................38
7.6 Other Deliveries............................................................38
7.7 Consents to Transfer........................................................38
7.8 NASDAQ Listing..............................................................38
7.9 HSR Waiting Period..........................................................38
7.10 Registration Statements.....................................................38
7.11 Governmental Approvals......................................................39
7.12 Opinion of Independent Public Accountants...................................39
7.13 LeMay Agreement.............................................................39
7.14 All Mergers to Occur........................................................39
7.15 Tax Matters.................................................................39
7.16 Disposal Arrangements.......................................................39
7.17 Bonnie Trust Approval.......................................................39
8. CLOSING DELIVERIES.................................................................40
8.1 WCI Deliveries..............................................................40
8.2 Shareholders' Deliveries....................................................40
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATIONS AND THE SHAREHOLDERS.................41
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
9.1 Release of Guaranties.......................................................41
9.2 Release of Security Interests...............................................42
9.3 Confidentiality.............................................................42
9.4 Brokers and Finders Fees....................................................42
9.5 Taxes.......................................................................42
9.6 Short Year Tax Returns......................................................42
9.7 Matters Related to Pooling..................................................43
9.8 Representation Letter.......................................................43
9.9 WCI Shareholders' Approval..................................................43
9.10 Nasdaq Listing..............................................................44
9.11 Agreement to Cooperate......................................................44
9.12 Notification of Certain Matters.............................................45
9.13 Corrections to Registration Statements and Proxy Statement..................45
10. INDEMNIFICATION....................................................................45
10.1 Indemnification Covenants...................................................45
10.2 Limitations on Indemnities..................................................47
10.3 Notice of Indemnity Claim...................................................49
10.4 Survival of Representations and Warranties..................................51
10.5 No Exhaustion of Remedies or Subrogation; Right of Set Off..................51
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI...........................51
11.1 Restrictive Covenants.......................................................51
11.2 Rights and Remedies Upon Breach.............................................53
11.3 Termination Date............................................................55
11.4 Effect of Termination.......................................................56
11.5 Corrections to Schedules....................................................56
12. GENERAL............................................................................57
12.1 Additional Conveyances......................................................57
12.2 Assignment..................................................................57
12.3 No Waiver Relating to Claims for Fraud......................................57
12.4 Counterparts................................................................58
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
12.5 Notices.....................................................................58
12.6 Disclosure Schedules........................................................58
12.7 Knowledge...................................................................58
12.8 Attorneys' Fees.............................................................59
12.9 Applicable Law..............................................................59
12.10 Payment of Fees and Expenses................................................59
12.11 Incorporation by Reference..................................................59
12.12 Captions....................................................................59
12.13 Number and Gender of Words..................................................60
12.14 Entire Agreement............................................................60
12.15 Waiver......................................................................60
12.16 Construction................................................................60
13. GLOSSARY...........................................................................60
</TABLE>
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<PAGE> 8
TABLE OF CONTENTS
EXHIBIT AND SCHEDULE LIST
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1.2 Filed Plan
Exhibit 6.19 Disposal Agreement
Exhibit 8.1(b) Employment Agreements
Exhibit 8.1(c) Opinion of Counsel for WCI
Exhibit 8.1(f) Common Stock Agreement
Exhibit 8.2(b) Opinion of Counsel for Shareholders
Exhibit 8.2(g) Affiliate Letter
Schedule 3.2 Authorized Capital of Corporations
Schedule 3.3 Pooling Affiliates of the Corporations
Schedule 3.5 No Breach or Default
Schedule 3.6 Subsidiaries
Schedule 3.7 Financial Statements
Schedule 3.8 Liabilities
Schedule 3.10(a) Permits and Licenses
Schedule 3.10(b) Records, Notifications and Reports
Schedule 3.10(c) Facilities
Schedule 3.11 Certain Receivables
Schedule 3.12(a) Fixed Assets
Schedule 3.12(b) Corporate Property
Schedule 3.13 Related Party Transactions
</TABLE>
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<PAGE> 9
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Schedule 3.14(a) Material Contracts and Agreements
Schedule 3.14(b) Adverse Judicial Restrictions
Schedule 3.14(c) Adverse Contractual Restrictions
Schedule 3.15 Insurance
Schedule 3.16 Personnel
Schedule 3.17(a) Benefit Plans
Schedule 3.17(b) Union Contracts, Agreements and Labor Disputes
Schedule 3.17(c) Golden Parachute Payments
Schedule 3.18 Taxes
Schedule 3.19 Copies Complete
Schedule 3.20 Customers, Billings, Current Receipts and
Receivables
Schedule 3.21 No Change
Schedule 3.22(a) Balance Sheet Date Debt
Schedule 3.22(b) Balance Sheet Date Current Assets and
Liabilities
Schedule 3.23(a) Bank Accounts
Schedule 3.23(b) Credit Card Accounts
Schedule 3.24 Compliance with Laws
Schedule 3.26 Underground Storage Tanks
Schedule 3.27 Patents, Trademarks, Trade Names, Etc.
Schedule 3.29 Condemnation Proceedings
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Schedule 3.30 Suppliers and Customers
Schedule 3.34 S Corporation Matters
Schedule 5.3 Changes in Compensation
Schedule 9.1 Release of Guaranties
</TABLE>
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<PAGE> 11
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 22, 1998, is entered
into by and among Waste Connections, Inc., a Delaware corporation ("WCI"), WCI
Acquisition Corporation I, a Washington corporation ("MERGER SUB. I"), WCI
Acquisition Corporation II, a Washington corporation ("MERGER SUB. II"), WCI
Acquisition Corporation III, a Washington corporation ("MERGER SUB. III"), WCI
Acquisition Corporation IV, a Washington corporation ("MERGER SUB. IV" and
collectively with Merger Sub. I, Merger Sub II. and Merger Sub. III, the "MERGER
SUBS." and individually without designation a "MERGER SUB."), Murrey's Disposal
Company, Inc., a Washington corporation ("MDC"), American Disposal Company,
Inc., a Washington corporation ("AD"), D. M. Disposal Co., Inc., a Washington
corporation ("DM"), Tacoma Recycling Company, Inc. ("TR" and collectively with
MDC, AD and DM, the "Corporations" and individually without designation a
"CORPORATION"), The Murrey Trust UTA August 5, 1993, as amended (the "MURREY
TRUST"), Donald J. Hawkins ("DONALD") and Irmgard R. Wilcox ("IRMGARD" and
collectively with the Murrey Trust, Donald and, on compliance with Section 5.8
of this Agreement, the Bonnie Trust (as defined below), the "SHAREHOLDERS" and
individually without designation a "SHAREHOLDER").
WHEREAS, MDC, AD and DM are engaged in the collection and transport of
solid waste and recyclables in State of Washington, and TR is engaged in the
recycling business in the State of Washington;
WHEREAS, the Murrey Trust, Donald and Irmgard own all of the issued and
outstanding capital stock of MDC and AD , and the Murrey Trust, the Bonnie L.
Murrey Revocable Trust UTA August 5, 1993, as amended (the "BONNIE TRUST"),
Donald and Irmgard own all of the issued and outstanding capital stock of DM and
TR, all as set forth on Schedule 3.2;
WHEREAS, at the Closing on the Closing Date (as defined below), WCI will
contribute as a capital contribution to Merger Sub. I, Merger Sub. II, Merger
Sub. III and Merger Sub. IV sufficient shares of WCI Common Stock, $0.01 par
value (the "WCI STOCK"), to consummate the transactions contemplated by this
Agreement in exchange for all of the outstanding capital stock of Merger Sub. I,
Merger Sub. II, Merger Sub. III and Merger Sub. IV;
WHEREAS, Merger Sub. I, Merger Sub. II, Merger Sub. III and Merger Sub.
IV will use such shares of WCI Stock to effect the merger of Merger Sub. I into
MDC, the merger of Merger Sub. II into AD, the merger of Merger Sub. III into
DM, and the merger of Merger Sub. IV into TR in accordance with the terms and
subject to the conditions of this Agreement (individually, a "MERGER" and
collectively, the "MERGERS") in a transaction that qualifies as a pooling of
interests under generally accepted accounting principles and as a tax-free
reorganization under section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE");
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
<PAGE> 12
1. MERGERS
1.1 THE MERGERS. In accordance with the Washington Business
Corporation Act (the "Washington Law"), at the Effective Time (as defined in
Section 1.2), Merger Sub. I shall be merged with and into MDC, Merger Sub. II
shall be merged with and into AD, Merger Sub. III shall be merged with and into
DM and Merger Sub. IV shall be merged with and into TR, in a transaction
intended to qualify as tax-free reorganizations under Section 368(a) of the Code
and a "pooling of interests" under generally accepted accounting principles.
Immediately following each Merger, the separate existence of each of the
applicable Merger Subs. shall cease and the applicable Corporation into which
such Merger Sub. (each, a "SURVIVING CORPORATION" and collectively the
"SURVIVING CORPORATIONS") merged shall continue to exist under and be governed
by the Washington Law as a direct, wholly-owned subsidiary of WCI.
1.2 EFFECTIVE TIME. As soon as practicable after the date of this
Agreement (the "SIGNING DATE") and the satisfaction or waiver of all of the
conditions to the Mergers, at the Closing (as defined in Section 1.7), the
parties shall cause the Mergers to be consummated by causing separate Plans of
Merger (the "FILED PLANS") substantially in the form of Exhibit 1.2 to be
executed and filed in accordance with the relevant provisions of the Washington
Law. Each Merger shall become effective at the time specified in the Filed Plans
related to such Merger, which specified time shall be the same in each of the
Filed Plans (the "EFFECTIVE TIME").
1.3 EFFECTS OF THE MERGERS. The Mergers shall have the effect set
forth in Section 23B.11.060 of the Washington Law. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of each Merger Sub. shall vest in the
respective Surviving Corporation into which it is merged, and all debts,
liabilities and duties of each Corporation and each Merger Sub. shall become the
debts, liabilities
2
<PAGE> 13
and duties of the respective Surviving Corporation in the same manner as if the
applicable Surviving Corporation had itself incurred them. All rights of
creditors and all liens upon the property of each Merger Sub. shall thereafter
be preserved unimpaired.
1.4 ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Articles of Incorporation of each of the Corporations, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the respective Surviving Corporations, until thereafter amended
in accordance with the provisions thereof and applicable law. The Bylaws of each
of the Corporations in effect at the Effective Time shall be the Bylaws of the
respective Surviving Corporations until amended in accordance with the
provisions thereof and applicable law.
1.5 DIRECTORS. The directors of the Merger Subs. immediately
prior to the Effective Time shall be the directors of the respective Surviving
Corporations and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal. The Board
of Directors of WCI shall take such action as may be necessary to cause a
nominee of the Shareholders to be elected to WCI's Board of Directors effective
as of the Effective Time with a term of office expiring at WCI's annual meeting
of stockholders in 2001.
1.6 OFFICERS. The officers of Merger Subs. immediately prior to
the Effective Time of each Merger shall be the officers of the respective
Surviving Corporations and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
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1.7 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 as promptly as practicable (but in any event within
five business days) following the date on which the last of the conditions set
forth in Sections 6 and 7 is fulfilled or waived, or on such other date as WCI
and the Corporations shall agree (the "CLOSING DATE"). The Closing shall take
place at the law offices of Hillis Clark Martin & Peterson, Suite 500, 1221 2nd
Ave., Seattle, Washington 98101. At the Closing, WCI, the Merger Subs., the
Corporations and the Shareholders shall deliver to each other the documents,
instruments and other items described in Section 8 of this Agreement. At the
election of WCI and the Corporations, the Closing may take place through an
exchange of consideration and documents using overnight courier service or
facsimile.
2. MERGER CONSIDERATION; CONVERSION OF SECURITIES; DISSENTING
SHARES
2.1 MERGER CONSIDERATION. The aggregate merger consideration (the
"AGGREGATE MERGER CONSIDERATION") is two million seven hundred fifty thousand
(2,750,000) shares of WCI Stock (the "AGGREGATE WCI STOCK"), subject to
adjustment as follows: (i) the number of shares of Aggregate WCI Stock issued in
the Mergers shall be reduced by one share for each $20.50 by which the Balance
Sheet Date Debt (as hereinafter defined) exceeds six million dollars
($6,000,000); and (ii) if the closing price of WCI Stock as quoted on the NASDAQ
Stock Market on the last trading day before the Closing Date (the "CLOSING
PRICE") is less than $20.50, then as of the Effective Time the number of shares
of Aggregate WCI Stock to be issued in the Mergers shall be increased by fifty
five thousand five hundred fifty five (55,555) shares for each whole dollar by
which the Closing Price is less than $20.50 but more than $15.99 and by eighty
three thousand three hundred thirty three and one-third (83,333 1/3) shares for
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each whole dollar by which the Closing Price is less than $13.00 but more than
$9.99, and shall be proportionately increased for any such amount less than one
whole dollar, provided that no more than two hundred fifty thousand (250,000)
additional shares shall be issued if the Closing Price is less than $16.00 but
more than $13.00 and provided further in no event shall the number of Aggregate
WCI Shares to be issued in the Mergers exceed three million two hundred fifty
thousand (3,250,000) shares. The Closing Price and the number of shares of WCI
Stock to be delivered after the Effective Time shall be appropriately adjusted
in the event of any change in WCI Stock between the Signing Date and the
Effective Time, 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
instead the Shareholders shall be paid cash in lieu of any fractional share
equal to the Closing Price multiplied by the fraction of a share of WCI Stock
that would otherwise have been issued to such Shareholder. The Shares shall be
covered by one or more Registration Statements on Form S-4 (the "REGISTRATION
STATEMENTS"), each of which is effective under the Securities Act of 1933 (the
"ACT") as of the Signing Date. The shares of Aggregate WCI Stock shall be freely
tradable, subject to the restrictions set forth in Section 9.7 and in the
Affiliate Letter (as hereinafter defined). WCI shall maintain the Registration
Statements effective for resales of the WCI Stock received by the Shareholders
for a period of one year after the Effective Time pursuant to the terms of the
Common Stock Agreement (as hereinafter defined).
2.2 ALLOCATION OF AGGREGATE WCI STOCK. The percentage of the
Aggregate WCI Stock to be received by the Shareholders of each Corporation upon
conversion of the Corporations' Stock shall be as follows: 42% to MDC, 13% to
AD, 28% to DM and 17% to TR.
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2.3 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Mergers and without any action on the part of the holder thereof:
(a) All of the shares of common stock of each Merger Sub.
issued and outstanding immediately prior to the Effective Time shall be
converted into and become the number of fully-paid and nonassessable shares of
common stock of the Surviving Corporation into which the Merger Sub. is merging
as shall equal the number of shares of the common stock of such Corporation
(individually, the "CORPORATION'S STOCK" and collectively the "CORPORATIONS'
STOCK") issued and outstanding immediately prior to the Effective Time.
