<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999.
REGISTRATION NO. 333-65615
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 5
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)
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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
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<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
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<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>
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* 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 April 19, 1999, the Company had 17,425,483 shares of Common Stock
outstanding. The Company's Common Stock is traded on the Nasdaq National Market
(symbol: WCNX). On April 19, 1999, the last sale price of the Common Stock on
the Nasdaq National Market was $23.50 per share.
The Company's executive offices are located at 2260 Douglas Boulevard, Suite
280, Roseville, California 95661, and its telephone number is (916) 772-2221.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
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 April , 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 April 15, 1999, the Company served
more than 330,000 commercial, industrial and residential customers in
California, Idaho, Kansas, Minnesota, Nebraska, Oklahoma, Oregon, South Dakota,
Utah, Washington and Wyoming. The Company currently owns and operates 33
collection operations, 11 transfer stations and three Subtitle D landfills, and
operates an additional seven transfer stations, two Subtitle D landfills and
nine 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 64 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
RECENT ACQUISITIONS
From January 1, 1999 to April 15, 1999, the Company acquired 20 solid waste
services businesses, including 11 collection operations, two Subtitle D
landfills, eight transfer stations and four recycling operations representing
approximately $65 million in annual revenue. These acquisitions took the Company
into one new state, Minnesota. The acquired businesses included "tuck in"
acquisitions in pre-existing markets, new market entries and "tuck in"
acquisitions in the new markets.
EXPANDED CREDIT FACILITY
On April 13, 1999, 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 $125.0 million to $225.0 million, modified
certain covenants and lowered the Company's overall borrowing costs. As of April
16, 1999, the aggregate outstanding principal indebtedness under the credit
facility was approximately $95,700,000.
4
<PAGE> 7
WASTE CONNECTIONS, INC.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
YEAR ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1998 1998(1)
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STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 54,042 $ 102,064
Cost of operations..................................... 36,554 66,576
Selling, general and administrative.................... 5,317 11,064
Depreciation and amortization.......................... 4,112 8,352
Stock compensation..................................... 632 632
---------- -----------
Income from operations................................. 7,427 15,440
Interest expense....................................... (2,257) (9,330)
Other income (expense), net............................ -- 108
---------- -----------
Income before income taxes............................. 5,170 6,218
Income tax provision................................... (2,395) (3,078)
---------- -----------
Net income before extraordinary Item................... 2,775 3,140
Extraordinary item -- early extinguishment of debt, net
of income tax benefit of $264........................ (1,027) (1,027)
---------- -----------
Net income............................................. $ 1,748 $ 2,113
========== ===========
Redeemable convertible preferred stock accretion....... (917) (917)
---------- -----------
Net income applicable to common stockholders........... $ 831 $ 1,196
========== ===========
Basic earnings per common share:
Income before extraordinary item..................... $ 0.29 $ 0.24
Extraordinary item................................... (0.16) (0.11)
---------- -----------
Net income per common share.......................... $ 0.13 $ 0.13
========== ===========
Diluted earnings per common share:
Income before extraordinary item..................... $ 0.22 $ 0.20
Extraordinary item................................... (0.12) (0.09)
---------- -----------
Net income per common share.......................... $ 0.10 $ 0.11
========== ===========
Shares used in calculating basic earnings per share.... 6,460,293 9,349,173
Shares used in calculating diluted earnings per
share................................................ 8,371,415 11,260,295
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
DECEMBER 31, DECEMBER 31,
1998 1998(2)
------------ ------------
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BALANCE SHEET DATA:
Cash and equivalents..................................... $ 2,675 $ 4,896
Working capital (deficit)................................ (8,717) (10,700)
Property and equipment, net.............................. 33,043 121,028
Total assets............................................. 149,312 254,925
Long-term debt........................................... 60,106 148,349
Total stockholders' equity............................... 61,063 62,329
</TABLE>
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(1) Assumes the Company's acquisitions of Columbia Resource Co., L.P. and
Finley-Buttes Limited Partnership ("CRCFBLP") and the mergers with the
Murrey Companies (accounted for as poolings-of-interests) occurred as of
January 1, 1998. See "Unaudited Pro Forma Financial Statements" included
elsewhere herein.
(2) Assumes the Company's acquisitions of CRCFBLP and the mergers with Murrey's
Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co.,
Inc. and Tacoma Recycling Company, Inc. (together, the "Murrey Companies")
(accounted for as poolings-of-interests) occurred on December 31, 1998. See
"Unaudited Pro Forma Financial Statements" included elsewhere herein.
5
<PAGE> 8
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 April 15, 1999, the Company acquired 64 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."
6
<PAGE> 9
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
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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 $20.0 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.
8
<PAGE> 11
Geographic Concentration. The Company's operations and customers are located in
California, Idaho, Kansas, Minnesota, 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 46% of its revenues for the year ended December 31, 1998, were derived
from Washington, and the mergers with the Murrey Companies increased the
Company's geographic concentration in Washington. 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.
9
<PAGE> 12
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.
10
<PAGE> 13
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 three landfills and operates two other landfills. 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 March 31, 1999,
the estimated total remaining permitted disposal capacity of the Fairmead
Landfill in Madera County, California operated by the Company was approximately
2.86 million tons, with approximately 2.04 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 525,000
tons, with approximately 1.75 million additional tons of disposal capacity in
various stages of permitting. As of that date, the estimated total remaining
permitted disposal capacity at the Finley-Buttes Regional Landfill owned and
operated by the Company was approximately 65.99 million tons, with approximately
56.88 million additional tons of disposal capacity in various stages of
permitting. The estimated total remaining permitted disposal capacity of the
Butler County Landfill owned and operated by the Company was approximately 2.32
million tons, with an additional 1.60 million tons of disposal capacity in
various stages of permitting. The Northeast Nebraska Solid Waste Coalition
landfill in Clarkson, Nebraska (the "Coalition Landfill") operated by the
Company had approximately 3.68 million tons of remaining permitted disposal
capacity.
11
<PAGE> 14
The Company may not be able to obtain new landfill sites or expand the permitted
capacity of these 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 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 March 31, 1999, the Company had no capitalized expenditures
relating to landfill development projects and $26,973 in capitalized
expenditures relating to 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
12
<PAGE> 15
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."
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.
13
<PAGE> 16
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. 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
14
<PAGE> 17
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 (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 April 19, 1999.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ------ --------
<S> <C> <C>
Second Quarter (from May 22, 1998).......................... $20.75 $13.75
Third Quarter............................................... $23.38 $17.75
Fourth Quarter.............................................. $21.13 $15.88
</TABLE>
<TABLE>
<CAPTION>
1999
----
<S> <C> <C>
First Quarter............................................... $16.50 $24.00
Second Quarter (through April 19, 1999)..................... $22.00 $25.31
</TABLE>
On April 19, 1999, the last sale price of the Common Stock as reported by the
Nasdaq National Market was $23.50 per share. See "Description of Capital Stock."
15
<PAGE> 18
SELECTED HISTORICAL AND SUPPLEMENTAL FINANCIAL AND OPERATING DATA
The following tables present selected historical and supplemental statements of
operations and balance sheet data of Waste Connections and our predecessors for
the periods indicated.
The entities Waste Connections acquired in September 1997 from Browning-Ferris
Industries, Inc. ("BFI") are collectively referred to as Waste Connections'
predecessors. BFI acquired the predecessors during 1995 and 1996. Before being
acquired by BFI, the predecessors operated as separate stand-alone businesses.
The supplemental financial information gives retroactive effect to the business
combinations of Waste Connections with the Murrey Companies (accounted for as
poolings-of-interests) which occurred on January 19, 1999. 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 supplemental
financial data does not extend through the date of consummation; however, such
information will be included in the historical consolidated financial statements
of Waste Connections after financial statements covering the date of
consummation of the business combination are issued. This information is based
on the audited supplemental financial statements included elsewhere herein.
16
<PAGE> 19
WASTE CONNECTIONS, INC. AND PREDECESSORS
SELECTED HISTORICAL AND SUPPLEMENTAL
FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIBRES
INTER- THE
NATIONAL, DISPOSAL
INC. GROUP
THE PERIOD THE COMBINED
FIBRES DISPOSAL FROM DISPOSAL FROM
INTERNATIONAL, GROUP JANUARY 1, PREDECESSORS GROUP JANUARY 1, PREDECESSORS
INC. COMBINED 1995 ONE MONTH COMBINED 1996 COMBINED
YEAR ENDED YEAR ENDED THROUGH ENDED YEAR ENDED THROUGH PERIOD ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, JULY 31, DECEMBER 31,
1994 1994 1995 1995 1995 1996 1996
-------------- ------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA(1):
Revenues................ $5,610 $22,004 $7,340 $595 $19,660 $8,738 $13,422
Cost of operations...... 4,432 18,298 5,653 527 16,393 6,174 11,420
Selling, general and
administrative........ 552 3,320 823 72 3,312 2,126 1,649
Depreciation and
amortization.......... 642 606 715 74 628 324 962
------ ------- ------ ---- ------- ------ -------
Income (loss) from
operations............ (16) (220) 149 (78) (673) 114 (609)
Interest expense........ (191) (548) (162) (1) (206) (12) (225)
Other income (expense),
net................... (2) 871 98 5 -- 2,661 (147)
------ ------- ------ ---- ------- ------ -------
Income (loss) before
income taxes.......... (209) 103 85 (74) (879) 2,763 (981)
Income tax (provision)
benefit............... -- -- (29) -- 298 (505) --
------ ------- ------ ---- ------- ------ -------
Net income (loss)....... $ (209) $ 103 $ 56 $(74) $ (581) $2,258 $ (981)
====== ======= ====== ==== ======= ====== =======
</TABLE>
(See footnotes on page 21)
17
<PAGE> 20
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
-----------------------------------------------
PREDECESSORS PERIOD FROM
COMBINED INCEPTION PRO FORMA
NINE MONTHS (SEPTEMBER 9, COMBINED
ENDED 1997) THROUGH YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1998(4)
------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA(1):
Revenues................... $18,114 $ 6,237 $ 54,042 $ 102,064
Cost of operations......... 14,753 4,703 36,554 66,576
Selling, general and
administrative.......... 3,009 619 5,317 11,064
Depreciation and
amortization............ 1,083 354 4,112 8,352
Start-up and integration... -- 493 -- --
Stock compensation......... -- 4,395 632 632
------- ---------- ---------- -----------
Income (loss) from
operations.............. (731) (4,327) 7,427 15,440
Interest expense........... (456) (1,035) (2,257) (9,330)
Other income (expense),
net..................... 14 (36) -- 108
------- ---------- ---------- -----------
Income (loss) before income
taxes................... (1,173) (5,398) 5,170 6,218
Income tax (provision)
benefit................. -- 332 (2,395) (3,078)
------- ---------- ---------- -----------
Income (loss) before
extraordinary item...... (1,173) (5,066) 2,775 3,140
Extraordinary item -- early
extinguishment of debt,
net of income tax
benefit of $264......... -- -- (1,027) (1,027)
------- ---------- ---------- -----------
Net income (loss).......... $(1,173) $ (5,066) $ 1,748 $ 2,113
======= ========== ========== ===========
Redeemable convertible
preferred stock
accretion............... (531) (917) (917)
---------- ---------- -----------
Net income (loss)
applicable to common
stockholders............ $ (5,597) $ 831 $ 1,196
========== ========== ===========
Basic income (loss) per
common share:
Income (loss) before
extraordinary item.... $ (2.99) $ 0.29 $ 0.24
Extraordinary item...... -- (0.16) (0.11)
---------- ---------- -----------
Net income (loss) per
common share.......... $ (2.99) $ 0.13 $ 0.13
========== ========== ===========
Diluted income (loss) per
common share:
Income (loss) before
extraordinary item.... $ (2.99) $ 0.22 $ 0.20
Extraordinary item...... -- (0.12) (0.09)
---------- ---------- -----------
Diluted net income
(loss) per common
share................. $ (2.99) $ 0.10 $ 0.11
========== ========== ===========
Shares used in calculating
basic net income (loss)
per share............... 1,872,567 6,460,293 9,349,173
Shares used in calculating
diluted income (loss)
per share............... 1,872,567 8,371,415 11,260,295
</TABLE>
(See footnotes on page 21)
18
<PAGE> 21
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL STATEMENTS OF OPERATIONS
DATA(2):
Revenues............................... $ 23,804 $ 27,786 $ 25,024
Cost of operations..................... 18,829 20,859 20,465
Selling, general and administrative.... 1,940 2,101 2,142
Depreciation and amortization.......... 818 923 1,236
---------- ---------- ----------
Income from operations................. 2,217 3,903 1,181
Interest expense....................... (321) (198) (284)
Other income (expense), net............ (347) 210 309
---------- ---------- ----------
Income before income taxes............. 1,549 3,915 1,206
Income tax provision................... (517) (690) (543)
---------- ---------- ----------
Net income............................. $ 1,032 $ 3,225 $ 663
========== ========== ==========
Basic and diluted net income per
share............................... $ 0.36 $ 1.12 $ 0.23
========== ========== ==========
Shares used in per share calculation... 2,888,880 2,888,880 2,888,880
========== ========== ==========
</TABLE>
(See footnotes on page 21)
19
<PAGE> 22
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
SUPPLEMENTAL STATEMENTS OF OPERATIONS DATA(2):
Revenues........................................... $ 35,111 $ 86,570
Cost of operations................................. 27,836 62,964
Selling, general and administrative................ 2,942 8,108
Depreciation and amortization...................... 1,725 6,306
Start-up and integration........................... 493 --
Stock compensation................................. 4,395 632
---------- -----------
Income (loss) from operations...................... (2,280) 8,560
Interest expense................................... (1,415) (2,792)
Other income (expense), net........................ 247 79
---------- -----------
Income (loss) before income taxes.................. (3,448) 5,847
Income tax provision............................... (302) (2,930)
---------- -----------
Income (loss) before extraordinary item............ (3,750) 2,917
Extraordinary item -- early extinguishment of debt,
net of income tax benefit of $264............... -- (1,027)
---------- -----------
Net income (loss).................................. $ (3,750) $ 1,890
========== ===========
Redeemable convertible preferred stock accretion... (531) (917)
---------- -----------
Net income (loss) applicable to common
stockholders.................................... $ (4,281) $ 973
========== ===========
Basic income (loss) per common share:
Income (loss) before extraordinary item......... $ (0.90) $ 0.21
---------- -----------
Extraordinary item.............................. -- (0.11)
---------- -----------
Net income (loss) per common share.............. $ (0.90) $ 0.10
========== ===========
Diluted income (loss) per common share:
Income (loss) before extraordinary item......... $ (0.90) $ 0.18
Extraordinary item.............................. -- (0.09)
---------- -----------
Net income (loss) per common share.............. $ (0.90) $ 0.09
========== ===========
Shares used in calculating basic net income (loss)
per share....................................... 4,761,447 9,349,173
========== ===========
Shares used in calculating diluted net income
(loss) per share................................ 4,761,447 11,260,295
========== ===========
</TABLE>
(See footnotes on page 21)
20
<PAGE> 23
<TABLE>
<CAPTION>
THE DISPOSAL DISPOSAL
FIBRES INTERNATIONAL, GROUP PREDECESSORS GROUP PREDECESSORS
INC. COMBINED COMBINED COMBINED COMBINED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1995 1996
--------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA(1):
Cash and equivalents.......... $ 321 $ 203 $ 184 $ 961 $ 102
Working capital (deficit)..... 155 (4,279) 90 2,498 695
Property and equipment, net... 3,810 2,771 4,035 2,221 5,069
Total assets.................. 6,317 7,318 9,151 6,942 15,291
Long-term debt(3)............. 2,353 90 149 6,890 89
Redeemable convertible
preferred stock............. -- -- -- -- --
Total stockholders' equity
(deficit)................... 3,045 (1,486) -- (2,067) --
<CAPTION>
WASTE CONNECTIONS, INC.
DECEMBER 31,
----------------------------------
PRO FORMA
COMBINED
DECEMBER 31,
1997 1998 1998(5)
------- -------- ------------
<S> <C> <C> <C>
HISTORICAL BALANCE SHEET
DATA(1):
Cash and equivalents.......... $ 820 $ 2,675 $ 4,896
Working capital (deficit)..... 836 (8,717) (10,700)
Property and equipment, net... 4,185 33,043 121,028
Total assets.................. 18,880 149,312 254,925
Long-term debt(3)............. 6,762 60,106 148,349
Redeemable convertible
preferred stock............. 7,523 -- --
Total stockholders' equity
(deficit)................... (551) 61,063 62,329
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL BALANCE SHEET DATA(2):
Cash and equivalents........................................ $ 349 $ 859 $ 81 $ 946 $ 2,848
Working capital (deficit)................................... 626 (63) (3,721) (2,820) (12,324)
Property and equipment, net................................. 6,301 8,027 12,529 19,004 46,986
Total assets................................................ 9,343 12,573 15,065 38,576 168,447
Long-term debt(3)........................................... 4,663 2,359 1,851 11,669 63,985
Redeemable convertible preferred stock...................... -- -- -- 7,523 --
Total stockholders' equity.................................. 2,420 3,439 6,258 6,940 68,529
</TABLE>
- ---------------
(1) The entities Waste Connections acquired in September 1997 from BFI are
collectively referred to as Waste Connections' 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 -- Results of Operations" for additional
information concerning Waste Connections and our predecessors.
(2) Supplemental financial data gives retroactive effect to the business
combinations with the Murrey Companies which occurred on January 19, 1999.
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 supplemental financial data does not extend through the date of
consummation; however, such information will be included in the historical
consolidated financial statements of Waste Connections after financial
statements covering the date of consummation of the business combination are
issued.
(3) Excludes redeemable convertible preferred stock, which converted into common
stock upon our May 1998 initial public offering.
(4) Assumes the Company's acquisitions of Columbia Resource Co., L.P. and
Finley-Buttes Limited Partnership ("CRCFBLP") and the mergers with the
Murrey Companies (accounted for as poolings-of-interests) occurred as of
January 1, 1998. See "Unaudited Pro Forma Financial Statements" included
elsewhere herein.
(5) Assumes the Company's acquisitions of CRCFBLP and the mergers with the
Murrey Companies (accounted for as poolings-of-interests) occurred on
December 31, 1998. See "Unaudited Pro Forma Financial Statements" included
elsewhere herein.
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 64 companies since its inception in September 1997. The Company
accounted for the mergers with the Murrey Companies, Roche & Sons, Inc. and
Ritters Sanitary Service, Inc. as poolings-of-interests, and for the remainder
of the 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 April 15, 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
22
<PAGE> 25
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 owned subsidiary of the Company, acquired
certain business assets of Harrell's Septic Service, 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 Acquisitions. On December 21, 1998, a wholly owned subsidiary of the
Company acquired the assets of Heartland Waste Management, Inc., which provides
solid waste collection services to approximately 2,500 customers in southern
Kansas. On March 31, 1999, a wholly owned subsidiary of the Company acquired the
assets of Kansas Industrial Services, Inc. and Williams Trash Service, which
provide solid waste collection services to approximately 50 and 1,000 customers,
respectively, in southern Kansas. These assets "tuck in" to the Company's
western Oklahoma operations.
Minnesota Acquisition. On March 30, 1999, a wholly owned subsidiary of the
Company merged into Ritter's Sanitary Service, Inc., which provides solid waste
collection and recycling services to approximately 4,900 customers in
southwestern Minnesota.
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.
On January 6, 1999, the Company purchased the stock of Butler County Landfill,
Inc. and certain assets of Kobus Construction, Inc., which provide solid waste
disposal and transportation services to approximately 300 customers in eastern
Nebraska.
23
<PAGE> 26
On February 24, 1999, the Company acquired from affiliates of Allied Waste
Industries, Inc. the stock of CRX, Inc., Dolpheide Sanitation Service, Inc. and
Better Disposal Service, Inc., three Nebraska corporations that provide solid
waste collection, recycling and disposal services to approximately 8,600
customers in eastern Nebraska and operate a landfill in Clarkson, Nebraska.
Concurrently, the Company sold to Allied the stock of Waste Connections
International, Inc., which operated the Company's collection, recycling and
disposal business in Issaquah and Maltby, Washington. On March 23, 1999, and
March 26, 1999, wholly owned subsidiaries of the Company acquired certain assets
of Mrsny Sanitary Service, Inc. and Columbus Sanitation Service, which provide
solid waste collection services to approximately 800 and 1,300 customers,
respectively, in eastern Nebraska. On March 29, 1999, the Company acquired the
stock of Wahoo Sanitation, Inc. and Saunders County Disposal, Inc., two Nebraska
corporations that provide solid waste collection, transfer and recycling
services to approximately 2,000 customers in eastern Nebraska. On March 31,
1999, the Company acquired certain assets of OZ Dispos-All, which provides solid
waste collection services to approximately 2,500 customers in eastern Nebraska.
On April 5, 1999, a wholly owned subsidiary of the Company purchased certain
assets of R&S Cleanup, which provides solid waste collection services to
approximately 1,200 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 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.
On March 26, 1999, a wholly owned subsidiary of the Company acquired certain
assets of Sandy's Disposal Service and Extra Mile Disposal, which provide solid
waste collection services to approximately 1,000 customers in western Oregon. On
March 31, 1999, a wholly owned subsidiary of the Company acquired the assets of
Jack Fleming Sanitary Service, which provides solid waste collection services to
approximately 400 customers in northwestern Oregon.
24
<PAGE> 27
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. On
January 8, 1999, a wholly owned subsidiary of the Company merged into Roche &
Sons, Inc. As a result, Roche & Sons, Inc. became a wholly owned subsidiary of
the Company that provides solid waste collection services to approximately 6,000
customers in central Utah. On March 26, 1999, a wholly owned subsidiary of the
Company acquired certain assets of Waste Away, LLC, which provides solid waste
collection services to approximately 2,400 customers in central Utah.
Wyoming 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 northeastern 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). On January 22, 1999, a wholly owned subsidiary
of the Company acquired certain assets of Brecke Sanitation, which provides
solid waste collection services to approximately 400 customers in western South
Dakota.
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.
On January 19, 1999, four wholly owned subsidiaries of the Company merged into
the Murrey Companies, and the Murrey Companies became wholly owned subsidiaries
of the Company. The Murrey Companies provide solid waste services to more than
65,000 customers in the Seattle-Tacoma, Washington area. On March 31, 1999, the
Company purchased the stock of two companies that are the sole partners of
Columbia Resource Co., L.P. ("CRC") and Finley-Buttes Limited Partnership
("FBLP"). CRC provides solid waste collection services to approximately 2,700
customers in southwestern Washington. FBLP operates the Finley-Buttes Regional
Landfill in northern Oregon.
The Company's management does not believe that consummation of any other
acquisitions is probable as of the date of this prospectus.
25
<PAGE> 28
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 facilities the Company operates in Madera, California and Clarkson,
Nebraska and the landfills the Company owns and operates in Major County,
Oklahoma, Morrow County, Oregon and Butler County, Nebraska. 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 18 transfer stations, which reduce
the Company's costs by allowing it to use collection personnel and 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.
26
<PAGE> 29
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 March 31, 1999, the Company had no capitalized expenditures relating to
landfill development projects and $26,973 in capitalized expenditures relating
to 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, the Butler
County Landfill it owns in Butler County, Nebraska, and the Finley-Buttes
Regional Landfill it owns in Morrow County, Oregon. 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 has any
financial obligation for closure and post-closure costs for the Fairmead
Landfill as of March 31, 1999. 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.
27
<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth items in Waste Connections' consolidated
statement of operations as a percentage of revenues for the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Revenues.............................................. 100.0%
Cost of operations.................................... 67.6
Selling, general and administrative expenses.......... 9.8
Depreciation and amortization expense................. 7.6
Stock compensation.................................... 1.3
-----
Operating income...................................... 13.7
Interest expense, net................................. (4.2)
Income tax expense.................................... (4.4)
Extraordinary loss, net of income tax................. (1.9)
-----
Net income (loss)..................................... 3.2%
=====
EBITDA margin(1)...................................... 22.5%
</TABLE>
- -------------------------
(1) EBITDA margin represents EBITDA expressed as a percentage of revenues.
EBITDA represents earnings presented above before extraordinary loss,
interest, (other) expense, income taxes, depreciation and amortization
expense and stock compensation expense. EBITDA is not a measure of cash
flow, operating results or liquidity, as determined in accordance with
generally accepted accounting principles.
The financial information for Waste Connections and our predecessors for the
years ended December 31, 1996 and 1997 included in this section relates to the
following entities for the periods indicated:
<TABLE>
<S> <C>
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 (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.
28
<PAGE> 31
1998 VS. 1997
Revenues. Revenues for 1998 increased $47.8 million, or 766% to $54.0 million
from $6.2 million for 1997. Our revenues in 1997 resulted primarily from the
purchase of Waste Connections' predecessors on September 30, 1997. Approximately
$47.6 million of the increase resulted primarily from the acquisitions of our
predecessors and the inclusion of their revenues for a full 12 months in 1998
and other acquisitions closed since the beginning of 1998. Approximately
$244,000 of the increase in revenues during 1998 resulted from growth in the
underlying operations of the business acquired from BFI. Revenues related to
Waste Connections' Predecessors Combined for the nine months ended September 30,
1997 were $18.1 million.
Cost of Operations. Cost of operations for 1998 increased $31.9 million, or
677%, to $36.6 million from $4.7 million for 1997. Our cost of operations in
1997 was attributable to the purchase of Waste Connections' predecessors on
September 30, 1997. The increase resulted primarily from the acquisitions of our
predecessors and the inclusion of their cost of operations for a full 12 months
in 1998 and other acquisitions closed since the beginning of 1998. This increase
in 1998 was offset slightly by a decline in expenses in the predecessors
operations as a result of cost reduction measures. Cost of operations as a
percentage of revenues declined 7.8% to 67.6% in 1998 from 75.4% in 1997. The
decline in cost of operations as a percent of revenues was as a result of
operating improvements implemented in the acquired businesses. Cost of
operations of Waste Connections' Predecessors Combined for the nine months ended
September 30, 1997 was $14.8 million, or 81.4% of revenues.
SG&A. SG&A expenses increased $4.7 million, or 759.0%, to $5.3 million for 1998
from $619,000 for 1997. Our SG&A expense in 1997 was attributable to the
purchase of Waste Connections' predecessors on September 30, 1997. The increase
resulted primarily from the acquisitions of our predecessors and the inclusion
of their SG&A expenses for a full 12 months in 1998 and other acquisitions
closed since the beginning of 1998, combined with an increase in corporate
overhead to accommodate our growth. SG&A as a percentage of revenues declined
0.1% to 9.8% for 1998 from 9.9% for 1997. The decline in SG&A as a percentage of
revenues was a result of spreading of overhead expenses over a larger base of
revenue from the acquisitions completed in 1998, offset by increases in
corporate overhead and the costs associated with being a public company.
Depreciation and Amortization. Depreciation and amortization expense increased
$3.8 million, or 1061.5%, to $4.1 million for 1998 from $354,000 for 1997. Our
depreciation and amortization expense in 1997 was attributable to the purchase
of Waste Connections' predecessors on September 30, 1997. The increase resulted
primarily from the acquisitions of our predecessors and the inclusion of their
depreciation and amortization for a full 12 months in 1998 and other
acquisitions closed since the beginning of 1998. Depreciation and amortization
as a percentage of revenues increased 1.9% to 7.6% for 1998 from 5.7% for 1997.
The increase in depreciation and amortization as a percentage of revenues was
primarily a result of amortization of goodwill associated with acquisitions.
Stock Compensation Expense. Stock compensation expense decreased $3.8 million,
or 85.6%, to $632,000 for 1998 from $4.4 million for 1997. Our stock
compensation expense in 1997 was attributable to the valuation of common stock
issued upon the initial formation of the company. Stock compensation as a
percentage of revenues decreased
29
<PAGE> 32
69.3% to 1.2% for 1998 from 70.5% for 1997. Our stock compensation expense in
1998 was attributable to stock options granted with exercise prices less than
the estimated fair value of our common stock on the date of grant.
Start Up and Integration Expense. Start up and integration expenses relate to
expenses incurred in connection with our formation and integration costs
relating to our initial acquisitions.
Operating Income. Operating income increased $11.7 million from a loss of $4.3
million in 1997 to $7.4 million in 1998. The increase was attributable to the
decline in stock compensation expense combined with improved operating
performance and the inclusion of a full year of our predecessors' operating
results and other acquisitions closed since the beginning of 1998.
Interest Expense. Interest expense increased $1.2 million, or 118%, to $2.3
million for 1998 from $1.0 million for 1997. The increase was primarily
attributable to higher debt levels incurred to fund certain of our acquisitions.
Provision for Income Taxes. Income taxes increased $2.7 million to $2.4 million
for 1998 from a benefit of $332,000 for 1997. The effective income tax rate in
1998 was 46.3%, which is above the federal statutory rate of 34.0% as the result
of state and local taxes, non-deductible goodwill associated with certain
acquisitions and the non-deductibility of the stock compensation expense.
Extraordinary Charges. Extraordinary charges relate to the early termination of
our bank credit facility when it was replaced by a new and larger facility. We
had two new credit facilities during 1998.
Net Income. Net income increased by $6.8 million to $1.7 million for 1998, from
a loss of $5.1 million for 1997. The increase was attributable to the decline in
stock compensation expense combined with improved operating performance and the
inclusion of a full year of our predecessors' operating results and other
acquisitions closed since the beginning of 1998.
1997 VS. 1996
Because the predecessors existed for different periods, year-to-year comparisons
are not meaningful and therefore we have not included discussions of SG&A,
depreciation and amortization and interest.
Revenues. Our revenues for 1997 were $6.2 million. The revenues resulted
primarily from the purchase of Waste Connections' predecessors on September 30,
1997. Revenues related to Waste Connections' Predecessors Combined for the nine
months ended September 30, 1997 were $18.1 million. Waste Connections'
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 revenues for Waste
Connections and Waste Connections' Predecessors Combined were essentially the
same in 1997 and 1996.
Cost of Operations. Cost of operations in 1997 was $4.7 million, or 75.4% of
revenues. The cost of operations was attributable to the purchase of Waste
Connections' predecessors on September 30, 1997. Cost of operations of Waste
Connections' Predecessors Combined for the nine months ended September 30, 1997
was $14.8 million, or 81.4% of revenues.
30
<PAGE> 33
Waste Connections' Predecessors Combined for the period ended December 31, 1996
had cost of operations of $11.4 million, or 85.1% of revenues. During the period
from January 1, 1996 to July 31, 1996, the Disposal Group had cost of operations
of $6.2 million, or 70.7% of revenues. Our cost of operations as a percentage of
revenues in 1997 declined from Waste Connections' 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. Waste Connections' Predecessors Combined cost of
operations as a percentage of revenues 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.
SUPPLEMENTAL WASTE CONNECTIONS, INC. AND PREDECESSORS
1998 VS. 1997
Revenues. Total revenues increased $51.5 million, or 146.6%, to $86.6 million
for 1998 from $35.1 million for 1997. Substantially all of the increase resulted
primarily from the acquisitions of BFI's Washington operations and acquisitions
closed since the beginning of 1998. Approximately $1.8 million resulted from
growth in the base business.
Cost of Operations. Total cost of operations increased $35.2 million, or 126.2%,
to $63.0 million for 1998 from $27.8 million for 1997. The increase resulted
primarily from the acquisitions of BFI's Washington operations and acquisitions
closed since the beginning of 1998. Cost of operations as a percentage of
revenues declined 6.6% to 72.7% for 1998 from 79.3% for 1997. The decline in
cost of operations as a percentage of revenues was a result of cost reductions
at acquired businesses.
SG&A. SG&A expenses increased $5.2 million, or 175.6%, to $8.1 million for 1998
from $2.9 million for 1997. The increase was primarily attributable to the
inclusion of BFI's Washington operations for 12 months and acquisitions closed
since the beginning of 1998 and the additional corporate costs of being a public
company and supporting the rapid pace of growth. SG&A as a percentage of
revenues increased 0.9% to 9.4% for 1998 from 8.4% for 1997. The increase in
SG&A as a percentage of revenues was a result of the acquisitions, which had
generally higher overhead expenses and the additional corporate costs of being a
public company and supporting the rapid pace of growth.
Depreciation and Amortization. Depreciation and amortization expense increased
$4.6 million, or 265.6%, to $6.3 million for 1998 from $1.7 million for 1997.
The increase was primarily attributable to depreciation from acquired assets and
increased amortization of goodwill from acquisitions. Depreciation and
amortization as a percentage of revenues increased 2.3% to 7.2% for 1998 from
4.9% for 1997. The increase in depreciation and amortization as a percentage of
revenues was primarily a result of amortization of goodwill associated with
acquisitions.
Stock Compensation Expense. Stock compensation expense decreased $3.8 million,
or 85.6%, to $632,000 for 1998 from $4.4 million for 1997. Our stock
compensation expense in 1997 was attributable to the valuation of common stock
issued upon the initial formation of the Company. Stock compensation as a
percentage of revenues decreased 11.8% to 0.7% for 1998 from 12.5% for 1997. Our
stock compensation expense in 1998 was
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attributable to stock options granted with exercise prices less than the
estimated fair value of our common stock on the date of grant.
Start Up and Integration Expense. Start up and integration expenses relate to
expenses incurred in connection with Waste Connections' formation and
integration costs relating to our initial acquisitions.
Operating Income. Operating income increased $10.8 million from a loss of $2.3
million in 1997 to $8.5 million in 1998. The increase was attributable to the
decline in stock compensation expense combined with improved operating
performance and the inclusion of a full year of the business acquired from BFI
and other acquisitions closed since the beginning of 1998.
Interest Expense. Interest expense increased $1.4 million, or 97.3%, to $2.8
million for 1998 from $1.4 million for 1997. The increase was primarily
attributable to higher debt levels incurred to fund all or a portion of the
purchase price of acquired businesses.
Provision for Income Taxes. Income taxes increased $2.6 million to $2.9 million
for 1998 from $302,000 for 1997. The increase was associated with the
profitability of the operations acquired from BFI. The effective income tax rate
in 1998 was 50.1%, which is above the federal statutory rate of 34.0% as the
result of state and local taxes, non-deductible goodwill associated with certain
acquisitions and the non-deductibility of the stock compensation expense.
Extraordinary Charges. Extraordinary charges relate to the early termination of
our bank credit facility when it was replaced by a new and larger facility. We
had two new credit facilities during 1998.
Net Income. Net income increased by $5.6 million to $1.9 million for 1998, from
a loss of $3.8 million for 1997. The increase was attributable to the decline in
stock compensation expense combined with improved operating performance and the
inclusion of a full year of the operations acquired from BFI and other
acquisitions closed since the beginning of 1998.
1997 VS. 1996
Revenues. Total revenues increased by $10.1 million, or 40.3%, to $35.1 million
in 1997 from $25.0 million in 1996. This increase was primarily attributable to
our acquisition of the predecessors from BFI on December 31,1997, increased
volumes, price increases as a result of increased disposal fees, the acquisition
of the assets of Vashon Island Disposal and additional services to existing
customers.
Cost of Operations. Total cost of operations increased $7.4 million, or 36.0%,
to $27.8 million in 1997 from $20.5 million in 1996. The increase was
principally due to our acquisition of the predecessors from BFI on December
31,1997, increased volume, increased disposal costs and the cost of operations
of Vashon Island Disposal. Cost of operations as a percentage of revenues
declined 2.5% to 79.3% from 81.8% in 1996. The percentage decrease was primarily
due to operating leverage as a result of increased volumes.
SG&A. SG&A expenses increased approximately $800,000, or 37.4%, to $2.9 million
in 1997 from $2.1 million in 1996. The increase was principally due to our
acquisition of the predecessors from BFI on December 31, 1997, and increased
wages and contributions to
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the Murrey Companies' 401(k) plan. As a percentage of revenues, SG&A decreased
0.2% to 8.4% from 8.6% in 1996 as a result of operating leverage with the
increased revenues.
Depreciation and Amortization. Depreciation and amortization expense increased
approximately $489,000, or 39.6%, to $1.7 million in 1997 from $1.2 million in
1996. The increase resulted from our acquisition of the predecessors from BFI on
December 31, 1997, and the purchase of additional collection equipment and
containers. Depreciation and amortization expense remained constant as a
percentage of revenues at 4.9%.
Interest Expense. Interest expense increased approximately $1.1 million, or
398.2%, to $1.4 million in 1997 from approximately $284,000 in 1996. The
increased interest expense was a result of higher debt levels resulting from our
acquisition of the predecessors from BFI on December 31, 1997 and the purchase
of additional property and equipment.
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 December 31, 1998, the Company had a working capital deficit of $8.7
million, including cash and cash equivalents of $2.7 million. Approximately $8.5
million of the working capital deficit was a short-term note payable related to
a business acquired in December 1998. 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 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 $24.0
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). In February 1999, the Company received approximately
$65.3 million in net proceeds from the sale of 3,999,307 shares in a secondary
public offering (including exercise by the underwriters of their overallotment
option). As of April 15, 1999, the Company had sold or issued a total of
17,425,483 shares of Common Stock at a weighted average value of $10.69 per
share, and had outstanding options and warrants to purchase 2,315,399 shares of
Common Stock at a weighted average exercise price of $8.51 per share.
The Company has a $225.0 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 2004 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
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Inability to Finance the Company's Potential Growth." As of April 16, 1999, an
aggregate of approximately $95,700,000 was outstanding under the Company's
credit facility, and the interest rate on outstanding borrowings under the
credit facility was approximately 7.0%.
For the year ended December 31, 1998, net cash provided by operations was
approximately $6.1 million, most of which was provided by operating results for
the period, non-cash charges for stock compensation and one-time extraordinary
non-cash charges for extinguishment of debt. This was offset by an approximately
$3.3 million increase in working capital (net of acquisitions) in 1998.
For the year ended December 31, 1998, net cash used by investing activities was
$62.5 million. Of this, approximately $56.3 million was used to fund the cash
portion of acquisitions, with approximately $6.2 million invested in management
information systems, trucks and landfill construction activities.
For the year ended December 31, 1998, net cash provided by financing activities
was $58.3 million, which included net borrowings under the Company's debt
arrangements and $24.0 million in proceeds from the sale of Common Stock in an
initial public offering.
The Company made approximately $6.2 million in capital expenditures in 1998. The
Company expects to make capital expenditures in 1999 of approximately $6.0
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, and the funds
expected to be generated from operations, will provide adequate cash to fund the
Company's working capital and other cash needs for the foreseeable future.
On January 19, 1999, the Company merged with the Murrey Companies. The
transactions were accounted for as poolings-of-interest, whereby the Company
issued 2,888,880 shares of Common Stock for all of the outstanding shares of the
Murrey Companies. In connection with the mergers with the Murrey Companies, the
Company incurred transaction related costs of approximately $6.2 million, which
were charged to operations in the first quarter of 1999.
Effective February 9, 1999, the Company sold approximately four million shares
of Common Stock at $17.50 per share. As a result of the offering, the Company
received approximately $65.3 million in net proceeds and paid down approximately
$50.2 million of its outstanding debt.
Effective March 1, 1999, the Company acquired the stock of two companies that
are the sole partners of CRC and FBLP for total consideration of approximately
$66.9 million in cash.
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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. Accumulated amortization amounted to
$64,000 and $1.4 million as of December 31, 1997 and 1998, respectively. 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 December 31, 1998, there have
been no adjustments to the carrying amounts of intangibles resulting from these
evaluations. As of December 31, 1998, the Company's goodwill represented
approximately 63.7% of its total assets and 155.7% 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 8.7% during the year ended December 31, 1998. There are
approximately nine years remaining under that contract. No other single contract
or customer accounted for more than 7.1% of the Company's revenues during the
period from inception (September 9, 1997) through December 31, 1997, or more
than 5.0% during the year ended December 31, 1998.
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 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
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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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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 April 15, 1999, the Company served
more than 330,000 commercial, industrial and residential customers in
California, Idaho, Kansas, Minnesota, Nebraska, Oklahoma, Oregon, South Dakota,
Utah, Washington and Wyoming. The Company currently owns and operates 33
collection operations, 11 transfer stations and three Subtitle D landfills and
operates an additional seven transfer stations, two Subtitle D landfills and
nine 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 64 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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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 five landfills, of which it owns three, 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 those where it currently operates and is assessing potential
acquisitions of solid waste services operations in Colorado, Montana and Texas.
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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 18
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.
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,
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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, Minnesota,
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 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
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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 April 15, 1999:
<TABLE>
<CAPTION>
ACQUIRED BUSINESS MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION MARKET AREA
----------------- -------------- ------------------ -------- -----------
<S> <C> <C> <C> <C>
R&S Cleanup April 1999 Collection Seward, NE Eastern Nebraska
Columbia Resource Co., L.P. March 1999 Collection and Vancouver, WA and Southwestern Washington
and Finley-Buttes Limited Landfill Heppner, OR and Northern Oregon
Partnership
OZ Dispos-All March 1999 Collection Eagle, NE Eastern Nebraska
Jack Fleming Sanitary Service March 1999 Collection Portland, OR Northwestern Oregon
Kansas Industrial Services, March 1999 Collection Arkansas City, KS Southern Kansas
Inc.
Williams Trash Service March 1999 Collection Douglas, KS Southern Kansas
Ritters Sanitary Service, Inc. March 1999 Collection Marshall, MN Southwestern Minnesota
Wahoo Sanitation, Inc. and March 1999 Collection Wahoo, NE Eastern Nebraska
Saunders County Disposal, Inc.
Sandy's Disposal Service and March 1999 Collection Eugene, OR Western Oregon
Extra Mile Disposal
Columbus Sanitation Service March 1999 Collection Columbus, NE Eastern Nebraska
Waste Away, LLC March 1999 Collection Hooper, UT Central Utah
Mrsny Sanitary Service, Inc. March 1999 Collection Wayne, NE Eastern Nebraska
CRX, Inc., Dolpheide Sanitary February 1999 Collection and Fremont, NE Eastern Nebraska
Service, Inc. and Better Landfill
Disposal Service, Inc.
Brecke Sanitation January 1999 Collection Wagner, SD Western South Dakota
Murrey Companies January 1999 Collection Fife, WA Western Washington
Roche & Sons, Inc. January 1999 Collection Layton, UT Central Utah
Butler County Landfill, Inc. January 1999 Landfill David City, NE Eastern Nebraska
and Kobus Construction, Inc.
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 Service, Inc. November 1998 Collection Portland, OR Northern Oregon and
and Moreland Sanitary Services, Southwestern Washington
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
</TABLE>
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<PAGE> 45
<TABLE>
<CAPTION>
ACQUIRED BUSINESS MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION MARKET AREA
----------------- -------------- ------------------ -------- -----------
<S> <C> <C> <C> <C>
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
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
Inc.
Contractors' Waste Removal, L.C June 1998 Collection Orem, UT Central Utah
Arrow Sanitary Service, 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
Sowers' 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 330,000 commercial, industrial and residential
customers. Of these, the Company serves more than 94,100 under G certificates
that grant the Company rights, which are generally perpetual and exclusive, to
provide services within specified areas, more than 28,900 under exclusive
franchise agreements with remaining terms ranging from seven to 18 years, and
more than 129,100 under exclusive municipal contracts with generally shorter
contract terms.
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<PAGE> 46
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.
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, four transfer stations in Nebraska, six
transfer stations in Washington and five 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 five Subtitle D landfills: the Fairmead Landfill, the Red
Carpet Landfill, the Butler County Landfill, the Finley-Buttes Regional
Landfill, and the Coalition Landfill. Of these the Company owns the Red Carpet
Landfill, the Butler County Landfill and the Finley-Buttes Regional Landfill.
The Company operates the Fairmead Landfill under an operating agreement with
Madera County. As of March 31, 1999, the Fairmead Landfill consisted of 160
total acres, of which 77 acres were permitted for disposal. As of that date, the
Fairmead Landfill had approximately 2.86 million tons of unused permitted
capacity
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<PAGE> 47
remaining, with approximately 2.04 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 March 31, 1999, the Red Carpet Landfill consisted of 82 total acres, all
of which 40 acres were permitted for disposal. As of that date, the Red Carpet
Landfill had approximately 525,000 tons of unused permitted capacity remaining,
with approximately 1.75 million additional tons of capacity in various stages of
permitting, and was estimated to have a remaining life of 15 years. The Red
Carpet Landfill is currently permitted to accept up to 350 tons per day of
municipal solid waste.
As of March 31, 1999, the Butler County Landfill consisted of 282 total acres,
of which 84 were permitted for disposal. As of that date, the Butler County
Landfill had approximately 2.32 million tons of unused permitted capacity
remaining, with approximately 1.60 million additional tons of capacity in
various stages of permitting, and was estimated to have a remaining life of 25
years.
As of March 31, 1999, the Finley-Buttes Regional Landfill consisted of 1,800
total acres, of which 476 acres were permitted for disposal. As of that date,
the Finley-Buttes Regional Landfill had approximately 65.99 million tons of
unused permitted capacity remaining, with approximately 56.88 million additional
tons of capacity in various stages of permitting, and was estimated to have a
remaining life of 190 years.
The Company operates the Coalition Landfill under an operating agreement with
the Northeast Nebraska Solid Waste Coalition. As of March 31, 1999, the
Coalition Landfill consisted of 160 total acres, had approximately 3.68 million
tons of unused permitted capacity remaining, and was estimated to have a
remaining life of 46 years.
