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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-28652
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3858494
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
620 Coolidge Drive
Suite 350
Folsom, California 95630
(Address of principal executive offices) (Zip Code)
(916) 608-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of registrant as
of February 28, 2000: $162,670,376
Number of shares of Common Stock outstanding as of February 28, 2000: 21,397,016
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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WASTE CONNECTIONS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM NO. PAGE
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PART I
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1. BUSINESS 3
2. PROPERTIES 14
3. LEGAL PROCEEDINGS 14
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 14
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 16
6. SELECTED HISTORICAL AND SUPPLEMENTAL FINANCIAL
AND OPERATING DATA 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 29
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 29
PART III
PART IV
14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS
ON FORM 8-K II-1
SIGNATURES II-2
EXHIBIT INDEX II-4
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PART I
Forward Looking Statements
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," includes forward-looking statements that involve risks
and uncertainties. Various factors that are discussed in connection with the
forward-looking statements, or in our other Securities and Exchange Commission
filings, could affect our actual results and could cause our actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, Waste Connections in this Annual Report on Form 10-K.
ITEM 1. BUSINESS
General
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. We currently own and operate 58
collection operations, 15 transfer stations, nine Subtitle D landfills and 17
recycling facilities and operate, but do not own, an additional seven transfer
stations and six Subtitle D landfills. As of January 31, 2000, we served more
than 500,000 commercial, industrial and residential customers in 15 states:
California, Colorado, Idaho, Iowa, Kansas, Minnesota, Nebraska, New Mexico,
Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.
Approximately 60% of our revenues are derived from exclusive arrangements.
Waste Connections was formed in September 1997 to build a leading solid
waste services company in the secondary markets of the Western U.S. We have
targeted these markets because we believe that: (1) a large number of
independent solid waste services companies suitable for acquisition by us are
located in these markets; (2) there is less competition in these markets from
larger, better-capitalized solid waste services companies; and (3) these markets
have strong projected economic and population growth rates. In addition, our
senior management team has extensive experience in acquiring, integrating and
operating solid waste services businesses in the Western U.S.
We have developed a two-pronged strategy tailored to the competitive and
regulatory factors that affect our markets. In the markets where waste
collection services are performed under exclusive arrangements, we generally
focus on controlling the solid waste stream by providing collection services
under such arrangements. In markets where we believe that competitive and
regulatory factors make owning landfills advantageous, we generally focus on
providing integrated services, from collection through disposal of solid waste
in landfills that we own or operate.
Acquisitions have been and are expected to continue to be a principal
component of our growth strategy. From our initial public offering in May 1998
to January 31, 2000, we acquired 85 solid waste services businesses, including
77 collection operations (of which 44 were "tuck-in" acquisitions), 14 Subtitle
D landfills which we own or operate, 20 transfer stations which we own or
operate and 16 recycling facilities. These acquisitions took us into 14 new
markets in ten additional states: Colorado, Iowa, Kansas, Minnesota, Nebraska,
New Mexico, Oklahoma, Oregon, Texas and Utah. Generating internal growth and
securing additional exclusive arrangements are also important components of our
growth strategy.
Unless otherwise noted, all descriptions of our business in this Annual
Report on Form 10-K are as of January 31, 2000.
Industry Background
According to Waste Age, an industry trade publication, the U.S. solid waste
services industry generated estimated revenues of $36.9 billion in 1997. The
solid waste services industry has undergone significant consolidation and
integration since 1990. We believe that, particularly in the Western U.S., the
following factors have primarily caused the consolidation and integration of the
waste services industry:
- - Increased Impact of Regulations. 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, and mandates
liner systems, leachate collection, treatment and monitoring systems and
gas collection and monitoring systems. These ongoing costs
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are combined with increased financial reserve requirements for solid waste
landfill operators relating to closure and post-closure monitoring. As a
result, the number of solid waste landfills is declining while the average
size is increasing.
- - Increased Integration of Collection and Disposal Operations. In certain
markets, 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 to capture significant
waste stream volumes to gain leverage in negotiating lower landfill fees,
and securing long-term, most-favored-pricing contracts with high capacity
landfills.
- - Pursuit of Economies of Scale. Larger operators achieve economies of scale
by vertically integrating their operations or by spreading their facility,
asset and management infrastructure over larger volumes. Larger solid waste
collection and disposal companies have become more cost-effective and
competitive by controlling a larger waste stream and by gaining access to
significant financial resources to make acquisitions.
Regulatory Framework in the Western U.S. 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 governmental certificates
awarded to waste collection service providers in unincorporated areas and
electing municipalities of Washington by the Washington Utilities and
Transportation Commission (the "WUTC"), typically grant the certificate
holder the exclusive and perpetual right to provide specific residential,
commercial and industrial waste services in a territory at specified rates.
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
governmental 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 these services in their area.
These exclusive rights and contractual arrangements create barriers to
entry that can be overcome primarily through acquisitions of companies with
such exclusive rights or contractual arrangements.
Despite the ongoing consolidation, the solid waste services industry
remains primarily regional in nature and highly fragmented. Based on published
industry sources, approximately 25% 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. We expect 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. In addition, many independent operators may wish to sell their
businesses to achieve liquidity in their personal finances or as part of their
estate planning. We believe that the fragmented nature of the industry offers
significant consolidation and growth opportunities, especially in secondary
markets of the Western U.S., for companies with disciplined acquisition
programs, decentralized operating strategies and access to financial resources.
Strategy
Our objective is to build a leading integrated solid waste services company
in secondary markets of the Western U.S. We have developed a two-pronged
strategy tailored to the competitive and regulatory factors that affect our
markets.
First, in markets where waste collection services are provided under
exclusive arrangements, or where waste disposal is municipally funded or
available from multiple municipal sources, we believe that controlling the waste
stream by providing collection services under exclusive arrangements is often
more important to our growth and profitability than owning or operating
landfills. In addition, regulations in some Western U.S. markets dictate the
disposal facility to be used. The large size of many western states increases
the cost of interstate and long haul disposal, heightening the effects of
regulations that direct waste disposal, which may make it more difficult for a
landfill to obtain the disposal volume necessary to operate profitably. In
markets with these characteristics, we believe that landfill ownership or
vertical integration is not critical to our success.
Second, in markets where we believe that owning landfills is a strategic
element to a collection operation because of competitive and regulatory factors,
we generally focus on providing integrated services, from collection through
disposal of solid waste in landfills that we own or operate.
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GROWTH STRATEGY
- - Expansion Through Acquisitions. We intend to expand the scope of our
operations by continuing to acquire solid waste operations in new markets
and in existing or adjacent markets that are combined with or "tuck in" to
existing operations.
We intend to expand into new geographic regions by entering these markets
through acquisitions. We use an initial acquisition in a new market as an
operating base. Then we seek to strengthen the acquired operation's
presence in that market by providing additional services, adding new
customers and making "tuck-in" acquisitions. We next seek to broaden our
regional presence by adding additional operations in markets adjacent to
the new location. We are currently examining opportunities in states other
than those in which we currently operate and are assessing potential
acquisitions of solid waste operations in Arizona and Montana.
We believe that many "tuck-in" acquisition opportunities exist within our
current and targeted market areas. For example, we have identified more
than 460 independent entities that provide collection and disposal services
in the states where we currently operate. We believe that throughout the
Western U.S., many independent entities are suitable for acquisition by
Waste Connections and provide opportunities to increase our market share
and route density.
- - Exclusive Arrangements. We derive a significant portion of our revenues
from arrangements, including franchise agreements, municipal contracts and
governmental certificates, under which we are the exclusive service
provider in a specified market. We intend to devote significant resources
to securing additional franchise agreements and municipal contracts through
competitive bidding and additional governmental certificates by acquiring
other companies. In bidding for franchises and municipal contracts and
evaluating acquisition candidates holding governmental certificates, our
management team draws on its experience in the waste industry and its
knowledge of local service areas in existing and target markets. Our
district managers maintain relationships with local governmental officials
within their 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 and contracts.
- - Internal Growth. To generate continued internal growth, we will focus on
increasing market penetration in our 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, we intend to leverage our franchise-based platforms
to expand our customer base beyond our exclusive market territories. As
customers are added in existing markets, our revenue per routed truck
increases, which generally increases our collection efficiencies and
profitability. In markets in which we have exclusive contracts, franchises
and certificates, we expect internal volume growth generally to track
population and business growth. Transfer stations are also an important
part of our internal growth strategy. They extend our direct-haul reach and
link disparate collection operations with disposal capacity that we own,
operate or contract. We currently own and/or operate 22 transfer stations.
By operating transfer stations, we also engage in direct communications
with municipalities and private operators that deliver waste to our
transfer stations. This positions us to gain additional business in our
markets if a municipality privatizes any solid waste operations it owns or
rebids existing contracts, and it increases our opportunities to acquire
other private collection operations that use the transfer stations.
OPERATING STRATEGY
- - Decentralized Operations. We manage our operations on a decentralized
basis. This places decision-making authority close to the customer,
enabling us to identify customers' needs quickly and to address those
needs in a cost-effective manner. We believe that decentralization
provides a low-overhead, highly efficient operational structure that
allows us to expand into geographically contiguous markets and operate in
relatively small communities that larger competitors may not find
attractive. We believe that this structure gives us a strategic
competitive advantage, given the relatively rural nature of much of the
Western U.S., and makes us an attractive buyer to many potential
acquisition candidates. We currently operate four divisions and are moving
towards a regional management structure with multiple divisions reporting
to each region. We currently deliver our services from 58 operating
locations serving 18 market areas (districts). Each district has a
district manager reporting to, and working in collaboration with, the
divisional vice president. The district manager generally 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. Both divisional
vice presidents and district managers also help identify acquisition
candidates and are responsible for integrating them into our operations
and obtaining the permits and other governmental approvals required for us
to operate the acquired business.
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- - Operating Enhancements. We develop company-wide operating standards, which
are tailored for each of our markets based on industry standards and local
conditions. Using these standards, we track collection and disposal routing
efficiency and equipment utilization. We also implement cost controls and
employee training and safety procedures, and establish a sales and
marketing plan for each market. We have 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. While
district management operates with a high degree of autonomy, our senior
officers monitor district operations and require adherence to our
accounting, purchasing, marketing and internal control policies,
particularly with respect to financial matters. Our executive officers
regularly review the performance of district managers and operations. We
believe that by establishing operating standards, closely monitoring
performance and streamlining certain administrative functions, we can
improve the profitability of existing operations.
To improve an acquired business' operational productivity, administrative
efficiency and profitability, we apply the same operating standards,
information systems and financial controls to acquired businesses as our
existing operations employ. Moreover, if we can internalize the waste
stream of acquired operations, we can further increase operating
efficiencies and improve capital utilization. Where not restricted by
exclusive agreements, contracts, permits or certificates, we also solicit
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
We currently operate in 15 states in the Western U.S. We focus our
acquisition efforts on markets in the Western U.S. that generally exhibit the
characteristics listed below, which we believe provide significant growth
opportunities for a well-capitalized market entrant and create economic and
operational barriers to entry by new competitors.
- A potential market revenue base of at least $15 million, usually in
market areas with a geographically dispersed population of 75,000 or
less;
- A fragmented market with additional acquisition candidates;
- The opportunity to acquire a significant market share;
- Strong projected economic or population growth rates;
- The availability of adequate disposal capacity, through acquisition or
agreements with third parties; and
- A favorable regulatory environment.
We believe that our experienced management, decentralized operating
strategy, financial strength, size and public company status make us an
attractive buyer to certain solid waste collection and disposal acquisition
candidates. We have developed a set of financial, geographic and management
criteria to evaluate specific acquisition candidates. The factors that we
consider in evaluating an acquisition candidate include:
- The candidate's historical and projected financial performance;
- The return on capital invested in a candidate, its margins and capital
requirements and its impact on our earnings;
- 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 Waste Connections;
- 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;
- Whether the geographic location of the candidate will enhance or
expand our market area or ability to attract other acquisition
candidates;
- Whether the acquisition will increase our market share or help protect
our existing customer base;
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- Any potential synergies that may be gained by combining the candidate
with our existing operations; and
- The liabilities of the candidate.
Before completing an acquisition, we perform extensive environmental,
operational, engineering, legal, human resources and financial due diligence.
Our management evaluates and approves all acquisitions. Ronald J. Mittelstaedt,
President, Chief Executive Officer and Chairman of the Board, is authorized to
approve acquisitions for consideration of up to $1 million; the Executive
Committee of the Board of Directors must approve all other acquisitions. We seek
to integrate each acquired business promptly and to minimize disruption to the
ongoing operations of both Waste Connections and the acquired business. Our
senior management team has a proven track record in integrating acquisitions.
SERVICES
COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES
We serve more than 500,000 commercial, industrial and residential
customers. Our services are generally provided under one of the following: a)
governmental certificates, b) exclusive franchise agreements, c) exclusive
municipal contracts, d) commercial and industrial service agreements, e)
residential subscriptions and f) residential contracts.
Governmental certificates, exclusive franchise agreements and exclusive
municipal contracts grant us rights to provide services within specified areas
at established rates. Governmental certificates are generally perpetual in
duration. Our exclusive franchise agreements have remaining terms ranging from
10 to 20 years, and our exclusive municipal contracts generally have shorter
contract terms.
We provide commercial and industrial services, other than those we perform
under governmental certificates, franchise agreements or municipal contracts,
under agreements ranging from one to seven years. We determine fees under these
agreements based on 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 our markets
for similar service. Collection of larger volumes associated with commercial and
industrial waste streams generally helps improve our operating efficiencies, and
consolidation of these volumes allows us to negotiate more favorable disposal
prices. Our commercial and industrial customers use portable containers for
storage, enabling us to service many customers with fewer collection vehicles.
Commercial and industrial collection vehicles normally require one operator. We
provide 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, we install stationary compactors
that compact waste prior to collection on the premises of a substantial number
of large volume customers.
We provide residential waste services, other than those we perform under
governmental certificates franchise agreements or municipal contracts under
contracts with homeowners' associations, apartment owners or mobile home park
operators, on an individual monthly subscription basis at established rates or
on a contract basis. We base residential fees on a contract basis 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
We have an active program to acquire, develop, own and operate transfer
stations in markets proximate to our operations. Currently, we own and operate
transfer stations in California, Colorado, Nebraska, Oregon and Washington.
Additionally, we operate, but do not own, transfer stations in California,
Oregon and Washington. These transfer stations receive, compact, and transfer
solid waste to be transported by larger vehicles to landfills. We believe that
the transfer stations benefit us by:
- concentrating the waste stream from a wider area, which increases the
volume of disposal at landfills that we operate and gives us greater
leverage in negotiating for more favorable disposal rates at other
landfills;
- improving utilization of collections personnel and equipment; and
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- building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.
LANDFILLS
We seek to identify solid waste landfill acquisition candidates to achieve
vertical integration in markets where the economic and regulatory environment
makes such acquisitions attractive. We believe that in some markets, acquiring
landfills provides opportunities to vertically integrate our collection,
transfer and disposal operations while improving operating margins. We evaluate
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 our 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,
we pursue long term disposal contracts with facilities, which are typically
municipally controlled.
Currently, we own and operate landfills in Colorado, Minnesota, Nebraska,
New Mexico and Oregon. Additionally, we operate, but do not own, landfills in
California, Nebraska and New Mexico. All landfills that we own or operate are
Subtitle D landfills.
We monitor the available permitted in-place disposal capacity of our
landfills on an ongoing basis and evaluate whether to seek to expand this
capacity. In making this evaluation, we consider 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 we will be
able to obtain the necessary approvals and permits required for the expansion
and the costs that would be involved in developing the additional capacity. We
also regularly consider 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.
RECYCLING SERVICES
We offer 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.
We own and operate 17 recycling processing facilities and sell other collected
recyclable materials to third parties for processing before resale. We often
share the profits from our resale of recycled materials with other parties to
our recycling contracts. For example, certain of our municipal recycling
contracts in Washington and Idaho, negotiated before we acquired those
businesses, specify certain benchmark resale prices for recycled commodities. To
the extent the prices we actually receive for the processed recycled commodities
collected under the contract exceed the prices specified in the contract, we
share the excess with the municipality, after recovering any previous shortfalls
resulting from actual market prices falling below the prices specified in the
contract. To reduce our exposure to commodity price risk with respect to
recycled materials, we have adopted a pricing strategy of charging collection
and processing fees for recycling volume collected from third parties. We
believe 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.
G CERTIFICATES
We perform a substantial portion of our collection business in Washington
under governmental certificates (referred to as "G certificates") awarded by 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 exclusive and
perpetual right to provide certain 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
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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 Waste Connections, 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 rate making methodology known as the "Lurito-Gallagher" method. This
method calculates rates based on the income statements and balance sheets of
each service provider, with the goal of establishing rates that reflect the
costs of providing service and that motivate service providers to invest in
equipment that improves operating efficiency in a cost-effective manner. The
Lurito-Gallagher rate-setting methodology was adjusted in the early 1990's to
better reflect the costs of providing recycling services, by accounting for
providers' increasing use of automated equipment and adjusting for the
cyclicality of the secondary recyclables markets. This has often resulted in
more frequent rate adjustments in response to material cost shifts.
SALES AND MARKETING
In many of our existing markets, we provide waste collection, transfer and
disposal services 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 we have
grown to date primarily through acquisitions, we have generally assumed existing
franchise agreements, municipal contracts and G certificates from the acquired
companies, rather than obtaining new contracts. For these reasons, our sales and
marketing efforts to date have been narrowly focused. We have added sales and
marketing personnel as necessary to solicit new customers in markets where we
are not the exclusive provider of solid waste services, expand our presence into
areas adjacent to or contiguous with our existing markets, and 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 three large national waste companies: Allied Waste Industries, Inc.,
Republic Services, Inc., and Waste Management, Inc. Casella Waste Systems, Inc.,
and Waste Industries, Inc. are other public companies with a regional focus and
annual revenues in excess of $100 million. Certain of the markets in which we
compete or will likely compete are served by one or more large, national solid
waste companies, as well as by numerous privately held regional and local solid
waste companies of varying sizes and resources, some of which have accumulated
substantial goodwill in their markets. We also compete 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 Waste Connections, because of their access to user fees and
similar charges, tax revenues and tax-exempt financing.
We compete for collection, transfer and disposal volume based primarily on
the price and quality of our 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 us to reduce the price of our services or, if we elect not to do so,
to lose business. We provide a substantial portion of our residential,
commercial and industrial collection services under exclusive franchise and
municipal contracts and certificates, some of which are subject to periodic
competitive bidding. We provide the balance of our services under subscription
agreements with individual households and one to five year service contracts
with commercial and industrial customers.
The solid waste collection and disposal industry is currently undergoing
significant consolidation, and we encounter competition in our efforts to
acquire landfills, transfer and collection operations. Intense competition
exists not only for collection, transfer and disposal volume, but also for
acquisition candidates. We generally compete for acquisition candidates with
publicly owned regional and large national waste management companies.
Competition in the disposal industry may also be affected by the increasing
national emphasis on recycling and other waste reduction programs, which may
reduce the volume of waste deposited in landfills. Accordingly, it may become
uneconomical for us to make further acquisitions or we may be unable to locate
or acquire suitable acquisition candidates at price levels and on terms and
conditions that we consider appropriate, particularly in markets we do not
already serve.
9
<PAGE> 10
REGULATION
INTRODUCTION
Our 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 that
affect us are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. The WUTC regulates the
portion of our collection business in Washington performed under G certificates,
which generally grant us perpetual and exclusive collection rights in certain
areas. We are currently in substantial compliance with applicable federal, state
and local environmental laws, permits, orders and regulations. We do not
currently anticipate any material environmental costs necessary to bring our
operations into compliance (although there can be no assurance in this regard).
We anticipate that regulation, legislation and regulatory enforcement actions
related to the solid waste services industry will continue to increase. We
attempt 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 our 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 and response
standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modeled on some or all
of the Subtitle C provisions issued by the EPA. Some state regulations impose
different, additional and more stringent obligations, and may regulate certain
materials as hazardous wastes that are not so regulated under the federal
Subtitle C Regulations. From the date of inception through January 31, 2000, we
did not, to our knowledge, transport hazardous wastes under circumstances that
would subject us to hazardous waste regulations under RCRA. Some of our
ancillary operations (e.g., vehicle maintenance operations) may generate
hazardous wastes. We manage 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 we operate or in which we may
operate in the future have adopted regulations or programs as stringent as, or
more stringent than, the Subtitle D Regulations.
10
<PAGE> 11
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 Waste Connections' 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 our transfer stations or run-off or
collected leachate from our owned or operated landfills is discharged into
streams, rivers or other surface waters, the Clean Water Act would require us to
apply for and obtain a discharge permit, conduct sampling and monitoring and,
under certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with the EPA's
storm water regulations issued in November 1990, which are designed to prevent
contaminated landfill storm water runoff from flowing into surface waters. We
believe that our facilities comply in all material respects with the Clean Water
Act requirements. Various states in which we operate or in which we 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 we were found to be a responsible party for a CERCLA cleanup, the
enforcing agency could hold us, 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. Our ability to obtain reimbursement from others for their
allocable shares of such costs would be limited by our 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 tons per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet certain requirements of the Clean Air
Act may be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal
of asbestos-containing materials. Air permits to construct may be required for
gas collection and flaring systems, and operating permits may be required,
depending on the potential air emissions. State air regulatory programs may
implement the federal requirements but may impose additional restrictions. For
example, some state air programs uniquely regulate odor and the emission of
toxic air pollutants.
11
<PAGE> 12
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 Waste Connections'
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 we operate 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 our
landfills. These restrictions could also result in higher disposal costs for our
collection operations. If we were unable to pass such higher costs through to
our customers, our 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, we
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 our ability to operate our landfills at their full capacity and/or reduce
the prices that we can charge for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to our customers, our business,
financial condition and operating results could be adversely affected.
STATE AND LOCAL REGULATION
Each state in which we now operate or may operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. In addition, many states have adopted statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties. Furthermore, many
municipalities also have ordinances, local laws and regulations affecting our
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 us from operating our facilities at their full capacity.
Some state and local authorities enforce certain federal laws in addition
to state and local laws and regulations. For example, in some states, RCRA, the
OSH Act, parts of the Clean Air Act and parts of the Clean Water Act are
enforced by local or state authorities instead of by the EPA, and in some states
those laws are enforced jointly by state or local and federal authorities.
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<PAGE> 13
PUBLIC UTILITY REGULATION
In many states, public authorities regulate the rates that landfill
operators may charge. The adoption of rate regulation or the reduction of
current rates in states in which we own or operate landfills could adversely
affect our 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 WUTC. The WUTC also sets rates for regulated solid waste
collection services in Washington.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
We maintain environmental and other risk management programs appropriate
for our business. Our environmental risk management program includes evaluating
existing facilities and potential acquisitions for environmental law compliance.
We do not presently expect environmental compliance costs to increase above
current levels, but we cannot predict whether future acquisitions will cause
such costs to increase. We also maintain a worker safety program that encourages
safe practices in the workplace. Operating practices at all Waste Connections
operations emphasize minimizing the possibility of environmental contamination
and litigation. Our facilities comply in all material respects with applicable
federal and state regulations.
We carry a broad range of insurance, which our management considers
adequate to protect our 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, we
have not obtained such coverage. If we were to incur liability for environmental
cleanups, corrective action or damage, our financial condition could be
materially and adversely affected. We will continue to investigate the
possibility of obtaining environmental impairment liability insurance,
particularly if we acquire or operate additional landfills. We believe 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. We have not experienced
difficulty in obtaining performance bonds or letters of credit for our current
operations. At January 31, 2000, we had provided customers and various
regulatory authorities with surety bonds and letters of credit in the aggregate
amount of approximately $2.4 million to secure our obligations (exclusive of
letters of credit backing certain municipal bond obligations). If we are unable
to obtain surety bonds or letters of credit in sufficient amounts or at
acceptable rates, we could be precluded from entering into additional municipal
solid waste collection contracts or obtaining or retaining landfill operating
permits.
EMPLOYEES
At January 31, 2000, we employed approximately 1,700 full-time employees,
including approximately 120 persons classified as professionals or managers,
approximately 1,290 employees involved in collection, transfer, disposal and
recycling operations, and approximately 290 sales, clerical, data processing or
other administrative employees.
The Teamsters Union represents approximately 85 drivers and mechanics at
our Vancouver, Washington operation. The labor agreement between the Union and
Waste Connections was renewed in January 2000 for a period of three years.
The Teamsters Union represents approximately 24 drivers and mechanics at
Arrow Sanitary Services, Inc. ("Arrow") in Portland Oregon, a wholly owned
subsidiary of Waste Connections. The current labor agreement term is until March
of 2001.
The Teamsters Union represents approximately 50 of the Murrey Companies'
drivers. A new collective bargaining agreement was negotiated during the 4th
quarter of 1999. This agreement is for a period of 3.5 years.
We are not aware of any other organizational efforts among our employees
and believe that our relations with our employees are good.
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<PAGE> 14
ITEM 2. PROPERTIES
As of January 31, 2000, we owned and operated 58 collection operations, 15
transfer stations, nine Subtitle D landfills and 17 recycling facilities and
operated an additional seven transfer stations and six Subtitle D landfills. We
lease various offices and facilities, including our corporate offices in Folsom,
California. The real estate that we own is not subject to material encumbrances.
We own various equipment, including waste collection and transportation
vehicles, related support vehicles, carts, containers, and heavy equipment used
in landfill operations. We believe that our existing facilities and equipment
are generally adequate for our current operations. However, we expect to make
additional investments in property and equipment for expansion and replacement
of assets and in connection with future acquisitions.
Our corporate headquarters are located in Folsom, California, where we
lease approximately 14,800 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
We are 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. Our management does not believe that these proceedings, either
individually or in the aggregate, are likely to have a material adverse effect
on our business, financial condition, operating results or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our executive
officers as of January 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Ronald J. Mittelstaedt (1)(2) 36 President, Chief Executive Officer and Chairman
Steven F. Bouck 43 Executive Vice President and Chief Financial Officer
Darrell W. Chambliss 35 Executive Vice President - Operations, Secretary
David M. Hall 42 Vice President - Business Development
Michael R. Foos 34 Vice President - Finance and Chief Accounting Officer
Eric J. Moser 33 Vice President - Corporate Controller, Treasurer
Jerri L. Hunt 48 Vice President - Human Resources and Risk Management
James M. Little 38 Vice President - Engineering
Scott I. Schreiber 43 Vice President - Landfill Operations
</TABLE>
(1) Member of the Executive Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors.
Ronald J. Mittelstaedt has been President, Chief Executive Officer and a
director since Waste Connections was formed, and was elected Chairman in January
1998. He also served as a consultant to Waste Connections 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 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
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<PAGE> 15
was also responsible for assisting in investing venture capital funds focused on
the environmental industry that were managed by First Analysis. In connection
with those investments, he served on the boards of directors of several
companies. While at First Analysis, Mr. Bouck also provided analytical research
coverage of a number of publicly traded environmental services companies. Mr.
Bouck holds B.S. and M.S. degrees in mechanical engineering from Rensselaer
Polytechnic Institute and an M.B.A. in Finance from the Wharton School. He has
been a Chartered Financial Analyst since 1990.
Darrell W. Chambliss has been Executive Vice President - Operations and
Secretary 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.
David M. Hall has been Vice President - Business Development since August 1,
1998. Mr. Hall has over twelve years of experience in the solid waste industry
with extensive operating and marketing experience in the Western U.S. From
October, 1995 to July 1998, Mr. Hall was the Divisional Vice President of USA
Waste Services, Inc., Rocky Mountain Division (including for Sanifill, Inc.
which was acquired by USA Waste Services, Inc.). In that position, he oversaw
all operations and business development in six Rocky Mountain states. Prior to
his employment with 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. 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 Southwest Missouri
State University.
Michael R. Foos has been Vice President - Finance and Chief Accounting
Officer since October 1999. From October 1997 to September 1999, Mr. Foos served
as Vice President and Corporate Controller of Waste Connections. Mr. Foos served
as Division Controller of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from October 1996 to September
1997, where he was responsible for financial compilation and reporting and
acquisition due diligence for a seven-state region. Mr. Foos served as Assistant
Regional Controller at USA Waste Services, Inc. from August 1995 to September
1996, where he was responsible for internal financial reporting for operations
in six states and Canada. Mr. Foos also served as District Controller for Waste
Management, Inc. from February 1990 to July 1995, and was a member of the audit
staff of Deloitte & Touche from 1987 to 1990. Mr. Foos holds a B.S. in
Accounting from Ferris State University.
Eric J. Moser has been Waste Connections' Vice President - Corporate
Controller, Treasurer since October 1999. From October 1997 to September 1999,
Mr. Moser served as Waste Connections' Treasurer and Assistant Corporate
Controller. 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.
Jerri L. Hunt has been Vice President - Human Resources and Risk Management
since December 1999. From 1994 to 1999, Ms. Hunt held various positions with
First Union National Bank (including the Money Store, which was acquired by
First Union National Bank), most recently Vice President of Human Resources in
which she managed all aspects of human resources for over 5,000 employees
located throughout the United States. From 1989 to 1994, Ms. Hunt served as
Manager of Human Resources and Risk Management for BFI, where she was
responsible for all aspects of human resources and safety and environmental
compliance matters. Ms. Hunt also served as a Human Resources Supervisor for
United Parcel Service from 1976 to 1989. She holds a B.A. in Human Resources
from California State University, Sacramento and a M.S. in Human Resources from
Golden Gate University.
Jim M. Little has been Vice President - Engineering since September 1999.
Mr. Little held various management positions with Waste Management, Inc.
(including USA Waste Services, Inc., which was acquired by Waste Management,
Inc. and Chambers Development Co. Inc., which was acquired by USA Waste
Services, Inc.) from January 1990 to September 1999, including most recently
Division Manager in Ohio, where he was responsible for the operations of ten
operating companies in the Northern Ohio area. Mr. Little holds both a B.S. and
M.S. in Geology from Slippery Rock University of Pennsylvania.
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<PAGE> 16
Scott I. Schreiber has been Vice President of Landfill Operations since
October 1998. Prior to joining Waste Connections, Mr. Schreiber gained extensive
experience in landfill management. From September 1993 to September 1998, Mr.
Schreiber served as Director of Landfill Development and Director of
Environmental Compliance for Allied Waste Industries. From August 1988 to
September 1993, Mr. Schreiber served as Regional Engineer and Director of
Landfill Development for Laidlaw Waste Systems. From June 1979 to August 1988,
Mr. Schreiber held several managerial and technical positions in the solid waste
and environmental industry. He holds a B.S. in Chemistry from University of
Wisconsin at Parkside.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock trades on The Nasdaq Stock Market(R) - National Market
under the symbol "WCNX" since our initial public offering on May 22, 1998. The
following table shows the high and low sale prices for the common stock as
reported by the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1998
Second Quarter (from May 22, 1998) $ 20.75 $ 13.75
Third Quarter 23.38 17.75
Fourth Quarter 21.13 15.88
1999
First Quarter $ 24.00 $ 16.50
Second Quarter 32.13 22.00
Third Quarter 31.00 19.13
Fourth Quarter 20.94 10.88
</TABLE>
On January 31, 2000, there were 147 record holders of Waste Connections
common stock.