(b) Subject to Section 2.7, the aggregate shares of each
Corporation's Stock issued and outstanding immediately prior to the Effective
Time shall be converted into a portion of the Aggregate WCI Stock. The actual
conversion ratio for each Merger shall be set forth in the Filed Plans for that
Merger.
2.4 EXCHANGE OF CERTIFICATES.
(a) After the Effective Time, WCI shall deliver to the
Shareholders in accordance with this Section 2 certificates representing the
Shares of WCI Stock issuable pursuant to Section 2.3(b) in exchange for issued
and outstanding shares of each Corporation's Stock as contemplated by that
Section. The WCI Stock into which each Corporation's Stock shall be converted
pursuant to each Merger shall be deemed to have been issued at the Effective
Time.
(b) At the Closing, each Shareholder shall deliver to WCI
certificates evidencing the shares of Corporations' Stock owned by such
Shareholder that are to be converted
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pursuant to Section 2.3(b) into the right to receive WCI Stock (for each
Corporation, the "CORPORATION'S CERTIFICATES" and collectively for all
Corporations, the "CORPORATIONS' CERTIFICATES"). Promptly after the Effective
Time, each Shareholder who has surrendered the Corporation's Certificates
registered in the name of such Shareholder to WCI, together with such documents
as WCI shall reasonably request, shall be entitled to receive in exchange
therefor certificates representing that number of shares (rounded down to the
nearest whole number) of WCI Stock which such Shareholder has the right to
receive as a result of such Merger pursuant to this Section 2 (together with any
cash in lieu of fractional shares of WCI Stock pursuant to Section 2.7). Each of
the Corporation's Certificates so surrendered shall be canceled immediately
after the Effective Time. Until surrendered as contemplated by this Section 2.4,
each of the Corporations' Certificates shall be deemed canceled as of the
Effective Time and at any time after the Effective Time shall be deemed to
represent only the right to receive upon such surrender (i) the certificates
representing shares of WCI Stock as contemplated by this Section 2.4, (ii) a
cash payment in lieu of any fractional shares of WCI Stock as contemplated by
Section 2.1 and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to WCI Stock as
contemplated by Section 2.5.
2.5 DISTRIBUTIONS; RIGHT TO VOTE. Dividends and other
distributions declared or made after the Effective Time with respect to WCI
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Corporations' Certificates with respect to the WCI Stock
represented thereby. Further, the holder of any unsurrendered Corporations'
Certificates shall have the right to vote with respect to the WCI Stock
represented thereby on all matters on which the shareholders of WCI vote after
the Effective Time.
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2.6 NO FURTHER OWNERSHIP RIGHTS IN ANY CORPORATIONS' STOCK. All
shares of WCI Stock issued upon the surrender for exchange of shares of the
Corporations' Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.5 or 2.1) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of such Corporations'
Stock, and, at and after the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporations of shares of the Corporation's Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, any of
the Corporation's Certificates are presented to the applicable Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.
2.7 LOST CERTIFICATES. In the event any of the Corporations'
Certificates shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Shareholder claiming such certificate to be lost,
stolen or destroyed, WCI will issue in exchange for such lost, stolen or
destroyed certificate the shares of WCI Stock (and any dividends or
distributions with respect thereto pursuant to Section 2.5 and any cash pursuant
to Section 2.1) deliverable in respect thereof as determined in accordance with
Section 2.4. When authorizing such payment in exchange for any lost, stolen or
destroyed Corporations' Certificate, the Shareholder to whom the WCI Stock is to
be issued shall, as a condition precedent to the issuance thereof, give WCI a
bond satisfactory to WCI in such sum as it may direct or otherwise indemnify WCI
in a manner reasonably satisfactory to WCI against any claim that may be made
against WCI or the Surviving Corporation with respect to the Certificate alleged
to have been lost, stolen or destroyed.
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3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE
SHAREHOLDERS
Each Corporation, severally as to itself, and the Shareholders, jointly
and severally as to each Corporation of which they are shareholders, 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.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. Each of the
Corporations is duly organized, validly existing and in good standing under the
laws of the State of Washington. Each of the Corporations has full corporate
power and authority to own and lease its properties and to carry on its business
as now conducted. None of the Corporations is 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 each 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, and
the allocation of the Aggregate Merger Consideration and the shares of the
Aggregate WCI Stock among the Shareholders. All of the issued and outstanding
shares of the capital stock of each Corporation are as of the Signing Date, and
will be as of the Effective Time, owned of record and beneficially by the
Shareholders, as set forth in Schedule 3.2, and are as of the Signing Date, and
will be as of the Effective Time, 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 each of the Corporations is duly and
validly authorized and issued, fully paid and nonassessable, and was not issued
in violation of any preemptive rights of any past or present shareholder of any
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 any of the Corporations) exists which obligates
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any of the Corporations to issue any of its authorized but unissued capital
stock or other equity interest or which obligates any Shareholder to transfer
any Corporations' Stock to any person, except as set forth on Schedule 3.2.
3.3 NO CHANGE IN STOCK OWNERSHIP AND OTHER POOLING
REPRESENTATIONS. Since January 1, 1996, no Corporation has acquired any of its
own stock. Neither the voting stock structure of any Corporation, nor the
relative ownership of shares among any of their respective Shareholders has been
altered or changed within two years preceding the Signing Date. No Corporation
has ever been a subsidiary or division of another corporation nor been a part of
an acquisition that was later rescinded. No Corporation has any treasury stock.
The statements relating to the Corporations in the representation letter to be
delivered to Ernst & Young LLP pursuant to Section 9.8 will be true and correct
as of the date such letter is executed and delivered by the Corporations and the
Shareholders. Upon consummation of the Mergers, WCI will acquire or have the
right to lease all of the assets of the Corporations necessary to the conduct of
the business of the Corporations as conducted on the Signing Date and all assets
owned, directly or indirectly, by the Shareholders and used or involved in the
business of collecting and transporting solid waste, operating the solid waste
transfer stations owned by the Corporations, and recycling. None of the
Corporations nor any of their Affiliates has taken or agreed or intends to take
any action or has any knowledge of any fact or circumstance that is reasonably
likely to prevent any Merger from qualifying as a reorganization within the
meaning of section 368(a) of the Code or would prevent any Merger from being
treated for financial accounting purposes as a pooling of interests. Schedule
3.3 identifies all persons who, to the knowledge of the Corporations and the
Shareholders, may be deemed to be
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"affiliates" ("POOLING AFFILIATES") of the Corporations, as that term is used in
Accounting Series Releases No. 130 and No. 135 of the Securities and Exchange
Commission ("SEC").
3.4 AUTHORITY FOR AGREEMENT AND FILED PLANS. MDC and AD have
obtained, and on approval of this Agreement solely by the Bonnie Trust (the
"BONNIE TRUST APPROVAL") DM and TR will have obtained, the approval of the
percentage of the holders of the outstanding Corporation's Stock of each
Corporation required by Section 23B.11.030 of the Washington Law (the
"CORPORATIONS' SHAREHOLDERS APPROVAL"). Subject, in the case of DM and TR, to
obtaining the Bonnie Trust Approval, the Corporations and the Shareholders have
full right, power and authority to enter into this Agreement and to perform its,
his or her obligations hereunder. Subject, in the case of DM and TR, to
obtaining the Bonnie Trust Approval, the Corporations have full right, power and
authority to enter into the Filed Plans and to perform their respective
obligations thereunder. The execution and delivery of this Agreement and the
Filed Plans by the Corporations and the consummation of the transactions
contemplated hereby by the Corporations have been duly authorized by each of the
Corporations' Board of Directors. This Agreement has been duly and validly
executed and delivered by the Corporations and the Shareholders other than the
Bonnie Trust and, subject to the due authorization, execution and delivery by
WCI, the Merger Subs. and the Bonnie Trust, constitutes the legal, valid and
binding obligations of the Corporations and the Shareholders, other than the
Bonnie Trust, enforceable against the Corporations and such Shareholders in
accordance with its terms. Subject, in the case of DM and TR, to obtaining the
Bonnie Trust Approval, when executed and delivered by the Bonnie Trust, this
Agreement will have been duly and validly executed and delivered by the Bonnie
Trust and, subject to the due authorization, execution and delivery by WCI and
the Merger Subs., will constitute the legal, valid and binding obligation of the
Bonnie Trust,
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enforceable against the Bonnie Trust in accordance with its terms. When executed
and delivered by the Corporations, the Filed Plans will have been duly and
validly executed and delivered by the Shareholders and, subject to the due
authorization, execution and delivery by WCI and the Merger Subs., will
constitute the legal, valid and binding obligation of the Corporations,
enforceable against the Corporations in accordance with their respective terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5,
the execution and delivery by the Corporations and the Shareholders of this
Agreement and the Filed Plans, and the consummation by the Corporations and the
Shareholders of the transactions contemplated hereby and thereby, 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 of the Corporations
or any of the Shareholders is a party, or by which any of the Corporations or
any of the Shareholders, or any of the Corporations' or the Shareholders'
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
applicable to the Corporations or the Shareholders; or
(c) Violate the Articles of Incorporation or Bylaws of any
of the Corporations.
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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 the Corporations' subsidiaries.
3.7 FINANCIAL STATEMENTS. The Corporations have delivered to WCI,
as Schedule 3.7, copies of combined financial statements ("FINANCIAL
STATEMENTS") for the Corporations' three most recent fiscal years and interim
financial statements for the Corporations for the period ended September 30,
1998 (the "BALANCE SHEET DATE"). Such financial combined statements (other than
the interim financial statements) have been audited by Ernst & Young LLP. In the
opinion of Ernst & Young LLP, the Financial Statements for the three most recent
fiscal years present fairly, in all material respects, the financial positions
of the respective Corporations as at the end of such fiscal years and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles, and neither the
Corporations nor the Shareholders have any knowledge that such opinion is
incorrect. The interim Financial Statements are correct and complete and fairly
present the financial position of each of the Corporations as of Balance Sheet
Date, and the results of operations for the period then ended, subject to normal
year-end adjustments. Except to the extent reflected or reserved against in any
of the Corporations' balance sheets as of the Balance Sheet Date, or as
disclosed on Schedule 3.7 or Schedule 3.8, none of the Corporations had as of
the Balance Sheet Date, nor will any of the Corporations have as of the Closing
Date, any liabilities of any nature, whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due
other than liabilities incurred in the ordinary course of business since the
Balance Sheet Date.
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3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8, are
accurate lists and descriptions of all liabilities of each of the Corporations
required to be described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Balance Sheet
Date, all indebtedness for money borrowed and all other fixed and uncontested
liabilities of any kind, character and description (excluding Balance Sheet Date
Debt (as defined in Section 3.22(a)) and 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 Balance Sheet Date through the Signing Date, 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 any of the
Corporations and, to the knowledge of the Corporations and the Shareholders, all
contingent liabilities and all claims, suits and proceedings threatened or
anticipated against any of the Corporations. 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 parties to such claim, suit or
proceeding, (C) the amount claimed and other relief sought, and (D) whether such
claims are covered by insurance and whether any insurance carrier has undertaken
defense of such claims subject to a reservation of rights, together with copies
of all material documents, reports and other records relating thereto to the
extent that they are in any of the Corporations' or a Shareholder's possession
or control.
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(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 or Schedule
3.22(a), all liens, claims and encumbrances secured by or otherwise affecting
any asset of any of the Corporations (including any Corporate Property, as
hereafter defined), including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature of the
obligation secured, and the party holding such lien, claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Signing Date
and to the extent not otherwise included in Part I or Part III of Schedule 3.8
or Schedule 3.22(a), all real and material personal property leasehold interests
to which any of the Corporations is a party as lessor or lessee or, to the
knowledge of any of the Corporations or a Shareholder, affecting or relating to
any Corporate Property, and includes a description of the nature and principal
terms of such leasehold interest, including, without limitation, the identity of
the other party thereto, the term of such leasehold interest (including renewal
options), the base rent and any additional rent owing thereunder (including any
adjustments thereto), security deposits, rights of first offer or first refusal,
purchase options, and restrictions on transfer.
Except as described on the applicable part of Schedule 3.8,
neither any of the Corporations nor any of the Shareholders has made any payment
or committed to make any payment since the Balance Sheet Date on or with respect
to any of the liabilities or obligations listed on Schedule 3.8 or Schedule
3.22(a) except, in the case of liabilities and obligations listed on Parts I,
III and IV of Schedule 3.8 and Balance Sheet Date Debt, 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.
3.9 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
stock ledgers, books, ledgers, financial records and other records of the
Corporations:
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(a) Have been made available to WCI and its agents (which
for this purpose includes Ernst & Young LLP) at the respective Corporations'
offices or at the offices of WCI's attorneys or the respective Corporations'
attorneys;
(b) Have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations, except that annual
meetings of shareholders and directors were not held in each year of the
existence of each of the Corporations; and
(c) Are accurate and complete and reflect either by
general or specific resolution all material corporate transactions authorized by
the Board of Directors and/or shareholders of the Corporations.
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 of the Corporations is authorized to collect
and haul industrial, commercial and residential solid waste (the "COLLECTION
FRANCHISES"), and of all other material permits, licenses, titles (excluding
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 of the Corporations
(collectively the "GOVERNMENTAL Permits") owned by, issued to, held by or
otherwise benefiting one or more of the Corporations or the Shareholders as of
the Signing Date. The status of the Governmental Permits related to the disposal
areas owned or operated by the Corporations, including, without limitation, any
conditions thereto and, if applicable, the
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expiration dates thereof, are also described in Schedule 3.10(a). Schedule
3.10(a) also sets forth the name of any governmental agency or other third party
from whom the Shareholders, the Corporations or WCI must obtain consent (the
"REQUIRED GOVERNMENTAL CONSENTS") in order to effect a direct or indirect
transfer of the Collection Franchises or other Governmental Permits required as
a result of the consummation of the transactions contemplated by this Agreement.
Except for any filings by the Corporations required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR ACT"), the filing of the Filed
Plans with the Secretary of State of Washington in connection with the Mergers
and the Required Governmental Consents, no declaration, filing or registration
with, or notice to, or authorization, consent or approval or permit of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement or the Filed Plans by any Corporation or the
consummation by any Corporation of the transactions contemplated hereby or
thereby. 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 valid and in full force and effect and have been duly obtained, no
other Collection Franchises or Governmental Permits or other agreements are
required to operate the business of any of the Corporations or any Corporate
Property as presently operated, and there are no proceedings pending or, to the
knowledge of the Corporations or the Shareholders, threatened which may result
in the revocation, cancellation, suspension or adverse modification of any of
the same. Neither any of the Corporations nor any of the Shareholders has any
knowledge of any reason why all such Collection Franchises and Governmental
Permits will not remain in effect for the period or term stated therein, subject
to WCI's full compliance therewith, after consummation of the transactions
contemplated hereby.
