<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CAPITAL ENVIRONMENTAL RESOURCE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO, CANADA 4953 NOT APPLICABLE
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
1005 SKYVIEW DRIVE
BURLINGTON, ONTARIO, CANADA L7P 5B1
(905) 319-1237
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 246-5070
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID W. POLLAK, ESQ. MARC M. ROSSELL, ESQ.
MORGAN, LEWIS & BOCKIUS LLP SHEARMAN & STERLING
101 PARK AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10022
(212) 309-6058 (212) 848-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value 4,312,500 shares $15.00 $64,687,500 $17,983.13
</TABLE>
(1) Includes 562,500 shares of common stock to be sold upon exercise of the
Underwriters' over-allotment option, as well as all shares initially offered
and sold outside the United States that may be resold from time to time in
the United States. The shares are not being registered for the purpose of
sales outside the United States. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 3, 1999
3,750,000 Shares
[LOGO]
CAPITAL ENVIRONMENTAL RESOURCE INC.
Common Stock
------------------
We are selling 2,998,725 shares of common stock and selling shareholders are
selling 751,275 shares of common stock. We will not receive any proceeds from
shares of common stock sold by the selling shareholders.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $13.00 and
$15.00 per share. We have applied to list the common stock on the Nasdaq
National Market under the symbol "CERI."
We have granted the underwriters an option to purchase a maximum of 562,500
additional shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" starting on
page 9.
<TABLE>
<CAPTION>
Underwriting Proceeds to Proceeds to
Price to Discounts and Capital Selling
Public Commissions Environmental Shareholders
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total............................... $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Raymond James & Associates, Inc.
Sanders Morris Mundy
The date of this Prospectus is , 1999.
<PAGE>
Map of each of 3 geographic territories in which Capital Environmental conducts
its business
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO
DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS
NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS
IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 4
RISK FACTORS............................................................................................... 9
FORWARD-LOOKING STATEMENTS................................................................................. 14
USE OF PROCEEDS............................................................................................ 15
DIVIDEND POLICY............................................................................................ 15
EXCHANGE RATES............................................................................................. 15
DILUTION................................................................................................... 16
CAPITALIZATION............................................................................................. 17
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 20
BUSINESS................................................................................................... 29
MANAGEMENT................................................................................................. 49
CERTAIN TRANSACTIONS....................................................................................... 56
PRINCIPAL AND SELLING SHAREHOLDERS......................................................................... 58
DESCRIPTION OF CAPITAL STOCK............................................................................... 60
SHARES ELIGIBLE FOR FUTURE SALE............................................................................ 63
TAX CONSEQUENCES........................................................................................... 64
UNDERWRITING............................................................................................... 69
LEGAL MATTERS.............................................................................................. 71
EXPERTS.................................................................................................... 71
AVAILABLE INFORMATION...................................................................................... 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
UNTIL , 1999 ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
This prospectus contains registered service marks, trademarks and trade
names of Capital Environmental, including the Capital Environmental Resource
Inc. name and logo.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. IT MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
RISK FACTORS AND THE FINANCIAL STATEMENTS.
THROUGHOUT THIS PROSPECTUS, REFERENCES TO "DOLLARS" OR "$" MEAN U.S. DOLLARS
AND "C$" MEANS CANADIAN DOLLARS.
CAPITAL ENVIRONMENTAL
Capital Environmental is a regional, integrated solid waste services company
that provides collection, transfer, disposal and recycling services. Capital
Environmental was founded in May 1997 in order to take advantage of
consolidation opportunities in the solid waste industry in markets other than
major urban centers in Canada and the northern United States. We began
operations in June 1997 when we acquired selected solid waste assets and
operations in Canada from Canadian Waste Services Inc. and its parent, USA Waste
Services, Inc. Since commencing operations, we have acquired 26 solid waste
services businesses in Canada and the United States, including 27 collection
operations, eight transfer stations, six recycling processing facilities and a
contract to operate two landfills. Our consolidated operations presently serve
over 540,000 residential, commercial and industrial customers. For the year
ended December 31, 1998, 67.7% of our revenue was derived in Canada. Largely as
a result of our acquisitions, we believe that we have become one of the largest
solid waste services companies in Canada, and that we have significant
opportunities for further growth in both Canada and the northern United States.
We have seven service areas through which we currently serve 22 markets in
Canada and four markets in the United States. We believe that these 26 market
areas provide significant opportunities for growth because:
- there is a large number of private solid waste services companies suitable
for acquisition in these markets;
- there are generally fewer competing national solid waste services
companies in these markets;
- some of these markets have strong projected economic and population growth
rates;
- there is adequate disposal capacity available in these markets; and
- our senior management team has substantial knowledge of these markets.
In addition, we believe that the Canadian market is particularly attractive
for us. Following this offering, we expect that we will be the only Canadian
headquartered, publicly-traded acquirer of Canadian solid waste companies, and
the only publicly held company that has the Canadian solid waste market as a
focus of its strategy. Combined with our senior management's knowledge of the
Canadian market, we believe we will be an attractive acquirer when owners of
Canadian firms consider selling their businesses, and a viable alternative to
the large U.S.-based solid waste companies.
Our objective is to build a leading solid waste services company in the
markets of Canada and the northern United States other than major urban centers.
Our strategy for achieving this objective is to make acquisitions that
complement our business and to generate internal growth. We seek to acquire
businesses that either establish our market presence in new target markets or
expand our existing market presence. Our internal growth strategy is focused on
increasing our services to existing customers, winning new customers,
implementing selective price increases and achieving operating efficiencies.
In the markets in which we operate, we seek to secure arrangements for the
disposal of the solid waste we collect which allow us to maintain competitive
prices for our collection services. As a result of our strategy, for the month
ended December 31, 1998, we disposed of approximately 24.8% of the waste we
collected at privately owned or operated landfills and transfer stations
pursuant to long-term disposal agreements which we believe are at or below
market rates. Additionally, we disposed of
4
<PAGE>
approximately 41.2% of the solid waste we collected at municipally owned
landfills which generally charge the same disposal rates to all customers. We
disposed of approximately 14.5% of the waste we collected at our transfer
stations, from which the waste was transported to remote disposal sites where we
have favorable disposal contracts. Collectively, these three options accounted
for approximately 80.5% of the solid waste we collected. We disposed of the
remaining 19.5% at other third-party disposal sites.
Capital Environmental's corporate offices are located at 1005 Skyview Drive,
Burlington, Ontario, Canada L7P 5B1. Our telephone number is (905) 319-1237. Our
web site is http://www.capitalenvironmental.com.
RECENT DEVELOPMENTS
Since January 1, 1999, we have expanded and strengthened our market presence
in Ontario, British Columbia and the northern United States through the
acquisition of seven solid waste businesses. We have added two new market areas
and expanded our presence in five of our existing market areas. These seven
businesses collectively had annualized revenues of approximately $9.4 million in
1998.
RECENT ACQUISITIONS IN ONTARIO
On February 8, 1999, we acquired all of the shares of Can Pak Environmental
Inc. and Can Pak Waste Management Ltd. The Can Pak companies provide
residential, commercial and industrial waste collection and recycling services.
We are integrating Can Pak's operations into three of our existing market areas
in the Eastern Ontario and Central Ontario service areas: Scarborough, Lindsay
and Newmarket.
On March 1, 1999, we acquired all of the shares of Ram-Pak Compaction
Systems Ltd. From offices located in Central Ontario, Ram-Pak provides waste
collection management services to national companies in multiple locations in
Canada and sells and leases compactors. Prior to our acquisition, Ram-Pak
subcontracted its collection and disposal services for its national account
customers to some of our competitors. Some of these collection and disposal
services will be integrated into our existing operations. The compactor sales
and leasing business allows us to provide additional services to our customers
which are not available from many of our smaller competitors.
On March 8, 1999, we acquired all of the shares of Effective Waste
Management Services Inc. Effective Waste provides commercial and industrial
waste collection and recycling services. We are integrating Effective Waste into
our existing market area in Scarborough.
On April 21, 1999, we signed a definitive agreement to purchase all of the
shares of Premier Waste Systems Ltd. We completed this acquisition on April 30,
1999. Premier provides residential, commercial and industrial collection and
recycling services in our Hamilton market area and operates a transfer station
in Hamilton. Premier's operations will be integrated into our existing market
area in Hamilton.
RECENT ACQUISITION IN BRITISH COLUMBIA
On April 16, 1999, we acquired all of the shares of Excel Disposal Service
Ltd. Excel provides residential and commercial collection services in Vernon,
British Columbia. The Excel acquisition expanded our operations into a new
market near our Penticton operations.
RECENT ACQUISITIONS IN THE NORTHERN UNITED STATES
On February 1, 1999, we acquired the commercial, residential and industrial
waste collection business, including customer accounts and related assets, of
Clark Enterprises. The Clark Enterprises acquisition expanded our Central New
York/Pennsylvania service area into Watertown, New York, an area contiguous with
our Syracuse operations.
5
<PAGE>
On February 5, 1999, we acquired the residential and commercial collection
operations, including customer contracts, of Lossell Container Services and
Lycoming Solid Waste Disposal, Inc. This acquisition is being integrated into
our existing Williamsport, Pennsylvania operations.
FIRST THREE MONTHS OF 1999 COMPARED TO THE FIRST THREE MONTHS OF 1998
The following information is based on unaudited consolidated financial
information for the three months ended March 31, 1999 and 1998. The unaudited
financial information may not be indicative of our consolidated financial
information for the full year ending December 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1999
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Revenues............................................................... $ 11,965 $ 17,876
Expenses:
Cost of Operations..................................................... 8,145 12,012
Selling, general and administrative expenses........................... 1,787 2,338
Depreciation and amortization.......................................... 1,115 1,533
---------- ----------
Income from operations................................................. 918 1,993
Interest expense, net.................................................. 551 1,250
Income from continuing operations before income taxes.................. 367 743
Income tax provision................................................... 140 267
---------- ----------
Net Income............................................................. $ 227 $ 476
Basic net income per share............................................. $ 0.12 $ 0.19
---------- ----------
---------- ----------
Shares used in calculating basic net income per share.................. 1,922,396 2,447,680
---------- ----------
---------- ----------
Diluted net income per share........................................... $ 0.06 $ 0.11
---------- ----------
---------- ----------
Shares used in calculating diluted net income per share................ 3,756,513 4,358,406
---------- ----------
---------- ----------
EBITDA (Earnings before interest, taxes, depreciation and
amortization)........................................................ 2,033 3,526
</TABLE>
Revenues for the three months ended March 31, 1999 increased 49% to $17.9
million from $12.0 million in the same period in 1998. Income from operations
increased 117% to $2.0 million from $918,000 in the same period in 1998.
Net income for the three months ended March 31, 1999, increased 110% to
$476,000 from $227,000 in the same period in 1998. Fully diluted net income per
share was $0.11 compared to $0.06 in the first quarter of 1998.
The increase in revenues and net income is predominately the result of
numerous acquisitions made since the first quarter of 1998 and internal growth.
Working capital, long-term debt and equity were $3.5 million, $71.5 million
and $22.7 million at March 31, 1999, respectively. The equity figure includes
the redeemable stock. Capital expenditures during the three months ending March
31, 1999 were $2.0 million.
CREDIT FACILITY
We have pledged all of our assets, including the stock of our subsidiaries,
as collateral under our credit facility. On January 29, 1999, we amended our
credit facility to increase our available credit to $65.0 million from
approximately $44.3 million. In March 1999, we increased our available credit
under the facility to $70.0 million, of which approximately $59.4 million was
outstanding as of April 15, 1999. We use the credit facility for acquisitions,
capital expenditures, standby letters of credit and general corporate purposes.
In addition, the proceeds of our credit facility were used to repay a $14.7
million loan from Dresdner Bank Canada and to redeem common stock. This credit
facility terminates in January 2002, at which time the entire principal amount
will become due.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
Capital Environmental...................... 2,998,725 shares
The Selling Shareholders................... 751,275 shares
Total.................................... 3,750,000 shares
Common stock to be outstanding after this
offering................................... 6,885,479 shares (1)
Use of proceeds.............................. We intend to use the net proceeds of this
offering to repay indebtedness under our
credit facility. We will not receive any
proceeds from the sale of shares by the
selling shareholders in this offering.
Proposed Nasdaq National Market symbol....... CERI
</TABLE>
- ------------------------
(1) Excludes 618,804 shares of common stock issuable upon the exercise of
warrants and options outstanding as of April 15, 1999, at a weighted average
exercise price of C$10.35 ($6.94 at April 15, 1999) per share.
Unless otherwise specified, all financial information and share and per
share data in this prospectus:
- give effect to a 1.3847 for 1 stock split;
- assume no exercise of the underwriters' over-allotment option; and
- were determined in accordance with generally accepted accounting
principles in the United States.
As used in this prospectus, the term "Adjusted EBITDA" represents operating
income plus depreciation and amortization, start-up and integration costs and
absorption of acquisition and transition costs. Although not a measure of
financial performance under generally acceptable accounting principles, we have
included Adjusted EBITDA data because we believe that the data are commonly used
by investors to evaluate a company's performance in the solid waste industry.
Adjusted EBITDA, as measured by us, may not be comparable to similarly titled
measures reported by other companies. Adjusted EBITDA data should not be used as
a substitute for operating income, net income (loss) or cash flows from
operations in assessing Capital Environmental's operating performance, financial
position and cash flows. Funds described by the Adjusted EBITDA measure are not
available for our discretionary use due to required debt service and other
commitments or uncertainties. Adjusted EBITDA margin represents Adjusted EBITDA
expressed as a percentage of revenues.
For purposes of this prospectus, the "recapitalization" gives effect upon
the closing of this offering to the automatic conversion or reclassification
into common stock of all outstanding shares of redeemable convertible preference
stock, redeemable convertible class "B" special stock and redeemable common
stock. The "As Adjusted" column in the balance sheet gives effect to the sale of
the common stock offered in this prospectus by Capital Environmental at an
assumed offering price of $14.00 per share, the mid-point of the price range set
forth on the cover page of this prospectus, the application of the estimated net
proceeds from this offering, the recapitalization and the repurchase of 500,175
shares of redeemable common stock as if such events had occurred on December 31,
1998. See "Use of Proceeds" and "Capitalization."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL ENVIRONMENTAL
------------------------------------
PERIOD FROM
INCEPTION
(MAY 23, 1997)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ 15,089 $ 62,056
Cost of operations......................................................... 10,676 43,002
Selling, general and administrative expenses............................... 1,389 8,490
Depreciation and amortization.............................................. 1,154 4,890
Start-up and integration costs............................................. 270 602
Absorption of acquisition and transition costs(1).......................... 4,055 --
----------------- -----------------
Income (loss) from operations.............................................. (2,455) 5,072
Interest expense, net...................................................... (898) (3,139)
----------------- -----------------
Income (loss) before income taxes and minority interest.................... (3,353) 1,933
Income tax (provision) benefit............................................. 1,398 (740)
Minority interest.......................................................... (117) --
----------------- -----------------
Net income (loss).......................................................... $ (2,072) $ 1,193
----------------- -----------------
----------------- -----------------
Basic net income (loss) per share.......................................... $ (1.51) $ 0.52
----------------- -----------------
----------------- -----------------
Shares used in calculating basic net income (loss) per share............... 1,374,220 2,304,847
----------------- -----------------
----------------- -----------------
Diluted net income (loss) per share........................................ $ (1.51) $ 0.29
----------------- -----------------
----------------- -----------------
Shares used in calculating diluted net income per share.................... 1,374,220 4,174,172
----------------- -----------------
----------------- -----------------
OTHER DATA:
Net cash provided by operating activities.................................. $ 1,167 $ 2,708
Net cash used in investing activities...................................... (12,529) (36,185)
Net cash provided by financing activities.................................. 13,918 32,313
Adjusted EBITDA............................................................ 3,024 10,564
Adjusted EBITDA margin..................................................... 20.0% 17.0%
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash....................................................................... $ 1,060 $ 1,060
Working capital, including cash............................................ (994) (994)
Property and equipment, net................................................ 25,909 25,909
Total assets............................................................... 98,337 97,328
Long-term debt, net(2)..................................................... 54,589 22,979
Redeemable capital stock(3)................................................ 21,946 --
Total stockholders' equity................................................. 5,492 59,737
</TABLE>
- ------------------------
(1) Represents the absorption of acquisition and transition costs associated
with the acquisition of selected assets of Canadian Waste. See Note 2 of the
Notes to Capital Environmental's Consolidated Financial Statements.
(2) Excludes current portion of long-term debt. See Note 4 of the Notes to
Capital Environmental's consolidated financial statements.
(3) Redeemable capital stock includes redeemable convertible preference stock,
redeemable class "B" special stock and redeemable common stock. See
"Capitalization" and Note 7 of the Notes to Capital Environmental's
consolidated financial statements.
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING
OUR COMMON STOCK. OUR MOST SIGNIFICANT RISKS AND UNCERTAINTIES ARE DESCRIBED
BELOW; HOWEVER, THEY ARE NOT THE ONLY ONES WE FACE.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
RISKS SPECIFIC TO CAPITAL ENVIRONMENTAL'S GROWTH
Our growth strategy and profitability are dependent on expanding our
business through acquisitions and generating internal growth. If we are unable
to acquire and integrate new businesses, we will have lower than expected future
earnings, which could result in a decline in the market price of our common
stock. Our ability to carry out our growth strategy may be limited by a number
of factors, including:
WE HAVE A LIMITED OPERATING HISTORY AND IT MAY BE DIFFICULT TO SUSTAIN OUR
CURRENT LEVEL OF GROWTH.
Capital Environmental was formed on May 23, 1997, and commenced operations
on June 6, 1997. We may not be able to sustain the level of growth and the
financial results which we have achieved since our formation over a longer
period of time. We have only a limited operating history on which you may
evaluate our business, prospects and future operating results.
WE MAY BE UNABLE TO IDENTIFY SUITABLE ACQUISITION TARGETS, WHICH COULD LIMIT
OUR GROWTH.
In some of the markets where we operate, and particularly in the United
States, we compete for acquisition candidates with other companies, some of
which have greater financial resources than us. Increased competition for
acquisition candidates may result in fewer acquisition opportunities for us and
less attractive acquisition terms, including increased purchase prices which
could be beyond our financial capability. If we have fewer acquisition
opportunities, our growth could be limited.
WE MAY HAVE DIFFICULTY FINANCING OUR FUTURE ACQUISITIONS, WHICH COULD LIMIT
OUR GROWTH.
We expect to finance acquisitions through cash from operations, borrowings
under our credit facility and issuing shares of our common stock to sellers of
businesses. We may not be able to acquire additional businesses using stock as
payment, and using cash for acquisitions may reduce the funds we have available
for other corporate purposes. Borrowing more money from our banks may increase
our indebtedness to an unacceptable level or may cause us to agree to financial
covenants that limit our operational and financial flexibility. Under our credit
facility we will need the consent of 66 2/3% of the interests of our banking
syndicate for acquisitions where the purchase price exceeds the greater of $10.0
million or 10% of our total assets. Additionally, to the extent that we issue
shares of our common stock as payment for an acquisition, a material decline in
the market price of our common stock over a long period of time could make our
stock less attractive as payment for acquisitions.
WE MAY BE UNABLE TO INTEGRATE ACQUISITIONS, WHICH COULD DECREASE OUR
EARNINGS.
Our growth and future financial performance depend on our ability to
effectively combine the operations of acquired businesses into our existing
operations. The integration process may require changes in the operating methods
and strategies of acquired businesses. Additionally, the integration of acquired
businesses may divert management's attention from its day-to-day
responsibilities. We may also become responsible for liabilities of the acquired
businesses that we may not have discovered prior to their acquisition. Any
difficulties we encounter in the integration process could reduce the earnings
we generate from acquired businesses, which could cause a decline in the market
price of our common stock.
9
<PAGE>
WE MAY FIND IT DIFFICULT TO MANAGE RAPID GROWTH, WHICH COULD STRAIN OUR
MANAGEMENT, OPERATIONAL AND FINANCIAL RESOURCES.
As we carry out our acquisition strategy, we might experience periods of
rapid growth. Failure to expand our operational and financial systems and
controls, or to recruit and integrate appropriate personnel at a pace consistent
with any rapid growth we experience, would reduce our earnings, which could
cause a decline in the market price of our common stock. To manage our growth
effectively, we will need to continuously enhance our management information
systems and our operational and financial systems and controls. We will also
need to attract, train and retain additional senior managers, technical
professionals and other employees.
OUR EARNINGS MAY BE REDUCED BY INCREASING GOODWILL AMORTIZATION COSTS.
An important part of our strategy is to grow through acquisitions. We may
pay significant amounts for goodwill of the businesses we acquire. Goodwill is
the amount paid for a business in excess of the fair value of its other net
assets. At December 31, 1998, approximately 55% of the assets on our balance
sheet were goodwill. As the amount of goodwill we carry on our balance sheet
increases, we will have to charge increasing amortization costs against our
income, which will reduce our earnings.
Our policy is to amortize goodwill over 40 years. We have selected this
number of years because we believe that the goodwill acquired will endure for at
least 40 years. The Financial Accounting Standards Board is considering
substantially shortening the period of time over which goodwill may be
amortized. If this were adopted, we would have to charge larger amounts of
amortization against our income in each year which would reduce our earnings.
RISKS RELATED TO CAPITAL ENVIRONMENTAL'S COMPETITION
THE COMPETITION WE FACE FROM BOTH LARGE AND SMALL SOLID WASTE SERVICES
COMPANIES MAY RESULT IN LOST REVENUES.
The solid waste services industry in Canada and the northern United States
is highly competitive and fragmented and requires substantial labor and capital
resources. We compete with large, national solid waste services companies, as
well as smaller regional solid waste services companies of varying sizes and
resources, some of which are better capitalized, have greater name recognition
or are able to provide services at a lower cost than us. We also compete with
counties, municipalities and solid waste districts that maintain their own waste
collection and disposal operations. Public sector operators may have financial
advantages over us because of their access to user fees and similar charges, tax
revenues and tax-exempt financing.
We derive a portion of our revenue from exclusive municipal contracts that
require competitive bidding by potential service providers. In the future, we
intend to bid on additional municipal contracts and to rebid on existing
municipal contracts, but our bids may not succeed. In addition, our
non-municipal contracts generally have a term of three years or less and some of
our contracts permit our customers to terminate them before the end of the
contract term. If we were unable to replace revenues from contracts lost through
competitive bidding or early termination within a reasonable time period, the
lost revenues could reduce our earnings and result in a decline in the market
price of our common stock.
WE DEPEND ON THIRD PARTIES FOR DISPOSAL, WHICH COULD DECREASE OUR EARNINGS
IF THESE THIRD PARTIES INCREASE THEIR DISPOSAL RATES AND WE CANNOT PASS THESE
INCREASES ON TO OUR CUSTOMERS.
To the extent we depend on third parties for disposal of our solid waste, we
may be subject to cost increases which we cannot control or pass on to our
customers. We deliver a substantial portion of the solid waste we collect to
privately owned or operated disposal facilities under long-term contracts and to
municipally owned disposal facilities. If municipalities increase their disposal
rates or if we cannot
10
<PAGE>
extend our favorable long-term contracts with private owners or operators, we
might incur significant costs.
RISKS RELATED TO CAPITAL ENVIRONMENTAL'S OPERATIONS
THE LOSS OF KEY PERSONNEL COULD HARM THE IMPLEMENTATION OF OUR OPERATING AND
GROWTH STRATEGIES.
We depend on our recently assembled senior management team for implementing
our operating and growth strategies. The loss of one or more of our senior
management team could adversely affect our business because these individuals
have unique knowledge and experience in the solid waste industry. We maintain
C$3.0 million of key person life insurance on each of our Chairman and Chief
Executive Officer, and our President and Chief Operating Officer.
WE MAY BE AFFECTED BY FOREIGN EXCHANGE RATE FLUCTUATIONS WHICH COULD AFFECT
EARNINGS GENERATED BY OUR CANADIAN OPERATIONS.
For the year ended December 31, 1998, 67.7% of our revenue was derived from
our operations in Canada. All of our Canadian revenue and a substantial majority
of our Canadian expenditures are transacted in Canadian dollars. Since we report
our results in U.S. dollars, our revenue, expenses and earnings generated by our
Canadian operations will be negatively affected if the value of the Canadian
dollar declines compared to the U.S. dollar.
WE MAY BE UNABLE TO SECURE SOME CONTRACTS AND PERMITS IF WE CANNOT OBTAIN
PERFORMANCE BONDS, LETTERS OF CREDIT AND INSURANCE.
Municipal solid waste services contracts and permits to operate transfer
stations and recycling facilities typically require us to obtain performance
bonds, letters of credit or other means of financial assurance to secure our
contractual performance. Our failure to obtain means of financial assurance or
adequate insurance coverage could prevent us from obtaining or maintaining
contracts or permits that require them. Losses of permits or contracts, if not
replaced, would reduce our earnings, which could result in a decline in the
price of our common stock. Obtaining performance bonds or letters of credit is
dependent on our creditworthiness. In the future, if we are unable to obtain
performance bonds or letters of credit in sufficient amounts or at acceptable
rates or to maintain existing performance bonds or letters of credit, we might
be unable to enter into additional or continue existing municipal contracts or
to obtain or retain operating permits. In the future, if we cannot obtain
appropriate insurance, we may be unable to secure contracts conditioned on the
adequacy of our insurance coverage.
WASTE REDUCTION PROGRAMS MAY REDUCE THE VOLUME OF WASTE AVAILABLE FOR
COLLECTION.
Waste reduction programs may reduce the volume of waste available for
collection in some areas where we operate and therefore our revenue in those
areas. This loss of revenue, if not replaced, could result in lower earnings and
a decline in the market price of our common stock. Some areas in which we
operate offer alternatives to landfill disposal, such as recycling, composting
and incineration. In addition, state, provincial and local authorities
increasingly mandate recycling and waste reduction at the source and prohibit
the disposal of certain types of wastes, such as yard wastes, at landfills.
WE MAY BE SUBJECT TO LIMITATIONS ON LANDFILL PERMITTING AND EXPANSION.
We may not be able to obtain or expand landfill sites or enter into
agreements which will give us long-term access to landfill sites in our markets.
The resulting increased costs could reduce our earnings and result in a decline
in the market price of our common stock. We do not currently own landfills. We
operate two landfills under an agreement with a Canadian municipality which
holds the permits for the landfills. However, our ability to meet our growth
objectives may depend in part on our ability to acquire, lease or expand
landfills, develop new landfill sites or enter into agreements which will give
us long-term access to landfill sites in our markets. In some areas in which we
operate,
11
<PAGE>
suitable land for new sites or expansion of existing landfill sites may be
unavailable. Permits to expand landfills are often not approved until the
remaining permitted disposal capacity of a landfill is very low. If we were to
exhaust our permitted capacity at a landfill, our ability to expand internally
could be limited, and we could be required to cap and close that landfill and
forced to dispose of collected waste at more distant landfills or at landfills
operated by our competitors or other third parties.
WE MAY BECOME LIABLE FOR LANDFILL CLOSING COSTS.
We currently own no landfills, we do operate two landfills and our growth
strategy includes acquiring landfills and additional contracts to operate
landfills in some markets. If we own landfills, we will have material financial
obligations to pay closure and post-closure costs. Operating contracts may also
require us to pay all, or some part of, closure and post closure costs. Our
obligations to pay closure or post-closure costs for landfills that we may
acquire could exceed our reserves or accruals for these costs. This could reduce
our earnings in the future which could result in a decline in the market price
of our common stock.
WE ARE SUBJECT TO CHANGING ENVIRONMENTAL REGULATION, WHICH MAY MAKE IT
DIFFICULT FOR US TO OBTAIN OR MAINTAIN THE PERMITS AND APPROVALS WE NEED TO
OPERATE.
We are subject to evolving environmental and land use laws and regulations
in Canada and the United States. The enactment of additional regulations or the
more stringent enforcement of existing regulations could materially and
adversely affect our business and financial condition. To own and operate solid
waste facilities, we must obtain and maintain licenses or permits, as well as
zoning, environmental and/or other land use approvals. It has become
increasingly difficult, costly and time-consuming to obtain required permits and
approvals to build, operate and expand solid waste management facilities,
including landfills and transfer stations. The process often takes several
years, requires numerous hearings and compliance with zoning, environmental and
other requirements and is resisted by citizen, public interest or other groups.
We may not be able to obtain and maintain the permits and approvals we need to
own, operate or expand solid waste facilities. Canada and the United States
impose stringent controls on the design, operation, closure and post-closure
care of solid waste facilities, which could require us to undertake
investigatory or remedial activities, curtail operations or close a facility
temporarily or permanently. In the future, we may be required to modify,
supplement or replace equipment or facilities at substantial costs.
WE MAY HAVE POTENTIAL ENVIRONMENTAL LIABILITY, WHICH MAY RESULT IN
SUBSTANTIAL COSTS TO US.
We are subject to liability for environmental damage at solid waste
facilities that we own or operate, including damage to neighboring landowners or
residents, particularly as a result of the contamination of soil, groundwater or
surface water, and especially drinking water and the costs of this liability can
be very substantial. Our potential liability may include damage resulting from
conditions existing before we purchased or operated these facilities. We may
also be subject to liability for any off-site environmental contamination caused
by pollutants or hazardous substances that we or our predecessors arranged to
transport, treat or dispose of at other locations.
In addition, we may be held legally responsible for liabilities as a
successor owner of businesses that we acquire or have acquired. These businesses
may have liabilities that we fail or are unable to discover, including
liabilities arising from noncompliance with environmental laws by prior owners.
Our insurance program may not cover all liabilities associated with
environmental cleanup or remediation. An uninsured claim against us, if
successful and of sufficient magnitude, could increase our costs and liabilities
to an unacceptable level.
12
<PAGE>
WE MAY FACE YEAR 2000 RISKS, WHICH MAY RESULT IN UNEXPECTED EXPENSES AND
DELAYS IN PAYMENT FOR OUR SERVICES AND IN OUR ABILITY TO CONDUCT NORMAL BANKING
OPERATIONS.
Some computer systems or software used by many companies may be unable to
distinguish 21st century dates from 20th century dates. As a result, beginning
on January 1, 2000, computer systems and software used by many companies in a
wide variety of industries will produce erroneous results or fail unless they
have been modified or upgraded to process date information correctly.
We believe our most significant Year 2000 risk lies with our banks and major
vendors and customers. If these third parties do not complete their Year 2000
modifications on time, we could experience unanticipated expenses and delays,
including delays in payment for our services and delays in our ability to
conduct normal banking operations. We do not currently have a contingency plan
to minimize operational problems if these third parties fail to complete their
Year 2000 modifications. However, we are requesting Year 2000 compliance
certifications from our banks, major vendors and large and municipal customers,
although there can be no assurance that we will receive all requested
certifications.
Internally, we have conducted a review of our computer systems to identify
the systems, if any, that could be affected by the Year 2000 issue. Because our
operations rely primarily on mechanical systems such as trucks to collect solid
waste, we do not expect our operations to be significantly affected by the Year
2000 issue. However, we use computer systems and software for accounting,
billing and truck routing purposes. We have obtained Year 2000 compliance
certifications from manufacturers of our main computer systems and software.
RISKS RELATED TO THIS OFFERING
AFTER THIS OFFERING, EXISTING STOCKHOLDERS WILL OWN A SIGNIFICANT PERCENTAGE
OF OUR COMMON STOCK.
After this offering, our officers, directors and existing stockholders will
together own 45.5% of our outstanding common stock, or 42.1% if the underwriters
exercise their over-allotment option. As a result, these stockholders, if they
act together, may be able to influence our management and affairs and all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing a change in control of Capital
Environmental. In addition, because our common stock is owned by fewer people,
it may be less liquid. This lack of liquidity could depress the market price of
our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our existing stockholders sell a large number of shares, the market price
of our common stock could decline significantly. Moreover, the perception in the
public market that these stockholders might sell shares of common stock could
depress the market price of the common stock.
Immediately after this offering, the public market for our common stock will
include only the 3,750,000 shares that are being sold in this offering. At that
time, there will be an additional 3,135,479 shares of common stock outstanding.
All of our 3,135,479 additional shares held by our existing stockholders,
and the outstanding options and warrants to acquire 618,804 common shares are
subject to "lock-up" agreements with the representatives of the underwriters.
When the 180-day "lock-up" period expires, or earlier with the consent of Credit
Suisse First Boston, the owners of these shares will be able to sell them in the
public market, subject to limitations of the securities laws.
The majority of the holders of 2,580,441 shares of common stock and 123,084
warrants, have the right to force us to register their shares of common stock
with the Securities and Exchange
13
<PAGE>
Commission on two occasions after the expiration of the lock-up. The right to
force us to register their shares of common stock expires on the date when the
holders of two-thirds of the 2,580,441 shares of common stock and 123,084
warrants have disposed of their shares in registered transactions or may, under
Rule 144, immediately dispose of their shares. If we register their shares of
common stock, they can sell those shares in the public market.
After this offering, we intend to initially register 15%, or approximately
1,000,000 shares, of the total outstanding shares of our common stock that we
have issued or may issue under our stock option plans. If we increase our total
outstanding shares of common stock, we will register additional shares so that
the stock available for issuance under our stock option plans will be
registered. Once we register these shares, they can be sold in the public market
upon issuance, subject to vesting provisions.
After this offering and before the 180-day "lock-up" period expires, we
intend to register an additional 2,600,000 shares of common stock that we may
issue in connection with future acquisitions. These shares, if issued within 180
days of the date of this prospectus, will be subject to lock-up agreements, by
which the holders will agree not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any of these shares within the
180-day period following the date of this prospectus.
YOU WILL BE IMMEDIATELY AND SUBSTANTIALLY DILUTED.
If you purchase shares of the common stock in this offering, you will
experience immediate and substantial dilution of $13.17 per share, based upon an
assumed initial offering price of $14.00 per share, the mid-point of the price
range set forth on the cover page of this prospectus, because the price you pay
will be substantially greater than the net tangible book value per share of
$0.83 for the shares you acquire. This dilution is due in large part to the fact
that prior investors in Capital Environmental paid an average price of $6.28 per
share when they purchased their shares of common stock, which is substantially
less than the initial public offering price, as well as the fact that a
considerable portion of our assets are intangible assets.
IT MAY BE DIFFICULT TO BRING AND ENFORCE SUITS AGAINST US.
Capital Environmental is a corporation incorporated in the province of
Ontario under the Business Corporations Act (Ontario). A majority of our
directors must be residents of Canada, and all or a substantial portion of their
assets are located outside of the United States. In addition, a substantial
portion of our assets are located in Canada. As a result, it may be difficult
for our stockholders to serve notice of a lawsuit on Capital Environmental or
our non-U.S. directors within the United States. Because many of our assets are
located in Canada, it may be difficult for our stockholders to enforce in the
United States judgments of United States courts. Tory Tory DesLauriers &
Binnington, our Canadian counsel, has advised us that Canadian courts, for
example, have in the past refused to enforce a judgment based solely on United
States federal securities laws on the grounds, among others, that those laws had
no extraterritorial effect or are penal in nature. Accordingly, our Canadian
counsel advises that there is some doubt whether an action of this type could be
brought successfully in a Canadian court.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements are found in
the material set forth under the headings "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in this prospectus generally. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of various factors, including the risks described in this
prospectus.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the 2,998,725
shares of common stock offered by Capital Environmental through this prospectus,
after deducting underwriting discounts and commissions and estimated offering
expenses, of $37.5 million, or $44.8 million if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of
$14.00 per share, the mid-point of the offering range set forth on the cover
page of this prospectus. Capital Environmental will not receive any proceeds
from the sale of shares of common stock in this offering by the selling
shareholders.
We intend to use the net proceeds to repay a portion of the outstanding
indebtedness under our credit facility. Our credit facility provides for
borrowing capacity of up to $70.0 million, of which approximately $59.4 million
was outstanding as of April 15, 1999. Of this outstanding amount, $23.5 million
consisted of U.S. dollar loans bearing interest at 7.5% and $35.9 million
consisted of Canadian dollar loans bearing interest at 7.6%. Our credit facility
will terminate in January 2002 at which time its entire principal amount will
become due. The credit facility is used for acquisitions of businesses in the
solid waste services industry that meet our acquisition criteria. While we
continuously and actively evaluate acquisition candidates, we are not presently
negotiating any probable acquisitions. In addition, the proceeds of our credit
facility are used for capital expenditures, standby letter of credit and general
corporate purposes. The proceeds of our credit facility were used to repay a
$14.7 million loan from Dresdner Bank Canada and to redeem common stock. The
terms of our credit facility permit us, subject to some restrictions, to redraw
on the facility for future acquisitions, capital expenditures and general
corporate purposes. The repayment of our debt under the credit facility using
the proceeds of this offering may be temporary and we do not expect any
permanent decrease in our interest expense in the near future.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. Our Board
of Directors currently intends to retain any earnings for use in the operation
and expansion of our business and does not anticipate paying any dividends on
the common stock for the foreseeable future. Additionally, our credit facility
restricts our ability to pay cash dividends on our common stock.
EXCHANGE RATES
The following table sets forth:
- the rates of exchange for Canadian dollars, expressed in U.S. dollars, in
effect at the end of each of the periods indicated;
- the average of exchange rates in effect on the last day of each month
during these periods; and
- the high and low exchange rates during these periods, in each case based
on the noon buying rate in New York City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of
New York.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
Rate at End of Year........................................ $ 0.7143 $ 0.7353 $ 0.7299 $ 0.6991 $ 0.6504
Average Rate during Year................................... 0.7299 0.7299 0.7353 0.7223 0.6740
High....................................................... 0.7642 0.7533 0.7526 0.7493 0.7105
Low........................................................ 0.7097 0.7009 0.7212 0.6945 0.6341
</TABLE>
On April 15, 1999, the noon buying rate for Canadian dollars was $0.6709=C$1.00
15
<PAGE>
DILUTION
The net tangible book deficit of our common stock, excluding the redeemable
common stock, as of December 31, 1998 was $(53.0) million, or $(26.60) per
share. After giving effect to our sale of 2,998,725 shares of common stock
offered by Capital Environmental through this prospectus at the assumed initial
public offering price of $14.00 per share, the mid-point of the range set forth
on the cover page of this prospectus, and application of the estimated net
proceeds therefrom, and before deducting the underwriting discounts and
estimated offering expenses payable by us, our net tangible book deficit as
adjusted as of December 31, 1998 would have been $5.7 million, or $0.83 per
share. The adjusted book value also gives effect to the recapitalization and the
repurchase of 500,175 shares of redeemable common stock, which will occur upon
the closing of this offering. This represents an immediate increase in net
tangible book value as adjusted of $27.43 per share to existing stockholders,
and an immediate dilution in net tangible book value as adjusted of $13.17 per
share to new investors purchasing shares of common stock in this offering.
The following table illustrates the per share dilution as described above:
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $ 14.00
Net tangible book deficit before this offering.......... $ (26.60)
Increase attributable to recapitalization............... 17.22
Increase attributable to new investors.................. 10.21
---------
Net tangible book value as adjusted after this offering... 0.83
---------
Dilution to new investors................................. $ 13.17
---------
---------
</TABLE>
These calculations do not include shares reserved for issuance upon the
exercise of stock options and warrants.
If the underwriters exercise their over-allotment option in full, the net
tangible book value as adjusted would be $1.83 per share, resulting in dilution
to new investors purchasing shares in the offering of $12.17 per share.
The following table sets forth, as of December 31, 1998, the number of
shares of common stock issued by Capital Environmental, reflecting the
reclassification of 280,240 shares of redeemable common stock into 280,240
shares of common stock, the conversion of 400,000 shares of redeemable
convertible class "B" special stock into 484,645 shares of common stock and the
conversion of 8,000 shares of convertible preference stock to 1,107,750 shares
of common stock. The table shows the total consideration paid and the average
price per share paid by existing stockholders and by new investors purchasing
shares of common stock in this offering, assuming an initial public offering
price of $14.00 per share, the mid-point of the range set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)..................... 3,866,393 56.3% $ 24,272,000 36.6% $ 6.28
New investors................................. 2,998,725 43.7 41,982,000 63.4 $ 14.00
---------- ----- ------------- -----
Total..................................... 6,865,118 100.0% 66,254,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Sales by the selling shareholders in this offering will reduce the number of
shares of common stock held by existing shareholders to 3,115,118 shares or
approximately 45.4% (approximately 41.9% if the underwriters' over-allotment
option is exercised in full) of the total number of shares of common stock
outstanding after this offering.
As of April 15, 1999, we had outstanding warrants and stock options
exercisable for 618,804 shares of common stock at a weighted average exercise
price of C$10.35 per share ($6.94 at April 15, 1999). We may issue additional
shares to effect future business acquisitions or upon exercise of stock options
granted in the future or other equity awards, which could result in additional
dilution to then existing stockholders. See "Management--Executive
Compensation--Stock Options," "--1997 Stock Option Plan" and "--1999 Stock
Option Plan."
16
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Capital
Environmental at December 31, 1998 and the capitalization of Capital
Environmental at December 31, 1998, as adjusted. This table should be read in
conjunction with our consolidated financial statements and notes which are
included elsewhere in this prospectus. See "Use of Proceeds" and "Description of
Capital Stock."
For purposes of this table:
- the "As Adjusted" column gives effect to the repurchase for $6.9 million
of 500,175 shares of redeemable common stock with an ascribed value of
$5.2 million;
- the "As Further Adjusted" column gives effect to the sale of the common
stock offered in this prospectus, at an assumed offering price of $14.00
per share, the mid-point of the price range set forth on the cover page of
this prospectus, the application of estimated net proceeds, after
deducting underwriting discounts and commissions and estimated offering
expenses, and the recapitalization as defined elsewhere in this
prospectus;
- the entire net proceeds raised have been applied to reduce outstanding
indebtedness under our credit facility; and
- the common stock shown under "Stockholders' Equity" excludes 632,652
shares issuable on the exercise of warrants and options outstanding at
December 31, 1998 at a weighted average exercise price of C$10.52, or
$6.84 at December 31, 1998, per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
<S> <C> <C> <C>
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
--------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations..................................... $ 3,899 $ 2,201 $ 2,201
--------- ----------- -----------
--------- ----------- -----------
Long-term obligations, net:
Senior debt................................................................ $ 41,701 $ 48,601 $ 10,091
Subordinated debt.......................................................... 10,720 10,720 10,720
Other...................................................................... 2,168 2,168 2,168
Redeemable convertible preference stock, unlimited shares authorized; 8,000
shares issued and outstanding actual; 8,000 shares issued and outstanding
as adjusted; no shares issued and outstanding as further adjusted........ 5,748 5,748 --
Redeemable convertible class "B" special stock, 400,000 shares authorized;
400,000 shares issued and outstanding actual; 400,000 shares issued and
outstanding as adjusted; no shares issued and outstanding as further
adjusted................................................................. 7,455 7,455 --
Redeemable common stock, 780,415 shares issued and outstanding actual;
280,240 shares issued and outstanding as adjusted; no shares issued and
outstanding as further adjusted.......................................... 8,743 3,541 --
Stockholders' equity:
Common stock, unlimited shares authorized; 1,993,758 issued and
outstanding actual; 1,993,758 shares issued and outstanding as
adjusted; 6,865,118 shares issued and outstanding as further
adjusted............................................................... 7,528 7,528 61,773
Accumulated comprehensive loss........................................... (1,157) (1,157) (1,157)
Accumulated deficit...................................................... (879) (879) (879)
--------- ----------- -----------
Total stockholders' equity............................................. 5,492 5,492 59,737
--------- ----------- -----------
Total capitalization................................................... $ 82,027 $ 83,725 $ 82,716
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated statements of operations
and balance sheet data of Capital Environmental and our predecessor, Western
Waste Services Inc., for the periods indicated. The financial data for the
periods ended October 31, 1995, October 31, 1996 and June 5, 1997 has been
derived from Western Waste's audited consolidated financial statements included
elsewhere in this prospectus. The financial data as of December 31, 1997 and
December 31, 1998 and for the period ended December 31, 1997 and the year ended
December 31, 1998 has been derived from Capital Environmental's audited
consolidated financial statements included elsewhere in this prospectus.
You should read the selected consolidated financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Capital Environmental's consolidated financial
statements and notes thereto, and the consolidated financial statements and
notes thereto of Western Waste included elsewhere in this prospectus.
The "As Adjusted" column in the balance sheet data is adjusted to give
effect to the sale of the common stock offered by Capital Environmental in this
prospectus, assuming an initial public offering price of $14.00 per share, the
mid-point of the price range set forth on the cover page of this prospectus, the
application of the estimated net proceeds from this offering, the
recapitalization and the repurchase of 500,175 shares of redeemable common
stock, as if these events had occurred on December 31, 1998. See "Use of
Proceeds" and "Capitalization." The redeemable capital stock includes redeemable
convertible preference stock, redeemable class "B" special stock, and redeemable
common stock. See "Capitalization."
<TABLE>
<CAPTION>
WESTERN WASTE CAPITAL ENVIRONMENTAL
------------------------------------------------- ------------------------------------
PERIOD FROM PERIOD FROM
INCEPTION YEAR PERIOD FROM INCEPTION
(NOVEMBER 22, ENDED NOVEMBER 1, (MAY 23, 1997) YEAR
1994) THROUGH OCTOBER 31, 1996 THROUGH THROUGH ENDED
OCTOBER 31, 1995 1996 JUNE 5, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- --------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues................. $ 1,018 $ 7,421 $ 5,680 $ 15,089 $ 62,056
Cost of operations....... 560 5,257 3,472 10,676 43,002
Selling, general and
administrative
expenses............... 419 2,017 1,658 1,389 8,490
Depreciation and
amortization........... 115 741 612 1,154 4,890
Start-up and integration
costs.................. -- -- -- 270 602
Absorption of acquisition
and transition
costs(1)............... -- -- -- 4,055 --
------ --------------- ------------- ----------------- -----------------
Income (loss) from
operations............. (76) (594) (62) (2,455) 5,072
Interest (expense)
income, net............ 10 (8) (176) (898) (3,139)
------ --------------- ------------- ----------------- -----------------
Income (loss) before
income taxes and
minority interest...... (66) (602) (238) (3,353) 1,933
Income tax (provision)
benefit................ (190) (508) (573) 1,398 (740)
Minority interest........ -- -- -- (117) --
------ --------------- ------------- ----------------- -----------------
Net income (loss)........ $ (256) $ (1,110) $ (811) $ (2,072) $ 1,193
------ --------------- ------------- ----------------- -----------------
------ --------------- ------------- ----------------- -----------------
Basic net income (loss)
per share.............. $ (1.51) $ 0.52
----------------- -----------------
----------------- -----------------
Shares used in
calculating basic net
income (loss) per
share.................. 1,374,220 2,304,847
Diluted net income (loss)
per share.............. $ (1.51) $ 0.29
----------------- -----------------
----------------- -----------------
Shares used in
calculating diluted net
income (loss) per
share.................. 1,374,220 4,174,172
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
WESTERN WASTE CAPITAL ENVIRONMENTAL
------------------------------------------------- ------------------------------------
PERIOD FROM PERIOD FROM
INCEPTION YEAR PERIOD FROM INCEPTION
(NOVEMBER 22, ENDED NOVEMBER 1, (MAY 23, 1997) YEAR
1994) THROUGH OCTOBER 31, 1996 THROUGH THROUGH ENDED
OCTOBER 31, 1995 1996 JUNE 5, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- --------------- ------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by
(used in) operating
activities............. $ 257 $ 256 $ (556) $ 1,167 $ 2,708
Net cash used in
investing activities... (2,396) (10,974) (1,189) (12,529) (36,185)
Net cash provided by
financing activities... 6,485 6,861 2,759 13,918 32,313
Adjusted EBITDA.......... 39 147 550 3,024 10,564
Adjusted EBITDA margin... 3.8% 2.0% 9.7% 20.0% 17.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
AS OF
DECEMBER 31, ------------------------
1997 ACTUAL AS ADJUSTED
------------- --------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash......................................................................... $ 2,473 $ 1,060 $ 1,060
Working capital, including cash.............................................. 2,475 (994) (994)
Property and equipment, net.................................................. 19,174 25,909 25,909
Total assets................................................................. 50,495 98,337 97,328
Long-term debt, net(2)....................................................... 29,022 54,589 22,979
Redeemable capital stock..................................................... 13,203 21,946 --
Total stockholders' equity................................................... (1,424) 5,492 59,737
</TABLE>
- ------------------------------
(1) Represents the absorption of acquisition and transition costs associated
with the acquisition of selected assets of Canadian Waste. See Note 2 of the
Notes to Capital Environmental's Consolidated Financial Statements.
(2) Excludes current portion of long-term debt. See Note 4 of the Notes to
Capital Environmental's Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION IN CONJUNCTION WITH CAPITAL ENVIRONMENTAL'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF OUR PREDECESSOR, WESTERN WASTE, AND
OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING WITHOUT
LIMITATION THOSE SET FORTH IN "RISK FACTORS" AND THE MATTERS SET FORTH IN THIS
PROSPECTUS GENERALLY.
BACKGROUND INFORMATION ON OUR HISTORY AND GROWTH
Capital Environmental is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets in Canada in the provinces of Ontario, Alberta and British
Columbia, and in the northern United States in the states of New York and
Pennsylvania. As of December 31, 1998, we served more than 540,000 commercial,
industrial and residential customers. Since commencing operations, we have
acquired 27 collection operations, eight transfer stations, six recycling
processing facilities and a contract to operate two landfills.
Capital Environmental was incorporated on May 23, 1997. On June 6, 1997, we
purchased selected assets located in Ontario, Alberta and British Columbia from
Canadian Waste Services Inc., and acquired 50% of the outstanding shares of
common stock of Western Waste from USA Waste Inc. We have experienced
substantial growth since our formation which has affected our financial results
in several significant ways, including the following:
SUBSTANTIAL GROWTH FROM ACQUISITIONS. Since commencing operations, we
have acquired 26 solid waste services businesses in Canada and the United
States. All of these acquisitions were and will be accounted for under the
purchase method of accounting. Accordingly, these acquisitions have given
rise to significant increases in goodwill on our balance sheet and increased
amortization expense on our statement of operations. Further, as purchase
transactions, we have recognized revenues and earnings from the date of
acquisition. As a result, we believe that period-to-period comparisons of
our historical operating results are not necessarily indicative of what our
results would have been had these acquisitions occurred at the beginning of
the periods presented.
MANAGEMENT CAPABILITIES. Since our formation, we have assembled a
management team with substantial experience in the solid waste industry. We
believe that our management team has the ability to manage our operations as
they expand. Therefore, we believe that the amount of selling, general and
administrative expenses is likely to decline as a percentage of revenues as
we grow.
FORMATION RELATED CHARGES. In connection with the acquisition of
selected assets of Canadian Waste in June 1997 and other formation related
activities, we have expensed certain start-up, integration and organization
costs. We also incurred $4.1 million of expense during the year ended
December 31, 1997 for the absorption of acquisition and transition costs.
These costs represent amounts paid to Canadian Waste for a list of customers
which we could solicit to provide selected services. We also received
transition services and the right to share use of some Canadian Waste
facilities during a transition period which expired December 31, 1997. We
believe that these formation-related charges will not have a material impact
on our financial statements in the future.
MINORITY INTEREST. Following our original acquisition of shares of
Western Waste, we purchased an additional 16.7% interest in Western Waste
and on November 1, 1997, we purchased the remaining 33.3% interest in
Western Waste, giving us a 100% ownership stake in Western Waste.
20
<PAGE>
As a result, no minority interest has been included in our consolidated
statement of operations for the periods from November 1, 1997 to December
31, 1998.
CAPITAL ENVIRONMENTAL'S ACCOUNTING POLICIES
REVENUES. Capital Environmental's revenues are attributable primarily to
fees charged to customers for solid waste collection, transfer, recycling
services and management of landfills. We derive a substantial portion of our
collection revenues from commercial, industrial and residential services, which
are frequently performed under contracts with municipalities or pursuant to
service agreements with businesses or subscription arrangements with homeowners.
See "Business." Revenues for the year ended December 31, 1998 were attributable
to the following services:
<TABLE>
<S> <C>
Commercial and industrial collection................................. 60.0%
Residential collection............................................... 19.1
Commercial and residential recycling................................. 1.6
Transfer station..................................................... 8.0
Contract management and other specialized services................... 11.3
---------
---------
Total............................................................ 100.0%
</TABLE>
Contract management revenue is generated from exclusive contracts to provide
comprehensive waste management services to large companies on a national or
regional basis. Revenues from the management of landfills are included in
residential collection revenue. We do not own any landfills and, therefore, have
not generated disposal revenues.
Our prices for collection services are typically determined by the 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. Our ability to pass on price increases is
sometimes limited by the terms of our contracts. Our long-term solid waste
collection contracts with municipalities typically contain a formula, generally
based on a predetermined published price index, for automatic adjustment of fees
to cover increases in some, but not all, operating costs plus a pass-through of
any disposal costs increases.
EXPENSES. Cost of operations include labor, fuel, equipment maintenance,
tipping fees paid to third-party disposal facilities, worker's compensation and
vehicle insurance, the cost of materials purchased to be recycled, subcontractor
expense and local, state or provincial taxes. We own and operate eight transfer
stations, which reduce our costs by improving utilization of collection
personnel and equipment and by consolidating the waste stream to gain access to
remote landfills with lower disposal rates. We have obtained long-term disposal
agreements in some of our markets which we believe are at or below market
disposal rates. There can be no assurance that these contracts can be renewed on
favorable terms. In the northern United States and Canada, we provide waste
collection and recycling services to several industrial, commercial and
institutional customers on a national or regional basis. These clients are
serviced in part through subcontractors. Subcontracting costs are included in
cost of operations and operating margins on contract management accounts are
lower than for our core business.
Selling, general and administrative expenses include management, clerical,
financial, accounting and administrative compensation and 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 the estimated useful life of the assets using the straight line method, the
amortization of goodwill over 40 years and the amortization of other intangible
assets over appropriate time periods. All business acquisitions to
21
<PAGE>
date have been accounted for using the purchase method of accounting, and the
respective purchase prices have been allocated to the fair value of the assets
acquired and liabilities assumed. Consequently, the amounts of depreciation and
amortization included in the statements of operations for the periods presented
reflect the changes in basis of the underlying assets that were made as a result
of the changes in ownership that occurred during the periods presented. We
capitalize some third-party expenditures relating to pending acquisitions or
development projects, such as legal and engineering expenses. All indirect
acquisition costs, such as executive salaries, corporate overhead, public
relations and other corporate services, are expensed as incurred. Our policy is
to charge against net income any unamortized capitalized expenditures and
advances (net of any portion thereof that we estimate to be recoverable, through
sale or otherwise) relating to any operation that is permanently shut down, any
pending acquisition that is not consummated and any landfill development project
that is not successfully completed. We routinely evaluate all capitalized costs,
and expense those related to projects we believe are not likely to be
successful.
As we do not currently own any landfills, we do not accrue for estimated
landfill closure and post-closure maintenance costs. We manage two municipally
owned non-hazardous waste landfill sites under a contract that expires in 2001.
The liability for closure and post-closure liabilities for the landfills remains
with the owners of the sites. If we acquire landfill sites in the future, we
will provide accruals for future closure and post-closure costs of landfills
based on engineering estimates of consumption of permitted landfill airspace
over the useful life of the landfill.
GOODWILL. At December 31, 1998, approximately 55% of the assets on our
balance sheet consisted of goodwill.
Goodwill represents the excess of the purchase price that we have paid for
each business acquired over the fair value of the net identifiable assets
acquired. Goodwill can reflect different things for each business acquisition,
including factors such as market share, market recognition, competitive position
and management, customer and employee loyalty. Goodwill is an accumulation of
various factors that we believe will lead to profits above those that might
normally be expected from just acquiring the tangible assets of that business.
We presently amortize our goodwill over 40 years. We have selected this
number of years based on our expectation of the on-going future cash flows
associated with our businesses and our belief that, with proper management and
integration of the acquired businesses, and the economies of scale that we can
achieve, the value of this goodwill will endure as a long-lived asset. Unlike
other industries, our industry is not prone to the risks of rapid changes in
technology. Amortizing goodwill over 40 years is the standard used by virtually
all of our peers in our industry and we believe that it is important that our
financial results be prepared on a basis consistent with industry standards,
where appropriate.
Generally accepted accounting principles require that we continually
evaluate the value and future benefit of our goodwill to ensure that it is not
impaired and we must also assess its estimated life, as facts and circumstances
might change which could require us to use a shorter amortization period. Under
this approach, the carrying value of our goodwill would be reduced as it becomes
probable that our best estimate for expected future cash flows of the related
businesses would be less than the carrying amount of the goodwill over the
remaining amortization period. To date there have been no adjustments required
to the carrying amounts of our goodwill.
BASIS OF PRESENTATION
We consider Western Waste to be a predecessor for financial reporting
purposes. For this reason, historical financial statements for Western Waste are
included in the financial presentation in this prospectus. The periods include
the year ended October 31, 1996, and the period from November 1, 1996 through
June 5, 1997. Financial statements for Capital Environmental are presented on a
22
<PAGE>
consolidated basis for the period from inception (May 23, 1997) through December
31, 1997, and the year ended December 31, 1998.
WESTERN WASTE SERVICES INC. The financial statements of Western Waste
include the accounts of its wholly owned subsidiaries Lacey Garbage Disposal
Ltd. from March 1, 1996 and West Coast Waste Systems Inc. from December 1, 1995.
These acquisitions were accounted for by Western Waste using the purchase method
of accounting, and the respective purchase prices were allocated to the fair
values of the assets acquired and liabilities assumed.
CAPITAL ENVIRONMENTAL RESOURCE INC. Financial statements for Capital
Environmental are presented on an audited consolidated basis for the period from
inception (May 23, 1997) through December 31, 1997, and for the year ended
December 31, 1998.
The consolidated financial statements of Capital Environmental for the
period from inception (May 23, 1997) through December 31, 1997 include the
accounts of its wholly owned subsidiary Western Waste since November 1, 1997.
Prior to this date, the 33.33% interest in Western Waste not owned by us was
accounted for as a minority interest. The consolidated financial statements for
the year ended December 31, 1998 include the accounts of Western Waste, Rubbish
Removal commencing January 2, 1998, and General Environmental Technical
Services, Inc. and J.V. Services of Western N.Y., Inc. (collectively, "GETS")
commencing October 1, 1998, as well as other small acquisitions completed during
the year.
Due to the nature of our growth through acquisitions, and the fact that
these acquisition dates do not coincide with the year end dates for audited
financial statement purposes, the selection of comparative periods which include
an identical number of months is not possible. However, in order to provide
meaningful comparative analysis of operations, the following financial
statements have been included in the results of operations discussion that
follows:
<TABLE>
<S> <C>
FOR THE YEAR ENDED OCTOBER 31, The consolidated statement of operations for Western
1996 Waste for the twelve months ended October 31, 1996.
FOR THE PERIOD FROM NOVEMBER 1, The consolidated statement of operations for Western
1996 THROUGH JUNE 5, 1997 Waste for the period from November 1, 1996 through June
5, 1997.
FOR THE PERIOD FROM INCEPTION The consolidated statement of operations for Capital
(MAY 23, 1997) THROUGH DECEMBER Environmental for the period from inception (May 23,
31, 1997 1997) through December 31, 1997.
FOR THE YEAR ENDED DECEMBER 31, The consolidated statement of operations for Capital
1998 Environmental for the twelve months ended December 31,
1998.
</TABLE>
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth items in Western Waste's Consolidated
Statement of Operations and Capital Environmental's consolidated statement of
operations as a percentage of revenues, with the corresponding dollar amounts
and other financial data, for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
PERIOD FROM (MAY 23, 1997)
NOVEMBER 1, 1996
YEAR ENDED THROUGH YEAR ENDED
OCTOBER 31, 1996 THROUGH DECEMBER 31, 1997 DECEMBER 31, 1998
JUNE 5, 1997
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues................................ $ 7,421 100.0% $ 5,680 100.0% $ 15,089 100.0% $ 62,056 100.0%
Cost of operations...................... 5,257 70.8 3,472 61.1 10,676 70.8 43,002 69.3
Selling, general and administrative
expenses.............................. 2,017 27.2 1,658 29.2 1,389 9.2 8,490 13.7
Depreciation and amortization........... 741 10.0 612 10.8 1,154 7.6 4,890 7.9
Start-up and integration................ -- -- -- -- 270 1.8 602 0.9
Absorption of acquisition and transition
costs................................. -- -- -- -- 4,055 26.9 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........... (594) (8.0) (62) (1.1) (2,455) (16.3) 5,072 8.2
Interest expense........................ (8) (0.1) (176) (3.1) (898) (5.9) (3,139) (5.1)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest..................... (602) (8.1) (238) (4.2) (3,353) (22.2) 1,933 3.1
Income tax (provision) benefit.......... (508) (6.8) (573) (10.8) 1,398 9.3 (740) (1.2)
Minority interest....................... -- -- -- -- (117) (0.8) -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... $ (1,110) (14.9)% $ (811) 14.3% $ (2,072) (13.7)% $ 1,193 1.9%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA......................... $ 147 2.0% $ 550 9.7% $ 3,024 20.0% $ 10,564 17.0%
</TABLE>
CAPITAL ENVIRONMENTAL--YEAR ENDED DECEMBER 31, 1998 VS. PERIOD FROM INCEPTION
THROUGH DECEMBER 31, 1997
REVENUES. Total revenues for the year ended December 31, 1998 were $62.1
million compared to $15.1 million for the period ended December 31, 1997. The
$47.0 million increase in revenues was attributable to the inclusion of a full
twelve months of operating results, operating results for businesses acquired
prior to December 31, 1997, operating results for the 17 businesses acquired
during the year ended December 31, 1998 and internal growth.
COST OF OPERATIONS. Cost of operations for the year ended December 31, 1998
were $43.0 million compared to $10.7 million for the period ended December 31,
1997. The increase in cost of operations was attributable primarily to increases
in our revenues described above. As a percentage of revenues, cost of operations
declined to 69.3% for the year ended December 31, 1998 from 70.8% for the period
ended December 31, 1997. This marginal decrease was attributable primarily to
the contribution of revenue growth towards fixed costs, offset in part by
acquisitions of businesses in new markets with margins lower than those of our
existing operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1998 were $8.5 million
compared to $1.4 million for the period ended December 31, 1997. The increase
was attributable to the effect of the full year's results and the acquisitions
described above plus the addition of service and market area and corporate staff
during 1998. As a percentage of revenues, selling, general and administrative
expenses increased to 13.7% for the year ended December 31, 1998 from 9.2% for
the period ended December 31, 1997. The increase was attributable to the
investment in corporate overhead to support the planned growth in future
revenues.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the year ended December 31, 1998 was $4.9 million compared to $1.2
million for the period ended December 31, 1997.
24
<PAGE>
The increase was primarily due to the inclusion of a full year's operating
results, increased depreciation arising as a result of vehicles and containers
acquired, a change in our depreciation rates whereby the maximum estimated life
of steel containers was reduced to 12 years from 20 years as of January 1, 1998,
and increased amortization of goodwill arising as a result of businesses
acquired. As a percentage of revenues, depreciation and amortization expense
increased to 7.9% for the year ended December 31, 1998 from 7.6% for the period
ended December 31, 1997. The increase was attributable to the change in lives of
our containers offset by revenue growth exceeding depreciation and amortization
for new additions.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1998 was
$3.1 million compared to $898,000 for the period ended December 31, 1997. The
increase resulted from approximately $25.6 million of new debt incurred to
complete acquisitions during 1998 and the inclusion of a full fiscal year of
operations.
INCOME TAXES. Income tax expense for the year ended December 31, 1998 was
$740,000 compared to an income tax benefit of $1.4 million for the period ended
December 31, 1997. For the period ended December 31, 1997, the income tax
benefit was due to expected recovery of tax benefits related to the net
operating loss carryforwards generated in the period.
WESTERN WASTE--PERIOD ENDED JUNE 5, 1997 VS. YEAR ENDED OCTOBER 31, 1996
REVENUES. Total revenues for the period ended June 5, 1997 were $5.7
million compared to $7.4 million for the year ended October 31, 1996. On an
annualized basis, the growth in revenues was attributable primarily to the
inclusion of the full period operating results of acquisitions made during the
year ended October 31, 1996.
COST OF OPERATIONS. Cost of operations for the period ended June 5, 1997
was $3.5 million compared to $5.3 million for the year ended October 31, 1996.
On an annualized basis, the increase in cost of operations was attributable
primarily to increases in our revenues described above. As a percentage of
revenues, cost of operations declined to 61.1% for the period ended June 5, 1997
from 70.8% for the year ended October 31, 1996. The decrease was attributable
primarily to operating enhancements achieved by consolidating acquired
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the period ended June 5, 1997 were $1.7 million
compared to $2.0 million for the year ended October 31, 1996. On an annualized
basis, the increase was primarily attributable to the impact of acquisitions
described above. As a percentage of revenues, selling, general and
administrative expenses increased to 29.2% for the period ended June 5, 1997
from 27.2% for the year ended October 31, 1996. The increase was attributable to
the impact of the acquisitions.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the period ended June 5, 1997 was $612,000 compared to $741,000 for
the year ended October 31, 1996. The increase on an annualized basis was
primarily due to increased depreciation arising as a result of vehicles and
containers acquired and increased amortization of goodwill arising as a result
of the full year effect of selected acquisitions during the year ended October
31, 1996. As a percentage of revenues, depreciation and amortization expense
increased to 10.8% for the period ended June 5, 1997 as compared to 10.0% for
the year ended October 31, 1996. The increase was attributable to a
proportionately larger amount of non-current assets being comprised of goodwill
that was amortized over 40 years.
INTEREST EXPENSE. Interest expense for the period ended June 5, 1997 was
$176,000 compared to $8,000 for the year ended October 31, 1996. The increase
resulted from capital leases and term debt incurred in late 1996.
25
<PAGE>
INCOME TAXES. We recorded income taxes of $573,000 for the period ended
June 5, 1997 compared to $508,000 for the year ended October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The solid waste management business is capital intensive. Our capital
requirements include acquisitions, working capital increases and fixed asset
replacement. We plan to meet our capital needs through various financing
sources, including internally generated funds and debt and equity financing.
As of December 31, 1998, we had adjusted working capital of $2.9 million,
excluding the current portion of long-term debt and accrued purchase
liabilities, and including cash and cash equivalents of $1.1 million. Our
strategy is generally to apply the cash generated from our operations that
remains available after satisfying our working capital and capital expenditure
requirements to reduce our indebtedness under our credit facility and to
minimize our cash balances. We finance our working capital requirements from
internally generated funds and bank borrowings.
During 1998, we financed our growth through an equity private placement,
borrowings under a credit facility and the issuance of common stock to sellers.
In June 1998, we raised C$10.0 million for acquisitions through the sale to our
existing investors of 553,869 shares of common stock. In September 1997, we
entered into the credit facility to provide for borrowing capacity up to C$45.5
million ($29.6 million at December 31, 1998). During 1998, we amended this
facility to provide for borrowings of up to C$67.5 million ($44.1 million at
December 31, 1998). On January 29, 1999, we amended the credit facility to
provide for borrowings of up to $65.0 million. In March 1999, we increased the
amount of available borrowings to $70.0 million. Finally, during the year ended
December 31, 1998, we issued 787,338 shares of common stock to the owners of
acquired businesses, some of which are redeemable.
For the year ended December 31, 1998, net cash provided by operations was
$2.7 million and was primarily generated by net income and non-cash items. For
the period from inception (May 23, 1997) through December 31, 1997, net cash
provided by operations was $1.2 million.
For the year ended December 31, 1998, net cash used in investing activities
was $36.2 million. Most of this was used to fund the cash portion of the
acquisitions of Rubbish Removal, GETS and 15 other small businesses. Of the net
cash used in investing activities, we spent $3.7 million for trucks, containers
and information systems. For the period from inception (May 23, 1997) through
December 31, 1997, net cash used in investing activities was $12.5 million,
which was used predominantly for capital expenditures, including the purchase of
selected assets of Canadian Waste.
Capital expenditures for 1999 are currently expected to be approximately
$9.0 million and are expected to be utilized primarily for vehicle and equipment
additions and replacements. We intend to fund our planned 1999 capital
expenditures principally through internally generated funds, capital leases and
borrowings under our credit facility.
For the year ended December 31, 1998, net cash provided by financing
activities was $32.3 million. This was provided by net borrowings of $25.7
million, and the issuance of capital stock in the amount of $6.7 million. At
December 31, 1998, we had approximately $56.7 million of long-term debt
outstanding, including the current portion. For the period from inception (May
23, 1997) through December 31, 1997, net cash provided by financing activities
was $13.9 million, which was provided by net borrowings of $8.2 million and $5.7
million from the sales of common and preference stock.
We have a $70.0 million credit facility with a syndicate of banks led by
Bank of America National Trust and Savings Association, as United States agent,
Bank of America Canada as Canadian agent and Canadian Imperial Bank of Commerce
as co-agent. As of April 15, 1999, approximately $59.4 of our credit facility
was outstanding. The credit facility is secured by all of our assets, including
our interest in the equity securities of our subsidiaries. Under our credit
facility, the interest rate on U.S. dollar loans
26
<PAGE>
differs from the interest rate on Canadian dollar loans. U.S. dollar loans bear
interest at a LIBOR-based rate or the lender's base rate plus applicable margin,
plus 0.5%, for loans at a base interest rate. Our Canadian dollar loans bear
interest at a Bankers Acceptance or a Canadian lender's prime rate plus
applicable margin. Of the $59.4 million outstanding amount of our loans, $23.5
million consisted of U.S. dollar loans bearing interest at 7.5% and $35.9
million consisted of Canadian dollar loans bearing interest at 7.6%. The credit
facility will terminate in January 2002 at which time its entire principal
amount will become due. The credit facility requires us to maintain fixed
financial ratios and satisfy other predetermined requirements, such as a minimum
net worth, a minimum interest coverage ratio, a maximum debt to EBITDA ratio and
a maximum senior debt to EBITDA ratio and imposes annual restrictions on capital
expenditures. The credit facility also restricts our ability to incur or assume
other debt for borrowed money or capital leases to fixed amounts and requires
the lenders' approval for acquisitions where the purchase price exceeds the
greater of $10.0 million or 10% of our total consolidated assets and for
landfill acquisitions which expose us to liability for environmental risks in
excess of a fixed amount. As of April 15, 1999, an aggregate of $8.4 million was
unused and available under our credit facility after taking into account letters
of credit of $2.2 million. The weighted average rate of interest on outstanding
borrowings under the credit facility was 7.6% as of April 15, 1999.
INFLATION
To date, inflation has not had a significant effect on our operations.
Consistent with industry practice, many of our contracts provide for a
pass-through of certain costs, including increases in landfill tipping fees and,
in some cases, fuel costs. We believe, therefore, that we should be able to
implement price increases to offset many cost increases resulting from
inflation. However, competitive pressures may require us to absorb at least part
of these cost increases, particularly during periods of high inflation.
IMPACT OF CURRENCY FLUCTUATIONS
We generate revenues and incur expenses in the Canadian dollar and in the
U.S. dollar. For the year ended December 31, 1998, approximately 67.7% of
revenues and 65.6% of income before interest and taxes was generated by
operations in Canada. To the extent the U.S. dollar rises or falls in relation
to the Canadian dollar, net revenues earned in Canadian dollars will decrease or
increase, respectively, upon translation into U.S. dollars for accounting
purposes. If we expand further into the United States, we expect the impact of
variability of foreign exchange rates on Canadian generated income before taxes
will decrease in future years.
During 1998, the unrealized exchange loss on translation of the Canadian
operations into U.S. dollars for reporting purposes amounted to $1,006. This
loss is reported as a separate component of stockholder's equity. The
corresponding loss in the period from inception until December 31, 1997 was
$151.
Realized and unrealized exchange gains and losses on foreign denominated
monetary balances and transactions have been immaterial to date.
SEASONALITY
We expect our results of operations to vary seasonally, with revenues
typically lowest in the first quarter of the year, higher in the second and
third quarters, and lower in the fourth quarter than in the third quarter. We
attribute this seasonality to a number of factors. First, we believe less solid
waste is generated during the late fall, winter and early spring because of
decreased construction and demolition. Second, some of our operating costs are
higher in the winter months because winter weather conditions slow waste
collection activities, resulting in higher labor costs, and rain and snow
increase the weight of collected waste, resulting in higher disposal costs,
which are calculated on a per
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ton basis. Also, during the summer months, there are more tourists and part-time
residents in some of our service areas in Ontario, resulting in more residential
and commercial collection. Consequently, we expect operating income to be
generally lower during the winter.
IMPACT OF YEAR 2000
Some computer systems or software used by many companies may be unable to
distinguish 21st century dates from 20th century dates. As a result, beginning
on January 1, 2000, computer systems and software used by many companies in a
wide variety of industries will produce erroneous results or fail unless they
have been modified or upgraded to process date information correctly. To date,
we have conducted an initial inventory and issue assessment of the Year 2000
issue for our computer systems, communications equipment and other potentially
date-sensitive equipment to identify the systems and equipment, if any, that
could be affected by the Year 2000 issue. We have retained an outside consultant
to conduct and report on this assessment. The next phase will be a formal impact
assessment and conversion planning which is expected to take 30 to 60 days and
should be completed by the end of the second quarter of 1999. We expect to
complete any required systems conversions and replacement of date sensitive
equipment by the end of the third quarter of 1999. Because our operations rely
primarily on mechanical systems such as trucks to collect solid waste, we do not
expect our operations to be significantly affected by the Year 2000 issue. In
addition, we believe that if our disposal vendors encounter Year 2000 problems,
they will convert to manual billing based on scale recordings until they resolve
those issues. However, we use computer systems and software for accounting,
billing and truck routing purposes. We have obtained Year 2000 compliance
certifications from manufacturers of our main computer systems and software. In
addition, we have formulated and are in the process of distributing a standard
vendor letter for the purpose of requesting Year 2000 information, efforts,
warranties and agreements from our banks, major vendors and large and municipal
customers. Each service area was to have distributed the vendor letter by April
30, 1999 and make follow-up requests for replies by May 30, 1999. Therefore, we
expect our survey to be complete by the end of the second quarter of 1999. There
can be no assurance, however, that we will receive all requested certifications.
Given our recent formation and our reliance on mechanical technology, we
believe our own computer systems and software currently are Year 2000 ready. In
assessing our exposure to Year 2000 issues, we believe our biggest risks lie
with our banks, municipal customers and acquired businesses between the time we
acquire them and the time we implement our own systems. If these third parties
do not complete their Year 2000 modifications on time, we could experience
unanticipated expenses and delays, including delays in payment for our services
and delays in our ability to conduct normal business operations. We believe,
however, that in the most reasonably likely worst case scenario, the effects of
Year 2000 issues on our operations would be brief and small relative to our
overall operations. Our costs to date associated with the Year 2000 issue have
not exceeded $20,000, which have been paid out of internally generated funds. We
expect that we will expend no more than $100,000 in the future for this issue
because our Year 2000 review has led us to conclude that we will not encounter
significant Year 2000 problems. We will utilize internally generated funds or
borrowings under our credit facility to pay these costs. If we determine that
our vendors, banks and municipal customers will not be Year 2000 compliant, we
will put in place a contingency plan to address operation and financial
disruptions to Capital Environmental which could be caused by their
non-compliance. Our time table for developing a contingency plan is the end of
the third quarter of 1999.
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BUSINESS
INDUSTRY OVERVIEW
According to WASTE AGE, the United States solid waste services industry
generated $36.9 billion in revenues during 1997. Based on the fact that Canada's
population is one-tenth the size of the population of the United States and has
similar economic and demographic characteristics, we believe that the Canadian
solid waste services industry generated revenues of approximately one-tenth
those of the United States solid waste services industry, or $3.7 billion, in
1997. In both the United States and Canada, the solid waste industry is
comprised of a small number of large national competitors, a substantial number
of small private operators and municipal governments that own waste collection
and disposal operations. In Canada, municipalities provide waste collection
services to approximately 43% of Canadian residents and own a substantial
majority of the nation's solid waste landfills. In the United States,
approximately 27% of the total revenue of the solid waste industry is accounted
for by more than 5,000 private, predominantly small, collection and disposal
businesses, approximately 41% by publicly traded solid waste services companies
and approximately 32% by municipal governments that provide collection and
disposal services.
We believe that the solid waste industry in secondary markets of Canada and
the northern United States is characterized by the following:
- a large number of private solid waste services companies suitable for
acquisition in these markets;
- generally fewer competing national solid waste services companies in these
markets; and
- some of these markets have strong projected economic and population growth
rates.
In addition, we believe that the Canadian market for solid waste services
has the following specific attributes:
- pricing structures for collection and disposal services are generally
higher than in the United States;
- a large portion of the residential solid waste collection and disposal
market is municipally controlled, creating privatization opportunities;
and
- exclusive municipal contracts and franchise agreements are frequently
granted to a single operator.
The solid waste services industry in both Canada and the United States has
undergone significant consolidation and integration since 1990. We believe that
this consolidation and integration in both Canada and the United States has been
caused primarily by:
- the ability of larger operators to achieve certain economies of scale;
- in the United States, the trend for companies to selectively integrate
collection and disposal capabilities where publicly available disposal is
not readily available at competitive rates;
- the continued privatization of solid waste collection and disposal
services by municipalities and other governmental bodies and authorities;
and
- stringent environmental regulation and enforcement in the United States
and in certain Canadian provinces, resulting in increased capital
requirements for collection companies and landfill operators in those
areas.
ECONOMIES OF SCALE. Larger operators achieve economies of scale by
expanding the breadth of services and density in their market areas, and through
vertical integration where such integration provides these operators with an
economic advantage. Control of the waste stream in their market
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areas, combined with access to significant financial resources to make
acquisitions, has allowed larger solid waste collection and disposal companies
to be more cost-effective and competitive.
SELECTIVE INTEGRATION OF COLLECTION AND DISPOSAL OPERATIONS. In the United
States, we believe operators frequently seek to become more efficient by
establishing an integrated network of solid waste collection operations,
transfer stations and disposal options where this integration provides an
economic advantage over its competitors. In Canada, operators also seek to
establish integrated solid waste services networks, where doing so provides an
economic advantage. However, since landfills in Canada are predominantly
municipally owned, and the strict regulatory framework in certain Canadian
provinces makes it difficult for private companies to obtain permits to build
landfills, we believe owning landfills has not been a significant component of
the disposal strategy for operators in Canada.
PRIVATIZATION OF COLLECTION AND DISPOSAL SERVICES. In the provinces and
states in which we operate, city or municipal governments have historically
provided a variety of solid waste services using their own personnel. Over time,
many municipalities have opted to contract out their solid waste collection and
disposal services to the private sector. Privatization is often an attractive
alternative for municipalities due, among other reasons, to the ability of
integrated operators to leverage their economies of scale to provide the
community with a broader range of services while enabling the municipality to
reduce its own capital asset requirements. We believe that these factors have
caused municipalities throughout Canada and the northern United States to
consider privatization and have created significant growth opportunities for
solid waste services companies in Canada and the northern United States.
INCREASED REGULATORY IMPACT. Stringent industry regulations such as the
Environmental Protection Act in Ontario and the Waste Management Act in British
Columbia and the Subtitle D Regulations in the United States have resulted in
rising operating and capital costs and have accelerated consolidation of the
solid waste industry in those provinces and in the United States. Many smaller
industry participants have found the costs and technical expertise required by
these regulations difficult to bear and have decided to either close their
operations or sell them to larger operators.
According to the Ontario, Alberta and British Columbia Ministries of
Environment, in these provinces there are approximately 600 to 700 operating
landfill sites, of which less than 20 are privately owned. This lack of private
landfill ownership is due to the strict regulatory framework in these Canadian
provinces, which makes it difficult for private companies to obtain permits to
build new landfills or expand existing privately owned landfills. Accordingly,
most landfills in Canada are owned by the municipality in which the landfill is
located. Municipally owned landfills in Canada and the northern United States
typically charge all customers the same price per ton of waste disposed,
regardless of the customer's size or the volume of waste it disposes of at the
facility.
Despite the considerable consolidation and integration that has occurred in
the solid waste industry since 1990, the industry in Canada and the northern
United States remains primarily regional in nature and highly fragmented. We
believe that the fragmented nature of the industry presents substantial
consolidation and growth opportunities for us.
HISTORY OF CAPITAL ENVIRONMENTAL
Capital Environmental was incorporated in Ontario, Canada on May 23, 1997 in
order to take advantage of consolidation opportunities in the solid waste
services industry in secondary markets of Canada and the northern United States.
On June 6, 1997, we acquired a series of diverse, geographically dispersed
assets from Canadian Waste, a wholly owned subsidiary of USA Waste, and 50% of
the common stock of Western Waste from USA Waste. We later purchased the
remaining outstanding common stock of Western Waste. Together, these
acquisitions provided us with solid waste collection, transfer, disposal and
recycling operations in 14 markets in Canada. In connection with these
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acquisitions, we acquired approximately C$44.0 million, or $29.5 million at
April 15, 1999, in annualized revenues and approximately 200,000 customers.
CAPITAL ENVIRONMENTAL'S OBJECTIVES AND STRATEGIES
Our objective is to build a leading solid waste services company in the
secondary markets of Canada and the northern United States. In the markets in
which we operate, we seek to:
- achieve a leading market share;
- control sufficient collection volume in order to secure cost-effective
disposal capacity;
- offer the full range of services required by our customers; and
- own landfills or other disposal options in those of our collection markets
where doing so provides us with an economic advantage.
Our strategy for achieving our objective is to:
- expand our operations into new markets and service areas through platform
acquisitions which establish an initial market presence, and through
tuck-in acquisitions which complement or expand our existing operations;
- generate internal growth by providing additional and upgraded services,
increasing sales penetration and implementing selective price increases;
and
- implement operating enhancements and efficiencies.
We focus on markets that are generally characterized by:
- a large number of private solid waste services companies suitable for
acquisition;
- a geographically dispersed population, which we believe deters competition
from established waste management companies;
- a competitive environment for solid waste services that offers us the
opportunity to acquire a leading market position;
- a small number of competitors;
- the availability of adequate disposal capacity, either through municipally
owned landfills, through long-term agreements with third-parties or
acquisition of a landfill;
- a regulatory environment that is favorable for well-capitalized operators;
and
- strong projected economic or population growth rates.
Following this offering, we expect that we will be the only Canadian
headquartered, publicly-traded acquirer of Canadian solid waste companies, and
the only publicly held company that has the Canadian solid waste market as a
focus of its strategy. Combined with our senior management's knowledge of the
Canadian market, we believe we will be an attractive acquirer when owners of
Canadian firms consider selling their businesses, and a viable alternative to
the large U.S.-based solid waste companies.
EXPANSION THROUGH ACQUISITIONS. We intend to expand significantly the scope
of our operations by acquiring solid waste collection, transfer and recycling
operations and disposal capacity in existing markets through tuck-in
acquisitions and in new service areas or markets through platform acquisitions.
We believe that numerous tuck-in acquisition opportunities exist within our
current and targeted market areas. We have identified more than 125 companies
that provide collection and disposal services in our current market areas. We
believe that acquiring many of these companies would provide us
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opportunities to market additional services and to improve our market share,
route density and profitability.
We intend to continue our acquisition-based growth strategy by entering new
service areas or markets through platform acquisitions that provide significant
collection volume and strategic relationships to secure access to disposal
capacity. We target platform acquisitions of companies with strong local
management expertise and relationships which can be retained in geographic areas
generally characterized by, among other things, an attractive competitive
landscape and the ability to effect other acquisitions in the vicinity. Once we
establish a platform in a new service area or market, we seek to strengthen our
presence there and in adjacent service areas and markets by marketing additional
and upgraded services to existing customers, adding new customers and making
tuck-in acquisitions.
INTERNAL GROWTH. To generate continued internal growth, we intend to:
- provide additional or upgraded waste services to our existing customers;
- increase sales penetration through intensified sales and marketing efforts
and bidding for new municipal contracts; and
- implement selective price increases.
OPERATING ENHANCEMENTS FOR ACQUIRED AND EXISTING BUSINESSES. We have
established standards for each of our markets which set operating criteria for
collection, transfer, disposal and other operations. These criteria include
collection and disposal routing efficiency, equipment utilization, cost
controls, commercial weight tracking and employee training and safety
procedures.
We have a decentralized operating strategy which encourages our employees to
develop cross-functional expertise, and thereby better serve the local markets
in which they operate. We believe that the cross-functional expertise of our
employees reduces selling, general and administrative costs and gives general
managers an opportunity to assume greater responsibility. While we have
developed certain company-wide operating and financial standards, such as the
use of the TRUX-Registered Trademark- software program and consolidated
bookkeeping, accounting and cash management controls for each of our 26 market
areas, we tailor our customer management for each of our markets based on
industry standards and local conditions.
ACQUISITION PROGRAM
We currently serve 26 markets in seven service areas in the provinces of
Ontario, Alberta and British Columbia and in the states of New York and
Pennsylvania. We also provide limited waste collection services in the province
of Quebec from our Ottawa, Ontario market. We believe that these and other
secondary markets in Canada and the northern United States with similar
characteristics offer significant opportunities for expanding the scope of our
operations and achieving our strategic objectives. We have assembled an
experienced team of acquisition professionals, including operations,
environmental, engineering, legal and financial personnel, each engaged in
identifying and evaluating acquisition opportunities.
We have developed a set of financial, geographic, environmental and
management criteria to assist management in evaluating acquisition candidates.
Management uses these criteria to evaluate a variety of factors, including, but
not limited to:
- the candidate's expected internal rate of return, return on assets and
return on revenue;
- the candidate's historical and projected financial performance;
- any potential operating cost savings that may be gained by combining the
candidate's operations with ours;
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- 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 strengthen or increase our local market
position;
- the experience of the candidate's management and customer service
providers, their relationships with local communities and their
willingness to continue as our employees;
- the composition and size of the candidate's customer base and whether the
customer base is served under municipal contracts or other exclusive
arrangements;
- the liabilities of the candidate, including its environmental liabilities;
and
- the nature of the services provided.
Before completing an acquisition, our acquisition team, led by a corporate
development officer and supported by a service area Vice President, performs
extensive environmental, operational, engineering, legal, human resources and
financial due diligence. All acquisitions are subject to initial evaluation and
approval by our acquisition team and our senior management before being
recommended to our Board of Directors, which reviews any acquisition where the
purchase price exceeds C$5.0 million.