We have never paid cash dividends on our common stock. We do not currently
anticipate paying any cash dividends on our common stock. We intend to retain
all earnings to fund the operation and expansion of our business. In addition,
our existing credit facility restricts the payment of cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
This table sets forth selected financial data of Waste Connections and our
predecessors for the periods indicated. This data should be read in conjunction
with and is qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 in this Annual
Report on Form 10-K and our audited consolidated financial statements, including
the notes thereto and the independent auditors' report thereon and the other
financial information included in Item 8 in this Form 10-K. The selected data in
this section are not intended to replace the consolidated financial statements
included in this Report.
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 Predecessors' results of operations are prepared on a combined
basis during those periods in which they were under common ownership and
control. For periods prior to WCI's incorporation on September 7, 1997, the
accompanying Statement of Operations and Balance Sheet Data for Waste
Connections consists of entities acquired by Waste Connections in the
poolings-of-interest transactions described below.
The selected financial information has been restated to reflect the
business combinations of Waste Connections with Murrey's Disposal Company, Inc.,
American Disposal Company, Inc., D.M. Disposal Co., Inc., and Tacoma Recycling
Company, Inc. (collectively, the "Murrey Companies"), Roche & Sons, Inc.,
Ritters Sanitary Service, Inc., Central Waste Disposal, Inc., Omega Systems,
Inc., The Garbage Company, Nebraska Ecology Systems and G&P Development, Inc.
(collectively, "G&P") and Cook's Wastepaper and Recycling, Inc. (each accounted
for as a pooling-of-interests).
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<PAGE> 17
WASTE CONNECTIONS, INC. AND PREDECESSORS
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIBRES
INTERNATIONAL,
INC. THE
PERIOD FROM DISPOSAL
JANUARY 1, PREDECESSORS GROUP WASTE
1995 ONE MONTH COMBINED CONNECTIONS
THROUGH ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues $ 7,340 $ 595 $ 19,660 $ 37,736
Operating expenses:
Cost of operations 5,653 527 16,393 27,499
Selling, general and administrative 823 72 3,312 3,533
Depreciation and amortization 715 74 628 2,227
Start-up and integration - - - -
Stock compensation - - - -
Acquisition related expenses - - - -
------------- ------------- ------------- -------------
Income (loss) from operations 149 (78) (673) 4,477
Interest expense (162) (1) (206) (684)
Other income (expense), net 98 5 - 232
------------- ------------- ------------- -------------
Income (loss) before income tax provision 85 (74) (879) 4,025
Income tax provision (29) - 298 (783)
------------- ------------- ------------- -------------
Income (loss) before extraordinary item 56 (74) (581) 3,242
Extraordinary item - early extinguishment of
debt, net of tax benefit of $264 - - - -
------------- ------------- ------------- -------------
Net income (loss) $ 56 $ (74) $ (581) $ 3,242
============= ============= ============= =============
Redeemable convertible preferred stock accretion - - - -
------------- ------------- ------------- -------------
Net income (loss) applicable to common
stockholders $ 56 $ (74) $ (581) $ 3,242
============= ============= ============= =============
Basic income (loss) per common share:
Income (loss) before extraordinary item $ 0.84
Extraordinary item -
-------------
Net income (loss) per common share $ 0.84
=============
Diluted income (loss) per common share:
Income (loss) before extraordinary item $ 0.84
Extraordinary item -
-------------
Net income (loss) per common share $ 0.84
=============
Share used in calculating basic income (loss) per share 3,849,260
=============
Share used in calculating diluted income (loss) per share 3,849,260
=============
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
THE
DISPOSAL
GROUP
COMBINED
FROM PREDECESSORS
JANUARY 1, PREDECESSORS WASTE COMBINED
1996 COMBINED CONNECTIONS NINE MONTHS
THROUGH PERIOD ENDED YEAR ENDED ENDED
JULY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues $ 8,738 $ 13,422 $ 35,744 $ 18,114
Operating expenses:
Cost of operations 6,174 11,420 27,426 14,753
Selling, general and administrative 2,126 1,649 3,731 3,009
Depreciation and amortization 324 962 2,580 1,083
Start-up and integration - - - -
Stock compensation - - - -
Acquisition related expenses - - - -
------------- ------------- ------------- -------------
Income (loss) from operations 114 (609) 2,007 (731)
Interest expense (12) (225) (834) (456)
Other income (expense), net 2,661 (147) 420 14
------------- ------------- ------------- -------------
Income (loss) before income tax provision 2,763 (981) 1,593 (1,173)
Income tax provision (505) - (580) -
------------- ------------- ------------- -------------
Income (loss) before extraordinary item 2,258 (981) 1,013 (1,173)
Extraordinary item - early extinguishment of
debt, net of tax benefit of $264 - - - -
------------- ------------- ------------- -------------
Net income (loss) $ 2,258 $ (981) $ 1,013 $ (1,173)
============= ============= ============= =============
Redeemable convertible preferred stock accretion - - - -
------------- ------------- ------------- -------------
Net income (loss) applicable to common
stockholders $ 2,258 $ (981) $ 1,013 $ (1,173)
============= ============= ============= =============
Basic income (loss) per common share:
Income (loss) before extraordinary item $ 0.26
Extraordinary item -
-------------
Net income (loss) per common share $ 0.26
=============
Diluted income (loss) per common share:
Income (loss) before extraordinary item $ 0.26
Extraordinary item -
-------------
Net income (loss) per common share $ 0.26
=============
Share used in calculating basic income (loss) per share 3,849,260
=============
Share used in calculating diluted income (loss) per share 3,849,260
=============
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
WASTE CONNECTIONS
---------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues $ 46,728 $ 98,387 $ 182,618
Operating expenses:
Cost of operations 35,592 70,722 111,555
Selling, general and administrative 4,919 9,728 15,435
Depreciation and amortization 3,142 7,954 14,717
Start-up and integration 493 - -
Stock compensation 4,395 632 265
Acquisition related expenses - - 9,003
------------- ------------- -------------
Income (loss) from operations (1,813) 9,351 31,643
Interest expense (1,922) (3,408) (11,480)
Other income (expense), net 449 410 (66)
------------- ------------- -------------
Income (loss) before income tax provision (3,286) 6,353 20,097
Income tax provision (364) (3,048) (10,902)
------------- ------------- -------------
Income (loss) before extraordinary item (3,650) 3,305 9,195
Extraordinary item - early extinguishment of
debt, net of tax benefit of $264 - (1,027) -
------------- ------------- -------------
Net income (loss) $ (3,650) $ 2,278 $ 9,195
============= ============= =============
Redeemable convertible preferred stock accretion (531) (917) -
------------- ------------- -------------
Net income (loss) applicable to common
stockholders $ (4,181) $ 1,361 $ 9,195
============= ============= =============
Basic income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.23 $ 0.50
Extraordinary item - (0.10) -
------------- ------------- -------------
Net income (loss) per common share $ (0.73) $ 0.13 $ 0.50
============= ============= =============
Diluted income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.19 $ 0.46
Extraordinary item - (0.08) -
------------- ------------- -------------
Net income (loss) per common share $ (0.73) $ 0.11 $ 0.46
============= ============= =============
Share used in calculating basic income (loss) per share 5,721,827 10,309,553 18,552,486
============= ============= =============
Share used in calculating diluted income (loss) per share 5,721,827 12,220,675 19,826,224
============= ============= =============
</TABLE>
See footnotes on page 21.
19
<PAGE> 20
<TABLE>
<CAPTION>
THE DISPOSAL
PREDECESSORS GROUP WASTE PREDECESSORS
COMBINED COMBINED CONNECTIONS COMBINED WASTE CONNECTIONS, INC.
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents $ 184 $ 961 $ 1,160 $ 102 $ 483 $ 1,327
Working capital (deficit) 90 2,498 (1,093) 695 (4,447) (5,380)
Property and equipment, net 4,035 2,221 11,264 5,069 15,553 23,275
Total assets 9,151 6,942 18,935 15,291 21,302 45,905
Long-term debt (2) 149 6,890 6,939 89 5,928 14,500
Redeemable convertible preferred stock - - - - - 7,523
Total stockholders' equity (deficit) - (2,067) 2,101 - 4,858 5,374
<CAPTION>
WASTE CONNECTIONS, INC.
DECEMBER 31,
1998 1999
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents $ 3,351 $ 2,393
Working capital (deficit) (14,039) (9,730)
Property and equipment, net 50,976 334,762
Total assets 176,127 617,294
Long-term debt (2) 67,866 275,030
Redeemable convertible preferred stock - -
Total stockholders' equity (deficit) 66,887 218,539
</TABLE>
20
<PAGE> 21
(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) Excludes redeemable convertible preferred stock, which converted into common
stock upon our May 1998 initial public offering.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical and Supplemental Financial and Operating Data," our Historical and
Supplemental Financial Statements and the notes thereto included elsewhere
herein.
Overview
Waste Connections, Inc. 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 December 31, 1999, we
served more than 500,000 commercial, industrial and residential customers in
California, Colorado, Idaho, Iowa, Kansas, New Mexico, Minnesota, Nebraska,
Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming. As of that
date, we owned 56 collection operations and operated or owned 22 transfer
stations, 15 Subtitle D landfills and 17 recycling facilities.
We intend to pursue an acquisition-based growth strategy, and we acquired 90
businesses from our inception in September 1997 through December 31, 1999, with
53 of these acquisitions occurring in 1999. The aggregate consideration for
acquisitions occurring in 1999, using the purchase method of accounting, was
approximately $309 million. The results of operations of these acquired
businesses have been included in our financial statements only from the
respective dates of acquisition, except for 13 acquisitions accounted for under
the poolings-of-interests method of accounting, which are included for all
periods presented. We anticipate that a substantial part of our future growth
will come from acquiring additional solid waste collection, transfer and
disposal businesses and, as a consequence, additional acquisitions could
continue to affect period-to-period comparisons of our operating results.
On January 19, 1999, we acquired Murrey's Disposal Company, Inc., American
Disposal Company, Inc., DM Disposal Co., Inc. and Tacoma Recycling Company,
Inc., respectively (collectively, the "Murrey Companies"), in a combination
accounted for as a pooling-of-interests. The Murrey companies are Washington
corporations that provide solid waste collection, transportation and recycling
services to more than 65,000 customers in the Seattle-Tacoma, Washington area.
The purchase price consisted of 2,888,880 shares of our common stock. In
connection with the merger with the Murrey Companies, we incurred
transaction-related costs of approximately $6.2 million, which were charged to
operations.
On March 31, 1999, we acquired all of the outstanding capital stock of two
Washington corporations, Management Environmental National, Inc., ("MENI"), and
RH Financial Corporation ("RHFC"). MENI and RHFC are the sole partners of two
limited partnerships, one of which provides solid waste handling and
transportation services in the City of Vancouver and in Clark County,
Washington, and the other of which owns and operates the Finley-Buttes Regional
Landfill in Morrow County, Oregon. The purchase price consisted of approximately
$67.1 million in cash.
On August 11, 1999, we acquired International Environmental Industries, Inc.
("IEII"). IEII provides solid waste collection, transportation and recycling
services, owns and operates one landfill and operates three other landfills, all
in the areas around El Paso, Texas and southern New Mexico. The total
consideration was approximately $96.2 million, consisting of $30.3 million in
cash and $65.9 million of our common stock valued at $26.00 per share (2,541,380
shares).
In 1999, we acquired nine other businesses in combinations accounted for as
poolings-of-interests. The aggregate consideration paid consisted of 960,380
shares of our common stock. In connection with these mergers, we incurred
transaction-related costs of $2.8 million, which were charged to operations.
21
<PAGE> 22
General
Our revenues consist mainly of fees we charge customers for solid waste
collection, transfer, disposal and recycling services. A large part of our
collection revenues come from providing commercial, industrial and residential
services. We frequently perform 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. Our
existing franchise agreements and many of our existing municipal contracts give
us 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. We also provide residential collection services on a
subscription basis with individual households. Approximately 60% of our revenues
for the year ended December 31, 1999 were derived from services provided under
exclusive franchise agreements, long term municipal contracts and governmental
certificates. Governmental certificates grant us perpetual and exclusive
collection rights in the covered areas. Contracts with counties and
municipalities and governmental certificates provide relatively consistent cash
flow during the terms of the contracts. Because we bill most residential
customers on a periodic basis, subscription agreements provide a stable source
of revenues. Our collection business also generates revenues from the sale of
recyclable commodities. The table below shows for the periods indicated the
percentage of our total reported revenues attributable to services provided,
prior to intercompany eliminations. The data below have been restated to give
effect to acquisitions that were accounted for using the pooling-of-interests
method for business combinations. Data for 1997 does not include the results of
Predecessor operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Collection 86.1% 85.6% 71.1%
Transfer and processing 11.2 7.4 14.8
Landfill 1.9 4.9 10.1
Recycling 0.8 1.8 3.0
Other - 0.3 1.0
--------- --------- ---------
100.0% 100.0% 100.0%
========= ========= =========
</TABLE>
22
<PAGE> 23
We charge transfer station and landfill customers a tipping fee on a per
ton basis for disposing of their solid waste at the transfer stations and the
landfill facilities we own and operate. Most of our transfer and landfill
customers have entered into one to ten year disposal contracts with us, most of
which provide for annual indexed price increases.
We typically determine the prices for our 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
our contracts sometimes limit our 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.
We derive a substantial portion of our revenues from services provided under
exclusive municipal contracts and franchise agreements. No single contract or
customer accounted for more than 5.0% of our revenues for the years ended
December 31, 1997, 1998 or 1999.
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 we purchase for recycling, third party
transportation expense, district and state taxes and host community fees and
royalties. As of December 31, 1999, we owned and/or operated 22 transfer
stations, which reduce our costs by allowing us to use collection personnel and
equipment more efficiently and by consolidating waste to gain 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 overhead costs associated with our
marketing and sales force, professional services and community relations
expense.
Depreciation and amortization expense includes depreciation of fixed assets
over their estimated useful lives using the straight-line method and
amortization of goodwill and other intangible assets using the straight-line
method.
We capitalize some third-party expenditures related to pending acquisitions
or development projects, such as legal and engineering expenses. We expense
indirect acquisition costs, such as executive and corporate overhead, public
relations and other corporate
23
<PAGE> 24
services, as we incur them. We charge against net income any unamortized
capitalized expenditures and advances (net of any portion that we believe we 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. We routinely evaluate all capitalized costs, and
expense those related to projects that we believe are not likely to succeed. As
of December 31, 1999, we had $517,000 of capitalized expenditures relating to
landfill development projects and approximately $157,000 in capitalized
expenditures relating to pending acquisitions.
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
of goodwill amounted to $1.7 million and $5.3 million as of December 31, 1998
and 1999, respectively. Within the purchase price of an acquired company, we
first assign 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. We determine value of the other
intangible assets by considering, among other things, the present value of the
cash flows associated with those assets.
We continually evaluate the value and future benefits of our intangible
assets, including goodwill. We assess the recoverability from future operations
using cash flows and income from operations of the related acquired businesses
as measures. Under this approach, the carrying value would be reduced if it
becomes probable that our best estimate for expected future cash flows of the
related business would be less than the carrying amount of the intangible
assets. As of December 31, 1999, there have been no adjustments to the carrying
amounts of intangibles resulting from these evaluations. As of December 31,
1999, goodwill and other intangible assets represented approximately 38.5% of
total assets and 108.61% of stockholders' equity.
We accrue for estimated landfill closure and post-closure maintenance costs
at the landfills we own. Under applicable regulations, Waste Connections and
Madera County, as operator and owner, respectively, are jointly liable for
closure and post-closure liabilities with respect to the Fairmead Landfill. We
have 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, we do not believe
that we had any financial obligation for closure and post-closure costs for the
Fairmead Landfill as of December 31, 1999. We will have additional material
financial obligations relating to closure and post-closure costs of the other
disposal facilities that we currently own or operate and that we may own or
operate in the future. We accrue for those obligations based on engineering
estimates of consumption of permitted landfill airspace over the useful life of
such landfills.
Results of Operations
The following table sets forth items in our consolidated statement of
operations in thousands and as a percentage of revenues for the periods
indicated:
24
<PAGE> 25
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 as a 1998 as a 1999 as a
% of % of % of
1997 Revenue 1998 Revenue 1999 Revenue
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 46,728 100.0% $ 98,387 100.0% $ 182,618 100.0%
Cost of operations 35,592 76.2 70,722 71.9 111,555 61.1
Selling, general and administrative 4,919 10.5 9,728 9.9 15,435 8.4
Depreciation and amortization 3,142 6.7 7,954 8.1 14,717 8.1
Start-up and integration 493 1.1 - - - -
Stock compensation 4,395 9.4 632 0.6 265 0.2
Acquisition related expenses - - - - 9,003 4.9
--------- --------- --------- --------- --------- ---------
Operating income (loss) (1,813) (3.9) 9,351 9.5 31,643 17.3
Interest expense, net (1,922) (4.1) (3,408) (3.5) (11,480) (6.3)
Other income (expense), net 449 1.0 410 0.4 (66) -
Income tax provision (364) (0.8) (3,048) (3.1) (10,902) (6.0)
Extraordinary charges - - (1,027) (1.0) - -
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (3,650) (7.8%) $ 2,278 2.3% $ 9,195 5.0%
========= ========= ========= ========= ========= =========
EBITDA margin (1) 13.3% 18.2% 30.5%
========= ========= =========
</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.
Years Ended December 31, 1999 and 1998
Revenues. Revenues for 1999 increased $84.2 million, or 85.6%, to $182.6
million from $98.4 million for 1998. Approximately $50 million of the increase
resulted from acquisitions accounted for using the purchase method of accounting
that closed since the beginning of 1999. The remaining increase was primarily
attributable to the inclusion in 1999 of 12 months of revenues from businesses
acquired in 1998, selective price increases and a nominal contribution from
growth in the businesses acquired prior to 1999.
Cost of Operations. Cost of operations for 1999 increased $40.8 million, or
57.7%, to $111.5 million from $70.7 million for 1998. The increase was primarily
attributable to the inclusion of the cost of operations of acquisitions closed
since the beginning of the year and the inclusion in 1999 of 12 months of
operating costs from businesses acquired in 1998. Cost of operations as a
percentage of revenues declined by 10.8 percentage points to 61.1% in 1999 from
71.9% in 1998. The decline in cost of operations as a percent of revenues was
primarily attributable to the effect of tuck-in acquisitions closed since the
beginning of 1999, economies of scale from the greater revenue base, elimination
of overhead in privately held companies acquired in acquisitions accounted for
as poolings-of-interests, greater integration of collection volumes into
landfills we own or operate and selective price increases.
SG&A. SG&A expenses increased $5.7 million, or 58.7%, to $15.4 million for
1999 from $9.7 million for 1998. The increase resulted primarily from additional
personnel from companies acquired in 1999, the inclusion in 1999 of 12 months of
SG&A costs from businesses acquired in 1998 and additional corporate overhead to
accommodate our growth. SG&A as a percentage of revenues declined by 1.5
percentage points to 8.4% for 1999 from 9.9% for 1998. 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 1999, offset by
increases in corporate overhead and the costs associated with being a public
company for the full year.
Depreciation and Amortization. Depreciation and amortization expense
increased $6.8 million, or 85.0%, to $14.7 million for 1999 from $7.9 million
for 1998. The increase resulted primarily from the inclusion of depreciation and
amortization of businesses acquired in 1999, the inclusion in 1999 of 12 months
of depreciation and amortization from businesses acquired in 1998, the
25
<PAGE> 26
amortization of goodwill and other intangible assets associated with
acquisitions accounted for using the purchase method of accounting and a greater
percentage of revenues derived from landfill activity. Depreciation and
amortization as a percentage of revenues was 8.0% in both 1999 and 1998.
Stock Compensation Expense. Stock compensation expense decreased $367,000,
or 58.1%, to $265,000 for 1999 from $632,000 for 1998. Our stock compensation
expense is attributable to the valuation of common stock options and warrants
with exercise prices less than the estimated fair value or our common stock on
the date of grant and relates solely to stock options and warrants granted prior
to the initial public offering in May 1998. Stock compensation as a percentage
of revenues decreased by 0.4 percentage points to 0.2% for 1999 from 0.6% for
1998. The decrease in the amortization of deferred stock compensation for 1999
was due to the amortization of the deferred stock compensation over the vesting
periods of the related options.
Acquisition-Related Expenses. Acquisition-related expenses in 1999 were
$9.0 million, and related primarily to commissions, professional fees, and other
direct costs resulting from the 13 acquisitions that were accounted for using
the pooling-of-interests method.
Operating Income. Operating income increased $22.3 million, or 238.4%, to
$31.6 million in 1999 from $9.3 million in 1998. The increase was attributable
to operating income recognized from acquisitions closed in 1999, the inclusion
in 1999 of 12 months of operating income from acquisitions closed in 1998,
economies of scale from a greater revenue base and greater integration of
collection volumes into transfer stations and landfills we own or operate.
Operating income as a percentage of revenues increased by 7.8 percentage points
to 17.3% for 1999 from 9.5% for 1998. The increase was attributable to
improvements in gross margins coupled with declines in SG&A and stock
compensation expenses as a percentage of revenue, offset by acquisition related
expenses.
Interest Expense. Interest expense increased $8.1 million, or 237.0%, to
$11.5 million for 1999 from $3.4 million for 1998. The increase was primarily
attributable to higher debt levels incurred to fund certain of our acquisitions.
Other Income. Other income decreased $476,000, or 116.1%, to $66,000 in
1999 from $410,000 in 1998. The decrease was primarily attributable to our
recognizing less gain on sales of equipment in 1999, compared to 1998, and the
write-off of the unamortized balance of leasehold improvements on our former
corporate offices.
Provision for Income Taxes. Income taxes increased $7.9 million, or 257.7%,
to $10.9 million for 1999 from $3.0 million for 1998. The effective income tax
rate in 1999 was 54.2%, which is above the federal statutory rate of 35.0% as
the result of the non-deductibility of certain expenses associated with
acquisitions accounted for as poolings-of-interests, state and local taxes,
non-deductible goodwill associated with certain acquisitions and the
non-deductibility of the stock compensation expense.
Extraordinary Charges. Extraordinary charges in 1998 relate to the early
termination of our bank credit facility when it was replaced by a new and larger
facility. We entered into two new credit facilities during 1998.
Net Income. Net income increased by $6.9 million, or 303.6%, to $9.2
million in 1999 from $2.3 million in 1998. The increase was attributable to the
increase in operating income, offset by the increases in interest expense and
income tax expense and the decrease in other income. Net income as a percentage
of revenues increased by 2.7 percentage points to 5.0% for 1999 from 2.3% for
1998. The increase was attributable to improvements in gross margins coupled
with declines in SG&A and stock compensation expenses as a percentage of
revenue, offset by acquisition related expenses and increases in interest
expense and income taxes.
Years Ended December 31, 1998 and 1997
Revenues. Total revenues increased $51.7 million, or 110.6%, to $98.4
million for 1998 from $46.7 million for 1997. Most of the increase resulted
primarily from the acquisitions of BFI's Washington operations and acquisitions
closed since the beginning of 1998. Approximately $2.0 million resulted from
growth in the base business.
Cost of Operations. Total cost of operations increased $35.1 million, or
98.7%, to $70.7 million for 1998 from $35.6 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 by 4.3 percentage points to 71.9% for 1998 from
76.2% for 1997. The decline in cost of operations as a percentage of revenues
was a result of cost reductions at acquired businesses.
26
<PAGE> 27
SG&A. SG&A expenses increased $4.8 million, or 97.8%, to $9.7 million for
1998 from $4.9 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 decreased by 0.6 percentage points to 9.9% for 1998 from 10.5% for
1997. The decrease in SG&A as a percentage of revenues was a result of the
acquisitions, which had generally lower overhead expenses, offset by the
additional corporate costs of being a public company and supporting the rapid
pace of growth.
Depreciation and Amortization. Depreciation and amortization expense
increased $4.8 million, or 153.2%, to $7.9 million for 1998 from $3.1 million
for 1997. The increase was primarily attributable to depreciation from acquired
assets and increased amortization of goodwill and other intangible assets from
acquisitions. Depreciation and amortization as a percentage of revenues
increased by 1.4 percentage points to 8.1% for 1998 from 6.7% for 1997. The
increase in depreciation and amortization as a percentage of revenues was
primarily a result of amortization of goodwill and other intangible assets
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 is attributable to the valuation of common stock options
and warrants with exercise prices less than the estimated fair value or our
common stock on the date of grant and relates solely to stock options and
warrants granted prior to the initial public offering in May 1998. Stock
compensation as a percentage of revenues decreased by 8.8 percentage points to
0.6% for 1998 from 9.4% for 1997. The decrease in the amortization of deferred
stock compensation for 1998 was due to the amortization of the deferred stock
compensation over the vesting periods of the related options.
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 $11.2 million, to $9.4 million
in 1998 from a loss of $1.8 million in 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 business acquired from BFI
and other acquisitions closed since the beginning of 1998, offset by increases
in SG&A expenses and depreciation and amortization.
Interest Expense. Interest expense increased $1.5 million, or 77.4%, to
$3.4 million for 1998 from $1.9 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 $2.7 million to $3.0
million for 1998 from $364,000 for 1997. The increase was associated with the
profitability of the operations acquired from BFI. The effective income tax rate
in 1998 was 48.0%, 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 entered into two new credit facilities during 1998.
Net Income. Net income increased by $5.9 million to $2.3 million for 1998,
from a loss of $3.6 million for 1997. The increase was attributable to the
increase in income from operations, offset by increases in interest expense and
income taxes and the recognition of extraordinary charges.
Liquidity and Capital Resources
Our business is capital intensive. Our capital requirements include
acquisitions and fixed asset purchases. We expect that we will also make capital
expenditures for landfill cell construction, landfill development and landfill
closure activities in the future. We plan to meet our capital needs through
various financing sources, including internally generated funds, debt and equity
financings.
As of December 31, 1999, we had a working capital deficit of $9.7 million,
including cash and cash equivalents of $2.4 million. Our strategy in managing
our working capital is generally to apply the cash generated from our operations
that remains after satisfying our working capital and capital expenditure
requirements to reduce our indebtedness under our bank revolving credit facility
and to minimize our cash balances.
27
<PAGE> 28
At inception, we sold 2,300,000 shares of common stock at $0.01 per share
to our founders and 2,499,998 shares of Series A Preferred Stock at $2.80 per
share. In May and June 1998, we received approximately $24.0 million in net
proceeds from the sale of 2,300,000 shares in our initial public offering
(including exercise by the underwriters of their over-allotment option). In
February 1999, we received approximately $65.1 million in net proceeds from the
sale of 3,999,307 shares in a secondary public offering (including exercise by
the underwriters of their over-allotment option) and used the proceeds to pay
down approximately $50.2 million of our outstanding debt. As of December 31,
1999, we had options and warrants outstanding to purchase 2,503,714 shares of
common stock at a weighted average exercise price of $10.95 per share.
We have a $315 million revolving credit facility with a syndicate of banks
for which BankBoston, N.A. acts as agent. As of December 31, 1999, we had an
aggregate of $247.5 million outstanding under our credit facility, and the
interest rate on outstanding borrowings under the credit facility was
approximately 8.2%. The credit facility allows us to issue up to $35 million in
stand-by letters of credit. Outstanding letters of credit reduce the amount of
total borrowings available under the credit facility. As of December 31, 1999,
we had $28.0 million of outstanding letters of credit, of which $26.0 million
were issued under the credit facility. Virtually all of our assets, including
our interest in the equity securities of our subsidiaries, secure our
obligations under the credit facility. The credit facility matures in 2004 and
bears interest at a rate per annum equal to, at our discretion, either the
BankBoston Base Rate plus applicable margin, or the Eurodollar Rate plus
applicable margin. The credit facility places certain business, financial and
operating restrictions on Waste Connections relating to, among other things, the
incurrence of additional indebtedness, investments, acquisitions, asset sales,
mergers, dividends, distributions and repurchases and redemption of capital
stock. The credit facility also contains covenants requiring that specified
financial ratios and balances be maintained. As of December 31, 1999, we are in
compliance with these covenants. The Credit Facility also requires the lenders'
approval of acquisitions in certain circumstances. The credit facility is used
for (i) acquisitions; (ii) capital expenditures; (iii) working capital; (iv)
standby letters of credit; and (v) general corporate purposes.
For the year ended December 31, 1999, operations provided approximately
$21.9 million of net cash, most of which was provided by operating results for
the period, adjusted for temporary differences in income taxes, non-cash charges
for depreciation, amortization and stock compensation. This was offset by an
approximately $4.9 million increase in working capital (net of acquisitions) in
1999.
For the year ended December 31, 1999, we used $256.2 million for investing
activities. Of this amount, we used approximately $233.7 million to fund the
cash portion of acquisitions and approximately $18.6 million for capital
expenditures related to the purchase of trucks, containers, information systems
and landfill construction activities.
For the year ended December 31, 1999, financing activities provided net
cash of $233.3 million, which was provided by net borrowings under our credit
facility and revenue bonds and $65.1 million in proceeds from the sale of common
stock in our secondary offering.
We made approximately $18.6 million in capital expenditures during the year
ended December 31, 1999. We expect to make capital expenditures of approximately
$16 million in 2000 in connection with our existing business. We intend to fund
our planned 2000 capital expenditures principally through existing cash,
internally generated funds, and borrowings under our existing credit facility.
In addition, we may make substantial additional capital expenditures in
acquiring solid waste collection and disposal businesses. If we acquire
additional landfill disposal facilities, we may also have to make significant
expenditures to bring them into compliance with applicable regulatory
requirements, obtain permits or expand our available disposal capacity. We
cannot currently determine the amount of these expenditures because they will
depend on the number, nature, condition and permitted status of any acquired
landfill disposal facilities. We believe that our credit facility and the funds
we expect to generate from operations will provide adequate cash to fund our
working capital and other cash needs for the foreseeable future.
INFLATION
To date, inflation has not significantly affected our operations.
Consistent with industry practice, many of our contracts allow us to pass
through certain costs to our customers, including increases in landfill tipping
fees and, in some cases, fuel costs. Therefore, we believe that we should be
able to increase prices to offset many cost increases that result from
inflation. However, competitive pressures may require us to absorb at least part
of these cost increases, particularly during periods of high inflation.
28
<PAGE> 29
SEASONALITY
Based on historic trends experienced by the businesses we have acquired, we
expect our 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.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$125,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products, our internal systems, or the products and services of third parties.
We will continue to monitor our mission critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In November of 1998, we entered into an interest rate swap agreement with
BankBoston that effectively converts $27.7 million of our floating rate debt
into two year fixed rate debt with an interest rate of 4.7% plus an applicable
margin as of December 31, 1999.
In December 1999, we entered into an interest rate hedge (the "Hedge
Agreement") with BankBoston, N.A. Under the Hedge Agreement, which is effective
through December 2001, the interest rate on $125 million of our floating rate
long-term debt is effectively fixed with an interest rate of 6.1% plus an
applicable margin. This rate remains at 6.1% if LIBOR is less than 7.0%. If
LIBOR exceeds 7.0%, the interest rate under the Hedge Agreement will increase
one basis point for every LIBOR basis point above 7.0%.