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(b) Schedule 3.10(b) includes (i) all notifications,
reports, permit and license applications (other than items included in Schedule
3.10(a)), engineering and geologic studies, and environmental impact reports,
tests or assessments applicable to Corporate Property (collectively, "RECORDS,
NOTIFICATIONS AND REPORTS") that are material to the operation of the business
of each of the Corporations, and (A) 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 (B) were filed with or submitted to
appropriate governmental agencies during the 24 months prior to the Signing Date
by any of the Corporations or the Shareholders or their agents with respect to
the business of any of the Corporations, and (ii) all material notifications
from such governmental agencies to the Corporations, the Shareholders or their
agents in response to or relating to any of such Records, Notifications and
Reports.
(c) Schedule 3.10(c) lists each facility owned, leased,
operated or otherwise used by the Corporations, the ownership, lease, operation
or use of which is being transferred to, assumed by or otherwise acquired
directly or indirectly by WCI pursuant to this Agreement (each, a "FACILITY" and
collectively, the "FACILITIES"). Except as otherwise disclosed on Schedule
3.10(c):
(i) Each Facility owned by any of the Corporations
or owned by any of the Shareholders or an Affiliate (as hereinafter defined) of
any of the Shareholders and leased to one of the Corporations 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, none of such Facilities or the current
use thereof constitutes a non-conforming use or is otherwise subject to any
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restrictions regarding the operation, renovation or reconstruction thereof,
except for restrictions of general application under applicable laws, rules and
regulations. To the knowledge of the Corporations and the Shareholders, no
Facility that is leased by any of the Corporations from a non-Affiliate or the
current use thereof constitutes a material non-conforming use or is otherwise
subject to any material restrictions regarding the operation, renovation or
reconstruction thereof, except for restrictions of general application under
applicable laws, rules and regulations.
(ii) To the knowledge of the Corporations and the
Shareholders, there are no circumstances, conditions or reasons which will cause
the 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 any of the Corporations or owned by
any of the Shareholders or an Affiliate of any of the Shareholders and leased to
any of the Corporations, and to the knowledge of the Corporations and the
Shareholders there are no circumstances, conditions or reasons which will cause
the revocation or suspension of any site assessment, permits, licenses,
consents, authorizations, zoning or land use permits, variances or approvals
relating to any Facility leased by any of the Corporations from a third party
who is not an Affiliate of the Shareholders.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of
the Signing Date of the accounts and notes receivable of the Corporations 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
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the case of a corporation includes its 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 included in Corporate
Property (as defined below)) of the Corporations, including, without limitation,
identification of each vehicle by description and serial number, identification
of machinery, equipment and general descriptions of parts, supplies and
inventory. Except as described on Schedule 3.12(a), all of the Corporations'
containers, vehicles, machinery and equipment necessary for the operation of the
Corporations' businesses are in operable condition, ordinary wear and tear
excepted, and all of the motor vehicles and other rolling stock of the
Corporations are in material compliance with all applicable laws, rules and
regulations. All leases of such fixed assets are in full force and effect and
binding upon the parties thereto; neither any of the Corporations nor, to the
knowledge of the Corporations or any of 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 of the Corporations as of the Signing Date (the "CORPORATE
PROPERTY"), including the street address thereof, is listed on Schedule 3.12(b),
and attached to said Schedule 3.12(b) are copies of all leases, deeds,
outstanding mortgages, other encumbrances and any existing title insurance
policies or lawyer's title opinions relating to each Corporate Property. At
least twenty (20) days
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prior to the Closing Date, the Corporations shall deliver to WCI a current
commitment for title insurance issued by a title insurance company satisfactory
to WCI (the "TITLE REPORTS") with respect to each Corporate Property owned or
being purchased by any of the Corporations or leased by the Corporations at 4622
70th Avenue, Fife, Washington, together with copies of all of the title
exceptions referred to in each such commitment. All leases listed on Schedule
3.12(b) are in full force and effect and binding on the parties thereto; neither
any of the Corporations nor any other party to any such lease that is an
Affiliate of any of the Corporations or any of the Shareholders, nor, to the
knowledge of the Corporations and the Shareholders, any other party to any such
lease is in breach of any of the material provisions thereof; to the knowledge
of the Corporations and the Shareholders, the landlord's interest in each such
lease has not been assigned to any third party nor, except as provided in
Schedule 3.12(b), has any such interest been mortgaged, pledged or hypothecated;
and none of the Corporations has assigned any such lease or sublet all or any
part of the Corporate Property which is the subject of any such lease. Except as
described on Schedule 3.12(b), to the knowledge of the Corporations and the
Shareholders, there are no material physical or mechanical latent defects not
apparent on visual inspection in any Facility located on any Corporate Property.
(c) Each of the Corporations has or prior to the Closing
will have good, valid and marketable title to, or the right to lease, all of its
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, and do not materially impair the value of the
Corporations; (iii) the liens identified on Parts I and III of
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Schedule 3.8 and Schedule 3.22(a); and (iv) such other covenants, conditions,
easements, reservations and restrictions of record as appear on the Title
Reports (collectively, the "Permitted Liens"). Except as described on Schedule
3.12(b), there are no leases, occupancy agreements, options, rights of first
refusal or any other agreements or arrangements, either oral or written, that
create or confer in any person or entity the right to acquire, occupy or
possess, now or in the future, any Facility, any Corporate Property, or any
portion thereof, or create in or confer on any person or entity any right, title
or interest therein or in any portion thereof.
3.13 RELATED PARTY TRANSACTIONS. Except as disclosed on Schedule
3.13, 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 of
the Corporations not disclosed or reflected in the Financial Statements. Except
as disclosed on Schedule 3.13, none of the Shareholders or their Affiliates owns
any direct or indirect interest of any kind in, or controls or is a director,
officer, employee, shareholder or partner of, or consultant or lender to or
borrower from or has the right to participate in the profits of, any Person
which is a competitor, supplier, customer, landlord, tenant, creditor or debtor
of the Corporations, other than interests as a record or beneficial owner of
less than five percent (5%) of a class of capital stock of a corporation listed
on a national securities exchange or on the NASDAQ Stock Market.
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 and agreements that are
listed on other Schedules to this
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Agreement) to which each of the Corporations is a party or by which it or any of
its property is bound. Except as disclosed on Schedule 3.14(a) or such other
Schedules, all such contracts and agreements included in Schedule 3.14(a) or
such other Schedules are in full force and effect and binding upon the parties
thereto. Except as described or cross referenced on Schedule 3.14(a) or such
other Schedules, none of the Corporations nor, to the Corporations' or any
Shareholder's knowledge, any other parties to such contracts and agreements is
in breach thereof; and to the Corporation's or any Shareholder's knowledge none
of the parties has threatened to breach any of the material provisions thereof
or notified the Corporations 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 of the
Corporations, the result of which could materially adversely affect any of the
Corporations or its business or any of the Corporate Properties, nor has any of
the Corporations been notified that any such judgment, order, writ, injunction
or decree has been requested.
(c) Except as set forth on Schedule 3.14(c), none of the
Corporations is a party to any agreement which (i) purports to restrict or
prohibit in any material respect any of them or any Affiliate corporation from,
directly or indirectly, engaging in any business currently engaged in by the
Corporations or any Affiliate corporation or (ii) would restrict or prohibit WCI
or any subsidiary of WCI from engaging in such business. None of the
Corporations' officers, directors or key employees is a party to any agreement
which, by virtue of such person's relationship with any Corporation, restricts
in any material respect any Corporation or any Affiliate of any Corporation
from, directly or indirectly, engaging in any such business.
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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 of the Corporations in respect of the Corporate Properties or any
other property used by the Corporations 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. During the last five years, there has been no
lapse in any material insurance coverage of any of the Corporations. 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 of
the Corporations and the insurer has assumed defense of each suit or legal
proceeding. To the knowledge of the Corporations and the Shareholders, 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 of the Corporations 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 of
the Corporations' motor vehicles. Except as set forth on Schedule 3.16, all
written or oral employment contracts with employees of the Corporations are
terminable "at will" without payment of severance or other benefits (including,
without limitation, stock options or other rights to obtain equity in the
Corporations).
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3.17 BENEFIT PLANS AND UNION CONTRACTS.
(a) Schedule 3.17(a) is a complete list as of the Signing
Date, and includes 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 of the Corporations (other than union
contracts and agreements between a Corporation and any collective bargaining
group ("UNION CONTRACTS")), including employment agreements and any other
agreements containing "GOLDEN PARACHUTE" provisions, retirement and welfare
benefit plans (including those provided for in or pursuant to all Union
Contracts) 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), none of the Corporations 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 other than those arising under a Union Contract. 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. Except as
disclosed on Schedule 3.17(a), all such plans that are intended to qualify under
Section 401(a) of the 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) under such plans (other than plans
provided for in or pursuant to all Union Contracts) have been timely filed or
distributed, and copies thereof for the period from January 1, 1996, to
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the Signing Date, are included as part of Schedule 3.17(a). All employee benefit
plans listed on such Schedule other than those provided for in or pursuant to
Union Contracts have been operated substantially in accordance with the terms
and provisions of the plan documents and all related documents and policies.
None of the Corporations has 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, and none of the Corporations and, to the knowledge of the Corporations and
the Shareholders, no party-in-interest or disqualified person, has engaged in
any transaction or other activity which would give rise to such liability. None
of the Corporations 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 of the Corporations 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 Effective Time. No employee
pension benefit plan listed on Schedule 3.17 is under funded on a termination
basis as of the date of this Agreement.
(b) Schedule 3.17(b) is a complete list, and includes copies, of all Union
Contracts. Except as set forth on Schedule 3.17(b), each of the Corporations is
in compliance in all material respects with all Union Contracts and all
applicable federal and state laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and none of the Corporations is engaged in any
unfair labor practice. Except as set forth on Schedule 3.17(b), there is no
charge pending or, to any of the Corporations' or any Shareholder's knowledge,
threatened, against any of the Corporations 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
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practice against any of the Corporations pending before the National Labor
Relations Board. There is no labor strike, dispute, slow down or stoppage as of
the Signing Date, existing or to the knowledge of the Corporations or the
Shareholders threatened, against any of the Corporations; no union
organizational activity exists respecting employees of any of the Corporations
who are not currently subject to a Union Contract, and Schedule 3.17(b) contains
a list of all arbitration or grievance proceedings that have occurred since the
Balance Sheet Date. No one is now petitioning for union representation of any
employees of any of the Corporations who are not currently subject to a Union
Contract. Except as set forth on Schedule 3.17(b), none of the Corporations has
experienced any labor strike, slow-down, work stoppage or labor difficulty
during the last five years.
(c) Except as set forth on Schedule 3.17(c), no payment
made to any employee, officer, director or independent contractor of any of the
Corporations (the "RECIPIENT") pursuant to any employment contract, severance
agreement or other arrangement (the "GOLDEN PARACHUTE PAYMENT") will be
nondeductible by any of the Corporations because of the application of Sections
280G and 4999 of the Code to the Golden Parachute Payment, nor will any of the
Corporations 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 of the Corporations has timely filed or will
timely file 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
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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 of the Corporations relating to federal,
state, local or other taxes (including penalties and interest) for any period or
periods prior to and including the Signing Date and no notice of any claim for
taxes has been received that remains open. Copies of (i) any tax examinations,
(ii) extensions of statutory limitations, and (iii) the federal income tax
returns of each of the Corporations for its last three fiscal years, are
attached as part of Schedule 3.18. The Corporations are not required to file
state income tax returns or to pay state income tax. Copies of all other
federal, state, local and other tax and information returns for all prior years
of each of the Corporations' existence have been made available to WCI and are
among the records of each of the Corporations that will accrue to WCI at the
Closing. Except as set forth in Schedule 3.18, none of the Corporations 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 each of the Corporations) each of
the Corporations 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 of the Corporations are adequate to cover its tax
liability as of the Signing Date.
(c) Each of the Corporations 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
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have been duly filed by the Corporations 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, 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 WCI 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 the Corporations under
such leases, instruments, agreements, licenses, permits, certificates or other
documents will not be materially adversely affected by the transactions
contemplated hereby. 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 and such consents and approvals as are listed on Schedule 3.19.
3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES. The
Corporations have made available to WCI a current, accurate and complete list,
or computer disk listing, customers that each of the Corporations serves on an
ongoing basis, including name, location and current billing rate, as of the
Balance Sheet Date and an accurate and complete aging of all accounts and notes
receivable from customers as of the Balance Sheet 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 Schedules 3.11
and 3.20, to the knowledge of the Corporations and the Shareholders, each of the
Corporations' accounts and
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notes receivable are collectible in the amounts shown on Schedules 3.11 and
3.20. Schedule 3.20 includes the average monthly revenues of each of the
Corporations derived from billings to its customers for the twelve months
preceding the Signing Date. Except as set forth on Schedule 3.20, none of the
Corporations nor any of the Shareholders has knowledge of any fact (other than
general economic and industry conditions) which indicates that any of the
Corporations' average monthly revenues derived from billings to its customers
after the Closing Date should not continue at approximately the same rate as
before the Closing Date.
3.21 NO CHANGE WITH RESPECT TO THE CORPORATIONS. Except as set
forth on Schedule 3.21, since the Balance Sheet Date, the business of each of
the Corporations has been conducted only in the ordinary course and there has
been no change in the condition (financial or otherwise) of the assets,
liabilities or operations of the Corporations 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 of the
Corporations, since the Balance Sheet Date, there has not been:
(a) Any material change in its financial condition,
assets, liabilities (contingent or otherwise), income, operations or business
which would have a material adverse effect on the financial condition, assets,
liabilities (contingent or otherwise), income, operations or business of such
Corporation, taken as a whole (a "MATERIAL ADVERSE EFFECT");
(b) Any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting any material portion of its
properties or business;
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(c) Any change in or agreement to change (i) its
shareholders, (ii) ownership of its authorized capital or outstanding
securities, or (iii) its securities;
(d) Any declaration or payment of, or any agreement to
declare or pay, any dividend or distribution in respect of its capital stock or
any direct or indirect redemption, purchase or other acquisition of any of its
capital stock;
(e) Any increase or bonus or promised increase or bonus in
the compensation payable or to become payable by it, in excess of usual and
customary practices, to any of its directors, officers, employees or agents, or
any accrual or arrangement for or payment of any bonus or other special
compensation to any employee or any severance or termination pay paid to any of
its present or former officers or other key employees;
(f) Any labor dispute or any other event or condition of
any character (other than general economic conditions) with respect to any of
its employees which could have a Material Adverse Effect;
(g) Any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other person,
including, without limitation, the Shareholders and their Affiliates, other than
in the ordinary course of business;
(h) Any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including, without
limitation, any indebtedness or obligation of any of the Shareholders or any
Affiliate thereof;
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(i) Any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its assets,
property or rights or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) Any purchase or acquisition of, or any agreement, plan
or arrangement to purchase or acquire, any of its property, rights or assets
outside the ordinary course of its business;
(k) Any waiver of any of its material rights or claims;
(l) Any new or any amendment or termination of any
existing material contract, agreement, license, permit or other right to which
it is a party; or
(m) Any other material transaction outside the ordinary
course of business.