We seek to integrate each acquired business promptly and to minimize
disruption to the ongoing operations of both Capital Environmental and the
acquired business, and generally attempt to retain the senior management of
acquired businesses. Integration of an acquired operation is achieved by
implementing our 80-point acquisition checklist, which addresses key areas for
integration including human resources, finance and administration, asset
maintenance and marketing and public relations. The service area Vice President
and the appropriate corporate development officer assume primary responsibility
for implementing the 80-point acquisition checklist and improving the acquired
company's administrative efficiency, profitability and operational productivity.
We reward our service area Vice Presidents for the successful integration of a
newly acquired company through bonuses. We generally seek to integrate an
acquired business within 90 days of its acquisition.
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We have completed the following acquisitions of companies, businesses or
selected assets of companies, as of the date set forth in the chart below:
<TABLE>
<CAPTION>
ACQUISITION SERVICES MARKET AREAS DATE
- --------------------------- --------------------------- --------------------------- -------------------------
<S> <C> <C> <C>
ONTARIO:
Canadian Waste Collection Barrie, Brantford, Sarnia, June 6, 1997
Ottawa and Kitchener
Kingswood International Collection Brantford October 31, 1997
Maple Leaf Disposal Collection and Transfer Penetanguishene December 31, 1997
Browning Ferris Industries Collection Sarnia and Peterborough March 31, 1998
Muskoka Containerized Collection, Transfer and Bracebridge April 1, 1998
Services Landfill Management
John's Cartage Collection Lindsay July 1, 1998
McGill Environmental Collection and Transfer Orillia July 13, 1998
BSD Environmental Solutions Collection and Transfer Scarborough August 31, 1998
Canadian Waste Collection Hamilton and Burlington October 20, 1998
Bales Transfer Station Transfer Newmarket November 27, 1998
City Waste Systems Collection Kitchener November 30, 1998
Can Pak Waste Management Collection Uxbridge February 8, 1999
Ram-Pak Compaction Services National Account and March 1, 1999
Compactor Sales and
Leasing
Effective Waste Management Collection Scarborough March 8, 1999
Services
Premier Waste Collection and Transfer Hamilton and Burlington April 30, 1999
WESTERN CANADA:
Western Waste Collection Edmonton, Calgary, June 6, 1997/
Lakeland(1), Red Deer, November 1, 1997(2)
Comox Valley, Parksville,
Nanaimo and Penticton
Canadian Waste Collection and Transfer Burnaby June 6, 1997
Edmonton
Calgary
Alberta Waste Collection Calgary May 1, 1998
Excel Disposal Service Collection Vernon April 16, 1999
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION SERVICES MARKET AREAS DATE
- --------------------------- --------------------------- --------------------------- -------------------------
<S> <C> <C> <C>
NORTHERN UNITED STATES:
Rubbish Removal Collection and National Syracuse and Rochester, NY January 2, 1998
Account
Raite Rubbish Removal Collection Syracuse, NY April 1, 1998
Royal T. Collection Syracuse, NY June 26, 1998
ICW Collection Williamsport, PA July 15, 1998
and Transfer
Tousley Trash Service Collection Syracuse, NY August 24, 1998
GETS Collection Rochester, NY October 1, 1998
Potter's Trash Service Collection Syracuse, NY October 2, 1998
Clark Enterprises Collection Watertown, NY February 1, 1999
Lossell Container Service Collection Williamsport, PA February 5, 1999
</TABLE>
- ------------------------
(1) In October 1998, we sold our operations in Lakeland to Canadian Waste. These
operations generated approximately C$1.0 million in revenue in 1998.
(2) Capital Environmental acquired 50% of the common stock of Western Waste on
June 6, 1997, an additional 16.7% interest thereafter and the remaining
33.3% on November 1, 1997.
SERVICE AREAS
We operate on a decentralized basis, which places decision making authority
with operating management close to the customer. This enables us to identify
customer needs and competitive conditions quickly. We divide our operations into
seven service areas. We currently serve 26 market areas covering three
geographic territories: Ontario, currently comprised of the Eastern, Central and
Southwestern Ontario service areas, western Canada, currently comprised of the
Alberta and British Columbia service areas and the northern United States
currently comprised of the Western New York and Central New York/Pennsylvania
service areas. Within each service area we have tailored our competitive
strategy and identified multiple market areas which can support a local
operation. We will create new service areas as required to accommodate growth.
We currently have four service area Vice Presidents serving our seven
service areas, each of whom reports directly to our President. A service area
Vice President manages all the operations of a service area with the help of
general managers in most market areas. The service area Vice President is
responsible for budgeting, internal growth, municipal contract bidding,
coordination of operations, attaining economies of scale within the service
area, monthly reporting and integration of acquired businesses. The market area
general managers are responsible for maintaining service quality, promoting
safety, implementing marketing programs, cost management, and overseeing
day-to-day operations, including sales supervision and the management of
customer service agreements.
Our financial management, accounting, mergers and acquisitions,
environmental compliance, risk management and certain personnel functions are
centralized to improve productivity, lower operating costs and ensure
consistency of financial and operating standards. We have installed a
standardized management information system that assists market area personnel in
making decisions based on real time financial, productivity, maintenance and
customer information. While service area management operates with a high degree
of autonomy, our corporate management monitors service area operations and
requires adherence to our accounting, purchasing and internal control policies,
particularly with respect to financial and compliance matters. Our executive
officers review the performance of our service area Vice Presidents and
operations on a regular basis.
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The following are our seven service areas by geographic territory:
ONTARIO
We have three service areas within the province of Ontario: Eastern Ontario,
Central Ontario and Southwestern Ontario. We established a market presence in
Ontario through our acquisition of selected assets from Canadian Waste in June
1997.
EASTERN ONTARIO SERVICE AREA. The Eastern Ontario service area is currently
made up of four
markets, Peterborough, Lindsay, Ottawa and Scarborough. It encompasses
approximately 5,930 square miles with a combined population of approximately 3.2
million residents and is characterized by a broad geographic territory with
pockets of more densely populated areas. In Peterborough and Lindsay, we dispose
of waste at municipal landfills. In Ottawa, we have secured a disposal contract
with a privately owned landfill which we believe is at or below market rates. In
Scarborough, we have acquired a transfer station that provides us an opportunity
to dispose of solid waste at remote disposal sites. In this service area, we
provide commercial and industrial collection and recycling services, and,
through municipal contracts with the City of Scarborough and the Regional
Municipality of Ottawa-Carleton and Gatineau, Quebec, we provide residential
collection and recycling services. We also operate a material recycling facility
in the Lindsay market area.
CENTRAL ONTARIO SERVICE AREA. The Central Ontario service area is currently
comprised of five markets, Penetanguishene, Barrie, Orillia, Bracebridge and
Newmarket. It encompasses approximately 9,125 square miles and has a combined
population of approximately 589,000 residents. The Central Ontario service area
is characterized by municipally owned landfills. We have also acquired four
transfer stations that provide us with the opportunity to dispose of solid waste
at remote disposal sites. We provide commercial and industrial collection and
recycling services and through municipal contracts in Bracebridge, Gravenhurst,
Huntsville, Parry Sound and Muskoka Lakes, we provide residential collection and
recycling services. We also operate a materials recycling facility in each of
Bracebridge and Orillia. We operate two landfills in Gravenhurst and
Bracebridge.
SOUTHWESTERN ONTARIO SERVICE AREA. Our Southwestern Ontario service area,
which currently includes four markets, Brantford, Kitchener, Hamilton and
Sarnia, encompasses approximately 4,177 square miles and has a combined
population of approximately 1.4 million residents. We operate a transfer station
in Hamilton. We also have disposal capacity in the Hamilton and Sarnia market
areas through disposal agreements with third-party disposal sites that we
believe are at or below market rates. Though we presently dispose of no waste
outside of Canada, the Southwestern Ontario service area provides us with the
ability to access disposal alternatives in the United States at rates which are
competitive with local third-party and municipal disposal alternatives. We
provide commercial and industrial collection and recycling services to our
customers in the Southwestern Ontario service area, and through municipal
contracts in Brantford, Paris, and Cambridge, we provide residential collection
and recycling services.
WESTERN CANADA
We have two service areas in western Canada: the southern portion of British
Columbia and the southern and central portions of Alberta. We established a
market presence in western Canada through our acquisition of the shares of
Western Waste and the acquisition of selected assets of Canadian Waste in June
1997.
BRITISH COLUMBIA SERVICE AREA. Our service area in British Columbia
currently includes six markets in Burnaby, Penticton, Vernon, Nanaimo,
Parksville and Comox. It encompasses approximately 2,600 square miles, has a
population of approximately 2.8 million residents and is characterized by
municipal disposal opportunities. We provide commercial and industrial
collection and recycling services to our
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customers in the British Columbia service area, and through municipal contracts
in Vernon, Nanaimo, Ladysmith, Courtney and Comox, we provide residential
collection and recycling services. We have materials recycling facilities in
each of Parksville, Nanaimo and Comox. We have a franchise agreement with the
City of Penticton that provides us with the exclusive right to provide
commercial, industrial and residential services within the city's boundaries.
ALBERTA SERVICE AREA. Our Alberta service area, which currently includes
three markets in Edmonton, Calgary and Red Deer, encompasses approximately
13,600 square miles and has a population of approximately 2.0 million residents.
We estimate that half of the solid waste we collect in the Alberta service area
is disposed of at municipally owned landfill sites and the other half is
disposed of through a long-term arrangement with a private landfill operator. We
provide commercial and industrial collection and recycling services to our
customers in the Alberta service area. We own and operate a transfer station in
Edmonton. We have a franchise agreement with the City of Red Deer that provides
us with the exclusive right to provide commercial and residential services
within the city's boundaries.
NORTHERN UNITED STATES
We have two service areas in the northern United States: Western New York
and Central New York/Pennsylvania. We established our market presence in the
northern United States through the acquisition of Rubbish Removal in January
1998.
WESTERN NEW YORK SERVICE AREA. Our Western New York service area, which
currently includes one market area in Rochester, encompasses approximately 900
square miles. It has a population of approximately 1.3 million residents and is
characterized by numerous alternatives for disposal. We provide commercial and
industrial collection services to our customers in this service area, and
residential collection services through subscription arrangements.
CENTRAL NEW YORK/PENNSYLVANIA SERVICE AREA. Our Central New
York/Pennsylvania service area, which currently includes three market areas in
Syracuse and Watertown, New York and Williamsport, Pennsylvania, encompasses
approximately 7,346 square miles and has a population of approximately 760,000
residents. The area is characterized by flow control regulations in Syracuse and
municipally owned disposal options in the other market areas. We own and operate
a transfer station in Williamsport. We provide commercial and industrial
collection and recycling services to our customers in the Central New
York/Pennsylvania service area, and through subscription arrangements in greater
Williamsport and Syracuse, we provide residential collection and recycling
services.
OPERATIONS
COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES
As of December 31, 1998, we served approximately 544,000 customers,
comprised of approximately 22,000 commercial clients, approximately 2,000
industrial clients and approximately 520,000 residential clients.
We dispose of the waste we collect in one of four ways:
- at municipally owned landfills or incinerators that generally charge the
same per-ton disposal rates to all customers;
- under long-term disposal contracts with private landfill owners or
operators at market rates or, in some instances, at below market rates;
- through our own transfer stations that give us access to remote landfill
sites; or
- at privately owned landfills on an as needed basis.
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<PAGE>
Our commercial and industrial services are performed under one to three year
service agreements or shorter term purchase orders. Our fees are determined by a
variety of factors, including collection frequency, level of service, route
density, the type, volume and weight of the waste collected, type of equipment
and containers furnished, the distance to the disposal or processing facility,
the cost of disposal or processing and prices charged in its markets for similar
service. Collection of larger volumes associated with commercial and industrial
waste streams generally helps improve 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 two to eight cubic yard containers to commercial customers and 10 to 50
cubic yard containers to industrial customers. No single commercial or
industrial contract is material to our results of operations.
We generate fees under exclusive municipal contracts that grant us the right
to service all or a portion of the residences in a specified community for a set
fee. As of December 31, 1998, we had 76 municipal contracts, some of which were
awarded by the same municipality. Municipal contracts are typically awarded on a
competitive bid basis and thereafter on a bid or negotiated basis. No single
municipal contract is material to our results of operations. Similarly, we have
long-term franchise agreements with the cities of Red Deer, Alberta and
Penticton, British Columbia. Under the terms of each of these agreements, we
have exclusive rights to provide a range of solid waste services to the
community. In Red Deer, the service provisions are commercial and residential,
and in Penticton, commercial, industrial and residential. Each of the franchise
agreements was bid on a competitive bid basis. Rates for all service provisions
are set for the term of the agreement. We have approximately three years
remaining under both franchise agreements, which were originally five-year
agreements.
Our fees for residential solid waste services performed on a subscription
basis are based primarily on route density, the frequency and level of service,
the distance to the disposal or processing facility, the cost of disposal or
processing and prices charged in its markets for similar service. No single
residential subscription arrangement is material to our results of operations.
TRANSFER STATION SERVICES
We have an active program to acquire, develop, own and operate transfer
stations proximate to our operations. Currently, we operate a transfer station
in each of Edmonton, Alberta; Bracebridge, Hamilton, Newmarket, Penetanguishene,
Orillia and Scarborough, Ontario; and Williamsport, Pennsylvania. Each transfer
station receives, compacts and transfers solid waste to larger vehicles for
transport to landfills. We generally seek to establish a transfer station
network in service areas where we can gain access to remote disposal capacity at
rates that are lower than local municipal or third-party disposal options. We
believe that additional benefits of building a transfer station network include:
- concentrating the waste stream from a wider area, which gives us greater
leverage in negotiating for more favorable disposal rates at remote
landfill sites;
- improving utilization of collections personnel and equipment; and
- building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.
LANDFILLS
We seek to pursue an integrated approach to the solid waste business whereby
we will own landfills in those areas where ownership provides an economic
advantage and not own landfills in markets which provide ample disposal capacity
and equal access to disposal sites for all solid waste
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collection companies. At present we do not own any landfills; however, we
operate two landfills in Ontario. The markets in which we currently operate are
distinguished by one or more of the following characteristics:
- most landfills within a reasonable hauling distance are municipally owned
and charge common disposal rates;
- we have entered into a long-term disposal contract with a private landfill
owner or operator at or below market rates;
- local "flow control" regulations require us to dispose of the solid waste
we collect at the local, municipally owned incinerator or landfill; or
- excess disposal capacity exists in the market resulting in a depressed
market rate structure and little incentive to own landfills.
We operate landfills in the towns of Bracebridge and Gravenhurst, Ontario
under a landfill management contract with the District Municipality of Muskoka,
which we expect will expire in December 2001. We intend to rebid this contract
when it expires. The responsibility for closure and post-closure costs including
any financial assurance requirements and cell development costs remains with the
owners of the landfills.
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The following chart sets forth the disposal characteristics of each of our
current market areas:
<TABLE>
<CAPTION>
CAPITAL ENVIRONMENTAL LONG- TERM MUNICIPAL
TRANSFER DISPOSAL OWNERSHIP OF
MARKET AREA STATION CONTRACT LOCAL LANDFILLS
- -------------------------------------------------------- ------------------------- ------------- -------------------
<S> <C> <C> <C>
ONTARIO
EASTERN ONTARIO
Lindsay............................................. X
Peterborough........................................ X
Ottawa.............................................. X X
Scarborough......................................... X X
CENTRAL ONTARIO
Barrie.............................................. X
Penetanguishene..................................... X X
Bracebridge (1)..................................... X X
Orillia............................................. X X
Newmarket........................................... X
SOUTHWESTERN ONTARIO
Sarnia.............................................. X
Kitchener........................................... X
Brantford........................................... X
Hamilton............................................ X X
WESTERN CANADA
ALBERTA
Edmonton............................................ X X
Calgary............................................. X
Red Deer............................................ X
BRITISH COLUMBIA
Burnaby............................................. X
Penticton........................................... X
Comox Valley........................................ X
Parksville.......................................... X
Nanaimo............................................. X
Vernon.............................................. X
NORTHERN UNITED STATES
WESTERN NEW YORK
Rochester...........................................
CENTRAL NEW YORK/ PENNSYLVANIA
Williamsport........................................ X X
Syracuse (2)........................................ X
Watertown........................................... X
<CAPTION>
NUMEROUS
DISPOSAL
MARKET AREA ALTERNATIVES
- -------------------------------------------------------- ---------------
<S> <C>
ONTARIO
EASTERN ONTARIO
Lindsay.............................................
Peterborough........................................
Ottawa..............................................
Scarborough.........................................
CENTRAL ONTARIO
Barrie..............................................
Penetanguishene.....................................
Bracebridge (1).....................................
Orillia.............................................
Newmarket...........................................
SOUTHWESTERN ONTARIO
Sarnia..............................................
Kitchener...........................................
Brantford...........................................
Hamilton............................................
WESTERN CANADA
ALBERTA
Edmonton............................................
Calgary............................................. X
Red Deer............................................
BRITISH COLUMBIA
Burnaby............................................. X
Penticton...........................................
Comox Valley........................................
Parksville..........................................
Nanaimo.............................................
Vernon..............................................
NORTHERN UNITED STATES
WESTERN NEW YORK
Rochester........................................... X
CENTRAL NEW YORK/ PENNSYLVANIA
Williamsport........................................
Syracuse (2)........................................
Watertown...........................................
</TABLE>
- ------------------------
(1) Includes two landfills that we currently operate under a municipal contract
with the District Municipality of Muskoka in the towns of Bracebridge and
Gravenhurst.
(2) Our Syracuse market is also characterized by "flow control" regulations
which require us to dispose of the solid waste we collect at a local,
municipally owned incinerator.
RECYCLING
We offer municipal, commercial and industrial customers services for a
variety of recyclable materials, including cardboard, office paper, plastic
containers, glass bottles, fiberboard, and ferrous
40
<PAGE>
and aluminum metals. We operate six recycling processing facilities in Orillia,
Lindsay, Bracebridge, Comox, Parksville and Nanaimo and sell other collected
recyclable materials to third parties for processing before resale. In an effort
to reduce our exposure to commodity price fluctuation on 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 provincial, state and local solid waste
management plans, due to the public's increasing environmental awareness and
regulations that mandate or encourage recycling.
OTHER SPECIALIZED SERVICES
Our specialized waste management services consist primarily of contract
waste management services for chain stores with multiple locations. Under our
contract management program, we have secured exclusive contracts to provide
comprehensive waste management services to large companies on a national or
regional basis. These services are performed directly by us or, in areas where
we have no present operations, by our subcontractors. We expect that the
percentage of revenues attributable to our contract management program will
decline as our other businesses continue to grow. In addition, in certain market
areas, we provide portable toilet services for certain special events or
construction sites.
Our specialized waste management services described above generated revenues
of $7.0 million for the year ended December 31, 1998, representing approximately
11.3% of our total revenue for this period.
SALES AND MARKETING
We market our services on a decentralized basis principally through our
general managers and direct sales representatives. We believe that this
structure enables us to deliver better customer service by encouraging our
employees to develop cross-functional expertise. We emphasize providing quality
service to ensure customer retention and believe that we will attract customers
in the future because of our reputation for quality service.
Our sales representatives visit customers on a regular basis and call upon
potential new customers within a specified territory or service area, including
high-growth areas in our current markets and in markets we do not currently
serve. We believe that we distinguish ourselves from our competitors by
compensating our sales representatives with a relatively higher base salary and
profit sharing compared to the traditional high commission, low base salary
model. We believe that this compensation structure provides our sales
representatives with the proper incentives to maximize our profitability.
In Canada, most residential waste collection and disposal services are
provided to a municipality or other government authority through exclusive
municipal contracts or franchise agreements and these residential services
typically are not provided directly to individual customers. We have been the
successful bidder for numerous new contracts with municipalities and other
governmental agencies and believe that opportunities for obtaining these
contracts are increasing due to trends among municipalities to privatize or
outsource solid waste services. Accordingly, our sales representatives monitor
our existing markets and new market areas for opportunities to bid for municipal
contracts which will provide us with an appropriate rate of return.
We have a diverse customer base. No single contract or customer accounted
for more than 3.0% of our revenues during the year ended December 31, 1998.
COMPETITION
The solid waste services industry in Canada and the northern United States
is highly competitive and fragmented and requires substantial labor and capital
resources.
41
<PAGE>
The Canadian solid waste industry presently includes two large national
waste companies: Waste Management, Inc., operating through its Canadian
subsidiary, Canadian Waste, and Browning Ferris Industries. We believe that
there are currently no other publicly held solid waste companies operating in
Canada. The United States solid waste industry presently includes four large
national waste companies: Allied Waste Industries, Inc., Browning Ferris
Industries, Republic Services Group, Inc. and Waste Management, Inc. Several
other public solid waste services companies have annual revenues in excess of
$100 million, including Waste Connections, Inc., Casella Waste Systems, Inc.,
Superior Services, Inc. and Waste Industries, Inc.
Certain of the secondary 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 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 us, 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 prices of their services in an effort to expand their market share or
service areas or to win competitively bid municipal contracts. These practices
may cause us to reduce the prices of our services or, if we elect not to do so,
to lose business.
We derive a portion of our revenue from exclusive municipal contracts that
require competitive bidding by potential service providers. In the future we
intend to bid on additional municipal contracts and to rebid existing municipal
contracts, but our bids may not succeed.
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, in the northern United States, and
large national, in Canada and the northern United States, waste management
companies.
REGULATION
INTRODUCTION
We are subject to evolving Canadian federal, provincial and local and United
States federal, state and local environmental laws and regulations, the
enforcement of which has become increasingly stringent in recent years. The
United States regulations affecting us are administered by the Environmental
Protection Agency and other federal, state and local environmental, zoning,
health and safety agencies and government offices. The Canadian environmental
regulations affecting us are administered by a variety of federal, provincial
and local agencies and government offices. We believe that we are currently in
substantial compliance with material applicable federal, provincial, state and
local environmental laws, permits, orders and regulations, and 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.
To transport and manage solid waste, we must possess and comply with one or
more permits from federal, provincial, state or local agencies and government
offices. These permits also must be periodically renewed and may be modified or
revoked by the issuing agency.
The principal federal, provincial, state and local statutes and regulations
that apply to our operations are described below.
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<PAGE>
CANADIAN REGULATION
Our operations and activities in Canada are subject to a number of
environmental statutes and regulations at the federal, provincial and local
level. Among other things, these laws impose restrictions designed to control
air, soil and water pollution and regulate health, safety, zoning, land use and
the handling of hazardous and non-hazardous wastes. This regulatory framework
imposes significant compliance burdens and risks on us. Management believes that
we are currently in substantial compliance with material applicable
environmental laws. Our operations are principally governed by the laws of
Ontario, Quebec, British Columbia and Alberta.
ONTARIO. Ontario's Environmental Protection Act, including Ontario
Regulation 347, which regulates general waste management and Regulation 232/98,
which regulates landfill standards, prescribes the principal standards for waste
management systems, transfer and disposal sites. It also creates environmental
offenses for spills, unlawful discharges or failure to comply with permits or
approvals.
The operation of a waste management system or a transfer or disposal site
requires a certificate of approval or a provisional certificate of approval
issued by the Ontario Ministry of the Environment under Part V of the Ontario
Environmental Protection Act. Regulations 347 and 232/98 prescribe standards for
the location, maintenance and operation of transfer or disposal sites.
All environmental regulations in Ontario, including those related to waste
management, are currently under review by the Ontario Ministry and are
anticipated to be reformed and updated. These revised regulations are expected
to impose additional requirements on us, the full extent of which are presently
unknown.
Contravention of the Ontario Environmental Protection Act or the related
regulations may result in substantial fines which could equal or exceed the
amount of monetary benefit acquired as a result of the commission of the
offense. Enforcement and compliance orders and injunctions may also be granted
against persons in breach of the legislation or the regulations.
ALBERTA. Alberta's environmental laws have been largely consolidated in the
Environmental Protection and Enhancement Act which comprehensively regulates the
management and control of waste, including hazardous waste, and creates offenses
for spills and other matters of non-compliance. The Waste Control Regulation
deals in detail with the identification of wastes and requirements for the
handling, storage and disposal of waste. Failure to comply with these
requirements may expose us to substantial liabilities or penalties.
BRITISH COLUMBIA. Our operations in British Columbia are regulated
primarily through that province's Waste Management Act and the regulations under
that Act. This legislation authorizes the making of regulations and policies to
comprehensively address waste management issues. It also creates offenses
related to unlawful discharges and other matters. We may be subjected to
administrative orders and/or prosecutions for breach of regulatory requirements
that could result in the imposition of substantial costs or penalties that could
materially affect our financial position. Various other provincial statutes,
such as the Environmental Management Act and the Transportation of Dangerous
Goods Act deal generally with environmental matters and could impact our
operations in British Columbia.
QUEBEC. Quebec's Environmental Quality Act and the regulations pursuant
thereto prescribe the principal standards for waste management systems, transfer
and disposal sites.
The establishment and operation of a waste management system, or a part of a
waste management system, requires an operating permit under the Environmental
Quality Act. To obtain a modification of the activities or materials referred to
in a permit, the permit holder must satisfy the conditions for the issuance of a
permit which apply to the new materials or activities to be covered by the
permit.
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<PAGE>
Contravention of the Environmental Quality Act, or the related regulations
or permits issued under the Act or regulations may result in fines which may
equal the amount of monetary benefit acquired as a result of the commission of
the offense, and the Minister of the Environment may make orders to cease
certain activities.
UNITED STATES REGULATION
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976. 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
non-hazardous. Wastes classified as hazardous under RCRA are subject to much
stricter regulation than wastes classified as non-hazardous.
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, methane gas emission control
requirements, groundwater remediation standards and corrective action
requirements. The Subtitle D Regulations also require new landfill sites to meet
more stringent liner design criteria to keep leachate out of groundwater. Each
state is required to revise its landfill regulations to meet these requirements
or these 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 each 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.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972. The Clean Water Act
regulates the discharge of pollutants from a variety of sources into waters of
the United States. If run-off from our transfer stations or run-off or collected
leachate from landfills operated or owned by us in the future 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 the 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 run-off from flowing into surface waters. We believe that
our transfer station 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 adopted regulations that are more stringent than the
federal requirements.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980. 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 imposes 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 evaluation and
remediation of any damage to natural resources. The costs of a CERCLA
investigation and cleanup can be very substantial. Liability under CERCLA may be
based on the existence of small amounts of the more than 700 "hazardous
substances" listed by the EPA, many of which can be found in household waste. 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 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
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<PAGE>
ability to obtain reimbursement from others for their allocable shares of these
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 these
other parties.
THE CLEAN AIR ACT. The Clean Air Act regulates emissions of air pollutants
from certain landfills depending on the date of the landfill construction, and
the location of the landfill and the materials disposed at the landfill. The EPA
has also issued standards regulating the disposal of asbestos-containing
materials under the Clean Air Act. Air permits to construct may be required for
gas collection and flaring systems, and operating permits may be required,
depending on the estimated volume of emissions.
All of the federal statutes described above contain provisions authorizing,
under certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes. In addition to a penalty award to the
United States government, some of those statutes authorize an award of
attorneys' fees to parties successfully advancing such an action.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970. The OSH Act is administered
by the Occupational Safety and Health Administration, 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 our operations, including standards
concerning notices of hazards, the handling of asbestos and asbestos-containing
materials, and worker training and emergency response programs.
FLOW CONTROL/INTERSTATE WASTE RESTRICTIONS. Certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas, restrict the
importation of out-of-state waste or otherwise discriminate against out-of-state
waste. These restrictions, generally known as flow control restrictions, are
controversial, and some courts have held that some flow control schemes violate
constitutional limits on state or local regulation of interstate commerce. From
time to time, federal legislation is proposed that would allow some local flow
control restrictions. Although no such federal legislation has been enacted to
date, if this federal legislation should be enacted in the future, states in
which we operate or, in the future own, landfills could act to limit or prohibit
the importation of out-of-state waste or direct that wastes be handled at
specified facilities. These state actions could adversely affect any landfills
we may own in the future. These restrictions may also result in higher disposal
costs for our collection operations. If we were unable to pass these higher
costs through to our customers, our business, financial condition and results of
operations could be adversely affected.
Even in the absence of federal legislation, certain state and local
jurisdictions may seek to enforce flow control restrictions through local
legislation or contractually and, in certain cases, we may elect not to
challenge these restrictions based on various considerations. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may adversely affect our ability to operate landfills we may own in
the future at their full capacity and/or reduce the prices that we can charge
for landfill disposal services. If we own landfills in the future, these
restrictions may also result in higher disposal costs for our collection
operations. If we were unable to pass these higher costs through to our
customers, our business, financial condition and results of operations 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,
45
<PAGE>
design, operation, maintenance, closure and post-closure maintenance of
landfills and transfer stations. In addition, many states have adopted statutes
comparable to, and in some cases more stringent than, CERCLA. These statutes
impose requirements for investigation and cleanup of contaminated sites and
liability for costs and damages associated with these 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 the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection
services and then put these franchises out for bid, and bans or other
restrictions on the movement of solid wastes into a municipality.
Permits or other land use approvals with respect to a landfill, as well as
state or local laws and regulations, may specify the quantity of waste that may
be accepted at the landfill during a given time period, and/or specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally be renewed periodically.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to prohibit
or restrict the disposal of certain types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
affect our ability to operate our transfer facilities at their full capacity.
Some state and local authorities enforce certain federal laws in addition to
state and local laws and regulations. For example, in some states, RCRA, the OSH
Act, parts of the Clean Air Act and parts of the Clean Water Act are enforced by
local or state authorities instead of by the EPA, and in some states those laws
are enforced jointly by state or local and federal authorities.
PUBLIC UTILITY REGULATION. The rates that landfill operators may charge are
regulated in many states by public authorities. The adoption of rate regulation
or the reduction of current rates in states in which we own or operate landfills
in the future could have an adverse effect on our business, financial condition
and results of operations.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
We maintain environmental and other risk management programs that we believe
are 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 changes in applicable laws or future acquisitions will result in an
increase in these costs. We also maintain a worker safety program that
encourages safe practices in the workplace. Operating practices at all our
operations emphasize minimizing the possibility of environmental contamination
and litigation. We believe that our facilities substantially comply with
material applicable Canadian and United States federal, provincial and state
regulations.
We carry a broad range of insurance for the protection of our assets and
operations that we believe are customary to the solid waste management industry,
including pollution liability coverage. Specifically, we maintain pollution
liability coverage of not less than C$1.0 million per occurrence subject to a
deductible. Our insurance program may not cover all liabilities associated with
environmental cleanup or remediation.
Some of our municipal solid waste services contracts, supply contracts and
permits to operate transfer stations and recycling facilities require us to
obtain performance bonds, letters of credit or other means of financial
assurance to secure our contractual performance. We have not experienced
difficulty in obtaining performance bonds or letters of credit for our current
operations. At
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December 31, 1998, we had provided customers and various regulatory authorities
with bonds and letters of credit in the aggregate amount of approximately $7.0
million to secure our obligations.
PROPERTY AND EQUIPMENT
We own four parcels of real property, located in Brantford and Kitchener,
Ontario; Parksville, British Columbia; and Williamsport, Pennsylvania. The
Brantford and Kitchener facilities are approximately 8,200 square feet and 6,500
square feet, respectively, and we use these properties for administration,
dispatch and maintenance. The Parksville property is approximately 6,000 square
feet and is used for administration, dispatch and maintenance. The Williamsport
property, on which we have a transfer station and an office building, is
approximately two acres. We own the Brantford, Kitchener, Parksville and
Williamsport properties free of any mortgage, lien or encumbrance, except for
those relating to our credit facility.
As of December 31, 1998, we leased a total of 21 facilities and other real
properties used in our solid waste operations which covered in the aggregate
approximately 568,850 square feet. We lease our corporate headquarters in
Burlington, Ontario under a lease that expires in June 2003.
As of December 31, 1998, we owned approximately 435 and leased approximately
31 pieces of equipment, including waste collection vehicles and related support
vehicles, as well as related heavy equipment used in landfill operations, and
had more than 32,000 carts and containers in use. Carts range in size from 30 to
95 gallons and containers range from one to 50 cubic yards. We believe that our
vehicles, equipment and operating properties are well maintained and adequate
for our current operations. However, we expect to make investments in additional
equipment and property for expansion and replacement of assets and in connection
with future acquisitions.
EMPLOYEES
As of December 31, 1998, we employed approximately 650 full-time employees,
including approximately 18 persons classified as professionals or managers,
approximately 518 employees involved in collection, transfer, disposal and
recycling operations, and approximately 114 sales, clerical, data processing or
other administrative employees.
Approximately 225 employees at 11 of our operating facilities are
represented by unions with which we have collective bargaining agreements. Nine
of these collective bargaining agreements have terms expiring between August 31,
1999 and December 2003. 63 employees are covered by collective bargaining
agreements that expire in 1999. We are renegotiating one recently expired
collective bargaining agreement which covers 10 employees in Nanaimo, British
Columbia. We expect to enter into a new collective bargaining agreement with
these employees. We are not aware of any other organizational efforts among our
employees and believe that relations with our employees are good.
LEGAL PROCEEDINGS
In the normal course of our business and as a result of the extensive
governmental regulation of the solid waste industry, we may periodically become
subject to various judicial and administrative proceedings involving United
States or Canadian federal, provincial, state or local agencies. In these
proceedings, an agency may seek to impose fines on us or to revoke or deny
renewal of an operating permit or license held by us. From time to time, we may
also be subject to actions brought by citizens' groups or adjacent landowners or
residents in connection with the permitting and licensing of transfer stations
and landfills or alleging environmental damage or violations of the permits and
licenses pursuant to which we operate.
In addition, we may become party to various claims and suits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters
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occurring during the normal operation of a solid waste services business.
However, there is no current proceeding or litigation involving Capital
Environmental that we believe will have a material adverse impact on our
business, financial condition, results of operations or cash flows.
EXCHANGE CONTROLS
There are no limitations on the right of non-residents of Canada or foreign
owners to hold or vote our shares of common stock or any of our other securities
imposed by Canadian or provincial laws or any of our constating documents.
Except for the INVESTMENT CANADA ACT (Canada) and Canadian withholding taxes
described in "Tax Consequences--Canadian Federal Income Tax Considerations for
United States Investors", there are no Canadian federal or provincial laws,
decrees or regulations that restrict the export or import of capital or affect
the remittance of dividends, interest or other payments to holders of any of our
securities who are not residents of Canada.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth information concerning Capital
Environmental's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Tony Busseri......................................... 30 Chairman of the Board, Chief Executive Officer and
Director (1)(2)
Allard Loopstra...................................... 52 President, Chief Operating Officer and Director (3)
George Boothe........................................ 40 Executive Vice President, Chief Financial Officer
Elizabeth Joy Grahek................................. 40 Executive Vice President, General Counsel
Kenneth Ch'uan-k'ai Leung............................ 54 Director (1)(2)(3)
David Lowenstein..................................... 37 Director (1)(2)(3)(4)
</TABLE>
- ------------------------
(1) Member of the Executive Committee, upon consummation of this offering.
(2) Member of the Audit Committee, upon consummation of this offering.
(3) Member of the Compensation Committee, upon consummation of this offering.
(4) Member of the Board of Directors, upon consummation of this offering.
TONY BUSSERI has been a Director of Capital Environmental since it was
formed, and served as President of Capital Environmental from May 1997 to April
1998. Mr. Busseri was elected Chairman and Chief Executive Officer in April
1998. Mr. Busseri has more than five years of experience conducting mergers and
acquisitions for Laidlaw Inc.'s wholly owned non-hazardous solid waste
management subsidiary, Laidlaw Waste Systems, Inc. and the predecessor to Philip
Services Corp., Philip Environmental Inc. Mr. Busseri served as a senior manager
in corporate development at Philip from May 1996 to May 1997, where he was
responsible for the sale of Philip's solid waste operations. Mr. Busseri also
served as a senior manager at Laidlaw from March 1992 to April 1996, where he
was responsible for acquisition and divestiture activity. Mr. Busseri holds an
honors degree in business administration from the University of Western Ontario,
and is a Certified Management Accountant.
ALLARD LOOPSTRA was appointed Vice President of Capital Environmental in
June 1997, Chief Operating Officer in January 1998, President in April 1998 and
Director of Capital Environmental in June 1998. Mr. Loopstra has more than six
years of experience in the solid waste industry and more than 27 years of senior
and executive management experience. He served as a general manager of Canadian
Waste, where he managed certain of its Ontario based operations from 1992 to
June 1997. Mr. Loopstra held various senior positions with Slater Industries, a
steel company, from 1974 to 1992, including vice president of sales and
marketing, vice president of materials and engineering services and president.
Mr. Loopstra graduated with honors in business administration from Mohawk
College.
GEORGE BOOTHE was appointed as Executive Vice President, Chief Financial
Officer of Capital Environmental in February 1999. Mr. Boothe has more than nine
years of experience in the solid waste industry in both financial operations and
general management roles. From April 1996 to December 1998, Mr. Boothe was a
district manager for Waste Management Inc., and its various predecessors. From
January 1994 to March 1996, Mr. Boothe was a market area controller for Laidlaw.
From July 1990 to December 1993, Mr. Boothe was Laidlaw's corporate controller
and director of
49
<PAGE>
financial operations. Mr. Boothe is a chartered accountant and received his
Bachelor of Commerce from the University of Windsor.
ELIZABETH JOY GRAHEK was appointed as Executive Vice President, General
Counsel of Capital Environmental in August 1998. From September 1997 to July
1998, Ms. Grahek was legal counsel to Philip Services. Prior to September 1997,
Ms. Grahek spent 14 years with Turkstra Mazza Associates, a law firm
specializing in matters pertaining to corporate and environmental law. Ms.
Grahek was outside counsel to Capital Environmental while she worked at Turkstra
Mazza Associates. Ms. Grahek received her law degree from the University of
Toronto.
KENNETH CH'UAN-K'AI LEUNG has served as Director of Capital Environmental
since July 1997. Mr. Leung has served as a managing director of investment
banking at Sanders Morris Mundy since March 1995 and as chief investment officer
of Environmental Opportunities Fund I since January 1996, and chief investment
officer of Environmental Opportunities Fund II since June 1998. Mr. Leung served
as a director of Eastern Environmental Services, Inc. through July 1998. From
1978 to 1994, Mr. Leung was a managing director of Smith Barney Inc. Mr. Leung
has over 30 years of experience with the environmental services industry as a
securities analyst and investment banker.
DAVID LOWENSTEIN will become a Director of Capital Environmental on the
closing of this offering. Mr. Lowenstein is currently and has been since May
1995 a director, executive vice president of corporate development and treasurer
of F.Y.I. Incorporated, a publicly-traded company which provides document and
information outsourcing services. Between February 1994 and May 1995, Mr.
Lowenstein served as vice president of business development of Laidlaw, with
overall responsibility for Laidlaw's acquisition and divestiture program in
North America. From April 1990 until February 1994, Mr. Lowenstein served in a
variety of capacities at Laidlaw, including director of Corporate Development.
Mr. Lowenstein holds a Bachelors of Arts specializing in Economics from Sir
Wilfred Laurier University and a Masters of Science specializing in Public and
Business Administration from Carnegie Mellon University.
Directors of Capital Environmental hold office until the next annual meeting
of stockholders and until their successors are elected and qualified, or until
their resignation or removal. All officers are appointed by and serve at the
discretion of the Board of Directors.
OTHER KEY EMPLOYEES
The following table sets forth information concerning certain of Capital
Environmental's key employees as of December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Lynn Bishop.......................................... 50 President, Western Waste
Mike Hess............................................ 37 Vice President, Western New York and Central New
York/Pennsylvania Operations
Ted Hutcheson........................................ 42 Vice President, Central and Eastern Ontario
Operations
Glen Kingswood....................................... 52 Vice President, Southwestern Ontario Operations
</TABLE>
LYNN BISHOP founded Western Waste in November 1994 and has been its
President since that date. Western Waste is Capital Environmental's operating
subsidiary for the western Canadian territory that comprises the Alberta and
British Columbia service areas. Prior to founding Western Waste, Mr. Bishop was
employed by Laidlaw for 25 years. From 1983 to 1994, he was Laidlaw's vice
president
50
<PAGE>
of Western North America Operations where he was the senior operating officer
responsible for Laidlaw's solid waste operations in four Western Canadian
provinces and the state of Utah. Mr. Bishop is a professional engineer.
MICHAEL HESS has worked in the waste management industry for over 16 years.
Prior to joining Capital Environmental in December 1997, Mr. Hess was employed
by USA Waste as general manager of the greater Washington, D.C. market area
starting in late 1995. Prior to overseeing the Washington, D.C. marketplace, Mr.
Hess was employed by Laidlaw from 1992 to 1995 as its general manager for
upstate New York where he was responsible for collection and materials recycling
facility operations. Previously, Mr. Hess was employed in operations and sales
positions with Browning Ferris Industries and Waste Management, Inc.
TED HUTCHESON, prior to joining Capital Environmental, was employed by
Laidlaw from 1991 to 1997 as a director of human resources and later as a market
general manager in Victoria, British Columbia. Commencing in 1997, Mr. Hutcheson
acted as an acquisition consultant for Capital Environmental and since 1998 he
has been employed as Vice President of our Central and Eastern Ontario
operations.
GLEN KINGSWOOD has over 15 years of experience in the waste management
sector. Before joining Capital Environmental in September 1997, Mr. Kingswood
worked for Philip Services from 1991 to 1996 including a position as vice
president of Ontario operations. Before joining Philip Services, Mr. Kingswood
owned and operated Kingswood Waste Systems, a private solid waste management
company in Ontario, from 1985 to 1991.
COMMITTEES OF THE BOARD
The Board of Directors has authorized an Executive Committee, an Audit
Committee and a Compensation Committee to become operative upon the closing of
this offering. A majority of the members of the Audit and Compensation
Committees will be independent directors who are not employees of Capital
Environmental or any of our subsidiaries.
COMPENSATION OF DIRECTORS
Directors currently do not receive any compensation for attending meetings
of the Board of Directors. After completion of this offering, each independent
director will receive a fee of $1,500 for attendance at each Board meeting and
each committee meeting, unless held on the same day as the full Board meeting,
in addition to reimbursement of reasonable expenses.
The Compensation Committee will, in its discretion, issue options to
independent directors under our 1999 stock option plan. When Mr. Lowenstein
becomes an independent director at the completion of this offering, we will
grant him an option to purchase 20,770 shares at the initial public offering
price, exercisable on the twelve-month anniversary of the date of this offering,
pursuant to the Plan.
Under the 1999 stock option plan, Capital Environmental will grant each
independent director, on the annual anniversary of the date of his or her
appointment to the Board and during the time he or she serves on the Board, an
option to purchase 13,847 shares of our common stock. All these options will
have an exercise price equal to the fair market value of the common stock on the
grant date, will vest on the one-year anniversary of the grant date, and will
expire upon the earlier of five years after the grant date or one year after the
director ceases to be a member of the Board. In the event of a change of
control, options granted to independent directors under the 1999 stock option
plan will immediately vest.
51
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
Capital Environmental was incorporated on May 23, 1997. The following tables
set forth information regarding the annual and long-term compensation earned in
1997 and 1998 by the Chief Executive Officer and the President and Chief
Operating Officer. The individuals identified below have been compensated in
accordance with the terms of their Employment Agreements described below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION SHARES UNDERLYING
------------------------------------ RESTRICTED OPTIONS ALL OTHER
YEAR SALARY BONUS OTHER STOCK GRANTED(2) COMPENSATION
--------- ------------ ---------- ---------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tony Busseri................ 1998(1) C $150,000 C $96,250 C $ 7,500 -- 34,617 --
1997 C$ 52,083 C$29,167 C$ 5,083 -- 49,849 --
Allard Loopstra............. 1998(1) C $137,500 C $85,000 C $10,624 -- 41,541 --
1997 C$ 50,000 C$30,000 C$ 6,166 -- 13,847 --
</TABLE>
- ------------------------
(1) Salary and bonus figures reflect employment from June 1, 1997 through
December 31, 1997. Bonus figures reflect portion earned during 1997; these
bonuses were paid in cash.
(2) See "Option Grants" below.
All executive officers and directors of Capital Environmental as a group
were compensated C$161,250 in 1997 in salary and bonus and received options to
acquire an aggregate of 163,394 shares of common stock. In 1998, all executive
officers and directors of Capital Environmental as a group were compensated
C$468,750 in salary and bonus and received options to acquire an aggregate of
76,158 shares of common stock.
STOCK OPTIONS
OPTION GRANTS. The following table contains information concerning the
grant of options to purchase shares of our common stock to Capital
Environmental's Chief Executive Officer and the President and Chief Operating
Officer during our last fiscal year ended December 31, 1998.
1998 OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR
SHARES GRANTED TO EXERCISE OPTION TERM(3)
NAME OF UNDERLYING EMPLOYEES PRICE --------------------------
BENEFICIAL OWNER OPTIONS(1) IN 1998 PER SHARE(2) EXPIRATION DATE 5% 10%
- --------------------------------- ----------- ------------- ------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Tony Busseri..................... 13,847 5.9% C $14.44 April 30, 2003 C $ 55,200 C $122,100
20,770 8.8% C $18.05 August 30, 2003 C $103,650 C $228,900
Allard Loopstra.................. 27,694 11.7% C $14.44 January 30, 2003 C $110,400 C $244,200
13,847 5.9% C $14.44 April 30, 2003 C $ 55,200 C $122,100
</TABLE>
- ------------------------
(1) Options vest on the earlier of two years from the date of their grant or the
day prior to the completion of this offering.
52
<PAGE>
(2) The options were granted at or above fair market value as determined by the
Board of Directors on the date of grant.
(3) Amounts reported in these columns represent amounts that may be realized on
the exercise of options immediately prior to the expiration of their term
assuming the specified assumed rates of stock price appreciation (5% and
10%) on Capital Environmental's common stock annually. The potential
realizable values set forth above do not take into account applicable tax
and expense payments that may be associated with these exercises. Actual
realizable value, if any, will depend on the future price of the common
stock on the actual date of exercise, which may be earlier than the stated
expiration date. The 5% and 10% assumed annualized rates of stock price
appreciation over the exercise period of the options and warrants used in
the table above are mandated by the rules of the Securities and Exchange
Commission and do not represent Capital Environmental's estimate or
projection of the future price of the common stock on any date. There is no
representation, either express or implied, that the stock price appreciation
rates for the common stock assumed for purposes of this table will actually
be achieved.
As of December 31, 1998, all directors and officers as a group held 210,473
options to acquire shares of common stock at an average exercise price of
C$12.48, or $8.37 as of April 15, 1999. No director or officer exercised her or
his options during 1998.
1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
------------------------------ ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Tony Busseri.............................................. -- 84,466 -- C $590,000
Allard Loopstra........................................... -- 55,388 -- C $300,000
</TABLE>
- ------------------------
(1) There was no public trading market for our common stock at December 31,
1998. Accordingly, as permitted by the rules of the Securities and Exchange
Commission, these values have been calculated based on the fair market value
of our common stock as of December 31, 1998, of C$18.05 per share, or $11.74
as of December 31, 1998, as determined by the Board of Directors based on
recent arms-length transactions with third parties, less the aggregate
exercise price.
EMPLOYMENT AGREEMENTS
Tony Busseri is employed as the Chairman of the Board and Chief Executive
Officer of Capital Environmental pursuant to an employment agreement dated as of
August 14, 1998, which incorporates prior amendments made to his original
employment agreement of August 1, 1997. Prior to August 1, 1997, Mr. Busseri was
not compensated by us for his services. By the terms of the August 14, 1998
agreement, Mr. Busseri's base salary is fixed at C$175,000 effective July 1,
1998. Prior to July 1, 1998, Mr. Busseri's base salary was fixed at C$125,000.
Upon completion of this offering, Mr. Busseri's base salary will increase to the
greater of $130,000 converted into Canadian dollars or C$175,000. Mr. Busseri is
entitled to a minimum annual bonus of 50% of his base salary. Bonus amounts in
excess of the minimum guaranteed bonus are payable at the discretion of the
Board of Directors. The agreement has an initial term of three years, expiring
on July 31, 2000. On completion of this offering, the term of the agreement will
be automatically extended for a further three years. We may terminate the
employment agreement at any time without notice. However, if we terminate Mr.
Busseri's employment without cause, we are obligated to make severance payments
to him consisting of base salary and benefits for twenty-four months with the
option of a lump sum salary payment, and a bonus
53
<PAGE>
of two times the minimum annual bonus in addition to any bonus already earned.
In addition, all stock options vest and are exercisable for twelve months after
his termination. In the event of a change in control, Mr. Busseri can demand
that we cash out all of his options. If after this offering, Mr. Busseri no
longer holds one of the positions of either Chairman of the Board or Chief
Executive Officer, we will be obligated to make the severance payments described
above to him. Additionally, Mr. Busseri is subject to a two year non-competition
agreement.
Allard Loopstra is employed as President and Chief Operating Officer of
Capital Environmental pursuant to an employment agreement dated as of August 14,
1998, which incorporates prior amendments made to his original employment
agreement dated June 19, 1997. By the terms of the August 14, 1998 agreement,
Mr. Loopstra's base salary is fixed at C$170,000 effective July 1, 1998. Mr.
Loopstra's initial base salary was C$100,000 and was increased to C$120,000 in
January of 1998. Upon completion of this offering, Mr. Loopstra's base salary
will increase to the greater of $125,000 converted into Canadian dollars or
C$170,000. Mr. Loopstra is entitled to a minimum annual bonus of 50% of his base
salary. Bonus amounts in excess of the minimum guaranteed bonus are payable at
the discretion of the Board of Directors. The agreement has an initial term of
three years, expiring on July 31, 2000. On completion of this offering, the term
of the agreement will be automatically extended for a further three years. The
employment agreement also provides that on completion of this offering, Mr.
Loopstra will receive a one-time bonus of C$125,000. We may terminate the
employment agreement at any time without notice. However, if we terminate Mr.
Loopstra's employment without cause, we are obligated to make certain severance
payments to him which are substantially identical to the severance payments that
would be provided to Mr. Busseri. If after this offering, Mr. Busseri no longer
holds one of the positions of either Chairman of the Board or Chief Executive
Officer, we will be obligated to make these severance payments to Mr. Loopstra.
In the event of a change of control, Mr. Loopstra can demand that we cash out
all of his options. Additionally, Mr. Loopstra is subject to a non-competition
agreement for a maximum period of eighteen months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There was no Compensation Committee during 1997. At the time the employment
agreements with Mr. Busseri and Mr. Loopstra were approved by the Board of
Directors, Mr. Busseri and Mr. Loopstra were two of the four members of the
Board of Directors. None of our executive officers served as a director or
member of the compensation committee of another entity.
1997 STOCK OPTION PLAN
The Board of Directors adopted the 1997 stock option plan effective as of
July 30, 1997, and the stockholders approved it on July 30, 1997. The 1997 stock
option plan is intended to provide officers, employees and directors with
additional incentives by increasing their proprietary interests in Capital
Environmental. Under the 1997 stock option plan, we may grant options to acquire
shares of common stock up to a maximum of 10% of the then issued and outstanding
shares of common stock after giving effect to the conversion of the convertible
preference stock and the class "B" special stock. As of April 15, 1999, we had
granted options to purchase 384,944 shares of common stock at a weighted average
exercise price of C$12.48, or $8.37 as of April 15, 1999, per share under the
terms of the 1997. No further options will be granted under the 1997 stock
option plan following effectiveness of the 1999 stock option plan described
below.
The Board of Directors currently administers the 1997 stock option plan.
Upon consummation of this offering, the Compensation Committee will administer
the 1997 stock option plan.
Options generally become exercisable only after the second anniversary of
the grant date. No option will remain exercisable later than five years after
the grant date, unless the Compensation Committee determines otherwise.
Notwithstanding the foregoing, upon a "change of control" event,
54
<PAGE>
which is defined as an initial public offering of our securities on a recognized
stock exchange or an offer to purchase more than 50.0% of our voting securities,
the options become immediately exercisable.
If an officer, employee or director with outstanding options retires or
becomes disabled or dies, he or she (or his or her estate) may exercise his or
her options, but only within the period ending on the earlier of the expiration
of the option or 18 months after retirement, death or disability. If the
optionee does not exercise his or her options within that time period, the
options will terminate, and the shares of common stock subject to the options
will become available for issuance under the 1999 stock option plan. If the
optionee ceases to be an officer, employee or director of Capital Environmental
for any reason other than retirement, death or disability, his or her vested
options terminate 90 days after this relationship terminates, and the shares of
common stock subject to the options will become available for issuance under the
1999 stock option plan.
1999 STOCK OPTION PLAN
The 1999 stock option plan was adopted by the Board of Directors and
approved by the stockholders in April 1999. The 1999 stock option plan is
intended to provide employees, officers, consultants and directors with
additional incentives by increasing their proprietary interests in Capital
Environmental. Under the 1999 stock option plan, we may grant options for a
maximum of 15%, including stock options issued under the 1997 stock option plan,
of the then issued and outstanding shares of common stock and common stock
equivalents.
A subcommittee of the Compensation Committee comprised solely of two
non-employee members of the Board will administer the 1999 stock option plan.
The administrator of the 1999 stock option plan will have the authority to
determine the employees, officers, consultants and directors to whom options are
granted, the type, size and term of the options, the grant date, the expiration
date, the vesting schedule and other terms and conditions of the options. Unless
otherwise determined by the Committee, options granted to directors under the
1999 stock option plan will generally vest one year from the date of grant and
expire upon the earlier of five years after the date of grant or one year after
the director ceases to be a member of the Board of Directors. Options for
non-directors will generally vest two years from the date of grant and will
generally expire five years after the grant date, unless the Compensation
Committee determines otherwise. Upon a change of control event, options become
immediately exercisable.
If an employee, officer, consultant or director with outstanding options
retires or becomes disabled or dies with outstanding options, this person, or
his or her estate, may exercise his or her options, but only within the period
ending on the earlier of the expiration of the option or 18 months after
retirement, death or disability. If the option holder does not exercise his or
her options within that time period, the options will terminate, and the shares
of common stock subject to the options will become available for issuance under
the 1999 stock option plan. If the option holder ceases to be an employee,
officer, consultant or director of Capital Environmental other than because of
retirement, death or disability, his or her options terminate 90 days after the
date this relationship terminates, and the shares of common stock subject to the
options will become available for issuance under the 1999 stock option plan.
55
<PAGE>
CERTAIN TRANSACTIONS
FUNDING
Capital Environmental was founded in May 1997 by Branard Investment Corp., a
private holding company for which Mr. Busseri serves as president, with the goal
of taking advantage of consolidation opportunities in the solid waste services
industry in Canada. In connection with the founding of Capital Environmental,
and prior to our acquisition of any assets or operations, we issued 1,353,924
shares of our common stock to Branard for nominal consideration. Subsequently,
we negotiated our purchase of selected assets of Canadian Waste and USA Waste's
50% interest in Western Waste.
In July 1997, we sold an aggregate of 8,000 shares of convertible preference
stock at a price of C$1,000 per share or C$7.22 per share of common stock on a
converted basis. Of the 8,000 shares of convertible preference stock, 6,802 were
purchased by principals and employees of Sanders Morris Mundy, Inc. and
investment partnerships managed by or associated with Sanders Morris Mundy. Upon
completion of this offering, the shares of convertible preference stock will
convert into 1,107,750 shares of common stock. In July 1997, Sanders Morris
Mundy and an affiliate of Sanders Morris Mundy received warrants to purchase
92,312 shares of common stock at an exercise price of C$0.007 per share, all of
which are currently exercisable. These warrants expire in July 2002. Sanders
Morris Mundy is one of the representatives of the underwriters.
In July 1997, in connection with our formation, we granted Allen Fracassi a
warrant to purchase 30,772 shares of common stock at an exercise price of
C$0.007 per share. The warrant is currently exercisable and expires July 15,
2002.
On July 30, 1997, we granted to each of Tony Busseri, Kenneth Ch'uan-k'ai
Leung and Allen Fracassi options to acquire 49,849 shares of common stock, at an
exercise price of C$7.22 per share. Also on July 30, 1997, we granted Allard
Loopstra an option to acquire 13,847 shares of common stock, at an exercise
price of C$7.22 per share. In January and May, 1998, we granted Mr. Loopstra an
option to acquire 27,694 and 13,847 shares of common stock, respectively, at an
exercise price of C$14.44 per share. All of these options were granted pursuant
to the 1997 stock option plan. In May 1998, we granted Mr. Busseri an option to
acquire 13,847 shares of common stock under the 1997 stock option plan at an
exercise price of C$14.44 per share. These options become exercisable upon the
earlier of the day prior to the consummation of this offering or two years from
the date of grant and expire five years from the date of grant.
In May 1998, a principal of Sanders Morris Mundy received an option to
purchase 27,694 shares of common stock at an exercise price of C$14.44 per
share, which will be exercisable on the day prior to the consummation of this
offering and will expire five years from the date of grant. In June 1998, we
completed a private placement of 553,869 shares of our common stock at a price
of C$18.05 per share, for which Sanders Morris Mundy served as placement agent.
Principals and employees of Sanders Morris Mundy and investment partnerships
managed by or associated with Sanders Morris Mundy purchased 486,989 shares of
common stock in the private placement.
On August 31, 1998, we granted each of Tony Busseri and Kenneth Ch'uan-k'ai
Leung an option to acquire 20,770 shares of common stock at an exercise price of
C$18.05 per share. These options become exercisable upon the earlier of the day
prior to the consummation of this offering or two years from the date of grant
and expire five years from the date of grant.
In October 1998, principals and employees of Sanders Morris Mundy, and
investment partnerships managed by or associated with Sanders Morris Mundy,
purchased 612,037 shares of our common stock from certain existing shareholders
of Capital Environmental.
In December 1998, we paid $125,000 to Sanders Morris Mundy for services
provided as our financial advisor.
56
<PAGE>
ACQUISITIONS
In November 1997, in connection with our acquisition of the remaining 33.33%
of the outstanding common stock of Western Waste from L&S Bishop Enterprises
Inc. ("L&S"), a company controlled by Lynn Bishop, the President of Western
Waste, we issued to L&S 400,000 shares of class "B" special stock at C$21.67 per
share. The 400,000 shares of class "B" special stock will automatically convert
into 484,645 shares of common stock upon the consummation of this offering. If
the price per share of our common stock in this offering is less than C$21.67
per share, we have the right to make up to L&S any shortfall between C$21.67 per
share and the actual price per share of the common stock sold in this offering,
in our sole discretion, by either issuing these additional number of shares of
common stock at the actual price per share at which the common stock is sold in
this offering, or by payment of the cash difference. Also in connection with
this acquisition, we loaned C$1.5 million to L&S. The loan, which is evidenced
by a promissory note, bears no interest and the principal amount becomes due and
payable immediately prior to the completion of this offering. Repayment of the
loan is subject to a right of offset against our payment of a dividend of C$1.5
million declared in November 1997 on the shares of class "B" special stock,
payable immediately prior to the completion of this offering. If we complete
this offering at C$21.67 per share or elect to make up any difference, L&S has
the right to include in this offering shares of common stock having a value of
C$5,250,000. However, we have the right to repurchase these shares rather than
include them in this offering. We have elected to include 242,323 shares of
common stock owned by L&S in this offering.
LOAN TO THE CHIEF EXECUTIVE OFFICER
In July 1998, we loaned C$155,000, and in October 1998, we loaned an
additional C$45,000, to Tony Busseri, the Chairman and Chief Executive Officer
of Capital Environmental, to assist with the purchase of a principal residence.
As of April 15, 1999, C$155,000 and C$45,000, respectively, of the loans were
outstanding. The loans bear no interest and are repayable to us on demand. If we
terminate Mr. Busseri's employment, he will have three years from the date of
termination to pay the loan.
Under the terms of our credit facility, we may extend loans to officers and
directors in an aggregate amount not to exceed $500,000 for the purchase of a
principal residence and/or common stock of Capital Environmental.
Except as described above, we intend to enter into all transactions on an
arm's-length basis in the ordinary course of our business and on terms no less
favorable to us than could be obtained from unaffiliated third parties.
57
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 15, 1999, and as adjusted to reflect
the sale of the shares of common stock offered in this prospectus, by:
- each person or entity that we know owns more than 5% of our common stock;
- our Chief Executive Officer and each of our other executive officers;
- each of our directors;
- the selling shareholders; and
- all our current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
SHARES
OWNED BEING OWNED
BEFORE OFFERING OFFERED AFTER OFFERING
---------------------- ----------- ----------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Environmental Opportunities Fund II(2).............................. 924,783 23.89% 924,783 13.43%
Environmental Opportunities Fund I(3)............................... 632,806 16.35 632,806 9.19
L&S Bishop Enterprises(4)........................................... 484,645 12.52 242,323 242,322 3.52
CERI Investors, L.P.(5)............................................. 336,527 8.59 336,527 4.85
Granvin Investments Inc.(6)......................................... 281,247 7.27 281,247 -- --
Branard Investment Corp.(7)......................................... 243,090 6.28 243,090 3.53
Tony Busseri(8)(9)(10).............................................. 219,859 5.56 219,859 3.15
9043-8284 Quebec Inc (11)........................................... 153,855 3.97 153,855 -- --
ABCO/Kingswood(13).................................................. 84,235 * 73,850 10,385 *
Kenneth Ch'uan-k'ai Leung(8)(10)(12)................................ 70,619 1.79 70,619 1.02
Allard Loopstra(8)(10).............................................. 55,388 1.41 55,388 *
David Lowenstein(8)................................................. -- -- 20,770 *
All executive officers and directors as a group (4 persons)......... 345,866 8.47% 366,636 5.15%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In general, a person who has voting power and/or investment
power with respect to securities is treated as a beneficial owner of those
securities. Shares of common stock subject to options and/or warrants
currently exercisable or exercisable within 60 days of the date of this
prospectus count as outstanding for computing the percentage beneficially
owned by the person holding these options. Except as otherwise indicated by
footnote, we believe that the persons named in this table, have sole voting
and investment power with respect to the shares of common stock shown.
(2) Environmental Opportunities Fund II consists of Environmental Opportunities
Fund II, L.P. and Environmental Opportunities Fund II (Institutional), L.P.,
both of which are managed by Fund II Mgt. Co., L.L.C. ("EOF II Management").
Sanders Morris Mundy Inc., one of the representatives of the underwriters,
owns 99.0% of the membership interests in EOF II Management. The address of
Environmental Opportunities Fund II is 600 Travis St., Suite 3100, Houston,
Texas.
(3) Environmental Opportunities Fund I consists of Environmental Opportunities
Fund, L.P. and Environmental Opportunities Fund (Cayman), L.P., both of
which are managed by Environmental Opportunities Management Company, L.L.C.
("EOF I Management"). Sanders Morris Mundy Inc. owns 75% of the membership
interests in EOF I Management. The address of Environmental Opportunities
Fund I is 600 Travis St., Suite 3100, Houston, Texas.
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(4) The address of L&S Bishop Enterprises is 202-340 Sioux Road, Sherwood Park,
Alberta. The principal shareholder of L&S is Lynn Bishop, the President of
Western Waste.
(5) CERI Investors, L.P. includes as a principal limited partner an affiliate of
Sanders Morris Mundy Inc. Includes warrants to purchase 46,156 shares of
common stock at an exercise price of C$.007 per share which are currently
exercisable. The address of CERI Investors, L.P. is 1000 Louisiana St.,
Suite 1200, Houston, Texas.
(6) The address of Granvin Investments Inc. is 70 Balmoral, Suite 302, La
Prairie, Quebec J5R 4L5. Does not include options and warrants to purchase
80,621 shares of common stock held by Allen Fracassi. Mr. Fracassi holds
preference shares which have 50% of the voting power in a corporation which
holds all of the capital stock of Granvin.
(7) The address of Branard is 1005 Skyview Drive, Burlington, Ontario. Mr.
Busseri and Colin Soule serve as directors and executive officers of
Branard.
(8) The address of Mr. Bishop, Mr. Busseri, Mr. Loopstra, Mr. Leung and Mr.
Lowenstein is 1005 Skyview Drive, Burlington, Ontario.
(9) Includes 135,393 shares of common stock held by Branard and beneficially
owned by Mr. Busseri.
(10) The information set forth in the table above includes 84,466, 70,619 and
55,388 options to acquire shares of common stock held by Mr. Busseri, Mr.
Leung and Mr. Loopstra, respectively. All of these options were granted
under our 1997 stock option plan, except for 20,770 of the options held by
Mr. Leung.
(11) The address of 9043-8284 Quebec Inc. is 70 Balmoral, Suite 302, La Prairie,
Quebec J5R 4L5. Philip Fracassi holds preference shares which have 50% of
the voting power in a corporation which holds all of the capital stock of
9043-8284 Quebec.
(12) The chief investment officer of Environmental Opportunities Fund I and
Environmental Opportunities Fund II is Kenneth Ch'uan-k'ai Leung, a director
of Capital Environmental.
(13) The address of ABCO/Kingswood is 155 Glenwood Drive, Brantford, Ontario N3S
7R3. The principal stockholder of ABCO/Kingswood is Glen Kingswood, Vice
President, Southwestern Ontario Operations. Shares beneficially owned by
ABCO/Kingswood after the offering consist solely of 10,385 options to
acquire shares of common stock.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital of Capital Environmental consists of an unlimited
number of shares of convertible preference stock, 400,000 shares of class "B"
special stock and an unlimited number of shares of common stock. As of April 15,
1999, 8,000 shares of convertible preference stock, 400,000 class "B" special
shares and 2,278,782 shares of common stock, were issued and outstanding.
Simultaneously with this offering, we will file amended and restated articles of
incorporation, and our authorized capital stock will consist of an unlimited
number of shares of common stock and an unlimited number of shares of preferred
stock.
Following is a summary of the material provisions applicable to our common
stock and our preferred stock in our amended and restated articles of
incorporation and by-laws, copies of which have been filed as an exhibit to the
registration statement of which this prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
Holders of common stock are entitled to one vote for each share of common
stock held at all meetings of the shareholders of Capital Environmental, except
for meetings at which only holders of another specified class or series of
shares of Capital Environmental are entitled to vote separately as a class or
series. There are no cumulative voting rights. Holders of common stock are
entitled to dividends, if any, as and when declared by the Board of Directors at
its discretion out of funds legally available therefor, subject to any prior
rights of the holders of another class of shares of Capital Environmental. In
the event of our liquidation, dissolution or winding up, the holders of common
stock would be entitled to receive, subject to the prior rights of any holders
of another class of shares, our remaining property after payment of all debts
and liabilities. Holders of the common stock have no pre-emptive subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of common stock are subject to and may be adversely affected by the
rights of holders of any preferred stock issued in the future. All issued and
outstanding shares of common stock are, and the common stock offered in this
prospectus when issued and paid for will be, fully paid and non-assessable. The
Business Corporations Act (Ontario) does not impose restrictions upon the
ownership of our common stock by non-residents of Canada.
PREFERRED STOCK
The Board of Directors has the authority to issue the preferred stock in one
or more series and to fix the designation, rights, privileges, restrictions and
conditions attaching to the series, including dividend rights, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, without further
vote or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of Capital
Environmental without further action by the stockholders. In addition, the
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock. At present, we have no
plans to issue any of the preferred stock.
STATUTORY, CHARTER AND BY-LAW PROVISIONS
The following brief description of provisions of the Business Corporations
Act (Ontario), our amended and restated articles of incorporation and our
by-laws does not purport to be complete and is subject in all respects to the
provisions of the Business Corporations Act (Ontario), our restated articles of
incorporation and our by-laws, copies of which have been filed as exhibits to
the registration statement of which this prospectus forms a part.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. Our articles provide that,
subject to any rights of holders of preferred stock to elect additional
directors under specified circumstances, the number of
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directors comprising the entire Board is fixed at a minimum of three and a
maximum of nine. Pursuant to the Act and a special resolution passed by our
voting stockholders, any change in the minimum and maximum number of directors
fixed in the articles requires the approval of two-thirds of the votes cast by
our voting stockholders at a properly called meeting and the directors may from
time to time change the fixed number of directors within that range. We
currently have a fixed number of four directors. We have a staggered board. Two
of our directors have been elected to serve a one year term and two of our
directors have been elected to serve a two year term. Under the Act and provided
that a quorum of directors remains in office, vacancies may be filled by the
directors. However, where the vacancy results from an increase by the directors
in the number of directors within the minimum and maximum fixed by the articles
and if, after filling the vacancy, the number of directors would be more than
one and one-third times the number of directors required to be elected at the
last annual meeting of the stockholders, or where the vacancy results from a
failure to elect the number of directors required to be elected at any meeting
of stockholders, then the vacancy must be filled by the stockholders. If less
than a quorum of directors remains in office, or if there has been a failure to
elect the required fixed number of directors, any vacancy must be filled by the
stockholders and the directors are required to call a special meeting of the
stockholders to fill the vacancy.
INDEMNITY OF DIRECTORS. Our by-laws provide that our directors and officers
and former directors and officers shall be indemnified to the extent permitted
by the Act against all costs, charges and expenses reasonably incurred by them
in connection with actual or threatened proceedings and claims arising out of
their status as director or officer of Capital Environmental. However, the
director or officer must have acted honestly and in good faith with a view to
our best interests and in the case of a monetary penalty imposed in a criminal
or administrative proceeding, the director or officer must have had reasonable
grounds for believing that his or her conduct was lawful. In support of our
indemnification obligation, we will obtain $50.0 million of directors and
officers insurance.
CANADIAN DIRECTORS. Because Capital Environmental is an Ontario corporation
subject to the Act, a majority of its directors must be resident Canadians and
directors cannot transact business at a meeting of directors unless a majority
of directors present are Canadian directors.
REGISTRATION RIGHTS
After this offering, the holders of 2,506,587 shares of common stock and
warrants to purchase 123,084 shares of common stock may require that we register
these shares under U.S. federal securities laws. Under the terms of the
agreements between Capital Environmental and the holders of these registrable
securities, if we propose to register any of our securities under the Securities
Act of 1933, except for registration on Form S-4, F-4 or S-8, or any other forms
as the Securities and Exchange Commission may promulgate for registration of the
sale of securities in transactions for which Form S-4, F-4 or S-8 may be used as
of the date of this prospectus, we must notify these shareholders of this
registration. These shareholders may then elect to include their shares of
common stock in our proposed registration. In addition, if we propose to qualify
any of our securities for distribution to the public under the securities laws
of any province of Canada, we must notify these shareholders of this
registration and shareholders may then elect to include their shares of common
stock in our proposed qualification. After the expiration of 180 days following
this offering, holders of a majority of these 2,506,587 shares of common stock
and warrants to purchase 123,084 shares of common stock may also require us on
two occasions to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
diligent reasonable efforts to effect the registration. These rights are subject
to certain conditions and limitations, among them the right of the underwriters
of an offering or the Board of Directors to limit the number of shares included
in a registration.
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LISTING
We have applied to list the common stock on the NASDAQ National Market under
the symbol "CERI".
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company and CIBC Mellon Trust Company will
serve as
co-transfer agents and CIBC Mellon Trust Company will serve as registrar for the
common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have outstanding 6,885,479 shares of common
stock, or 7,447,979 shares if the underwriters' over-allotment option is
exercised in full. Of these shares, the 3,750,000 shares that we and the selling
shareholders expect to sell in this offering, or 4,312,500 shares if the
underwriters' over-allotment option is exercised in full, will be freely
tradable in the public market without restriction under the Securities Act,
unless these shares are held by our "affiliates," as that term is defined in
Rule 144 under the Securities Act.
The remaining 3,135,479 shares of common stock that will be outstanding
after this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered or if they qualify for an exemption from registration under
Rule 144 or Rule 701 under the Securities Act, as summarized below.
After this offering, the holders of 2,580,441 shares of common stock, and
warrants to purchase 123,084 shares of common stock, will be entitled to certain
rights with respect to the registration of these shares under the Securities
Act. See "Description of Capital Stock--Registration Rights." Registration of
these shares under the Securities Act would result in these shares becoming
freely tradeable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of this
registration.
Under "lock-up" agreements with the underwriters, all of the executive
officers, directors and our shareholders, who collectively hold an aggregate of
3,135,479 restricted shares, have agreed not to offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any of these shares for a
period of 180-days from the date of this prospectus. We also have entered into
an agreement with the underwriters that we will not offer, sell or otherwise
dispose of common stock for a period of 180-days from the date of this
prospectus, except as consideration for business acquisitions, upon exercise of
currently outstanding stock options or warrants or upon the issuance of options
to employees, consultants and directors under the 1999 stock option plan, and
the exercise of options under the 1997 stock option plan and 1999 stock option
plan, without the prior written consent of Credit Suisse First Boston.
On the date of the expiration of the lock-up agreements, 3,115,118
restricted shares will be eligible for immediate sale, of which 2,570,662 shares
will be subject to certain volume, manner of sale and other limitations under
Rule 144.
Following the expiration of these lock-up periods, certain shares issued
upon exercise of options we granted prior to the date of this prospectus will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares in reliance upon Rule
144 under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144. Under Rule
144, beginning 90 days after the date of this prospectus, a person who has
beneficially owned restricted shares for at least one year would be entitled to
sell in any three-month period up to the greater of:
- 1% of the then-outstanding shares of common stock or approximately 68,855
shares immediately after this offering and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to this
sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who has not been an affiliate of ours during the
preceding 90 days and who has beneficially owned the restricted shares
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for at least two years is entitled to sell them without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
There has been no public market for the common stock prior to this offering
and no assurance can be given that an active public market for the common stock
will develop or be sustained after completion of this offering. Sales of
substantial amounts of the common stock, or the perception that these sales
could occur, could adversely affect the prevailing market price of the common
stock and could impair our ability to raise capital or effect acquisitions
through the issuance of common stock.
After the completion of this offering, we intend to file a registration
statement under the Securities Act to register all shares issuable on exercise
of stock options or other awards granted or to be granted under the 1997 stock
option plan and the 1999 stock option plan. After this registration statement
becomes effective, and subject to certain restrictions under Rule 144, those
shares will be freely saleable in the public market immediately following
exercise of these options. We currently intend to file a shelf registration
statement under the Securities Act covering up to an additional 2,600,000 shares
of common stock for our use in connection with acquisitions that may be made by
us. These shares, if issued within 180 days of the date of this prospectus, will
be subject to lock-up agreements, by which the holders will agree not to offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
of these shares within the 180-day period following the date of this prospectus.
See "Underwriting."
TAX CONSEQUENCES
BECAUSE CANADIAN AND UNITED STATES TAX CONSEQUENCES MAY DIFFER FROM ONE
HOLDER TO THE NEXT, THE DISCUSSION SET OUT BELOW DOES NOT PURPORT TO DESCRIBE
ALL OF THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO YOU AND YOUR PARTICULAR
SITUATION. ACCORDINGLY, YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR AS TO
THE UNITED STATES AND CANADIAN FEDERAL, PROVINCIAL, STATE AND OTHER TAX
CONSEQUENCES OF INVESTING IN OUR COMMON STOCK. THE STATEMENTS OF UNITED STATES
AND CANADIAN TAX LAW SET OUT BELOW ARE BASED ON THE LAWS AND INTERPRETATIONS IN
FORCE AS OF THE DATE OF THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES
OCCURRING AFTER THAT DATE.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR UNITED STATES INVESTORS
Except as specifically discussed below, the statements of law and legal
conclusions regarding the material Canadian federal income tax considerations
applicable to a person who is a U.S. holder contained in "Canadian Federal
Income Tax Considerations for United States Investors" are the opinion of Tory
Tory DesLauriers & Binnington, Canadian counsel for Capital Environmental. In
this summary, a "U.S. holder" means a person who, for the purposes of the
Canada-United States Income Tax Convention (1980), is a resident of the United
States and not of Canada and who, for the purposes of the Income Tax Act
(Canada) ("Canadian Act"):
- deals at arm's length with us;
- is the beneficial owner of our common stock;
- holds our common stock as capital property;
- does not use or hold and is not deemed to use or hold our common stock in
the course of carrying on a business in Canada; and
- is not an insurer for whom our common stock constitutes designated
insurance property.
Our common stock will generally be capital property to a U.S. holder unless it
is held in the course of carrying on a business, in an adventure in the nature
of trade or as "mark-to-market" property for purposes of the Canadian Act. This
summary does not apply to a U.S. holder that is a "financial institution" for
purposes of the mark-to-market rules contained in the Canadian Act.
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This summary is based on the current provisions of the Canadian Act and the
regulations in force on the date of this prospectus, the Convention, counsel's
understanding of the current published administrative and assessing practices of
Revenue Canada, Customs, Excise and Taxation, and all specific proposals to
amend the Canadian Act and the regulations announced by the Canadian Minister of
Finance prior to the date of this prospectus.
This summary is not exhaustive and, except for the proposed amendments to
the Canadian Act, does not take into account or anticipate changes in the law or
the administrative or assessing practices of Revenue Canada, whether by
judicial, governmental or legislative action or interpretation, nor does it take
into account tax legislation or considerations of any province or territory of
Canada. Because Canadian tax consequences may differ from one holder to the
next, this summary does not purport to describe all of the tax considerations
that may be relevant to you and your particular situation. You are advised to
consult your own tax advisor.
DIVIDENDS
Dividends paid or deemed to be paid on our common stock are subject to
non-resident withholding tax under the Canadian Act at the rate of 25%, although
this rate may be reduced by the provisions of an applicable income tax treaty.
Under the Convention, U.S. holders will generally be subject to a 15%
withholding tax on the gross amount of dividends we pay or are deemed to have
paid on our common stock. Also pursuant to the Convention, in the case of a U.S.
holder that is a U.S. corporation which beneficially owns at least 10% of our
voting stock, the applicable rate of withholding tax on dividends will generally
be reduced to 5%.
DISPOSITIONS
A U.S. holder will not be subject to tax under the Canadian Act in respect
of a capital gain arising on a disposition or deemed disposition of our common
stock, including common stock that we purchase, unless (1) the common stock
constitutes "taxable Canadian property" within the meaning of the Canadian Act
to the U.S. holder, and (2) the capital gain is not exempt from taxation in
Canada under the Convention. Generally, our common stock will not constitute
taxable Canadian property of a U.S. holder provided our common stock is listed
on a prescribed stock exchange for purposes of the Canadian Act, which includes
the NASDAQ National Market, and the U.S. holder, alone or together with persons
with whom the U.S. holder does not deal at arm's length, has not owned, or had
under option, 25% or more of the issued shares of any class or series of our
capital stock at any time within five years preceding the date of disposition.
Under the Convention, capital gains derived by a U.S. holder from the
disposition of our common stock in circumstances where it constitutes taxable
Canadian property to the U.S. holder generally will not be taxable in Canada
unless the value of the common stock is derived principally from real property
situated in Canada.
A disposition or deemed disposition of our common stock by a U.S. holder in
respect of which our common stock is taxable Canadian property and which is not
exempt from capital gains taxation in Canada under the Convention will give rise
to a capital gain (or a capital loss) equal to the amount, if any, by which the
proceeds of disposition, less the reasonable costs of disposition, exceed (or
are less than) the adjusted cost base of the common stock to the U.S. holder at
the time of the actual or deemed disposition. Generally, three-quarters of any
capital gain realized will be required to be included in income as a taxable
capital gain and three quarters of any capital loss will be deductible, subject
to certain limitations, against taxable capital gains in the year of disposition
or the three preceding years or any subsequent year in accordance with the
detailed provisions in the Canadian Act.
Our purchase of common stock, other than by a purchase in the open market in
the manner in which shares are normally purchased by a member of the public,
will give rise to a deemed dividend
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equal to the amount we pay on the purchase in excess of the paid-up capital of
the common stock, determined in accordance with the Canadian Act. This deemed
dividend will be subject to non-resident withholding tax, as described above,
and will reduce the proceeds of disposition to a U.S. holder of its common stock
for purposes of computing the amount of any capital gain or loss arising on the
disposition.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations arising from the acquisition, ownership and disposition of our
common stock by a United States holder. A United States holder is:
- an individual citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or any of its political subdivisions; or
- an estate or trust the income of which is subject to United States federal
income taxation regardless of its source.
This summary deals only with common stock that is held as a capital asset by a
United States holder, and does not address tax considerations applicable to
United States holders that may be subject to special tax rules, such as:
- dealers or traders in securities or currencies;
- financial institutions or other United States holders that treat income in
respect of our common stock as financial services income;
- life insurance companies;
- tax-exempt entities;
- United States holders that hold our common stock as a part of a straddle
or conversion transaction or other arrangement involving more than one
position or that hedge against currency risks in respect of our common
stock;
- United States holders that own, or are deemed for United States tax
purposes to own, 10% or more of the total combined voting power of all
classes of our voting stock;
- United States holders that have a principal place of business or "tax
home" outside the United States; or
- United States holders whose "functional currency" is not the United States
dollar.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986 and regulations, rulings and judicial decisions as
of the date of this prospectus; any authority may be repealed, revoked or
modified, perhaps with retroactive effect, so as to result in federal income tax
consequences different from those discussed below. The discussion below also is
based upon representations that we have made, which in turn rely upon
significant assumptions as to facts and circumstances in the future. The
following discussion does not purport to describe all of the tax considerations
that may be relevant to you. The statements of law and legal conclusions set out
below are the opinion of Morgan, Lewis & Bockius LLP, our special United States
counsel. However, opinions of tax counsel are not binding on United States tax
authorities or courts.
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DISTRIBUTIONS
Distributions that we make with respect to our common stock, other than
distributions in liquidation and distributions in redemption of stock that are
treated as exchanges, will be taxed to United States holders as ordinary
dividend income to the extent that the distributions do not exceed the current
and accumulated earnings and profits of Capital Environmental. The amount
treated as a dividend will include any Canadian withholding tax deducted from
the distribution. Distributions, if any, in excess of the current and
accumulated earnings and profits of Capital Environmental will constitute a
nontaxable return of capital to a United States holder and will be applied
against and reduce the United States holder's tax basis in our common stock. To
the extent that these distributions exceed the tax basis of the United States
holder in its shares of our common stock, the excess generally will be treated
as capital gain.
In the case of distributions in Canadian dollars, the amount of the
distributions generally will equal the United States dollar value of the
Canadian dollars distributed, determined by reference to the spot currency
exchange rate on the date of receipt of the distribution by the United States
holder, and the United States holder will realize separate foreign currency gain
or loss only to the extent that gain or loss arises on the actual disposition of
foreign currency received. Any foreign currency gain or loss generally will be
treated as ordinary income or loss.
Dividend income derived with respect to our common stock generally will
constitute "portfolio income" for purposes of the limitation on the use of
passive activity losses, and, therefore, generally may not be offset by passive
activity losses, and as "investment income" for purposes of the limitation on
the deduction of investment interest expense. Dividends that we pay will not be
eligible for the dividends-received deduction generally allowed to United States
corporations under Section 243 of the Internal Revenue Code.
SALE OR EXCHANGE
Upon a sale or exchange of our common stock to a person other than Capital
Environmental, a United States holder will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale or exchange and
the United States holder's adjusted tax basis in the common stock. Any gain or
loss recognized will be capital gain or loss and will be long-term capital gain
or loss if the United States holder has held our common stock for more than one
year.
FOREIGN TAX CREDIT
In general, in computing its United States federal income tax liability, a
United States holder may elect for each taxable year to claim a deduction or,
subject to the limitations on foreign tax credits generally, a credit for
foreign income taxes paid or accrued by it, including any non-United States
taxes withheld from distributions, if any, that we pay on our common stock. For
foreign tax credit purposes, under Section 904(g) of the Internal Revenue Code,
in the event that at least 50 percent of our stock (determined by vote or value)
is owned, directly, indirectly or by attribution, by United States persons, and
subject to the limitations described below, a portion of the dividends that we
pay in each taxable year will be treated as United States-source income,
depending in general upon the ratio for that taxable year of our United
States-source earnings and profits to our total earnings and profits. The
remaining portion of our dividends will be treated as foreign-source income and
generally will be treated as passive income, subject to the separate foreign tax
credit limitation for passive income. The application of Section 904(g) is
subject to two limitations. First, if, in any taxable year, we have earnings and
profits and less than 10 percent of those earnings and profits are from United
States sources, then, in general, dividends that we pay from our earnings and
profits for that year will be treated entirely as foreign-source income. Second,
because dividends that we pay are treated entirely as foreign-source income
under the Canada-United States Income Tax Convention, a United States holder
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that qualifies for the benefits of the Convention may elect to have the portion
of those dividends that would be treated as United States-source income under
Section 904(g) instead treated as foreign-source income that is subject to a
separate foreign tax credit limitation.
Gain realized by a United States holder on the sale or exchange of our
common stock generally will be treated as United States-source gain, and, under
recently-promulgated regulations, loss realized by a United States holder on the
sale or exchange of our common stock generally will be treated as United
States-source loss, for United States foreign tax credit purposes.
The availability of foreign tax credits depends on the particular
circumstances of each United States holder. You are advised to consult your own
tax advisor.
BACKUP WITHHOLDING TAX
Backup withholding tax at a rate of 31% may apply to payments of dividends
and to payments of proceeds of the sale or other disposition of our common stock
within the United States by a non-corporate United States holder, if the holder
fails to furnish a correct taxpayer identification number or otherwise fails to
comply with applicable requirements of the backup withholding tax rules. Backup
withholding tax is not an additional tax and may be credited against a United
States holder's United States federal income tax liability, provided that
correct information is provided to the Internal Revenue Service.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom Credit
Suisse First Boston Corporation, Raymond James & Associates, Inc. and Sanders
Morris Mundy Inc. are acting as representatives, have severally but not jointly
agreed to purchase from Capital Environmental and the selling shareholders the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation...........................................
Raymond James & Associates, Inc..................................................
Sanders Morris Mundy Inc.........................................................
----------
Total........................................................................ 3,750,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and the underwriters will be
obligated to purchase all of the shares of common stock, other than those shares
covered by the over-allotment option described below, if any are purchased. The
underwriting agreement also provides that, in the event of a default by an
underwriter, in certain circumstances the purchase commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
Capital Environmental has granted to the underwriters an option, expiring at
the close of business on the 30th day after the date of this prospectus to
purchase up to 562,500 additional shares at the initial public offering price
less the underwriting discounts and commissions all as set forth in the table on
the following page. The underwriters may exercise this option only to cover
over-allotments of common stock. If the underwriters exercise this option, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of these additional shares of common stock as
it was obligated to purchase pursuant to the underwriting agreement.