We are exposed to cash flow risk due to changes in interest rates with
respect to the remainder of the balance of our credit facility and the municipal
bond obligations in the combined amount of approximately $24 million associated
with Madera, Columbia Resource Company and Wasco.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets of Waste Connections, Inc. as
of December 31, 1998 and 1999
Combined Statement of Operations of Predecessors for the
nine months ended September 30, 1997
Consolidated Statements of Operations of Waste
Connections, Inc. for the years ended
December 31, 1997, 1998 and 1999
Consolidated Statements of Redeemable Stock and
Stockholders' Equity of Waste Connections,
Inc. for the years ended December 31, 1997, 1998,
and 1999.
Combined Statement of Cash Flows of Predecessors for the
nine months ended September 30, 1997
Consolidated Statements of Cash Flows of Waste
Connections, Inc. for the years ended
December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
F-1
<PAGE> 31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Waste Connections, Inc.
We have audited the accompanying consolidated balance sheets of Waste
Connections, Inc., as of December 31, 1998 and 1999, the related consolidated
statements of operations, redeemable stock and stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999, and the
combined statements of operations and cash flows of Predecessors for the nine
months ended September 30, 1997. Our audits also included the financial
statement schedule listed in Item 14.(a). 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of Waste Connections,
Inc. and Predecessors at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 9, 2000
F-2
<PAGE> 32
WASTE CONNECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,351 $ 2,393
Accounts receivable, less allowance for doubtful
accounts of $692 and $1,333 at December 31, 1998
and 1999, respectively 14,884 28,440
Prepaid expenses and other current assets 2,358 3,523
--------- ---------
Total current assets 20,593 34,356
Property and equipment, net 50,976 334,762
Intangible assets, net 101,849 237,402
Other assets, net 2,709 10,774
--------- ---------
$ 176,127 $ 617,294
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,771 $ 20,072
Accrued liabilities 5,819 15,648
Deferred revenue 3,174 5,342
Short-term borrowings 1,500 -
Current portion of long-term debt and notes payable 12,039 2,669
Other current liabilities 3,329 355
--------- ---------
Total current liabilities 34,632 44,086
Long-term debt and notes payable 67,866 275,030
Other long-term liabilities 4,396 5,201
Deferred income taxes 2,346 74,438
--------- ---------
Total liabilities 109,240 398,755
--------- ---------
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Preferred stock: $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding - -
Common stock: $0.01 par value; 50,000,000 shares
authorized; 13,284,493 and 21,106,350 shares
issued and outstanding at December 31, 1998
and 1999, respectively 133 211
Additional paid-in capital 66,576 209,148
Deferred stock compensation (428) (163)
Retained earnings 606 9,343
--------- ---------
Total stockholders' equity 66,887 218,539
--------- ---------
$ 176,127 $ 617,294
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 33
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS
ENDED WASTE CONNECTIONS, INC. CONSOLIDATED
SEPTEMBER 30, ----------------------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 18,114 $ 46,728 $ 98,387 $ 182,618
Operating expenses:
Cost of operations 14,753 35,592 70,722 111,555
Selling, general and administrative 3,009 4,919 9,728 15,435
Depreciation and amortization 1,083 3,142 7,954 14,717
Start-up and integration - 493 - -
Stock compensation - 4,395 632 265
Acquisition related expenses - - - 9,003
------------ ------------ ------------ ------------
Income (loss) from operations (731) (1,813) 9,351 31,643
Interest expense (456) (1,922) (3,408) (11,480)
Other income (expense), net 14 449 410 (66)
------------ ------------ ------------ ------------
Income (loss) before income tax provision (1,173) (3,286) 6,353 20,097
Income tax provision - (364) (3,048) (10,902)
============ ============ ============ ============
Income (loss) before extraordinary item (1,173) (3,650) 3,305 9,195
Extraordinary item - early extinguishment of
debt, net of tax benefit of $264 - - (1,027) -
------------ ------------ ------------ ------------
Net income (loss) $ (1,173) $ (3,650) $ 2,278 $ 9,195
============ ============ ============ ============
Redeemable convertible preferred stock accretion - (531) (917) -
------------ ------------ ------------ ------------
Net income (loss) applicable to common
stockholders $ (1,173) $ (4,181) $ 1,361 $ 9,195
============ ============ ============ ============
Basic income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.23 $ 0.50
Extraordinary item - (0.10) -
------------ ------------ ------------
Net income (loss) per common share $ (0.73) $ 0.13 $ 0.50
============ ============ ============
Diluted income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.19 $ 0.46
Extraordinary item - (0.08) -
------------ ------------ ------------
Net income (loss) per common share $ (0.73) $ 0.11 $ 0.46
============ ============ ============
Share used in calculating basic income (loss) per share 5,721,827 10,309,553 18,552,486
------------ ------------ ------------
Share used in calculating diluted income (loss) per share 5,721,827 12,220,675 19,826,224
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 34
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Stockholders' Equity
REDEEMABLE -------------------------
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, 1996 - $ - - $ - 3,849,260 $ 38
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 - - - -
Capital distributions and dividends paid - - - - - -
Net loss - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1997 2,499,998 7,523 - - 6,149,260 61
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 11
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 and warrants - - - - 280,601 3
Payment of stockholder notes - - - - - -
Capital distributions and dividends paid - - - - - -
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balances at December 31, 1998 - - - - 13,284,493 133
Issuance of common
stock warrants - - - - - -
Issuance of common stock - - - - 7,011,269 70
Amortization of deferred
stock compensation - - - - - -
Exercise of stock options and warrants - - - - 810,588 8
Dividends paid - - - - - -
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balances at December 31, 1999 - $ - - $ - 21,106,350 $ 211
=========== =========== =========== =========== =========== ==========
</TABLE>
F-5
<PAGE> 35
<TABLE>
<CAPTION>
Stockholders' Equity
------------------------------------------------------------------------
RETAINED
ADDITIONAL STOCKHOLDER DEFERRED EARNINGS/
PAID-IN NOTES STOCK (ACCUMULATED
CAPITAL RECEIVABLE COMPENSATION DEFICIT) TOTAL
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 583 $ - $ - $ 4,176 $ 4,797
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 - (83) - - (83)
Accretion of redeemable
convertible preferred stock - - - (531) (531)
Capital distributions and dividends paid (93) - - (193) (286)
Net loss - - - (3,650) (3,650)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 5,595 (83) - (198) 5,375
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 17,782 - - - 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 and warrants 359 - - - 362
Payment of stockholder notes - 83 - - 83
Capital distributions and dividends paid (76) - - (557) (633)
Net income - - - 2,278 2,278
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 66,576 - (428) 606 66,887
Issuance of common
stock warrants 572 - - - 572
Issuance of common stock 140,514 - - - 140,584
Amortization of deferred
stock compensation - - 265 - 265
Exercise of stock options and warrants 1,486 - - - 1,494
Dividends paid - - - (458) (458)
Net income - - - 9,195 9,195
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 $ 209,148 $ - $ (163) $ 9,343 $ 218,539
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS WASTE CONNECTIONS, INC.
ENDED CONSOLIDATED
SEPTEMBER 30, -----------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,173) $ (3,650) $ 2,278 $ 9,195
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Loss (gain) on disposition of assets (4) (93) (302) 155
Depreciation 789 2,980 6,284 10,494
Amortization 294 162 1,670 4,223
Deferred income taxes - (397) 1,370 2,200
Amortization of debt issuance costs, debt guarantee
fees and accretion of discount on long-term debt - 860 192 256
Stock and non-cash acquisition related compensation - 4,395 632 1,448
Extraordinary item - early extinguishment of debt - - 1,291 -
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net (604) (1,549) (2,525) (5,123)
Prepaid expenses and other current assets (74) (46) (1,429) (1,256)
Accounts payable (221) 3,348 (807) (1,041)
Deferred revenue (137) 325 1,067 1,895
Accrued liabilities (450) 952 499 2,310
Other liabilities - 18 623 (2,885)
--------- --------- --------- ---------
Net cash provided (used) by operating activities (1,580) 7,305 10,843 21,871
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 188 2 1,331 990
Payments for acquisitions, net of cash acquired - (14,393) (56,569) (233,745)
Capital expenditures for property and equipment (735) (3,905) (10,004) (18,636)
Increase in restricted cash - - (1,381) (3,731)
Decrease (increase) change in other assets 22 (527) 1,118 (1,052)
Issuance (repayment) of stockholder notes receivable - (83) 83 -
--------- --------- --------- ---------
Net cash used in investing activities (525) (18,906) (65,422) (256,174)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance 2,142 - - -
Proceeds from short-term borrowings - 600 - -
Proceeds from long-term debt - 10,179 80,405 275,100
Principal payments on notes payable and long-term debt (38) (4,729) (46,333) (103,646)
Proceeds from sale of common stock - 23 23,986 65,118
Proceeds from option and warrant exercises - 6,992 362 1,494
Change in short-term borrowings - 19 (128) (1,500)
Change in advances from a related party - (322) (41) (571)
Payment of capital distributions and dividends - (287) (794) (458)
Proceeds from long-term lease - 375 - -
Principal payments on long-term lease - (255) - -
Debt issuance costs - (150) (854) (2,192)
--------- --------- --------- ---------
Net cash provided by financing activities 2,104 12,445 56,603 233,345
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1) 844 2,024 (958)
Cash and equivalents at beginning of period 102 483 1,327 3,351
--------- --------- --------- ---------
Cash and equivalents at end of period $ 101 $ 1,327 $ 3,351 $ 2,393
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE> 37
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS WASTE CONNECTIONS, INC.
ENDED CONSOLIDATED
SEPTEMBER 30, ------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes $ - $ 861 $ 1,178 $ 2,636
-------------- --------- --------- ---------
Cash paid for interest $ - $ 963 $ 2,655 $ 10,066
-------------- --------- --------- ---------
Redeemable convertible preferred stock accretion $ 531 $ 917 $ -
--------- --------- ---------
Issuance of notes payable for land and buildings $ 315 $ - $ -
--------- --------- ---------
In connection with its acquisitions, the Company
assumed liabilities as follows:
Fair value of assets acquired $ 20,140 $ 120,507 $ 426,702
Cash paid for acquisitions (including acquisition costs) (11,693) (56,341) (233,745)
--------- --------- ---------
Liabilities assumed, stock and notes payable issued
to sellers $ 8,447 $ 64,166 $ 192,957
--------- --------- ---------
</TABLE>
See accompanying notes.
F-8
<PAGE> 38
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, Colorado, Idaho, Iowa, Kansas, Minnesota, Nebraska, New
Mexico, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming.
Basis of Presentation
These 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.
The Company's consolidated financial statements have been restated to reflect
the mergers with 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"), Roche & Sons,
Inc. ("Roche"), Ritters Sanitary Service, Inc. ("Ritters"), Omega Systems, Inc.
("Omega"), G&P Development, Inc., The Garbage Company, and Nebraska Ecology
Systems, Inc. (collectively, "G&P"), Central Waste Disposal, Inc. and Cen San,
Inc. (collectively, "Central") and Cook's Wastepaper and Recycling, Inc.
("Cook's"), each accounted for as poolings-of-interests (Note 2). For periods
prior to WCI's incorporation on September 9, 1997, the consolidated financial
statements of the Company consist of entities acquired by the Company in
pooling-of-interests transactions.
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. 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 $2,142 during the
nine months ended September 30, 1997.
F-9
<PAGE> 39
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company's acquisition of the predecessors from BFI in September 1997 was
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 Company and Predecessors reflect the change in
basis of the underlying assets that were made as a result of the change in
ownership.
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 and
1999, 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. The Company does not
require collateral on its trade receivables. 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 expense as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts in the year of disposal. Gains and losses
resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-10
<PAGE> 40
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The estimated useful lives are as follows:
Buildings 20 years
Machinery and equipment 3 - 15 years
Rolling stock 10 years
Containers 5 - 15 years
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 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 or 1999. 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 landfills. The rates are determined by management based on estimates
provided by the Company's internal and third party 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 estimated fair
value of the net tangible and intangible 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 $1,705 and $5,353 as of December 31,
1998 and 1999, 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. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, the carrying value would be reduced to
estimated net realizable value 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 and 1999.
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, 1998 and 1999, based on current
incremental borrowing rates for similar types of borrowing arrangements.
F-11
<PAGE> 41
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
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.
The Company reviews its revenue producing contracts in the ordinary course of
business to determine if the direct costs, exclusive of any non-variable costs,
to service the contractual arrangements exceed the revenues to be produced by
the contract. Any resulting excess costs over the life of the contract are
expensed at the time of such determination.
Start-Up and Integration Expenses
During the period from Waste Connections' 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 SFAS No. 123 "Accounting for Stock Based
Compensation", the Company has elected to account for stock-based compensation
using the intrinsic value method prescribed
F-12
<PAGE> 42
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
Per Share Information
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common and potential common shares
outstanding. Potential common shares are excluded from the computation if their
effect is anti-dilutive. Earnings per share data have not been presented for the
predecessor operations because such data is not meaningful.
Closure and Post-Closure Costs
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. 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.
Site specific closure and post-closure engineering cost estimates are prepared
annually for landfills owned and/or operated by the Company for which it is
responsible for closure and post-closure. The impact of changes determined to be
changes in estimates, based on the annual update, are accounted for on a
prospective basis. The present value of estimated future costs are accrued based
on accepted tonnage as landfill airspace is consumed. Discounting of future
costs is applied where the Company believes that both the amounts and timing of
related payments are reliably determinable.
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company considers each
operating location that reports stand-alone financial information to be
an operating segment; however, all operating segments have been aggregated
together and are reported as a single segment consisting of the collection,
transfer, recycling and disposal of non-hazardous void waste in the Western
United States.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 1999, the Company has
not had any transactions, other than its reported net income and losses, that
are required to be reported in comprehensive income.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the Financial Accounting Standards Board
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133". SFAS 137
deferred the effective date until the first fiscal quarter of the fiscal year
F-13
<PAGE> 43
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
beginning after June 15, 2000. The Company will adopt SFAS 133 in its quarter
ending March 31, 2001 and has not yet determined whether such adoption will have
a material impact on the Company's financial statements.
Reclassifications
Certain amounts reported in the Company's prior years' financial statements have
been reclassified to conform with the 1999 presentation.
2. ACQUISITIONS
Poolings-of-Interests
On January 19, 1999, the Company 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. In connection with the business combination with the Murrey
Companies, Waste Connections, Inc. incurred transaction related costs of
approximately $6,200 which were charged to operations.
The Company consummated business combinations with Roche and Ritter's on January
8, 1999, and March 30, 1999, respectively, which included the exchange of
554,248 shares of Waste Connections, Inc. common stock for all of the
outstanding shares of Roche and Ritter's. In connection with the business
combinations with Roche and Ritters, Waste Connections, Inc. incurred
transaction related costs of approximately $1,600 which were charged to
operations.
The Company consummated business combinations with Central, G&P, and Omega on
June 25, 1999, June 30, 1999, and June 30, 1999, respectively, which included
the exchange of 340,207 shares of Waste Connections, Inc. common stock for all
of the outstanding shares of Central, G&P, and Omega. In connection with the
business combinations with Central, G&P, and Omega, Waste Connections, Inc.
incurred transaction related costs of approximately $1,005 which were charged to
operations.
On December 30, 1999, the Company consummated a business combination with Cook's
which included the exchange of 65,925 shares of Waste Connections, Inc. common
stock for all the outstanding shares of Cook's. In connection with the business
combination with Cook's, Waste Connections, Inc. incurred transaction related
costs of approximately $198 which were charged to operations.
The table below sets forth the combined revenues and net income (loss) of WCI,
the Murrey Companies, Roche, Ritters, Central, G&P, Omega and Cook's for the
years ended December 31, 1997, 1998 and 1999 (in thousands):
F-14
<PAGE> 44
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Waste The Murrey
Connections, Inc. Companies Other Restated
Before Pooling Pooling Pooling For Pooling
Acquisitions Acquisitions Acquisitions Acquisitions
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Revenues $ 6,237 $ 28,874 $ 11,617 $ 46,728
Net income (loss) (5,066) 1,316 100 (3,650)
YEAR ENDED DECEMBER 31, 1998:
Revenues 54,042 32,528 11,817 98,387
Net income 1,748 142 388 2,278
YEAR ENDED DECEMBER 31, 1999:
Revenues 175,773 1,788 5,057 182,618
Net income 8,763 245 187 9,195
</TABLE>
1998 and 1999 Acquisitions
During 1998, the Company acquired 42 businesses 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.
During 1999, the Company acquired 51 businesses which were accounted for as
purchases. Aggregate consideration for these acquisitions consisted of $233,745
in cash (net of cash acquired), $763 in notes payable to sellers and 2,934,649
shares of common stock valued at $74,359.
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 of 1999 acquisitions are
preliminary. A summary of the purchase price allocations for acquisitions
consummated in 1998 and preliminary purchase price allocations for the
acquisitions consummated in 1999 is as follows:
F-15
<PAGE> 45
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
Acquisitions Acquisitions
------------- -------------
Acquired assets:
<S> <C> <C>
Accounts receivable $ 4,670 $ 8,433
Prepaid expenses and other current assets 301 239
Property and equipment 25,853 276,789
Goodwill 86,358 137,151
Long-term franchise agreements and other 2,390 558
Non-competition agreements 540 900
Other assets 395 2,512
Assumed liabilities:
Deferred revenue (577) (273)
Accounts payable and accrued liabilities (9,210) (19,952)
Other accrued liabilities (1,575) (1,257)
Long-term liabilities assumed (13,638) (26,340)
Deferred income taxes (92) (69,893)
============= =============
$ 95,415 $ 308,867
============= =============
</TABLE>
In connection with certain of the acquisitions in 1998 and 1999, 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, 1999, contingent payments relating to these acquisitions total
approximately $1,800 in cash and 61,737 shares placed into escrow, and are to be
earned based upon the achievement of certain milestones. The Company has
included the contingent cash payments in these financial statements as the
events which would give rise to such payments are considered probable. No
amounts related to the contingent shares have been included in these financial
statements as the events which would give rise to such payments have not yet
occurred and are not considered probable.
The following unaudited pro forma results of operations assume that the
Company's significant acquisitions occurring in 1998 and 1999, accounted for
using the purchase method of accounting, were acquired as of January 1, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1999
----------- -----------
<S> <C> <C>
Total revenue $ 165,119 $ 209,419
Net income 12,674 9,049
Basic income per share 0.99 0.45
Diluted income per share 0.86 0.42
</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, 1998, nor are they necessarily indicative of future operating
results
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
F-16
<PAGE> 46
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
A summary of the purchase price allocation for the BFI Acquisitions is as
follows:
<TABLE>
<CAPTION>
<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>
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
--------- ---------
<S> <C> <C>
Goodwill $ 99,716 $ 236,250
Long-term franchise agreements
and contracts 2,390 3,577
Non-competition agreements 1,210 2,015
Other, net 777 2,009
--------- ---------
104,093 243,851
Less - accumulated amortization (2,244) (6,449)
--------- ---------
$ 101,849 $ 237,402
========= =========
</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
remaining term of the related agreements (ranging from 5 to 18 years). Total
goodwill amortization expense for the years ended December 31, 1997, 1998 and
1999 was $150, $1,640 and $3,766, respectively.
F-17
<PAGE> 47
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998 and
1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
--------- ---------
<S> <C> <C>
Landfill site costs $ 10,315 $ 250,187
Land, buildings and improvements 11,084 29,735
Rolling stock 24,662 41,781
Containers 18,978 26,586
Machinery and equipment 7,817 17,865
--------- ---------
72,856 366,154
Less accumulated depreciation and depletion (21,880) (31,392)
--------- ---------
$ 50,976 $ 334,762
========= =========
</TABLE>
The Company's landfill depletion expense for the years ended December 31, 1997,
1998 and 1999 was $206, $279 and $2,163, respectively.
5. OTHER ASSETS
Other assets consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
------- -------
<S> <C> <C>
Restricted cash $ 1,381 $ 7,624
Loan fees 250 2,186
Other 1,078 964
------- -------
$ 2,709 $10,774
======= =======
</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 and Wasco bonds (Note 9).
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
------- -------
<S> <C> <C>
Income taxes $ 1,114 $ 6,030
Payroll and payroll related 1,136 2,650
Interest payable 583 1,964
Insurance claims and premiums 405 1,374
Other 2,581 3,630
------- -------
$ 5,819 $15,648
======= =======
</TABLE>
F-18
<PAGE> 48
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. SHORT-TERM BORROWINGS
Short-term borrowings consisted of various revolving and non-revolving
lines-of-credit with a bank. These amounts were paid in full in February 1999.
8. CLOSURE AND POST-CLOSURE COSTS
The net present value of the closure and post-closure commitment is calculated
assuming inflation of 3% and a risk-free capital rate of 7%. Discounted amounts
previously recorded are accreted to reflect the effects of the passage of time.
The Company's current estimate of total future payments for closure and
post-closure, in accordance with Subtitle D, is $4,500,000, adjusted for
inflation, while the present value of such estimate is $8,000. At December 31,
1998 and 1999, respectively, accruals for landfill closure and post-closure
costs (including costs assumed through acquisitions) were $2,655 and $4,313,
respectively, and are recorded as other long-term liabilities on the balance
sheet. The accruals reflect landfills whose estimated remaining lives, based on
current waste flows, range from 13 to 174 years, with an estimated average
remaining life of approximately 96 years. The Company estimates that its closure
and post-closure payment commitments for certain of its landfills will begin in
2012.
9. LONG-TERM DEBT
Credit Facility
In January 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 up to $5,000 in
stand-by letters-of-credit, and the borrowings bore interest at various fixed
and/or variable rates at the Company's option. 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 2008 (Note 12).
In May 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 $5,000 in 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.
In November 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
1998 Credit Facility"). As of December 31, 1998, the maximum amount available
under the November Credit Facility was $115,000 (including $15,000 in stand-by
letters of credit, of which $1,829 were issued as of December 31, 1998) 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 1998 Credit
Facility replaced the May Credit Facility.
In March 1999, the Company entered into a new revolving credit facility with a
syndicate of banks for which BankBoston N.A. acts as agent (the "March 1999
Credit Facility"). As of December 31, 1999, the maximum amount available under
the March 1999 Credit Facility is $315,000 (including $35,000 in stand-by
letters of credit, of which $26,000 were issued as of December 31, 1999) and the
borrowings bear interest at various fixed and/or variable rates at the Company's
option (approximately 8.2% as of December 31, 1999). The March 1999 Credit
Facility amended the November 1998 Credit Facility. The March 1999
F-19
<PAGE> 49
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Credit Facility requires quarterly payments of interest and it matures in March
2004. Borrowings are secured by substantially all of the Company's assets and
the Company is required to pay an annual commitment fee equal to 0.5% of the
unused portion of the facility. The March 1999 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 repurchases and
redemption of capital stock. The Credit Facility also requires that specified
financial ratios and balances be maintained. As of December 31, 1999, the
Company was in compliance with these covenants.
In December 1999, the Company completed a $13,600 tax-exempt bond financing for
its Wasco subsidiary (the "Wasco Bond"). These funds will be used for the
acquisition, construction, furnishing, equipping and improving of a landfill
located in Wasco County, Oregon (the "Landfill Project"). The bonds mature in
December 2009 and bear interest at variable rates based on market conditions for
Oregon tax exempt bonds (approximately 5.5% at December 31, 1999). The bonds are
backed by a letter of credit issued by BankBoston N.A under the March 1999
Credit Facility for $14,500. At December 31, 1999, approximately $4.6 million of
the funds from the bond offering are held by a trustee and can be used by the
Company to finance capital expenditures on the Landfill Project. These unused
funds held by the trustee are classified as restricted cash and included in
other assets in the accompanying consolidated balance sheet.
CRC Bond
In December 1991, Columbia Resource Company, a wholly-owned subsidiary of the
Company acquired in 1999, received $13,000 in financing through an Industrial
Revenue Bond (the "CRC Bond") issued by Clark County, Washington. These funds
were used for the acquisition of real property and construction thereon of a
solid waste transfer station. The CRC Bond requires escalating annual principal
payments ranging from $1,000 in December 2000 to $1,505 in December 2006 (the
maturity date), bears interest at rates ranging from 7.1% to 7.5%, is secured by
the real property and solid waste transfer station and backed by a letter of
credit issued by BankBoston N.A. under the March 1999 Credit Facility for
$8,625. Additionally, BankBoston N.A. and another lender have issued additional
letters of credit in the amount of $1,000 and $2,000, respectively, in
connection with this project.
Madera Bond
In June 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% and 4.6% at December 31, 1998 and 1999, respectively). The bonds are backed
by a letter of credit issued by BankBoston N.A. under the March 1999 Credit
Facility for $1,828. 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.
Interest Rate Protection Agreements
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% and 6.68% at December 31, 1998 and 1999, respectively). The fair value of
the Interest Agreement as of December 31, 1998 and 1999 is $188 and $327,
respectively, which reflects the estimated amounts that the Company would
receive to terminate the
F-20
<PAGE> 50
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest Agreement based on quoted market prices of comparable contracts as of
December 31, 1998 and 1999. 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.
In December 1999, we entered into an interest rate hedge (the "Hedge Agreement")
with BankBoston, N.A. Under the Hedge Agreement, which is effective through
December 2001, the interest rate on $125 million of our floating rate long-term
debt is effectively fixed with an interest rate of 6.1% plus an applicable
margin. This rate remains at 6.1% if LIBOR is less than 7.0%. If LIBOR exceeds
7.0%, the interest rate under the Hedge Agreement will increase one basis point
for every LIBOR basis point above 7.0%. 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 Hedge Agreement.
Long-term debt consists of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
November 1998 Credit Facility $ 57,281 $ -
March 1999 Credit Facility - 247,500
Wasco Bond - 13,600
CRC Bond - 8,625
Madera Bond 1,800 1,800
Notes payable to sellers in connection with acquisitions,
unsecured, bearing interest at 6.5% to 8.4%, principal
and interest payments due periodically throughout the
year with due dates ranging from 2000 to 2005 8,927 1,570
Notes payable to third parties, secured by substantially all
assets of certain subsidiaries the Company, interest at
7.0% to 11.0%, principal and interest payments due
periodically throughout the year with due dates
ranging from 2000 to 2009 4,153 4,604
Other 7,744 -
--------- ---------
79,905 277,699
Less - current portion (12,039) (2,669)
--------- ---------
$ 67,866 $ 275,030
========= =========
</TABLE>
F-21
<PAGE> 51
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1999, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,669
2001 3,110
2002 1,933
2003 1,963
2004 249,232
Thereafter 18,792
--------
$277,699
========
</TABLE>
10. 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 $441 for the nine months ended
September 30, 1997. The Company's consolidated rent expense under operating
leases during the years ended December 31, 1997, 1998 and 1999 was $235, $730
and $1,063, respectively.
As of December 31, 1999, future minimum lease payments under these leases, by
calendar year, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $1,244
2001 1,226
2002 1,166
2003 1,022
2004 923
Thereafter 2,641
------
$8,222
======
</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 and 1999, WCI had provided customers and various regulatory
authorities with bonds and letters of credit of approximately $2,000 and $2,414,
respectively, to secure its obligations (exclusive of letters of credit backing
certain municipal bond obligations). 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
F-22
<PAGE> 52
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1999, 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 is a 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, 1999 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.
Employees
The Teamsters Union represents approximately 85 drivers and mechanics at WCI's
Vancouver, Washington operation. The labor agreement between the Union and the
Company was renewed in January 2000 for a period of three years.
The Teamsters Union represents approximately 24 drivers and mechanics at Arrow
Sanitary Services, Inc. ("Arrow") in Portland Oregon, a wholly owned subsidiary
of the Company. The current labor agreement term is until March of 2001.
The Teamsters Union represents approximately 50 of the Murrey Companies'
drivers. A new collective bargaining agreement was negotiated during the 4th
quarter of 1999. This agreement is for a period of 3.5 years.
The Company is not aware of any other organizational efforts among its employees
and believes that its relations with its employees are good.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September 1997, the Company received net proceeds of $6,992 from the sale of
2,499,998 shares of redeemable convertible preferred stock (the "Preferred
Stock"). The Preferred Stock 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
F-23
<PAGE> 53
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
12. STOCKHOLDERS' EQUITY
Common Stock
Of the 28,893,650 shares of common stock authorized but unissued as of December
31, 1999, the following shares were reserved for issuance:
<TABLE>
<CAPTION>
<S> <C>
Stock option plan 2,532,762
Stock purchase warrants 759,569
Shares held in escrow 61,737
---------
3,354,068
=========
</TABLE>
Stockholder Notes Receivable
In December 1997, the Company provided loans in the aggregate amount of $83 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.
The Option Plan provides for the reservation of common stock for issuance
thereunder equal to 12% of the outstanding shares of the Company's common stock.
The amount of common stock reserved for issuance under the Option Plan is
decreased for options granted and increased for previously granted options that
have been forfeited, cancelled or exercised. As of December 31, 1997, 1998 and
1999, options for 671,500, 160,450 and 788,617 shares, respectively, of common
stock were available for future grants under the Option Plan.
As of December 31, 1997, 1998 and 1999, 35,000, 333,121 and 495,713 options to
purchase common stock were exercisable under the Option Plan, respectively.
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
years ended December 31, 1998 and 1999 is presented below:
F-24
<PAGE> 54
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Weighted
Number of 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
Granted 1,045,350 16.03
Forfeited 28,000 20.20
Exercised 251,969 5.92
----------------
Outstanding as of December 31, 1999 1,744,145 12.57
----------------
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
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 5.00 371,380 $ 2.90 7.9 222,339 $ 2.93
$6.00 to 9.50 48,833 8.48 8.1 25,666 8.45
$10.50 to 13.00 637,832 11.50 9.3 148,330 11.08
$15.19 to 22.13 617,600 18.37 9.0 92,710 19.37
$24.94 to 26.50 68,500 25.60 9.5 6,668 26.50
------------ ------------
1,744,145 12.57 8.9 495,713 9.05
============ ============
</TABLE>
The weighted average grant date fair values for options granted during 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Exercise prices equal to market price of stock $ -- $ 5.28 $ 7.80
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 years ended December 31, 1998 and 1999: risk-free interest rate
of 6%, 5% and 5.8%, respectively; dividend yield of zero; volatility factor of
the expected market price of the Company's common stock of .40, .55 and .55,
respectively; and a weighted-average expected life of the option of 4 years.
F-25
<PAGE> 55
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders:
As reported $ (4,181) $ 1,361 $ 9,195
Pro forma (4,185) 38 7,599
Basic income (loss) per share:
As reported (0.73) 0.13 0.50
Pro forma (0.73) 0.00 0.41
Diluted income (loss) per share:
As reported (0.73) 0.11 0.46
Pro forma (0.73) 0.00 0.38
</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. During the years ended December 31, 1998 and 1999, compensation
expense of $393 and $265, respectively, was recorded relating to these options.