The Company monitors the available permitted in-place disposal capacity of its
landfills on an ongoing basis and evaluates whether to seek to expand this
capacity. In making this evaluation, the Company considers various factors,
including the volume of waste projected to be disposed of at the landfill, the
size of the unpermitted acreage included in the landfill, the likelihood that
the Company will be successful in obtaining the necessary approvals and permits
required for the expansion and the costs that would be involved in developing
the additional capacity. The Company also regularly considers whether it is
advisable, in light of changing market conditions and/or regulatory
requirements, to seek to expand or change the permitted waste streams or to seek
other permit modifications.
The Company 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.
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<PAGE> 48
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 nine 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 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 33 operating locations serving
12 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
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<PAGE> 49
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 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
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<PAGE> 50
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.,
(which has announced a proposed purchase of Browning-Ferris Industries, Inc.),
Browning-Ferris Industries, Inc., Republic Services Inc., and Waste Management,
Inc. Several other public companies have annual revenues in excess of $100
million, including Casella Waste Systems, Inc., Superior Services, Inc. and
Waste Industries, Inc. Certain of the markets in which the Company competes or
will likely compete are served by one or more large, national solid waste
companies, as well as by numerous regional and local solid waste companies of
varying sizes and resources, some of which have accumulated substantial goodwill
in their markets. The Company also competes with operators of alternative
disposal facilities, including incinerators, and with counties, municipalities,
and solid waste districts that maintain their own waste collection and disposal
operations. Public sector operations may have financial advantages over the
Company, because of their access to user fees and similar charges, tax revenues
and tax-exempt financing.
The Company competes for collection, transfer and disposal volume based
primarily on the price and quality of its services. From time to time,
competitors may reduce the price of their services in an effort to expand their
market shares or service areas or to win competitively bid municipal contracts.
These practices may cause the Company to reduce the price of its services or, if
it elects not to do so, to lose business. The Company provides a substantial
portion of its residential, commercial and industrial collection services under
exclusive franchise and municipal contracts and certificates, some of which are
subject to periodic competitive bidding. The 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.
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<PAGE> 51
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.
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
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<PAGE> 52
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 April 19, 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.
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
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<PAGE> 53
waters. The Company believes that its facilities comply in all material respects
with the Clean Water Act requirements. Various states in which the Company
operates or in which it may operate in the future have been delegated authority
to implement the Clean Water Act permitting requirements, and some of these
states have adopted regulations that are more stringent than the federal
requirements. For example, states often require permits for discharges to ground
water as well as surface water.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND
LIABILITY ACT OF 1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide for the
investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities. CERCLA also imposes liability for
the cost of evaluating and remedying any damage to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend on the existence or disposal of "hazardous waste" as
defined by RCRA; it can also be based on the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party for a CERCLA cleanup,
the enforcing agency could hold the Company, or any other generator, transporter
or the owner or operator of the contaminated facility, responsible for all
investigative and remedial costs, even if others were also liable. CERCLA also
authorizes the imposition of a lien in favor of the United States on all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA gives a responsible party the right to bring a
contribution action against other responsible parties for their allocable shares
of investigative and remedial costs. The Company's ability to obtain
reimbursement from others for their allocable shares of such costs would be
limited by 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
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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.
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
52
<PAGE> 55
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.
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
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<PAGE> 56
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 additional landfills. 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 April 15, 1999, the Company had provided customers
and various regulatory authorities with surety bonds and letters of credit in
the aggregate amount of approximately $4.7 million to secure its obligations.
The Company's credit facility provides for the issuance of letters of credit in
an amount up to $20 million, but any letters of credit issued reduce the
availability of borrowings for acquisitions and other general corporate
purposes. If the Company were unable to obtain surety bonds or letters of credit
in sufficient amounts or at acceptable rates, it could be precluded from
entering into additional municipal solid waste collection contracts or obtaining
or retaining landfill operating permits.
PROPERTY AND EQUIPMENT
As of April 15, 1999, the Company owned and operated 33 collection operations,
11 transfer stations and three Subtitle D landfills and operated an additional
seven transfer stations, two Subtitle D landfills and nine 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.
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<PAGE> 57
EMPLOYEES
At April 15, 1999, the Company employed approximately 965 full-time employees,
including approximately 65 persons classified as professionals or managers,
approximately 775 employees involved in collection, transfer, disposal and
recycling operations, and approximately 125 sales, clerical, data processing or
other administrative employees.
Approximately 67 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 46 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. 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> 58
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of April 15, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald J. President, Chief Executive Officer and
Mittelstaedt(1)(2)......... 35 Chairman
Steven F. Bouck.............. 42 Executive Vice President and Chief
Financial Officer
Eugene V. Dupreau............ 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
Irmgard R. Wilcox............ 56 Vice President -- Finance -- Northern
Washington; Director
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
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<PAGE> 59
research coverage of a number of publicly traded environmental services
companies. Mr. Bouck holds B.S. and M.S. degrees in mechanical engineering from
Rensselaer Polytechnic Institute and an M.B.A. in Finance from the Wharton
School. He has been a Chartered Financial Analyst since 1990.
Eugene V. Dupreau has been Vice President -- Madera and a director of the
Company since February 23, 1998. Mr. Dupreau served as President and a director
of Madera Disposal Systems, Inc. beginning in 1981 and 1985, respectively, and
held both positions until the Company acquired Madera in 1998. Mr. Dupreau holds
a B.S. in Business Administration from Fresno State University and has completed
advanced coursework in waste management. He serves as a director of several
civic and charitable organizations in Madera County.
Charles B. Youngclaus has been Vice President -- Madera and an advisory director
of the Company since February 23, 1998. Mr. Youngclaus founded Madera Disposal
Systems, Inc. in 1981 and was its Chief 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
57
<PAGE> 60
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 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.
Irmgard R. Wilcox has been Vice President -- Finance -- Northern Washington of
the Company since January 19, 1999, and a director of the Company since February
1999. Ms. Wilcox served as Chief Financial Officer, Secretary and Treasurer of
the Murrey Companies from 1982 until they merged with the Company in 1999. Ms.
Wilcox joined the Murrey Companies in 1975. She holds a B.A. in Business
Administration from Pacific Lutheran University with a concentration in
accounting.
Michael W. Harlan has been a director of the Company since January 30, 1998. He
is Senior Vice President, Chief Financial Officer and a director of U.S.
Concrete, Inc., a company focused on acquiring businesses in the ready-mix
concrete industry. 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.
Since September 1998, Mr. Razzouk has been Chairman and Chief Executive Officer
of PlanetRx, an e-commerce start-up focused on healthcare and sales of
prescription and over-the-counter medicines, health and beauty products and
medical supplies. From April 1998 until September 1998, Mr. Razzouk owned a
management consulting business and an investment company that focused 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
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<PAGE> 61
Officer of America Online from February 1996 to June 1996. From 1983 to 1996,
Mr. Razzouk held various management positions at Federal Express Corporation,
most recently as Executive Vice President, World Wide Customer Operations, with
full worldwide profit and loss responsibility. Mr. Razzouk previously held
management positions at ROLM Corporation, Philips Electronics and Xerox
Corporation. He is a member of the Board of Directors of Fritz Companies, Inc.
and previously was a director of Sanifill, Inc., Cordis Corp. and La Quinta
Motor Inns. He holds a Bachelor of Journalism degree from the University of
Georgia.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of the
first class (currently comprised of Eugene V. Dupreau) will expire at the annual
meeting of stockholders following the fiscal year ending December 31, 1998. The
term of office of the second class (currently comprised of Michael W. Harlan and
William J. Razzouk) will expire at the annual meeting of stockholders following
the fiscal year ending December 31, 1999. The term of office of the third class
(currently comprised of Ronald J. Mittelstaedt and Irmgard R. Wilcox) 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.
The Company grants 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 have an exercise price equal to the
fair market value of the Common Stock on the grant date, vest in full on the
grant date, and expire upon the earlier to occur of ten years after the grant
date or one year after the director ceases to be
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<PAGE> 62
a member of the Board. Effective February 1, 1999, the Company granted to each
of Messrs. Harlan and Razzouk immediately exercisable options to purchase 7,500
shares of Common Stock at $17.9375 per share.
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 92,887 115,008 -- -- 250,000 --
Darrell W.
Chambliss.......... 1998 89,972 89,322 -- -- -- --
Michael R. Foos...... 1998 89,809 71,788 -- -- -- --
Eric J. Moser........ 1998 74,115 45,563 -- -- -- --
</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.
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<PAGE> 63
(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.
(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 $861,311 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.......... -- -- 28,334 56,666 351,466 702,909
</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. Mr. Mittelstaedt is also entitled to a performance
bonus of up to 100% of his annual base salary.
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> 64
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. The Compensation Committee was appointed in 1998, and Mr.
Mittelstaedt served on that committee for the remainder of the year. He is no
longer a member of the Compensation Committee. 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, and amended on January 19, 1999. 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
12% of the shares of Waste Connections Common Stock outstanding at any given
time. As of April 15, 1999, the Company had outstanding options to purchase
1,420,447 shares of Common Stock at a weighted average exercise price of $10.99
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).
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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 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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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.
On January 19, 1999, Eugene V. Dupreau, Charles B. Youngclaus and Irmgard R.
Wilcox were granted options to purchase 10,000, 7,000 and 5,000 shares of Common
Stock, respectively, at an exercise price of $17.9375 per share, one-third of
which become exercisable on each of January 19, 2000, January 19, 2001 and
January 19, 2002.
On January 19, 1999, Ronald J. Mittelstaedt, Steven F. Bouck, Darrell W.
Chambliss, Michael R. Foos, Eric J. Moser and David M. Hall were granted options
to purchase 100,000, 50,000, 40,000, 40,000, 40,000 and 15,000 shares of Common
Stock, respectively, at an exercise price of $17.9375 per share, one-third of
which become exercisable on each of January 19, 2000, January 19, 2001, and
January 19, 2002.
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
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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
will issue additional restricted shares of the Company's Common Stock to former
Madera shareholders, including Messrs. Dupreau and Youngclaus, with respect to
the successful extension of a franchise agreement that was being negotiated by
Madera at the time of the Company's acquisition of Madera.
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
$108,000 to Fibres in 1998.
MERGERS WITH THE MURREY COMPANIES.
Donald J. Hawkins was the President, Chief Executive Officer and a 5%
shareholder of the Murrey Companies before the Company merged with them in
January 1999. Irmgard R. Wilcox was the Chief Financial Officer, Treasurer,
Secretary and a 5% shareholder of the Murrey Companies until the Company merged
with them. For their shares of the Murrey Companies' common stock each of Mr.
Hawkins and Ms. Wilcox received 144,442 shares of the Company's Common Stock.
The Company engaged 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 received a
$2,000,000 signing bonus pursuant to their employment agreements with the
Company. The Company appointed Ms. Wilcox to its Board of Directors in February
1999.
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PRINCIPAL STOCKHOLDERS
The following table shows the amount of the Company's Common Stock beneficially
owned, as of April 15, 1999, by: (i) each person or entity that the Company
knows owns more than 5% of the Company's Common Stock; (ii) the "named executive
officers" identified in "Executive Compensation" 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>
Murrey Trust UTA August 5, 1993, as amended(2)(3)....... 1,949,997 11.2%
Eugene P. Polk(2)(4).................................... 1,311,574 7.5
Ronald J. Mittelstaedt(2)(5)............................ 1,058,376 6.0
Eugene V. Dupreau(2)(6)................................. 407,148 2.3
Irmgard R. Wilcox(2).................................... 144,942 0.8
Steven F. Bouck(2)(7)................................... 116,668 0.7
Darrell W. Chambliss(2)(8).............................. 77,501 0.4
Michael R. Foos(2)(8)................................... 80,430 0.5
Eric J. Moser(2)(9)..................................... 58,452 0.3
Michael W. Harlan(2)(10)................................ 27,500 0.2
William J. Razzouk(2)(11)............................... 22,500 0.1
All executive officers and directors as a group (11
persons).............................................. 2,405,844 13.5
</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 the Murrey Trust is c/o US Bank, 5530 Pacific Highway, Suite
A, Fife, Washington 98424. The address of Messrs. Mittelstaedt, Bouck,
Chambliss, Foos and Moser is 2260 Douglas Boulevard, Suite 280, Roseville,
California 95661. The address of 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. The address of Irmgard R. Wilcox is 4622 70
Avenue East, Fife, Washington 98731.
(3) The trustees of the Murrey Trust are Bonnie L. Murrey, Irmgard R. Wilcox
and Donald Hawkins. Under the rules of the Commission, the trustees may
also be deemed beneficial owners of the shares owned by the Murrey Trust.
The shares listed exclude 144,942 and 144,442 shares of Common Stock owned
individually by Irmgard R. Wilcox and Donald Hawkins, respectively.
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(4) 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; and
562,104 shares held by Kieckhefer Partnership 84-1, for which Eugene Polk
serves as Managing Partner.
(5) 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.
(6) Includes 66,667 shares purchasable under immediately exercisable warrants
and 5,000 shares purchasable under immediately exercisable options.
(7) Includes 23,749 shares purchasable under currently exercisable options.
(8) Includes 50,000 shares purchasable under currently exercisable options.
(9) Includes 36,667 shares purchasable under currently exercisable options.
(10) Includes 5,000 shares purchasable under immediately exercisable warrants
and 22,500 shares purchasable under immediately exercisable options
(11) Includes 22,500 shares purchasable under immediately exercisable options.
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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 April 19, 1999,
there were 17,425,483 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 April 19, 1999, the Company had 17,425,483 shares of Common Stock
outstanding. Of those shares, the 2,300,000 sold in the Company's initial public
offering, the 3,999,307 shares sold in the Company's secondary public offering,
and an additional 4,355,265 shares are freely saleable in the public market,
unless acquired by affiliates of the Company. An additional 5,908,483 of the
currently outstanding shares are currently eligible for resale in the public
market, an additional 361,732 of the currently outstanding shares will become
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eligible for resale in the public market later in 1999, an additional 302,342 of
the currently outstanding shares will become eligible for resale in the public
market in 2000, and an additional 198,354 of the currently outstanding shares
will become eligible for resale in the public market in subsequent 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 (174,254 shares as of April 19, 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 April 15, 1999, the Company had issued 3,768,207
shares under the original registration statement on Form S-4, and an additional
2,875,958 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. In
February 1999, the Company filed a registration statement under the Securities
Act to register an additional 820,132 shares issuable on exercise of such
options or awards. 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.
73
<PAGE> 76
The Company will not receive any of the proceeds from any such sales. Any
commissions paid or concessions allowed to any broker-dealer and, if any
broker-dealer purchases such shares as principal, any profits received on the
resale of such shares, may be deemed to be underwriting discounts and
commissions under the Securities Act. 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.
74
<PAGE> 77
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby will
be passed upon for the Company by Shartsis, Friese & Ginsburg LLP, San
Francisco, California. The statements pertaining to the Company's G certificates
awarded by the WUTC under "Risk Factors -- Highly Competitive Industry,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General," "Business -- Industry Overview," and "Business -- G
Certificates" will be passed upon for the Company by Williams, Kastner & Gibbs
PLLC, Seattle, Washington.
EXPERTS
The 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, 1997 and 1998, and for each of the three years in the
period ended December 31, 1998;
(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, 1997 and 1998, and for each of the three years in the period
ended December 31, 1998;
(c) Supplemental consolidated financial statements of Waste
Connections, Inc. and Predecessors as of December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1998.
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 Columbia Resource Co., L.P. and
Finley-Buttes Limited Partnership as of December 31, 1997 and 1998, and for each
of the three years in the period ended December 31, 1998 in this Prospectus and
Registration Statement have been audited by Perkins & Company, P.C., 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.
75
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Financial
Statements............................................. F-3
Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1998................................ F-4
Notes to Unaudited Pro Forma Statement of Operations...... F-5
Unaudited Pro Forma Balance Sheet as of December 31,
1998................................................... F-7
Notes to Unaudited Pro Forma Consolidated Balance Sheet... F-8
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors......... F-9
Consolidated Balance Sheets of Waste Connections, Inc. as
of December 31, 1997 and 1998.......................... F-10
Statement of Operations of Predecessors for the nine
months ended September 30, 1997........................ F-11
Consolidated Statements of Operations of Waste
Connections, Inc. for the period from inception
(September 9, 1997) through December 31, 1997 and the
year ended December 31, 1998........................... F-11
Combined Statement of Operations of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-12
Combined Statement of Operations of Predecessors for the
period ended December 31, 1996......................... F-12
Consolidated Statements of Redeemable Stock and
Stockholders' Equity (Deficit) of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 and the year ended December
31, 1998............................................... F-13
Statement of Cash Flows of Predecessors for the nine
months ended September 30, 1997........................ F-14
Consolidated Statements of Cash Flows of Waste
Connections, Inc. for the period from inception
(September 9, 1997) through December 31, 1997 and the
year ended December 31, 1998........................... F-14
Combined Statement of Cash Flows of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-15
Combined Statement of Cash Flows of Predecessors for the
period ended December 31, 1996......................... F-15
Notes to Financial Statements............................. F-16
THE MURREY COMPANIES
Report of Ernst & Young LLP, Independent Auditors......... F-37
Combined Balance Sheets as of December 31, 1997 and
1998................................................... F-38
Combined Statements of Income and Retained Earnings for
each of the three years in the period ended December
31, 1998............................................... F-39
Combined Statements of Cash Flows for each of the three
years in the period ended December 31, 1998............ F-40
Notes to Combined Financial Statements.................... F-42
COLUMBIA RESOURCE CO., L.P. AND FINLEY-BUTTES LIMITED
PARTNERSHIP
Independent Auditors' Report.............................. F-51
Combined Balance Sheets as of December 31, 1997 and
1998................................................... F-52
Combined Statements of Income for each of the three years
in the period ended December 31, 1998.................. F-53
Combined Statements of Partners Capital and Comprehensive
Income for each of the three years in the period ended
December 31, 1998...................................... F-54
Combined Statements of Cash Flows for each of the three
years in the period ended December 31, 1998............ F-55
Notes to Financial Statements............................. F-56
SUPPLEMENTAL WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors......... F-64
Supplemental Consolidated Balance Sheets of Waste
Connections, Inc. as of December 31, 1997 and 1998..... F-65
</TABLE>
F-1
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Statement of Operations of Predecessors for the
nine months ended September 30, 1997................... F-66
Supplemental Consolidated Statements of Operations of
Waste Connections, Inc. for the years ended December
31, 1997 and 1998...................................... F-66
Combined Statement of Operations of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-67
Combined Statement of Operations of Predecessors for the
period ended December 31, 1996......................... F-67
Supplemental Consolidated Statement of Operations of Waste
Connections, Inc. for the year ended December 31,
1996................................................... F-67
Supplemental Consolidated Statement of Redeemable Stock
and Stockholders' Equity of Waste Connections, Inc. for
each of the three years in the period ended December
31, 1998............................................... F-68
Combined Statement of Cash Flows of Predecessors for the
nine months ended September 30, 1997................... F-69
Supplemental Consolidated Statements of Cash Flows of
Waste Connections, Inc. for the years ended December
31, 1997 and 1998...................................... F-69
Combined Statement of Cash Flows of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-71
Combined Statement of Cash Flows of Predecessors for the
period ended December 31, 1996......................... F-71
Supplemental Consolidated Statement of Cash Flows of Waste
Connections, Inc. for the year ended December 31,
1996................................................... F-71
Notes to Financial Statements............................. F-72
</TABLE>
F-2
<PAGE> 80
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The Unaudited Pro Forma Statement of Operations for the year ended December
31, 1998 gives effect to the business combination involving WCI and Columbia
Resource Co., LP and Finley-Buttes Limited Partnership ("CRCFBLP") as if such
business combination occurred on January 1, 1998 and was accounted for using the
purchase method of accounting. In addition to reflecting the business
combination involving WCI and CRCFBLP, the following Unaudited WCI and the
Murrey Companies Pro Forma Combined Statement of Operations for the year ended
December 31, 1998 reflects the mergers with the Murrey Companies as
poolings-of-interests.
The following Unaudited Pro Forma Balance Sheet as of December 31, 1998
assumes WCI's acquisition of CRCFBLP occurred on December 31, 1998. In addition
to reflecting the business combinations involving WCI and CRCFBLP, the following
Unaudited Pro Forma Combined Balance Sheet as of December 31, 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 CRCFBLP and Murrey Companies 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, the Murrey Companies and CRCFBLP 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-3
<PAGE> 81
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE THE MURREY
CONNECTIONS, INC. CRCFBLP PRO FORMA COMPANIES PRO FORMA
CONSOLIDATED COMBINED ADJUSTMENTS PRO FORMA COMBINED COMBINED
----------------- ------------ ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 54,042 $22,511 $(7,017)(a) $ 69,536 $32,528 $ 102,064
Operating expenses:
Cost of operations...... 36,554 10,675 (7,017)(a) 40,166 26,410 66,576
(46)(b)
Selling, general and
administrative........ 5,317 2,956 -- 8,273 2,791 11,064
Depreciation and
amortization.......... 4,112 2,729 (683)(c) 6,158 2,194 8,352
Stock compensation...... 632 -- -- 632 -- 632
---------- ------- ------- ---------- ------- -----------
Income from operations.... 7,427 6,151 729 14,307 1,133 15,440
Interest expense.......... (2,257) (1,258) (5,280)(d) (8,795) (535) (9,330)
Other income (expense),
net..................... -- 29 -- 29 79 108
---------- ------- ------- ---------- ------- -----------
Income before income
taxes................... 5,170 4,922 (4,551) 5,541 677 6,218
Income tax provision...... (2,395) -- (1,968)(e) (2,543) (535) (3,078)
1,820(f)
---------- ------- ------- ---------- ------- -----------
Income before
extraordinary item...... 2,775 4,922 (4,699) 2,998 142 3,140
Extraordinary
item -- early
extinguishment of debt,
net of tax benefit of
$264.................... (1,027) -- -- (1,027) -- (1,027)
---------- ------- ------- ---------- ------- -----------
Net income................ $ 1,748 $ 4,922 $(4,699) $ 1,971 $ 142 $ 2,113
========== ======= ======= ========== ======= ===========
Redeemable convertible
preferred stock
accretion............... (917) -- -- (917) -- (917)
---------- ------- ------- ---------- ------- -----------
Net income applicable to
common stockholders..... $ 831 $ 4,922 $(4,699) $ 1,054 $ 142 $ 1,196
========== ======= ======= ========== ======= ===========
Basic earnings per share:
Income before
extraordinary item.... $ 0.29 $ 0.32 $ 0.24
Extraordinary item...... (0.16) (0.16) (0.11)
---------- ---------- -----------
Net income per share.... $ 0.13 $ 0.16 $ 0.13
========== ========== ===========
Diluted earnings per
share:
Income before
extraordinary item.... $ 0.22 $ 0.25 $ 0.20
Extraordinary item...... (0.12) (0.12) (0.09)
---------- ---------- -----------
Net income per share.... $ 0.10 $ 0.13 $ 0.11
========== ========== ===========
Shares used in calculating
basic earnings per
share................... 6,460,293 6,460,293 9,349,173
========== ========== ===========
Shares used in calculating
diluted earnings per
share................... 8,371,415 8,371,415 11,260,295
========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 82
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma statement of operations for the year
ended December 31, 1998 is presented as if the acquisition of CRCFBLP occurred
on January 1, 1998. In addition, the unaudited pro forma combined statement of
operations for the year ended December 31, 1998 combines the pro forma
statements of operations for that period with the historical statement of
operations for the Murrey Companies for the year ended December 31, 1998.
BUSINESS COMBINATIONS. The acquisition of CRCFBLP is being accounted for
under the purchase method of accounting for business combinations. Certain items
affecting the purchase price and its allocation are preliminary. The preliminary
purchase price consists of the following:
<TABLE>
<CAPTION>
CRCFBLP
-------
<S> <C>
Cash paid to shareholders................................. $66,911
Liabilities assumed....................................... 18,935
Acquisition costs......................................... 316
-------
$86,162
=======
</TABLE>
The Company has preliminarily allocated the purchase price as follows:
<TABLE>
<CAPTION>
CRCFBLP
-------
<S> <C>
Tangible assets purchased, including landfill............. $85,962
Covenant not to compete................................... 200
-------
$86,162
=======
</TABLE>
WCI's mergers with the Murrey Companies are accounted for under the
pooling-of-interests method of accounting for business combinations. The pro
forma financial statements assume the issuance of 2,888,880 shares, which
represents the actual number of shares exchanged.
PRO FORMA ADJUSTMENTS. The unaudited pro forma statement of operations does
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 $6,200 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 statement of operations:
(a) Eliminate intercompany revenue and expense between WCI and CRCFBLP.
(b) To record closure and post closure amortization in accordance with the
Company's policies.
(c) To record site depletion expense in accordance with the Company's policies.
(d) To record interest expense on the debt obligations incurred by the Company
in connection with the acquisition of CRCFBLP.
(e) To record income tax provision for CRCFBLP which were limited partnerships
for income tax purposes for all periods prior to the acquisition by the
Company.
(f) To recorded estimate tax benefit for the year ended December 31, 1998
associated with the pro forma adjustments.
F-5
<PAGE> 83
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
PRO FORMA COMBINED PER SHARE DATA. The shares used in computing the
unaudited pro forma combined net income per share for the year ended December
31, 1998 are based upon the pro forma number of common shares as summarized in
the table below. See Note 11 of the Company's notes to financial statements
included elsewhere herein for information concerning the computation of basic
and diluted net income per share.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Basic Share Count:
Company weighted average shares outstanding............... 6,460,293
Shares issued in exchange for the Murrey Companies'
stock.................................................. 2,888,880
-----------
Shares used in calculating pro forma combined basic net
income (loss) per share................................ 9,349,173
===========
Diluted Share Count:
-----------
Shares used in calculating the Company's diluted income
(loss) per share....................................... 8,371,415
Shares issued in exchange for the Murrey Companies'
stock.................................................. 2,888,880
-----------
Shares used in calculating pro forma combined diluted net
income (loss) per share................................ 11,260,295
===========
</TABLE>
ACQUISITION COSTS. The Company incurred costs of $316 related to the
CRCFBLP acquisition which have been factored into the purchase price allocation.
Costs incurred by CRCFBLP 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.
F-6
<PAGE> 84
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
WASTE THE MURREY
CONNECTIONS, INC. CRCFBLP PRO FORMA COMPANIES PRO FORMA PRO FORMA
CONSOLIDATED COMBINED ADJUSTMENTS PRO FORMA COMBINED ADJUSTMENTS COMBINED
----------------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents.... $ 2,675 $ 2,048 $ --(2)(4)(5) $ 4,723 $ 173 $ -- $ 4,896
Investments in
Marketable
Securities............ -- 5,640 -- 5,640 -- -- 5,640
Accounts receivable,
net................... 10,769 2,330 (1,276)(8) 11,823 3,007 -- 14,830
Prepaid expenses and
other current
assets................ 2,246 1,105 -- 3,351 27 -- 3,378
-------- ------- -------- -------- ------- ------- --------
Total current
assets.......... 15,690 11,123 (1,276) 25,537 3,207 -- 28,744
Property and equipment,
net..................... 33,043 19,820 54,222(3) 107,085 13,943 -- 121,028
Intangible assets, net.... 98,785 -- 200(3) 98,985 1,801 -- 100,786
Other assets.............. 1,794 2,389 -- 4,183 184 -- 4,367
-------- ------- -------- -------- ------- ------- --------
$149,312 $33,332 $ 53,146 $235,790 $19,135 $ -- $254,925
======== ======= ======== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings... $ -- $ -- $ -- $ -- $ 1,500 $ -- $ 1,500
Accounts payable........ 6,598 1,155 (1,276)(8) 6,477 1,509 -- 7,986
Advances from a related
party................. -- -- -- -- 543 -- 543
Deferred revenue........ 2,052 -- -- 2,052 1,095 -- 3,147
Accrued liabilities..... 4,154 536 -- 4,690 1,330 -- 6,020
Current portion of
long-term debt........ 9,516 1,779 (839)(4) 10,456 731 -- 11,187
Other current
liabilities........... 2,087 668 -- 2,755 106 -- 2,861
Accrued merger related
expenses.............. -- -- -- -- -- 6,200(1) 6,200
-------- ------- -------- -------- ------- ------- --------
Total current
liabilities..... 24,407 4,138 (2,115) 26,430 6,814 6,200 39,444
Long-term debt............ 60,106 16,298 68,066(4)(5) 144,470 3,879 -- 148,349
Deferred income taxes..... 1,645 -- -- 1,645 623 -- 2,268
Other long-term
liabilities............. 2,091 -- 91(7) 2,182 353 -- 2,535
Stockholders' equity:
Common stock............ 94 -- -- 94 45 (16)(1) 123
Additional paid-in
capital............... 66,163 -- -- 66,163 455 16(1) 66,634
Deferred stock
compensation.......... (428) (428) -- -- (428)
Retained earnings
(deficit)............. (4,766) (4,766) 6,966 (6,200)(1) (4,000)
Accumulated other
comprehensive
income................ -- 740 (740)(6) -- -- -- --
Other Partners'
Capital............... -- 12,156 (12,156)(6) -- -- -- --
-------- ------- -------- -------- ------- ------- --------
Total
stockholders'
equity.......... 61,063 12,896 (12,896) 61,063 7,466 (6,200) 62,329
-------- ------- -------- -------- ------- ------- --------
$149,312 $33,332 $ 53,146 $235,790 $19,135 $ -- $254,925
======== ======= ======== ======== ======= ======= ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 85
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 December 31, 1998
combines the historical balance sheet of Waste Connections, Inc. with the
historical balance sheets of CRCFBLP to be accounted for as a purchase, and the
historical balance sheet of the Murrey Companies to be accounted for as
poolings-of-interests as of December 31, 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
2,888,880 shares of the Company's common stock. The management of the
Company estimates that the non-recurring costs will approximate $6,200
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 owners of CRCFBLP ($66,911) and payment of
acquisition costs ($316).
(3) To increase site costs of CRCFBLP for the excess of purchase price over
net assets acquired of $54,422 and to record the fair value of the
covenant not to compete ($200).
(4) Pay off debt obligations of CRCFBLP ($8,512).
(5) Record additional long term debt associated with the acquisition of
CRCFBLP of $75,739.
(6) To eliminate equity accounts of CRCFBLP.
(7) To accrue closure and post closure liability in accordance with the
Company's policies
(8) To eliminate intercompany receivable between WCI and CRCFBLP.
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-8
<PAGE> 86
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, 1997 and 1998, and for each of the
three years in the period ended December 31, 1998 which appear on pages F-10
through F-15 herein as listed in the accompanying Index to Financial Statements.
Our audits also included the financial statement schedule listed in Item 21.b.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
February 17, 1999,
except for the third and fourth
paragraphs of Note 14, as to
which the dates are
March 31, 1999
F-9
<PAGE> 87
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
CONSOLIDATED
DECEMBER 31,
-----------------------
1997 1998
--------- ----------
<S> <C> <C>
Current assets:
Cash and equivalents...................................... $ 820 $ 2,675
Accounts receivable, less allowance for doubtful accounts
of $19 and $362 at December 31, 1997 and December 31,
1998, respectively..................................... 3,940 10,769
Prepaid expenses and other current assets................. 358 2,246
------- --------
Total current assets.............................. 5,118 15,690
Property and equipment, net................................. 4,185 33,043
Intangible assets, net...................................... 9,550 98,785
Other assets................................................ 27 1,794
------- --------
$18,880 $149,312
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit)
Current liabilities:
Accounts payable.......................................... $ 2,609 $ 6,598
Deferred revenue.......................................... 597 2,052
Accrued liabilities....................................... 825 4,154
Current portion of long-term debt......................... -- 9,516
Other current liabilities................................. 251 2,087
------- --------
Total current liabilities......................... 4,282 24,407
Long-term debt.............................................. 6,762 60,106
Deferred income taxes....................................... 162 1,645
Other long-term liabilities................................. 702 2,091
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock: $.01 par value;
2,500,000 shares authorized at December 31, 1997 (none
authorized at December 31, 1998); 2,499,998 shares issued
and outstanding at December 31, 1997; no shares issued and
outstanding at December 31, 1998 (aggregate liquidation
preference of $10,500 at December 31, 1997)............... 7,523 --
Stockholders' equity (deficit):
Preferred stock: $.01 par value; 7,500,000 and 10,000,000
shares authorized at December 31, 1997 and 1998,
respectively; none issued and outstanding.............. -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 2,300,000 and 9,435,233 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 23 94
Additional paid-in capital................................ 5,105 66,163
Stockholder notes receivable.............................. (82) --
Deferred stock compensation............................... -- (428)
Accumulated deficit....................................... (5,597) (4,766)
------- --------
Total stockholders' equity (deficit).............. (551) 61,063
------- --------
$18,880 $149,312
======= ========
</TABLE>
See accompanying notes.
F-10
<PAGE> 88
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. CONSOLIDATED
PREDECESSORS ---------------------------------------
COMBINED PERIOD
NINE MONTHS FROM INCEPTION
ENDED (SEPTEMBER 9, 1997)
SEPTEMBER 30, THROUGH YEAR ENDED
1997 (NOTE 1) DECEMBER 31, 1997 DECEMBER 31, 1998
------------- ------------------- -----------------
<S> <C> <C> <C>
Revenues......................................... $18,114 $ 6,237 $ 54,042
Operating expenses:
Cost of operations............................. 14,753 4,703 36,554
Selling, general and administrative............ 3,009 619 5,317
Depreciation and amortization.................. 1,083 354 4,112
Start-up and integration....................... -- 493 --
Stock compensation............................. -- 4,395 632
------- ---------- ----------
Income (loss) from operations.................... (731) (4,327) 7,427
Interest expense................................. (456) (1,035) (2,257)
Other income (expense), net...................... 14 (36) --
------- ---------- ----------
Income (loss) before income taxes................ (1,173) (5,398) 5,170
Income tax (provision) benefit................... -- 332 (2,395)
------- ---------- ----------
Income (loss) before extraordinary item.......... (1,173) (5,066) 2,775
Extraordinary item -- early extinguishment of
debt, net of tax benefit of $264............... -- -- (1,027)
------- ---------- ----------
Net income (loss)................................ $(1,173) $ (5,066) $ 1,748
======= ========== ==========
Redeemable convertible preferred stock
accretion...................................... (531) (917)
---------- ----------
Net income (loss) applicable to common
stockholders................................... $ (5,597) $ 831
========== ==========
Basic income (loss) per share:
Income (loss) before extraordinary item........ $ (2.99) $ 0.29
Extraordinary item............................. -- (0.16)
---------- ----------
Net income (loss) per share.................... $ (2.99) $ 0.13
========== ==========
Diluted income (loss) per common share:
Income (loss) before extraordinary item........ $ (2.99) $ 0.22
Extraordinary item............................. -- (0.12)
---------- ----------
Net income (loss) per common share............. $ (2.99) $ 0.10
========== ==========
Shares used in calculating basic income (loss)
per share...................................... 1,872,567 6,460,293
========== ==========
Shares used in calculating diluted income (loss)
per share...................................... 1,872,567 8,371,415
========== ==========
</TABLE>
F-11
<PAGE> 89
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS
------------------------------------------
THE DISPOSAL
GROUP
COMBINED
PERIOD FROM PREDECESSORS
JANUARY 1, 1996 COMBINED PERIOD
THROUGH ENDED 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-12
<PAGE> 90
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (SEPTEMBER 9, 1997)
THROUGH DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. CONSOLIDATED
-----------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
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>
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...................... -- -- -- -- -- -- --
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
Issuance of redeemable common
stock........................... -- -- 1,000,000 7,500 -- -- --
Issuance of common stock
warrants........................ -- -- -- -- -- -- 2,388
Common stock sold in connection
with initial public offering.... -- -- -- -- 2,300,000 23 23,963
Issuance of common stock.......... -- -- -- -- 1,054,634 10 17,783
Accretion of redeemable
convertible preferred stock..... -- 917 -- -- -- -- --
Preferred stock dividend.......... -- (161) -- -- -- -- --
Conversion of redeemable preferred
stock........................... (2,499,998) (8,279) -- -- 2,499,998 25 8,254
Conversion of redeemable common
stock........................... -- -- (1,000,000) (7,500) 1,000,000 10 7,490
Deferred stock compensation
associated with stock options... -- -- -- -- -- -- 821
Amortization of deferred stock
compensation.................... -- -- -- -- -- -- --
Exercise of stock options......... -- -- -- -- 57,912 1 223
Exercise of warrants.............. -- -- -- -- 222,689 2 136
Payment of stockholder notes
receivable...................... -- -- -- -- -- -- --
Net income........................ -- -- -- -- -- -- --
---------- ------- ---------- ------- --------- --- -------
Balances at December 31, 1998..... -- $ -- -- $ -- 9,435,233 $94 $66,163
========== ======= ========== ======= ========= === =======
<CAPTION>
WASTE CONNECTIONS, INC. CONSOLIDATED
--------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------
STOCKHOLDER DEFERRED
NOTES STOCK ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT TOTAL
----------- ------------ ----------- -------
<S> <C> <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) -- -- (82)
Accretion of redeemable
convertible preferred stock..... -- -- (531) (531)
Net loss.......................... -- -- (5,066) (5,066)
---- ----- ------- -------
Balances at December 31, 1997..... (82) -- (5,597) (551)
Issuance of redeemable common
stock........................... -- -- -- --
Issuance of common stock
warrants........................ -- -- -- 2,388
Common stock sold in connection
with initial public offering.... -- -- -- 23,986
Issuance of common stock.......... -- -- -- 17,793
Accretion of redeemable
convertible preferred stock..... -- -- (917) (917)
Preferred stock dividend.......... -- -- -- --
Conversion of redeemable preferred
stock........................... -- -- -- 8,279
Conversion of redeemable common
stock........................... -- -- -- 7,500
Deferred stock compensation
associated with stock options... -- (821) -- --
Amortization of deferred stock
compensation.................... -- 393 -- 393
Exercise of stock options......... -- -- -- 224
Exercise of warrants.............. -- -- -- 138
Payment of stockholder notes
receivable...................... 82 -- -- 82
Net income........................ -- -- 1,748 1,748
---- ----- ------- -------
Balances at December 31, 1998..... $ -- $(428) $(4,766) $61,063
==== ===== ======= =======
</TABLE>
See accompanying notes.
F-13
<PAGE> 91
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS WASTE CONNECTIONS, INC. CONSOLIDATED
COMBINED ---------------------------------------
NINE MONTHS PERIOD FROM
ENDED INCEPTION
SEPTEMBER 30, (SEPTEMBER 9, 1997)
1997 THROUGH YEAR ENDED
(NOTE 1) DECEMBER 31, 1997 DECEMBER 31, 1998
------------- ------------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................................... $(1,173) $ (5,066) $ 1,748
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 4,112
Deferred income taxes................................... -- (369) 1,391
Amortization of debt issuance costs, debt guarantee fees
and accretion of discount on long-term debt........... -- 860 192
Stock compensation...................................... -- 4,395 632
Extraordinary item -- extinguishment of debt............ -- -- 1,291
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net.............................. (604) (1,021) (2,159)
Prepaid expenses and other current assets............. (74) (51) (1,587)
Accounts payable...................................... (221) 2,607 (566)
Deferred revenue...................................... (137) 169 878
Accrued liabilities................................... (450) 801 49
Other liabilities..................................... -- (65) 85
------- -------- --------
Net cash provided by (used in) operating activities....... (1,580) 2,614 6,066
Cash Flows From Investing Activities:
Proceeds from sale of property and equipment.............. 188 -- 132
Payments for acquisitions, net of cash acquired........... -- (11,493) (56,341)
Prepaid acquisition costs................................. -- (20) --
Capital expenditures for property and equipment........... (735) (264) (6,248)
Decrease (increase) in other assets....................... 22 (19) (94)
Proceeds from stockholder notes receivable................ -- -- 82
Issuance of stockholder notes receivable.................. -- (82) --
------- -------- --------
Net cash used in investing activities..................... (525) (11,878) (62,469)
Cash Flows From Financing Activities:
Net intercompany balance.................................. 2,142 -- --
Proceeds from short-term borrowings....................... -- 600 --
Proceeds from long-term debt.............................. -- 5,500 77,402
Principal payments on notes payable....................... (38) (2,724) (3,374)
Principal payments on long-term debt...................... -- (157) (39,103)
Proceeds from sale of redeemable convertible preferred
stock................................................... -- 6,992 --
Proceeds from sale of common stock........................ -- 23 23,986
Proceeds from option and warrant exercises................ -- -- 362
Payment of preferred stock dividend....................... -- -- (161)
Debt issuance costs....................................... -- (150) (854)
------- -------- --------
Net cash provided by financing activities................. 2,104 10,084 58,258
------- -------- --------
Net increase (decrease) in cash and equivalents............. (1) 820 1,855
Cash and equivalents at beginning of period................. 102 -- 820
------- -------- --------
Cash and equivalents at end of period....................... $ 101 $ 820 $ 2,675
======= ======== ========
Supplementary Disclosures of Cash Flow Information and
Non-Cash Transactions:
Cash paid for income taxes................................ $ -- $ -- $ 509
======= ======== ========
Cash paid for interest.................................... $ -- $ 183 $ 1,590
======= ======== ========
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 $120,507
Cash paid for acquisitions (including acquisition
costs)................................................ (11,493) (56,341)
-------- --------
Liabilities assumed, stock and notes payable issued to
sellers............................................... $ 5,547 $ 64,166
======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE> 92
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------------
THE DISPOSAL GROUP
COMBINED PERIOD
FROM PREDECESSORS COMBINED
JANUARY 1, 1996 PERIOD ENDED
THROUGH DECEMBER 31, 1996
JULY 31, 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 and equivalents............. 2,233 (82)
Cash and equivalents at beginning of period................. 961 184
------ -------
Cash and equivalents at end of period....................... $3,194 $ 102
====== =======
</TABLE>
See accompanying notes.
F-15
<PAGE> 93
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 in California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South
Dakota, Utah, Washington and Wyoming.
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.
F-16
<PAGE> 94
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Due to the manner in which BFI intercompany transactions were recorded as
described above, it is not feasible to present a detailed analysis of
transactions reflected in the net intercompany balance with BFI. The change in
the predecessors' combined intercompany balance with BFI (net of income (loss)
and initial investment in the acquired companies) was $642 and $2,142 during the
period ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
The accompanying statements of operations and cash flows for the Company
and its predecessors for the years ended December 31, 1996, 1997 and 1998 are
comprised of the following entities for the periods indicated:
<TABLE>
<S> <C>
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
YEAR ENDED DECEMBER 31, 1998:
Waste Connections, Inc. Year ended December 31, 1998
</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.
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.
F-17
<PAGE> 95
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. As of December 31,
1998, cash equivalents consist of demand money market accounts.
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 - 15 years
Furniture and fixtures...................................... 3 - 6 years
</TABLE>
In connection with the Company's 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 the estimated remaining
useful lives, which range from one to fifteen 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 in 1998.
Landfill permitting, acquisition and preparation costs, 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, and is amortized on a straight-line
basis over the period of expected benefit of 40 years. Accumulated amortization
amounted to $64 and $1,443 as of December 31, 1997 and 1998, respectively.
The Company continually evaluates the value and future benefits of its
intangible assets, including goodwill. The Company assesses recoverability from
future operations using cash flows and income from
F-18
<PAGE> 96
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
operations of the related acquired business as measures. 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 related intangible assets. There have been
no adjustments to the carrying amounts of intangible assets resulting from these
evaluations as of December 31, 1998.
Fair Values of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, restricted funds held in trust, trade payables and debt
instruments. The carrying values of cash, trade receivables, restricted funds
held in trust, and trade payables are considered to be representative of their
respective fair values. The carrying values of the Company's debt instruments
approximate their fair values as of December 31, 1997 and 1998, based on current
incremental borrowing rates for similar types of borrowing arrangements.
Interest Rate Protection Agreements
Interest rate protection agreements are used to reduce interest rate risks
and interest costs of the Company's debt portfolio. The Company enters into
these agreements to change the fixed/variable interest rate mix of the portfolio
to reduce the Company's aggregate exposure to increases in interest rates. The
Company does not hold or issue derivative financial instruments for trading
purposes. Hedge accounting treatment is applied to interest rate derivative
contracts that are designated as hedges of specified debt positions. Amounts
payable or receivable under interest rate swap agreements are recognized as
adjustments to interest expense in the periods in which they accrue. Net
premiums paid for derivative financial instruments are deferred and recognized
ratably over the life of the instruments. Under hedge accounting treatment,
current period income is not affected by the increase or decrease in the fair
market value of derivative instruments as interest rates change and these
instruments are not reflected in the financial statements at fair market value.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instruments to which
a contract is specifically linked is terminated.
Income Taxes
The Company and The Disposal Group use the liability method to account for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
During the periods in which the predecessors were owned by BFI, their
operations were included in the consolidated income tax returns of BFI, and no
allocations of income taxes were reflected in the historical statements of
operations. For purposes of the combined predecessor financial statements,
current and deferred income taxes have been provided on a separate income tax
return basis.
Revenue Recognition
Revenues are recognized as services are provided. Certain customers are
billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.
Start-Up and Integration Expenses
During the period from inception (September 9, 1997) through December 31,
1997, the Company incurred certain start-up expenses relating to the formation
of the Company, primarily for legal and other
F-19
<PAGE> 97
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
professional services, and the costs associated with recruiting the Company's
initial management team. In addition, the Company incurred certain integration
expenses relating to its initial acquisitions. These start-up and integration
expenses have been charged to operations as incurred.
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.
Closure and Post-Closure Costs
The Company does not accrue for closure and post-closure costs related to
the Fairmead Landfill it operates in Madera County, California. Madera County as
required by state law, has established a special fund to pay such liabilities.