The representatives have advised us that the underwriters propose to offer
the shares of common stock initially at the public offering price set forth on
the cover page of this prospectus and, through the representatives, to certain
selling group members at that price less a concession of $ per share, and
the underwriters and this selling group members may allow a discount of
$ per share on sales to certain other broker/dealers. After the initial
public offering, the representatives may change the public offering price and
concession and discount to dealers.
The following table summarizes the compensation to be paid to the
underwriters by Capital Environmental and the selling shareholders, and the
expenses payable by Capital Environmental.
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by Capital
Environmental....................................................... $ $ $
Expenses payable by Capital Environmental............................. $ $ $
Underwriting Discounts and Commissions paid by the Selling
Shareholders........................................................ $ $ $
Expenses payable by the Selling Shareholders.......................... $ $ $
</TABLE>
The underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
69
<PAGE>
Capital Environmental, its officers and directors and principal stockholders
and optionholders have agreed that they will not offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of common stock or
securities exchangeable or exercisable for or convertible into shares of common
stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus except as
consideration for business acquisitions, upon exercise of currently outstanding
stock options or warrants or upon the issuance of options to employees,
consultants and directors under the 1997 stock option plan and the 1999 stock
option plan, and the exercise of these options. If we issue shares as
consideration for business acquisitions in the 180 day period after the date of
this prospectus, we will require the holders of these shares to agree to the
same restrictions on the disposition of these shares as those described in the
immediately preceeding sentence.
Capital Environmental and the selling shareholders have agreed to indemnify
the underwriters against liabilities under the Securities Act, or contribute to
payments which the underwriters may be required to make for these liabilities.
We have applied to list the common stock on The Nasdaq Stock Market's
National Market under the symbol "CERI."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price was determined by negotiation between Capital
Environmental and the representatives. The principal factors considered in
determining the public offering price included:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history of, and the prospects for, Capital Environmental and the
industry in which it competes;
- an assessment of Capital Environmental's management;
- the prospects for, and the timing of, future earnings of Capital
Environmental;
- the present state of Capital Environmental's development and its current
financial condition;
- the general condition of the securities markets at the time of the
offering;
- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of Capital
Environmental;
- market conditions for initial public offerings; and
- other relevant factors.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the representatives to
reclaim a selling concession from a syndicate member when the securities
originally sold by this syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
common stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on The Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
70
<PAGE>
In June 1998, we completed a private placement of 553,869 shares of our
common stock at a price of C$18.05, or $12.11 at April 15, 1999, per share, for
which Sanders Morris Mundy served as placement agent. Principals and employees
of Sanders Morris Mundy and investment partnerships managed by or associated
with Sanders Morris Mundy purchased 486,989 shares of common stock in the
private placement. In May 1998, a principal of Sanders Morris Mundy received an
option to purchase 27,694 shares of common stock at an exercise price of
C$14.44, or $9.69 at April 15, 1999, per share, which will be exercisable the
day prior to the completion of this offering, and in August 1998, Kenneth
Ch'uan-k'ai Leung, a principal of Sanders Morris Mundy and a director of Capital
Environmental, received an option to purchase 20,770 shares of common stock at
an exercise price of C$14.44 per share, or $9.69 at April 15, 1999, which will
be exercisable on the earlier of the day prior to the completion of this
offering and two years from the date of grant.
In October 1998, principals and employees of Sanders Morris Mundy, and
investment partnerships managed by or associated with Sanders Morris Mundy,
purchased 612,037 shares of our common stock from certain existing shareholders
of Capital Environmental.
Sanders Morris Mundy has provided various investment banking services to
Capital Environmental since July 1997 and may do so in the future, and has
received, and may in the future receive, customary compensation for said
services.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered in this
prospectus, the matter of enforcement of judgments in Canada, Canadian
environmental matters and Canadian tax consequences will be passed on by Tory
Tory DesLauriers & Binnington, Toronto, Ontario, Canadian counsel to Capital
Environmental. United States legal matters related to this offering, including
matters of United States law, will be passed upon for Capital Environmental by
Morgan, Lewis & Bockius LLP, New York, New York and for the underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The financial statements of Capital Environmental, for the year ended
December 31, 1998 and for the seven months ended December 31, 1997, appearing in
this prospectus and registration statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their reports
appearing elsewhere in this prospectus and registration statement.
The financial statements of Western Waste, for the seven months ended June
5, 1997 and the year ended October 31, 1996, appearing in this prospectus and
registration statement have been audited by Coopers & Lybrand, independent
auditors, as set forth in their reports appearing elsewhere in this prospectus
and registration statement. These financial statements have been included in
this prospectus in reliance upon the reports, which have been given upon the
authority of the above firms as experts in accounting and auditing.
AVAILABLE INFORMATION
Capital Environmental has filed with the Securities and Exchange Commission
a registration statement (of which the prospectus is a part) on Form F-1, under
the Securities Act of 1933 for the Common Stock offered in this prospectus. This
prospectus, which forms a part of the registration statement, does not contain
all the information in the registration statement. Certain portions of the
registration statement contain exhibits and schedules as permitted by the rules
and regulations of the Commission. For further information about us and our
common stock offered in this prospectus, we refer you to the registration
statement and to its exhibits and schedules. You may inspect the registration
statement, including all its exhibits and schedules, without charge at the
principal office of the Securities and Exchange Commission located at 450 Fifth
Street, NW, Washington, DC 20549, and
71
<PAGE>
at the following regional offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. You may obtain copies of this material
from the Public Reference Section of the Securities and Exchange Commission at
450 Fifth Street, NW., Room 1204, Washington, DC 20549, at prescribed rates. In
addition, we have applied for listing on the Nasdaq National Market. You may
inspect reports and other information concerning Capital Environmental at the
National Association of Securities Dealers, Inc., 1735 K Street, NW, Washington,
DC.
Upon completion of this offering we will be subject to informational
requirements of some U.S. federal securities laws and therefore we will be
required or have agreed to file periodic reports and other information with the
Securities and Exchange Commission, except as described below. As a foreign
private issuer, Capital Environmental is exempt from the rules under the
Exchange Act of 1934 prescribing the furnishing and content of proxy statements.
Additionally, our officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in Section 16
of the Exchange Act of 1934. In addition, under the Exchange Act, we are not
required to publish financial statements as frequently, as promptly or
containing the same information as United States companies. However, we have
agreed to provide our shareholders with reports on Form 10-Q and 10-K and to
comply with the United States proxy rules. In addition, we will furnish to
holders of common stock annual reports in English containing consolidated
financial statements, prepared in accordance with U.S. GAAP, examined by our
independent public auditors and including their report thereon. We also will
make available quarterly reports containing condensed unaudited financial
information for the first three fiscal quarters of each year, prepared in
accordance with U.S. GAAP. We will generally furnish annual reports within 90
days after the end of each fiscal year, and make available quarterly reports
within 45 days after the end of each of the first three fiscal quarters of each
year. We will also provide the holders of common stock with notice of meetings
of holders of common stock.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the Securities and Exchange Commission's web-site is
http://www.sec.gov.
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Capital Environmental Resource Inc.
Report of PricewaterhouseCoopers LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets........................................................ F-3
Consolidated Statements of Operations and Comprehensive Income..................... F-5
Consolidated Statements of Stockholders' Equity.................................... F-6
Consolidated Statements of Cash Flows.............................................. F-7
Notes to Consolidated Financial Statements......................................... F-8
Western Waste Services Inc.
Report of Coopers & Lybrand, Independent Auditors.................................. F-27
Consolidated Balance Sheets........................................................ F-28
Consolidated Statements of Operations and Comprehensive Loss....................... F-29
Consolidated Statements of Stockholders' Deficit................................... F-30
Consolidated Statements of Cash Flows.............................................. F-31
Notes to Consolidated Financial Statements......................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE FOLLOWING IS THE FORM OF OPINION THAT PRICEWATERHOUSECOOPERS LLP,
CHARTERED ACCOUNTANTS, WILL BE IN A POSITION TO ISSUE UPON THE SHAREHOLDERS'
APPROVAL OF THE STOCK SPLIT DISCUSSED IN NOTES 7 AND 11(D).
To the Stockholders of
Capital Environmental Resource Inc.
We have audited the consolidated balance sheets of Capital Environmental
Resource Inc. (the "Company") as at December 31, 1997 and 1998 and the
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows for the period from May 23, 1997, date of inception, to
December 31, 1997 and for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1998 and the results of its operations and its cash flows for the
periods then ended in accordance with generally accepted accounting principles
in the United States.
<TABLE>
<S> <C> <C>
Toronto, Canada PricewaterhouseCoopers LLP
March 8, 1999, except Chartered Accountants
for
notes 7 and 11(d) which
are dated April 26,
1999
</TABLE>
F-2
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................................... $ 2,473 $ 1,060
Trade accounts receivable (net of allowance for doubtful accounts of $331 and $761)......... 5,444 8,424
Prepaid expenses, deposits and other assets................................................. 1,711 1,266
Employee loans.............................................................................. -- 190
--------- ---------
9,628 10,940
PROPERTY AND EQUIPMENT, NET (note 3)........................................................ 19,174 25,909
GOODWILL (net of accumulated amortization of $164 and $1,568)............................... 18,802 54,430
OTHER INTANGIBLES (net of accumulated amortization of $23 and $912)......................... 676 3,082
OTHER NON-CURRENT ASSETS.................................................................... 405 149
DEFERRED INCOME TAXES (note 5).............................................................. 1,810 2,818
DEFERRED PUBLIC OFFERING COSTS.............................................................. -- 1,009
--------- ---------
$ 50,495 $ 98,337
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
REDEEMABLE
STOCK AND
STOCKHOLDERS'
EQUITY
DECEMBER 31,
1998
1997 1998 (UNAUDITED)
--------- --------- ------------
<S> <C> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable............................................................. $ 2,401 $ 3,187
Accrued employee and subcontractor costs..................................... 601 793
Accrued disposal fees........................................................ 228 1,202
Other accrued liabilities.................................................... 2,525 2,853
Accrued purchase liabilities (notes 6(e) and 7(d))........................... -- 1,798
Current portion of long-term debt (note 4)................................... 1,398 2,101
--------- ---------
7,153 11,934
LONG-TERM DEBT (NOTE 4)...................................................... 29,022 54,589
DEFERRED INCOME TAXES (NOTE 5)............................................... 2,541 4,376
--------- ---------
38,716 70,899
--------- ---------
REDEEMABLE CONVERTIBLE PREFERENCE STOCK: unlimited shares authorized; 8,000
shares issued and outstanding at December 31, 1997 and 1998; no shares
issued and outstanding pro forma (notes 7(b) and 12)....................... 5,748 5,748 $ --
REDEEMABLE CONVERTIBLE CLASS "B" SPECIAL STOCK: 400,000 shares authorized;
400,000 shares issued and outstanding at December 31, 1997 and 1998 no
shares issued and outstanding pro forma (notes 7(c) and 12)................ 7,455 7,455 --
REDEEMABLE COMMON STOCK: unlimited shares authorized; no shares issued and
outstanding at December 31, 1997; 780,415 shares issued and outstanding
December 31, 1998 no shares issued and outstanding pro forma (notes 7(d),
11(d) and 12).............................................................. -- 8,743 --
--------- --------- ------------
13,203 21,946 --
--------- --------- ------------
COMMITMENTS AND CONTINGENCIES (note 6)
STOCKHOLDERS' EQUITY
COMMON STOCK: unlimited shares authorized; issued and outstanding 1,427,774
common shares issued and outstanding at December 31, 1997; 1,993,758 common
shares issued and outstanding at December 31, 1998; 3,866,393 common shares
issued and outstanding pro forma (notes 7(a), 11(d) and 12)................ 799 7,528 24,272
ACCUMULATED OTHER COMPREHENSIVE LOSS......................................... (151) (1,157) (1,157)
ACCUMULATED DEFICIT.......................................................... (2,072) (879) (879)
--------- --------- ------------
(1,424) 5,492 $ 22,236
--------- --------- ------------
------------
$ 50,495 $ 98,337
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
PERIOD FROM MAY 23, 1997 TO DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 23, 1997)
TO DECEMBER 31, YEAR ENDED
1997 DECEMBER 31, 1998
------------------- -----------------
<S> <C> <C>
REVENUES................................................................. $ 15,089 $ 62,056
COST OF OPERATIONS....................................................... 10,676 43,002
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................. 1,389 8,490
DEPRECIATION AND AMORTIZATION............................................ 1,154 4,890
START-UP AND INTEGRATION COSTS........................................... 270 602
ABSORPTION OF ACQUISITION AND TRANSITION COSTS (note 2(b))............... 4,055 --
---------- -----------------
INCOME (LOSS) FROM OPERATIONS............................................ (2,455) 5,072
INTEREST EXPENSE......................................................... (898) (3,139)
---------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST.................. (3,353) 1,933
INCOME TAX (PROVISION) BENEFIT (note 5).................................. 1,398 (740)
MINORITY INTEREST........................................................ (117) --
---------- -----------------
NET INCOME (LOSS) FOR THE YEAR........................................... $ (2,072) $ 1,193
---------- -----------------
---------- -----------------
BASIC NET INCOME (LOSS) PER COMMON SHARE (note 8)........................ $ (1.51) $ 0.52
---------- -----------------
---------- -----------------
DILUTED NET INCOME (LOSS) PER SHARE (note 8)............................. $ (1.51) $ 0.29
---------- -----------------
---------- -----------------
SHARES USED IN PER SHARE CALCULATIONS (note 8)
Basic.................................................................... 1,374,220 2,304,847
---------- -----------------
---------- -----------------
Diluted.................................................................. 1,374,220 4,174,172
---------- -----------------
---------- -----------------
</TABLE>
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<S> <C> <C>
NET INCOME (LOSS) FOR THE YEAR............................. $ (2,072) $ 1,193
Other comprehensive income (loss)--
Foreign currency translation adjustments............... (151) (1,006)
------- --------------
COMPREHENSIVE INCOME (LOSS) FOR THE YEAR................... $ (2,223) $ 187
------- --------------
------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 23, 1997 TO DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCUMULATED
COMMON STOCK OTHER
--------------------- COMPREHENSIVE ACCUMULATED
SHARES AMOUNT INCOME DEFICIT TOTAL
---------- --------- ------------- ------------- ---------
BALANCES AT INCEPTION (MAY 23, 1997).............. -- $ -- $ -- $ -- $ --
Issuance of common shares......................... 1,427,774 799 -- -- 799
Foreign currency translation adjustments.......... -- -- (151) -- (151)
Net loss for the year............................. -- -- -- (2,072) (2,072)
---------- --------- ------------- ------ ---------
BALANCES AT DECEMBER 31, 1997..................... 1,427,774 799 (151) (2,072) (1,424)
Issuance of common shares......................... 565,984 6,729 -- -- 6,729
Foreign currency translation adjustments.......... -- -- (1,006) -- (1,006)
Net income for the year........................... -- -- -- 1,193 1,193
---------- --------- ------------- ------ ---------
BALANCES AT DECEMBER 31, 1998..................... 1,993,758 $ 7,528 $ (1,157) $ (879) $ 5,492
---------- --------- ------------- ------ ---------
---------- --------- ------------- ------ ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM MAY 23, 1997 TO DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 23, 1997) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
--------------- ------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss)................................................................. $ (2,072) $ 1,193
Adjustments for non-cash items --
Depreciation and amortization................................................... 1,154 4,890
Deferred income taxes........................................................... (1,433) 540
Minority interest............................................................... 117 --
Absorption of acquisition and transition costs.................................. 4,055 --
Net gain on disposal of property, plant and equipment........................... (19) (205)
Changes in assets and liabilities, net of effect of acquisitions and divestitures
--
Trade accounts receivable....................................................... (3,545) 513
Prepaid expenses, deposits and other assets..................................... (1,488) 1,091
Deferred public offering costs.................................................. -- (1,009)
Employee loans.................................................................. -- (190)
Accounts payable................................................................ 1,414 (3,743)
Accrued employee and subcontractor costs........................................ 330 67
Accrued disposal fees........................................................... 288 (20)
Income and other taxes.......................................................... 721 --
Other accrued liabilities....................................................... 1,645 (419)
--------------- ------------
1,167 2,708
--------------- ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures.............................................................. (13,318) (3,710)
Acquisitions of businesses, net of cash acquired.................................. 653 (33,670)
Proceeds from sale of property and equipment...................................... 133 1,090
Loans and advances to employees and shareholders.................................. (149) 83
Collection of loans and advances to employees and shareholders.................... 26 --
Other assets...................................................................... 126 22
--------------- ------------
(12,529) (36,185)
--------------- ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.......................................... 26,249 27,312
Principal payments on long-term debt.............................................. (17,909) (1,350)
Repayment of capital lease liability.............................................. (3) (287)
Net proceeds from issuance of common shares....................................... 89 6,729
Net proceeds from issuance of preference shares................................... 5,748 --
Increase in deferred financing costs.............................................. (256) (91)
--------------- ------------
13,918 32,313
--------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS...................... (83) (249)
--------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 2,473 (1,413)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR...................................... -- 2,473
--------------- ------------
CASH AND CASH EQUIVALENTS--END OF YEAR............................................ $ 2,473 $ 1,060
--------------- ------------
--------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS, ORGANIZATION, AND SIGNIFICANT ACCOUNTING POLICIES
A) BUSINESS AND ORGANIZATION
Capital Environmental Resource Inc. (the "Company") is a regional,
integrated solid waste services company that provides collection, transfer,
disposal and recycling services to commercial, industrial and residential
customers in secondary markets in Canada. The Company's operations are currently
organized into seven service areas within three geographic territories: Ontario
(currently comprised of Southwestern, Central and Eastern Ontario), western
Canada (currently comprised of Alberta and British Columbia), and the northern
United States (Western New York and Central New York/ Pennsylvania). At December
31, 1998, the Company operated seven transfer stations and six material
recycling facilities. As at December 31, 1998, the Company did not own any
landfills but operated two municipal landfills under term contracts.
The Company was incorporated in the Province of Ontario, Canada on May 23,
1997 in order to take advantage of consolidation opportunities in the solid
waste services industry in Canada and the United States. On June 6, 1997, the
Company consummated: (i) the acquisition (the "Canadian Waste Acquisition") of a
series of diverse, geographically dispersed assets from Canadian Waste Services
Inc. ("Canadian Waste"), a wholly owned subsidiary of USA Waste Services Inc.
("USA Waste"); and (ii) the acquisition (the "Western Acquisition") of 50% of
the common stock of Western Waste Services Inc. ("Western Waste") from USA
Waste. The Canadian Waste assets included the right to provide selected services
under municipal and individual customer contracts in eight markets in Ontario,
Alberta and British Columbia. In addition, the Company acquired a transfer
station and certain trucks, containers, office and parking space and the right
to use certain of Canadian Waste's owned or controlled disposal facilities. The
Western Acquisition provided the Company with additional collection operations
and materials recovery facilities in eight markets in Alberta and British
Columbia. The Company subsequently transferred certain of its newly purchased
Canadian Waste assets to Western Waste in exchange for an additional 16.67% of
the outstanding common stock of Western Waste and thereby acquired a 66.67%
controlling majority stake in Western Waste. On November 1, 1997, Capital
Environmental purchased the remaining 33.33% of the outstanding common stock of
Western Waste in exchange for cash consideration and 400,000 Class "B" Special
Shares. During 1998, the Company has continued its growth with a series of
business acquisitions in both Canada and the United States (Note 2).
B) BASIS OF PRESENTATION
The Company's financial statements are prepared in accordance with generally
accepted accounting principles in the United States. All financial information
presented herein is in thousands of U.S. dollars except share and per share
data. All references to "dollars" or "$" mean U.S. dollars and "C$" mean
Canadian dollars.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Prior to November 1, 1997, there was a
non-controlling interest of 33.33% in Western Waste that was accounted for as a
minority interest. All business acquisitions since the Company's inception have
been accounted for under the purchase method of accounting and the results of
operations of these businesses are included in the consolidated financial
statements from their respective dates of acquisition.
F-8
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
Assets and liabilities are reported in United States dollars. Assets and
liabilities of Canadian operations have been translated from Canadian dollars to
United States dollars at the exchange rates in effect at the relevant balance
sheet date, and revenue and expenses of Canadian operations have been translated
from Canadian dollars to United States dollars at the weighted average exchange
rates prevailing during the period. Unrealized gains and losses on translation
of the Canadian operations are reported as a separate component of stockholders'
equity.
C) CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and cash equivalents and trade accounts receivable.
The Company places its cash and cash equivalents only with high credit quality
financial institutions. The Company's trade accounts receivable are not subject
to a concentration of credit risk. The Company's customers are diversified as to
both geographic and industry concentrations. The Company maintains an allowance
for losses based on the expected collectibility of the accounts.
D) 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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and short-term highly liquid
deposits with maturity dates of less than 90 days.
F) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives on a straight-line basis as indicated below. Improvements
or betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. Gains and losses resulting from property or equipment disposals are
credited or charged to cost of operations.
<TABLE>
<S> <C>
Buildings.................................................... 10 to 25
years
Vehicles..................................................... 10 years
Containers, compactors and recycling equipment............... 5 to 12 years
Furniture, fixtures and other office equipment and
leaseholds................................................. 3 to 5 years
</TABLE>
During the year, the Company reduced the maximum estimated life of container
equipment from 20 years to 12 years. This change, which has been accounted for
prospectively commencing January 1, 1998, has resulted in a decrease in net
income and net income per share of $150 and $0.06, respectively in 1998.
F-9
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
G) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net identifiable assets of acquired businesses, and is amortized on a
straight-line basis over the period of expected benefit of 40 years.
Should events or circumstances occur subsequent to the acquisition of a
business which bring into question the realizable value of the related goodwill,
the Company will re-evaluate the remaining useful life of goodwill and make
adjustments, if necessary. The carrying value would be reduced to the estimated
fair value if it becomes probable that the Company's best estimate for expected
future undiscounted cash flows of the business would be less than the carrying
amount. Fair value would be determined based on expected future discounted cash
flows.
H) OTHER INTANGIBLES
Other intangibles include disposal agreements, significant municipal
customer contracts and non-compete agreements related to acquisitions and are
recorded at their cost less accumulated amortization. Amortization is charged on
a straight-line basis over the life of the contracts or agreements which range
from one to five years.
I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the cash, cash equivalents and long-term debt
approximate their fair value as at December 31, 1997 and 1998, based on the then
current lending and borrowing rates for similar investing and financing
arrangements.
J) REVENUE RECOGNITION
The Company recognizes revenue when waste removal services are provided.
Amounts billed to customers, prior to providing the related services, are
deferred and reported as revenues in the period in which the services are
rendered. Long-term service contracts are reviewed on a regular basis for
losses. Losses are changed to operations in the period when the likelihood of a
loss has been established.
K) 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 expected to be
in effect when the differences are expected to reverse.
L) MINORITY INTEREST
The minority interest share of earnings represents the non-controlling
interest of 33.33% that existed in the earnings of Western Waste from June 6,
1997 to October 31, 1997.
F-10
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
M) ENVIRONMENTAL, LANDFILL CLOSURE AND POST-CLOSURE COSTS
Costs relating to environmental damages are accrued and charged to
operations in the period in which the likelihood of the occurrence has been
established as probable and the costs can be reasonably determined. As of
December 31, 1998, the Company did not own any landfills and, accordingly, does
not accrue for estimated landfill closure and post-closure monitoring and
maintenance costs. The Company may have material financial obligations relating
to closure and post-closure costs of any disposal facilities it may own in the
future. The Company will then provide accruals for future monitoring and
maintenance costs of its landfills, based on engineering estimates of
consumption of permitted landfill airspace over the estimated useful life of
such landfill.
N) DEFERRED FINANCING COSTS AND INITIAL PUBLIC OFFERING COSTS
Costs associated with arranging the Company's credit facility have been
deferred and are being written off over the term of the debt.
Costs associated with a planned initial public offering have been deferred
and will be charged to operations if the offering is not successful or will be
netted against the proceeds raised from the offering, if completed.
O) NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). This statement
requires costs of start-up activities, integration expenses and organization
costs to be expensed as incurred and is effective for fiscal years beginning
after December 15, 1998. Since incorporation, the Company has followed the
prescribed requirements of SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
disclosure standards for derivative instruments and hedging activities. The
statement, which is to be applied prospectively, is effective for the Company's
fiscal year beginning January 1, 2000. The Company is currently evaluating the
potential impact of SFAS No. 133 on its future results of operations and
financial position.
2. ACQUISITIONS
A) BUSINESSES ACQUIRED DURING 1997
On June 6, 1997, the Company purchased 50% of the outstanding shares of
Western Waste from USA Waste, for consideration of $9,642 in the form of a note
payable bearing interest at 6.75%. Subsequently, the Company received 100
treasury shares of Western Waste, representing 16.67% of the total outstanding
common shares, in exchange for certain of the Canadian Waste assets with a value
of $5,243. Both components of the acquisition of Western Waste were subject to
price adjustment clauses based upon the achievement of certain earnings targets
for the period September 1, 1997 to August 31, 1998; however, no adjustments
were ultimately required.
F-11
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
On November 1, 1997, the Company purchased the remaining 33.33% of the
common shares of Western Waste from L&S Bishop Enterprises Inc. for cash
consideration of $391, and 400,000 Class "B" Special Shares of the Company
valued at $7,455. The Company also immediately declared a dividend of $1,075 on
the Class "B" Special Shares, which amount is included as a component of the
purchase price. See Notes 6(e) and 7(c) for details of further contingency
payments.
In 1997, the Company purchased two other smaller businesses for $1,195
comprising cash consideration of $397 and the issue of 73,850 common shares and
10,385 options to acquire common shares.
The assets acquired and obligations assumed for business combinations
accounted for under the purchase method of accounting in the period ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
WESTERN
WASTE OTHER TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Net current assets (liabilities)............................... $ (8,554) $ 107 $ (8,447)
Property and equipment......................................... 10,881 409 11,290
Other non-current assets....................................... 257 679 936
Goodwill and other intangibles................................. 18,391 -- 18,391
--------- --------- ---------
20,975 1,195 22,170
Less:
Long-term obligations assumed................................ 229 -- 229
Deferred income taxes........................................ 2,183 -- 2,183
--------- --------- ---------
Net acquisition costs.......................................... $ 18,563 $ 1,195 $ 19,758
--------- --------- ---------
--------- --------- ---------
</TABLE>
B) ACQUISITION OF SIGNIFICANT ASSETS OF CANADIAN WASTE DURING 1997
Between June 6, 1997 and August 1, 1997, the Company acquired a series of
geographically dispersed assets and certain transition services from Canadian
Waste in Ontario, British Columbia and Alberta in connection with a sale
mandated by the Competition Bureau of Canada (the "Competition Bureau"). The
assets acquired included certain fixed assets (such as trucks, containers,
facilities and equipment), as well as a list of customers which the Company
could solicit to provide selected services (collectively, the "Canadian Waste
Assets"). The Company also received certain transition services and the right to
share use of certain Canadian Waste facilities during a transition period which
expired December 31, 1997. While many of the customers were under short term
contracts with Canadian Waste that did not provide for automatic transfer or
assignment, the transaction was structured such that, in the opinion of the
Competition Bureau, the Company acquired a sufficient market position to provide
adequate long-term competition to Canadian Waste.
Consideration for the Canadian Waste Assets and transition license included
$11,340, in the form of a note payable of $10,980, due June 6, 2000, bearing
interest at 6.75% and cash consideration of $360. Tangible assets represented
$7,285 of the purchase price and no liabilities were assumed in the transaction.
The Company allocated a portion of the consideration paid to property and
equipment based upon the estimated fair market value of the assets acquired. The
balance of the purchase cost of $4,055 was allocated to the customer lists and
transition services acquired in the transaction. The
F-12
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
Company did not allocate any portion of the consideration to goodwill, as the
transaction did not constitute the acquisition of a "business".
Due to the nature of the rights and the limited number of assignable
contracts acquired and the fact that the Company was required to negotiate new
service contracts with substantially all of the customers whose contracts it
acquired, as well as term of the transition license, the Company has amortized
the acquisition and transition services costs of $4,055 over the period from the
acquisition date to December 31, 1997.
C) BUSINESSES ACQUIRED DURING 1998
On January 2, 1998, the Company purchased 100% of the common shares of
Rubbish Removal Inc. ("Rubbish"). The purchase consideration paid on closing
amounted to $11,357, which included cash of $5,655, an obligation to pay
additional cash consideration of $500 over three years and 500,175 redeemable
common shares with a value of $5,202. The Company also subsequently paid
additional consideration of $1,798 which is included in the cost of acquisition.
See Notes 6(e) and 7(d) for details of further contingency payments.
On October 1, 1998, the Company acquired 100% of the common shares of
General Environmental Technical Services Inc. and J.V. Services of Western New
York (collectively "GETS") for cash consideration of $2,182 and 280,240
redeemable common shares with a value of $3,541.
The Company also acquired 15 other smaller businesses during 1998 at an
aggregate purchase cost of $24,848.
The assets acquired and obligations assumed for business combinations in the
year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
RUBBISH GETS OTHER TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net current assets (liabilities)........................................ $ (1,230) $ (426) $ (75) $ (1,731)
Property and equipment.................................................. 813 701 5,261 6,775
Other intangibles....................................................... 1,000 100 2,223 3,323
Goodwill................................................................ 12,572 5,921 18,264 36,757
--------- --------- --------- ---------
Total assets acquired................................................... 13,155 6,296 25,673 45,124
Less: long-term obligations assumed..................................... -- 573 535 1,108
Deferred taxes.......................................................... -- -- 290 290
--------- --------- --------- ---------
Net acquisition costs................................................... $ 13,155 $ 5,723 $ 24,848 $ 43,726
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
D) PRO FORMA ACQUISITION DATA (UNAUDITED)
The following table presents condensed pro forma statement of operations
data giving effect to the acquisitions of Rubbish, GETS and, the five next
largest acquisitions, as if the acquisitions had occurred at the beginning of
the periods presented. Together, these seven acquisitions comprised 78% of the
total net acquisition costs for the year ended December 31, 1998. This data does
not purport to be indicative of the results of operations of the Company that
might have occurred nor which might occur in the future.
F-13
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Statement of Operations Data
Revenue.......................................................... $ 37,083 $ 75,171
------------ ------------
------------ ------------
Income (loss) from operations.................................... $ (1,966) $ 5,874
------------ ------------
------------ ------------
Net income (loss)................................................ $ (2,366) $ 1,241
------------ ------------
------------ ------------
Basic earnings (loss) per share.................................. $ (1.09) $ 0.49
------------ ------------
------------ ------------
Fully diluted earnings (loss) per share.......................... $ (1.09) $ 0.28
------------ ------------
------------ ------------
Pro forma weighted number of shares
Basic.......................................................... 2,166,754 2,522,289
Fully diluted.................................................. 2,166,754 4,391,615
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Land............................................................. $ 128 $ 114
Buildings........................................................ 958 1,055
Vehicles......................................................... 8,794 15,112
Containers, compactors and recycling equipment................... 9,646 12,410
Furniture, fixtures and other office equipment and leaseholds.... 509 957
------------ ------------
20,035 29,648
Less: Accumulated depreciation................................... 861 3,739
------------ ------------
$ 19,174 $ 25,909
------------ ------------
------------ ------------
</TABLE>
Included in property and equipment at December 31,1998 are assets held under
capital leases with a cost of $2,982 (1997--$70) and accumulated depreciation of
$917 (1997--$3).
Depreciation expense for the period ended December 31, 1997 was $861 and for
the year ended December 31, 1998 was $2,878.
F-14
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
SENIOR DEBT
Term loan payable under the credit facility bearing interest at 7.44% at December
31, 1998 (1997--6.25%), with no monthly payments, due June 3, 2000............... $ 16,579 $ 41,701
SUBORDINATED DEBT
Promissory notes payable, bearing interest at 6.75%, varying annual principal
payments, due June 6, 2000....................................................... 13,781 11,528
Promissory notes payable, bearing interest at 9.5%, varying annual principal
payments, due April 1, 2004...................................................... -- 479
OTHER
Obligations under capital leases for equipment..................................... 60 2,107
Other.............................................................................. -- 875
------------ ------------
30,420 56,690
Less: Current portion.............................................................. 1,398 2,101
------------ ------------
$ 29,022 $ 54,589
------------ ------------
------------ ------------
</TABLE>
On September 25, 1997, the Company entered into a C$45.5 million credit
facility with a syndicate led by Dresdner Bank Canada. On May 29, 1998, the
Company amended such credit facility and increased it to C$67.5 million
(U.S.$44.1 million at December 31, 1998) (as amended, the "Credit Facility"). At
December 31, 1998, borrowings under the Credit Facility bore interest based on
the Canadian prime rate plus 0.75%, the Bankers' Acceptance Rate or the
Eurodollar rate plus 1.75% per annum. The Credit Facility permits the Company to
redraw on the Credit Facility as needed for future acquisitions, capital
expenditures and general corporate purposes (subject to certain restrictions).
The Credit Facility is collateralized by substantially all of the Company's
assets (including the shares of the subsidiaries) and matures on June 3, 2000.
At December 31, 1998, the Company had C$0.3 million (U.S.$0.2 million at
December 31, 1998) of unused availability under the Credit Facility. The
weighted average rate of interest on the Credit Facility for the year ended
December 31, 1998 was 7.02%, and for the period ended December 31, 1997 it was
6.25%.
The Credit Facility contains certain covenants and restrictions regarding,
among other things, working capital minimum ratios, minimum equity requirements,
capital expenditures, consolidated earnings before interest, depreciation, and
taxes and maximum leverage requirements. Under certain circumstances the
lender's approval may be required for acquisitions of businesses. The terms of
the Company's Credit Facility also require the Company to obtain the consent of
the lending banks prior to consummating acquisitions of other businesses for
total consideration (including all liabilities assumed) in excess of $5.0
million.
The term loan payable under the Credit Facility is collateralized by an
interest in the real property of the Company, an interest in all of the present
and future personal property of the Company, an
F-15
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
assignment of all present and future property insurance of the Company, an
assignment of all material contracts of the Company, the equity securities of
the Company's subsidiaries and a general security interest in all of the assets
of the Company.
On January 29, 1999, the Company amended its existing Credit Facility and
has increased its available credit under the Amended Credit Facility (note
11(c)).
The 6.75% promissory notes are currently unsecured. The holders thereof have
entered into postponement and subordination agreements with the syndicate under
the Credit Facility.
The aggregate annual principal repayments required in respect of long-term
debt as at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 2,101
2000............................................................... 52,901
2001............................................................... 617
2002............................................................... 572
2003............................................................... 499
---------
$ 56,690
---------
---------
</TABLE>
Deferred debt issue costs at December 31, 1997 were $229 and at December 31,
1998 were $234.
5. INCOME TAXES
At December 31, 1998 the Company had approximately $6,355 of accumulated net
operating loss carryforwards for income tax purposes. Most of these net
operating loss carryforwards do not expire until 2004 and 2005, and their use is
not subject to any annual limitations. The benefit from these losses has been
reflected in these financial statements as deferred income tax assets.
Management believes that sufficient certainty exists regarding the realization
of these losses, and such amounts can be realized through the existing deferred
tax credits. Accordingly, a valuation allowance was not recorded.
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ---------------
<S> <C> <C>
CURRENT
Canada........................................................... $ 45 $ 200
United States.................................................... -- --
------------ -----
45 200
------------ -----
DEFERRED
Canada........................................................... (1,443) 523
United States.................................................... -- 17
------------ -----
(1,443) 540
------------ -----
$ (1,398) $ 740
------------ -----
------------ -----
</TABLE>
F-16
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
The reconciliation of the difference between income taxes at the Canadian
statutory rate and the income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
Taxes at combined Canadian federal and provincial statutory
rate........................................................... $ (1,341) $ 870
Effect of lower tax rates applicable to U.S. income.............. -- (47)
Non-deductible expenses.......................................... (57) 490
Recognition of losses not previously booked...................... -- (739)
Large corporations tax........................................... -- 100
Other............................................................ -- 66
------------ -----
INCOME TAX PROVISION (BENEFIT)................................... $ (1,398) $ 740
------------ -----
------------ -----
</TABLE>
The components of the deferred income tax amounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Tax benefit related to net operating loss carryforwards.......... $ 1,810 $ 2,818
DEFERRED INCOME TAX LIABILITIES
Property, equipment, deductible goodwill and other intangibles... (2,541) (4,376)
------------ ------------
NET DEFERRED INCOME TAX LIABILITIES.............................. $ (731) $ (1,558)
------------ ------------
------------ ------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
A) OPERATING LEASES
The aggregate amount of future rent expense resulting from non-cancellable
operating leases as at December 31, 1998 is as follows:
<TABLE>
<S> <C>
1999................................................................ $ 1,120
2000................................................................ 1,038
2001................................................................ 852
2002................................................................ 780
2003................................................................ 444
Thereafter.......................................................... 83
---------
$ 4,317
---------
---------
</TABLE>
Aggregate rent expense, which is included in the cost of operations, was
$241 for the period ended December 31, 1997 and $932 for the year ended December
31, 1998.
F-17
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
B) PERFORMANCE BONDS AND LETTERS OF CREDIT
Municipal solid waste services contracts, permits and licenses to operate
transfer stations and recycling facilities may require performance or surety
bonds, letters of credit or other means of financial assurance to secure
contractual performance. As of December 31, 1997 and December 31, 1998, the
Company had provided customers and various regulatory authorities with such
bonds and letters of credit amounting to approximately $3,800 and $6,982,
respectively, to collateralize its obligations. If the Company was unable to
obtain performance or surety bonds or letters of credit in sufficient amounts or
at acceptable rates, it could be precluded from entering into additional
municipal solid waste services contracts or obtaining or retaining landfill
transfer station, recycling facility or operating permits and licenses.
C) ENVIRONMENTAL RISKS
The Company is subject to liability for any environmental damage that its
solid waste facilities may cause to neighbouring landowners or residents,
particularly as a result of the contamination of soil, groundwater or surface
water, and especially drinking water, including damage resulting from conditions
existing prior to the acquisition of such facilities by the Company. The Company
may also be subject to liability for any off-site environmental contamination
caused by pollutants or hazardous substances whose transportation, treatment or
disposal was arranged by the Company or its predecessors. Any substantial
liability for environmental damage incurred by the Company could have a material
adverse effect on the Company's financial condition, results of operations or
cash flows. As at the date of these financial statements, the Company is not
aware of any such environmental liabilities.
D) LEGAL PROCEEDINGS
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative proceedings
involving federal, provincial or local agencies. In these proceedings, an agency
may seek to impose fines on the Company or to revoke or deny renewal of an
operating permit held by the Company. From time to time the Company may also be
subject to actions brought by citizens' groups or adjacent landowners in
connection with the permitting and licensing of landfills and transfer stations,
or alleging environmental damage or violations of the permits and licenses
pursuant to which the Company operates.
In addition, the Company may become party to various claims and suits
pending for alleged damages to persons and property, alleged violations of
certain laws and alleged liabilities arising out of matters occurring during the
normal operation of the waste management business. However, as at December 31,
1998, there was no current proceeding or litigation involving the Company that
the Company believes will have a material adverse impact on the Company's
business, financial condition, results of operations or cash flows.
F-18
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
E) CONTINGENT PAYMENTS RELATED TO ACQUISITIONS
Certain business acquisitions made during 1997 and 1998 contain purchase
price contingencies which may increase the price paid by the Company for these
acquisitions.
The Class "B" special shares issued on the acquisition of Western Waste and
the redeemable common shares issued on the acquisitions of Rubbish and GETS both
contain provisions which may result in the payment of additional purchase
consideration in certain circumstances. See notes 7(c) and 7(d) for details on
these shares.
Based on the terms of the Rubbish acquisition, as at December 31, 1998, the
Company was obligated to pay additional purchase consideration to the former
shareholders of Rubbish. On February 1, 1999, the Company paid additional
consideration of $1,798 through the redemption of 500,175 redeemable common
shares (note 7(d)) and the payment of an additional $100. The additional
consideration is included as an accrued purchase liability at December 31, 1998.
7. CAPITAL STOCK
The Company has financed its growth through a series of private placements
of common and preference shares and shares given as consideration to owners of
acquired businesses. These transactions are included in the descriptions below.
All references to common shares in these financial statements give effect to the
1.3847 for 1 stock split referred to in note 11(d).
A) COMMON STOCK
Common shares issued since inception are as follows:
i) On May 23, 1997, the Company issued 1,353,924 common shares for nominal
cash consideration.
ii) On October 31, 1997, the Company issued 73,850 common shares with a
value of $789 in exchange for certain business assets and cash of $89.
iii) On April 1, 1998, in connection with the acquisition of MCS, the
Company issued 6,923 common shares with a value of $71 as partial
consideration for the acquisition of MCS.
iv) On June 15, 1998, the Company issued 553,869 common shares for net
proceeds of $6,595 cash in a private placement.
v) On July 2, 1998, in connection with the acquisition of John's Cartage
Waste Management Services Ltd., the Company issued 5,192 common shares
valued at $64 as part of the acquisition consideration.
B) CONVERTIBLE PREFERENCE SHARES
On July 11, 1997, the Company issued 8,000 redeemable convertible preference
shares at a price of C$1,000 per share for net proceeds of $5,748 cash in a
private placement.
Each convertible preference share can be converted at the option of the
holder at any time into 138.47 common shares, subject to adjustments to the
conversion price if the Company issues common shares below C$7.22 ($4.69 as at
December 31, 1998) per share prior to a qualifying public offering. A
F-19
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
qualifying public offering is defined as a public offering that provides the
Company with gross proceeds of at least $15.0 million at a price per share that
is at least 300% of the conversion price (which represents C$21.67 ($14.09 at
December 31, 1998)).
Each convertible preference share shall be automatically converted into
138.47 common shares upon the Company's completion of a qualifying public
offering.
The convertible preference shares are redeemable at the option of the holder
if the Company has not completed a qualifying public offering by July 11, 2002
or a qualifying merger. The convertible preference shares will then become
redeemable at a price that is the greater of (i) C$1,000 ($650 at December 31,
1998) per share plus dividends payable and (ii) the fair market value of the
common shares on a fully diluted basis.
C) CLASS "B" SPECIAL STOCK
On November 1, 1997, the Company issued 400,000 redeemable convertible Class
"B" Special Stock valued at $7,455 in exchange for the remaining outstanding
common stock of Western Waste.
The Class "B" Special Stock will be automatically converted into 484,645
common shares upon the completion of an initial public offering at a price per
share of at least C$21.67 ($14.09 at December 31, 1998) per common share.
The holders of the Class "B" Special Stock have the right to include that
number of common shares that would be issued upon conversion of such shares, up
to a maximum value of C$5,250 ($3,415 at December 31, 1998) in a qualifying
initial public offering of common shares of the Company. However, the Company
has the right to purchase at a price of C$21.67 ($14.09 at December 31, 1998)
per share those shares requested to be included in lieu of including such shares
in a qualifying public offering. A qualifying public offering is defined as an
initial public offering of the Company's common shares, prior to November 1,
2000, at a price per share of at least C$21.67 ($14.09 at December 31, 1998).
The holders of the Class "B" Special Stock may require the Company to redeem
such shares at the greater of (i) their fair market value (ii) a value for the
businesses which existed at November 1, 1997 derived using an agreed formula or
(iii) C$10,500 ($6,829 at December 31, 1998), if the Company does not complete
an initial public offering of its common shares on a recognized major stock
exchange at a price per share of at least C$21.67 ($14.09 at December 31, 1998).
In the event the price per share of such offering is less than C$21.67, the
Company has the right to make up any shortfall between the initial public
offering price per share and C$21.67, rather than redeeming the Class "B"
Special Stock. The shortfall can be satisfied in cash or by issuing additional
common shares.
F-20
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
D) REDEEMABLE COMMON SHARES
On January 2, 1998, in connection with the acquisition of Rubbish, the
Company issued 500,175 redeemable common shares valued at $5,202.
On October 1, 1998, in connection with the acquisition of GETS, the Company
issued 280,240 redeemable common shares valued at $3,541.
The Company may be required to redeem the redeemable common stock issued
pursuant to the Rubbish acquisition for $7,802 and the GETS acquisition for
$4,250, if an initial public offering (an "IPO") of the Company's common stock
is not completed by December 31, 1998 and December 31, 1999, respectively. If an
IPO does occur, but does not yield a price in excess of $15.60 per share and
$15.17 per share, respectively, the Company is required to provide the holder of
the redeemable common stock with additional shares such that the value of the
redeemable common stock at the date of the IPO is no less than $7,802 and
$4,250, respectively. In addition, if prior to December 31, 1999 Tony Busseri
and/or Allard Loopstra cease to be employed as full time employees, or cease to
hold at least two of the positions of Chief Executive Officer, Chief Operating
Officer or President of Capital Environmental, the shares of common stock held
by the GETS Sellers are redeemable at the option of the holders, for an
aggregate price of $4,250 or $15.17 per share.
As at December 31, 1998, the Company received notification of its obligation
to redeem the 500,175 common shares. Subsequent to December 31, 1998, the
Company agreed to redeem these shares for cash of $6,900. The excess of the
redemption price over the value of the redeemable common shares of $1,698 is
included in accrued purchase liabilities and has been accounted for as
additional purchase consideration at December 31, 1998.
E) DIVIDENDS
On November 1, 1997, the Company declared a dividend of $1,050 on the
outstanding Class "B" Special Stock. The Company is obligated to pay this
dividend immediately prior to the successful completion of an initial public
offering or the redemption of the shares of Class "B" Special Stock whichever
occurs first. This dividend obligation has been offset by an equivalent note
receivable owing to the Company by the holders of shares of Class "B" Special
Stock. For accounting purposes, this dividend has been reflected as a component
of the purchase price of the capital stock of Western Waste.
F) STOCK OPTION AND OPTION GRANTS
The 1997 Stock Option Plan (the "1997 Stock Option Plan") was adopted by the
Board of Directors effective as of July 31, 1997, and was approved by the
shareholders on July 31, 1997. The 1997 Stock Option Plan is intended to provide
officers, employees and directors with additional incentives by increasing their
ownership interest in the Company. Under the 1997 Stock Option Plan, the Company
may grant options to acquire common shares up to a maximum of 10% of the then
issued and outstanding common shares on an as converted basis inclusive of
common shares to be issued on conversion of the preference stock, class B
Special Stock and redeemable common stock. As of December 31, 1998, the Company
had granted options to purchase 398,792 common shares under the 1997 Stock
Option Plan and had also made additional option grants for 110,776 common
shares.
F-21
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
The weighted average exercise price of the aggregate outstanding options at
December 31, 1998 was C$13.06 (or $8.49 at December 31, 1998).
Options become exercisable only after the second anniversary of the grant
date. No option will remain exercisable later than five years after the grant
date, unless the Board of Directors determines otherwise. Notwithstanding the
foregoing, upon a change of control event, options become immediately
exercisable. A change of control is defined as either the day prior to the
completion of an initial public offering of the Company's securities on a
recognized stock exchange or an offer made to purchase more than 50% of its
voting securities.
Stock options have been granted to employees, consultants and directors of
the Company for the purchase of shares as follows:
During the period ended December 31, 1997, the Company issued stock options
to various shareholders, directors or employees of the Company to purchase
173,779 common shares at C$7.22 per share.
During the period ended December 31, 1998, the Company issued stock options
to various shareholders, directors and employees of the Company to purchase
335,789 common shares at a weighted average exercise price of C$16.08 (or $10.46
as at December 31, 1998) per share.
These options expire as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES LATEST VESTING OPTION EXPIRY
SUBJECT TO OPTION OPTION PRICE DATE DATE
- ------------------------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
163,394........................ C$ 7.22 July 30, 1999 July 29, 2002
10,385......................... C$ 7.22 October 31, 1999 October 31, 2002
27,694......................... C$ 14.44 January 31, 2000 January 30, 2003
27,694......................... C$ 14.44 February 23, 2000 February 22, 2003
24,232......................... C$ 14.44 April 1, 2000 March 31, 2003
6,923.......................... C$ 14.44 April 13, 2000 April 12, 2003
83,082......................... C$ 14.44 May 1, 2000 April 30, 2003
13,847......................... C$ 14.44 May 17, 2000 May 16, 2003
13,847......................... C$ 18.05 July 1, 2000 June 30, 2003
55,388......................... C$ 18.05 August 1, 2000 July 31, 2003
41,541......................... C$ 18.05 August 17, 2000 August 16, 2003
41,541......................... C$ 18.05 August 31, 2000 August 30, 2003
</TABLE>
As permitted by the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123), the Company applies APB 25
in accounting for options to acquire common shares. As a result, no compensation
cost has been recognized. Had compensation cost been determined based on the
fair value of the options at the grant date consistent with the methodology in
F-22
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
SFAS No. 123, the Company's historical net income and earnings per share for the
year would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
Net income (loss)--historical basis:
As reported.................................................... $ (2,072) $ 1,193
SFAS 123 adjustment............................................ (45) (314)
------------ ------
Pro forma...................................................... $ (2,117) $ 879
------------ ------
------------ ------
Basic net income (loss) per share:
As reported.................................................... $ (1.51) $ 0.52
------------ ------
------------ ------
Pro forma...................................................... $ (1.54) $ 0.38
------------ ------
------------ ------
</TABLE>
As permitted under SFAS 123, the fair value of options granted up to
December 31, 1998 was estimated using the Black-Scholes option pricing model
without considering volatility of the underlying shares and using the following
assumptions:
<TABLE>
<S> <C>
Annual dividend yield.............................................. 0%
Weighted-average expected lives (years)............................ 3 years
Risk-free interest rate............................................ 5.25%
Volatility (as required by the Minimum Value Method)............... 0%
</TABLE>
This resulted in a weighted-average grant-date fair value of options granted
of C$2.45 ($1.60).
G) STOCK WARRANTS
During 1997, the Company issued 123,084 warrants to certain stockholders.
These warrants entitle the holder thereof to receive upon exercise, one common
share at C$0.007 per share. These warrants expire July 15, 2002.
8. EARNINGS (LOSS) PER SHARE INFORMATION
Earnings (loss) per share have been computed in accordance with the
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). The following table sets forth the computation of basic earnings (loss)
per share and the diluted earnings (loss) per share for the year ended December
31, 1997 and for the year ended December 31, 1998.
Basic earnings per share are calculated by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the dilution that would occur
if the dilutive securities and other contracts to issue common shares were
exercised or converted into common shares at the beginning of the period. The
fully
F-23
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
diluted earnings per share calculation for 1998 excludes the conversion of stock
options issued in 1998 because the impact would have been anti-dilutive.
<TABLE>
<CAPTION>
LOSS PER SHARE
PERIOD FROM INCEPTION
(MAY 23, 1997) INCOME PER SHARE
THROUGH FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- ----------------------
<S> <C> <C> <C> <C>
BASIC DILUTED BASIC DILUTED
------------ ------------ ---------- ----------
Numerator:
Net income (loss)......................................... $ (2,072) $ (2,072) $ 1,193 $ 1,193
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Denominator:
Weighted average common shares outstanding................ 1,374,220 1,374,220 2,304,847 2,304,847
Dilutive effect of stock options and warrants
outstanding............................................. -- -- -- 276,920
Common shares issuable upon conversion of preference
shares and Class B Special Stock........................ -- -- -- 1,592,405
------------ ------------ ---------- ----------
1,374,220 1,374,220 2,304,847 4,174,172
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Net loss per share.......................................... $ (1.51) $ (1.51) $ 0.52 $ 0.29
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS
A) CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 23, 1997)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
$ $
--------------- ---------------
<S> <C> <C>
Cash paid for interest............................................................. 1,371 3,279
------ -----
------ -----
Cash paid for income taxes......................................................... -- 205
------ -----
------ -----
B) NON-CASH TRANSACTIONS
Value of acquisitions partially or totally effected by the issue of capital
stock............................................................................ 9,325 8,878
------ -----
------ -----
Value of acquisitions partially or totally effected by the issuance of the
Company's debt................................................................... 9,642 529
------ -----
------ -----
The portion of the Canadian Waste Assets that were financed by the issuance of the
Company's debt................................................................... 10,980 --
------ -----
------ -----
Assets acquired under capital lease................................................ -- 1,237
------ -----
------ -----
</TABLE>
F-24
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
10. SEGMENT INFORMATION
Management principally views and manages the business by geography, with
each geographic segment's revenues being comprised of revenues from collection,
transfer, disposal and recycling services. The Company operated exclusively in
Canada during the fiscal period ended December 31, 1997. Acquisitions in 1998
have resulted in the provision of services in the United States. The tables
below present certain segment information of the Company as at and for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
-------------------- -------------------- ----------------------
$ % $ % $ %
--------- --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................................... 42,042 67.7 20,014 32.3 62,056 100
Operating expenses............................................. 38,713 67.9 18,271 32.1 56,984 100
--------- --- --------- --- --------- ---
Operating income............................................... 3,329 65.6 1,743 34.4 5,072 100
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
Total assets................................................... 66,466 67.6 31,871 32.4 98,337 100
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
Specified items included in the consolidated financial statements for the
year ended December 31, 1998 by segment are as follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
-------------------- -------------------- ---------
$ % $ % $
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest expense................................................... 2,222 70.8 917 29.2 3,139
--------- --- --------- --- ---------
--------- --- --------- --- ---------
Depreciation and amortization...................................... 3,684 75.3 1,206 24.7 4,890
--------- --- --------- --- ---------
--------- --- --------- --- ---------
Income tax expense................................................. 723 97.7 17 2.3 740
--------- --- --------- --- ---------
--------- --- --------- --- ---------
Expenditures for additions to fixed assets......................... 4,018 81.2 929 18.8 4,947
--------- --- --------- --- ---------
--------- --- --------- --- ---------
<CAPTION>
%
-----
<S> <C>
Interest expense................................................... 100
---
---
Depreciation and amortization...................................... 100
---
---
Income tax expense................................................. 100
---
---
Expenditures for additions to fixed assets......................... 100
---
---
</TABLE>
11. SUBSEQUENT EVENTS
A) OPTIONS GRANTED
Between January 1, 1999 and March 12, 1999, the Company issued options to
acquire 41,541 common shares to employees, directors and consultants at C$18.05.
These options have the same terms and vesting provisions as disclosed in note 7.
Option exercise dates are between January 1, 2001 and February 28, 2001 and
option expiry dates are between January 1, 2004 and February 28, 2004.
B) AMENDED AND RESTATED CREDIT FACILITY
On January 29, 1999, the Company amended and restated its Credit Facility
(note 4) to increase its available credit to $65.0 million from C$67.5 million
($44.1 million at December 31, 1998). The Company plans to use the proceeds of
its amended credit facility to redeem common shares issued to the sellers of
Rubbish Removal Inc., to make permitted acquisitions and for capital
expenditures, stand by letters of credit and for general corporate purposes. The
Company has pledged all of its assets, including the stock of its subsidiaries,
as collateral under the amended credit facility. The amended
F-25
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
credit facility will mature in January 2002, however, if the Company fails to
complete its initial public offering by September 30, 1999, the amended credit
facility will mature in January 2000.
C) ACQUISITIONS
Subsequent to December 31, 1998, the Company purchased two businesses in
Canada for approximately C$5.9 million and two businesses in the northern United
States for approximately $1.1 million.
D) COMMON STOCK SPLIT
On April 26, 1999, the Board of Directors of the Company approved a split of
the Company's common stock whereby 1.3847 common shares will be issued for each
one previously outstanding common share. This is subject to shareholder
approval. All common shares and per common share data in the financial
statements has been restated to give retroactive effect to this 1.3847 for 1
stock split.
12. UNAUDITED PRO FORMA REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
The Company's unaudited pro forma redeemable stock and stockholders' equity
as of December 31, 1998 gives effect to (i) the redemption of 500,175 redeemable
common shares which occurred on February 1, 1999; (ii) the conversion of all
outstanding convertible preference shares into 1,107,750 common shares; (iii)
the conversion of all Class "B" special shares into 484,645 common shares; and
(iv) the conversion of the remaining 280,240 redeemable common shares into an
equivalent number of common shares, which has occurred or will occur
concurrently with the completion of the Company's initial public offering (note
7).
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS OF
WESTERN WASTE SERVICES INC.
We have audited the consolidated balance sheets of Western Waste Services
Inc. ("Western Waste") at October 31, 1996 and June 5, 1997 and the consolidated
statements of operations, comprehensive loss, stockholders' deficit and cash
flows for the year ended October 31, 1996 and the period from November 1, 1996
through June 5, 1997. These financial statements are the responsibility of
Western Waste's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Western Waste as at October 31,
1996 and June 5, 1997 and the results of its operations and its cash flows for
each of the periods then ended in accordance with generally accepted accounting
principles in the United States.
Edmonton, Canada COOPERS & LYBRAND
May 29, 1998 Chartered Accountants
F-27
<PAGE>
WESTERN WASTE SERVICES INC.
CONSOLIDATED BALANCE SHEETS
AS AT OCTOBER 31, 1996 AND JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 5,
1996 1997
----------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................................. $ 252 $ 1,358
Trade accounts receivable (net of allowance for doubtful accounts of $22 at October 31,
1996 and $96 at June 5, 1997)........................................................... 1,664 1,899
Prepaid expenses and deposits............................................................. 149 223
----------- ---------
Total current assets...................................................................... 2,065 3,480
Property and equipment, net (Note 3)...................................................... 10,627 10,881
Goodwill (net of accumulated amortization of $94 at October 31, 1996 and $123 at June 5,
1997)................................................................................... 3,390 3,272
Other non-current assets.................................................................. 140 257
----------- ---------
Total assets.............................................................................. $ 16,222 $ 17,890
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank indebtedness (Note 4)................................................................ $ 7,831 $ 10,559
Accounts payable.......................................................................... 1,574 937
Accrued employee costs.................................................................... 91 271
Income and other taxes payable............................................................ 50 98
Other accrued liabilities................................................................. 206 43
Advances from stockholders (Note 5)....................................................... 5,673 5,528
Current portion of long-term debt (Note 5)................................................ 54 102
----------- ---------
Total current liabilities................................................................. 15,479 17,538
----------- ---------
Long-term debt (Note 5)................................................................... 232 127
----------- ---------
Future income taxes....................................................................... 1,782 2,266
----------- ---------
Redeemable Class C non-voting stock (Note 8)
Unlimited shares authorized; 200 shares issued and outstanding October 31, 1996 and June
5, 1997................................................................................. 124 124
----------- ---------
Commitments and contingencies (Note 7)
Stockholders' deficit
Capital stock (Note 8)
Unlimited Class A shares authorized; 200 shares issued and outstanding.................. 1 1
Cumulative foreign currency translation adjustments....................................... (30) 11
Accumulated deficit....................................................................... (1,366) (2,177)
----------- ---------
Total stockholders' deficit............................................................... (1,395) (2,165)
----------- ---------
Total liabilities and stockholders' deficit............................................... $ 16,222 $ 17,890
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-28
<PAGE>
WESTERN WASTE SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
YEAR 1996
ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
----------- -------------
<S> <C> <C>
Revenues.............................................................................. $ 7,421 $ 5,680
----------- -------------
Cost of operations.................................................................... 5,257 3,472
Selling, general and administrative expenses.......................................... 2,017 1,658
Depreciation and amortization......................................................... 741 612
----------- -------------
Loss from operations.................................................................. (594) (62)
Interest expense...................................................................... (8) (176)
----------- -------------
Loss before income taxes.............................................................. (602) (238)
Provision for income taxes (Note 6)................................................... (508) (573)
----------- -------------
Net loss for the period............................................................... $ (1,110) $ (811)
----------- -------------
----------- -------------
COMPREHENSIVE LOSS
Net loss for the period............................................................... $ (1,110) $ (811)
Other comprehensive income (loss) --
Foreign currency translation adjustments............................................ (25) 41
----------- -------------
Comprehensive loss for the year....................................................... $ (1,135) $ (770)
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to the consolidated financial statements
F-29
<PAGE>
WESTERN WASTE SERVICES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOREIGN
CURRENCY ACCUMULATED
COMMON STOCK TRANSLATION DEFICIT TOTAL
------------------------ --------------- ------------- ---------
<CAPTION>
SHARES $ $ $ $
<S> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 31, 1995................................ 200 1 (5) (256) (260)
Foreign currency translation adjustments.................... -- -- (25) -- (25)
Net loss for the year....................................... -- -- -- (1,110) (1,110)
-- --
--- ------ ---------
BALANCES AT OCTOBER 31, 1996................................ 200 1 (30) (1,366) (1,395)
Foreign currency translation adjustments.................... -- -- 41 -- 41
Net loss for the period..................................... -- -- -- (811) (811)
-- --
--- ------ ---------
BALANCES AT JUNE 5, 1997.................................... 200 1 11 (2,177) (2,165)
-- --
-- --
--- ------ ---------
--- ------ ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE>
WESTERN WASTE SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
YEAR 1996
ENDED THROUGH
OCTOBER 31, JUNE 5,
OPERATING ACTIVITIES 1996 1997
----------- -----------
<S> <C> <C>
Net loss for the period............................................. $ (1,110) $ (811)
Adjustments to net loss for non-cash items:
Depreciation and amortization..................................... 741 612
Future income taxes............................................... 508 538
Net loss (gain) on disposal of property plant and equipment....... 12 (9)
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
Trade accounts receivable......................................... (1,353) (336)
Prepaid expenses and deposits..................................... (115) (22)
Accounts payable.................................................. 1,281 (601)
Accrued employee costs............................................ 60 185
Income and other taxes payable.................................... 34 47
Other accrued liabilities......................................... 198 (159)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................... 256 (556)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures................................................ (2,839) (1,177)
Acquisitions of businesses, net of cash acquired.................... (8,182) --
Proceeds from sale of property and equipment........................ 74 105
Other assets........................................................ (27) (117)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................................. (10,974) (1,189)
----------- -----------
FINANCING ACTIVITIES
Increase in bank indebtedness....................................... 7,690 2,954
Proceeds from issuance of long-term debt............................ -- 109
Principal payments on long-term debt................................ (54) (159)
Repayments of advance from stockholder.............................. (775) (145)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................. 6,861 2,759
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......... (60) 92
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (3,917) 1,106
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 4,169 252
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 252 $ 1,358
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements
F-31
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Western Waste Services Inc. ("Western Waste") was incorporated in the
province of Alberta, Canada on November 22, 1994. Western Waste is a regional,
integrated solid waste services company that provides collection, transfer,
disposal and recycling services to commercial, industrial and residential
customers in secondary markets in the provinces of Alberta and British Columbia.
BASIS OF PRESENTATION
These financial statements are prepared in accordance with generally
accepted accounting principles in the United States. All financial information
presented herein is in thousands, except share and per share data. All
references to "dollars" or "$" mean U.S. dollars and "C$" mean Canadian dollars.
The consolidated financial statements include the accounts of Western Waste
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. All business acquisitions to June 5, 1997 have
been accounted for under the purchase method and the results of operations of
these businesses are included in the consolidated financial statements from
their respective dates of acquisition.
Assets and liabilities are reported in United States dollars. Assets and
liabilities have been translated from Canadian dollars to United States dollars
at the exchange rates in effect at the relevant balance sheet dates and revenues
and expenses have been translated from Canadian dollars to United States dollars
at the weighted average exchange rates prevailing during the relevant period.
Gains and losses resulting from translation are reported as a separate component
of stockholders' equity as cumulative foreign currency translation adjustments.
CREDIT RISK
Financial instruments that potentially subject Western Waste to credit risk
consist primarily of cash and cash equivalents and trade accounts receivable.
Western Waste places its cash and cash equivalents only with high credit quality
financial institutions. Western Waste's trade accounts receivable are not
subject to a concentration of credit risk. The customers are diversified as to
both geographic and industry concentrations. Western Waste maintains an
allowance for losses based on the expected collectibility of the accounts.
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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
F-32
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and short-term deposits or
monetary instruments with maturity dates of less than 90 days.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives on a straight-line basis as indicated below. Improvements
or betterments which significantly extend the life of an asset are capitalized.
Gains and losses resulting from property or equipment disposals are credited or
charged to cost of operations.
<TABLE>
<S> <C>
10 to 25
Buildings.................................................... years
Vehicles..................................................... 10 years
Containers, compactors and recycling equipment............... 5 to 12 years
Furniture, fixtures and other office equipment and
leaseholds................................................. 3 to 5 years
</TABLE>
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired businesses and is amortized on a straight-line basis
over the period of expected benefit of 40 years.
Should events or circumstances occur subsequent to the acquisition of a
business which bring into question the realizable value or impairment of the
related goodwill, Western Waste will evaluate the remaining useful life of
goodwill and make appropriate adjustments. Impairment would be measured by
comparing expected future cash flows on an undiscounted basis to the carrying
amount of the goodwill.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the long-term debt approximate the fair values as at
October 31, 1996 and June 5, 1997, based on the then current incremental
borrowing rates for similar types of financing arrangements.
REVENUE RECOGNITION
Western Waste recognizes revenue when waste removal services are provided.
Amounts billed to customers, prior to providing the related services, are
deferred and reported as revenues in the period in which the services are
rendered.
INCOME TAXES
Western Waste uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
F-33
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"), which is effective for periods
ending after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. Adoption of SFAS 129
will have no impact on Western Waste's existing disclosures.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes standards for reporting and disclosure
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130, which
is in effect for fiscal years beginning after December 15, 1997, requires
classification of financial statements for earlier periods to be provided for
comparative purposes. SFAS has been implemented in these financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosure about Segments
of an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments. It also establishes standards for related disclosures about
products, services, geographic areas and major customers. SFAS 131 is effective
for years beginning after December 15, 1997. In the initial year of application,
comparative information for previous years must be restated. Implementing the
provisions of SFAS 131 would not have had a significant impact on Western
Waste's existing disclosures for the periods presented.
2. ACQUISITIONS
BUSINESSES ACQUIRED DURING THE YEAR ENDED OCTOBER 31, 1996
On November 1, 1995, Western Waste acquired the business and certain capital
assets of Jones Disposal Services Ltd. ("Jones"), for total cash consideration
of $1,342.
On November 1, 1995, Western Waste acquired the business and certain capital
assets of Alpine Disposal & Recycling (Nanaimo) Ltd. ("Alpine"), for total cash
consideration of $2,237.
On December 1, 1995, Western Waste acquired 100% of the outstanding common
shares of West Coast Waste Systems Inc. ("West Coast"), for total cash
consideration of $2,705.
On March 1, 1996, Western Waste acquired 100% of the outstanding common
shares of Lacey Garbage Disposal Ltd. ("Lacey"), for total cash consideration of
$1,300.
During the year ended October 31, 1996 Western Waste acquired six other
smaller businesses for aggregate cash consideration of $598. The assets acquired
and obligations assumed for the above
F-34
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. ACQUISITIONS (CONTINUED)
business combinations all accounted for under the purchase method of accounting
in the period are as follows:
<TABLE>
<CAPTION>
WEST
JONES ALPINE COAST LACEY OTHER
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Property and equipment............................................ $ 1,193 $ 1,342 $ 2,133 $ 1,064 $ 482
Goodwill and other intangibles.................................... 149 895 1019 593 143
Deferred income taxes............................................. -- -- (447) (357) (27)
--------- --------- --------- --------- -----
Net acquisition costs............................................. $ 1,342 $ 2,237 $ 2,705 $ 1,300 $ 598
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
<CAPTION>
TOTAL
---------
<S> <C>
Property and equipment............................................ $ 6,214
Goodwill and other intangibles.................................... 2,799
Deferred income taxes............................................. (831)
---------
Net acquisition costs............................................. $ 8,182
---------
---------
</TABLE>
BUSINESSES ACQUIRED DURING THE PERIOD FROM NOVEMBER 1, 1996 THROUGH JUNE 5, 1997
No businesses were acquired during the period from November 1, 1996 through
June 5, 1997.
PRO FORMA ACQUISITION DATA (UNAUDITED)
Condensed pro forma statement of operations data, as if the acquisitions
accounted for as business combinations each period had occurred at the beginning
of the periods presented, are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
YEAR 1996
ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
----------- -------------
<S> <C> <C>
Revenue........................................................... $ 8,012 $ 5,680
----------- ------
----------- ------
Net income (loss) from operations................................. $ (553) $ (238)
----------- ------
----------- ------
Net income (loss) for the period.................................. $ (1,018) $ (811)
----------- ------
----------- ------
</TABLE>
F-35
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 5,
1996 1997
----------- ---------
<S> <C> <C>
Land.................................................................. $ 149 $ 145
Buildings............................................................. 597 582
Vehicles.............................................................. 5,297 5,411
Containers, compactors and recycling equipment........................ 5,107 5,735
Furniture, fixtures and other office equipment and leaseholds......... 200 230
----------- ---------
11,350 12,103
Less: Accumulated depreciation........................................ 723 1,222
----------- ---------
$ 10,627 $ 10,881
----------- ---------
----------- ---------
Depreciation expense for the period ended............................. $ 637 $ 499
----------- ---------
----------- ---------
</TABLE>
4. BANK INDEBTEDNESS
Bank indebtedness at October 31, 1996 and June 5, 1997 consisted of
short-term bankers acceptances. The weighted average interest rate was 5.04% at
October 31, 1996 and 3.65% at June 5, 1997.
Western Waste or its stockholders provided the following as collateral for
bank indebtedness.
(a) A stockholder's postponement of claim of $994 relating to stockholder
advances;
(b) A full recourse guarantee from one of the stockholders in the amount of
$10,814;
(c) A demand debenture providing a first fixed charge on property and
equipment in excess of $75 and a first and floating charge over all other
assets of Western Waste;
(d) An assignment of fire, liability, business interruption and other form
of insurance proceeds; and
(e) An assignment of the key man life insurance on one of the stockholders.
Western Waste had no remaining borrowing capacity under its credit facility
at June 5, 1997.
F-36
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ADVANCES FROM STOCKHOLDERS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
OCTOBER 31, JUNE 5,
1996 1997
------------- -----------
<S> <C> <C>
Term bank loan, interest at prime plus 1% repayable in monthly payments
of $1 plus interest, due January 2000................................. $ 30 $ 139
Capital lease obligations, interest rate at 8.3%, due 2000 to 2001...... 256 90
----- -----
286 229
Less: Current portion................................................... 54 102
----- -----
$ 232 $ 127
----- -----
----- -----
</TABLE>
The term bank loan and capital lease obligations are collateralized by fixed
charges on specific assets.
The term loan agreements provide for certain covenants and restrictions
regarding, among other things, working capital minimum ratios, minimum equity
requirements, consolidated earnings before interest, depreciation, and taxes
minimum requirement and maximum leverage requirements.
All of Western Waste's long-term debt was retired subsequent to June 5,
1997.
ADVANCES FROM STOCKHOLDERS
Advances from stockholders are unsecured, non-interest-bearing and have no
specified terms of repayment.
6. INCOME TAXES
At June 5, 1997, Western Waste had approximately $765 of accumulated net
operating loss carryforwards for income tax purposes, the tax benefits of which
have not been recognized due to uncertainty of realization. Most of these net
operating loss carryforwards do not expire until 2004 and their use is not
subject to any annual limitations.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
YEAR ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
------------- -------------
<S> <C> <C>
Current............................................................ $ -- $ 35
Deferred........................................................... 508 538
----- -----
PROVISION FOR INCOME TAXES......................................... $ 508 $ 573
----- -----
----- -----
</TABLE>
The current provision for income taxes for the period from November 1, 1996
through June 5, 1997 consists of capital taxes.
F-37
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The reconciliation from income taxes at the Canadian federal statutory rate
to the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
YEAR ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
------------- -------------
<S> <C> <C>
Combined Canadian federal and provincial statutory rate............ $ (269) $ (106)
Non-deductible expenses and losses carried forward not recognized
due to uncertainty............................................... 777 679
----- -----
PROVISION FOR INCOME TAXES......................................... $ 508 $ 573
----- -----
----- -----
COMPONENTS OF FUTURE INCOME TAXES
Components giving rise to the future income taxes are as follows:
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
YEAR ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
----------- -------------
<S> <C> <C>
Net book value of property and equipment in excess of related tax
cost............................................................. $ 1,782 $ 2,266
----------- ------
FUTURE INCOME TAXES................................................ $ 1,782 $ 2,266
----------- ------
----------- ------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES
The aggregate amount of future rent expense resulting from non-cancellable
operating leases as at June 5, 1997 amounts to $1,762 as follows:
<TABLE>
<S> <C>
1998................................................................ 396
1999................................................................ 402
2000................................................................ 397
2001................................................................ 306
2002................................................................ 261
---------
$ 1,762
---------
---------
</TABLE>
Aggregate rent expense, which is included in cost of operations, was $170
for the year ended October 31, 1996 and $121 for the period from November 1,
1996 through June 5, 1997.
ENVIRONMENTAL RISKS
Western Waste is subject to liability for any environmental damage that its
solid waste facilities may cause to neighbouring landowners or residents,
particularly as a result of the contamination of soil,
F-38
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
groundwater or surface water, and especially drinking water, including damage
resulting from conditions existing prior to the acquisition of such facilities
by Western Waste. Western Waste 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 Western
Waste or its predecessors. Any substantial liability for environmental damage
incurred by Western Waste could have a material adverse effect on Western
Waste's financial condition, results of operations or cash flows. As at June 5,
1997, Western Waste was 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, Western Waste may
periodically become subject to various judicial and administrative proceedings
involving federal, provincial or local agencies. In these proceedings, an agency
may seek to impose fines on Western Waste or to revoke or deny renewal of an
operating permit held by Western Waste. From time to time Western Waste may also
be subject to actions brought by citizens' groups or adjacent landowners in
connection with the permitting and licensing of its transfer station, or
alleging environmental damage or violations of the permits and licenses pursuant
to which Western Waste operates.
In addition, Western Waste may become party to various claims and suits
pending for alleged damages to persons and property, alleged violations of
certain laws and alleged liabilities arising out of matters occurring during the
normal operation of the waste management business. However, as of June 5, 1997,
there was no current proceeding or litigation involving Western Waste that
Western Waste believes will have a material adverse impact on Western Waste's
business, financial condition, results of operations or cash flows.
8. CAPITAL STOCK
The authorized capital stock of Western Waste consists of an unlimited
number of the following:
Class A voting common shares
Class B non-voting shares
Class C non-voting shares
Class D non-voting shares
Class E voting shares
CAPITAL STOCK TRANSACTIONS
On October 31, 1996, Western Waste issued an additional 100 Class C
non-voting shares, valued at $62 to a stockholder of Western Waste.
REDEMPTION FEATURES
The Class C, non-voting shares are redeemable at the option of the holder
and retractable at the option of Western Waste at the aggregate issue price of
$124.
F-39
<PAGE>
WESTERN WASTE SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1996 AND THE PERIOD FROM NOVEMBER 1, 1996 THROUGH
JUNE 5, 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. CAPITAL STOCK (CONTINUED)
DIVIDEND RESTRICTIONS
The dividends on the Class C shares may not exceed 16% of the redemption
price per annum.
9. CASH FLOW INFORMATION
Supplemental disclosures of cash flow information and non-cash transactions
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
YEAR ENDED THROUGH
OCTOBER 31, JUNE 5,
1996 1997
------------- -------------
<S> <C> <C>
Cash paid for interest............................................. $ 214 $ 270
----- -----
----- -----
Cash paid for income/capital taxes................................. -- 35
----- -----
----- -----
Shares issued for services rendered................................ 62 --
----- -----
----- -----
Acquisitions of equipment through capital leases................... 297 --
----- -----
----- -----
</TABLE>
10. RELATED PARTY TRANSACTIONS
In the year ended October 31, 1996, Western Waste issued $62 of Redeemable
Class C non-voting stock to a common stockholder and officer of Western Waste in
exchange for employment services rendered.
11. SUBSEQUENT EVENTS
On June 6, 1997 a share transfer agreement was entered into between Capital
Environmental Resource Inc. and USA Waste, pursuant to which USA Waste
transferred 100 Class A shares of Western Waste to Capital Environmental.
Subsequently, Capital Environmental Resource Inc. transferred to Western Waste
certain assets in the amount of $5,384 acquired from Canadian Waste Services
Inc.
On June 15, 1997, Western Waste acquired the business and certain fixed
assets from Provincial Sanitation and City Waste Ltd. for total cash
consideration of $424. The final amount of consideration is contingent upon the
resolution of claims arising over the warranted condition of assets received.
On November 1, 1997, Western Waste redeemed 200 Class C shares issued in
prior years for aggregate cash of $62.
F-40
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this offering. All of
these amounts (except the SEC registration fee and the NASD filing fee) are
estimated.
<TABLE>
<S> <C>
SEC registration fee............................................ $17,983.13
NASDAQ listing fee.............................................. 54,000
NASD filing fee................................................. 5,500
Blue Sky fees and expenses...................................... 12,000
Printing and Engraving Costs.................................... 234,000
Legal fees and expenses......................................... 465,000
Accounting fees and expenses.................................... 580,000
Consulting Fee.................................................. 125,000
Transfer Agent and Registrar fees and expenses.................. 4,000
Miscellaneous................................................... 44,517
----------
Total....................................................... $1,542,000
----------
----------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of Capital Environmental Resource Inc. (the "Company") provide
that our directors and officers and former directors and officers shall be
indemnified to the fullest extent permitted by the Business Corporations Act
(Ontario), as amended from time to time, and provides for advances to any
indemnified director or officer of expenses in connection with actual or
threatened proceedings and claims arising out of their status as director or
officer of Capital Environmental.
The Underwriting Agreement to be filed as Exhibit 1 will provide that the
underwriters named therein will indemnify and hold harmless the Company and each
director, officer or controlling person of the Company from and against certain
liabilities, including liabilities under the Securities Act. The Underwriting
Agreement will also provide that these underwriters will contribute to certain
liabilities of these persons under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Capital Environmental was founded in May 1997 by Branard Investment Corp., a
private holding company for which Mr. Busseri serves as president, with the goal
of taking advantage of consolidation opportunities in the solid waste services
industry in Canada. In connection with the founding of Capital Environmental,
and prior to our acquisition of any assets or operations, we issued 1,353,924
shares of our common stock for nominal consideration. Subsequently, we
negotiated our purchase of selected assets of Canadian Waste and USA Waste's 50%
interest in Western Waste.
In July 1997, we sold an aggregate of 8,000 shares of convertible preference
stock at a price of C$1,000 per share (C$7.22 per share of common stock on a
converted basis). Of the 8,000 shares of convertible preference stock, 6,802
were purchased by principals and employees of Sanders Morris Mundy and
investment partnerships managed by or associated with Sanders Morris Mundy. Upon
completion of this offering, the shares of convertible preference stock will
convert into 1,107,750 shares of common stock. In July 1997, Sanders Morris
Mundy and an affiliate of Sanders Morris Mundy received warrants to purchase
92,312 shares of common stock at an exercise price of C$0.007 per share,
II-1
<PAGE>
all of which are currently exercisable. The warrants were issued for financial
advisory services rendered in connection with the issuance of the 8,000
convertible preference shares. These warrants expire in July 2002.
In July 1997, in consideration for services rendered in connection with our
formation, we granted Allen Fracassi a warrant to purchase 30,772 shares of
common stock at an exercise price of C$0.007 per share. The warrant is currently
exercisable and expires July 15, 2002.
On July 30, 1997, we granted to each of Tony Busseri, Kenneth Ch'uan-k'ai
Leung and Allen Fracassi options to acquire 49,849 shares of common stock, at an
exercise price of C$7.22 per share. Also on July 30, 1997, we granted Allard
Loopstra an option to acquire 13,847 shares of common stock, at an exercise
price of C$7.22 per share. In January and May, 1998, we granted Mr. Loopstra an
option to acquire 27,694 and 13,847 shares of common stock, respectively, at an
exercise price of C$14.44 per share. All of these options were granted pursuant
to the 1997 stock option plan. In May 1998, we granted Mr. Busseri an option to
acquire 13,847 shares of common stock under the 1997 stock option plan at an
exercise price of C$14.44 per share. These options become exercisable upon the
earlier of the day prior to the consummation of this offering or two years from
the date of grant and expire five years from the date of grant.
In May 1998, a principal of Sanders Morris Mundy received an option to
purchase 27,694 shares of common stock at an exercise price of C$14.44 per
share, which will be exercisable on the day prior to the consummation of this
offering and will expire five years from the date of grant. The option was
issued as consideration for customary financial advisory services. In June 1998,
we completed a private placement of 553,869 shares of our common stock at a
price of C$18.05 per share, for which Sanders Morris Mundy served as placement
agent. Principals and employees of Sanders Morris and investment partnerships
managed by or associated with Sanders Morris Mundy purchased 486,989 shares of
common stock in the private placement.
On August 31, 1998, we granted each of Tony Busseri and Kenneth Ch'uan-k'ai
Leung an option to acquire 27,694 shares of common stock at an exercise price of
C$18.05 per share. The options granted to Tony Busseri were issued under our
1997 stock option plan as executive compensation. The Company granted Mr.
Leung's options as consideration for his advisory services in connection with an
acquisition. These options become exercisable upon the earlier of the day prior
to the consummation of this offering or two years from the date of grant and
expire five years from the date of grant.
In October 1998, principals and employees of Sanders Morris Mundy, and
investment partnerships managed by or associated with Sanders Morris Mundy,
purchased 612,037 shares of our common stock from certain existing shareholders
of Capital Environmental.
In November 1997, in connection with our acquisition of the remaining 33.33%
of the outstanding common stock of Western Waste from L&S Bishop Enterprises
Inc. ("L&S"), a company controlled by Lynn Bishop, the President of Western
Waste, we issued to L&S 400,000 shares of class "B" special stock at C$21.67 per
share. The 400,000 shares of class "B" special stock will be automatically
converted into 484,645 shares of common stock upon the consummation of this
offering. If the price per share of our common stock in this offering is less
than C$21.67 per share, we have the right to make up to L&S any shortfall
between C$21.67 per share and the actual price per share of the common stock
sold in this offering, in our sole discretion, by either issuing additional
number of shares of common stock at the actual price per share at which the
common stock is sold in this offering, or by payment of the cash difference.
Also in connection with this acquisition, we loaned C$1.5 million to L&S. The
loan, which is evidenced by a promissory note, bears no interest and the
principal amount becomes due and payable immediately prior to the completion of
this offering. Repayment of the loan is subject to a right of offset against our
payment of a dividend of C$1.5 million declared in November 1997 on the shares
of class "B" special stock, payable immediately prior to the completion of this
offering. If we complete this offering at C$21.67 per share (or elect to make up
any difference),
II-2
<PAGE>
L&S has the right to include in this offering shares of common stock having a
value of C$5,250,000. However, we have the right to repurchase these shares
rather than include them in this offering. We have elected to include 242,323
shares of common stock owned by L&S in this offering.
In October 1997, in connection with our acquisition of certain assets of
Abco/Kingswood Waste Services Inc., we issued to Kingswood 73,850 shares of
common stock at C$14.44 per share. As additional consideration for the purchase
of the Kingswood assets, we granted to Kingswood an option to acquire 10,385
shares of our common stock at an exercise price of C$7.22 per share. This option
becomes exercisable on the earlier of October 31, 1999 or the day prior to the
completion of this offering and expires on October 31, 2002.
In January 1998, in connection with our acquisition of all of the issued and
outstanding shares of Rubbish Removal we issued an aggregate of 500,175 shares
of redeemable common stock at $10.40 per share to the sellers of Rubbish
Removal. On December 31, 1998, the sellers of Rubbish Removal, Inc. exercised a
put right granted to them under the Rubbish Removal purchase agreement.
Consequently, on February 1, 1999, we repurchased 500,175 shares of our
redeemable common stock from the sellers for a total of $6.9 million. In
exchange for our cash repurchase, the sellers released us from any further
liability or obligation of payment for these shares.
In April 1998, as additional consideration for our acquisition of Muskoka
Containerized Services, we granted Donald Coates, the Vice President of our
northern Ontario operations, an option to acquire 24,232 shares of our common
stock at an exercise price of C$14.44 per share. This option becomes exercisable
on the earlier of April 1, 2000 or the day immediately prior to the completion
of this offering and expires on March 31, 2003. In addition, we issued 6,923
shares of common stock to Mr. Coates at a value of C$14.44 per share. Under the
terms of his employment agreement, Mr. Coates is entitled to receive options to
acquire 3,461 shares of common stock on April 1, 1999, April 1, 2000 and April
1, 2001, provided Muskoka Containerized Services achieves certain performance
targets. The exercise price of these options is their fair market value on the
date of grant and the options expire within 90 days of the date of grant. In
July 1998, we issued 5,192 shares of common stock to Mr. Coates in connection
with an acquisition for which he was primarily responsible.
In September 1998, in connection with our acquisition of GETS we issued
280,240 shares of our common stock to the selling shareholders of GETS, at
$12.64 per share. If we failed to complete an initial public offering of our
common stock by December 31, 1999 or if prior to December 31, 1999 Tony Busseri
and/or Allard Loopstra cease to be employed as full time employees, or cease to
hold at least two of the positions of Chief Executive Officer, Chief Operating
Officer or President of Capital Environmental, these 280,240 shares of common
stock were redeemable at the option of the holders, for an aggregate price of
$4.3 million or $15.17 per share. Under the terms of the GETS acquisition
agreement, we would have been required to issue to the sellers some additional
shares of common stock to make up for any shortfall between $15.17 per share and
the actual initial public offering price per share. Capital Environmental has
agreed to issue an additional 15,577 shares of common stock upon the closing of
this offering at the initial public offering price per share in satisfaction of
this obligation.
In March 1999, in connection with our acquisition of Ram-Pak, we issued
4,784 shares of our common stock to Gregg Carrigan, a selling shareholder of
Ram-Pak, at a price of $13.72 per share.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1 --Form of Underwriting Agreement*
3.1 --Restated Articles of Incorporation of the Company
3.2 --Amended and Restated By-law No. 1 of the Company
4 --Form of Common Stock Certificate of the Company*
5 --Opinion of Tory Tory DesLauriers & Binnington*
8 --Opinion of PricewaterhouseCoopers LLP*
10.1 --1997 stock option plan of the Company
10.2 --1999 stock option plan of the Company
10.3 --Employment Agreement between the Company and Tony Busseri
10.4 --Employment Agreement between the Company and Allard Loopstra
10.5 -- Amended and Restated Credit Agreement dated as of January 29, 1999 among the Company, CERI, L.P.,
various financial institutions, Canadian Imperial Bank of Commerce, as Co-Agent, Bank of America
National Trust and Savings Association, as U.S. Agent and Bank of America Canada, as Canadian Agent
10.6 --Form of Amended and Restated Shareholders Agreement dated April 30, 1999
10.7 -- Share Transfer Agreement dated as of June 4, 1997 between USA Waste Services, Inc., the Company and
Lynn Bishop
10.8 -- Share Purchase Agreement dated as of November 1, 1997 among Lynn Bishop, L&S Bishop Enterprises Inc.,
the Company and Western Waste Services Inc.