Stock Purchase Warrants
The following table summarizes information about warrants outstanding as of
December 31, 1998 and 1999:
F-26
<PAGE> 56
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Outstanding at December 31,
Issue Warrants Exercise Fair Value ---------------------------
Date Issued Range of Warrants 1998 1999
--------------- --------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Warrants issued to bank September 1997 200,000 $ 0.01 $ 382 27,200 -
Warrants issued to guarantors of
Company's debt obligations December 1997 841,000 2.80 328 841,000 374,000
Warrants issued to consultants December 1997 15,000 2.80 to 5.00 15,000 15,000
Warrants issued to bank January 1998 140,000 2.80 855 140,000 -
Warrants issued in connection
with an acquisition February 1998 200,000 4.00 954 200,000 200,000
Warrants issued to an employee February 1998 50,000 2.80 240 - -
Warrants issued to market
development consultants Throughout 1998 67,935 12.00 to 22.13 339 67,935 67,935
Warrants issued to market
development consultants Throughout 1999 102,634 10.88 to 30.50 572 - 102,634
--------- ---------
1,291,135 759,569
--------- ---------
</TABLE>
The warrants are exercisable upon vesting and notification and expire between
2000 and 2009.
In September 1997, the Company issued a warrant to purchase 200,000 shares of
the Company's common stock to the Bank that provided a line of credit and term
loan payable. The fair value of the warrant was determined 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
warrants were valued 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 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 warrant was valued 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 $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 in connection with an acquisition. The warrant was valued 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
$7.50 per share and an expected life of 5 years. The value of the warrant was
recorded as an element of purchase price for the acquisition.
F-27
<PAGE> 57
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Warrants issued to third party market development consultants are valued using
the Black-Scholes pricing model with an assumed stock price volatility of .40 in
1998 and .55 in 1999, risk-free interest rate of 6.0%, and contractual term of 2
years. These warrants are recorded as an element of the related acquisitions.
13. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 1997,
1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 826 $ 1,471 $ 7,778
State - 146 865
Deferred:
Federal (462) 1,286 2,053
State - 145 206
------- ------- -------
$ 364 $ 3,048 $10,902
======= ======= =======
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred income tax assets:
Basis step-up in acquired assets $ - $ 396
Accounts receivable reserves 98 66
Accrued expenses 14 142
State taxes 22 42
Other 49 161
-------- --------
Total deferred income tax assets: 183 807
======== ========
Deferred income tax liabilities:
Net asset basis difference in
non-taxable acquisitions (255) (68,505)
Amortization (300) (1,257)
Depreciation (1,641) (3,976)
Other liabilities (153) (410)
Prepaid expenses (180) (1,097)
-------- --------
Total deferred income tax liabilities (2,529) (75,245)
-------- --------
Net deferred income tax liability $ (2,346) $(74,438)
======== ========
</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):
F-28
<PAGE> 58
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory rate (34.0)% 34.0% 35.0%
State taxes, net of federal benefit - 4.0 3.5
Acquisition charges - - 10.3
Goodwill amortization - 3.0 2.1
Subchapter S (1.3) 3.2 1.1
Stock compensation expense 44.0 3.0 0.5
Other 0.9 0.8 1.7
------ ------ ------
9.6% 48.0% 54.2%
====== ====== ======
</TABLE>
14. NET INCOME (LOSS) PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and denominator
used in the computation of basic and diluted net loss per share for the years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
---------- ------------ -----------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item $ (3,650) $ 3,305 $ 9,195
Redeemable convertible preferred stock accretion (531) (917) -
---------- ------------ -----------
Income (loss) applicable to common stockholders
before extraordinary item $ (4,181) $ 2,388 $ 9,195
========== ============ ===========
Extraordinary item - (1,027) -
---------- ------------ -----------
Net income (loss) applicable to common
stockholder $ (4,181) $ 1,361 $ 9,195
========== =========== ===========
Denominator:
Weighted average common shares outstanding 5,721,827 10,309,553 18,552,486
Dilutive effect of stock options and warrants
outstanding - 1,628,930 1,273,738
Incremental common shares issuable upon redemption
of redeemable common stock - 282,192 -
---------- ----------- ------------
5,721,827 12,220,675 19,826,224
========== =========== ============
</TABLE>
As of December 31, 1998 and 1999, the Company had the following common stock
equivalents that have not been included in the computation of diluted net income
per share because to do so would have been antidilutive:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------------------ ------------------------------
Number of Exercise Number of Exercise
Shares Price Range Shares Price Range
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding options 87,832 $18.62 to $22.13 103,000 $21.50 to $26.50
Outstanding warrants 51,485 $17.00 to $22.13 81,081 $21.50 to $30.50
------- -------
139,317 184,081
------- -------
</TABLE>
F-29
<PAGE> 59
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. RELATED PARTY TRANSACTIONS
Advances
As of December 31, 1998, the Murrey Companies had non-interest bearing advances
payable to one of their shareholders totaling $543. These advances were paid in
full in 1999.
Shareholder Notes Payable
As of December 31, 1998, Cook's had notes payable to shareholders and other
related parties totaling $863. These notes payable were secured by all assets of
Cook's, carried an annual interest rate of 12% and were paid in full in December
1999.
Disposal Fees
During the years ended December 31, 1997, 1998 and 1999, the Murrey Companies
paid $8,592, $8,816 and $10,328, 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.
Shareholder Notes Receivable
Central, G&P, and Omega provided loans totaling $365 as of December 31, 1998 to
shareholders of those corporations. These notes were non-interest bearing and
repaid in 1999.
16. EMPLOYEE BENEFIT PLANS
WCI has a voluntary savings and investment plan (the "WCI 401(k) Plan"). The WCI
401(k) Plan is available to all eligible, non-union employees of WCI. Under the
WCI 401(k) Plan, WCI's contributions are 40% of the first 5% of the employee's
contributions. The Murrey Companies have a voluntary savings and investment plan
(the "Murrey 401(k) Plan"). The Murrey 401(k) Plan is available to all eligible,
non-union employees of the Murrey Companies. Under the Murrey 401(k) Plan, the
Murrey Companies' contributions are at the discretion of management. During the
years ended December 31, 1997, 1998 and 1999, the total 401(k) plan expense for
the WCI and Murrey 401(k) plans was approximately $318, $394 and $848,
respectively.
F-30
<PAGE> 60
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results of
operations as reported and as restated for poolings-of-interests for 1998 and
1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
1998 as reported $ 7,601 $ 10,919 $ 16,828 $ 18,706
1998 as restated 18,099 22,208 28,486 29,594
Gross profit:
1998 as reported 2,204 3,486 5,636 6,159
1998 as restated 4,810 6,459 8,409 7,987
Income before extraordinary item:
1998 as reported 35 538 1,042 1,158
1998 as restated 519 1,164 1,050 572
Net income (loss):
1998 as reported 34 (277) 1,042 946
1998 as restated 519 349 1,050 360
Basic earnings (loss) per common share:
1998 as reported (0.23) (0.12) 0.12 0.10
1998 as restated (0.01) 0.00 0.08 0.03
Diluted earnings (loss) per common share:
1998 as reported (0.23) (0.08) 0.10 0.09
1998 as restated (0.01) 0.00 0.07 0.02
Revenues:
1999 as reported 30,883 40,219 48,610 60,391
1999 as restated 32,846 40,490 48,891 60,391
Gross profit:
1999 as reported 10,763 15,414 19,302 24,726
1999 as restated 11,440 15,494 19,403 24,726
Net income (loss):
1999 as reported (4,362) 3,152 4,919 5,390
1999 as restated (4,296) 3,162 4,939 5,390
Basic earnings (loss) per common share:
1999 as reported (0.28) 0.18 0.26 0.26
1999 as restated (0.27) 0.18 0.26 0.26
Diluted earnings (loss) per common share:
1999 as reported (0.28) 0.16 0.24 0.25
1999 as restated (0.27) 0.16 0.24 0.25
</TABLE>
F-31
<PAGE> 61
PART III
Except as set forth above in Part I under "Executive Officers," the
information required by Part III (Items 10 through 13) has been omitted from
this report, and is incorporated by reference to the captions "Principal
Stockholders," "Election of Directors" and "Executive Compensation" in our
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders, which we
will file with the Commission pursuant to Regulation 14A within 120 days after
the end of our 1999 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) See Index to Financial Statements on page F-1. The following Financial
Statement Schedule is filed herewith and made a part hereof:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(b) The following reports on Form 8-K were filed during the last quarter of
our fiscal year ended December 31, 1999:
On November 15, 1999, we filed a Form 8-K reporting the relocation of our
corporate offices to 620 Coolidge Drive, Suite 350, Folsom, California
95630-3155.
On November 24, 1999, we filed a Form 8-K reporting the acquisition of all
of the outstanding capital stock of Denver Regional Landfill, Inc. ("DRL"), a
Colorado corporation wholly owned by Allied Waste Systems Holdings, Inc., a
wholly owned subsidiary of Allied Waste Industries, Inc. On the same date, Waste
Connections of Colorado, Inc. ("WCIC"), a Delaware corporation that is a wholly
owned subsidiary of WCI, acquired certain assets from Allied Waste
Transportation Inc. ("AWT"), which is wholly owned by Allied Waste Industries,
Inc.
(c) See Exhibit Index immediately following signature pages.
II-1
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Waste Connections, Inc.
By: /s/ Ronald J. Mittelstaedt
---------------------------------------
Ronald J. Mittelstaedt
President
Date: March 10, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C> <C>
/s/ Ronald J. Mittelstaedt
Ronald J. Mittelstaedt Chairman, President and Director
(principal executive officer) March 10, 2000
/s/ Steven F. Bouck
Steven F. Bouck Chief Financial Officer
(principal financial officer) March 10, 2000
/s/ Michael R. Foos
Michael R. Foos Chief Accounting Officer and Vice President - Finance
(principal accounting officer) March 10, 2000
/s/ Eugene V. Dupreau
Eugene V. Dupreau Vice President - California Division and Director March 10, 2000
/s/ Michael W. Harlan
Michael W. Harlan Director March 10, 2000
/s/ William J. Razzouk
William J. Razzouk Director March 10, 2000
/s/ Irmgard R. Wilcox
Irmgard R. Wilcox Controller - Northern Washington Division and
Director March 10, 2000
</TABLE>
II-2
<PAGE> 63
WASTE CONNECTIONS, INC. AND PREDECESSORS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Additions
-------------------------- Deductions
Balance at Charged to Charged (Write-offs, Balance
Beginning Costs and to 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:
Predecessors combined:
Nine months ended September 30, 1997 $ 81 $ 139 $ - $ (97) $ 123
Waste Connections, Inc.:
Year ended December 31, 1997 244 79 - (48) 275
Year ended December 31, 1998 275 626 - (209) 692
Year ended December 31, 1999 692 1,549 5 (913) 1,333
</TABLE>
II-3
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of Waste Connections, in effect
as of the date hereof
3.2* Amended and Restated By-Laws of Waste Connections, in effect as of the date hereof
4.1* Form of Common Stock Certificate
4.2* Amended and Restated Certificate of Incorporation
4.3* Amended and Restated Bylaws, effective March 18, 1998
4.4- Form of Senior Indenture
4.5- Form of Subordinated Indenture
10.1*** Amended and Restating Revolving Credit Agreement, dated as of November 20, 1998, between
Waste Connections and various banks represented by BankBoston, N.A.
10.2### First Amended and Restated 1997 Stock Option Plan
10.3* Form of Option Agreement
10.4* Form of Warrant Agreement
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 Waste Connections, 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 Waste Connections and Darrell Chambliss,
dated as of October 1, 1997
10.11* First Amended Employment Agreement between Waste Connections and Michael Foos, dated
as of October 1, 1997
10.12* First Amended Employment Agreement between Waste Connections and Eric Moser, dated
as of October 1, 1997
10.13* Employment Agreement between Waste Connections and Steven Bouck, dated as of
February 1, 1998
10.14* Employment Agreement between Waste Connections and Eugene V. Dupreau, dated as of
February 23, 1998
10.15* Employment Agreement between Waste Connections 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 Industries, Inc., and
Browning-Ferris Industries of Idaho, Inc. as Sellers, and Waste Connections,
Waste Connections of Idaho, Inc. and Continental Paper Recycling, LLC as Buyers
10.17+* Stock Purchase Agreement, dated as of January 26, 1998, among Waste Connections,
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 Waste Connections and the
</TABLE>
II-4
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
shareholders of Madera Disposal Company, Inc.
10.19+* Asset Purchase Agreement, dated as of March 1, 1998, among Waste Connections, Waste
Connections of Idaho, Inc., Hunter Enterprises, Inc. and the shareholder of Hunter
Enterprises, Inc.
10.20* Form of Indemnification Agreement entered into by Waste Connections and each of its
directors and officers
10.21+# Asset Purchase Agreement, dated as of June 1, 1998, by and among Waste Connections, Waste
Connections of Utah, Inc., Contractor's Waste, L.C., and Brad Kitchen, Heath Johnston, and
R. Scott McQuarrie
10.22+## Stock Purchase Agreement, dated as of June 5, 1998, by and among Waste Connections, 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
10.23++ Stock Purchase Agreement dated as of June 17, 1998, by and among Waste Connections, Arrow
Sanitary Service, Inc., Steven Giusto, Dennis Giusto, John Giusto, Michael Giusto and
Kenneth Giusto
10.24++ Stock Purchase Agreement dated as of June 25, 1998, by and among Waste Connections, Curry
Transfer and Recycling, Oregon Waste Technology, Petty H. Smart, and A. Lewis Rucker
10.25**+ Purchase and Sale Agreement dated as of June 25, 1998, by and between Petty H. Smart and
Waste Connections
10.26** Loan Agreement dated as of June 1, 1998 between Madera Disposal Systems, Inc. and the
California Pollution Control Financing Authority
10.27** Employment Agreement between Waste Connections and David M. Hall, dated as of July 8, 1998
10.28+++ Agreement and Plan of Merger, dated as of July 30, 1998, by and among Waste Connections,
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
10.29+++ Purchase and Sale Agreement dated as of July 31, 1998, by and between Ambler Vincent
Development Company and Shrader Refuse and Recycling Service Company
</TABLE>
II-5
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
10.30**+ Purchase Agreement, dated as of July 31, 1998, by and among Waste Connections,
Waste Connections of Nebraska, Inc., J & J Sanitation Inc., Big Red Roll Off
Inc., Garry L. Jeffords, Darin L. 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
10.31***+ 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
10.32****+ 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
10.33####+ Amendment No. 1 to Purchase Agreement, dated as of January 7, 1999, by and among
WCI, Butler County Landfill, Inc., Kobus Construction, Inc., Tom Kobus and Debbie
Kobus
10.34####+ Amendment No. 2 to Purchase Agreement, dated as of January 8, 1999, by and among
WCI, Butler County Landfill, Inc., Kobus Construction, Inc., Tom Kobus and Debbie
Kobus
</TABLE>
II-6
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
10.35+ Stock Purchase Agreement dated as of November 30, 1998, by and among Waste
Connections, Amador Disposal Service, Inc., Mother Lode Sani-Hut, Inc., and
Robert N. Grunigen, Carla Grunigen, Carol Sesser and Gaye Sue Marchini, as
Trustees of the Marchini 1981 Trust, Bennie L. Ratto, Carol Sesser, John D.
Marchini, Gloria Lehman, Sandra Thomas, John H. Tillman and Jeffrey R. Tillman
</TABLE>
II-7
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
10.36--+ 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 thereto
</TABLE>
II-8
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
10.37---+ Acquisition Agreement dated as of August 11, 1999, by and among WCI Acquisition
Corporation I, Waste Connections, Inc., International Environmental Industries,
Inc., J.O. Stewart, Jr., Ralner Corporation, JOS Enterprises, Ltd. and
International Environmental Industries Equipment Company, L.P.
10.38----+ Asset Purchase Agreement dated as of October 15, 1999, by and among Waste
Connections of Colorado, Inc., Allied Waste Transportation, Inc., BFI Services
Group, Inc. and Allied Waste Industries, Inc.
10.39----+ Stock Purchase Agreement dated as of October 15, 1999, by and among Waste
Connections, Inc., Allied Waste Systems Holdings, Inc. and Allied Waste
Industries, Inc.
10.40----+ Closing Agreement dated as of November 17, 1999, by and among Waste Connections,
Inc., Allied Waste Systems Holdings, Inc., Allied Waste Industries, Inc. and
Denver Regional Landfill, Inc.
10.41----+ Agreement dated as of November 17, 1999, among Waste Connections of Colorado,
Inc., Allied Waste Transportation, Inc., BFI Services Group, Inc. and Allied
Waste Industries, Inc.
</TABLE>
II-9
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
10.42 Employment Agreement between Waste Connections and James M. Little, dated as
September 13, 1999
10.43 Employment Agreement between Waste Connections and Jerri L. Hunt, dated as of
October 25, 1999
12.1- Statement regarding computation of ratio of earnings to fixed charges
12.2- Statement of computation of pro forma ratio of earnings to combined fixed charges
and preferred stock dividends
21.1 Subsidiaries of Waste Connections
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule
99.1 Proxy Statement for Waste Connections' 2000 Annual Stockholders Meeting scheduled
to be held May 24, 2000. (To be filed with the Commission prior to 120 days after
December 31, 1999, and incorporated by reference herein to the extent indicated
in Part III to this Form 10-K.)
</TABLE>
<TABLE>
- ------------------
<S> <C>
* Incorporated by reference to the exhibits filed with Waste Connections'
Registration Statement on Form S-1, Registration No. 333-48029.
** Incorporated by reference to the exhibits filed with Waste Connections'
Registration Statement on Form S-4, Registration No. 333-59199.
*** Incorporated by reference to the exhibits filed with Waste Connections'
Registration Statement on Form S-4, Registration No. 333-65615.
**** Incorporated by reference to the exhibits filed with Waste Connections'
Registration Statement on Form S-1, Registration No. 333-70253.
- Incorporated by reference to the exhibits filed with Waste Connections'
Registration Statement on Form S-3, Registration No. 333- 87703.
# Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on June 15, 1998.
## Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on June 22, 1998.
</TABLE>
II-10
<PAGE> 71
EXHIBIT INDEX
<TABLE>
- --------------
<S> <C>
++ Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
Filed on August 11, 1998.
#### Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on January 13, 1999.
-- Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on April 14, 1999.
--- Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on August 25, 1999.
---- Incorporated by reference to the exhibit filed with Waste Connections' Form 8-K
filed on November 24, 1999.
### Incorporated by reference to the exhibits filed with Waste Connections' Form S-8,
Registration No. 333-72113.
+ Filed without exhibits and schedules (to be provided supplementally on request of
the Commission).
</TABLE>
II-11
<PAGE> 1
EXHIBIT 10.35
STOCK PURCHASE AGREEMENT
Dated as of November 30, 1998, by and among
Waste Connections, Inc.
Amador Disposal Service, Inc.
Mother Lode Sani-Hut, Inc.
Robert N. Grunigen
Carla Grunigen
Carol Sesser and G. Susan Marchini, as Trustees of the Marchini 1981 Trust
Bennie L. Ratto and Marcella T. Ratto, as Co-Trustees
of the Ratto 1981 Family Trust
Carol Sesser
John D. Marchini
Gloria Lehman
Sandra Thomas
John H. Tillman
and
Jeffrey R. Tillman
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
30, 1998, is entered into by and among Waste Connections, Inc., a Delaware
corporation ("WCI"), Mother Lode Sani-Hut, Inc., a California Corporation
("MOTHER LODE"), Amador Disposal Service, Inc, a California corporation doing
business as Calaveras Disposal and Amador Recycling ("AMADOR") (Mother Lode and
Amador shall collectively be referred to as the "CORPORATION"), and Robert N.
Grunigen ("GRUNIGEN"), Carla Grunigen ("C. GRUNIGEN"), Carol Sesser and G. Susan
Marchini, as Trustees of the Marchini 1981 Trust (the "MARCHINI TRUST"), Bennie
L. Ratto and Marcella T. Ratto, as Co-Trustees of the Ratto 1981 Family Trust
("RATTO TRUST"), Carol Sesser ("SESSER"), John D. Marchini ("MARCHINI"), Gloria
Lehman ("LEHMAN"), Sandra Thomas ("THOMAS"), John H. Tillman ("J.H. TILLMAN"),
and Jeffrey R. Tillman ("J.R. TILLMAN") (Grunigen, C. Grunigen, Marchini Trust,
Ratto Trust, Sesser, Marchini, Lehman, Thomas, J.H. Tillman and J.R. Tillman
shall collectively be referred to as the ("SHAREHOLDERS").
WHEREAS, the Corporation is engaged in the collection and transport of
solid waste and recyclables in the Cities of Ione, Sutter Creek and Plymouth,
California, and in the unincorporated areas of Calaveras, Amador, and El Dorado
Counties, California, including the operation and management of the materials
recovery facility and transfer station for the County of Amador and the
operation and management of the Amador County Landfill, and other related
activities;
WHEREAS, with the exception of certain real estate in Amador County
used in connection with the Amador County Landfill, the Corporation owns all of
the real estate used in connection with the business and operations of the
Corporation, including without limitation the Sutter Creek Recycling Convenience
Center and the Corporation owns each of the buildings and improvements currently
situated on land used in connection with the Corporation's operations at the
Amador County Landfill; and
WHEREAS, the Shareholders own all of the issued and outstanding
capital stock of the Corporation (the "CORPORATION'S STOCK");
WHEREAS, WCI wishes to acquire from the Shareholders all of the
Corporation's Stock; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATION'S STOCK
1.1 Shares to be Purchased. At the Closing (as defined in Section 2),
the Shareholders shall sell and deliver to WCI all of the issued and outstanding
shares of the Corporation's Stock, being the number of shares of the Corporation
set forth on Schedule 3.2 opposite each Shareholder's name. At the Closing, WCI
shall purchase the Corporation's Stock
1
<PAGE> 3
and in exchange therefor shall deliver to the Shareholders at the Closing or
thereafter as provided by this Agreement the purchase price described in Section
1.2 (the "PURCHASE PRICE"), plus any and all additions to the Purchase Price
payable pursuant to Section 1.3.
1.2 Purchase Price. The Purchase Price is: six million five hundred
thousand dollars ($6,500,000), (i) minus the Closing Date Debt (as defined in
Section 3.22(a)), (ii) plus or minus, as the case may be, the amount by which
the Effective Date Current Assets (as defined in Section 3.22(b)) are greater or
less than the Effective Date Current Liabilities (as defined in Section 3.22(b),
and (iii) minus that amount, if any, set forth on Schedule 3.21 attributable to
bonus payments, increased compensation, or other dividends or distributions
paid, promised or declared to any Shareholder, director, officer, employee or
agent of the Corporation from the Effective Date through Closing. The Closing
Date Debt shall be based on pay-off letters obtained from the Corporation's
lenders. The Effective Date Current Assets and Effective Date current
Liabilities shall be based on estimates of such amounts delivered to WCI by the
Corporation at Closing. At Closing, the following portion of the Purchase Price
shall be paid to the Shareholders in immediately available funds by wire
transfer or check payable in clearinghouse funds: six million five hundred
thousand dollars ($6,500,000) minus (x) the Closing Date Debt, and (y) that
amount by which the Effective Date Current Liabilities exceed the Effective Date
Current Assets, if at all (the "WORKING CAPITAL DEFICIT"). Within 120 days after
the Closing, WCI and the Shareholders shall determine the actual Closing Date
Debt, Effective Date Current Assets and Effective Date Current Liabilities. If
the actual Closing Date Debt is less than the estimated Closing Date Debt, WCI
shall promptly pay the difference to the Shareholders. If the actual Effective
Date Current Assets exceed the actual Effective Date Current Liabilities or if
the actual Working Capital Deficit is less than the estimated Working Capital
Deficit, WCI shall promptly pay such excess to the Shareholders. If at the time
of Closing there was no estimated Working Capital Deficit and the actual
Effective Date Current Liabilities exceed the actual Effective Date Current
Assets, or if the actual Working Capital Deficit exceeds the estimated Working
Capital Deficit, Shareholders shall promptly pay such excess to WCI.
1.3 Additional Contingent Purchase Price. If within eighteen (18)
months following the Closing Date any of the Shareholders assist WCI or any of
its affiliates or subsidiaries in acquiring directly or indirectly (through
asset purchase, stock purchase, merger or otherwise) the waste collection
operations (the "ACQUIRED OPERATIONS") of any other company or companies
providing such services, WCI shall pay to the Shareholders as additional
contingent purchase price a cash amount equal to two percent (2%) of the
Projected Net Revenues (as defined below) with respect to the Acquired
Operations, which amount shall be paid within thirty (30) days after the date
any such acquisition is consummated. For the purposes of this Section 1.3,
"PROJECTED NET REVENUES" shall mean the gross revenues for an Acquired Operation
for the twelve (12) months preceding the closing date for such acquisition less
all disposal costs, transfer fees, franchise fees, and taxes related to host
fees or disposal taxes (excluding income and sales taxes) projected for such
Acquired Operation for the twelve (12) months following the closing date of such
acquisition as determined from WCI's pro forma financial statements for such
Acquired Operation. WCI shall have sole discretion in determining whether and on
what terms it will consummate any such acquisition, and WCI shall not be liable
to any of the Shareholders for any decision not to pursue any such acquisition
or its failure to consummate any such acquisition, without regard to the reason
therefor.
2
<PAGE> 4
1.4 Allocation of the Purchase Price. Twenty five thousand dollars
($25,000) of the Purchase Price shall be allocated to the covenants not to
compete as described in Section 8.1(a) hereof, and the balance of the Purchase
Price shall be allocated to the Corporation's Stock.
1.5 Excluded Assets. The Assets of the Corporation listed on Schedule
1.5 (the "EXCLUDED ASSETS") shall be distributed to the Shareholders prior to
the Closing, and WCI shall acquire no interest in or claim to any of the
Excluded Assets.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "Closing") shall take place concurrent
with the execution of this Agreement or on such other date as WCI and the
Shareholders 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 Corporation and
the Shareholders shall deliver to each other the documents, instruments and
other items described in Section 5 of this Agreement. At the election of WCI and
the Shareholders, the Closing of this transaction may take place through an
exchange of consideration and documents using overnight courier service or
facsimile. Upon consummation of the transactions contemplated by this Agreement
and without regard for the Closing Date, the Closing will be deemed to be
effective and the transfer of the Corporation's Stock will be deemed to have
occurred, for tax and financial reporting purposes, as of 12:01 a.m. local time
on November 1, 1998 (the "Effective Date"). Accordingly, all income generated
from the Corporation's operations and business on and after the Effective Date
will remain with the Corporation and, indirectly, for the benefit of WCI.
Shareholders hereby acknowledge that for the period from the Effective Date
until Closing when the physical transfer of certificates evidencing the
Corporation's Stock will actually take place, Shareholders will hold such
certificates for the benefit of WCI and such certificates will be deemed
delivered as of the Effective Date, subject to the other provisions of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS
The Corporation and the Shareholders jointly and severally represent
and warrant to WCI, which representations and warranties will be true and
correct as of the Closing Date, as follows:
3.1 Organization, Standing and Qualification. The Corporation is duly
organized, validly existing and in good standing under the laws of the State of
California. The Corporation has full corporate power and authority to own and
lease its properties and to carry on its business as now conducted. The
Corporation is not required to be qualified or licensed to conduct business as a
foreign corporation in any other jurisdiction.
3.2 Capitalization. Schedule 3.2 sets forth, as of the Closing Date,
the authorized and outstanding capital of the Corporation, the names, addresses
and social security numbers or taxpayer identification numbers of the record and
beneficial owners thereof, the number of shares so owned, the allocation of the
Purchase Price among the Shareholders as agreed to
3
<PAGE> 5
among themselves, and wire transfer instructions for each Shareholder relating
to the bank account to which the cash portion of the Purchase Price should be
sent. All of the issued and outstanding shares of the capital stock of the
Corporation are owned of record and beneficially by the Shareholders, as set
forth in Schedule 3.2, and are and as of the Closing Date will be free and clear
of all liens, security interests, encumbrances, restrictions, pledges and claims
of every kind except as set forth in Schedule 3.2. Each share of the capital
stock of the Corporation is duly and validly authorized and issued, fully paid
and nonassessable, and was not issued in violation of any preemptive rights of
any past or present shareholder of the Corporation. No option, warrant, call,
conversion right or commitment of any kind (including any of the foregoing
created in connection with any indebtedness of the Corporation) exists which
obligates the Corporation to issue any of its authorized but unissued capital
stock or other equity interest or which obligates the Shareholders to transfer
any Corporation's Stock to any person. The Corporation's Stock has been issued
in accordance with all applicable federal and state securities laws.
3.3 All Stock Being Acquired. The Corporation's Stock being acquired
by WCI hereunder constitutes all of the outstanding capital stock of the
Corporation.
3.4 Authority for Agreement. The Corporation and the Shareholders have
full right, power and authority to enter into this Agreement and all documents
and agreements necessary to give effect to the provisions of this Agreement, and
to perform its, his or her obligations hereunder. The execution and delivery of
this Agreement by the Corporation and the consummation of the transactions
contemplated hereby by the Corporation has been duly authorized by the
Corporation's Board of Directors. This Agreement and all other agreements and
documents executed in connection herewith have been and will be, as the case may
be, duly and validly executed and delivered by the Corporation and the
Shareholders and, subject to the due authorization, execution and delivery by
WCI, constitute the legal, valid and binding obligations of the Corporation and
the Shareholders enforceable against the Corporation and the Shareholders in
accordance with their respective terms.
3.5 No Breach or Default. Except as disclosed on Schedule 3.5, the
execution and delivery by the Corporation and the Shareholders of this
Agreement, and the consummation by the Shareholders of the transactions
contemplated hereby, will not:
(a) result in the breach of any of the terms or conditions of,
or constitute a default under, or allow for the acceleration or
termination of, or in any manner release any party from any obligation
under, any mortgage, lease, note, bond, indenture, or contract,
agreement, license or other instrument or obligation of any kind or
nature to which the Corporation or any of the Shareholders is a party,
or by which the Corporation or any of the Shareholders, or any of the
Corporation's or the Shareholders' assets, is or may be bound or
affected; or
(b) violate any law, rule or regulation, or any order, writ,
injunction or decree of any court, administrative agency or
governmental authority, or require the approval, consent or permission
of any governmental or regulatory authority; or
(c) violate the Articles of Incorporation or Bylaws of the
Corporation.
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3.6 Subsidiaries. Schedule 3.6 lists as of the Closing Date any and all
subsidiaries of the Corporation and any securities of any other corporation or
any securities or other interest in any other business entity owned by the
Corporation or any of the Corporation's subsidiaries.
3.7 Financial Statements. The Corporation has delivered to WCI, as
Schedule 3.7, copies of financial statements ("FINANCIAL STATEMENTS") for the
Corporation's three most recent fiscal years and interim financial statements
for the Corporation for the period ended October 31, 1998 (the "BALANCE SHEET
DATE"). Such financial statements have been audited by Freeman & Williams, LLP.