In 1998, the Company acquired the stock of Red Carpet Landfill ("Red Carpet") in
Oklahoma and Butler County Landfill ("Butler") in Nebraska. Both Red Carpet and
Butler are engaged in landfilling of municipal solid waste and other acceptable
waste streams. 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
F-20
<PAGE> 98
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
consumed. The states in which the Company operates its landfills require a
specified portion of these accrued closure and post-closure obligations to be
funded at any point in time. As of December 31, 1998, the Company estimates that
total closure and post closure costs relating to its landfills will be
approximately $5,474, of which approximately $1,233 has been accrued as of
December 31, 1998 and included in other long-term liabilities in the
accompanying balance sheet.
Segment Information
The Company adopted FASB Statement No. 131, Disclosure About Segments of an
Enterprise and Related Information in 1998. Statement 131 established standards
for the way that public business enterprises report information about operating
segments. It also established standards for related disclosures about products
and services, geographic areas and major customers. Implementation of the
provisions of Statement 131 did not have a significant impact on the Company's
disclosures.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement, which is
to be applied prospectively, is effective for the Company's year ended December
31, 2000. The Company is currently evaluating the impact of SFAS No. 133 on its
future results of operations and financial position.
In April 1998, Statement of Position ("SOP") No. 98-5 -- "Reporting on the
Costs of Start-Up Activities" was issued by the American Institute of Certified
Public Accountants. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of the
statement, which is effective for the Company's year ended December 31, 1999, is
to be reported as a cumulative effect of a change in accounting principle. The
Company believes that the future adoption of SOP No. 98-5 will not have a
material effect on its results of operations or financial position.
Reclassifications
Certain amounts reported in the Company's prior year's financial statements
have been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
1998 Acquisitions
During 1998, the Company acquired 42 businesses, including 2 operational
landfills, which were accounted for as purchases. Aggregate consideration for
these acquisitions consisted of $56,341 in cash (net of cash acquired), $12,488
in notes payable to sellers, 2,054,634 shares of common stock valued at $25,293,
and warrants to purchase 267,925 shares of common stock valued at $1,293. The
results of operations of the acquired businesses have been included in the
Company's consolidated financial statements from their respective acquisition
dates.
F-21
<PAGE> 99
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Certain items affecting the purchase price allocations are preliminary. A
summary of the preliminary purchase price allocations as of December 31, 1998
for the acquisitions consummated in 1998 is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable....................................... $ 4,670
Prepaid expenses and other current assets................. 301
Property and equipment.................................... 25,853
Goodwill.................................................. 86,358
Long-term franchise agreements and other.................. 2,390
Non-competition agreement................................. 540
Other assets.............................................. 395
Assumed liabilities:
Deferred revenue.......................................... (577)
Accounts payable and accrued liabilities.................. (9,210)
Other accrued liabilities................................. (1,575)
Long-term liabilities assumed............................. (13,638)
Deferred income taxes..................................... (92)
--------
$ 95,415
========
</TABLE>
In connection with certain of the acquisitions in 1998, the Company is
required to pay contingent consideration to certain former shareholders of the
respective companies, subject to the occurrence of specified events. As of
December 31, 1998, contingent payments relating to these acquisitions total
approximately $4,400, including 51,746 shares placed into escrow, are payable
primarily in cash and stock, and are earned based upon the achievement of
certain milestones. No amounts related to these contingent payments have been
included in the Company's financial statements as the events which would give
rise to such payments have not yet occurred nor are probable.
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 "BFI Acquisitions"). The total purchase price for the
BFI 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, $9,869 was recorded as goodwill and $150 was assigned to
a non-competition agreement. The BFI 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 BFI 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-22
<PAGE> 100
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the purchase price allocation for the BFI 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.................................................. 9,869
Non-competition agreement................................. 150
Assumed liabilities:
Deferred revenue.......................................... (428)
Accounts payable and accrued liabilities.................. (26)
Accrued losses on acquired contracts...................... (1,309)
Deferred income taxes..................................... (532)
-------
$15,036
=======
</TABLE>
Predecessor Acquisitions
As described in Note 1, BFI acquired for cash and debt The Disposal Group
Combined on July 31, 1996 in a transaction accounted for as a purchase.
Accordingly, the respective purchase price was allocated to the fair values of
the assets acquired and liabilities assumed. The following presents purchase
price information for this acquisition:
<TABLE>
<S> <C>
Tangible assets acquired.................................... $2,076
Goodwill.................................................... 2,671
Assumed liabilities......................................... (33)
------
$4,714
======
</TABLE>
The following unaudited pro forma results of operations assume that the
Company's significant acquisitions included above had occurred at the beginning
of each period presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Total revenue.......................................... $61,347 $70,360
Net income (loss)...................................... (5,187) 2,678
Basic income (loss) per share.......................... (2.12) 0.26
Diluted income (loss) per share........................ (2.12) 0.20
</TABLE>
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
occurred on January 1, 1997, nor are they necessarily indicative of future
operating results.
F-23
<PAGE> 101
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------ --------
<S> <C> <C>
Goodwill................................................. $9,472 $ 96,545
Long-term franchise agreements and contracts............. -- 2,390
Non-competition agreement................................ 150 690
Other.................................................... -- 777
------ --------
9,622 100,402
Less accumulated amortization............................ (72) (1,617)
------ --------
$9,550 $ 98,785
====== ========
</TABLE>
The Company acquired certain long-term franchise agreements, contracts and
non-competition agreements in connection with certain of its acquisitions. 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 estimated fair value of the
non-competition agreements was determined by management based on the discounted
adjusted operating income stream that would have otherwise been subject to
competition. The amounts assigned to the franchise agreements, contracts, and
non-competition agreements is being amortized on a straight-line basis over the
lesser of 40 years or the remaining term of the related agreements (ranging from
17 to 40 years).
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
<S> <C> <C>
Land, buildings and improvements.......................... $ -- $13,287
Rolling stock............................................. 2,353 11,325
Containers................................................ 1,995 7,410
Machinery and equipment................................... 60 3,866
Furniture and fixtures.................................... 67 86
------ -------
4,475 35,974
Less accumulated depreciation............................. (290) (2,931)
------ -------
$4,185 $33,043
====== =======
</TABLE>
Landfill costs of approximately $9,044 are included in land, buildings and
improvements at December 31, 1998. No landfills were owned as of December 31,
1997.
Combined depreciation expense for the predecessor operations was $1,101 and
$789 for the year ended December 31, 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 and for the year ended
December 31, 1998 was $290 and $2,556, respectively.
F-24
<PAGE> 102
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. OTHER ASSETS
Other assets consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
<S> <C> <C>
Restricted funds held in trust.............................. $-- $1,521
Other....................................................... 27 273
--- ------
$27 $1,794
=== ======
</TABLE>
Restricted funds held in trust are included as part of other assets and
consist of amounts on deposit with various banks that support the Company's
financial assurance obligations for its landfill facilities' closure and
postclosure costs and amounts outstanding under the Madera Bond (Note 6).
6. LONG-TERM DEBT
On January 30, 1998, the Company obtained a revolving credit facility from
BankBoston N.A. (the "January Credit Facility"). The maximum amount available
under the January 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 January Credit Facility allowed for
the Company to issue up to $5,000 in stand-by letters-of-credit. The January
Credit Facility required quarterly payments of interest and required the Company
to pay an annual commitment fee equal to 0.5% of the unused portion of the
January Credit Facility. In connection with the January 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 (Note 9).
On May 28, 1998, the Company entered into a new revolving credit facility
with a syndicate of banks for which BankBoston N.A. acted as agent (the "May
Credit Facility"). The maximum amount available under the May Credit Facility
was $60,000 (including stand-by letters of credit) and the borrowings bore
interest at various fixed and/or variable rates at the Company's option. The May
Credit Facility replaced the January Credit Facility. The May Credit Facility
allowed for the Company to issue up to $5,000 in stand-by letters-of-credit. The
May Credit Facility required quarterly payments of interest and borrowings 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 facility.
On November 20, 1998, the Company entered into a new revolving credit
facility with a syndicate of banks for which BankBoston N.A. acted as agent (the
"November Credit Facility"). As of December 31, 1998, the maximum amount
available under the November Credit Facility is $115,000 (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 December 31,
1998). The maximum amount available was increased to $125,000 in January 1999.
The November Credit Facility replaced the May Credit Facility. The November
Credit Facility allows for the Company to issue up to $15,000 in stand-by
letters-of-credit, of which $1,829 were issued as of December 31, 1998. The
November Credit Facility requires quarterly payments of interest and it matures
in November 2003. Borrowings are secured by substantially all of the Company's
assets and the Company is required to pay an annual commitment fee equal to
0.375% of the unused portion of the 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
F-25
<PAGE> 103
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Facility also contains covenants that require specified financial ratios and
balances be maintained. As of December 31, 1998, the Company was in compliance
with these covenants.
On June 16, 1998, the Company completed a $1,800 tax-exempt bond financing
for its Madera subsidiary (the "Madera Bond"). These funds will be used for
specified capital expenditures and improvements, including installation of a
landfill gas recovery system. The bonds mature on May 1, 2016 and bear interest
at variable rates based on market conditions for California tax exempt bonds
(approximately 3.8% at December 31, 1998). The bonds are backed by a letter of
credit issued by BankBoston N.A. under the November Credit Facility for $1,800.
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 in the accompanying consolidated balance sheet.
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------ -------
<S> <C> <C>
November Credit Facility.................................... $ -- $57,281
Madera Bond................................................. -- 1,800
Term loan payable to a 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 sellers in connection with acquisition,
non-interest bearing, due January 1999.................... -- 8,546
Revolving line of credit from a bank bearing interest at the
bank's prime rate plus 1.5% (aggregating 10% at December
31, 1997); interest was payable monthly and the line was
to expire on September 29, 1998; secured by substantially
all of the Company's assets............................... 600 --
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%; 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 --
Other....................................................... -- 1,995
------ -------
6,762 69,622
Less: current portion....................................... -- (9,516)
------ -------
$6,762 $60,106
====== =======
</TABLE>
The term loan payable to the Bank and the notes payable to BFI were
personally guaranteed by certain officers and stockholders of the Company (Note
9).
F-26
<PAGE> 104
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1998, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1999............................................... $ 9,516
2000............................................... 561
2001............................................... 251
2002............................................... 84
2003............................................... 57,367
Thereafter......................................... 1,843
-------
$69,622
=======
</TABLE>
Management used borrowings from the January Credit Facility 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.
The Company has entered into an interest rate protection agreement (the
"Interest Agreement"), with its primary banking institution to reduce its
exposure to fluctuations in variable interest rates. The Interest Agreement,
which is effective November 2, 1998 through November 2, 2000, effectively
changes the Company's interest rate paid on a notional amount of $27,700 of its
floating rate long-term debt to a weighted average fixed rate (approximately
6.43% at December 31, 1998). The fair value of the Interest Agreement as of
December 31, 1998 was approximately $188, which reflects the estimated amounts
that the Company would receive to terminate the Interest Agreement based on
quoted market prices of comparable contracts as of December 31, 1998. In the
event of nonperformance by the counterparty, the Company would be exposed to
interest rate risk if the variable interest rate received were to exceed the
fixed rate paid by the Company under the terms of the Interest Agreement.
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 $412 and $441 for the
year ended December 31, 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 and for the
year ended December 31, 1998 amounted to $52 and $500, respectively.
As of December 31, 1998, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1999................................................ $ 521
2000................................................ 539
2001................................................ 490
2002................................................ 418
2003................................................ 413
Thereafter.......................................... 1,774
------
$4,155
======
</TABLE>
F-27
<PAGE> 105
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1998, the Company had provided customers and various regulatory
authorities with bonds and letters of credit of approximately $3,692 to secure
its obligations. The Company's November Credit Facility provides for the
issuance of letters of credit in an amount up to $15,000, 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, 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 is 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,
1998 there is no current proceeding or litigation involving the Company that the
Company believes will have a material adverse impact on its 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 $2,600 from the lawsuit, which is included
in other income in the accompanying statement of operations.
Employees
Approximately 67 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
F-28
<PAGE> 106
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 accrued 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. Each share of Preferred Stock was
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 Preferred Stock and any accumulated and unpaid dividends were 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.
9. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
Of the 40,564,767 shares of common stock authorized but unissued as of
December 31, 1998, the following shares were reserved for issuance:
<TABLE>
<S> <C>
Stock option plan........................................... 1,139,214
Stock purchase warrants..................................... 1,291,135
Shares held in escrow....................................... 51,746
---------
2,482,095
=========
</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 bore interest at 8%, were
secured by the Preferred Stock purchased and common stock owned by the
employees, and were paid in full during 1998.
F-29
<PAGE> 107
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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"), 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 1998, 35,000 and 333,121 options to
purchase common stock were exercisable under the Option Plan, respectively. In
addition, as of December 31, 1997 and 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 year ended December 31, 1998 is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES (OPTIONS) EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at inception....................... -- $ --
Granted........................................ 528,500 4.92
------- -----
Outstanding as of December 31, 1997............ 528,500 4.92
Granted........................................ 511,050 9.58
Forfeited...................................... 2,874 5.00
Exercised...................................... 57,912 4.69
-------
Outstanding as of December 31, 1998............ 978,764 7.38
=======
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE --------------------
WEIGHTED REMAINING WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
EXERCISE LIFE EXERCISE
EXERCISE RANGE SHARES PRICE (IN YEARS) SHARES PRICE
-------------- ------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
$2.80 to 5.00................... 544,099 $ 2.92 8.9 190,869 $ 2.97
$6.00 to 9.50................... 62,415 8.42 8.9 14,582 8.01
$10.50 to 12.50................. 240,000 11.06 9.2 80,003 11.05
$15.19 to 19.00................. 95,750 17.25 9.5 47,667 16.23
$21.00 to 22.13................. 36,500 21.90 9.6 -- --
------- -------
978,764 7.38 8.9 333,121 7.04
======= =======
</TABLE>
F-30
<PAGE> 108
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The weighted average grant date fair values for options granted during 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Exercise prices equal to market price of stock.............. $ -- $5.28
Exercise prices less than market price of stock............. -- 6.52
Exercise prices greater than market price of stock.......... 0.30 3.09
</TABLE>
Pro Forma information regarding net income (loss) 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 and the year ended December 31, 1998: risk-free interest rate of 6% and
5%, respectively; dividend yield of zero; volatility factor of the expected
market price of the Company's common stock of .40 and .55, respectively; and a
weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use 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 following
table summarizes 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 and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1998
------- ------
<S> <C> <C>
Pro forma net income (loss)............................... $(5,070) $ 425
Pro forma net loss applicable to common stockholders...... (5,601) (492)
Pro forma basic net loss per share........................ (2.99) (0.08)
</TABLE>
During the year ended December 31, 1998, the Company recorded deferred
stock compensation of $821 relating to stock options granted 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 $393 was recorded during the year ended December
31, 1998 relating to these options, and the remaining $428 will be amortized
into expense in future periods.
Stock Purchase Warrants
At December 31, 1998, the Company had outstanding warrants to purchase
1,291,135 shares of the Company's common stock at exercise prices between $0.01
and $22.13 per share. The warrants are exercisable upon vesting and notification
and expire between 2000 and 2008.
F-31
<PAGE> 109
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 of credit and
term loan payable. The exercise price of the warrant is $.01 per share and
contains provisions for a cashless exercise at the bank's option. 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 1998, the bank received 172,578 shares of
common stock through the exercise of 172,689 warrants.
In connection with their guarantee of certain of the Company's debt
obligations, the Company issued in December, 1997, 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 January 1998, the Company issued a warrant to purchase 140,000 shares of
its common stock to BankBoston N.A. in connection with the January Credit
Facility. The exercise price of the warrant is $2.80 per share. The warrant was
valued at $855 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%,
estimated fair value of the common stock of $7.50 per share and an expected life
of 10 years. The value assigned to the warrant was reflected as a discount on
long-term debt and accreted to interest expense using the interest method over
the expected term of the January Credit Facility. The January Credit Facility
was extinguished in May, 1998 and the unamortized discount on the debt was
expensed as an extraordinary loss on early extinguishment of debt.
In February 1998, the Company issued warrants to purchase 200,000 shares of
its common stock with an exercise price of $4.00 per share in connection with an
acquisition. The warrants were valued at $954 using the Black-Scholes pricing
model and recorded as an element of purchase price for the acquisition.
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 $240 relating to these
warrants. All such warrants were exercised in 1998.
During 1998, the Company issued warrants to certain third party market
development consultants to purchase 67,935 shares of the Company's common stock
with exercise prices ranging from $12.00 to $22.13 per share. The warrants were
valued at $339 using the Black-Scholes pricing model and recorded as an element
of purchase price of the related acquisitions.
F-32
<PAGE> 110
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. INCOME TAXES
The provision (benefit) for income taxes for the periods ended December 31,
1996, the nine months ended September 30, 1997, the period from inception
(September 9, 1997) through December 31, 1997 and the year ended December 31,
1998 consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS
------------------
THE DISPOSAL GROUP WASTE CONNECTIONS, INC.
COMBINED -----------------------------------------
PERIOD FROM PERIOD FROM INCEPTION
JANUARY 1, 1996 (SEPTEMBER 9, 1997)
THROUGH THROUGH YEAR ENDED
JULY 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ --------------------- -----------------
<S> <C> <C> <C>
Current:
Federal.................. $207 $ 38 $ 862
State.................... -- -- 142
Deferred:
Federal.................. 298 (370) 1,252
State.................... -- -- 139
---- ----- ------
$505 $(332) $2,395
==== ===== ======
</TABLE>
Significant components of the Company's deferred income tax assets and
liability were as follows as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
WASTE CONNECTIONS,
INC.
DECEMBER 31,
------------------
1997 1998
------ --------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves......................... $ 8 $ 152
Amortization......................................... 290 --
Accrued expenses..................................... -- 8
Vacation accrual..................................... 15 6
State taxes.......................................... -- 22
Other................................................ -- 49
Net operating losses................................. 54 --
----- -------
Total deferred income tax assets................ 367 237
Deferred income tax liabilities:
Amortization......................................... -- (757)
Depreciation......................................... (529) (745)
Other liabilities.................................... -- (146)
Prepaid expenses..................................... -- (234)
----- -------
Total deferred income tax liabilities........... (529) (1,882)
----- -------
Net deferred income tax liability....................... $(162) $(1,645)
===== =======
</TABLE>
F-33
<PAGE> 111
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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
GROUP
COMBINED PREDECESSORS PREDECESSORS
PERIOD FROM COMBINED COMBINED
JANUARY 1, 1996 PERIOD ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
JULY 31, 1996 1996 1997
--------------- ------------ -----------------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory
rate........................................... 34.0% (34.0)% (34.0)%
Effect of valuation allowance.................... (16.0)% 34.0% 34.0%
----- ----- -----
18.0% -- --
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
-------------------------------------------
PERIOD FROM INCEPTION
(SEPTEMBER 9, 1997)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
--------------------- -----------------
<S> <C> <C>
Income tax provision/(benefit) at the statutory rate..... (34.0)% 34.0%
State taxes, net of federal benefit...................... -- 4.0%
Goodwill amortization.................................... -- 3.0%
Stock compensation expense............................... 28.0% 4.0%
Other.................................................... -- 1.0%
----- ----
(6.0)% 46.0%
===== ====
</TABLE>
F-34
<PAGE> 112
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 income (loss) per
share for the period from inception (September 9, 1997) through December 31,
1997 and the year ended December 31, 1998:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 9, 1997)
THROUGH YEAR ENDED DECEMBER 31, 1998
DECEMBER 31, 1997 -----------------------------
BASIC AND DILUTED BASIC NET DILUTED NET
NET LOSS INCOME (LOSS) INCOME (LOSS)
PER SHARE PER SHARE PER SHARE
-------------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item........ $ (5,066) $ 2,775 $ 2,775
Redeemable convertible preferred stock
accretion................................... (531) (917) (917)
---------- ---------- ----------
Income (loss) applicable to common stockholders
before extraordinary item................... $ (5,597) $ 1,858 $ 1,858
========== ========== ==========
Extraordinary item............................. -- (1,027) (1,027)
---------- ---------- ----------
Net income (loss) applicable to common
stockholders................................ $ (5,597) $ 831 $ 831
========== ========== ==========
Denominator:
Weighted average common shares outstanding..... 1,872,567 6,460,293 6,460,293
Dilutive effect of stock options and warrants
outstanding................................. -- -- 1,628,930
Incremental common shares issuable upon
redemption of redeemable common stock....... -- -- 282,192
---------- ---------- ----------
1,872,567 6,460,293 8,371,415
========== ========== ==========
</TABLE>
As of December 31, 1998, outstanding options and warrants to purchase
87,832 shares of common stock (with exercise prices from $18.62 to $22.13) could
potentially dilute basic net income per share in the future and have not been
included in the computation of diluted net income per share because to do so
would have been antidilutive for the period presented.
12. 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 and the year ended December 31, 1998, the Company
received, after deducting amounts paid to Continental, approximately $10 and
paid approximately $108, respectively, to/from Continental in these
transactions.
13. EMPLOYEE BENEFIT PLAN
The Company has a voluntary savings and investment plan (the "401(k)
Plan"). The 401(k) Plan is available to all eligible, non-union employees of the
Company. Under the 401(k) Plan, the Company's contributions are 40% of the first
5% of the employee's contributions. During the period from inception
F-35
<PAGE> 113
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(September 9, 1997) through December 31, 1997 and the year ended December 31,
1998, the Company's 401(k) Plan expense was approximately $2 and $58,
respectively.
14. SUBSEQUENT EVENTS
Murrey Companies Merger
On January 19, 1999, the Company merged with Murreys Disposal Company,
Inc., DM Disposal Co., Inc., American Disposal Company, Inc., and Tacoma
Recycling, Inc. (Collectively, the "Murrey Companies"). The transactions were
accounted for as poolings-of-interests, whereby the Company issued 2,888,880
shares of its common stock for all of the outstanding shares of the Murrey
Companies. In Connection with the merger with the Murrey Companies, the Company
incurred transaction related costs of approximately $6,200, which will be
charged to operations in the first quarter of 1999.
Secondary Public Offering
Effective February 9, 1999, the Company sold approximately 4,000,000 shares
of its common stock at $17.50 per share. As a result of the offering, the
Company received approximately $65,300 in net proceeds and used the proceeds to
pay down approximately $50,200 of its then outstanding debt.
Acquisition of Columbia Resource Co. L.P. and Finley-Buttes Limited
Partnership (CRCFBLP)
On March 31, 1999, the Company acquired the stock of two companies that are
the sole partners of CRCFBLP. Total consideration paid for CRCFBLP was
approximately $66,900 in cash.
New Credit Facility
On March 30, 1999, the Company obtained commitments from a syndicate of
banks led by BankBoston, N.A., which increased the Company's borrowing capacity
from $125,000 to $225,000 and modified certain covenants. The revised credit
facility matures in 2004.
F-36
<PAGE> 114
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, 1997 and 1998, 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, 1998. 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, 1997 and 1998, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
February 4, 1999
F-37
<PAGE> 115
THE MURREY COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Current assets:
Cash and equivalents...................................... $ 126 $ 173
Accounts receivable, less allowance for doubtful accounts
of $74 in 1997 and $149 in 1998........................ 2,779 3,007
Prepaid expenses and other current assets................. 79 27
------- -------
Total current assets........................................ 2,984 3,207
Property, plant and equipment, net.......................... 14,819 13,943
Intangible assets, net...................................... 1,862 1,801
Other assets................................................ 31 184
------- -------
$19,696 $19,135
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 1,628 $ 1,500
Accounts payable.......................................... 1,617 1,509
Advances from a related party............................. 543 543
Deferred revenue.......................................... 919 1,095
Other current liabilities................................. -- 106
Accrued liabilities....................................... 832 993
Income taxes payable...................................... 228 337
Current portion of long-term debt......................... 873 731
------- -------
Total current liabilities................................... 6,640 6,814
Long-term debt.............................................. 4,907 3,879
Deferred income taxes....................................... 658 623
Other long-term liabilities................................. -- 353
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock at par value; 60,500 shares authorized; 1,470
shares issued and outstanding.......................... 45 45
Additional paid-in capital................................ 455 455
Retained earnings......................................... 6,991 6,966
------- -------
Total shareholders' equity.................................. 7,491 7,466
------- -------
$19,696 $19,135
======= =======
</TABLE>
See accompanying notes.
F-38
<PAGE> 116
THE MURREY COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................. $25,024 $28,874 $32,528
Operating expenses:
Cost of operations...................................... 20,465 23,133 26,410
Selling, general and administrative..................... 2,142 2,323 2,791
Depreciation and amortization........................... 1,236 1,371 2,194
------- ------- -------
Income from operations.................................... 1,181 2,047 1,133
Interest expense.......................................... (284) (380) (535)
Other income (expense), net............................... 309 283 79
------- ------- -------
Income before income taxes................................ 1,206 1,950 677
Income tax provision...................................... (543) (634) (535)
------- ------- -------
Net income................................................ 663 1,316 142
Retained earnings, beginning of period.................... 5,095 5,758 6,991
Dividends................................................. -- (83) (167)
------- ------- -------
Retained earnings, end of period.......................... $ 5,758 $ 6,991 $ 6,966
======= ======= =======
Pro forma income taxes (unaudited -- Note 11)............. $ (432) $ (697) $ (238)
------- ------- -------
Pro forma net income (unaudited -- Note 11)............... $ 774 $ 1,253 $ 439
======= ======= =======
</TABLE>
See accompanying notes.
F-39
<PAGE> 117
THE MURREY COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 663 $1,316 $ 142
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,236 1,371 2,194
Deferred income taxes.................................. (19) (44) (35)
Gain on sale of land................................... -- -- (8)
Changes in operating assets and liabilities:
Accounts receivable, net............................. 63 (446) (228)
Prepaid expenses and other assets.................... (36) 40 52
Accounts payable..................................... 932 509 (108)
Deferred revenue..................................... 42 154 176
Accrued liabilities.................................. 129 127 161
Other liabilities.................................... -- -- 459
Income taxes payable................................. (232) (93) 109
------- ------ -------
Net cash provided by operating activities................... 2,778 2,934 2,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions................................. -- (2,900) --
Capital expenditures for property and equipment........... (4,790) (2,108) (1,874)
Proceeds from sale of land................................ -- -- 625
Net change in other assets................................ 31 (28) (153)
------- ------ -------
Net cash used in investing activities....................... (4,759) (5,036) (1,402)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 1,418 3,414 --
Principal payments on long-term debt...................... (615) (928) (1,170)
Net change in short-term borrowings....................... 659 19 (128)
Net change in advances from a related party............... (259) (275) --
Payment of dividends...................................... -- (83) (167)
------- ------ -------
Net cash provided by (used in) financing activities......... 1,203 2,147 (1,465)
------- ------ -------
Net increase (decrease) in cash and equivalents............. (778) 45 47
Cash and equivalents:
Beginning of year......................................... 859 81 126
------- ------ -------
End of year............................................... $ 81 $ 126 $ 173
======= ====== =======
</TABLE>
F-40
<PAGE> 118
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------ -------
<S> <C> <C> <C>
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest.................................... $ 284 $ 358 $ 540
======= ====== =======
Cash paid for income taxes................................ $ 792 $ 744 $ 461
======= ====== =======
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 $ --
Notes payable to sellers............................... -- (200) --
------- ------ -------
Cash paid for acquisitions............................. $ -- $2,900 $ --
======= ====== =======
</TABLE>
See accompanying notes.
F-41
<PAGE> 119
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
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 consider all highly liquid investments with a maturity of
three months or less 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 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
F-42
<PAGE> 120
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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
intangible assets, including goodwill. The Murrey Companies assess
recoverability from future operations using cash flows and income from
operations of the related acquired business as measures. 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 related intangible assets. There
have been no adjustments to the carrying amounts of intangible assets resulting
from these evaluations as of December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents approximate their fair values
as of December 31, 1997 and 1998. The carrying values of short-term borrowings
(Note 5) and long-term debt (Note 6) approximate their fair values as of
December 31, 1997 and 1998, 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.
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
F-43
<PAGE> 121
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Land and buildings.......................................... $ 6,668 $ 6,174
Machinery and equipment..................................... 3,780 3,772
Rolling stock............................................... 7,570 8,388
Containers.................................................. 4,380 5,234
Furniture and fixtures...................................... 255 249
------- -------
22,653 23,817
Less accumulated depreciation............................... (7,834) (9,874)
------- -------
$14,819 $13,943
======= =======
</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.
A summary of the purchase price allocation 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>
F-44
<PAGE> 122
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Goodwill.................................................... $1,791 $1,791
Non-competition agreement................................... 80 80
------ ------
1,871 1,871
Less accumulated amortization............................... (9) (70)
------ ------
$1,862 $1,801
====== ======
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings consist of various revolving and non-revolving
lines-of-credit with a bank, bearing interest at 8.50% as of December 31, 1998
and which mature at various dates through February 28, 1999. The lines of credit
are secured by all accounts receivable and inventory accounts, which totaled
$3,176 as of December 31, 1998. The lines-of-credit were fully utilized as of
December 31, 1998.
F-45
<PAGE> 123
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Note payable to a bank bearing interest at a variable rate
(approximately 8.4% as of December 31, 1998); 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 $1,866
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 $400 as of December 31, 1998
and certain cash accounts................................. 632 514
Notes payable to a bank bearing interest at various fixed
rates (ranging from 9.1% to 9.2% as of December 31, 1998);
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 $2,463 as
of December 31, 1998...................................... 1,544 1,350
Equipment financing notes payable bearing interest at
various rates (ranging from 8.6% to 8.8% as of December
31, 1998); monthly payments of principal and interest
aggregating $21; maturing at various dates through
September 2001; secured by equipment with an aggregate net
book value of approximately $660 as of December 31,
1998...................................................... 822 423
Notes payable to sellers bearing interest at 9.0% as of
December 31, 1998; monthly principal and interest payments
of $3; maturing October, 2007; secured by land and
buildings with a net book value of approximately $901 as
of December 31, 1998...................................... 471 291
Unsecured notes payable to seller bearing interest at 8.0%
as of December 31, 1998; monthly principal and interest
payments of $4; maturing in June 2002..................... 189 90
Other....................................................... 122 76
------ ------
5,780 4,610
Less: current portion....................................... 873 731
------ ------
Long-term debt.............................................. $4,907 $3,879
====== ======
</TABLE>
As of December 31, 1998, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1999........................................................ $ 731
2000........................................................ 936
2001........................................................ 1,182
2002........................................................ 336
2003........................................................ 226
Thereafter.................................................. 1,199
------
$4,610
======
</TABLE>
F-46
<PAGE> 124
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1996, 1997 and 1998 amounted to $170, $183, and $230, respectively.
As of December 31, 1998, future minimum lease payments under these operating
leases, by calendar year, are as follows:
<TABLE>
<S> <C>
1999........................................................ $194
2000........................................................ 174
2001........................................................ 109
2002........................................................ 86
2003........................................................ 72
Thereafter.................................................. 285
----
$920
====
</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. As of December 31, 1998, the Murrey 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 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, 1998, there is no current proceeding or
litigation involving the Murrey Companies that the Murrey Companies believe will
have a material adverse impact on their business, financial condition, results
of operations or cash flows.
F-47
<PAGE> 125
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 was closed on December 31,
1998; and subsequent to that date, all of the waste collected by the Murrey
Companies in Pierce County was long hauled to an alternate disposal site pending
completion of a new solid waste landfill in Pierce County. 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 46 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, 1996, 1997, and 1998.
ADVANCES
As of December 31, 1997 and 1998, the Murrey Companies had non-interest bearing
advances payable to one of their shareholders totaling $543.
DISPOSAL FEES
During the years ended December 31, 1996, 1997 and 1998, the Murrey Companies
paid $7,730, $8,592, and $8,816, 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, 1996, 1997 and 1998, the Murrey Companies' 401(k) Plan expense was
approximately $267, $316, and $336, respectively.
F-48
<PAGE> 126
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal:
Current................................................... $562 $678 $570
Deferred.................................................. (19) (44) (35)
---- ---- ----
$543 $634 $535
==== ==== ====
</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, 1997 and 1998 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,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Federal expense expected at statutory rates on combined
income before income taxes............................. $410 $663 $230
Tax effect of companies reporting under Subchapter S..... 124 (42) 302
Other.................................................... 9 13 3
---- ---- ----
$543 $634 $535
==== ==== ====
</TABLE>
11. PRO FORM 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
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 $2,135, $1,941 and $1,924 for 1996, 1997 and 1998, respectively. Had
the Murrey Companies filed federal income tax returns as regular corporations
for 1996, 1997 and 1998, income tax expense under the provisions of Financial
Accounting Standards No. 109 would have been $432, $697 and $238, respectively.
F-49
<PAGE> 127
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Federal:
Current................................................ $726 $660 $654
Deferred............................................... (294) 37 (416)
---- ---- ----
Pro forma income taxes................................... $432 $697 $238
==== ==== ====
</TABLE>
The pro forma provisions for income taxes for the years ended December 31, 1996,
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
certain non-deductible expenses.
The Murrey Companies pro forma deferred income tax asset of approximately $71
and $301 as of December 31, 1997 and 1998, respectively, relates principally to
differences in the recognition of bad debt expenses, vacation accruals, accruals
for contract losses and certain other temporary differences. The Murrey
Companies also had pro forma deferred tax liabilities as of December 31, 1997
and 1998 of approximately $1,332 and $1,147 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 January 19, 1999, the Murrey Companies merged with wholly-owned subsidiaries
of Waste Connections, Inc. ("WCI") whereby all shares of common stock of the
Murrey Companies were exchanged for 2,888,880 shares of WCI common stock. The
transactions were accounted for as poolings-of-interests.
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-50
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Partners
Columbia Resource Co., L.P. and
Finley-Buttes Limited Partnership
Vancouver, Washington
We have audited the accompanying combined balance sheets of Columbia
Resource Co., L.P. and Finley-Buttes Limited Partnership as of December 31, 1997
and 1998, and the related combined statements of income, partners' capital and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Partnerships' 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 Columbia Resource
Co., L.P. and Finley-Buttes Limited Partnership at December 31, 1997 and 1998,
and the combined results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
PERKINS & COMPANY, P.C.
Portland, Oregon
March 9, 1999, except
for the second paragraph
of Note 12, as to which the
date is March 31, 1999
F-51
<PAGE> 129
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,579 $ 2,048
Investments in marketable securities...................... -- 5,640
Accounts receivable:
Trade, less allowance for doubtful accounts of $64 in
1998.................................................. 2,343 2,330
Related parties........................................ 39 137
Prepaid expenses.......................................... 225 300
Other assets.............................................. -- 668
------- -------
Total current assets.............................. 4,186 11,123
Property and equipment, net................................. 21,177 19,820
Investment in marketable securities......................... 3,900 --
Other assets................................................ 2,688 2,389
------- -------
$31,951 $33,332
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
Trade.................................................. $ 678 $ 821
Related parties........................................ 315 334
Accrued expenses.......................................... 403 536
Other liability........................................... -- 668
Current portion of long-term debt......................... 2,039 1,779
------- -------
Total current liabilities......................... 3,435 4,138
Long-term debt.............................................. 18,908 16,298
Other liability............................................. 533 --
Commitments and contingencies (Notes 4, 6 and 9)
Partners' capital:
Accumulated other comprehensive income.................... -- 740
Other partners' capital................................... 9,075 12,156
------- -------
9,075 12,896
------- -------
$31,951 $33,332
======= =======
</TABLE>
See accompanying notes.
F-52
<PAGE> 130
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................... $21,492 $22,940 $22,511
Operating expenses:
Cost of operations........................................ 10,986 11,975 10,675
Selling, general and administrative....................... 2,876 3,145 2,956
Depreciation and amortization............................. 2,745 2,846 2,729
------- ------- -------
Income from operations...................................... 4,885 4,974 6,151
Other income (expense):
Interest expense, net..................................... (1,675) (1,519) (1,258)
Other income, net......................................... 16 19 29
Gain on disposal of subsidiary............................ -- 2,544 --
------- ------- -------
(1,659) 1,044 (1,229)
------- ------- -------
Net income.................................................. $ 3,226 $ 6,018 $ 4,922
======= ======= =======
Pro forma income taxes (unaudited -- Note 11)............... $(1,255) $(1,935) $(1,785)
------- ------- -------
Pro forma net income (unaudited -- Note 11)................. $ 1,971 $ 4,083 $ 3,137
======= ======= =======
</TABLE>
See accompanying notes.
F-53
<PAGE> 131
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP
COMBINED STATEMENTS OF PARTNERS' CAPITAL AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER OTHER TOTAL
COMPREHENSIVE COMPREHENSIVE PARTNERS' PARTNERS'
INCOME INCOME CAPITAL CAPITAL
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1995............... $ -- $ 3,045 $ 3,045
Net income.................................. $3,226 -- 3,226 3,226
======
Capital contributions....................... -- 475 475
Distributions............................... -- (2,080) (2,080)
---- ------- -------
Balances at December 31, 1996............... -- 4,666 4,666
Net income.................................. $6,018 -- 6,018 6,018
======
Distributions............................... -- (1,609) (1,609)
---- ------- -------
Balances at December 31, 1997............... -- 9,075 9,075
Comprehensive income:
Net income................................ $4,922 -- 4,922 4,922
Other comprehensive income:
Unrealized gains on marketable
securities............................. 740 740 -- 740
------
$5,662
======
Distributions............................... -- (1,841) (1,841)
---- ------- -------
Balances at December 31, 1998............... $740 $12,156 $12,896
==== ======= =======
</TABLE>
See accompanying notes.
F-54
<PAGE> 132
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,226 $ 6,018 $ 4,922
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on disposal of subsidiary......................... -- (2,544) --
Depreciation and amortization.......................... 2,745 2,846 2,729
Loss on disposition of property and equipment.......... 2 1 1
Changes in operating assets and liabilities:
Accounts receivable.................................. 3,641 (184) (85)
Prepaid expenses..................................... (65) (7) (73)
Inventories.......................................... 13 (37) --
Accounts payable..................................... (224) (318) 163
Accrued expenses..................................... (740) (3) 133
Other liability...................................... 106 117 134
------- ------- -------
Net cash provided by operating activities................. 8,704 5,890 7,924
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in commercial paper............................ -- -- (1,000)
Proceeds from (investment in) municipal bonds............. (1,200) 1,200 --
Purchases of property and equipment....................... (848) (1,330) (227)
Investment in cell development............................ (855) (1,590) (1,069)
Investment in other assets................................ (353) (393) (448)
------- ------- -------
Net cash used in investing activities..................... (3,256) (2,113) (2,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on short-term borrowings..................... (1,000) -- --
Proceeds from long-term debt.............................. 1,000 -- --
Principal payments on long-term debt...................... (3,142) (1,989) (2,870)
Capital contributions..................................... 400 -- --
Distributions paid to partners............................ (2,080) (1,609) (1,841)
------- ------- -------
Net cash used in financing activities..................... (4,822) (3,598) (4,711)
------- ------- -------
Net increase in cash and cash equivalents................. 626 179 469
Cash and cash equivalents, beginning of period.............. 774 1,400 1,579
------- ------- -------
Cash and cash equivalents, end of period.................... $ 1,400 $ 1,579 $ 2,048
======= ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest................................. $ 1,872 $ 1,657 $ 1,501
Advance due to partner contributed to Columbia......... $ 75 $ -- $ --
Marketable securities received for sale of
subsidiary........................................... $ -- $ 3,900 $ --
</TABLE>
See accompanying notes.
F-55
<PAGE> 133
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Columbia Resource Co., L.P. (Columbia) is a Washington limited partnership
which was formed in December 1989. On January 1, 1992, Columbia began
significant operations. Columbia has a long-term contract with a county in
Washington (the County) to receive and dispose of all municipal waste generated
within its geographical boundaries. Columbia's headquarters are located in
Vancouver, Washington.
Finley-Buttes Limited Partnership (Finley) is an Oregon limited partnership
which was formed in December 1989. On November 1, 1990, Finley began significant
operations. Finley has a long-term contract with a governmental subdivision of
Oregon to operate a regional landfill for solid waste. A substantial portion of
Finley's operations involves providing landfill services to Columbia.
The general partner of both partnerships is Management Environmental
National of Washington, Inc. (MENWI). The limited partner of both partnerships
is RH Financial Corporation (RHFC). Both partners are Washington corporations
and are owned by the same individual. MENWI and RHFC have no operations or
activity other than those of Columbia and Finley, as reflected in the
accompanying financial statements.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Columbia and
Finley (the Partnerships) as a result of their common ownership and management.
Significant intercompany balances and transactions have been eliminated in
combination. For periods prior to the sale of Columbia's subsidiary on December
31, 1997, the combined financial statements also include the accounts of
Wastech, Inc. (Note 10).
CASH AND CASH EQUIVALENTS
The Partnerships consider all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Partnerships grant credit to customers with a large portion of revenue
generated from business with large regional and national commercial waste
hauling companies. The Partnership maintains allowances for losses based on the
expected collectibility of accounts receivable. Credit losses have been within
management's expectations.
The Partnerships limit their credit exposure for cash and cash equivalents
by investing in what they believe to be only high quality investments.
The Partnerships maintain cash in bank deposit accounts which may exceed
federally insured limits. The Partnerships have not experienced any losses in
such accounts.
INVESTMENT IN COMMERCIAL PAPER
Investments in commercial paper of $1,000 at December 31, 1998 maturing on
February 17, 1999 are considered available for sale and are recorded at cost
which approximates fair value.
F-56
<PAGE> 134
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
INVESTMENT IN EQUITY SECURITIES
Equity securities (Note 10) are accounted for at fair value. Unrealized
holding gains and losses on securities classified as available for sale are
excluded from earnings and reported as a separate component of other
comprehensive income until realized. Realized gains and losses are determined on
the basis of historical cost.
The fair value of such securities was $3,900 and $4,640 at December 31,
1997 and 1998, respectively. Unrealized holding gains, added to other
comprehensive income during 1998 was $740. There have been no realized gains or
losses on these securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
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 these activities,
including legal, engineering, construction of landfill improvements, cell
development costs and direct costs of personnel dedicated for these purposes.
Certain landfill costs related to the entire landfill are depreciated on
the straight-line method over the estimated useful life of the landfill.
Landfill preparation costs related specifically to cell development are
depreciated as airspace of the related cell is consumed. Finley estimates the
rate used to depreciate cell development costs by estimating costs in developing
cells which have been designed and the additional airspace which will be gained
upon completion of development. These estimates are updated on an annual basis.
Depreciation of other property and equipment is provided on the
straight-line method based upon the estimated useful lives of the assets. The
estimated useful lives are as follows:
<TABLE>
<S> <C>
Land improvements........................................... 15 - 20 years
Landfill, excluding cell development costs.................. 50 years
Buildings................................................... 20 - 31 years
Machinery and equipment..................................... 3 - 15 years
Furniture and fixtures...................................... 3 - 7 years
</TABLE>
DEFERRED COSTS
The Partnerships use the straight-line method for amortization of deferred
costs. Bid costs are amortized over 20 years, the life of the related contract.
Loan fees are amortized over the lives of the related loans. Bond issuance costs
are amortized over 15 years, the term of the related bond.
INCOME TAXES
Columbia and Finley are not taxpaying entities for federal or state income
tax purposes. Activity from the partnerships is taxable to each partner and is
reportable in the partners' tax returns.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Partnerships adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes new rules for the reporting
F-57
<PAGE> 135
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
and display of comprehensive income and its components; however, the adoption
had no impact on the Partnership's net income or partners' capital. SFAS 130
requires unrealized gains or losses on the Partnership's available for sale
securities, which prior to adoption would have been reported separately in
partners' capital, to be included in other comprehensive income. There was no
effect on prior year financial statements to conform to the requirements of SFAS
130.
ENVIRONMENTAL RISKS -- The Partnerships 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. Any substantial liability for environmental
damage incurred by the Partnerships could have a material adverse effect on the
Partnership'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
Partnerships 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 Partnerships. From time to time the Partnerships
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, 1998, there are no current
proceedings or litigation involving the Partnerships that they believe will have
a material adverse impact on the Partnerships' business, financial condition,
results of operations or cash flows.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Land and land improvements.................................. $ 6,137 $ 6,137
Landfill, including cell development costs.................. 15,330 16,399
Buildings................................................... 7,193 7,231
Machinery and equipment..................................... 6,622 6,793
Furniture and fixtures...................................... 303 249
-------- --------
35,585 36,809
Less accumulated depreciation............................... (14,408) (16,989)
-------- --------
$ 21,177 $ 19,820
======== ========
</TABLE>
F-58
<PAGE> 136
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Pollution liability self-insurance fund (Note 9)............ $1,778 $2,226
Deferred bid costs, net of accumulated amortization of $234
in 1997 and $273 in 1998.................................. 546 507
Deferred bond issuance costs, net of accumulated
amortization of $227 in 1997 and $265 in 1998............. 340 302
Other....................................................... 24 22
------ ------
2,688 3,057
Less current portion (Note 9)............................... -- (668)
------ ------
$2,688 $2,389
====== ======
</TABLE>
The pollution liability self-insurance fund is invested primarily in
short-term government bonds which are being held to maturity and recorded at
amortized cost which approximates fair value.
4. LINE OF CREDIT
Columbia has available a revolving line of credit of $1,000 with U.S. Bank
(the bank) which is subject to periodic review. Interest on the revolving line
of credit is payable monthly at the bank's prime rate plus a margin based on the
combined net worth of the Partnerships (7.75% at December 31, 1998). The
outstanding principal balance of this note is required to be paid in full for 30
consecutive days each year. This credit agreement also provides for a term loan
to Finley, which is supported by the same collateral base (Note 5).