10.9 -- Purchase and Sale Agreement dated as of June 4, 1997 between Canadian Waste Services Inc., Canadian
Waste Services of Ontario Ltd., CWS Canadian Waste Services Ltd., CWS Canadian Waste Services (Canada)
Ltd., 1236886 Ontario Inc. and the Company
21 --List of subsidiaries of the Company
23.1 --Consent of PricewaterhouseCoopers LLP
23.2 --Consent of Morgan, Lewis & Bockius LLP*
23.3 --Consent of David Lowenstein
23.4 --Consent of Tory Tory DesLauriers & Binnington (contained in Exhibit 5)*
23.7 --Consent of Coopers & Lybrand
24 --Powers of Attorney (included on signature page)
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
The financial statement schedules are omitted because they are inapplicable
or the requested information is shown in the consolidated financial statements
of the Company or related notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, THE STATE OF
NEW YORK, ON THE 30TH DAY OF APRIL, 1999.
<TABLE>
<S> <C> <C>
CAPITAL ENVIRONMENTAL RESOURCE INC.
By: /s/ TONY BUSSERI
-----------------------------------------
Name: Tony Busseri
Title: Chairman of the Board and Chief
Executive Officer
</TABLE>
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS TONY BUSSERI AND GEORGE BOOTHE, AND EACH OF THEM,
WITH FULL POWER TO ACT WITHOUT THE OTHER, THIS PERSON'S TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN THIS REGISTRATION STATEMENT, ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS), ANY SUBSEQUENT REGISTRATION STATEMENTS
PURSUANT TO RULE 462 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
AMENDMENTS THERE AND TO FILE THE SAME, WITH EXHIBITS AND SCHEDULES, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION,
GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING NECESSARY OR
DESIRABLE TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ TONY BUSSERI Chief Executive Officer
- ------------------------------ (Principal Executive April 30, 1999
Tony Busseri Officer)
/s/ GEORGE BOOTHE Chief Financial Officer
- ------------------------------ (Principal Financial and April 30, 1999
George Boothe Accounting Officer)
/s/ ALLARD LOOPSTRA
- ------------------------------ President, Chief Operating April 30, 1999
Allard Loopstra Officer and Director
/s/ KENNETH C. LEUNG
- ------------------------------ Director April 30, 1999
Kenneth C. Leung
/s/ DAVID W. POLLAK
- ------------------------------ Authorized United States April 30, 1999
David W. Pollak Representative
</TABLE>
II-6
<PAGE>
Exhibit 3.1
---------------------------------
For Ministry Use Only Ontario Corporation Number
a usage exclusif du ministere Numero de la compagnie en Ontario
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RESTATED ARTICLES OF INCORPORATION
STATUTS MIS A JOUR
<S> <C> <C>
Form 5
Business
Corporations
Act 1. The name of the corporation is: Denomination sociale de la compagnie:
-------------------------------------------------------------------------------------------------------------
CAPITAL ENVIRONMENTAL RESOURCE
-------------------------------------------------------------------------------------------------------------
Formula INC./ RESOURCES ENVIRONNEMENTALES
numero 5 -------------------------------------------------------------------------------------------------------------
Loi sur aux CAPITAL INC.
compagnies -------------------------------------------------------------------------------------------------------------
2. Date of incorporation/amalgamation: Date de is constitution ou de la fusion:
25 MAY 1997
------------------------------------------------------------------------------------------------------------------
(Day, Month, Year) (jour, mois, annee)
3. The address of the registered office is: Adresse du siege social:
1005 SKYVIEW DRIVE
------------------------------------------------------------------------------------------------------------------
(Street & Number, or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero, ou numero de la R.R. ou s'il s'agit edifice a bureaux numero du bureau)
BURLINGTON, ONTARIO L7PSB
------------------------------------------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal code/Code postal)
(Nom de la municipalite ou du bureau de poste)
4. Number (or minimum and maximum number) of Nombre (ou nombres minimal et maximal)
directors is: d'administrateurs:
MINIMUM OF 3; MAXIMUM OF 9
5. The director(s) is/are: Administrateur(s):
Resident
Canadian
State
First name, initials and surname Address for service, giving Street & No. or R.R. No., Yes or No
Prenom, initiales et nom de famille Municipality and Postal Code Resident
Domicile elu. y compris la rue et le numero, le numero Canadien
de la R.R. ou le nom de la municipalite et le code postal Qui/Non
------------------------------------------------------------------------------------------------------------------
TONY BUSSERI 1386 GREENEAGLE DRIVE YES
OAKVILLE, ONTARIO L6M 2N3
KENNETH LEUNG 17 PROSPECT PARK WEST NO
BROOKLYN, NEW YORK 11215
ALLARD LOOPSTRA 29 CULLUM DRIVE YES
CARLISLE, ONTARIO L0R 1H2
[ILLEGIBLE]
Form 3 DAVID LOWENSTEIN 1 PALACE PIER COURT, UNIT 2303 YES
ETOBICOKE, ONTARIO M8V 3W9
</TABLE>
<PAGE>
2
<TABLE>
<S> <C> <C>
6. Restrictions, if any, on business the corporation may Limites s'il y a lieu,
carry on or on powers the corporation may exercise. imposees aux activites commerciales
ou aux pouvoirs de la compagnie.
None.
7. The classes and any maximum number of shares that Categories et nombre s'il y a lieu, d'actions
maximal, the corporation is authorized to issue: que la compagnie est autorisee a emettre:
Unlimited number of common shares and unlimited number of Preferred Shares, issuable in series.
</TABLE>
<PAGE>
3
<TABLE>
<S> <C> <C>
8. Rights, privileges, restrictions and conditions (if any) Droits, privileges, restrictions et
attaching to each class of shares and directors conditions, s'il y a lieu, [ILLEGIBLE] a
authority with respect to any class of shares which chaque categorie d'actions et pouvoirs des
may be issued in series: administrateurs relatifs a chaque categorie
d'actions qui peut etre emise en serie:
</TABLE>
See attached pages 3A to 3C
<PAGE>
3A
SCHEDULE A
I. PREFERRED SHARES
The Preferred Shares, as a class, shall be designated as Preferred Shares
and shall have attached thereto the following rights, privileges, restrictions
and conditions:
1.1. Directors' Right to Issue in One or More Series
The Preferred Shares may be issued at any time or from time to time in one
or more series. Before any shares of a series are issued, the board of directors
of the Corporation shall fix the number of shares that will form such series and
shall, subject to the limitations set out in the Articles, determine the
designation, rights, privileges, restrictions and conditions to be attached to
the Preferred Shares of such series, the whole subject to the filing with the
Director (as defined in the Business Corporations Act (the "Act")) of Articles
of Amendment containing a description of such series including the rights,
privileges, restrictions and conditions determined by the board of directors of
the Corporation.
1.2. Ranking of the Preferred Shares
The Preferred Shares of each series shall rank on a parity with the
Preferred Shares of every other series with respect to dividends and return of
capital in the event of the liquidation, dissolution or winding-up of the
Corporation, and shall be entitled to a preference over the Common Shares of the
Corporation and over any other shares ranking junior to the Preferred Shares
with respect to priority in payment of dividends and in the distribution of
assets in the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding up
its affairs. If any cumulative dividends, whether or not declared, or declared
non-cumulative dividends or amounts payable on a return of capital in the event
of the liquidation, dissolution or winding-up of the Corporation are not paid in
full in respect of any series of the Preferred Shares, the Preferred Shares of
all series shall participate rateably in respect of such dividends in accordance
with the sums that would be payable on such shares if all
<PAGE>
3B
such dividends were declared and paid in full, and in respect of such return of
capital in accordance with the sums that would be payable on such return of
capital if all sums so payable were paid in full; provided, however, that if
there are insufficient assets to satisfy in full all such claims as aforesaid,
the claims of the holders of the Preferred Shares with respect to return of
capital shall be paid and satisfied first and any assets remaining thereafter
shall be applied towards the payment and satisfaction of claims in respect of
dividends. The Preferred Shares of any series may also be given such other
preferences not inconsistent with the rights, privileges, restrictions and
conditions attached to the Preferred Shares as a class over the Common Shares of
the Corporation and over any other shares ranking junior to the Preferred Shares
as may be determined in the case of such series of Preferred Shares.
1.3. Voting Rights
Except as hereinafter referred to or as required by law or unless
provision is made in the Articles relating to any series of Preferred Shares
that such series is entitled to vote, the holders of the Preferred Shares as a
class shall not be entitled as such to receive notice of, to attend or to vote
at any meeting of the shareholders of the Corporation; provided, however, that
the holders of Preferred Shares shall be entitled to notice of meetings of
shareholders called for the purpose of authorizing the dissolution of the
Corporation or the sale, lease or exchange of all or substantially all the
property of the Corporation other than in the ordinary course of the business of
the Corporation.
1.4. Amendment With Approval of Holders of the Preferred Shares
The rights, privileges, restrictions and conditions attached to the
Preferred Shares as a class may be added to, changed or removed but only with
the approval of the holders of the Preferred Shares given as hereinafter
specified.
1.5. Approval of Holders of the Preferred Shares
The approval of the holders of the Preferred Shares to add to, change or
remove any right, privilege, restriction or condition attaching to the Preferred
Shares as a class or in respect of any other matter requiring the consent of the
holders of the Preferred Shares may be
<PAGE>
3C
given in such manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution signed by all the holders
of the Preferred Shares or passed by the affirmative vote of at least 2/3 of the
votes cast at a meeting of the holders of the Preferred Shares duly called for
the purpose.
The formalities to be observed with respect to the giving of notice of any
such meeting or any adjourned meeting, the quorum required therefor and the
conduct thereof shall be those from time to time prescribed by the by-laws of
the Corporation with respect to meetings of shareholders, or if not so
prescribed, as required by the Act as in force at the time of the meeting. On
every poll taken at every meeting of the holders of the Preferred Shares as a
class, or at any joint meeting of the holders of two or more series of Preferred
Shares, each holder of Preference Shares entitled to vote thereat shall have one
vote in respect of each $1.00 of the issue price of each Preferred Shares held.
2. COMMON SHARES
The holders of the Common Shares shall be entitled to vote at all meeting
of shareholders of the Corporation except meetings at which only the holders of
the Preferred Shares as a class or the holders of one or more series of the
Preferred Shares are entitled to vote, and shall be entitled to one vote at all
such meetings in respect of each Common Share held.
After payment to the holders of the Preferred Shares of the amount or
amounts to which they may be entitled, the holders of the Common Shares shall be
entitled to receive any dividend declared by the board of directors of the
Corporation and to receive the remaining property of the Corporation upon
liquidation, dissolution or winding up, whether voluntary or involuntary, and
any other distribution of the assets of the Corporation among its shareholders
for the purpose of winding up its affairs.
<PAGE>
4.
<TABLE>
<S> <C> <C>
9. The issue, transfer or ownership of shares L'emission, le transfert ou la propriete
is/is not restricted and the restrictions d'actions est/n'est pas [ILLEGIBLE]. Les
(if any) are as follows: restrictions, s'il y a lieu, sont les
suivantes:
The issue, transfer, or ownership of shares is not restricted.
10. Other provisions, (if any): Autres dispositions, s'il y a lieu:
None
</TABLE>
<PAGE>
5.
<TABLE>
<S> <C> <C>
11. These restated articles of incorporation correctly set Les presents statuts mis a jour enoncet
out the corresponding provisions of the articles of correctement les dispositions correspondantes
incorporation as amended and supersede the des status constitutifs relles qu'elles
original articles of incorporation and all the sont modifiees et remplacent les statuts
amendments thereto. constitutifes et les modifications qui y ont
ete apportees.
These articles are signed in duplicates. Les presents statuts sont signes en double
exemplaire.
CAPITAL ENVIRONMENTAL RESOURCE INC./
RESOURCES ENVIRONMENTALES CAPITAL INC.
---------------------------------------------
(Name of Corporation)
(Denomination sociale de la compagnie)
By: Par:
---------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
</TABLE>
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAW NO. 1
of
CAPITAL ENVIRONMENTAL RESOURCE INC./
RESSOURCES ENVIRONNEMENTALES CAPITAL INC.
(the "Corporation")
1. REGISTERED OFFICE
1.1. REGISTERED OFFICE. The registered office of the Corporation shall be
in the place within Ontario specified in the articles of the Corporation and at
such location therein as the directors may from time to time determine.
2. CORPORATE SEAL
2.1. CORPORATE SEAL. Until changed by the directors the corporate seal of
the Corporation shall be in the form impressed in the margin hereof.
3. DIRECTORS
3.1. NUMBER AND QUORUM. The number of directors shall be not fewer than
the minimum and not more than the maximum provided in the articles at least 2 of
whom shall not be officers or employees of the Corporation of any or any of its
affiliates. The number of directors shall be determined by the directors when
they are empowered by special resolution to make such determination and
otherwise the number of directors shall be determined by special resolution. A
majority of the number of directors so determined or such greater number as may
be fixed by the directors or shareholders shall constitute a quorum for the
transaction of business at any meeting of directors.
3.2. QUALIFICATION. No person shall be qualified to be a director if such
person is less than eighteen years of age; if such person is of unsound mind and
has been so found by a court in Canada or elsewhere; or if such person has the
status of a bankrupt. A majority of the directors
<PAGE>
-2-
shall be resident Canadians.
3.3. ELECTION AND TERM OF OFFICE. At each annual meeting of the
shareholders, directors shall be elected to hold office until the expiration of
the term for which they are elected, which shall not exceed a term which ends at
the third annual meeting of shareholders following such election. The directors
of the Corporation shall be divided into two classes as nearly equal in size as
practicable, hereby designated Class I and Class II. The term of the office of
the initial Class I directors shall expire at the next annual meeting of the
shareholders following such election and the term of office of the initial Class
II directors shall expire at the second annual meeting of the shareholders
following such election. At each annual meeting of the shareholders, directors
to replace those of a class whose terms expire at such annual meeting shall be
elected to hold office until the second annual meeting following such election
or until their respective successors shall have been duly elected and qualified.
Retiring directors are eligible for re-election.
3.4. VACATION OF OFFICE. A director ceases to hold office if such
director dies, is removed from office by the shareholders, ceases to be
qualified for election as a director or, subject to the BUSINESS CORPORATIONS
ACT, resigns by a written resignation received by the Corporation. A written
resignation of a director becomes effective at the time it is received by the
Corporation, or at the time specified in the resignation, whichever is later.
3.5. REMOVAL OF DIRECTORS. The shareholders may by ordinary resolution at
an annual or special meeting of shareholders remove any director or directors
from office provided that where the holders of any class or series of shares
have an exclusive right to elect one or more directors, a director so elected
may only be removed by an ordinary resolution of the shareholders of that class
or series. A vacancy created by the removal of a director may be filled at the
meeting of the shareholders at which the director is removed.
3.6. VACANCIES. Subject to the Act, a quorum of directors may fill a
vacancy among the directors. A director appointed or elected to fill a vacancy
holds office for the unexpired term of such director's predecessor.
<PAGE>
-3-
3.7. ACTION BY DIRECTORS. The directors shall manage or supervise the
management of the business and affairs of the Corporation. The powers of the
directors may be exercised at a meeting (subject to sections 3.8 and 3.9) at
which a quorum is present or by resolution in writing signed by all the
directors entitled to vote on that resolution at a meeting of the directors.
Where there is a vacancy in the board of directors the remaining directors may
exercise all the powers of the board so long as a quorum remains in office.
3.8. CANADIAN MAJORITY AT MEETINGS. The directors shall not transact
business at a meeting other than filling a vacancy in the board unless a
majority of directors present are resident Canadians or if a resident Canadian
director who is unable to be present approves in writing or by telephone or
other communications facilities the business transacted at the meeting and a
majority of resident Canadian directors would have been present had that
director been present at the meeting.
3.9. MEETING BY TELEPHONE. If all the directors of the Corporation
present at or participating in the meeting consent, a meeting of directors or of
a committee of directors may be held by means of such telephone, electronic or
other communication facilities as permit all persons participating in the
meeting to communicate with each other simultaneously and instantaneously, and a
director participating in such a meeting by such means is deemed to be present
at that meeting.
3.10. PLACE OF MEETINGS. Meetings of directors may be held at any place
within or outside of Ontario. A majority of the meetings of directors need not
be held within Canada in any financial year of the Corporation.
3.11. CALLING OF MEETINGS. Meetings of the directors shall be held at
such time and place as the Chairman of the Board, the President or any two
directors may determine.
3.12. NOTICE OF MEETING. Notice of the time and place of each meeting of
directors shall be given to each director by telephone not less than 48 hours
before the time of the meeting or by written notice not less than four days
before the day of the meeting and need not specify the
<PAGE>
-4-
purpose of or the business to be transacted at the meeting. Meetings of the
directors may be held at any time without notice if all the directors have
waived or are deemed to have waived notice.
3.13. FIRST MEETING OF NEW BOARD. No notice shall be necessary for the
first meeting of newly-elected directors held immediately following their
election at a meeting of shareholders.
3.14. ADJOURNED MEETING. Notice of an adjourned meeting of directors is
not required if the time and place of the adjourned meeting is announced at the
original meeting.
3.15. REGULAR MEETINGS. The directors may appoint a day or days in any
month or months for regular meetings and shall designate the place and time at
which such meetings are to be held. A copy of any resolution of directors fixing
the place and time of regular meetings of the board shall be sent to each
director forthwith after being passed, and no other notice shall be required for
any such regular meeting.
3.16. CHAIRMAN. The Chairman of the Board, or in the absence of the
Chairman, the President if a director, or in the absence of the President, a
director chosen by the directors at the meeting shall be the chairman of any
meeting of directors.
3.17. VOTING AT MEETINGS. Questions arising at any meeting of directors
shall be decided by a majority of votes. The Chairman of the Board shall not be
entitled to a casting vote in the event of equality of votes.
3.18. CONFLICT OF INTEREST. A director or officer who is a party to, or
who is a director or officer of or has a material interest in, any person who is
a party to a material contract or transaction or proposed material contract or
transaction with the Corporation shall disclose the nature and extent of such
director's or officer's interest at the time and in the manner provided by the
Act.
3.19. REMUNERATION AND EXPENSES. The directors shall be paid such
remuneration, if any, as the directors may from time to time by resolution
determine. The directors shall also be entitled to be paid their reasonable
travelling and other expenses properly incurred by them in
<PAGE>
-5-
going to, attending and returning from meetings of directors or committees of
directors. If any director or officer of the Corporation shall be employed by or
shall perform services for the Corporation otherwise than as a director or
officer or shall be a member of a firm or a shareholder, director or officer of
a body corporate which is employed by or performs services for the Corporation,
the fact of such director or officer being a director or officer of the
Corporation shall not disentitle such director or officer or such firm or body
corporate, as the case may be, from receiving proper remuneration for such
services.
4. COMMITTEES
4.1. COMMITTEES. The directors may designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the directors, shall have and may exercise all the powers
and authority of the directors in the management of the business and the affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have the power
of authority in reference to approving or adopting, or recommending to the
shareholders, any action or matter expressly required by law to be submitted to
shareholders for approval, or adopting, amending or repealing this By-law.
4.2. TRANSACTION OF BUSINESS. Subject to section 3.9 the powers of a
committee appointed by the directors may be exercised at a meeting at which a
quorum is present or by resolution in writing signed by all members of the
committee entitled to vote on that resolution at a meeting of the committee.
Meetings of a committee may be held at any place in or outside Canada.
<PAGE>
-6-
4.3. PROCEDURE. Unless otherwise determined by the directors, each
committee shall have power to fix its quorum and to regulate its procedure.
5. OFFICERS
5.1. GENERAL. The directors may from time to time appoint a Chairman of
the Board, Chief Executive Officer, President, a Chief Financial Officer, one or
more Executive Vice-Presidents, a Secretary and such other officers as the
directors may determine, including one or more assistants to any of the officers
so appointed. The officers so appointed may but need not be members of the board
of directors except as provided in sections 5.3 and 5.4.
5.2. TERM OF OFFICE. Any officer may be removed by the directors at any
time but such removal shall not affect the rights of such officer under any
contract of employment with the Corporation. Otherwise, each officer shall hold
office until such officer's successor is appointed.
5.3. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall
be appointed from among the directors and shall, when present, be chairman of
meetings of shareholders and directors and shall have such other powers and
duties as the directors may determine. The Chairman may or may not be an officer
of the Corporation.
5.4. CHIEF EXECUTIVE OFFICER. Unless the directors otherwise determine,
the Chairman of the Board shall be the Chief Executive Officer of the
Corporation and as such shall, in addition to any other powers and duties
determined by the directors from time to time, have general charge and control
of the business affairs of the Corporation.
5.5. THE PRESIDENT. Unless the directors otherwise determine, the
President shall be the Chief Operating Officer of the Corporation and shall have
such powers and duties as the directors or the Chief Executive Officer may
determine and in the absence of the Chairman of the Board and the absence of the
Chief Executive Officer if not also the Chairman of the Board, shall be chairman
at meetings of shareholders and directors when present.
<PAGE>
-7-
5.6. EXECUTIVE VICE-PRESIDENT. An Executive Vice-President shall have
such powers and duties as the directors or the Chief Executive Officer may
determine.
5.7. SECRETARY. The Secretary shall give, or cause to be given, all
notices required to be given to shareholders, directors, auditors and members of
committees; shall attend and be secretary of all meetings of shareholders,
directors and committees appointed by the directors and shall enter or cause to
be entered on books kept for that purpose minutes of all proceedings at such
meetings; shall be the custodian of the corporate seal of the Corporation and of
all records, books, documents and other instruments belonging to the
Corporation; and shall have such other powers and duties as the directors or the
Chief Executive Officer may determine.
5.8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be
responsible for financial matters of the Corporation and shall keep proper books
of account and accounting records with respect to all financial and other
transactions of the Corporation; shall be responsible for the deposit of money,
the safe-keeping of securities and the disbursement of the funds of the
Corporation; shall render to the directors when required an account of all his
or her transactions as Chief Financial Officer and of the financial position of
the Corporation; and shall have such other powers and duties as the directors or
the Chief Executive Officer may determine.
5.9. OTHER OFFICERS. The powers and duties of all other officers shall be
such as the directors or the Chief Executive Officer may determine. Any of the
powers and duties of an officer to whom an assistant has been appointed may be
exercised and performed by such assistant, if the directors or the Chief
Executive Officer so direct.
5.10. VARIATION OF DUTIES. The directors may, from time to time, vary,
add to or limit the powers and duties of any officer.
5.11. CONFLICT OF INTEREST. An officer shall disclose such officer's
interest in any material contract or proposed material contract in accordance
with section 3.18.
5.12. AGENTS AND ATTORNEYS. The directors shall have power from time to
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time to appoint agents or attorneys for the Corporation in or out of Canada with
such powers (including the power to sub-delegate) of management, administration
or otherwise as the directors may specify.
6. PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall
indemnify a director or officer, a former director or officer or a person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or creditor, and the
heirs and legal representatives of such a person to the extent permitted by the
Act.
6.2. INSURANCE. The Corporation may purchase and maintain insurance for
the benefit of any person referred to in section 6.1 to the extent permitted by
the Act.
7. MEETINGS OF SHAREHOLDERS
7.1. ANNUAL MEETINGS. The annual meeting of the shareholders shall be
held at the registered office of the Corporation or at such other place, in or
outside Ontario, at such time in each year as the directors may determine, for
the purpose of receiving the reports and statements required to be placed before
the shareholders at an annual meeting, electing directors, appointing an auditor
or auditors, and for the transaction of such other business as may properly be
brought before the meeting.
7.2. OTHER MEETINGS. The directors shall have power at any time to call a
special meeting of shareholders to be held at such time and at such place, in or
outside Ontario, as may be determined by the board of directors. In addition to
the requirements under the Act with respect to the requisition of meetings of
the shareholders by the shareholders, the directors shall call a special meeting
of the shareholders upon the requisition of holders of at least 20 per cent of
the shares of the Corporation then outstanding.
7.3. NOTICE OF MEETINGS. Notice of the time, date and place of a meeting
of
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shareholders shall be given not less than ten days nor more than fifty days
before the meeting to each holder of shares carrying voting rights at the close
of business on the record date for notice, to each director and to the auditor
of the Corporation. Notice of a meeting of shareholders at which special
business is to be transacted shall state or be accompanied by a statement of the
nature of that business in sufficient detail to permit the shareholder to form a
reasoned judgment thereon and shall include the text of any special resolution
or by-law to be submitted to the meeting. All business transacted at a special
meeting of shareholders and all business transacted at an annual meeting of
shareholders, except consideration of the minutes of an earlier meeting, the
financial statements and auditor's report, election of directors and
reappointment of the incumbent auditor, shall be deemed to be special business.
7.4. RECORD DATE FOR NOTICE. For the purpose of determining shareholders
entitled to receive notice of a meeting of shareholders, the directors may fix
in advance a date as the record date for such determination of shareholders, but
the record date shall not precede by more than fifty days or by less than
twenty-one days the date on which the meeting is to be held. Where no record
date is fixed, the record date for the determination of shareholders entitled to
receive notice of a meeting of shareholders shall be at the close of business on
the day immediately preceding the day on which the notice is given, or, if no
notice is given, shall be the day on which the meeting is held. If a record date
is fixed, unless notice of the record date is waived in writing by every holder
of a share of the class or series affected whose name is set out in the
securities register at the close of business on the day the directors fix the
record date, notice thereof shall be given, not less than seven days before the
date so fixed, by advertisement in a newspaper published or distributed in the
place where the Corporation has its registered office and in each place in
Canada where it has a transfer agent or where a transfer of its shares may be
recorded and by written notice to each stock exchange in Canada on which the
shares of the Corporation are listed for trading.
7.5. PERSONS ENTITLED TO BE PRESENT. The only persons entitled to be
present at a meeting of shareholders shall be those entitled to vote thereat,
the directors, the auditor and other persons who are entitled or required under
any provision of the Act or the articles or by-laws of
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the Corporation to attend a meeting of shareholders of the Corporation. Any
other person may be admitted only on the invitation of the chairman of the
meeting or with the consent of the meeting.
7.6. CHAIRMAN. The Chairman of the Board, or in the absence of the
Chairman or the Chief Executive Officer (if not the Chairman), the President, or
in the absence of the President, a person chosen by a vote at the meeting shall
be chairman of meetings of shareholders.
7.7. SCRUTINEERS. At each meeting of shareholders one or more
scrutineers, who need not be shareholders, may be appointed by a resolution or
by the chairman with the consent of the meeting.
7.8. QUORUM. The holders of not less than one third of the outstanding
shares entitled to vote at a meeting of shareholders, whether present in person
or represented by proxy, shall constitute a quorum for the transaction of
business at any meeting of shareholders.
7.9. RIGHT TO VOTE. The Corporation shall prepare a list of shareholders
entitled to receive notice of a meeting, arranged in alphabetical order and
showing the number of shares held by each shareholder, which list shall be
prepared,
7.9.1. if a record date is fixed as hereinbefore provided, not
later than ten days after that date;
7.9.2. if no record date is fixed, at the close of business on the
day immediately preceding the day on which the notice is given, or where
no notice is given, on the day on which the meeting is held.
A person named in the said list is entitled to vote the shares shown
opposite such person's name at the meeting to which the list relates, except to
the extent that the person has transferred any of such person's shares and the
transferee of those shares produces properly endorsed share certificates, or
otherwise establishes that such transferor owns the shares, and demands, not
later than ten days before the meeting that the transferee's name be included in
the
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list before the meeting, in which case the transferee is entitled to vote the
shares of the transferee at the meeting.
7.10. JOINT SHAREHOLDERS. Where two or more persons hold shares jointly,
one of those holders present at a meeting of shareholders may in the absence of
the others vote the shares, but if two or more of those persons are present, in
person or by proxy, they shall vote as one on the shares jointly held by them.
7.11. REPRESENTATIVES. Where a body corporate or association is a
shareholder of the Corporation, the Corporation shall recognize any individual
authorized by a resolution of the directors or governing body of the body
corporate or association to represent it at meetings of shareholders of the
Corporation. An individual so authorized may exercise on behalf of the body
corporate or association such individual represents all the powers it could
exercise if it were an individual shareholder.
7.12. EXECUTORS AND OTHERS. An executor, administrator, committee of a
mentally incompetent person, guardian or trustee and, where a corporation is
such executor, administrator, committee, guardian or trustee of a testator,
intestate, mentally incompetent person, ward or cestui que trust, any duly
appointed representative of such corporation, upon filing with the secretary of
the meeting sufficient proof of such appointment, shall represent the shares in
such representative's hands at all meetings of shareholders of the Corporation
and may vote accordingly as a shareholder in the same manner and to the same
extent as the shareholder of record. If there be more than one executor,
administrator, committee, guardian or trustee, the provisions of this by-law
respecting joint shareholders shall apply.
7.13. PROXYHOLDERS. Every shareholder entitled to vote at a meeting of
shareholders may by means of a proxy appoint a proxyholder or one or more
alternate proxyholders, who need not be shareholders, as such shareholder's
nominee to attend and act at the meeting in the manner, to the extent and with
the authority conferred by the proxy. A proxyholder or an alternate proxyholder
has the same rights as the shareholder who appointed a proxyholder or alternate
proxyholder to speak at a meeting of shareholders in respect of any matter and
to vote
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by way of ballot at the meeting. A proxy shall be executed by the shareholder or
such shareholder's attorney authorized in writing or, if the shareholder is a
body corporate, by an officer or attorney thereof duly authorized and ceases to
be valid one year from its date. A proxy shall be in such form as may be
prescribed from time to time by the directors or in such other form as the
chairman of the meeting may accept and as complies with all applicable laws and
regulations.
7.14. TIME FOR DEPOSIT OF PROXIES. The directors may by resolution fix a
time not exceeding forty-eight hours, excluding Saturdays and holidays,
preceding any meeting or adjourned meeting of shareholders before which time
proxies to be used at that meeting must be deposited with the Corporation or an
agent thereof, and any period of time so fixed shall be specified in the notice
calling the meeting.
7.15 VOTING. Except as otherwise provided in the articles of the
Corporation, each shareholder shall be entitled to one vote for each share
registered in the name of such shareholder upon the books of the Corporation.
7.16 VOTES TO GOVERN. Subject to the Act and the articles of the
Corporation, at all meetings of shareholders every question shall be decided by
a majority of the votes cast on the question. The chairman of the meeting shall
not be entitled to a casting vote in the event of equality of votes.
7.17 BALLOTS. When directed by the presiding officer or upon the demand
of any shraeholder, the vote upon any matter before a meeting of the
shareholders shall be by ballot and each person present and entitled to vote at
the meeting shall, unless the articles of the Corporation otherwise provide, be
entitled to one vote for each share in respect of which such person is entitled
to vote at the meeting. A demand for a ballot may be withdrawn at any time prior
to taking of a poll on the ballot.
7.18 ADJOURNMENT. The chairman of any meeting of shareholders may, with
the consent of the meeting and subject to such conditions as the meeting may
decide, adjourn the
<PAGE>
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same from time to time and from place to place. If a meeting of shareholders is
adjourned for less than thirty days it is not necessary to give notice of the
adjourned meeting other than by announcement at the earliest meeting that is
adjourned. If a meeting of shareholders is adjourned by one or more adjournments
for an aggregate of thirty days or more, notice of the adjourned meeting shall
be given as for an original meeting. Any business may be brought before or dealt
with at any adjourned meeting which might have been brought before or dealt with
at the original meeting in accordance with the notice calling such original
meeting.
7.19 RESOLUTION IN LIEU OF MEETING. A resolution in writing signed by all
the shareholders entitled to vote on that resolution at a meeting of
shareholders is as valid as if it had been passed at a meeting of shareholders
except where a written statement in respect thereof has been submitted by a
director or where representations in writing are submitted by the auditor of the
Corporation, in either case, in accordance with the Act.
8. SHARES
8.1. ISSUE. Subject to the Act and the articles of the Corporation,
shares of the Corporation may be issued at such times and to such persons and
for such consideration as the directors may determine, provided that no share
may be issued until it is fully paid as provided in the Act.
8.2. COMMISSIONS. The directors may authorize the Corporation to pay a
reasonable commission to any person in consideration of such person's purchasing
or agreeing to purchase shares of the Corporation from the Corporation or from
any other person, or procuring or agreeing to procure purchasers for any such
shares.
8.3. SHARE CERTIFICATE. Every shareholder is entitled at such
shareholder's option to a share certificate in respect of the shares held by
such shareholder that complies with the Act or to a non-transferable written
acknowledgement ("written acknowledgement") of such shareholder's right to
obtain a share certificate from the Corporation in respect of the shares of the
Corporation held by the shareholder, but the Corporation is not bound to issue
more than one share certificate
<PAGE>
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or written acknowledgement in respect of a share or shares held jointly by
several persons and delivery of a share certificate or written acknowledgement
to one of several joint holders is sufficient delivery to all. Written
acknowledgements shall be in such form or forms as the directors shall from time
to time by resolution determine. The Corporation may charge a fee in accordance
with the Act for a share certificate issued in respect of a transfer. Subject to
the provisions of the Act and to the requirements of any stock exchange on which
shares of the Corporation may be listed, share certificates shall be in such
form or forms as the directors shall from time to time approve. Unless otherwise
determined by the directors, share certificates shall be signed by the Chairman
of the Board, the President, the Chief Financial Officer or an Executive
Vice-President or a director and by the Secretary or an Assistant Secretary and
need not be under the corporate seal and certificates for shares in respect of
which a transfer agent and/or registrar has been appointed shall not be valid
unless countersigned on behalf of such transfer agent and/or registrar. Share
certificates shall be signed manually by at least one director or officer of the
Corporation or by or on behalf of a registrar, transfer agent, branch transfer
agent or issuing or other authenticating agent of the Corporation and any
additional signatures required on share certificates may be printed or otherwise
mechanically reproduced thereon. A manual signature is not required on a share
certificate representing a fractional share. If a share certificate contains a
printed or mechanically reproduced signature of a person, the Corporation may
issue the share certificate, notwithstanding that the person has ceased to be a
director or an officer of the Corporation, and the share certificate is as valid
as if such person were a director or an officer at the date of its issue.
8.4. TRANSFER AGENTS AND REGISTRARS. For each class of shares issued by
it, the Corporation may appoint one or more agents to keep the securities
register and the register of transfers and one or more branch registers. Such an
agent may be designated as a transfer agent or registrar according to functions
and one agent may be designated both transfer agent and registrar. The
securities register and the register of transfers shall be kept at the
registered office of the Corporation or at such other places in Ontario as are
designated by the directors, and the branch register or registers of transfers
may be kept at such offices of the Corporation or other
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places, either within or outside Ontario, as are designated by the directors.
8.5. TRANSFER OF SHARES. Subject to the Act, no transfer of a share shall
be registered except upon presentation of the certificate representing such
share with an endorsement which complies with the Act, together with such
reasonable assurance that the endorsement is genuine and effective as the
directors may prescribe, upon payment of all applicable taxes and fees and upon
compliance with the articles of the Corporation.
8.6. NON-RECOGNITION OF TRUST. Subject to the Act, the Corporation may
treat the registered holder of any share as the person exclusively entitled to
vote, to receive notices, to receive any dividend or other payment in respect of
the share, and to exercise all the rights and powers of an owner of the share.
8.7. REPLACEMENT OF SHARE CERTIFICATES. Where the owner of a share
certificate claims that the share certificate has been lost, apparently
destroyed or wrongfully taken, the Corporation shall issue or cause to be issued
a new certificate in place of the original certificate if the owner (i) so
requests before the Corporation has notice that the share certificate has been
acquired by a bona fide purchaser; (ii) files with the Corporation an indemnity
bond sufficient in the Corporation's opinion to protect the Corporation and any
transfer agent, registrar or other agent of the Corporation from any loss that
it or any of them may suffer by complying with the request to issue a new share
certificate; and (iii) satisfies any other reasonable requirements imposed from
time to time by the Corporation.
9. DIVIDENDS AND RIGHTS
9.1. DECLARATION OF DIVIDENDS. Subject to the Act the directors may from
time to time declare dividends payable to the shareholders according to their
respective rights and interest in the Corporation.
9.2. CHEQUES. A dividend payable in money shall be paid by cheque to the
order of each registered holder of shares of the class or series in respect of
which it has been declared and
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mailed by prepaid ordinary mail to such registered holder at the address of such
holder in the Corporation's securities register, unless such holder otherwise
directs. In the case of joint holders the cheque shall, unless such joint
holders otherwise direct, be made payable to the order of all such joint holders
and mailed to them at their address in the Corporation's securities register.
The mailing of such cheque as aforesaid, unless the same is not paid on due
presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.
9.3. NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the directors may from time to time prescribe, whether generally or in any
particular case.
9.4. RECORD DATE FOR DIVIDENDS AND RIGHTS. The directors may fix in
advance a date, preceding by not more than fifty days the date for payment of
any dividend or the date for the issue of any warrant or other evidence of the
right to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the rights to subscribe for such securities, and notice of any such
record date shall be given not less than seven days before such record date in
the manner provided by the Act. If no record date is so fixed, the record date
for the determination of the persons entitled to receive payment of any dividend
or to exercise the right to subscribe for securities of the Corporation shall be
at the close of business on the day on which the resolution relating to such
dividend or right to subscribe is passed by the directors.
9.5. UNCLAIMED DIVIDENDS. Any dividend unclaimed after a period of six
years from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
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10. NOTICES
10.1. GENERAL. A notice or document required by the Act, the regulations
thereunder, the articles or the by-laws of the Corporation to be sent to a
shareholder or director of the Corporation may be sent by prepaid mail addressed
to, or may be delivered personally or by electronic means of communication to
the shareholder at the latest address of the shareholder as shown in the records
of the Corporation or to the director at the latest address of such director as
shown in the records of the Corporation or in the most recent notice filed under
the Corporations Information Act, whichever is the more current. A notice or
document if mailed to a shareholder or director of the Corporation shall be
deemed to have been given when deposited in a post office or public letter box.
A notice sent by electronic means of communication shall be deemed to have been
given when sent by such means. If the Corporation sends a notice or document to
a shareholder in accordance with this section and the notice or document is
returned on three consecutive occasions because the shareholder cannot be found,
the Corporation is not required to send any further notices or documents to the
shareholder until the shareholder informs the Corporation in writing of the new
address of such shareholder.
10.2. COMPUTATION OF TIME. In computing the time when a notice or
document must be given or sent under any provision requiring a specified number
of days' notice of any meeting or other event, a "day" shall mean a clear day
and the period of days shall be deemed to commence the day following the event
that began the period and shall be deemed to terminate at midnight of the last
day of the period except that if the last day of the period falls on a Sunday or
holiday the period shall terminate at midnight of the day next following that is
not a Sunday or holiday.
10.3. OMISSION AND ERRORS. The accidental omission to give any notice or
send any document to any shareholder, director or other person or the
non-receipt of any notice or document by any shareholder, director or other
person or any error in any notice or document not affecting the substance
thereof shall not invalidate any action taken at any meeting held pursuant to
such notice or otherwise founded on such notice or document.
10.4. NOTICE TO JOINT SHAREHOLDERS. All notices or documents with respect
to any shares registered in more than one name may, if more than one address
appears on the securities register
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of the Corporation in respect of such joint holding, be given to such joint
shareholders at the first address so appearing, and all notices so given or
documents so sent shall be sufficient notice to all the holders of such shares.
10.5. PROOF OF SERVICE. A certificate of the Secretary or other duly
authorized officer of the Corporation, or of any agent of the Corporation, as to
facts in relation to the mailing or delivery or sending of any notice or
document to any shareholder or director of the Corporation or to any other
person or publication of any such notice or document, shall be conclusive
evidence thereof and shall be binding on every shareholder or director or other
person as the case may be.
10.6. SIGNATURE ON NOTICE. The signature on any notice or document given
by the Corporation may be printed or otherwise mechanically reproduced thereon
or partly printed or otherwise mechanically reproduced thereon.
10.7. WAIVER OF NOTICE. Notice may be waived or the time for the sending
of a notice or document may be waived or abridged at any time with the consent
in writing of the person entitled thereto. Attendance of any director at a
meeting of the directors or of any shareholder at a meeting of shareholders is a
waiver of notice of such meeting, except where such shareholder or director
attends for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully called.
11. BUSINESS OF THE CORPORATION
11.1. VOTING SHARES AND SECURITIES IN OTHER CORPORATIONS. All of the
shares or other securities carrying voting rights of any other body corporate or
bodies corporate held from time to time by the Corporation may be voted at any
and all meetings of holders of such securities of such other body corporate or
bodies corporate in such manner and by such person or persons as the directors
of the Corporation shall from to time determine or failing such determination
the proper signing officers of the Corporation may also from time to time
execute and deliver for and on behalf of the Corporation instruments of proxy
and arrange for the issue of voting certificates
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and other evidence of the right to vote in such names as they may determine.
11.2. BANK ACCOUNTS, CHEQUES, DRAFTS AND NOTES. The Corporation's bank
accounts shall be kept in such chartered bank or banks, trust company or trust
companies or other firm or corporation carrying on a banking business as the
directors may by resolution from time to time determine. Cheques on bank
accounts, drafts drawn or accepted by the Corporation, promissory notes given by
it, acceptances, bills of exchange, orders for the payment of money and other
instruments of a like nature may be made, signed, drawn, accepted or endorsed,
as the case may be, by such officer or officers, person or persons as the
directors may by resolution from time to time name for that purpose. Cheques,
promissory notes, bills of exchange, orders for the payment of money and other
negotiable paper may be endorsed for deposit to the credit of any one of the
Corporation's bank accounts by such officer or officers, person or persons, as
the directors may by resolution from time to time name for that purpose, or they
may be endorsed for such deposit by means of a stamp bearing the Corporation's
name.
11.3. EXECUTION OF INSTRUMENTS. The Chairman of the Board, the President,
an Executive Vice-President, Chief Financial Officer or any director, together
with the Secretary or Assistant Secretary or any other director, shall have
authority to sign in the name and on behalf of the Corporation all instruments
in writing and any instruments in writing so signed shall be binding upon the
Corporation without any further authorization or formality. The board of
directors shall have power from time to time by resolution to appoint any other
officer or officers or any person or persons on behalf of the Corporation either
to sign instruments in writing generally or to sign specific instruments in
writing. Any signing officer may affix the corporate seal to any instrument
requiring the same. The term "instruments in writing" as used herein shall,
without limiting the generality thereof, include contracts, documents, powers of
attorney, deeds, mortgages, hypothecs, charges, conveyances, transfers and
assignments of property (real or personal, immovable or movable), agreements,
tenders, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, stocks, bonds,
debentures or other securities, instruments of proxy and all paper writing.
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11.4. FISCAL YEAR. Until changed by resolution of the directors the
fiscal year of the Corporation shall terminate on the last day of December in
each year.
12. INTERPRETATION
12.1. In this by-law, wherever the context requires or permits, the
singular shall include the plural and the plural the singular; the word "person"
shall include firms and corporations, and masculine gender shall include the
feminine and neuter genders. Wherever reference is made to any determination or
other action by the directors such shall mean determination or other action by
or pursuant to a resolution passed at a meeting of the directors, or by or
pursuant to a resolution consented to by all the directors as evidenced by their
signatures thereto. Wherever reference is made to "the BUSINESS CORPORATIONS
ACT" or the "Act", it shall mean the BUSINESS CORPORATIONS ACT of the Province
of Ontario, and every other act or statute incorporated therewith or amending
the same, or any act or statute substituted therefor. Unless the context
otherwise requires, all words used in this by-law shall have the meanings given
to such words in the Act.
<PAGE>
Exhibit 10.1
RESOLUTION OF THE DIRECTORS AND SHAREHOLDERS
OF
CAPITAL ENVIRONMENTAL RESOURCE INC.
WHEREAS the directors adopted a stock option plan, by resolution dated the
30th day of July, 1997 (the "Plan");
AND WHEREAS the shareholders consented to the Plan;
AND WHEREAS pursuant to the Plan, an aggregate total of 177,778 common
shares, being 10% of the then issued and outstanding common shares of the
Corporation (treating the 8,000 convertible preference shares of the Corporation
as if converted to common shares) were made available for grant under the Plan;
AND WHEREAS the number of issued shares in the Corporation has increased
since the Plan was authorized and it was the intention of the directors and
shareholders that the number of shares available for grant under the Plan should
increase as the number of issued shares of the Corporation increases, provided
that the maximum number of common shares available for grant under the Plan not
exceed 10% of the issued common shares from time to time (treating both the
convertible preference shares and the convertible Class "B" Special Shares of
the Corporation as if converted to common shares);
NOW THEREFORE BE IT RESOLVED THAT:
1. With effect as at and from May 1, 1998, paragraph 3 of the Plan is deleted
and replaced with the following:
"The total number of authorized but unissued shares allocated to and
made available to be granted to Participants under the Plan shall
not exceed ten percent (10%) of the issued common shares of the
Corporation (treating the 8,000 convertible Preference Shares and
the 400,000 Class "B" Special Shares as having been converted to
common shares as provided in the Articles of the Corporation, as
amended from time to time). For purposes of the immediately
preceding sentence "issued common shares of the Corporation" shall
mean those common shares issued at the time of each grant under the
Plan. The aggregate number of common shares which may be issued
under the Plan to any one Participant under the Plan shall not
exceed fifty percent (50%) of the said aggregate number of common
shares allocated to and made available under the Plan."
2. Pursuant to the Plan, as amended, the following grants of options to
purchase that number of common shares of the Corporation set opposite the
names of the Participants listed below, at the option price(s) set
opposite such persons name be and are hereby confirmed, with effect from
the dates noted below:
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Page 2 of 4
Option Exercise Price
Participant No. of Shares (per share) Effective Date
Tony P. Busseri 10,000 $20.00 May 1, 1998
Allard Loopstra 10,000 $20.00 May 1, 1998
Paul Marshall 10,000 $20.00 May 17, 1998
Kenneth Sweeney 10,000 $25.00 July 1, 1998
William Eeuwes 40,000 $25.00 August 1, 1998
E. Joy Grahek 30,000 $25.00 August 17, 1998
Tony Busseri 15,000 $25.00 August 31, 1998
3. The directors hereby determine that each of the above-named individuals,
as senior officers of the Corporation, responsible for the management and
growth of the Corporation, is qualified to participate in the Plan.
4. Each of the options hereby confirmed as granted has or will become
effective upon execution by the Corporation and the Participant of an
option agreement in the form attached to the Plan.
5. The number of common shares of the Corporation for which the options have
been granted are hereby confirmed as allotted to the optionees. Subject to
the right of the optionees to exercise such options in whole or in part,
upon receipt from the optionees of the form and amount of consideration
payable upon exercise as specified herein, the common shares for which the
options are duly exercised be issued as fully paid and non-assessable
common shares in the capital of the Corporation and the stated capital
account of the Corporation for the common shares be adjusted accordingly.
6. The maximum number of shares for which options have been granted as herein
provided be and are hereby reserved for issuance on the exercise of such
options, provided that when and if an option terminates or becomes void or
is not earned in accordance with the Plan, the common shares so reserved
for such option shall no longer be so reserved and shall become available
for further or other grants of options pursuant to the Plan.
7. The proper officers of the Corporation or the transfer agent of the
Corporation be and is hereby authorized to countersign and deliver to the
person exercising an option, share certificates representing the
appropriate number of common shares being purchased on exercise, and to
register as shareholders of the Corporation the persons directed in
accordance with the particulars contained in each exercise form, all
without charge to such person.
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Page 3 of 4
8. Any officer of the Corporation be and is hereby authorized and directed to
do and perform all acts and things, including the execution of documents
necessary or desirable to give effect to the foregoing and all acts and
things performed by such officers of the Corporation in respect of the
foregoing options to the date hereof be and the same are hereby ratified
and confirmed.
9. This resolution may be executed in counterparts or by facsimile
transmission.
Each of the foregoing resolutions is hereby consented to by all of the directors
of the Corporation as evidenced by their signatures pursuant to the Business
Corporations Act, R.S.O. 1990, c. B 16, this 13th day of October 1998.
/s/ Tony P. Busseri /s/ Allard Loopstra
- ----------------------------------- ----------------------------------------
Tony P. Busseri Allard Loopstra
/s/ Lynn Bishop /s/ Kenneth Leung
- ----------------------------------- ----------------------------------------
Lynn Bishop Kenneth Leung
<PAGE>
Page 4 of 4
Each of the foregoing resolutions is hereby consented to by the holders of
all of the Convertible Preference Shares of the Corporation, as evidenced by
their signatures this day of October, 1998.
ENVIRONMENTAL OPPORTUNITIES ENVIRONMENTAL OPPORTUNITIES
FUND, L.P. FUND (CAYMAN), L.P.
Per: /s/ Bruce R. McMaken Per: /s/ Bruce R. McMaken
------------------------------- ------------------------------------
Bruce R. McMaken, Manager of GP Bruce R. McMaken, Manager of GP
ENVIRONMENTAL OPPORTUNITIES
MANAGEMENT COMPANY, LLC
Per: /s/ Bruce R. McMaken
-------------------------------
Bruce McMaken, Manager
For:
George L. Ball
CERI Investors L.P.
Morton A. Cohn
Samuel A. Jones
R. Larry Kinney
Bruce McMaken
Donald J. Moorehead, Jr.
Ben T. Morris
John I. Mundy
John M. O'Quinn
Humbert B. Powell, III
Leonard Rauch
Rex C. Ross and Adrian T. Ross
Nolan Ryan
Brad D. Sanders
Bret D. Sanders
Don A. Sanders
Christine M. Sanders
Katherine U. Sanders
Laura K. Sanders
Susan Sanders Kellar
Stephen D. Scott
<PAGE>
RESOLUTIONS OF THE DIRECTORS AND SHAREHOLDERS
OF
CAPITAL ENVIRONMENTAL RESOURCE INC.
WHEREAS it is determined to be in the best interests of the Corporation to
institute a Stock Option Plan (the "Plan") for the purpose of enabling certain
key employees, officers, directors of the Corporation and its wholly and
partially owned subsidiaries to participate in the growth of the Corporation and
thereby provide effective incentives for such individuals:
RESOLVED THAT:
1. For the purposes of enabling key employees, officers and directors of the
Corporation and its wholly or partially owned subsidiaries (collectively, the
"Participants") to participate in the growth of the Corporation and to provide
effective incentives to such Participants, an aggregate of one hundred and
seventy-seven thousand, seven hundred and seventy-eight (177,778) common shares,
being ten percent (10%) of the issued and outstanding common shares of the
Corporation (treating the eight thousand (8,000) convertible preference shares
of the Corporation as having been converted to common shares), be hereby,
subject to the approval of all applicable regulatory authorities, allocated to
and made available for the Plan and the Participants therein and be allotted and
issued pursuant to the Plan and options granted thereunder from time to time by
the Board of Directors at such times and at such prices as the Board shall by
resolution determine, all in accordance with the terms of the Plan and the
rules, regulations and policies of any stock exchange or exchanges upon which
the Corporation's securities are from time to time listed or any other
applicable regulatory authority;
2. The Corporation institute the Plan (a copy of which is attached hereto as
Schedule "A") and the Board of Directors be authorized from time to time to make
such rules and regulations and interpretations with respect thereto as it shall
deem advisable. The Board of Directors also shall be authorized to make such
amendments to the Plan as from time to time it deems necessary or advisable
having regard to any restrictions contained in the Articles of the Corporation
from time to time and, subject to any such amendments not becoming effective
until notice of such amendments has been accepted by any stock exchange or
exchanges upon which the Corporation's securities are from time to time listed
for trading and by all other applicable regulatory authorities;
3. The Board of Directors, or any committee thereof specifically designated by
the Board of Directors to be responsible therefor, may determine from time to
time those Participants to whom options under the Plan shall be granted and the
number of such shares to be optioned to said Participants under the Plan.
Directors, as directors, and other who are not otherwise bona fide full-time
employees of the Corporation or its subsidiaries shall not be eligible to become
Participants in the Plan unless notice of the participation in the Plan of such
persons has been accepted by any stock exchange or exchanges upon which the
<PAGE>
-2-
Corporation's securities are from time to time listed for trading and by all
other applicable regulatory authorities;
4. The price at which options under the Plan can be granted to Participants
shall not be less than that from time to time permitted by the Articles of the
Corporation and any applicable rules, regulations and policies of any stock
exchange or exchanges upon which any securities of the Corporation may from time
to time be listed or otherwise traded on the day preceding the date on which the
Board of Directors grants an option or designates an individual as a Participant
in the Plan;
5. Any one officer of the Corporation, be hereby authorized and directed to do
and perform all acts and things, including the execution of documents necessary
or desirable to give effect to these resolutions, and the grant of options and
the issuance of shares under the Plan as herein provided for;
6. Nothing herein contained shall restrict or limit, or be deemed to restrict or
limit, the rights or powers of the Board of Directors in connection with the
grant of any option on or the allotment or issuance of shares in the capital
stock of the Corporation which are not allotted and issued pursuant to the
provisions of the Plan; and
7. All decisions and interpretations of the Board of Directors respecting the
Plan and all rules and regulations made by it from time to time pursuant thereto
shall be binding and conclusive on the Corporation and on all Participants in
the Plan and their respective legal representatives and on all individuals
eligible under any provision of the Plan to participate therein.
The foregoing resolutions are hereby approved by all the directors
and shareholders of the corporation as evidence by their signatures pursuant to
the provisions of the Business Corporations Act, R.S.O. 1990, c. B.16, as at the
30th day of July, 1997.
DIRECTORS:
/s/ Tony Busseri
--------------------
Tony Busseri
/s/ Allen E. Fracassi
--------------------
Allen E. Fracassi
/s/ Kenneth Leung
--------------------
Kenneth Leung
.....2
<PAGE>
SCHEDULE "A"
CAPITAL ENVIRONMENTAL RESOURCE INC.
EMPLOYEE STOCK OPTION PLAN
1. A Stock Option Plan (herein called the "Plan") for Capital Environmental
Resource Inc. (the "Corporation") is hereby established with the intent of
advancing the interests of the Corporation by encouraging and enabling the
acquisition of an equity interest in the Corporation by the participants.
2. The Board of Directors, or any committee thereof specifically designated by
the Board of Directors to be responsible therefor, shall from time to time by
resolution designate those key employees, directors and officers providing
ongoing services to the Corporation, if any, who, in the opinion of the Board of
Directors, are largely responsible for the management and growth of the
Corporation and who, as an additional inducement to promote the best interests
of the Corporation, are entitled to participate in the Plan (herein referred to
as the "Participant(s)") and shall determine the extent and terms of such
participation by said Participants. Directors, as directors, and others who are
not otherwise bona fide full-time employees of the Corporation shall not be
eligible to become Participants in the Plan unless notice of the participation
in the Plan of such person has been accepted by or approved by any stock
exchange or exchanges upon which any of the Corporation's securities are from
time to time listed for trading and by any other applicable regulatory
authority. The judgment of the said Board of Directors or committee thereof in
designating Participants and the extent of their participation shall be final
and conclusive; provided, however, that each designated Participant shall have
the right not to participate in the Plan and any decision not to participate
therein shall not affect the Participant's employment by or engagement with the
Corporation.
3. The total number of authorized but unissued shares allocated to and made
available to be granted to Participants under the Plan shall not exceed that
number excepted from the anti-dilution provisions in the Articles of the
Corporation, being one hundred and seventy-seven thousand, seven hundred and
seventy-eight (177,778), or ten percent (10%) (disregarding fractions) of the
issued common shares of the Corporation (treating the eight thousand (8,000)
convertible Preference Shares as having been converted to common shares). The
aggregate number of common shares which may be issued under the Plan to any one
particular Participant under the Plan shall not exceed fifty percent (50%) of
the said aggregate number of common shares allocated to and made available for
the Plan.
4. Except as provided in paragraph 10 hereof or by the laws of descent and
distribution, the rights of any Participant under the Plan are personal to the
said Participant and are not assignable.
5. No resident of the United States of America or any territory or possession
thereof may be a Participant in the Plan unless such participation can be
accomplished
<PAGE>
-2-
pursuant to or in accordance with and without violating any securities or other
legislation of the United States of America or of any state, territory or
possession thereof.
6. The Board of Directors, or any committee thereof specifically designated by
the Board of Directors to be responsible therefor, shall have the unfettered
right to interpret the provisions of this Plan and to make such regulations and
formulate such administrative provisions for carrying this Plan into effect and
to make such changes therein and in the regulations and administrative
provisions therein as, from time to time, the said Board or committee thereof
deem appropriate in the best interests of the Corporation provided however, that
no such change, regulation or provision may increase the number of shares that
may be optioned hereunder or change the manner of determining the exercise
price, or impair or change the rights and options theretofore granted under the
Plan without the prior written consent of the Participant or Participants
affected. The Board of Directors shall also have the unfettered right from time
to time and at any time to rescind or terminate the Plan as it shall deem
advisable; provided, however, that no such rescission or termination shall
impair or change the rights and options theretofore granted under the Plan
without the prior written consent of the Participant or Participants affected.
7. The Corporation shall pay all costs of administering the Plan.
8. The exercise price of the shares purchased pursuant to stock options granted
hereunder shall not be less than that from time to time permitted by the
Articles of the Corporation and any applicable rules, regulations and policies
of any stock exchange or exchanges upon which any securities of the Corporation
may from time to time be listed or otherwise traded on the day preceding the
date on which the Board of Directors grants an option or designates an
individual as a Participant in the Plan.
9. Each Participant shall execute a Stock Option Agreement in substantially the
form annexed hereto as Schedule "A" prior to the grant of any stock option to a
Participant becoming effective.
10. (a) Each option granted hereunder shall be for a term not exceeding five (5)
years and, unless the Board of Directors determines otherwise, shall be
exercisable only after the second anniversary date of its grant, and all or any
part of the Shares as to which the option shall have become exercisable may be
purchased at any time or from time to time thereafter, until expiration or
termination of the option.
(b) Notwithstanding the foregoing, upon a Change of Control event,
options shall become immediately exercisable in respect of any and all shares
covered thereby in respect of which the Participant has not exercised such
Participant's right to acquire under the option. For the purposes hereof,
"Change of Control event" means either of the following:
<PAGE>
-3-
(i) an offer made generally to the holders of the Corporation's voting
securities in one or more jurisdictions to purchase directly or
indirectly voting securities of the Corporation where the voting
securities which are the subject of the offer to purchase, together
with the offeror's then presently owned securities, will in the
aggregate exceed fifty percent (50%) of the outstanding voting
securities of the Corporation and where two (2) or more persons or
companies make offers jointly or in concert or intending to exercise
jointly or in concert any voting rights attaching to the securities
to be acquired, then the securities owned by each of them shall be
included in the calculation of the percentage of the outstanding
voting securities of the Corporation owned by each of them; or
(ii) the day prior to the completion of an initial public offering of the
Corporation's securities on a recognized stock exchange.
11. (a) In the event of the physical or mental disability, retirement with the
consent of the Corporation or death of the optionee on or prior to the expiry
date while engaged as a key employee or director or officer of the Corporation,
any option granted hereunder may be exercised up to the full amount of the
optioned shares by the legal personal representative(s) of the Participant at
any time up to and including eighteen (18) months following the physical or
mental disability, retirement or death of the Participant after which date the
option shall forthwith expire and terminate and be of no further force or effect
whatsoever.
(b) For greater certainty, any Participant who is deemed to be an employee
of the Corporation pursuant to any medical or disability plan of the Corporation
shall be deemed to be an employee for the purposes of the Plan.
12. In the event the Participant's employment by or engagement with (as a
director or otherwise) the Corporation is terminated by the Corporation or the
Participant for any reason other than the Participant's physical or mental
disability, retirement with the consent of the Corporation or death before
exercise of any options granted hereunder, the Participant shall have ninety
(90) days from the date of such termination to exercise only that portion of the
option such Participant is otherwise entitled to exercise at that time and
thereafter such Participant's option shall expire and all rights to purchase
shares hereunder shall cease and expire and be of no further force or effect.
Options shall not be affected by any change of employment so long as the
Participant continues to be employed by the Corporation or any of its
subsidiaries or continues to be a director or officer of one of the foregoing.
13. Subject to the provisions of the Plan, the options granted hereunder may be
exercised from time to time by delivery to the Corporation at its head office of
a written notice of exercise specifying the number of shares with respect to
which the option is being exercised and accompanied by payment in full of the
purchase price of the shares then being purchased by way of cash or certified
cheque in favour of the Corporation. Such notice shall
<PAGE>
-4-
contain the Participant's undertaking to comply, to the satisfaction of the
Corporation and its counsel, with all applicable requirements of any stock
exchange or exchanges upon which any securities of the Corporation are from time
to time listed and any applicable regulatory authority or authorities.
14. Subject to any required action by its shareholders, if the Corporation shall
be a party to any reorganization, merger, dissolution or sale or lease of a11 or
substantially all its assets, whether or not the Corporation is the surviving
entity, the option shall be adjusted so as to apply to the securities to which
the holder of the number of shares of capital stock of the Corporation subject
to the option would have been entitled by reason of such reorganization, merger
or sale or lease of all or substantially all of its assets, provided, however,
that the Corporation may satisfy any obligations to a Participant hereunder by
paying to the said Participant in cash the difference between the exercise price
of all unexercised options granted hereunder and the fair market value of the
securities to which the Participant would be entitled upon exercise of all
unexercised options, regardless of whether all conditions of exercise relating
to continuous employment have been satisfied. Adjustments under this paragraph
or the determinations as to the fair market value of any securities shall be
made by the Board of Directors, or any committee thereof specifically designated
by the Board of Directors to be responsible therefor, and any reasonable
determination made by the said Board or committee thereof shall be binding and
conclusive.
15. In the event of any subdivision or subdivisions of the common shares of the
Corporation as said common shares were constituted at the time any options
granted hereunder were granted into a greater number of common shares, the
Corporation will thereafter deliver at the time of exercise thereof in addition
to the number of shares in respect of which the option is then being exercised,
such additional number of shares as result from such subdivision or subdivisions
of the shares for which the option is being exercised without the Participant
exercising the option making any additional payment or giving any other
consideration therefor.
16. In the event of any consolidation or consolidations of the common shares of
the Corporation as said common shares were constituted at the time any options
granted hereunder were granted into a lesser number of common shares, the
Participant shall accept, at the time of the exercise thereof in lieu of the
number of shares in respect of which the option is then being exercised, the
lesser number of shares as result from such consolidation or consolidations of
the shares for which the option is being exercised.
17. In the event of any change of the common shares of the Corporation as said
common shares were constituted at the time any options granted hereunder were
granted the Corporation shall thereafter deliver at the time of the exercise
thereof the number of shares of the appropriate class resulting from the said
change as the Participant exercising the option
<PAGE>
-5-
would have been entitled to receive in respect of the number of shares so
purchased had the option been exercised before such change.
18. If the Corporation at any time while any options granted hereunder are
outstanding shall pay any stock dividend or stock dividends upon the shares of
the Corporation in respect of which any options were granted hereunder, the
Corporation will thereafter deliver at the time of exercise thereof in addition
to the number of shares in respect of which the option is then being exercised,
the additional number of shares of the appropriate class as would have been
payable on the shares so purchased if they had been outstanding on the record
date for the payment of said stock dividend or dividends.
19. The Corporation shall not be obligated to issue fractional shares in
satisfaction of any of its obligations hereunder.
20. If at any time the Corporation grants to the holders of its capital stock
rights to subscribe for and purchase pro rata additional securities of the
Corporation or of any other corporation or entity, there shall be no adjustments
made to the number of shares or other securities subject to the option in
consequence thereof and the said stock option of the Participant shall remain
unaffected.
21. Any stock option granted under the Plan may include a stock appreciation
right, either at the time of grant or by amendment adding it to an existing
stock option; subject, however, to the grant of such stock appreciation right
being in compliance with the applicable regulations and policies of any stock
exchange or exchange upon which any securities of the Corporation may from time
to time be listed. The provisions of the Plan respecting the exercise of stock
options and the adjustments to options arising from certain corporate actions
shall apply mutatis mutandis to all stock appreciation rights granted hereunder.
22. Stock appreciation rights granted hereunder are exercisable to the extent,
and only to the extent, the option to which it is included in exercisable. To
the extent a stock appreciation right included in or attached to an option
granted hereunder is exercised, the option to which it is included or attached
shall be deemed to have been exercised to a similar extent.
23. A stock appreciation right granted hereunder shall entitle the Participant
to elect to surrender to the Corporation unexercised the option in which it is
included, or any portion thereof, and to receive from the Corporation in
exchange therefor that number of shares, disregarding fractions, having an
aggregate value equal to the excess of the value of one share over the purchase
price per share specified in such option, times the number of shares called for
by the option, or portion thereof, which is so surrendered. The value of a share
shall be determined for these purposes by the weighted average sale price per
share on the stock exchange or other publicly quoted market system having the
greatest volume of trading of the
<PAGE>
-6-
shares of the Corporation subject to the option for the ten (10) trading days
preceding the date the notice provided for in paragraph 24 hereof is received by
the Corporation.
24. Subject to the provisions of the Plan, a stock appreciation right granted
hereunder may be exercised from time to time by delivering to the Corporation at
its head office a written notice of exercise, which notice shall specify the
number of stock appreciation rights to be exercised and options to be forfeited
and the number of shares the Participant elects to receive thereby. Such notice
shall contain the Participant's undertaking to comply, to the satisfaction of
the Corporation and its counsel, with all applicable requirements of any stock
exchange or exchanges upon which any securities of the Corporation are listed
for trading and any other applicable regulatory authority.
<PAGE>
SCHEDULE "A"
STOCK OPTION AGREEMENT
THIS AGREEMENT made the day of , .
BETWEEN:
CAPITAL ENVIRONMENTAL RESOURCE INC., a corporation incorporated
under the laws of Ontario
(the "Corporation")
and
(the "Optionee")
The parties agree as follows:
1. Pursuant to the Stock Option Plan of the Corporation established by the
directors of the Corporation on July 30, 1997, and approved by the shareholders
of the Corporation as at the same date, the Corporation hereby grants to the
Optionee the irrevocable option to purchase up to ( ) common shares (the
"Shares") in the capital stock of the Corporation, as presently constituted, for
cash, at a price of Dollars ($ ) per Share, upon the following terms and
conditions:
(a) The option shall be nonexercisable until , 19 . On
, , the option shall become exercisable, and all or any
part of the Shares as to which the option shall have become
exercisable may be purchased at any time, or from time to time,
thereafter, until expiration or termination of the option. After
becoming exercisable the option may only be exercised by the
Optionee, or by the person or persons entitled to exercise the same
pursuant to the provisions of subparagraph (d) below, on or prior
to , , by the delivery to the Corporation at its head
office of written notice of election to exercise the same,
specifying the number of Shares with respect to which the option is
being exercised and accompanied by payment in full of the purchase
price of the Shares then purchased by way of cash or certified
cheque in favour of the Corporation. Such notice shall constitute
the Optionee's acknowledgement of and undertaking to comply to the
satisfaction of the Corporation and its counsel, with all applicable
requirements of any stock exchange or exchanges upon which any
securities of the Corporation may from time to time be listed and of
any applicable regulatory authority or authorities. Such
requirements may include the replacement of legends on share
certificates
<PAGE>
-2-
restricting transfer of such Shares, the making of representations
by the Optionee that the Optionee is acquiring such Shares for
investment and not with a view to distribution, the filing of any
required information or statements with the aforesaid authorities
and the making of arrangements with the Optionee's employer to
withhold income taxes which may become payable under the Optionee's
exercise of an option under this Agreement. Concurrently with its
receipt of any such notice and payment, the Corporation shall
deliver, or cause to be delivered, to the Optionee a certificate
representing the Shares purchased by the Optionee. The Corporation
may at its election require that this Agreement be presented for
appropriate endorsement upon any such exercise.
Notwithstanding the foregoing, upon a Change of Control event,
options shall become immediately exercisable in respect of any and
all Shares covered thereby in respect of which the Optionee has not
exercised such Optionee's right to acquire under the option. For the
purposes of this subparagraph "Change of Control event" means:
(i) an offer made generally to the holders of the Corporation's
voting securities in one or more jurisdictions to purchase
directly or indirectly voting securities of the Corporation
where the voting securities which are the subject of the offer
to purchase together with the offeror's then presently owned
securities will in the aggregate exceed fifty percent (50%) of
the outstanding voting securities of the Corporation and where
two (2) or more persons or companies make offers jointly or in
concert or intending to exercise jointly or in concert any
voting rights attaching to the securities to be acquired, then
the securities owned by each of them shall be included in the
calculation of the percentage of the outstanding voting
securities of the Corporation owned by each of them; or
(ii) the day prior to the completion of an initial public offering
of the Corporation's securities on a recognized stock
exchange.
(b) The option shall be non-assignable and non-transferable by the
Optionee otherwise than by will or the laws of descent and
distribution or as contemplated in subparagraph (d) hereof.
(c) The option shall expire and all rights to purchase Shares hereunder
shall cease and become null and void at 5:00 p.m. Eastern Standard
time on , , and the option hereby granted shall
expire and all rights hereunder shall cease at such time or upon
the happening of certain events as hereinafter provided.
<PAGE>
-3-
(d) In the event of the physical or mental disability, retirement with
the consent of the Corporation or death of the Optionee on or prior
to the expiry date while engaged as an employee, or director or
officer of the Corporation, the option granted may be exercised, up
to the full amount of the optioned Shares by the Optionee or the
legal personal representative(s) of the Optionee, as the case may
be, at any time up to and including eighteen (18) months following
the physical or mental disability, retirement or death of the
Optionee after which date the option shall forthwith expire and
terminate and be of no further force or effect whatsoever.
For greater certainty, any Optionee who is deemed to be an employee
of the Corporation pursuant to any medical or disability plan of the
Corporation shall be deemed to be an employee for the purposes of
the Plan.
(e) In the event the Optionee's employment by or engagement with the
Corporation is terminated by the Corporation or the Optionee for any
reason other than the Optionee's physical or mental disability,
retirement or death before exercise of the option contained herein,
the Optionee shall have ninety (90) days from the date of such
termination to exercise only that portion of the option such
Optionee is otherwise entitled to exercise at that point of time and
thereafter this option shall expire and all rights to purchase
Shares hereunder shall cease and expire and be of no further force
or effect. Options shall not be affected by any change of employment
so long as the Optionee continues to be employed by the Corporation
or one of its subsidiaries or continues to be a director or an
officer of one of the foregoing.
(f) If the Corporation shall be a party to any reorganization, merger,
dissolution or sale of all or substantially all of its assets,
whether or not the Corporation is the surviving entity, the option
shall be adjusted so as to apply to the securities to which the
holder of the number of Shares of the Corporation subject to the
option would have been entitled by reason of such reorganization,
merger, dissolution or sale of all or substantially all of its
assets provided, however, that the Corporation may satisfy any
obligations to the Optionee hereunder by paying to the Optionee in
cash the difference between the exercise price of all unexercised
options granted hereunder and the fair market value of the
securities to which the Optionee would be entitled, upon exercise of
all unexercised options, regardless of whether all conditions of
exercise relating to continuous employment have been satisfied.
Adjustments under this subparagraph or any determinations as to the
fair market value of any securities shall be made by the Board of
Directors of the Corporation, or any committee thereof specifically
designated by the Board of Directors to be responsible therefor, and
any reasonable determination made by the said Board or committee
thereof shall be binding and conclusive.
<PAGE>
-4-
(g) In the event of any subdivision or subdivisions of the common shares
of the Corporation as said common shares were constituted at the
time any options granted hereunder were granted into a greater
number of common shares, the Corporation will thereafter deliver at
the time of exercise thereof in addition to the number of Shares in
respect of which the option is then being exercised, such additional
number of Shares as result from such subdivision or subdivisions
without the Optionee exercising the option being obligated to make
any additional payment or giving any other consideration therefor.
(h) In the event of any consolidation or consolidations of the common
shares of the Corporation as said common shares were constituted at
the time any options granted hereunder were granted into a lesser
number of common shares, the Optionee shall accept, at the time of
the exercise thereof in lieu of the number of Shares in respect of
which the option is then being exercised, the lesser number of
Shares as result from such consolidation or consolidations.
(i) In the event of any change of the common shares of the Corporation
as said common shares were constituted at the time any options
granted hereunder were granted, the Corporation shall thereafter
deliver at the time of the exercise thereof the number of shares of
the appropriate class resulting from the said change as the Optionee
exercising the option would have been entitled to receive in respect
of the number of shares so purchased had the option been exercised
before such change.
(j) If the Corporation at any time while any options granted hereunder
are outstanding shall pay any stock dividend or stock dividends upon
the shares of the Corporation in respect of which any options were
granted hereunder, the Corporation will thereafter deliver at the
time of exercise thereof in addition to the number of shares in
respect of which the option is then being exercised, the additional
number of shares of the appropriate class as would have been payable
on the shares so purchased if they had been outstanding on the
record date for the payment of said stock dividend or dividends.
(k) The Corporation shall not be obligated to issue fractional Shares in
satisfaction of its obligations hereunder.
(l) If at any time the Corporation grants to its shareholders the right
to subscribe for and purchase pro rata additional securities of the
Corporation or of any other corporation or entity, there shall be no
adjustments made to the number of Shares or other securities subject
to the option in consequence thereof and the said option of the
Optionee shall remain unaffected.
<PAGE>
-5-
2. Nothing in this Agreement shall confer upon the Optionee any right to
continue in the employ of the Corporation or its subsidiaries and nothing herein
contained shall interfere in any way with the right of the Corporation or any
of its subsidiaries to terminate the employment of the Optionee at any time.
3. The Corporation hereby represents to and agrees with the Optionee that if for
any reason, other than the failure or default of the Optionee, the Corporation
is unable to issue and deliver the Shares as contemplated herein to the Optionee
upon the exercise by the Optionee of the option to purchase any of the Shares
covered by this option, the Corporation will pay, in complete satisfaction of
its obligations hereunder, to the Optionee, in cash, an amount equal to the
difference between the option exercise price and the fair market value of such
Shares on the date that the Optionee gave notice of such exercise in accordance
with paragraph 1(a) hereof. For the purposes of this Agreement, if the Shares
subject to this option are traded on a stock exchange or exchanges, the fair
market value shall be the closing sale price on the exchange having the greatest
volume of trading on the last trading day immediately prior to the date such
notice is given.
4. The Optionee hereby acknowledges receipt from the Corporation of a copy of
the Stock Option Plan. The Optionee acknowledges that upon any conflict between
the terms of said Plan and this option agreement the terms of this Agreement
shall prevail.
DATED this day of , 1997.
CAPITAL ENVIRONMENTAL RESOURCE INC.
By:
-------------------------------------
Tony Busseri, President and Secretary
By:
-------------------------------------
Kenneth Leung, Director
WITNESS: )
)
)
- --------------------------------------- ) --------------------------------------
) Optionee
)
<PAGE>
SCHEDULE "B"
OPTION EXERCISE FORM
The undersigned Optionee (or the Optionee's legal representative(s)
permitted under the Plan) hereby irrevocably elects to exercise this option for
the number and class of Shares (or other property or securities subject thereto)
as set forth below:
(a) Number of Shares to be Acquired: ____________
(b) Class of Shares: ____________
(c) Option Exercise Price per Share: $___________
(d) Aggregate Purchase Price [(a) times (c)]: $___________
and hereby tenders a certified cheque or bank draft for such aggregate purchase
price, directing such Shares to be registered and a certificate therefor to be
issued as directed below.
DATED this day of , 19 .
WITNESS TO EXECUTION )
)
) --------------------------------------
) [Name of Optionee]
)
- ------------------------------ )
) --------------------------------------
) [Signature of Optionee]
)
Direction as to Registration:
- ------------------------------
[Name of Registered Holder]
- ------------------------------
[Address of Registered Holder]
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
1999 STOCK OPTION PLAN
1. A Stock Option Plan for Capital Environmental Resource Inc. is
hereby established with the intent of advancing the interests of the Corporation
by encouraging and enabling the acquisition of an equity interest in the
Corporation by individuals who are important to the Corporation's growth and
management. For purposes of the Plan, capitalized terms, unless defined where
the respective term first appears in the Plan, shall have the meanings given in
the last Paragraph hereof.
2. The Committee shall from time to time by resolution designate
those key employees, directors, officers, consultants and other independent
contrac tors providing ongoing services to the Corporation (or any of its
subsidiaries) who, in the opinion of the Committee, are largely responsible for
the management and growth of the Corporation and who, as an additional
inducement to promote the best interests of the Corporation, shall receive
grants of options under the Plan (herein referred to as the "Optionee(s)") and
shall determine the size and terms of each such grant, subject to the provisions
of the Plan. The judgment of the Committee in designating individuals to receive
option grants and the size of such grants shall be final and conclusive;
provided, however, that each designated individual shall have the right not to
accept any grant and any such decision shall not affect the Optionee's
employment by or engagement with the Corporation or any of its subsidiaries.
3. The total number of authorized but unissued Shares allocated to
and made available to be subject to options granted to Optionees under both the
Capital Environmental Resource Inc. Employee Stock Option Plan (sometimes called
the "1997 Employee Stock Option Plan") and the Plan (together, the "Aggregate
Available Shares") shall not exceed fifteen percent (15%) (disregarding any frac
tional Share) of the issued common shares of the Corporation (treating any
convert ible securities as having been converted to common shares). For purposes
of the immediately preceding sentence, "issued common shares of the Corporation"
shall mean those issued at the time of each grant under the Plan. The aggregate
number of Shares subject to options granted under the Plan to any one particular
individual shall not exceed fifty percent (50%) of the said aggregate number of
Shares allocated to and made available for the Plan. The Aggregate Available
Shares shall include a
<PAGE>
number of Shares which can be (but need not be) issued pursuant to Incentive
Stock Options granted under the Plan, which number shall not exceed fifteen
percent (15%) (disregarding any fractional Share) of the issued common shares of
the Corporation (treating any convertible securities as having been converted to
common shares). For purposes of the immediately preceding sentence, "issued
common shares of the Corporation" shall mean those common shares (and
convertible securities treated as having been converted to common shares) issued
at the time of the adoption of the Plan. Any Shares which were subject to any
unexercised portion of any terminated or expired option shall again become
available to be subject to options granted under the Plan.
4. Except as provided by the laws of descent and distribution or by
the Optionee's will, the rights of any Optionee under the Plan are personal to
the said Optionee and such rights and the options granted hereunder are not
assignable or transferable; provided, however, that, in the Committee's
discretion, the terms of any option granted hereunder (other than an Incentive
Stock Option) may expressly provide for specifically limited transferability.
5. The Committee shall have the unfettered right to interpret the
provisions of this Plan and to make such regulations and formulate such
administra tive provisions for carrying this Plan into effect and to make such
changes therein and in the regulations and administrative provisions therein as,
from time to time, the Committee deems appropriate and in the best interests of
the Corporation; provided however, that no such change, regulation or provision
may increase the number of Shares that may be optioned hereunder or change the
manner of determining the exercise price, or impair or detrimentally change the
rights of Optionees under options theretofore granted under the Plan without the
prior written consent of the Optionee or Optionees affected. The Board of
Directors of the Corporation (the "Board") shall have the unfettered right from
time to time and at any time to amend, rescind or terminate the Plan as it shall
deem advisable; provided, however, that no such rescission or termination shall
impair or change the rights and options thereto fore granted under the Plan
without the prior written consent of the Optionee or Optionees affected.
6. The Corporation shall pay all costs of administering the Plan.
7. If the Shares shall be publicly traded, listed or admitted to
quotation on the day preceding the day on which the Committee grants an option
or designates an individual as an Optionee under the Plan (the "Grant Date"),
the
2
<PAGE>
exercise price of the Shares purchased pursuant to stock options granted
hereunder shall not be less than that from time to time permitted by any
applicable rules, regulations and policies of any stock exchange or exchanges or
national quotation system upon which any securities of the Corporation may from
time to time be listed or otherwise traded or admitted to quotation on the day
preceding the Grant Date. Otherwise, the exercise price of such Shares shall be
as determined by the Commit tee, except that in the case of an Incentive Stock
Option the exercise price shall not be less than the fair market value of such
Shares on the Grant Date.
8. The grant of any stock option to an Optionee shall become
effective at the time determined by the Committee in its sole discretion and
shall be evidenced by a grant document or stock option agreement authorized by
the Commit tee. If the Committee so determines, each Optionee may be required to
execute a stock option agreement in substantially the applicable form annexed
hereto as Schedule "A" or Schedule "B" prior to the grant of any stock option to
an Optionee becoming effective.
9. (a) Each option granted hereunder shall be for a term not
exceeding five (5) years and shall have an expiry date on the fifth anniversary
of its grant. Unless the Committee determines otherwise, each option granted
hereunder to an individual other than a non-employee member of the Board shall
become fully vested and exercisable on the second anniversary date of its grant,
and all or any part of the Shares as to which the option shall have become
vested and exercisable may be purchased at any time or from time to time
thereafter, until expiration or termina tion of the option. Each option granted
hereunder to a non-employee member of the Board shall become fully vested and
exercisable on the first anniversary date of its grant, and all or any part of
the Shares as to which the option shall have become vested and exercisable may
be purchased at any time or from time to time thereafter, until expiration or
termination of the option.
(b) Notwithstanding the foregoing provisions of this Paragraph
9, immediately prior to any Change in Control, options shall become immediately
vested and exercisable in respect of any and all Shares covered thereby in
respect of which the Optionee has not exercised such Optionee's right to acquire
under the option, if the Optionee shall then be employed by (or be deemed to be
employed by) or be engaged with the Corporation or any of its subsidiaries. As
used in the immedi ately preceding sentence, "immediately prior" to the Change
in Control shall mean sufficiently in advance of the Change in Control to permit
the Optionee to take all steps reasonably necessary to exercise the option fully
and to deal with the Shares
3
<PAGE>
purchased under the option so that those Shares may be treated in the same
manner in connection with the Change in Control as the Shares of other
shareholders.
10. (a) Subject to the fifth anniversary expiry date of any option
granted hereunder, in the event of the physical or mental disability, retirement
(but only if the Committee has made a specific determination that the Optionee's
termina tion of employment should be treated as retirement for purposes of the
Plan) or death of an Optionee on or prior to the expiry date of the Optionee's
option while engaged as a key employee or director or officer of, or consultant
to, the Corporation or any of its subsidiaries, any option granted hereunder may
be exercised up to the full amount of the optioned Shares by the Optionee (or,
if the Optionee shall be disabled or deceased, the legal personal
representative(s) of the Optionee) at any time up to and including eighteen (18)
months following the physical or mental disability, such retirement or death of
the Optionee after which date the option shall, forthwith expire and terminate
and be of no further force or effect whatsoever.
(b) For greater certainty, during the period that any Optionee
is deemed to be an employee of the Corporation or any of its subsidiaries
pursuant to any medical or disability plan of the Corporation or any of its
subsidiaries, such Optionee shall also be deemed to be an employee for the
purposes of the Plan, and the eighteen-month period of continued exercisability
provided in this Paragraph 10 shall commence upon the termination of all actual
and deemed employment by the Corporation or any of its subsidiaries; provided,
however, that this sentence shall not apply with respect to any Incentive Stock
Option granted hereunder; and, provided further, that any such period of deemed
employment and any such eighteen-month period of continued exercisability shall
be subject to the fifth anniversary expiry date of any option granted hereunder.
11. Subject to the fifth anniversary expiry date of any option
granted hereunder, in the event the Optionee's employment by or engagement with
(as a director or otherwise) the Corporation or any of its subsidiaries is
terminated by the Corporation or any of its subsidiaries or the Optionee, for
any reason other than the Optionee's physical or mental disability, retirement
(as described in Paragraph 10(a) hereof) or death, before exercise of any
options granted hereunder, the Optionee shall have ninety (90) days from the
date of such termination (or if the Optionee is a non-employee member of the
Board, the Optionee shall have one year) to exercise only that portion of the
option such Optionee is otherwise entitled to exercise at the time of such
termination and thereafter such Optionee's option shall expire and all rights to
purchase Shares hereunder shall cease and expire and be of no further force or
4
<PAGE>
effect. Options shall not be affected by any change of employment or engagement
so long as the Optionee continues to be employed by the Corporation or any of
its subsidiaries or continues to be a director, officer or consultant of one of
the forego ing.
12. Subject to the provisions of the Plan, the options granted
hereunder may be exercised from time to time by delivery to the Corporation at
its head office of a written notice of exercise specifying the number of Shares
with respect to which the option is being exercised and accompanied by payment
in full of the purchase price of the Shares then being purchased by way of cash
or certified cheque in favour of the Corporation, by way of any cashless
exercise method authorized by the Committee, or, in the sole discretion of the
Committee, by way of the tender of Shares already owned by the Optionee. Such
notice shall contain the Optionee's undertaking to comply, to the satisfaction
of the Corporation and its counsel, with all applicable requirements of any
stock exchange or exchanges or national quotation system upon which any
securities of the Corporation are from time to time listed (or admitted to
quotation) and any applicable regulatory authority or authorities. In connection
with the exercise of any option hereunder the Optionee must enter into
arrangements satisfactory to the Corporation with respect to the withholding of
any taxes required by applicable law.
13. Subject to any required action by its shareholders, if the Corpo
ration shall be a party to any reorganization, merger, dissolution or sale or
lease of all or substantially all its assets, whether or not the Corporation is
the surviving entity, the option shall be adjusted so as to apply to the
securities to which the holder of the number of Shares subject to the option
would have been entitled by reason of such reorganization, merger or sale or
lease of all or substantially all of its assets. Further, subject to any
required action by the Corporation's shareholders, upon the occurrence of any
event which affects the Shares in such a way that an adjustment of the option is
appropriate in order to prevent the dilution or enlargement of rights under the
option, the Committee shall make appropriate equitable adjustments, which may
include, without limitation, adjustments to any or all of the number and kind of
shares of stock (or other securities) which may thereafter be issued in
connection with the option and adjustments to any exercise price specified in
the option. Notwithstanding the foregoing provisions of this Paragraph 13, the
Corporation may satisfy any obligations to an Optionee under the Plan by paying
to the said Optionee in cash the difference between the exercise price of all
unexercised options granted hereunder and the fair market value of the
securities to which the Optionee would be entitled upon exercise of all
unexercised options, regardless of whether all conditions
5
<PAGE>
of exercise relating to continuous employment have been satisfied; further, the
Corporation may give the Optionee the alternative of having the Plan's
obligations to the Optionee satisfied in cash as provided in this sentence.