The Financial Statements are true and correct and fairly present (i) the
financial position of the Corporation in accordance with generally accepted
accounting principles, applied as of the respective dates of the balance sheets
included in said statements, and (ii) the results of operations for the
respective periods indicated. The Financial Statements have been prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods. Except to the extent reflected or reserved against in the
Corporation's balance sheet as of the Balance Sheet Date, or as disclosed on
Schedule 3.7 or Schedule 3.8, the Corporation did not have as of the Balance
Sheet Date, nor will the Corporation 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.
3.8 Liabilities. Parts I, II, III and IV of Schedule 3.8, are accurate
lists and descriptions of all liabilities of the Corporation required to be
described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Closing Date
other than with respect to trade payables, and as of the end of the
month prior to the Closing Date with respect to trade payables, all
indebtedness for money borrowed and all other fixed and uncontested
liabilities of any kind, character and description (excluding all real
and personal property leasehold interests included in Part IV of
Schedule 3.8), whether reflected or not reflected on the Financial
Statements and whether accrued or absolute, and states as to each such
liability the amount of such liability and to whom payable. From the
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 Closing Date,
all claims, suits and proceedings which are pending against the
Corporation and, to the knowledge of the Corporation and the
Shareholders, all contingent liabilities and all claims, suits and
proceedings threatened or anticipated against the Corporation. Part II
of Schedule 3.8 includes a summary description of each such liability,
including, without limitation, (A) the name of each court, agency,
bureau, board or body before which any such claim, suit or proceeding
is pending, (B) the date such claim, suit or proceeding was instituted,
(C) the parties to such claim, suit or proceeding, (D) a brief
description of the factual basis alleged to underlie such claim, suit
or proceeding, including the date or dates of all material occurrences,
and (E) the amount claimed and other relief sought, together with
copies of all material documents, reports and other records relating
thereto to the extent that they are in the Corporation's or a
Shareholder's possession or control.
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(c) Part III of Schedule 3.8 lists, as of the Closing Date
and to the extent not otherwise included in Part I of Schedule 3.8, all
liens, claims and encumbrances secured by or otherwise affecting any
asset of the Corporation (including any Corporate Property, as
hereafter defined), including a description of the nature of such lien,
claim or encumbrance, the amount secured if it secures a liability, the
nature of the obligation secured, and the party holding such lien,
claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Closing Date and
to the extent not otherwise included in Part I or Part III of Schedule
3.8, all real and personal property leasehold interests to which the
Corporation is a party as lessor or lessee or, to the knowledge of the
Corporation or a Shareholder, affecting or relating to any Corporate
Property, and includes a description of the nature and principal terms
of such leasehold interest, including, without limitation, the identity
of the other party thereto, the term of such leasehold interest
(including renewal options), the base rent and any additional rent
owing thereunder (including any adjustments thereto), security
deposits, rights of first offer or first refusal, purchase options, and
restrictions on transfer.
Except as described on the applicable part of Schedule 3.8,
neither the Corporation nor any of the Shareholders has made any
payment or committed to make any payment since the Balance Sheet Date
on or with respect to any of the liabilities or obligations listed on
Schedule 3.8 except, in the case of liabilities and obligations listed
on Parts I, III and IV of Schedule 3.8, periodic payments required to
be made under the terms of the agreements or instruments governing such
obligations or liabilities or made in the ordinary course of business.
3.9 Accurate and Complete Records. The corporate minute books, stock
ledgers, books, ledgers, financial records and other records of the Corporation:
(a) have been made available to WCI and its agents at the
Corporation's offices or at the offices of WCI's attorneys or the
Corporation's attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material corporate
transactions required to be authorized by the Board of Directors and/or
shareholders of that Corporation 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 permits, licenses, franchises, and service
agreements pursuant to which the Corporation is authorized to collect
and haul industrial, commercial and residential solid waste (the
"COLLECTION FRANCHISES"), and of all other material permits, licenses,
titles (including motor vehicle titles and current registrations), fuel
permits, zoning and land use approvals and authorizations, including,
without limitation, any conditional or special use approvals or zoning
variances, occupancy permits, and any other similar documents
constituting a material authorization or entitlement or otherwise
material to the operation of the business of the Corporation
(collectively the "GOVERNMENTAL PERMITS") owned by,
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<PAGE> 8
issued to, held by or otherwise benefiting the Corporation or the
Shareholders as of the Closing Date. The status of the Governmental
Permits related to the disposal areas owned or used by the Corporation,
including, without limitation, any conditions thereto and, if
applicable, the expiration dates thereof, are also described in
Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any
governmental agency or other third party from whom the Shareholders,
the Corporation or WCI must obtain consent (the "REQUIRED GOVERNMENTAL
CONSENTS") in order to effect a direct or indirect transfer of the
Collection Franchises or other Governmental Permits required as a
result of the consummation of the transactions contemplated by this
Agreement. All such consents have been obtained prior to the Closing.
Except as set forth on Schedule 3.10(a), all of the Collection
Franchises and other Governmental Permits enumerated and listed on
Schedule 3.10(a) are adequate for the operation of the business of the
Corporation and of each Corporate Property as presently operated and
are valid and in full force and effect. All of said Collection
Franchises and other Governmental Permits and agreements have been duly
obtained and are in full force and effect, and there are no proceedings
pending or, to the knowledge of the Corporation or the Shareholders,
threatened which may result in the revocation, cancellation, suspension
or adverse modification of any of the same. Neither the Corporation nor
any of the Shareholders has any knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect for the
period or term stated therein, subject to WCI's full compliance
therewith, after consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) includes: (i) all records,
notifications, reports, permit and license applications, engineering
and geologic studies, and environmental impact reports, tests or
assessments (collectively, "Records, Notifications and Reports") that
(A) are material to the operation of the business of the Corporation,
or (B) relate to the discharge or release of materials into the
environment and/or the handling or transportation of waste materials or
hazardous or toxic substances or otherwise relate to the protection of
the public health or the environment, or (C) were filed with or
submitted to appropriate governmental agencies during the past
twenty-four (24) months by the Corporation or the Shareholders or their
agents with respect to the business of the Corporation, and (ii) all
material notifications from such governmental agencies to the
Corporation, the Shareholders or their agents in response to or
relating to any of such Records, Notifications and Reports.
(c) Schedule 3.10(c) lists each facility owned, leased,
operated or otherwise used by the Corporation, the ownership, lease,
operation or use of which is being transferred to, assumed by or
otherwise acquired directly or indirectly by WCI pursuant to this
Agreement (each, a "Facility" and collectively, the "Facilities").
Except as otherwise disclosed on Schedule 3.10(c):
(i) Each Facility owned by the Corporation or owned
by any of the Shareholders or an Affiliate (as hereinafter
defined) of any of the Shareholders and leased to the
Corporation is fully licensed, permitted and authorized to
carry on its current business under all applicable federal,
state and local statutes, orders, approvals, zoning or land
use requirements, rules and regulations, and, none of such
Facilities or the current use thereof constitutes a
non-conforming use or is
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otherwise subject to any restrictions regarding the
operation, renovation or reconstruction thereof. To the
knowledge of the Corporation and the Shareholders, no
Facility that is leased by the Corporation 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 Corporation and the
Shareholders, there are no circumstances, conditions or
reasons which are likely to be the basis for revocation or
suspension of any Facility's site assessments, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility
owned by the Corporation or owned by any of the Shareholders
or an Affiliate (as hereinafter defined) of any of the
Shareholders and leased to the Corporation, and to the
knowledge of the Corporation and the Shareholders there are
no circumstances, conditions or reasons which are likely to
be the basis for revocation or suspension of any site
assessment, permits, licenses, consents, authorizations,
zoning or land use permits, variances or approvals relating
to any Facility leased by the Corporation from a third party
who is not an Affiliate (as hereinafter defined) of the
Shareholders.
3.11 Certain Receivables. Schedule 3.11 is an accurate list as of the
Closing Date of the accounts and notes receivable of the Corporation from and
advances to employees, former employees, officers, directors, the Shareholders
and Affiliates of the foregoing which have not been fully repaid. For purposes
of this Agreement, the term "AFFILIATE" means, with respect to any person, any
person that directly or indirectly through one or more intermediaries controls
or has an ownership interest in, or is controlled or owned in whole or in part
by, or is under common control or ownership in whole or in part with such
person, and in the case of the Corporation includes directors and officers, in
the case of individuals includes the individual's spouse, father, mother,
grandfather, grandmother, brothers, sisters, children and grandchildren and in
the case of a trust includes the grantors, trustees and beneficiaries of the
trust.
3.12 Fixed Assets and Real Property.
(a) Schedule 3.12(a) lists, as of the Closing Date, all the
fixed assets (other than real estate) of the Corporation, including,
without limitation, identification of each vehicle by description and
serial number, identification of machinery, equipment and general
descriptions of parts, supplies and inventory. Except as described on
Schedule 3.12(a), all of the Corporation's containers, vehicles,
machinery and equipment necessary for the operation of the
Corporation's businesses are in operable condition, and all of the
motor vehicles and other rolling stock of the Corporation are in
compliance with all applicable laws, rules and regulations. All such
containers, vehicles, machinery and equipment are free of known defects
that would cause them to fail. All leases of fixed assets are in full
force and effect and binding upon the parties thereto; neither the
Corporation nor, to the knowledge of the Corporation or the
Shareholders, any other party to such leases is in breach of any of the
material provisions thereof.
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(b) Each parcel of real property leased, owned or being
purchased by the Corporation as of the Closing Date (the "CORPORATE
PROPERTY"), including the street address and, in the case of Corporate
Property owned or being purchased, the legal description thereof, is
listed on Schedule 3.12(b), and attached to said Schedule 3.12(b), are
copies of all leases, deeds, outstanding mortgages, other encumbrances
and any existing title insurance policies or lawyer's title opinions
relating to each Corporate Property, as well as a current commitment
for title insurance issued by a title insurance company satisfactory to
WCI with respect to each Corporate Property owned or being purchased by
the Corporation, together with copies of all of the title exceptions
referred to in each such commitment. All leases listed on Schedule
3.12(b) are in full force and effect and binding on the parties
thereto; neither the Corporation nor any other party to any such lease
is in breach of any of the material provisions thereof; to the
knowledge of the Corporation and the Shareholders, 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 Corporation has not assigned any such lease or sublet all or any
part of the Corporate Property which is the subject of any such lease.
Except as described on Schedule 3.12(b), there are no material physical
or mechanical defects in any Facility located on any Corporate Property
and each such Facility is in good condition and repair.
(c) The Corporation possesses good, valid and marketable
title to all properties and assets, real, personal, and mixed, tangible
and intangible, actually used or necessary for the conduct of its
business, free of any encumbrance or charge of any kind except: (i)
liens for current taxes not yet due; (ii) minor imperfections of title
and encumbrances, if any, that are not substantial in amount, do not
materially reduce the value or impair the use of the property subject
thereto, do not materially impair the value of the Corporation, and
have arisen only in the ordinary course of business and consistent with
past practice; and (iii) the liens identified on Parts I and III of
Schedule 3.8 (collectively, the "PERMITTED LIENS"). Except as described
on Schedule 3.12(b), there are no leases, occupancy agreements,
options, rights of first refusal or any other agreements or
arrangements, either oral or written, that create or confer in any
person or entity the right to acquire, occupy or possess, now or in the
future, any Facility, any Corporate Property, or any portion thereof,
or create in or confer on any person or entity any right, title or
interest therein or in any portion thereof.
3.13 Related Party Transactions. None of the Shareholders or their
respective Affiliates has entered into any transaction with or is a party to any
agreement, lease or other instrument, or as of the date of this Agreement is
indebted to or is owed money by a Corporation not disclosed in the Financial
Statements. Except as disclosed in the Financial Statements, none of the
Shareholders or their Affiliates owns any direct or indirect interest of any
kind in, or controls or is a director, officer, employee, shareholder or partner
of, or consultant or lender to or borrower from or has the right to participate
in the profits of, any Person which is a competitor, supplier, customer,
landlord, tenant, creditor or debtor of the Corporation.
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3.14 Contracts and Agreements; Adverse Restrictions.
(a) Schedule 3.14(a) lists, as of the Closing Date, and
includes copies of, all material contracts and agreements, and written
summaries of key terms of all oral contracts, to which the Corporation
is a party or by which it or any of its property is bound (other than
leases and documents included with Schedule 3.12(b)) 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. For the purposes of this Section 3.14,
"MATERIAL CONTRACT" shall mean any contract with a municipality or
other governmental entity relating to the operations or assets of the
Corporation. Except as disclosed on Schedule 3.14(a), all contracts and
agreements included in Schedule 3.14(a) are in full force and effect
and binding upon the parties thereto. Except as described or cross
referenced on Schedule 3.14(a), neither the Corporation nor, to the
Corporation's or any Shareholder's knowledge, any other parties to such
contracts and agreements is in breach thereof, and none of the parties
has threatened to breach any of the material provisions thereof or
notified the Corporation or any of the Shareholders of a default
thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporation, the result of which could materially adversely affect the
Corporation or its business or any of the Corporate Properties, nor has
the Corporation been notified that any such judgment, order, writ,
injunction or decree has been requested.
3.15 Insurance. Schedule 3.15 is a complete list and includes copies,
as of the Closing Date, of all insurance policies in effect on the Closing Date
or, with respect to "OCCURRENCE" policies that were in effect, in respect of the
Corporate Properties or any other property used by the Corporation specifying,
for each policy, the name of the insurer, the type of risks insured, the
deductible and limits of coverage, and the annual premium therefor. The
Corporation currently carries insurance covering the Corporation and its
operations, assets and personnel in the type and amount ordinarily carried by
owners or corporations in similar circumstances. During the last five years,
there has been no lapse in any material insurance coverage of the Corporation.
For each insurer providing coverage for any of the contingent or other
liabilities listed on Schedule 3.8, except to the extent otherwise set forth in
Part II of Schedule 3.8, each such insurer, if required, has been properly and
timely notified of such liability, no reservation of rights letters have been
received by the Corporation and the insurer has assumed defense of each suit or
legal proceeding. All such proceedings are fully covered by insurance, subject
to normal deductibles.
3.16 Personnel. Schedule 3.16 is a complete list, as of the Closing
Date, of all officers, directors and employees (by type or classification) of
the Corporation and their respective rates of compensation, including (i) the
portions thereof attributable to bonuses, (ii) any other salary, bonus, stock
option, equity participation, or other compensation arrangement made with or
promised to any of them, and (iii) copies of all employment agreements with
non-union officers, directors and employees. Schedule 3.16 also lists the
driver's license number for each driver of the Corporation's motor vehicles.
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3.17 Benefit Plans and Union Contracts.
(a) Schedule 3.17(a) is a complete list as of the Closing
Date, and includes complete copies (or, in the case of oral
arrangements, descriptions), of all employee benefit plans and
agreements (written or oral) currently maintained or contributed to by
the Corporation, including employment agreements and any other
agreements containing "golden parachute" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together
with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing
Date. Except for the employee benefit plans described on Schedule
3.17(a), the Corporation has no other pension, retirement, welfare,
profit sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit
plans listed on Schedule 3.17(a) are fully funded and in substantial
compliance with all applicable federal, state and local statutes,
ordinances and regulations. All such plans that are intended to qualify
under Section 401(a) of the Internal Revenue Code have been determined
by the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 3.17(a). Except
as disclosed on Schedule 3.17(a), all reports and other documents
required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to,
actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule
3.17(a). All employee benefit plans listed on such Schedule have been
operated in accordance with the terms and provisions of the plan
documents and all related documents and policies. The Corporation has
not incurred any liability for excise tax or penalty due to the
Internal Revenue Service or U.S. Department of Labor nor any liability
to the Pension Benefit Guaranty Corporation for any employee benefit
plan, and neither the Corporation, nor a party-in-interest or
disqualified person, has engaged in any transaction or other activity
which would give rise to such liability. The Corporation has not
participated in or made contributions to any "multi-employer plan" as
defined in the Employee Retirement Income Security Act of 1974
("ERISA"), nor would the Corporation or any affiliate be subject to any
withdrawal liability with respect to such a plan if any such employer
withdrew from such a plan immediately prior to the Closing Date. No
employee pension benefit plan is under funded on a termination basis as
of the date of this Agreement.
(b) There are now no union contracts or agreements between the
Corporation and any collective bargaining group, nor have there ever
been any such contracts in effect. The Corporation is in compliance in
all material respects with all applicable federal and state laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and nondiscrimination in employment, and
is not engaged in any unfair labor practice. There is no charge pending
or, to the Corporation's or any Shareholder's knowledge, threatened,
against the Corporation before any court or agency and alleging
unlawful discrimination in employment practices and there is no charge
of or proceeding with regard to any unfair labor practice against it
pending before the National Labor Relations Board. There is no labor
strike, dispute, slow down or stoppage as of the Closing Date, existing
or threatened against the Corporation; no union organizational activity
exists respecting employees of the
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Corporation, 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
Corporation. The Corporation has not experienced any labor strike,
slow-down, work stoppage, labor difficulty or other job action during
the last five years.
(c) No payment made to any employee, officer, director or
independent contractor of the Corporation (the "RECIPIENT") pursuant to
any employment contract, severance agreement or other arrangement (the
"GOLDEN PARACHUTE PAYMENT") will be nondeductible by the Corporation
because of the application of Sections 280G and 4999 of the Code to the
Golden Parachute Payment, nor will the Corporation be required to
compensate any Recipient because of the imposition of an excise tax
(including any interest or penalties related thereto) on the Recipient
by reason of Sections 280G and 4999 of the Code.
3.18 Taxes.
(a) The Corporation has timely filed 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, 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 a Corporation relating to federal, state,
local or other taxes (including penalties and interest) for any period
or periods prior to and including the Closing Date and no notice of any
claim for taxes has been received. Copies of (i) any tax examinations,
(ii) extensions of statutory limitations and (iii) the federal income,
and state franchise, income and sales tax returns of the Corporation
for its last three fiscal years are attached as part of Schedule 3.18.
Copies of all other federal, state, local and other tax and information
returns for all prior years of the Corporation's existence have been
made available to WCI and are among the records of the Corporation that
will accrue to WCI at the Closing. The Corporation has not been
contacted by any federal, state or local taxing authority regarding a
prospective examination.
(b) Except as set forth on Schedule 3.18 (which schedule also
includes the amount due with respect to the Corporation) the
Corporation has duly paid all taxes and other related charges required
to be paid prior to the date of this Agreement. The reserves for taxes
contained in the Financial Statements of the Corporation are adequate
to cover the Corporation's tax liability as of the Closing Date.
(c) The Corporation has withheld all required amounts from
its employees for all pay periods in full and complete compliance with
the withholding provisions of applicable federal, state and local laws.
All required federal, state and local and other returns with respect to
income tax withholding, social security, and unemployment taxes have
been duly filed by the Corporation for all periods for which returns
are due, and the amounts shown on all such returns to be due and
payable have been paid in full.
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3.19 Copies Complete; Required Consents. Except as disclosed on
Schedule 3.19, the certified copies of the Articles of Incorporation and Bylaws
of the Corporation, as amended to the Closing Date, and the copies of all
leases, instruments, agreements, licenses, permits, certificates, site
assessments or other documents that have been delivered to WCI in connection
with the transactions contemplated hereby (the "DELIVERED DOCUMENTS") are
complete and accurate as of the Closing Date and are true and correct copies of
the originals thereof. Except as specifically disclosed on Schedule 3.19, any
rights and benefits the Corporation may have under the Delivered Documents 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. Except for any consents and approvals listed on
Schedule 3.19 and except for Required Governmental Consents (all of which have
been given or obtained prior to the Closing), none of the Delivered Documents
requires notice to, or consent or approval of, any governmental agency or other
third party to any of the transactions contemplated hereby.
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 the Corporation serves on an ongoing
basis, including name, location and current billing rate, as of the
Closing Date;
(b) an accurate and complete aging of all accounts and notes
receivable from customers as of the last day of the month preceding the
month in which such Schedule is delivered, showing amounts due in
30-day aging categories. Except to the extent of the allowance for bad
debts reflected on the Financial Statements or otherwise disclosed on
Schedules 3.11 and 3.20, the Corporation's accounts and notes
receivable are fully collectible in the amounts shown on Schedules 3.11
and 3.20; and
(c) the average monthly revenues of the Corporation derived
from billings to its customers for each of the twelve months preceding
the Closing Date. Except as set forth on Schedule 3.20, neither the
Corporation nor any Shareholder has any knowledge of any reason why a
Corporation's average monthly revenues derived from billings to its
customers after the Closing Date should not continue at approximately
the same rate as before the Closing Date.
3.21 No Change With Respect to the Corporation. Except as set forth on
Schedule 3.21, since the Balance Sheet Date, the business of the Corporation has
been conducted only in the ordinary course and there has been no change in the
condition (financial or otherwise) of the assets, liabilities or operations of
the Corporation other than changes in the ordinary course of business, none of
which either singly or in the aggregate has been materially adverse to the
Corporation. Specifically, and without limiting the generality of the foregoing,
except as set forth on Schedule 3.21, with respect to the Corporation, since the
Balance Sheet Date, there has not been:
(a) any material change in its financial condition, assets,
liabilities (contingent or otherwise), income, operations or business
which would have a material adverse effect
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on the financial condition, assets, liabilities (contingent or
otherwise), income, operations or business of the Corporation, taken as
a whole;
(b) any material damage, destruction or loss (whether or not
covered by insurance) adversely affecting any material portion of its
properties or business;
(c) any change in or agreement to change (i) its shareholders,
(ii) ownership of its authorized capital or outstanding securities, or
(iii) its securities;
(d) any declaration or payment of, or any agreement to declare
or pay, any dividend or distribution in respect of its capital stock or
any direct or indirect redemption, purchase or other acquisition of any
of its capital stock;
(e) any increase or bonus or promised increase or bonus in the
compensation payable or to become payable by it, in excess of usual and
customary practices, to any of its directors, officers, employees or
agents, or any accrual or arrangement for or payment of any bonus or
other special compensation to any employee or any severance or
termination pay paid to any of its present or former officers or other
key employees;
(f) any labor dispute or any other event or condition of any
character with respect to the Corporation's employees, materially
adversely affecting its business or future prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other
person, including, without limitation, the Shareholders and their
Affiliates, other than in the ordinary course of business;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to it, including,
without limitation, any indebtedness or obligation of any of the
Shareholders or any Affiliate thereof;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement, plan or
arrangement to purchase or acquire, any of its property, rights or
assets outside the ordinary course of its business;
(k) any waiver of any of its material rights or claims;
(l) any new or any amendment or termination of any existing
material contract, agreement, license, permit or other right to which
it is a party; or
(m) any other material transaction outside the ordinary course
of its business.
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3.22 Closing Date Debt; Closing Date Current Assets and Closing Date
Current Liabilities.
(a) Schedule 3.22(a) lists (i) the amount of the aggregate
debt (excluding trade payables) of the Corporation outstanding on the
Closing Date required to be repaid by WCI or the Corporation at or
immediately after the Closing Date and all prepayment penalties
incurred or to be incurred by WCI or the Corporation in connection with
the repayment of any such debt, (ii) the amount of the aggregate debt
(excluding trade payables) of the Corporation outstanding on the
Closing Date which will remain outstanding obligations of the
Corporation after the Closing Date, and all prepayment penalties
applicable to such debt if repaid prior to maturity, including in each
case all interest accrued through and including the Closing Date, (iii)
the aggregate amount of the present value 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
Corporation by a third party lender in connection with its most recent
borrowing to finance equipment, of all lease obligations of the
Corporation that are not capitalized lease obligations and (iv) the
aggregate amount of the present value as of the Closing Date of all
capitalized lease obligations (determined in accordance with generally
accepted accounting principles) of the Corporation (the "CLOSING DATE
DEBT"). Schedule 3.22(a) includes wire transfer instructions for
creditors whose Closing Date Debt WCI has designated for payment, and
attached to Schedule 3.22(a) are pay-off letters or instructions from
such creditors in the form provided by WCI's bank or acceptable to WCI.
(b) Schedule 3.22(b) is an estimate as of the Effective Date
of the amount of the aggregate current liabilities (including any
reserve for unpaid taxes and excluding the current portion of long-term
debt to the extent such current portion is included in Closing Date
Debt) and trade payables of the Corporation as of the Effective Date
(the "EFFECTIVE DATE CURRENT LIABILITIES") and the amount of the
aggregate cash and other current assets of the Corporation as of the
Effective Date, including prepaid expenses the benefit of which
survives the Effective Date and the accounts receivable of the
Corporation earned prior to the Effective Date, and collectible (less
an allowance for doubtful accounts) on or after the Effective Date (the
"EFFECTIVE DATE CURRENT ASSETS").
3.23 Bank Accounts.
(a) Schedule 3.23(a) is a complete and accurate list, as of
the Closing Date, of:
(i) the name of each bank in which the Corporation
has accounts or safe deposit boxes;
(ii) the name(s) in which the accounts or boxes are
held;
(iii) the type of account; and
(iv) the name of each person authorized to draw
thereon or have access thereto.
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(b) Schedule 3.23(b) is a complete and accurate list, as of
the Closing Date, of:
(i) each credit card or other charge account issued
to the Corporation; and
(ii) the name of each person to whom such credit
cards or other charge accounts have been issued.
3.24 Compliance With Laws. Except as disclosed on Schedule 3.24, the
Corporation has complied with, and the Corporation is presently in compliance
with, federal, state and local laws, ordinances, codes, rules, regulations,
Governmental Permits, orders, judgments, awards, decrees, consent judgments,
consent orders and requirements applicable to it (collectively "LAWS"),
including, but not limited to, the Americans with Disabilities Act, the Federal
Occupational Safety and Health Act, and Laws relating to the public health,
safety or protection of the environment (collectively, "ENVIRONMENTAL LAWS").
Except as disclosed on Schedule 3.24, there has been no assertion by any party
that the Corporation is in violation of any Laws. Specifically and without
limiting the generality of the foregoing, except as disclosed on Schedule 3.24:
(a) To the Corporation's or the Shareholders' knowledge, and
except as permitted under applicable laws and regulations, including,
without limitation, the federal Resource Conservation Recovery Act, 42
USC ss.6901 et seq. ("RCRA"), the Corporation has not accepted,
processed, handled, transferred, generated, treated, stored or disposed
of any Hazardous Material (as defined in Section 3.24(e) below) nor has
the Corporation accepted, processed, handled, transferred, generated,
treated, stored or disposed of asbestos, medical waste, radioactive
waste or municipal waste, except in compliance with Environmental Laws.
(b) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Hazardous Material, other
than that allowed under Environmental Laws, including, without
limitation, RCRA, has been disposed of, or otherwise released on any
Corporate Property.
(c) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Corporate Property has ever
been subject to or received any notice of any private, administrative
or judicial action, or notice of any intended private, administrative
or judicial action relating to the presence or alleged presence of
Hazardous Material in, under, upon or emanating from any Corporate
Property or any real property now or previously owned or leased by a
Corporation. There are no pending and, to the Corporation's and
Shareholders' knowledge, no threatened actions or proceedings from any
governmental agency or any other entity involving remediation of any
condition of the Corporate Property, including, without limitation,
petroleum contamination, pursuant to Environmental Laws.
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(d) Except as allowed under Environmental Laws, the
Corporation has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" means the
substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and
substances defined in any comparable California, or other applicable
state 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. The Corporation has not granted any power of
attorney (except routine powers of attorney relating to representation before
governmental agencies) or entered into any agency or similar agreement whereby a
third party may bind or commit the Corporation in any manner.
3.26 Underground Storage Tanks. Except as set forth on Schedule 3.26,
no underground storage tanks containing petroleum products or wastes or other
hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently
or have been located on any Corporate Property. Except as set forth on Schedule
3.26, the Corporation has not owned or leased any real property not included in
the Corporate Property having any underground storage tanks containing petroleum
products or wastes or other hazardous substances regulated by 40 CFR 280. As to
each such underground storage tank ("UST") identified on Schedule 3.26, the
Corporation has provided to WCI, on Schedule 3.26:
(a) the location of the UST, information and material,
including any available drawings and photographs, showing the location,
and whether the Corporation currently owns or leases the property on
which the UST is located (and if the Corporation does not currently own
or lease such property, the dates on which it did and the current owner
or lessee of such property);
(b) the date of installation and specific use or uses of the
UST;
(c) copies of tank and piping tightness tests and cathodic
protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body or
agency relating to the UST;
(e) other material records with regard to the UST, including,
without limitation, repair records, financial assurance compliance
records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to the
above, a summary description of instances, past or present, in which,
to the Corporation's or the Shareholders' knowledge, the UST failed to
meet applicable standards and regulations for tightness or otherwise
and the extent of such failure, and any other operational or
environmental problems with regard to the UST, including, without
limitation, spills,
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including spills in connection with delivery of materials to the UST,
releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the
Corporation has complied with Environmental Laws regarding the
installation, use, testing, monitoring, operation and closure of each
UST described on Schedule 3.26.
3.27 Patents, Trademarks, Trade Names, etc. Schedule 3.27 lists all
patents, tradenames, fictitious business names, trademarks, service marks, and
copyrights owned by the Corporation or which it is licensed to use (other than
licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, knowledge intellectual property, trademarks, trade
names, assumed names, copyrights, or designations used by the Corporation in its
business infringe on any patents, trademarks, or copyrights, or any other rights
of any person. Neither the Corporation nor any of the Shareholders knows or has
any reason to believe that there are any claims of third parties to the use of
any such names or any similar name, or knows of or has any reason to believe
that there exists any basis for any such claim or claims.
3.28 Assets, etc., Necessary to Business. The Corporation owns or
leases all properties and assets, real, personal, and mixed, tangible and
intangible, necessary to permit it to carry on its business and operations as
presently conducted, and, except as disclosed on Schedules 3.5, 3.10(a),
3.10(c), 3.14(a) and 3.19, is a party to all Collection Franchises and
Governmental Permits and other agreements necessary to permit it to carry on its
business as presently conducted. All of said Collection Franchises and
Governmental Permits and agreements have been duly obtained and, except as
disclosed on Schedules 3.5, 3.8-Part II, 3.10(a), 3.10(c) 3.14(a) and 3.19, are
in full force and effect and there are no proceedings pending or threatened
which may result in the revocation, cancellation, suspension or adverse
modification of any of the same. Neither the Corporation nor any of the
Shareholders has any knowledge of any reason why all such Collection Franchises
and Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
3.29 Condemnation. No Corporate Property owned or leased by a
Corporation is the subject of, or would be affected by, any pending condemnation
or eminent domain proceedings, and, to the knowledge of the Corporation and the
Shareholders, no such proceedings are threatened.
3.30 Suppliers and Customers. The relations between the Corporation and
its customers are good. Neither the Corporation nor any of the Shareholders has
knowledge of any fact (other than general economic and industry conditions)
which indicates that any of the suppliers supplying products, components,
materials or providing use of, or access to, landfills or disposal sites to the
Corporation intends to cease providing such items to the Corporation, nor does
the Corporation or any of the Shareholders have knowledge of any fact (other
than general economic and industry conditions) which indicates that any of the
customers of the Corporation intends to terminate, limit or reduce its business
relations with the Corporation.