3.22 BALANCE SHEET DATE DEBT; BALANCE SHEET DATE CURRENT ASSETS
AND BALANCE SHEET DATE CURRENT LIABILITIES.
(a) Schedule 3.22(a) lists, and includes copies of the
related notes, loan agreements, security agreements, pledge agreements,
mortgages and other instruments giving rise to any lien on any Corporation's
assets, leases and other instruments, (i) the amount of the aggregate debt
(other than trade payables) of each of the Corporations outstanding on the
Balance Sheet Date to be repaid by WCI or one of the Surviving Corporations at
or immediately after the Effective Time and all prepayment penalties incurred or
to be incurred by WCI or one of the Surviving Corporations in connection with
the repayment of any such debt, (ii) the amount of the aggregate debt (other
than trade payables) of the Corporations outstanding on the Balance
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Sheet Date which will remain outstanding obligations of one of the Surviving
Corporations after the Effective Time, and all prepayment penalties applicable
to such debt if repaid prior to maturity, including in each case all interest
accrued through and including the Balance Sheet Date, (iii) the aggregate amount
of the present value as of the Balance Sheet Date, 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 each of the Corporations by a third party lender
in connection with its most recent borrowing to finance equipment, of all
equipment lease obligations of the Corporations that are not capitalized lease
obligations, and (iv) the aggregate amount of the present value as of the
Balance Sheet Date of all capitalized equipment lease obligations (determined in
accordance with generally accepted accounting principles) of each of the
Corporations (the "BALANCE SHEET DATE DEBT").
(b) Schedule 3.22(b) sets forth the amount of the
aggregate current liabilities (including any reserve for unpaid taxes and
excluding the current and other portions of long-term and other debt to the
extent such portions are included in Balance Sheet Date Debt) and trade payables
of each of the Corporations as of the Balance Sheet Date (the "BALANCE SHEET
DATE CURRENT LIABILITIES") and the amount of the aggregate cash and other
current assets of each of the Corporations as of the Balance Sheet Date,
including prepaid expenses the benefit of which will survive the Effective Time
and the accounts receivable of the Corporations earned prior to the Balance
Sheet Date, and collectible (less an allowance for doubtful accounts) on or
after the Balance Sheet Date (the "BALANCE SHEET DATE CURRENT ASSETS").
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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 each of the
Corporations 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 each of the Corporations; 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 of the Corporations has complied with, and each of the Corporations is
presently in compliance with, federal, state and local laws, ordinances, codes,
rules, regulations, Governmental Permits, orders, judgments, awards, decrees,
consent judgments, consent orders
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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 Environmental Laws (as defined below). Except as disclosed
on Schedule 3.24, there has been no assertion to the knowledge of the
Corporations or the Shareholders by any party that any of the Corporations is in
violation of any Laws. Specifically and without limiting the generality of the
foregoing, except as disclosed on Schedule 3.24:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, Environmental Laws, none of the
Corporations has accepted, processed, handled, transferred, generated, treated,
stored or disposed of any Hazardous Substances (as defined below) nor has any of
the Corporations 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 each of the Corporations' ownership or leasing
of the Corporate Property owned or leased by it and, to the knowledge of the
Corporations and the Shareholders, prior to the Corporations' ownership or
leasing of such Corporate Property, no Hazardous Substances, other than that
allowed under Environmental Laws, has been disposed of, or otherwise released on
any Corporate Property.
(c) During each of the Corporations' ownership or leasing
of the Corporate Property owned or leased by it and, to the knowledge of the
Corporations and the Shareholders, prior to each of the Corporations' ownership
or leasing of such Corporate Property, no Corporate Property has ever been
subject to or received any notice of any private, administrative or judicial
action, or notice of any intended private, administrative or judicial
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action relating to the presence or alleged presence of any Hazardous Substance
in, under, upon or emanating from any Corporate Property or any real property
now or previously owned or leased by any of the Corporations. There are no
pending and, to the Corporations' and Shareholders' knowledge, no threatened
actions or proceedings from any governmental agency or any other entity
involving remediation of any condition of the Corporate Property, including,
without limitation, petroleum contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, none of
the Corporations has knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Substance, to any site, location or
facility.
(e) As used herein, "ENVIRONMENTAL LAW" means any federal,
state, local or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, legal doctrine, order,
judgment, decree, injunction, requirement or agreement with any governmental
entity applicable to the Corporations relating to (x) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource) or
to human health or safety or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
"ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto (the "RCRA")), the Federal Solid Waste
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Disposal Act and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational Safety
and Health Act of 1970, each as amended, and (ii) any common law or equitable
doctrine applicable to the Corporations (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(f) As used herein, "HAZARDOUS SUBSTANCE" means any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
(g) With respect to the disclosure on Schedule 3.24 that
the Hidden Valley Landfill is a federal Superfund site, to the knowledge of the
Corporations and the Shareholders Pierce County is responsible for closure and
post-closure costs relating to the closure of such landfill and such costs have
been fully funded. None of the Corporations has been notified that it is a
potentially responsible party under Environmental Laws with respect to any
clean-up, closure or post-closure costs relating to such landfill, and none of
the Corporations has entered into any written or oral agreement or understanding
to bear any portion of such costs.
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3.25 POWERS OF ATTORNEY. None of the Corporations 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 of the Corporations 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 other Environmental Laws
have been put on or under any Corporate Property by the Corporations or the
Shareholders or, to the knowledge of the Corporations or the Shareholders, any
other party, and are currently or have been located on any Corporate Property.
Except as set forth on Schedule 3.26, none of the Corporations has owned or
leased any real property not included in the Corporate Property having any
underground storage tanks containing petroleum products or wastes or other
hazardous substances regulated by 40 CFR 280 or other Environmental Laws that
were put on or under any such real property by the Corporations or the
Shareholders, or, to the knowledge of the Corporations or the Shareholders, any
other party and are currently on such real property. As to each such underground
storage tank ("UST") identified on Schedule 3.26, each of the Corporations has
provided to WCI, on Schedule 3.26:
(a) The location of the UST, information and material,
including any available drawings and photographs, showing the location, and
whether any of the Corporations currently owns or leases the property on which
the UST is located (and if one of the Corporations does not currently own or
lease such property but did own or lease such property at some time, the dates
on which it did and the current owner or lessee of such property);
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(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 any of
the Corporations' or the Shareholders' knowledge, the UST failed to meet
applicable standards and regulations for tightness or otherwise and the extent
of such failure, and any other operational or environmental problems with regard
to the UST, including, without limitation, spills, including spills in
connection with delivery of materials to the UST, releases from the UST and soil
contamination. Except to the extent set forth on Schedule 3.26, each of the
Corporations 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 of the Corporations or which it is licensed to use
(other than licenses to use software for personal computer operating systems
that were provided when the computer was purchased and licenses to use software
for personal computers that are granted to retail purchasers of such
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software). Except as set forth on Schedule 3.27, to the knowledge of each of the
Corporations and each of the Shareholders, no trade secrets, know-how,
intellectual property, trademarks, trade names, assumed names, copyrights, or
designations used by any of the Corporations in its business infringe on any
patents, trademarks, or copyrights, or any other rights of any person. Except as
set forth on Schedule 3.27, none of the Corporations 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 of the Corporations
owns or leases all properties and assets, real, personal, and mixed, tangible
and intangible, that are necessary for it to carry on its business as presently
conducted.
3.29 CONDEMNATION. Except as set forth on Schedule 3.29, no
Corporate Property owned or leased by any of the Corporations is the subject of,
or to the knowledge of the Corporations and the Shareholders would be affected
by, any pending condemnation or eminent domain proceedings, and, to the
knowledge of the Corporations and the Shareholders, no such proceedings are
threatened.
3.30 SUPPLIERS AND CUSTOMERS. Except as set forth on Schedule
3.30, none of the Corporations 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 any of the Corporations intends
to cease providing such items, use or access to any of the Corporations, nor
does any of the Corporations or any of the Shareholders have knowledge of
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any fact (other than general economic and industry conditions) which indicates
that any of the customers of any of the Corporations intends to terminate, limit
or reduce its business relations with any of the Corporations.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Other than lobbying
activities permitted under applicable law and except for gifts of nominal value
to public officials during the holiday season, none of the Corporations 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 of the Corporations in connection with any actual or
proposed transaction which (a) might subject any of the Corporations 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 of the
Corporations, or (c) if not continued in the future, might adversely affect the
financial condition, business or operations of any of the Corporations or which
might subject any of the Corporations to suit or penalty in any private or
governmental litigation or proceeding.
3.32 NO MISLEADING STATEMENTS. The representations and warranties
of the Corporations and the Shareholders contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to WCI and its representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made not
misleading.
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3.33 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for any of the Corporations or a
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 any of the Corporations or
a Shareholder.
3.34 S CORPORATION MATTERS. Each of the Corporations listed on
Schedule 3.34 has elected to be treated as an S Corporations within the meaning
of the Code for the years listed on Schedule 3.34. Schedule 3.34 includes an
accurate disclosure of taxable income reported by each of the Corporations and
of all distributions made by each of the Corporations from January 1, 1993,
through the Signing Date.
3.35 REGISTRATION STATEMENTS. None of the information to be
supplied by the Corporations or the Shareholders for inclusion in the
Registration Statements or the Proxy Statement (the "PROXY STATEMENT") of WCI
prepared in connection with the WCI Shareholders Approval (as defined below)
when used in a manner approved in writing by the Shareholders will, at the time
of the filing of the Registration Statements or Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
stockholders of WCI and the Shareholders of the Corporations to be held in
connection with the transactions contemplated by this Agreement, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
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3.36 ACCREDITED INVESTORS. Each of the Shareholders is an
"accredited investor" as defined in Rule 501(a) under the Act.
4. REPRESENTATIONS AND WARRANTIES OF WCI AND THE MERGER SUBS.
WCI and the Merger Subs, jointly and severally, represent and warrant to
the Corporations and the Shareholders that each of the following representations
and warranties is true as of the Signing Date and will be true as of the Closing
Date:
4.1 EXISTENCE AND GOOD STANDING. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCI has full corporate power and authority to own and lease its
properties and to carry on its business as now conducted. WCI is not required to
be qualified or licensed to conduct business as a foreign corporation in any
jurisdiction where the failure to be so qualified would have a Material Adverse
Effect. Each Merger Sub. is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington. Each Merger Sub. has
full corporate power and authority to own and lease its properties and to carry
on its business as now conducted. No Merger Sub. is 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.
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
that would be violated by consummation of the transactions contemplated by this
Agreement or the Filed Plans, other than provisions in WCI's Credit Agreement
with its banks, which have been complied with prior to the Signing Date. No
provisions exist in any article, document or instrument to which any Merger Sub.
is a party or by which any of them is bound that would be violated by
consummation of the transactions contemplated by this Agreement or the Filed
Plans.
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4.3 AUTHORIZATION OF AGREEMENT. Subject to obtaining the approval
of the percentage of holders of the outstanding Shares of WCI required by NASDAQ
Rule 4310(c)(25)(H)C.2 the ("WCI SHAREHOLDERS APPROVAL"), this Agreement and the
Filed Plans have been duly authorized, executed and delivered by WCI and each
Merger Sub., and, subject to the due authorization, execution and delivery by
the Corporations and the Shareholders, constitutes a legal, valid and binding
obligation of WCI and each Merger Sub. Each of WCI and the Merger Subs. has full
corporate power, legal right and corporate authority to enter into and perform
its obligations under this Agreement and the Filed Plans and to carry on its
business as presently conducted. The execution and delivery of this Agreement
and the Filed Plans and the consummation of the transactions contemplated hereby
and thereby and the fulfillment of and compliance with the terms and conditions
hereof and thereof do not and will not, after the giving of notice, or the lapse
of time or otherwise: (a) violate any provisions of any law, regulation,
judicial or administrative order, writ, award, judgment or decree applicable to
WCI or any Merger Sub.; (b) conflict with any of the provisions of the Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws of WCI;
(c) conflict with any of the provisions of the Articles of Incorporation or
Bylaws of any Merger Sub.; or (d) conflict with, result in a breach of or
constitute a default under any material agreement or instrument to which either
WCI or any Merger Sub. is a party or by which it is bound.
4.4 STATUS OF SHARES. When delivered to the Shareholders after
the Effective Time in accordance with the terms and conditions of this
Agreement, the Aggregate WCI Stock shall have been duly authorized and delivered
shares of WCI, shall be fully paid and nonassessable, and shall have been
registered under the Act.
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4.5 GOVERNMENTAL AUTHORITIES; CONSENTS. Except for (i) the filing
of the Filed Plans with the Secretary of State of the State of Washington, (ii)
any filings by WCI and the Merger Subs. required by the HSR Act, (iii) the
filing of the Proxy Statement with the SEC pursuant to the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") and any necessary filings with
various state securities commissions, (iv) any required filings with or
approvals from The Nasdaq Stock Market, Inc. ("Nasdaq"), and (v) any required
filings with applicable state regulatory authorities, neither WCI nor any Merger
Sub. is required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by it of
this Agreement, the Filed Plans or the consummation of the transactions
contemplated hereby or thereby, and no consent, approval or authorization of any
governmental or regulatory authority or any other party or person is required to
be obtained by either WCI or any Merger Sub. in connection with its execution,
delivery and performance of this Agreement and the Filed Plans or the
transactions contemplated hereby or thereby, except such as shall have been
obtained by the Closing Date.
4.6 SEC DOCUMENTS. WCI has filed all required reports, schedules,
forms, statements, and other documents with the Securities and Exchange
Commission ("SEC") since May 22, 1998, has filed the Registration Statements and
will file the Proxy Statement (together with later filed documents that revise
or supersede earlier filed documents, the "WCI SEC DOCUMENTS"). As of their
respective dates, the WCI SEC Documents complied or will comply in all material
respects with the requirements of the Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such WCI SEC Documents. None of the WCI SEC Documents contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were or are made, not misleading. The financial statements of
WCI included in the WCI SEC Documents complied or will comply as of their
respective dates of filing with the SEC in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Regulation S-X promulgated by the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto), and are
correct and complete and fairly present the consolidated financial position of
WCI and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.7 CAPITAL STOCK.
(a) The WCI SEC Documents set forth WCI's capitalization
in all material respects. All outstanding shares of WCI Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. WCI
issued all such shares in compliance with applicable federal and state
securities laws. The WCI Common Stock is registered pursuant to Section 12(g) of
the Exchange Act and has been approved for listing on the Nasdaq National
Market, and the Aggregate WCI Stock will, upon issuance, be registered under the
Exchange Act and listed on the NASDAQ Stock Market.
(b) WCI owns, beneficially and of record, all issued and
outstanding shares of the Merger Subs., which shares are validly issued, fully
paid, and non-assessable, and
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free and clear of all liens, other than liens in favor of WCI's banks pursuant
to the terms of its Credit Agreement.