Adjustments under this Paragraph or any determinations as to the fair market
value of any securities shall be made by the Committee in accordance with this
Plan, and any reasonable determina tion made by the Committee shall be binding
and conclusive.
14. In the event of any subdivision or subdivisions of the Shares as
said Shares were constituted at the time any options hereunder were granted into
a greater number of Shares, the Corporation will thereafter deliver at the time
of exercise thereof in addition to the number of Shares in respect of which the
option is then being exercised, such additional number of Shares as result from
such subdivi sion or subdivisions of the Shares for which the option is being
exercised without the Optionee exercising the option making any additional
payment or giving any other consideration therefor.
15. In the event of any consolidation or consolidations of the
Shares as said Shares were constituted at the time any options hereunder were
granted into a lesser number of Shares, the Optionee shall accept, at the time
of the exercise thereof in lieu of the number of Shares in respect of which the
option is then being exercised, the lesser number of Shares as result from such
consolidation or consolidations of the Shares for which the option is being
exercised.
16. In the event of any change of the Shares as said Shares were
constituted at the time any options hereunder were granted, the Corporation
shall thereafter deliver at the time of the exercise thereof the number of
shares of the appropriate class resulting from the said change as the Optionee
exercising the option would have been entitled to receive in respect of the
number of Shares so purchased had the option been exercised before such change.
17. If the Corporation at any time while any options hereunder are
outstanding shall pay any stock dividend or stock dividends upon the Shares in
respect of which any options were granted hereunder, the Corporation will
thereafter deliver at the time of exercise thereof in addition to the number of
Shares in respect of which the option is then being exercised, the additional
number of shares of the appropriate class as would have been payable on the
Shares so purchased if they had been outstanding on the record date for the
payment of said stock dividend or dividends.
6
<PAGE>
18. The Corporation shall not be obligated to issue fractional
Shares in satisfaction of any of its obligations hereunder.
19. If at any time the Corporation grants to the holders of its
capital stock rights to subscribe for and purchase pro rata additional
securities of the Corporation or of any other corporation or entity, there shall
be no adjustments made to the number of Shares or other securities subject to
the option in consequence thereof and the said stock option of the Optionee
shall remain unaffected.
20. Any stock option granted under the Plan may have a stock
appreciation right attached to it, either at the time of grant or by amendment
adding it to an existing stock option; subject, however, to the grant of such
stock appreciation right being in compliance with the applicable regulations and
policies of any stock exchange or exchange or national quotation system upon
which any securities of the Corporation may from time to time be listed or
admitted to quotation. The provi sions of the Plan respecting exercise of stock
options and the adjustments to options arising from certain corporate actions
shall apply mutatis mutandis to all stock appreciation rights granted hereunder.
21. Stock appreciation rights granted hereunder are exercisable to
the extent, and only to the extent, that the option to which it is attached is
exercis able. To the extent a stock appreciation right attached to an option
granted hereunder is exercised, the option to which it is attached shall be
deemed to have been exer cised to a similar extent.
22. A stock appreciation right granted hereunder shall entitle the
Optionee to elect to surrender to the Corporation unexercised the option to
which it is attached, or any portion thereof, and to receive from the
Corporation in exchange therefor that number of Shares, disregarding any
fractional Share, having an aggre gate value equal to the excess of the Fair
Market Value of one Share (on the trading day immediately preceding the day the
notice provided for in Paragraph 23 hereof is received by the Corporation) over
the purchase price per Share specified in such option, times the number of
Shares called for by the option, or portion thereof, which is so surrendered.
23. Subject to the provisions of the Plan, a stock appreciation
right granted hereunder may be exercised from time to time by delivering to the
Corpora tion at its head office a written notice of exercise, which notice shall
specify the number of stock appreciation rights to be exercised and options to
be forfeited and
7
<PAGE>
the number of Shares the Optionee elects to receive thereby. Such notice shall
contain the Optionee's undertaking to comply, to the satisfaction of the
Corporation and its counsel, with all applicable requirements of any stock
exchange or exchanges upon which any securities of the Corporation are listed
for trading and any other applicable regulatory authority.
24. In addition to any grants which may be made hereunder pursu ant
to the other provisions of the Plan (including Paragraph 25 hereof) to an
individ ual who becomes a non-employee member of the Board on or after the
completion of the Initial Public Offering, the Committee, in its sole
discretion, may (but need not) grant the individual an option as of the day on
which the individual's service as a non-employee member of the Board commences.
The option shall have an exercise price per Share for its underlying Shares
equal to the Fair Market Value of a Share on the trading day immediately
preceding such individual's first day of service (or on the day of completion of
the Initial Public Offering in the case of any individual who becomes a
non-employee member of the Board on such day). Any such option shall be for such
number of Shares as the Committee, in its sole discretion, may determine and,
subject to the provisions of the Plan, shall be subject to such terms and condi
tions as the Committee, in its sole discretion, may determine.
25. In addition to any grants which may be made hereunder pursu ant
to the preceding provisions of the Plan (including Paragraph 24 hereof) to an
individual who is serving as a non-employee member of the Board on the day of an
annual meeting of the Corporation and is re-elected to the Board at such annual
meeting, each such individual shall automatically be granted an option for ten
thousand (10,000) Shares as of the date of such meeting. Such option shall have
an exercise price per Share for its underlying Shares equal to the Fair Market
Value per Share on the trading date immediately preceding the date of such
meeting.
26. For purposes of the Plan, the following terms, as used herein,
shall have the respective meanings specified:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
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<PAGE>
(c) "Change in Control" shall be deemed to have occurred prior
to the completion of any Initial Public Offering upon the occurrence of either:
(i) an offer made generally to the holders of the
Corporation's voting securities in one or more
jurisdictions to purchase directly or indirectly voting
securities of the Corporation where the voting
securities which are the subject of the offer to
purchase, together with the offeror's then presently
owned securities, will in the aggregate exceed fifty
percent (50%) of the outstanding voting securities of
the Corpora tion and where two (2) or more persons or
companies make offers jointly or in. concert or
intending to exercise jointly or in concert any voting
rights attaching to the securities to be acquired, then
the securities owned by each of them shall be included
in the calculation of the percentage of the out standing
voting securities of the Corporation owned by each of
them; or
(ii) the day prior to the completion of an initial public
offering of the Corporation's securities on a recognized
stock ex change.
"Change in Control" shall be deemed to have occurred, following
the completion of an Initial Public Offering, if the event set forth in any one
of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Corporation (not including in
the securities beneficially owned by such Person any securities
acquired directly from the Corporation or its Affiliates)
representing thirty percent (30%) or more of the combined voting
power of the Corpora tion's then outstanding securities, excluding
any Person who becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individ uals who, on the date of completion of the Initial Public
Offering, constitute the Board and any new director (other than a
director whose
9
<PAGE>
initial assumption of office is in connection with an actual or
threat ened election contest, including but not limited to a consent
solicita tion, relating to the election of directors of the
Corporation) whose appointment or election by the Board or
nomination for election by the Corporation's shareholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on the
date of completion of the Initial Public Offering or whose
appointment, election or nomination for election was previously so
approved or recommended; or
(III) there is consummated a merger or consolidation of the
Corporation or any direct or indirect subsidiary of the Corporation
with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Corporation out
standing immediately prior to such merger or consolidation continu
ing to represent (either by remaining outstanding or by being con
verted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or any subsidiary of the Corporation, at least fifty-one
percent (51%) of the combined voting power of the securities of the
Corporation or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement a recapitalization
of the Corpora tion (or similar transaction) in which no Person is
or becomes the Beneficial Owner, directly or indirectly, of
securities of the Corpora tion representing thirty percent (30%) or
more of the combined voting power of the Corporation's then
outstanding securities; or
(IV) the shareholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition by the Corpora
tion of all or substantially all of the Corporation's assets, other
than a sale or disposition by the Corporation of all or
substantially all of the Corporation's assets to an entity, at least
fifty-one percent (51%) of the combined voting power of the voting
securities of which are owned by shareholders of the Corporation in
substantially the same proportions as their ownership of the
Corporation immediately prior to such sale.
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<PAGE>
Notwithstanding the foregoing, a "Change in Control" shall not be deemed
to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record
holders of the common stock of the Corporation immediately prior to such
transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or substantially
all of the assets of the Corporation immediately following such
transaction or series of transactions.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means a committee of the Board appointed to
administer the Plan (which committee may also be the Compensation Committee of
the Board). The Committee shall be composed solely of two or more "Non-Em ployee
Directors" (as defined in Rule 16b-3(b)(3) under Section 16 of the Exchange Act)
who are appointed from time to time to serve by the Board. If for any reason
such a Committee shall not have been appointed by the Board, the Board shall
serve as the Committee.
(f) "Corporation" means Capital Environmental Resource Inc., or
any successor corporation.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(h) "Fair Market Value" of a Share, unless otherwise provided
in the applicable grant document or stock option agreement, means:
(i) If the Stock is admitted to trading on one or more national securities
exchanges,
(A) the average of the reported highest and lowest sale prices per Share
as reported on the reporting system selected by the Committee on the
relevant date; or
(B) in the absence of reported sales on that date, the average of the re
ported highest and lowest sales prices per Share on the last
previous day for which there was a reported sale; or
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<PAGE>
(ii) If the Stock is not admitted to trading on any national securities
exchange, but is admitted to quotation on NASDAQ and has been designated
as a NASDAQ National Market ("NNM") security,
(A) the average of the reported highest and lowest sale prices per Share
as reported on NASDAQ on the relevant date; or
(B) in the absence of reported sales on that date, the average of the re
ported highest and lowest sales prices per Share on the last
previous day for which there was a reported sale; or
(iii) If the Stock is not admitted to trading on any national securities
ex change, but is admitted to quotation on NASDAQ as a NASDAQ SmallCap
Market security (and has not been designated as a NNM security), the aver
age of the highest bid and lowest asked prices per Share on the relevant
date; or
(iv) If the preceding clauses (i), (ii) and (iii) do not apply, the Fair
Market Value determined by the Committee, using such criteria as it shall
determine, in good faith and in its sole discretion, to be appropriate for
such valuation.
(i) "Incentive Stock Option" means an option which can granted
only to employees of the Corporation (or any of its "subsidiary corpora tions",
within the meaning of Section 424(f) of the Code, including any "subsidiary
corporations which become such after the adoption of the Plan) and which
complies with the requirements of Section 422 of the Code: provided, however,
that no option shall be an Incentive Stock Option if its terms, as of the time
it is granted state that it will not be treated as an Incentive Stock Option;
and, provided further, that the grant of any Incentive Stock Option shall be
subject to obtaining (or having obtained) the approval of the Plan by the
Corporation's stockholders within twelve (12) months before or after the date
the Plan is adopted by the Board.
(j) "Initial Public Offering" means the sale, in an
underwritten public offering registered under the Securities Act of 1933, as
amended from time to time, of Shares providing the Corporation with gross
proceeds of at least thirty-five million dollars (US$35,000,000).
(k) "NASDAQ" means National Association of Securities Dealers
Automated Quotation System.
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<PAGE>
(l) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Corporation or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or any of its Affiliates, (iii) an
underwriter temporarily holding securi ties pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Corporation in substantially the same propor tions as their
ownership of stock of the Corporation.
(m) "Plan" means the Capital Environmental Resource Inc. 1999
Stock Option Plan, as it may be amended from time to time.
(n) "Shares" means shares of Stock.
(o) "Stock" means the capital stock of the Corporation, or, in
the event that the outstanding capital stock is hereafter changed into, or
exchanged for, different stock or securities, such other stock or securities.
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<PAGE>
Exhibit 10.3
THIS EMPLOYMENT AGREEMENT made as of the 14th day of August, 1998.
BETWEEN:
CAPITAL ENVIRONMENTAL RESOURCE INC., an Ontario corporation having its head
office at 1105 Skyview Drive, Burlington, Ontario
(hereinafter called "Capital")
- and -
TONY BUSSERI, of 1386 Greeneagle Drive, Oakville, Ontario
(hereinafter called the "Employee")
WHEREAS:
1. Capital and the Employee are parties to a letter agreement dated August 1,
1997, as amended by letter agreements dated June 17, 1998 and August 14,
1998 setting forth the terms of the Employee's employment with Capital.
2. The parties wish to incorporate and amend certain terms of the letter
agreements into this Employment Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT the parties agree as follows:
1. EMPLOYMENT
1.01 Capital hereby employs the Employee as its Chairman of the Board and Chief
Executive Officer, effective January 30, 1998. As such, the Employee will
act as the senior officer of Capital and shall perform such duties,
commensurate with his position, as may be assigned to him from time to time
by the Board of Directors of Capital. The Employee hereby accepts
employment with Capital upon the terms and conditions contained herein and
agrees to devote his full time, attention and efforts to promote and
further Capital's business.
2. COMPENSATION
2.01 For all services rendered by the Employee to Capital, Capital shall pay and
reimburse the Employee the following amounts:
(a) Effective July 1, 1998, the Employee's base salary shall be
$175,000.00 per annum, payable in advance in equal monthly
instalments, or on any other periodic basis consistent with Capital's
payroll procedures for executive employees. The Employee's base salary
shall be reviewed at least annually and shall be increased as agreed
by Capital and the Employee from time to time. Upon the completion
<PAGE>
-2-
of an initial public offering of the shares of common stock of Capital
on a recognized stock exchange (which shall for purposes of this
Agreement include the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market and the Toronto Stock Exchange),
the Employee's base salary will be the greater of U.S. $130,000,
converted into Canadian dollars or Cdn $175,000.00.
(b) An annual bonus, payable at the discretion of the Board of Directors
of Capital based on achieving goals fixed by the Board, of not less
than fifty percent (50%) of Employee's base salary. The amount of the
bonus will be fixed by the Board of Directors and paid not later than
ninety (90) days after each fiscal year end of Capital;
(c) Participation at the same level as other executive employees of
Capital in a full benefits package and pension plan;
(d) Four (4) weeks vacation in each fiscal year, to be taken at such times
as mutually agreed between the Employee and Capital. Vacation may only
be taken within the year of entitlement and may not be accumulated
from year to year unless otherwise mutually agreed;
(e) Stock option grants as and when authorized by the Board of Directors
of Capital;
(f) A vehicle commensurate with the Employee's position as Chairman of the
Board, will be leased by Capital and provided to the Employee in lieu
of a car allowance. Capital will pay and/or reimburse all operating,
maintenance and insurance charges in respect of such vehicle. Capital
will provide Employee with a mobile telephone and pay all charges
incurred by Employee in connection with the use thereof;
(g) Reimbursement of all expenses reasonably incurred by Employee in the
performance of his duties, subject to submission of appropriate
documentation in accordance with Capital's expense reimbursement
policy in effect from time to time.
2.02 Capital will, at its expense, throughout the term of this Agreement
maintain directors and officers indemnity insurance for such amount(s) as
the Employee considers appropriate having regard to the standards in the
waste management industry for companies with similar amounts of capital.
Capital agrees to indemnify and save Employee harmless from all losses,
costs and damages suffered by Employee as a result of his employment with
Capital to the fullest extent permitted by law.
<PAGE>
-3-
3. TERM/TERMINATION
3.01 The initial term of this Agreement shall be three (3) years, beginning
August 1, 1997 and expiring on July 31, 2000 and unless terminated as
herein provided, shall continue thereafter on a year-to-year basis, on the
same terms and conditions contained herein, unless amended by mutual
agreement.
3.02 Notwithstanding the foregoing, if Capital shall complete an initial public
offering of its common shares (or other securities) on a recognized stock
exchange (which shall for purposes of this Agreement include the New York
Stock Exchange, the American Stock Exchange, NASDAQ National Market and the
Toronto Stock Exchange), this Agreement shall be automatically extended for
a further term of three (3) years from the date of completion of such
initial public offering.
3.03 Capital may terminate this Agreement in the following circumstances:
(a) for just and reasonable cause, without notice and without pay in lieu
of notice. For purposes of this Agreement. "just cause" shall include
serious misconduct, habitual neglect of duty, incompetence or conduct
incompatible with Employee's duties, and wilful disobedience of any
proper direction or order of the Board of Directors of Capital;
(b) the Employee's inability to perform his duties under this Agreement
because of illness, physical or mental disability, or other incapacity
which continues for an uninterrupted period in excess of three(3)
months or a cumulative period of six (6) months in any twelve (12)
month period;
(c) without cause and without notice, provided that Capital shall pay to
the Employee the following amounts:
(i) Base salary for a period of twenty four (24) months, to be paid
in a lump sum, at the option of the Employee, at the time of such
termination;
(ii) Bonus of two times (2x) the minimum annual bonus payable to the
Employee, together with any bonus earned by the Employee to the
date of termination. Bonus to be paid in a lump sum, at the
option of the Employee, at the time of such termination;
(iii) All stock options granted to the Employee prior to such
termination shall fully vest effective at the date of such
termination and shall be exercisable for a period of twelve (12)
months thereafter notwithstanding any other provision of the
Stock Option Agreement entered into between the Employee and
Capital.
(iv) All benefits and other entitlements owing to the Employee
hereunder shall be payable for the same period as base salary is
<PAGE>
-4-
payable under subsection (c) (i) hereof.
(v) In addition to the above payments, on such termination, the
housing loan outstanding to the Employee shall automatically be
converted to a 3 year term, non-interest bearing, loan, payable
in a lump sum at the end of such three year term.
(d) on the Employee's death, Capital will pay to the Employee's
beneficiary, within 10 days of Employee's death, an amount equal to
accrued compensation owing to the Employee on the date of his death
(including pro rata salary, bonus and other benefits, deferred
compensation and accrued vacation pay). Capital will cause all death
benefits payable as a consequence of the Employee's death to be paid
to the Employee's beneficiary as soon as practicable.
3.04 If:
(i) other than as a result of an initial public offering of the common
shares of Capital, there is a Change of Control of Capital. For
purposes of this provision, a "Change of Control" means (A) a
transaction whereby property constituting all or substantially all of
the assets of Capital and its subsidiaries, taken as a whole, is sold,
in one or more related transactions to any person or group of persons
or (B) an event or series of events (whether a share purchase,
amalgamation, merger, consolidation, pooling or other business
combination or otherwise) by which any person or group of affiliated
persons becomes the beneficial owner of more than 50% of the combined
voting power of the then outstanding securities of Capital, where such
person or group of affiliated persons, immediately prior to the
occurrence of such event or series of events, was not the beneficial
owner of at least 50% of the combined voting power of the then
outstanding securities of Capital; or
(ii) At any time, prior to the completion of an initial public offering of
the common shares of Capital which values the equity of Capital at at
least $250 M (U.S.) (a "Qualified Public Offering"), Capital shall
change the Employee's title or job responsibilities without the
consent of the Employee; or
(iii) At any time in connection with or after the completion of a Qualified
Public Offering, Capital shall change the Employee's title or job
responsibilities such that the Employee shall, after such action, be
neither the Chairman of the Board nor the Chief Executive Officer of
Capital, without the consent of the Employee; or
(iv) Capital shall relocate its corporate head office outside of the
Province of Ontario.
then, in the circumstances described in subsection (ii) or (iv) above,
Capital shall be
<PAGE>
-5-
deemed, upon the occurrence of such event unless the Employee shall have
delivered written notice to Capital waiving his rights hereunder within 30
days of the occurrence of such event or circumstance, to have terminated
the Employee's employment without cause and the Employee shall be entitled
to the payments described in section 3.03 (c) above. In the circumstances
described in subsection (i) (A), (B) or (iii) above, the Employee shall, at
the request of the Corporation, continue to be employed by Capital for a
maximum of six (6) months after the occurrence of such event (the
"Transition Period"). During the Transition Period, the Employee shall
perform such services in the transition of his role as the Board of
Directors of Capital may reasonably require and the Employee shall be
entitled to receive his base salary and additional compensation as provided
in Article 2 hereof. At the expiration of the Transition Period, the
Employee's employment shall be deemed terminated without cause and the
Employee shall thereupon be entitled to the payments described in section
3.03 (c) above, unless the Employee shall have delivered written notice to
Capital waiving his rights hereunder on or before the expiration of the
Transition Period.
3.05 If, during the term hereof, there is an event or series of events (whether
a share purchase, amalgamation, merger, consolidation, pooling or other
business combination or otherwise) by which any person or group of
affiliated persons becomes the beneficial owner of more than 50% of the
combined voting power of the then outstanding securities of Capital, where
such person or group of affiliated persons, immediately prior to the
occurrence of such event or series of events, was not the beneficial owner
of at least 50% of the combined voting power of the then outstanding
securities of Capital, the Employee shall have the irrevocable option
exercisable as hereinafter provided, to require Capital to pay to the
Employee at the time of the occurrence of such event or series of events,
in cash, the difference between the exercise price of all unexercised
options granted to the Employee (which at the date of this Agreement total
60,000) and the market value of the securities to which the Employee would
be entitled upon the exercise of all unexercised options. For purposes of
this provision, the market value of the securities to which the Employee
would be entitled upon the exercise of his unexercised options, shall be
determined on the same basis as the securities of Capital are valued in
such event or series of events described in this section 3.05. The Employee
shall exercise the option granted hereunder by delivering written notice of
the exercise thereof to any officer or director of the Company no later
than three (3) business days prior to the completion of the event or series
of events giving rise to the right to exercise the option granted herein.
If the Employee does not exercise his option as aforesaid, it shall
thereafter expire and be of no further force and effect.
3.06 The Employee shall provide Capital with not less than three (3) months
notice of his intention to resign.
4. NON-COMPETITION/CONFIDENTIALITY
4.01 Simultaneously with and as a condition to Capital offering employment to
the Employee
<PAGE>
-6-
on the terms and conditions set out herein, the Employee has executed and
delivered a Non-competition and Confidentiality Agreement in the form
attached hereto, which shall remain in full and force in accordance with
its terms.
5. COMPLETE AGREEMENT
5.01 This Agreement sets forth the entire agreement between the parties
respecting the subject matter hereof and supersedes any and all other
agreements, either oral or in writing between Capital and the Employee with
respect to the employment of the Employee. This Agreement may only be
modified by further agreement in writing signed by the parties.
6. GOVERNING LAW
6.01 This Agreement shall be construed in accordance with and governed by the
laws of the Province of Ontario and the laws of Canada applicable therein.
7. MISCELLANEOUS
7.01 This Agreement shall be binding upon the parties and shall inure to the
benefit of the parties and their respective heirs, executors,
administrators, successors and assigns. If Capital is merged or
consolidated with another entity, such other entity shall automatically
succeed to the rights, powers and responsibilities of Capital hereunder.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the
date first noted above.
CAPITAL ENVIRONMENTAL RESOURCE INC.
By: /s/ Ken Leung
------------------------------
Ken Leung-Director
/s/ (Illegible) /s/ Tony Busseri
------------------------------ ------------------------------
Witness Tony Busseri
<PAGE>
Exhibit 10.4
THIS EMPLOYMENT AGREEMENT made as of the 14th day of August, 1998.
BETWEEN:
CAPTIAL ENVIRONMENTAL RESOURCE INC., an Ontario corporation having its
head office at 1005 Skyview Drive, Burlington, Ontario
(hereinafter called "Capital")
-and-
ALLARD LOOPSTRA, of P.O. Box 9, Carlisle, Ontario
(hereinafter called the "Employee")
WHEREAS:
1. Capital and the Employee are parties to a letter agreement dated June
19, 1997, as amended by memoranda dated January 30, 1998, May 19, 1998
and August 14, 1998 setting forth the terms of the Employee's
employment with Capital.
2. The parties wish to incorporate into this Employment Agreement the
existing employment arrangement and amend certain terms thereof as
herein provided.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT the parties agree as follows:
1. EMPLOYMENT
1.01 Capital hereby employs the Employee as its President and Chief
Operating Officer, effective January 30, 1998. As such, the Employee
will have general supervision of the business of Capital and shall
perform such duties, commensurate with his position, as may be assigned
to him from time to time by Tony Busseri, the Chairman and Chief
Executive Officer of Capital. The Employee hereby accepts employment
with Capital upon the terms and conditions contained herein and agrees
to devote his full time, attention and efforts to promote and further
Capital's business.
2. COMPENSATION
2.01 For all services rendered by the Employee to Capital, Capital shall pay
and reimburse the Employee the following amounts:
(a) The Employee's base salary shall, effective July 1, 1998, be
$170,000.00 per annum, payable in advance in equal monthly
instalments, or on any other periodic basis consistent with
Capital's payroll procedures for executive employees. The
Employee's base salary shall be reviewed at least annually and
shall be increased as agreed by Capital and the Employee from
time to time. Upon the completion
<PAGE>
-2-
of an initial public offering of the shares of common stock of
Capital on a recognized stock exchange (which shall for purposes
of this Agreement include the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market and the
Toronto Stock Exchange), the Employee's base salary will be the
greater of U.S.$125,000, converted into Canadian dollars or Cdn
$170,000.00.
(b) The Employee shall be entitled to receive the following
additional compensation:
(i) An annual bonus, payable at the discretion of the Board of
Directors of Capital, having regard to the degree of success
with which Employee has performed the services required of
him, of not less than fifty percent (50%) of Employee's base
salary. The amount of the bonus will be fixed by the Board
of Directors and paid not later than ninety (90) days after
each fiscal year end of Capital;
(ii) Participation at the same level as other executive employees
of Capital in a full benefits package and pension plan;
(iii) Four (4) weeks vacation in each fiscal year, to be taken at
such times as mutually agreed between the Employee and
Capital. Vacation may only be taken within the year of
entitlement and may not be accumulated from year to year
unless otherwise mutually agreed;
(iv) Stock option grants as and when authorized by the Board of
Directors of Capital;
(v) Capital will provide Employee with a vehicle commensurate
with the Employee's position as President, which vehicle
shall be leased by Capital. Capital will pay all operating,
maintenance and insurance charges in respect of the vehicle.
Capital will provide Employee with a mobile telephone and
pay all charges incurred by Employee in connection with the
use of such telephone;
(vi) Reimbursement of all expenses reasonably incurred in the
performance of his duties, subject to submission of
appropriate documentation in accordance with Capital's
expense reimbursement policy in effect from time to time.
(c) Capital will, at its expense, throughout the term of this
Agreement maintain directors and officers indemnity insurance for
such amount(s) as Capital considers appropriate having regard to
the standards in the waste management industry for companies with
similar amounts of capital. Capital agrees to indemnify and save
Employee harmless from all losses, costs and damages suffered by
Employee as a result of his employment with Capital to the
fullest extent permitted by law.
(d) Within thirty (30) days of the completion of any of the
following, Capital will pay
<PAGE>
-3-
the Employee a one-time bonus of one hundred and twenty five
thousand dollars (C $125,000.00):
(i) an initial public offering of shares of common stock of
Capital on a recognized stock exchanged (which for purposes
of this Agreement shall include the NASDAQ National Market,
the New York Stock Exchange, the American Stock Exchange and
the Toronto Stock Exchange);
(ii) the disposition by Capital of all or substantially all of
its waste management and related assets in Ontario; or
(iii) an event or series of events (whether a share purchase,
amalgamation, merger, consolidation, pooling or other
business combination or otherwise) by which any person or
group of affiliated persons becomes the beneficial owner of
more than 50% of the combined voting power of the then
outstanding securities of Capital, where such person or
group of affiliated persons, immediately prior to the
occurrence of such event or series of events, was not the
beneficial owner of at least 50% of the combined voting
power of the then outstanding securities of Capital.
3. TERM/TERMINATION
3.01 The initial term of this Agreement shall be three (3) years, beginning
July 4, 1997 and expiring on July 3, 2000 and unless terminated as herein
provided, shall continue thereafter on a year-to-year basis, on the same
terms and conditions contained herein, unless amended by mutual agreement.
3.02 Notwithstanding the foregoing, if Capital shall complete an initial public
offering of its common shares (or other securities) on a recognized stock
exchange (which shall for purposes of this Agreement include the New York
Stock Exchange, the American Stock Exchange, NASDAQ National Market and
the Toronto Stock Exchange), this Agreement shall be automatically
extended for a further term of three (3) years from the date of completion
of such initial public offering.
3.03 Capital may terminate this Agreement in the following circumstances:
(a) for just and reasonable cause, without notice and without pay in lieu
of notice. For purposes of this Agreement. "just cause" shall include
serious misconduct, habitual neglect of duty, incompetence or conduct
incompatible with your duties, and wilful disobedience of any proper
direction or order of the Chairman of the Board of Capital;
<PAGE>
-4-
(b) the Employee's inability to perform his duties under this Agreement
because of illness, physical or mental disability, or other incapacity
which continues for an uninterrupted period in excess of three(3)
months or a cumulative period of six (6) months in any twelve (12)
month period;
(c) without cause and without notice, provided that Capital shall pay to
the Employee the following amounts:
(i) Base salary for a period of twenty four (24) months, to be paid
in a lump sum, at the option of the Employee, at the time of such
termination;
(ii) Bonus of two times (2x) the minimum annual bonus payable to the
Employee, together with any bonus earned by the Employee to the
date of termination. Bonus to be paid in a lump sum, at the
option of the Employee, at the time of such termination;
(iii) All stock options granted to the Employee prior to such
termination shall fully vest effective at the date of such
termination and shall be exercisable for a period of twelve (12)
months thereafter, notwithstanding any other provision of the
Stock Option Agreement entered into between the Employee and
Capital. (iv) All benefits and other entitlements owing to the
Employee hereunder shall be payable for the same period as base
salary is payable under subsection (c) (i) hereof.
(iv) All benefits and other entitlements owing to the Employee
hereunder shall be payable for the same period as base salary
is payable under subsection (c)(i) hereof
(d) on the Employee's death, Capital will pay to the Employee's
beneficiary, within 10 days of Employee's death, an amount equal to
accrued compensation owing to the Employee on the date of his death
(including pro rata salary, bonus and other benefits, deferred
compensation and accrued vacation pay). Capital will cause all death
benefits payable as a consequence of the Employee's death to be paid
to the Employee's beneficiary as soon as practicable.
3.04 Capital shall be deemed to have terminated the Employee's employment
without cause and without notice, and the Employee shall be entitled to
payment of the amounts set out in section 3.03 (c) above in the following
circumstances
(a) Tony Busseri shall cease to be employed full-time as the Chairman
and/or Chief Executive Officer of Capital; and/or
(b) Capital shall require the Employee, as a condition of his employment,
to relocate outside of the Province of Ontario or commute for work to
a location outside of the Province of Ontario.
<PAGE>
-5-
3.04 The Employee shall provide Capital with not less than three (3) months
notice of his intention to resign.
4. NON-COMPETITION/CONFIDENTIALITY
4.01 Simultaneously with and as a condition to Capital offering employment to
the Employee on the terms and conditions set out herein, the Employee has
executed and delivered a Non-competition and Confidentiality Agreement in
the form attached hereto, which shall remain in full and force in
accordance with its terms.
5. COMPLETE AGREEMENT
5.01 This Agreement sets forth the entire agreement between the parties
respecting the subject matter hereof and supersedes any and all other
agreements, either oral or in writing between Capital and the Employee with
respect to the employment of the Employee. This Agreement may only be
modified by further agreement in writing signed by the parties.
6. GOVERNING LAW
6.01 This Agreement shall be construed in accordance with and governed by the
laws of the Province of Ontario and the laws of Canada applicable therein.
7. MISCELLANEOUS
7.01 This Agreement shall be binding upon the parties and shall inure to the
benefit of the parties and their respective heirs, executors,
administrators, successors and assigns. If Capital is merged or
consolidated with another entity, such other entity shall automatically
succeed to the rights, powers and responsibilities of Capital hereunder.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the
date first noted above.
CAPITAL ENVIRONMENTAL RESOURCE INC.
By: /s/ (Illegible)
------------------------------
/s/ (Illegible) /s/ Allard Loopstra
------------------------------ ------------------------------
Witness Allard Loopstra
<PAGE>
THIS AMENDING AGREEMENT made this 30th day of October, 1998 to an Employment
Agreement dated as of August 14, 1998 between Capital Environmental Resource
Inc., an Ontario corporation having its head office at 1005 Skyview Drive,
Burlington, Ontario ("Capital") and Allard Loopstra, of P.O. Box 9, Carlisle,
Ontario (the "Employee")
WITNESSES THAT the parties hereby agree to amend the terms of the
above-described Employment Agreement as follows:
1. A new section 3.06 is added as follows:
If, during the term hereof, there is an event or series of events (whether
a share purchase, amalgamation, merger, consolidation, pooling or other
business combination or otherwise) by which any person or group of
affiliated persons becomes the beneficial owner of more than 50% of the
combined voting power of the then outstanding securities of Capital, where
such person or group of affiliated persons, immediately prior to the
occurrence of such event or series of events, was not the beneficial owner
of at least 50% of the combined voting power of the then outstanding
securities of Capital, the Employee shall have the irrevocable option
exercisable as hereinafter provided, to require Capital to pay to the
Employee at the time of the occurrence of such event or series of events,
in cash, the difference between the exercise price of all unexercised
options granted to the Employee and the market value of the securities to
which the Employee would be entitled upon the exercise of all unexercised
options. For purposes of this provision, the market value of the securities
to which the Employee would be entitled upon the exercise of his
unexercised options, shall be determined on the same basis as the
securities of Capital are valued in such event or series of events
described in this section 3.06. The Employee shall exercise the option
granted hereunder by delivering written notice of the exercise thereof to
any officer or director of Capital no later than three (3) business days
prior to the completion of the event or series of events giving rise to the
right to exercise the option granted herein. If the Employee does not
exercise his option as aforesaid, it shall thereafter expire and be of no
further force and effect.
2. In all other respects the parties confirm that the terms of the Employment
Agreement remain in full force and effect, unamended.
Dated at Burlington, this 30th day of October, 1998.
Capital Environmental Resource Inc.
By: /s/ (Illegible)
-----------------------------
/s/ (Illegible) /s/ Allard Loopstra
----------------------------- ---------------------------------
Witness Allard Loopstra
<PAGE>
Exhibit 10.5
================================================================================
- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JANUARY 29, 1999
AMONG
CAPITAL ENVIRONMENTAL RESOURCE INC./
RESSOURCES ENVIRONNEMENTALES CAPITAL INC.,
CERI, L.P.,
VARIOUS FINANCIAL INSTITUTIONS,
CANADIAN IMPERIAL BANK OF COMMERCE,
AS CO-AGENT,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
AS U.S. AGENT,
AND
BANK OF AMERICA CANADA,
AS CANADIAN AGENT
================================================================================
- --------------------------------------------------------------------------------
ARRANGED BY NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
|| TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms...................................................1
1.2 Other Interpretive Provisions..........................................24
1.3 Accounting Principles..................................................25
1.4 Reallocation of Loans to Parent........................................25
ARTICLE II
THE CREDITS
2.1 U.S. Dollar Borrowings.................................................26
2.1.1 Commitments to Make U.S. Dollar Loans to the Company...........26
2.1.2 Commitments to Make U.S. Dollar Loans to Parent................26
2.1.3 Ability to Reborrow............................................27
2.1.4 Procedure for U.S. Dollar Borrowings...........................27
2.1.5 Conversion and Continuation Elections for U.S. Dollar
Borrowings.....................................................28
2.1.6 Optional Prepayments of U.S. Dollar Borrowings.................29
2.1.7 Repayment of U.S. Dollar Borrowings............................29
2.2 Canadian Dollar Borrowings.............................................30
2.2.1 Commitments to Make Canadian Dollar Loans to Parent............30
2.2.2 Ability to Reborrow............................................30
2.2.3 Procedure for Canadian Dollar Borrowings.......................30
2.2.4 Conversion and Continuation Elections for Canadian Dollar
Borrowings.....................................................31
2.2.5 Optional Prepayments of Canadian Dollar Borrowings.............32
2.2.6 Repayment of Canadian Dollar Borrowings........................32
2.3 Bankers' Acceptances and BA Equivalent Notes...........................33
2.3.1 Commitments to Accept Drafts and Purchase BA Equivalent Notes..33
2.3.2 Procedure for Bankers' Acceptances.............................33
2.3.3 Maturity of Bankers' Acceptances...............................35
2.3.4 Special Provisions for Bankers' Acceptances....................36
2.3.5 Power of Attorney for Drafts and BA Equivalent Notes...........36
2.3.6 Non-Use Fee....................................................37
2.4 Interest...............................................................37
2.5 Fees...................................................................38
<PAGE>
2.5.1 Agency and Arrangement Fees....................................38
2.5.2 Non-Use Fees...................................................38
2.5.3 BA Fees........................................................38
2.6 Computation of Fees and Interest.......................................39
2.7 Mandatory Prepayments Resulting from Currency Fluctuations.............39
2.8 Reduction or Termination of the Commitments............................39
2.8.1 Reduction or Termination of U.S. Commitments...................39
2.8.2 Reduction or Termination of Canadian Commitments...............40
2.9 Payments by the Borrowers..............................................40
2.10 Payments by the Lenders to the Agents.................................41
2.11 Sharing of Payments, Etc..............................................42
2.12 Optional Increase in Commitments......................................43
ARTICLE III
LOAN ACCOUNTS; NOTES
3.1 Loan Accounts..........................................................44
3.2 Notes..................................................................44
ARTICLE IV
THE LETTERS OF CREDIT
4.1 The Letter of Credit Subfacility.......................................45
4.2 Issuance, Amendment and Renewal of Letters of Credit...................46
4.3 Risk Participations, Drawings and Reimbursements.......................48
4.4 Repayment of Participations............................................50
4.5 Role of the Issuing Lenders............................................51
4.6 Obligations of Parent and the Company..................................51
4.7 Cash Collateral Pledge.................................................52
4.8 Letter of Credit Fees..................................................53
4.9 Uniform Customs and Practice...........................................53
ARTICLE V
TAXES, YIELD PROTECTION AND ILLEGALITY
5.1 Taxes..................................................................54
5.2 Illegality.............................................................58
5.3 Increased Costs and Reduction of Return................................59
5.4 Funding Losses.........................................................59
ii
<PAGE>
5.5 Inability to Determine Rates...........................................60
5.6 Certificates of Lenders................................................61
5.7 Substitution of Lenders................................................61
5.8 Right of Lenders to Fund through Branches and Affiliates...............61
5.9 Survival...............................................................61
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Effectiveness............................................61
(a) Credit Agreement and Notes.......................................61
(b) Resolutions; Incumbency..........................................61
(c) Organization Documents; Good Standing............................62
(d) U.S. Guaranties..................................................62
(e) Canadian Guaranties..............................................62
(f) Payment of Fees..................................................62
(g) U.S. Security Agreement..........................................62
(h) Canadian Security Agreement......................................63
(i) U.S. Pledge Agreement............................................63
(j) Canadian Pledge Agreements.......................................63
(l) Insurance Certificates...........................................63
(n) Certificate......................................................63
(o) Legal Opinions...................................................64
(p) Estoppel Letters.................................................64
(q) Other Documents..................................................64
6.2 Conditions to All Credit Extensions....................................64
(a) Notice, Application..............................................64
(b) Continuation of Representations and Warranties...................64
(c) No Existing Default..............................................64
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Existence and Power....................................................65
7.2 Authorization; No Contravention........................................65
7.3 Governmental Authorization.............................................65
7.4 Binding Effect.........................................................66
7.5 Financial Statements...................................................66
7.6 No Material Adverse Change.............................................66
iii
<PAGE>
7.7 Litigation and Contingent Liabilities..................................66
7.8 Ownership of Properties; Liens.........................................66
7.9 Subsidiaries...........................................................66
7.10 Pension and Welfare Plans.............................................66
7.11 Investment Company Act................................................67
7.12 Public Utility Holding Company Act....................................67
7.13 Regulation U..........................................................67
7.14 Taxes.................................................................67
7.15 Solvency, etc.........................................................67
7.16 Hazardous Materials...................................................68
7.16.1 Release and Disposal..........................................68
7.16.2 Treatment and Storage.........................................68
7.17 Absence of Default....................................................68
7.18 Leased Premises.......................................................68
7.19 Information...........................................................68
7.20 Year 2000 Problem.....................................................69
7.21 Burdensome Obligations................................................69
7.22 Labor Matters.........................................................69
ARTICLE VIII
COVENANTS
8.1 Reports, Certificates and Other Information............................69
8.1.1 Annual Reports.................................................69
8.1.2 Quarterly Reports..............................................70
8.1.3 Monthly Reports................................................70
8.1.4 Compliance Certificates........................................70
8.1.5 Reports to SEC and to Shareholders.............................70
8.1.6 Notice of Default, Litigation and ERISA Matters................70
8.1.7 Subsidiaries...................................................71
8.1.8 Projections....................................................71
8.1.9 Quebec Assets...................................................71
8.1.10 Other Information.............................................71
8.2 Books, Records and Inspections.........................................71
8.3 Insurance..............................................................72
8.4 Compliance with Laws; Payment of Taxes and Liabilities.................72
8.5 Maintenance of Existence, etc..........................................72
8.6 Financial Covenants....................................................72
8.6.1 Minimum Net Worth..............................................72
8.6.2 Interest Coverage Ratio........................................72
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8.6.3 Total Debt to EBITDA...........................................73
8.6.4 Senior Debt to EBITDA..........................................73
8.7 Limitations on Debt....................................................73
8.8 Liens..................................................................74
8.9 Restricted Payments....................................................74
8.10 Advances and Other Investments........................................74
8.11 Mergers, Consolidations and Amalgamations; Acquisitions...............75
8.12 Asset Dispositions....................................................76
8.13 Use of Proceeds.......................................................76
8.14 Transactions with Affiliates..........................................76
8.15 Pension Plans.........................................................76
8.16 Environmental Covenants...............................................77
8.16.1 Environmental Response Obligation.............................77
8.16.2 Environmental Liabilities.....................................77
8.17 Unconditional Purchase Obligations....................................77
8.18 Further Assurances....................................................77
8.19 Operating Leases......................................................78
8.20 Business..............................................................78
8.21 Inconsistent Agreements...............................................78
8.22 Capital Expenditures..................................................78
8.23 Other Negative Pledges................................................78
8.24 Redeemable Equity Interests...........................................78
8.25 Nova Scotia Sub and Ontario Sub.......................................78
8.26 Quebec Collateral.....................................................78
8.27 Release of JVS Pledge.................................................79
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default.......................................................79
(a) Non-Payment of the Loans, etc....................................79
(b) Non-Payment of Other Debt........................................79
(c) Other Material Obligations.......................................79
(d) Bankruptcy, Insolvency, etc......................................79
(e) Non-Compliance with Provisions of This Agreement.................80
(f) Warranties.......................................................80
(g) Pension Plans....................................................80
(h) Judgments........................................................80
(i) Invalidity of Collateral Documents, etc..........................80
(j) Invalidity of Guaranties, etc....................................81
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(k) Change of Control, etc...........................................81
9.2 Remedies...............................................................81
9.3 Rights Not Exclusive...................................................82
ARTICLE X
THE AGENTS
10.1 Appointment and Authorization.........................................82
10.2 Delegation of Duties..................................................83
10.3 Liability of Agents...................................................83
10.4 Reliance by Agents....................................................83
10.5 Notice of Default.....................................................84
10.6 Credit Decision.......................................................84
10.7 Indemnification of Agents.............................................84
10.8 Agents in Individual Capacity.........................................85
10.9 Successor Agents......................................................85
10.10 Withholding Tax......................................................86
10.11 Collateral Matters Releases of Guarantors............................86
10.12 Co-Agents............................................................87
ARTICLE XI
GUARANTY BY THE COMPANY
11.1 Guaranty..............................................................87
11.2 Guaranty Unconditional................................................87
11.3 Discharge only upon Payment in Full; Reinstatement in Certain
Circumstances.........................................................88
11.4 Waiver by Parent......................................................88
11.5 Subrogation...........................................................89
11.6 Stay of Acceleration..................................................89
ARTICLE XII
MISCELLANEOUS
12.1 Amendments and Waivers................................................89
12.2 Notices...............................................................90
12.3 No Waiver; Cumulative Remedies........................................91
12.4 Costs and Expenses....................................................91
12.5 Borrower Indemnification..............................................91
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12.6 Payments Set Aside....................................................92
12.7 Successors and Assigns................................................92
12.8 Assignments, Participations, etc......................................92
12.9 Confidentiality.......................................................94
12.10 Set-off..............................................................94
12.11 Notification of Addresses, Lending Offices, Etc......................95
12.12 Counterparts.........................................................95
12.13 Severability.........................................................95
12.14 No Third Parties Benefited...........................................95
12.15 Governing Law and Jurisdiction.......................................95
12.16 Waiver of Jury Trial.................................................95
12.17 Judgment.............................................................96
12.18 Entire Agreement.....................................................96
||
SCHEDULES
Schedule 1.1A U.S. Commitments and Pro Rata Shares
Schedule 1.1B Canadian Commitments and Pro Rata Shares
Schedule 1.1C Pricing Schedule
Schedule 7.7 Litigation and Contingent Liabilities
Schedule 7.9 Subsidiaries and Other Investments
Schedule 7.10 Pension and Welfare Plans
Schedule 7.18 Leased Premises
Schedule 7.22 Labor Matters
Schedule 8.7 Debt
Schedule 8.8 Liens
Schedule 12.2 Canadian and Domestic Lending Offices, Addresses for Notices
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EXHIBITS
Exhibit A-1 Form of Notice of U.S. Dollar Borrowing
Exhibit A-2 Form of Notice of Canadian Dollar Borrowing
Exhibit A-3 Form of Notice of BA Borrowing
Exhibit B-1 Form of Notice of Conversion/Continuation (U.S. Dollar Loans)
Exhibit B-2 Form of Notice of Conversion/Continuation (Canadian Dollar Loans)
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Opinion of U.S. Counsel
Exhibit D-2 Form of Opinion of Ontario Counsel
Exhibit D-3 Form of Opinion of Alberta Counsel
Exhibit D-4 Form of Opinion of British Columbia Counsel
Exhibit D-5 Form of Opinion of Nova Scotia Counsel
Exhibit D-6 Form of Opinion of General Counsel
Exhibit E-1 Form of Assignment and Acceptance (U.S. Facility)
Exhibit E-2 Form of Assignment and Acceptance (Canadian Facility)
Exhibit F-1 Form of Promissory Note (Company)
Exhibit F-2 Form of Promissory Note (Parent)
Exhibit F-3 Form of BA Equivalent Note
Exhibit G-1 Form of U.S. Subsidiary Guaranty (U.S. Facility)
Exhibit G-2 Form of U.S. Subsidiary Guaranty (Canadian Facility)
Exhibit G-3 Form of Canadian Guaranty
Exhibit H-1 Form of U.S. Security Agreement
Exhibit H-2 Form of Canadian Security Agreement (Canadian Subsidiaries)
Exhibit H-3 Form of Canadian Security Agreement (Parent)
Exhibit I-1 Form of U.S. Pledge Agreement
Exhibit I-2 Form of Canadian Pledge Agreement
Exhibit J Form of Subordination Language
Exhibit K Form of Request for Increase
Exhibit L Form of Facility Assignment Agreement
Exhibit M-1 Form of Assignment of Partnership Interests (Parent)
Exhibit M-2 Form of Assignment of Partnership Interests (Ontario GP)
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AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of January
29, 1999 among CERI, L.P., a Delaware limited partnership (the "COMPANY"),
CAPITAL ENVIRONMENTAL RESOURCE INC./RESSOURCES ENVIRONNEMENTALES CAPITAL INC.,
an Ontario corporation ("PARENT"), various financial institutions, CANADIAN
IMPERIAL BANK OF COMMERCE, as Co-Agent, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION ("BOFA"), as U.S. Agent, and BANK OF AMERICA CANADA
("BACAN"), as Canadian Agent.
WHEREAS, Parent, various financial institutions and Dresdner Bank Canada,
as agent (in such capacity, the "EXISTING AGENT"), entered into a Credit
Agreement dated as of September 25, 1997 (as amended, the "EXISTING AGREEMENT");
and
WHEREAS, pursuant to a Facility Assignment Agreement dated as of even date
herewith substantially in the form of EXHIBIT L (the "FACILITY ASSIGNMENT
AGREEMENT"), (i) Dresdner Bank Canada is assigning to BACAN, in its capacity as
a lender, all of its loans under the Existing Agreement and (ii) the Existing
Agent is assigning to BACAN, and BACAN is assuming, the rights and
responsibilities as "Agent" under and as defined in the Existing Agreement; and
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Agreement so as to, among other things, (a) add the Company as a "Borrower", (b)
add BofA as "U.S. Agent" hereunder, (c) amend the pricing, various covenants and
various other provisions of the Existing Agreement and (d) revise the
composition of the lender group; and
WHEREAS, the parties hereto intend that this Agreement and the Loan
Documents executed in connection herewith not effect a novation of the
obligations of Parent under the Existing Agreement and the "Documents" (as
defined in the Existing Agreement), but merely a restatement and, where
applicable, an amendment of the terms governing such obligations; and
WHEREAS, the parties hereto desire to amend and restate the Existing
Agreement in its entirety pursuant hereto;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
ACQUISITION means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of
50% of the capital stock, partnership interests, membership interests or
equity of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger, consolidation or amalgamation or any other
combination with another Person (other than a Person that is a
Subsidiary); PROVIDED that (i) if Parent or the Company is involved in any
such transaction, Parent or the Company, as the case may be, shall be the
surviving entity (or, in the case of an amalgamation, the continuing or
successor entity shall be liable for all obligations of Parent or the
Company, as applicable, hereunder and under the other Loan Documents) and
(ii) in the case of any other such transaction, the surviving, continuing
or successor entity shall be a Subsidiary.
AFFECTED LENDER - see SECTION 5.7.
AFFILIATE means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
such other Person, whether through the ownership of voting securities or
membership interests, by contract, or otherwise.
AGENT-RELATED PERSONS means either Agent and any successor thereto
in such capacity hereunder, together with their respective Affiliates and
the officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
AGENTS means the Canadian Agent and the U.S. Agent; and AGENT means
the Canadian Agent or the U.S. Agent.
AGREEMENT means this Credit Agreement.
APPLICABLE AGENT means (a) with respect to matters relating to U.S.
Dollar Loans made to the Company and Letters of Credit issued for the
account of the Company, the U.S. Agent, and (b) with respect to matters
relating to U.S. Dollar Loans made to Parent, Canadian Dollar Loans,
Letters of Credit issued for the account of Parent, Bankers' Acceptances
and BA Equivalent Notes, the Canadian Agent.
APPLICABLE BORROWER means (a) with respect to U.S. Dollar Loans made
by the U.S. Lenders and Letters of Credit issued by the U.S. Issuing
Lender, the Company, and (b) with respect to U.S. Dollar Loans made by the
Canadian Lenders, Canadian Dollar
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Loans, Bankers' Acceptances, BA Equivalent Notes and Letters of Credit
issued by the Canadian Issuing Lender, Parent.
APPLICABLE LENDERS means (a) with respect to matters relating to
U.S. Dollar Loans made to the Company and Letters of Credit issued for the
account of the Company, the U.S. Lenders, and (b) with respect to matters
relating to U.S. Dollar Loans made to Parent, Canadian Dollar Loans,
Letters of Credit issued for the account of Parent, Bankers' Acceptances
and BA Equivalent Notes, the Canadian Lenders.
APPLICABLE MARGIN means the applicable rate per annum for a Loan set
forth in SCHEDULE 1.1C.
ARRANGER means NationsBanc Montgomery Securities LLC.
ASSIGNEE - see SUBSECTION 12.8(A).
ASSIGNMENT OF PARTNERSHIP INTERESTS - see SUBSECTION 6.1(M).
ASSIGNMENT AND ACCEPTANCE - see SUBSECTION 12.8(A).
ATTORNEY COSTS means and includes all reasonable fees and charges of
any law firm or other external counsel and, without duplication, the
reasonable allocated cost of internal legal services and all reasonable
disbursements of internal counsel, including all such fees, charges and
disbursements on a solicitor-client basis.
BA BORROWING means Bankers' Acceptance and BA Equivalent Notes
accepted or purchased by the Canadian Lenders in amounts substantially
equivalent (subject to SUBSECTION 2.3.2(B)) to their respective Pro Rata
Shares on the same day and for the same term.
BA DISCOUNT PROCEEDS means, with respect to any Bankers' Acceptance
or BA Equivalent Note, an amount calculated on the applicable Borrowing
Date which is (rounded to the nearest full cent) equal to the face amount
of such Bankers' Acceptance or BA Equivalent Note divided by the sum of
one plus the product of (i) the BA Discount Rate applicable thereto
multiplied by (ii) a fraction, the numerator of which is the term of such
Bankers' Acceptance or BA Equivalent Note and the denominator of which is
365.
BA DISCOUNT RATE means, subject to SUBSECTION 2.3.4(B), with respect
to any Bankers' Acceptances or BA Equivalent Notes to be purchased by the
Canadian Lenders on any Borrowing Date, (i) for each Canadian Lender that
is a bank named in Schedule I to the Bank Act (Canada), the CDOR for
bankers' acceptances having an identical maturity date and (if shown on
the CDOR page of the Reuters screen) comparable
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aggregate face amount to the maturity date and aggregate face amount of
such Bankers' Acceptances, (ii) for each Canadian Lender that is not a
bank named in Schedule I to the Bank Act (Canada), the arithmetic average
(rounded upward, if necessary, to an integral multiple of 1/100 of 1%) of
the discount rate of interest at which each BA Reference Lender is
offering as of 10:00 a.m. (Toronto time) on such Borrowing Date to
purchase bankers' acceptances accepted by it having an identical maturity
date and comparable aggregate face amount to the maturity date and
aggregate face amount of the applicable Bankers' Acceptance of such BA
Reference Lender, as notified by such Lender to the Canadian Agent and
(iii) for each Non-BA Lender, the lesser of (A) the CDOR plus 0.1% and (B)
the annual interest rate which is the cost to such Non-BA Lender of
obtaining Canadian Dollars to fund such purchase by it, as notified by
such Lender to the Canadian Agent.
BA EQUIVALENT NOTE - see SECTION 2.3.1.
BA LENDER means any Canadian Lender which is a bank chartered under
the Bank Act (Canada) and which has not notified the Canadian Agent in
writing that it is unwilling or unable to accept Drafts as provided in
SECTION 2.3.
BA REFERENCE LENDERS means BACAN and any other Canadian Lender
designated in writing from time to time by such Canadian Lender, Parent
and the Canadian Agent; PROVIDED that if any such Person ceases to be a
Canadian Lender, such Person should concurrently cease to be a BA
Reference Lender.
BACAN - see the introductory clause hereto.
BANK ACT SECURITY means assignments of inventory and proceeds by
Parent to and in favour of each Canadian Lender creating a first fixed
charge on such assets pursuant to Section 427 of the Bank Act (Canada),
together with all documents related or ancillary thereto.
BANKERS' ACCEPTANCE means a Draft which has been accepted by a BA
Lender as provided in SECTION 2.3.
BASE RATE means, for any day, the higher of: (a) 0.50% per annum
above the latest U.S. Federal Funds Rate; and (b) the per annum rate of
interest in effect for such day as publicly announced from time to time by
BofA in San Francisco, California, as its "reference rate." (The
"reference rate" is a rate set by BofA based upon various factors
including BofA's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans,
which may be priced at, above or below such announced rate.) Any change in
the reference rate announced by BofA shall
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take effect at the opening of business on the day specified in the public
announcement of such change.
BASE RATE LOAN means a Loan that bears interest based on the Base
Rate.
BOFA - see the introductory clause hereto.
BORROWER means the Company or Parent; and BORROWERS means the
Company and Parent.
BORROWING means a borrowing hereunder consisting of (a) U.S. Dollar
Loans of the same Type made to the Applicable Borrower on the same day by
the Applicable Lenders under SECTION 2.1 and, other than in the case of
Base Rate Loans, having the same Interest Period, (b) Canadian Dollar
Loans of the same Type made to Parent on the same day by the Canadian
Lenders under SECTION 2.2 and, other than in the case of Prime Rate Loans,
having the same Interest Period or (c) a BA Borrowing. A Borrowing may be
a U.S. Dollar Borrowing, a Canadian Dollar Borrowing or a BA Borrowing.
BORROWING DATE means any date on which a Borrowing occurs under
SECTION 2.1.4 or SECTION 2.2.3 or on which the Canadian Lenders accept
Drafts and/or purchase BA Equivalent Notes pursuant to SECTION 2.3.2.
BUSINESS DAY means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago (and in the case of disbursements
and payments in Canadian Dollars and any matter relating to U.S. Dollar
Loans to Parent or Bankers' Acceptances or BA Equivalent Notes, in
Toronto, Canada and New York, New York) are authorized or required by law
to close and, if the applicable Business Day relates to an Offshore Rate
Loan, means such a day on which dealings in U.S. Dollars or Canadian
Dollars, as applicable, are carried on in the London interbank market.
CANADIAN AGENT means BACAN in its capacity as agent hereunder and
under the other Loan Documents, as provided in ARTICLE X, and any
successor Canadian Agent under SECTION 10.9.
CANADIAN COMMITMENT means, with respect to any Canadian Lender, the
commitment of such Canadian Lender to make Loans to Parent, to accept and
purchase Bankers' Acceptances or to purchase BA Equivalent Notes, and to
participate in Letters of Credit issued for the account of Parent in a
Dollar Equivalent amount not exceeding the amount set forth for such
Canadian Lender on SCHEDULE 1.1B, as such amount is adjusted from time to
time in accordance with the terms hereof. As of the date of this
Agreement, the Dollar Equivalent amount of the combined Canadian
Commitments of all Canadian Lenders is U.S. $40,000,000.
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CANADIAN COST OF FUNDS RATE means a rate per annum equal to the cost
of funds of the Canadian Agent as established by the Canadian Agent based
on its customary practice.
CANADIAN DOLLAR BORROWING means a Borrowing consisting of Canadian
Dollar Loans made by the Canadian Lenders to Parent ratably according to
their respective Pro Rata Shares.
CANADIAN DOLLARS and CDN. $ each mean lawful money of Canada.
CANADIAN DOLLAR LOANS means any Prime Rate Loan or Offshore Canadian
Dollar Loan made to Parent by a Canadian Lender under SECTION 2.2. All
Canadian Dollar Loans shall be made in Canadian Dollars.
CANADIAN GUARANTOR means (a) as of the Closing Date, each Canadian
Subsidiary listed on SCHEDULE 7.9 (other than Lacey Garbage Disposal Ltd.
and Nova Scotia Sub) and (b) thereafter, the entities referred to in
CLAUSE (A) and each other Person which from time to time executes and
delivers a Canadian Guaranty (other than any of the foregoing which is
released from its obligations under the applicable Guaranty in accordance
with the terms hereof).
CANADIAN GUARANTY - see SUBSECTION 6.1(E).
CANADIAN ISSUING LENDER means BACAN in its capacity as Issuer of one
or more Letters of Credit for the account of Parent hereunder, together
with any replacement therefor pursuant to SECTION 10.9.
CANADIAN L/C COMMITMENT means the commitment of the Canadian Issuing
Lender to Issue, and the commitment of the Canadian Lenders severally to
participate in, Letters of Credit from time to time Issued for the account
of Parent under ARTICLE IV, in an aggregate Effective Amount not to exceed
on any date an amount equal to the lesser of a Dollar Equivalent amount of
U.S. $20,000,000 and the amount of the combined Canadian Commitments; IT
BEING UNDERSTOOD that the Canadian L/C Commitment is a part of the
combined Canadian Commitments, rather than a separate, independent
commitment.
CANADIAN LENDER means each Lender listed on SCHEDULE 1.1B under the
heading "Canadian Lender" and any other Lender that may from time to time
hold Loans made to Parent and/or accept a Bankers' Acceptance and/or hold
a BA Equivalent Note.
CANADIAN PLAN means a pension plan established by Parent or any
Canadian Subsidiary for any of its employees which is not subject to
ERISA.
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CANADIAN PLEDGE AGREEMENT - see SUBSECTION 6.1(J) .
CANADIAN SECURITY AGREEMENT - see SUBSECTION 6.1(H).
CANADIAN SUBSIDIARY means any Subsidiary of Parent which is
organized under the federal laws of Canada or the laws of any province
thereof.
CAPITAL ADEQUACY REGULATION means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law, in
each case regarding capital adequacy of any bank or of any corporation
controlling a bank.
CASH COLLATERALIZE means, with respect to either Borrower, to pledge
and deposit with or deliver to the Applicable Agent, for the benefit of
such Agent and the Applicable Lenders, as collateral for the applicable
Obligations, cash or deposit account balances pursuant to documentation in
form and substance satisfactory to the Applicable Agent. Derivatives of
such term shall have corresponding meanings. Each Borrower hereby grants
the Applicable Agent, for the benefit of such Agent and the Applicable
Lenders, a security interest in any such cash and deposit account
balances. Cash Collateral shall be maintained in blocked, deposit accounts
at the Applicable Agent or an Affiliate thereof.
CASH EQUIVALENT INVESTMENT means, at any time, (a) any evidence of
Debt, maturing not more than one year after such time, issued or
guaranteed by the United States Government, the Canadian Government or any
agency or province thereof, (b) commercial paper, certificates of deposit
(or time deposits represented by certificates of deposit) or bankers'
acceptances, maturing not more than one year from the date of issue, or
corporate demand notes, in each case (unless issued by a Lender or its
holding company) rated at least A-l by Standard & Poor's Ratings Group or
P-l by Moody's Investors Service, Inc. or R-1 by Dominion Bond Rating
Service Limited, (c) any certificate of deposit (or time deposits
represented by such certificates of deposit) or banker's acceptance,
maturing not more than one year after such time, that is issued or sold by
any Lender or a commercial banking institution that is a member of the
Federal Reserve System or is a Schedule I Canadian bank and has a combined
capital and surplus and undivided profits of not less than a Dollar
Equivalent amount of U.S.$500,000,000, (d) any repurchase agreement
entered into with any Lender (or other commercial banking institution of
the stature referred to in CLAUSE (C)) which (i) is secured by a fully
perfected security interest in any obligation of the type described in any
of CLAUSES (A) through (C) and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such Lender (or other commercial banking
institution) thereunder and (e) investments in short-term asset management
accounts offered by any Lender for the purpose of investing in loans to
any corporation (other than Parent or an Affiliate of Parent), state,
province or municipality, in each case organized
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under the laws of any state of the United States or of the District of
Columbia or of any province or territory of Canada.
CDOR means, for any day, the average of the annual discount rates
(rounded upward to the nearest 1/100 of 1%) for bankers' acceptances
denominated in Canadian Dollars for a specified term and, if shown, the
aggregate face amount that appears on the CDOR page of the Reuters Screen
as of 10:30 a.m. (Toronto time) on such day (or, if such day is not a
Business Day, as of 10:30 a.m. (Toronto time) on the immediately preceding
Business Day), all as determined by the Canadian Agent.
CHANGE OF CONTROL means (a) any Person or group of Persons (within
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
but excluding the Permitted Shareholders) shall acquire beneficial
ownership (within the meaning of Rule 13d-3 promulgated under such Act) of
20% or more of the outstanding shares of common stock of Parent (and,
prior to a Qualifying IPO, shall have beneficial ownership of more
outstanding shares of common stock than the Permitted Shareholders
collectively); or (b) during any 24-month period, individuals who at the
beginning of such period constituted Parent's Board of Directors (together
with any new directors whose election by Parent's Board of Directors or
whose nomination for election by Parent's shareholders was approved by a
vote of a majority of the directors who either were directors at beginning
of such period or whose election or nomination was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of
Parent.
CLOSING DATE means the date on which all conditions precedent to the
effectiveness hereof set forth in SECTION 6.1 are satisfied or waived by
all Lenders.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means any property on which or in which a lien is granted
to the U.S. Agent, the Canadian Agent or any Lender pursuant to any
Collateral Document.
COLLATERAL DOCUMENTS means the U.S. Security Agreement, each
Canadian Security Agreement, the U.S. Pledge Agreement, each Canadian
Pledge Agreement, the Bank Act Security, each Assignment of Partnership
Interests and any other document pursuant to which any Loan Party grants a
Lien to either Agent or any Lender to secure any obligations hereunder or
under any other Loan Document .
COMMITMENT means, as to each Lender, the amount set forth opposite
such Lender's name on SCHEDULE 1.1A or SCHEDULE 1.1B (or both), as
adjusted from time to time in accordance with the terms of this Agreement.
COMPANY - see the introductory clause hereto.
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COMPANY OUTSTANDINGS means, with respect to any U.S. Lender, the
aggregate principal amount of all outstanding Loans made by such U.S.
Lender to the Company PLUS the amount of the participation of such U.S.
Lender in the Effective Amount of all L/C Obligations of the Company.
COMPUTATION DATE means the last Business Day of each calendar month
AND (i) with respect to each Offshore Canadian Dollar Loan, the date on
which Parent borrows such Loan and each date on which Parent converts or
continues such Loan, (ii) with respect to each Prime Rate Loan, the date
on which Parent borrows such Loan and each date on which Parent pays all
or a portion of such Loan, (iii) with respect to any Bankers' Acceptance
or BA Equivalent Note, the date of issuance or purchase thereof and the
date of payment thereof, and (iv) with respect to each Letter of Credit
issued for the account of Parent, the date on which such Letter of Credit
is issued and on each date on which the Stated Amount of such Letter of
Credit changes.
COMPUTATION PERIOD means any period of four consecutive Fiscal
Quarters ending on the last day of a Fiscal Quarter.
CONSOLIDATED NET INCOME means, with respect to Parent and its
Subsidiaries for any period, the consolidated net income (or loss) of
Parent and its Subsidiaries for such period (excluding any extraordinary,
unusual or non-recurring items of income).
CONTRACTUAL OBLIGATION means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
CONVERSION/CONTINUATION DATE means any Business Day on which (i)
either Borrower converts Loans from one Type of U.S. Dollar Loans to the
other Type, (ii) Parent converts Loans from one Type of Canadian Dollar
Loans to the other Type or (iii) either Borrower continues Loans of the
same Type, but with a new Interest Period, Loans having Interest Periods
expiring on such date.
CREDIT EXTENSION means and includes (a) the making of any Loan
hereunder, (b) the acceptance of any Draft or the purchase of any BA
Equivalent Note hereunder and (c) the Issuance of any Letter of Credit
hereunder.
DEBT of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, whether or not evidenced by bonds,
debentures, notes or similar instruments, (b) all obligations of such
Person as lessee under capital leases which have been recorded as
liabilities on a balance sheet of such Person, (c) all obligations of such
Person to pay the deferred purchase price of property or services (other
than current
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accounts payable in the ordinary course of business), (d) all indebtedness
secured by a Lien on the property of such Person, whether or not such
indebtedness shall have been assumed by such Person (it being understood
that if such Person has not assumed or otherwise become personally liable
for any such indebtedness, the amount of the Debt of such Person in
connection therewith shall be limited to the lesser of the face amount of
such indebtedness or the fair market value of all property of such Person
securing such indebtedness), (e) all obligations, contingent or otherwise,
with respect to the face amount of all letters of credit (whether or not
drawn) and bankers' acceptances issued for the account of such Person, (f)
liabilities of such Person in respect of Hedging Agreements, and (g) all
Suretyship Liabilities (other than Suretyship Liabilities in respect of
operating leases of other Persons) of such Person.
DOLLAR EQUIVALENT means, at any time, (a) as to any amount
denominated in U.S. Dollars, the amount thereof at such time, and (b) as
to any amount denominated in Canadian Dollars, the equivalent amount in
U.S. Dollars as determined by the Canadian Agent at such time on the basis
of the Spot Rate for the purchase of U.S. Dollars with such Canadian
Dollars.
DRAFT - see SECTION 2.3.1.
EBITDA means, with respect to any Computation Period, Consolidated
Net Income before deducting Interest Expense, taxes, depreciation and
amortization for such period, but excluding pooling charges and, for any
Computation Period ending on or prior to September 30, 1999, a Dollar
Equivalent amount of U.S.$602,000 non-cash extraordinary charge related to
the write-off of start-up and integration costs, all calculated on a PRO
FORMA basis (as certified by Parent to the U.S. Agent) assuming that each
Acquisition made during such Computation Period had been made on the first
day of such Computation Period (calculated to exclude non-recurring
private company expenses which are discontinued upon any such Acquisition
(as certified by Parent and agreed to by the U.S. Agent)).
EFFECTIVE AMOUNT means, with respect to the outstanding L/C
Obligations of a Borrower on any date, the aggregate Dollar Equivalent
amount of such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any other
changes in the aggregate Dollar Equivalent amount of the L/C Obligations
as of such date, including as a result of any reimbursement of outstanding
unpaid drawings under any Letter of Credit or any reduction in the maximum
amount available for drawing under any Letter of Credit taking effect on
such date.
ENVIRONMENTAL LAWS means all applicable federal, state, provincial
or local statutes, laws, ordinances, codes, rules, regulations,
guidelines, orders and judgments (including consent decrees and
administrative orders) relating to any hazardous, toxic or
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dangerous substance or material, public health and safety, the protection
of the environment, land use, chemical use, pollution, sanitation or the
health and welfare of any plant or animal.
ERISA means the Employee Retirement Income Security Act of 1974.
EURODOLLAR RESERVE PERCENTAGE means, for any day for any Interest
Period, (a) in the case of Loans made by the U.S. Lenders, the maximum
reserve percentage (expressed as a decimal, rounded upward, if necessary,
to an integral multiple of 1/100th of 1%) in effect on such day (whether
or not applicable to any Lender) under regulations issued from time to
time by the FRB for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and (b) in the case of Loans made by the Canadian Lenders,
the maximum reserve percentage (expressed as a decimal, rounded upward, if
necessary, to an integral multiple of 1/100th of 1%) in effect on such day
(whether or not applicable to any Lender) under regulations issued from
time to time by the Bank of Canada or any other relevant Governmental
Authority in Canada for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding.
EVENT OF DEFAULT means any event or circumstance specified in
SECTION 9.1.
EXISTING AGENT - see the RECITALS.
EXISTING AGREEMENT - see the RECITALS.
FACILITY ASSIGNMENT AGREEMENT - see the RECITALS.
FINANCIAL LETTER OF CREDIT means any standby Letter of Credit (a)
determined by the U.S. Agent to be a "financial guaranty-type Standby
Letter of Credit" as defined in footnote 13 to Appendix A to the Risk
Based Capital Guidelines issued by the Comptroller of the Currency (or in
any successor regulation, guideline or ruling by any applicable banking
regulatory authority) or (b) determined by the Canadian Agent to be a
"direct credit substitute" having a 100% conversion factor for purposes of
Section A.4.1, Categories of Off-Balance Sheet Instruments, of Guideline
A, Capital Adequacy Requirements, of the Guidelines for Banks issued by
the Office of the Superintendent of Financial Institutions (Canada) (or
for purposes of any successor regulation, guideline or ruling by any
applicable Governmental Authority).
FISCAL QUARTER means a fiscal quarter of a Fiscal Year.
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FISCAL YEAR means the fiscal year of Parent and its Subsidiaries,
which period shall be the 12-month period ending on December 31 of each
year. References to a Fiscal Year with a number corresponding to any
calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending
on December 31 of such calendar year.
FOREIGN SUBSIDIARY means any Subsidiary (i) organized under the laws
of a jurisdiction other than the United States or a state thereof or
Canada or a province or territory thereof and (ii) which conducts
substantially all of its business and operations outside of the United
States and Canada.
FRB means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
FUNDED DEBT means all Debt of Parent and its Subsidiaries, excluding
(i) contingent obligations in respect of undrawn letters of credit and
Suretyship Liabilities (except to the extent constituting contingent
obligations under letters of credit supporting, or Suretyship Liabilities
in respect of, Debt of a Person other than Parent or any Subsidiary), (ii)
liabilities under Hedging Agreements and (iii) Debt of Parent to
Subsidiaries and Debt of Subsidiaries to Parent or to other Subsidiaries.
GAAP means U.S. generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature
and authority within the U.S. accounting profession), which are applicable
to the circumstances as of the date of determination.
GOVERNMENTAL AUTHORITY means any nation or government, any state or
province or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
GUARANTOR means each U.S. Guarantor and each Canadian Guarantor.
GUARANTY means each of each U.S. Guaranty and the Canadian Guaranty.
HAZARDOUS MATERIAL means any hazardous, toxic or dangerous substance
or material defined as such in (or for purposes of) any Environmental Law.
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HEDGING AGREEMENT means any interest rate, currency or commodity
swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designed to protect a Person
against fluctuations in interest rates, currency exchange rates or
commodity prices.
HONOR DATE - see SUBSECTION 4.3(B).
INDEMNIFIED LIABILITIES - see SECTION 12.5.
INDEMNIFIED PERSON - see SECTION 12.5.
INSOLVENCY PROCEEDING means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up,
compromise, arrangement or relief of debtors (including any proceeding
under the U.S. Bankruptcy Code, the Bankruptcy and Insolvency Act
(Canada), the Companies' Creditor's Arrangement Act (Canada) or any
similar legislation in any jurisdiction) or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for
creditors, or other similar arrangement in respect of such Person's
creditors generally or any substantial portion of such creditors.
INTEREST COVERAGE RATIO means the ratio for any Computation Period
of (a) Consolidated Net Income before deducting Interest Expense, taxes,
depreciation and amortization for such period, but excluding pooling
charges and, for any Computation Period ending on or prior to September
30, 1999, a Dollar Equivalent amount of U.S.$602,000 non-cash
extraordinary charge related to the write-off of start-up and integration
costs to (b) Interest Expense.
INTEREST EXPENSE means, for any period, the consolidated interest
expense of Parent and its Subsidiaries for such period (including all
imputed interest on capital leases but excluding interest paid in kind on
subordinated or convertible subordinated debt that is not repayable in
cash prior to the date which is 91 days after the scheduled Termination
Date).
INTEREST PAYMENT DATE means (a) as to any Offshore Rate Loan, the
last day of each Interest Period applicable to such Loan (and, if any
Interest Period exceeds three months, the three-month anniversary of the
first day of any such Interest Period) and at maturity and (b) as to any
Base Rate Loan or Prime Rate Loan, the last Business Day of each calendar
month and at maturity.
INTEREST PERIOD means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or the
Conversion/Continuation Date on which such
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Loan is converted into or continued as an Offshore U.S. Dollar Loan or
Offshore Canadian Dollar Loan, as applicable, and ending on the date one,
two, three or six months thereafter as selected by the Applicable Borrower
in its Notice of U.S. Dollar Borrowing, Notice of Canadian Dollar
Borrowing or Notice of Conversion/Continuation, as the case may be;
PROVIDED that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
following Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period for an Offshore Rate Loan that begins
on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond (x)
prior to consummation of a Qualifying IPO, January 10, 2000; and (y)
thereafter, the scheduled Termination Date.
INVESTMENT means, relative to any Person, (a) any loan or advance
made by such Person to any other Person (excluding any commission, travel
or similar advance made in the ordinary course of business to directors,
officers and employees of such Person or any of its Subsidiaries), (b) any
Suretyship Liability of such Person, (c) any ownership or similar interest
held by such Person in any other Person and (d) deposits and the like
relating to prospective acquisitions of businesses.
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
ISSUANCE DATE - see SUBSECTION 4.1(A).
ISSUE means, with respect to any Letter of Credit, to issue or to
extend the expiry of, or to renew or increase the amount of, such Letter
of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have
corresponding meanings.
ISSUING LENDER means the Canadian Issuing Lender or the U.S. Issuing
Lender; and ISSUING LENDERS means the Canadian Issuing Lender and the U.S.
Issuing Lender.
JVS means J.V. Services of Western N.Y., Inc., a New York
corporation.
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JVS SECURED PARTIES - see SECTION 8.27.
L/C ADVANCE means each Lender's participation in any L/C Borrowing
in accordance with its Pro Rata Share.
L/C AMENDMENT APPLICATION means an application form for amendment of
an outstanding standby letter of credit as shall at any time be in use at
the applicable Issuing Lender, as such Issuing Lender shall specify.
L/C APPLICATION means an application form for issuance of a standby
letter of credit as shall at any time be in use by the applicable Issuing
Lender, as such Issuing Lender shall specify.
L/C BORROWING means an extension of credit resulting from a drawing
under any Letter of Credit which shall not have been reimbursed on the
date when made nor converted into a Borrowing of Loans under SUBSECTION
4.3(C).
L/C OBLIGATIONS means, with respect to a Borrower at any time, the
sum of (a) the aggregate undrawn amount of all outstanding Letters of
Credit issued for the account of such Borrower, plus (b) the amount of all
unreimbursed drawings under all Letters of Credit issued for the account
of such Borrower, including all outstanding L/C Borrowings.
L/C-RELATED DOCUMENTS means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
executed by a Borrower relating to any Letter of Credit.
LENDER means each of the financial institutions identified on the
signature pages hereof and their respective permitted successors and
assigns. References to the "Lenders" shall include each of BofA and BACAN
in its capacity as an Issuing Lender; for purposes of clarification only,
to the extent that BofA or BACAN may have any rights or obligations in
addition to those of the other Lenders due to its status as an Issuing
Lender, its status as such will be specifically referenced.
LENDING OFFICE means, as to any Lender, the office or offices of
such Lender specified as its "Lending Office" or "Domestic Lending Office"
or "Canadian Lending Office", as the case may be, on SCHEDULE 12.2, or
such other office or offices as shall be making or maintaining any Loan
hereunder.
LETTER OF CREDIT means any standby letter of credit Issued by an
Issuing Lender pursuant to ARTICLE IV.
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LIBOR means for any Interest Period:
(a) In the case of Offshore U.S. Dollar Loans, the rate at which
U.S. Dollar deposits in the approximate amount of the Offshore U.S. Dollar
Loan of the Applicable Agent included in the related Borrowing, and having
a maturity comparable to such Interest Period, are offered by BofA to
major banks in the London eurocurrency market at approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of such Interest
Period.
(b) In the case of Offshore Canadian Dollar Loans, the rate per
annum (rounded upward, if necessary, to an integral multiple of 1/100 of
1%) appearing on the Dow Jones Market Service (formerly Telerate Access
Service) Page 3740 (or any successor page) as the London interbank offered
rate for deposits in Canadian Dollars at approximately 11:00 a.m. (London
time) two Business Days prior to the commencement of such Interest Period
for a term comparable to such Interest Period. If for any reason the rate
described in the foregoing sentence is not available, then such offered
rate shall be determined by the Canadian Agent from an alternate,
substantially similar independent source available to the Canadian Agent
or shall be calculated by the Canadian Agent by a substantially similar
methodology as that theretofore used to determine such offered rate on Dow
Jones Market Service in the London interbank eurodollar market for a term
comparable to such Interest Period and in an amount equal to or comparable
to the principal amount of the Offshore Canadian Dollar Loan of the
Canadian Agent included in the related Borrowing.
LIEN means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance,
lien (statutory or other) or similar preferential arrangement of any kind
or nature whatsoever in respect of any property (including those created
by, arising under or evidenced by any conditional sale or other title
retention agreement, the interest of a lessor under a capital lease, or
any financing lease having substantially the same economic effect as any
of the foregoing, but not including the interest of a lessor under an
operating lease).
LOAN or LOANS means (a) one or more loans by a Lender to the
Applicable Borrower pursuant to SECTION 2.1 (which may be Base Rate Loans
or Offshore U.S. Dollar Loans), (b) one or more loans by a Canadian Lender
to Parent pursuant to SECTION 2.2 (which may be Prime Rate Loans or
Offshore Canadian Dollar Loans), (c) amounts made available to an Agent
for the account of an Issuing Lender by a Lender pursuant to SUBSECTION
4.3(C), (d) any borrowing by a Borrower pursuant to SUBSECTION 5.2(B) or
(e) one or more loans by a Lender to the Applicable Borrower pursuant to
SECTION 5.5.
LOAN DOCUMENTS means this Agreement, the Notes, the Bankers'
Acceptances, the BA Equivalent Notes, the Guaranties, the Collateral
Documents, the L/C-Related
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Documents and all other documents delivered to either Agent or any Lender
in connection herewith.
LOAN PARTIES means Parent, the Company and each other Guarantor.
MARGIN STOCK means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
MATERIAL ADVERSE EFFECT means a material adverse effect on (a) the
financial condition, operations, business or assets of Parent and its
Subsidiaries taken as a whole or (b) the ability of Parent, the Company or
any other Subsidiary to timely and fully perform any of its payment or
other material obligations under this Agreement or any other Loan Document
to which it is a party.
MATERIAL ENVIRONMENTAL EVENT means any event or condition relating
to Hazardous Materials or resulting from a breach of any Environmental Law
which is reasonably likely to result in liability to Parent and/or any
Subsidiary during the term of this Agreement in an amount greater than a
Dollar Equivalent amount of U.S.$1,000,000 for any single such event or
condition or a Dollar Equivalent amount of U.S.$2,000,000 when combined
with all other such events or conditions.
NET WORTH means Parent's consolidated stockholders' equity plus, to
the extent not included in such shareholders' equity in accordance with
GAAP, all common and preferred stock (excluding Redeemable Equity
Interests issued after the date of this Agreement) as shown on Parent's
consolidated balance sheet.
NON-BA LENDER means any Canadian Lender which is not a BA Lender.
NON-FINANCIAL LETTER OF CREDIT means any standby Letter of Credit
other than a Financial Letter of Credit.
NOTE means a promissory note executed by a Borrower in favor of a
Lender pursuant to SECTION 3.2, in substantially the form of EXHIBIT F-1
or F-2, as applicable.
NOTICE OF BA BORROWING means a notice by Parent in substantially the
form of EXHIBIT A-3 requesting the acceptance of Bankers' Acceptances and
the purchase of BA Equivalent Notes.
NOTICE OF CANADIAN DOLLAR BORROWING means a notice by Parent in
substantially the form of EXHIBIT A-2 requesting Canadian Dollar Loans.
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NOTICE OF CONVERSION/CONTINUATION means a notice by a Borrower in
substantially the form of EXHIBIT B-1 (in the case of a notice pursuant to
SECTION 2.1.5) or EXHIBIT B-2 (in the case of a notice pursuant to SECTION
2.2.5).
NOTICE OF U.S. DOLLAR BORROWING means a notice by a Borrower in
substantially the form of EXHIBIT A-1 requesting U.S. Dollar Loans.
NOVA SCOTIA SUB means 3020378 Nova Scotia Company, a Nova Scotia
corporation.
OBLIGATIONS means all advances, debts, liabilities, obligations,
covenants and duties arising under this Agreement or any other Loan
Document owing by either Borrower to any Lender, either Agent or any
Indemnified Person, whether absolute or contingent, due or to become due,
or now existing or hereafter arising.
OFFSHORE CANADIAN DOLLAR LOAN means any Canadian Dollar Loan that
bears interest based on the Offshore Rate.
OFFSHORE RATE means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward, if not an integral multiple of 1/16 or
1/100 of 1%, to an integral multiple of 1/100 of 1%) determined by the
Applicable Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
OFFSHORE RATE LOAN means any Offshore U.S. Dollar Loan or Offshore
Canadian Dollar Loan.
OFFSHORE U.S. DOLLAR LOAN means any U.S. Dollar Loan that bears
interest based on the Offshore Rate.
ONTARIO GP means 1312654 Ontario Inc., an Ontario corporation.
ORGANIZATION DOCUMENTS means (i) for any corporation, the
certificate or articles of incorporation, any memorandum and articles, the
bylaws, any certificate of determination or instrument relating to the
rights of preferred shareholders of such corporation, any shareholder
rights or other shareholders' agreement (including any unanimous
shareholders' agreement or declaration), and all applicable resolutions of
the shareholders and/or the board of directors (or any committee thereof)
of such corporation, (ii) for any partnership or joint venture, the
partnership or joint venture agreement and any other organizational
document of such entity, (iii) for any limited liability company,
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the certificate or articles of organization, the operating agreement and
any other organizational document of such limited liability company, (iv)
for any trust, the declaration of trust, the trust agreement and any other
organizational document of such trust and (v) for any other entity, the
document or agreement pursuant to which such entity was formed and any
other organizational document of such entity.
OTHER TAXES means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Document.
PARENT - see the introductory clause hereto.
PARENT OUTSTANDINGS means, with respect to any Canadian Lender, the
aggregate principal Dollar Equivalent amount of all outstanding Loans made
by such Canadian Lender to Parent PLUS the amount of the participation of
such Canadian Lender in the Effective Amount of all L/C Obligations of
Parent PLUS the Dollar Equivalent face amount of all Bankers' Acceptances
accepted by such Canadian Lender or BA Equivalent Notes purchased by such
Canadian Lender.
PARTICIPANT - see SUBSECTION 12.8(C).
PAYMENT OFFICE means (i) in respect of payments in U.S. Dollars, the
address for payments set forth on SCHEDULE 12.2 for the Applicable Agent
or such other address as the Applicable Agent may from time to time
specify in accordance with SECTION 12.2; and (ii) in the case of payments
in Canadian Dollars, the address for payments set forth on SCHEDULE 12.2
for the Canadian Agent or such other address as the Canadian Agent may
from time to time specify in accordance with SECTION 12.2.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any of its principal functions under ERISA.
PENSION PLAN means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to
which Parent, the Company or any corporation, trade or business that is,
along with Parent or the Company, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described
in section 414 of the Code, or section 4001 of ERISA, may have any
liability, including any liability by reason of having been a substantial
employer within the meaning of section 4063 of ERISA at any time during
the preceding five years or by reason of being deemed to be a contributing
sponsor under section 4069 of ERISA.
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PERMITTED ACQUISITION - see SECTION 8.11.
PERMITTED SHAREHOLDERS means (a) Lynn Bishop, Tony Busseri, Kenneth
Leung, Allard Loopstra, William Eeuwes, Elizabeth Joy Grahek, any member
of the immediate family of any of the foregoing, any trust which is solely
for the benefit of any of the foregoing and/or members of the immediate
family of any of the foregoing, and any corporation or other entity of
which at least 66 2/3% of the outstanding equity interests having the
right to vote for the board of directors (or equivalent governing body)
are owned by any of the foregoing, members of their immediate families
and/or trusts described above; (b) CERI Investors, L.P.; (c) Environmental
Opportunities Fund (Cayman), L.P.; (d) Environmental Opportunities Fund II
(Institutional), L.P.; (e) Environmental Opportunities Fund III, L.P.; and
(f) Environmental Opportunities Fund, L.P.