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3.31 Absence of Certain Business Practices. Neither the Corporation nor
any of the Shareholders has directly or indirectly within the past five years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Corporation in connection with any actual or proposed
transaction which (a) might subject the Corporation to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (b) if not given
in the past, might have had an adverse effect on the financial condition,
business or results of operations of the Corporation, or (c) if not continued in
the future, might adversely affect the financial condition, business or
operations of the Corporation or which might subject the Corporation to suit or
penalty in any private or governmental litigation or proceeding.
3.32 Disclosure Schedules. Any matter disclosed on any Schedule to this
Agreement shall be deemed to have been disclosed on every other Schedule that
refers to such Schedule by cross reference so long as the nature of the matter
disclosed is obvious from a fair reading of the Schedule on which the matter is
disclosed.
3.33 No Misleading Statements. The representations and warranties of
the Corporation and the Shareholders contained in this Agreement, the Exhibits
and Schedules hereto and all other documents and information furnished to WCI
and its representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made not
misleading.
3.34 Knowledge. Wherever reference is made in this Agreement to the
"KNOWLEDGE" of the Shareholders, such term means the actual knowledge of the
Shareholders or any knowledge which should have been obtained by the
Shareholders upon reasonable inquiry by a reasonable business person. In the
case of a Shareholder that is a trust, the term "KNOWLEDGE" means the actual
knowledge of the trustee or trustees of the trust. Wherever reference is made in
this Agreement to the "KNOWLEDGE" of the Corporation, such term means the actual
knowledge of any management employee, officer or director of the Corporation or
any knowledge which should have been obtained by any such person upon reasonable
inquiry by a reasonable business person.
3.35 Brokers; Finders. No person has acted directly or indirectly as a
broker, finder or financial advisor for the Corporation or a Shareholder in
connection with the transactions contemplated by this Agreement and no person is
entitled to any broker's, finder's, financial advisory or similar fee or payment
in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of a Corporation or a Shareholder.
3.36 S Corporation . The Corporation has elected to be treated as an S
Corporation within the meaning of the Federal Income Tax Code of 1986, as
amended (the "Code"), for the years listed on Schedule 3.36.
4. REPRESENTATIONS AND WARRANTIES OF WCI
WCI represents and warrants to the Shareholders, which representations
and warranties will be true and correct as of the Closing Date, as follows:
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4.1 Existence and Good Standing. WCI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
WCI has full corporate power and authority to own and lease its properties and
to carry on its business as now conducted. WCI is not required to be qualified
or licensed to conduct business as a foreign corporation in any jurisdiction
where the failure to be so qualified would have a material adverse effect on its
financial condition.
4.2 No Contractual Restrictions. No provisions exist in any article,
document or instrument to which WCI is a party or by which it is bound which
would be violated by consummation of the transactions contemplated by this
Agreement.
4.3 Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due authorization,
execution and delivery by the Corporation and the Shareholders, constitutes a
legal, valid and binding obligation of WCI. WCI has full corporate power, legal
right and corporate authority to enter into and perform its obligations under
this Agreement and to carry on its business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfillment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to WCI; (b) conflict
with any of the provisions of the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of WCI; or (c) conflict with,
result in a breach of or constitute a default under any material agreement or
instrument to which WCI is a party or by which it is bound.
4.4 No Misleading Statements. The representations and warranties of WCI
contained in this Agreement, the Exhibits and Schedules hereto and all other
documents and information furnished to the Shareholders 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.
4.5 Brokers; Finders. No person has acted directly or indirectly as a
broker, finder or financial advisor for WCI in connection with the transactions
contemplated by this Agreement and no person is entitled to any broker's,
finder's, financial advisory or similar fee or payment in respect thereof based
in any way on any agreement, arrangement or understanding made by or on behalf
of WCI.
4.6 Disclosure Schedules. Any matter disclosed by WCI on any Schedule
to this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature disclosed
is obvious from a fair reading of the Schedule on which the matter is disclosed.
5. COVENANTS FROM SIGNING TO CLOSING DATE
5.1 Operations. Between the date of this Agreement (the "Signing Date")
and the Closing Date, the Corporation will, and the Shareholders will cause the
Corporation to:
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(a) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new method, or
discontinue any existing material method, of operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform all of its material obligations under agreements
relating to or affecting its assets, properties, business operations
and rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its
relationship with suppliers, customers and others having business
relations with it;
(f) file on a timely basis all notices, reports or other
filings required to be filed with or reported to any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or any instrumentality of any of the foregoing wherever located
with respect to the continuing operations of the Corporation;
(g) maintain compliance with all Collection Franchises and
Governmental Permits and all laws, rules, regulations and consent
orders;
(h) file on a timely basis all complete and correct
applications or other documents necessary to maintain, renew or extend
any site assessment, permit, license, variance or any other approval
required by any governmental authority necessary and/or required for
the continuing operation of the Corporation's 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
Corporation will not, and the Shareholders will not permit the Corporation to,
take any action described below without the prior written consent of WCI:
(a) make any change in its Articles of Incorporation or
Bylaws;
(b) authorize, issue, transfer, pledge, distribute or sell any
of the Corporation's Stock or any other securities;
(c) except as set forth on Schedule 3.21, declare or pay any
dividend or make any distribution in respect of its capital stock
whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its capital stock;
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(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 Schedule 3.16 or Schedule 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) sell, assign, lease or otherwise transfer or dispose of
any property or equipment other than in the ordinary course of
business;
(h) merge or consolidate or agree to merge or consolidate with
or into any firm, corporation or other entity;
(i) waive any material rights or claims;
(j) amend, terminate or enter into any material agreement or
any site assessment, permit, license or other right, without the prior
written consent of WCI;
(k) enter into any other transaction outside the ordinary
course of the Corporation's business or prohibited hereunder; or
(l) take any action or suffer or permit any event to occur
that would cause any representation or warranty of the Corporation or
the Shareholders to become untrue as of the Closing Date.
5.3 Obtain Consents. Promptly after the Signing Date, the Corporation
will, and the Shareholders shall cause the Corporation to, make all filings and
take all steps reasonably necessary to obtain all other approvals and consents
required to be obtained by the Corporation or the Shareholders to consummate the
transactions contemplated by this Agreement and otherwise to satisfy the
conditions of Section 6.7.
5.4 Access; Confidential Information. Between the Signing Date and the
Closing Date, the Shareholders and the Corporation will, and the Shareholders
will cause the Corporation to, afford to the officers and authorized
representatives of WCI, including, without limitation, its engineers, counsel,
independent auditors and investment bankers, access to the Facilities, plants,
Corporate Properties and other properties, books and records of the Corporation,
and will furnish WCI with such additional financial and operating data and other
information as to the business and properties of the Corporation as WCI may from
time to time reasonably request. The Shareholders will and will cause the
Corporation to cooperate with WCI, its representatives and counsel in the
preparation of any documents or other material which may be required by any
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governmental agency. WCI will cause all information obtained from the
Shareholders and the Corporation in connection with the negotiation and
performance of this Agreement which the Shareholders or the Corporation have
stamped or otherwise marked as confidential 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 detri-mental to the
Corporation or the Shareholders. The Corporation will not, and the Shareholders
will not and will cause the Corporation not to, disclose to any third persons
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 the
prior written consent of WCI.
5.5 Notice of Material Adverse Change. The Corporation and the
Shareholders shall promptly notify WCI of any material adverse change in the
business or financial condition of the Corporation, including any lawsuit,
claim, audit, investigation, or other proceeding, between the date of this
Agreement and the Closing Date.
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 Corporation and the Shareholders contained in this Agreement or in any
statement, Exhibit, Schedule, certificate or document delivered by the
Corporation or the Shareholders under this Agreement shall be true, correct and
complete on and as of the date when made and at all times prior to the Closing
Date, shall be deemed to be made again on the Closing Date, and shall then be
true, correct and complete in all material respects as of the Closing Date.
6.2 Conditions. The Corporation and the Shareholders shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by them
on or before the Closing Date.
6.3 No Material Adverse Change. Since the Signing Date, there shall not
have been any material adverse change in the condition (financial or otherwise)
of the business, properties or assets of the Corporation.
6.4 Certificates. The President of each Corporation shall have
delivered to WCI a certificate, dated as of the Closing Date, in form and
substance satisfactory to WCI, certifying to the fulfillment of the conditions
set forth in Sections 6.1, 6.2 and 6.3, and the Shareholders shall have
delivered to WCI a certificate dated as of the Closing Date, in form and
substance satisfactory to WCI, certifying to the fulfillment of the conditions
set forth in Section 6.1, 6.2 and 6.3 applicable to the Shareholders.
6.5 No Litigation. None of the transactions contemplated hereby shall
have been enjoined by any court or by any federal or state governmental branch,
agency, commission or regulatory authority and no suit or other proceeding
challenging the transactions contemplated hereby shall have been threatened or
instituted and no investigative or other demand shall have
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been made by any federal or state governmental branch, agency, commission or
regulatory authority.
6.6 Other Deliveries. The Shareholders shall have delivered the items
which they are required to deliver under Section 8 of this Agreement.
6.7 Governmental Approvals; Consents to Transfer. All governmental
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement shall have been received, and each
other party whose consent is required to the transactions contemplated by this
Agreement, including without limitation (if applicable) each party to any
contract with the Corporation, each municipality or other jurisdiction that has
granted a franchise to the Corporation and each jurisdiction issuing or granting
any other Governmental Permit, shall have consented to such transactions, and
every other Required Governmental Consent shall have been obtained.
6.8 Release of Security Interests. All security interests in assets of
the Corporation that have been created in favor of financial institutions or
other lenders to secure indebtedness of the Shareholders or their Affiliates
shall have been released.
6.9 Due Diligence. WCI and its representatives have and shall continue
to have reasonable rights of inspection of the Corporation's business and assets
in connection with WCI's due diligence review, and the results of WCI's due
diligence review shall be acceptable to it. WCI shall have reviewed all of the
schedules to this Agreement and all documents related to any of the
Corporation's benefits plans, and all such schedules and documents shall be
satisfactory to WCI or any problems reflected in, or indicated by, such
schedules or documents shall have been resolved to the satisfaction of WCI.
6.10 Approval of Board of Directors. This Agreement and the
consummation of the transactions contemplated hereunder will have been approved
by the Board of Directors of WCI.
6.11 Schedules and Exhibits. The Schedules and Exhibits to this
Agreement will be completed to the mutual satisfaction of the parties within
fourteen (14) days after the Signing Date.
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS TO CLOSE
The obligations of the Shareholders under this Agreement are subject to
the satisfaction, at or before Closing, of all of the following conditions
precedent, unless waived in writing by the Shareholders:
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 and at all times prior to
the Closing Date, shall be deemed to be made again on the Closing Date, and
shall then be true, correct and complete in all material respects as of the
Closing Date.
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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 Shareholders a
certificate, dated as of the Closing Date, in form and substance satisfactory to
the Shareholders, certifying to the fulfillment of the conditions set forth in
Sections 7.1 and 7.2. 7.4 No Litigation. None of the transactions contemplated
hereby shall have been enjoined by any court or by any federal or state
governmental branch, agency, commission or regulatory authority and no suit or
other proceeding challenging the transactions contemplated hereby shall have
been threatened or instituted and no investigative or other demand shall have
been made by any federal or state governmental branch, agency, commission or
regulatory authority.
7.5 Other Deliveries. WCI shall have delivered the items which it is
required to deliver under Section 8 of ----------------- this Agreement.
7.6 Schedules and Exhibits. The Schedules and Exhibits to this
Agreement shall be completed to the mutual satisfaction of the parties within
fourteen (14) days after the Signing Date.
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.
(b) WCI shall deliver to Shareholders the certificate set
forth in Section 7.3.
8.2 Shareholders Deliveries.
(a) The Shareholders shall deliver to WCI the certificates
representing the outstanding Corporation's Stock free and clear of all
liens, security interests, encumbrances, restrictions, pledges and
claims, accompanied by a stock power duly executed in blank.
(b) The Shareholders shall deliver to WCI an opinion of
counsel for the Shareholders, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit 8.2(b).
(c) The Shareholders shall deliver evidence reasonably
satisfactory to WCI that all required third-party consents to the
transactions contemplated hereby, including without limitation all
Required Governmental Consents and all required consents of the
landlords under all real estate leases to which the Corporation is a
party, were obtained
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and the Shareholders shall deliver an estoppel certificate from the
landlords under all real estate leases to which the Corporation is a
party confirming the terms thereof and the rental amount owing
thereunder, certifying that such lease is in full force and effect,
that the Corporation is not in default under any of the terms or
conditions thereof, that there have been no amendments or modifications
to any such lease (or specifying the same), and otherwise containing
such statements and certifications as WCI may require.
(d) The Corporation shall deliver to WCI evidence satisfactory
to WCI showing that all written employment contracts and all oral
employment contracts other than those that are terminable "at will"
without payment of severance (other than normal severance benefits
approved by WCI) or other benefits with non-union employees of that
Corporation (including, without limitation, stock options or other
rights to obtain equity in that Corporation) have been terminated,
effective on or before the Closing Date.
(e) The Shareholders shall cause each officer and director of
the Corporation to deliver a resignation as an officer and/or director
of the Corporation together with a general release, substantially in
the form attached hereto as Exhibit 8.2(e).
(f) The Shareholders shall execute and deliver such other
documents and instruments as are reasonably requested by WCI in order
to consummate the transactions contemplated by this Agreement.
(g) The Corporation and the Shareholders shall deliver to WCI
the certificates set forth in Section 6.4.
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS
9.1 No Delay. The Corporation, the Shareholders 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
required Governmental 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 on or before the Closing Date of the personal
guaranties of the Shareholders listed on Schedule 9.2, all of which relate to
any indebtedness of the Corporation included in the Financial Statements as of
the Balance Sheet Date or, at its option, WCI shall indemnify the Shareholders
and hold them harmless from and against all losses, expenses or claims by third
parties to enforce or collect indebtedness owed by the Corporation as of the
Closing Date which is personally guaranteed by the Shareholders pursuant to such
guaranties. The Shareholders may notify the obligees under such guaranties that
they have terminated their obligations under such guaranties. The Shareholders
shall cooperate with WCI in obtaining such releases.
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9.3 Release of Security Interests. Between the Signing Date and the
Closing Date, the Shareholders and their respective Affiliates shall cause those
security interests in the assets of the Corporation that have been created in
favor of financial institutions or other lenders to secure indebtedness (other
than indebtedness of that Corporation) of the Shareholders or their respective
Affiliates to be released in a manner reasonably satisfactory to WCI, and shall
cause all guaranties by the Corporation relating to the indebtedness of the
Shareholders to be released to the reasonable satisfaction of WCI.
9.4 Confidentiality. Neither the Corporation nor any of the
Shareholders shall disclose or make any public announcements of the transactions
contemplated by this Agreement without the prior written consent of WCI, unless
required to make such disclosure or announcement by law, in which event the
party making the disclosure or announcement shall notify WCI at least
twenty-four (24) hours before such disclosure or announcement is expected to be
made.
9.5 Broker's and Finder's 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 with the Shareholders, at the
Shareholders expense, with respect to any matters involving the Shareholders
arising out of the Shareholders' ownership of the Corporation prior to the
Closing, including matters relating to tax returns and any tax audits, appeals,
claims or litigation with respect to such tax returns or the preparation of such
tax returns. In connection therewith, WCI shall make available to the
Shareholders such files, documents, books and records of the Corporation for
inspection and copying as may be reasonably requested by the Shareholders and
shall cooperate with the Shareholders with respect to retaining information and
documents which relate to such matters.
9.7 Short Year Tax Returns. After the Closing Date, the Shareholders
shall prepare at their sole cost and expense all short year federal, state,
county, local and foreign tax returns required by law for the period beginning
with the first day of the Corporation's fiscal year in which the Closing occurs
and ending with the Effective Date. Each such return shall be prepared in a
financially responsible and conservative manner and shall be delivered to WCI,
together with all necessary supporting schedules within 120 days following the
Closing Date or at least sixty (60) days prior to the required filing date,
whichever is earlier, for WCI's approval (such approval, however, shall not
relieve the Shareholders of their responsibility for the taxes assessed under
these returns). The Shareholders shall be responsible for the payment of all
taxes shown to be due or that may come to be due on such returns or otherwise
relating to the period prior to the Effective Date in excess of the amount of
any reserve for taxes included in Closing Date Current Liabilities. The
Shareholders shall also be responsible for all taxes arising from the conversion
of the Corporation from a cash to an accrual basis of reporting whether or not
due on such returns or on the first return filed by that Corporation for the
period commencing after the Effective Date. At the time of the delivery of the
returns, the Shareholders shall contemporaneously deliver to WCI checks payable
to the respective taxing authorities in amounts equal to the amount due. WCI
shall sign tax returns and cause such returns to be timely filed with the
appropriate authorities. The Shareholders shall be entitled to receive all
refunds
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shown on said returns and any such refunds received by the Corporation or WCI
shall be remitted to the Shareholders.
9.8 General Release by Shareholders. Each of the Shareholders hereby
fully releases and discharges the Corporation and its directors, officers,
agents and employees from all rights, claims and actions, known or unknown, of
any kind whatsoever, which any of such Shareholders now has or may hereafter
have against the Corporation and its directors, officers, agents and employees,
arising out of or relating to events arising prior to or on the Closing Date,
except (a) as may be described in written contracts disclosed in Schedule 9.8
and expressly described and specifically excepted from this release in Schedule
9.8, (b) compensation as an employee of the Corporation for current periods
expressly described and specifically excepted from such release on Schedule 9.8,
and (c) for the obligations of the Corporation arising after the Closing Date
under this Agreement. Specifically, but not by way of limitation, each of the
Shareholders waives any right of indemnification, contribution or other recourse
against the Corporation which he now has or may hereafter have against the
Corporation with respect to representations, warranties or covenants made in
this Agreement by the Corporation.
Each of the Shareholders hereby waives and relinquishes all rights and
benefits afforded by Section 1542 of the California Civil Code, which states as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Each of the Shareholders understands and acknowledges the significance and
consequence of this waiver of Section 1542 and nevertheless elects to, and does,
release those claims described in this Section 9.8, known or unknown, that it
may have now or in the future arising out of or relating to any event arising on
or prior to the date of this Agreement.
9.9 Certain Tax Matters. The Shareholders acknowledge that WCI has
indicated its intention to make an election under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended. The Shareholders agree that WCI, in
its discretion, may make such election; provided, however, that such election
shall be made no later than the due date for such election. If such election is
made by WCI:
(a) WCI shall be authorized to complete Form 8023-A;
(b) The Shareholders shall sign such completed Form 8023-A at
the Closing; and
(c) WCI and the Shareholders shall agree upon the allocation
of the Purchase Price among the assets (including intangible assets) of
the Corporation.
(d) If WCI does make its election under Section 338(h)(10) of
the Internal Revenue Code of 1986 as amended, WCI shall "gross-up" the
Purchase Price to off-set Shareholders' tax detriment as if the
election had not been made.
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9.10 Covenants of WCI and Shareholders. Should WCI acquire directly or
indirectly (through asset purchase, stock purchase, merger or otherwise) the
business and operations of ACES Disposal, Inc., WCI agrees that neither WCI nor
any of its Affiliates will employ Paul Molinelli, Sr. in connection therewith or
as a part of any other business or operation of WCI. In exchange for the
exemption to the Non-Compete in favor of Shareholders set out in Section
11.1(a)(2), Shareholders hereby grant to WCI and its Affiliates a right of first
refusal to purchase (through asset sale, stock purchase, merger or otherwise)
within the Restricted Period (as defined) any subsidiaries or Affiliates of, or
any of the business operations, routes, or assets of, South Tahoe Refuse
operating or otherwise situated Alpine County, California. In addition,
Shareholders agree to sell to WCI, at WCI's option, that portion of any business
operations or assets hereafter acquired pursuant to Section 11.1(a)(2) that are
situated or conducted outside of Alpine County, California but otherwise within
the Restricted Area (as defined) (the "OVERFLOW OPERATIONS"). If the Overflow
Operations are not acquired by WCI, Shareholders hereby agree to cease such
operations and remove all related assets.
10. INDEMNIFICATION
10.1 Indemnity by the Shareholders. The Shareholders, jointly and
severally, subject to the limitations set forth in Section 10.2, covenant and
agree that they will indemnify and hold harmless WCI, the Corporation and their
respective directors, officers and agents and their respective successors and
assigns (collectively the "WCI INDEMNITEES"), from and after the date of this
Agreement, against any and all losses, damages, assessments, fines, penalties,
adjustments, liabilities, claims, deficiencies, costs, expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation), expenditures, including, without limitation, any Environmental
Site Losses (as such term is hereinafter defined) identified by a WCI Indemnitee
in a Claims Notice (as defined in Section 10.3(a)), or asserted by a WCI
Indemnitee in litigation commenced against the Shareholders; provided that in
either case any such Claims Notice shall be given or the litigation commenced
prior to the expiration of the second anniversary of the Closing Date or, in the
case of Fraud (as defined below) or any Claims based on the breach of any of the
Absolute Covenants (as defined below), prior to ninety (90) days following the
expiration of the applicable statute of limitations (irrespective of the date of
discovery), with respect to each of the following contingencies (all, the "10.1
INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the
Shareholders or the Corporation pursuant to the terms of this Agreement
or any misrepresentation in or omission from any Exhibit, Schedule,
list, certificate, or other instrument furnished or to be furnished to
WCI pursuant to the terms of this Agreement, regardless of whether, in
the case of a breach of a representation or a warranty, WCI relied on
the truth of such representation or warranty or had any knowledge of
any breach thereof.
(b) The design, development, construction or operation of any
Facility or any other "ENVIRONMENTAL SITE" as hereinafter defined, or
the installation or operation of a UST during any period on or prior to
the Closing Date, in excess of the amount of liability with respect
thereto, if any, set forth on Part II of Schedule 3.8. As used in this
Agreement, "ENVIRONMENTAL SITE" shall mean any Facility, any UST and
any other waste
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storage, processing, treatment or disposal facility, and any other
business site or any other real property owned, leased, controlled or
operated by a Corporation or by any predecessor thereof on or prior to
the Closing Date. As used in this Agreement, "ENVIRONMENTAL SITE
LOSSES" shall mean any and all losses, damages (including exemplary
damages and penalties), liabilities, claims, deficiencies, costs,
expenses, and expenditures (including, without limitation, expenses in
connection with site evaluations, risk assessments and feasibility
studies) arising out of or required by an interim or final judicial or
administrative decree, judgment, injunction, mandate, interim or final
permit condition or restriction, cease and desist order, abatement
order, compliance order, consent order, clean-up order, exhumation
order, reclamation order or any other remedial action that is required
to be undertaken under federal, state or local law in respect of
operating activities on or affecting any Facility, any UST or any other
Environmental Site, including, but not limited to (x) any actual or
alleged violation of any law or regulation respecting the protection of
the environment, including, but not limited to, RCRA and CERCLA or any
other law or regulation respecting the protection of the air, water and
land and (y) any remedies or violations, whether by a private or public
action, alleged or sought to be assessed as a consequence, directly or
indirectly, of any Release (as defined below) of pollutants (including
odors) or Hazardous Substances from any Facility, any UST or any other
Environmental Site resulting from activities thereat prior to Closing,
whether such Release is into the air, water (including groundwater) or
land, and whether such Release is discovered before or after the
Closing Date. The term "RELEASE" as used herein means any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the ambient environment.
Notwithstanding anything in this paragraph to the contrary, it is
specifically understood and agreed that a Release composed solely of
Hazardous Substances contained in household waste lawfully disposed of
in a landfill during the time a Corporation owned and/or operated such
landfill does not constitute an Environmental Site Loss.
(c) All matters on Schedule 3.8, Part II, or required to be
described on Schedule 3.8, Part II, of which the Corporation or the
Shareholders have 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 Shareholders' Indemnities.
(a) The obligations of the Shareholders to indemnify the WCI
Indemnitees as provided in Section 10.1 shall be equal to the amount by
which the cumulative amount of all such liabilities, claims, damages,
deficiencies, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses, expenditures and Environmental Site
Losses with respect to any or all 10.1 Indemnity Events exceed forty
thousand dollars ($40,000) (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,
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3.22, 3.24 and 6.6 hereof and pursuant to Section 10.1(c) (the
"ABSOLUTE COVENANTS") shall not be subject to the General Deductible
Amount. In the event that a representation contained in this Agreement
is breached and such representation is qualified by words or phrases
such as "material," "materially," "immaterial," "immaterially,"
"nonmaterial," "substantially" or words of similar import, such
qualifiers shall be disregarded solely for purposes of calculating the
amount of any obligation of indemnity arising pursuant to this Section
10.
(b) Absent Fraud and except with respect to Claims based on the breach
of any of the Absolute Covenants, 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 in the aggregate exceed four
million eight hundred seventy-five thousand dollars ($4,875,000) with
respect to Claims made prior to the first anniversary of the Closing
Date, four million two hundred twenty-five thousand dollars
($4,225,000) with respect to Claims made on or after the first
anniversary of the Closing Date and prior to the second anniversary of
the Closing Date, and thereafter nothing in the absence of Fraud or
Claims with respect to any of the Absolute Covenants. For the purposes
of this Agreement, "FRAUD" shall mean fraud, fraudulent inducement or
intentional misrepresentation or concealment.
10.3 Notice of Indemnity Claim.
(a) In the event that any claim ("CLAIM") is hereafter asserted against
or arises with respect to any WCI Indemnitee as to which such
Indemnitee may be entitled to indemnification hereunder, the WCI
Indemnitee shall notify the Shareholders (as applicable collectively,
the "INDEMNIFYING PARTY") in writing thereof (the "CLAIMS NOTICE")
within 60 days after (i) receipt of written notice of commencement of
any third party litigation against such WCI Indemnitee, (ii) receipt by
such WCI Indemnitee of written notice of any third party claim pursuant
to an invoice, notice of claim or assessment against such WCI
Indemnitee, or (iii) such WCI Indemnitee becomes aware of the existence
of any other event in respect of which indemnification may be sought
from the Indemnifying Party (including, without limitation, any
inaccuracy of any representation or warranty or breach of any
covenant). The Claims Notice shall describe the Claim and the specific
facts and circumstances in reasonable detail, and shall indicate the
amount, if known, or an estimate, if possible, of the losses that have
been or may be incurred or suffered by the WCI Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim for
money damages where the cumulative total of all Claims (including such
Claims) does not exceed the limit set forth in Section 10.2 at the time
the Claim is made by the Indemnifying Party's own counsel; provided,
however, the Indemnifying Party may assume and undertake the defense of
such a third party Claim only upon written agreement by the
Indemnifying Party that the Indemnifying Party is obligated to fully
indemnify the WCI Indemnitee with respect to such action. The WCI
Indemnitee may participate, at the WCI Indemnitee's own expense, in the
defense of any Claim 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.
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(c) If, within ten (10) 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 except 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.
10.5 No Exhaustion of Remedies or Subrogation; Right of Setoff. The
Shareholders waive any right to require any WCI Indemnitee to (i) proceed
against the Corporation; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any WCI Indemnitee. WCI may, but
shall not be obligated to, set off against any and all payments due any
Shareholder any amount to which any WCI Indemnitee is entitled to be indemnified
hereunder with respect to any 10.1 Indemnity Event. Such right of set off shall
be separate and apart from any and all other rights and remedies that the
Indemnitees may have against Shareholders or their successors.
10.6 Assignment by WCI . No consent of Shareholders shall be required
for any assignment or reassignment of the rights of WCI or the Corporation under
this Section 10.
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11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI
11.1 Restrictive Covenants. As to the Corporation, the Shareholders and
their Affiliates acknowledge that (i) WCI, as the purchaser of the Corporation's
Stock, is and will be engaged in the same business as the Corporation (the
"BUSINESS"); (ii) the Shareholders and their Affiliates are intimately familiar
with the Business; (iii) the Business is currently conducted in the State of
California and WCI intends to continue the Business in California and intends,
by acquisition or otherwise, to expand the Business into other geographic areas
where it is not presently conducted; (iv) the Shareholders and their Affiliates
have had access to trade secrets of, and confidential information concerning,
the Business; (v) the agreements and covenants contained in this Section 11.1
are essential to protect the Business and the goodwill being acquired; and (vi)
the Shareholders and their Affiliates have the means to support themselves and
their dependents other than by engaging in a business substantially similar to
the Business and the provisions of this Section 11 will not impair such ability.
The Shareholders covenant and agree as set forth in (a), (b) and (c) below with
respect to the Corporation:
(a) Non-Compete. For a period commencing on the Closing Date
and terminating five years thereafter (the "RESTRICTED PERIOD"),
neither the Shareholders nor any of their Affiliates shall, anywhere
within a 50-mile contiguous radius surrounding each of Calaveras,
Amador and El Dorado Counties, California (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, transporting, disposal and/or composting business, transfer
facility, recycling facility, materials recovery facility or solid
waste landfill; (ii) enter the employ of, or render any personal
services to or for the benefit of, or assist in or facilitate the
solicitation of customers for, or receive remuneration in the form of
salary, commissions or otherwise from, any business engaged in such
activities; (iii) as owner or lessor of real estate or personal
property, rent to or lease any facility, equipment or other assets to
any business engaged in the same business as the Corporation; or (iv)
receive or purchase a financial interest in, make a loan to, or make a
gift in support of, any such business in any capacity, including,
without limitation, as a sole proprietor, partner, shareholder,
officer, director, principal, agent, trustee or lender; provided,
however, that any of the Shareholders may own, directly or indirectly,
solely as an investment, securities of any business traded on any
national securities exchange or NASDAQ, provided none of the
Shareholders is a controlling person of, or a member of a group which
controls, such business and further provided that the Shareholders do
not, in the aggregate, directly or indirectly, own 2% or more of any
class of securities of such business. Notwithstanding the foregoing,
none of the following will be deemed a breach of this covenant: (1) the
ownership and/or operation by the Shareholders or their Affiliates of
South Tahoe Refuse or other current business operations in a manner
consistent with past operations, or (2) the ownership and/or operation
by South Tahoe Refuse or any of its subsidiaries or Affiliates of any
current or future business operations solely within the boundaries of
Alpine County, California.
(b) Confidential Information. During the Restricted Period and
thereafter, the Shareholders and their Affiliates shall keep secret and
retain in strictest confidence, and shall not use for the benefit of
themselves or others, all data and information relating to
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the Business ("CONFIDENTIAL INFORMATION"), including, without
limitation, knowledge, trade secrets, customer lists, supplier lists,
details of contracts, pricing policies, operational methods, marketing
plans or strategies, bidding information, practices, policies or
procedures, product development techniques or plans, and technical
processes; provided, however, that the term "CONFIDENTIAL INFORMATION"
shall not include information that (i) is or becomes generally
available to the public other than as a result of disclosure by the
Shareholders or (ii) is general knowledge in the solid waste handling
and landfill business and not specifically related to the Business.
Notwithstanding the foregoing, Shareholders may disclose and discuss
confidential information with their legal and tax advisors, and as is
required in connection with any legal proceedings, and the Shareholders
shall give WCI prior written notice of such disclosure at least
forty-eight (48) hours before such disclosure is made, if possible.