4.8 NO MISLEADING STATEMENTS. The representations and warranties
of WCI and the Merger Subs. contained in this Agreement, the Exhibits and
Schedules hereto and all other documents and information furnished to the
Corporations, the Shareholders or their representatives pursuant hereto are
accurate and complete 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 not misleading.
4.9 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for WCI or any Merger Sub. 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 or any Merger Sub.
4.10 DISCLOSURE SCHEDULES. Any matter disclosed by WCI or any
Merger Sub. 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.
5. COVENANTS OF THE CORPORATIONS AND THE SHAREHOLDERS PRIOR TO
EFFECTIVE TIME
5.1 ACCESS; CONFIDENTIAL INFORMATION. Between the Signing Date
and the Effective Time, each Corporation will afford to the officers and
authorized representatives of WCI, including, without limitation, its engineers,
counsel, independent auditors and investment
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bankers, access to the Facilities, plants, Corporate Properties and other
properties, books and records of such Corporation and will furnish WCI with such
additional financial and operating data and other information as to the business
and properties of such Corporation as WCI may from time to time reasonably
request. The Shareholders and each Corporation will cooperate with WCI, its
representatives and counsel in the preparation of any documents or other
material which may be required by any governmental agency without undo expense
to any of the Corporations or the Shareholders. WCI will cause all information
obtained from the Shareholders and the Corporations in connection with the
negotiation and performance of this Agreement to be treated as confidential
(except such information which is in the public domain or which WCI may be
required to disclose in the Registration Statements, the Proxy Statement, under
the Act or the Exchange Act, 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 Corporation or the Shareholders. Other than to Harold E. LeMay and
certain key employees of Harold E. LeMay Enterprises, Inc., the Corporations and
the Shareholders covenant and agree not to disclose to any third persons other
than their accountants, brokers, bankers, investment advisers or legal counsel
any of the terms or provisions of this Agreement prior to the date the Proxy
Statement is filed with the SEC without the prior written consent of WCI.
5.2 OPERATIONS. Between the Signing Date and the Effective Time,
each Corporation will:
(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;
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(b) maintain its equipment, assets, Corporate 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, Corporate Properties,
Facilities, business operations and rights;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) use commercially reasonable 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 such Corporation;
(g) maintain material compliance with all 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 Effective Time; and
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(i) advise WCI promptly in writing of any material change
in any document, Schedule, Exhibit, or other information delivered pursuant to
this Agreement.
5.3 NO CHANGE. Between the Signing Date and the Effective Time,
no Corporation and, in the case of paragraphs (m), (n) and (o) below, none of
the Shareholders will, without the prior written consent of WCI:
(a) make any change in its Articles of Incorporation or
Bylaws;
(b) authorize, issue, transfer or distribute any of its
securities (including issuance of any option, warrant or right with respect
thereto);
(c) 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 or
any other Corporation's capital stock;
(d) except in accordance with any contracts or commitments
entered into prior to the Signing Date or in the ordinary course of business
after the Signing Date, 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, borrow funds, or make any
single capital expenditure in excess of $10,000 or in excess of $25,000 in the
aggregate during any consecutive thirty day period without regard to whether
such capital expenditure is in the ordinary course of business;
(e) except as set forth on Schedule 5.3, 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 (except for current property taxes) 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 such Corporation's business or prohibited hereunder;
(l) revoke any S corporation election by any of the
Corporations;
(m) take any action or suffer or permit any event to occur
that would cause any representation or warranty of any Corporation or any
Shareholder to become untrue as of the Closing Date;
(n) take any action that would jeopardize the treatment of
the Mergers as a pooling of interests under Opinion No. 16 of the Accounting
Principles Board ("APB NO. 16"); or
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(o) take or fail to take any action which action or
failure to take action is reasonably likely to cause the Corporations or the
Shareholders (except to the extent of stockholders in special circumstances) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Mergers or otherwise is reasonably likely to cause the
Mergers not to qualify as a reorganization under Section 368(a) of the Code.
5.4 OBTAIN CONSENTS. Promptly after the Signing Date, the
Corporations shall make all filings and take all steps reasonably necessary to
obtain all approvals and consents required to be obtained by the Corporations or
the Shareholders to consummate the transactions contemplated by this Agreement
and otherwise to satisfy the conditions of Sections 6.7 and 6.8.
5.5 NO CHANGE IN RELATIVE OWNERSHIP. Between the Signing Date and
the Effective Time, there will be no change in voting structure or relative
ownership of any Corporation without the prior consent of WCI.
5.6 CONTROL OF THE CORPORATIONS' OPERATIONS. Nothing contained in
this Agreement shall give to WCI, directly or indirectly, rights to control or
direct any Corporation's operations prior to the Effective Time. Prior to the
Effective Time, each Corporation shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
5.7 ACQUISITION TRANSACTIONS. From the Signing Date to the
Effective Time, or earlier termination of this Agreement, no Corporation nor any
Shareholder shall initiate, solicit, negotiate, encourage or provide information
to facilitate, and each of the Corporations and the Shareholders shall not, and
shall use his, her or its reasonable efforts to cause any officer, director or
employee of each Corporation, or any attorney, accountant, investment banker,
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financial advisor or other agent retained by him, her or it not to, initiate,
solicit, negotiate, encourage or provide information to facilitate, any proposal
or offer to acquire all or any substantial part of the business or properties of
any Corporation or any capital stock (including without limitation the
Corporation's Stock) of any Corporation, whether by merger, purchase of assets
or otherwise, whether for cash, securities or any other consideration or
combination thereof (any such transactions being referred to herein as an
"ACQUISITION TRANSACTION"). Each Corporation and Shareholder shall immediately
notify WCI after receipt of any proposal for an Acquisition Transaction,
indication of interest or request for information relating to any Corporation in
connection with an Acquisition Transaction or for access to the properties,
books or records of any Corporation by any person or entity that informs the
Board of Directors of any Corporation that it is considering making, or has
made, a proposal for an Acquisition Transaction. Such notice to WCI shall be
made orally and in writing.
5.8 BONNIE TRUST APPROVAL. The Corporations shall seek to obtain
the Bonnie Trust Approval prior to the Closing Date. Upon execution of a
counterpart of the signature page of this Agreement in the space provided
thereon or a separate instrument agreeing to be bound to the terms and
conditions of this Agreement, the Bonnie Trust shall be bound by such terms and
conditions and shall be deemed a Shareholder for all purposes of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI AND THE MERGER SUBS.
TO CLOSE The obligations of WCI and the Merger Subs. under this Agreement are
subject to the satisfaction, at or before Closing, of all of the following
conditions precedent, unless waived in writing by WCI:
6.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Corporations and the Shareholders contained in this Agreement
or in any Exhibit, Schedule, certificate or document delivered by the
Corporations and the Shareholders under this Agreement
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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 as of the Closing Date.
6.2 CONDITIONS. The Corporations 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 financial condition,
business, properties or assets of any Corporation.
6.4 CERTIFICATES. The President and Chief Financial Officer of
each Corporation shall have delivered to WCI a certificate, dated as of the
Closing Date, in form and substance satisfactory to WCI, 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 WCI a certificate dated as of the Closing
Date, in form and substance satisfactory to WCI, certifying to the fulfillment
of the conditions set forth in Section 6.1 and 6.2 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 concerning the transactions contemplated hereby.
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6.6 OTHER DELIVERIES. The Corporations and Shareholders shall
have delivered the items which they are required to deliver under Section 8.2 of
this Agreement.
6.7 GOVERNMENTAL APPROVALS. All governmental consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement, including without limitation those contemplated
by Sections 6.12 and 6.13, shall have been received.
6.8 CONSENTS TO TRANSFER. Each party whose consent is required to
the transactions contemplated by this Agreement, including without limitation
each party to any contract with any Corporation and each Required Governmental
Consent shall have been obtained.
6.9 OPINION OF INDEPENDENT PUBLIC ACCOUNTANTS. WCI shall have
received a letter from Ernst & Young LLP, its independent auditors, regarding
that firm's concurrence with WCI's management's conclusions as to the
appropriateness of pooling of interests accounting for the Mergers under APB No.
16 if closed and consummated in accordance with this Agreement.
6.10 WCI SHAREHOLDERS APPROVAL. The WCI Shareholders Approval by
the requisite vote of the Shareholders of WCI under applicable law and
applicable NASDAQ requirements shall have been obtained.
6.11 NASDAQ LISTING. An additional listing application shall have
been filed with NASDAQ with respect to the shares of Aggregate WCI Stock.
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6.12 HSR WAITING PERIOD. The waiting period applicable to the
consummation of the Mergers under the HSR Act, if any, shall have expired or
been terminated.
6.13 REGISTRATION STATEMENTS. The Registration Statements shall
then be effective under the Act.
6.14 DISSENTING SHARES. No Shareholder shall have exercised
appraisal rights in accordance with Section 23B.13.010 et seq. of the Washington
Law with respect to any shares of any Corporation's Stock.
6.15 TITLE INSURANCE. First American Title Insurance Company
shall be irrevocably committed to issue, within three business days after the
Effective Time, at WCI's cost and expense, an ALTA Owner's Standard Policy of
title insurance for each Corporate Property owned by any of the Corporations
insuring fee simple title to such Corporate Property in the Surviving
Corporation succeeding to such Corporate Property, subject only to current real
property taxes and assessments, standard printed conditions and exceptions, and
such title exceptions as shall have been accepted in writing by WCI, containing
such endorsements as WCI may reasonably require.
6.16 TERMINATION OF EMPLOYMENT AGREEMENTS. The current employment
agreements between MDC, on the one hand, and Donald and Irmgard, on the other
hand, shall have been terminated effective as of the Closing Date.
6.17 LEMAY AGREEMENT. Should the Corporations determine that any
additional waiver is required from Harold LeMay Enterprises, Inc., relating to
that certain
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Agreement dated December 11, 1974, MDC, AD and certain other persons, such
waiver shall have been obtained.
6.18 ALL MERGERS TO OCCUR. All of the Mergers shall occur at
substantially the same time and no Merger shall be deemed closed unless all have
closed.
6.19 DISPOSAL ARRANGEMENTS. The Corporation's shall have entered
into the Agreement Regarding Future Disposal (the "DISPOSAL AGREEMENT")
substantially in the form of Exhibit 6.19 attached hereto.
6.20 BONNIE TRUST APPROVAL. The Bonnie Trust Approval shall have
been obtained and the Bonnie Trust shall have satisfied its obligations pursuant
to Section 5.8.
6.21 REAL ESTATE DUE DILIGENCE. WCI shall have reviewed all of
the Schedules to this Agreement relating to the Corporate Property and all
documents related to each parcel of real property leased, owned or being
purchased by any of the Corporations, and all such Schedules and documents shall
be reasonably satisfactory to WCI or any problems reflected in, or indicated by,
such Schedules or documents shall have been resolved to the reasonable
satisfaction of WCI.
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE CORPORATIONS AND THE
SHAREHOLDERS TO CLOSE. The obligations of the Corporations and the Shareholders
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
Corporations and the Shareholders:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of WCI and the Merger Subs. contained in this Agreement or in any
statement, Exhibit, Schedule, certificate or document delivered by WCI under
this Agreement shall be true, correct and
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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. WCI and the Merger Subs. shall have each
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.
7.3 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 WCI.
7.4 CERTIFICATE. The President of WCI shall have delivered to the
Corporations and the Shareholders a certificate dated as of the Closing Date, in
form and substance satisfactory to the Corporations and the Shareholders,
certifying to the fulfillment of the conditions set forth in Sections 7.1, 7.2
and 7.3.
7.5 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 concerning the transactions contemplated hereby.
7.6 OTHER DELIVERIES. WCI shall have delivered the items which it
is required to deliver under Section 8.1 of this Agreement.
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7.7 CONSENTS TO TRANSFER. Each party whose consent is required to
the transactions contemplated by this Agreement, including without limitation
each party to any contract with any Corporation and all Required Governmental
Consents shall have been obtained.
7.8 NASDAQ LISTING. An additional listing application shall have
been filed with NASDAQ with respect to the shares of Aggregate WCI Stock.
7.9 HSR WAITING PERIOD. The waiting period applicable to the
consummation of the Mergers under the HSR Act, if any, shall have expired or
been terminated.
7.10 REGISTRATION STATEMENTS. The Registration Statements shall
then be effective under the Act.
7.11 GOVERNMENTAL APPROVALS. All governmental consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement, including without limitation those contemplated
by Sections 6.12 and 6.13, shall have been received.
7.12 OPINION OF INDEPENDENT PUBLIC ACCOUNTANTS. WCI shall have
received a letter from Ernst & Young LLP, its independent auditors, regarding
that firm's concurrence with WCI's management's conclusions as to the
appropriateness of pooling of interests accounting for the Mergers under APB No.
16 if closed and consummated in accordance with this Agreement.
7.13 LEMAY AGREEMENT. Should the Corporations determine that any
additional waiver is required from Harold LeMay Enterprises, Inc., relating to
that certain
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Agreement dated December 11, 1974, MDC and AD and certain other persons (the
"LEMAY AGREEMENT"), such waiver shall have been obtained.
7.14 ALL MERGERS TO OCCUR. All of the Mergers shall occur at
substantially the same time and no Merger shall be deemed closed unless all have
closed.
7.15 TAX MATTERS. The Shareholders shall be reasonably satisfied
that the Mergers will constitute reorganizations within the meaning of Section
368(a) of the Code and no gain or loss will be recognized by the Shareholders
upon the exchange of their Corporations' Stock solely for shares of Aggregate
WCI Stock.
7.16 DISPOSAL ARRANGEMENTS. The Corporations shall have entered
into the Disposal Agreement.
7.17 BONNIE TRUST APPROVAL. The Bonnie Trust Approval shall have
been obtained and the Bonnie Trust shall have satisfied its obligations pursuant
to Section 5.8.
8. CLOSING DELIVERIES
At the Closing or at or after the Effective Time, as the case may be,
the respective parties shall make the deliveries indicated:
8.1 WCI DELIVERIES.
(a) At or promptly after the Effective Time of each of the
Mergers, WCI shall deliver to the Shareholders certificates for the shares of
WCI Stock in accordance with Section 2.4.
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(b) WCI shall execute and deliver to Donald and Irmgard
counterparts of Employment Agreements substantially in the form of Exhibits
8.1(b) and 8.1(b).2, respectively (the "EMPLOYMENT AGREEMENTS").
(c) At the Closing, WCI shall deliver to the Shareholders
an opinion of counsel for WCI dated as of the Closing Date in substantially the
form attached hereto as Exhibit 8.1(c).
(d) At the Closing, WCI shall deliver the Filed Plans,
duly executed by WCI and the respective Merger Subs.
(e) At the Closing, WCI and the Merger Subs. shall execute
and deliver such other instruments and items as the Corporations or the
Shareholders shall reasonably request relating to the transactions contemplated
by this Agreement.