Amounts due the bank are collateralized by essentially all assets of the
Partnerships. Also, the agreement contains provisions, among others, requiring
the maintenance of certain levels of net worth and operating income and limits
the amount of capital expenditures. As of December 31, 1998, the Partnerships
were in compliance with the covenants.
The note payable due to a related party totaling $5,575 at December 31,
1998 is subordinated to the bank to secure the Partnerships' obligations to the
bank (Note 5).
F-59
<PAGE> 137
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Industrial revenue bonds, collateralized by essentially all
assets of the Partnerships and by an irrevocable letter of
credit totaling $13,599 at December 31, 1998, interest at
6% to 7.5% paid semi-annually, principal payments due
periodically through 2006................................. $10,450 $ 9,565
Note payable to a related party, collateralized by
essentially all assets of the Partnerships, interest
payable monthly at 6.18% through January 2003, monthly
payments of $66 including interest from January 2003
through May 2012 (Notes 4 and 12)......................... 5,575 5,575
Note payable to bank, collateralized by essentially all
assets of the Partnerships, payable in monthly
installments of $70, plus interest at the prime rate plus
a margin based on debt to worth ratio (7.75% at December
31, 1998), through June 2002 (Notes 4 and 12)............. 3,776 2,937
Other notes payable......................................... 1,146 --
------- -------
20,947 18,077
Less current portion........................................ (2,039) (1,779)
------- -------
$18,908 $16,298
======= =======
</TABLE>
At December 31, 1998, annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
INDUSTRIAL NOTE PAYABLE
REVENUE TO A RELATED OTHER NOTES
BONDS PARTY PAYABLE TOTAL
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Year ending December 31,
1999................................................. $ 940 $ -- $ 839 $ 1,779
2000................................................. 1,000 -- 839 1,839
2001................................................. 1,065 -- 839 1,904
2002................................................. 1,135 -- 420 1,555
2003................................................. 1,215 418 -- 1,633
Thereafter........................................... 4,210 5,157 -- 9,367
------ ------ ------ -------
$9,565 $5,575 $2,937 $18,077
====== ====== ====== =======
</TABLE>
The industrial revenue bond agreement requires Columbia to maintain a
certain level of partnership capital and restricts distributions from Columbia.
The note payable of $5,575 contains provisions, among others, requiring the
maintenance of certain levels of net worth and operating income and limits the
amount of capital expenditures.
As of December 31, 1998 the Partnerships were in compliance with the
covenants.
6. RELATED PARTY TRANSACTIONS
The following is a summary of significant related party transactions:
- Disposal fees and freight charges paid to a related entity totaled $3,118
in 1996, $2,979 in 1997 and $3,234 in 1998.
F-60
<PAGE> 138
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
- Interest paid to related parties totaled $366 in 1996, $349 in 1997 and
$344 in 1998.
- Revenues for landfill and disposal services provided to affiliated
companies totaled $635 in 1996 and $12 in 1997.
A substantial amount of the accounts payable due to related parties
represents balances due for regular disposal fees and freight charges.
7. MAJOR CUSTOMERS
In 1996, one customer represented approximately 22% and two customers
represented approximately 17% each of the revenue of the Partnerships.
In 1997, two customers represented approximately 20% each and Waste
Connections, Inc. (WCI) represented approximately 10% of the revenue of the
Partnerships.
In 1998, WCI represented approximately 29% and Waste Management, Inc.
represented 19% of the revenues of the Partnerships.
8. RETIREMENT PLAN
The Partnerships sponsor a 401(k) retirement plan. Substantially all
employees are covered under the plan. Contributions are made to the plan at the
discretion of management and totaled approximately $62 in 1996, $66 in 1997 and
$69 in 1998. Included in the contributions were approximately $4 in 1996 and $3
in 1997 for Wastech, Inc., a former subsidiary (Note 10).
9. COMMITMENTS AND CONTINGENCIES
A pollution liability self-insurance fund was created pursuant to the
requirements of the contract with the County. Monthly deposits are made to the
fund by Columbia based on tonnage of waste received under the contract. Amounts
held in the fund are to be used for potential pollution claims made against
Columbia in its performance of the terms of the contract.
Columbia's contract with the County was amended effective January 1, 1999,
resulting in changes in tipping fees, administrative fees and the pollution
liability self-insurance fund. The liability representing the fund balance of
future disbursements to the County (30% of the fund balance) at the effective
date is to be distributed to that county and the obligation of Columbia to make
monthly deposits to this fund has ceased.
The remaining 70% of the fund balance is to be held for a period of ten
years after the last date waste is received under the contract. Provided there
are no claims against the fund, Columbia may take distributions from the fund.
The balance in the fund as of December 31, 1997 and 1998 totaled $1,970 and
$2,409, respectively. At December 31, 1997 and 1998, $192 and $183,
respectively, is included in cash and cash equivalents because Columbia has
received reimbursement of these amounts for income taxes paid as a result of
taxability of the fund. The remaining balance is included in other assets.
Columbia has expensed 30% of each monthly deposit (net of related income taxes
to be paid) to the fund with a corresponding increase to other liability to
reflect the portion of future disbursements from the fund due to the County.
There have been no claims to date, and it is not possible to determine the
amount of future liability, if any.
Performance under the terms of the contract with the County is secured by a
$2,000 letter of credit.
F-61
<PAGE> 139
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
Finley has a royalty agreement with the previous owner of the property
which requires payments of $200 per year through the life of the landfill.
Payments are expensed and totaled $200, in each of 1996, 1997 and 1998.
Performance under terms of a permit issued to Finley by the State of Oregon
is secured by a $1,000 letter of credit.
A contract with a governmental subdivision of Oregon requires Finley to pay
an annual license fee based upon the total number of tons of solid waste
generated from certain geographic boundaries. The minimum annual license fee is
$50, as adjusted from time to time.
Finley is responsible for all closure and post-closure costs relating to
the disposal site owned and operated by Finley. Pursuant to a contract with a
governmental subdivision of Oregon, Finley has established a fund to provide for
closure and post-closure costs (the Closure Fund) and a fund to provide for the
maintenance of roads giving access to the landfill (a Road Fund). The funds are
held by the governmental subdivision in interest-bearing accounts. Finley
deposits amounts into the funds monthly based upon tonnage of solid waste
delivered to the landfill. Payments are expensed as they are paid. Finley's
obligation to make deposits to the Closure Fund terminates at such time as the
total amounts deposited, including interest, total $1,000. Amounts deposited to
date in the Closure Fund, including interest, total approximately $362 at
December 31, 1998.
10. SALE OF WASTECH, INC.
On December 31, 1997, Columbia sold its wholly owned subsidiary, Wastech,
Inc. (the Subsidiary) to Waste Management, Inc. (the Company) for 99,506 shares
of stock of the Company (fair value of $3,900 at December 31, 1997). The stock
is considered available for sale.
11. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in Note 1, the Partnerships are not subject to federal income
taxes. In connection with the proposed stock purchase agreement with Waste
Connections, Inc. (WCI) (Note 12), the Partnerships (as wholly-owned
subsidiaries of WCI) will be subject to corporate income taxes. The Partnerships
had combined income for income tax purposes of $2,706, $3,455 and $4,973 for
1996, 1997 and 1998, respectively. Had the Partnerships filed income tax returns
as regular corporations for 1996, 1997 and 1998, income tax expense under the
provisions of Financial Accounting Standards No. 109 would have been $1,255,
$1,935 and $1,785, respectively.
F-62
<PAGE> 140
COLUMBIA RESOURCE CO., L.P.
AND FINLEY-BUTTES LIMITED PARTNERSHIP (CONTINUED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
The following unaudited pro forma information reflects income tax expense
(benefit) for the Partnerships as if the Partnerships had been subject to income
taxes:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 920 $1,175 $1,691
State.............................................. 126 158 198
------ ------ ------
1,046 1,333 1,889
Deferred............................................. 209 602 (104)
------ ------ ------
Pro forma income taxes............................... $1,255 $1,935 $1,785
====== ====== ======
</TABLE>
The pro forma provisions for income taxes for the years ended December 31,
1996, 1997 and 1998 differ from the amounts computed by applying the applicable
statutory federal income tax rate of (34%) to income before income taxes due to
certain non-deductible expenses, state income taxes and differences in the book
and tax gains on the sale of Wastech, Inc. in 1997.
The Partnership's pro forma deferred income tax asset of approximately $193
and $265 as of December 31, 1997 and 1998, respectively, relates principally to
differences in the recognition of vacation accruals, liability reserves and
certain other temporary differences. The Partnerships also had pro forma
deferred tax liabilities as of December 31, 1997 and 1998 of approximately
$1,168 and $1,131 which relate to differences between tax and financial methods
of depreciation, the unrealized gain on the investment in marketable securities,
and differences between the book and tax basis of accounts receivable and
accrued liabilities.
12. SUBSEQUENT EVENTS
On January 15, 1999, Finley distributed $365 to Partners for income tax
payments.
On February 12, 1999, MENWI, RHFC, the sole stockholder of MENWI and RHFC,
and Waste Connections, Inc. (WCI) announced they had signed a definitive
agreement under which all of the outstanding shares of MENWI and RHFC would be
sold to WCI for cash. The transaction closed on March 31, 1999. Prior to
closing, Columbia distributed to the partners the marketable securities
discussed in Note 10. At the time the transaction closed, the notes payable of
$5,575 and $2,937 (Note 5) became due and payable.
13. YEAR 2000 ISSUE (UNAUDITED)
Like other companies, the Partnerships could be adversely affected if the
computer systems we, our suppliers or customers use do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment, elevators, etc. At this time, because of the complexities
involved in the issue, management cannot provide assurances that the Year 2000
issue will not have an impact on the Partnerships' operations, however,
management does not expect operations to be significantly affected by Year 2000
issues.
F-63
<PAGE> 141
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, 1997 and 1998 and the
related supplemental consolidated statements of operations, redeemable stock and
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998 which appear on pages F-65 through F-71 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 on January 19, 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. and Predecessors
at December 31, 1997 and 1998, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, after giving retroactive effect to the mergers of Waste Connections,
Inc. and the Murrey Companies, as described in the notes to the supplemental
consolidated financial statements, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Sacramento, California
February 17, 1999,
except for the third and
fourth paragraphs of Note 15,
as to which the dates are
March 31, 1999
F-64
<PAGE> 142
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
SUPPLEMENTAL
CONSOLIDATED
DECEMBER 31,
1997 1998
--------- ----------
<S> <C> <C>
Current assets:
Cash and equivalents...................................... $ 946 $ 2,848
Accounts receivable, less allowance for doubtful accounts
$93 and $511 at December 31, 1997 and 1998,
respectively........................................... 6,719 13,776
Prepaid expenses and other current assets................. 437 2,273
------- --------
Total current assets.............................. 8,102 18,897
Property and equipment, net................................. 19,004 46,986
Intangible assets, net...................................... 11,412 100,586
Other assets................................................ 58 1,978
------- --------
$38,576 $168,447
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 1,628 $ 1,500
Accounts payable.......................................... 4,226 8,107
Advances from a related party............................. 543 543
Deferred revenue.......................................... 1,516 3,147
Accrued liabilities....................................... 1,885 5,484
Current portion of long-term debt......................... 873 10,247
Other current liabilities................................. 251 2,193
------- --------
Total current liabilities......................... 10,922 31,221
Long-term debt.............................................. 11,669 63,985
Deferred income taxes....................................... 820 2,268
Other long term liabilities................................. 702 2,444
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock: $.01 par value;
2,500,000 shares authorized at December 31, 1997;
2,499,998 shares issued and outstanding at December 31,
1997 (none authorized at December 31, 1998)............... 7,523 --
Stockholders' equity:
Preferred stock: $.01 par value; 7,500,000 and 10,000,000
shares authorized at December 31, 1997 and December 31,
1998, respectively; none issued and outstanding........ -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 5,188,880, and 12,324,113 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 52 123
Additional paid-in capital.................................. 5,576 66,634
Stockholder notes receivable................................ (82) --
Deferred stock compensation................................. -- (428)
Retained earnings........................................... 1,394 2,200
------- --------
Total stockholders' equity........................ 6,940 68,529
------- --------
$38,576 $168,447
======= ========
</TABLE>
See accompanying notes.
F-65
<PAGE> 143
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED NINE WASTE CONNECTIONS, INC.
MONTHS ENDED SUPPLEMENTAL CONSOLIDATED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1997 (NOTE 1) 1997 1998
------------- ---------- -----------
<S> <C> <C> <C>
Revenues............................................ $18,114 $ 35,111 $ 86,570
Operating expenses:
Cost of operations................................ 14,753 27,836 62,964
Selling, general and administrative............... 3,009 2,942 8,108
Depreciation and amortization..................... 1,083 1,725 6,306
Start-up and integration.......................... -- 493 --
Stock compensation................................ -- 4,395 632
------- ---------- -----------
Income (loss) from operations....................... (731) (2,280) 8,560
Interest expense.................................... (456) (1,415) (2,792)
Other income (expense), net......................... 14 247 79
------- ---------- -----------
Income (loss) before income taxes................... (1,173) (3,448) 5,847
Income tax provision................................ -- (302) (2,930)
------- ---------- -----------
Income (loss) before extraordinary item............. (1,173) (3,750) 2,917
Extraordinary item -- early extinguishment of debt,
net of tax benefit of $264........................ -- -- (1,027)
------- ---------- -----------
Net income (loss)................................... $(1,173) $ (3,750) $ 1,890
======= ========== ===========
Redeemable convertible preferred stock accretion.... (531) (917)
---------- -----------
Net income (loss) applicable to common
stockholders...................................... $ (4,281) $ 973
========== ===========
Basic income (loss) per common share:
Income (loss) before extraordinary item........... $ (0.90) $ 0.21
Extraordinary item................................ -- (0.11)
---------- -----------
Net income (loss) per share....................... $ (0.90) $ 0.10
========== ===========
Diluted income (loss) per share:
Income (loss) before extraordinary item........... $ (0.90) $ 0.18
Extraordinary item................................ -- (0.09)
---------- -----------
Net income (loss) per common share................ $ (0.90) $ 0.09
========== ===========
Shares used in calculating basic net income (loss)
per share......................................... 4,761,447 9,349,173
========== ===========
Shares used in calculating diluted net income (loss)
per share......................................... 4,761,447 11,260,295
========== ===========
</TABLE>
See accompanying notes.
F-66
<PAGE> 144
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<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........ $ 0.23
==========
Shares used in per share calculation.......... 2,888,880
==========
</TABLE>
See accompanying notes.
F-67
<PAGE> 145
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENT OF REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
-----------------------------------------------------------------
REDEEMABLE STOCKHOLDERS' EQUITY
CONVERTIBLE REDEEMABLE -------------------
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995......... -- $ -- -- $ -- 2,888,880 $ 29
Net income............................ -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ----
Balances at December 31, 1996......... -- -- -- -- 2,888,880 29
Sale of redeemable convertible
preferred stock..................... 2,499,998 6,992 -- -- -- --
Sale of common stock.................. -- -- -- -- 2,300,000 23
Issuance of common stock warrants..... -- -- -- -- -- --
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 -- -- 5,188,880 52
Issuance of redeemable common stock... -- -- 1,000,000 7,500 -- --
Issuance of common stock warrants..... -- -- -- -- -- --
Common stock sold in connection with
initial public offering............. -- -- -- -- 2,300,000 23
Issuance of common stock.............. -- -- -- -- 1,054,634 10
Accretion of redeemable convertible
preferred stock..................... -- 917 -- -- -- --
Preferred stock dividend.............. -- (161) -- -- -- --
Conversion of redeemable preferred
stock............................... (2,499,998) (8,279) -- -- 2,499,998 25
Conversion of redeemable common
stock............................... -- -- (1,000,000) (7,500) 1,000,000 10
Deferred stock compensation associated
with stock options.................. -- -- -- -- -- --
Amortization of deferred stock
compensation........................ -- -- -- -- -- --
Exercise of stock options............. -- -- -- -- 57,912 1
Exercise of warrants.................. -- -- -- -- 222,689 2
Payment of stockholder notes
receivable.......................... -- -- -- -- -- --
Dividends paid........................ -- -- -- -- -- --
Net income............................ -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ----
Balances at December 31, 1998......... -- $ -- -- $ -- 12,324,113 $123
========== ======= ========== ======= ========== ====
<CAPTION>
WASTE CONNECTIONS, INC. SUPPLEMENTAL CONSOLIDATED
------------------------------------------------------------
STOCKHOLDERS' EQUITY
------------------------------------------------------------
ADDITIONAL STOCKHOLDER DEFERRED
PAID-IN NOTES STOCK RETAINED
CAPITAL RECEIVABLE COMPENSATION EARNINGS TOTAL
---------- ----------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995......... $ 471 $ -- $ -- $5,095 $ 5,595
Net income............................ -- -- -- 663 663
------- ---- ----- ------ -------
Balances at December 31, 1996......... 471 -- -- 5,758 6,258
Sale of redeemable convertible
preferred stock..................... -- -- -- -- --
Sale of common stock.................. 4,395 -- -- -- 4,418
Issuance of common stock warrants..... 710 -- -- -- 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......... 5,576 (82) -- 1,394 6,940
Issuance of redeemable common stock... -- -- -- -- --
Issuance of common stock warrants..... 2,388 -- -- -- 2,388
Common stock sold in connection with
initial public offering............. 23,963 -- -- -- 23,986
Issuance of common stock.............. 17,783 -- -- -- 17,793
Accretion of redeemable convertible
preferred stock..................... -- -- -- (917) (917)
Preferred stock dividend.............. -- -- -- -- --
Conversion of redeemable preferred
stock............................... 8,254 -- -- -- 8,279
Conversion of redeemable common
stock............................... 7,490 -- -- -- 7,500
Deferred stock compensation associated
with stock options.................. 821 -- (821) -- --
Amortization of deferred stock
compensation........................ -- -- 393 -- 393
Exercise of stock options............. 223 -- -- -- 224
Exercise of warrants.................. 136 -- -- -- 138
Payment of stockholder notes
receivable.......................... -- 82 -- -- 82
Dividends paid........................ -- -- -- (167) (167)
Net income............................ -- -- -- 1,890 1,890
------- ---- ----- ------ -------
Balances at December 31, 1998......... $66,634 $ -- $(428) $2,200 $68,529
======= ==== ===== ====== =======
</TABLE>
See accompanying notes.
F-68
<PAGE> 146
WASTE CONNECTIONS, INC. AND PREDECESSORS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED NINE
MONTHS ENDED WASTE CONNECTIONS, INC.
SEPTEMBER 30, SUPPLEMENTAL CONSOLIDATED
1997 YEAR ENDED DECEMBER 31,
(NOTE 1) 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)....................................... $(1,173) $ (3,750) $ 1,890
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of assets............................... (4) -- --
Depreciation and amortization........................ 1,083 1,725 6,306
Deferred income taxes................................ -- (413) 1,356
Amortization of debt issuance costs, debt guarantee
fees and accretion of discount on long-term debt... -- 860 192
Stock compensation................................... -- 4,395 632
Gain on sale of land................................. -- -- (8)
Extraordinary item -- extinguishment of debt......... -- -- 1,291
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net........................... (604) (1,467) (2,387)
Prepaid expenses and other current assets.......... (74) (11) (1,535)
Accounts payable................................... (221) 3,116 (674)
Deferred revenue................................... (137) 323 1,054
Accrued liabilities................................ (450) 835 319
Other liabilities.................................. -- (65) 544
------- -------- --------
Net cash provided by (used in) operating activities..... (1,580) 5,548 8,980
Cash Flows From Investing Activities:
Proceeds from sale of property and equipment............ 188 -- 132
Payments for acquisitions, net of cash acquired......... -- (14,393) (56,341)
Prepaid acquisition costs............................... -- (20) --
Capital expenditures for property and equipment......... (735) (2,372) (8,122)
Proceeds from sale of land.............................. -- -- 625
Net change in other assets.............................. 22 (47) (247)
Proceeds from stockholder notes receivable.............. -- -- 82
Issuance of stockholder notes receivable................ -- (82) --
------- -------- --------
Net cash used in investing activities................... (525) (16,914) (63,871)
</TABLE>
F-69
<PAGE> 147
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED NINE
MONTHS ENDED WASTE CONNECTIONS, INC.
SEPTEMBER 30, SUPPLEMENTAL CONSOLIDATED
1997 YEAR ENDED DECEMBER 31,
(NOTE 1) 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net intercompany balance................................ $ 2,142 $ -- $ --
Proceeds from short-term borrowings..................... -- 600 --
Proceeds from long-term debt............................ -- 8,914 77,402
Principal payments on notes payable..................... (38) (2,724) (3,374)
Principal payments on long-term debt.................... -- (1,085) (40,273)
Proceeds from sale of redeemable convertible preferred
stock................................................ -- 6,992 --
Proceeds from sale of common stock...................... -- 23 23,986
Proceeds from option and warrant exercises.............. -- -- 362
Net change in short term borrowings..................... -- 19 (128)
Net change in advances from a related party............. -- (275) --
Payment of dividends.................................... -- (83) (328)
Debt issuance costs..................................... -- (150) (854)
------- -------- --------
Net cash provided by financing activities................. 2,104 12,231 56,793
------- -------- --------
Net increase (decrease) in cash and equivalents........... (1) 865 1,902
Cash and equivalents at beginning of period............... 102 81 946
------- -------- --------
Cash and equivalents at end of period..................... $ 101 $ 946 $ 2,848
======= ======== ========
Supplementary Disclosures of Cash Flow Information and
Non-Cash Transactions:
Cash paid for interest.................................. $ -- $ 541 $ 2,130
======= ======== ========
Cash paid for income taxes.............................. $ -- $ 744 $ 970
======= ======== ========
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 $120,507
Cash paid for acquisitions (including acquisition
costs)............................................... (11,693) (56,341)
-------- --------
Liabilities assumed, stock and notes payable issued to
sellers.............................................. $ 8,447 $ 64,166
======== ========
</TABLE>
See accompanying notes.
F-70
<PAGE> 148
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 and equivalents beginning of period........ 961 184 859
------ ------- -------
Cash and equivalents 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-71
<PAGE> 149
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 in California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South
Dakota, Utah, Washington and Wyoming.
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, on January 19, 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 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
F-72
<PAGE> 150
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1996 and 1997 are comprised of the
following entities for the periods indicated:
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 twelve month period of the entities
acquired by BFI in 1995 and 1996 described
above)
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.
F-73
<PAGE> 151
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at purchase to be cash equivalents. As of December 31,
1998, cash equivalents consist of demand money market accounts.
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 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 fifteen 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
F-74
<PAGE> 152
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 in 1998.
Landfill permitting, acquisition and preparation costs 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, and is amortized on a straight-line
basis over the period of expected benefit of 40 years. Accumulated amortization
amounted to $81 and $1,687 as of December 31, 1997 and 1998, respectively.
The Company continually evaluates the value and future benefits of its
intangible assets, including goodwill. The Company assesses recoverability from
future operations using cash flows and income from operations of the related
acquired business as measures. 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 related intangible assets. There have been no adjustments to the carrying
amount of intangible assets resulting from these evaluations as of December 31,
1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, trade
receivables, restricted funds held in trust, trade payables and debt
instruments. The carrying values of cash, trade receivables, restricted funds
held in trust, and trade payables are considered to be representative of their
respective fair values. The carrying values of the Company's debt instruments
approximate their fair values as of December 31, 1997 and 1998, based on current
incremental borrowing rates for similar types of borrowing arrangements.
INTEREST RATE PROTECTION AGREEMENTS
Interest rate protection agreements are used to reduce interest rate risks
and interest costs of the Company's debt portfolio. The Company enters into
these agreements to change the fixed/variable interest rate mix of the portfolio
to reduce the Company's aggregate exposure to increases in interest rates. The
Company does not hold or issue derivative financial instruments for trading
purposes. Hedge accounting treatment is applied to interest rate derivative
contracts that are designated as hedges of specified debt positions. Amounts
payable or receivable under interest rate swap agreements are recognized as
adjustments to interest expense in the periods in which they accrue. Net
premiums paid for derivative financial instruments are deferred and recognized
ratably over the life of the instruments. Under hedge accounting treatment,
current period income is not affected by the increase or decrease in the fair
market value of derivative instruments as interest rates change and these
instruments are not reflected in the financial statements at fair market value.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instruments to which
a contract is specifically linked is terminated.
F-75
<PAGE> 153
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME TAXES
The Company, The Disposal Group, 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 professional services, and the
costs associated with recruiting the Company's initial management team. In
addition, the Company incurred certain integration expenses relating to its
initial acquisitions. These start-up and integration expenses have been charged
to operations as incurred.
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 12). Earnings per share data have not
been presented for the predecessor operations because such data is not
meaningful.
F-76
<PAGE> 154
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CLOSURE AND POST-CLOSURE COSTS
The Company does not accrue for closure and post-closure costs related to
the Fairmead Landfill it operates in Madera County, California. Madera County as
required by state law, has established a special fund to pay such liabilities.
In 1998, the Company acquired the stock of Red Carpet Landfill ("Red Carpet") in
Oklahoma and Butler County Landfill ("Butler") in Nebraska. Both Red Carpet and
Butler are engaged in landfilling of municipal solid waste and other acceptable
waste streams. 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. 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. As of December 31, 1998, the Company estimates that
total closure and post-closure costs relating to its landfills will be
approximately $5,474, of which approximately $1,233 has been accrued as of
December 31, 1998 and included in other long-term liabilities in the
accompanying balance sheet.
SEGMENT INFORMATION
The Company adopted FASB Statement No. 131, Disclosure About Segments of an
Enterprise and Related Information in 1998. Statement 131 established standards
for the way that public business enterprises report information about operating
segments. It also established standards for related disclosures about products
and services, geographic areas and major customers. Implementation of the
provisions of Statement 131 did not have a significant impact on the Company's
disclosures.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement, which is
to be applied prospectively, is effective for the Company's year ended December
31, 2000. The Company is currently evaluating the impact of SFAS No. 133 on its
future results of operations and financial position.
In April 1998, Statement of Position ("SOP") No. 98-5 -- "Reporting on the
Costs of Start-Up Activities" was issued by the American Institute of Certified
Public Accountants. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of the
F-77
<PAGE> 155
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
statement, which is effective for the Company's year ended December 31, 1999, is
to be reported as a cumulative effect of a change in accounting principle. The
Company believes that the future adoption of SOP No. 98-5 will not have a
material effect on its results of operations or financial position.
RECLASSIFICATIONS
Certain amounts reported in the Company's prior year's financial statements
have been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
THE MURREY COMPANIES
On January 19, 1999, Waste Connections, Inc. consummated a business
combination with the Murrey Companies which included the exchange of 2,888,880
shares of Waste Connections, Inc. common stock for all outstanding shares of the
Murrey Companies. This business combination will be accounted for as
poolings-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,
Waste Connections, Inc. incurred transaction related costs of approximately
$6,200 which will be to charged to operations in the period during which the
merger is consummated.
The table below sets forth the combined revenues and net income (loss) for
the years ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
WASTE THE MURREY SUPPLEMENTAL
CONNECTIONS, INC. COMPANIES CONSOLIDATED
----------------- ---------- ------------
<S> <C> <C> <C>
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)
YEAR ENDED DECEMBER 31, 1998:
Revenues.............................................. $54,042 $32,528 $86,570
Net income............................................ 1,748 142 1,890
</TABLE>
F-78
<PAGE> 156
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 ACQUISITIONS
During 1998, the Company acquired 42 businesses, including 2 operational
landfills, which were accounted for as purchases. Aggregate consideration for
these acquisitions consisted of $56,341 in cash (net of cash acquired), $12,488
in notes payable to sellers, 2,054,634 shares of common stock valued at $25,293,
and warrants to purchase 267,925 shares of common stock valued at $1,293. The
results of operations of the acquired businesses have been included in the
Company's consolidated financial statements from their respective acquisition
dates.
Certain items affecting the purchase price allocations are preliminary. A
summary of the preliminary purchase price allocations as of December 31, 1998
for the acquisitions consummated in 1998 is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable....................................... $ 4,670
Prepaid expenses and other current assets................. 301
Property and equipment.................................... 25,853
Goodwill.................................................. 86,358
Long-term franchise agreements and other.................. 2,390
Non-competition agreement................................. 540
Other assets.............................................. 395
Assumed liabilities:
Deferred revenue.......................................... (577)
Accounts payable and accrued liabilities.................. (9,210)
Other accrued liabilities................................. (1,575)
Long-term liabilities assumed............................. (13,638)
Deferred income taxes..................................... (92)
--------
$ 95,415
========
</TABLE>
In connection with certain of the acquisitions in 1998, the Company is
required to pay contingent consideration to certain former shareholders of the
respective companies, subject to the occurrence of specified events. As of
December 31, 1998, contingent payments relating to these acquisitions total
approximately $4,400, including 51,746 shares placed into escrow, are payable
primarily in cash and stock, and are earned based upon the achievement of
certain milestones. No amounts related to these contingent payments have been
included in the Company's financial statements as the events which would give
rise to such payments have not yet occurred nor are probable.
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, $9,869 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-79
<PAGE> 157
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the purchase price allocation for the BFI 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.................................................. 9,869
Non-competition agreement................................. 150
Assumed liabilities:
Deferred revenue.......................................... (428)
Accounts payable and accrued liabilities.................. (26)
Accrued losses on acquired contracts...................... (1,309)
Deferred income taxes..................................... (532)
-------
$15,036
=======
</TABLE>
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.
A summary of the purchase price allocation is as follows:
<TABLE>
<S> <C>
Acquired assets:
Property and equipment.................................... $1,229
Goodwill.................................................. 1,791
Non-competition agreements................................ 80
------
$3,100
======
</TABLE>
PREDECESSOR ACQUISITIONS
As described in Note 1, BFI acquired for cash and debt The Disposal Group
Combined on July 31, 1996 in a transaction accounted for as a purchase.
Accordingly, the respective purchase price was allocated to the fair values of
the assets acquired and liabilities assumed. The following presents purchase
price information for this acquisition:
<TABLE>
<S> <C>
Tangible assets acquired.................................... $2,076
Goodwill.................................................... 2,671
Assumed liabilities......................................... (33)
------
$4,714
======
</TABLE>
F-80
<PAGE> 158
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma results of operations assume that the
Company's significant acquisitions included above had occurred at the beginning
of each period presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
--------- ----------
(UNAUDITED)
<S> <C> <C>
Total revenue........................................... $90,221 $102,888
Net income (loss)....................................... (3,871) 2,820
Basic income (loss) per share........................... (0.79) 0.19
Diluted income (loss) per share......................... (0.79) 0.17
</TABLE>
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
occurred on January 1, 1997, nor are they necessarily indicative of future
operating results.
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Goodwill................................................ $11,263 $ 98,336
Long-term franchise agreements and contracts............ -- 2,390
Non-competition agreement............................... 230 770
Other, net.............................................. -- 777
------- --------
11,493 102,273
Less accumulated amortization........................... (81) (1,687)
------- --------
$11,412 $100,586
======= ========
</TABLE>
The Company acquired certain long-term franchise agreements, contracts and
non-competition agreements in connection with certain of its acquisitions. 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 estimated fair value of the
non-competition agreements was determined by management based on the discounted
adjusted operating income stream that would have otherwise been subject to
competition. The amounts assigned to the franchise agreements, contracts, and
non-competition agreements is being amortized on a straight-line basis over the
lesser of 40 years or the remaining term of the related agreements (ranging from
17 to 40 years).
F-81
<PAGE> 159
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Land and buildings...................................... $ 6,668 $ 19,461
Rolling stock........................................... 9,923 19,713
Containers.............................................. 6,375 12,644
Machinery and equipment................................. 3,840 7,638
Furniture and fixtures.................................. 322 335
------- --------
27,128 59,791
Less accumulated depreciation........................... (8,124) (12,805)
------- --------
$19,004 $ 46,986
======= ========
</TABLE>
Landfill costs of approximately $9,044 are included in land, buildings and
improvements at December 31, 1998. No landfills were owned as of December 31,
1997.
Combined depreciation expense for the predecessor operations was $1,101 and
$789 for the year ended December 31, 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 and for the year ended
December 31, 1998 was $1,652 and $4,689, respectively.
5. OTHER ASSETS
Other assets consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
<S> <C> <C>
Restricted cash............................................. $-- $1,521
Other....................................................... 58 457
--- ------
$58 $1,978
=== ======
</TABLE>
Restricted funds held in trust are included as part of other assets and
consist of amounts on deposit with various banks that support the Company's
financial assurance obligations for its landfill facilities' closure and
postclosure costs and amounts outstanding under the Madera Bond (Note 7).
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of various revolving and non-revolving
lines-of-credit with a bank, bearing interest at 8.50% as of December 31, 1998
and which mature at various dates through February 28, 1999. The lines of credit
are secured by all accounts receivable and inventory accounts, which totaled
$3,176 as of December 31, 1998. The lines-of-credit were fully utilized as of
December 31, 1998.
7. LONG-TERM DEBT
On January 30, 1998, the Company obtained a revolving credit facility from
BankBoston N.A. (the "January Credit Facility"). The maximum amount available
under the January 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 January Credit Facility allowed for
the Company to issue up to $5,000 in stand-by
F-82
<PAGE> 160
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
letters-of-credit. The January Credit Facility required quarterly payments of
interest and required the Company to pay an annual commitment fee equal to 0.5%
of the unused portion of the January Credit Facility. In connection with the
January 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
(Note 10).
On May 28, 1998, the Company entered into a new revolving credit facility
with a syndicate of banks for which BankBoston N.A. acted as agent (the "May
Credit Facility"). The maximum amount available under the May Credit Facility
was $60,000 (including stand-by letters of credit) and the borrowings bore
interest at various fixed and/or variable rates at the Company's option. The May
Credit Facility replaced the January Credit Facility. The May Credit Facility
allowed for the Company to issue up to $5,000 in stand-by letters-of-credit. The
May Credit Facility required quarterly payments of interest and borrowings 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 facility.
On November 20, 1998, the Company entered into a new revolving credit
facility with a syndicate of banks for which BankBoston N.A. acted as agent (the
"November Credit Facility"). As of December 31, 1998, the maximum amount
available under the November Credit Facility is $115,000 (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 December 31,
1998). The maximum amount available was increased to $125,000 in January 1999.
The November Credit Facility replaced the May Credit Facility. The November
Credit Facility allows for the Company to issue up to $15,000 in stand-by
letters-of-credit, of which $1,829 were issued as of December 31, 1998. The
November Credit Facility requires quarterly payments of interest and it matures
in November 2003. Borrowings are secured by substantially all of the Company's
assets and the Company is required to pay an annual commitment fee equal to
0.375% of the unused portion of the 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
contains covenants that require specified financial ratios and balances be
maintained. As of December 31, 1998, the Company was in compliance with these
covenants.
On June 16, 1998, the Company completed a $1,800 tax-exempt bond financing
for its Madera subsidiary (the "Madera Bond"). These funds will be used for
specified capital expenditures and improvements, including installation of a
landfill gas recovery system. The bonds mature on May 1, 2016 and bear interest
at variable rates based on market conditions for California tax exempt bonds
(approximately 3.8% at December 31, 1998). The bonds are backed by a letter of
credit issued by BankBoston N.A. under the November Credit Facility for $1,800.
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 in the accompanying consolidated balance sheet.
F-83
<PAGE> 161
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
November Credit Facility.................................... $ -- $ 57,281
Madera Bond................................................. -- 1,800
Term loan payable to the Bank bearing interest at the Bank's
prime rate plus 2.0% (aggregating 10.5% as of December 31,
1998); 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 sellers in connection with acquisition,
non-interest bearing, due January 1999.................... -- 8,546
Note payable to a bank bearing interest at a variable rate
(approximately 8.4% as of December 31, 1998); 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 1,866
Notes payable to a bank bearing interest at various fixed
rates (ranging from 9.1% to 9.2% as of December 31, 1998);
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 $2,463 as
of December 31, 1998...................................... 1,544 1,350
Equipment financing notes payable bearing interest at
various rates (ranging from 8.6% to 8.8% as of December
31, 1998); monthly payments of principal and interest
aggregating $21; maturing at various dates through
September 2001; secured by equipment with an aggregate net
book value of approximately $660 as of December 31,
1998...................................................... 822 423
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 $400 as of December 31, 1998
and certain cash accounts................................. 632 514
Notes payable to sellers bearing interest at 9.0% as of
December 31, 1998; monthly principal and interest payments
of $3; maturing October 2007; secured by land and
buildings with a net book value of approximately $901 as
of December 31, 1998...................................... 471 291
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 --
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, 1998; monthly principal and interest
payments of $4; maturing in June 2002..................... 189 90
Revolving line of credit from a bank bearing interest at the
bank's prime rate plus 1.5% (aggregating 10% at December
31, 1997); interest was payable monthly and the line was
to expire on September 29, 1998; secured by substantially
all of the Company's assets............................... 600 --
Other....................................................... 122 2,071
------- --------
12,542 74,232
Less: current portion....................................... (873) (10,247)
------- --------
$11,669 $ 63,985
======= ========
</TABLE>
F-84
<PAGE> 162
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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
10).
As of December 31, 1998, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1999....................................... $10,247
2000....................................... 1,497
2001....................................... 1,433
2002....................................... 420
2003....................................... 57,593
Thereafter................................. 3,042
-------
$74,232
=======
</TABLE>
Management used borrowings from the January Credit Facility 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.
The Company has entered into an interest rate protection agreement (the
"Interest Agreement"), with its primary banking institution to reduce its
exposure to fluctuations in variable interest rates. The Interest Agreement,
which is effective November 2, 1998 through November 2, 2000, effectively
changes the Company's interest rate paid on a notional amount of $27,700 of its
floating rate long-term debt to a weighted average fixed rate (approximately
6.43% at December 31, 1998). The fair value of the Interest Agreement as of
December 31, 1998 was approximately $188, which reflects the estimated amounts
that the Company would receive to terminate the Interest Agreement based on
quoted market prices of comparable contracts as of December 31, 1998. In the
event of nonperformance by the counterparty, the Company would be exposed to
interest rate risk if the variable interest rate received were to exceed the
fixed rate paid by the Company under the terms of the Interest Agreement.
8. 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. The
Company's supplemental consolidated rent expense under operating leases during
the years ended December 31, 1996, 1997 and 1998 was $170, $235 and $730,
respectively.
F-85
<PAGE> 163
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1998, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1999........................................ $ 715
2000........................................ 713
2001........................................ 599
2002........................................ 504
2003........................................ 485
Thereafter.................................. 2,059
------
$5,075
======
</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, 1998, WCI had provided customers and various regulatory authorities
with bonds and letters of credit of approximately $3,692 to secure its
obligations. The Company's November Credit Facility provides for the issuance of
letters of credit in an amount up to $15,000, 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, 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 is 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,
1998 there is no
F-86
<PAGE> 164
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
current proceeding or litigation involving the Company that the Company believes
will have a material adverse impact on its 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 $2,600 from the lawsuit, which is included
in other income in the accompanying statement of operations.
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 was closed on December 31,
1998; and subsequent to that date, all of the waste collected by the Murrey
Companies in Pierce County was long hauled to an alternate disposal site pending
completion of a new solid waste landfill in Pierce County. 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 67 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 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 46 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.
9. 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 accrued 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. Each share of Preferred Stock was
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 Preferred Stock and any accumulated and unpaid dividends were convertible at
the holder's option into shares of the Company's common stock at the calculated
rate of $2.80
F-87
<PAGE> 165
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
10. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
Of the 37,675,887 shares of common stock authorized but unissued as of
December 31, 1998, the following shares were reserved for issuance:
<TABLE>
<S> <C>
Stock option plan........................................... 1,139,214
Stock purchase warrants..................................... 1,291,135
Shares held in escrow....................................... 51,746
---------
2,482,095
=========
</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 bore interest at 8%, were
secured by the Preferred Stock purchased and common stock owned by the
employees, and were paid in full during 1998.
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"), 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 1998, 35,000 and 333,121 options to purchase common stock
were exercisable under the Option Plan, respectively. In addition, as of
December 31, 1997 and 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 WCI's stock option activity and related information during the
period from inception (September 9, 1997) through December 31, 1997 and the year
ended December 31, 1998 is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES (OPTIONS) EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at inception....................... -- $ --
Granted........................................ 528,500 4.92
-------
Outstanding as of December 31, 1997............ 528,500 4.92
Granted (unaudited)............................ 511,050 9.58
Forfeited (unaudited).......................... 2,874 5.00
Exercised (unaudited).......................... 57,912 4.69
-------
Outstanding as of December 31, 1998............ 978,764 7.38
=======
</TABLE>
F-88
<PAGE> 166
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes information about stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE --------------------
WEIGHTED REMAINING WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
EXERCISE LIFE EXERCISE
EXERCISE RANGE SHARES PRICE (IN YEARS) SHARES PRICE
-------------- ------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.80 to 5.00................. 544,099 $ 2.92 8.9 190,869 $ 2.97
$ 6.00 to 9.50................. 62,415 8.42 8.9 14,582 8.01
$10.50 to 12.50................. 240,000 11.06 9.2 80,003 11.05
$15.19 to 19.00................. 95,750 17.25 9.5 47,667 16.23
$21.00 to 22.13................. 36,500 21.90 9.6 -- --
------- -------
978,764 7.38 8.9 333,121 7.04
======= =======
</TABLE>
The weighted average grant date fair values for options granted during 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Exercise prices equal to market price of stock.............. $ -- $5.28
Exercise prices less than market price of stock............. -- 6.52
Exercise prices greater than market price of stock.......... 0.30 3.09
</TABLE>
Pro Forma information regarding net income (loss) 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 and the year ended December 31, 1998: risk-free interest rate of 6%;
and 5%, respectively; dividend yield of zero; volatility factor of the expected
market price of the Company's common stock of .40 and .55, respectively; and a
weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use 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 following
table summarizes the Company's pro forma net loss and pro forma
F-89
<PAGE> 167
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
basic net loss per share for the period from inception (September 9, 1997)
through December 31, 1997 and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1998
------- ------
<S> <C> <C>
Pro forma net income (loss)............................... $(3,754) $ 567
Pro forma net loss applicable to common stockholders...... (4,285) (350)
Pro forma basic net loss per share........................ (.90) (0.04)
</TABLE>
During the year ended December 31, 1998, the Company recorded deferred
stock compensation of $821 relating to stock options granted during the period
with exercise prices less than the estimated fair value of the Company's common
stock on the date of grant. The deferred stock compensation is being amortized
into expense over the vesting periods of the stock options which generally range
from 1 to 3 years. Compensation expense of $393 was recorded during the year
ended December 31, 1998 relating to these options, and the remaining $428 will
be amortized into expense in future periods.
Stock Purchase Warrants
At December 31, 1998, the Company had outstanding warrants to purchase
1,291,135 shares of the Company's common stock at exercise prices between $0.01
and $22.13 per share. The warrants are exercisable upon vesting and notification
and expire between 2000 and 2008.
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 of credit and
term loan payable. The exercise price of the warrant is $.01 per share and
contains provisions for a cashless exercise at the bank's option. 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 1998, the bank received 172,578 shares of
common stock through the exercise of 172,689 warrants.
In connection with their guarantee of certain of the Company's debt
obligations, the Company issued in December 1997 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 January 1998, the Company issued a warrant to purchase 140,000 shares of
its common stock to BankBoston N.A. in connection with the January Credit
Facility. The exercise price of the warrant is $2.80 per share. The warrant was
valued at $855 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%,
estimated fair value of the common stock of $7.50 per share and an expected life
of 10 years. The value assigned to the warrant was reflected as a discount on
long-term debt and accreted to interest expense using the interest method over
the expected term
F-90
<PAGE> 168
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
of the January Credit Facility. The January Credit Facility was extinguished in
May 1998 and the unamortized discount on the debt was expensed as an
extraordinary loss on early extinguishment of debt.
In February 1998, the Company issued warrants to purchase 200,000 shares of
its common stock with an exercise price of $4.00 per share in connection with an
acquisition. The warrants were valued at $954 using the Black-Scholes pricing
model and recorded as an element of purchase price for the acquisition.
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 $240 relating to these
warrants. All such warrants were exercised in 1998.
During 1998, the Company issued warrants to certain market development
consultants to purchase 67,935 shares of the Company's common stock with
exercise prices ranging from $12.00 to $22.13 per share. The warrants were
valued at $339 using the Black-Scholes pricing model and recorded as an element
of purchase price of the related acquisitions.
11. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1996, 1997 and 1998 consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR WCI
THE DISPOSAL GROUP SUPPLEMENTAL
COMBINED CONSOLIDATED
PERIOD FROM YEAR ENDED
JANUARY 1, 1996 DECEMBER 31,
THROUGH -----------------------
JULY 31, 1996 1996 1997 1998
------------------ ---- ----- ------
<S> <C> <C> <C> <C>
Current:
Federal.......................................... $207 $562 $ 716 $1,432
State............................................ -- -- -- 142
Deferred:
Federal.......................................... 298 (19) (414) 1,217
State............................................ -- -- -- 139
---- ---- ----- ------
$505 $543 $ 302 $2,930
==== ==== ===== ======
</TABLE>
F-91
<PAGE> 169
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
WCI SUPPLEMENTAL
CONSOLIDATED
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves........................... $ 8 $ 152
Amortization........................................... 290 --
Accrued expenses....................................... -- 8
Vacation accrual....................................... 15 6
State taxes............................................ -- 22
Other.................................................. -- 49
Net operating losses................................... 54 --
------- -------
Total deferred income tax assets.................. 367 237
Deferred income tax liabilities:
Amortization........................................... -- (757)
Depreciation........................................... (1,187) (1,368)
Other liabilities...................................... -- (146)
Prepaid expenses....................................... -- (234)
------- -------
Total deferred income tax liabilities............. (1,187) (2,505)
------- -------
Net deferred income tax liability......................... $ (820) $(2,268)
======= =======
</TABLE>
The differences between the Company's provision (benefit) for income taxes
as presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income (loss):
<TABLE>
<CAPTION>
PREDECESSORS
----------------------------------------------------------
THE DISPOSAL
GROUP
COMBINED PREDECESSORS
PERIOD FROM PREDECESSORS COMBINED
JANUARY 1, 1996 COMBINED NINE MONTHS
THROUGH PERIOD ENDED ENDED
JULY 31, 1996 DECEMBER 31, 1996 SEPTEMBER 30, 1997
--------------- ----------------- ------------------
<S> <C> <C> <C>
Income tax provision
(benefit) at the statutory
rate...................... 34.0% (34.0)% (34.0)%
Effect of allowance......... (16.0) 34.0 34.0
----- ----- -----
18.0% --% --%
===== ===== =====
</TABLE>
F-92
<PAGE> 170
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
WCI SUPPLEMENTAL
CONSOLIDATED
YEARS ENDED DECEMBER 31,
------------------------
1996 1997 1998
----- ------ -----
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory
rate................................................ 34.0% (34.0)% 34.0%
State taxes, net of federal benefit................... -- -- 4.0
Goodwill amortization................................. -- -- 3.0
Tax effect of companies reporting under Subchapter
S................................................... 10.0 (1.0) 5.0
Stock compensation expense............................ -- 44.0 3.0
Other................................................. 1.0 -- 1.0
---- ----- ----
45.0% 9.0% 50.0%
==== ===== ====
</TABLE>
12. 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 for
the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997 DECEMBER 31, 1998
BASIC AND BASIC AND ------------------------
DILUTED DILUTED BASIC DILUTED
NET INCOME NET LOSS NET INCOME NET INCOME
PER SHARE PER SHARE PER SHARE PER SHARE
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item..... $ 663 $ (3,750) $ 2,917 $ 2,917
Redeemable convertible preferred stock
accretion................................ -- (531) (917) (917)
---------- ---------- ---------- -----------
Income (loss) applicable to common
stockholders before extraordinary item... $ 663 $ (4,281) $ 2,000 $ 2,000
========== ========== ========== ===========
Extraordinary item.......................... -- -- (1,027) (1,027)
---------- ---------- ---------- -----------
Net income (loss) applicable to common
stockholders............................. $ 663 $ (4,281) $ 973 $ 973
========== ========== ========== ===========
Denominator:
Weighted average common shares
outstanding.............................. 2,888,880 4,761,447 9,349,173 9,349,173
Dilutive effect of stock options and
warrants outstanding..................... -- -- -- 1,628,930
Incremental common shares issuable upon
redemption of redeemable common stock.... -- -- -- 282,192
---------- ---------- ---------- -----------
2,888,880 4,761,447 9,349,173 11,260,295
========== ========== ========== ===========
</TABLE>
As of December 31, 1998, outstanding options to purchase 87,832 shares of
common stock (with exercise prices ranging from $18.62 to $22.13) could
potentially dilute basic net income 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-93
<PAGE> 171
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. RELATED PARTY TRANSACTIONS
Recycling Agreement
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 WCI's
stockholders are the majority owners of Continental. During the period from
inception (September 9, 1997) through December 31, 1997 and the year ended
December 31, 1998, the Company received, after deducting amounts paid to
Continental, approximately $10 and paid approximately $108, respectively,
to/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, 1996, 1997 and 1998.
Advances
As of December 31, 1997 and 1998, the Murrey Companies had non-interest
bearing advances payable to one of their shareholders totaling $543.
Disposal Fees
During the years ended December 31, 1996, 1997 and 1998, the Murrey
Companies paid $7,730, $8,592 and $8,816, 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.
14. EMPLOYEE BENEFIT PLAN
WCI has a voluntary savings and investment plan (the "401(k) Plan"). The
401(k) Plan is available to all eligible, non-union employees of WCI. Under the
401(k) Plan, WCI's contributions are 40% of the first 5% of the employee's
contributions. During the period from inception (September 9, 1997) through
December 31, 1997 and the year ended December 31, 1998, WCI's 401(k) Plan
expense was approximately $2 and $58, respectively.
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, 1996, 1997 and 1998, the Murrey Companies' 401(k) Plan expense was
approximately $267, $316 and $336, respectively.
15. SUBSEQUENT EVENTS
Murrey Companies Merger
On January 19, 1999, WCI merged with Murreys Disposal Company, Inc., DM
Disposal Co., Inc., American Disposal Company, Inc., and Tacoma Recycling, Inc.
(Collectively, the "Murrey Companies"). The transaction was accounted for as
poolings-of-interests, whereby the Company issued 2,888,880 shares of its common
stock for all of the outstanding shares of the Murrey Companies. In Connection
with the merger
F-94
<PAGE> 172
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
with the Murrey Companies, the Company incurred transaction related costs of
approximately $6,200, which will be charged to operations in the first quarter
of 1999.
Secondary Public Offering
Effective February 9, 1999, the Company sold approximately 4,000,000 shares
of common stock at $17.50 per share. As a result of the offering, the Company
received approximately $65,300 in net proceeds and used the proceeds to pay down
approximately $50,200 of its then outstanding debt.
Acquisition of Columbia Resource Co. L.P. and Finley-Buttes Limited
Partnership (CRCFBLP)
On March 31, 1999, the Company acquired the stock of two companies that are
the sole partners of CRCFBLP. Total consideration paid for CRCFBLP was
approximately $66,900 in cash.
New Credit Facility
On March 30, 1999, the Company obtained commitments from a syndicate of
banks led by BankBoston, N.A., which increased the Company's borrowing capacity
from $125,000 to $225,000 and modified certain covenants. The revised credit
facility matures in 2004.
F-95
<PAGE> 173
------------------------------------------------------
------------------------------------------------------
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........................ 6
Dividend Policy..................... 15
Price Range of Common Stock......... 15
Selected Historical and Pro Forma
Financial and Operating Data...... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Business............................ 37
Management.......................... 56
Certain Transactions................ 64
Principal Stockholders.............. 67
Description of Capital Stock........ 69
Shares Eligible for Future Sale..... 72
Outstanding Securities Covered by
This Prospectus................... 73
Legal Matters....................... 75
Experts............................. 75
Index to Financial Statements....... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,000,000 SHARES
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
APRIL , 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 174
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> 175
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.
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<PAGE> 176
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+ Second Amended and Restated Revolving Credit Agreement,
dated as of March 30, 1999, between the Company and various
banks represented by BankBoston, N.A
10.2### First Amended and Restated 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>
II-3
<PAGE> 177
<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>
II-4
<PAGE> 178
<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> 179
<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
10.50**** Purchase Agreement dated as of December 11, 1998, by and
among Waste Connections, Butler County Landfill, Inc., Kobus
Construction, Inc., Tom Kobus and Debbie Kobus
10.51+ Amended and Restated Stock Purchase Agreement dated as of
March 31, 1999, by and among Waste Connections, Management
Environmental National, Inc., RH Financial Corporation and
the Shareholder listed on Schedule A thereto
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 Perkins & Company, P.C., 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.
II-6
<PAGE> 180
# Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 22, 1998.
++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on July 1, 1998.
+++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on August 11, 1998.
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
*** Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, Registration No. 333-59199.
**** Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 333-70253.
### Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-8, Registration No. 333-72113.
## 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 (190,000); Michael R. Foos (190,000);
Ronald J. Mittelstaedt (200,000); Eric J. Moser (125,000); Steven F. Bouck
(250,000); Eugene V. Dupreau (20,000); Charles B. Youngclaus (17,000); and
Irmgard R. Wilcox (5,000). The Company also issued options in this form to
the following directors of the Company: Michael W. Harlan (22,500); and
William J. Razzouk (22,500).
(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.
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<PAGE> 181
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is part
of this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
The undersigned Registrant undertakes that every prospectus that (i) is filed
pursuant to the immediately preceding paragraph, or (ii) purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
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<PAGE> 182
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act of 1993 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1993 and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective, except where
the transaction in which the securities being offered pursuant to this
Registration Statement would be exempt from registration (but for the
possibility of integration) and which have an immaterial effect on the
Registrant.
II-9
<PAGE> 183
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 April 26, 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 April 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. MITTELSTAEDT* President, Chief Executive April 26, 1999
- --------------------------------------------- Officer and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU* Director and Vice April 26, 1999
- --------------------------------------------- President -- Madera
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN* Director April 26, 1999
- ---------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK* Director April 26, 1999
- ---------------------------------------------
William J. Razzouk
/s/ STEVEN F. BOUCK* Executive Vice President and April 26, 1999
- --------------------------------------------- Chief Financial Officer
Steven F. Bouck
/s/ MICHAEL R. FOOS* Vice President and Corporate April 26, 1999
- --------------------------------------------- Controller
Michael R. Foos
/s/ IRMGARD R. WILCOX Director April 26, 1999
- ---------------------------------------------
Irmgard R. Wilcox
* /s/ STEVEN F. BOUCK April 26, 1999
- ---------------------------------------------
Steven F. Bouck
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 184
WASTE CONNECTIONS, INC. AND PREDECESSORS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(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:
Period from January 1, 1996
through July 1, 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
Waste Connections, Inc.:
Year ended December 31,
1998...................... 19 343 -- -- 362
</TABLE>
<PAGE> 185
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+ Second Amended and Restated Revolving Credit Agreement,
dated as of March 30, 1999, between the Company and
various banks represented by BankBoston, N.A.............
10.2### First Amended and Restated 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> 186
<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> 187
<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> 188
<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...................................................
10.50**** Purchase Agreement dated as of December 11, 1998, by and
among Waste Connections, Butler County Landfill, Inc.,
Kobus Construction, Inc., Tom Kobus and Debbie Kobus.....
10.51+ Amended and Restated Stock Purchase Agreement dated as of
March 31, 1999, by and among Waste Connections,
Management Environmental National, Inc., RH Financial
Corporation and the Shareholder Listed on Schedule A
thereto..................................................
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 Perkins & Company, P.C., 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.
<PAGE> 189
# Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 22, 1998.
++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on July 1, 1998.
+++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on August 11, 1998.
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
*** Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, Registration No. 333-59199.
## Previously filed.
**** Incorporated by reference to the exhibits filed with Registrant's
Registration Statement on Form S-1, Registration No. 333-70253.
### Incorporated by reference to the exhibits filed with Registrant's
Registration Statement on Form S-8, Registration No. 333-72113.
(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 (190,000); Michael R. Foos (190,000);
Ronald J. Mittelstaedt (200,000); Eric J. Moser (125,000); Steven F. Bouck
(250,000); Eugene V. Dupreau (20,000) and Charles B. Youngclaus (17,000).
The Company also issued options in this form to the following directors of
the Company: Michael W. Harlan (22,500); and William J. Razzouk (22,500).
(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
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of March 30, 1999
by and among
WASTE CONNECTIONS, INC.
AND ITS SUBSIDIARIES
(the "Borrowers")
THE LENDING INSTITUTIONS PARTY HERETO
(the "Banks")
and
BANKBOSTON, N.A., AS AGENT
AND
UNION BANK OF CALIFORNIA, N.A.,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
COMERICA BANK - CALIFORNIA,
LASALLE NATIONAL BANK,
each as Co-Agent
With
BANCBOSTON ROBERTSON STEPHENS INC., as Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. DEFINITIONS AND RULES OF INTERPRETATION.................................1
Section 1.1. Definitions.................................................1
Section 1.2. Rules of Interpretation....................................16
Section 2. THE REVOLVING CREDIT FACILITY..........................................17
Section 2.1. Commitment to Lend.........................................17
Section 2.2. Reduction and Increase of Total Commitment.................17
Section 2.2.2. Increase of Total Commitment...............................17
Section 2.3. The Revolving Credit Notes.................................18
Section 2.4. Interest on Loans..........................................18
Section 2.5. Election of Eurodollar Rate; Notice of Election;
Interest Periods; Minimum Amounts..........................18
Section 2.6. Requests for Revolving Credit Loans........................19
Section 2.7. Funds for Revolving Credit Loans...........................20
Section 2.8. Maturity of the Loans......................................21
Section 2.9. Mandatory Repayments of the Loans..........................21
Section 2.10. Optional Prepayments or Repayments of Loans................21
Section 2.11. Swing Line Loans; Settlements..............................21
Section 3. LETTERS OF CREDIT......................................................23
Section 3.1. Letter of Credit Commitments...............................23
Section 3.2. Reimbursement Obligation of the Borrowers..................24
Section 3.3. Letter of Credit Payments..................................25
Section 3.4. Obligations Absolute.......................................25
Section 3.5. Reliance by Agent..........................................26
Section 4 FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY..........26
Section 4.1. Fees.......................................................26
Section 4.2. Payments...................................................27
Section 4.3. Computations...............................................28
Section 4.4. Capital Adequacy...........................................28
Section 4.5. Certificate................................................28
Section 4.6. Interest on Overdue Amounts................................29
Section 4.7. Interest Limitation........................................29
Section 4.8. Eurodollar Indemnity.......................................29
Section 4.9. Illegality; Inability to Determine Eurodollar Rate.........29
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....31
Section 5. REPRESENTATIONS AND WARRANTIES.........................................33
Section 5.1. Corporate Authority........................................33
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...................................34
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...............35
</TABLE>
<PAGE> 3
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<TABLE>
<S> <C>
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............................................37
Section 5.15.1. General....................................................37
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......................................................44
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..............................45
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
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......................................52
Section 7.5. Sale and Leaseback.........................................52
Section 7.6. Restricted Distributions and Redemptions...................52
Section 7.7. Employee Benefit Plans.....................................52
</TABLE>
<PAGE> 4
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<TABLE>
<S> <C>
Section 7.8. Negative Pledges...........................................53
Section 7.9. Business Activities........................................53
Section 7.10. Transactions with Affiliates...............................53
Section 7.11. Subordinated Debt..........................................53
Section 8. FINANCIAL COVENANTS....................................................53
Section 8.1. Leverage Ratio.............................................54
Section 8.2. Funded Debt to Capitalization Ratio........................54
Section 8.3. Interest Coverage Ratio....................................54
Section 8.4. Profitable Operations......................................54
Section 8.5. Capital Expenditures.......................................54
Section 9. CLOSING CONDITIONS.....................................................54
Section 9.1. Corporate Action...........................................55
Section 9.2. Loan Documents, Etc........................................55
Section 9.3. Certificate of Secretary; Good Standing Certificates.......55
Section 9.4. Validity of Liens..........................................55
Section 9.5. Perfection Certificates and UCC Search Results.............55
Section 9.6. Certificates of Insurance..................................56
Section 9.7. Legal Opinions.............................................56
Section 9.8. Environmental Permit Certificate...........................56
Section 9.9. Payment of Fees............................................56
Section 9.10. Closing Certificate........................................56
Section 10. CONDITIONS OF ALL LOANS...............................................56
Section 10.1. Representations True; No Event of Default..................56
Section 10.2. Performance; No Event of Default...........................57
Section 10.3. No Legal Impediment........................................57
Section 10.4. Governmental Regulation....................................57
Section 10.5. Proceedings and Documents..................................57
Section 11. COLLATERAL SECURITY...................................................57
Section 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT............58
Section 12.1. Events of Default and Acceleration.........................58
Section 12.2. Termination of Commitments.................................61
Section 12.3. Remedies...................................................61
Section 13. SETOFF................................................................61
Section 14. THE AGENT.............................................................62
Section 14.1. Appointment of Agent, Powers and Immunities................62
Section 14.2. Actions By Agent...........................................63
Section 14.3. INDEMNIFICATION............................................63
Section 14.4. Reimbursement..............................................63
Section 14.5. Documents..................................................64
Section 14.5.1. Closing Documentation.....................................64
Section 14.5.2. Other Documents...........................................64
Section 14.6. Non-Reliance on Agent and Other Banks......................64
Section 14.7. Resignation or Removal of Agent............................65
Section 14.8. Consents, Amendments, Waivers, Etc.........................65
Section 14.9. Delinquent Banks...........................................66
Section 14.10. Co-Agents..................................................66
Section 15. EXPENSES AND INDEMNIFICATION..........................................67
Section 15.1. Expenses...................................................67
</TABLE>
<PAGE> 5
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<TABLE>
<S> <C>
Section 15.2. Indemnification....................................................67
Section 15.3. Survival...........................................................68
Section 16. SURVIVAL OF COVENANTS, ETC............................................68
Section 17. ASSIGNMENT AND PARTICIPATION..........................................68
Section 18. PARTIES IN INTEREST...................................................69
Section 19. NOTICES, ETC..........................................................69
Section 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.........................70
Section 20.1. Sharing of Information with Section 20 Subsidiary..................70
Section 20.2. Confidentiality....................................................70
Section 20.3. Prior Notification.................................................71
Section 20.4. Other..............................................................71
Section 21. MISCELLANEOUS.........................................................71
Section 22. ENTIRE AGREEMENT, ETC.................................................71
Section 23. WAIVER OF JURY TRIAL..................................................72
Section 24. GOVERNING LAW.........................................................72
Section 25. SEVERABILITY..........................................................72
</TABLE>
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 Swing Line Note
Exhibit D Form of Compliance Certificate
Exhibit E Form of Environmental Compliance Certificate
Exhibit F 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(i) Scheduled Contracts
Schedule 7.3 Existing Investments
</TABLE>
<PAGE> 6
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as
of March 30, 1999 (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 are identified on Schedule 1 attached
hereto (collectively, the "Banks"), (c) BANKBOSTON, N.A., as administrative
agent for the Banks (the "Agent"), and (d) UNION BANK OF CALIFORNIA, N.A., BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, COMERICA BANK - CALIFORNIA,
N.A., and LASALLE NATIONAL BANK, each as a co-agent for the Banks (each a
"Co-Agent" and, collectively, the "Co-Agents").
W I T N E S S E T H:
WHEREAS, the Borrowers and the Agent are party to that certain Amended
and Restated Revolving Credit Agreement dated as of November 20, 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;
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:
Accountants. An independent accounting firm of national standing
reasonably acceptable to the Banks and the Agent.
Affected Bank. See Section 4.11.
Agent. See Preamble.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or such other location as the Agent may
designate from time to time.
<PAGE> 7
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Applicable Base Rate Margin. The applicable margin with respect to Base
Rate Loans as set forth in the Pricing Table.
Applicable Commitment Rate. The applicable rate with respect to the
Commitment Fee as set forth in the Pricing Table.
Applicable Eurodollar Margin. The applicable margin with respect to
Eurodollar Loans as set forth in the Pricing Table.
Applicable Laws. See Section 6.10.
Applicable L/C Margin. The applicable margin with respect to the Letter
of Credit Fee as set forth in the Pricing Table.
Arranger. BancBoston Robertson Stephens Inc.
Assignment and Acceptance. See Section 17.
Balance Sheet Date. December 31, 1998.
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-half of one percent
(1/2%) above the overnight federal funds effective rate, as published by the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
Base Rate Loans. Loans bearing interest calculated by reference to the
Base Rate.
BKB. See Preamble.
Borrowers. See Preamble.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, New York, New York; Chicago, Illinois; and Los Angeles,
California are open for the transaction of banking business.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and goodwill); provided that Capital Assets shall not
include (a) any item customarily charged directly to expense or depreciated over
a useful life of twelve (12) months or less in accordance with generally
accepted accounting principles, or (b) any item obtained through an acquisition
permitted by Section 7.4 hereof.
Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrowers and their Subsidiaries in connection with (i) the purchase or lease of
Capital Assets that would be required to be capitalized and shown on the balance
sheet of such Person in
<PAGE> 8
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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.
Co-Agent(s). See preamble.
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
that are or are intended to be subject to the security interests created by the
Security Documents.
Columbia Bond. The $13,000,000 Solid Waste Transfer Station Revenue
Bonds, Columbia Resource Company Project, Series 1991, issued by the Industrial
Revenue Bond Public Corporation of Clark County, Washington.
Columbia Bond Documents. The documentation executed in connection with
the Columbia Bond.
Columbia Issuing Bank. U.S. Bank National Association, a national
banking association and a Bank hereunder.
Columbia Letter of Credit. The direct pay letter of credit issued by the
Columbia Issuing Bank to support the Columbia Bond in the original stated amount
of $13,598,805.32, as such face amount is reduced pursuant to the terms of such
letter of credit from time to time.
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.
<PAGE> 9
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Commitment Percentage. With respect to each Bank, the percentage
initially set forth beside its name on Schedule 1 (subject to adjustment in
accordance with Sections 2.2.2 and 17).
Compliance Certificate. See Section 6.4(c).
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrowers and their
Subsidiaries consolidated in accordance with GAAP.
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) non-cash
stock compensation charges of up to $388,000 in the aggregate taken during the
four (4) fiscal quarters ending March 31, 1999 and no more than $360,000 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,
(d) non-cash special charge for interest expense attributable to loan fees paid
to BKB in connection with the refinancing of the then existing credit facilities
of up to $815,000 (after tax) in the aggregate taken during the fiscal quarter
ending June 30, 1998, up to $212,000 (after tax) in the aggregate taken during
the fiscal quarter ending December 31, 1998 and up to $180,000 in the aggregate
taken during the fiscal quarter ending March 31, 1999, (e) pooling charges taken
in connection with any acquisition permitted under Section 7.4.1 hereof to the
extent such pooling charges were deducted in determining Consolidated Net Income
(or deficit), and (f) EBIT (plus nonrecurring company expenses that are (i)
discontinued or adjusted upon acquisition by any of the Borrowers, such as owner
compensation and adjustments to depreciation to conform to the Parent's
accounting treatment, and (ii) approved by the Agent) for the prior twelve (12)
months of any company acquired (either through an acquisition of such company's
stock or through an acquisition of all or substantially all of such company's
assets) during the period reported in a Compliance Certificate and other
appropriate documentation (including, without limitation, historical financial
results and balance sheets of the acquired companies), in form and substance
satisfactory to the Agent, delivered to the Agent and the Banks pursuant to
Sections 6.4 or 7.4.1(a) shall be included in the calculation of EBIT if (x) the
financial statements of such acquired Subsidiaries have been audited, or (y) the
Agent consents to such inclusion after being furnished with other acceptable
financial statements and (z) the Compliance Certificate delivered to the Agent
and the Banks for the period in which such acquisition was made shall report
such acquisition.
Consolidated Earnings Before Interest, Taxes, Depreciation, and
Amortization or EBITDA. For any period (without duplication), EBIT plus the
depreciation expense and amortization expense, to the extent that each was
deducted in determining Consolidated Net Income (or Deficit), determined in
accordance with GAAP, plus the depreciation expense and amortization expense
(without duplication) of any company whose EBIT was included as an adjustment as
set forth in the definition of EBIT.
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrowers after deduction of all expenses, taxes, and other
proper charges (including,
<PAGE> 10
-5-
without limitation, pooling charges taken in connection with acquisitions
permitted under Section 7.4.1), 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. See Preamble.
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.
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
<PAGE> 11
-6-
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 or Swing Line
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 (a) 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; (b) 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; (c) 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; (d) the central bank of any country
which is a member of the OECD; and (e) if, but only if, any Event of Default has
occurred and is continuing, any other bank, insurance company, commercial
finance company or other financial institution approved by the Agent, such
approval not to be unreasonably withheld.
Eligible Foreign Bank. (a) Any commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, provided that such bank is acting through a branch or agency located in
the country in which it is organized or another country which is also a member
of the OECD; or (b) the central bank of any country which is a member of the
OECD.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrowers or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See Section 5.16(a).
EPA. See Section 5.16(b).
Equipment Financing. Indebtedness of the Borrowers with respect to
equipment leases or equipment chattel mortgages, including any such Indebtedness
assumed in connection with an acquisition permitted under Section 7.4.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with
the Borrowers under Section 414 of the Code.
<PAGE> 12
-7-
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:
<TABLE>
<S> <C>
Eurodollar Rate = Eurodollar Offered Rate
-----------------------
1 - Reserve Rate
</TABLE>
Event of Default. See Section 12.
Excluded Assets. The containers, vehicles, equipment and inventory in
which the Banks are precluded from taking a security interest pursuant to any
Scheduled Contract during the term of such Scheduled Contract.
Excluded Contracts. The Single Family Recyclables Collection Contract
between City of Vancouver and Browning Ferris Industries of Washington, Inc.,
dated as of December 2, 1996, 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
<PAGE> 13
-8-
(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 (a) 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 (b) 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,
(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,
<PAGE> 14
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(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 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
<PAGE> 15
-10-
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.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of the making
of a Eurodollar Loan or the conversion from a Base Rate Loan into a Eurodollar
Loan and ending one (1), two (2), three (3), or six (6) months thereafter, as
selected by the Borrowers in a Loan and Letter of Credit Request; and
(b) thereafter, each subsequent Interest Period shall begin on
the last day of the preceding Interest Period and shall end one (1), two (2),
three (3), or six (6) months thereafter, as selected by the Borrowers in a Loan
and Letter of Credit Request;
provided, however, that whenever the first day of any Interest
Period occurs on a day of an initial calendar month for which there is no
numerically corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in such
Interest Period, such Interest Period shall end on the last Business Day of such
succeeding calendar month.
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, the Madera Letter of
Credit and the Columbia Letter of Credit issued or to be issued by the Agent or,
with respect to the Columbia Letter of Credit, the Columbia Issuing Bank 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.
<PAGE> 16
-11-
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. Collectively, the Revolving Credit Loans and Swing Line 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 fifty-one percent
(51%) of the outstanding principal amount of the Revolving Credit Loans on such
date; and if no such principal is outstanding, the Banks whose aggregate
Commitments constitute fifty-one percent (51%) of the Total Commitment.
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. March 30, 2004.
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. Collectively, the Revolving Credit Notes and Swing Line 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
<PAGE> 17
-12-
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.
Oregon Waste. Oregon Waste Technology, Inc., an Oregon corporation and a
wholly-owned Subsidiary of Curry.
Parent Stock Pledge Agreement. The Second 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 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.
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.
<PAGE> 18
-13-
Pricing Table:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
EURODOLLAR BASE RATE APPLICABLE APPLICABLE
MARGIN MARGIN L/C MARGIN COMMITMENT RATE
LEVERAGE RATIO (PER ANNUM) (PER ANNUM) (PER ANNUM) (PER ANNUM)
-------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Less than 2.00:1 1.25% 0.00% 1.25% 0.250%
Greater than or 1.50% 0.00% 1.50% 0.375%
equal to 2.00:1
but less than 2.50:1
Greater than or 1.75% 0.00% 1.75% 0.375%
equal to 2.50:1
but less than 3.00:1
Greater than or 2.00% 0.00% 2.00% 0.50%
equal to 3.00:1
but less than 3.50:1
Greater than or 2.25% 0.25% 2.25% 0.50%
equal to 3.50:1
Initial Pricing 1.75% 0.00% 1.75% 0.375%
</TABLE>
Any change in the applicable margin shall become effective on the first day
after receipt by the Banks of financial statements delivered pursuant to Section
6.4(a) or (b) which indicate a change in the Leverage Ratio. 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 Leverage Ratio for the fiscal quarter ending March 31, 1999.
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.
Prior Credit Agreement. See preamble.
RCRA. See definition of Release.
Real Property. All real property heretofore, now, or hereafter owned or
leased by the Borrowers.
Reimbursement Obligation. The Borrowers' obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 3.2.
<PAGE> 19
-14-
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(i)
to this Credit 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 Second Amended and Restated Security Agreement
among the Borrowers and the Agent, to be dated as of the Closing Date, as
amended and in effect from time to time.
Security Documents. The Security Agreement, Stock Pledge Agreements, and
any other instruments or documents evidencing or perfecting the Agent's lien on
the assets of the Borrowers for the benefit of the Banks.
Seller Debt. Indebtedness of the Borrowers, including assumed
obligations, incurred in connection with acquisitions 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
<PAGE> 20
-15-
is discharged within 30 days of such acquisition); provided that such
acquisitions are otherwise permitted pursuant to Section 7.4.
Settlement. The making or receiving of payments, in immediately
available funds, by the Banks to or from the Agent in accordance with Section
2.11 hereof to the extent necessary to cause each such Bank's actual share of
the outstanding amount of the Revolving Credit Loans to be equal to such Bank's
Commitment Percentage of the outstanding amount of such Revolving Credit Loans,
in any case when, prior to such action, the actual share is not so equal.
Settlement Amount. See Section 2.11(b).
Settlement Date. See Section 2.11(b).
Settling Bank. See Section 2.11(b).
Stock Pledge Agreements. Collectively, (a) the Parent Stock Pledge
Agreement, and (b) the Amended and Restated 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.
Subordinated Debt. Unsecured Indebtedness of the Borrowers that is
expressly subordinated and made junior to the payment and performance in full of
the Obligations, and evidenced as such by a written instrument containing
subordination provisions on terms and in form and substance acceptable to the
Agent and Majority Banks.
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.
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).
Swing Line Loan(s). See Section 2.11(a).
Swing Line Note. See Section 2.11(b).
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> 21
-16-
Total Commitment. See Section 2.1.
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.
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.
(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."
<PAGE> 22
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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, but not jointly,
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, Swing
Line Loans, unpaid Reimbursement Obligations, and the Maximum Drawing Amount
shall not exceed a maximum aggregate amount outstanding of $210,000,000 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 $15,000,000
provided that the Total Commitment shall not in any event exceed $225,000,000
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 may elect, to fund its pro rata share of the increase,
thereby increasing its Commitment hereunder, but no Bank shall have any
obligation 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) the
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
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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 LOANS. The outstanding principal amount of the
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 April 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 and Swing Line Loans.
SECTION 2.5. ELECTION OF EURODOLLAR RATE; NOTICE OF ELECTION; INTEREST
PERIODS; MINIMUM AMOUNTS.
(a) At the Borrowers' option, so long as no Default or Event of
Default has occurred and is then continuing, the Borrowers may (i) elect to
convert any Revolving Credit Loan which is a Base Rate Loan or a portion thereof
to a Eurodollar Loan, (ii) at the time of any Loan and Letter of Credit Request,
specify that a requested Revolving Credit Loan shall be a Eurodollar Loan, or
(iii) upon expiration of the applicable Interest Period, elect to maintain an
existing Eurodollar Loan as such, provided that the Borrowers give notice to the
Agent pursuant to Section 2.5(b) hereof. Upon determining any Eurodollar Rate,
the Agent shall forthwith provide notice thereof to the Borrowers and the Banks,
and each such notice to the Borrowers and the Banks shall be considered prima
facie correct and binding, absent manifest error.
(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
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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
$1,000,000 or integral multiples of $500,000 in excess thereof. In no event
shall the Borrowers have more than six (6) 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 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
aggregate amount of Revolving Credit Loans and Swing Line Loans outstanding and
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 Loan, or the date of issuance of such
Letter of Credit (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, or to the extent that such representations
and warranties expressly relate solely to an earlier 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
<PAGE> 25
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applicable, the Agent will make available to the Borrowers in immediately
available funds the aggregate amount of such Revolving Credit Loans made
available to the Agent by the Banks. The failure or refusal of any Bank to make
available to the Agent at the aforesaid time and place on any Drawdown Date the
amount of its Commitment Percentage of the requested Revolving Credit Loans
shall not relieve any other Bank from its several obligation hereunder to make
available to the Agent the amount of such other Bank's Commitment Percentage of
any requested Revolving Credit Loans.
(b) The Agent may, unless notified to the contrary by any Bank prior to
a Drawdown Date, assume that such Bank has made available to the Agent on such
Drawdown Date the amount of such Bank's Commitment Percentage of the Revolving
Credit Loans to be made on such Drawdown Date, and the Agent may (but shall not
be required to), in reliance upon such assumption, make available to the
Borrowers a corresponding amount. If any Bank makes available to the Agent such
amount on a date after such Drawdown Date, such Bank shall pay to the Agent on
demand an amount equal to the product of (i) the average computed for the period
referred to in clause (iii) below, of the weighted average interest rate paid by
the Agent for federal funds acquired by the Agent during each day included in
such period, times (ii) the amount of such Bank's Commitment Percentage of such
Revolving Credit Loans, times (iii) a fraction, the numerator of which is the
number of days that elapse from and including such Drawdown Date to the date on
which the amount of such Bank's Commitment Percentage of such Revolving Credit
Loans shall become immediately available to the Agent, and the denominator of
which is 365. A statement of the Agent submitted to such Bank with respect to
any amounts owing under this paragraph shall be prima facie evidence, absent
manifest error, of the amount due and owing to the Agent by such Bank. If the
amount of such Bank's Commitment Percentage of such Revolving Credit Loans is
not made available to the Agent by such Bank within three (3) Business Days
following such Drawdown Date, the Agent shall be entitled to recover such amount
from the Borrowers on demand, with interest thereon at the rate per annum
applicable to the Revolving Credit Loans made on such Drawdown Date.
SECTION 2.8. MATURITY OF THE LOANS. The Loans shall be due and payable
on the Maturity Date. The Borrowers jointly and severally promise to pay on the
Maturity Date all Loans outstanding on such date, together with any and all
accrued and unpaid interest thereon.
SECTION 2.9. MANDATORY REPAYMENTS OF THE LOANS. If at any time the
outstanding amount of the Revolving Credit Loans plus Swing Line 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 the Swing Line Loans, or if no Swing Line 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.
<PAGE> 26
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SECTION 2.10. OPTIONAL PREPAYMENTS OR REPAYMENTS OF LOANS. The Borrowers
shall have the right, at their election, to repay or prepay the outstanding
amount of the 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 Loans and the
principal amount to be paid. Each such partial repayment of the 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 2.11. SWING LINE LOANS; SETTLEMENTS.
(a) So long as BKB has not received written notice from the Borrowers of
an Event of Default and otherwise made in accordance with the provisions of this
Credit Agreement, solely for ease of administration of the Revolving Credit
Loans, BKB may, upon receipt of a Loan and Letter of Credit Request no later
than 2:00 p.m. (Boston time) on the proposed date of funding, but shall not be
required to, fund Base Rate Loans ("Swing Line Loans") for periods not to exceed
seven (7) days in any one case, bearing interest as set forth for Base Rate
Loans in Section 2.4. The Swing Line Loans shall be evidenced by a promissory
note of the Borrowers in substantially the form of Exhibit C hereto (the "Swing
Line Note") dated as of the Closing Date, and shall each be in a minimum amount
of $500,000 or integral multiples of $100,000 in excess thereof, provided that
the outstanding amount of Swing Line Loans advanced by BKB hereunder shall not
exceed $15,000,000 at any time. Each Bank shall remain severally, but not
jointly, and unconditionally liable to fund its pro rata share (based upon each
Bank's Commitment Percentage) of such Swing Line Loans on each Settlement Date
and, in the event BKB chooses not to fund all Base Rate Loans requested on any
date, to fund its Commitment Percentage of the Base Rate Loans requested,
subject to satisfaction of the provisions hereof relating to the making of Base
Rate Loans. Prior to each Settlement, all payments or repayments of the
principal of, and interest on, Swing Line Loans shall be credited to the account
of BKB.
(b) The Banks shall effect Settlements on (i) the Business Day
immediately following any day which the Agent gives written notice to the Banks
to effect a Settlement, (ii) the Business Day immediately following the Agent's
becoming aware of the existence of any Default or Event of Default, (iii) the
Maturity Date, (iv) any date on which the Borrowers wish to convert a Swing Line
Loan into a Base Rate Loan, and (v) in any event, the seventh day on which any
Swing Line Loan remains outstanding (each such date, a "Settlement Date"). One
(1) Business Day prior to each such Settlement
<PAGE> 27
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Date, the Agent shall give telephonic notice to the Banks of (A) the respective
outstanding amount of Revolving Credit Loans made by each Bank as at the close
of business on the prior day, (B) the amount that any Bank, as applicable (a
"Settling Bank"), shall pay to effect a Settlement (a "Settlement Amount"). A
statement of the Agent submitted to the Banks with respect to any amounts owing
hereunder shall be prima facie evidence of the amount due and owing. Each
Settling Bank shall, not later than 1:00 p.m. (Boston time) on each Settlement
Date, effect a wire transfer of immediately available funds to the Agent at the
Agent's Head Office in the amount of such Bank's Settlement Amount. All funds
advanced by any Bank as a Settling Bank pursuant to this Section 2.11 shall for
all purposes be treated as a Base Rate Loan to the Borrowers.
(c) The Agent may (unless notified to the contrary by any Settling Bank
by 12:00 noon (Boston time) one (1) Business Day prior to the Settlement Date)
assume that each Settling Bank has made available (or will make available by the
time specified in Section 2.8(b)) to the Agent its Settlement Amount, and the
Agent may (but shall not be required to), in reliance upon such assumption,
effect Settlements. If the Settlement Amount of such Settling Bank is made
available to the Agent on a date after such Settlement Date, such Settling Bank
shall pay 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 annual interest rate paid by the Agent for federal funds acquired by the
Agent during each day included in such period times (ii) such Settlement Amount
times (iii) a fraction, the numerator of which is the number of days that elapse
from and including such Settlement Date to but not including the date on which
such Settlement Amount shall become immediately available to the Agent, and the
denominator of which is 365. Upon payment of such amount such Settling Bank
shall be deemed to have delivered its Settlement Amount on the Settlement Date
and shall become entitled to interest payable by the Domestic Borrowers with
respect to such Settling Bank's Settlement Amount as if such share were
delivered on the Settlement Date. If such Settlement Amount is not in fact made
available to the Agent by such Settling Bank within five (5) Business Days of
such Settlement Date, the Agent shall be entitled to recover such amount from
the Borrowers, with interest thereon at the Base Rate.
(d) After any Settlement Date, any payment by the Borrowers of Swing
Line Loans hereunder shall be allocated pro rata among the Banks, in accordance
with such Bank's Commitment Percentage.
(e) If, prior to the making of a Revolving Credit Loan pursuant to
paragraph (b) of this Section 2.11, a Default or Event of Default has occurred
and is continuing, each Bank will, on the date such Revolving Credit Loan was to
have been made, purchase an undivided participating interest in the outstanding
Swing Line Loans in an amount equal to its Commitment Percentage of such Swing
Line Loans. Each Bank will immediately transfer to the Agent, in immediately
available funds, the amount of its participation and upon receipt thereof the
Agent will deliver to such Bank a Swing Line participation certificate dated the
date of receipt of such funds and in such amount.
(f) Whenever, at any time after the Agent has received from any Bank
such Bank's participating interest in the Swing Line Loans pursuant to clause
(e) above, the
<PAGE> 28
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Agent receives any payment on account thereof, the Agent will distribute to such
Bank its participating interest in such amount (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Bank's participating interest was outstanding and funded) in like funds as
received; provided, however, that in the event that such payment received by the
Agent is required to be returned, such Bank will return to the Agent any portion
thereof previously distributed by the Agent to it in like funds as such payment
is required to be returned by the Agent.
(h) Each Bank's obligation to purchase participating interests pursuant
to clause (e) above shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which such Bank may have
against the Agent, the Borrowers or any other Person for any reason whatsoever;
(ii) the occurrence or continuance of a Default or Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Borrowers or any
other Person; (iv) any breach of this Credit Agreement by the Borrowers or any
other Bank or Agent; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
SECTION 3. LETTERS OF CREDIT.
SECTION 3.1. LETTER OF CREDIT COMMITMENTS.
(a) Subject to the terms and conditions hereof and the execution
and receipt of a Loan and Letter of Credit Request reflecting the Maximum
Drawing Amount of all Letters of Credit (including the requested Letter of
Credit) and a Letter of Credit Application, the Agent on behalf of the Banks and
in reliance upon the agreement of the Banks set forth in Section 3.1(b) and upon
the representations and warranties of the Borrowers contained herein, agrees to
issue standby letters of credit in such form as may be requested from time to
time by the Borrowers and agreed to by the Agent; provided, however, that, after
giving effect to such request, the Maximum Drawing Amount shall not exceed the
lesser of (i) $20,000,000 or (ii) the Total Commitment minus the aggregate
outstanding amount of the Revolving Credit Loans and Swing Line Loans. No Letter
of Credit shall have an expiration date later than thirty (30) days prior to the
Maturity Date and in addition no Letter of Credit (other than the Madera Letter
of Credit or the Columbia Letter of Credit) shall have an expiration date later
than one (1) year after the date of issuance of such 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).
(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 or, with respect to the
Columbia Letter of Credit, the Columbia Issuing Bank on demand for the amount of
each draft paid by the Agent or the Columbia Issuing Bank (as the case may be)
under each Letter of Credit issued in accordance with the terms hereof to the
extent that such amount is not reimbursed by the
<PAGE> 29
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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 and the Columbia Bond
Documents.
SECTION 3.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to
induce the Agent or the Columbia Issuing Bank (as the case may be) 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 or the Columbia Issuing
Bank (as the case may be) with respect to each Letter of Credit issued, extended
or renewed by the Agent or the Columbia Issuing Bank hereunder as follows:
(a) on each date that any draft presented under any Letter of
Credit is honored by the Agent or the Columbia Issuing Bank or the Agent or the
Columbia Issuing Bank otherwise makes payment with respect thereto, (i) the
amount paid by the Agent or the Columbia Issuing Bank 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, the Columbia Issuing Bank
or any Bank in connection with any payment made by the Agent, the Columbia
Issuing Bank or any Bank under, or with respect to, such Letter of Credit;
provided however, if the Borrowers do not reimburse the Agent or the Columbia
Issuing Bank (as the case may be) 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
(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 Columbia Issuing Bank, 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
or the Columbia Issuing Bank (as the case may be) 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 or the
Columbia Issuing Bank, 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
<PAGE> 30
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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 or the Columbia Issuing Bank (as the case
may be) for federal funds acquired by the Agent or the Columbia Issuing Bank
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 or the Columbia Issuing Bank 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 or the Columbia Issuing Bank, and the
denominator of which is 365. The responsibility of the Agent or the Columbia
Issuing Bank 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, the Columbia Issuing
Bank or 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 and the Columbia Issuing Bank pursuant to the
last sentence of Section 3.3, the Borrowers further agree with the Agent, the
Columbia Issuing Bank and the Banks that the Agent, the Columbia Issuing Bank
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, the Columbia Issuing Bank and the Banks shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit. The Borrowers agree that any action taken
or omitted by the Agent, the Columbia Issuing Bank 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, the Columbia Issuing Bank or any Bank to
the Borrowers.
SECTION 3.5. RELIANCE BY AGENT. To the extent not inconsistent with
Section 3.4, the Agent and the Columbia Issuing Bank 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
<PAGE> 31
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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) CLOSING. The Borrowers jointly and severally agree to pay to
the Agent, for the respective accounts of each Bank, a fee as set forth in the
Closing Fee Letter, dated March 30, 1999, among the Borrowers and the Agent.
(b) AGENT'S FEE AND ARRANGEMENT FEES. The Borrowers jointly and
severally agree to pay to the Agent and the Arranger those fees set forth in the
Agent's Fee and Arrangement Fee Letter, dated March 30, 1999, among the
Borrowers and the Agent.
(c) 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
April 1, 1999, with a final payment on the Maturity Date.
(d) 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 or the Columbia Issuing Bank
(as the case may be), 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.
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.
<PAGE> 32
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(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.
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
<PAGE> 33
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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 could be construed as providing for interest in excess of such
lawful maximum shall be and hereby is made expressly subject to and modified by
the provisions of this paragraph.
SECTION 4.8. EURODOLLAR INDEMNITY. The Borrowers agree to indemnify the
Banks and the Agent and to hold them harmless from and against any loss, cost or
expenses (including loss of anticipated profits) that the Banks and the Agent
may sustain or incur as a consequence of (a) default by the Borrowers in payment
of the principal amount of or any interest on any Eurodollar Loans as and when
due and payable, including any such loss or expense arising from interest or
fees payable by any Bank or the Agent to lenders of funds obtained by it in
order to maintain its Eurodollar Loans, (b) a prepayment of principal on any
Eurodollar Loan, including prepayments which are the result of acceleration by
the Banks, or (c) default by the Borrowers in making a borrowing or conversion
after the Borrowers have given (or are deemed to have given) notice pursuant
<PAGE> 34
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to Section 2.5 or Section 2.6, the making of any payment of a Eurodollar Loan or
the making of any conversion of any such Eurodollar Loan to a Base Rate Loan on
a day that is not the last day of the applicable Interest Period with respect
thereto, including interest or fees payable by any Bank to lenders of funds
obtained by it in order to maintain any such Loans.
SECTION 4.9. ILLEGALITY; INABILITY TO DETERMINE EURODOLLAR RATE.
Notwithstanding any other provision of this Credit Agreement, if (a) the
introduction of, any change in, or any change in the interpretation of, any law
or regulation applicable to the Agent or any Bank shall make it unlawful, or any
central bank or other governmental authority having jurisdiction thereof shall
assert that it is unlawful, for any Bank or the Agent to perform its obligations
in respect of any Eurodollar Loans, or (b) if any Bank or the Agent shall
reasonably determine with respect to Eurodollar Loans that (i) by reason of
circumstances affecting any Eurodollar interbank market, adequate and reasonable
methods do not exist for ascertaining the Eurodollar Rate which would otherwise
be applicable during any Interest Period, or (ii) deposits of Dollars in the
relevant amount for the relevant Interest Period are not available to such Bank
or the Agent in any Eurodollar interbank market, or (iii) the Eurodollar Rate
does not or will not accurately reflect the cost to such Bank or the Agent of
obtaining or maintaining the applicable Eurodollar Loans during any Interest
Period, then such Bank or the Agent shall promptly give telephonic, telex or
cable notice of such determination to the Borrowers (which notice shall be
conclusive and binding upon the Borrowers). Upon such notification by such Bank
or the Agent, the obligation of such Bank or the Agent to make Eurodollar Loans
shall be suspended until such Bank or the Agent determines that such
circumstances no longer exist, and the outstanding Eurodollar Loans shall
continue to bear interest at the applicable rate based on the Eurodollar Rate
until the end of the applicable Interest Period, and thereafter shall be deemed
converted to Base Rate Loans in equal principal amounts.