(c) Property of the Business. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof) relating
to the Business, including such items stored in computer memories, on
microfiche or by any other means, made or compiled by or on behalf of
the Shareholders or the Corporation or made available to them relating
to the Business, but excluding any materials (other than the minute
books of the Corporation) maintained by any attorneys for the
Corporation or the Shareholders prior to the Closing, are and shall be
the property of WCI and have been delivered or will be delivered or
made available to WCI at the Closing.
(d) Non-Solicitation. Without the consent of WCI, which may be
granted or withheld by WCI in its discretion, the Shareholders and
their Affiliates shall not solicit any employees of the Corporation to
leave the employ of the Corporation and join the Shareholders or any
Affiliate in any business endeavor owned or pursued by the
Shareholders.
(e) No Disparagement. From and after the Closing Date, none of
the Shareholders shall, in any way or to any person or entity or
governmental or regulatory body or agency, denigrate or derogate WCI or
any of its subsidiaries, or any officer, director or employee, or any
product or service or procedure of any such company whether or not such
denigrating or derogatory statements shall be true and whether or not
such statements are based on acts or omissions which are learned by the
Shareholders from and after the date hereof or on acts or omissions
which occur from and after the date hereof, or otherwise. A statement
shall be deemed denigrating or derogatory to any person or entity if it
adversely affects the regard or esteem in which such person or entity
is held by investors, lenders or licensing, rating, or regulatory
entities. Without limiting the generality of the foregoing, none of the
Shareholders shall, directly or indirectly in any way in respect of any
such company or any such directors or officers, communicate with, or
take any action which is adverse to the position of any such company
with any person, entity or governmental or regulatory body or agency
who or which has dealings or prospective dealings with any such company
or jurisdiction or prospective jurisdiction over any such company. This
paragraph does not apply to the extent that testimony is required by
legal process, provided that WCI has received not less than five days'
prior written notice of such proposed testimony.
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11.2 Rights and Remedies Upon Breach. If the Shareholders or any
Affiliate breaches, or threatens to commit a breach of, any of the provisions of
Section 11.1 herein (the "RESTRICTIVE COVENANTS"), WCI shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to WCI at law or in
equity:
(a) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to WCI and
that money damages would not provide an adequate remedy to WCI.
Accordingly, in addition to any other rights or remedies, WCI shall be
entitled to injunctive relief to enforce the terms of the Restrictive
Covenants and to restrain the Shareholders from any violation thereof.
(b) Accounting. The right and remedy to require the
Shareholders to account for and pay over to WCI all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Shareholders as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) Severability of Covenants. The Shareholders acknowledge
and agree that the Restrictive Covenants are reasonable and valid in
geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof,
is invalid or unenforceable, the remainder of the Restrictive Covenants
shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(d) Blue-Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall
reduce the duration or scope of such provision, as the case may be, to
the extent necessary to render it enforceable and, in its reduced form,
such provision shall then be enforced.
(e) Enforceability in Jurisdiction. WCI and the Shareholders
intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic
scope of the Restrictive Covenants. If the courts of any one or more of
such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention
of WCI and the Shareholders that such determination not bar or in any
way affect WCI's right to the relief provided above in the courts of
any other jurisdiction within the geographic scope of the Restrictive
Covenants as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction
being, for this purpose, severable into diverse and independent
covenants.
12. GENERAL
12.1 Additional Conveyances. Following the Closing, the Shareholders
and WCI shall each deliver or cause to be delivered at such times and places as
shall be reasonably agreed upon
35
<PAGE> 37
such additional instruments as WCI or the Shareholders may reasonably request
for the purpose of carrying out this Agreement. The Shareholders will cooperate
with WCI and/or the Corporation on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings or disputes of any nature with respect to matters
pertaining to all periods prior to the date of this Agreement.
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 Shareholders; provided, however,
that any such assignment shall be subject to the terms of this Agreement and
shall not relieve the assignor of its or his responsibilities under this
Agreement.
12.3 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.
12.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
12.5 Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if in writing and either
delivered personally, sent by facsimile transmission or by air courier service,
or mailed by postage prepaid registered or certified U.S. mail, return receipt
requested, to the addresses designated below or such other addresses as may be
designated in writing by notice given hereunder, and shall be effective upon
personal delivery or facsimile transmission thereof or upon delivery by
registered or certified U.S. mail or one business day following deposit with an
air courier service:
If to the Shareholders: at their respective addresses set forth on
Schedule 3.2
With a copy to: David Cohen, Esq.
Cohen & Ostler, P.C.
525 University Avenue, Suite 410
Palo Alto, CA 94301
Fax: (650) 321-0170
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
Fax: (916) 772-2920
36
<PAGE> 38
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 Applicable Law; Attorneys' Fees. This Agreement shall be governed
by and construed in accordance with the laws of the State of California without
regard to its conflict of laws provisions. In the event of any dispute or
controversy between WCI on the one hand and the Corporation or the Shareholders
on the other hand relating to the interpretation of this Agreement or to the
transactions contemplated hereby, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and expenses incurred by
the prevailing party, as awarded by the court. Such award shall include
post-judgment attorney's fees and costs.
12.7 No waiver Relating to Claims for Fraud. Notwithstanding anything
herein to the contrary, the liability of any party under this Agreement shall be
in addition to, and not exclusive of any other liability that such party may
have at law or equity based on such party's Fraud. Notwithstanding anything in
this Agreement to the contrary, none of the provisions set forth in this
Agreement, including, but not limited to, the provisions set forth in Sections
7.1 or 7.2, shall be deemed a waiver by any party to this Agreement of any right
or remedy which such party may have at law or equity based on any other party's
Fraud, nor shall any such provisions limit, or be deemed to limit, (a) the
amounts of recovery sought or awarded in any such claim for Fraud, (b) the time
period during which such a claim for Fraud may be brought, or (c) the recourse
which any such party may seek against another party with respect to such a claim
for Fraud.
12.8 Payment of Fees and Expenses. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholders, any such fees, expenses and disbursements paid or accrued by, or
charged to, the Corporation).
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; Corporation. Whenever the singular
number is used herein, the same shall include the plural where appropriate, and
shall apply to all of such number, and to each of them, jointly and severally,
and words of any gender shall include each other gender where appropriate.
37
<PAGE> 39
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 Corporation, the Shareholders
and WCI and supersedes any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended only
by a written instrument executed by the Corporation, the Shareholders 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 California. Unless expressly stated otherwise,
cross-references herein refer to provisions within this Agreement and are not
references to the overall transaction or to any other document.
13. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
Term Section
---- -------
Absolute Covenants 10.2(a)
Acquired Operations 1.3
Affiliate 3.11
Agreement Page 1
Amador Page 1
at will 8.2(d)
Balance Sheet Date 3.7
Business day 12.14
Business 11.1
C. Grunigen Page 1
Claim 10.3(a)
Claims Notice 10.3(a)
Closing Date Debt 3.22(a)
Closing Date Current Liabilities 3.22(b)
Closing Section 2
Closing Date Section 2
Closing Date Current Assets 3.22(b)
Code 3.36
Collection Franchises 3.10(a)
Company Parties
Confidential Information 11.1(b)
38
<PAGE> 40
Corporate Property 3.12(b)
Corporation Parties
Corporation's Stock Recitals
Day 12.14
Delivered Documents 3.19
Environmental Site 10.1(b)
Environmental Site Losses 10.1
Environmental Laws 3.24
ERISA 3.17(a)
Excluded Assets 1.5
Facility 3.10(c)
Financial Statements 3.7
Fraud 10.2(b)
General Deductible Amount 10.2(a)
golden parachute 3.17(a)
Golden Parachute Payment 3.17(c)
Governmental Permits 3.10(a)
Grunigen Page 1
Hazardous Material 3.24(e)
Hazardous Waste 3.24(e)
Indemnifying Party 10.3(a)
J.H. Tillman Page 1
J.R. Tillman Page 1
Knowledge 3.34
Laws 3.24
Lehman Page 1
Marchini Page 1
Marchini Trust Page 1
Mother Lode Page 1
Occurrence 3.15
Overflow Operations 9.10
Permitted Liens 3.12(c)
Projected Net Revenues 1.3
Purchase Price 1.1
Ratto Trust Page 1
RCRA 3.24(a)
Real Estate Recitals
Recipient 3.17(c)
Records, Notifications and Reports 3.10(b)
Release 10.1(b)
Representations and Warranties 10.4
Required Governmental Consents 3.10(a)
Restricted Area 11.1(a)
Restricted Period 11.1(a)
Restrictive Covenants 11.2
Signing Date 5.1
39
<PAGE> 41
10.1 Indemnity Events 10.1
Sesser Page 1
Shareholders Page 1
Thomas Page 1
UST 3.26
WCI Parties
WCI Indemnitees 10.1
Working Capital Deficit 1.2
40
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
CORPORATION: AMADOR DISPOSAL SERVICE, INC.
By: ___________________________
Its: ___________________________
MOTHER LODE SANI-HUT, INC.
By: ___________________________
Its: ___________________________
WCI: WASTE CONNECTIONS, INC.
By: ___________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
SHAREHOLDERS:
________________________________
Robert N. Grunigen
________________________________
Carla Grunigen
________________________________
Carol Sesser, as Trustee of the
Marchini 1981 Trust
________________________________
G. Susan Marchini, as Trustee of the
Marchini 1981 Trust
41
<PAGE> 43
________________________________
Bennie L. Ratto, as Co-Trustee of the
Ratto 1981 Family Trust
________________________________
Marcella T. Ratto, as Co-Trustee of the
Ratto 1981 Family Trust
________________________________
Carol Sesser
________________________________
John D. Marchini
________________________________
Gloria Lehman
________________________________
Sandra Thomas
________________________________
John H. Tillman
________________________________
Jeffrey R. Tillman
42
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S><C> <C>
1. PURCHASE OF CORPORATION'S STOCK.....................................................................1
1.1 Shares to be Purchased.........................................................................1
1.2 Purchase Price.................................................................................2
1.3 Additional Contingent Purchase Price...........................................................2
1.4 Allocation of the Purchase Price...............................................................3
1.5 Excluded Assets................................................................................3
2. CLOSING TIME AND PLACE..............................................................................3
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS..............................3
3.1 Organization, Standing and Qualification.......................................................3
3.2 Capitalization.................................................................................3
3.3 All Stock Being Acquired.......................................................................4
3.4 Authority for Agreement........................................................................4
3.5 No Breach or Default...........................................................................4
3.6 Subsidiaries...................................................................................5
3.7 Financial Statements...........................................................................5
3.8 Liabilities....................................................................................5
3.9 Accurate and Complete Records..................................................................6
3.10 Permits and Licenses...........................................................................6
3.11 Certain Receivables............................................................................8
3.12 Fixed Assets and Real Property.................................................................8
3.13 Related Party Transactions.....................................................................9
3.14 Contracts and Agreements; Adverse Restrictions................................................10
3.15 Insurance.....................................................................................10
3.16 Personnel.....................................................................................10
3.17 Benefit Plans and Union Contracts.............................................................11
3.18 Taxes.........................................................................................12
3.19 Copies Complete; Required Consents............................................................13
</TABLE>
-i-
<PAGE> 45
<TABLE>
<S><C> <C>
3.20 Customers, Billings, Current Receipts and Receivables.........................................13
3.21 No Change With Respect to the Corporation.....................................................13
3.22 Closing Date Debt; Closing Date Current Assets and Closing Date Current Liabilities...........15
3.23 Bank Accounts.................................................................................15
3.24 Compliance With Laws..........................................................................16
3.25 Powers of Attorney............................................................................17
3.26 Underground Storage Tanks.....................................................................17
3.27 Patents, Trademarks, Trade Names, etc.........................................................18
3.28 Assets, etc., Necessary to Business...........................................................18
3.29 Condemnation..................................................................................18
3.30 Suppliers and Customers.......................................................................18
3.31 Absence of Certain Business Practices.........................................................19
3.32 Disclosure Schedules..........................................................................19
3.33 No Misleading Statements......................................................................19
3.34 Knowledge.....................................................................................19
3.35 Brokers; Finders..............................................................................19
3.36 S Corporation.................................................................................19
4. REPRESENTATIONS AND WARRANTIES OF WCI..............................................................19
4.1 Existence and Good Standing...................................................................20
4.2 No Contractual Restrictions...................................................................20
4.3 Authorization of Agreement....................................................................20
4.4 No Misleading Statements......................................................................20
4.5 Brokers; Finders..............................................................................20
4.6 Disclosure Schedules..........................................................................20
5. COVENANTS FROM SIGNING TO CLOSING DATE.............................................................20
5.1 Operations....................................................................................20
5.2 No Change.....................................................................................21
</TABLE>
-ii-
<PAGE> 46
<TABLE>
<S><C> <C>
5.3 Obtain Consents...............................................................................22
5.4 Access; Confidential Information..............................................................22
5.5 Notice of Material Adverse Change.............................................................23
6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI TO CLOSE.................................................23
6.1 Representations and Warranties................................................................23
6.2 Conditions....................................................................................23
6.3 No Material Adverse Change....................................................................23
6.4 Certificates..................................................................................23
6.5 No Litigation.................................................................................23
6.6 Other Deliveries..............................................................................24
6.7 Governmental Approvals; Consents to Transfer..................................................24
6.8 Release of Security Interests.................................................................24
6.9 Due Diligence.................................................................................24
6.10 Approval of Board of Directors................................................................24
6.11 Schedules and Exhibits........................................................................24
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS TO CLOSE....................................24
7.1 Representations and Warranties................................................................24
7.2 Conditions....................................................................................25
7.3 Certificate...................................................................................25
7.4 No Litigation.................................................................................25
7.5 Other Deliveries..............................................................................25
7.6 Schedules and Exhibits........................................................................25
8. CLOSING DELIVERIES.................................................................................25
8.1 WCI Deliveries................................................................................25
8.2 Shareholders Deliveries.......................................................................25
9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS..................................26
</TABLE>
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<PAGE> 47
<TABLE>
<S><C> <C>
9.1 No Delay......................................................................................26
9.2 Release of Guaranties.........................................................................26
9.3 Release of Security Interests.................................................................27
9.4 Confidentiality...............................................................................27
9.5 Broker's and Finder's Fees....................................................................27
9.6 Taxes.........................................................................................27
9.7 Short Year Tax Returns........................................................................27
9.8 General Release by Shareholders...............................................................28
9.9 Certain Tax Matters...........................................................................28
9.10 Covenants of WCI and Shareholders.............................................................29
10.INDEMNIFICATION....................................................................................29
10.1 Indemnity by the Shareholders.................................................................29
10.2 Limitations on Shareholders' Indemnities......................................................30
10.3 Notice of Indemnity Claim.....................................................................31
10.4 Liability for Breaches of Representations and Warranties......................................32
10.5 No Exhaustion of Remedies or Subrogation; Right of Setoff.....................................32
10.6 Assignment by WCI.............................................................................32
11.OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI...........................................33
11.1 Restrictive Covenants.........................................................................33
11.2 Rights and Remedies Upon Breach...............................................................35
12.GENERAL............................................................................................35
12.1 Additional Conveyances........................................................................35
12.2 Assignment....................................................................................36
12.3 Public Announcements..........................................................................36
12.4 Counterparts..................................................................................36
12.5 Notices.......................................................................................36
12.6 Applicable Law; Attorneys' Fees...............................................................37
</TABLE>
-iv-
<PAGE> 48
<TABLE>
<S><C> <C>
12.7 No waiver Relating to Claims for Fraud........................................................37
12.8 Payment of Fees and Expenses..................................................................37
12.9 Incorporation by Reference....................................................................37
12.10 Captions......................................................................................37
12.11 Number and Gender of Words; Corporation.......................................................37
12.12 Entire Agreement..............................................................................38
12.13 Waiver........................................................................................38
12.14 Construction..................................................................................38
13.GLOSSARY...........................................................................................38
</TABLE>
v
<PAGE> 1
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of October 25,
1999, or such earlier date as the parties agree (the "Effective Date"), by and
between Jerri Hunt (the "Employee") and Waste Connections, Inc., a Delaware
corporation (the "Company"), with reference to the following facts.
The Company desires to engage the services and employment of the
Employee, and the Employee is willing to accept employment by the Company, on
the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein, the Company and the Employee agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
Employee agrees to accept employment with the Company, on the terms and
conditions stated herein.
2. Position and Responsibilities. During the Term, the Employee shall
serve as Vice President of Human Resources and Risk Management of the Company,
reporting directly to the Company's Executive Vice President Operations (Darrell
Chambliss as of the effective date of this Agreement). The Employee shall be
based in the Company's corporate headquarters in California and shall be
responsible for oversight of all human resources and risk management matters
relating to the Company's operations. The Employee shall perform such other
duties and responsibilities as the Executive Vice President - Operations or the
Board of Directors (the "Board") of the Company may reasonably assign to the
Employee from time to time. The Employee shall devote such time and attention to
her duties as are necessary to the proper discharge of her responsibilities
hereunder. The Employee agrees to perform all duties consistent with (a)
policies established from time to time by the Company and (b) all applicable
legal requirements.
3. Term. The period of the Employee's employment under this Agreement
(the "Term") shall commence on the Effective Date and continue until the second
anniversary of the Effective Date, unless terminated earlier as provided herein
or extended by the Board. At the end of the initial Term, this Agreement shall
be renewed automatically for successive Terms of one year, unless either party
shall have given the other notice of termination hereof as provided herein.
4. Compensation, Benefits and Reimbursement of Expenses.
(a) Compensation. The Company shall compensate the Employee
during the Term of this Agreement as follows:
(1) Base Salary. The Employee shall be paid a base
salary ("Base Salary") of not less than Eighty Thousand Dollars ($80,000) per
year in installments consistent with the Company's usual practices. The Board
shall review the Employee's Base Salary on each
<PAGE> 2
anniversary of the Effective Date or more frequently, at the times prescribed in
salary administration practices applied generally to management employees of the
Company.
In addition, if on the first anniversary of the
Effective Date the gross in-the-money value of the Options to purchase 20,000
shares of the Company's Common Stock granted to the Employee pursuant to Section
4(a)(3) below is not at least $100,000, the Employee's Base Salary shall be
adjusted to Eighty-Eight Thousand Dollars ($88,000) per year as of such date. If
on such date the gross in-the-money value of the Options to purchase 20,000
shares of the Company's Common Stock granted to the Employee pursuant to Section
4(a)(3) below is at least $100,000, the Employee's Base Salary shall be adjusted
to Eighty-Three Thousand Five Hundred Dollars ($83,500) per year as of such date
(2) Performance Bonus. The Employee shall be entitled
to an annual cash bonus (the "Bonus") based on the Company's attainment of
reasonable financial objectives to be determined annually by the Board. The
maximum annual Bonus will equal thirty percent (30%) of the applicable year's
ending Base Salary and will be payable if the Board determines, in its sole and
exclusive discretion, that that year's financial objectives have been fully met.
The Employee's eligibility for fifty percent (50%) of the Bonus will be based on
the achievement of annual performance objectives relating to the Employee's
department, as set by the President and Executive Vice President - Operations of
the Company, and her eligibility for the other fifty percent (50%) of the Bonus
will be based on the Company's achievement of annual earnings per share goals
set by the Board each year. The first annual Bonus for which the Employee may be
eligible will relate to her performance during the year ending December 31,
2000. Any Bonus shall be paid in accordance with the Company's bonus plan, as
approved by the Board; provided that in no case shall any portion of the Bonus
with respect to any fiscal year be paid more than seventy-five (75) days after
the end of such fiscal year.
(3) Grant of Options. On the Effective Date, the
Company shall grant to the Employee, for no additional consideration,
nonqualified stock options (the "Options") to purchase 20,000 shares of the
Company's Common Stock under the Company's Amended and Restated 1997 Stock
Option Plan. The Options shall have a term of 10 years from the date of such
grant and shall be exercisable at a price of $16.875 per share. The Options
shall vest and become exercisable with respect to 6,667 shares on each of the
first and second anniversaries of the Effective Date, and with respect to 6,666
shares on the third anniversary of the Effective Date.
Beginning in 2001, the Employee shall be eligible for
annual grants of additional stock options commensurate with her position and
with option grants to other employees of the Company, based on the
recommendation of the Company's President and as approved by the Board.
The terms of the Options shall be described in more
detail in a Stock Option Agreement to be entered into between the Employee and
the Company. If at any time while any of the Options are still outstanding the
Company amends its Stock Option Plan to provide for a less favorable vesting
schedule for stock options than that provided herein, any Options then
outstanding shall thereupon be converted to warrants entitling the Employee to
2
<PAGE> 3
purchase the number of shares of Common Stock for which the Employee's then
outstanding Options may be exercised, on the same terms as provided under such
Options.
(b) Other Benefits. During the Term, the Company shall
provide the Employee with a cellular telephone and will pay or reimburse the
Employee's monthly service fee and costs of calls attributable to Company
business. During the Term, the Employee shall be entitled to receive all other
benefits of employment generally available to other management employees of the
Company and those benefits for which management employees are or shall become
eligible, including, without limitation and to the extent made available by the
Company, medical, dental, disability and prescription coverage, life insurance
and tax-qualified retirement benefits. If the Employee is not eligible for
coverage under the Company's health insurance policy at the commencement of the
initial Term, the Company shall reimburse the Employee for the expenses of
health insurance coverage under COBRA from the commencement of the Term until
the Employee becomes eligible for the health insurance benefits offered by the
Company. The Employee shall be entitled to three (3) weeks of paid vacation
during the first twelve-month period of her employment, and four (4) weeks per
twelve-month period beginning with the second twelve-month period of employment.
(c) Signing Bonus. The Company will pay the Employee an
signing initial bonus of $5,000 on execution of this Agreement.
(d) Reimbursement of Expenses. The Company agrees to pay or
reimburse the Employee for all reasonable travel and other expenses incurred by
the Employee in connection with the performance of her duties under this
Agreement on presentation of proper expense statements or vouchers. All such
supporting information shall comply with all applicable Company policies
relating to reimbursement for travel and other expenses.
(e) Withholding. All compensation payable to the Employee
hereunder is subject to all withholding requirements under applicable law.
5. Confidentiality. During the Term of her employment, and at all times
thereafter, the Employee shall not, without the prior written consent of the
Company, divulge to any third party or use for her own benefit or the benefit of
any third party or for any purpose other than the exclusive benefit of the
Company, any confidential or proprietary business or technical information
revealed, obtained or developed in the course of her employment with the Company
and which is otherwise the property of the Company or any of its affiliated
corporations, including, but not limited to, trade secrets, customer lists,
formulae and processes of manufacture; provided, however, that nothing herein
contained shall restrict the Employee's ability to make such disclosures during
the course of her employment as may be necessary or appropriate to the effective
and efficient discharge of her duties to the Company.
6. Property. Both during the Term of her employment and thereafter, the
Employee shall not remove from the Company's offices or premises any Company
documents, records, notebooks, files, correspondence, reports, memoranda and
similar materials or property of any kind unless necessary in accordance with
the duties and responsibilities of her employment. In the event that any such
material or property is removed, it shall be returned to its proper file or
place of safekeeping as promptly as possible. The Employee shall not make,
retain, remove or
3
<PAGE> 4
distribute any copies, or divulge to any third person the nature or contents of
any of the foregoing or of any other oral or written information to which she
may have access, except as disclosure shall be necessary in the performance of
her assigned duties. On the termination of her employment with the Company, the
Employee shall leave with or return to the Company all originals and copies of
the foregoing then in her possession or subject to her control, whether prepared
by the Employee or by others.
7. Termination.
(a) Termination by the Company for Cause or by the Employee.
The employment of the Employee may be terminated for Cause at any time by the
Board, on written Notice of Termination (as defined in Section 8(a)) delivered
to the Employee describing with specificity the grounds for termination. The
employment of the Employee may also be terminated at any time by the Employee on
written Notice of Termination delivered to the Company. Immediately on
termination pursuant to this Section 7(a), the Company shall pay to the Employee
in a lump sum her then current Base Salary under Section 4(a)(1) on a prorated
basis to the Date of Termination (as defined in Section 8(b)). On termination
pursuant to this Section 7(a), the Employee shall forfeit (i) her Bonus under
Section 4(a)(2) for the year in which such termination occurs, and (ii) all
outstanding but unvested Options and other options and rights relating to
capital stock of the Company. For purposes of this Agreement, Cause shall mean:
(1) a material breach of any of the terms of this
Agreement that is not immediately corrected following written notice of default
specifying such breach;
(2) a breach of any of the provisions of Section 10;
(3) repeated intoxication with alcohol or drugs while
on Company premises during its regular business hours to such a degree that, in
the reasonable judgment of the other managers of the Company, the Employee is
abusive or incapable of performing her duties and responsibilities under this
Agreement;
(4) conviction of a felony; or
(5) misappropriation of property belonging to the
Company and/or any of its affiliates.
(b) Termination Without Cause. The employment of the Employee
may be terminated without Cause at any time by the Board on delivery to the
Employee of a written Notice of Termination (as defined in Section 8(a)). On the
Date of Termination (as defined in Section 8(b)) pursuant to this Section 7(b),
the Company shall pay to the Employee in a lump sum an amount equal to the
greater of (i) the Base Salary payable under Section 4(a)(1) through the end of
the then-current Term at the rate in effect on the Date of Termination, or (ii)
one year's Base Salary at the rate in effect on the Date of Termination. In
addition, on termination of the Employee under this Section 7(b), all of the
Employee's outstanding but unvested Options and other options and rights
relating to capital stock of the Company shall immediately vest and become
exercisable. The term of any such options and rights shall be extended to the
third anniversary of the Employee's termination. The Employee acknowledges that
extending the term
4
<PAGE> 5
of any option pursuant to this Section 7(b), or Section 7(c) or 7(d), could
cause such option to lose its tax-qualified status if it is an incentive stock
option under the Code and agrees that the Company shall have no obligation to
compensate the Employee for any additional taxes she incurs as a result.
(c) Termination on Disability. If during the Term the
Employee should fail to perform her duties hereunder on account of physical or
mental illness or other incapacity which the Board shall in good faith determine
renders the Employee incapable of performing her duties hereunder, and such
illness or other incapacity shall continue for a period of more than six (6)
consecutive months ("Disability"), the Company shall have the right, on written
Notice of Termination (as defined in Section 8(a)) delivered to the Employee to
terminate the Employee's employment under this Agreement. During the period that
the Employee shall have been incapacitated due to physical or mental illness,
the Employee shall continue to receive the full Base Salary provided for in
Section 4(a)(1) hereof at the rate then in effect until the Date of Termination
(as defined in Section 8(b)) pursuant to this Section 7(c). On the Date of
Termination pursuant to this Section 7(c), all of the Employee's outstanding but
unvested Options and other options and rights relating to capital stock of the
Company shall immediately vest and become exercisable. The term of any such
options and rights shall be extended to the third anniversary of the Employee's
termination.
(d) Termination on Death. If the Employee shall die during
the Term, the employment of the Employee shall thereupon terminate. On the Date
of Termination (as defined in Section 8(b)) pursuant to this Section 7(d), all
of the Employee's outstanding but unvested Options and other options and rights
relating to capital stock of the Company shall immediately vest and become
exercisable. The term of any such options and rights shall be extended to the
third anniversary of the Employee's termination. The provisions of this Section
7(d) shall not affect the entitlements of the Employee's heirs, executors,
administrators, legatees, beneficiaries or assigns under any employee benefit
plan, fund or program of the Company.
8. Provisions Applicable to Termination of Employment.
(a) Notice of Termination. Any purported termination of
Employee's employment by the Company or by the Employee pursuant to Section 7
shall be communicated by Notice of Termination to the Employee or the Company,
as the case may be, as provided herein ("Notice of Termination").
(b) Date of Termination. For all purposes, "Date of
Termination" shall mean the date on which a Notice of Termination is given.
(c) Benefits on Termination. On termination of this Agreement
pursuant to Section 7, all profit-sharing, deferred compensation and other
retirement benefits payable to the Employee under benefit plans in which the
Employee then participated shall be paid to the Employee in accordance with the
provisions of the respective plans. Except as otherwise provided in Sections
7(b), 7(c), 7(d) and 9, if the Employee's employment by the Company is
terminated before all of the Employee's options, warrants and rights with
respect to the Company's capital stock have vested, the Employee shall forfeit
any such options, warrants and rights that are unvested as of the termination
date.
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9. Change In Control.
(a) Payments on Change in Control. Notwithstanding any
provision in this Agreement to the contrary, unless the Employee elects in
writing to waive this provision, a Change in Control (as defined below) of the
Company shall be deemed a termination of the Employee without Cause, and the
Employee shall be entitled to receive and the Company agrees to pay to the
Employee in a lump sum the same amount determined under Section 7(b) that is
payable to the Employee on termination without Cause. In addition, on a Change
of Control, all of the Employee's outstanding but unvested Options and other
options and rights relating to capital stock of the Company shall immediately
vest and become exercisable, and the term of any such options and rights shall
be extended to the third anniversary of the Employee's termination.
After a Change in Control, if any previously outstanding
Option or other option or right (the "Terminated Option") relating to the
Company's capital stock does not remain outstanding, the successor to the
Company or its then Parent (as defined below) shall either:
(i) Issue an option, warrant or right, as appropriate
(the "Successor Option"), to purchase common stock of such successor or Parent
in an amount such that on exercise of the Successor Option the Employee would
receive the same number of shares of the successor's/Parent's common stock as
the Employee would have received had the Employee exercised the Terminated
Option immediately prior to the transaction resulting in the Change in Control
and received shares of such successor/Parent in such transaction. The aggregate
exercise price for all of the shares covered by such Successor Option shall
equal the aggregate exercise price of the Terminated Option; or
(ii) Pay the Employee a bonus within ten (10) days
after the consummation of the Change in Control in an amount agreed to by the
Employee and the Company. Such amount shall be at least equivalent on an
after-tax basis to the net after-tax gain that the Employee would have realized
if she had been issued a Successor Option under clause (i) above and had
immediately exercised such Successor Option and sold the underlying stock,
taking into account the different tax rates that apply to such bonus and to such
gain, and such amount shall also reflect other differences to the Employee
between receiving a bonus under this clause (ii) and receiving a Successor
Option under clause (i) above.
(b) Definitions. For the purposes of this Agreement, a Change
in Control shall be deemed to have occurred if (i) there shall be consummated
(aa) any reorganization, liquidation or consolidation of the Company, or any
merger or other business combination of the Company with any other corporation,
other than any such merger or other combination that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such transaction, (bb) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or if
(ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall become the
"beneficial owner"
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(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
fifty percent (50%) or more of the Company's outstanding voting securities
(except that for purposes of this Section 10(b), "person" shall not include any
person or any person that controls, is controlled by or is under common control
with such person, who as of the date of this Agreement owns ten percent (10%) or
more of the total voting power represented by the outstanding voting securities
of the Company, or a trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or a corporation that is owned directly or
indirectly by the stockholders of the Company in substantially the same
percentage as their ownership of the Company) or if (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the entire Board shall cease for any reason to constitute at least
one-half of the membership thereof unless the election, or the nomination for
election by the Company's shareholders, of each new director was approved by a
vote of at least one-half of the directors then still in office who were
directors at the beginning of the period.