(f) WCI shall execute and deliver to the Shareholders
counterparts of a Common Stock Agreement substantially in the form of Exhibit
8.1(f) (the "COMMON STOCK AGREEMENT").
8.2 SHAREHOLDERS' DELIVERIES.
(a) At or promptly after the Effective Time, the
Shareholders shall deliver to WCI in accordance with Section 2.4 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.
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(b) At the Closing, the Shareholders shall deliver to WCI
an opinion of one or more counsel for the Shareholders, dated as of the Closing
Date, covering in substance the matters described in Exhibit 8.2(b).
(c) At the Closing, the Shareholders shall deliver
evidence reasonably satisfactory to WCI that all required third-party consents
to the transactions contemplated hereby, including without limitation all
Required Governmental Consents, were obtained and the Corporations or the
Shareholders shall deliver an estoppel certificate from the landlords under all
real estate leases to which each of the Corporations is a party confirming the
terms thereof and the rental amount owing thereunder, certifying that such lease
is in full force and effect, that the Corporation is not in default under any of
the terms or conditions thereof, that there have been no amendments or
modifications to any such lease (or specifying the same), and otherwise
containing such statements and certifications as WCI may reasonably require.
(d) At the Closing, the Shareholders shall cause each
officer and director of each of the Corporations to deliver a resignation as an
officer and/or director of that Corporation, together with a general release
releasing the Corporations from all obligations under any indemnification
agreements, the charter documents of the Corporations, or otherwise, to
indemnify such officers and directors for liabilities and expenses 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.
(e) At the Closing, the Shareholders shall deliver the
Filed Plans duly executed by the respective Corporations.
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(f) At the Closing, the Shareholders shall execute and
deliver such other instruments and items as WCI shall reasonably request
relating to the transactions contemplated by this Agreement.
(g) At the Closing, the Shareholders shall execute and
deliver the Affiliate Letter (the "AFFILIATE LETTER") substantially in the form
of Exhibit 8.2(g).
(h) Donald and Irmgard shall execute and deliver to WCI
counterparts of their respective Employment Agreements.
(i) The Shareholders shall execute and deliver to WCI the
Common Stock Agreement.
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATIONS AND THE
SHAREHOLDERS
9.1 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to
obtain the termination and release promptly after the Effective Time of the
personal guaranties of the Shareholders listed on Schedule 9.1, all of which
relate to indebtedness of the Corporations included in the Financial Statements
as of the Balance Sheet Date, and WCI shall indemnify the Shareholders and hold
them harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by each Corporation as of the Effective
Time that 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.
9.2 RELEASE OF SECURITY INTERESTS. After the Effective Time, the
Shareholders and their respective Affiliates shall cause those security
interests in the assets of the Corporations
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that have been created in favor of financial institutions or other lenders to
secure indebtedness (other than indebtedness of that Corporation) of the
Shareholders or their respective Affiliates to be released in a manner
reasonably satisfactory to WCI, and shall cause all guaranties by the
Corporations relating to the indebtedness of the Shareholders to be released to
the reasonable satisfaction of WCI.
9.3 CONFIDENTIALITY. Neither WCI, the Corporations nor any of the
Shareholders shall disclose or make any public announcements of the transactions
contemplated by this Agreement except as required by the Act, the Exchange Act,
the HSR Act or in the Registration Statements or the Proxy Statement, without
the prior written consent of the other parties, unless required to make such
disclosure or announcement by law, in which event the party making the
disclosure or announcement shall notify the other parties at least 24 hours
before such disclosure or announcement is expected to be made and allow review
and input as to the form and content of the same.
9.4 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
9.5 TAXES. WCI shall reasonably cooperate, at the expense of the
Shareholders, with the Shareholders with respect to any matters involving the
Shareholders arising out of the Shareholders' ownership of the Corporations
prior to the Effective Time, including matters relating to tax returns and any
tax audits, appeals, claims or litigation with respect to such tax returns or
the preparation of such tax returns. In connection therewith, WCI shall make
available to the Shareholders such files, documents, books and records of the
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Corporations 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.
9.6 SHORT YEAR TAX RETURNS. After the Effective Time, the
Shareholders shall prepare at their sole cost and expense, all short year
federal, state, county, local and foreign tax returns required by law for the
period beginning with the first day of the applicable Corporation's fiscal year
in which the Effective Time occurs and ending with the Effective Time. Each such
return shall be prepared in a financially responsible and conservative manner
and drafts shall be delivered to WCI together with all necessary supporting
schedules within 120 days following the Effective Time for its approval, which
shall not be unreasonably withheld or delayed. The Shareholders shall each be
responsible for all taxes arising from the conversion of the Corporations from a
cash to accrual basis of reporting whether or not due on such returns or on the
first return filed by a Corporation for the period commencing after the
Effective Time. Each such return shall be prepared in a financially responsible
and conservative manner and drafts shall be delivered to the Shareholders
together with all necessary supporting schedules within 120 days following the
Effective Time for their approval, which shall not be unreasonably withheld or
delayed. At the time of the approval of the returns for each Corporation, the
Shareholders shall contemporaneously deliver to WCI checks payable to the
respective taxing authorities in amounts equal to the amount due from the
Shareholders under this section. WCI shall, upon receipt from the Shareholders,
cause the Corporations to sign tax returns and cause such returns to be timely
filed with the appropriate authorities.
9.7 MATTERS RELATED TO POOLING. The parties acknowledge that the
ability of WCI to account for the transactions contemplated herein as a "pooling
of interests" is of the
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essence of the contract. In addition to APB No. 16, the SEC has issued
Accounting Series Release Nos. 130 and 135, as amended (collectively the "ASRs")
setting forth certain restrictions applicable to the availability of
"pooling-of-interests" accounting treatment in transactions of the type
contemplated by this Agreement. No Shareholder and no Pooling Affiliate of any
Corporation or WCI shall take any action subsequent to the Effective Time to
sell or in any other way reduce such person's risk (including, by way of example
and not limitation, engaging in any put, call, short-sale, straddle or similar
market transactions) relative to any shares of WCI Stock held at the Effective
Time or received pursuant to this Agreement in such a manner as would cause the
transactions contemplated hereby not to be accounted for as a "pooling of
interests," until such time as financial results covering at least 30 days of
post-Closing combined operations of WCI and the Surviving Corporations have been
published.
9.8 REPRESENTATION LETTER. Prior to the Closing, the Corporations
and the Shareholders shall deliver a representation letter to Ernst & Young LLP,
to enable Ernst & Young LLP to deliver the letter contemplated by Section 6.10.
The representation letter provided for in this section will relate to the
criteria for the "pooling of interests" method of accounting and their relevance
to the Mergers as they relate to the Corporations.
9.9 WCI SHAREHOLDERS' APPROVAL. WCI shall call a shareholders'
meeting to be held as soon as reasonably practicable after the definitive Proxy
Statement is first sent to WCI's Stockholders, for the purpose of voting upon
and obtaining the WCI Shareholder Approval.
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9.10 NASDAQ LISTING. WCI shall file, at its expense, at or before
the Effective Time, an additional listing application with Nasdaq with respect
to the Aggregate WCI Stock to be issued pursuant to the Mergers.
9.11 AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided
and subject to the fiduciary duties of the respective boards of directors of the
Corporations and WCI, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary
or appropriate waivers, consents or approvals of third parties required in order
to preserve material contractual relationships of WCI and the Corporations, all
necessary or appropriate waivers, consents and approvals and SEC "no-action"
letters to effect all necessary registrations, filings and submissions and to
lift any injunctive or other legal bar to the Mergers (and, in such case, to
proceed with the Mergers as expeditiously as possible). At or immediately after
the Closing, WCI, the Mergers Subs., the Corporations and the Shareholders shall
cause the Filed Plans to be filed with the Secretary of State of the State of
Washington.
(b) Without limitation of the foregoing, if required by
applicable law, each of WCI and the Corporations undertakes and agrees to file
as soon as practicable, and in any event prior to 15 days after the Signing
Date, a Notification and Report Form under the HSR Act with the Federal Trade
Commission ("FTC") and the Antitrust Division of the Department of Justice (the
"ANTITRUST DIVISION"). Each of WCI and the Corporations shall (i) respond as
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promptly as practicable to any inquiries received from the FTC or the Antitrust
Division for additional information or documentation and to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters and (ii) not extend any waiting
period under the HSR Act or enter into any agreement with the FTC or the
Antitrust Division not to consummate the transactions contemplated by this
Agreement, except with the prior consent of the other parties hereto. Each party
shall promptly notify the other party of any communication to that party from
the FTC, the Antitrust Division, any State Attorney General or any other
governmental entity and permit the other party to review in advance any proposed
communication to any of the foregoing.
(c) In the event any litigation is commenced by any person
or entity relating to the transactions contemplated by this Agreement, including
any Acquisition Transaction, WCI shall have the right, at its own expense, to
participate therein, and the Corporations will not settle any such litigation
without the consent of WCI, which consent will not be unreasonably withheld.
9.12 NOTIFICATION OF CERTAIN MATTERS. Each of the Corporations,
WCI and the Shareholders agrees to give prompt notice to each other of, and to
use commercially reasonable efforts to remedy, (i) the occurrence or failure to
occur of any event which occurrence or failure to occur would be likely to cause
any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at the Effective Time and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 9.12 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
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9.13 CORRECTIONS TO REGISTRATION STATEMENTS AND PROXY STATEMENT.
Prior to the Effective Time, each of the Corporations, WCI and the Shareholders
shall correct promptly any information provided by it to be used specifically in
the Registration Statements or the Proxy Statement that shall have become false
or misleading in any material respect and WCI shall take all steps necessary to
file with the SEC and (in the case of the Registration Statements) have declared
effective by the SEC any amendment or supplement to the Registration Statements
or Proxy Statement so as to correct the same and to cause the Registration
Statements or Proxy Statement as so corrected to be disseminated to the
stockholders of WCI, the Shareholders or to other persons, in each case to the
extent required by applicable law.
10. INDEMNIFICATION
10.1 INDEMNIFICATION COVENANTS.
(a) INDEMNITY BY THE SHAREHOLDERS. The Shareholders,
jointly and severally, as to each of the Corporations (in which they are
shareholders), severally, subject to the limitations set forth in Section 10.2,
covenant and agree that they will indemnify and hold harmless WCI, the Surviving
Corporations and their respective directors, officers and agents and their
respective successors and assigns (collectively the "WCI INDEMNITEES"), from and
after the date of this Agreement against any and all losses, damages,
assessments, fines, penalties, adjustments, liabilities, claims, deficiencies,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation), including, without limitation,
any "ENVIRONMENTAL SITE LOSSES" (as such term is hereinafter defined) resulting
from activities prior to the Closing Date (but not necessarily identified or
determined prior to the Closing Date), 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
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provided that in either case any such Claims Notice shall be given or the
litigation commenced prior to the expiration of the applicable period set forth
in Section 10.2(c) (irrespective of the date of discovery), with respect to each
of the following contingencies (all, the "10.1(a) INDEMNITY EVENTS"):
(i) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the Shareholders or
the Corporations required to be fulfilled pursuant to the terms of this
Agreement on or before the Closing Date or any misrepresentation in or omission
from any Exhibit, Schedule, list, certificate, or other instrument furnished or
to be furnished to WCI pursuant to the terms of this Agreement, regardless of
whether, in the case of a breach of a representation or a warranty, WCI relied
on the truth of such representation or warranty or had any knowledge of any
breach thereof.
(ii) The design, development, installation,
construction or operation by the Corporations of any Environmental Site (as
hereinafter defined) during any period on or prior to the Effective Time, in
excess of the amount of liability with respect thereto, if any, set forth on
Part II of Schedule 3.8. As used in this Agreement, "ENVIRONMENTAL SITE" shall
mean any Facility, any UST and any other waste storage, processing, treatment or
disposal facility, and any other business site or any other real property owned,
leased, controlled or operated by a Corporation or by any predecessor thereof on
or prior to the Closing Date. As used in this Agreement, "ENVIRONMENTAL SITE
LOSSES" shall mean any and all losses, damages (including exemplary damages and
penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures
(including, without limitation, expenses in connection with site evaluations,
risk assessments and feasibility studies) arising out of or required by an
interim or final judicial or administrative decree, judgment, injunction,
mandate, interim or final permit condition or
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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 prior to the Closing Date on or affecting any
Environmental Site, including, but not limited to (x) any actual or alleged
violation of any Environmental Law or any other law or regulation respecting the
protection of the air, water and land prior to the Closing Date 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
Environmental Site resulting from activities thereat prior to the Closing Date,
whether such Release is into the air, water (including groundwater) or land and,
in the case of any Release caused by defective design, development, construction
or operation of an Environmental Site, or other circumstance within the control
of the Shareholders, whether such Release arose before, during or after the
Closing Date from activities thereat prior to 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 mixed municipal
solid waste lawfully disposed of in a landfill during the time a Corporation
owned and/or operated such landfill does not constitute an Environmental Site
Loss.
(iii) Any claim that the execution and delivery of
this Agreement and consummation of the transactions contemplated hereby did not
comply with or is otherwise in breach of the LeMay Agreement.
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(iv) All actions, suits, proceedings or demands
incident to any of the foregoing.
(b) INDEMNITY BY WCI. WCI, subject to the limitations set
forth in Section 10.2, covenants and agrees that it will indemnify and hold
harmless the Shareholders and their respective heirs, trustees, beneficiaries,
successors and assigns (collectively the "SHAREHOLDER INDEMNITEES"), from and
after the date of this Agreement against any and all losses, damages,
assessments, fines, penalties, adjustments, liabilities, claims, deficiencies,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation), identified by a Shareholder
Indemnitee in a Claims Notice (as defined in Section 10.3(a)), or asserted by a
Shareholder Indemnitee in litigation commenced against WCI provided that in
either case any such Claims Notice shall be given or the litigation commenced
prior to the expiration of the applicable period set forth in Section 10.2(c)
(irrespective of the date of discovery), with respect to each of the following
contingencies (all, the "10.1(b) INDEMNITY EVENTS"):
(i) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of WCI or any Merger
Sub. required to be fulfilled pursuant to the terms of this Agreement on or
before the Closing Date or any misrepresentation in or omission from any
Exhibit, Schedule, list, certificate, or other instrument furnished or to be
furnished to the Shareholders pursuant to the terms of this Agreement,
regardless of whether, in the case of a breach of a representation or warranty,
the Shareholders relied on the truth of such representation or warranty or had
any knowledge of any breach thereof.
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(ii) All actions, suits, proceedings or demands
incident to any of the foregoing.