SECTION 4.10. ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall impose on any
Bank any tax, levy, impost, duty, charge fees, deduction or withholdings of any
nature or requirements with respect to this Credit Agreement, the other Loan
Documents, the Loans, such Bank's Commitment, the Letters of Credit or any class
of loans or commitments or letters of credit of which any of the Loans, the
Commitments or the Letters of Credit forms a part, and the result of any of the
foregoing is:
(i) to increase the cost to such Bank of making, funding,
issuing, renewing, extending or maintaining the Loans, such Bank's Commitment,
or the Letters of Credit; or
(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
<PAGE> 35
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(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
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
<PAGE> 36
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indirectly, of each of the Borrowers and in consideration of the undertakings of
each other Borrower to accept joint and several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with the other Borrowers with respect to the payment and
performance of all of the Obligations (including, without limitation, any
Obligations arising under this Section 4.12), it being the intention of the
parties hereto that all of the Obligations shall be the joint and several
Obligations of each of the Borrowers without preferences or distinction among
them.
(c) If and to the extent that any of the Borrowers shall fail to make
any payment with respect to any of the Obligations as and when due or to perform
any of the Obligations in accordance with the terms thereof, then in each such
event the other Borrowers will make such payment with respect to, or perform,
such Obligation.
(d) The Obligations of each of the Borrowers under the provisions of
this Section 4.12 constitute full recourse Obligations of each of the Borrowers
enforceable against each such corporation to the full extent of its properties
and assets, irrespective of the validity, regularity or enforceability of this
Credit Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this Credit Agreement,
each of the Borrowers hereby waives notice of acceptance of its joint and
several liability, notice of any Loans made under this Credit Agreement, notice
of any action at any time taken or omitted by the Banks under or in respect of
any of the Obligations, and, generally, to the extent permitted by applicable
law, all demands, notices and other formalities of every kind in connection with
this Credit Agreement. Each of the Borrowers hereby assents to, and waives
notice of, any extension or postponement of the time for the payment of any of
the Obligations, the acceptance of any payment of any of the Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other action
or acquiescence by the Banks at any time or times in respect of any default by
any of the Borrowers in the performance or satisfaction of any term, covenant,
condition or provision of this Credit Agreement, any and all other indulgences
whatsoever by the Banks in respect of any of the Obligations, and the taking,
addition, substitution or release, in whole or in part, at any time or times, of
any security for any of the Obligations or the addition, substitution or
release, in whole or in part, of any of the Borrowers. Without limiting the
generality of the foregoing, each of the Borrowers assents to any other action
or delay in acting or failure to act on the part of the Banks with respect to
the failure by any of the Borrowers to comply with any of its respective
Obligations, including, without limitation, any failure strictly or diligently
to assert any 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
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to the extent of such performance. The Obligations of each of the Borrowers
under this Section 4.12 shall not be diminished or rendered unenforceable by any
winding up, reorganization, arrangement, liquidation, re-construction or similar
proceeding with respect to any of the Borrowers or the Banks. The joint and
several liability of the Borrowers hereunder shall continue in full force and
effect notwithstanding any absorption, merger, amalgamation or any other change
whatsoever in the name, membership, constitution or place of formation of any of
the Borrowers or the Banks.
(f) The provisions of this Section 4.12 are made for the benefit of the
Banks and their successors and assigns, and may be enforced in good faith by
them from time to time against any or all of the Borrowers as often as the
occasion therefor may arise and without requirement on the part of the Banks
first to marshal any of their claims or to exercise any of their rights against
any other Borrower or to exhaust any remedies available to them against any
other Borrower or to resort to any other source or means of obtaining payment of
any of the Obligations hereunder or to elect any other remedy. The provisions of
this Section 4.12 shall remain in effect until all of the Obligations shall have
been paid in full or otherwise fully satisfied. If at any time, any payment, or
any part thereof, made in respect of any of the Obligations, is rescinded or
must otherwise be restored or returned by the Banks upon the insolvency,
bankruptcy or reorganization of any of the Borrowers, or otherwise, the
provisions of this Section 4.12 will forthwith be reinstated in effect, as
though such payment had not been made.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and
severally represent and warrant to the Banks that on and as of the date of this
Credit Agreement, each Drawdown Date, and the date of issuance of any Letter of
Credit (with any disclosure on a schedule pursuant to this Section 5 applying to
all relevant representations and warranties, regardless of whether such schedule
is referenced in each relevant representation):
SECTION 5.1. CORPORATE AUTHORITY.
(a) INCORPORATION; GOOD STANDING. Each Borrower (i) is a corporation
duly organized, validly existing and in good standing or in current status under
the laws of its respective state of incorporation, (ii) has all requisite
corporate power to own its property and conduct its business as now conducted
and as presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction in which
its property or business as presently conducted or contemplated makes such
qualification necessary except where a failure to be so qualified would not have
a material adverse effect on the business, assets or financial condition of such
Borrower.
(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
<PAGE> 38
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Borrowers, and (iv) do not conflict with any provision of the corporate charter
or bylaws of any Borrower or any agreement or other instrument binding upon
them.
(c) ENFORCEABILITY. The execution, delivery and performance of the Loan
Documents will result in valid and legally binding obligations of the Borrowers
enforceable against each in accordance with the respective terms and provisions
hereof and thereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
SECTION 5.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Borrowers of the Loan Documents and the transactions
contemplated hereby and thereby do not require any approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
SECTION 5.3. TITLE TO PROPERTIES; LEASES. The Borrowers own all of the
assets reflected in the consolidated balance sheets as at the Balance Sheet Date
or acquired since that date (except property and assets sold or otherwise
disposed of in the ordinary course of business since that date), subject to no
mortgages, capitalized leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
SECTION 5.4. FINANCIAL STATEMENTS; SOLVENCY.
(a) There has been furnished to the Banks audited consolidated
financial statements of the Borrowers dated the Balance Sheet Date. Said
financial statements have been prepared in accordance with GAAP and fairly
present in all material respects the financial condition of the Borrowers on a
consolidated basis, as at the close of business on the date thereof and the
results of operations for the period then ended. There are no contingent
liabilities of the Borrowers involving material amounts, known to the officers
of the Borrowers, which have not been disclosed in said balance sheets and the
related notes thereto or otherwise in writing to the Banks.
(b) The Borrowers on a consolidated basis (both before and after
giving effect to the transactions contemplated by this Credit Agreement) are and
will be solvent (i.e., they have assets having a fair value in excess of the
amount required to pay their probable liabilities on their existing debts as
they become absolute and matured) and 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.
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SECTION 5.6. PERMITS, FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each
Borrower possess all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for the
conduct of their businesses substantially as now conducted without known
conflict with any rights of others.
SECTION 5.7. LITIGATION. Except as shown on Schedules 5.7 and 5.16
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the knowledge of any Borrower, threatened against any Borrower
before any court, tribunal or administrative agency or board which, if adversely
determined, might, either in any individual case or in the aggregate, materially
adversely affect the properties, assets, financial condition or business of the
Borrowers, taken as a whole, or materially impair the right of the Borrowers,
taken as a whole, to carry on business substantially as now conducted, or result
in any substantial liability not adequately covered by insurance, or for which
adequate reserves are not maintained on the consolidated balance sheet or which
question the validity of any of the Loan Documents or any action taken or to be
taken pursuant hereto or thereto.
SECTION 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. No Borrower is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Borrowers'
officers has or is expected in the future to have a materially adverse effect on
the business, assets or financial condition of the Borrowers, taken as a whole.
No Borrower is a party to any contract or agreement which in the judgment of the
Borrowers' officers has or is expected to have any materially adverse effect on
the business of the Borrowers, taken as a whole, except as otherwise reflected
in adequate reserves.
SECTION 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. No Borrower
is violating any provision of its charter documents or by-laws or any agreement
or instrument by which any of them may be subject or by which any of them or any
of their properties may be bound or any decree, order, judgment, or any statute,
license, rule or regulation, in a manner which could result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of any Borrower. All Material Contracts (a
complete and accurate list of which is attached hereto as Schedule 5.9) are in
full force and effect, and no default or event of default has occurred and is
continuing under any Material Contract.
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.
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SECTION 5.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing as of the date of this Credit Agreement.
SECTION 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. No Borrower
is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company," as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is any of them a "registered investment
company," or an "affiliated company" or a "principal underwriter" of a
"registered investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
SECTION 5.13. ABSENCE OF FINANCING STATEMENTS, ETC. Other than Permitted
Liens, there is no financing statement, security agreement, chattel mortgage,
real estate mortgage or other document filed or recorded with any filing
records, registry, or other public office, which purports to cover, affect or
give notice of any present or possible future lien on, or security interest in,
any assets or property of any Borrower, or any rights relating thereto.
SECTION 5.14. EMPLOYEE BENEFIT PLANS.
(a) Each Employee Benefit Plan and each Guaranteed Pension Plan has been
maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited transactions and the
bonding of fiduciaries and other persons handling plan funds as required by
Section 412 of ERISA. Each Borrower has heretofore delivered to the Agent the
most recently completed annual report, Form 5500, with all required attachments,
and actuarial statement required to be submitted under Section 103(d) of ERISA,
with respect to each Guaranteed Pension Plan.
(b) No Employee Benefit Plan, which is an employee welfare benefit plan
within the meaning of Section 3(1) or Section 3(2)(B) of ERISA, provides benefit
coverage subsequent to termination of employment, except as required by Title I,
Part 6 of ERISA or the applicable state insurance laws. A Borrower may terminate
each such Plan at any time (or at any time subsequent to the expiration of any
applicable bargaining agreement) in 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
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presents a material risk of termination of any Guaranteed Pension Plan by the
PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in
each case occurred within twelve months of the date of this representation), and
on the actuarial methods and assumptions employed for that valuation, the
aggregate benefit liabilities of all such Guaranteed Pension Plans within the
meaning of Section 4001 of ERISA did not exceed the aggregate value of the
assets of all such Guaranteed Pension Plans, disregarding for this purpose the
benefit liabilities and assets of any Guaranteed Pension Plan with assets in
excess of benefit liabilities.
(d) No Borrower nor any ERISA Affiliate has incurred any material
liability (including secondary liability) to any Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan under Section
4201 of ERISA or as a result of a sale of assets described in Section 4204 of
ERISA. No Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and within the
meaning of Section 4241 or Section 4245 of ERISA or is at risk of entering
reorganization or becoming insolvent, or that any Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA.
SECTION 5.15. USE OF PROCEEDS.
SECTION 5.15.1. GENERAL. The proceeds of the Loans shall be used
solely as follows: (a) to refinance existing Indebtedness of the Borrowers under
the Prior Credit Agreement, (b) to finance acquisitions permitted pursuant to
Section 7.4; and (c) 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:
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(a) No Borrower, nor any operator of the Borrowers' properties, is in
violation, or alleged violation, of any judgment, decree, order, law, permit,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under RCRA, CERCLA, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean
Air Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or the
environment (the "Environmental Laws"), which violation would have a material
adverse effect on the business, assets or financial condition of the Borrowers
on a consolidated basis.
(b) No Borrower has received notice from any third party, including,
without limitation: any federal, state or local governmental authority, (i) that
any of the Borrowers has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. Section
6903(5), any hazardous substances as defined by 42 U.S.C. Section 9601(14), any
pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic
substance, oil or hazardous materials or other chemicals or substances regulated
by any Environmental Laws ("Hazardous Substances") which any of the Borrowers
has generated, transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or has ordered
that any Borrower conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that it is or shall be a
named party to any claim, action, cause of action, complaint, legal or
administrative proceeding arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances.
(c) Except where it would not have a material adverse effect on the
value of the Real Property, (i) no portion of the Real Property has been used
for the handling, 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.
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(d) None of the Real Property is or shall be subject to any applicable
environmental clean-up responsibility law or environmental restrictive transfer
law or regulation, by virtue of the transactions set forth herein and
contemplated hereby.
SECTION 5.17. PERFECTION OF SECURITY INTERESTS. All filings,
assignments, pledges and deposits of documents or instruments have been made and
all other actions have been taken that are necessary or advisable under
applicable law to establish and perfect the Agent's security interest in the
Collateral. The Collateral and the Agent's rights with respect to the Collateral
are not subject to any setoff, claims, withholdings or other defenses.
SECTION 5.18. TRANSACTIONS WITH AFFILIATES. Except as disclosed in
Schedule 5.18 or filings made by the Borrowers under the Securities Exchange Act
of 1934 prior to the Closing Date, and except for arm's length transactions
pursuant to which a Borrower makes payments in the ordinary course of business
upon terms no less favorable than such Borrower could obtain from third parties,
none of the officers, directors, or employees of any Borrower is presently a
party to any transaction with another Borrower (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of any
Borrower, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
SECTION 5.19. SUBSIDIARIES. Schedule 2 sets forth a complete and
accurate list of the Subsidiaries of the Parent, including the name of each
Subsidiary, the location of its chief executive office, and its jurisdiction of
incorporation, together with the number of authorized and outstanding shares of
each Subsidiary. Each Subsidiary listed on 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.
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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 March 26, 1999, the authorized
capital stock of the Parent consists of 50,000,000 shares of common stock (par
value $0.01 per share) of which 16,985,539 shares were outstanding as of such
date. All of such outstanding shares are fully paid and non-assessable. In
addition, as of March 26, 1999, the Board of Directors of the Parent has duly
reserved 1,141,952 shares of the Parent's common stock for issuance pursuant to
outstanding warrants, and has reserved twelve percent (12%) of shares of the
Parent's common stock outstanding at any given time for issuance upon the
exercise of employee stock options granted pursuant to the Parent's stock option
plan.
(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
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(iii) at all times engage the Accountants as the independent certified public
accountants of the Borrowers.
SECTION 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrowers will deliver to the Banks:
(a) as soon as practicable, but, in any event not later than 90 days
after the end of each fiscal year of the Borrowers, the consolidated and
consolidating balance sheets of the Borrowers as at the end of such year,
statements of cash flows, and the related consolidated and consolidating
statements of operations, each setting forth in comparative form the figures for
the previous fiscal year, all such consolidated and consolidating financial
statements to be in reasonable detail, prepared in accordance with GAAP and,
with respect to the consolidated financial statements, certified by the
Accountants. In addition, simultaneously therewith, the Borrowers shall use
reasonable efforts to provide the Banks with a written statement from the
Accountants to the effect that the Borrowers are in compliance with the
covenants set forth in Section 8 hereof, and that, in making the examination
necessary to said certification, nothing has come to the attention of the
Accountants that would indicate that any Default or Event of Default exists, or,
if the Accountants shall have obtained knowledge of any then existing Default or
Event of Default they shall disclose in such statement any such Default or Event
of Default; provided that the Accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default;
(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 D 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 E 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
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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 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
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addition, the Borrowers will furnish from time to time, upon the Agent's
request, a summary of the insurance coverage of each of the Borrowers, which
summary shall be in form and substance satisfactory to the Agent and, if
requested by the Agent, will furnish to the Agent copies of the applicable
policies.
SECTION 6.8. TAXES. The Borrowers will duly pay and discharge, or cause
to be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges (other than taxes, assessments and
other governmental charges imposed by foreign jurisdictions which in the
aggregate are not material to the business or assets of any Borrower on an
individual basis or of the Borrowers on a consolidated basis) imposed upon it
and its real properties, sales and activities, or any material part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, 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,
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expense, damage, loss or liability incurred by the Banks (including all costs of
legal representation incurred by the Banks) relating to (a) any release or
threatened release of hazardous substances on the Real Property; (b) any
violation of any Environmental Laws with respect to conditions at the Real
Property or the operations conducted thereon; or (c) the investigation or
remediation of offsite locations at which any Borrower or its predecessors are
alleged to have directly or indirectly disposed of hazardous substances. It is
expressly acknowledged by each Borrower that this covenant of indemnification
shall include claims, expense, damage, loss or liability incurred by the Banks
based upon the Banks' negligence, and this covenant shall survive any
foreclosure or any 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
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Property, (B) contamination on, from or into the Real Property, or (C)
investigation or remediation of offsite locations at which any Borrower or any
of its predecessors is alleged to have directly or indirectly Disposed of
Hazardous Substances, which violation or Release in any such case could have a
material adverse effect on the Real Property or on any Borrower's operations; or
(iv) upon any Borrower obtaining knowledge that any material expense or loss has
been incurred by such governmental authority in connection with the assessment,
containment, removal or remediation of any Hazardous Substances 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 8.5), Seller Debt, and other
Indebtedness, in an aggregate amount not to exceed $25,000,000 at any time;
(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 $5,000,000; and
(f) Indebtedness represented by the Madera Bond and the Columbia Bond.
SECTION 7.2. RESTRICTIONS ON LIENS. No Borrower shall create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, charge,
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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 material
adverse effect on the business of such Borrower individually or of the Borrowers
on a consolidated basis;
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(f) 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;
(g) 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;
(h) Liens in favor of the Agent for the benefit of the Banks and the
Agent under the Loan Documents; and
(i) Liens granted in favor of certain governmental entities pursuant to
any Scheduled Contract listed on Schedule 7.2(i); provided, that such liens (i)
encumber only the containers, bins, carts and vehicles 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;
(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);
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(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; provided,
that, in the case of transactions involving cash consideration to be paid by the
Borrowers (including cash deferred payments, contingent or otherwise, and the
aggregate amount of all Funded Debt assumed) in excess of $15,000,000, the Agent
and the Banks shall have received 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;
(b) at the time of such acquisition, no Default or Event of Default has
occurred and is continuing, and such acquisition will not otherwise create a
Default or an Event of Default hereunder;
(c) the business to be acquired is predominantly in the same lines of
business as the Borrowers, or businesses reasonably related or incidental
thereto (e.g., non-hazardous solid waste collection, transfer, hauling,
recycling, or disposal);
(d) the business to be acquired operates predominantly in the
continental United States;
(e) all of the assets to be acquired shall be owned by an existing or
newly created Subsidiary of the Parent which Subsidiary shall be a Borrower,
100% of the assets and stock or other equity interests of which have been or,
simultaneously with such acquisition, will be pledged to the Agent on behalf of
the Banks (subject to Section 7.2(h)) or, in the case of a stock or other equity
interest acquisition, the acquired company, simultaneously with such
acquisition, shall become a Borrower or shall be merged with and into a wholly
owned Subsidiary that is a Borrower and such newly acquired or created
Subsidiary shall otherwise comply with the provisions of Section 6.17 hereof;
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(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 $20,000,000 without the consent of the Agent and the
Majority Banks (any acquisition requiring cash consideration in excess of
$20,000,000 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 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
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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.
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
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more favorable to such Person than would have been obtainable on an arm's-length
basis in the ordinary course of business.
SECTION 7.11. SUBORDINATED DEBT. No Borrower will amend, supplement or
otherwise modify the terms of any of the Subordinated Debt or any of the
documents evidencing such Subordinated Debt or prepay, redeem or repurchase any
of the Subordinated Debt; provided, however, so long as no Default or Event of
Default has occurred and is continuing, the Borrowers shall be permitted to make
regularly scheduled payments of interest and principal on the Subordinated Debt.
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 March 31, 1999, the ratio of
Funded Debt to EBITDA (the "Leverage Ratio") 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 March 31,
1999, the ratio of (a) EBIT to (b) Consolidated Total Interest Expense shall not
be less than 2.00:1; provided, that, any adjustments made pursuant to clause (f)
of the definition of EBIT shall not be included in the calculation of this
Section 8.3. 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 to BKB in connection with the Prior
Credit Agreement of up to $180,000 (after tax) in the aggregate taken in the
fiscal quarter ending March 31, 1999, (b) non-cash stock compensation charges of
up to $360,000 in the aggregate (to the extent deducted in determining
Consolidated Net Income), and (c) pooling charges taken in connection with any
acquisition permitted under Section 7.4.1 hereof to the extent such pooling
charges were deducted in determining Consolidated Net Income (or deficit).
SECTION 8.5. CAPITAL EXPENDITURES. The Borrowers will not make Capital
Expenditures in fiscal year 1998 in excess of $6,250,000 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.
SECTION 9. CLOSING CONDITIONS. The obligations of the Banks to make the
Loans and the Agent to issue Letters of Credit on the Closing Date and otherwise
be bound by
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the terms of this Credit Agreement shall be subject to the satisfaction of each
of the following conditions precedent:
SECTION 9.1. CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by the Borrowers of the Loan Documents
shall have been duly and effectively taken, and satisfactory evidence thereof
shall have been provided to the Agent.
SECTION 9.2. LOAN DOCUMENTS, ETC. Each of the Loan Documents shall have
been duly and properly authorized, executed and delivered by the respective
parties thereto and shall be in full force and effect in a form satisfactory to
the Banks.
SECTION 9.3. CERTIFICATE OF SECRETARY; GOOD STANDING CERTIFICATES. The
Agent shall have received from each Borrower a certificate as to the good
standing of each from the Secretary of State or other appropriate official of
the state of its organization, dated no earlier than March 1, 1999. 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 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.
SECTION 9.4. VALIDITY OF LIENS. The Security Documents shall be
effective to create in favor of the Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the Agent
to protect and preserve such security interests shall have been duly effected.
The Agent shall have received evidence thereof in form and substance
satisfactory to the Agent.
SECTION 9.5. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent
shall have received from each Borrower a completed and fully executed Perfection
Certificate and the results of UCC searches with respect to the Collateral,
indicating no liens other than Permitted Liens and otherwise in form and
substance satisfactory to the Agent.
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 obtained in
accordance with the provisions of the Security Agreement.
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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 in substantially the form of
Exhibit E 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
(including, without limitation, those fees set forth in Section 4.1) owing to
any of the Banks, the Agent or the Arranger.
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 10. CONDITIONS OF ALL LOANS. The obligations of the Banks to
make any Loan (including without limitation the obligation of the Agent to
issue, extend or renew any Letter of Credit) on and subsequent to the Closing
Date is subject to the following conditions precedent:
SECTION 10.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of the Borrowers contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall be true as of the date as of which
they were made and shall also be true at and as of the time of any Drawdown Date
or the issuance of any Letter of Credit with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and changes occurring in the
ordinary course of business which singly or in the aggregate are not materially
adverse, 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.
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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.
(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, whether now owned or hereafter acquired, pursuant to the terms of the
Security Documents to which the Borrowers are a party, and (ii) a pledge of all
of the stock of each Subsidiary pursuant to the terms of the Stock Pledge
Agreements.
(b) The Borrowers hereby acknowledge that (i) any and all
Uniform Commercial Code financing statements filed in connection with the Prior
Credit Agreement naming BankBoston, N.A., as Agent, as secured party, and such
Borrower, as debtor, shall be effective to perfect the Agent's security interest
granted by such Borrower pursuant to this Credit Agreement to the extent that
such security interest may 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(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:
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(a) if the Borrowers shall fail to pay any principal of the Loans or any
Reimbursement Obligation when the same shall become due and payable, whether at
the Maturity Date or any accelerated date of maturity or at any other date fixed
for payment;
(b) if the Borrowers shall fail to pay any interest or fees or other
amounts owing hereunder within five (5) Business Days after the same shall
become due and payable whether at the Maturity Date or any accelerated date of
maturity or at any other date fixed for payment;
(c) if the Borrowers shall fail to comply with the covenants contained
in Sections 6.1, 6.7, 6.8, 6.10, 6.13, 6.14, 6.16, 6.17, 6.19, 7 or 8;
(d) if the Borrowers shall fail to comply with the covenants contained
in (i) Sections 6.2, 6.3, 6.5, 6.6, 6.9, 6.11, 6.12, 6.15, or 6.18 within thirty
(30) days of the Borrowers' knowledge of a violation of such covenants or (ii)
Section 6.4 within five (5) days of the Borrowers' knowledge of a violation of
such covenant;
(e) if the Borrowers shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other than
those specified in subsections (a), (b), (c) and (d) above) within 30 days after
written notice of such failure has been given to the Borrowers by the Agent or
any Bank;
(f) if any representation or warranty contained in this Credit Agreement
or in any document or instrument delivered pursuant to or in connection with
this Credit Agreement shall prove to have been false in any material respect
upon the date when made or repeated;
(g) if any Borrower shall fail to pay at maturity, or within any
applicable period of grace, any and all obligations for borrowed money (other
than the Obligations) or any guaranty with respect thereto in an aggregate
amount greater than $250,000 or fail 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
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acquiescence therein, or such petition or application shall not have been
dismissed within sixty (60) days following the filing thereof;
(i) a decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating any Borrower bankrupt or insolvent, or
approving a petition in any such case or other proceeding, or a decree or order
for relief is entered in respect of any Borrower in an involuntary case under
federal bankruptcy laws as now or hereafter constituted;
(j) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any final
judgment against any Borrower which, with other outstanding final judgments
against the Borrowers, exceeds in the aggregate $250,000 after taking into
account any undisputed insurance coverage;
(k) any Borrower or any ERISA Affiliate incurs any liability to the PBGC
or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate
amount exceeding $250,000, or any Borrower or any ERISA Affiliate is assessed
withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan
requiring aggregate annual payments exceeding $250,000, or any of the following
occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event,
or a failure to make a required installment or other payment (within the meaning
of Section 302(f)(1) of ERISA), provided that the Agent determines in its
reasonable discretion that such event (A) could be expected to result in
liability of any Borrower to the PBGC or such Guaranteed Pension Plan in an
aggregate amount exceeding $250,000 and (B) could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC, for the appointment by
the appropriate United States District Court of a trustee to administer such
Guaranteed Pension Plan or for the imposition of a lien in favor of such
Guaranteed Pension Plan; or (ii) the appointment by a United States District
Court of a trustee to administer such 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
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amended) other than existing shareholders of the Parent as of the Closing Date
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) of 20% or
more of the outstanding shares of common stock of the Parent; or, during any
period of twelve consecutive calendar months, individuals who were directors of
the Parent on the first day of such period shall cease to constitute a majority
of the board of directors; provided, however, that any such change of control
resulting from an acquisition permitted under Section 7.4 shall not constitute a
Default or an Event of Default hereunder; or
(n) the early termination or cancellation of, or any material default by
a Borrower under, any Material Contract;
then, and in any such event, so long as the same may be continuing, the Agent
may, and at the request of the Majority Banks shall, by notice in writing to the
Borrowers, declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents and all Reimbursement Obligations to be, and
they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in Sections 12.1(h) or 12.1(i), all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank. Upon demand by the Banks after
the occurrence of any Event of Default, the Borrowers shall immediately provide
to the Agent cash in an amount equal to the Maximum Drawing Amount, to be held
by the Agent as collateral security for the Obligations, provided that in the
event of any Event of Default specified in Sections 12.1(h) or 12.1(i), all such
amounts shall become immediately due 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
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such state's one form of action rule or in any other way impair the Collateral
or the other Banks' rights hereunder or under the other Loan Documents, proceed
to protect and enforce its rights by suit in equity, action at law or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including, without limitation, as permitted by applicable law the obtaining of
the ex parte appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment thereof or any
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Note or purchaser of any Letter of Credit
Participation is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.
SECTION 13. SETOFF. Regardless of the adequacy of any collateral, during
the continuance of an Event of Default, any deposits or other sums credited by
or due from any Bank to the Borrowers and any securities or other property of
the Borrowers in the possession of such Bank may be applied to or set off
against the payment of the Obligations and any and all other liabilities, direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrowers to the Banks. The Banks agree among
themselves that, if a Bank shall obtain payment on any Obligation outstanding
under this Credit Agreement through the exercise of a right of offset, 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
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instructions of the Banks and no action taken or failure to act without the
consent of the Banks shall be binding on any Bank which has not consented. Each
Bank irrevocably authorizes the Agent to execute the Security Documents and all
other instruments relating thereto and to take such action on behalf of each of
the Banks and to exercise all such powers as are expressly delegated to the
Agent under the Loan Documents and all related documents, together with such
other powers as are reasonably incidental thereto. It is agreed that the duties,
rights, privileges and immunities of BKB, in its capacity as issuer of Letters
of Credit hereunder, shall be identical to its duties, rights, privileges and
immunities as a Bank as provided in this Section 14. The Agent shall not have
any duties or responsibilities or any fiduciary relationship with any Bank
except those expressly set forth in this Credit Agreement. Neither the Agent nor
any of its affiliates shall be responsible to the Banks for any recitals,
statements, representations or warranties made by the Borrowers or any other
Person whether contained herein or otherwise or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Credit
Agreement, the other Loan Documents or any other document referred to or
provided for herein or therein or for any failure by the Borrowers or any other
Person to perform its obligations hereunder or thereunder or in respect of the
Notes. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall exercise
the same care in administering the Loans as it exercises with respect to similar
transactions entered into solely for its own account; however, neither the Agent
nor any of its directors, officers, employees or agents shall be responsible for
any action 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
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or thereunder, except to the extent that any of the same shall be directly
caused by the Agent's willful misconduct or gross negligence, it being the
intent of the parties hereto that all such indemnified parties shall be
indemnified for their ordinary sole or contributory negligence.
SECTION 14.4. REIMBURSEMENT. Without limiting the provisions of Section
14.3, the Banks and the Agent hereby agree that the Agent shall not be obliged
to make available to any Person any sum which the Agent is expecting to receive
for the account of that Person until the Agent has determined that it has
received that sum. The Agent may, however, disburse funds prior to determining
that the sums which the Agent expects to receive have been finally and
unconditionally paid to the Agent, if the Agent wishes to do so. If and to the
extent that the Agent does disburse funds and it later becomes known that the
Agent did not then receive a payment in an amount equal to the sum paid out,
then any Person to whom the Agent made the funds available shall, on demand from
the Agent, refund to the Agent the sum paid to that Person. If, in the opinion
of the Agent, the distribution of any amount received by it in such capacity
hereunder or under the Loan Documents might involve it in liability, it may
refrain from making distribution until its right to make distribution shall have
been adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Agent
is to be repaid, each Person to whom any such distribution shall have been made
shall either repay to the Agent its proportionate share of the amount 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
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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.
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
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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 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 14.10. CO-AGENTS. None of the Co-Agents shall have any right,
power, obligation, liability, responsibility or duty under this Credit Agreement
other than those applicable to all Banks as such. Without limiting the
foregoing, none of the Co-Agents
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shall have or be deemed to have any fiduciary relationship with any Bank. Each
Bank acknowledges that it has not relied, and will not rely, on any Co-Agent in
deciding to enter into this Credit Agreement or not taking any action hereunder.
SECTION 15. EXPENSES AND INDEMNIFICATION.
SECTION 15.1. EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers agree to pay (a) the reasonable costs
of producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (b) 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), (c) 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, (d) the reasonable fees,
expenses and disbursements of the Agent, the Arranger, or any of their
affiliates incurred by the Agent, the Arranger, or such affiliate in connection
with the preparation, syndication, administration or interpretation of the Loan
Documents and other instruments mentioned herein, including all title insurance
premiums and surveyor, engineering and appraisal charges, (e) 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 (i) 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 (ii) 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 (f) 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, the Banks and each of their respective
affiliates, shareholders, officers, directors, employees and agents 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, (a) any actual or proposed use by the Borrowers of the proceeds of
any of the Loans or Letters of Credit, (b) the Borrowers entering into or
performing this Credit Agreement or any of the other Loan Documents or (c) 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
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or investigation brought or threatened with respect to any Hazardous Substances
(including, but not limited to, claims with respect to wrongful death, personal
injury or damage to property), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding. In litigation, or the preparation therefor, the Banks and the Agent,
the Arranger, and their affiliates shall be entitled to select their own counsel
and, in addition to the foregoing indemnity, the Borrowers agree to pay promptly
the reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrowers under this Section 15.2 are unenforceable for any
reason, the Borrowers hereby agree to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law.
SECTION 15.3. SURVIVAL. The covenants contained in this Section 15 shall
survive payment or satisfaction in full of all other Obligations.
SECTION 16. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein,
all covenants, agreements, representations and warranties made herein, in the
other Loan Documents or in any documents or other papers delivered by or on
behalf of the Borrowers pursuant hereto shall be deemed to have been relied upon
by the Banks and the Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Banks of the
Loans and the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Credit Agreement, any Letter of 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
F (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
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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 (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;
<PAGE> 71
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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. -73-
SECTION 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
SECTION 20.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY.
The Borrowers acknowledge that from time to time financial advisory, investment
banking and other services may be offered or provided to the Borrowers, in
connection with this Credit Agreement or otherwise, by a Section 20 Subsidiary.
The Borrowers hereby authorize (a) such Section 20 Subsidiary to share with the
Agent and each Bank any information delivered to such Section 20 Subsidiary by
the Borrowers, and (b) the Agent and each Bank to share with such Section 20
Subsidiary any information delivered to the Agent or such Bank by the Borrowers
pursuant to this Credit Agreement, or in connection with the decision of such
Bank to enter into this Credit Agreement; it being 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,
<PAGE> 72
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notify the Borrowers of any request for disclosure of any such non-public
information by any governmental agency or representative thereof (other than any
such request in connection with an examination of the financial condition of
such Bank by such governmental agency) or pursuant to legal process.
SECTION 20.4. OTHER. In no event shall any Bank or the Agent be
obligated or required to return any materials furnished to it or any Section 20
Subsidiary by the Borrowers. The obligations of each Bank under this Section 20
shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrowers prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans or Reimbursement Obligations from any Bank.
SECTION 21. MISCELLANEOUS. The rights and remedies herein expressed are
cumulative and not exclusive of any other rights which the Banks or Agent would
otherwise have. The captions in this Credit Agreement are for convenience of
reference only and shall not define or limit the provisions hereof. This Credit
Agreement and any amendment hereof may be executed in several counterparts and
by each party on a separate counterpart, each of which when so executed and
delivered shall be an original, but all of which together shall constitute one
instrument. In proving this Credit 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
<PAGE> 73
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NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b)
ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO ENTER INTO THIS
CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE A PARTY BECAUSE
OF, AMONG OTHER THINGS, THE BORROWERS' WAIVERS AND CERTIFICATIONS CONTAINED
HEREIN.
SECTION 24. GOVERNING LAW. This Credit Agreement and each of the other
Loan Documents are contracts under the laws of the Commonwealth of Massachusetts
and shall for all purposes be construed in accordance with and governed by the
laws of said commonwealth (excluding the laws applicable to conflicts or choice
of law). The Borrowers consent to the jurisdiction of any of the federal or
state courts located in the Commonwealth of Massachusetts in connection with any
suit to enforce the rights of any Bank or the Agent under this Credit Agreement
or any of the other Loan Documents.
SECTION 25. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only 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> 74
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.
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.
COLUMBIA SANITARY SERVICE, INC.
MORELAND SANITARY SERVICE, INC.
MOTHER LODE SANI-HUT, INC.
AMADOR DISPOSAL SERVICE, INC.
CITY SANITATION, INC.
BUTLER COUNTY LANDFILL, INC.
ROCHE & SONS, INC.
MURREY'S DISPOSAL COMPANY, INC.
AMERICAN DISPOSAL COMPANY, INC.
D.M. DISPOSAL CO., INC.
TACOMA RECYCLING COMPANY, INC.
CRX, INC.
DOPHEIDE SANITARY SERVICE, INC.
BETTER DISPOSAL SERVICE, INC.
By:
---------------------------------
Ronald J. Mittelstaedt
President
<PAGE> 75
THE LENDERS:
BANKBOSTON, N.A.,
individually and as Agent
By:
---------------------------------
Timothy M. Laurion, Director
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Name:
Title:
COMERICA BANK - CALIFORNIA
By:
---------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:
---------------------------------
Name:
Title:
LASALLE NATIONAL BANK
By:
---------------------------------
Name:
Title:
FLEET BANK, N.A.
By:
---------------------------------
Name:
Title:
CITY NATIONAL BANK
By:
---------------------------------
Name:
Title:
FIRST BANK OF CALIFORNIA
By:
---------------------------------
Name:
Title:
<PAGE> 76
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.51
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
Dated as of March 31, 1999, by and among
Waste Connections, Inc.,
Management Environmental National, Inc.,
RH Financial Corporation
and
The Shareholder listed on
Schedule A hereto
<PAGE> 2
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of March 31,
1999, is entered into by and among Waste Connections, Inc., a Delaware
corporation ("WCI"), Management Environmental National, Inc., a Washington
corporation ("MENI"), RH Financial Corporation, a Washington corporation ("RHFC"
and collectively with MENI, the "CORPORATIONS" and individually without
designation a "CORPORATION"), and the Shareholder listed on Schedule A hereto
(the "SHAREHOLDER").
WHEREAS, MENI is the sole general partner and RHFC is the sole limited
partner of Columbia Resource Co., L.P., a Washington limited partnership ("CRC")
and Finley-Buttes Limited Partnership, an Oregon limited partnership ("FBLP");
WHEREAS, FBLP owns and operates the Finley-Buttes Regional Landfill (the
"LANDFILL") located in Morrow County, Oregon and engages in other related
activities;
WHEREAS, CRC is engaged in the handling and transportation of solid
waste and other related activities in the City of Vancouver and Clark County,
Washington;
WHEREAS, FBLP owns all of the real estate used in connection with the
business and operation of the Landfill and CRC owns all of the real estate used
in connection with the business and operation of the two transfer stations
located in Vancouver, Washington, and descriptions of such real estate are set
forth on Schedule 3.12(b);
WHEREAS, the Shareholder owns all of the issued and outstanding capital
stock of each of the Corporations (the "CORPORATIONS' STOCK"); and
WHEREAS, WCI wishes to acquire from the Shareholder all of the
Corporations' Stock.
WHEREAS, WCI, MENI, RHFC and the Shareholder entered into a Stock
Purchase Agreement dated as of February 12, 1999 ("SIGNING DATE"), and Amendment
No. 1 thereto dated as of March 31, 1999 (as amended, the "STOCK PURCHASE
AGREEMENT"), and they wish hereby to amend and restate the Stock Purchase
Agreement as herein provided.
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 that the
Stock Purchase Agreement is hereby amended and restated as herein provided and
further agree as follows:
1. PURCHASE OF CORPORATIONS' STOCK
1.1 SHARES TO BE PURCHASED. At the Closing (as defined in
Section 2), the Shareholder shall sell and deliver to WCI all of the issued and
outstanding shares of the Corporations' Stock, being the number of shares of the
Corporations set forth on Schedule 3.2 opposite the Shareholder's name. At the
Closing, WCI shall purchase the Corporations' Stock
1
<PAGE> 3
and in exchange therefor shall deliver to the Shareholder at the Closing or
thereafter as provided by this Agreement the purchase price described in Section
1.2 (the "PURCHASE PRICE").
1.2 PURCHASE PRICE. The Purchase Price is Eighty-one Million Two
Hundred Fifty Thousand dollars ($81,250,000) cash, (i) minus the Closing Date
Debt (as defined in Section 3.22(a)), (ii) minus the outstanding balance of
CRC's debt under that certain Loan Agreement dated December 1, 1991, between
Industrial Revenue Bond Public Corporation of Clark County, Washington and CRC
(the "BOND DEBT"), (iii) plus or minus, as the case may be, the amount by which
the Balance Sheet Date Current Assets (as defined in Section 3.22(b)) are
greater or less than the Balance Sheet Date Current Liabilities (as defined in
Section 3.22(b)), (iv) plus or minus, as the case may be, the amount of the Net
Profit or Net Loss (as hereinafter defined) of the Corporations for the period
from the Effective Date through the Closing Date, as reflected on Schedule 1.2,
(v) plus the present value of CRC's pollution liability self-insurance fund
maintained under agreement with Clark County, as determined by Perkins &
Company, P.C. and reflected on Schedule 1.2, and (vi) minus all bonuses accrued
to employees of CRC, FBLP or the Corporations prior to the Effective Date and
payable after the Effective Date, as set forth on Schedule 1.2. As used herein,
the term "NET PROFIT" or "NET LOSS" shall mean the net profit or net loss of the
Corporations calculated in substantially the same manner that net profit and net
loss were calculated for the Corporations for the periods prior to the Effective
Date, and which net profits or losses shall be incurred in compliance with
Section 5 herein. The adjustment to the Purchase Price payable on the Closing
Date based on the Closing Date Debt, the Balance Sheet Date Current Assets and
the Balance Sheet Date Current Liabilities shall be based on estimates of such
amounts, but no adjustment will be made on the Closing Date to reflect Net
Profit or Net Loss. Within 90 days after the Closing, WCI and the Shareholders
shall determine the actual Closing Date Debt, Effective Date Current Assets,
Effective Date Current Liabilities, Net Profit or Net Loss. If the difference
between the actual amounts of such items and the estimated amounts provided at
the Closing, when combined with the Net Profit or the Net Loss, as the case may
be, results in an increase in the amount that should have been paid at the
Closing over the amount that was so paid, WCI shall promptly pay such amount to
the Shareholder; if the result is a decrease in the amount that should have been
paid at the Closing from the amount that was so paid, the Shareholder shall
promptly pay such amount to WCI.
1.3 ALLOCATION OF THE PURCHASE PRICE. Two hundred thousand
dollars ($200,000) of the Purchase Price shall be allocated to the covenant not
to compete as described in Section 11.1(a) hereof, and the balance of the
Purchase Price shall be allocated to the Corporations' Stock.
1.4 EXCLUDED ASSETS. The Assets of the Corporations listed on
Schedule 1.4 (the "EXCLUDED ASSETS") shall be distributed to the Shareholder
prior to the Closing, and WCI shall acquire no interest in or claim to any of
the Excluded Assets provided that, if the Corporations are legally unable to
distribute the real estate described on Schedule 1.4 prior to the Closing Date,
the Corporations will, at the election of the Shareholder, either agree to
distribute such real estate to the Shareholder after the Closing Date at such
time as they are legally able to do so or retain ownership of such real estate
and agree to such recordable restrictions on the use of such real estate as the
Shareholder shall request.
2
<PAGE> 4
2. CLOSING TIME AND PLACE
2.1 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 Shareholder
shall agree (the "CLOSING DATE"). The Closing shall take place at the Law
Offices of Shartsis, Friese & Ginsburg, LLP, One Maritime Plaza, Suite 1800, San
Francisco, California 94111. At the Closing, WCI, the Corporations and the
Shareholder shall deliver to each other the documents, instruments and other
items described in Section 8 of this Agreement. The Purchase Price shall be
paid to the Shareholder at Closing in cash by wire transfer. At the election
of WCI and the Shareholder, the Closing of this transaction may take place
through an exchange of consideration and documents using overnight courier
service or facsimile. For financial reporting purposes, the Closing shall be
deemed effective as of March 1, 1999 (the "EFFECTIVE DATE").
2.2 TERMINATION.
(a) If the Closing Date has not occurred by March 31,
1999, either WCI or the Corporations and the Shareholder may terminate this
Agreement by notice to the other parties on that date or thereafter (the
"TERMINATION DATE"), unless the Corporations have not then obtained all of the
consents required by Section 6.7, in which event this Agreement shall terminate
10 days after written notice from WCI to the Shareholder 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 seeking the
appeal.
(b) The Corporations and the Shareholder shall have the
right to terminate this Agreement:
(i) Upon a breach of a representation or
warranty of WCI 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 on the business or financial condition of WCI and is incapable of being
satisfied by the Termination Date;
(ii) If one or more of the transactions
contemplated by this Agreement are enjoined by a final, unappealable court order
not entered at the request or with the support of either Corporation and if the
Corporation against which such order is entered shall have used reasonable
efforts to prevent the entry of such order; or
(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
Corporations or the Shareholder.
(c) WCI shall have the right to terminate this
Agreement:
3
<PAGE> 5
(i) Upon a breach of a representation or
warranty of the Corporations or the Shareholder 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 on the business or financial condition of
either of the Corporations and is incapable of being satisfied by the
Termination Date;
(ii) If the transactions contemplated by this
Agreement are 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 either of the Corporations or the Shareholder (A) fails
to perform in any material respect any of its or his 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.
(d) WCI, the Corporations and the Shareholder shall have the
right to terminate the Agreement by mutual consent.
2.3 NOTICE AND EFFECT OF TERMINATION. On termination of this
Agreement, the transactions contemplated herein shall forthwith be abandoned and
all continuing obligations of the parties under or in connection with this
Agreement shall be terminated and of no further force or effect; provided,
however, that nothing herein shall relieve any party from liability for any
misrepresentation, breach of warranty or breach of covenant contained in this
Agreement prior to such termination. Notwithstanding the foregoing, Sections
2.4, 3.33, 4.6, 9.5 and 12.8 and the confidentiality obligations set forth in
Sections 5.4 and 9.4 shall survive the termination of this Agreement for any
reason. If this Agreement has terminated due to the breach of any party, such
party shall remain liable for any damages arising from such breach.