The term "Parent" means a corporation, partnership, trust,
limited liability company or other entity that is the ultimate "beneficial
owner" (as defined above) of fifty percent (50%) or more of the Company's
outstanding voting securities.
10. Non-Competition and Non-Solicitation.
(a) In consideration of the provisions hereof, for the period
commencing on the date hereof and ending on the first anniversary of the
termination of this Agreement, the Employee will not, except as specifically
provided below, anywhere in any county in any state in which the Company is
engaged in business as of such termination date, directly or indirectly, acting
individually or as the owner, shareholder, partner or management employee of any
entity, (i) engage in the operation of a solid waste collection, transporting or
disposal business, transfer facility, recycling facility, materials recovery
facility or solid waste landfill; (ii) enter the employ as a manager of, or
render any personal services to or for the benefit of, or assist in or
facilitate the solicitation of customers for, or receive remuneration in the
form of management salary, commissions or otherwise from, any business engaged
in such activities in such counties; or (iii) receive or purchase a financial
interest in, make a loan to, or make a gift in support of, any such business in
any capacity, including without limitation, as a sole proprietor, partner,
shareholder, officer, director, principal agent or trustee; provided, however,
that the Employee may own, directly or indirectly, solely as an investment,
securities of any business traded on any national securities exchange or quoted
on any NASDAQ market, provided the Employee is not a controlling person of, or a
member of a group which controls, such business and further provided that the
Employee does not, in the aggregate, directly or indirectly, own two percent
(2%) or more of any class of securities of such business.
(b) After termination of this Agreement, the Employee shall
not (i) solicit any residential or commercial customer of the Company to whom
the Company provides service pursuant to a franchise agreement with a public
entity in any county in any state in which the Company is engaged in business as
of such termination date, (ii) solicit any residential or commercial customer of
the Company to enter into a solid waste collection account relationship with a
competitor of the Company in any such county, (iii) solicit any such public
entity to enter into a franchise agreement with any such competitor, (iv)
solicit any officer, employee or contractor of the Company to enter into an
employment or contractor agreement with a
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<PAGE> 8
competitor of the Company or otherwise interfere in any such relationship, or
(v) solicit on behalf of a competitor of the Company any prospective customer of
the Company that the Employee called on or was involved in soliciting on behalf
of the Company during the Term, in each case until the second anniversary of the
date of such termination, unless otherwise permitted to do so by Section 10(a);
provided that if the Employee is terminated by the Company without Cause by the
Company pursuant to Section 7(b), the restrictions in this Section 10(b) shall
apply only for as many months after such termination as are used to calculate
the amount payable under Section 7(b) to the Employee on such termination
(notwithstanding any election by the Employee pursuant to section 7(b) to
forfeit all or part of such lump sum payment in exchange for the Company's
payment of certain relocation costs).
(c) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 10 is invalid
or unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specified words or phrases
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
11. Indemnification. As an employee and agent of the Company, the
Employee shall be fully indemnified by the Company to the fullest extent
permitted by applicable law in connection with her employment hereunder.
12. Survival of Provisions. The obligations of the Company under
Section 11 of this Agreement, and of the Employee under Sections 5, 6 and 10 of
this Agreement, shall survive both the termination of the Employee's employment
and this Agreement.
13. No Duty to Mitigate; No Offset. The Employee shall not be required
to mitigate damages or the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Employee may
receive from any other sources or offset against any other payments made to her
or required to be made to her pursuant to this Agreement.
14. Assignment; Binding Agreement. The Company may assign this
Agreement to any parent, subsidiary, affiliate or successor of the Company. This
Agreement is not assignable by the Employee and is binding on her and her
executors and other legal representatives. This Agreement shall bind the Company
and its successors and assigns and inure to the benefit of the Employee and her
heirs, executors, administrators, personal representatives, legatees or
devisees. The Company shall assign this Agreement to any entity that acquires
its assets or business.
15. Notice. Any written notice under this Agreement shall be personally
delivered to the other party or sent by certified or registered mail, return
receipt requested and postage prepaid, to such party at the address set forth in
the records of the Company or to such other address as either party may from
time to time specify by written notice.
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<PAGE> 9
16. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties relating to the Employee's employment and supersedes
all oral or written prior discussions, agreements and understandings of every
nature between them. This Agreement may not be changed except by an agreement in
writing signed by the Company and the Employee.
17. Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or as be construed to be a waiver of any other provision or
subsequent breach of this Agreement.
18. Governing Law and Jurisdictional Agreement. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California.
19. Severability. In case any one or more of the provisions contained
in this Agreement is, for any reason, held invalid in any respect, such
invalidity shall not affect the validity of any other provision of this
Agreement, and such provision shall be deemed modified to the extent necessary
to make it enforceable.
20. Enforcement. It is agreed that it is impossible to measure fully,
in money, the damage which will accrue to the Company in the event of a breach
or threatened breach of Sections 5, 6, or 10 of this Agreement, and, in any
action or proceeding to enforce the provisions of Sections 5, 6 or 10 hereof,
the Employee waives the claim or defense that the Company has an adequate remedy
at law and will not assert the claim or defense that such a remedy at law
exists. The Company is entitled to injunctive relief to enforce the provisions
of such sections as well as any and all other remedies available to it at law or
in equity without the posting of any bond. The Employee agrees that if the
Employee breaches any provision of Section 10, the Company may recover as
partial damages all profits realized by the Employee at any time prior to such
recovery on the exercise of any warrant, option or right to purchase the
Company's Common Stock and the subsequent sale of such stock, and may also
cancel all outstanding such warrants, options and rights.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
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22. Due Authorization. The execution of this Agreement has been duly
authorized by the Company by all necessary corporate action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Employment Agreement as of the day and year set forth above.
WASTE CONNECTIONS, INC.,
a Delaware corporation
By:
----------------------------------
Printed Name: Ronald J. Mittelstaedt
Title: President
EMPLOYEE:
- ---------------------
Jerri Hunt
<PAGE> 1
EXHIBIT 10.42
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of September 13,
1999, or such earlier date as the parties agree (the "Effective Date"), by and
between James Little (the "Employee") and Waste Connections, Inc., a Delaware
corporation (the "Company"), with reference to the following facts.
The Company desires to engage the services and employment of the
Employee, and the Employee is willing to accept employment by the Company, on
the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein, the Company and the Employee agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
Employee agrees to accept employment with the Company, on the terms and
conditions stated herein.
2. Position and Responsibilities. During the Term, the Employee shall
serve as Vice President Engineering of the Company, reporting directly to the
Company's President. The Employee shall be based in the Company's corporate
headquarters in California and shall be responsible for oversight of all
environmental engineering relating to the Company's operations and properties.
The employee shall perform such other duties and responsibilities as the
President or the Board of Directors (the "Board") of the Company may reasonably
assign to the Employee from time to time. The Employee shall devote such time
and attention to his duties as are necessary to the proper discharge of his
responsibilities hereunder. The Employee agrees to perform all duties consistent
with (a) policies established from time to time by the Company and (b) all
applicable legal requirements.
3. Term. The period of the Employee's employment under this Agreement
(the "Term") shall commence on the Effective Date and continue until the second
anniversary of the Effective Date, unless terminated earlier as provided herein
or extended by the Board. At the end of the initial Term, this Agreement shall
be renewed automatically for successive Terms of one year, unless either party
shall have given the other notice of termination hereof as provided herein.
4. Compensation, Benefits and Reimbursement of Expenses.
(a) Compensation. The Company shall compensate the Employee
during the Term of this Agreement as follows:
(1) Base Salary. The Employee shall be paid a base
salary ("Base Salary") of not less than One Hundred Thousand Dollars ($100,000)
per year in installments consistent with the Company's usual practices. The
Board shall review the Employee's Base
<PAGE> 2
Salary on each anniversary of the Effective Date or more frequently, at the
times prescribed in salary administration practices applied generally to
management employees of the Company.
In addition, if on the first anniversary of the
Effective Date the gross in-the-money value of the Options to purchase 6,667
shares of the Company's Common Stock granted to the Employee and vested on such
first anniversary pursuant to Section 4(a)(3) below is not at least $50,000, the
Employee may elect to have his Base Salary adjusted to One Hundred Twenty-Two
Thousand Dollars ($122,000) per year as of such date, in which case the Employee
shall immediately forfeit those Options to purchase 6,667 shares.
(2) Performance Bonus. The Employee shall be entitled
to an annual cash bonus (the "Bonus") based on the Company's attainment of
reasonable financial objectives to be determined annually by the Board. The
maximum annual Bonus will equal thirty percent (30%) of the applicable year's
ending Base Salary and will be payable if the Board determines, in its sole and
exclusive discretion, that that year's financial objectives have been fully met.
The Bonus shall be paid in accordance with the Company's bonus plan, as approved
by the Board; provided that in no case shall any portion of the Bonus with
respect to any fiscal year be paid more than seventy-five (75) days after the
end of such fiscal year.
(3) Grant of Options. On the Effective Date, the
Company shall grant to the Employee, for no additional consideration,
nonqualified stock options (the "Options") to purchase 20,000 shares of the
Company's Common Stock under the Company's Amended and Restated 1997 Stock
Option Plan. The Options shall have a term of 10 years from the date of such
grant and shall be exercisable at a price of $19.50 per share. The Options shall
vest and become exercisable with respect to 6,667 shares on each of the first
and second anniversaries of the Effective Date, and with respect to 6,666 shares
on the third anniversary of the Effective Date.
The terms of the Options shall be described in more
detail in a Stock Option Agreement to be entered into between the Employee and
the Company. If at any time while any of the Options are still outstanding the
Company amends its Stock Option Plan to provide for a less favorable vesting
schedule for stock options than that provided herein, any Options then
outstanding shall thereupon be converted to warrants entitling the Employee to
purchase the number of shares of Common Stock for which the Employee's then
outstanding Options may be exercised, on the same terms as provided under such
Options.
(b) Other Benefits. During the Term, the Company shall provide
the Employee with a cellular telephone and will pay or reimburse the Employee's
monthly service fee and costs of calls attributable to Company business. During
the Term, the Employee shall be entitled to receive all other benefits of
employment generally available to other management employees of the Company and
those benefits for which management employees are or shall become eligible,
including, without limitation and to the extent made available by the Company,
medical, dental, disability and prescription coverage, life insurance and
tax-qualified retirement benefits. If the Employee is not eligible for coverage
under the Company's health insurance policy at the commencement of the Term, the
Company shall reimburse the Employee for the expenses of health insurance
coverage under COBRA from the commencement of the Term
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until the Employee becomes eligible for the health insurance benefits offered by
the Company. The Employee shall be entitled to three (3) weeks of paid vacation
during each of the first three twelve-month periods of his employment, and four
(4) weeks per twelve-month period beginning with the fourth twelve-month period
of employment.
(c) Relocation Benefits. The Company will provide the
following relocation benefits: (i) an initial relocation bonus of $20,000, (ii)
the Employee's temporary lodging and commuting expenses between Ohio and
California for the longer of 90 days or the period ending on the date on which
the Employee sells his home in Ohio (which period may be lengthened by mutual
agreement of the Employee and the Company), (iii) expenses of moving the
Employee's household goods and horse (the expenses for moving the horse not to
exceed $1,500) from the Employee's home in Ohio to the Employee's new home in
the Sacramento, California area when the Employee relocates to California
(including moving insurance, packing and transportation and temporary storage
costs) by a national moving company selected by the Company, (iv) reasonable
realtor's fees (or, if the Employee sells his home without the services of a
realtor, an amount equal to the reasonable realtor's fees that would have been
incurred on such sale) and non-recurring closing costs incurred by the Employee
with respect to the sale of the Employee's home in Ohio, and (v) reasonable
non-recurring closing costs incurred by the Employee with respect to the
purchase of a home in the Sacramento area, and up to 1 point on a mortgage loan
on the purchase of such home. If the Employee voluntarily terminates his
employment within two years after the Effective Date, the Employee shall on such
termination pay the Company an amount equal to the aggregate amount of such
benefits, multiplied by a fraction, the numerator of which is 24 minus the
number of full months the Employee was employed by the Company, and the
denominator of which is 24.
If any benefits described in this Section 4(c) are not
tax-deductible by the Company, the Company shall treat the cost of such benefits
as additional compensation to the Employee ("Relocation Compensation" ) and
shall pay the Employee an additional cash bonus ("Relocation Bonus") sufficient
to cover any Federal, state or local income or employment taxes on such
Relocation Bonus, so that the Employee shall incur no net after-tax expense as a
result of any benefits paid pursuant to this Section 4(c).
(d) Reimbursement of Other Expenses. The Company agrees to pay
or reimburse the Employee for all reasonable travel and other expenses incurred
by the Employee in connection with the performance of his duties under this
Agreement on presentation of proper expense statements or vouchers. All such
supporting information shall comply with all applicable Company policies
relating to reimbursement for travel and other expenses.
(e) Withholding. All compensation payable to the Employee
hereunder is subject to all withholding requirements under applicable law.
5. Confidentiality. During the Term of his employment, and at all times
thereafter, the Employee shall not, without the prior written consent of the
Company, divulge to any third party or use for his own benefit or the benefit of
any third party or for any purpose other than the exclusive benefit of the
Company, any confidential or proprietary business or technical information
revealed, obtained or developed in the course of his employment with the Company
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<PAGE> 4
and which is otherwise the property of the Company or any of its affiliated
corporations, including, but not limited to, trade secrets, customer lists,
formulae and processes of manufacture; provided, however, that nothing herein
contained shall restrict the Employee's ability to make such disclosures during
the course of his employment as may be necessary or appropriate to the effective
and efficient discharge of his duties to the Company.
6. Property. Both during the Term of his employment and thereafter, the
Employee shall not remove from the Company's offices or premises any Company
documents, records, notebooks, files, correspondence, reports, memoranda and
similar materials or property of any kind unless necessary in accordance with
the duties and responsibilities of his employment. In the event that any such
material or property is removed, it shall be returned to its proper file or
place of safekeeping as promptly as possible. The Employee shall not make,
retain, remove or distribute any copies, or divulge to any third person the
nature or contents of any of the foregoing or of any other oral or written
information to which he may have access, except as disclosure shall be necessary
in the performance of his assigned duties. On the termination of his employment
with the Company, the Employee shall leave with or return to the Company all
originals and copies of the foregoing then in his possession or subject to his
control, whether prepared by the Employee or by others.
7. Termination.
(a) Termination by the Company for Cause or by the Employee.
The employment of the Employee may be terminated for Cause at any time by the
Board, on written Notice of Termination (as defined in Section 8(a)) delivered
to the Employee describing with specificity the grounds for termination. The
employment of the Employee may also be terminated at any time by the Employee on
written Notice of Termination delivered to the Company. Immediately on
termination pursuant to this Section 7(a), the Company shall pay to the Employee
in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated
basis to the Date of Termination (as defined in Section 8(b)). On termination
pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under
Section 4(a)(2) for the year in which such termination occurs, and (ii) all
outstanding but unvested Options and other options and rights relating to
capital stock of the Company. For purposes of this Agreement, Cause shall mean:
(1) a material breach of any of the terms of this
Agreement that is not immediately corrected following written notice of default
specifying such breach;
(2) a breach of any of the provisions of Section 10;
(3) repeated intoxication with alcohol or drugs while
on Company premises during its regular business hours to such a degree that, in
the reasonable judgment of the other managers of the Company, the Employee is
abusive or incapable of performing his duties and responsibilities under this
Agreement;
(4) conviction of a felony; or
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<PAGE> 5
(5) misappropriation of property belonging to the
Company and/or any of its affiliates.
(b) Termination Without Cause. The employment of the Employee
may be terminated without Cause at any time by the Board on delivery to the
Employee of a written Notice of Termination (as defined in Section 8(a)). On the
Date of Termination (as defined in Section 8(b)) pursuant to this Section 7(b),
the Company shall pay to the Employee in a lump sum an amount equal to the
greater of (i) the Base Salary payable under Section 4(a)(1) through the end of
the then-current Term at the rate in effect on the Date of Termination, or (ii)
one year's Base Salary at the rate in effect on the Date of Termination. The
Employee may elect to forfeit receipt of all or part of the lump sum described
in the preceding sentence, in exchange for payment by the Company of all or part
of the costs of the Employee's relocating to an area of his choice, with the
amount of the lump sum payment forfeited by the Employee and the amount of the
relocation costs paid by the Company to be determined by agreement between the
Employee and the Company. In addition, on termination of the Employee under this
Section 7(b), all of the Employee's outstanding but unvested Options and other
options and rights relating to capital stock of the Company shall immediately
vest and become exercisable. The term of any such options and rights shall be
extended to the third anniversary of the Employee's termination. The Employee
acknowledges that extending the term of any option pursuant to this Section
7(b), or Section 7(c) or 7(d), could cause such option to lose its tax-qualified
status if it is an incentive stock option under the Code and agrees that the
Company shall have no obligation to compensate the Employee for any additional
taxes he incurs as a result.
(c) Termination on Disability. If during the Term the Employee
should fail to perform his duties hereunder on account of physical or mental
illness or other incapacity which the Board shall in good faith determine
renders the Employee incapable of performing his duties hereunder, and such
illness or other incapacity shall continue for a period of more than six (6)
consecutive months ("Disability"), the Company shall have the right, on written
Notice of Termination (as defined in Section 8(a)) delivered to the Employee to
terminate the Employee's employment under this Agreement. During the period that
the Employee shall have been incapacitated due to physical or mental illness,
the Employee shall continue to receive the full Base Salary provided for in
Section 4(a)(1) hereof at the rate then in effect until the Date of Termination
(as defined in Section 8(b)) pursuant to this Section 7(c). On the Date of
Termination pursuant to this Section 7(c), all of the Employee's outstanding but
unvested Options and other options and rights relating to capital stock of the
Company shall immediately vest and become exercisable. The term of any such
options and rights shall be extended to the third anniversary of the Employee's
termination.
(d) Termination on Death. If the Employee shall die during the
Term, the employment of the Employee shall thereupon terminate. On the Date of
Termination (as defined in Section 8(b)) pursuant to this Section 7(d), all of
the Employee's outstanding but unvested Options and other options and rights
relating to capital stock of the Company shall immediately vest and become
exercisable. The term of any such options and rights shall be extended to the
third anniversary of the Employee's termination. The provisions of this Section
7(d) shall not affect the entitlements of the Employee's heirs, executors,
administrators, legatees, beneficiaries or assigns under any employee benefit
plan, fund or program of the Company.
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<PAGE> 6
8. Provisions Applicable to Termination of Employment.
(a) Notice of Termination. Any purported termination of
Employee's employment by the Company or by the employee pursuant to Section 7
shall be communicated by Notice of Termination to the Employee or the Company,
as the case may be, as provided herein ("Notice of Termination").
(b) Date of Termination. For all purposes, "Date of
Termination" shall mean the date on which a Notice of Termination is given.
(c) Benefits on Termination. On termination of this Agreement
pursuant to Section 7, all profit-sharing, deferred compensation and other
retirement benefits payable to the Employee under benefit plans in which the
Employee then participated shall be paid to the Employee in accordance with the
provisions of the respective plans. Except as otherwise provided in Sections
7(b), 7(c), 7(d) and 9, if the Employee's employment by the Company is
terminated before all of the Employee's options, warrants and rights with
respect to the Company's capital stock have vested, the Employee shall forfeit
any such options, warrants and rights that are unvested as of the termination
date.
9. Change In Control.
(a) Payments on Change in Control. Notwithstanding any
provision in this Agreement to the contrary, unless the Employee elects in
writing to waive this provision, a Change in Control (as defined below) of the
Company shall be deemed a termination of the Employee without Cause, and the
Employee shall be entitled to receive and the Company agrees to pay to the
Employee in a lump sum the same amount determined under Section 7(b) that is
payable to the Employee on termination without Cause, and the Employee shall
have the right to forfeit all or part of such amount in exchange for payment by
the Company of certain relocation costs, as described in Section 7(b). In
addition, on a Change of Control, all of the Employee's outstanding but unvested
Options and other options and rights relating to capital stock of the Company
shall immediately vest and become exercisable, and the term of any such options
and rights shall be extended to the third anniversary of the Employee's
termination.
After a Change in Control, if any previously outstanding
Option or other option or right (the "Terminated Option") relating to the
Company's capital stock does not remain outstanding, the successor to the
Company or its then Parent (as defined below) shall either:
(i) Issue an option, warrant or right, as appropriate
(the "Successor Option"), to purchase common stock of such successor or Parent
in an amount such that on exercise of the Successor Option the Employee would
receive the same number of shares of the successor's/Parent's common stock as
the Employee would have received had the Employee exercised the Terminated
Option immediately prior to the transaction resulting in the Change in Control
and received shares of such successor/Parent in such transaction. The aggregate
exercise price for all of the shares covered by such Successor Option shall
equal the aggregate exercise price of the Terminated Option; or
6
<PAGE> 7
(ii) Pay the Employee a bonus within ten (10) days
after the consummation of the Change in Control in an amount agreed to by the
Employee and the Company. Such amount shall be at least equivalent on an
after-tax basis to the net after-tax gain that the Employee would have realized
if he had been issued a Successor Option under clause (i) above and had
immediately exercised such Successor Option and sold the underlying stock,
taking into account the different tax rates that apply to such bonus and to such
gain, and such amount shall also reflect other differences to the Employee
between receiving a bonus under this clause (ii) and receiving a Successor
Option under clause (i) above.
(b) Definitions. For the purposes of this Agreement, a Change
in Control shall be deemed to have occurred if (i) there shall be consummated
(aa) any reorganization, liquidation or consolidation of the Company, or any
merger or other business combination of the Company with any other corporation,
other than any such merger or other combination that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such transaction, (bb) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or if
(ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of fifty percent (50%) or more of the Company's outstanding
voting securities (except that for purposes of this Section 10(b), "person"
shall not include any person or any person that controls, is controlled by or is
under common control with such person, who as of the date of this Agreement owns
ten percent (10%) or more of the total voting power represented by the
outstanding voting securities of the Company, or a trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or a
corporation that is owned directly or indirectly by the stockholders of the
Company in substantially the same percentage as their ownership of the Company)
or if (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the entire Board shall cease for any reason
to constitute at least one-half of the membership thereof unless the election,
or the nomination for election by the Company's shareholders, of each new
director was approved by a vote of at least one-half of the directors then still
in office who were directors at the beginning of the period.
The term "Parent" means a corporation, partnership, trust,
limited liability company or other entity that is the ultimate "beneficial
owner" (as defined above) of fifty percent (50%) or more of the Company's
outstanding voting securities.
10. Non-Competition and Non-Solicitation.
(a) In consideration of the provisions hereof, for the period
commencing on the date hereof and ending on the first anniversary of the
termination of this Agreement, the Employee will not, except as specifically
provided below, anywhere in any county in any state in which the Company is
engaged in business as of such termination date, directly or indirectly,
7
<PAGE> 8
acting individually or as the owner, shareholder, partner or management employee
of any entity, (i) engage in the operation of a solid waste collection,
transporting or disposal business, transfer facility, recycling facility,
materials recovery facility or solid waste landfill; (ii) enter the employ as a
manager of, or render any personal services to or for the benefit of, or assist
in or facilitate the solicitation of customers for, or receive remuneration in
the form of management salary, commissions or otherwise from, any business
engaged in such activities in such counties; or (iii) receive or purchase a
financial interest in, make a loan to, or make a gift in support of, any such
business in any capacity, including without limitation, as a sole proprietor,
partner, shareholder, officer, director, principal agent or trustee; provided,
however, that the Employee may own, directly or indirectly, solely as an
investment, securities of any business traded on any national securities
exchange or quoted on any NASDAQ market, provided the Employee is not a
controlling person of, or a member of a group which controls, such business and
further provided that the Employee does not, in the aggregate, directly or
indirectly, own two percent (2%) or more of any class of securities of such
business.
(b) After termination of this Agreement, the Employee shall
not (i) solicit any residential or commercial customer of the Company to whom
the Company provides service pursuant to a franchise agreement with a public
entity in any county in any state in which the Company is engaged in business as
of such termination date, (ii) solicit any residential or commercial customer of
the Company to enter into a solid waste collection account relationship with a
competitor of the Company in any such county, (iii) solicit any such public
entity to enter into a franchise agreement with any such competitor, (iv)
solicit any officer, employee or contractor of the Company to enter into an
employment or contractor agreement with a competitor of the Company or otherwise
interfere in any such relationship, or (v) solicit on behalf of a competitor of
the Company any prospective customer of the Company that the Employee called on
or was involved in soliciting on behalf of the Company during the Term, in each
case until the second anniversary of the date of such termination, unless
otherwise permitted to do so by Section 10(a); provided that if the Employee is
terminated by the Company without Cause by the Company pursuant to Section 7(b),
the restrictions in this Section 10(b) shall apply only for as many months after
such termination as are used to calculate the amount actually paid under Section
7(b)(iii) to the Employee on such termination. For example, if the Employee
waives his right to be paid any amount under Section 7(b)(iii) (relating to the
Total Compensation paid to him during the previous twelve months), the
restrictions in this Section 10(b) shall not apply at all; if the Employee
elects to receive under Section 7(b)(iii) an amount equal to only eight months'
Total Compensation, the restrictions shall apply for only eight months.
(c) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 10 is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specified words or phrases
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8
<PAGE> 9
11. Indemnification. As an employee and agent of the Company, the
Employee shall be fully indemnified by the Company to the fullest extent
permitted by applicable law in connection with his employment hereunder.
12. Survival of Provisions. The obligations of the Company under
Section 11 of this Agreement, and of the Employee under Sections 5, 6 and 10 of
this Agreement, shall survive both the termination of the Employee's employment
and this Agreement.
13. No Duty to Mitigate; No Offset. The Employee shall not be required
to mitigate damages or the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Employee may
receive from any other sources or offset against any other payments made to him
or required to be made to him pursuant to this Agreement.
14. Assignment; Binding Agreement. The Company may assign this
Agreement to any parent, subsidiary, affiliate or successor of the Company. This
Agreement is not assignable by the Employee and is binding on him and his
executors and other legal representatives. This Agreement shall bind the Company
and its successors and assigns and inure to the benefit of the Employee and his
heirs, executors, administrators, personal representatives, legatees or
devisees. The Company shall assign this Agreement to any entity that acquires
its assets or business.
15. Notice. Any written notice under this Agreement shall be personally
delivered to the other party or sent by certified or registered mail, return
receipt requested and postage prepaid, to such party at the address set forth in
the records of the Company or to such other address as either party may from
time to time specify by written notice.
16. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties relating to the Employee's employment and supersedes
all oral or written prior discussions, agreements and understandings of every
nature between them. This Agreement may not be changed except by an agreement in
writing signed by the Company and the Employee.
17. Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or as be construed to be a waiver of any other provision or
subsequent breach of this Agreement.
18. Governing Law and Jurisdictional Agreement. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California.
19. Severability. In case any one or more of the provisions contained
in this Agreement is, for any reason, held invalid in any respect, such
invalidity shall not affect the validity of any other provision of this
Agreement, and such provision shall be deemed modified to the extent necessary
to make it enforceable.
20. Enforcement. It is agreed that it is impossible to measure fully,
in money, the damage which will accrue to the Company in the event of a breach
or threatened breach of Sections 5, 6, or 10 of this Agreement, and, in any
action or proceeding to enforce the provisions
9
<PAGE> 10
of Sections 5, 6 or 10 hereof, the Employee waives the claim or defense that the
Company has an adequate remedy at law and will not assert the claim or defense
that such a remedy at law exists. The Company is entitled to injunctive relief
to enforce the provisions of such sections as well as any and all other remedies
available to it at law or in equity without the posting of any bond. The
Employee agrees that if the Employee breaches any provision of Section 10, the
Company may recover as partial damages all profits realized by the Employee at
any time prior to such recovery on the exercise of any warrant, option or right
to purchase the Company's Common Stock and the subsequent sale of such stock,
and may also cancel all outstanding such warrants, options and rights.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
22. Due Authorization. The execution of this Agreement has been duly
authorized by the Company by all necessary corporate action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Employment Agreement as of the day and year set forth above.
WASTE CONNECTIONS, INC.,
a Delaware corporation
By: _______________________________
Printed Name: Ronald J. Mittelstaedt
Title: President
EMPLOYEE:
- --------------------
James Little
10
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Waste Connections of Idaho, Inc., a Delaware corporation
Waste Connections of Washington, Inc., a Washington corporation
Waste Connections of Wyoming, Inc., a Delaware corporation
Madera Disposal Systems, Inc., a California corporation
Sunshine Sanitation, Incorporated, a South Dakota corporation
Sowers' Sanitation, Inc., a South Dakota corporation
Waste Connections of Utah, Inc., a Delaware corporation
B&B Sanitation, Inc., an Oklahoma corporation
Red Carpet Landfill, Inc., an Oklahoma corporation
Darlin Equipment, Inc., an Oklahoma corporation
Arrow Sanitary Service, Inc., an Oregon corporation doing business as "Oregon
Paper Fiber"
Curry Transfer and Recycling, Inc., an Oregon corporation
Waste Connections International, Inc., a Washington corporation (wholly owned by
Waste Connections of Washington, Inc.)
Oregon Waste Technology, Inc., an Oregon corporation (wholly owned by Curry
Transfer and Recycling, Inc.)
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
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Waste Connections, Inc.
registration statements listed below of our report dated February 9, 2000, with
respect to the consolidated financial statements and schedule of Waste
Connections, Inc. and Predecessors included in the Annual Report (Form 10-K) for
the year ended December 31, 1999:
Registration Statement (Form S-8 No. 333-72113) pertaining to the First
Amended and Restated 1997 Stock Option Plan of Waste Connections, Inc.;
Registration Statement (Form S-8 No. 333-63407) pertaining to the 1997
Stock Option Plan of Waste Connections, Inc.;
Registration Statement (Form S-4 No. 333-65615);
Registration Statement (Form S-4 No. 333-83825);
Registration Statement (Form S-3 No. 333-87269); and,
Registration Statement (Form S-3 No. 333-87703).
ERNST & YOUNG LLP
Sacramento, California
March 9, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WASTE
CONNECTIONS, INC. AND PREDECESSORS 1999 AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,393
<SECURITIES> 0
<RECEIVABLES> 28,440
<ALLOWANCES> 1,333
<INVENTORY> 0
<CURRENT-ASSETS> 34,356
<PP&E> 334,762
<DEPRECIATION> (31,392)
<TOTAL-ASSETS> 617,294
<CURRENT-LIABILITIES> 44,086
<BONDS> 0
0
0
<COMMON> 211
<OTHER-SE> 218,328
<TOTAL-LIABILITY-AND-EQUITY> 617,294
<SALES> 182,618
<TOTAL-REVENUES> 182,618
<CGS> 0
<TOTAL-COSTS> 150,975
<OTHER-EXPENSES> 66
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,480
<INCOME-PRETAX> 20,097
<INCOME-TAX> 10,902
<INCOME-CONTINUING> 9,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,195
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.46
</TABLE>