10.2 LIMITATIONS ON INDEMNITIES.
(a) The obligations of the Shareholders to indemnify the
WCI Indemnitees, and the obligation of WCI to indemnify the Shareholder
Indemnitees, as provided in Section 10.1 shall be equal to the amount by which
the cumulative amount of all such losses, damages, assessments, fines,
penalties, adjustments, liabilities, claims, deficiencies, costs and expenses,
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) and Environmental Site Losses with respect to any or
all 10.1(a) and 10.1(b) Indemnity Events exceed, in the case of the obligations
of the Shareholders, one million dollars ($1,000,000) in the aggregate with
respect to all of the Corporations; and in the case of the obligations of WCI,
one million dollars ($1,000,000); provided, that the amount of any obligation of
indemnity arising pursuant to Section 10.1(a)(iii) or pursuant to Section 10.1
with respect to any representation, warranty or covenant contained in Sections
2.1, 3.1 through 3.5; 3.22, 4.4, 4.5, 4.6, 4.7, 9.6 and 9.11 hereof shall not be
subject to the foregoing.
(b) The maximum amount which the Shareholder Indemnitees
can recover as a result of all 10.1(b) Indemnity Events, pursuant to the
provisions hereof for Claims shall not in the aggregate exceed fifty percent
(50%) of the Aggregate Merger Consideration, and the maximum amount that WCI can
recover as a result of all 10.1(a) Indemnity Events pursuant to the provisions
hereof for Claims relating to each Corporation shall not exceed the following
percentages of the Aggregate Merger Consideration: MDC-21%); AD-6.5%; DM-14%;
and TR-8.5%.
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(c) The obligations of the Shareholders under Section
10.1(a) with respect to all Claims, other than Claims arising under Section
10.1(a)(iii), shall expire unless a Claims Notice with all information required
by Section 10.3(a) is given or litigation is commenced by filing a complaint on
or prior to the earlier to occur of (irrespective of the date of discovery of
the Indemnity Event) (i) the first anniversary of the Effective Time; or (ii)
the date of issuance of the first audit report after the Effective Time of the
financial statements that contain the combined results of WCI and the Surviving
Corporations. The obligations of WCI under Section 10.1(b) with respect to all
Claims, other than Claims arising from breach of any covenants contained in
Sections 2.1, 4.4, 4.5, 4.6, 4.7 or the Common Stock Agreement, shall expire
unless a Claims Notice with all information required by Section 10.3(a) is given
or litigation is commenced by filing a complaint on or prior to the earlier to
occur of (irrespective of the date of discovery of the Indemnity Event) (i) the
first anniversary of the Effective Time; or (ii) the date of issuance of the
first audit report after the Effective Time of the financial statements that
contain the combined results of WCI and the Surviving Corporations.
(d) Except to the extent the same shall directly result in
a material increase in insurance premiums on a prospective basis, the
Shareholders shall not be required to indemnify any WCI Indemnitee, nor shall
WCI be required to indemnify any Shareholder Indemnitee, for any Claim to the
extent that such Claim has been reimbursed or is reimbursable through insurance
proceeds received or receivable by the Indemnitee. The Indemnitee shall allow
the Indemnifying Party to pursue such insurance proceeds and shall reasonably
cooperate with the Indemnifying Party in connection therewith. In the event the
insurance does not cover the full amount of the Claim, or in the event the Claim
shall directly result in an increase in insurance premiums on a prospective
basis, the Indemnifying Party shall remain liable for the
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difference in the insurance payment and the amount of the Claim, or in the case
of an increase in insurance premiums, the amount of such increase directly
attributable to the Claim, subject to the other limitations set forth herein.
(e) All claims for which indemnification payment shall be
due shall be deemed adjustments of the Aggregate Merger Consideration.
(f) Any obligation of indemnity of the Shareholders
established pursuant to the terms of this Agreement shall be expressed in dollar
amounts but shall be satisfied first by the delivery to WCI of a number of
shares of WCI Stock (properly endorsed, with signatures guaranteed by a national
bank, and with respect to which all transfer or other taxes have been paid),
each of which shall be deemed to have a value equal to its closing price as
quoted on the NASDAQ Stock Market on the Closing Date (or the last trading day
before the Closing Date if the Closing Date is not a trading day), adjusted for
any stock splits, stock dividends or other capital adjustments after the Closing
Date. To the extent the Shareholders then own an insufficient quantity of WCI
Stock to satisfy any obligation of indemnity of the Shareholders established
pursuant to the terms of this Section 10.2(f), such obligation of indemnity
shall be satisfied by the payment of cash by the Shareholders.
(g) The indemnification provisions of this Section 10
shall be the exclusive remedy for any Claim for monetary damages arising under
this Agreement or from the transactions contemplated hereby, except for Fraud,
provided that nothing in this Section 10 (including with out limitation Section
10.2(c)) shall be deemed to be the exclusive remedy or shall limit the remedies
of any party with respect to the breach or nonfulfillment by any party of any
obligation or covenant in this Agreement or any of the agreements contemplated
hereby or
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entered into pursuant hereto required to be satisfied or fulfilled after the
Closing Date. In addition, the parties shall be entitled to pursue any claims
for non-monetary relief to which they may be entitled at law or in equity.
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 or Shareholder
Indemnitee as to which such WCI Indemnitee or Shareholder Indemnitee (an
"INDEMNITEE") may be entitled to indemnification hereunder, the Indemnitee shall
notify the Shareholders or WCI (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 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
Claim) do not exceed the limit set forth in Section 10.2(b) at the time the
Claim is made, by the Indemnifying Party's own counsel. The Indemnitee may
participate, at the Indemnitee's own expense, in the defense of any
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Claim assumed by the Indemnifying Party. Without the written approval of the
Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying
Party shall not agree to any compromise of a Claim defended by the Indemnifying
Party; provided, however, that if the Indemnitee does not consent to a
compromise and the ultimate indemnity obligation of the Indemnifying Party would
be greater than the amount of the proposed compromise, the Indemnifying Party's
total liability to the Indemnitee under this Section 10 shall be limited to the
amount of the proposed compromise and costs through that date.
(c) If, within twenty (20) days of the Indemnifying
Party's receipt of a Claims Notice, the Indemnifying Party shall not have
elected to defend the Claim, the Indemnitee shall have the right to assume
control of the defense and/or compromise of such Claim, and the costs and
expenses of such defense, including reasonable attorneys' fees, shall be added
to the Claim. The Indemnifying Party shall promptly, and in any event within ten
(10) days after demand therefor, reimburse the Indemnitee for the costs of
defending the Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall keep
the other party reasonably informed at all times of the progress and development
of its or 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. If the
Claims Notice is given prior to the expiration of the obligations of the
Indemnifying Party under Section 10.2(c), the failure to timely deliver a Claims
Notice or otherwise notify the Indemnifying Party of the commencement
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of such actions in accordance with this Section 10.3 shall not relieve the
Indemnifying Party from the obligation to indemnify hereunder except 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.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. 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 and the liability
of the party making such representations and warranties for breaches thereof
shall survive the consummation of the transactions contemplated hereby until the
later of the expiration of the period set forth in Section 10.2(c), or the final
resolution of all Claims for which a Claims Notice is given prior to the
expiration of the obligations of the Indemnifying Party under Section 10.2(c)
but only as to the representations and warranties relevant to such Claims,
provided that the representations and warranties shall survive until expiration
of the applicable statute of limitations with respect to any Claim based in
whole or in part on Fraud (as defined in Section 12.3) solely as to the portion
of such Claim found to be Fraud, provided further that the representations and
warranties of the Shareholders set forth in Sections 3.2, 3.3 and 3.4 shall
survive until the later of expiration of the applicable
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statute of limitations or the resolution of all Claims to the extent the
representations and warranties are relevant to such Claims. 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 person other than as specifically set forth herein or therein.
10.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.
Except as otherwise provided herein, the Shareholders waive any right to require
any WCI Indemnitee to (i) proceed against any Corporation; (ii) proceed against
any other person; or (iii) pursue any other remedy whatsoever in the power of
any WCI Indemnitee.
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI
11.1 RESTRICTIVE COVENANTS. As to each Surviving Corporation, the
Shareholders and their Affiliates acknowledge that (i) WCI, as the ultimate
purchaser of the Corporations' Stock, is and will be engaged in the same
business as the Corporations were prior to the Closing Date (the "BUSINESS");
(ii) the Shareholders and their Affiliates are intimately familiar with the
Business; (iii) the Business is currently conducted in the State of Washington
and WCI intends to continue the Business in Washington and intends, by
acquisition or otherwise, to expand the Business into other geographic areas of
Washington 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
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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 the Corporations:
(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 within the State of
Washington, (the "RESTRICTED AREA"), directly or indirectly, acting individually
or as the owner, shareholder, partner, or employee of any entity other than WCI
or one of its subsidiaries, (i) engage in the Business, including without
limitation 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 the same business as the
Business; (iii) as owner or lessor of real estate or personal property, rent to
or lease any facility, equipment or other assets to any business engaged in the
same business as the Business; 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 (i) any of the Shareholders may own, directly or indirectly,
shares of stock in Land Recovery, Inc., a Washington corporation, or Resource
Investments, Inc., a Washington corporation, and may participate as a director,
officer or employee of either or both of such corporations, or (ii) any of the
Shareholders may own, directly or indirectly, solely as an investment,
securities of any business traded on any national
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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 5% 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 or (iii) is disclosed to the Shareholders or their Affiliates by a
third party (other than an agent or representative of WCI) legally entitled to
disclose the same. Notwithstanding the foregoing, (y) the Shareholders may
disclose and discuss confidential information with their legal and tax advisors,
or as is required in connection with any legal proceedings, and the Shareholders
shall give WCI prior written notice of such disclosure at least forty-eight (48)
hours before such disclosure is made, if possible; and (z) during the time that
the Shareholders are employed by WCI or a Surviving Corporation, the
Shareholders may disclose confidential information as required in the ordinary
course and proper performance of their employment
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duties, to persons who need to know such information to perform services for or
receive services from WCI or the Surviving Corporation.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof) relating to the
Business, including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Shareholders or the
Corporations or made available to them relating to the Business, but excluding
any materials (other than the minute books of the Corporations) maintained by
any attorneys for the Corporations or the Shareholders prior to the Closing, are
and shall be the property of WCI and have been delivered or will be delivered or
made available to WCI at the Closing.
(d) NON-SOLICITATION. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, the Shareholders and their
Affiliates shall not solicit any employees of the Surviving Corporations to
leave the employ of the Surviving Corporations and join the Shareholders or any
Affiliate in any business endeavor owned or pursued by the Shareholders.
(e) NO DISPARAGEMENT. From and after the Closing Date,
none of the Shareholders shall, in any way or to any person or entity or
governmental or regulatory body or agency, denigrate or derogate WCI or any of
its subsidiaries, or any officer, director or employee, or any product or
service or procedure of any such company whether or not such denigrating or
derogatory statements shall be true and are based on acts or omissions which are
learned by the Shareholders from and after the date hereof or on acts or
omissions which occur from and after the date hereof, or otherwise. A statement
shall be deemed denigrating or
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derogatory to any person or entity if it adversely affects the regard or esteem
in which such person or entity is held by investors, lenders or licensing,
rating, or regulatory entities. Without limiting the generality of the
foregoing, none of the Shareholders shall, directly or indirectly in any way in
respect of any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such company with any
person, entity or governmental or regulatory body or agency who or which has
dealings or prospective dealings with any such company or jurisdiction or
prospective jurisdiction over any such company. This paragraph does not apply to
the extent that testimony is required by legal process, provided that WCI has
received not less than five days' prior written notice of such proposed
testimony, if possible.
11.2 RIGHTS AND REMEDIES UPON BREACH. If 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 shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to WCI at law or in
equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to WCI and that money
damages would not provide an adequate remedy to WCI. Accordingly, in addition to
any other rights or remedies, WCI shall be entitled to injunctive relief to
enforce the terms of the Restrictive Covenants and to restrain the Shareholders
from any violation thereof.
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(b) ACCOUNTING. The right and remedy to require the
Shareholders to account for and pay over to WCI all compensation, profits,
monies, accruals, increments or other benefits derived or received by the
Shareholders as the result of any transactions constituting a breach of the
Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholders
acknowledge and agree that the Restrictive Covenants are reasonable and valid in
geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
(d) BLUE-PENCILING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, such court shall reduce the
duration or scope of such provision, as the case may be, to the extent necessary
to render it enforceable and, in its reduced form, such provision shall then be
enforced.
(e) ENFORCEABILITY IN JURISDICTION. WCI and the
Shareholders intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of WCI and the Shareholders that such
determination not bar or in any way affect WCI's right to the relief provided
above in the courts of any other jurisdiction within the geographic scope of the
Restrictive Covenants as to breaches
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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.
11.3 TERMINATION DATE.
(a) If the Effective Date has not occurred by March 31,
1999, this Agreement shall be terminated on that date or thereafter (the
"TERMINATION DATE"), unless the Corporations have not then obtained all of the
consents required by Sections 6.7 and 6.8, in which event this Agreement shall
terminate 10 days after written notice from WCI to the Corporations or 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; and (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 the Corporation,
provided that the Termination Date shall, at the option of WCI, be extended to
May 31, 1999, if the Bonnie Trust Approval has not been obtained on or before
March 31, 1999.
(b) The Corporations and the Shareholders shall have the
right to terminate this Agreement:
(i) Upon a breach of a representation or warranty
of WCI or the Merger Subs. contained in this Agreement which has not been cured
in all material respects and which has had or is likely to have a Material
Adverse Effect and is incapable of being satisfied by the Termination Date;
(ii) If one or more of the Mergers are enjoined by
a final, unappealable court order not entered at the request or with the support
of any Corporation
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and if the Corporation against which such order is entered shall have used
reasonable efforts to prevent the entry of such order;
(iii) If WCI (A) fails to perform in any material
respect any of its covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of such
default specifying such default in reasonable detail is given to WCI by the
Corporation; or
(iv) If WCI fails to obtain the WCI Shareholders
Approval prior to January 31, 1999.
(c) WCI shall have the right to terminate this Agreement:
(i) Upon a breach of a representation or warranty
of the Corporation or the Shareholders contained in this Agreement which has not
been cured in all material respects and which has had or is likely to have a
material adverse effect and is incapable of being satisfied by the Termination
Date;
(ii) If one or more of the Mergers is enjoined by a
final, unappealable court order not entered at the request or with the support
of WCI and if WCI shall have used reasonable efforts to prevent the entry of
such order; or
(iii) If any of the Corporations or the
Shareholders (A) fails to perform in any material respect any of its, his or her
covenants in this Agreement and (B) does not cure such default in all material
respects within 30 days after written notice of such default specifying such
default in reasonable detail is given to such person by WCI; or
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(iv) If WCI fails to obtain the WCI Shareholders
Approval prior to January 31, 1999.
(d) WCI and the Corporations shall have the right to
terminate the Agreement by mutual consent.
11.4 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 subject to Section 11.5 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 or release any
party from the obligations under Sections 5.2 and 9.3; and provided further
that, if the reason for such termination is the failure of the conditions set
forth in Sections 6.20, 6.21, or 7.17, then the Shareholders and the
Corporations shall not have any liability to WCI or any other party to this
Agreement.