PERSON means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
PRIME RATE means, for any day, the higher of: (a) 0.50% per annum
above the average 30 day bankers' acceptance rate that appears on the CDOR
page of the Reuters screen at or about 10:30 a.m. (Toronto time) on such
day as determined by the Canadian Agent; and (b) the per annum rate of
interest in effect for such day as publicly announced from time to time by
BACAN in Toronto, Ontario as its "prime rate." (The "prime rate" is a rate
set by BACAN based upon various factors including BACAN's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate.) Any change in the prime rate
announced by BACAN shall take effect at the opening of business on the day
specified in the public announcement of such change.
PRIME RATE LOAN means a Canadian Dollar Loan that bears interest
based on the Prime Rate.
PRO RATA SHARE means, as to any Lender at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of:
(a) in the case of a U.S. Lender, (i) such Lender's U.S.
Commitment divided by (ii) the combined U.S. Commitments of all the
U.S. Lenders, and
(b) in the case of a Canadian Lender, (i) such Lender's
Canadian Commitment divided by (ii) the combined Canadian
Commitments of all the Canadian Lenders.
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QUALIFYING IPO means an initial public offering of the common stock
of Parent which results in net cash proceeds to Parent of a Dollar
Equivalent amount of U.S.$25,000,000 or more and after which Parent's
common stock is traded on a nationally-recognized securities exchange in
the United States or Canada.
REDEEMABLE EQUITY INTEREST means, with respect to Parent or any
Subsidiary, any preferred stock or other equity interest in such Person
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (a) matures or
is mandatorily redeemable pursuant to a sinking fund obligation or
otherwise or (b) is or may become redeemable or repurchaseable at the
option of the holder thereof, in whole or in part, in either case prior to
the date which is 100 days after the scheduled Termination Date.
REPLACEMENT LENDER - see SECTION 5.7.
REQUIRED CANADIAN LENDERS means Canadian Lenders then holding at
least 66- 2/3% of the amount of the combined Canadian Commitments.
REQUIRED LENDERS means Lenders then holding at least 66-2/3% of the
amount of the combined U.S. Commitments and Canadian Commitments; PROVIDED
that such Lenders include U.S. Lenders then holding at least 51% of the
amount of the combined U.S. Commitments and Canadian Lenders then holding
at least 51% of the amount of the combined Canadian Commitments.
REQUIRED U.S. LENDERS means U.S. Lenders then holding at least
66-2/3% of the amount of the combined U.S. Commitments.
REQUIREMENT OF LAW means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or
of a Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
property is subject.
SAME DAY FUNDS means (i) with respect to disbursements and payments
in U.S. Dollars, immediately available funds, and (ii) with respect to
disbursements and payments in Canadian Dollars, same day or other funds as
may be determined by the Canadian Agent to be customary in the place of
disbursement or payment for the settlement of international banking
transactions in Canadian Dollars.
SEC means the Securities and Exchange Commission.
SELLER SUBORDINATED DEBT means unsecured indebtedness of Parent or
the Company that:
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(a) is subordinated, substantially on the terms set forth in
EXHIBIT J or other terms that are more favorable to the Agents and
the Lenders, in right of payment to the payment in full in cash of
the Loans and all other amounts owed under the Loan Documents
(whether or not matured or due and payable), including amounts
required to provide cash collateral for the Letters of Credit; and
(b) represents all or part of the purchase price payable by
Parent or the Company in connection with a transaction described in
SUBSECTION 8.11(C).
SENIOR DEBT means all Funded Debt of Parent and its Subsidiaries
other than Subordinated Debt.
SENIOR DEBT TO EBITDA RATIO means, as of the last day of any Fiscal
Quarter, the ratio of (i) Senior Debt as of such day to (ii) EBITDA for
the Computation Period ending on such day.
SPOT RATE for a currency means the rate quoted by BACAN as the spot
rate for the purchase by BACAN of such currency with another currency in
accordance with its customary procedures at approximately 10:30 a.m.
(Toronto time) on the date as of which the foreign exchange computation is
made.
STAMPING FEE RATE means the applicable rate per annum for accepting
a Bankers' Acceptance or purchasing a BA Equivalent Note set forth in
SCHEDULE 1.1C.
SUBORDINATED DEBT means (i) Seller Subordinated Debt, (ii) Debt of
Parent existing on the Closing Date and designated as Subordinated Debt on
SCHEDULE 8.7, and (iii) any other Debt of Parent or the Company which has
no amortization prior to March 31, 2002 and has subordination terms and
other terms satisfactory to the Agents and the Required Lenders.
SUBSIDIARY of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests is owned or controlled directly or indirectly by
such Person, or by one or more of the Subsidiaries of such Person, or by a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of Parent.
SURETYSHIP LIABILITY means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to or otherwise
to invest in a debtor, or otherwise to assure a creditor against loss) any
indebtedness, obligation or other liability of any other Person (other
than by
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endorsements of instruments in the course of collection), or guarantees
the payment of dividends or other distributions upon the shares of any
other Person. The amount of any Person's obligation under any Suretyship
Liability shall (subject to any limitation set forth therein) be deemed to
be the principal amount of the debt, obligation or other liability
guaranteed thereby. The indemnity obligations of a Person in respect of a
performance bond issued for its own account do not constitute Suretyship
Liabilities.
TAXES means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of a Lender and an Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured
by such Lender's or such Agent's, as the case may be, net income or
capital by the jurisdiction (or any political subdivision thereof) under
the laws of which such Lender or such Agent, as the case may be, is
organized or maintains a lending office.
TERMINATION DATE means January 28, 2002; PROVIDED that if a
Qualifying IPO is not completed on or before September 30, 1999, then
(effective on and after September 30, 1999), TERMINATION DATE shall mean
January 10, 2000.
TOTAL COMPANY OUTSTANDINGS means the combined Company Outstandings
of all U.S. Lenders.
TOTAL DEBT TO EBITDA RATIO means as of the last day of any Fiscal
Quarter, the ratio of: (i) all Funded Debt of Parent and its Subsidiaries
as of such day to (ii) EBITDA for the Computation Period ending on such
day.
TOTAL PARENT OUTSTANDINGS means the combined Parent Outstandings of
all Canadian Lenders.
TYPE of Loan means (a) in the case of U.S. Dollar Loans, a Base Rate
Loan or an Offshore U.S. Dollar Loan; and (b) in the case of Canadian
Dollar Loans, a Prime Rate Loan or an Offshore Canadian Dollar Loan.
UNITED STATES and U.S. each means the United States of America.
UNMATURED EVENT OF DEFAULT means any event or circumstance which,
with the giving of notice, the lapse of time, or both, would (if not cured
or otherwise remedied during such time) constitute an Event of Default.
U.S. AGENT means BofA in its capacity as agent hereunder and under
the other Loan Documents, as provided in ARTICLE X, and any successor U.S.
Agent arising under SECTION 10.9.
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U.S. COMMITMENT means, with respect to any U.S. Lender, the
commitment of such U.S. Lender to make Loans to the Company and to
participate in Letters of Credit issued for the account of the Company in
a Dollar Equivalent amount not exceeding the amount set forth for such
U.S. Lender on SCHEDULE 1.1A, as such amount is adjusted from time to time
in accordance with the terms hereof. As of the date of this Agreement, the
Dollar Equivalent amount of the combined U.S. Commitments of all U.S.
Lenders is U.S.
$25,000,000.
U.S. DOLLAR BORROWING means a Borrowing consisting of U.S. Dollar
Loans made by the Applicable Lenders to a particular Borrower ratably
according to their respective Pro Rata Shares.
U.S. DOLLAR LOAN means any Base Rate Loan or Offshore U.S. Dollar
Loan made to either Borrower under SECTION 2.1. All U.S. Dollar Loans
shall be made in U.S. Dollars. U.S. Dollar Loans made to the Company shall
be made by the U.S. Lenders under the U.S. Commitment. U.S. Dollar Loans
made to Parent shall be made by the Canadian Lenders under the Canadian
Commitment.
U.S. DOLLARS and U.S.$ each means lawful money of the United States.
U.S. FEDERAL FUNDS RATE means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite
the caption "Federal Funds (Effective)"; or, if for any relevant day such
rate is not so published on any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the U.S. Agent of
the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of Federal funds transactions in New York City selected by
the U.S. Agent.
U.S. GUARANTIES - see SUBSECTION 6.1(D).
U.S. GUARANTOR means (a) as of the Closing Date, the Company, each
other U.S. Subsidiary of Parent listed on SCHEDULE 7.9 and Nova Scotia Sub
and (b) thereafter, the entities referred to in CLAUSE (A) and each other
Person which from time to time executes and delivers a counterpart of a
U.S. Guaranty (other than any of the foregoing which is released from its
obligations under the applicable Guaranty in accordance with the terms
hereof).
U.S. ISSUING LENDER means BofA in its capacity as issuer of one or
more Letters of Credit for the account of the Company hereunder, together
with any replacement therefor pursuant to SECTION 10.9.
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U.S. L/C COMMITMENT means the commitment of the U.S. Issuing Lender
to Issue, and the commitment of the U.S. Lenders severally to participate
in, Letters of Credit from time to time Issued for the account of the
Company under ARTICLE IV, in an aggregate Effective Amount not to exceed
on any date the lesser of U.S.$20,000,000 and the amount of the combined
U.S. Commitments; IT BEING UNDERSTOOD that the U.S. L/C Commitment is a
part of the combined U.S. Commitments, rather than a separate, independent
commitment.
U.S. LENDER means each Lender listed on SCHEDULE 1.1A under the
heading "U.S. Lender" and any other Lender that may from time to time hold
Loans made to the Company.
U.S. PLEDGE AGREEMENT - see SUBSECTION 6.1(I).
U.S. SECURITY AGREEMENT - see SUBSECTION 6.1(G).
U.S. SUBSIDIARY means each Subsidiary of Parent which (a) is
organized under the laws of the United States or a state thereof and (b)
conducts substantially all of its business and operations in the United
States.
WELFARE PLAN means an "employee welfare benefit plan" as such term
is defined in section 3(1) ERISA.
1.2 OTHER INTERPRETIVE PROVISIONS.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of such terms.
(b) SECTION, SUBSECTION, SCHEDULE and EXHIBIT references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date to
a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding"; and the word
"through" means "to and including."
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(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of this Agreement, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Subject to the foregoing, if
there is any inconsistency between the terms of this Agreement and any other
Loan Document, the provisions of this Agreement shall prevail to the extent of
such inconsistency (but the foregoing shall not apply to limit or restrict in
any way the rights and remedies of the Agents or the Lenders under the
Collateral Documents in connection with the enforcement of the Liens created
thereby).
(g) This Agreement is the result of negotiations among and has been
reviewed by counsel to the Agents, the Borrowers and the other parties, and is
the product of all parties. Accordingly, this Agreement shall not be construed
against the Lenders or the Agents merely because of the Lenders' or the Agents'
involvement in their preparation.
1.3 ACCOUNTING PRINCIPLES. Unless the context otherwise clearly requires,
all accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied; PROVIDED that if Parent notifies the
U.S. Agent that Parent wishes to amend any covenant in ARTICLE VIII to eliminate
the effect of any change in GAAP on the operation of such covenant (or if the
U.S. Agent notifies Parent that the Required Lenders wish to amend ARTICLE VIII
for such purpose), then Parent's compliance with such covenant shall be
determined on the basis of GAAP in effect immediately before the relevant change
in GAAP became effective, until either such notice is withdrawn or such covenant
is amended in a manner satisfactory to Parent and the Required Lenders.
1.4 REALLOCATION OF LOANS TO PARENT.
(a) The Borrowers, the Lenders and the Agents agree that (i) this
Agreement amends and restates in its entirety the Existing Agreement and (ii)
concurrently with the effectiveness hereof, the Canadian Commitments shall be
reallocated in accordance with the terms hereof and each Canadian Lender shall
have a Pro Rata Share of all outstanding Canadian Dollar Loans.
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(b) To facilitate the reallocation described in CLAUSE (A),
concurrently with the effectiveness hereof, (i) all loans under the Existing
Agreement shall be deemed to be Canadian Dollar Loans hereunder, (ii) each
Canadian Lender shall transfer to the Canadian Agent an amount equal to the
excess, if any, of such Canadian Lender's Pro Rata Share of all outstanding
Canadian Dollar Loans hereunder after giving effect hereto OVER the amount of
such Canadian Lender's loans under the Existing Agreement immediately prior to
giving effect hereto (but after giving effect to the Facility Assignment
Agreement) and (iii) the Canadian Agent shall apply the funds received from the
applicable Canadian Lenders pursuant to CLAUSE (II) to purchase from each
applicable Canadian Lender the excess (if any) of the amount of such Canadian
Lender's loans under the Existing Agreement immediately prior to giving effect
hereto (but after giving effect to the Facility Assignment Agreement) OVER such
Canadian Lender's Pro Rata Share of all outstanding Canadian Dollar Loans
hereunder after giving effect hereto, so that each Canadian Lender shall have a
Pro Rata Share of all outstanding Canadian Dollar Loans.
ARTICLE II
THE CREDITS
2.1 U.S. DOLLAR BORROWINGS.
2.1.1 COMMITMENTS TO MAKE U.S. DOLLAR LOANS TO THE COMPANY. Each U.S.
Lender severally agrees, on the terms and conditions set forth herein, to make
U.S. Dollar Loans to the Company from time to time, on any Business Day during
the period from the Closing Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding such U.S. Lender's Pro Rata Share of the
amount of the combined U.S. Commitments; PROVIDED that, after giving effect to
any Borrowing of U.S. Dollar Loans by the Company, the Total Company
Outstandings shall not exceed the amount of the combined U.S. Commitments; and
PROVIDED, FURTHER, that the Company Outstandings of any U.S. Lender shall not at
any time exceed such U.S. Lender's U.S. Commitment.
2.1.2 COMMITMENTS TO MAKE U.S. DOLLAR LOANS TO PARENT. Each Canadian
Lender severally agrees, on the terms and conditions set forth herein, to make
U.S. Dollar Loans to Parent from time to time, on any Business Day during the
period from the Closing Date to the Termination Date, in an aggregate amount not
to exceed at any time outstanding such Canadian Lender's Pro Rata Share of the
amount of the combined Canadian Commitments; PROVIDED that, after giving effect
to any Borrowing of U.S. Dollar Loans by Parent, the Total Parent Outstandings
shall not exceed the amount of the combined Canadian Commitments; and PROVIDED,
FURTHER, that the Parent Outstandings of any Canadian Lender shall not at any
time exceed such Canadian Lender's Canadian Commitment.
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2.1.3 ABILITY TO REBORROW. Within each of the limits set forth in SECTIONS
2.1.1 and 2.1.2, and subject to the other terms and conditions hereof, each
Borrower may borrow under this SECTION 2.1, prepay under SECTION 2.1.6 and
reborrow under this SECTION 2.1.
2.1.4 PROCEDURE FOR U.S. DOLLAR BORROWINGS. (a) Each Borrowing of U.S.
Dollar Loans shall be made upon Parent's or the Company's irrevocable written
notice delivered to the U.S. Agent, in the case of a Borrowing by the Company,
or to the Canadian Agent, in the case of a Borrowing by Parent, in each case in
the form of a Notice of U.S. Dollar Borrowing, which notice must be received by
the Applicable Agent, prior to 11:00 a.m. (Chicago time) (i) three Business Days
prior to the requested Borrowing Date, in the case of Offshore U.S. Dollar
Loans, and (ii) on the requested Borrowing Date, in the case of Base Rate Loans,
specifying:
(A) the amount of such Borrowing, which shall be in the
amount of U.S.$1,000,000 or a higher integral multiple of
U.S.$100,000, in the case of Offshore U.S. Dollar Loans, and
U.S.$500,000 or a higher integral multiple of U.S.$100,000, in the
case of Base Rate Loans;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising such Borrowing; and
(D) in the case of Offshore U.S. Dollar Loans, the
duration of the Interest Period therefor.
(b) The Applicable Agent will promptly notify each Applicable Lender
of its receipt of any Notice of U.S. Dollar Borrowing and of the amount of such
Lender's Pro Rata Share of such U.S. Dollar Borrowing.
(c) Each Applicable Lender will make the amount of its Pro Rata
Share of each U.S. Dollar Borrowing available to the Applicable Agent for the
account of the Applicable Borrower at the Applicable Agent's Payment Office by
2:00 p.m. (Chicago time) on the Borrowing Date requested by the Applicable
Borrower in funds immediately available to the Applicable Agent. The proceeds of
such U.S. Dollar Borrowing will then be made available to the Applicable
Borrower by the Applicable Agent at such office by crediting an account of the
Applicable Borrower maintained with BofA or BACAN, as applicable, with the
aggregate of the amounts made available to the Applicable Agent by the
Applicable Lenders in like funds as received by the Applicable Agent.
(d) After giving effect to any Borrowing, there may not be more than
six different Interest Periods in effect for all U.S. Dollar Borrowings.
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2.1.5 CONVERSION AND CONTINUATION ELECTIONS FOR U.S. DOLLAR BORROWINGS.
(a) Either Borrower may, upon irrevocable written notice to the Applicable Agent
in accordance with SUBSECTION 2.1.5(B):
(i) elect to convert, on any Business Day, any Base Rate Loans
(in an aggregate minimum amount of U.S.$1,000,000 or a higher integral
multiple of U.S.$100,000) into Offshore U.S. Dollar Loans;
(ii) elect to convert, on the last day of the applicable
Interest Period, any Offshore U.S. Dollar Loans (or any part thereof in an
aggregate minimum amount of U.S.$500,000 or a higher integral multiple of
U.S.$100,000) into Base Rate Loans; or
(iii) elect to continue, as of the last day of the applicable
Interest Period, any Offshore U.S. Dollar Loans having Interest Periods
expiring on such day (or any part thereof in an aggregate minimum amount
of U.S.$1,000,000 or a higher integral multiple of U.S.$100,000);
PROVIDED that if at any time the aggregate amount of Offshore U.S. Dollar Loans
in respect of any U.S. Dollar Borrowing shall have been reduced, by payment,
prepayment or conversion of part thereof, to be less than U.S.$1,000,000, such
Offshore U.S. Dollar Loans shall automatically convert into Base Rate Loans.
(b) The Applicable Borrower shall deliver a Notice of Conversion/
Continuation to be received by the Applicable Agent not later than 11:00 a.m.
(Chicago time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if U.S. Dollar Loans are to be converted into or
continued as Offshore U.S. Dollar Loans; and (ii) on the Conversion/Continuation
Date, if U.S. Dollar Loans are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of U.S. Dollar Loans to be
converted or continued;
(C) the Type of U.S. Dollar Loans resulting from the
proposed conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore U.S. Dollar Loans, the Applicable Borrower has failed to select timely
a new Interest Period to be
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applicable to such Offshore U.S. Dollar Loans, the Applicable Borrower shall be
deemed to have elected to convert such Offshore U.S. Dollar Loans into Base Rate
Loans effective as of the expiration date of such Interest Period.
(d) The Applicable Agent will promptly notify each Applicable Lender
of its receipt of a Notice of Conversion/Continuation or, if no timely notice is
provided by the Applicable Borrower, the Applicable Agent will promptly notify
each Applicable Lender of the details of any automatic conversion. All
conversions and continuations shall be made ratably according to the respective
outstanding principal amounts of the U.S. Dollar Loans held by each Applicable
Lender with respect to which such notice was given.
(e) Unless the Required U.S. Lenders otherwise agree, during the
existence of an Event of Default or Unmatured Event of Default, the Company may
not elect to have any U.S. Dollar Loan converted into or continued as an
Offshore U.S. Dollar Loan.
(f) Unless the Required Canadian Lenders otherwise agree, during the
existence of an Event of Default or Unmatured Event of Default, Parent may not
elect to have any U.S. Dollar Loans converted into or continued as an Offshore
U.S. Dollar Loan.
(g) After giving effect to any conversion or continuation of U.S.
Dollar Loans, there may not be more than six different Interest Periods in
effect for all U.S. Dollar Borrowings.
2.1.6 OPTIONAL PREPAYMENTS OF U.S. DOLLAR BORROWINGS. Subject to SECTION
5.4, either Borrower may, from time to time, ratably prepay any U.S. Dollar
Loans in whole or in part, in an aggregate amount of U.S.$1,000,000 or a higher
integral multiple of U.S.$100,000 in the case of Offshore U.S. Dollar Loans, and
an aggregate amount of U.S.$500,000 or a higher integral multiple of
U.S.$100,000 in the case of Base Rate Loans. The Applicable Borrower shall
deliver a notice of prepayment in accordance with SECTION 12.2 to be received by
the Applicable Agent not later than 12:00 noon (Chicago time) on the prepayment
date (which shall be a Business Day). Each notice of prepayment shall specify
the date and amount of such prepayment and the U.S. Dollar Loans to be prepaid.
The Applicable Agent will promptly notify each Applicable Lender of its receipt
of any such notice and of such Lender's Pro Rata Share of such prepayment. If
any such notice is given by a Borrower, such Borrower shall make such prepayment
and the payment amount specified in such notice shall be due and payable on the
date specified therein, together with, in the case of Offshore U.S. Dollar
Loans, accrued interest to such date on the amount prepaid and any amounts
required pursuant to SECTION 5.4 with respect to such Offshore U.S. Dollar
Loans.
2.1.7 REPAYMENT OF U.S. DOLLAR BORROWINGS. The Borrowers shall repay all
outstanding U.S. Dollar Loans on the Termination Date.
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2.2 CANADIAN DOLLAR BORROWINGS.
2.2.1 COMMITMENTS TO MAKE CANADIAN DOLLAR LOANS TO PARENT. Each Canadian
Lender agrees, on the terms and conditions set forth herein, to make Canadian
Dollar Loans to Parent from time to time on any Business Day during the period
from the Closing Date to the Termination Date, in an aggregate principal amount
at any time outstanding not to exceed such Canadian Lender's Pro Rata Share of
the amount of the combined Canadian Commitments; PROVIDED that, after giving
effect to any Canadian Dollar Borrowing, the Total Parent Outstandings shall not
exceed the combined Canadian Commitments; and PROVIDED, FURTHER, that the Parent
Outstandings of any Canadian Lender shall not at any time exceed such Canadian
Lender's Canadian Commitment.
2.2.2 ABILITY TO REBORROW. Within the limits set forth in SECTION 2.2.1,
and subject to the other terms and conditions hereof, Parent may borrow under
this SECTION 2.2, prepay under SECTION 2.2.5 and reborrow under this SECTION
2.2.
2.2.3 PROCEDURE FOR CANADIAN DOLLAR BORROWINGS. (a) Each Canadian Dollar
Borrowing shall be made upon Parent's irrevocable written notice delivered to
the Canadian Agent in the form of a Notice of Canadian Dollar Borrowing, which
notice must be received by the Canadian Agent prior to (i) 12:00 noon (Toronto
time) three Business Days prior to the requested Borrowing Date, in the case of
Offshore Canadian Dollar Loans; and (ii) 9:00 a.m. (Toronto time) on the
requested Borrowing Date, in the case of Prime Rate Loans, specifying:
(A) the amount of the Canadian Dollar Borrowing, which shall
be in an aggregate amount not less than Cdn.$1,000,000 or a higher
integral multiple of Cdn.$500,000, in the case of Offshore Canadian
Dollar Loans, and Cdn.$500,000 or a higher integral multiple of
Cdn.$100,000, in the case of Prime Rate Loans;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Canadian Dollar
Borrowing; and
(D) in the case of a Borrowing of Offshore Canadian Dollar
Loans, the duration of the Interest Period therefor.
(b) The Canadian Agent will promptly notify each Canadian Lender of its
receipt of any Notice of Canadian Dollar Borrowing and of the amount of such
Lender's Pro Rata Share of such Canadian Dollar Borrowing.
(c) Each Canadian Lender will make the amount of its Pro Rata Share of
each Canadian Dollar Borrowing available to the Canadian Agent for the account
of Parent at the Canadian Agent's Payment Office by 1:00 p.m. (Toronto time) on
the Borrowing Date requested by Parent
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in Same Day Funds. The proceeds of such Canadian Dollar Borrowing will then be
made available to Parent by the Canadian Agent at such office by crediting an
account of Parent maintained with BACAN with the aggregate of the amounts made
available to the Canadian Agent by the Canadian Lenders in like funds as
received by the Canadian Agent.
(d) After giving effect to any Canadian Dollar Borrowing, there may not be
more than four different Interest Periods in effect in respect of all Canadian
Dollar Loans then outstanding.
2.2.4 CONVERSION AND CONTINUATION ELECTIONS FOR CANADIAN DOLLAR
BORROWINGS. (a) Parent may, upon irrevocable written notice to the Canadian
Agent in accordance with SUBSECTION 2.2.4(B):
(i) elect, as of any Business Day, in the case of Prime
Rate Loans, or as of the last day of the applicable Interest Period,
in the case of Offshore Canadian Dollar Loans, to convert any
Canadian Dollar Loans (or any part thereof in an amount not less
than Cdn.$1,000,000 or a higher integral multiple of Cdn.$500,000,
in the case of conversion into Offshore Canadian Dollar Loans, and
not less than Cdn.$500,000 or a higher integral multiple of
Cdn.$100,000, in the case of conversion into Prime Rate Loans) into
Canadian Dollar Loans of the other Type; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Offshore Canadian Dollar Loans
having Interest Periods expiring on such day (or any part thereof in
an amount not less than Cdn.$1,000,000 or a higher integral multiple
of Cdn.$500,000);
PROVIDED that if at any time the aggregate amount of Offshore Canadian Dollar
Loans in respect of any Canadian Dollar Borrowing is reduced, by payment,
prepayment or conversion of part thereof, to be less than Cdn.$1,000,000, such
Offshore Canadian Dollar Loans shall automatically convert into Prime Rate
Loans.
(b) Parent shall deliver a Notice of Conversion/Continuation to be
received by the Canadian Agent not later than (i) 12:00 noon (Toronto time) at
least three Business Days prior to the Conversion/Continuation Date, if the
Canadian Dollar Loans are to be converted into or continued as Offshore Canadian
Dollar Loans; and (ii) 9:00 a.m. (Toronto time) on the Conversion/Continuation
Date, if the Canadian Dollar Loans are to be converted into Prime Rate Loans,
specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Canadian Dollar Loans to be
converted or continued;
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(C) the Type of Canadian Dollar Loans resulting from the
proposed conversion or continuation; and
(D) other than in the case of conversions into Prime Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to Offshore
Canadian Dollar Loans, Parent has failed to select timely a new Interest Period
to be applicable to such Offshore Canadian Dollar Loans, Parent shall be deemed
to have elected to convert such Offshore Canadian Dollar Loans into Prime Rate
Loans effective as of the expiration date of such Interest Period.
(d) The Canadian Agent will promptly notify each Canadian Lender of its
receipt of a Notice of Conversion/Continuation pursuant to this SECTION 2.2.5
or, if no timely notice is provided by Parent, the Canadian Agent will promptly
notify each Canadian Lender of the details of any automatic conversion. All
conversions and continuations shall be made ratably according to the respective
outstanding principal amounts of the Canadian Dollar Loans held by each Canadian
Lender.
(e) Unless the Required Canadian Lenders otherwise agree, during the
existence of an Event of Default or Unmatured Event of Default, Parent may not
elect to have any Canadian Dollar Loan converted into or continued as an
Offshore Canadian Dollar Loan.
(f) After giving effect to any conversion or continuation of Canadian
Dollar Loans, there may not be more than four different Interest Periods in
effect in respect of all Canadian Dollar Loans together then outstanding.
2.2.5 OPTIONAL PREPAYMENTS OF CANADIAN DOLLAR BORROWINGS. Subject to
SECTION 5.4, Parent may, from time to time, ratably prepay any Canadian Dollar
Loans in whole or in part, in an aggregate amount of Cdn.$1,000,000 or a higher
integral multiple of Cdn.$500,000 in the case of Offshore Canadian Dollar Loans,
and an aggregate amount of Cdn.$500,000 or a higher integral multiple of
Cdn.$100,000 in the case of Prime Rate Loans. Parent shall deliver a notice of
prepayment in accordance with SECTION 12.2 to be received by the Canadian Agent
not later than (i) 12:00 noon (Toronto time) three Business Days in advance of
the prepayment date in the case of Offshore Canadian Dollar Loans and (ii) 10:00
a.m. (Toronto time) on the prepayment date in the case of Prime Rate Loans. Each
notice of prepayment shall specify the date and amount of such prepayment and
the Canadian Dollar Loans to be prepaid. The Canadian Agent will promptly notify
each Canadian Lender of its receipt of any such notice and of such Lender's Pro
Rata Share of such prepayment. If any such notice is given by Parent, such
Parent shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein, together with, in
the case of Offshore Canadian Dollar
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Loans, accrued interest to such date on the amount prepaid and any amounts
required pursuant to SECTION 5.4.
2.2.6 REPAYMENT OF CANADIAN DOLLAR BORROWINGS. Parent shall repay all
outstanding Canadian Dollar Loans on the Termination Date.
2.3 BANKERS' ACCEPTANCES AND BA EQUIVALENT NOTES.
2.3.1 COMMITMENTS TO ACCEPT DRAFTS AND PURCHASE BA EQUIVALENT NOTES. Each
Canadian Lender severally agrees, on the terms and conditions set forth herein,
(i) in the case of a BA Lender, to accept drafts (each such draft, a "DRAFT")
drawn by Parent upon such BA Lender and (ii) in the case of a Non-BA Lender, to
purchase non-interest-bearing promissory notes of Parent in favor of such Non-BA
Lender (each such promissory note, a "BA EQUIVALENT NOTE"), in each case in an
aggregate face amount not to exceed at any time outstanding such Canadian
Lender's Pro Rata Share of the amount of the combined Canadian Commitments;
PROVIDED that, after giving effect to any BA Borrowing, the Total Parent
Outstandings shall not exceed the combined Canadian Commitments; and PROVIDED,
FURTHER, that the Parent Outstandings of any Canadian Lender shall not at any
time exceed such Canadian Lender's Canadian Commitment.
2.3.2 PROCEDURE FOR BANKERS' ACCEPTANCES. (a) Each BA Borrowing shall be
made upon Parent's irrevocable written notice delivered to the Canadian Agent in
the form of a Notice of BA Borrowing, which notice must be received by the
Canadian Agent prior to 12:00 noon (Toronto time) one Business Day prior to the
requested Borrowing Date, specifying:
(i) the amount of such BA Borrowing, which shall be in an
aggregate amount of not less than Cdn.$1,000,000 or a higher integral
multiple of Cdn.$100,000;
(ii) the requested Borrowing Date, which shall be a Business
Day;
(iii) the term for the Bankers' Acceptances and BA Equivalent
Notes included in such BA Borrowing, which shall be 30, 60, 90 or 180 days
(PROVIDED that such term may not extend beyond (x) prior to consummation
of a Qualifying IPO, January 10, 2000, and (y) thereafter, the scheduled
Termination Date); and
(iv) whether the Notice of BA Borrowing specifies that the BA
Lenders are to purchase the Bankers' Acceptances accepted by them.
(b) The Canadian Agent will promptly notify each Canadian Lender of its
receipt of any Notice of BA Borrowing and shall (i) advise each BA Lender of the
face amount and term of each Draft to be accepted by it, (ii) advise each Non-BA
Lender of the face amount and term of the BA Equivalent Note to be purchased by
it and (iii) advise each Canadian Lender whether the BA Lenders are required by
such Notice of BA Borrowing to purchase the Bankers' Acceptances
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accepted by them. The term of all Bankers' Acceptances and BA Equivalent Notes
issued pursuant to any Notice of BA Borrowing shall be identical. Each Bankers'
Acceptance and BA Equivalent Note shall be dated the Borrowing Date on which it
is issued and shall be in a face amount of Cdn.$100,000 or an integral multiple
thereof. The aggregate face amount of the Drafts to be accepted at any time by a
BA Lender, and the face amount of the BA Equivalent Note to be purchased at any
time by a Non-BA Lender, shall be determined by the Canadian Agent based upon
the amounts of the respective Canadian Commitments, except that, if the face
amount of any Draft to be accepted by a BA Lender or of the BA Equivalent Note
to be purchased by a Non-BA Lender, determined as aforesaid, would not be
Cdn.$100,000 or an integral multiple thereof, the Canadian Agent in its sole
discretion may increase such face amount to the nearest integral multiple of
Cdn.$100,000 or may reduce such face amount to the nearest integral multiple of
Cdn.$100,000.
(c) Each BA Lender shall complete and accept on the applicable Borrowing
Date Drafts having the face amounts and term advised by the Canadian Agent
pursuant to SUBSECTION (B) above. If the BA Lenders have been required in the
applicable Notice of BA Borrowing to purchase the Bankers' Acceptances accepted
by them, each BA Lender shall purchase on the applicable Borrowing Date the
Bankers' Acceptances accepted by it, for an aggregate price equal to the BA
Discount Proceeds of such Bankers' Acceptances. In all other cases, it shall be
the responsibility of Parent to arrange in accordance with normal market
practice for the sale on each Borrowing Date of the Bankers' Acceptances issued
by it on such Borrowing Date, and for such purpose Parent shall advise the
Canadian Agent (which shall promptly give the relevant particulars to each BA
Lender) as soon as possible and in any event not later than 10:00 a.m. (Toronto
time) on such Borrowing Date of the price for each Bankers' Acceptance payable
by the purchaser thereof and the identity of the person who will pay such price
to and take delivery of such Bankers' Acceptance from the applicable BA Lender,
and such BA Lender is hereby authorized to release such Bankers' Acceptance to
such person on receipt of a certified cheque or bank draft in an amount equal to
such price.
(d) Each Non-BA Lender shall, in lieu of accepting Drafts or purchasing
Bankers' Acceptances on any Borrowing Date, complete and purchase from Parent on
such Borrowing Date a BA Equivalent Note in a face amount and for a term
identical to the aggregate face amount and term of the Drafts which such Non-BA
Lender would have been required to accept on such Borrowing Date if it were a BA
Lender, for a price equal to the BA Discount Proceeds of such BA Equivalent
Note. Each Non-BA Lender shall be entitled without charge to exchange any BA
Equivalent Note held by it for two or more BA Equivalent Notes of identical date
and aggregate face amount (subject to the minimum face amount specified in
SUBSECTION (B) above), and Parent shall execute and deliver to the Canadian
Agent (which shall then deliver to such Non-BA Lender) such BA Equivalent Notes
upon not less than five Business Days prior written request therefor to Parent
and delivery to Parent of the original BA Equivalent Note for cancellation.
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(e) Upon acceptance of each Draft or purchase of each BA Equivalent Note,
Parent shall pay to the applicable Canadian Lender the related fee specified in
SECTION 2.5.3, and to facilitate payment such Canadian Lender shall be entitled
to deduct and retain for its own account the amount of such fee from the amount
to be transferred by such Canadian Lender to the Canadian Agent for the account
of Parent pursuant to SUBSECTION 2.3.2(E) in respect of the sale of the related
Bankers' Acceptance or of such BA Equivalent Note.
(f) Each Canadian Lender shall transfer for value on each applicable
Borrowing Date immediately available Canadian Dollars in an aggregate amount
equal to the amount of all BA Discount Proceeds in respect of any Bankers'
Acceptance or BA Equivalent Note purchased by it on such Borrowing Date and the
amount of all proceeds received by it as contemplated by SUBSECTION 2.3.2(C) in
respect of any Bankers' Acceptance accepted by it and purchased by a third party
on such Borrowing Date, in each case net of the related fee payable to such
Canadian Lender pursuant to SECTION 2.5.3, to the Canadian Agent's Payment
Office. Subject to any direction given to the Canadian Agent by Parent, the
Canadian Agent shall make all such amounts received by it from the Canadian
Lenders as aforesaid available to Parent by depositing the same for value on the
applicable Borrowing Date to such account in the name of Parent as Parent shall
have previously designated by timely notice in writing to the Canadian Agent.
(g) Notwithstanding any other provision hereof, for the purpose of
determining the amount to be transferred by a BA Lender named in Schedule II to
the Bank Act (Canada) to the Canadian Agent for the account of Parent pursuant
to SUBSECTION (F) above in respect of the sale of any Bankers' Acceptance
accepted by such BA Lender and purchased by a third party, the proceeds of sale
thereof shall be deemed to be an amount equal to the BA Discount Proceeds
calculated with respect thereto. Accordingly, in respect of any particular
Bankers' Acceptance accepted by it and purchased by a third party, such BA
Lender (i) shall be entitled to retain for its own account the amount, if any,
by which the actual proceeds of sale thereof exceed the BA Discount Proceeds
calculated with respect thereto and (ii) shall be required to pay from its own
account to Parent the amount, if any, by which the actual proceeds of sale
thereof is less than the BA Discount Proceeds calculated with respect thereto.
2.3.3 MATURITY OF BANKERS' ACCEPTANCES. On the date of maturity of each
Bankers' Acceptance or BA Equivalent Note, Parent shall pay to the Canadian
Agent, for the account of the Lender which accepted such Bankers' Acceptance or
the holder of such BA Equivalent Note, Canadian Dollars in an amount equal to
the face amount of such Bankers' Acceptance or BA Equivalent Note, as the case
may be. The obligation of Parent to make such payment shall not be prejudiced by
the fact that the holder of any such Bankers' Acceptance is the Canadian Lender
that accepted such Bankers' Acceptance. No days of grace shall be claimed by
Parent for the payment at maturity of any Bankers' Acceptance or BA Equivalent
Note. If Parent does not make such payment, from the proceeds of Loans or the
issuance of Bankers' Acceptances and/or BA Equivalent Notes hereunder or
otherwise, the Canadian Lender that accepted such Bankers' Acceptance or
initially purchased such BA Equivalent Note may (but shall not be obliged to),
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without receipt of a Notice of Canadian Dollar Borrowing and irrespective of
whether any other applicable conditions precedent specified herein have been
satisfied, and without waiver of Parent's failure to make such payment, make a
Prime Rate Loan to Parent in the face amount of such Bankers' Acceptance or BA
Equivalent Note, as the case may be, and shall forthwith give notice thereof to
Parent and the Canadian Agent (which shall promptly give similar notice to the
other Canadian Lenders). Parent agrees to accept each such Prime Rate Loan and
irrevocably authorizes and directs the applicable Canadian Lender to apply the
proceeds thereof in payment of the liability of Parent with respect to the
related Bankers' Acceptance or BA Equivalent Note. Notwithstanding any other
provision hereof, all Prime Rate Loans made as contemplated by this SECTION
2.3.3 shall be payable on demand by the Canadian Agent or the Required Canadian
Lenders.
2.3.4 SPECIAL PROVISIONS FOR BANKERS' ACCEPTANCES. (a) If the Canadian
Agent determines in good faith, which determination shall be final, conclusive
and binding upon Parent, and so notifies Parent, that there does not exist at
the applicable time a normal market in Canada for the purchase and sale of
bankers' acceptances, any right of Parent to require the Canadian Lenders to
purchase Bankers' Acceptances and BA Equivalent Notes hereunder shall be
suspended until the Canadian Agent determines that such market does exist and
gives notice thereof to Parent, and any Notice of BA Borrowing shall be deemed
to be a Notice of Canadian Dollar Borrowing requesting Prime Rate Loans in a
similar aggregate principal amount.
(b) If any BA Reference Lender is unable or otherwise fails to provide
notice of a rate to the Canadian Agent when required hereunder, the Canadian
Agent shall have the right to designate in a timely manner another Canadian
Lender for the sole purpose of providing notice of such rate, failing which the
applicable BA Discount Rate shall be determined on the basis of the rates
provided in the notices from the remaining BA Reference Lenders. If in any case
all BA Reference Lenders fail to provide notice of a rate to the Canadian Agent
when required hereunder, then the applicable BA Discount Rate shall be
determined as the weighted average (rounded upward, if necessary, to an integral
multiple of 1/16 of 1%) of the respective annual interest rates notified to the
Canadian Agent by the Canadian Lenders that are required to make available the
applicable Bankers' Acceptances or BA Equivalent Notes as being the best
estimate of each such Canadian Lender of the cost to it of obtaining Canadian
Dollars to fund such Bankers' Acceptances or BA Equivalent Notes.
2.3.5 POWER OF ATTORNEY FOR DRAFTS AND BA EQUIVALENT NOTES. To facilitate
availment of Bankers' Acceptances and BA Equivalent Notes, Parent hereby
appoints each Canadian Lender as its attorney to sign and endorse on its behalf
(in accordance with a Notice of BA Borrowing), in handwriting or by facsimile or
mechanical signature as and when deemed necessary by such Canadian Lender, blank
forms of (a) in the case of a BA Lender, Drafts in the form requested by such
Lender, and (b) in the case of a Non-BA Lender, BA Equivalent Notes in the form
of EXHIBIT F-3. In this respect, it is each Canadian Lender's responsibility to
maintain an adequate supply of blank forms of Drafts or BA Equivalent Notes for
acceptance or purchase, as
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applicable, under this Agreement. Parent recognizes and agrees that all Bankers'
Acceptances and BA Equivalent Notes signed and/or endorsed by a Canadian Lender
on behalf of Parent shall bind Parent as fully and effectually as if signed in
the handwriting of and duly issued by the proper signing officers of Parent.
Each Canadian Lender is hereby authorized (in accordance with a Notice of BA
Borrowing) to issue such Bankers' Acceptances or BA Equivalent Notes, as
appropriate, endorsed in blank in such face amounts as may be determined by such
Canadian Lender; PROVIDED that the aggregate amount thereof is equal to the
aggregate amount of Bankers' Acceptance or BA Equivalent Notes required to be
accepted or purchased by such Canadian Lender. No Canadian Lender shall be
liable for any damage, loss or other claim arising by reason of any loss or
improper use of any such instrument, except to the extent resulting from the
gross negligence or willful misconduct of such Canadian Lender or its officers,
employees, agents or representatives. Each Canadian Lender shall maintain a
record with respect to Bankers' Acceptances or BA Equivalent Notes (i) accepted
and purchased by it hereunder; and (ii) canceled at maturity.
2.3.6 NON-USE FEE. For the purpose of calculating the unused amount of the
Canadian Commitments pursuant to SUBSECTION 2.5.2(B) and for any other relevant
provision of this Agreement, the amount of the Canadian Commitment of any
Canadian Lender used by any Bankers' Acceptance or BA Equivalent Note shall at
all times be the face amount thereof.
2.4 INTEREST. (a) Each U.S. Dollar Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the Offshore Rate or the Base Rate, as the case may be,
PLUS the Applicable Margin PLUS, in the case of Base Rate Loans to Parent, 0.5%.
Each Canadian Dollar Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Offshore Rate or the Prime Rate, as the case may be, PLUS the Applicable
Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date therefor. Interest also shall be paid on the date of any prepayment
of Offshore Rate Loans under SECTION 2.1.6 or 2.2.6 for the portion of the Loans
so prepaid.
(c) Notwithstanding SUBSECTIONS (A) and (B) of this Section, if any
amount of principal of any Loan is not paid in full when due (whether at stated
maturity, by acceleration, demand or otherwise), each Borrower agrees, to the
extent permitted by applicable law, to pay interest on such unpaid principal
from the date such amount becomes due until the date such amount is paid in
full, after as well as before any entry of judgment thereon, payable on demand,
at a rate per annum equal to (i) in the case of principal due in respect of any
Loan prior to the end of an Interest Period applicable thereto, the rate
otherwise applicable to such Loan plus 2%, and (ii) in the case of any other
amount, (x) in the case of a U.S. Dollar Loan, the Base Rate from time to time
in effect plus the Applicable Margin plus 2%, and (y) in the case of a Canadian
Dollar Loan, the Prime Rate from time to time in effect plus the Applicable
Margin plus 2%.
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(d) Anything herein to the contrary notwithstanding, the obligations
of each Borrower to any Lender hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder to the extent (but only to the extent) that contracting for
or receiving such payment by such Lender would be contrary to the provisions of
any law applicable to such Lender limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Lender, and in such
event the Applicable Borrower shall pay such Lender interest at the highest rate
permitted by applicable law.
(e) Notwithstanding any provision hereof, in no event shall the
aggregate "interest" (as defined in section 347 of the CRIMINAL CODE (Canada))
payable by Parent hereunder exceed the effective annual rate of interest on the
"credit advanced" (as defined in such section 347) hereunder lawfully permitted
by such section 347, and if any payment, collection or demand pursuant to this
Agreement in respect of "interest" (as defined in such section 347) is
determined to be contrary to the provisions of such section 347, such payment,
collection or demand shall be deemed to have been made by mutual mistake of
Parent and the applicable Canadian Lender and the amount of such payment or
collection shall be refunded to Parent. For the purposes of this Agreement, the
effective annual rate of interest shall be determined in accordance with
generally accepted actuarial practices and principles over the relevant term
and, in the event of dispute, a certificate of a Fellow of the Canadian
Institute of Actuaries appointed by the Canadian Agent will be PRIMA FACIA
evidence of such rate.
(f) For the purpose of the INTEREST ACT (Canada) and any other
purpose, (i) the principle of deemed reinvestment of interest shall not apply to
any calculation under this Agreement and (ii) the rates of interest and fees
stipulated in this Agreement are intended to be nominal rates and effective
rates or yields.
2.5 FEES. In addition to certain fees described in SECTION 4.8:
2.5.1 AGENCY AND ARRANGEMENT FEES. Parent agrees to pay to the Arranger,
the U.S. Agent and the Canadian Agent such arrangement and agent's fees as are
mutually agreed to from time to time by Parent, the Arranger and the Agents.
2.5.2 NON-USE FEES. (a) The Company shall pay to the U.S. Agent for the
account of each U.S. Lender a non-use fee computed at the applicable rate per
annum set forth in SCHEDULE 1.1C multiplied by the average daily amount of such
U.S. Lender's unused U.S.
Commitment.
(b) Parent shall pay to the Canadian Agent for the account of each
Canadian Lender a non-use fee at the applicable rate per annum set forth in
SCHEDULE 1.1C multiplied by the average daily amount of such Canadian Lender's
unused Canadian Commitment. For purposes of calculating such non-use fee, the
Dollar Equivalent amount of each Canadian Dollar
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Loan made to Parent, of each Bankers' Acceptance, of each BA Equivalent Note and
of each Letter of Credit issued for the account of Parent shall be determined on
each applicable Computation Date and shall remain constant until the next
Computation Date. Notwithstanding the foregoing sentence, the Canadian Agent may
use any other reasonable method (such as applying an average or constant
exchange rate for a particular period against the Canadian Dollar amounts
outstanding during such period) for purposes of determining the non-use fee so
long as such method is disclosed to Parent and the Canadian Lenders.
(c) The non-use fees described in SUBSECTIONS (A) and (B) above
shall be computed on a quarterly basis in arrears on the last Business Day of
each calendar quarter (or, if earlier, the Termination Date) by the Applicable
Agent. Such non-use fees shall accrue from the Closing Date to the Termination
Date and shall be due and payable quarterly in arrears on the last Business Day
of each calendar quarter, with the final payment to be made on the Termination
Date.
2.5.3 BA FEES. Parent shall pay to each BA Lender in respect of each Draft
tendered by Parent to and accepted by such BA Lender, and to each Non-BA Lender
in respect of each BA Equivalent Note tendered to and purchased by such Non-BA
Lender, as a condition of such acceptance or purchase, a fee in Canadian Dollars
calculated at a rate per annum equal to the Stamping Fee Rate, on the basis of
the face amount and the term of such Bankers' Acceptance or BA Equivalent Note
(it being understood that Parent's obligation to make such payment shall be
satisfied to the extent that the applicable Canadian Lender nets the amount of
such fee against the amount to be transferred to the Agent in respect of the
applicable Bankers' Acceptance or BA Equivalent Note, as contemplated by
SUBSECTION 2.3.2(F)).
2.6 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest on
Prime Rate Loans, all computations of the Stamping Fee Rate and all computations
of interest on Base Rate Loans when the Base Rate is determined by reference to
BofA's "reference rate" shall be made on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed. All other computations of interest
and fees shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest and fees being paid than if computed on the
basis of a 365-day year). Interest and fees shall accrue during each period
during which interest or fees are computed from the first day thereof to the
last day thereof.
(b) Each determination of an interest rate or a Dollar Equivalent amount
by the Applicable Agent, and each determination of the BA Discount Rate or the
CDOR by the Canadian Agent, shall be conclusive and binding on the Borrowers and
the Lenders in the absence of manifest error. The Applicable Agent will, at the
request of the applicable Borrower or any Lender, deliver to such Borrower or
such Lender, as the case may be, a statement showing the quotations or other
information used by such Agent in determining any interest rate, Dollar
Equivalent amount, BA Discount Rate or CDOR.
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(c) For the purposes of the Interest Act (Canada), where any rate of
interest is stated herein to be calculated on the basis of a 360-day year, the
annual rate of interest to which such stated rate is equivalent is such stated
rate, multiplied by the number of days in the year (being 365 or 366, as the
case may be), and divided by 360.
2.7 MANDATORY PREPAYMENTS RESULTING FROM CURRENCY FLUCTUATIONS. If, on any
Computation Date, the Total Parent Outstandings exceed the combined Canadian
Commitments, THEN Parent shall immediately prepay Loans in an amount sufficient
to eliminate such excess. Any such prepayment shall be made in accordance with
the provisions of SECTION 2.2.6, except that such prepayment shall be required
and not optional. If all applicable Loans have been repaid and any portion of
such excess still exists, then Parent shall provide Cash Collateral for the
applicable Letters of Credit and/or the outstanding Bankers' Acceptance and BA
Equivalent Notes, in an amount at least equal to such remaining excess.
2.8 REDUCTION OR TERMINATION OF THE COMMITMENTS.
2.8.1 REDUCTION OR TERMINATION OF U.S. COMMITMENTS. The Company may from
time to time on at least three Business Days' prior written notice received by
the U.S. Agent (which shall promptly advise each U.S. Lender thereof)
permanently reduce the amount of the combined U.S. Commitments to an amount not
less than the Total Company Outstandings. Any such reduction shall be in an
amount not less than U.S.$1,000,000 or a higher integral multiple of
U.S.$1,000,000. The Company may at any time on like notice terminate the U.S.
Commitments upon payment in full by the Company of all Loans to the Company and
all other obligations of the Company hereunder and Cash Collateralization in
full, pursuant to documentation in form and substance reasonably satisfactory to
the U.S. Lenders, of all obligations (contingent or otherwise) arising with
respect to the Letters of Credit issued for the account of the Company.
2.8.2 REDUCTION OR TERMINATION OF CANADIAN COMMITMENTS. Parent may from
time to time on at least three Business Days' prior written notice received by
the Canadian Agent (which shall promptly advise each Canadian Lender thereof)
permanently reduce the amount of the combined Canadian Commitments to an amount
not less than the Total Parent Outstandings. Any such reduction shall be in an
amount not less than U.S.$1,000,000 or a higher integral multiple of
U.S.$1,000,000. Parent may at any time on like notice terminate the combined
Canadian Commitments upon payment in full by Parent of all Loans to Parent and
all other obligations of Parent hereunder and Cash Collateralization in full,
pursuant to documentation in form and substance reasonably satisfactory to the
Canadian Lenders, of all obligations (contingent or otherwise) arising with
respect to the Letters of Credit issued for the account of Parent and of all
obligations of Parent in respect of outstanding Bankers' Acceptances and BA
Equivalent Notes.
2.9 PAYMENTS BY THE BORROWERS. (a) All payments to be made by the
Borrowers shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided
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herein, all payments by the Borrowers shall be made to the Applicable Agent for
the account of the Lenders at the applicable Payment Office and (i) with respect
to principal of, interest on and any other amount relating to any Canadian
Dollar Loan, any amount relating to any Bankers' Acceptance or BA Equivalent
Note and any fees payable by Parent, shall be made in Canadian Dollars, and (ii)
with respect to all other amounts payable hereunder, shall be made in U.S.
Dollars. Such payments shall be made in Same Day Funds and (x) in the case of
payments to the U.S. Agent, no later than 12:00 noon (Chicago time) on the date
specified herein and (y) in the case of payments to the Canadian Agent, no later
than 12:00 noon (Toronto time) on the date specified herein. The Applicable
Agent will promptly distribute to each Applicable Lender its Pro Rata Share (or
its other applicable share as expressly provided herein) of such payment in like
funds as received. Any payment received by an Agent later than the time
specified in CLAUSE (X) or (Y) above, as applicable, shall be deemed to have
been received on the following Business Day, and any applicable interest shall
continue to accrue.
(b) Whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day (unless, in the case of
a payment with respect to an Offshore Rate Loan, such following Business Day is
the first Business Day of a calendar month, in which event such payment shall be
made on the preceding Business Day), and such extension of time shall be
included in the computation of interest or fees, as the case may be.
(c) Unless the Applicable Agent receives notice from the Applicable
Borrower prior to the date on which any payment is due to the Lenders (or any of
them) that such Borrower will not make such payment in full as and when
required, such Agent may assume that such Borrower has made such payment in full
to such Agent on such date in Same Day Funds and such Agent may (but shall not
be required to), in reliance upon such assumption, distribute to each Applicable
Lender on such date the amount then due such Lender. If and to the extent the
Applicable Borrower has not made such payment in full to such Agent, each
Applicable Lender shall repay to such Agent on demand such amount distributed to
such Lender, together with interest thereon at (i) in the case of a payment in
Canadian Dollars, the Canadian Cost of Funds Rate, and (ii) in the case of a
payment in U.S. Dollars, the U.S. Federal Funds Rate, in each case for each day
from the date such amount is distributed to such Lender until the date repaid.
2.10 PAYMENTS BY THE LENDERS TO THE AGENTS. (a) Unless the Applicable
Agent receives notice from a Lender at least one Business Day prior to the date
of any Credit Extension that such Lender will not make available as and when
required hereunder to such Agent for the account of the Applicable Borrower the
amount of that Lender's Pro Rata Share of such Credit Extension (or, in the case
of a Canadian Lender, the funds required to be made available by such Canadian
Lender pursuant to SUBSECTION 2.3.2(E)), as applicable, such Agent may assume
that such Lender has made such amount available to such Agent in Same Day Funds
on the applicable Borrowing Date and such Agent may (but shall not be required
to), in reliance upon
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such assumption, make available to the Applicable Borrower on such date a
corresponding amount.
(b) If and to the extent any Lender shall not have made the full
amount of any Loan available to the Applicable Agent in Same Day Funds on the
applicable Borrowing Date, and such Agent in such circumstances has made
available to the Applicable Borrower such amount, pursuant to SUBSECTION (A)
above, such Lender shall on the Business Day following such Borrowing Date make
such amount available to such Agent, together with interest at (i) in the case
of a Canadian Dollar Loan, the Canadian Cost of Funds Rate, and (ii) in the case
of a U.S. Dollar Loan, the U.S. Federal Funds Rate, in each case for each day
during such period. If such amount is so made available, such payment to the
Applicable Agent shall constitute such Lender's Loan as of the Borrowing Date
for all purposes of this Agreement. If such amount is not made available to the
Applicable Agent on the Business Day following the Borrowing Date, such Agent
will notify the Applicable Borrower of such failure to fund and, upon demand by
such Agent, such Borrower shall pay such amount to such Agent for such Agent's
account, together with interest thereon for each day elapsed since the Borrowing
Date at a rate per annum equal to the interest rate applicable at the time to
the applicable U.S. Dollar Loans or Canadian Dollar Loans, as the case may be.
(c) If and to the extent that any Canadian Lender shall not have
made the full amount required pursuant to SUBSECTION 2.3.2(E) available to the
Canadian Agent in Same Day Funds on the applicable Borrowing Date, and the
Canadian Agent in such circumstances has made available to Parent such amount
pursuant to SUBSECTION (A) above, the Canadian Agent shall be entitled to
recover from Parent, on demand the corresponding amount made available by the
Canadian Agent to Parent as aforesaid, together with interest thereon at the
rate applicable hereunder to Prime Rate Loans. If, after the applicable
Borrowing Date but prior to such time as the Canadian Agent has demanded
repayment from Parent as permitted by the preceding sentence, the funds required
to be made available by the applicable Canadian Lender are in fact received by
the Canadian Agent, the Canadian Agent shall be entitled to retain such funds
for its own account and the corresponding amount made available by the Canadian
Agent to Parent on such Borrowing Date shall, notwithstanding the preceding
sentence, be deemed to have been the proceeds of a Bankers' Acceptance or a BA
Equivalent Note, as the case may be, made available by such Canadian Lender to
Parent on such Borrowing Date and such Canadian Lender shall pay to the Canadian
Agent on demand interest at the Canadian Cost of Funds Rate for the period from
such Borrowing Date to the date on which such funds are received by the Canadian
Agent.
(d) A notice of an Agent submitted to any Lender with respect to
amounts owing under SUBSECTION (B) or (C) above shall be conclusive absent
manifest error.
(e) The failure of any Lender to make any Loan on any Borrowing Date
shall not relieve any other Lender of its obligation hereunder (if any) to make
a Loan on such
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Borrowing Date, but no Lender shall be responsible for the failure of any other
Lender to make the Loan to be made by such other Lender on any Borrowing Date.
2.11 SHARING OF PAYMENTS, ETC. (a) If, other than as expressly provided
elsewhere herein, any U.S. Lender or Canadian Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of offset,
enforcement of security or otherwise) on account of principal of or interest on
any Loan, its participation in any Letter of Credit, any Bankers' Acceptance or
BA Equivalent Note or any fees (exclusive of payments or recoveries under
ARTICLE V) in excess of its applicable Pro Rata Share (or other share
contemplated hereunder) of amounts received by all U.S. Lenders or Canadian
Lenders, as the case may be, such Lender shall immediately (a) notify the
Applicable Agent of such fact and (b) purchase from the other Applicable
Lenders, in a manner to be reasonably specified by the Applicable Agent, such
participations in the Loans held by them (and, if applicable, such
sub-participations in the Letters of Credit and/or participations in Bankers'
Acceptances and BA Equivalent Notes) as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery pro rata with
each of the other Applicable Lenders; PROVIDED that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, together with an amount equal to such paying Lender's
ratable share (according to the proportion of (i) the amount of such paying
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Each Borrower
agrees that any Lender so purchasing a participation from another Lender may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to SECTION 12.10) with respect to
such participation as fully as if such Lender were the direct creditor of such
Borrower in the amount of such participation. The Agents will keep records
(which shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments.
(b) If, after any amount payable by either Borrower hereunder has
not been paid when due and either (i) the Canadian Agent or any Canadian Lender
has made any demand upon the Company or any other U.S. Guarantor (with, in the
case of any Canadian Lender, a copy of such demand to each Agent) under a U.S.
Guaranty or (ii) the U.S. Agent or any U.S. Lender has made any demand upon
Parent under SECTION 11 (with, in the case of any U.S. Lender, a copy of such
demand to each Agent), the U.S. Lenders as a group or the Canadian Lenders as a
group shall obtain aggregate payments or other recoveries (whether voluntary,
involuntary, by application of offset or otherwise) from or on behalf of the
Borrowers on account of amounts payable hereunder in excess of such group's pro
rata share (based upon the aggregate Dollar Equivalent amount then owed to all
Lenders hereunder by the Borrowers, including amounts owed pursuant to SECTION
11) of all payments and other recoveries received by both groups of Lenders from
or on behalf of the Borrowers, THEN the group of Lenders receiving such excess
payment (the "BENEFITTED GROUP") shall immediately pay such excess to the U.S.
Agent
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(unless otherwise directed by the U.S. Agent) and the U.S. Agent shall
distribute such excess to the other group of Lenders in the amount necessary to
cause the Benefitted Group to share the excess payment or recovery ratably with
the other group of Lenders; PROVIDED that if all or any part of the excess
payment or other recovery is thereafter recovered from the Benefitted Group,
then the other group shall repay to the U.S. Agent for the account of the
Benefitted Group the amount necessary to ensure that each group of Lenders
receives its pro rata share (based upon the Dollar Equivalent amount owed to all
Lenders hereunder by the Borrowers, including amounts owed pursuant to SECTION
11) of payments or other recoveries received by each group of Lenders from or on
behalf of the Borrowers. The obligation of each member of each group of Lenders
to make its share of any payment required under this SUBSECTION (B) shall be
several, and not joint or joint and several, and after giving effect to any such
payment each group of Lenders shall make such other adjustments as shall be
necessary under SUBSECTION (A) above. The provisions of this SUBSECTION (B) are
solely for the benefit of the Lenders and are not for the benefit of (and may
not be enforced by) any other Person. The Lenders may, without the consent of
either Borrower or any other Person, make arrangements among themselves to amend
or otherwise modify this SUBSECTION (B) and to establish different sharing
arrangements with respect to payments by or on behalf of the Borrowers; PROVIDED
that any such amendment, modification or sharing arrangement shall be consented
to by all Lenders.
2.12 OPTIONAL INCREASE IN COMMITMENTS. Either Borrower may at any time, by
means of a letter to the Applicable Agent substantially in the form of EXHIBIT
K, request that the combined Canadian Commitments (in the case of Parent) or the
combined U.S. Commitments (in the case of the Company) be increased by (a)
increasing the Canadian Commitment or the U.S. Commitment, as applicable, of one
or more Lenders which have agreed to such increase and/or (b) adding a bank or
other financial institution (a "NEW LENDER") as a party hereto with a Canadian
Commitment or a U.S. Commitment, as the case may be, in an amount agreed to by
such New Lender; PROVIDED that (i) no Person shall be added as a party hereto
without the written consent of each Agent (which shall not be unreasonably
withheld) and (ii) in no event shall the aggregate amount of the combined
Canadian Commitments or the combined U.S. Commitments exceed a Dollar Equivalent
amount of U.S.$50,000,000 without, in each case, the written consent of all
Lenders. Any increase in the combined Canadian Commitments or the combined U.S.
Commitments pursuant to this SECTION 2.12 shall be effective three Business Days
after the date on which the Applicable Agent has received and accepted the
applicable increase letter in the form of Annex 1 to EXHIBIT K (in the case of
an increase in the Canadian Commitment or the U.S. Commitment of an existing
Lender) or assumption letter in the form of Annex 2 to EXHIBIT K (in the case of
the addition of a New Lender as a party hereto) or on such other date as is
agreed among the Applicable Borrower, the Applicable Agent and the applicable
increasing Lender or New Lender. The Applicable Agent shall promptly notify the
Applicable Borrower and the Lenders of any increase in the amount of the
combined Canadian Commitments or the combined U.S. Commitments pursuant to this
SECTION 2.12 and of the Commitment and Pro Rata Share of each Lender after
giving effect thereto. Each Borrower acknowledges that, in order to maintain
Loans (and, in the case of Parent, Bankers' Acceptances and BA Equivalent Notes)
in
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accordance with each Applicable Lender's Pro Rata Share, a reallocation of the
Canadian Commitments or the U.S. Commitments as a result of a non-pro-rata
increase in the combined Canadian Commitments or the combined U.S. Commitments
may require prepayment of all or portions of certain Loans (and, in the case of
Parent, of outstanding Bankers' Acceptances and BA Equivalent Notes) on the date
of such increase (and any such prepayment shall be subject to the provisions of
SECTION 5.4).
ARTICLE III
LOAN ACCOUNTS; NOTES
3.1 LOAN ACCOUNTS. The Loans made by each Lender and the Letters of Credit
Issued by the Issuing Lenders shall be evidenced by one or more accounts or
records maintained by the Applicable Agent, such Lender or the applicable
Issuing Lender, as the case may be, in the ordinary course of business. The
accounts or records maintained by the Applicable Agent, each Issuing Lender and
each Lender shall be conclusive (absent manifest error) as to the amount of the
Loans made by the Lenders to the Borrowers and the Letters of Credit Issued for
the account of either Borrower, and the interest and payments thereon. Any
failure to so record or any error in doing so shall not, however, limit or
otherwise affect the obligations of the Borrowers hereunder to pay any amount
owing with respect to any Loan or Letter of Credit.
3.2 NOTES. Upon the request of any Lender made through the Applicable
Agent, the Loans made by such Lender to either Borrower may be evidenced by a
Note issued by such Borrower, instead of loan accounts. Each such Lender may
endorse on the schedules annexed to its applicable Note the date, amount and
maturity of each Loan made by it and the amount of each payment of principal
made by the Applicable Borrower with respect thereto, and such Lender's record
shall be conclusive (absent manifest error); PROVIDED that the failure of a
Lender to make, or an error in making, a notation thereon with respect to any
Loan shall not limit or otherwise affect the obligations of the Applicable
Borrower hereunder or under any such Note to such Lender.
ARTICLE IV
THE LETTERS OF CREDIT
4.1 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and conditions set
forth herein, (i) each Issuing Lender agrees, (A) from time to time, on any
Business Day during the period from the Closing Date to the Termination Date, to
issue Letters of Credit for the account of Parent (or the joint account of
Parent and a Canadian Subsidiary), in the case of the Canadian Issuing Lender,
or the Company (or the joint account of the Company and any other U.S.
Subsidiary), in
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the case of the U.S. Issuing Lender, and to amend or renew Letters of Credit
previously issued by it, in accordance with SUBSECTIONS 4.2(C) and (D), and (B)
to honor properly drawn drafts under Letters of Credit issued by it; (ii) the
U.S. Lenders severally agree to participate in Letters of Credit Issued for the
account of the Company; PROVIDED that the U.S. Issuing Lender shall not be
obligated to Issue Letters of Credit for the account of the Company, and no U.S.
Lender shall be obligated to participate in any such Letter of Credit, if as of
the date of Issuance of such Letter of Credit (the "ISSUANCE DATE") (1) the
Total Company Outstandings exceed the amount of the combined U.S. Commitments;
(2) the Company Outstandings of such U.S. Lender exceed such U.S. Lender's U.S.
Commitment; or (3) the Effective Amount of all L/C Obligations of the Company
exceeds the U.S. L/C Commitment; and (iii) the Canadian Lenders severally agree
to participate in Letters of Credit Issued for the account of Parent; PROVIDED
that the Canadian Issuing Lender shall not be obligated to Issue Letters of
Credit for the account of Parent, and no Canadian Lender shall be obligated to
participate in any such Letter of Credit, if as of the date of Issuance of such
Letter of Credit (the "ISSUANCE DATE") (1) the Total Parent Outstandings exceed
the amount of the combined Canadian Commitments; (2) Parent Outstandings of such
Canadian Lender exceed such Canadian Lender's Canadian Commitment; or (3) the
Effective Amount of all L/C Obligations of Parent exceeds the Canadian L/C
Commitment. Within the foregoing limits, and subject to the other terms and
conditions hereof, the Company's and Parent's ability to obtain Letters of
Credit shall be fully revolving, and, accordingly, the Company and Parent may,
during the foregoing period, obtain Letters of Credit to replace Letters of
Credit which have expired or which have been drawn upon and reimbursed.
(b) No Issuing Lender shall have an obligation to Issue any Letter
of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain
such Issuing Lender from Issuing such Letter of Credit, or any Requirement
of Law applicable to such Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority
with jurisdiction over such Issuing Lender shall prohibit, or request that
such Issuing Lender refrain from, the Issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon such
Issuing Lender with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which such Issuing Lender is not
otherwise compensated hereunder) not in effect on the Closing Date, or
shall impose upon such Issuing Lender any unreimbursed loss, cost or
expense which was not applicable on the Closing Date and which such
Issuing Lender in good faith deems material to it;
(ii) such Issuing Lender has received written notice from any
Lender, the U.S. Agent, the Canadian Agent, Parent or the Company, on or
prior to the Business Day prior to the requested date of Issuance of such
Letter of Credit, that one or more of the applicable conditions contained
in ARTICLE VI is not then satisfied;
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(iii) the expiry date of such Letter of Credit is later than
one year after the issuance thereof or, if earlier, the date which is 10
days prior to the scheduled Termination Date (without giving effect to any
change of the Termination Date to January 10, 2000, if applicable), unless
all of the Lenders have approved such expiry date in writing;
(iv) such Letter of Credit does not provide for drafts, or is
not otherwise in form and substance acceptable to the applicable Issuing
Lender, or the Issuance of a Letter of Credit shall violate any applicable
policy of such Issuing Lender;
(v) such Letter of Credit is denominated in a currency other
than U.S. Dollars (in the case of the U.S. Issuing Lender) or Canadian
Dollars (in the case of the Canadian Issuing Lender); or
(vi) such Letter of Credit is not a standby letter of credit.
(c) The Lenders approve the Issuance by BofA of the back-up Letter
of Credit to Dresdner Bank of Canada as contemplated by the Facility Assignment
Agreement with an expiry date of January 13, 2000 and the Issuance by Bank of
America Canada of the back-up Letter of Credit to Dresdner Bank of Canada as
contemplated by the Facility Assignment Agreement with an expiry date of June
15, 2000.
4.2 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each Letter
of Credit shall be irrevocable and shall be issued upon the written request of
Parent or the Company received by such Issuing Lender (with a copy sent by
Parent or the Company to the Applicable Agent) at least five days (or such
shorter time as the applicable Issuing Lender and the Applicable Agent may agree
in a particular instance in their sole discretion) prior to the proposed date of
Issuance. Each such request for Issuance of a Letter of Credit shall be by
facsimile, confirmed immediately in an original writing, in the form of an L/C
Application, and shall specify in form and detail satisfactory to the applicable
Issuing Lender: (i) the proposed date of issuance of the Letter of Credit (which
shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii)
the expiry date of the Letter of Credit; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the applicable Issuing Lender may
reasonably require.
(b) At least two Business Days prior to the Issuance of any Letter
of Credit, the applicable Issuing Lender will confirm with the Applicable Agent
(by telephone or in writing) that the Applicable Agent has received a copy of
the L/C Application or L/C Amendment Application from Parent or the Company and,
if not, such Issuing Lender will provide the Applicable Agent with a copy
thereof. Unless the applicable Issuing Lender has
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received, on or before the Business Day immediately preceding the date on which
such Issuing Lender is to issue a requested Letter of Credit, (A) notice from
the Applicable Agent directing such Issuing Lender not to issue such Letter of
Credit because such issuance is not then permitted under SUBSECTION 4.1(A)(II)
or SUBSECTION 4.1(A)(III) as a result of the limitations set forth in CLAUSE
(1), (2) or (3) thereof or (B) a notice described in SUBSECTION 4.1(B)(II),
then, subject to the terms and conditions hereof, such Issuing Lender shall, on
the requested date, issue a Letter of Credit for the account of the Applicable
Borrower in accordance with such Issuing Lender's usual and customary business
practices.
(c) From time to time while a Letter of Credit is outstanding and
prior to the Termination Date, the applicable Issuing Lender will, upon the
written request of the Applicable Borrower received by such Issuing Lender (with
a copy sent by Parent or the Company to the Applicable Agent) at least five days
(or such shorter time as the applicable Issuing Lender and the Applicable Agent
may agree in a particular instance in their sole discretion) prior to the
proposed date of amendment, amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
applicable Issuing Lender: (i) the Letter of Credit to be amended; (ii) the
proposed date of amendment of such Letter of Credit (which shall be a Business
Day); (iii) the nature of the proposed amendment; and (iv) such other matters as
the applicable Issuing Lender may require. No Issuing Lender shall have any
obligation to amend any Letter of Credit if: (A) such Issuing Lender would have
no obligation at such time to issue such Letter of Credit in its amended form
under the terms of this Agreement; or (B) the beneficiary of such Letter of
Credit does not accept the proposed amendment to such Letter of Credit.
(d) The Issuing Lenders and the Lenders agree that, while any Letter
of Credit is outstanding and prior to the Termination Date, at the option of the
Applicable Borrower, and upon the written request of the Applicable Borrower,
received by the applicable Issuing Lender (with a copy sent by such Borrower to
the Applicable Agent) at least five days (or such shorter time as the applicable
Issuing Lender and the Applicable Agent may agree in a particular instance in
their sole discretion) prior to the proposed date of notification of renewal,
the applicable Issuing Lender shall be entitled to authorize the automatic
renewal of a Letter of Credit issued by such Issuing Lender. Each such request
for renewal of a Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the applicable Issuing
Lender: (i) the Letter of Credit to be renewed; (ii) the proposed date of
notification of renewal of such Letter of Credit (which shall be a Business
Day); (iii) the revised expiry date of such Letter of Credit (which, unless all
Lenders otherwise consent, shall not be more than one year after the date of
such renewal and shall be at least 10 days prior to the scheduled Termination
Date (without giving effect to any change of the Termination Date to January 10,
2000, if applicable)); and (iv) such other matters as the applicable Issuing
Lender may reasonably require. No Issuing Lender shall have any obligation to
renew any Letter of Credit if: (A) such
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Issuing Lender would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement; or (B)
the beneficiary of such Letter of Credit does not accept the proposed renewal of
such Letter of Credit. If any outstanding Letter of Credit shall provide that it
shall be automatically renewed unless the beneficiary thereof receives notice
from the applicable Issuing Lender that such Letter of Credit shall not be
renewed, and if at the time of renewal such Issuing Lender would be entitled to
authorize the automatic renewal of such Letter of Credit in accordance with this
SUBSECTION 4.2(D) upon the request of the Applicable Borrower but such Issuing
Lender shall not have received any L/C Amendment Application from the Applicable
Borrower with respect to such renewal or other written direction by such
Borrower with respect thereto, such Issuing Lender shall nonetheless be
permitted to allow such Letter of Credit to renew, and the Borrower and the
Lenders hereby authorize such renewal, and, accordingly, such Issuing Lender
shall be deemed to have received an L/C Amendment Application from the
Applicable Borrower requesting such renewal.
(e) Each Issuing Lender may (to the extent permitted under the
applicable Letter of Credit), at its election (or as required by the Applicable
Agent at the direction of the Required Lenders), deliver any notice of
termination or other communication to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of any Letter of Credit
to be a date not later than 10 days prior to the scheduled Termination Date.
(f) This Agreement shall control in the event of any conflict with
any L/C-Related Document (other than any Letter of Credit).
(g) The applicable Issuing Lender will deliver to the Applicable
Agent, concurrently with or promptly following its delivery of a Letter of
Credit, or an amendment to or renewal of a Letter of Credit, to an advising bank
or a beneficiary, a true and complete copy of such Letter of Credit or amendment
to or renewal of a Letter of Credit.
4.3 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a) Immediately upon
the Issuance of each Letter of Credit for the account of the Company, each U.S.
Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the U.S. Issuing Lender a participation in such Letter of Credit
and each drawing thereunder in an amount equal to the product of (i) such U.S.
Lender's Pro Rata Share times (ii) the maximum amount available to be drawn
under such Letter of Credit and the amount of such drawing, respectively.
Immediately upon the Issuance of each Letter of Credit for the account of
Parent, each Canadian Lender shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Canadian Issuing Lender a
participation in such Letter of Credit and each drawing thereunder in an amount
equal to the product of (i) such Canadian Lender's Pro Rata Share times (ii) the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively.
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(b) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the applicable Issuing Lender
will promptly notify the Applicable Borrower and the Applicable Agent. The
Applicable Borrower shall reimburse the applicable Issuing Lender prior to 12:00
noon (Chicago time in the case of the U.S. Issuing Lender and Toronto time in
the case of the Canadian Issuing Lender), on each date that any amount is paid
by such Issuing Lender under any Letter of Credit (each such date, an "HONOR
DATE"), in an amount equal to the amount so paid by such Issuing Lender. If the
Company fails to reimburse the U.S. Issuing Lender for the full amount of any
drawing under any Letter of Credit by 12:00 noon (Chicago time) on the Honor
Date, the U.S. Issuing Lender will promptly notify the U.S. Agent and the U.S.
Agent will promptly notify each U.S. Lender thereof, and the Company shall be
deemed to have requested that Base Rate Loans be made by the U.S. Lenders to be
disbursed on the Honor Date under such Letter of Credit, subject to the amount
of the unutilized portion of the combined U.S. Commitments and subject to the
conditions set forth in SECTION 6.2 (other than SUBSECTION 6.2(A)). If Parent
fails to reimburse the Canadian Issuing Lender for the full amount of any
drawing under any Letter of Credit by 12:00 noon (Toronto time) on the Honor
Date, the Canadian Issuing Lender will promptly notify the Canadian Agent and
each Canadian Lender thereof, and Parent shall be deemed to have requested that
Prime Rate Loans be made by the Canadian Lenders to be disbursed on the Honor
Date under such Letter of Credit, subject to the amount of the unutilized
portion of the combined Canadian Commitments and subject to the conditions set
forth in SECTION 6.2 (other than SUBSECTION 6.2(A)). Any notice given by an
Issuing Lender or the Applicable Agent pursuant to this SUBSECTION 4.3(B) may be
oral if immediately confirmed in writing (including by facsimile); PROVIDED that
the lack of such an immediate confirmation shall not affect the conclusiveness
or binding effect of such notice.
(c) Each Applicable Lender shall upon receipt of any notice pursuant
to SUBSECTION 4.3(B) make available to the Applicable Agent for the account of
the applicable Issuing Lender an amount in U.S. Dollars or Canadian Dollars, as
applicable, and in immediately available funds equal to its Pro Rata Share of
the amount of the drawing, whereupon the participating Lenders shall (subject to
SUBSECTION 4.3(D)) each be deemed to have made a Base Rate Loan to the Company
or a Prime Rate Loan to Parent, as applicable, in such amount. If any Lender so
notified fails to make available to the Applicable Agent for the account of the
applicable Issuing Lender the amount of such Lender's Pro Rata Share of the
amount of such drawing by no later than 2:00 p.m. (Chicago time) on the Honor
Date, then interest shall accrue on such Lender's obligation to make such
payment, from the Honor Date to the date such Lender makes such payment, at a
rate per annum equal to, in the case of a U.S. Lender, the U.S. Federal Funds
Rate in effect from time to time during such period, and (ii) in the case of a
Canadian Lender, the Canadian Cost of Funds Rate in effect from time to time
during such period. The Applicable Agent will promptly give notice of the
occurrence of the Honor Date, but failure of the Applicable Agent to give any
such notice on the Honor Date or in sufficient time to enable any Applicable
Lender to effect such payment on such date shall not relieve such Lender from
its obligations under this SECTION 4.3.
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(d) With respect to any unreimbursed drawing that is not converted
into Base Rate Loans or Prime Rate Loans in whole or in part, because of the
Applicable Borrower's failure to satisfy the conditions set forth in SECTION 6.2
or for any other reason, such Borrower shall be deemed to have incurred from the
applicable Issuing Lender an L/C Borrowing in the amount of such drawing, which
L/C Borrowing shall be due and payable on demand (together with interest) and
shall bear interest at a rate per annum equal to (i) in the case of the Company,
the Base Rate plus 2% per annum, and (ii) in the case of Parent, the Prime Rate
plus 2% per annum, and each Applicable Lender's payment to the applicable
Issuing Lender pursuant to SUBSECTION 4.3(C) shall be deemed payment in respect
of its participation in such L/C Borrowing and shall constitute an L/C Advance
from such Lender in satisfaction of its participation obligation under this
SECTION 4.3.
(e) Each Lender's obligation in accordance with this Agreement to
make Loans or L/C Advances, as contemplated by this SECTION 4.3, as a result of
a drawing under a Letter of Credit, shall be absolute and unconditional and
without recourse to the applicable Issuing Lender and shall not be affected by
any circumstance, including (i) any set-off, counterclaim, recoupment, defense
or other right which such Lender may have against the applicable Issuing Lender,
Parent, the Company or any other Person for any reason whatsoever; (ii) the
existence of an Event of Default, an Unmatured Event of Default or a Material
Adverse Effect; or (iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing; PROVIDED that each Lender's
obligation to make Loans (but not L/C Advances) under this SECTION 4.3 is
subject to the conditions set forth in SECTION 6.2 (other than SUBSECTION
6.2(A)).
4.4 REPAYMENT OF PARTICIPATIONS. (a) Promptly upon (and only upon) receipt
by the Applicable Agent for the account of the applicable Issuing Lender of
immediately available funds from the Applicable Borrower (i) in reimbursement of
any payment made by such Issuing Lender under a Letter of Credit with respect to
which any Lender has paid the Applicable Agent for the account of such Issuing
Lender for such Lender's participation in such Letter of Credit pursuant to
SECTION 4.3 or (ii) in payment of interest thereon, the Applicable Agent will
pay to each Applicable Lender, in the same funds as those received by such Agent
for the account of such Issuing Lender, the amount of such Lender's Pro Rata
Share of such funds, and such Issuing Lender shall receive the amount of the Pro
Rata Share of such funds of any Lender that did not so pay the Applicable Agent
for the account of such Issuing Lender.
(b) If either Agent or either Issuing Lender is required at any time
to return to a Borrower, or to a trustee, receiver, liquidator or custodian, or
to any official in any Insolvency Proceeding, any portion of any payment made by
the Company or Parent to an Agent for the account of an Issuing Lender pursuant
to SUBSECTION 4.4(A) in reimbursement of a payment made under a Letter of Credit
or any interest or fee thereon, each Lender shall, on demand of the Applicable
Agent, forthwith return to the Applicable Agent or the applicable Issuing Lender
the amount of its Pro Rata Share of any amount so returned by such Agent or such
Issuing Lender
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plus interest thereon from the date such demand is made to the date such amount
is returned by such Lender to the Applicable Agent or the applicable Issuing
Lender, at a rate per annum equal to (i) in the case of a U.S. Lender, the U.S.
Federal Funds Rate in effect from time to time, and (ii) in the case of a
Canadian Lender, the Canadian Cost of Funds Rate in effect from time to time.
4.5 ROLE OF THE ISSUING LENDERS. (a) Each Lender, Parent and the Company
agree that, in paying any drawing under a Letter of Credit, the applicable
Issuing Lender shall have no responsibility to obtain any document (other than
any sight draft and certificate expressly required by such Letter of Credit) or
to ascertain or inquire as to the validity or accuracy of any such document or
the authority of the Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of either Issuing Lender shall be
liable to any Lender for: (i) any action taken or omitted in connection herewith
at the request or with the approval of the Lenders (including the Required U.S.
Lenders, the Required Canadian Lenders or the Required Lenders, as applicable);
(ii) any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) Each Borrower hereby assumes all risks of the acts or omissions
of any beneficiary or transferee with respect to its use of any Letter of Credit
issued for the account of such Borrower; PROVIDED that this assumption is not
intended to, and shall not, preclude either Borrower from pursuing such rights
and remedies as it may have against the beneficiary or transferee at law or
under any other agreement. No Agent-Related Person, nor any of the respective
correspondents, participants or assignees of either Issuing Lender, shall be
liable or responsible for any of the matters described in CLAUSES (I) through
(VII) of SECTION 4.6; PROVIDED that, anything in such clauses to the contrary
notwithstanding, Parent or the Company may have a claim against the applicable
Issuing Lender, and the applicable Issuing Lender may be liable to Parent or the
Company, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by Parent or the Company which
Parent or the Company proves were caused by the applicable Issuing Lender's
willful misconduct or gross negligence or the applicable Issuing Lender's
willful failure to pay under any Letter of Credit after the presentation to it
by the beneficiary of a sight draft and certificate(s) strictly complying with
the terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) an Issuing Lender may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; and (ii)
an Issuing Lender shall not be responsible for the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
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4.6 OBLIGATIONS OF PARENT AND THE COMPANY. The obligations of the
Applicable Borrower under this Agreement and any L/C-Related Document to
reimburse the applicable Issuing Lender for a drawing under a Letter of Credit
issued for the account of such Borrower, and to repay any L/C Borrowing and any
drawing under any such Letter of Credit converted into Loans, shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement and each L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement
or any L/C- Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of such Borrower in
respect of any such Letter of Credit or any other amendment or waiver of
or any consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that such Borrower may have at any time against any beneficiary or
any transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the applicable Issuing
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by the applicable Issuing Lender under any
Letter of Credit against presentation of a draft or certificate that does
not strictly comply with the terms of such Letter of Credit; or any
payment made by the applicable Issuing Lender under any Letter of Credit
to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of any Letter of Credit, including any arising in connection
with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the obligations of such
Borrower in respect of any Letter of Credit; or
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(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other circumstance
that might otherwise constitute a defense available to, or a discharge of,
such Borrower or any guarantor.
4.7 CASH COLLATERAL PLEDGE. If any Letter of Credit issued for the account
of a Borrower remains outstanding and partially or wholly undrawn as of the
Termination Date, then such Borrower shall immediately Cash Collateralize the
L/C Obligations in an amount equal to the maximum amount then available to be
drawn under all such Letters of Credit. Without limiting the foregoing, if the
scheduled Termination Date is changed to January 10, 2000 pursuant to the
definition of "Termination Date", then (a) concurrently with the Issuance of any
Letter of Credit Issued after September 30, 1999 which has an expiry date after
December 30, 1999, the Applicable Borrower will provide Cash Collateral for such
Letter of Credit in an amount equal to the Stated Amount of such Letter of
Credit; and (b) on or before December 30, 1999, each Borrower shall Cash
Collateralize all outstanding Letters of Credit Issued for the account of such
Borrower in an amount equal to the Stated Amount of all such Letters of Credit.
4.8 LETTER OF CREDIT FEES. (a) Each Borrower shall pay to the Applicable
Agent for the ratable account of the U.S. Lenders, in the case of the Company,
or the Canadian Lenders, in the case of Parent, a letter of credit fee with
respect to each Letter of Credit issued for the account of such Borrower
computed at the applicable rate per annum set forth in SCHEDULE 1.1C of the
average daily maximum amount available to be drawn on such Letter of Credit,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter and on the Termination Date (or such later date on which such
Letter of Credit shall expire or be fully drawn) as calculated by the Applicable
Agent.
(b) Each Borrower shall pay to the Applicable Agent for the account
of the applicable Issuing Lender a letter of credit fronting fee for each Letter
of Credit Issued by such Issuing Lender for the account of such Borrower at the
rate per annum separately agreed to by such Borrower and such Issuing Lender of
the average daily maximum amount available to be drawn on such Letter of Credit,
computed on the first day of each calendar quarter and on the Termination Date
(or such later date on which such Letter of Credit shall expire or be fully
drawn) as calculated by the Applicable Agent.