2.4 EXCLUSIVE NEGOTIATIONS. Following execution of this
Agreement until the Closing Date or termination of this Agreement pursuant to
Section 2.2, the Corporations and the Shareholder shall not, and the Shareholder
shall not permit the Corporations' officers, directors, employees or agents to,
and the Corporations will not permit CRC or FBLP's partners, employees or agents
to, initiate, negotiate or discuss with any other person or entity the possible
sale of all or substantially all of the assets, business or stock of the
Corporations, or to effect the merger of the Corporations with any party other
than WCI or one of its Affiliates. The Shareholder hereby confirms that no
person or entity presently has or may acquire any rights to purchase or
otherwise acquire the assets or the stock of the Corporations.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE
SHAREHOLDER
The Corporations and the Shareholder, jointly and severally, 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, CRC and FBLP is duly organized, validly existing and in good
standing under the laws of the State of Oregon or Washington, as the case may
be. Each of the Corporations, CRC and FBLP
4
<PAGE> 6
has full corporate or other power and authority to own and lease its properties
and to carry on its business as now conducted. Except as set forth on Schedule
3.1, none of the Corporations, CRC or FBLP 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 the Corporations, the names,
addresses and social security numbers or taxpayer identification numbers of the
record and beneficial owners thereof, the number of shares so owned, the
allocation of the cash, and wire transfer instructions for the Shareholder
relating to the bank account to which the Purchase Price should be sent. All of
the issued and outstanding shares of the capital stock of the Corporations are
owned of record and beneficially by the Shareholder, as set forth in Schedule
3.2, and are and as of the Closing Date will be free and clear of all liens,
security interests, encumbrances and claims of every kind except as set forth in
Schedule 3.2. Each share of the capital stock of the Corporations is duly and
validly authorized and issued, fully paid and nonassessable, and was not issued
in violation of any preemptive rights of any past or present shareholder of the
Corporations. MENI is the sole general partner and RHFC is the sole limited
partner of CRC and FBLP. No option, warrant, call, conversion right or
commitment of any kind (including any of the foregoing created in connection
with any indebtedness of the Corporations, CRC or FBLP) exists which obligates
the Corporations to issue any of its authorized but unissued capital stock or
other equity interest, which obligates the Shareholder to transfer any
Corporations' Stock to any person, which obligates either CRC or FBLP to issue
any partnership interest to any person, or which obligates MENI or RHFC to
transfer any partnership in CRC or FBLP to any person
3.3 ALL STOCK BEING ACQUIRED. The Corporations' Stock being
acquired by WCI hereunder constitutes all of the outstanding capital stock of
the Corporations.
3.4 AUTHORITY FOR AGREEMENT. The Corporations and the
Shareholder have full right, power and authority to enter into this Agreement
and to perform their or his obligations hereunder. The execution and delivery of
this Agreement by the Corporations and the consummation of the transactions
contemplated hereby by the Corporations have been duly authorized by each of the
Corporations' Board of Directors. This Agreement has been duly and validly
executed and delivered by the Corporations and the Shareholder and, subject to
the due authorization, execution and delivery by WCI, constitutes the legal,
valid and binding obligation of the Corporations and the Shareholder enforceable
against the Corporations and the Shareholder in accordance with its terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5,
the execution and delivery by the Corporations and the Shareholder of this
Agreement, and the consummation by the Shareholder of the transactions
contemplated hereby, will not:
(a) result in the breach of any of the terms or
conditions of, or constitute a default under, or allow for the acceleration or
termination of, or in any manner release any party from any obligation under,
any mortgage, lease, note, bond, indenture, or material contract, agreement,
license or other instrument or obligation of any kind or nature to which any of
the Corporations, CRC, FBLP or the Shareholder is a party, or by which the
5
<PAGE> 7
Corporations, CRC, FBLP or the Shareholder, or any of their assets, is or may be
bound or affected; or
(b) violate any law or any order, writ, injunction or
decree of any court, administrative agency or governmental authority, or require
the approval, consent or permission of any governmental or regulatory authority;
or
(c) violate the Articles of Incorporation or Bylaws of
either of the Corporations or the agreement of limited partnership of either CRC
or FBLP.
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
(other than CRC or FBLP) 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 financial statements ("FINANCIAL STATEMENTS")
for each of the Corporations', CRC's and FBLP's three most recent fiscal years
ending December 31, 1998 (the "BALANCE SHEET DATE"). Such Financial Statements
for CRC and FBLP are presented on both an individual and combined basis. Such
Financial Statements for the Corporations have been internally prepared. Such
Financial Statements of CRC and FBLP for the fiscal years ending December 31,
1996 and 1997 have been audited by Perkins & Company, P.C. The Financial
Statements for the three most recent fiscal years present fairly, in all
material respects, the financial positions of the respective Corporations and
CRC and FBLP as of the end of such fiscal years and the results of their
operations and their cash flows for the years then ended, and in the case of CRC
and FBLP, conform with generally accepted accounting principles except, in the
case of the unaudited Financial Statements for the fiscal year ending December
31, 1998, for the lack of explanatory footnote disclosures. Such footnote
disclosures, if included with the unaudited Financial Statements, would be
substantially similar in description and content to the footnote disclosure in
the audited Financial Statements for the year ended December 31, 1997. Except to
the extent reflected or reserved against in any of the Corporations', CRC's or
FBLP's balance sheets as of the Balance Sheet Date, or as disclosed on Schedule
3.7 or Schedule 3.8, none of the Corporations, CRC or FBLP had as of the Balance
Sheet Date, nor will any of the Corporations, CRC or FBLP 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.
3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8 are
accurate lists and descriptions of all liabilities of the Corporations, CRC and
FBLP required to be described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Signing
Date, other than with respect to trade payables and as of the end of the month
prior to the Closing Date with respect to trade payables, all indebtedness for
money borrowed and all other fixed and uncontested liabilities of any kind,
character and description (excluding all real and personal property leasehold
interests included in Part IV of Schedule 3.8), whether reflected or not
reflected on the
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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 through the Closing Date, trade payables have
been incurred only in the ordinary course of business consistent with comparable
prior periods.
(b) Part II of Schedule 3.8 lists, as of the Signing
Date, all claims, suits and proceedings which are pending against any of the
Corporations, CRC or FBLP and, to the knowledge of the Corporations and the
Shareholder, all contingent liabilities and all claims, suits and proceedings
threatened or anticipated against any of the Corporations, CRC or FBLP. Part II
of Schedule 3.8 includes a summary description of each such liability,
including, without limitation, (A) the name of each court, agency, bureau, board
or body before which any such claim, suit or proceeding is pending, (B) the date
such claim, suit or proceeding was instituted, (C) the parties to such claim,
suit or proceeding, (D) a brief description of the factual basis alleged to
underlie such claim, suit or proceeding, including the date or dates of all
material occurrences, and (E) the amount claimed and other relief sought,
together with copies of all material documents, reports and other records
relating thereto to the extent that they are in the Corporations' or the
Shareholder's possession or control.
(c) Part III of Schedule 3.8 lists, as of the Signing
Date and to the extent not otherwise included in Part I of Schedule 3.8, all
liens, claims and encumbrances secured by or otherwise affecting any asset of
any of the Corporations, CRC or FBLP (including any Facility Property, as
hereafter defined), including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature of the
obligation secured, and the party holding such lien, claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Signing
Date and to the extent not otherwise included in Part I or Part III of Schedule
3.8, all real and personal property leasehold interests to which any of the
Corporations, CRC or FBLP is a party as lessor or lessee or, to the knowledge of
the Corporations or the Shareholder, affecting or relating to any Facility
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, the
Corporations, CRC, FBLP and the Shareholder have not made any payment or
committed to make any payment since the Balance Sheet Date on or with respect to
any of the liabilities or obligations listed on Schedule 3.8 except, in the case
of liabilities and obligations listed on Parts I, III and IV of Schedule 3.8,
periodic payments required to be made under the terms of the agreements or
instruments governing such obligations or liabilities or made in the ordinary
course of business.
3.9 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
stock ledgers, books, ledgers, financial records and other records of the
Corporations, CRC and FBLP:
(a) have been made available to WCI and its agents at
the Corporations' offices or at the offices of the Corporations' 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, reflect all material
corporate transactions required to be authorized by each of the Corporation's
Board of Directors and/or shareholder of the Corporations, whether on behalf of
the Corporations, CRC or FBLP, or any other appropriate person or entity, and do
not contain or reflect any material discrepancies.
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 CRC or FBLP are authorized to collect and haul
industrial, commercial and residential solid waste (the "COLLECTION
FRANCHISES"), and of all other material permits, licenses, titles (including
motor vehicle titles and current registrations), fuel permits, zoning and land
use approvals and authorizations, including, without limitation, any conditional
or special use approvals or zoning variances, occupancy permits, and any other
similar documents constituting a material authorization or entitlement or
otherwise material to the operation of the business of each of the Corporations,
CRC and FBLP (collectively the "GOVERNMENTAL PERMITS") owned by, issued to, held
by or otherwise benefiting the Corporations, CRC, FBLP or the Shareholder as of
the Closing Date. The status of the Governmental Permits related to the disposal
areas owned or used by CRC or FBLP, including, without limitation, any
conditions thereto and, if applicable, the expiration dates thereof, are also
described in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any
governmental agency or other third party from whom the Shareholder, CRC, FBLP
and 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"), 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, to the knowledge of the
Corporations and the Shareholder, necessary for the execution and delivery of
this Agreement by the Corporations or the consummation by the Corporations of
the transactions contemplated hereby. 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, to the knowledge of the Corporations and the
Shareholder, adequate for the operation of the business of each of the
Corporations, CRC and FBLP and of each Facility Property as presently operated
and are valid and in full force and effect. All of said Collection Franchises
and other Governmental Permits and agreements have been duly obtained and are in
full force and effect, and there are no proceedings pending or, to the knowledge
of the Corporations or the Shareholder, threatened which may result in the
revocation, cancellation, suspension or adverse modification of any of the same.
Neither the Corporations nor the Shareholder has any knowledge of any reason why
all such Governmental Permits and agreements 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.
(b) The Corporation, CRC and FBLP have made available to
WCI and its agents and representatives (i) all records, notifications, reports,
permit and license
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applications, engineering and geologic studies, and environmental impact
reports, tests or assessments (collectively, "RECORDS, NOTIFICATIONS AND
REPORTS") that, to the knowledge of the Corporations and the Shareholder, (A)
are material to the operation of the business of each of the Corporations, CRC
and FBLP, or (B) relate to the discharge or release of materials into the
environment and/or the handling or transportation of waste materials or
hazardous or toxic substances or otherwise relate to the protection of the
public health or the environment, or (C) were filed with or submitted to
appropriate governmental agencies during the past 24 months by the Corporations,
CRC, FBLP or the Shareholder or their or his agents with respect to the business
of the Corporations, CRC and FBLP, and (ii) all material notifications from such
governmental agencies to the Corporations, CRC, FBLP, the Shareholder 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, CRC and FBLP, 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 the Corporations,
CRC, FBLP or owned by the Shareholder or an Affiliate (as hereinafter defined)
of the Shareholder and leased to the Corporations, CRC or FBLP is, to the
knowledge of the Corporations and the Shareholder, 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 restrictions
regarding the operation, renovation or reconstruction thereof. To the knowledge
of the Corporations and the Shareholder, no Facility that is leased by the
Corporations, CRC or FBLP 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.
(ii) To the knowledge of the Corporations and
the Shareholder, there are no circumstances, conditions or reasons that are
likely to be the basis for revocation or suspension of any Facility's site
assessments, permits, licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility owned by the
Corporations, CRC, FBLP or the Shareholder or an Affiliate of the Shareholder
and leased to the Corporations, CRC or FBLP, and to the knowledge of the
Corporations and the Shareholder there are no circumstances, conditions or
reasons which are likely to be the basis for revocation or suspension of any
site assessment, permits, licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility leased by the
Corporations, CRC or FBLP from a third party who is not an Affiliate (as
hereinafter defined) of the Shareholder.
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,
CRC and FBLP from and advances to employees, former employees, officers,
directors, the Shareholder 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
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part by, or is under common control or ownership in whole
or in part with such person, in the case of WCI, the Corporations, CRC and FBLP
includes directors, officers and partners, 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 substantially all the fixed
assets (other than real estate) of the Corporations, CRC and FBLP, 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
containers, vehicles, machinery and equipment necessary for the operation of the
businesses of the Corporation, CRC and FBLP are in operable condition, and all
of the motor vehicles and other rolling stock of the Corporations, CRC and FBLP
are in compliance with all applicable laws, rules and regulations. All such
containers, vehicles, machinery and equipment are substantially free of known
defects that would cause them to fail. All leases of fixed assets are in full
force and effect and binding upon the parties thereto; neither the Corporations
nor, to the knowledge of the Corporations or the Shareholder, any other party to
such leases is in breach of any of the material provisions thereof.
(b) Each parcel of real property leased, owned, being
purchased, operated, or otherwise used by the Corporations, CRC or FBLP as of
the Closing Date (the "FACILITY PROPERTY"), including the street address and, in
the case of Facility Property owned or being purchased, the legal description
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 Facility Property, as well as a current commitment for title insurance
issued by a title insurance company satisfactory to WCI with respect to each
Facility Property owned or being purchased by the Corporations, CRC or FBLP,
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; none of the Corporations, CRC or FBLP nor
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 Shareholder, the
landlord's interest in each such lease has not been assigned to any third party
nor has any such interest been mortgaged, pledged or hypothecated; and the
Corporations, CRC or FBLP have not assigned any such lease or sublet all or any
part of the Facility Property which is the subject of any such lease. Except as
described on Schedule 3.12(b), there are no material physical or mechanical
defects in any Facility located on any Facility Property and each such Facility
is in good condition and repair.
(c) The Corporations, CRC and FBLP have good, valid and
marketable title to all properties and assets, real, personal, and mixed,
tangible and intangible, actually used or necessary for the conduct of its
business, free of any encumbrance or charge of any kind except: (i) liens for
current taxes not yet due; (ii) minor imperfections of title and encumbrances,
if any, that are not substantial in amount, do not materially reduce the value
or impair the use of the property subject thereto, do not materially impair the
value of the Corporations, CRC or FBLP, and have arisen only in the ordinary
course of business and
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consistent with past practice; and (iii) the liens identified on Parts I and III
of Schedule 3.8 (collectively, the "PERMITTED LIENS"), provided that insofar as
this representation and warranty relates to title to any Facility Property owned
by a Corporation, CRC or FBLP for which title insurance is obtained as
contemplated by Section 6.9, such representation and warranty shall be limited
to the knowledge of the Corporation and the Shareholder. 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 Facility Property owned or
being purchased, 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. Neither the Shareholder nor the
Shareholder's 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, CRC or FBLP not
disclosed on the Financial Statements. Except as disclosed in the Financial
Statements, neither the Shareholder nor the Shareholder's 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, CRC or FBLP.
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)) to which any of the Corporations, CRC
or FBLP is a party or by which it or any of its property is bound (including,
but not limited to, joint venture or partnership agreements, contracts with any
labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds
of trust, liens, pledges, conditional sales contracts or other security
agreements). Except as disclosed on Schedule 3.14(a), all such contracts and
agreements included in Schedule 3.14(a) are in full force and effect and binding
upon the parties thereto. Except as described or cross referenced on Schedule
3.14(a), none of the Corporations, CRC or FBLP nor, to the Corporations' or any
Shareholder's knowledge, any other parties to such contracts and agreements is
in breach thereof, and none of the parties has threatened to breach any of the
material provisions thereof or notified the Corporations, CRC, FBLP or the
Shareholder of a default thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporations, CRC or FBLP, the result of which could materially adversely affect
the Corporations, CRC or FBLP or any of their businesses or any of the Corporate
Properties, nor has any of the Corporations, CRC or FBLP been notified that any
such judgment, order, writ, injunction or decree has been requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes
copies, as of the Signing Date, of all insurance policies in effect on the
Signing Date or, with respect to "OCCURRENCE" policies that were in effect,
carried by the Corporations, CRC or FBLP in respect of the Corporate Properties
or any other property used by the Corporations, CRC or FBLP
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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 the Corporations, CRC or FBLP. For each insurer providing coverage for any of
the contingent or other liabilities listed on Schedule 3.8, except to the extent
otherwise set forth in Part II of Schedule 3.8, each such insurer, if required,
has been properly and timely notified of such liability, no reservation of
rights letters have been received by the Corporations, CRC or FBLP and the
insurer has assumed defense of each suit or legal proceeding. All such
proceedings are fully covered by insurance, subject to normal deductibles.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the
Signing Date, of all officers, directors and employees (by type or
classification) of the Corporations, CRC and FBLP and their respective rates of
compensation, including (i) the portions thereof attributable to bonuses, (ii)
any other salary, bonus, stock option, equity participation, or other
compensation arrangement made with or promised to any of them, and (iii) copies
of all employment agreements with non-union officers, directors and employees.
Schedule 3.16 also lists the driver's license number for each driver of the
motor vehicles of the Corporations, CRC and FBLP.
3.17 BENEFIT PLANS AND UNION CONTRACTS.
(a) Schedule 3.17(a) is a complete list as of the
Signing Date, and includes complete copies (or, in the case of oral
arrangements, descriptions), of all employee benefit plans and agreements
(written or oral) currently maintained or contributed to by the Corporations,
CRC and FBLP, including employment agreements and any other agreements
containing "GOLDEN PARACHUTE" provisions, retirement plans, welfare benefit
plans and deferred compensation agreements, together with copies of such plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Signing Date. Except for the employee benefit plans
described on Schedule 3.17(a), the Corporations have no other pension,
retirement, welfare, profit sharing, deferred compensation, stock option,
employee stock purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit plans
listed on Schedule 3.17(a) are fully funded and in substantial compliance with
all applicable federal, state and local statutes, ordinances and regulations.
All such plans that are intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986, as amended (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) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 3.17(a). All employee benefit plans listed on such Schedule have been
operated in accordance with the terms and provisions of the plan documents and
all related documents and policies. Neither the Corporations, CRC or FBLP 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, CRC or FBLP, nor a 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, CRC or FBLP have participated in or made
contributions to any "MULTI-EMPLOYER PLAN" as defined in the Employee
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Retirement Income Security Act of 1974 ("ERISA"), nor would the Corporations,
CRC or FBLP or any Affiliate be subject to any withdrawal liability with respect
to such a plan if any such employer withdrew from such a plan immediately prior
to the Closing Date. No employee pension benefit plan is under funded on a
termination basis as of the date of this Agreement.
(b) There are now no union contracts or agreements
between any of the Corporations, CRC or FBLP and any collective bargaining
group, nor have there ever been any such contracts in effect. The Corporations,
CRC and FBLP are in compliance in all material respects with all applicable
federal and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and nondiscrimination in employment,
and is not engaged in any unfair labor practice. There is no charge pending or,
to the Corporations' or any Shareholder's knowledge, threatened, against the
Corporations, CRC or FBLP before any court or agency and alleging unlawful
discrimination in employment practices and there is no charge of or proceeding
with regard to any unfair labor practice against it pending before the National
Labor Relations Board. There is no labor strike, dispute, slow down or stoppage
as of the Closing Date, existing or threatened against the Corporations, CRC or
FBLP; no union organizational activity exists respecting employees of the
Corporations, CRC or FBLP, and Schedule 3.17(b) contains a list of all
arbitration or grievance proceedings that have occurred since the Balance Sheet
Date. No one has petitioned within the last five years, and no one is now
petitioning, for union representation of any employees of the Corporations, CRC
or FBLP. None of the Corporations, CRC or FBLP have experienced any labor
strike, slow-down, work stoppage, labor difficulty or other job action during
the last five years.
(c) No payment made to any employee, officer, director
or independent contractor of the Corporations, CRC or FBLP (the "RECIPIENT")
pursuant to any employment contract, severance agreement or other arrangement
(the "GOLDEN PARACHUTE PAYMENT") will be nondeductible by any of the
Corporations, CRC or FBLP because of the application of Sections 280G and 4999
of the Code to the Golden Parachute Payment, nor will 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) The Corporations, CRC and FBLP have 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 forth on
Schedule 3.18(a), 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, CRC or FBLP relating to
federal, state, local or other taxes (including penalties and interest) for any
period or periods prior to and including the Closing Date and no notice of any
claim for taxes has been received. Copies of (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal income, and state
franchise, income and sales tax returns of the Corporations, CRC and FBLP for
each of their last three fiscal years are attached as part of Schedule 3.18(a).
Copies of all other federal, state, local and other tax and information returns
for all prior years of existence have been made available to WCI and are among
the records of the Corporations, CRC and FBLP that will accrue to WCI at the
Closing.
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None of the Corporations, CRC or FBLP has been contacted by any federal, state
or local taxing authority regarding a prospective examination.
(b) Except as set forth on Schedule 3.18(b) (which
schedule also includes the amount due with respect to the Corporations, CRC and
FBLP) the Corporations, CRC and FBLP have duly paid all taxes and other related
charges required to be paid prior to the date of this Agreement. The reserves
for taxes contained in the Financial Statements are adequate to cover any tax
liability as of the Signing Date.
(c) The Corporations, CRC and FBLP have 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 the Corporations, CRC and FBLP 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, and the agreements of limited partnership of CRC and FBLP,
in each case 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, CRC and FBLP will not be
adversely affected by the transactions contemplated hereby, and the execution of
this Agreement and the performance of the obligations hereunder will not violate
or result in a breach or constitute a default under any of the terms or
provisions thereof. None of such leases, instruments, agreements, licenses,
permits, site assessments, certificates or other documents requires notice to,
or consent or approval of, any governmental agency or other third party to any
of the transactions contemplated hereby, except the Required Governmental
Consents, such consents and approvals as are listed on Schedule 3.19, all of
which have been given or obtained.
3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES.
Schedule 3.20 is a current, accurate and complete list of, and includes:
(a) the customers that CRC and FBLP serve on an ongoing
basis, including name, location and current billing rate, as of the Closing
Date;
(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month preceding the
month in which such Schedule is delivered, showing amounts due in 30-day aging
categories. Except to the extent of the allowance for bad debts reflected on the
Financial Statements or otherwise disclosed on Schedules 3.11 and 3.20, , CRC's
and FBLP's accounts and notes receivable are collectible in the amounts shown on
Schedules 3.11 and 3.20; and
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(c) the average monthly revenues of CRC and FBLP derived
from billings to its customers for each of the twelve months preceding the
Closing Date. Except as set forth on Schedule 3.20, neither the Corporations nor
any Shareholder has any knowledge of any reason why any of such average monthly
revenues 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, CRC and FBLP have 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, CRC or FBLP other than
changes in the ordinary course of business, none of which either singly or in
the aggregate has been materially adverse. Specifically, and without limiting
the generality of the foregoing, except as set forth on Schedule 3.21, with
respect to the Corporations, CRC and FBLP, since the Balance Sheet Date, there
has not been:
(a) any material change any of their financial
condition, assets, liabilities (contingent or otherwise), income, operations or
business which would have a material adverse effect on the financial condition,
assets, liabilities (contingent or otherwise), income, operations or business,
taken as a whole;
(b) any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting any material portion of any of
their properties or business;
(c) any change in or agreement to change (i) either of
the Corporations' shareholders, (ii) ownership of either of the Corporations'
authorized capital or outstanding securities, (iii) either of the Corporations'
securities, or (iv) the identity or interest of any of the general or limited
partners of CRC or FBLP.
(d) any declaration or payment of, or any agreement to
declare or pay, any dividend or distribution in respect of either of the
Corporations' capital stock or any direct or indirect redemption, purchase or
other acquisition of any of a Corporation's capital stock;
(e) any increase or bonus or promised increase or bonus
in the compensation payable or to become payable, in excess of usual and
customary practices, to any of their directors, officers, partners, 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 their present or former officers or other key employees;
(f) any labor dispute or any other event or condition of
any character with respect to any of their employees, materially adversely
affecting any of their business or future prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of their material assets, property or rights to any other person,
including, without limitation, the Shareholder and the Shareholder's Affiliates,
other than in the ordinary course of business;
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(h) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to any of them,
including, without limitation, any indebtedness or obligation of the Shareholder
or any Affiliate thereof;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of their assets,
property or rights or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement,
plan or arrangement to purchase or acquire, any of their property, rights or
assets outside the ordinary course of business;
(k) any waiver of any of their material rights or
claims;
(l) any new or any amendment or termination of any
existing material contract, agreement, license, permit or other right to which
any of them is a party; or
(m) any other material transaction outside the ordinary
course of business.
3.22 CLOSING DATE DEBT; EFFECTIVE DATE CURRENT ASSETS AND
EFFECTIVE DATE CURRENT LIABILITIES.
(a) When delivered at the Closing, Schedule 3.22(a) will
list (i) the amount of the aggregate debt (excluding trade payables and the Bond
Debt) of the Corporations, CRC and FBLP outstanding on the Closing Date required
to be repaid by WCI or the Corporations, CRC or FBLP at or immediately after the
Closing Date and all prepayment penalties incurred or to be incurred by WCI or
the Corporations, CRC or FBLP in connection with the repayment of any such debt,
(ii) the amount of the aggregate debt (excluding trade payables and the Bond
Debt) of the Corporations, CRC and FBLP outstanding on the Closing Date which
will remain outstanding obligations after the Closing Date, and all prepayment
penalties applicable to such debt if repaid prior to maturity, including in each
case all interest accrued through and including the Closing Date, (iii) the
aggregate amount of the present value as of the Closing 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 the Corporations, CRC or FBLP by a third
party lender in connection with its most recent borrowing to finance equipment,
of all lease obligations of the Corporations, CRC or FBLP that are not
capitalized lease obligations, and (iv) the aggregate amount of the present
value as of the Closing Date of all capitalized lease obligations (determined in
accordance with generally accepted accounting principles) of the Corporations,
CRC and FBLP (the "CLOSING DATE DEBT"). When delivered at the Closing, Schedule
3.22(a) will separately list the aggregate principal amount and all accrued but
unpaid interest on the Bond Debt. Schedule 3.22(a) will include wire transfer
instructions for creditors whose Closing Date Debt WCI has designated for
payment, and attached to Schedule 3.22(a) are pay-off letters or instructions
from such creditors in the form provided by WCI's bank or acceptable to WCI.
(b) Schedule 3.22(b) is an estimate as of the Signing
Date of the amount of the aggregate current liabilities (including any reserve
for unpaid taxes and any
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accrued vacation benefits and excluding the current portion of long-term debt to
the extent such current portion is included in Closing Date Debt) and trade
payables of each of CRC and FBLP 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 CRC and FBLP as of the Balance Sheet Date, including
prepaid expenses the benefit of which survives the Closing Date and the accounts
receivable of each of CRC and FBLP 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").
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 the
Corporations, CRC and FBLP have 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, CRC and FBLP; and
(ii) the name of each person to whom such credit
cards or other charge accounts have been issued.
3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24,
the Corporations, CRC and FBLP have, to the knowledge of the Corporations and
the Shareholder, complied with, and are presently in compliance with, federal,
state and local laws, ordinances, codes, rules, regulations, Governmental
Permits, orders, judgments, awards, decrees, consent judgments, consent orders
and requirements applicable to it (collectively "LAWS"), including, but not
limited to, the Americans with Disabilities Act, the Federal Occupational Safety
and Health Act, and Laws relating to the public health, safety or protection of
the environment (collectively, "ENVIRONMENTAL LAWS"). Except as disclosed on
Schedule 3.24, to the knowledge of the Corporations and the Shareholder, there
has been no assertion by any party that any of the Corporations, CRC or FBLP is
in violation of any Laws. Specifically and without limiting the generality of
the foregoing, except as disclosed on Schedule 3.24:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, the federal Resource Conservation
Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), none of the Corporations,
CRC or FBLP has accepted, processed, handled,
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transferred, generated, treated, stored or disposed of any Hazardous Material
(as defined in Section 3.24(e) below) nor has any of them accepted, processed,
handled, transferred, generated, treated, stored or disposed of asbestos,
medical waste, radioactive waste or municipal waste, except in compliance with
Environmental Laws. Notwithstanding the foregoing, the Shareholder shall not be
liable for any indemnification claim pursuant to Section 10.1 for breach of the
representation set forth in this Section 3.24(a) to the extent the Corporations,
CRC or FBLP accepted, processed, handled, transferred, treated, stored or
disposed of Hazardous Material, asbestos, medical waste, radioactive waste or
municipal waste without their knowledge based on misrepresentations or omissions
by third parties to the Corporations, CRC or FBLP as to the content of waste
accepted, processed, handled, transferred, treated, stored or disposed of.
(b) During the Corporations', CRC's or FBLP's ownership
or leasing of the Facility Property owned or leased by it and, to the knowledge
of the Corporations and the Shareholder, prior to such ownership or leasing of
such Facility Property, no Hazardous Material, other than that allowed under
Environmental Laws, including, without limitation, RCRA, has been disposed of,
or otherwise released on any Facility Property. Notwithstanding the foregoing,
the Shareholder shall not be liable for any indemnification claim pursuant to
Section 10.1 for breach of the representation set forth in this Section 3.24(b)
to the extent the Corporations, CRC or FBLP disposed of such Hazardous Material
at any Facility Property without their knowledge based on misrepresentations or
omissions by third parties to the Corporations, CRC or FBLP as to the content of
waste accepted for disposal.
(c) During the Corporations', CRC's or FBLP's ownership
or leasing of the Facility Property owned or leased by it and, to the knowledge
of the Corporations and the Shareholder, prior to such ownership or leasing of
such Facility Property, no Facility Property has ever been subject to or
received any notice of any private, administrative or judicial action, or notice
of any intended private, administrative or judicial action relating to the
presence or alleged presence of Hazardous Material in, under, upon or emanating
from any Facility Property or any real property now or previously owned or
leased by any of the Corporations, CRC or FBLP. There are no pending and, to the
Corporations' and Shareholder's knowledge, no threatened actions or proceedings
from any governmental agency or any other entity involving remediation of any
condition of the Facility Property, including, without limitation, petroleum
contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, the
Corporations, CRC and FBLP have not knowingly sent, transported or arranged for
the transportation or disposal of any Hazardous Material, to any site, location
or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL"
means the substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and
substances defined in any comparable Washington or Oregon statute or regulation;
(ii) any substance the presence of which requires remediation pursuant to any
Environmental Laws; and (iii) any substance required to be disposed of in a
manner expressly prescribed by Environmental Laws.
3.25 POWERS OF ATTORNEY. None of the Corporations, CRC or FBLP
has granted any power of attorney (except routine powers of attorney relating to
representation
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before governmental agencies) or entered into any agency or similar agreement
whereby a third party may bind or commit any of the Corporations, CRC or FBLP in
any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule
3.26, no underground storage tanks containing petroleum products or wastes or
other hazardous substances regulated by 40 CFR 280 or Environmental Laws are
currently or have been located on any Facility Property. Except as set forth on
Schedule 3.26, none of the Corporations, CRC or FBLP have owned or leased any
real property not included in the Facility Property having any underground
storage tanks containing petroleum products or wastes or other hazardous
substances regulated by 40 CFR 280. As to each such underground storage tank
("UST") identified on Schedule 3.26, the Corporations have 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, CRC or FBLP currently owns or leases the
property on which the UST is located (and if none of the Corporations, CRC or
FBLP currently own or lease such property, the dates on which it did and the
current owner or lessee of such property);
(b) the date of installation and specific use or uses of
the UST;
(c) copies of tank and piping tightness tests and
cathodic protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body
or agency relating to the UST;
(e) other material records with regard to the UST,
including, without limitation, repair records, financial assurance compliance
records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to
the above, a summary description of instances, past or present, in which, to the
Corporations', or the Shareholder's knowledge, the UST failed to meet applicable
standards and regulations for tightness or otherwise and the extent of such
failure, and any other operational or environmental problems with regard to the
UST, including, without limitation, spills, including spills in connection with
delivery of materials to the UST, releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the Corporations, CRC
and FBLP have complied with Environmental Laws regarding the installation, use,
testing, monitoring, operation and closure of each UST described on Schedule
3.26.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists
all patents, tradenames, fictitious business names, trademarks, service marks,
and copyrights owned by the Corporations, CRC or FBLP or which any of them is
licensed to use (other than licenses to use software for personal computer
operating systems that were provided when the computer was purchased and
licenses to use software for personal computers that are granted to retail
purchasers of such software). No patents, trade secrets, know-how, intellectual
property, trademarks, trade names, assumed names, copyrights, or designations
used by the Corporations, CRC or FBLP in any of their businesses infringe on any
patents, trademarks, or copyrights, or
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any other rights of any person. Neither the Corporations nor the Shareholder
knows or has any reason to believe that there are any claims of third parties to
the use of any such names or any similar name, or knows of or has any reason to
believe that there exists any basis for any such claim or claims.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. Each of the
Corporations, CRC and FBLP owns or leases all properties and assets, real,
personal, and mixed, tangible and intangible, and, except as disclosed on
Schedules 3.5, 3.10(a), 3.10(c), 3.14(a) and 3.19, is a party to all Collection
Franchises and Governmental Permits and other agreements necessary to permit it
to carry on its business as presently conducted. All of said Collection
Franchises and Governmental Permits and agreements have been duly obtained and,
except as disclosed on Schedules 3.5, 3.8-Part II, 3.10(a), 3.10(c) 3.14(a) and
3.19, are in full force and effect and there are no proceedings pending or
threatened which may result in the revocation, cancellation, suspension or
adverse modification of any of the same. Neither the Corporations nor the
Shareholder has any knowledge of any reason why all such Collection Franchises
and Governmental Permits and agreements will not remain in effect in accordance
with their terms after consummation of the transactions contemplated hereby.
3.29 CONDEMNATION. No Facility Property owned or leased by any
of the Corporations, CRC or FBLP are the subject of, or would be affected by,
any pending condemnation or eminent domain proceedings, and, to the knowledge of
the Corporations and the Shareholder, no such proceedings are threatened.
3.30 SUPPLIERS AND CUSTOMERS. To the knowledge of the
Corporations and the Shareholder, the relations between CRC and FBLP and each of
their customers are good. Neither the Corporations nor the Shareholder has
knowledge of any fact (other than general economic and industry conditions)
which indicates that any of the suppliers supplying products, components,
materials or providing use of, or access to, landfills or disposal sites to CRC
or FBLP intends to cease providing such items to either of them, nor do either
of the Corporations or the Shareholder has knowledge of any fact (other than
general economic and industry conditions) which indicates that any of the
customers of CRC or FBLP intends to terminate, limit or reduce its business
relations with CRC or FBLP.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. None of the
Corporations, CRC, FBLP, or the Shareholder has directly or indirectly within
the past five years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of CRC or FBLP in connection with any
actual or proposed transaction which (a) might subject the Corporation, CRC or
FBLP to any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (b) if not given in the past, might have had an adverse effect on
the financial condition, business or results of operations of the Corporations,
CRC or FBLP, or (c) if not continued in the future, might adversely affect the
financial condition, business or operations of the Corporations, CRC or FBLP or
which might subject the Corporations, CRC or FBLP 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 Shareholder contained in this Agreement,
the Exhibits and Schedules
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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.
3.33 BROKERS; FINDERS. No person has acted directly or
indirectly as a broker, finder or financial advisor for either of the
Corporations or the Shareholder in connection with the transactions contemplated
by this Agreement and no person is entitled to any broker's, finder's, financial
advisory or similar fee or payment in respect thereof based in any way on any
agreement, arrangement or understanding made by or on behalf of either of the
Corporations or the Shareholder.
3.34 S CORPORATION MATTERS. Each of the Corporations has elected
to be treated as an S Corporation within the meaning of the Code for the years
listed on Schedule 3.34.
4. REPRESENTATIONS AND WARRANTIES OF WCI
WCI represents and warrants to the Shareholder that each of the
following representations and warranties is true as of the 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 on its financial condition.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any
article, document or instrument to which WCI is a party or by which it is bound
which would be violated by consummation of the transactions contemplated by this
Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due authorization,
execution and delivery by the Corporations and the Shareholder, constitutes a
legal, valid and binding obligation of WCI. WCI has full corporate power, legal
right and corporate authority to enter into and perform its obligations under
this Agreement and to carry on its business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfillment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to WCI; (b) conflict
with any of the provisions of the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of WCI; or (c) conflict with,
result in a breach of or constitute a default under any material agreement or
instrument to which WCI is a party or by which it is bound.
4.4 GOVERNMENTAL AUTHORITIES; CONSENTS. Except for any filings
by WCI required by the HSR Act and any required filings with applicable state
regulatory authorities, WCI is not required to submit any notice, report or
other filing with any governmental authority
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in connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby, and no consent, approval
or authorization of any governmental or regulatory authority or any other party
or person is required to be obtained by WCI in connection with its execution,
delivery and performance of this Agreement or the transactions contemplated
hereby, except such as shall have been obtained by the Closing Date.
4.5 NO MISLEADING STATEMENTS. The representations and warranties
of WCI contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholder 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.
4.6 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for WCI in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of WCI.
5. COVENANTS FROM SIGNING TO CLOSING DATE
5.1 OPERATIONS. Between the Signing Date and the Closing
Date, the Corporations will, and will cause CRC and FBLP to, and the Shareholder
will cause the Corporations to:
(a) carry on each respective business in substantially
the same manner as heretofore and not introduce any material new method, or
discontinue any existing material method, of operation or accounting;
(b) maintain their 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 material obligations under agreements
relating to or affecting their assets, properties, business operations and
rights;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) use reasonable efforts to maintain and preserve each
of their business organizations intact, retain present employees and maintain
relationships with suppliers, customers and others having business relations
with any of them on a basis consistent with past practice;
(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 each of
their continuing operations;
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(g) maintain compliance with all Collection Franchises
and Governmental Permits and all laws, rules, regulations and consent orders
consistent with past practice;
(h) file on a timely basis all complete and correct
applications or other documents necessary to maintain, renew or extend any
permit, license, variance or any other approval required by any governmental
authority necessary and/or required for the continuing operation of each of
their business operations, whether or not such approval would expire before or
after the Closing; and
(i) advise WCI promptly in writing of any material
change in any document, Schedule, Exhibit, or other information delivered
pursuant to this Agreement.
5.2 NO CHANGE. Between the Signing Date and the Closing Date,
the Corporations will not, and will not permit CRC and FBLP to, and the
Shareholder will not permit the Corporations to, take any action described below
without the prior written consent of WCI:
(a) make any change in the Articles of Incorporation or
Bylaws of either of the Corporations or the agreement of limited partnership of
either CRC or FBLP;
(b) authorize, issue, transfer, pledge, distribute or
sell any of the Corporations' Stock or any other securities of the Corporations;
(c) except as set forth on Schedule 1.4 with respect to
Excluded Assets, declare or pay any dividend or make any distribution in respect
of the capital stock of the Corporations whether now or hereafter outstanding,
or purchase, redeem or otherwise acquire or retire for value any shares of the
capital stock or the Corporations;
(d) enter into any contract or commitment or incur or
agree to incur any liability other than in the ordinary course of business other
than the transactions contemplated by this Agreement or make any single capital
expenditure in excess of $10,000 or in excess of $25,000 in the aggregate during
any consecutive thirty (30) day period without regard to whether such capital
expenditure is in the ordinary course of business;
(e) except as set forth on Schedules 3.16 and 3.21,
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;
(f) create, assume or otherwise permit the imposition of
any mortgage, pledge or other lien or encumbrance upon or grant any option or
right of first refusal with respect to any assets or properties whether now
owned or hereafter acquired;
(g) except as set forth on Schedule 1.4 with respect to
Excluded Assets, 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;
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(i) waive any material rights or claims;
(j) amend, terminate or enter into any material
agreement or any site assessment, permit, license or other right, without the
prior written consent of WCI other than in the ordinary course of business;
(k) enter into any other transaction outside the
ordinary course of business or prohibited hereunder; or
(l) take any action or suffer or permit any event to
occur that would cause any representation or warranty of the Corporations or the
Shareholder to become untrue as of the Closing Date.
5.3 OBTAIN CONSENTS. Promptly after the Signing Date, the
Corporations, CRC and FBLP will, and the Shareholder shall cause them to, make
all filings and take all steps reasonably necessary to obtain all consents and
approvals, if any, of each other party whose consent or approval is necessary to
permit the consummation of the transactions contemplated in this Agreement
pursuant to, or required to prevent the breach of or permit the assignment of,
any material Collection Franchises, Governmental Permits, or Required
Governmental Consents (the "NECESSARY CONSENTS"), and shall take all steps
necessary to obtain all other non-material approvals and non-material consents
required to be obtained by them or the Shareholder to consummate the
transactions contemplated by this Agreement.
5.4 ACCESS; CONFIDENTIAL INFORMATION. Between the Signing Date
and the Closing Date, the Shareholder and the Corporations will, and the
Shareholder will cause the Corporations to, afford to the officers and
authorized representatives of WCI, including, without limitation, its engineers,
counsel, independent auditors and investment bankers, reasonable access to the
Facilities, plants, Facility Property and other properties, books and records of
the Corporations, CRC and FBLP, and will furnish WCI with such additional
financial and operating data and other information as to the business and
properties of the Corporations, CRC and FBLP as WCI may from time to time
reasonably request. The Shareholder will and will cause the Corporations to
cooperate with WCI, its representatives and counsel in the preparation of any
documents or other material which may be required by any governmental agency.
The Shareholder and the Corporations shall provide to WCI such information and
materials regarding each of the Corporations', CRC's and FBLP's business as WCI
may reasonably request. WCI will cause all information obtained from the
Shareholder, the Corporations, CRC and FBLP, in connection with WCI's due
diligence review and 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 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 the Corporations, CRC, FBLP or the Shareholder. Each party hereto
shall not disclose to any third person other than their accountants, bankers or
legal counsel any of the terms or provisions of this Agreement prior to or after
the Closing Date without prior written consent of WCI.
5.5 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
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operations prior to the Closing Date. Prior to the Closing Date, each
Corporation shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of its operations.
5.6 ACQUISITION TRANSACTIONS. From the Signing Date to the
Closing Date, or earlier termination of this Agreement, no Corporation nor the
Shareholder shall initiate, solicit, negotiate, encourage or provide information
to facilitate, and each of the Corporations and the Shareholder shall not, and
shall use its or his reasonable efforts to cause any officer, director or
employee of each Corporation, or any attorney, accountant, investment banker,
financial advisor or other agent retained by it or him 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
Corporations' 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 the 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.
6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI TO CLOSE
The obligations of WCI 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 Shareholder contained in this Agreement
or in any Exhibit, Schedule, certificate or document delivered by the
Corporations or the Shareholder under this Agreement shall be true, correct and
complete on and as of the date when made in all material respects, and (except
to the extent that such representations and warranties speak of an earlier date)
shall be deemed to be made again on the Closing Date, and shall then be true,
correct and complete in all material respects as of the Closing Date.
6.2 CONDITIONS. The Corporations and the Shareholder shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by them
on or before the Closing Date.
6.3 NO MATERIAL ADVERSE CHANGE. Since the Signing Date, there
shall not have been any material adverse change in the condition (financial or
otherwise) of the business, properties or assets of the Corporations, CRC or
FBLP.
6.4 CERTIFICATES. The President of each of the Corporations
shall have delivered to WCI a certificate, dated as of the Closing Date, in form
and substance satisfactory to WCI and the Shareholder, certifying to the
fulfillment of the conditions set forth in Sections 6.1, 6.2 and 6.3, and the
Shareholder shall have delivered to WCI a certificate dated as of the Closing
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Date, in form and substance satisfactory to WCI and the Shareholder, certifying
to the fulfillment of the conditions set forth in Section 6.1, 6.2 and 6.3
applicable to the Shareholder.
6.5 NO LITIGATION. None of the transactions contemplated hereby
shall have been enjoined by any court or by any federal or state governmental
branch, agency, commission or regulatory authority and no suit or other
proceeding challenging the transactions contemplated hereby shall have been
threatened or instituted and no investigative or other demand shall have been
made by any federal or state governmental branch, agency, commission or
regulatory authority.
6.6 OTHER DELIVERIES. The Shareholder shall have delivered the
items which he is required to deliver under Section 8 of this Agreement.
6.7 NECESSARY CONSENTS. All Necessary Consents shall have been
obtained.
6.8 HSR WAITING PERIOD. The waiting period applicable to the
consummation of this transaction under the HSR Act shall have expired or been
terminated.
6.9 TITLE INSURANCE. The Corporations shall obtain, at WCI's
cost and expense, an ALTA Owner's Standard Policy of title insurance for each
Facility Property owned by any of the Corporations, CRC or FBLP insuring fee
simple title to such Facility Property in one of the Corporations, 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.
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDER AND THE
CORPORATION TO CLOSE
The obligations of the Corporations and Shareholder 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 Shareholder:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of WCI contained in this Agreement or in any statement, Exhibit,
Schedule, certificate or document delivered by WCI under this Agreement shall be
true, correct and complete on and as of the date when made in all material
respects, and (except to the extent that such representations and warranties
speak of an earlier date) shall be deemed to be made again on the Closing Date,
and shall then be true, correct and complete in all material respects as of the
Closing Date.
7.2 CONDITIONS. WCI shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by it on or before the Closing Date.
7.3 CERTIFICATE. WCI shall have delivered to the Shareholder a
certificate, dated as of the Closing Date, in form and substance satisfactory to
the Shareholder, certifying to the fulfillment of the conditions set forth in
Sections 8.1 and 8.2.
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7.4 NO LITIGATION. None of the transactions contemplated hereby
shall have been enjoined by any court or by any federal or state governmental
branch, agency, commission or regulatory authority and no suit or other
proceeding challenging the transactions contemplated hereby shall have been
threatened or instituted and no investigative or other demand shall have been
made by any federal or state governmental branch, agency, commission or
regulatory authority.
7.5 OTHER DELIVERIES. WCI shall have delivered the items which
it is required to deliver under Section 8 of this Agreement.
7.6 NECESSARY CONSENTS . All Necessary Consents shall have been
obtained.
7.7 HSR WAITING PERIOD. The waiting period applicable to the
consummation of this transaction under the HSR Act shall have expired or been
terminated
8. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
8.1 WCI DELIVERIES.
(a) WCI shall deliver the Purchase Price required to be
delivered on the Closing Date pursuant to Section 1.2(a).