11.5 CORRECTIONS TO SCHEDULES. If, up to fifteen (15) days prior
to the Closing Date, the Shareholders or the Corporations determine that any
Schedule, document or other information provided to WCI or its agents by the
Shareholders or the Corporations is incomplete, inaccurate or misleading, the
Shareholders or the Corporations shall promptly give WCI written notice and
correct such Schedule, document or information. In addition, the Corporations
shall provide WCI with such additional information in their control concerning
such correction as WCI shall reasonably request. If such correction does not
represent a material change in the information previously provided to WCI, WCI
shall not have the right to terminate
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this Agreement based upon such correction. If such correction does represent a
material change in the information previously provided WCI or its agents and WCI
determines that such correction is unacceptable, such correction shall be deemed
to be a failure of the conditions set forth in Section 6.1 and WCI shall have
the right to terminate this Agreement within five (5) days after receipt of the
corrected information; provided that the Corporations shall first have an
opportunity to cure such matter to the reasonable satisfaction of WCI prior to
the later of November 30, 1998 or the then scheduled Closing Date. Upon any such
termination, 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 and, notwithstanding Section 11.4, the Shareholders and the Corporations
shall not have any liability to WCI or any other party to this Agreement.
12. GENERAL
12.1 ADDITIONAL CONVEYANCES. Following the Closing, the
Shareholders and WCI shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as
WCI, the Surviving Corporations or the Shareholders may reasonably request for
the purpose of carrying out this Agreement. The Shareholders will cooperate with
WCI and/or the Surviving Corporations 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. WCI or the
Surviving Corporations will reimburse the Shareholders for all reasonable
expenses incurred by them in providing such information, testimony, evidence or
assistance.
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12.2 ASSIGNMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI and
the Surviving Corporations 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.
12.3 NO WAIVER RELATING TO CLAIMS FOR FRAUD. Notwithstanding
anything herein to the contrary, the liability of any party under Section 10
shall be in addition to, and not exclusive of any other liability that such
party may have at law or equity based on such party's fraud, fraudulent
inducement or intentional misrepresentation or concealment ("FRAUD").
Notwithstanding anything herein to the contrary, none of the provisions set
forth in this Agreement, including, but not limited to, the provisions set forth
in Sections 10.1 or 10.2 shall be deemed a waiver by any party to this Agreement
of any right or remedy which such party may have at law or equity based on any
other party's Fraud, nor shall any such provisions limit, or be deemed to limit,
(a) the amounts of recovery sought or awarded in any such claim for Fraud, (b)
the time period during which such a claim for Fraud may be brought, or (c) the
recourse which any such party may seek against another party with respect to
such a claim for Fraud.
12.4 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.
12.5 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 pre-paid registered
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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: David E. Myre, Jr.
Hillis Clark Martin & Peterson
500 Galland Building, 1221 Second Avenue
Seattle, WA 98101-2925
Phone: (206) 623-1745
Fax: (206) 623-7789
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, CA 95661
Attention: Ronald J. Mittelstaedt
Fax: (916) 772-2920
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Fax: (415) 421-2922
12.6 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.
12.7 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 from information and documentation in his, her or its possession or
control. 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
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knowledge which should have been obtained by the trustee or trustees from
information and documentation in his, her or its possession or control. Wherever
reference is made in this Agreement to the "knowledge" of any of the
Corporations, such term means the actual knowledge of any of the Shareholders,
or any current officer, director or management employee of any Corporation, or
any knowledge which should have been obtained by such person from information
and documentation in his, her or its possession or control.
12.8 ATTORNEYS' FEES. In the event of any dispute or controversy
between WCI on the one hand and the Corporations or the Shareholders on the
other hand relating to the interpretation of this Agreement or to the
transactions contemplated hereby, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and expenses incurred by
the prevailing party, as awarded by the court. Such award shall include
post-judgment attorney's fees and costs.
12.9 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington without regard
to its conflict of laws provisions. Any action or proceeding relating to this
Agreement or the transactions contemplated hereby shall be instituted in a state
or federal court located in Kings County, Washington. The parties hereby consent
to the jurisdiction of such courts and waive any objection to venue laid
therein.
12.10 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
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case of the Shareholders, any such fees, expenses and disbursements paid or
accrued by, or charged to, the Corporations); provided that WCI shall pay for
the audit of the Corporations by Ernst & Young LLP as contemplated by Section
3.7 and shall pay all filing fees under the Act, the Exchange Act and the HSR
Act.
12.11 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.
12.12 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.
12.13 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.
12.14 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 Corporations, the
Shareholders, the Merger Subs. and WCI and supersedes any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written instrument executed by the
Corporations, the Shareholders and WCI acting through its officers, thereunto
duly authorized by its Board of Directors.
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12.15 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.
12.16 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 Washington or California. Unless expressly
stated otherwise, cross-references herein refer to provisions within this
Agreement and are not references to the overall transaction or to any other
document.
13. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
Term Section
<S> <C>
10.1(a) Indemnity Events........................................................Section 7.1(a)
10.1(b) Indemnity Events...........................................................Section 7.1
Acquired Operations................................................................Section 2.2
Acquisition Transaction............................................................Section 5.7
Act................................................................................Section 2.1
AD.....................................................................................Parties
Affiliate.........................................................................Section 3.11
Affiliate Letter................................................................Section 8.2(f)
Aggregate Adjusted Purchase Price..................................................Section 2.1
Aggregate Merger Consolidation.....................................................Section 2.1
Aggregate WCI Stock................................................................Section 2.1
Antitrust Division.............................................................Section 9.11(b)
</TABLE>
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<TABLE>
<S> <C>
APB No. 16.........................................................................Section 5.2
Balance Sheet Date.................................................................Section 3.7
Balance Sheet Date Current Assets.................................................Section 3.22
Balance Sheet Date Current Liabilities............................................Section 3.22
Balance Sheet Date Debt...........................................................Section 3.22
Bonnie Trust..........................................................................Recitals
Bonnie Trust Approval .............................................................Section 3.4
Business...........................................................................Section 8.1
business day......................................................................Section 9.14
Cash............................................................................Section 2.1(a)
Claim..............................................................................Section 7.3
Claims Notice......................................................................Section 7.3
Claim Section..................................................................Section 10.3(a)
Closing............................................................................Section 1.7
Closing Date.......................................................................Section 1.7
Closing Price......................................................................Section 2.1
Code..............................................................................Section 3.36
Collection Franchises.............................................................Section 3.10
Common Stock Agreement..........................................................Section 8.1(f)
Confidential Information...........................................................Section 8.1
Contingent Merger Consideration....................................................Section 2.2
Contingent Shares..................................................................Section 2.2
Corporate Property................................................................Section 3.12
Corporations...........................................................................Parties
Corporations' Certificates.........................................................Section 2.4
Corporations Shareholders Approval.................................................Section 3.4
Corporations' Stock...................................................................Recitals
Day...............................................................................Section 9.14
Disposal Agreement................................................................Section 6.19
DM.....................................................................................Parties
Donald.................................................................................Parties
Effective Time.....................................................................Section 1.2
Employment Agreement............................................................Section 8.1(b)
</TABLE>
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<TABLE>
<S> <C>
Environmental Laws................................................................Section 3.24
Environmental Site................................................................Section 10.1
Environmental Site Losses.........................................................Section 10.1
ERISA.............................................................................Section 3.17
Exchange Act.......................................................................Section 4.5
Facilities........................................................................Section 3.10
Facility..........................................................................Section 3.10
Filed Plans........................................................................Section 1.2
Financial Statements...............................................................Section 3.7
FTC............................................................................Section 9.11(b)
Fraud.............................................................................Section 12.3
Golden Parachute..................................................................Section 3.17
Golden Parachute Payment..........................................................Section 3.17
Governmental Permits..............................................................Section 3.10
Hazardous Substance...............................................................Section 3.24
HSR Act...........................................................................Section 3.10
Indemnifying Party................................................................Section 10.3
Indemnitee........................................................................Section 10.3
Irmgard................................................................................Parties
Knowledge.........................................................................Section 3.34
Laws..............................................................................Section 3.24
LeMay Agreement ..................................................................Section 7.13
Material Adverse Effect...........................................................Section 3.21
MDC....................................................................................Parties
Merger................................................................................Recitals
Merger Sub. I..........................................................................Parties
Merger Sub. II.........................................................................Parties
Merger Sub. III........................................................................Parties
Merger Sub. IV.........................................................................Parties
Merger Subs............................................................................Parties
multi-employer plan...............................................................Section 3.17
Murrey Trust...........................................................................Parties
Nasdaq.............................................................................Section 4.5
</TABLE>
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<TABLE>
<S> <C>
occurrence........................................................................Section 3.15
Permitted Liens...................................................................Section 3.12
Pooling Affiliates.................................................................Section 3.3
Proxy Statement...................................................................Section 3.35
Recipient.........................................................................Section 3.17
Records, Notifications and Reports................................................Section 3.10
Registration Statements.........................................................Section 2.1(b)
Release...........................................................................Section 10.1
Representations and Warranties....................................................Section 10.4
Required Governmental Consents....................................................Section 3.10
Restricted Area...................................................................Section 11.1
Restricted Period.................................................................Section 11.1
Restrictive Covenants.............................................................Section 11.2
SEC................................................................................Section 4.6
Shareholder Indemnitees...........................................................Section 10.1
Shareholders...........................................................................Parties
Signing Date.......................................................................Section 1.2
Surviving Corporation..............................................................Section 1.1
10.1(a) Indemnitee Events......................................................Section 10.1(a)
10.1(b) Indemnitee Events......................................................Section 10.1(b)
Termination Date...............................................................Section 11.3(a)
Title Reports..................................................................Section 3.12(a)
TR.....................................................................................Parties
Union Contracts................................................................Section 3.17(a)
UST...............................................................................Section 3.26
Washington Law.....................................................................Section 1.1
WCI....................................................................................Parties
WCI Indemnitees....................................................................Section 7.1
WCI SEC Documents..................................................................Section 4.6
WCI Shareholders Approval..........................................................Section 4.3
WCI Stock.............................................................................Recitals
</TABLE>
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by persons thereunto duly authorized as of the date first above
written.
THE CORPORATIONS:
MURREY'S DISPOSAL COMPANY, INC.
By: __________________________________
Name: __________________________________
Its: __________________________________
AMERICAN DISPOSAL COMPANY, INC.
By: __________________________________
Name: __________________________________
Its: __________________________________
D.M. DISPOSAL CO., INC.
By: __________________________________
Name: __________________________________
Its: __________________________________
RECYCLING COMPANY, INC.
By: __________________________________
Name: __________________________________
Its: __________________________________
97
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WCI:
WASTE CONNECTIONS, INC.
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
MERGER SUB. I:
WCI Acquisition Corporation I
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
MERGER SUB. II:
WCI Acquisition Corporation II
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
MERGER SUB. III:
WCI Acquisition Corporation III
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
98
<PAGE> 109
MERGER SUB. IV:
WCI Acquisition Corporation IV
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
THE SHAREHOLDERS:
THE MURREY TRUST UTA
dated August 5, 1993
________________________________________________________________________________
Donald J. Hawkins, Trustee
________________________________________________________________________________
Irmgard R. Wilcox, Trustee
________________________________________________________________________________
Donald J. Hawkins
________________________________________________________________________________
Irmgard R. Wilcox
In accordance with Section 5.8 of the foregoing Agreement and Plan of Merger,
the undersigned shareholder of D.M. Disposal Co., Inc. and Tacoma Recycling
Company, Inc., hereby approves the transactions contemplated by such agreement
and agrees to be bound by all of the terms and conditions thereof, and upon
execution below shall be deemed a "Shareholder" for all purposes of the
foregoing Agreement and Plan of Merger.
Dated: _____________________________, 199___
99
<PAGE> 110
THE BONNIE L. MURREY REVOCABLE TRUST UTA dated August 5, 1993, as amended
___________________________________
__________________________, Trustee
___________________________________
__________________________, Trustee
100
<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, with respect to the consolidated
financial statements of Waste Connections, Inc. and Predecessors included in
Post Effective Amendment No. 2 to the Registration Statement (Form S-4 No.
333-65615) 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 October 2, 1998 (except for Note 12, as to which the
date is October 22, 1998) with respect to the combined financial statements of
the Murrey Companies included in Post Effective Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-65615) 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 February 20, 1998, with respect to the financial
statements of Madera Disposal Systems, Inc. included in Post Effective Amendment
No. 2 to the Registration Statement (Form S-4 No. 333-65615) 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. 2 to the Registration Statement (Form S-4 No. 333-65615) 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 August 26, 1998, with respect to the financial
statements of Contractor's Waste Removal, L.C., included in Post Effective
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-65615) 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 31, 1998, with respect to the consolidated
financial statements of Curry Transfer and Recycling, Inc. included in Post
Effective Amendment No. 2 to the Registration Statement (Form S-4 No. 333-65615)
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 December 30, 1998, with respect to the combined
financial statements of Butler County Landfill, Inc. and Kobus Construction,
Inc. included in Post Effective Amendment No. 2 to the Registration Statement
(Form S-4 No. 333-65615) and related Prospectus of Waste Connections, Inc. for
the registration of 3,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Sacramento, California
December 31, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF GRANT THORNTON LLP, INDEPENDENT AUDITORS
We have issued our report dated August 24, 1998 accompanying the financial
statements of Shrader Refuse and Recycling Service Company included in the Post
Effective Amendment No. 2 to the Registration Statement (Form S-4 No. 333-65615,
effective October 19, 1998) and related Prospectus of Waste Connections, Inc.
for the registration of 3,000,000 shares of its common stock.
We have also issued our report dated October 1, 1998 accompanying the combined
financial statements of B&B Sanitation included in the Post Effective Amendment
No. 2 to the Registration Statement (Form S-4 No. 333-65615, effective October
19, 1998) and related Prospectus of Waste Connections, Inc. for the registration
of 3,000,000 shares of its common stock.
We have also issued our report dated October 7, 1998 accompanying the combined
financial statements of J & J Sanitation included in the Post Effective
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-65615, effective
October 19, 1998) and related Prospectus of Waste Connections, Inc. for the
registration of 3,000,000 shares of its common stock.
We consent to the use of the aforementioned reports in this Post Effective
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-65615, effective
October 19, 1998) and related Prospectus of Waste Connections, Inc. and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Lincoln, Nebraska
December 31, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT AUDITORS
We consent to the inclusion in this post-effective amendment No. 2 to
registration statement on Form S-4 (File No. 333-65615) and the related
Prospectus of Waste Connections, Inc. for the registration of 3,000,000 shares
of common stock of our report dated December 30, 1998, on our audit of the
combined financial statements of Amador Disposal Services, Inc. and Mother Lode
Sani-Hut, Inc. We also consent to the reference to our firm under the caption
"Experts".
/s/ PricewaterhouseCoopers LLP
Sacramento, California
January 4, 1999