(c) The letter of credit fees payable under SUBSECTION 4.8(A) and
the fronting fees payable under SUBSECTION 4.8(B) shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter during
which Letters of Credit are outstanding, commencing on the first such quarterly
date to occur after the Closing Date, through the Termination Date (or such
later date upon which all outstanding Letters of Credit shall have been
terminated), with the final payment to be made on the Termination Date (or such
later expiration date).
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(d) Each Borrower shall pay to the applicable Issuing Lender from
time to time on demand the normal issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of such Issuing Lender
relating to letters of credit as from time to time in effect.
4.9 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in such Letter of Credit) apply to each Letter of Credit.
ARTICLE V
TAXES, YIELD PROTECTION AND ILLEGALITY
5.1 TAXES. (a) Any and all payments by either Borrower to each Lender and
each Agent under this Agreement (including any payment made by Parent pursuant
to SECTION 11) shall be made free and clear of, and without deduction or
withholding for, any Taxes. In addition, the Applicable Borrower shall pay all
Other Taxes.
(b) The Applicable Borrower agrees to indemnify each Lender and each
Agent for, and hold each such Person harmless from, the full amount of Taxes or
Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section) paid by such Lender or such Agent and any
liability (including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date such Lender or such Agent makes written demand
therefor.
(c) If either Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to a Lender or an Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section) such Lender or such Agent, as the case may be, receives an
amount equal to the sum it would have received had no such deductions or
withholdings been made;
(ii) such Borrower shall make such deductions and
withholdings; and
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(iii) such Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law.
(d) Within 30 days after the date of any payment by a Borrower of
Taxes or Other Taxes, such Borrower shall furnish the Agents the original or a
copy of a receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Agents.
(e) If either Borrower is required to pay additional amounts to any
Lender or either Agent pursuant to SUBSECTION (C) of this Section, then such
Lender shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by such Borrower which may thereafter
accrue, if such change in the judgment of such Lender is not otherwise
disadvantageous to such Lender.
(f) (i) Each U.S. Lender which is a foreign Person (i.e., a Person
other than a United States Person for United States Federal income tax purposes)
agrees that:
(A) it shall, no later than the Closing Date (or, in the case
of a U.S. Lender which becomes a party hereto after the Closing
Date, the date upon which such U.S. Lender becomes a party hereto)
deliver to the U.S. Agent and to the Company through the U.S. Agent
two accurate and complete signed originals of Internal Revenue
Service Form 4224 or any successor thereto ("FORM 4224"), or two
accurate and complete signed originals of Internal Revenue Service
Form 1001 or any successor thereto ("FORM 1001"), as appropriate, in
each case indicating that such U.S. Lender is on the date of
delivery thereof entitled to receive payments of principal, interest
and fees under this Agreement free from withholding of United States
Federal income tax;
(B) if at any time such U.S. Lender makes any change
necessitating a new Form 4224 or Form 1001, it shall with reasonable
promptness deliver to the U.S. Agent and to the Company through the
U.S. Agent in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate and complete
signed originals of Form 4224 or Form 1001, as appropriate, in each
case indicating that such U.S. Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
under this Agreement free from withholding of United States Federal
income tax;
(C) it shall, before or promptly after the occurrence of any
event (including the passing of time (and in any event (x) in the
case of a Form 4224, before the payment of any interest in each
succeeding taxable year of such U.S. Lender after the Closing Date
during which interest may be paid under this Agreement, and (y) in
the case of a Form 1001, before the payment of any interest
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in each third succeeding calendar year after the Closing Date during
which interest may be paid under this Agreement) but excluding any
event mentioned in CLAUSE (B) above) requiring a change in or
renewal of the most recent Form 4224 or Form 1001 previously
delivered by such U.S. Lender, deliver to the U.S. Agent and to the
Company through the U.S. Agent two accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such U.S. Lender; and
(D) it shall, promptly upon the Company's or the U.S. Agent's
reasonable request to that effect, deliver to the Company or the
U.S. Agent (as the case may be) such other forms or similar
documentation as may be required from time to time by any applicable
law, treaty, rule or regulation in order to establish such U.S.
Lender's tax status for withholding purposes.
(ii) Each Canadian Lender agrees that it shall, no later than the
Closing Date (or, in the case of a Canadian Lender which becomes a party hereto
after the Closing Date, the date upon which such Canadian Lender becomes a party
hereto) deliver to the Canadian Agent and to Parent through the Canadian Agent
an instrument in writing certifying one of the following:
(A) that such Canadian Lender is not a non-resident of Canada
for the purposes of Part XIII of the Income Tax Act (Canada) and
that it is the sole beneficial owner of payments of principal of and
interest on its Loans and other extensions of credit to Parent under
this Agreement;
(B) its jurisdiction of incorporation and residence for tax
purposes, that it is the sole beneficial owner of payments of
principal of and interest on its Loans and other extensions of
credit to Parent under this Agreement and the rate of withholding
tax applicable to any payment of interest to it pursuant to any
applicable tax conventions between Canada, on the one hand, and its
jurisdiction of residence for tax purposes, on the other hand; or
(C) its jurisdiction of incorporation and residence for tax
purpose, the names of the beneficial owners of payments of principal
of and interest on its Loans and other extensions of credit to
Parent under this Agreement, the residence for tax purposes of each
of such beneficial owners and the rate of withholding tax applicable
to any payment of interest in respect of each beneficial owner
pursuant to any applicable tax convention between Canada, on the one
hand, and the jurisdiction of residence for tax purposes of each
beneficial owner, on the other hand;
and undertaking to advise Parent and the Canadian Agent of any change in respect
of CLAUSE (A), (B) or (C), as the case may be. In addition, each Canadian Lender
shall, promptly upon Parent's
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or the Canadian Agent's reasonable request to that effect, deliver to Parent or
the Canadian Agent (as the case may be) such other instruments in writing, forms
or similar documentation as may be required from time to time by any applicable
law, treaty, rule or regulation or the official interpretation of such laws or
regulations by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) in order to
establish such Canadian Lender's tax status for withholding purposes. If the
Canadian Agent receives a request from Revenue Canada Customs, Excise and
Taxation or another taxing authority to provide additional information
concerning the withholding tax status of any Canadian Lender, such Canadian
Lender shall (upon notice of such request from the Canadian Agent) use
reasonable efforts to obtain and deliver such information to such taxing
authority and the Canadian Agent.
(iii) Notwithstanding the foregoing provisions of this SUBSECTION
(F) or any other provision of this SECTION 5.1, no Lender shall be required to
deliver any form pursuant to this SECTION 5.1 if such Lender is not legally
permitted to deliver such form as a result of a change in any Requirement of Law
after the date of this Agreement.
(g) (i) The Company will not be required to pay any additional
amount in respect of United States Federal tax pursuant to this SECTION 5.1 to
any U.S. Lender or to either Agent with respect to any U.S. Lender:
(A) if the obligation to pay such additional amount would not
have arisen but for a failure by such U.S. Lender to comply with its
obligations under SUBSECTION 5.1(F)(I), SECTION 10.10 or SECTION
12.8;
(B) if such U.S. Lender shall have delivered to the Company a
Form 4224 in respect of its applicable Lending Office pursuant to
SUBSECTION 5.1(F)(I), and such U.S. Lender shall at any time not be
entitled to exemption from deduction or withholding of United States
Federal income tax in respect of payments by the Company hereunder
for the account of such Lending Office for any reason other than a
change in United States law or regulations or in the official
interpretation of such law or regulations by any Governmental
Authority charged with the interpretation or administration thereof
(whether or not having the force of law) after the date of delivery
of such Form 4224; or
(C) if such U.S. Lender shall have delivered to the Company a
Form 1001 in respect of its applicable Lending Office pursuant to
SUBSECTION 5.1(F)(I), and such U.S. Lender shall at any time not be
entitled to exemption from deduction or withholding of
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United States Federal income tax in respect of payments by the
Company hereunder for the account of such Lending Office for any
reason other than a change in United States law or regulations or
any applicable tax treaty or regulations or in the official
interpretation of any such law, treaty or regulations by any
Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law)
after the date of delivery of such Form 1001.
(ii) Parent will not be required to pay any additional amount in
respect of Canadian federal income tax pursuant to this SECTION 5.1 to any
Canadian Lender:
(A) if the obligation to pay such additional amount would not
have arisen but for a failure by such Canadian Lender to comply with
its obligations under SUBSECTION 5.1(F)(II), SECTION 10.10 or
SECTION 12.8; or
(B) if such Canadian Lender shall have delivered an instrument
in writing pursuant to SUBSECTION 5.1(F)(II), and such Canadian
Lender shall at any time not be entitled to exemption from deduction
or withholding of Canadian federal income tax in respect of payments
by Parent hereunder for the account of its applicable Lending Office
for any reason other than a change in the laws of Canada, its
provinces or any political subdivision thereof or any regulations
promulgated thereunder or any applicable tax treaty or regulations
or in the official interpretation of such laws, treaty or
regulations by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the
force of law) after the date of the delivery of said instrument.
(h) If, at any time, the Company requests any U.S. Lender to
deliver any forms or other documentation pursuant to SUBSECTION 5.1(F)(I)(D),
then the Company shall, on demand of such U.S. Lender through the U.S. Agent,
reimburse such U.S. Lender for any costs and expenses (including Attorney Costs)
reasonably incurred by such U.S. Lender in the preparation or delivery of such
forms or other documentation. If, at any time, Parent requests any Canadian
Lender to deliver any forms or other documentation pursuant to SUBSECTION
5.1(F)(II), then Parent shall, on demand of such Canadian Lender through the
Canadian Agent, reimburse such Canadian Lender for any costs and expenses
(including Attorney Costs) reasonably incurred by such Canadian Lender in the
preparation or delivery of such instruments, forms or other documentation.
(i) If either Agent or any Lender receives a refund of any
Taxes for which a payment has been made by a Borrower pursuant to this
Agreement, or claims any credit or relief against or repayment of any Taxes
through an actual reduction in Taxes paid as a result of the payment of such
Taxes by a Borrower (a "Tax Credit"), which refund or Tax Credit in the
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good faith judgment of such Agent or such Lender, as the case may be, is
attributable to such payment made by such Borrower, then such Agent or such
Lender, as applicable, shall reimburse such Borrower for such amount as such
Agent or such Lender, as applicable, determines to be the proportion of the
refund or Tax Credit as will leave it, after such reimbursement, in no better or
worse position than it would have been in if the payment had not been required.
If any tax benefit obtained by an Agent or a Lender is reduced after a payment
in respect thereof has been made to a Borrower under this SUBSECTION (I)
(through adjustment to such Agent's or such Lender's tax return or otherwise),
such Borrower shall promptly upon demand repay to such Agent or such Lender, as
applicable, the amount by which such tax benefit to such Agent or such Lender,
as applicable, is reduced. In no event shall either Agent or any Lender be
obliged to disclose any information regarding its tax affairs or computations to
either Borrower.
5.2 ILLEGALITY. (a) If any Lender determines that the introduction of, or
any change in, any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for such Lender or its applicable Lending Office to make Offshore U.S. Dollar
Loans or, in the case of a Canadian Lender, Offshore Canadian Dollar Loans,
then, on notice thereof by such Lender to the Applicable Borrower through the
Applicable Agent, any obligation of such Lender to make Offshore U.S. Dollar
Loans or Offshore Canadian Dollar Loans, as the case may be, shall be suspended
until such Lender notifies the Applicable Agent and the Applicable Borrower that
the circumstances giving rise to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any
Offshore U.S. Dollar Loan or, in the case of a Canadian Lender, Offshore
Canadian Dollar Loan, the Applicable Borrower shall, upon its receipt of notice
of such fact and demand from such Lender (with a copy to the Applicable Agent),
prepay in full such Offshore U.S. Dollar Loan or Offshore Canadian Dollar Loan,
as applicable, together with interest accrued thereon and amounts required under
SECTION 5.4, either on the last day of the Interest Period thereof, if such
Lender may lawfully continue to maintain such Offshore Rate Loan to such day, or
on such earlier date on which such Lender may no longer lawfully continue to
maintain such Offshore Rate Loan (as determined by such Lender). If either
Borrower is required to so prepay any Offshore Rate Loan, then concurrently with
such prepayment, such Borrower shall borrow from the affected Lender, in the
amount of such repayment, a Base Rate Loan (in the case of a U.S. Dollar Loan)
or a Prime Rate Loan (in the case of a Canadian Dollar Loan).
5.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Lender determines
that, as a result, after the date hereof, of (i) the introduction of or any
change in or in the interpretation of any law or regulation or (ii) compliance
by such Lender with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to such Lender (other than any general increase in the
level of taxation of such Lender and similarly-situated financial institutions)
of agreeing to make or making, funding or maintaining any Offshore Rate Loan or
participating in Letters of Credit or,
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in the case of an Issuing Lender, any increase in the cost to such Issuing
Lender of agreeing to issue, issuing or maintaining any Letter of Credit, then
the Applicable Borrower shall be liable for, and shall from time to time, upon
demand (with a copy of such demand to be sent to the Applicable Agent), pay to
the Applicable Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased cost.
(b) If any Lender shall have determined that, after the date hereof,
(i) the introduction of any Capital Adequacy Regulation, (ii) any change in any
Capital Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or (iv) compliance by such Lender (or its Lending Office) or any
corporation controlling such Lender with any Capital Adequacy Regulation affects
or would affect the amount of capital required or expected to be maintained by
such Lender or any corporation controlling such Lender (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy) and that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, upon demand of such Lender to the Applicable Borrower through
the Applicable Agent, such Borrower shall pay to such Lender, from time to time
as specified by such Lender, additional amounts sufficient to compensate such
Lender for such increase.
5.4 FUNDING LOSSES. The Applicable Borrower shall reimburse each Lender
and hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of:
(a) the failure of such Borrower to borrow, continue or convert a
Loan or to issue a Bankers' Acceptance or a BA Equivalent Note after such
Borrower has given (or is deemed to have given) a Notice of Canadian Dollar
Borrowing, a Notice of U.S. Dollar Borrowing, a Notice of
Conversion/Continuation or a Notice of BA Borrowing;
(b) the failure of such Borrower to make any prepayment in
accordance with any notice delivered under SECTION 2.1.6 or 2.2.5;
(c) the prepayment (including pursuant to SECTION 2.1.6 or 2.2.5) or
other payment (including after acceleration thereof) of an Offshore Rate Loan on
a day that is not the last day of the relevant Interest Period; or
(d) the automatic conversion under SECTION 2.1.5 or 2.2.4 of any
Offshore Rate Loan to a Base Rate Loan or a Prime Rate Loan, as applicable, on a
day that is not the last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its applicable Loans or from fees payable to
terminate the deposits
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from which such funds were obtained. For purposes of calculating amounts payable
by a Borrower to a Lender under this Section and under SUBSECTION 5.3(A), each
Offshore Rate Loan made by a Lender shall be conclusively deemed to have been
funded (and to have been subject to each related reserve, special deposit or
similar requirement) at the Offshore Rate for such Offshore Rate Loan by a
matching deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period in U.S. Dollars or Canadian
Dollars, as applicable, whether or not such Offshore Rate Loan is in fact so
funded.
5.5 INABILITY TO DETERMINE RATES. If the Applicable Agent reasonably
determines that for any reason adequate and reasonable means do not exist for
determining the Offshore Rate for any requested Interest Period with respect to
an Offshore Rate Loan, or Applicable Lenders having an aggregate Pro Rata Share
of 25% or more determine that the Offshore Rate to be applicable for any
requested Interest Period with respect to an Offshore Rate Loan does not
adequately and fairly reflect the cost to such Lenders of funding such Loan,
then the Applicable Agent will promptly so notify the Applicable Borrower and
each Applicable Lender. Thereafter, the obligation of the Applicable Lenders to
make or maintain the applicable Offshore Rate Loans in the applicable currency
hereunder shall be suspended until the Applicable Agent (upon the instructions
of the Applicable Lenders, if applicable), revokes such notice in writing. Upon
receipt of such notice, the Applicable Borrower may revoke any applicable Notice
of U.S. Dollar Borrowing, Notice of Canadian Dollar Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Applicable Borrower does
not revoke such Notice, the Applicable Lenders shall make, convert or continue
the Loans, as proposed by the Applicable Borrower, in the amount specified in
the applicable notice submitted by the Applicable Borrower, but such Loans shall
be made, converted or continued as Base Rate Loans or Prime Rate Loans, as
applicable, instead of Offshore Rate Loans.
5.6 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement or
compensation under this ARTICLE V shall deliver to the Applicable Borrower (with
a copy to the Applicable Agent) a certificate setting forth in reasonable detail
the basis for, and a calculation of, the amount payable to such Lender hereunder
and such certificate shall be presumed to be accurate in the absence of manifest
error.
5.7 SUBSTITUTION OF LENDERS. Upon the receipt by either Borrower or either
Agent from any Lender (an "AFFECTED LENDER") of a claim for compensation under
SECTION 5.1 or 5.3 or a notice of the type described in SUBSECTION 5.2(A) or
(B), the Applicable Borrower may: (i) request one or more of the other Lenders
to acquire and assume all or part of such Affected Lender's Loans and
Commitment; or (ii) designate a replacement bank or financial institution
satisfactory to Parent to acquire and assume all or a ratable part of all of
such Affected Lender's Loans and Commitment (a "REPLACEMENT LENDER"). Any
designation of a Replacement Lender shall be subject to the prior written
consent of the Agents and the Issuing Lenders.
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5.8 RIGHT OF LENDERS TO FUND THROUGH BRANCHES AND AFFILIATES. Each Lender
may, if it so elects, fulfill its commitment as to any Loan hereunder by
designating a branch or Affiliate of such Lender to make such Loan; PROVIDED
that (a) such Lender shall remain solely responsible for the performance of its
obligations hereunder and (b) no such designation shall result in any increased
costs to the Applicable Borrower.
5.9 SURVIVAL. The agreements and obligations of the Borrowers in this
ARTICLE V shall survive the termination of this Agreement and the payment of all
Obligations.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EFFECTIVENESS. This Agreement shall become effective and
all outstanding loans under the Existing Agreement shall be Canadian Dollar
Loans hereunder on the date that (a) the Agents shall have received evidence
that the Facility Assignment Agreement has been executed and delivered by the
parties thereto and the transactions contemplated thereby have been consummated
(or will be consummated concurrently herewith) and (b) the Agents shall have
received all of the following, in form and substance satisfactory to each Agent
and each Lender, and in sufficient copies for each Agent and each Lender:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Notes (if
any) executed by each party thereto.
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of resolutions of the board of directors (or other
appropriate governing body) of each Loan Party authorizing the
transactions contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary (or other appropriate representative)
of such Loan Party; and
(ii) a certificate of the Secretary or an Assistant Secretary
(or other appropriate representative) of each Loan Party certifying the
names and true signatures of the officers, partners or managers of such
Loan Party authorized to execute, deliver and perform the Loan Documents
to which such Loan Party is a party.
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents:
(i) the articles or certificate of incorporation or
association or other certificate of formation and, if applicable, the
bylaws, partnership agreement or operating
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agreement of each Loan Party as in effect on the Closing Date, certified
by the Secretary or an Assistant Secretary (or other appropriate
representative) of such Loan Party as of the Closing Date; and
(ii) in the case of the Company and each U.S. Subsidiary, a
certificate of good standing from the jurisdiction of organization of each
such entity; and in the case of Parent and each Canadian Subsidiary, a
Certificate of Status from the Ministry of Consumer and Commercial
Relations of Ontario, the Registrar of Companies of British Columbia, the
Registrar of Corporations of Alberta or the Deputy Registrar of Joint
Stock Companies of Nova Scotia, as applicable, with respect to such
entity.
(d) U.S. GUARANTIES. A guaranty, substantially in the form of
EXHIBIT G-1, executed by each U.S. Subsidiary and by Nova Scotia Sub, and a
guaranty, substantially in the form of EXHIBIT G-2, executed by each U.S.
Subsidiary other than the Company and by Nova Scotia Sub (such guaranties, the
"U.S. GUARANTIES").
(e) CANADIAN GUARANTIES. A Guaranty, substantially in the form of
EXHIBIT G- 3, executed by each Canadian Guarantor other than the Nova Scotia Sub
(such guaranty, the "CANADIAN GUARANTY").
(f) PAYMENT OF FEES. Evidence of payment by Parent and/or the
Company of all accrued and unpaid fees, costs and expenses to the extent then
due and payable on the Closing Date, together with Attorney Costs of the Agents
to the extent invoiced prior to or on the Closing Date, plus such additional
amounts of Attorney Costs as shall constitute the Agents' reasonable estimate of
Attorney Costs incurred or to be incurred through the closing proceedings
(provided that such estimate shall not thereafter preclude final settling of
accounts between Parent and/or the Company and the Agents), including any such
costs, fees and expenses arising under or referenced in SECTION 2.5 or 12.4.
(g) U.S. SECURITY AGREEMENT. A security agreement, substantially in
the form of EXHIBIT H-1 (the "U.S. SECURITY AGREEMENT"), executed by the Company
and each other U.S. Guarantor, together with such searches, financing statements
and other documents as may be requested by the U.S. Agent to perfect, and
confirm the priority of, the Liens granted thereunder.
(h) CANADIAN SECURITY AGREEMENT. A security agreement, substantially
in the form of EXHIBIT H-2, executed by each Canadian Guarantor, and a security
agreement, substantially in the form of EXHIBIT H-3, executed by Parent (such
security agreements, the "CANADIAN SECURITY AGREEMENTS"), in each case together
with such searches, registrations and other documents as may be requested by the
Canadian Agent to perfect, and evidence the priority of, the Liens granted
thereunder.
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(i) U.S. PLEDGE AGREEMENT. A pledge agreement, substantially in the
form of EXHIBIT I-1 (the "U.S. PLEDGE AGREEMENT"), executed by each U.S.
Subsidiary which owns an interest in any corporation and by Nova Scotia Sub,
together with all stock certificates, stock powers and other items required to
be delivered thereunder.
(j) CANADIAN PLEDGE AGREEMENTS. Pledge agreements, each
substantially in the form of EXHIBIT I-2 (each a "CANADIAN PLEDGE AGREEMENT"),
executed by Parent and each Canadian Subsidiary (other than Nova Scotia Sub)
which owns an interest in any corporation, together with all stock certificates,
stock powers and other items required to be delivered thereunder.
(k) BANK ACT SECURITY. The Bank Act Security, together with all
documentation required to perfect the Liens granted thereunder.
(l) INSURANCE CERTIFICATES. Certificates of insurance naming the
U.S. Agent as an additional insured and as loss payee, as required pursuant to
SECTION 8.3.
(m) ASSIGNMENT OF PARTNERSHIP INTERESTS. An assignment of
partnership interests, substantially in the form of EXHIBIT M-1, executed by
Parent, and an assignment of partnership interests, substantially in the form of
EXHIBIT M-2, executed by Ontario GP (each an "ASSIGNMENT OF PARTNERSHIP
INTERESTS").
(n) CERTIFICATE. A certificate signed by the chief executive officer
or the chief financial officer of Parent, dated as of the Closing Date, stating
that:
(i) the representations and warranties contained in ARTICLE
VII are true and correct on and as of such date, as though made on and as
of such date;
(ii) no Event of Default or Unmatured Event of Default exists
or will result from the initial Credit Extensions; and
(iii) no event or circumstance has occurred since December 31,
1997 that has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(o) LEGAL OPINIONS. The opinion of Hodgson Russ Andrews Woods &
Goodyear, LLP, U.S. counsel to Parent, the Company and the other U.S.
Guarantors, substantially in the form of EXHIBIT D-1; the opinion of Tory Tory
DesLauriers & Binnington, Ontario counsel to Parent and the Canadian Guarantors,
substantially in the form of EXHIBIT D-2; the opinion Parlee McLaws, Alberta
counsel to Western Waste Services Inc. and Alberta Waste Ltd., substantially in
the form of EXHIBIT D-3; the opinion of Lawson Lundell Lawson & McIntosh,
British Columbia counsel to West Coast Waste Systems Inc., substantially in the
form of EXHIBIT D-4; the opinion of Stewart McKelvey Sterling Scales, Nova
Scotia counsel to Nova
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Scotia Sub, substantially in the form of EXHIBIT D-5; and the opinion of Joy
Grahek, General Counsel of Parent, substantially in the form of EXHIBIT D-3.
(p) ESTOPPEL LETTERS. An estoppel letter or subordination agreement
from each existing creditor of Parent or any Subsidiary reasonably specified by
the Canadian Agent.
(q) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as either Agent or any Lender may reasonably request.
6.2 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Lender to
make any Credit Extension (including the initial Credit Extension) is subject to
the satisfaction of the following conditions precedent on the relevant Borrowing
Date or Issuance Date:
(a) NOTICE, APPLICATION. The Applicable Agent shall have received a
Notice of U.S. Dollar Borrowing, a Notice of Canadian Dollar Borrowing or a
Notice of BA Borrowing, as applicable, or the applicable Issuing Lender and the
Applicable Agent shall have received an L/C Application or L/C Amendment
Application (in the case of any Issuance of a Letter of Credit).
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in ARTICLE VII shall be true and correct in all
material respects on and as of such Borrowing Date or Issuance Date with the
same effect as if made on and as of such Borrowing Date or Issuance Date (except
to the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date).
(c) NO EXISTING DEFAULT. No Event of Default or Unmatured Event of
Default shall exist or shall result from such Credit Extension.
Each Notice of U.S. Dollar Borrowing, Notice of Canadian Dollar Borrowing,
Notice of BA Borrowing, L/C Application and L/C Amendment Application submitted
by a Borrower hereunder shall constitute a representation and warranty by such
Borrower, as of the date of such notice or request and as of the relevant
Borrowing Date or Issuance Date, as applicable, that the applicable conditions
in this SECTION 6.2 are satisfied.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Parent and the Company represent and warrant to each Agent and each Lender
that:
7.1 EXISTENCE AND POWER. Each Borrower and each of its Subsidiaries:
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(a) is duly organized or formed, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals (i) to own its assets and to carry on its
business as currently conducted and (ii) to execute, deliver and perform its
obligations under the Loan Documents to which it is a party;
(c) is duly qualified as a foreign entity and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in CLAUSE (B)(I), (C) or (D), to the extent
that the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
7.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by each Loan Party of each Loan Document to which such Loan Party is
a party have been duly authorized by all necessary action on the part of such
Loan Party (including any necessary action by the shareholders, partners or
members thereof), and do not and will not:
(a) contravene the terms of any of such Loan Party's Organization
Documents;
(b) conflict with or result in a breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which Parent, the Company or any Subsidiary is a party or any order,
injunction, writ or decree of any Governmental Authority to which Parent, the
Company or any Subsidiary or any of their respective assets is subject; or
(c) violate any Requirement of Law.
7.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or the enforcement against, any Loan
Party of any Loan Document to which such Loan Party is a party.
7.4 BINDING EFFECT. Each of this Agreement and each other Loan Document to
which any Loan Party is a party constitutes the legal, valid and binding
obligation of such Loan Party enforceable against such Loan Party in accordance
with its terms, except as enforceability may
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be limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.
7.5 FINANCIAL STATEMENTS. Parent has furnished or caused to be furnished
to the Agents and the Lenders, (a) the audited consolidated financial statements
of Parent and its Subsidiaries as at December 31, 1997, which statements have
been prepared in conformity with GAAP and present fairly the financial condition
of Parent and its Subsidiaries as at such date and the results of their
operations for the period then ended and (b) the unaudited financial statements
of Parent and its Subsidiaries as at September 30, 1998, which have been
prepared in conformity with GAAP and present fairly the financial condition of
Parent and its Subsidiaries as at such date and the results of operations for
the period then ended (subject to normal year-end adjustments and the absence of
footnotes).
7.6 NO MATERIAL ADVERSE CHANGE. Since the date of the audited consolidated
financial statements described in SECTION 7.5, no event or events have occurred
which, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect.
7.7 LITIGATION AND CONTINGENT LIABILITIES. No litigation (including any
derivative action), arbitration proceeding or governmental proceeding is pending
or, to Parent's knowledge, threatened against Parent, the Company or any
Subsidiary which is reasonably likely to have a Material Adverse Effect, except
as set forth in SCHEDULE 7.7. Other than any liability incident to such
litigation or proceedings, neither Parent, the Company nor any Subsidiary has
any material contingent liabilities not provided for or disclosed in the
financial statements referred to in SECTION 7.5 or listed in SCHEDULE 7.7.
7.8 OWNERSHIP OF PROPERTIES; LIENS. Each of Parent, the Company and each
Subsidiary owns good and marketable title to, or a valid leasehold interest in,
all of its properties and assets, real and personal, tangible and intangible, of
any nature whatsoever (including patents, trademarks, trade names, service marks
and copyrights), free and clear of all Liens, charges and claims (including
infringement claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to SECTION 8.8.
7.9 SUBSIDIARIES. Parent has no Subsidiaries except those listed in
SCHEDULE 7.9.
7.10 PENSION AND WELFARE PLANS. Except as set forth on SCHEDULE 7.10,
during the twelve-consecutive-month period prior to the date of the execution
and delivery of this Agreement or the making of any Credit Extension hereunder,
(a) no steps have been taken to terminate any Pension Plan which would be
reasonably likely to result in Parent or the Company being required to make a
contribution to such Pension Plan, or incurring a liability or obligation to
such Pension Plan, in excess of U.S.$1,000,000, and (b) no contribution failure
has occurred with respect to any Pension Plan sufficient to give rise to a Lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which
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could result in the incurrence by Parent or the Company of any material
liability, fine or penalty. Except as set forth on SCHEDULE 7.10, neither Parent
nor the Company has any contingent liability with respect to any post-retirement
benefit under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of subtitle B of title I of ERISA. All Canadian Plans are
duly registered where required by, and in good standing under, applicable law;
all required contributions have been made under all Canadian Plans; all Canadian
Plans are funded in accordance with the respective rules thereof and all
Requirements of Law; and no past service or experience deficiency funding
liabilities exist under any Canadian Plan.
7.11 INVESTMENT COMPANY ACT. Neither Parent, the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940.
7.12 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Parent, the Company nor
any Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935.
7.13 REGULATION U. Neither Parent nor the Company is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying Margin Stock.
7.14 TAXES. Each of Parent, the Company and each Subsidiary has filed all
tax returns and reports required by law to have been filed by it and has paid
all taxes and governmental charges thereby shown to be owing, except for any
such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books.
7.15 SOLVENCY, ETC. On the Closing Date, and immediately prior to and
after giving effect to each Credit Extension hereunder and the use of the
proceeds thereof (and taking into account any contribution or subrogation
rights), (a) each of Parent's, the Company's and each Subsidiary's assets will
exceed its liabilities and (b) each of Parent, the Company and each Subsidiary
will be solvent, will be able to pay its debts as they mature, will own property
with fair saleable value greater than the amount required to pay its debts and
will have capital sufficient to carry on its business as then conducted.
7.16 HAZARDOUS MATERIALS.
7.16.1 RELEASE AND DISPOSAL. Except as previously disclosed to the Agents
and the Lenders in writing prior to the date of this Agreement or for events or
conditions which would not constitute a Material Environmental Event, (a)
neither Parent, the Company nor, to the best of the Company's knowledge, any
other Person has ever caused or permitted a "reportable
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quantity" (as defined in the Comprehensive Environmental Response, Compensation
and Liability Act) of any Hazardous Material to be released or disposed of on,
under or at any real property located in the United States and now owned, leased
or operated by Parent, the Company or any Subsidiary and neither Parent, the
Company nor, to the best of Parent's knowledge, any other Person has ever caused
or permitted any Hazardous Material to be released or disposed of on, under or
at any real property located in Canada and now owned, leased or operated by
Parent, the Company or any Subsidiary, (b) no such real property has ever been
used (by Parent or, to the best of Parent's knowledge, by any other Person) as a
site for intentional disposal of any Hazardous Material or a permanent storage
site for any Hazardous Material, and (c) neither Parent nor, to the best of the
Parent's knowledge, any of its predecessors has ever caused or permitted any
Hazardous Material to be disposed of at any locations other than those
identified pursuant to CLAUSE (A).
7.16.2 TREATMENT AND STORAGE. Except in compliance with applicable law or
for events or conditions which would not constitute a Material Environmental
Event, (a) neither Parent nor, to the best of Parent's knowledge, any other
Person has ever caused or permitted any Hazardous Material to be treated or
stored on, under or at any real property owned, leased or operated by Parent,
the Company or any Subsidiary and (b) neither Parent nor, to the best of
Parent's knowledge, any of its predecessors has ever caused or permitted any
Hazardous Material (except for any which may have been present in raw materials
or any products) to be transported to, treated, or stored at any locations other
than those identified pursuant to CLAUSE (A).
7.17 ABSENCE OF DEFAULT. Neither Parent, the Company nor any Subsidiary is
in material default under any material contract to which it is a party or by
which it is bound.
7.18 LEASED PREMISES. As of the Closing Date neither Parent, the Company
nor any Subsidiary is the lessee of any premises other than those premises set
forth on SCHEDULE 7.18.
7.19 INFORMATION. All written information taken as a whole heretofore or
contemporaneously herewith furnished by Parent, the Company or any Subsidiary to
the Agents and the Lenders for purposes of or in connection with this Agreement
and the transactions contemplated hereby is, and all written information taken
as a whole hereafter furnished by or on behalf of Parent, the Company or any
Subsidiary to either Agent or any Lender pursuant hereto or in connection
herewith will be, true and accurate in every material respect on the date as of
which such information is dated or certified, and none of such information taken
as a whole is or will be incomplete by omitting to state any material fact
necessary to make such information not misleading (it being recognized by the
Agents and the Lenders that projections and forecasts provided by Parent are not
to be viewed as representations and warranties and that actual results during
the period or periods covered by any such projections and forecasts may differ
from projected or forecasted results).
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7.20 YEAR 2000 PROBLEM. Parent and its Subsidiaries have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by Parent
and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, Parent reasonably believes
that the "Year 2000 Problem" will not have a Material Adverse Effect.
7.21 BURDENSOME OBLIGATIONS. Neither Parent nor any Subsidiary is a party
to any agreement or contract or subject to any corporate, partnership or other
organizational restriction which might reasonably be expected to have a Material
Adverse Effect.
7.22 LABOR MATTERS. Except as set forth on SCHEDULE 7.22, (a) neither
Parent nor any Subsidiary is subject to any labor or collective bargaining
agreement; and (b) there are no existing or threatened strikes, lockouts or
other labor disputes involving Parent or any Subsidiary that singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect. Hours
worked by and payments made to employees of Parent and its Subsidiaries are not
in violation of the Fair Labor Standards Act, to the extent applicable, or any
other applicable law, rule or regulation dealing with such matters.
ARTICLE VIII
COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Lenders waive compliance in
writing, Parent shall:
8.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to each Agent and
each Lender:
8.1.1 ANNUAL REPORTS. Promptly when available and in any event within 90
days after the close of each Fiscal Year, (i) a copy of the annual audit report
of Parent and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of Parent and its Subsidiaries as of the end of such
Fiscal Year and consolidated statements of earnings and cash flow of Parent and
its Subsidiaries for such Fiscal Year, which audit report shall be without
qualification as to going concern or scope and shall be prepared by Price
Waterhouse Coopers LLC or other independent auditors of recognized standing
selected by Parent and acceptable to the Required Lenders; and (ii)
consolidating balance sheets of Parent and its Subsidiaries as of the end of
such Fiscal Year and consolidating statements of earnings for Parent and its
Subsidiaries for such Fiscal Year, together with a certificate of the chief
executive officer or the chief financial officer
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of Parent certifying that such financial statements fairly present the financial
condition and results of operations of Parent and its Subsidiaries as of the
dates and periods indicated.
8.1.2 QUARTERLY REPORTS. Promptly when available and in any event within
45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of
each Fiscal Year, unaudited consolidated and consolidating balance sheets of
Parent and its Subsidiaries as of the end of such Fiscal Quarter and unaudited
consolidated and consolidating statements of earnings and cash flow for such
Fiscal Quarter and for the period beginning with the first day of such Fiscal
Year and ending on the last day of such Fiscal Quarter, together with a
certificate of the chief executive officer or the chief financial officer of
Parent, certifying that such financial statements (which may be prepared by
Parent) fairly present the financial condition and results of operations of
Parent and its Subsidiaries as of the dates and periods indicated, subject to
changes resulting from normal year-end adjustments.
8.1.3 MONTHLY REPORTS. Until Parent completes a Qualified IPO, promptly
when available and in any event within 30 days after the end of each month of
each Fiscal Year, (i) unaudited consolidated and consolidating balance sheets of
Parent and its Subsidiaries as of the end of such month and (ii) unaudited
consolidated and consolidating statements of earnings for such month and for the
period beginning with the first day of such Fiscal Year and ending on the last
day of such month, together with a certificate of the chief executive officer or
the chief financial officer of Parent, certifying that such financial statements
(which may be prepared by Parent) fairly present the financial condition and
results of operations of Parent and its Subsidiaries as of the dates and periods
indicated, subject to changes resulting from normal year-end adjustments.
8.1.4 COMPLIANCE CERTIFICATES. Contemporaneously with the furnishing of a
copy of each annual audit report pursuant to SECTION 8.1.1 and each set of
quarterly statements pursuant to SECTION 8.1.2, a duly completed certificate in
the form of EXHIBIT C, with appropriate insertions, dated the date of such
annual report, such quarterly statements or such monthly statements and signed
by the chief executive officer or the chief financial officer of Parent,
containing a computation of each of the financial ratios and restrictions set
forth in this SECTION 8 and to the effect that such officer has not become aware
of any Event of Default or Unmatured Event of Default that has occurred and is
continuing or, if there is any such event, describing it and the steps, if any,
being taken to cure it.
8.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Promptly upon the filing or
sending thereof, a copy of any annual, periodic or special report or
registration statement (inclusive of exhibits thereto) filed with the SEC or any
securities exchange or commission and any report, proxy statement or other
communication to Parent's shareholders generally.
8.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. Promptly (and in
any event within one Business Day in the case of CLAUSE (A) and within five
Business Days in the case of
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CLAUSES (B) through (E)) after learning of any of the following, written notice
describing the same and the steps being taken by Parent or the Subsidiary
affected thereby with respect thereto: (a) the occurrence of an Event of Default
or an Unmatured Event of Default; (b) any litigation, arbitration or
governmental investigation or proceeding not previously disclosed by Parent to
the Agents and the Lenders which has been instituted or, to the knowledge of
Parent, is threatened against Parent or any Subsidiary or to which any of the
properties of any thereof is subject which has had or is reasonably likely to
have a Material Adverse Effect; (c) any material adverse development which
occurs in any litigation, arbitration or governmental investigation or
proceeding previously disclosed pursuant to CLAUSE (B); (d) the institution of
any steps by Parent, any of its Subsidiaries or any other Person to terminate
any Pension Plan or any Canadian Plan, or the failure to make a required
contribution to any Pension Plan if such failure is sufficient to give rise to a
Lien under Section 302(f) of ERISA, or the taking of any action with respect to
a Pension Plan or a Canadian Plan which could result in the requirement that
Parent or the Company furnish a bond or other security to the PBGC or such
Pension Plan or Canadian Plan, or the occurrence of any event with respect to
any Pension Plan or Canadian Plan which could result in the incurrence by Parent
or the Company of any material liability, fine or penalty, or any material
increase in the contingent liability of Parent or the Company with respect to
any post-retirement Welfare Plan benefit; and (e) the occurrence of any other
event or circumstance which has had or is reasonably likely to have a Material
Adverse Effect.
8.1.7 SUBSIDIARIES. Promptly upon the occurrences thereof, a written
report of any change in the list of its Subsidiaries.
8.1.8 PROJECTIONS. As soon as practicable and in any event within 90 days
after the commencement of each Fiscal Year, a consolidated plan and financial
forecast for such Fiscal Year, including (a) a forecasted consolidated balance
sheet and a consolidated statement of cash flow of Parent for such Fiscal Year
and (b) forecasted consolidated statements of income and cash flows of Parent
for each month of such Fiscal Year.
8.1.9 QUEBEC ASSETS. Concurrently with delivery of each quarterly report
pursuant to SECTION 8.1.2, and promptly after any material increase therein, a
report of the estimated fair market value of all assets of Parent and its
Subsidiaries located in, and of the revenues of Parent and its Subsidiaries
generated from accounts in, the Province of Quebec.
8.1.10 OTHER INFORMATION. Promptly from time to time, such other
information concerning Parent and its Subsidiaries as either Agent or any Lender
may reasonably request.
8.2 BOOKS, RECORDS AND INSPECTIONS. Keep, and cause each Subsidiary to
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of financial statements in accordance with
GAAP; permit, and cause each Subsidiary to permit, on reasonable notice and at
reasonable times and intervals, either Agent or any Lender or any representative
thereof to inspect the properties and operations of Parent and of such
Subsidiary;
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and permit, and cause each Subsidiary to permit, on reasonable notice and at
reasonable times and intervals, either Agent or any Lender or any representative
thereof to visit any or all of its offices, to discuss its financial matters
with its officers and its independent auditors (and Parent hereby authorizes
such independent auditors to discuss such financial matters with either Agent or
any Lender or any representative thereof), and to examine (and, at the expense
of Parent or the applicable Subsidiary, photocopy extracts from) any of its
books or other records. Parent agrees to pay the fees of its auditors incurred
in connection with any reasonable exercise of the rights of the Agents and the
Lenders pursuant to this Section.
8.3 INSURANCE. Maintain, and cause each Subsidiary to maintain, with
reputable, financially sound insurance companies, insurance to such extent and
against such hazards and liabilities as is customarily maintained by companies
similarly situated (and, in any event, such insurance as may be required by any
law or governmental regulation or any court order or decree); and, upon request
of either Agent or any Lender, furnish to such Agent or such Lender a
certificate setting forth in reasonable detail the nature and extent of all
insurance maintained by Parent and its Subsidiaries. Without limiting the
foregoing, Parent will cause, and cause each Subsidiary to cause, each issuer of
an insurance policy to provide the U.S. Agent with an endorsement or an
independent instrument (i) in form and substance acceptable to the U.S. Agent
and (ii) showing loss payable to the U.S. Agent and, if required by the U.S.
Agent, naming the U.S. Agent as an additional insured.
8.4 COMPLIANCE WITH LAWS; PAYMENT OF TAXES AND LIABILITIES. (a) Comply,
and cause each Subsidiary to comply, in all material respects with all material
applicable laws, rules, regulations and orders; and (b) pay, and cause each
Subsidiary to pay, prior to delinquency, all taxes and other governmental
charges against it or any of its property; PROVIDED, HOWEVER, that the foregoing
shall not require Parent or any Subsidiary to pay any such tax or charge so long
as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves with respect
thereto in accordance with GAAP.
8.5 MAINTENANCE OF EXISTENCE, ETC. Maintain and preserve, and (subject to
SECTION 8.11) cause each Subsidiary to maintain and preserve, (a) its existence
and good standing in the jurisdiction of its organization; and (b) except where
the failure to do so would not reasonably be expected to have a Material Adverse
Effect its qualification and good standing as a foreign entity in each
jurisdiction where the nature of its business makes such qualification
necessary.
8.6 FINANCIAL COVENANTS.
8.6.1 MINIMUM NET WORTH. Not permit Net Worth at any time to be less than
(a) a Dollar Equivalent amount of U.S.$19,000,000 PLUS (b) 75% of cumulative
Consolidated Net Income for each Fiscal Quarter ending after December 31, 1998
(excluding any Fiscal Quarter in which Consolidated Net Income is not positive)
PLUS (c) 80% of the net proceeds of any equity
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issued by Parent or any of its Subsidiaries (other than equity issued by a
Subsidiary to Parent or another Subsidiary) after December 31, 1998.
8.6.2 INTEREST COVERAGE RATIO. Not permit the Interest Coverage Ratio for
any Computation Period to be less than the applicable ratio set forth below:
- ---------------------------------------------------
COMPUTATION INTEREST
PERIOD ENDING: COVERAGE RATIO
- ---------------------------------------------------
12/31/98 through 12/31/99 2.50 to 1.00
- ---------------------------------------------------
3/31/00 through 12/31/00 2.75 to 1.00
- ---------------------------------------------------
3/31/01 and thereafter 3.00 to 1.00.
- ---------------------------------------------------
8.6.3 TOTAL DEBT TO EBITDA. Not permit the Total Debt to EBITDA Ratio as of
the last day of any Fiscal Quarter to exceed the applicable ratio set forth
below:
- ---------------------------------------------------
FISCAL TOTAL DEBT TO
QUARTER ENDING: EBITDA RATIO
- ---------------------------------------------------
12/31/98 through 6/30/99 4.75 to 1.00
- ---------------------------------------------------
9/30/99 through 12/31/99 4.25 to 1.00
- ---------------------------------------------------
3/31/00 through 12/31/00 4.00 to 1.00
- ---------------------------------------------------
3/31/01 and thereafter 3.75 to 1.00.
- ---------------------------------------------------
8.6.4 SENIOR DEBT TO EBITDA. Not permit the Senior Debt to EBITDA Ratio as
of the last day of any Fiscal Quarter to exceed the applicable ratio set forth
below:
- ---------------------------------------------------
FISCAL SENIOR DEBT
QUARTER ENDING: EBITDA RATIO
- ---------------------------------------------------
12/31/98 through 6/30/99 3.90 to 1.00
- ---------------------------------------------------
9/30/99 through 12/31/99 3.75 to 1.00
- ---------------------------------------------------
3/31/00 through 12/31/00 3.50 to 1.00
- ---------------------------------------------------
3/31/01 and thereafter 3.25 to 1.00.
- ---------------------------------------------------
8.7 LIMITATIONS ON DEBT. Not, and not permit any Subsidiary to, create,
incur, assume or suffer to exist any Debt, except (a) obligations arising under
the Loan Documents; (b) Debt of Subsidiaries to Parent or to other Subsidiaries;
provided that an Agent has a perfected, first-priority security interest in all
such Debt; (c) other Debt outstanding on the date hereof and listed
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in SCHEDULE 8.7 or hereafter incurred in connection with Liens permitted by
SECTION 8.8, and extensions, renewals and refinances of any Debt described in
this CLAUSE (C) so long as the principal amount thereof is not increased; (d)
Subordinated Debt; PROVIDED that the aggregate principal amount of all Seller
Subordinated Debt at any time outstanding shall not exceed a Dollar Equivalent
amount of U.S.$5,000,000; and (e) other Debt (which may be secured) in an
aggregate amount not at any time exceeding a Dollar Equivalent amount of
U.S.$10,000,000.
8.8 LIENS. Not, and not permit any Subsidiary to, create or permit to exist
any Lien on any of its real or personal properties, assets or rights of
whatsoever nature (whether now owned or hereafter acquired), except (a) Liens
for taxes or other governmental charges not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and, in each case, for which it maintains adequate reserves; (b)
Liens arising in the ordinary course of business (such as (i) Liens of carriers,
landlords, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and (ii) Liens incurred in connection with worker's compensation,
unemployment compensation and other types of social security (excluding Liens
arising under ERISA) or in connection with surety bonds (excluding appeal bonds
and other bonds relating to judgments), bids, performance bonds and similar
obligations) for sums not overdue or being contested in good faith by
appropriate proceedings and not involving any deposits or advances or borrowed
money or the deferred purchase price of property or services, and, in each case,
for which it maintains adequate reserves; (c) Liens identified on SCHEDULE 8.8;
(d) attachments, judgments and other similar Liens, and appeal bonds and other
bonds relating to judgments, for sums not exceeding in the aggregate a Dollar
Equivalent amount of U.S.$250,000, arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively stayed
and claims secured thereby are being actively contested in good faith and by
appropriate proceedings; (e) easements, rights of way, restrictions, minor
defects or irregularities in title and other similar Liens not interfering in
any material respect with the ordinary conduct of the business of Parent and its
Subsidiaries taken as a whole; (f) Liens securing Debt permitted pursuant to
SUBSECTION 8.7(C) or (E); (g) extensions, renewals or replacements of any Lien
permitted by the foregoing provisions of this SECTION 8.8, but only if the
principal amount of the Debt secured thereby immediately prior to such
extension, renewal or replacement is not increased and such Lien is not extended
to any other property; (h) Liens securing Debt permitted by SUBSECTION 8.7(B),
provided that the holder of each such Lien has granted an Agent a perfected,
first-priority security interest in such Lien; and (i) Liens arising under the
Loan Documents.
8.9 RESTRICTED PAYMENTS. Not, and not permit any Subsidiary to, (a) declare
or pay any dividends on any of its capital stock (other than dividends payable
in stock, warrants, options, or other non-cash rights with respect to stock of
Parent), (b) purchase or redeem any capital stock of Parent or any Subsidiary or
any warrants, options or other rights in respect of such stock, (c) make any
other distribution (other than distributions payable in warrants, options, or
other non-cash rights with respect to stock of Parent) to shareholders of Parent
or any Subsidiary, (d) prepay, purchase or redeem any Subordinated Debt or (e)
set aside funds for any of the
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foregoing; PROVIDED that (i) any Subsidiary may declare and pay dividends or
make any other distribution to Parent or to another wholly-owned Subsidiary,
(ii) Parent may pay dividends of up to U.S.$1,500,000 to L & S Bishop
Enterprises Inc., provided that concurrently therewith a corresponding amount is
paid by L & S Bishop Enterprises Inc. to Parent to repay outstanding
indebtedness of L & S Bishop Enterprises Inc. to Parent, and (iii) Parent may
redeem up to U.S.$7,000,000 of its common stock held by the selling shareholders
of Rubbish Removal, Inc.
8.10 ADVANCES AND OTHER INVESTMENTS. Not, and not permit any Subsidiary to,
make, incur, assume or suffer to exist any Investment in any other Person,
except the following:
(a) Investments existing on the Closing Date and identified in SCHEDULE
7.9;
(b) Investments to consummate Permitted Acquisitions;
(c) in the ordinary course of business, contributions by Parent to the
capital of any of its Subsidiaries, or by any such Subsidiary to the
capital of any of its Subsidiaries;
(d) in the ordinary course of business, Investments by Parent in any
Subsidiary of Parent or by any of the Subsidiaries of Parent in any other
Subsidiary of Parent, by way of intercompany loans, advances or guaranties,
all to the extent permitted by SECTION 8.7;
(e) Suretyship Liabilities permitted by SECTION 8.7;
(f) good faith deposits made in connection with prospective Permitted
Acquisitions;
(g) loans to officers, directors and employees not at any time exceeding a
Dollar Equivalent amount of U.S.$500,000 in the aggregate for all such
individuals; and
(h) to the extent they constitute Investments, deposits which give rise to
Liens permitted by SUBSECTION (D), (F) or (G) (to the extent relating to
Liens permitted by SUBSECTION (D) or (F)) of SECTION 8.8; and
(i) Cash Equivalent Investments;
PROVIDED that (x) any Investment which when made complies with the requirements
of the definition of the term "CASH EQUIVALENT INVESTMENT" may continue to be
held notwithstanding that such Investment if made thereafter would not comply
with such requirements; and (y) no Investment otherwise permitted by CLAUSE (B),
(C), (D), (E), (F) or (G) shall be permitted to be made if, immediately before
or after giving effect thereto, any Event of Default or Unmatured Event of
Default shall have occurred and be continuing.
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8.11 MERGERS, CONSOLIDATIONS AND AMALGAMATIONS; ACQUISITIONS. Not, and not
permit any Subsidiary to, be a party to any merger, consolidation or
amalgamation, or make any Acquisition, except (a) any merger, consolidation or
amalgamation of or by any wholly-owned Subsidiary into or with Parent or any
other wholly-owned Subsidiary, (b) any merger, consolidation or amalgamation to
consummate a Permitted Acquisition, (c) any Acquisition by Parent or any
wholly-owned Subsidiary of the assets or stock of any wholly-owned Subsidiary,
and (d) any Acquisition of a Person of the equity of a Person which is in, or of
assets which are used, the same or a similar line of business as Parent and its
Subsidiaries; PROVIDED that any Acquisition described in this CLAUSE (D) (a
"PERMITTED ACQUISITION") must satisfy all of the following conditions: (i) each
Person so acquired shall comply with all of the terms of this Agreement and the
other Loan Documents that are applicable to such Person; (ii) in the case of the
Acquisition of any Person, either the Board of Directors (or other equivalent
governing body) of such Person incumbent at the time such Acquisition is
proposed has approved such Acquisition or such Acquisition is otherwise deemed
in the reasonable judgment of the Required Lenders to be a "friendly"
Acquisition; (iii) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing at the time of, or would result from the making of,
such Acquisition; (iv) either (A) the aggregate cash consideration to be paid by
Parent and its Subsidiaries (including any Debt assumed or issued in connection
therewith) in connection with such Acquisition (or any series of related
Acquisitions) is less than (1) prior to a Qualifying IPO, a Dollar Equivalent
amount of U.S.$7,500,000 or (2) after a Qualifying IPO, the greater of (x) a
Dollar Equivalent amount of U.S.$10,000,000 and (y) 10% of the total
consolidated assets of Parent or (B) the Required Lenders have consented to such
Acquisition; and (v) in the case of an Acquisition of a landfill or a Person
which owns a landfill, Parent shall have delivered to the Lenders an
environmental review with respect to such landfill from an environmental
consultant (who may be an employee of Parent) reasonably satisfactory to the
U.S. Agent and such environmental report shall not disclose that, after giving
effect to such Acquisition, there will be any Material Environmental Event.
8.12 ASSET DISPOSITIONS. Not, and not permit any Subsidiary to, sell,
transfer, convey, lease or otherwise dispose of, or grant any option, warrant or
other right with respect to, any of its assets, or sell, assign, pledge or
otherwise transfer any receivables, contract rights, general intangibles,
chattel paper or instruments, with or without recourse, except (a) the
disposition of inventory or obsolete or unutilized assets in the ordinary course
of business consistent with past practices and (b) other dispositions which do
not exceed a Dollar Equivalent amount of U.S.$500,000 in any Fiscal Year.
8.13 USE OF PROCEEDS. Use the proceeds of the Loans (a) for general
corporate purposes of Parent and its Subsidiaries (including capital
expenditures and payments permitted by SECTION 8.9), (b) for ongoing working
capital requirements of Parent and its Subsidiaries, (c) for Permitted
Acquisitions and (d) to redeem up to a Dollar Equivalent amount of
U.S.$7,000,000 of redeemable common stock held by the sellers of Rubbish
Removal, Inc.; and not use or permit
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any proceeds of any Loan to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or carrying"
any Margin Stock.
8.14 TRANSACTIONS WITH AFFILIATES. Not, and not permit any Subsidiary to,
enter into or cause, suffer or permit to exist any transaction, arrangement or
contract with any of its Affiliates (other than with Parent or any Subsidiary)
which is on terms which are less favorable than are obtainable from any Person
which is not one of its Affiliates.
8.15 PENSION PLANS. Maintain, and cause each Subsidiary to maintain, each
Pension Plan and Canadian Plan in material compliance with all applicable
requirements of law and regulations.
8.16 ENVIRONMENTAL COVENANTS.
8.16.1 ENVIRONMENTAL RESPONSE OBLIGATION. (a) Comply, and cause each
Subsidiary to comply, in all material respects with any federal, provincial or
state judicial or administrative order requiring the performance at any real
property owned, operated or leased by Parent or any Subsidiary of activities in
response to the release or threatened release of a Hazardous Material; (b)
notify the U.S. Agent within ten days of the receipt of any written claim,
demand, proceeding, action or notice of liability by any Person arising out of
or relating to the release or threatened release of a Hazardous Material; and
(c) notify the U.S. Agent within ten days of any release, threat of release, or
disposal of Hazardous Material reported by Parent or any Subsidiary to any
governmental or regulatory authority at any real property owned, operated, or
leased by Parent or any Subsidiary.
8.16.2 ENVIRONMENTAL LIABILITIES. (a) Comply, and cause each Subsidiary to
comply, in all material respects with all material Environmental Laws; (b)
without limiting CLAUSE (A), not commence disposal of any Hazardous Material
into or onto any real property owned, operated or leased by Parent or any
Subsidiary; and (c) without limiting CLAUSE (A), not allow any Lien imposed
pursuant to any law, regulation or order relating to Hazardous Materials or the
disposal thereof to remain on any real property owned, operated or leased by
Parent or any Subsidiary.
8.17 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any Subsidiary
to, enter into or be a party to any material contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.
8.18 FURTHER ASSURANCES. Take, and cause each Subsidiary to take, such
actions as the U.S. Agent, the Canadian Agent, the Required U.S. Lenders, the
Required Canadian Lenders or the Required Lenders may reasonably request from
time to time (including the execution and delivery of guaranties, security
agreements, pledge agreements, stock powers, financing statements and other
documents, the filing or recording of any of the foregoing, the delivery of
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stock certificates and other collateral with respect to which perfection is
obtained by possession, and the delivery of opinions of counsel as to the
effectiveness of the foregoing) to ensure that (a) the obligations of each
Borrower hereunder and under the other Loan Documents to which it is a party are
secured by substantially all of the assets (other than real property) of such
Borrower and guarantied by (i) in the case of Parent, all Subsidiaries of Parent
(including the Company) and (ii) in the case of the Company, Parent and all
other Subsidiaries of Parent; and (b) the obligations of each Guarantor under
each Guaranty to which it is a party are secured by substantially all of the
assets (other than real property) of such Guarantor. Without limiting the
foregoing, if at any time any Canadian bank is to be added as a Canadian Lender
hereunder (pursuant to SECTION 2.12, SECTION 12.8 or otherwise), Parent will,
prior to such Person becoming a Canadian Lender, execute and deliver such
documents, and take such other actions, as are necessary to grant Bank Act
Security to such Canadian Lender. Notwithstanding the foregoing, Lacey Garbage
Disposal Ltd. shall not be obligated to issue any guaranty or grant any security
so long as (x) its total assets do not at any time exceed Cdn.$250,000 and (y)
it is wound up or dissolved on or before March 31, 1999.
8.19 OPERATING LEASES. Not, and not permit any Subsidiary to, be a party to
Operating Leases requiring rental payments in excess of a Dollar Equivalent
amount of U.S.$500,000 in the aggregate (excluding intercompany leases) in any
Fiscal Year for Parent and its Subsidiaries taken as a whole.
8.20 BUSINESS. Not, and not permit any Subsidiary to, engage in any
business other than the solid waste business.
8.21 INCONSISTENT AGREEMENTS. Not, and not permit any Subsidiary to, enter
into any material agreement containing any provision which would be violated or
breached by any borrowing by Parent or the Company hereunder or by the
performance by Parent, the Company or any Subsidiary of any of its obligations
hereunder or under any other Loan Document.
8.22 CAPITAL EXPENDITURES. Not permit all capital expenditures of Parent
and its Subsidiaries (excluding, to the extent included in capital expenditures,
assets acquired in a Permitted Acquisition) during any period of four
consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter
(beginning with the Fiscal Quarter ending March 31, 1999) to exceed an amount
equal to (a) 2 multiplied by (b) the amount of depreciation and amortization
expensed by Parent and its Subsidiaries in accordance with GAAP during such
period.
8.23 OTHER NEGATIVE PLEDGES. Not, and not permit any Subsidiary to, enter
into any agreement, other than the Loan Documents, with any Person which in any
way restricts the ability of Parent or any Subsidiary to place a Lien on any of
its real or personal property, assets or rights of whatsoever nature.
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8.24 REDEEMABLE EQUITY INTERESTS. Not, and not permit any Subsidiary to,
issue any Redeemable Equity Interests.
8.25 NOVA SCOTIA SUB AND ONTARIO GP. Not permit Nova Scotia Sub to hold any
assets other than the membership interests of CERI, L.L.C or to conduct any
business whatsoever (other than making additional investments in CERI, L.L.C.
and intercompany loans and advances to Parent and other Subsidiaries and
borrowing funds to make such loans and advances); and not permit Ontario GP to
hold any assets other than the 1% general partnership interest in the Company or
to conduct any business whatsoever (other than making additional investments in
the Company).
8.26 QUEBEC COLLATERAL. Promptly upon request of the Canadian Agent (acting
at the direction or with the consent of the Required Lenders), grant, and cause
each Subsidiary to grant, to the Canadian Agent a perfected security interest in
all assets of Parent or such Subsidiary located in, and all accounts of Parent
or such Subsidiary owed by Persons located in, the Province of Quebec.
8.27 RELEASE OF JVS PLEDGE. Cause JVS to make a lump sum payment of the
amount owing to John Vinciguerra, Madeline Vinciguerra, Robert Vinciguerra,
Janice Vinciguerra and John Vinciguerra, Jr. (the "JVS SECURED PARTIES") and
obtain a release of all liens and security interests granted to the JVS Secured
Parties, including the certificates for the shares of JVS, by February 28, 1999;
and concurrently with such release (or as soon thereafter as practicable) cause
all certificates evidencing shares of JVS to be delivered to the U.S. Agent to
be held pursuant to the terms of the U.S. Pledge Agreement.
ARTICLE IX
EVENTS OF DEFAULT
9.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT OF
DEFAULT":
(a) NON-PAYMENT OF THE LOANS, ETC. Default in the payment when due
of the principal of any Loan, any Bankers' Acceptance, any BA Equivalent Note or
any L/C Obligation; or default, and continuance thereof for five days, in the
payment when due of any interest, fee or other amount payable by either Borrower
hereunder or under any other Loan Document.
(b) NON-PAYMENT OF OTHER DEBT. Any default shall occur under the
terms applicable to any Debt of Parent or any Subsidiary in an aggregate amount
(for all Debt so affected) exceeding a Dollar Equivalent amount of
U.S.$1,000,000 and such default shall (a) consist of the failure to pay such
Debt when due (subject to any applicable grace period),
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whether by acceleration or otherwise, or (b) accelerate the maturity of such
Debt or permit the holder or holders thereof, or any trustee or agent for such
holder or holders, to cause such Debt to become due and payable prior to its
expressed maturity.
(c) OTHER MATERIAL OBLIGATIONS. Default in the payment when due, or
in the performance or observance of, any material obligation of, or condition
agreed to by, Parent or any Subsidiary with respect to any material purchase or
lease of goods or services if such default has had or is reasonably likely to
have a Material Adverse Effect.
(d) BANKRUPTCY, INSOLVENCY, ETC. Parent or any Subsidiary becomes
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or Parent or any Subsidiary applies
for, consents to, or acquiesces in the appointment of a trustee, receiver or
other custodian for Parent or such Subsidiary or any property thereof, or makes
a general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Parent or any Subsidiary or for a substantial part of the property
of any thereof and is not discharged within 60 days; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding (including any
Insolvency Proceeding) under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding (except the voluntary winding up or
dissolution, not under any bankruptcy or insolvency law, of any Subsidiary other
than the Company), is commenced in respect of Parent or any Subsidiary, and if
such case or proceeding is not commenced by Parent or such Subsidiary, it is
consented to or acquiesced in by Parent or such Subsidiary, or remains for 60
days undismissed; or Parent or any Subsidiary takes any corporate, partnership
or other organizational action to authorize, or in furtherance of, any of the
foregoing.
(e) NON-COMPLIANCE WITH PROVISIONS OF THIS AGREEMENT. Failure by
Parent to comply with or to perform any covenant set forth in SECTIONS 8.6
through 8.15 or 8.17 through 8.22; or failure by Parent to comply with or to
perform any other provision of this Agreement (and not constituting an Event of
Default under any of the other provisions of this SECTION 9) and continuance of
such failure for 30 days after written notice thereof to Parent from either
Agent or any Lender.
(f) WARRANTIES. Any warranty made by either Borrower herein is
breached or is false or misleading in any material respect, or any schedule,
certificate, financial statement, report, notice or other writing furnished by
either Borrower to either Agent or any Lender is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
(g) PENSION PLANS. (i) Institution of any steps by Parent or the
Company or any other Person to terminate a Pension Plan or a Canadian Plan if as
a result of such termination Parent or the Company could be required to make a
contribution to such Pension Plan or Canadian Plan, or could incur a liability
or obligation to such Pension Plan or Canadian Plan, in
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excess of a Dollar Equivalent amount of U.S.$1,000,000, or (ii) a contribution
failure occurs with respect to any Pension Plan sufficient to give rise to a
Lien under section 302(f) of ERISA.
(h) JUDGMENTS. Final judgments which exceed an aggregate Dollar
Equivalent amount of U.S.$250,000 (excluding any portion thereof covered by
insurance so long as the applicable insurer has not denied coverage and Parent
reasonably believes such portions will be paid by such insurer) shall be
rendered against Parent or any Subsidiary and shall not have been discharged or
vacated or had execution thereof stayed pending appeal within 30 days after
entry or filing of such judgments.
(i) INVALIDITY OF COLLATERAL DOCUMENTS, ETC. Any Collateral Document
shall cease to be in full force and effect in all material respects with respect
to the Loan Party which is a party thereto; any Loan Party shall fail (subject
to any applicable grace period) to comply with or to perform any applicable
provision of any Collateral Document to which it is a party (i) if as a result
thereof the Lien on any material portion of the collateral granted thereunder
becomes unperfected or is otherwise adversely affected or (ii) within ten days
after written request of either Agent or any Lender; or any Loan Party (or any
Person by, through or on behalf of any Loan Party) shall contest in any manner
the validity, binding nature or enforceability of any Collateral Document.
(j) INVALIDITY OF GUARANTIES, ETC. Any Guaranty shall cease to be in
full force and effect with respect to any applicable Guarantor; any Guarantor
shall fail (subject to any applicable grace period) to comply with or to perform
any applicable provision of the applicable Guaranty; any Guarantor (or any
Person by, through or on behalf of such Guarantor) shall contest in any manner
the validity, binding nature or enforceability of the applicable Guaranty with
respect to such Guarantor; or Parent (or any Person by, through or on behalf of
Parent) shall contest in any manner the validity, binding nature or
enforceability of any provision of SECTION 11.
(k) CHANGE OF CONTROL, ETC. Any Change of Control shall occur; or
Allen Fracassi, Phillip Fracassi, any member of their respective immediate
families or any Affiliate of the foregoing shall at any time collectively own or
control 15% or more of the outstanding common stock of Parent; or the Company
shall cease to be a wholly-owned Subsidiary (directly or indirectly) of Parent.
(l) BONDING ARRANGEMENTS. The Company or any Subsidiary breaches or
defaults with respect to the terms of one or more bonded contracts if the effect
of such breach or default is to cause one or more Persons issuing bonds for the
Company or any Subsidiary to take possession of the work under contracts which
are subject to bonds aggregating a Dollar Equivalent amount of U.S. $1,000,000
or more.
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(m) MATERIAL ADVERSE CHANGE. Any material adverse change shall occur
in (a) the financial condition, operations, business or assets of Parent and its
Subsidiaries taken as a whole or (b) the ability of Parent, the Company or any
other Subsidiary to timely and fully perform any of its payment or other
material obligations under this Agreement or any other Loan Document to which it
is a party.
9.2 REMEDIES. If any Event of Default occurs, the Agents shall, at the
request of, or may, with the consent of, the Required Lenders do any or all of
the following:
(a) declare the commitment of each Lender to make any Credit
Extension (including any obligation of either Issuing Lender to Issue any Letter
of Credit) to be terminated, whereupon such commitments and obligation shall be
terminated;
(b) declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Borrowers;
(c) demand that each Borrower immediately provide Cash Collateral to
the Applicable Agent in an amount equal to the maximum aggregate amount that is
or at any time thereafter may become available for drawing under any outstanding
Letter of Credit issued for the account of such Borrower (whether or not any
beneficiary shall have presented, or shall be entitled at such time to present,
the drafts or other documents required to draw under such Letter of Credit),
whereupon such Borrower shall become immediately obligated to provide such Cash
Collateral;
(d) demand that Parent immediately provide Cash Collateral to the
Canadian Agent in an amount equal to the face amount of all outstanding Bankers'
Acceptances and BA Equivalent Notes, whereupon Parent shall become immediately
obligated to provide such Cash Collateral; and
(e) exercise on behalf of the Agents and the Lenders all rights and
remedies available to the Agents and the Lenders under the Loan Documents or
applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any Event of Default specified in
SUBSECTION 9.1(D), the obligation of each Lender to make any Credit Extension
(including the obligation of either Issuing Lender to Issue any Letter of
Credit) shall automatically terminate and the unpaid principal amount of all
outstanding Loans and all other Obligations shall automatically become due and
payable and each Borrower shall automatically become obligated to provide Cash
Collateral in the amounts set forth in CLAUSES (C) and (D) above, as applicable,
in each case without further act of either Agent or any Lender.
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9.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement are
cumulative and are not exclusive of any other rights, powers, privileges or
remedies provided by law or in equity, or under any other instrument, document
or agreement now existing or hereafter arising.
ARTICLE X
THE AGENTS
10.1 APPOINTMENT AND AUTHORIZATION. (a) Each Lender hereby irrevocably
(subject to SECTION 10.9) appoints, designates and authorizes each Agent to take
such action on its behalf under the provisions of this Agreement and to exercise
such powers and perform such duties as are expressly delegated to it by the
terms of this Agreement, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement, no Agent shall have any duties or responsibilities except those
expressly set forth herein, nor shall either Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against either Agent.
(b) The applicable Issuing Lender shall act on behalf of the
Applicable Lenders with respect to the Letters of Credit Issued by it and the
documents associated therewith until such time and except for so long as the
Applicable Agent may agree at the request of the Required U.S. Lenders or the
Required Canadian Lenders, as applicable, to act for such Issuing Lender with
respect thereto; PROVIDED, HOWEVER, that each Issuing Lender shall have all of
the benefits and immunities (i) provided to the Agents in this ARTICLE X with
respect to any acts taken or omissions of such Issuing Lender in connection with
Letters of Credit Issued by it or proposed to be Issued by it and the
applications and agreements for letters of credit pertaining to the Letters of
Credit as fully as if the term "Agent", as used in this ARTICLE X, included such
Issuing Lender with respect to such acts or omissions, and (ii) as additionally
provided in this Agreement with respect to such Issuing Lender.
10.2 DELEGATION OF DUTIES. Each Agent may execute any of its duties under
this Agreement by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
No Agent shall be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
10.3 LIABILITY OF AGENTS. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or the transactions contemplated hereby (except
for its own gross negligence or willful misconduct), or (ii) be responsible in
any manner to any of the Lenders for any recital, statement, representation or
warranty made by Parent or any Subsidiary or Affiliate of Parent, or any officer
thereof, contained in this Agreement or in any certificate, report, statement or
other document
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referred to or provided for in, or received by either Agent under or in
connection with, this Agreement, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or for any failure of Parent or
the Company or any other party to perform its obligations hereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement, or to inspect the properties,
books or records of Parent or any of Parent's Subsidiaries or Affiliates.
10.4 RELIANCE BY AGENTS. (a) Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to Parent or the Company), independent accountants and other experts selected by
either Agent. Each Agent shall be fully justified in failing or refusing to take
any action under this Agreement unless it shall first receive such advice or
concurrence of the Required U.S. Lenders, the Required Canadian Lenders or the
Required Lenders, as applicable, as it deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
accordance with a request or consent of the Required U.S. Lenders, the Required
Canadian Lenders, the Required Lenders or all Lenders, as applicable, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in SECTION 6.1, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted, or to be satisfied with, each
document or other matter sent by an Agent to such Lender for consent, approval,
acceptance or satisfaction.
10.5 NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Event of Default or Unmatured Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to such Agent for the account of the Lenders, unless such
Agent shall have received written notice from a Lender or a Borrower referring
to this Agreement, describing such Event of Default or Unmatured Event of
Default and stating that such notice is a "notice of default". If either Agent
receives such a notice, such Agent will notify the other Agent and the Lenders
of its receipt thereof. Each Agent shall take such action with respect to such
Event of Default or Unmatured Event of Default as may be requested by the
Required Lenders in accordance with ARTICLE IX; PROVIDED, HOWEVER, that unless
and until such Agent has received any such request, such Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Event of Default or Unmatured Event of Default as it shall deem
advisable or in the best interest of the Lenders.
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10.6 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by either Agent hereinafter taken, including any review of the affairs of
Parent and its Subsidiaries, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
each Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Parent and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Borrowers
hereunder. Each Lender also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Borrowers. Except for notices, reports and
other documents expressly herein required to be furnished to the Lenders by an
Agent, no Agent shall have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Borrowers
which may come into the possession of any of the Agent-Related Persons.
10.7 INDEMNIFICATION OF AGENTS. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrowers and without limiting the obligation of the Borrowers to do so),
ratably according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for
the payment to any Agent-Related Person of any portion of the Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse
each Agent upon demand for its ratable share of any costs or out-of-pocket
expenses (including Attorney Costs) incurred by such Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
or any document contemplated by or referred to herein, to the extent that such
Agent is not reimbursed for such expenses by or on behalf of the Borrowers. The
undertaking in this Section shall survive the termination of this Agreement, the
payment of all Obligations hereunder and the resignation or replacement of
either Agent.
10.8 AGENTS IN INDIVIDUAL CAPACITY. BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Parent and its
Subsidiaries and Affiliates as though BofA were not the U.S. Agent and an
Issuing Lender and BACAN were not the Canadian Agent and an Issuing Lender, and
without
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notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to
such activities, BofA or its Affiliates may receive information regarding Parent
or its Affiliates (including information that may be subject to confidentiality
obligations in favor of Parent, the Company or such Subsidiary) and acknowledge
that BofA and its Affiliates shall be under no obligation to provide such
information to them. With respect to their respective Loans, BofA and any
Affiliate thereof shall have the same rights and powers under this Agreement as
any other Lender and may exercise the same as though it were not an Agent or an
Issuing Lender.
10.9 SUCCESSOR AGENTS. Either Agent may, and at the request of the Required
Lenders shall, resign as an Agent upon 30 days' notice to the Lenders. If either
Agent resigns under this Agreement, the Required Lenders shall appoint from
among the Lenders a successor U.S. Agent or Canadian Agent, as applicable, for
the Lenders. If no successor agent is appointed prior to the effective date of
the resignation of the Applicable Agent, such Agent may appoint, after
consulting with the Lenders and Parent, a successor U.S. Agent or Canadian
Agent, as applicable, from among the Lenders. Upon the acceptance of its
appointment as successor Agent hereunder, such successor Agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "U.S.
Agent" or "Canadian Agent," as applicable, shall mean such successor agent and
the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this ARTICLE X and SECTIONS 12.4 and 12.5 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Agreement. If no successor agent has accepted appointment as
the Applicable Agent by the date which is 30 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Applicable Lenders shall perform all of the
duties of such Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. Notwithstanding the foregoing,
however, BofA may not be removed as the U.S. Agent and BACAN may not be removed
as Canadian Agent at the request of the Required Lenders unless such Person and
each Affiliate thereof acting as an Agent or an Issuing Lender shall also
simultaneously be relieved of its duties and responsibilities hereunder in such
capacity pursuant to documentation in form and substance reasonably satisfactory
to BofA, BACAN and any other applicable Affiliate thereof.
10.10 WITHHOLDING TAX. (a) If any U.S. Lender claims exemption from, or
reduction of, withholding tax under a United States tax treaty by providing IRS
Form 1001 (or any successor form) pursuant to SUBSECTION 5.1(F) and such U.S.
Lender sells, assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of the Company to such U.S. Lender, then such U.S.
Lender agrees to notify the U.S. Agent of the percentage amount in which it is
no longer the beneficial owner of Obligations of the Company to such U.S.
Lender. To the extent of such percentage amount, the U.S. Agent will treat such
U.S. Lender's IRS Form 1001 as no longer valid, and such U.S. Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
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(b) If any U.S. Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 (or any successor form) with the U.S.
Agent pursuant to SUBSECTION 5.1(F) grants a participation in all or part of the
Obligations of the Company to such U.S. Lender, then such U.S. Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(c) If any Lender is entitled to a reduction in the applicable
withholding tax, the Applicable Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
SUBSECTION 5.1(F) are not delivered to the Applicable Agent, then the Applicable
Agent may withhold from any interest payment to such Lender not providing such
forms or other documentation an amount equivalent to the applicable withholding
tax.
(d) If the IRS or Revenue Canada or any other Governmental Authority
of the United States, Canada or any other jurisdiction asserts a claim that an
Agent did not properly withhold tax from amounts paid to or for the account of
any Lender (because the appropriate form was not delivered or was not properly
executed, or because such Lender failed to notify the Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify such Agent
fully for all amounts paid, directly or indirectly, by such Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to such Agent under this Section,
together with all costs and expenses (including Attorney Costs). The obligation
of the Lenders under this subsection shall survive the payment of all
Obligations.
10.11 COLLATERAL MATTERS RELEASES OF GUARANTORS. (a) The Lenders
irrevocably authorize each Agent, at its option and in its discretion, to
release any Lien granted to or held by such Agent upon any Collateral (i) upon
termination of the Commitments and payment in full of all Loans and all other
obligations of Parent and the Company hereunder and expiration or termination of
all Letters of Credit; (ii) constituting property sold or to be sold or disposed
of as part of or in connection with any disposition permitted hereunder; (iii)
constituting property in which Parent, the Company or the applicable Subsidiary
owned no interest at the time the Lien was granted or at any time thereafter; or
(iv) subject to SECTION 12.1, if approved, authorized or ratified in writing by
the Required Lenders.
(b) The Lenders irrevocably authorize each Agent, at its option and
in its discretion, to release any Guarantor (other than a Borrower) from its
obligations under any applicable Guaranty if such Guarantor ceases to be a
Subsidiary of Parent as a result of a transaction permitted hereunder.
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(c) Upon request by either Agent at any time, the Lenders will
confirm in writing such Agent's authority to release particular types or items
of Collateral, or to release a Guarantor, pursuant to this SECTION 10.11.
10.12 CO-AGENTS. No Lender identified on the facing page, the initial page
or the signature pages of this Agreement as being a "Co-Agent" shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Lenders. Each Lender acknowledges that it has
not relied, and will not rely, on any Lender so identified in deciding to enter
into this Agreement or in taking or refraining from taking any action hereunder
or pursuant hereto.
ARTICLE XI
GUARANTY BY THE COMPANY
11.1 GUARANTY. Parent hereby absolutely, unconditionally and irrevocably
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of all obligations of the Company (a) under this
Agreement, including the principal of and interest on each Loan to the Company,
all obligations of the Company under or in connection with any Bankers'
Acceptance or BA Equivalent Note, and all costs and expenses of the Agents and
the Lenders in enforcing any of their rights against the Company hereunder, and
(b) under any Hedging Agreement with any Lender or any Affiliate thereof. Upon
failure by the Company to pay punctually any such amount, Parent shall forthwith
on demand pay the amount not so paid at the place, in the currency and in the
manner specified in this Agreement or the applicable Hedging Agreement.
11.2 GUARANTY UNCONDITIONAL. The obligations of Parent under this SECTION
11 shall be absolute, unconditional and irrevocable and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company under this Agreement,
any other Loan Document or any applicable Hedging Agreement, by operation
of law or otherwise;
(b) any modification or amendment of or supplement to this
Agreement, any other Loan Document or any applicable Hedging Agreement;
(c) any release, impairment, non-perfection or invalidity of any
other guaranty or of any direct or indirect security for any obligation of
the Company under this Agreement, any other Loan Document or any applicable
Hedging Agreement;
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(d) any change in the corporate existence, structure or ownership of
the Company or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or the Company's assets or any resulting
release or discharge of any obligation of the Company contained in this
Agreement, any other Loan Document or any applicable Hedging Agreement;
(e) the existence of any claim, set-off or other right which Parent
may have at any time against the Company, either Agent, any Lender or any
other Person, whether in connection herewith or any unrelated transaction,
PROVIDED that nothing herein shall prevent the assertion of any such claim
by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against the
Company for any reason of this Agreement, any other Loan Document or any
applicable Hedging Agreement, or any provision of any applicable law or
regulation purporting to prohibit the payment by the Company of the
principal of or interest on any Loan or any other amount payable by the
Company under this Agreement, any other Loan Document or any applicable
Hedging Agreement; or
(g) any other act or omission to act or delay of any kind by the
Company, either Agent, any Lender or any other Person or any other
circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of Parent's
obligations as guarantor hereunder.
11.3 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. Parent's obligations as guarantor hereunder shall remain in full
force and effect until the Commitments shall have terminated and all obligations
of the Company under this Agreement and any applicable Hedging Agreement shall
have been paid in full. If at any time any payment of principal, interest or any
other amount payable by the Company under or in connection with this Agreement,
any other Loan Document or any applicable Hedging Agreement is rescinded or must
be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, Parent's obligations hereunder with
respect to such payment shall be reinstated as though such payment had been due
but not made at such time.
11.4 WAIVER BY PARENT. Parent irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against the
Company or any other Person.
11.5 SUBROGATION. Notwithstanding any payment made by or for the account of
the Company pursuant to this ARTICLE XI, Parent shall not be subrogated to any
right of either Agent or any Lender until such time as the Agents and the
Lenders and any applicable Affiliate of any Lender shall have received final
payment in cash of the full amount of all obligations of the Company hereunder
and under any applicable Hedging Agreement.
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11.6 STAY OF ACCELERATION. If acceleration of the time for payment of any
amount payable by the Company under this Agreement, any other Loan Document or
any applicable Hedging Agreement is stayed upon the insolvency, bankruptcy or
reorganization of the Company, all such amounts otherwise subject to
acceleration under the terms of this Agreement shall nonetheless be payable by
Parent hereunder forthwith on demand by the U.S. Agent made at the request of
the Required Lenders.
ARTICLE XII
MISCELLANEOUS
12.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement, and no consent with respect to any departure by either Borrower
herefrom, shall be effective unless the same shall be in writing and signed by
the Required Lenders (or by the U.S. Agent at the written request or with the
written consent of the Required Lenders) and Parent and acknowledged by the U.S.
Agent, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED that no
such waiver, amendment or consent shall, unless in writing and signed by all
Lenders and the Borrowers and acknowledged by the U.S. Agent, do any of the
following:
(a) increase or extend the Commitment of any Lender (or reinstate
any Commitment terminated pursuant to SECTION 9.2);
(b) postpone or delay any date fixed by this Agreement for any
payment of principal, interest, fees or other amounts due to the Lenders (or any
of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on, any Loan or (subject to CLAUSE (IV) below) reduce any fees or other
amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans and L/C Obligations which is required for
the Lenders or any of them to take any action hereunder;
(e) amend or release any Guaranty, amend ARTICLE XI or release
Parent from any obligation thereunder or release or subordinate any substantial
portion of the collateral granted under the Collateral Documents; or
(f) amend this Section, the definition of "Pro Rata Share" or any
provision herein providing for consent or other action by all Lenders;
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and PROVIDED, FURTHER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the applicable Issuing Lender in addition to the Required
Lenders or all Lenders, as the case may be, affect the rights or duties of such
Issuing Lender under this Agreement or any L/C-Related Document, (ii) no
amendment, waiver or consent shall, unless in writing and signed by the
Applicable Agent in addition to the Required Lenders or all Lenders, as the case
may be, affect the rights or duties of such Agent under this Agreement, (iii) no
amendment, waiver or consent shall, unless in writing and signed by all Canadian
Lenders in addition to the Required Lenders or all Lenders, as the case may be,
affect the rights or duties of the Canadian Lenders under this Agreement or any
other Loan Document and (iv) the amount of any fee payable pursuant to SECTION
2.5.1 or SUBSECTION 4.8(B) may be changed pursuant to a written agreement
between Parent and the Person to which such fee is payable.
12.2 NOTICES. (a) All notices, requests and other communications hereunder
shall be in writing (including, unless the context expressly otherwise provides,
by facsimile transmission, provided that any matter transmitted by either
Borrower to either Agent by facsimile shall be immediately confirmed by a
telephone call to the recipient at the number specified on SCHEDULE 12.2) and
mailed, faxed or delivered to the address or facsimile number specified for
notices on SCHEDULE 12.2; or, in the case of either Borrower or either Agent, to
such other address as shall be designated by such party in a written notice to
the other parties, and in the case of any other party, at such other address as
shall be designated by such party in a written notice to the Borrowers and the
Agents.
(b) All such notices, requests and other communications hereunder
shall, when transmitted by overnight delivery, or faxed, be effective when
delivered, or transmitted in legible form by facsimile machine, respectively, or
if mailed, upon the third Business Day after the date deposited into the U.S. or
Canadian mail; except that notices to either Agent pursuant to ARTICLE II, III,
IV or X shall not be effective until actually received by such Agent, and
notices pursuant to ARTICLE IV to an Issuing Lender shall not be effective until
actually received by such Issuing Lender.
(c) Any agreement of the Agents and the Lenders herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrowers. The Agents and the Lenders shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by the
Applicable Borrower to give such notice and the Agents and the Lenders shall not
have any liability to such Borrower or other Person on account of any action
taken or not taken by either Agent or any Lender in reliance upon such
telephonic or facsimile notice. The obligation of the Borrowers to repay the
Loans and L/C Obligations shall not be affected in any way or to any extent by
any failure of either Agent or any Lender to receive written confirmation of any
telephonic or facsimile notice or the receipt by either Agent or any Lender of a
confirmation which is at variance with the terms understood by such Agent or
such Lender to be contained in the telephonic or facsimile notice.
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12.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of either Agent or any Lender, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.
12.4 COSTS AND EXPENSES. Parent shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (in its capacity as U.S. Agent and Issuing
Lender) and BACAN (in its capacity as Canadian Agent and Issuing Lender) within
five Business Days after demand (subject to SUBSECTION 6.1(F)) for all
reasonable costs and expenses incurred by BofA (in its capacity as U.S. Agent
and Issuing Lender) or BACAN (in its capacity as Canadian Agent and Issuing
Lender) in connection with the development, preparation, syndication, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
other Loan Document and any other document prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by BofA (in its capacity
as U.S. Agent and Issuing Lender) and BACAN (in its capacity as Canadian Agent
and Issuing Lender) with respect thereto; and
(b) pay or reimburse each Agent and each Lender within five Business
Days after demand for all reasonable costs and expenses (including Attorney
Costs) incurred by them in connection with the enforcement, attempted
enforcement or preservation of any right or remedy under this Agreement or any
other Loan Document during the existence of an Event of Default or after
acceleration of the Loans (including in connection with any "workout" or
restructuring regarding the Loans, and including in any Insolvency Proceeding or
appellate proceeding).
The agreements in this Section shall survive the termination of this Agreement
and the payment of all other Obligations.