(b) WCI shall execute and deliver to the Shareholder the
certificate set forth in Section 7.3.
8.2 SHAREHOLDER DELIVERIES.
(a) The Shareholder shall deliver to WCI the
certificates representing the outstanding Corporations' Stock free and clear of
all liens, security interests, claims and encumbrances, accompanied by stock
powers duly executed in blank.
(b) The Shareholder shall deliver evidence reasonably
satisfactory to WCI that all required third-party consents to the transactions
contemplated hereby, including without limitation all Required Governmental
Consents, were obtained and the Shareholder shall deliver an estoppel
certificate from the landlords under all real estate leases to which the
Corporations, CRC or FBLP 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 lessee 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 require.
(c) The Shareholder shall deliver Schedule 3.22(a) to
this Agreement.
(d) The Corporations shall deliver to WCI evidence
satisfactory to WCI showing that all written employment contracts and all oral
employment contracts other than those that are terminable "AT WILL" without
payment of severance (other than normal severance
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benefits approved by WCI) or other benefits with non-union employees of the
Corporations, CRC and FBLP (including, without limitation, stock options or
other rights to obtain equity in the Corporations, CRC and FBLP) have been
terminated, effective on or before the Closing Date.
(e) The Shareholder shall cause each officer and
director of each of the Corporations to deliver a resignation as an officer
and/or director of that Corporations together with a general release releasing
the Corporations from all obligations under any indemnification agreements, the
charter documents of the Corporations, or otherwise, arising out of or relating
to this Agreement or the consummation of the transactions contemplated thereby,
other than obligations arising after the Closing Date under this Agreement.
(f) The Corporations and the Shareholder shall execute
and deliver to WCI the certificates set forth in Section 6.4.
(g) FBLP shall execute and deliver to WCI a
Transportation Agreement (the "TRANSPORTATION AGREEMENT") with Tidewater Barge
Lines, Inc. ("TIDEWATER") substantially in the form of Exhibit 8.2(g).
(h) At the Closing, the Shareholder shall deliver to WCI
an opinion of counsel for the Shareholder, the Corporations, CRC and FBLP dated
as of the Closing Date, covering in substance the matters described in Exhibit
8.2(h).
(i) At the Closing, the Shareholder shall deliver to
WCI, the Corporations, CRC and/or FBLP such releases, assignments, conveyances
and other instruments executed by Tidewater as WCI shall reasonably request
pursuant to which Tidewater will acknowledge and confirm that to the extent it
previously had an interest in any contracts, assets, operations and lines of
business of the Corporations, CRC or FBLP, as of the Closing Date it no longer
has such interest.
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDER
9.1 NO DELAY. The Corporations, the Shareholder and WCI covenant
and agree from and after the date hereof not to hinder in any way or
unreasonably delay the Closing Date and to use their respective reasonable
efforts to obtain Necessary Consents and otherwise to cause the Closing Date to
occur as soon as reasonably practicable after the date of this Agreement,
provided, however, that in using its reasonable efforts WCI shall not be
required to take any action or to agree to any condition, including without
limitation any condition imposed by any government authority with respect to the
transfer of any Governmental Permit, that, in WCI's reasonable judgment, imposes
a materially adverse financial burden or operating condition on WCI.
9.2 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to
obtain the termination and release promptly after the Closing Date of the
personal guaranties of the Shareholder and Tidewater listed on Schedule 9.2, all
of which relate to indebtedness of the Corporations, CRC or FBLP included in the
Financial Statements as of the Balance Sheet Date or WCI shall indemnify the
Shareholder and Tidewater and hold them harmless from and against
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all losses, expenses or claims by third parties to enforce or collect
indebtedness owed by the Corporations, CRC or FBLP as of the Closing Date which
is personally guaranteed by the Shareholder or Tidewater pursuant to such
guaranties. The Shareholder and Tidewater may notify the obligees under such
guaranties that they have terminated their obligations under such guaranties.
The Shareholder shall, and shall use reasonable efforts to cause Tidewater to,
cooperate with WCI in obtaining such releases.
9.3 RELEASE OF SECURITY INTERESTS. On or after the Closing Date,
the Shareholder and his respective Affiliates shall cause those security
interests in the assets of the Corporations, CRC or FBLP that have been created
in favor of financial institutions or other lenders to secure indebtedness
(other than indebtedness of the Corporations, CRC or FBLP) of the Shareholder or
his respective Affiliates to be released in a manner reasonably satisfactory to
WCI, and shall cause all guaranties by the Corporations, CRC and FBLP relating
to the indebtedness of the Shareholder to be released to the reasonable
satisfaction of WCI.
9.4 CONFIDENTIALITY. Neither the Corporations nor the
Shareholder shall, nor shall they permit CRC or FBLP to, disclose or make any
public announcements of the transactions contemplated by this Agreement, except
as required by the HSR Act, without the prior written consent of WCI, unless
required to make such disclosure or announcement by law, in which event the
party making the disclosure or announcement shall notify WCI at least 24 hours
before such disclosure or announcement is expected to be made.
9.5 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
9.6 TAXES. WCI shall reasonably cooperate, at the expense of the
Shareholder, with the Shareholder with respect to any matters involving the
Shareholder arising out of the Shareholder's ownership of the Corporations and
the Corporations' interest in CRC and FBLP prior to the Closing, including
matters relating to tax returns and refunds 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 Shareholder
such files, documents, books and records of the Corporations, CRC and FBLP for
inspection and copying as may be reasonably requested by the Shareholder and
shall cooperate with the Shareholder with respect to retaining information and
documents that relate to such matters.
9.7 SHORT YEAR TAX RETURNS. After the Closing Date, the
Shareholder shall prepare at his sole cost and expense, all short year federal,
state, county, local and foreign tax returns required by law for the period
beginning with the first day of the Corporations' fiscal year in which the
Closing occurs and ending with the Closing Date. Each such return shall be
prepared in a financially responsible and conservative manner substantially in
the manner and in accordance with elections used in prior periods by the
Corporations and shall be delivered to WCI together with all necessary
supporting schedules within the earlier of 120 days following the Closing Date
or 60 days before the date such returns are due for its approval (but such
approval shall not relieve the Shareholder of his responsibility for the taxes
assessed under these returns). The Shareholder shall be responsible for the
payment of all taxes shown to be due or that may come to be due on such returns
or otherwise relating to the period prior to the Closing
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Date in excess of the amount of any reserve for taxes included in Effective Date
Current Liabilities and shall be responsible for all taxes incurred on the Net
Profits. At the time of the delivery of the returns, the Shareholder shall
contemporaneously deliver to WCI checks payable to the respective taxing
authorities in amounts equal to the amount due. WCI shall sign tax returns and
cause such returns to be timely filed with the appropriate authorities. The
Shareholder shall be entitled to receive all refunds shown on said returns or
attributable to prior periods and any such refunds received by the Corporations
or WCI shall be remitted to the Shareholder at the Shareholder's request. WCI
shall cause the Corporation, CRC and/or FBLP to file amended returns and refund
requests for periods prior to the Closing Date as reasonably requested by the
Shareholder.
9.8 GENERAL RELEASE BY THE SHAREHOLDER. Effective as of the
Closing Date, the Shareholder hereby fully releases and discharges each of the
Corporations, CRC and FBLP and their directors, officers, partners, agents and
employees from all rights, claims and actions, known or unknown, of any kind
whatsoever, which the Shareholder now has or may hereafter have against the
Corporations, CRC and FBLP and their directors, officers, partners, agents and
employees, arising out of or relating to events arising prior to or on the
Closing Date, except (a) as may be described in written contracts disclosed in
Schedule 9.8 and expressly described and specifically excepted from this release
in Schedule 9.8, (b) compensation as an employee of the Corporations for current
periods expressly described and excepted from such release on Schedule 9.8, (c)
for the obligations of the Corporations arising after the Closing Date under
this Agreement and (d) any right of indemnification, contribution or other
recourse against the Corporations, CRC and FBLP which he now has or may
hereafter have against the Corporations, CRC and FBLP provided that the
Shareholder shall not be entitled to indemnification, contribution or other
recovery with respect to any Claim (as hereinafter defined) based on breach of
the representations, warranties or covenants made in this Agreement, but only to
the extent the Shareholder is liable to any WCI Indemnitee with respect to such
breach (or would be so liable but for any of the limitations set forth in
Section 10.2). Notwithstanding the foregoing, this release shall not be deemed a
release of any rights that the Shareholder may have against any insurance
carrier of the Corporations, CRC or FBLP.
9.9 CERTAIN TAX MATTERS. The Shareholder acknowledges that WCI
may make an election under Section 338(h)(10) of the Code with respect to one or
both of the Corporations, and that after the Closing Date the Corporations may
cause either CRC or FBLP to make an election under Section 754 of the Code. The
Shareholder agrees that WCI, in its discretion, may make such elections;
provided, however, that such election shall be made no later than the due date
for such election. If such election is made by WCI:
(a) WCI shall be authorized to complete Form 8023;
(b) The Shareholder shall sign such completed Form 8023
at WCI's request;
(c) WCI and the Shareholder shall agree upon the
allocation of the Purchase Price among the assets (including intangible assets)
of the Corporation; and
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(d) WCI shall indemnify the Shareholder with respect to
all federal, state, county and local taxes required to be paid by him in
connection with such election by increasing the Purchase Price by the amount of
such taxes plus any amount necessary to pay taxes on the increased amount so
that after such payment the effects of such election by WCI will be effectively
"tax neutral" to the Shareholder.
9.10 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, the Corporations, CRC and
FBLP, all necessary or appropriate waivers, consents and approvals to effect all
necessary registrations, filings and submissions and to lift any injunctive or
other legal bar to this transaction (and, in such case, to proceed with the
transaction as expeditiously as possible).
(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
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,
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.
9.11 NOTIFICATION OF CERTAIN MATTERS. Each of the Corporations,
WCI and the Shareholder 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 Closing Date and (ii) any material
failure on its or his part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it or him hereunder; provided,
however, that the delivery of any notice pursuant to
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this Section 9.11 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
9.12 EMPLOYEES. After the Closing Date, WCI shall cause CRC's
and FBLP's main office employees (all of whom are listed on Schedule 9.12(a)
(the "OFFICE EMPLOYEES")) and facility employees (all of whom are listed on
Schedule 9.12(b) (the "FACILITY EMPLOYEES")) to either continue to be employed
by CRC or FBLP in his or her current position or to be offered a similar
position with a WCI Affiliate located in Clark County at his or her current
compensation for a period of two years after the Closing Date for each Office
Employee and one year after the Closing Date for each Facility Employee. In the
event an Office Employee or Facility Employee is terminated by WCI without cause
(as hereinafter defined), WCI will continue to pay such employee's compensation
and will reimburse his or her costs under COBRA for the remainder of the
applicable employment term (the second anniversary of the Closing Date in the
case of Office Employees and the first anniversary of the Closing Date in the
case of Facility Employees), provided that any Office Employee or Facility
Employee whose employment by CRC or FBLP is terminated without cause and who
declines an offer for a similar position at a WCI Affiliate located in Clark
County shall not be entitled to such compensation and reimbursement of COBRA
benefits. "CAUSE" means insobriety on the job, conviction of a misdemeanor
involving moral turpitude or a felony, illegal business practices in connection
with WCI's or its Affiliate's business, misappropriation of WCI's or its
Affiliate's assets, excessive absence of the employee from his or her duties
during usual working hours for reasons other than vacation, disability or
sickness, any material breach by the employee of any material condition of
employment or failure of the employee to perform competently and efficiently his
or her duties, as determined by WCI in its reasonable discretion.
9.13 NONCOMPETITION AGREEMENT. WCI acknowledges the existence of
that certain Noncompetition Agreement dated as of December 31, 1997, by and
between CRC and USA Waste Services, Inc. and agrees to indemnify the Shareholder
and hold him harmless against any and all claims, liabilities, damages and
expenses suffered or incurred by him, directly or indirectly, in connection with
any breach by WCI or its Affiliate of such agreement occurring after the Closing
Date.
10. INDEMNIFICATION
10.1 INDEMNITY BY THE SHAREHOLDER. The Shareholder, subject to
the limitations set forth in Section 10.2, covenants and agrees that he will
indemnify and hold harmless WCI, the 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
and until the expiration of the applicable period described in Section 10.2(e),
against any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "ENVIRONMENTAL SITE LOSSES" (as
such term is hereinafter defined) identified by a WCI Indemnitee in a Claims
Notice (as defined in Section 10.3(a)), or asserted by a WCI Indemnitee in
litigation commenced against the Shareholder provided that in either case any
such Claims Notice shall be given or the litigation commenced prior to the
expiration of the applicable period
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described in Section 10.2(e) (irrespective of the date of discovery), with
respect to each of the following contingencies (all, the "10.1 INDEMNITY
EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the Shareholder or
the Corporations pursuant to the terms of this Agreement or any
misrepresentation in or omission from any Exhibit, Schedule, list, certificate,
or other instrument furnished or to be furnished to WCI pursuant to the terms of
this Agreement, regardless of whether, in the case of a breach of a
representation or a warranty, WCI relied on the truth of such representation or
warranty or had any knowledge of any breach thereof.
(b) Any Environmental Site Losses in excess of the
amount of liability with respect thereto, if any, set forth on Part II of
Schedule 3.8 arising from the design, development, construction, installation or
operation of any "ENVIRONMENTAL SITE" (as hereinafter defined) during any period
on or prior to the Closing Date but only to the extent the Environmental Site
Loss resulted from a failure to comply with applicable laws, rules, regulations,
ordinances, building codes, permits, licenses, franchises, municipal service
contracts, judgments, orders, injunctions or decrees. 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, CRC or FBLP or by any predecessor thereof on or prior to the
Closing Date. As used in this Agreement, "ENVIRONMENTAL SITE LOSSES" shall mean
any and all losses, damages (including exemplary damages and penalties),
liabilities, claims, deficiencies, costs, expenses, and expenditures (including,
without limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an interim or
final judicial or administrative decree, judgment, injunction, mandate, interim
or final permit condition or restriction, cease and desist order, abatement
order, compliance order, consent order, clean-up order, exhumation order,
reclamation order or any other remedial action that is required to be undertaken
under federal, state or local law in respect of operating activities on or
affecting any 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 for 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 on or prior to the
Closing Date, 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 "ENVIRONMENTAL SITE Losses" shall not include any losses
or deficiencies relating to the inefficiency or lack of optimal use, design or
function of any Environmental Site. 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 waste lawfully disposed of in a landfill during the time a
Corporation, CRC or FBLP owned and/or operated such landfill does not constitute
an Environmental Site Loss.
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(c) All matters on Schedule 3.8, Part II, or required to
be described on Schedule 3.8, Part II, of which the Corporations or the
Shareholder has knowledge on the Closing Date and which are not so described.
(d) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incident to any of the foregoing.
10.2 LIMITATIONS ON THE SHAREHOLDER'S INDEMNITIES.
(a) The obligations of the Shareholder to indemnify the
WCI Indemnitees as provided in Section 10.1 shall be equal to the amount by
which the cumulative amount of all such liabilities, claims, damages
deficiencies, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses, expenditures and Environmental Site Losses with respect to
any or all 10.1 Indemnity Events exceed two hundred fifty thousand dollars
($250,000) (the "GENERAL DEDUCTIBLE AMOUNT"); provided, that the amount of any
obligation of indemnity arising pursuant to Section 10.1(a) with respect to any
representation, warranty or covenant contained in Sections 3.1 through 3.5;
3.12(c), 3.18, 3.22, 9.7 and 9.10 hereof and pursuant to Section 10.1(c) shall
not be subject to the General Deductible Amount.
(b) The maximum amount which WCI can recover as a result
of one or more 10.1 Indemnity Events pursuant to the provisions hereof for
Claims shall not exceed:
(i) Sixty percent (60%) of the Purchase Price
(as adjusted pursuant to Section 1.2) if the Claims Notice for the 10.1
Indemnity Event is delivered to the Shareholder during the time period from the
Closing Date to and including the first anniversary of the Closing Date;
(ii) Forty-five percent (45%) of the Purchase
Price (as adjusted pursuant to Section 1.2) if the Claims Notice for the 10.1
Indemnity Event is delivered to the Shareholder during the time period from the
first anniversary of the Closing Date to and including the second anniversary of
the Closing Date; and
(iii) Thirty percent (30%) of the Purchase Price
(as adjusted pursuant to Section 1.2) if the Claims Notice for the 10.1
Indemnity Event is delivered to the Shareholder during the time period from the
second anniversary of the Closing Date to and including the third anniversary of
the Closing Date.
(c) Except to the extent the same shall directly result
in a material increase in insurance premiums on a prospective basis, the
Shareholder shall not be required to indemnify any WCI Indemnitee for any Claim
to the extent that such Claim has been reimbursed or is reimbursable through
insurance proceeds received or receivable by the WCI Indemnitee. Notwithstanding
the foregoing, the WCI Indemnitee shall not be obligated to pursue reimbursement
of any Claim through insurance proceeds but rather may be indemnified by the
Shareholder and may allow the Shareholder to pursue such insurance proceeds
directly, in which event the WCI Indemnitee shall reasonably cooperate with the
Shareholder in connection therewith. In the event the WCI Indemnitee obtains
insurance proceeds but the amount of such insurance does not cover the full
amount of the Claim, or in the event the Claim shall directly
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result in an increase in insurance premiums on a prospective basis, the
Shareholder shall remain liable for the difference in the insurance proceeds 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. At the request of Shareholder, WCI will
maintain or obtain liability insurance to cover losses of the type described in
Section 10.1(b) to the extent available for the period set forth in Section
10.2(e). Shareholder shall promptly pay or reimburse WCI for the cost of such
insurance upon presentation of satisfactory evidence of the cost thereof.
(d) 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 or otherwise,
including claims under statute or common law, except for Fraud (as defined
below), provided that nothing in this Section 10 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 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. For the purposes of
this Section 10, "FRAUD" shall mean criminal activity, fraud, fraudulent
inducement, intentional misrepresentation or concealment.
(e) The obligations of the Shareholder under Section
10.1 shall expire, unless a Claims Notice is given or litigation is commenced on
or prior to the third anniversary of the Closing Date or, with respect to Claims
based on Section 3.18, 90 days after the expiration of the applicable statute of
limitations.
10.3 NOTICE OF INDEMNITY CLAIM.
(a) In the event that any claim ("CLAIM") is hereafter
asserted against or arises with respect to any WCI Indemnitee as to which such
Indemnitee may be entitled to indemnification hereunder, the WCI Indemnitee
shall notify the Shareholder (the "INDEMNIFYING PARTY") in writing thereof (the
"CLAIMS NOTICE") within 60 days after (i) receipt of written notice of
commencement of any third party litigation against such WCI Indemnitee, (ii)
receipt by such WCI Indemnitee of written notice of any third party claim
pursuant to an invoice, notice of claim or assessment, against such WCI
Indemnitee, or (iii) such WCI Indemnitee becomes aware of the existence of any
other event in respect of which indemnification may be sought from the
Indemnifying Party (including, without limitation, any inaccuracy of any
representation or warranty or breach of any covenant). The Claims Notice shall
describe the Claim and the specific facts and circumstances in reasonable
detail, and shall indicate the amount, if known, or an estimate, if possible, of
the losses that have been or may be incurred or suffered by the WCI Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including such
Claims) do not exceed the limit set forth in Section 10.2 at the time the Claim
is made, by the Indemnifying Party's own counsel; provided, however, the
Indemnifying Party may assume and undertake the defense of such a third party
Claim only upon written agreement by the Indemnifying Party that the
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Indemnifying Party is obligated to fully indemnify the WCI Indemnitee with
respect to such action. The WCI Indemnitee may participate, at the WCI
Indemnitee's own expense, in the defense of any Claim assumed by the
Indemnifying Party. Without the written approval of the WCI Indemnitee, which
approval shall not be unreasonably withheld, the Indemnifying Party shall not
agree to any compromise of a Claim defended by the Indemnifying Party.
(c) If, within twenty (20) days of the Indemnifying
Party's receipt of a Claims Notice, the Indemnifying Party shall not have
provided the written agreement required by Section 10.3(b) and elected to defend
the Claim, the WCI Indemnitee shall have the right to assume control of the
defense and/or compromise of such Claim, and the costs and expenses of such
defense, including reasonable attorneys' fees, shall be added to the Claim. The
Indemnifying Party shall promptly, and in any event within ten (10) days after
demand therefor, reimburse the WCI Indemnitee for the costs of defending the
Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress and
development of its or their defense of and compromise efforts with respect to
such Claim and shall furnish the other party with copies of all relevant
pleadings, correspondence and other papers. In addition, the parties to this
Agreement shall cooperate with each other and make available to each other and
their representatives all available relevant records or other materials required
by them for their use in defending, compromising or contesting any Claim. The
failure to timely deliver a Claims Notice or otherwise notify the Indemnifying
Party of the commencement of such actions in accordance with this Section 10.3
shall not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes by
competent evidence that it has been prejudiced thereby.
(e) In the event both the WCI Indemnitee and the
Indemnifying Party are named as defendants in an action or proceeding initiated
by a third party, they shall both be represented by the same counsel (on whom
they shall agree), unless such counsel the WCI Indemnitee, or the Indemnifying
Party shall determine that such counsel has a conflict of interest in
representing both the WCI Indemnitee and the Indemnifying Party in the same
action or proceeding and the WCI Indemnitee and the Indemnifying Party do not
waive such conflict to the satisfaction of such counsel.
10.4 LIABILITY FOR BREACHES OF REPRESENTATIONS AND WARRANTIES.
The liability of a party making the representations and warranties 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") for a breach 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(e), 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(e)
but only as to the representations and warranties relevant to such Claims.
10.5 NO EXHAUSTION OF REMEDIES; SUBROGATION; RIGHT OF SET OFF.
The Shareholder waives any right to require any WCI Indemnitee to (i) proceed
against the
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<PAGE> 38
Corporations; (ii) proceed against any other person; or (iii) pursue any other
remedy whatsoever in the power of any WCI Indemnitee. WCI may, but shall not be
obligated to, set off against any and all payments due the Shareholder any
amount to which any WCI Indemnitee is entitled to be indemnified hereunder with
respect to any 10.1 Indemnity Event. Such right of set off shall be separate and
apart from any and all other rights and remedies that the Indemnities may have
against the Shareholder or his successors. To the extent of any payment made by
Shareholder to any WCI Indemnitee on account of any Claim pursuant to this
Section 10, the Shareholder shall be subrogated to all of the rights of recovery
of such WCI Indemnitee, and such WCI Indemnitee shall, at the expense of the
Shareholder, execute all documents reasonably required and shall do all things
reasonably necessary to secure such rights and to enable the Shareholder
effectively to bring suit to enforce such rights.
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDER AND WCI
11.1 RESTRICTIVE COVENANTS. As to the Corporations, the
Shareholder and his Affiliates acknowledge that (i) WCI, as the purchaser of the
Corporations' Stock, is and will be engaged in the same business as CRC and FBLP
(the "BUSINESS"); (ii) the Shareholder and his Affiliates are intimately
familiar with the Business; (iii) the Business is currently conducted in the
States of Oregon and Washington and WCI intends to continue the Business in
Oregon and Washington and intends, by acquisition or otherwise, to expand the
Business into other geographic areas of Oregon and Washington where it is not
presently conducted; (iv) the Shareholder and his Affiliates have had access to
trade secrets of, and confidential information concerning, the Business; (v) the
agreements and covenants contained in this Section 11.1 are essential to protect
the Business and the goodwill being acquired; and (vi) the Shareholder and his
Affiliates have the means to support themselves and their dependents other than
by engaging in a business substantially similar to the Business and the
provisions of this Section 8 will not impair such ability. The Shareholder
covenants and agrees as set forth in (a), (b) and (c) below with respect to WCI,
CRC and FBLP:
(a) NON-COMPETE. For a period commencing on the Closing
Date and terminating ten (10) years thereafter (the "RESTRICTED PERIOD"),
neither the Shareholder nor any of his Affiliates shall, anywhere within the
State of Washington or Oregon, or in any county in Washington or Oregon where
CRC, FBLP or WCI or one of its subsidiaries owns or operates the Business or a
business similar to the Business (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 operation of a solid waste collection, transportation, disposal, tire
processing and/or composting business, transfer facility, recycling facility,
materials recovery facility or solid waste landfill, except that the Shareholder
may engage in any such capacity in the operation of a tire processing business
using a method not used by CRC or FBLP if the Shareholder does not solicit any
tire processing customers of either CRC or FBLP in violation of clause (ii);
(ii) enter the employ of, or render any personal services to or for the benefit
of, or assist in or facilitate the solicitation of customers for, or receive
remuneration in the form of salary, commissions or otherwise from, any business
engaged in such activities; (iii) as owner or lessor of real estate or personal
property, rent to or lease any facility, equipment or other assets to any
business engaged in the same business as CRC or FBLP; (iv) receive or purchase a
financial interest in, make a loan to, or make a gift in support
37
<PAGE> 39
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 [x] the Shareholder may own, directly or
indirectly, solely as an investment, securities of any business traded on any
national securities exchange or NASDAQ, if the Shareholder is not a controlling
person of, or a member of a group which controls, such business and further
provided that the Shareholder does not, in the aggregate, directly or
indirectly, own 2% or more of any class of securities of such business; [y] to
the extent Tidewater is engaged in such activities on or after the Closing Date,
Shareholder shall not be deemed to be in breach of this Section 11.1(a) so long
as his ownership of equity securities of Tidewater does not exceed the amount
owned on the Closing Date and so long as Shareholder does not participate in
such activities on behalf of Tidewater; and [z] the Shareholder may engage in
any of the above activities as a direct or indirect majority shareholder of
Tidewater insofar as they relate to the transportation of solid waste by
Tidewater.
(b) CONFIDENTIAL INFORMATION. During the Restricted
Period and thereafter, the Shareholder and his Affiliates shall keep secret and
retain in strictest confidence, and shall not use for the benefit of themselves
or others, all data and information relating to the Business ("CONFIDENTIAL
INFORMATION"), including without limitation, know-how, trade secrets, customer
lists, supplier lists, details of contracts, pricing policies, operational
methods, marketing plans or strategies, bidding information, practices, policies
or procedures, product development techniques or plans, and technical processes;
provided, however, that the term "CONFIDENTIAL INFORMATION" shall not include
information that (i) is or becomes generally available to the public other than
as a result of disclosure by the Shareholder or (ii) is general knowledge in the
solid waste handling and landfill business and not specifically related to the
Business. Notwithstanding the foregoing, Shareholder may disclose and discuss
confidential information with his legal and tax advisors, and as is required in
connection with any legal proceedings, and the Shareholder shall give WCI prior
written notice of such disclosure at least forty-eight (48) hours before such
disclosure is made, if possible.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof) relating
to the Business, including such items stored in computer memories, on microfiche
or by any other means, made or compiled by or on behalf of the Shareholder, the
Corporations, CRC or FBLP, 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 Shareholder prior to the
Closing, are and shall be the property of WCI and have been delivered or will be
delivered or made available to WCI at the Closing. Neither Shareholder nor
counsel to Shareholder or the Corporations shall have any obligation to furnish
materials excluded under the foregoing to WCI. All material that has been
delivered or will be delivered to WCI under the foregoing provisions will be
made available to the Shareholder upon reasonable request in connection with tax
or other legal compliance matters or in connection any dispute under this
Agreement.
(d) NON-SOLICITATION. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, the Shareholder and his
Affiliates shall not solicit any employees of the Corporations, CRC or FBLP to
leave the employ of the Corporations, CRC or FBLP and join the Shareholder or
any Affiliate in any business endeavor owned or pursued by the Shareholder.
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<PAGE> 40
(e) NO DISPARAGEMENT. From and after the Closing Date,
the Shareholder shall not, in any way or to any person or entity or governmental
or regulatory body or agency, denigrate or derogate WCI or any of its
subsidiaries, or any officer, director or employee, or any product or service or
procedure of any such company whether or not such denigrating or derogatory
statements shall be true and are based on acts or omissions which are learned by
the Shareholder from and after the date hereof or on acts or omissions which
occur from and after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely affects the
regard or esteem in which such person or entity is held by investors, lenders or
licensing, rating, or regulatory entities. Without limiting the generality of
the foregoing, the Shareholder shall not, directly or indirectly in any way in
respect of any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such company with any
person, entity or governmental or regulatory body or agency who or which has
dealings or prospective dealings with any such company or jurisdiction or
prospective jurisdiction over any such company. This paragraph does not apply to
the extent that testimony is required by legal process, provided that WCI has
received not less than five days' prior written notice of such proposed
testimony, nor does it apply to any statements made in connection with any
judicial proceeding, arbitration or mediation to which WCI or one of its
Affiliates and the Shareholder or one of his Affiliates (including Tidewater)
are parties seeking to resolve any dispute relating to the interpretation or
enforcement of this Agreement or the Transportation Agreement.
11.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholder or any
Affiliate breaches, or threatens to commit a breach of, any of the provisions of
Section 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 Shareholder
from any violation thereof.
(b) ACCOUNTING. The right and remedy to require the
Shareholder to account for and pay over to WCI all compensation, profits,
monies, accruals, increments or other benefits derived or received by the
Shareholder as the result of any transactions constituting a breach of the
Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholder
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
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<PAGE> 41
(d) BLUE-PENCILING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, such court shall reduce the
duration or scope of such provision, as the case may be, to the extent necessary
to render it enforceable and, in its reduced form, such provision shall then be
enforced.
(e) ENFORCEABILITY IN JURISDICTION. WCI and the
Shareholder intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of WCI and the Shareholder that such
determination not bar or in any way affect WCI's right to the relief provided
above in the courts of any other jurisdiction within the geographic scope of the
Restrictive Covenants as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
12. GENERAL
12.1 ADDITIONAL CONVEYANCES. Following the Closing, the
Shareholder and WCI shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as WCI
or the Shareholder may reasonably request for the purpose of carrying out this
Agreement. The Shareholder will cooperate with WCI and/or the 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.
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 heirs, legal representatives or assigns of the Shareholder; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its or his responsibilities
under this Agreement.
12.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party
shall make any public announcement or filing with respect to the transactions
provided for herein prior to the Closing Date without the prior consent of the
other parties hereto. The Shareholder, the Corporations, CRC and FBLP
acknowledge that WCI will issue a press release following execution and delivery
of this Agreement. WCI will deliver a copy of the press release to the
Shareholder prior to its release. WCI agrees that prior to the Closing Date, it
will not file a post-effective amendment to its registration statement on Form
S-4 filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, to include the financial statements of the Corporations,
CRC or FBLP without Shareholder's consent.
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.
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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 prepaid registered or certified U.S. mail,
return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to the Shareholder: at his respective address set forth on
Schedule 3.2
With a copy to: Henry C. Breithaupt, Esq.
Stoel Rives LLP
900 S.W. Fifth Avenue, Suite 2600
Portland, OR 97204-1268
Fax: (503) 220-2480
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 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, California 94111
Fax: (415) 421-2922
12.6 ATTORNEYS' FEES. In the event of any dispute or controversy
between WCI on the one hand and the Corporations or the Shareholder on the other
hand relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and expenses incurred by the prevailing
party, as awarded by the court. Such award shall include post-judgment
attorney's fees and costs.
12.7 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.
12.8 PAYMENT OF FEES AND EXPENSES. Whether or not the
transactions herein contemplated shall be consummated, each party hereto will
pay its own fees, expenses and disbursements incurred in connection herewith and
all other costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the Shareholder,
any such fees, expenses and disbursements paid or accrued by, or charged to, the
Corporations), provided that WCI shall pay all filing fees under the HSR Act.
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<PAGE> 43
12.9 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.
12.10 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.
12.11 NUMBER AND GENDER OF WORDS; CORPORATIONS. 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.
12.12 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the entire Agreement and understanding between the Corporations, the
Shareholder and WCI and supersedes any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Corporations, the
Shareholder and WCI acting through its officers, thereunto duly authorized by
its Board of Directors.
12.13 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.
12.14 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 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. Wherever reference is made in this Agreement to the "KNOWLEDGE" of the
Shareholder, such term means the actual knowledge of the Shareholder or any
knowledge which should have been obtained by the Shareholder upon reasonable
inquiry by a reasonable business person. In the case of a Shareholder that is a
trust, the term "KNOWLEDGE" means the actual knowledge of the trustee or
trustees of the trust or any knowledge which should have been obtained by the
trustee or trustees upon reasonable inquiry by a reasonable business person.
Wherever reference is made in this Agreement to the "KNOWLEDGE" of the
Corporations, such term means the actual knowledge of any management employee,
officer or director of the Corporations or any knowledge which should have been
obtained by any such person upon reasonable inquiry by a reasonable business
person.
12.15 DISCLOSURE SCHEDULES. The language in all parts of this
Agreement must be 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
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nature of the matter disclosed is obvious from a fair reading of the Schedule on
which the matter is disclosed.
13. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquisition Transaction Section 5.6
Affiliate Section 3.11
Antitrust Division Section 9.10(b)
at will Section 8.2(d)
Balance Sheet Date Section 3.7
Bond Debt Section 1.2
business day Section 12.14
Business Section 11.1
Cause Section 9.12
Claim Section 10.3(a)
Claims Notice Section 10.3(a)
Closing Section 2.1
Closing Date Section 2.1
Closing Date Debt Section 3.22(a)
Code Section 3.17(a)
Collection Franchises Section 3.10(a)
Confidential Information Section 11.1(b)
Corporations Parties
Corporations' Stock Recitals
CRC Parties
day Section 12.14
Effective Date Section 2.1
Effective Date Current Assets Section 3.22(b)
Effective Date Current Liabilities Section 3.22(b)
Environmental Site Section 10.1(b)
Environmental Site Losses Section 10.1
Environmental Laws Section 3.24
ERISA Section 3.17(a)
Excluded Assets Section 1.4
Facility Section 3.10(c)
Facilities Section 3.10(c)
Facility Employees Section 9.12
Facility Property Section 3.12(b)
FBLP Recitals
Financial Statements Section 3.7
Fraud Section 10.2(d)
FTC Section 9.10(b)
General Deductible Amount Section 10.2(a)
golden parachute Section 3.17(a)
</TABLE>
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<PAGE> 45
<TABLE>
<S> <C>
Golden Parachute Payment Section 3.17(c)
Governmental Permits Section 3.10(a)
Hazardous Material Section 3.24(e)
Hazardous Waste Section 3.24(e)
HSR Act Section 3.10(a)
Indemnifying Party Section 10.3(a)
Indemnity Events Section 10.1
knowledge Section 12.14
Landfill Recitals
Laws Section 3.24
MENI Recitals
multi-employer plan Section 3.17(a)
Necessary Consents Section 5.3
Net Loss Section 1.2
Net Profit Section 1.2
occurrence Section 3.15
Office Employees Section 9.12
Permitted Liens Section 3.12(c)
Purchase Price Section 1.1
RCRA Section 3.24(e)
Real Property Recitals
Recipient Section 3.17(c)
Records, Notifications and Reports Section 3.10(b)
Release Section 10.1(b)
Representations and Warranties Section 10.4
Required Governmental Consents Section 3.10(a)
Restricted Area Section 11.1(a)
Restricted Period Section 11.1(a)
Restrictive Covenants Section 11.2
RHFC Recitals
Shareholder Recitals
Signing Date Recitals
Termination Date Section 2.2(a)
Tidewater Section 8.2(g)
Transportation Agreement Section 8.2(g)
UST Section 3.26
WCI Parties
WCI Indemnitees Section 10.1
</TABLE>
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
WCI: WASTE CONNECTIONS, INC.
By:
-------------------------------------
Ronald J. Mittelstaedt
Chief Executive Officer & President
THE CORPORATIONS: (See Schedule A)
THE SHAREHOLDER: (See Schedule A)
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<PAGE> 47
SCHEDULE A TO AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
Each of the undersigned (i) Management Environmental National, Inc.,
(ii) RH Financial Corporation, and (iii) the Shareholder of Management
Environmental National, Inc. and RH Financial Corporation hereby agrees that it
or he is a party to the Amended and Restated Stock Purchase Agreement dated as
of March 31, 1999, among Waste Connections, Inc., Management Environmental
National, Inc., RH Financial Corporation and the Shareholder and further agrees
that it or he is bound by all of the terms and provisions thereof as though it
or he had executed the signature page thereof, it being understood that each of
the undersigned has executed this Schedule A in lieu of the signature page at
the Shareholder's request as a matter of convenience and confidentiality. Each
of the undersigned has executed this Schedule A as of the date of the Stock
Purchase Agreement.
THE CORPORATIONS: MANAGEMENT ENVIRONMENTAL
NATIONAL, INC.
By:
-------------------------------------
Wesley J. Hickey, President
RH FINANCIAL CORPORATION
By:
-------------------------------------
Wesley J. Hickey, President
THE SHAREHOLDER:
----------------------------------------
Wesley J. Hickey
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURCHASE OF CORPORATIONS' STOCK.....................................................1
1.1 Shares to be Purchased.......................................................1
1.2 Purchase Price...............................................................2
1.3 Allocation of the Purchase Price.............................................2
1.4 Excluded Assets..............................................................2
2. CLOSING TIME AND PLACE..............................................................3
2.2 Termination..................................................................3
2.3 Notice and Effect of Termination.............................................4
2.4 Exclusive Negotiations.......................................................4
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE SHAREHOLDER..............4
3.1 Organization, Standing and Qualification.....................................4
3.2 Capitalization...............................................................5
3.3 All Stock Being Acquired.....................................................5
3.4 Authority for Agreement......................................................5
3.5 No Breach or Default.........................................................5
3.6 Subsidiaries.................................................................6
3.7 Financial Statements.........................................................6
3.8 Liabilities..................................................................6
3.9 Accurate and Complete Records................................................7
3.10 Permits and Licenses.........................................................8
3.11 Certain Receivables..........................................................9
3.12 Fixed Assets and Real Property..............................................10
3.13 Related Party Transactions..................................................11
3.14 Contracts and Agreements; Adverse Restrictions..............................11
3.15 Insurance...................................................................11
3.16 Personnel...................................................................12
3.17 Benefit Plans and Union Contracts...........................................12
3.18 Taxes.......................................................................13
3.19 Copies Complete; Required Consents..........................................14
3.20 Customers, Billings, Current Receipts and Receivables.......................14
</TABLE>
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<PAGE> 49
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.21 No Change With Respect to the Corporations..................................15
3.22 Closing Date Debt; Effective Date Current Assets and Effective Date
Current Liabilities.........................................................16
3.23 Bank Accounts...............................................................17
3.24 Compliance With Laws........................................................17
3.25 Powers of Attorney..........................................................18
3.26 Underground Storage Tanks...................................................19
3.27 Patents, Trademarks, Trade Names, etc.......................................19
3.28 Assets, etc., Necessary to Business.........................................20
3.29 Condemnation................................................................20
3.30 Suppliers and Customers.....................................................20
3.31 Absence of Certain Business Practices.......................................20
3.32 No Misleading Statements....................................................20
3.33 Brokers; Finders............................................................21
3.34 S Corporation Matters.......................................................21
4. REPRESENTATIONS AND WARRANTIES OF WCI..............................................21
4.1 Existence and Good Standing.................................................21
4.2 No Contractual Restrictions.................................................21
4.3 Authorization of Agreement..................................................21
4.4 Governmental Authorities; Consents..........................................21
4.5 No Misleading Statements....................................................22
4.6 Brokers; Finders............................................................22
5. COVENANTS FROM SIGNING TO CLOSING DATE.............................................22
5.1 Operations..................................................................22
5.2 No Change...................................................................23
5.3 Obtain Consents.............................................................24
5.4 Access; Confidential Information............................................24
5.5 Control of the Corporations' Operations.....................................24
5.6 Acquisition Transactions....................................................25
6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI TO CLOSE.................................25
6.1 Representations and Warranties..............................................25
</TABLE>
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<PAGE> 50
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.2 Conditions..................................................................25
6.3 No Material Adverse Change..................................................25
6.4 Certificates................................................................25
6.5 No Litigation...............................................................26
6.6 Other Deliveries............................................................26
6.7 Necessary Consents..........................................................26
6.8 HSR Waiting Period..........................................................26
6.9 Title Insurance.............................................................26
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDER AND THE CORPORATION TO
CLOSE..............................................................................26
7.1 Representations and Warranties..............................................26
7.2 Conditions..................................................................26
7.3 Certificate.................................................................26
7.4 No Litigation...............................................................27
7.5 Other Deliveries............................................................27
7.6 Necessary Consents..........................................................27
7.7 HSR Waiting Period..........................................................27
8. CLOSING DELIVERIES.................................................................27
8.1 WCI Deliveries..............................................................27
8.2 Shareholder Deliveries......................................................27
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDER...................28
9.1 No Delay....................................................................28
9.2 Release of Guaranties.......................................................28
9.3 Release of Security Interests...............................................29
9.4 Confidentiality.............................................................29
9.5 Brokers and Finders Fees....................................................29
9.6 Taxes.......................................................................29
9.7 Short Year Tax Returns......................................................29
9.8 General Release by the Shareholder..........................................30
9.9 Certain Tax Matters.........................................................30
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
9.10 Agreement to Cooperate......................................................31
9.11 Notification of Certain Matters.............................................31
9.12 Employees...................................................................32
9.13 NonCompetition Agreement....................................................32
10. INDEMNIFICATION....................................................................32
10.1 Indemnity by the Shareholder................................................32
10.2 Limitations on the Shareholder's Indemnities................................34
10.3 Notice of Indemnity Claim...................................................35
10.4 Liability for Breaches of Representations and Warranties....................36
10.5 No Exhaustion of Remedies; Subrogation; Right of Set Off....................36
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDER AND WCI............................37
11.1 Restrictive Covenants.......................................................37
11.2 Rights and Remedies Upon Breach.............................................39
12. GENERAL............................................................................40
12.1 Additional Conveyances......................................................40
12.2 Assignment..................................................................40
12.3 Public Announcements........................................................40
12.4 Counterparts................................................................40
12.5 Notices.....................................................................41
12.6 Attorneys' Fees.............................................................41
12.7 Applicable Law..............................................................41
12.8 Payment of Fees and Expenses................................................41
12.9 Incorporation by Reference..................................................42
12.10 Captions....................................................................42
12.11 Number and Gender of Words; Corporations....................................42
12.12 Entire Agreement............................................................42
12.13 Waiver......................................................................42
12.14 Construction................................................................42
12.15 Disclosure Schedules........................................................42
13. GLOSSARY...........................................................................43
</TABLE>
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Waste Connections of Idaho, Inc., a Delaware corporation
Waste Connections of Washington, Inc., a Washington corporation
Waste Connections of Wyoming, Inc., a Delaware corporation
Madera Disposal Systems, Inc., a California corporation
Sunshine Sanitation, Incorporated, a South Dakota corporation
Sowers' Sanitation, Inc., a South Dakota corporation
Waste Connections of Utah, Inc., a Delaware corporation
B&B Sanitation, Inc., an Oklahoma corporation
Red Carpet Landfill, Inc., an Oklahoma corporation
Darlin Equipment, Inc., an Oklahoma corporation
Arrow Sanitary Service, Inc., an Oregon corporation doing business as "Oregon
Paper Fiber"
Curry Transfer and Recycling, Inc., an Oregon corporation
Oregon Waste Technology, Inc., an Oregon corporation (wholly owned by Curry
Transfer and Recycling, Inc.)
T&T Disposal, Inc., a Wyoming corporation
Waste Connections of Nebraska, Inc., a Delaware corporation
Shrader Refuse and Recycling Service Company, a Nebraska corporation
Big Red Roll Off, Inc., a Nebraska corporation
J&J Sanitation, Inc., a Nebraska corporation
Evergreen Waste Systems, Inc., an Oregon corporation
Siuslaw Disposal, Inc., an Oregon corporation
Moreland Sanitary Service, Inc., an Oregon corporation
Columbia Sanitary Service, Inc., an Oregon corporation
Amador Disposal Service, Inc., a California corporation
Mother Lode Sani-Hut, Inc., a California corporation
Roche & Sons, Inc., a Utah corporation
City Sanitation, Inc., a Utah corporation
Butler County Landfill, a Nebraska corporation
Murrey's Disposal Company, Inc., a Washington corporation
American Disposal Company, Inc., a Washington corporation
D. M. Disposal Co., Inc., a Washington corporation
Tacoma Recycling Company, Inc., a Washington corporation
CRX Inc., a Nebraska corporation
Dopheide Sanitary Service Inc., a Nebraska corporation
Better Disposal Service, Inc., a Nebraska corporation
Wahoo Sanitation, Inc., a Nebraska corporation
Saunders County Disposal, Inc., a Nebraska corporation
Ritter's Sanitary Service, Inc., a Minnesota corporation
Management Environmental National, Inc., a Washington corporation
RH Financial Corporation, a Washington corporation
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports listed below included in Post Effective Amendment No. 5 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:
Report dated February 17, 1999 (except for the third and fourth paragraphs of
Note 14, as to which the dates are March 31, 1999) with respect to the
financial statements and schedule of Waste Connections, Inc. and
Predecessors;
Report dated February 4, 1999 with respect to the 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.); and,
Report dated February 17, 1999 (except for the third and fourth paragraphs of
Note 15, as to which the dates are March 31, 1999) with respect to the
supplemental consolidated financial statements of Waste Connections, Inc. and
Predecessors.
ERNST & YOUNG LLP
Sacramento, California
April 22, 1999
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report on the combined financial statements
of Columbia Resource Co., L.P. and Finley-Buttes Limited Partnership included
in this Registration Statement on Form S-4 and to the reference to our Firm
under the caption "Experts" in the Prospectus.
PERKINS & COMPANY, P.C.
Portland, Oregon
April 23, 1999