12.5 BORROWER INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, the Borrowers shall indemnify and hold the Agent-Related
Persons and each Lender and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each an "INDEMNIFIED PERSON")
harmless from and against any and all reasonable liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
and disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the Loans,
the termination of the Letters of Credit and the termination, resignation or
replacement of either Agent or the replacement of any Lender) be imposed on,
incurred by or asserted against any Indemnified Person in any way relating to or
arising out of this Agreement or any document
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contemplated by or referred to herein, or the transactions contemplated hereby
or thereby, or any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement or the Loans
or Letters of Credit or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); PROVIDED that neither Borrower shall have any
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities to the extent resulting from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive the termination of this Agreement and the payment of all other
Obligations.
12.6 PAYMENTS SET ASIDE. To the extent that either Borrower makes a payment
to either Agent or any Lender, or either Agent or any Lender exercises its right
of set-off, and such payment or the proceeds of such set-off or any part thereof
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by such
Agent or such Lender in its discretion) to be repaid to a trustee or receiver,
or any other party, in connection with any Insolvency Proceeding or otherwise,
then (a) to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such set-off had not occurred
and (b) each Lender severally agrees to pay to the Applicable Agent upon demand
its pro rata share of any amount so recovered from or repaid by such Agent.
12.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrowers may not assign or transfer any
of their respective rights or obligations under this Agreement without the prior
written consent of the Agents and each Lender.
12.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Lender may, with the written
consent of Parent (at all times other than during the existence of an Event of
Default), the Agents and the Issuing Lenders, which consents shall not be
unreasonably withheld or delayed, at any time assign and delegate to one or more
commercial banks or other financial institutions (provided that no written
consent of Parent, either Agent or either Issuing Lender shall be required in
connection with any assignment and delegation by a Lender to a commercial bank
or financial institution that is an Affiliate of such Lender (so long as such
assignment will not result in any increased costs to either Borrower) or to
another Lender) (each an "ASSIGNEE") all or any part of the Loans, the
Commitment, the L/C Obligations and the other rights and obligations of such
Lender hereunder, in a minimum Dollar Equivalent amount of U.S.$5,000,000 or, if
less, the entire amount of all Loans, the Commitment, L/C Obligations and other
rights and obligations of such Lender hereunder; PROVIDED, HOWEVER, that the
Borrowers and the Agents may continue to deal solely and directly with such
Lender in connection with the interest so assigned to an Assignee until (x)
written notice of such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have been given to
the
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Borrowers and the Agents by such Lender and the Assignee; (y) such Lender and
its Assignee shall have delivered to the Borrowers and the Agents an Assignment
and Acceptance ("ASSIGNMENT AND ACCEPTANCE") in the form of EXHIBIT E-1 or
EXHIBIT E-2, as applicable, together with any Note or Notes subject to such
assignment and (z) the assignor Lender or Assignee shall have paid to the
Applicable Agent a processing fee in a Dollar Equivalent amount of U.S.$3,500.
(b) From and after the date that the U.S. Agent notifies the
assignor Lender that it has received (and provided its consent and, to the
extent required, received the consents of Parent, the other Agent and the
Issuing Lenders with respect to) an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights hereunder have been
assigned to it and obligations hereunder have been assumed by it pursuant to
such Assignment and Acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Loan Documents.
(c) Any Lender may at any time sell to one or more commercial banks
or other Persons not Affiliates of Parent (a "PARTICIPANT") participating
interests in any Loan, the Commitment of such Lender and the other interests of
such Lender (the "ORIGINATING LENDER") hereunder and under the other Loan
Documents; PROVIDED, HOWEVER, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Borrowers, the Issuing Lenders and the Agents shall continue to deal solely and
directly with the originating Lender in connection with the originating Lender's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Lender shall transfer or grant any participating interest under which
the Participant has the right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment, consent or waiver would require unanimous consent of the
Lenders as described in the FIRST PROVISO to SECTION 12.1. In the case of any
such participation, the Participant shall be entitled to the benefit of SECTIONS
5.1, 5.3, 5.4, 5.6 and 12.5 as though it were also a Lender hereunder (provided
that neither Borrower shall be obligated to pay any amount under SECTION 5.1,
5.3, or 5.6 to any Participant which is greater than such Lender would have been
required to pay to the originating Lender if no such participation had been
sold), and if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, the Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under this Agreement.
(d) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and
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interest in this Agreement and any Note held by it in favor of any Federal
Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
12.9 CONFIDENTIALITY. Each Lender agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified in writing as
"confidential" or "secret" by Parent or any of its Subsidiaries (including
projections required by SECTION 8.1.8, which information is non-public and may
constitute "inside information" for purposes of state, provincial or federal
securities laws) and provided to it by Parent or any Subsidiary, or by either
Agent on Parent's or any Subsidiary's behalf, under this Agreement, and neither
such Lender nor any of its Affiliates shall use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with Parent or any Subsidiary; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by such Lender, or (ii) was or becomes available on a
non-confidential basis from a source other than Parent or any Subsidiary,
provided that such source is not bound by a confidentiality agreement with
Parent or any Subsidiary known to such Lender; PROVIDED, HOWEVER, that any
Lender may disclose such information (A) at the request or pursuant to any
requirement of any Governmental Authority to which such Lender is subject or in
connection with an examination of such Lender by any such authority; (B)
pursuant to subpoena or other court process; (C) when required to do so in
accordance with the provisions of any applicable Requirement of Law; (D) to the
extent reasonably required in connection with any litigation or proceeding to
which either Agent or any Lender or any of their respective Affiliates may be
party; (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (F) to such Lender's
independent auditors and other professional advisors; (G) to any Participant or
Assignee, actual or potential, provided that such Person agrees in writing to
keep such information confidential to the same extent required of the Lenders
hereunder; (H) as to any Lender or its Affiliates, as expressly permitted under
the terms of any other document or agreement regarding confidentiality to which
Parent or any Subsidiary is party or is deemed party with such Lender or such
Affiliate; and (I) to its Affiliates.
12.10 SET-OFF. In addition to any right or remedy of the Lenders provided
by law, if an Event of Default exists, each Lender is authorized at any time and
from time to time, without prior notice to either Borrower, any such notice
being waived by each Borrower to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held by, and other indebtedness at any time owing by, such
Lender to or for the credit or the account of either Borrower against any and
all Obligations owing to such Lender, now or hereafter existing, irrespective of
whether or not either Agent or such Lender shall have made demand under this
Agreement and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify Parent and the Agents after
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any such set-off and application made by such Lender; PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application.
12.11 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Lender shall
notify the U.S. Agent (and, in the case of a Canadian Lender, the Canadian
Agent) in writing of any change in the address to which notices to such Lender
should be directed, of addresses of any Lending Office, of payment instructions
in respect of all payments to be made to it hereunder and of such other
administrative information as either Agent shall reasonably request.
12.12 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of which taken together shall constitute but one and the same
instrument.
12.13 SEVERABILITY. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or such instrument or agreement.
12.14 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and legal benefit of the Borrowers, the Lenders, the
Agents and the Agent-Related Persons, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary of,
or have any direct or indirect cause of action or claim in connection with, this
Agreement.
12.15 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND ANY NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK; PROVIDED THAT THE AGENTS AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING
UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH BORROWER, EACH AGENT AND EACH LENDER CONSENTS,
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURTS. EACH BORROWER, EACH AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH BORROWER, EACH AGENT AND EACH
LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS,
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COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
NEW YORK LAW.
12.16 WAIVER OF JURY TRIAL. EACH BORROWER, EACH LENDER AND EACH AGENT
WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION
OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH BORROWER, EACH LENDER AND EACH AGENT
AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT
ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
12.17 JUDGMENT. If, for the purposes of obtaining judgment in any court, it
is necessary to convert a sum due hereunder or any other Loan Document in one
currency into another currency, the rate of exchange used shall be that at which
in accordance with normal banking procedures the Applicable Agent could purchase
the first currency with such other currency on the Business Day preceding that
on which final judgment is given. The obligation of each Borrower in respect of
any such sum due from it to the Applicable Agent hereunder or under any other
Loan Document shall, notwithstanding any judgment in a currency (the "JUDGMENT
CURRENCY") other than that in which such sum is denominated in accordance with
the applicable provisions of this Agreement (the "AGREEMENT CURRENCY"), be
discharged only to the extent that on the Business Day following receipt by the
Applicable Agent of any sum adjudged to be so due in the Judgment Currency, such
Agent may in accordance with normal banking procedures purchase the Agreement
Currency with the Judgment Currency. If the amount of the Agreement Currency so
purchased is less than the sum originally due to the Applicable Agent in the
Agreement Currency, the Applicable Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such Agent or the Person to whom
such obligation was owing against such loss. If the amount of the Agreement
Currency so purchased is greater than the sum originally due to the Applicable
Agent in such currency, such Agent agrees to return the amount of any excess to
the Applicable Borrower (or to any other Person who may be entitled thereto
under applicable law).
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12.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents and any letters relating to fees described in SECTION 2.5.1 or
SUBSECTION 4.8(B), embodies the entire agreement and understanding among the
Borrowers, the Lenders and the Agents, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
CAPITAL ENVIRONMENTAL RESOURCE,
INC./RESSOURCES ENVIRONNEMENTALES
CAPITAL INC.
By: /s/ Tony Busseri
------------------------
Title: Chairman
CERI, L.P.
By: 1312654 Ontario Inc., its General Partner
By: /s/ Tony Busseri
------------------------
Title: Chairman
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as U.S. Agent
By: /s/ (Illegible)
------------------------
Title: Agency Officer
BANK OF AMERICA CANADA,
as Canadian Agent
By: /s/ (Illegible)
------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a U.S. Lender and as
an Issuing Lender
By: /s/ (Illegible)
------------------------
Title: Senior Vice President
BANK OF AMERICA CANADA, as a Canadian
Lender and as an Issuing Lender
By: /s/ (Illegible)
------------------------
Title: Vice President
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
as a Canadian Lender and as Co-Agent
By: /s/ (Illegible)
------------------------
Title: Director
<PAGE>
Exhibit 10.6
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT made this _________ day of
April, 1999.
BETWEEN:
CAPITAL ENVIRONMENTAL RESOURCE INC., a corporation incorporated
pursuant to the laws of the Province of Ontario (the
"Corporation")
- and -
The holders of Common Shares of the Corporation listed in Schedule
1 to this Agreement (collectively, the "Common Shareholders")
- and -
The holders of the Preference Shares of the Corporation listed in
Schedule 2 to this Agreement (collectively, the "Preference
Shareholders")
- and -
The holders of the Warrants of the Corporation listed in Schedule
3 to this Agreement (collectively, the "Warrant Holders")
WHEREAS the Corporation, the Preference Shareholders, and the Warrant
Holders are parties to a shareholders agreement dated July 16, 1997 as amended
by agreements INTER ALIA adding certain of the Common Shareholders as parties
thereto dated June 16, 1998, and by further amendments dated October 8, 1998 and
October 23, 1998 (collectively, the "Shareholders Agreement");
AND WHEREAS the Corporation intends to complete an initial public
offering of common shares pursuant to a registration statement on Form F-1 to be
filed with the United States Securities and Exchange Commission under the U.S.
SECURITIES ACT OF 1933, as amended, in April or May of 1999 (the "Initial Public
Offering");
AND WHEREAS each of the Preference Shareholders have agreed that the
convertible Preference Shares held by them, as set out in Schedule 2 hereto,
shall be automatically converted into common shares coincident with the closing
of the Initial Public Offering, provided that the issue price to the public of
the common shares of the Corporation on such Initial Public Offering is not less
than U.S. $18.00 per share (prior to taking into account any subdivision of the
common stock authorized in connection with such Initial Public Offering) (a
"Qualifying Public Offering");
AND WHEREAS as a result of the conversion, the Preference Shareholders
will be the holders of that number of common shares set opposite their
respective names in Schedule 2 hereto;
<PAGE>
AND WHEREAS the parties wish to amend and restate the Shareholders
Agreement conditional on and effective upon the closing of a Qualifying Public
Offering to, among other things, restate the rights of the parties as
shareholders of the Corporation.
AND WHEREAS the parties intend that upon the closing of a Qualifying
Public Offering this Agreement shall supersede all prior agreements,
understandings, negotiations and discussions whether oral or written entered
into between the parties in respect of their shareholdings in the Corporation,
including without limitation the Shareholder Agreement dated July 16, 1997, as
amended by Agreements dated June 16, 1998, October 8, 1998 and October 23, 1998.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency whereof is
hereby acknowledged, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. In this Agreement, the following terms shall have the meanings
set out below unless the context requires otherwise:
"1934 ACT" means the U.S. SECURITIES EXCHANGE ACT OF 1934, as amended, or
any successor federal statute and the rules and regulations thereunder
and as the same shall be in effect from time to time.
"ACT" means the BUSINESS CORPORATIONS ACT, R.S.O. 1990, c. B16.
"AGREEMENT" means this Agreement, including the Schedules to this
Agreement, as it or they may be amended or supplemented from time to time
and the expressions "HEREOF", "HEREIN", "HERETO", "HEREUNDER", "HEREBY"
and similar expressions refer to this Agreement and not to any particular
Section or other portion of this Agreement.
"ARTICLES" means the Articles of Incorporation of the Corporation, as
amended and restated effective upon the closing of the Qualifying Public
Offering, a copy of which are annexed hereto as Exhibit A, and as the
same may be amended from time to time thereafter.
"AMENDING AGREEMENT" has the meaning ascribed to such term in Section
4.2.
"BUSINESS DAY" means any day except Saturday, Sunday or any day on which
banks are generally not open for business in the place where the
registered office of the Corporation is located.
<PAGE>
"CANADIAN PUBLIC OFFERING" has the meaning ascribed thereto in Section
3.1 (e).
"COMMON SHARES" means shares in the capital of the Corporation designated
as common shares in the Articles and shall for greater certainty, include
Common Shares issued to the Preference Shareholders on the conversion of
their Convertible Preference Shares as set out in Schedule 2.
"DEMAND HOLDER" has the meaning ascribed thereto in Section 3.2.
"DEMAND REGISTRATION" has the meaning ascribed thereto in Section 3.2.
"INCLUDING" means including without limitation and "INCLUDES" means
includes without limitation.
"OFFERING HOLDER" has the meaning ascribed thereto in Section 3.10.
"PARTY" means a party to this Agreement and any reference to a Party
includes its heirs, executors, administrators, successors and permitted
assigns; and "PARTIES" means every Party.
"PERSON" is to be broadly interpreted and includes an individual, a
corporation, a partnership, a trust, an unincorporated organization, the
government of a country or any political subdivision thereof, or any
agency or department of any such government, and the executor,
administrators or other legal representatives of an individual in such
capacity.
"REGISTRATION NOTICE" has the meaning ascribed to it in Section 3.2.
"RESTRICTED SHARES" has the meaning ascribed to it in Section 2.1.
"RULE 144" means Rule 144 promulgated by the U.S. Securities and Exchange
Commission under the Securities Act, or any successor federal rule as the
same shall be in effect from time to time.
"RULE 144A" means Rule 144A promulgated by the U.S. Securities and
Exchange Commission under the Securities Act, or any successor federal
rule as the same shall be in effect from time to time.
"SECURITIES ACT" means the U.S. SECURITIES ACT OF 1933, as amended, or
any successor federal U.S. statute, and the rules and regulations
thereunder, and as the same shall be in effect from time to time.
"SHAREHOLDER" means each holder of Common Shares listed in Schedule 1 and
the holders of Common Shares listed in Schedule 2 hereto following the
conversion of their Convertible Preference Shares and any Person who
acquires Restricted Shares in
<PAGE>
accordance with the provisions of this Agreement and for as long as such
Person owns any issued shares of the Corporation; and "SHAREHOLDERS"
means collectively every Shareholder.
"SHAREHOLDER REQUEST" has the meaning ascribed thereto in Section 3.1.
"TRANSFER" of shares includes any sale, exchange, transfer, assignment,
gift, pledge, encumbrance, hypothecation, alineation, transmission or
other transaction, whether voluntary, involuntary or by operation of law,
by which the legal or beneficial ownership of, or a security interest or
other interest in Restricted Shares passes from one Person to another, or
to the same Person in a different capacity, whether or not for value.
"WARRANT" means a warrant to purchase a Common Share of the Corporation
pursuant to a Warrant Certificate (as hereinafter defined), and
"WARRANTS" refers collectively to all Warrants.
"WARRANT CERTIFICATES" refers to the Warrant Certificates issued to the
Warrant Holders to purchase in the aggregate 88,889 Common Shares in the
capital of the Corporation and "WARRANT CERTIFICATE" refers to any one of
the Warrant Certificates.
"WARRANT SHARES" means common shares issuable pursuant to the Warrants.
1.2 HEADINGS AND TABLE OF CONTENTS. The division of this Agreement into Articles
and Sections and the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
1.3 NUMBER AND GENDER. Unless the context requires otherwise, words importing
the singular include the plural and VICE VERSA and wordings importing gender
include all genders.
1.4 BUSINESS DAYS. If any payment is required to be made or other action is
required to be taken pursuant to this Agreement on a day which is not a Business
Day, then such payment or action shall be made or taken on the next Business
Day.
1.5 STATUTE REFERENCES. Any reference in this Agreement to any statute or any
section thereof shall, unless otherwise expressly stated, be deemed to be a
reference to such statute or section as amended, restated or re-enacted or
replaced from time to time.
1.6 SECTIONS AND SCHEDULE REFERENCES. Unless the context requires otherwise,
references in this Agreement to Articles, Sections, Subsections or Schedules are
to Articles, Sections, Subsections or Schedules of this Agreement.
ARTICLE 2
SHARE TRANSFERS
<PAGE>
2.1 RESTRICTED SHARES. Each certificate for Common Shares (including for Common
Shares issued to the Preference Shareholders on the conversion of their
Convertible Preference Shares to Common Shares) issued to the Shareholders shall
be stamped or imprinted with a legend substantially as follows:
Restrictions: The shares represented by this certificate have
not been registered under the SECURITIES ACT OF 1933, as
amended (the "Securities Act"), or any state securities or
blue sky laws, nor have the shares been qualified for
distribution to the public under the securities laws of any
Province of Canada. Such shares have been acquired for
investment and may not be sold, transferred, pledged, or
hypothecated in the absence of an effective registration
statement for such shares under the Securities Act and any
state securities or blue sky laws, or a qualification for
distribution to the public under the securities laws of any
Province of Canada unless in the written opinion of legal
counsel (which opinion is satisfactory in form and substance
to the Corporation acting reasonably) that such registration
or qualification is not required.
2.2 SECURITIES LAW RESTRICTIONS. No Shareholder shall Transfer any shares
containing the legend set out in Section 2.1 above, unless and until (i) the
Transfer is registered under the Securities Act and any applicable state
securities laws, or (ii) the Corporation shall have received a written opinion
of legal counsel to the Shareholder, which is satisfactory in form and substance
to the Corporation's legal counsel acting reasonably, that the Transfer is
exempt from the registration requirements of the Securities Act and applicable
state securities laws, and /or from the prospectus and registration requirements
of applicable securities laws of any relevant province of Canada.
ARTICLE 3
REGISTRATION RIGHTS
3.1 PIGGYBACK REGISTRATIONS. If at any time after the closing of a Qualifying
Public Offering, while any Shareholder holds a share certificate evidencing
Common Shares which bears the restrictive legend set forth in Section 2.1 above
(the "Restricted Shares"), the Corporation proposes to file a registration
statement under the Securities Act to register the sale of Common Shares on a
form other than Form S-4, F-4 or S-8 (or such other forms as the Securities and
Exchange Commission may promulgate hereafter for registration of the sale of
securities in transactions for which Forms S-4, F-4 or S-8 may be used as of the
date hereof) and, other than a registration statement to be filed pursuant to
Section 3.2 hereof, it will give written notice to each Shareholder and Warrant
Holder at least twenty (20) days prior to the date of the first filing of a
registration statement with the U.S. Securities and Exchange Commission. Each
Shareholder who is the holder of Restricted Shares at the time of receipt of
such notice and each Warrant Holder (subject to compliance with the provisions
of Subsection 3.1(e) may, within ten (10) days of receipt of such notice,
request in writing (the "Shareholder Request") that the Corporation include in
the registration statement to
<PAGE>
be filed by the Corporation that number of Restricted Shares owned by such
Shareholder (the "Requesting Shareholder") and specified in the Shareholder
Request and the Corporation shall include in the registration statement all of
the Restricted Shares specified in the Shareholder Request subject to the
following:
(a) The Corporation will pay all expenses of such registration, except that
each Requesting Shareholder whose Common Shares are included in such
registration shall pay all underwriting discounts and commissions
applicable to its Common Shares and all accounting and legal fees and
expenses of its own accountant and legal counsel, if any; provided,
however, that if the expense of such registration is borne by a Person
other than the Corporation, the Corporation shall pay on behalf of the
Requesting Shareholder, whose Common Shares are included in such
registration, a PRO RATA share of the incremental expense of such Common
Shares being included in such registration.
(b) If such registration statement is for a prospective underwritten
offering, the Requesting Shareholder agrees to sell its Common Shares on
the same basis as the other Common Shares covered by such registration
statement are being sold. Each Requesting Shareholder whose shares are to
be registered pursuant to the registration statement shall be a party to
the applicable underwriting agreement and shall provide customary
representations, warranties, opinions and other agreements, and shall be
responsible for its PRO RATA share of any underwriting fees, commissions
or discounts payable to the underwriters.
(c) The Corporation may withdraw any such registration statement before it
becomes effective or postpone the offering of Common Shares contemplated
by such registration statement without any obligation to any Requesting
Shareholder.
(d) If such registration statement is for an underwritten offering and, in
the opinion of the managing underwriters or the Board of Directors of the
Corporation (as determined by a resolution thereof), the inclusion in the
registration statement of all or any part of the Restricted Shares
specified in all Shareholder Requests received by the Corporation
pursuant to this Section 3.1, would be detrimental to the proposed
offering of Common Stock, the Corporation may reduce or eliminate the
number of Restricted Shares to be included from all Requesting
Shareholders; and, unless the Requesting Shareholder and the Corporation
otherwise agree, in making such reduction, the Warrant Holders and the
Preference Shareholders (notwithstanding the conversion of their shares
to Common Shares coincident with the closing of the Qualifying Public
Offering) shall have priority over the Common Shareholders in including
their Restricted Shares in the offering and subject to a special
allocation to accomplish the foregoing preference in favour of the
Warrant Holders and Preference Shareholders , each Requesting Shareholder
shall have Restricted Shares owned by it included in the registration
statement in the same proportion that the number of its Restricted Shares
requested to be included at that time bears to the total holdings of
Restricted Shares that the Requesting Shareholders have requested be
included in the registration statement; provided, however, in no event
shall a Requesting Shareholder be entitled or required to include a
greater number of Restricted Shares in the
<PAGE>
registration statement than are specified in the Shareholder Request.
(e) In requesting the inclusion of Restricted Shares in the registration
statement pursuant to Section 3.1, a Requesting Shareholder may include
Common Shares to be acquired on the exercise of Warrants, provided such
Warrants are then exercisable and the Warrant Holder shall have acquired
the Common Shares to be included pursuant to the exercise of the Warrants
in accordance with the terms thereof prior to the closing of the sale of
such Common Shares pursuant to the registration statement. .
(f) If, at any time while Restricted Shares are outstanding, the Corporation
proposes to file a prospectus or otherwise qualify any Common Shares for
offering to the public in any province in Canada (a "Canadian Public
Offering") then any Shareholder and Warrant Holder who would have
piggyback registration rights in accordance with the foregoing provisions
of this Section 3.1 if those provisions become operative shall be
afforded the opportunity to have its Common Shares qualified for
participation in the Canadian Public Offering on the terms and conditions
set out above.
3.2 DEMAND REGISTRATION. At any time after the expiration of one hundred and
eighty (180) days following the closing of the Qualifying Public Offering and
prior to the expiration or termination of this Agreement, holders of a majority
of the then outstanding Restricted Shares and of the Warrant Shares taken
together (the "Demand Holders") may make a written request to the Corporation
(the "Demand") for registration under the Securities Act of all or part of the
Restricted Shares held by the Demand Holders issuing the Demand, and which
request shall specify the number of Restricted Shares (including Warrant Shares
issuable on the exercise of Warrants that are then exercisable) and the intended
method of distribution thereof and as soon as practicable thereafter, the
Corporation will cause a registration on Form S-1 or F-1 (on form S-2, F-2, or
S-3 or F-3 if any of such forms can be used) under the Securities Act , or any
comparable form then in force, as selected by the Corporation in its discretion
from time to time, to be filed covering the Restricted Shares specified in the
Demand (the "Demand Registration") and shall use its best efforts to cause the
registration statement to become effective, subject to the following:
(a) Within ten (10) days after receipt of the Demand, the Corporation shall
give written notice (the "Registration Notice") of the Demand to all
other Demand Holders who did not join in the Demand. Subject to the
applicable provisions of Section 3.1 (to the extent the same are not
inconsistent with the provisions of this Section 3.2)) and this Section
3.2, the Corporation will include in the Demand Registration all
Restricted Shares of such other Demand Holders and with respect to which
the Corporation has received written request for inclusion therein within
ten (10) days after the receipt by such other Demand Holders of the
Registration Notice. All requests made pursuant to this Section 3.2(a)
will specify the aggregate number of Restricted Shares to be registered
and also will specify the intended methods of disposition thereof. In
requesting the inclusion of Restricted Shares in the registration
statement pursuant to this Section 3.2(a), the Warrant Holders may
specify Common Shares which could then be acquired by each Warrant Holder
pursuant to the exercise of the Warrant provided that such Warrant Holder
shall have acquired
<PAGE>
Common Shares pursuant to the exercise of the Warrant in accordance with
the terms thereof prior to the closing of the offering of such shares
pursuant to the Demand Registration..
(b) Except as provided in Section 3.2(d) the Demand Holders shall not be
entitled to more than two Demand Registrations pursuant to this Section
3.2 provided that no Demand Registration shall be counted toward this
total unless and until declared effective by the Securities and Exchange
Commission. The Demand Holders issuing the Demand may withdraw their
request for a Demand Registration before it becomes effective provided
that they reimburse the Corporation for out-of-pocket expenses incurred
in connection with the Demand Registration and in such event the same
shall not be counted as a Demand Registration pursuant to this Section
3.2.
(c) If any request for a Demand Registration is for an underwritten public
offering, such public offering shall be lead managed by an underwriter or
underwriters of recognized national stature in the United States of
America, selected by the Corporation.
(d) If the managing underwriter or underwriters of any Demand Registration
advises the Corporation in writing that in its or their opinion the
number of securities proposed to be sold in such Demand Registration
exceeds the number which can be sold in such offering, the Corporation
will include in such registration only the number of Restricted Shares,
if any, which in the opinion of such underwriter or underwriters, should
be so included, and the Warrant Holders and the Preference Shareholders
(notwithstanding the conversion of their shares to common shares
coincident with the closing of the Qualifying Public Offering) shall have
priority over the Common Shareholders in including their shares in the
offering and subject to a special allocation to accomplish the foregoing
preference in favour of the Warrant Holders and Preference Shareholders,
Restricted Shares of the Demand Holders shall be excluded PRO RATA among
all Demand Holders that have requested Common Shares to be included in
such Demand Registration in the same proportion that their total holdings
of Restricted Shares eligible for inclusion in the registration statement
at that time bears to the total holdings of Restricted Shares eligible
for inclusion in the registration statement of all Demand Holders
requesting inclusion; provided, however that (i) if one third (1/3) or
more of all Restricted Shares eligible for inclusion in the registration
statement of the Restricted Shares requested for inclusion in any Demand
Registration are not included in such Demand Registration, then
notwithstanding the terms and provision of Section 3.2(b) a majority of
the Demand Holders shall be entitled to an additional Demand Registration
hereunder (on the same terms and conditions as would have applied to the
Demand Holders had such initial Demand Registration not be made).
(e) The Corporation will pay all expenses of any Demand Registration, except
that each Demand Holder whose Restricted Shares are included in such
registration shall pay all underwriting discounts and commissions
applicable to its Common Shares and all accounting and legal fees and
expenses of its own accountant and counsel, if any. If the Demand
Registration is for an underwritten offering, each Demand Holder
including
<PAGE>
Restricted Shares in such Demand Registration, shall be a party to the
applicable underwriting agreement and shall provide customary
representations, warranties, opinions and other agreements, and shall be
responsible for its PRO RATA share of any underwriting fees, commissions
or discounts payable to the underwriters.
(f) Notwithstanding the foregoing, the Corporation may decline to effect a
Demand Registration pursuant to this Section 3.2 during the period
starting with the date sixty (60) days prior to the Corporation's
estimated date of filing of, and ending on a date one hundred and twenty
(120) days following the effective date of, a registration statement
pertaining to an underwritten public offering of Common Shares for the
account of the Corporation, provided that the Corporation's estimate of
the date of filing such registration statement is made in good faith. If
the Corporation (i) shall furnish to the Shareholders requesting
inclusion in such Demand Registration a certificate signed by the
President or Chief Executive Officer of the Corporation stating that the
Board of Directors of the Corporation has in good faith adopted a
resolution stating that it would be detrimental to the Corporation or its
shareholders for a registration statement to be filed in the near future;
or (ii) desires to postpone filing a registration statement in order to
be able to include in such filing audited year-end financial statements
prepared in the ordinary course of preparing its annual report to its
shareholders (including on Form 10-K or such other applicable form); or
(iii) gives notice to the Demand Holders, within thirty (30) days of the
receipt of the Demand, that it is engaged or has plans to engage in an
firm underwritten registered public offering of its securities within
thirty (30) days of the notice date, then the Corporation may delay a
requested Demand Registration for not more than one hundred and twenty
(120) days from the date of the Demand, provided that such delay may be
invoked on not more than three (3) occasions in total and on not more
than one (1) occasion within any twelve (12) month period; and, provided
further that such delay may not be invoked within one hundred and eighty
(180) days of the Corporation having declined to effect a Demand
Registration pursuant to the circumstances set forth in the first
sentence of this Subsection 3.2(f).
3.3 EXPIRATION. This Agreement and all of the rights and obligations of the
Shareholders, Warrant Holders and of the Corporation pursuant to this Article 3
shall automatically expire on the date when 2/3 of the Restricted Shares owned
by all of the Shareholders on the date hereof have been sold in registered
transactions or may be immediately sold pursuant to Rule 144 (taking into
account the volume limitations thereunder).
3.4 AMENDMENTS. In connection with any registration statement filed pursuant to
this Article 3, the Corporation shall file any post-effective amendment or
amendments to the registration statement which may be required under the
Securities Act during the period reasonably required to effect the distribution
contemplated thereby; provided, however, that the Corporation shall not be
required to file any post-effective amendment to any registration statement
described in this Article 3 more than one hundred and twenty (120) days after
the effective date of the registration statement.
3.5 NOTIFICATION OF CERTAIN EVENTS. During the period for which the Corporation
is required to file
<PAGE>
and keep effective a registration statement pursuant to this Agreement, the
Corporation shall furnish each Shareholder who included his Restricted Shares in
the registration statement with the number of copies of the registration
statement (including exhibits) and prospectuses contained therein that are
reasonably requested for the purposes contemplated by the Securities Act. The
Corporation shall notify each Shareholder selling Restricted Shares covered by
such registration statement during the period such registration statement is
required to remain effective, or at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the registration statement or the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of circumstances then existing. Each Shareholder who has included
Restricted Shares in the registration statement agrees, upon receipt of such
notice, forthwith to cease making offers and sales of such securities pursuant
to such registration statement or deliveries of the prospectus contained therein
for any purpose and to return to the Corporation the copies of such prospectus
not theretofore delivered by such Shareholder. Subject to Section 3.5 at the
request of such Shareholder, the Corporation shall prepare and furnish to such
Shareholder a reasonable number of copies of any supplement to or amendment of
such prospectus that may be necessary so that, as thereafter delivered to the
purchaser of such shares, such prospectus shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
circumstances then existing. The Corporation shall promptly notify all
Shareholders who has included Restricted Shares in the registration statement of
any stop order, injunction or similar proceeding initiated by state or federal
regulatory bodies and, subject to Section 3.5, use its reasonable efforts to
take all necessary steps expeditiously to remove such stop order or similar
proceeding. The Corporation shall be permitted to suspend the effectiveness of a
registration statement during such time as any such stop order, injunction or
other similar proceeding is in effect.
3.6 PROVISION OF INFORMATION. As a condition to the Corporation's obligation
under Article 3 to cause the registration statement or an amendment to be filed
or Restricted Shares to be included in the registration statement, the holders
of any Restricted Shares that are to be included in such registration statement
shall provide such information and execute such documents and certificates
(including any agreement or undertaking relating to expenses, indemnification or
other matters contemplated by this Agreement) as may reasonably be required by
the Corporation in connection with such registration.
3.7 REPORTS. After the first registration statement under the Securities Act for
any securities of the Corporation shall have become effective, the Corporation
will use its best efforts to file by the required filing date (as such date may
be extended) all reports required to be filed by it pursuant to the 1934 Act
and, upon the request of any Shareholder, to furnish such Shareholder such
information as may be necessary to enable it to effect sales of its securities
pursuant to Rule 144 or Rule 144A.
3.8 NEW CERTIFICATES. As expeditiously as possible after the effectiveness of
any registration statement provided for in this Article 3, the Corporation shall
deliver, in exchange for any
<PAGE>
certificate evidencing Restricted Shares the sale of which has been registered,
new share certificates not bearing the legend set forth in Section 2.2 of this
Agreement. In the event that any of such Common Shares remain unsold when such
registration statement ceases to be effective, the share certificates not
bearing such legends evidencing such unsold Common Shares shall be delivered to
the Corporation in exchange for share certificates bearing such legends.
3.9 STATE SECURITIES LAWS. In connection with the offering of any Common Shares
the sale of which is registered pursuant to this Article 3, the Corporation
shall use reasonable efforts to qualify or register the Common Shares to be sold
under the securities or "Blue Sky" laws of such jurisdictions within the United
States as may be reasonably requested by the holder of any Common Shares so
registered; provided, however, that the Corporation shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction in which it is not then qualified or to file any general consent to
service of process. The expense of such qualification or registration shall be
borne by the Corporation.
3.10 INDEMNIFICATION. In connection with any registration of the sale of Common
Shares pursuant to this Article 3, to the extent permitted by law, the
Corporation shall indemnify the Offering Holders of Common Shares and the
Offering Holders of Common Shares shall indemnify the Corporation in the manner
provided in this Section 3.10.
(a) The Corporation shall indemnify and hold harmless each holder of
Restricted Shares included in the registration statement pursuant to the
provisions of this Article 3 (the "Offering Holder") and each officer,
each director and each partner (and each officer or director of such
partner), if any, of the Offering Holder, each underwriter, if any, for
the sale or distribution of such Offering Holder's Common Shares, and
each Person, if any, who controls such Offering Holder or underwriter
within the meaning of the Securities Act, against all losses, claims,
damages or liabilities, joint or several, to which such Offering Holder,
officer, director, partner, partner's officer or director, underwriter or
controlling Person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement, prospectus or any amendment or supplement
thereto filed by the Corporation in which an Offering Holder's Restricted
Shares are included pursuant to the provisions of this Article 3, or
arise out of or are based upon the omission or alleged omission to state
therein a materiel fact required to be stated therein or necessary to
make the statement therein, in the light of the circumstances under which
they were made, not misleading and, subject to Section 3.10(c) of this
Agreement, the Corporation shall reimburse each Offering Holder, officer,
director, partner, partner's officer or director, underwriter or
controlling Person thereof for any legal or other expenses reasonably
incurred by such Offering Holder, officer, director, partner, partner's
officer or director, underwriter or controlling Person thereof in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation shall not be
required to indemnify and hold harmless or reimburse an Offering Holder,
officer, director, partner, partner's officer or director, underwriter or
controlling Person thereof, as the case may be, to the extent that any
such loss, claim, damage, liability or
<PAGE>
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission in any document made in
reliance upon and in conformity with written information furnished to the
Corporation by or on behalf of an Offering Holder, officer, director,
partner, partner's officer or director, underwriter or controlling Person
thereof for use in the preparation of such documents.
(b) Each Offering Holder shall severally and not jointly indemnify and hold
harmless the Corporation, each of its directors and officers, each other
Offering Holder, and each underwriter, if any, for the sale or
distribution of such Offering Holder's shares, and each Person, if any,
who controls the Corporation, such other Offering Holder(s) or such
underwriter within the meaning the Securities Act, against all losses,
claims, damages or liabilities to which the Corporation or any such
director, officer, other Offering Holder, underwriter or controlling
Person may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any registration statement,
prospectus or any amendment or supplement thereto filed by the
Corporation in which an Offering Holder's Restricted Shares are included
pursuant to the provisions of this Article 3, or arise out of or are
based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading, in each case,
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Corporation by and on behalf of such Offering Holder for use in the
preparation thereof; and, subject to Section 3.10(c), such Offering
Holder shall reimburse the Corporation or any such director, officer,
underwriter, other Offering Holder(s) or controlling Person thereof for
any legal or other expenses reasonably incurred by the Corporation or any
such director, officer, other Offering Holder(s), underwriter or
controlling Person thereof in connection with investigating or defending
against any such loss, claim, damage, liability or action; provided,
however, that the maximum amount of liability in respect of such
indemnification shall be limited, in the case of any such Offering
Holder, to an amount equal to the net proceeds actually received by such
Offering Holder from the sale of Common Shares effected pursuant to such
registration.
(c) Promptly after receipt by an indemnified party under Section 3.10(a) or
Section 3.10(b) of notice of the commencement of any action, the
indemnified party shall notify the indemnifying party. The failure to so
notify the indemnifying party shall relieve the indemnifying party from
any liability hereunder with respect to the action to the extent such
failure prevents the indemnifying party from contesting such action;
provided, however, that any such failure shall not relieve the
indemnifying party from any other liability which it may have to any
other party. In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to assume and control the
defence of the action at its expense and if the indemnifying party gives
notice to such indemnified party of its election to assume and control
the defense, the indemnifying party will not be liable to such
indemnified party
<PAGE>
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense or investigation of the action.
3.11 STANDBY.
(a) Each of the Shareholders, Warrant Holders and the Corporation agree that,
with respect to any registration statement under the Securities Act that
the Corporation may file (other than on Forms S-8 or F-8 ), neither such
Shareholder, Warrant Holder nor the Corporation will sell any securities
of the Corporation (whether or not such securities are Restricted Shares,
and however acquired) other than securities, if any, of such Shareholder,
Warrant Holder or the Corporation included in such registration statement
for a period of at least five (5) days before, and until one hundred and
twenty (120) days after, the date such registration statement is declared
effective, provided that such Shareholder or Warrant Holder shall be so
limited only if notice of the effective date of such registration
statement has been given to such Shareholder or Warrant Holder.
(b) The Corporation agrees that any registration rights that it may grant
with respect to its securities subsequent to the date of this Agreement
will provide that upon receipt of a request from a holder or holders of
Restricted Shares pursuant to this Article 3 of this Agreement, the
Corporation shall not be obligated to file a registration statement under
the Securities Act at the request of any holder or holders of
subsequently issued securities of the Corporation until at least one
hundred and twenty (120) days after the date on which the registration
statement filed pursuant to this Article 3 of this Agreement becomes
effective.
3.12 MERGERS, ETC. The Corporation agrees that, as a condition to any merger,
amalgamation, consolidation or other business combination or the sale of all or
substantially all of its assets in exchange for securities of another company,
it will require the surviving, consolidated or purchasing company to enter into
an agreement to register the sale of the securities of such surviving,
continuing, consolidated or purchasing company to be received by the
Shareholders and Warrant Holders on substantially the same terms and provisions
as are provided in this Agreement.
3.13 ASSIGNMENT. The registration rights contained in this Agreement shall be
transferable by a Shareholder or transferee of a Shareholder to any Person who
acquires Restricted Shares from such Shareholder or transferee in compliance
with the terms and conditions of this Agreement (including any pledgee but
excluding any Person who acquires such shares in a transaction with respect to
which a registration statement under the Securities Act is effective at the time
or in a sale complying with Rule 144).
3.14 LIMITATION OF REGISTRATION RIGHTS. Nothing contained in this Agreement
shall create any obligation on behalf of the Corporation to register under the
Securities Act any securities that are not Common Shares.
ARTICLE 4
<PAGE>
GENERAL
4.1 ENTIRE AGREEMENT. This Agreement, together with any Schedules attached to
this Agreement and any agreements and documents to be delivered pursuant to the
terms of this Agreement, constitutes the entire agreement between the Parties
pertaining to the subject matter of this Agreement and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written with respect to the subject matter hereof including without limitation
the Shareholder Agreement dated July 16, 1997, as amended by Agreements dated
June 16, 1998, October 8, 1998, and October 23, 1998. There are no conditions,
representations, warranties or other agreements between the Parties in
connection with the subject matter of this Agreement, whether oral or written,
express or implied, statutory or otherwise, except as specifically set out in
this Agreement.
4.2 AMENDMENT. No amendment of this Agreement will be effective unless made in
writing and signed by the parties (the "Amending Agreement"). This Agreement may
and shall be amended if a majority of the holders of the Common Shares approve
such an amendment, in which case such amendment shall be deemed to be agreed to
by the Warrant Holders and the Corporation and the Warrant Holders and the
Corporation shall execute the Amending Agreement.
4.3 WAIVER. A waiver of any default, breach or non-compliance under this
Agreement is not effective unless in writing and signed by the Party to be bound
by the waiver. No waiver shall be inferred from or implied by any failure to act
or delay in acting by a Party in respect of any default, breach, non-observance
or by anything done or omitted to be done by another Party. The waiver by a
Party of any default, breach or non-compliance under this Agreement shall not
operate as a waiver of that Party's rights under this Agreement in respect of
any continuing or subsequent default, breach or non-compliance (whether of the
same or any other nature).
4.4 GOVERNING LAW. This Agreement shall be construed in accordance with the laws
of the State of New York.
4.5 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such prohibition or unenforceability and shall be severed from
the balance of this Agreement, all without affecting the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
4.6 FURTHER ASSURANCES. Each Party shall promptly do, execute, deliver or cause
to be done, executed and delivered all further acts, documents and things in
connection with this Agreement that another Party may reasonably require for the
purposes of giving effect to this Agreement.
4.7 NOTICES.
(a) Any notice or other communication required or permitted to be given by
this Agreement shall be in writing and shall be effectively given and
made if (i) delivered personally; or (ii)
<PAGE>
sent by prepaid courier service; or (iii) sent by registered mail; or
(iv) sent prepaid by fax or other similar means of electronic
communication, in each case to the applicable address set out below:
(i) if to the Common Shareholders or to the Preference Shareholders,
to the addresses and facsimile numbers set out in Schedules 1 and
2, respectively;
(ii) if to the Warrant Holders, to the respective addresses and
facsimile numbers set out in Schedule 3; and
(iii) if to the Corporation, to:
Capital Environmental Resource Inc.
1005 Skyview Drive
Burlington, ON L7P 5B1
Canada
Attention: General Counsel
Facsimile: (905) 319-9408
(b) Any notice or other communication so given shall be deemed to have been
given and received on the day of delivery if delivered, or on the day of
faxing or sending by other means of recorded electronic communication,
provided that such day is a Business Day and such notice or other
communication is so delivered, faxed or sent prior to 4:30 p.m. on such
day. Otherwise, such notice or other communication shall be deemed to
have been given and received on the next following Business Day. Any
notice or other communication sent by registered mail shall be deemed to
have been given and received on the fifth (5th) Business Day following
the mailing thereof; provided, however, that no such notice or other
communication shall be mailed during any actual or apprehended disruption
of postal services. Any such notice or other communication given in any
other manner shall be deemed to have been given and received only upon
actual receipt.
(c) Any Party may from time to time change its address under this Section 4.7
by notice to the Corporation given in the manner provided by this
Section.
4.8 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and be
binding on, the Parties and their respective heirs, executors, administrators,
successors and permitted assigns. Except as otherwise provided herein, no Party
hereto may assign or transfer, whether absolutely, by way of security or
otherwise, all or any part of its rights or obligations under this Agreement
without the prior written consent of the Corporation.
4.9 SUBDIVISION, CONSOLIDATION, ETC., OF SHARES. The provisions of this
Agreement relating to Common Shares shall apply MUTATIS MUTANDIS to any
securities into which the Common Shares or any of them may be converted or
changed, to any securities of the Corporation resulting from a reclassification,
subdivision or consolidation of any Common Shares, to any securities of the
Corporation which are received by the Shareholders as a dividend in kind, and to
any securities
<PAGE>
of the Corporation or of any successor body corporate which may be received by
the Shareholders or the Warrant Holders on an amalgamation, reorganization,
merger or combination of the Corporation.
4.10 TERMINATION OF AGREEMENT. This Agreement shall come into force and be
effective as of and from the date of this Agreement appearing on the first page
hereof and will continue in full force until the earlier of the date upon which
this Agreement expires pursuant to Section 3.3 hereof, or is terminated by the
written agreement of the Shareholders and the Warrant Holders and the
Corporation, or the Corporation is dissolved pursuant to the Act (provided that
if the Corporation is dissolved and is subsequently revived pursuant to the Act,
the dissolution shall be deemed not to have occurred for the purposes of this
Section).
4.11 COUNTERPARTS. This Agreement may be executed by the Parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF this Agreement has been duly executed on the date first noted
above.
CAPITAL ENVIRONMENTAL
RESOURCE INC. BRANARD INVESTMENT CORP.
By: C.S. By: C.S.
------------------------------ ----------------------------
Name: Name:
Title: Title:
ENVIRONMENTAL OPPORTUNITIES ENVIRONMENTAL OPPORTUNITIES
FUND, L.P. FUND (CAYMAN), L.P.
BY: ENVIRONMENTAL OPPORTUNITIES BY: ENVIRONMENTAL OPPORTUNITIES
MANAGEMENT CO., LLC MANAGEMENT CO., LLC
ITS GENERAL PARTNER ITS GENERAL PARTNER
Per: /s/ Bruce R. McMaken Per: /s/ Bruce R. McMaken
---------------------------- -----------------------------
Name: Bruce R. McMaken Name: Bruce R. McMaken
Title: Manager Title: Manager
ENVIRONMENTAL OPPORTUNITIES ENVIRONMENTAL OPPORTUNITIES
FUND II, L.P. FUND II (INSTITUTIONAL), L.P.
BY: FUND II MGT. CO., LLC BY: FUND II MGT. CO., LLC
ITS GENERAL PARTNER ITS GENERAL PARTNER
<PAGE>
Per: /s/ Bruce R. McMaken Per: /s/ Bruce R. McMaken
---------------------------- -----------------------------
Name: Bruce R. McMaken Name: Bruce R. McMaken
Title: Manager Title: Manager
<PAGE>
CERI INVESTORS, L.P. CABOT CAPITAL CORPORATION
Per: Per:
----------------------------- ------------------------------
Name: Name:
Title Title:
SANDERS MORRIS MUNDY INC.
Per:
-----------------------------
Name:
Title:
/s/ GEORGE BALL /s/ MICHAEL S. CHADWICK
----------------------------- -----------------------------
GEORGE BALL MICHAEL S. CHADWICK
/s/ MORTON COHN /s/ CHARLES P. DAVIS
----------------------------- -----------------------------
MORTON COHN CHARLES P. DAVIS
/s/ SAMUEL A. JONES /s/ SUSAN SANDERS KELLAR
----------------------------- -----------------------------
SAMUEL A. JONES SUSAN SANDERS KELLAR
/s/ R. LARRY KINNEY /s/ JOHN H. AND JODY F. MALANGA
----------------------------- -----------------------------
R. LARRY KINNEY JOHN H. AND JODY F. MALANGA
/s/ MICHAEL H. MCCONNELL /s/ BRUCE MCMAKEN
----------------------------- -----------------------------
MICHAEL H. MCCONNELL BRUCE MCMAKEN
/s/ DONALD J. MOOREHEAD, JR. /s/ BEN T. MORRIS
----------------------------- -----------------------------
DONALD J. MOOREHEAD, JR. BEN T. MORRIS
/s/ JOHN I. MUNDY /s/ JOHN M. O'QUINN
----------------------------- -----------------------------
JOHN I. MUNDY JOHN M. O'QUINN
<PAGE>
/s/ HUMBERT B. POWELL, III /s/ LEONARD RAUCH
----------------------------- -----------------------------
HUMBERT B. POWELL, III LEONARD RAUCH
/s/ REX C. AND ADRIAN T. ROSS /s/ NOLAN RYAN
----------------------------- -----------------------------
REX C. AND ADRIAN T. ROSS NOLAN RYAN
/s/ CHRISTINE M. SANDERS /s/ KATHERINE U. SANDERS
----------------------------- -----------------------------
CHRISTINE M. SANDERS KATHERINE U. SANDERS
/s/ LAURA K. SANDERS /s/ BRAD D. SANDERS
----------------------------- -----------------------------
LAURA K. SANDERS BRAD D. SANDERS
/s/ BRET D. SANDERS /s/ DON A. SANDERS
----------------------------- -----------------------------
BRET D. SANDERS DON A. SANDERS
/s/ STEPHEN D. SCOTT /s/ ALLEN FRACASSI
----------------------------- -----------------------------
STEPHEN D. SCOTT ALLEN FRACASSI
<PAGE>
Exhibit 10.7
This SHARE TRANSFER AGREEMENT is made as of the 4th day of June, 1997.
AMONG:
USA WASTE SERVICES, INC., a Delaware company ("USA Waste"), having an
office at 1275 North Service Road West, Suite 700, Oakville, Ontario, L6M
3G4 (the "Vendor")
and:
1233666 ONTARIO INC., a corporation duly constituted under the laws of
Ontario and having an address at Unit 213, 2511 Lakeshore Road West,
Oakville, Ontario, L6L 6L9 (the "Purchaser")
and:
MR. LYNN BISHOP, a Businessman of the Hamlet of Sherwood Park, in the
Province of Alberta (the "Shareholder")
WHEREAS, the Vendor wishes to sell and the Purchaser wishes to buy all of
the shares held by the Vendor in the capital stock of WESTERN CANADIAN WASTE
SERVICES INC., a company incorporated under the laws of the Province of Alberta
(the "Company");
AND WHEREAS, the Vendor entered into an unanimous shareholders' agreement
(the "Shareholders Agreement") relating to the Company made effective as of the
24th day of November, 1994 with Mr. Lynn Bishop, a copy of which is attached as
Schedule "A" to this Agreement;
AND WHEREAS, the Shareholder consents to the sale and transfer of the
Shares by and from the Vendor to the Purchaser and the release of the Vendor
from the Shareholders Agreement;
AND WHEREAS, the Shareholder and the Purchaser intend to enter into a new
shareholders agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, it is agreed as
follows:
<PAGE>
-2-
1. Shares.
Subject to the provisions of this Agreement, the Vendor hereby sells to
the Purchaser, and the Purchaser shall accept and pay for, all of the share in
the capital stock of the Company owned by the Vendor, being one hundred (100)
Class "A" shares (which shares are hereinafter collectively called the
"Shares"). The Vendor represents and warrants to the Purchaser that: (i) it owns
the Shares free and clear of all claims, liens or encumbrances whatsoever, and
has the authority to sell and deliver the Shares to the Purchaser; and (ii) the
Vendor shall obtain a clearance certificate with respect to section 116 of the
Income Tax Act of Canada on or before June 30th, 1997.
2. Price and Payment.
The Purchaser shall pay the Vendor the amount of FOURTEEN MILLION ONE
HUNDRED and TWENTY-ONE THOUSAND DOLLARS ($14,121,000.00) as the total purchase
price for the Shares, the shareholder's loan set out in Section 7 below and the
advisory fee described in the last paragraph of this Section 2. The purchase
price shall be paid as follows:
(a) the amount of $3,175,000.00 shall be paid on or before June 30th, 1997;
(b) the amount of $3,200,000.00 shall be paid on or before July 15th, 1997;
(c) the Purchaser shall make monthly payments of interest only on the last day
of each month, calculated at 6.75% per year from the Closing date, on the
outstanding principal for such month;
(d) the Purchaser shall make annual installment payments of $775,000.00 each
on the first and second anniversary date of the Closing date; and
(e) the Purchaser shall pay the remaining principal balance and interest in
full on the third anniversary of the Closing date.
Attached as Schedule "B" is an unexecuted promissory note setting out the
foregoing payments, which note the Purchaser shall execute and deliver to the
Vendor at Closing.
As security for the payment of the purchase price, the Purchaser hereby
pledges the Shares to the Vendor and the Vendor shall hold the Shares in trust
for the benefit of the Purchaser and shall release such Shares to the Purchaser
forthwith upon the payment of that part of the purchase price set out in Section
2 (a) and the discharge of the guarantees set out in Section 4. Notwithstanding
the foregoing sentence, the Vendor agrees to postpone its security interest in
the Shares to the security interest of a third party lender to the Purchaser, on
notice in writing to the
<PAGE>
-3-
Vendor by the Purchaser, and the Vendor will execute and deliver such documents
as may reasonably be required by the Purchaser to evidence such postponement
The Purchaser and Vendor acknowledge that $500,000.00 of the purchase
price is allocated as an advisory fee in favor of the Vendor in rendering advice
to the Purchaser and assisting in the refinancing required by the Purchaser in
discharging the guarantee set out in Section 4 below, which allocated monies
shall be treated as a fully deductible expense to the Purchaser and revenue to
the Vendor. The balance of the purchase price shall be allocated as follows:
(a) $7,356,844.00 to the Shareholder Loan in Section 7; and
(b) $6,264,156.00 to the Shares.
3. Price Adjustment.
The Vendor represents and warrants to the Purchaser that the projected
earnings before interest, depreciation and amortization ("EBITDA") of the
Company for the twelve month period immediately following the 30 day period
after the Closing date shall not be less than $2,200,000.00. In the event the
EBITDA in such twelve month period is less than $2,200,000.00 then the purchase
price shall be reduced by 4.5 times the amount of any such shortfall in the
EBITDA, provided always that no reduction in the purchase price shall be made by
reason of a shortfall in the EBITDA arising from:
(a) the cancellation of any of the customer contracts or accounts or the
withholding or reduction of any amounts otherwise payable pursuant to such
customer contracts or accounts as a result of the Company's default during
the said 12 month period;
(b) any failure of the Company to comply with applicable laws, regulations,
by-laws, permits or any other authorizations, orders or judgments relating
to the conduct of the business of the Company during the said 12 month
period;
(c) any event of force majeure which affects the Company and which causes a
disruption in service to the customers of the Company, including but not
limited to unusually severe weather, labour disruptions (including
strikes, lockouts or work-to-rule actions), earthquakes, fires, blockage
or failure of transportation systems, or change in the laws applicable to
the conduct of the business of the Company which increases the costs of
doing business; and
(d) any material increase from or after the Closing date in the costs
reasonably and properly incurred by the Company in the conduct of its
business, as measured against the historical costs incurred by the Company
in the conduct of its business, and any sales, general or administrative
costs in excess of 9% of the gross revenues of the Company.
<PAGE>
-4-
In calculating the EBITDA the parties shall treat any event referred to in
subsections (a) through (d) above as if it had not occurred for the purposes of
such calculation, and shall project the applicable EBITDA accordingly based upon
historical information and the best information available to the parties.
The parties shall exercise their best efforts to complete the aggregate
EBITDA calculation and corresponding price adjustment, if any, by September
30th, 1998, failing which either party may take the matter to arbitration in
accordance with and subject to the provisions of the Arbitration Act of Ontario,
and for the purposes of any such arbitration the parties shall promptly select a
person from a chartered accounting firm to act as the sole arbitrator.
4. Financial Arrangements
The Vendor represents and warrants to the Purchaser that the limited
recourse guarantee given by the Vendor to the Canadian Imperial Bank of
Commerce, as set out in Schedule "C", is in good standing and there have been no
defaults or claims under such guarantee, nor to the Vendor's knowledge are any
defaults or claims thereunder threatened or pending, and that the Vendor shall
maintain the said guarantee in place and in good standing for the six month
period following the Closing date, and honor the said guarantee during such six
month period.
The Shareholder represents and warrants to the Purchaser that the loans
and banking arrangements set out in Schedule "C" are in good standing and there
have been no defaults or claims with respect to such banking arrangements, nor
the Shareholder's knowledge are any defaults or claims threatened or pending
with respect to any such banking arrangements.
The Purchaser shall cause all of the guarantees made by the Vendor with
respect to the loans and banking arrangements set out in Schedule "C" to be
released on or before the date six months after the Closing date.
5. Shareholders Agreement.
The Shareholder and the Vendor agree that the Shareholders Agreement shall
forthwith be terminated and that both parties thereto are hereby released from
all obligations, claims and liabilities whatsoever relating to or arising with
respect to the Shareholders Agreement, whether past, present or future, known or
unknown, contingent or otherwise. The Purchaser and the Shareholder may enter
into a shareholder's agreement as they may deem appropriate.
6. Survival of Representations and Warranties
The representations and warranties of the parties set out in this
Agreement shall survive the Closing and remain in full force and effect for a
period
<PAGE>
-5-
of 18 months following the Closing date, after which period all such
representations and warranties shall terminate and be null and void and no
longer actionable by the parties.
7. Shareholder's Loan.
The Shareholder and Vendor represent and warrant to the Purchaser that the
shareholder's loan in the amount of $7,356,844.00 set out on the balance sheet
of the Company dated March 31, 1997 (the "Shareholder Loan") is owed to the
Vendor alone. The Vendor shall at Closing assign the Shareholder Loan to the
Purchaser, and hereby represents and warrants to the Purchaser that it is able
to assign the said loan to the Purchaser at Closing free and clear of all liens,
claims or encumbrances whatsoever.
8. Liabilities.
The Purchaser will not assume and will not be liable for, and the Vendor
will indemnify the Purchaser from and against all obligations, commitments and
liabilities (whether absolute, accrued or contingent) of the Company which are
not accounted for, accrued or otherwise reserved or provided for in the balance
sheet of the Company dated March 31st, 1997, related to, arising from, asserted
against or associated with events to the extent occurring prior to the Closing
date. Without limiting the generality of the foregoing, the Purchaser shall have
no liability for and shall be indemnified by the Vendor for each of the
following:
(a) all liabilities, claims, proceedings, demands or litigation and
obligations or debts in respect of or relating to the Company prior to the
Closing date;
(b) all liabilities, for taxes, duties, levies, assessments and other charges,
including penalties, interest and fines with respect thereto, payable by
the Company to any federal, provincial, municipal or other government
agency, including without limitation any taxes in respect of or measured
by the sale, consumption or performance by the Vendor of any service prior
to the Closing date or any tax payable in respect of remuneration payable
to all persons employed by the Company prior to the Closing date;
(c) all liabilities and obligations with respect to the employees of the
Company, including any obligations relating to salary, bonuses, vacation
pay, benefits, pensions, collective agreements and termination of any such
employee to the extent relating to the period prior to the Closing date;
(d) all liabilities for claims of third parties in respect of events occurring
at any time prior to the Closing date, including without limitation any
claim in respect of the breach of any applicable environmental laws,
regulations, ordinances, by-laws and codes in respect of the Real Property
or the operation of the business.
<PAGE>
-6-
9. Closing.
The closing of the purchase and sale contemplated herein shall occur and
be completed on or before June 6th, 1997, simultaneously with and subject to the
completion of that certain transaction between the Vendor and WMI Waste
Management of Canada Inc., at the offices of the Vendor's lawyers in Toronto,
Ontario (the "Closing"). At Closing the Vendor shall deliver a copy of the share
certificate representing the Shares duly endorsed for transfer to the Purchaser,
which Shares shall be held in trust the Vendor pursuant to Section 2 above, and
the Purchaser shall pay the purchase price to the Vendor. At Closing the Vendor
shall assign and transfer its interests in and to any general security agreement
which it may hold with respect to the Shareholder Loan.
10. Further Acts and Effect.
The parties agree to cooperate with each other, to execute and deliver
such other documents, instruments of transfer or assignment files, books and
records and do all such further acts and things as may be reasonably required to
carry out the transaction contemplated by this Agreement
This Agreement shall be binding on the parties and their respective
successors and permitted assigns. This Agreement may not be assigned by the
parties without the prior written consent of all parties, and any amendments to
this Agreement shall only be of force and effect if written, stated to be an
amendment to this Agreement and signed by the parties.
This Agreement may be signed in any number of counterparts, all of which
shall constitute one and the same Agreement and which shall be binding on the
parties hereto.
11. Non-Competition.
Neither the Vendor nor any affiliated company of the Vendor shall, for a
period of 12 months following the Closing date (whether on its own account or as
a stockholder, partner, joint venturer, advisor, consultant and/or agent of any
person, corporation or other entity) solicit, provide or enter into any
arrangement or agreement (whether written, oral, formal or informal) for the
provision of solid or special waste collection, removal, or transportation for
disposal or recycling services to any customer of the Company as of the date
hereof, or use any customer information pertaining to the Company for any such
purpose, provided always that the foregoing prohibitions shall not apply to the
extent that any such customer arrangements of the Company are subject to tender.
<PAGE>
-7-
12. Applicable Laws.
This Agreement shall be construed and interpreted in accordance with the
laws in force in the Province of Ontario, and the parties hereby attorn to the
jurisdiction of the courts of the Province of Ontario.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties as
of the date first written above.
(USA WASTE SERVICES, INC.
(By:
(
(/s/ [ILLEGIBLE]
(---------------------------
(1233666 ONTARIO INC.
(By:
(
(/s/ Tony Busseri
(---------------------------
(
(
/s/ [ILLEGIBLE] (/s/ Lynn Bishop
- ------------------------- (---------------------------
Witness MR. LYNN BISHOP
<PAGE>
Exhibit 10.8
SHARE PURCHASE AGREEMENT
BETWEEN:
LYNN BISHOP AND L & S BISHOP ENTERPRISES INC.
(collectively called the "Vendors")
OF THE FIRST PART
- and -
CAPITAL ENVIRONMENTAL RESOURCE INC.
(hereinafter called the "Purchaser")
OF THE SECOND PART
- and -
WESTERN WASTE SERVICES INC.
(hereinafter called the "Corporation")
OF THE THIRD PART
<PAGE>
TABLE OF ARTICLES
ARTICLE DESCRIPTION PAGE NO.
- ------- ----------- --------
RECITALS 1
ARTICLE I DEFINITIONS AND INTERPRETATIONS
1.01 Definitions 2
ARTICLE II PURCHASE OF SHARES
2.2. Agreement to Purchase 3
2.2 Amount of Purchase Price 4
2.3 Payment of Purchase Price 4
2.4 Advance to Vendor 4
2.5 Redemption of Class "C" Shares & Repayment
of Shareholders' Loan 5
2.6 Interest 5
ARTICLE III CLOSING ARRANGEMENTS
3.1 Closing 5
3.2 Interim Period 5
3.3 Closing Procedure 5
ARTICLE IV CONDITIONS OF CLOSING
4.1 Conditions For the Benefit of Purchaser 7
4.2 Conditions For the Benefit of the Vendors 8
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Vendors 10
5.2 Representations and Warranties of
the Purchaser 13
5.3 Limitations and Set Off 19
ARTICLE VI RIGHTS OF VENDORS FOLLOWING CLOSING 20
ARTICLE VII IDEMINIFICATION
7.1 Indemnification of Purchaser 22
7.2 Indemnification of Vendors 22
ARTICLE VIII GENERAL
8.1 Interpretation 23
6.2 Expenses 24
<PAGE>
-2-
ARTICLE DESCRIPTION PAGE NO.
- ------- ----------- --------
8.3 Further Assurances 24
8.4 Entire Agreement 24
8.5 Non-Merger 24
8.6 Applicable Law 24
8.7 Notices 24
8.8 Successors and Assigns 25
8.9 Execution by Counterpart & Execution
by Counterpart and Facsimile 26
EXECUTION 25
Schedule "A" - Purchaser's Solicitors' Opinion
Schedule "B" - Vendor's solicitors' Opinion
Schedule "C" - Amended Articles of Purchaser
Schedule "D" - Unanimous Shareholders Agreement
Schedule "E" - Promissory Note
Schedule "F" - Employment Agreement
Schedule "G" - List of Encumbrances of the Corporation
Schedule "H" - List of Encumbrances of the Purchaser
Schedule "I" - List of Preference Shareholders
Schedule "J" - List of Law Suits involving the Corporation
<PAGE>
THIS SHARE PURCHASE AGREEMENT, made as of the 1st day of November, 1997.
BETWEEN
LYNN BISHOP, of the Hamlet of Sherwood Park, in the Province of Alberta
and L & S BISHOP ENTERPRISES INC., a corporation incorporated pursuant to
the laws of Alberta
(collectively called the "Vendors")
OF THE FIRST PART
- and -
CAPITAL ENVIRONMENTAL RESOURCE INC.
a corporation incorporated pursuant to the laws of Ontario
(hereinafter called the "Purchaser")
OF THE SECOND PART
- and -
WESTERN WASTE SERVICES INC., a corporation incorporated pursuant to the
laws of the Province of Alberta, formerly known as Western Canadian Waste
Services Inc.
(hereinafter, called the "Corporation")
OF THE THIRD PART
WHEREAS L & S Bishop Enterprises Inc. owns 96 Class "A" Shares in the
capital of the Corporation;
AND WHEREAS Lynn Bishop owns 4 Class "A" Shares and 200 Class "C" Shares
in the capital of the Corporation;
AND WHEREAS the 200 Class "C" Shares have a redemption value of $833.33
per share for a total redemption value of $166,666.00;
AND WHEREAS a Shareholder's Loan in the amount of $250,000.00 is owing to
Lynn Bishop by the Corporation;
AND WHEREAS the Purchaser owns 200 Class "A" Shares in the capital of the
Corporation;
AND WHEREAS there are no other shares of the Corporation that are issued
and outstanding;
<PAGE>
2
AND WHEREAS the Vendors have agreed to sell all their shares in the
capital of the Corporation to the Purchaser on the terms and at and for the
consideration herein stated and on condition that the Vendor's Class "C" Shares
be redeemed and the Vendor's Shareholder's Loan be repaid.
AND WHEREAS certain words and phrases with initial capitals are terms as
defined in this Agreement and are more particularly defined in Article 1.1
herein.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
mutual covenants and agreements contained herein, the parties hereto covenant
and agree each with the other as follows:
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS:
(a) "AGREEMENT" means this Agreement and any instrument supplemental or
ancillary hereto;
(b) "ARTICLE", "Section" and "Subsection" followed by a number means and
refers to the specified Article, Section or Subsection of this
Agreement;
(c) "ASSETS" means the undertaking, property and assets of the
Corporation as a going concern, of every kind and description,
wheresoever situated;
(d) "BUSINESS" means the business carried on by the Corporation;
(e) "CLOSING" means the time of closing on the Closing Date provided for
in Section 3.1 hereof;
(f) "CLOSING DATE" means the 7th day of November, 1997, or such earlier
or later date as may be mutually acceptable to the parties hereto;
(g) "CORPORATION" has the meaning ascribed thereto in the first recital
of this Agreement;
(h) "EBITDA" means earnings before interest, taxes, depreciation and
amortization set forth in the Corporation's financial statements
calculated in accordance with Generally Accepted Accounting
Principles;
(i) "EFFECTIVE DATE" means November 1, 1997;
(j) "EMPLOYMENT AGREEMENT" means the agreement referred to in Section
4.1(e);
<PAGE>
3
(k) "INTERIM PERIOD" means the period of time from the Effective Date to
the Closing Date;
(l) "PERSON" means an individual, a corporation, a partnership, a
trustee or any unincorporated organization and words importing
persons have a similar meaning;
(m) "PREFERENCE SHAREHOLDERS" means those shareholders listed in the
attached Schedule "I";
(n) "PURCHASE PRICE" has the meaning ascribed thereto in Section 2.1
hereof;
(o) "PURCHASER'S ACCOUNTANTS" means BDO Dunwoody, Chartered Accountants;
(p) "PURCHASER'S CLOSING OPINION" means an opinion of the Purchaser's
solicitor substantially in the form attached hereto as Schedule "A",
with any changes of form and substance thereof being acceptable to
the Vendor's solicitors;
(q) "PURCHASER'S SOLICITOR" means Tukstra Mazza Associates, Barristers
and Solicitors;
(r) "SHARES" means the following outstanding Shares in the capital of
the Corporation being purchased by the Purchaser hereunder:
100 Class "A" Shares
(s) "VENDORS' ACCOUNTANTS" means Coopers & Lybrand, Chartered
Accountants;
(t) "VENDORS' SOLICITOR" means Patrick A. Reid, Barrister and Solicitor;
(u) "VENDORS' SOLICITORS' OPINION" means an opinion of the Vendor's
Solicitor substantially in the form attached hereto as Schedule "B",
with any changes in form and substance thereof being acceptable to
the Purchaser's Solicitor;
(v) "USA" means the Unanimous Shareholders Agreement referred to in
Section 2.3(b);
<PAGE>
4
ARTICLE II - PURCHASE OF SHARES
2.1 AGREEMENT TO PURCHASE:
Subject to the terms and conditions hereof, the Vendors agree to sell and
the Purchaser agrees to purchase the Shares as of the Effective Date.
2.2 AMOUNT OF PURCHASE PRICE:
The purchase price ("Purchase Price") payable by the Purchaser to the
Vendors for the Shares shall be $12,500,000.00.
2.3 PAYMENT OF PURCHASE PRICE:
The Purchase Price shall be paid at Closing by the Purchaser to the
Vendors and the Vendors agree to accept the following in full satisfaction of
the Purchase Price as follows:
(a) Cash on Closing - $500,000.00 payable to Lynn Bishop by certified
cheque or bank draft;
(b) Delivery of a Share Certificate in the name of L & S Bishop
Enterprises Inc. representing 400,000 Class "B" Convertible Special
Shares of the Purchaser (the "Special Shares") which Special Shares
the parties agree have a redemption value of $12,000,000.00 prior to
payment of the dividend referred to in Section 2.3(c) and the
redemption value shall, after payment of the said dividend, be
$10,500,000.00. The Special Shares shall have the rights, privileges
and conditions as set out in the Amended Articles of Incorporation
of the Purchaser, a copy of which is attached as Schedule "C" (the
"Amended Articles") and a Unanimous Shareholders Agreement (the
"USA"), a copy of which is attached hereto as Schedule "D". The
Special Shares shall be converted into 350,000 Common Shares of the
Purchaser contemporaneously with the successful completion of an
initial public offering on the New York, NASDAQ, or Toronto stock
exchange, or any other recognized major stock exchange, by the
Purchaser for no less than Thirty ($30.00) Dollars per share (the
"IPO") or shall be fully paid for no later than three (3) years from
the Effective Date by redemption of the Special Shares as provided
for in Article VI herein; and
(c) Contemporaneously with the issuance of the 400,000 Special Shares of
the Purchaser to L & S Bishop Enterprises Inc., the Purchaser shall
declare a dividend of $1,500,000.00 on the Special Shares which
dividend shall be paid immediately prior to the Purchaser's
successful completion of the IPO. Except as provided for in this
Agreement, in the Amended Articles and in the USA
<PAGE>
5
the Vendor will have no other greater or lessor rights with respect
to dividends or division of assets on liquidation, than it would if
the Special Shares were converted to the 350,000 Common Shares.
2.4 ADVANCE TO VENDOR
Contemporaneously with the Closing, the Purchaser shall loan L & S Bishop
Enterprises Inc. the sum of $1,500,000.00 to be repayable without interest and
as a set off against the declared but unpaid dividend referred to in Section
2.3(c) above just prior to the successful completion of the IPO. The said loan
shall be evidenced by a Promissory Note in the form set out in Schedule "E"
hereto (the "Promissory Note").
2.5 REDEMPTION OF CLASS "C" SHARES & REPAYMENT OF SHAREHOLDERS' LOAN
It shall be a condition precedent to this Agreement that on Closing the
Corporation shall redeem the 200 Class "C" Shares held by Lynn Bishop by way of
payment of the redemption value of $166,666.00 ($833.33 per share) and the
Corporation shall repay the shareholder's loan owing to the Lynn Bishop in the
approximate amount of $250,000.00.
2.6 INTEREST
Interest shall be payable by the Purchaser to the Vendor on the sum of
$2,000,000.00 from the Effective Date to the date of payment at the rate of
eight (8%) per cent per annum calculated daily not in advance.
ARTICLE III - CLOSING ARRANGEMENTS
3.1 CLOSING:
Time shall be of the essence of this Agreement. The Closing of this
transaction shall take place at 11:00 a.m. on the Closing Date at the offices of
the Corporation in Sherwood Park, Alberta or at such other place as may be
approved in writing by the parties hereto.
3.2 INTERIM PERIOD
During the Interim Period the Vendors and the Purchaser shall consult
about and jointly approve all material acts and decisions in respect of the
Corporation. Subject thereto the Vendors shall cause the business of the
Corporation (including its bank accounts and loans) to be carried on in the
normal course.
<PAGE>
6
3.3 CLOSING PROCEDURES:
At or before the Closing on the Closing Date, the Vendors and the
Purchaser shall take or cause to be taken all actions, steps and corporate
proceedings necessary or desirable to validly and effectively approve or
authorize the completion of the transactions herein provided for, and upon
fulfillment of all the conditions set out in Article 4 hereof which have not
been waived in writing as herein provided, the Vendors shall deliver to the
Purchaser:
(a) Certificates representing the Shares, in fully transferable form and
accompanied by resolutions authorizing the transfer thereof. (The
Vendors shall cause the transfers of the Shares to be fully entered
in the Registers of the Corporation at Closing);
(b) A Certificate of the Vendors dated as of the Effective Date, to the
effect that, the representations and warranties set forth in Section
5.1 hereof are true and correct;
(c) The Vendors' Solicitor's Closing Opinion;
(d) A Postponement Agreement in a form acceptable to the Third Party
Lender of the Security Agreement given by the Corporation, as
Debtor, in favour of Lynn Bishop, as Secured Party, dated November
22, 1994 as amended by amendment dated November 8, 1995 (which
Security Agreement is hereinafter referred to as the "Western GSA");
(e) The executed Employment Agreement, a true copy of which is attached
as schedule "F";
(f) The executed Promissory Note;
(g) The Agreement of L & S Bishop Enterprises Inc. to postpone its
interest in the Purchaser in favour of a third party lender, on
notice in writing to the Vendor by the Purchaser in the form
attached as Schedule "K". L & S Bishop Enterprises Inc. agrees to
execute and deliver such documents as may be reasonably required by
the Purchaser or by the third party lender to evidence such
postponement;
(h) A Termination Agreement with respect to the Unanimous Shareholders
Agreement dated June 7, 1997 between Lynn Bishop, the Purchaser and
the Corporation;
and upon fulfilment of the foregoing provisions of this Section 3.3, and upon
fulfilment of all the conditions set out in Section
<PAGE>
7
4.1 hereof which have not been waived in writing as herein provided, the
Purchaser shall deliver to the Vendors:
(a) The Cash on Closing of $500,000.00 described in Section 2.3(a)
hereof;
(b) The loan amount of $1,500,000.00 described in paragraph 2.4 hereof;
(c) The Share Certificate for the Special Shares described in section
2.3(b) hereof;
(d) A certified copy of the resolution declaring the dividend described
in Section 2.3(c) hereof;
(e) Proof of compliance with all Conditions Precedent to this Agreement
including redemption of Lynn Bishop's Class "C" Shares and repayment
of the Lynn Bishop's Shareholder Loan as described in Section 2.5;
(f) The executed USA;
(g) The Certificate of the Purchaser dated as of the effective dated as
of the Effective Date to the effect that the representations and
warranties set forth in Section 5.2 hereof are true and correct;
(h) The approval in writing of the Preference Shareholders described in
Section 4.1(e); and
(i) The Purchaser's Solicitor's Closing Opinion;
ARTICLE IV - CONDITIONS OF CLOSING
4.1 CONDITIONS FOR THE BENEFIT OF PURCHASER:
The Purchaser shall not be obliged to complete the purchase herein
provided for unless, on the Closing Date, each of the following conditions shall
have been, it being understood that the conditions are included for the
exclusive benefit of the Purchaser and may be waived in writing, in whole or in
part, by the Purchaser at any time, and the Vendors shall use their best efforts
to ensure that the conditions are fulfilled on or before the Closing Date.
(a) CORPORATE AND LEGAL PROCEEDINGS AND APPROVALS
All corporate and legal proceedings and approvals as considered
necessary by the Purchaser's Solicitor shall have been taken or
obtained to permit the Vendors to enter into this Agreement to sell
the Shares to the Purchaser.
<PAGE>
8
(b) REPRESENTATIONS AND WARRANTIES
The representations and warranties set forth in Section 5.1 hereof
shall be true and correct in all material respects as of the Closing
Date.
(c) COMPLIANCE WITH AGREEMENT
All of the terms, covenants and agreements set forth in this
Agreement to be complied with or performed by the Vendors at or
before the Closing Date shall have been complied with or performed
by the Vendors on or before the Closing Date.
(d) EMPLOYMENT AGREEMENT
Lynn Bishop shall execute and deliver to the Purchaser the
Employment Agreement.
(e) APPROVAL OF THE PREFERENCE SHAREHOLDERS
The approval in writing of the Preference Shareholders to the
transactions evidenced by this Share Purchase Agreement shall have
been obtained.
(f) POSTPONEMENT
L & S Bishop Enterprises Inc. shall execute and deliver to the
Purchaser a Postponement Agreement in a form acceptable to the third
party lender subject only to payment of the dividend referred to in
paragraph 2.3(c).
(g) TERMINATION OF UNANIMOUS SHAREHOLDERS AGREEMENT
Lynn Bishop, the Purchaser and the Corporation shall execute a
Termination Agreement with respect to the Unanimous Shareholders
Agreement dated June 7, 1997 between Lynn Bishop, the Purchaser and
the Corporation.
If any of the foregoing conditions shall not have been fulfilled on or
before the Closing Date, the Purchaser may terminate this Agreement by notice in
writing to the Vendor, in which event the Purchaser shall be released from all
obligations under this Agreement, and (unless the Purchaser can show that the
condition relied upon could reasonably have been performed by the Vendor) the
Vendor shall also be released from all obligations hereunder, but the Purchaser
shall be entitled to waive compliance with any such condition, in whole or in
part, if it shall see fit to do so, without prejudice to its rights of
termination in the event of non-fulfilment of any other condition, in whole or
in part.
<PAGE>
9
4.2 CONDITIONS FOR THE BENEFIT OF THE VENDORS
The Vendors shall not be obliged to consummate the transactions herein
provided for unless, on the Closing Date, each of the following conditions shall
have been satisfied, it being understood that the conditions are included for
the exclusive benefit of the Vendors and may be waived in writing, in whole or
in part, by the Vendors at any time, and the Purchaser shall use their best
efforts to ensure that the conditions are fulfilled on or before the Closing
Date:
(a) CORPORATE & LEGAL PROCEEDINGS AND APPROVALS
All corporate and legal proceedings and approvals as considered
necessary by the Vendors Solicitor shall have been taken or obtained
to permit the Purchaser to enter into this Agreement and to issue
the Special Shares to L & S Bishop Enterprises Inc. pursuant to this
Agreement.
(b) REPRESENTATIONS AND WARRANTIES
The representations and warranties set forth in Section 5.2 hereof
shall be true and correct in all material respects of the Closing
Date.
(c) COMPLIANCE WITH AGREEMENT
All of the terms, covenants and agreements set forth in this
Agreement to be complied with or performed by the Purchaser at or
before the Closing Date shall have been complied with or performed
by the Purchaser on or before the Closing Date.
(d) APPROVAL OF PREFERENCE SHAREHOLDERS
The approval in writing of the Preference Shareholders described in
Section 4.1(e) shall have been obtained.
(e) REDEMPTION AND REPAYMENT BY CORPORATION
The Corporation shall have redeemed the Vendors' Class "C" Shares in
the Corporation and repaid the Vendors' Shareholders Loan to the
Corporation.
In case any of the foregoing conditions shall not have been fulfilled on
or before the Closing Date, the Vendors may terminate this Agreement by notice
in writing to the Purchaser, in which event the Vendors shall be released from
all obligations under this Agreement, and (unless the Vendors can show that the
condition relied upon could reasonably have been performed by the Purchaser) the
Purchaser shall also be released from all obligations hereunder; but the Vendors
shall be entitled to waive compliance
<PAGE>
10
with any such condition, in whole or in part, if they shall see fit to do so,
without prejudice to its rights of termination in the event of non-fulfilment or
any other condition in whole or in part.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE VENDORS
The Vendors jointly and severally represent and warrant to the Purchaser
as follows:
(a) GOOD STANDING
The Corporation is now and, on the Closing Date will be, a
Corporation:
1. duly incorporated, organized and validly subsisting and in
good standing under the laws of Alberta, and
2. duly authorized and licensed to own its property and to carry
on its businesses, as presently owned and carried on by it.
(b) AUTHORIZED AND ISSUED CAPITAL OF THE CORPORATION
The authorized capital of the Corporation is now, and on the Closing
Date shall be, an unlimited number of Class "A", "B", "C", "D" and
"E" Shares of which on Closing 300 Class "A" Shares will validly be
issued and outstanding as fully paid and non-assessable, and will
be the only outstanding Shares of the Corporation.
(c) NO OPTIONS
There is not now, nor at Closing will there be, any agreement or
option existing pursuant to which the Corporation is or might be
required to issue any further shares of its capital.
(d) OWNERSHIP OF SHARES
The Vendors are now, and at Closing will be, the beneficial owners
of record of the Shares, with good and marketable title thereto,
free and clear of any pledge, lien, charge, encumbrance or security
interest of any kind and of any portion or other right thereto; and
has now, and at Closing will have, the power and authority and right
to sell the same in accordance with the terms of this Agreement. The
Vendors are residents of Canada within the meaning of the Income Tax
Act (Canada).
<PAGE>
11
(e) SUBSIDIARIES
The Corporation has now, and at Closing will have no wholly owned
subsidiaries except West Coast Waste Systems Inc. and Lacey Garbage
Disposal Ltd.
(f) RECORDS COMPLETE
All material financial transactions of the Corporation have now, and
at Closing will have been properly recorded in its books and
records.
(g) COLLECTIVE AGREEMENTS
Except as has been disclosed to the Purchaser, the Corporation is
Not now nor at Closing will be a party to any contract with or
commitment to, any labour union or employee association or
collective agreement.
(h) BENEFIT PLANS
Except as has been disclosed to the Purchaser, the Corporation at
Closing will not be a party to or operate any bonus, pension, profit
sharing, deferred compensation, retirement, hospitalization
insurance, medical insurance or similar plan or practice, formal and
informal, in effect with respect to any employees or others.
(i) EMPLOYMENT CONTRACTS
Except as has been disclosed to the Purchaser, the Corporation is
not now nor at Closing will be bound by any agreement whether
written or oral with any employee provided for a specified period of
notice of termination nor providing for any fixed term of employment
and as now and at Closing will have no employees which cannot be
dismissed upon such notice as common or statute law may prescribe.
(j) OTHER CONTRACTS
Except as has been disclosed to the Purchaser, the Corporation is
not now nor at Closing will be bound by any outstanding contract or
commitment except those entered into in the ordinary course of
business and having not more than twelve months to run; and is not
now nor at Closing will be material in default under any material
contract by which it is bound or under which it is entitled to the
benefits of and advantages thereof.
<PAGE>
12
(k) TITLE TO ASSETS
The Corporation now has, and at Closing will have, a good and
marketable title to all its assets, free and clear of any claim,
liens, encumbrances and security interests whatsoever except as
listed in Schedule "G" hereto.
(l) TAX MATTERS
Except for the "stub" filings for June 6, 1997 necessitated by the
change of control effected at that time, the Corporation is not now
and at Closing will not be in arrears or in default in respect of
the filing of any required federal, provincial or municipal tax or
other returns; and at each of such times:
1. All taxes, filing fees and other assessments due and payable
or collectible from the Corporation shall have been payed or
collected;
2. No claim for additional taxes, filing fees or other amounts
and assessments has been made which have not been paid; and
3. To the best of the Vendor's knowledge, no returns shall have
contained any misstatement or concealed any statement that
should have been included therein.
The Corporation has withheld and will withhold up to the Closing
Date from each payment made to any employee, the amount of all taxes
(included but not limited to income tax) and other deductions
required to be withheld therefrom and have been paid or will pay
such amount or other receiving authority.
(m) NO BREACH CAUSED BY THIS AGREEMENT
Neither the execution nor delivery of this Agreement, nor the
fulfilment or compliance with any of the terms hereof, will conflict
with or result in a breach of the terms, conditions or provisions
of, or constitute a default under the Articles and By-laws, as
amended, of the Corporation, or any material agreement or instrument
to which the Vendors or the Corporation or the Business is subject,
or will require any consent or other action by any administrative or
governmental body.
(n) LITIGATION
There are now, and at Closing will be, no actions, claims, demands
or other proceedings, pending or
<PAGE>
13
threatened before any court or administrative agency, which could
materially adversely affect the financial condition or overall
operations of the Corporation, and no judgment, order or decree,
enforceable against the Corporation which involves or may involve,
or restricts or may restrict, or requires or may require, the
expenditure of money as a condition to or a necessity for, the right
of ability of the Corporation to conduct its business in the manner
in which such business has been carried on prior to the date hereof
except as set out in Schedule "J" hereto.
(o) ABSENCE OF CERTAIN CHANGES OR EVENTS DURING INTERIM PERIOD
Except with the prior written consent of the Purchaser during
the Interim Period:
1. Business in Normal Course - the Business has and will have
been carried in the normal course of business, consistent with
previous fiscal periods;
2. No Dividends - no dividends, redemptions of shares, payments
or other distributions to the Vendor by the Corporation will
have been made, agreed to, be made or declared except as
provided for in Section 2.3(c); and
3. Articles - no amendments will have been made to the Articles
or By-laws of the Corporation.
5.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendors as follows:
(a) GOOD STANDING AND CORPORATE AUTHORITY
The Purchaser is now, and on the Closing Date will be, a
Corporation:
1. duly incorporated, organized and validly subsisting and in
good standing under the laws of Ontario;
2. duly authorized and licensed to own its property and to carry
on its businesses, as presently owned and carried on by it;
and
3. with good right, full corporate power and absolute authority
to enter into this Agreement and to issue the Special Shares
in manner contemplated herein
<PAGE>
14
and to perform all of the Purchaser's obligations under this
Agreement.
(b) AUTHORIZED AND ISSUED CAPITAL OF THE PURCHASER
The authorized capital of the Purchaser on the Closing Date shall be
an unlimited number of Common Shares, an unlimited number of
Convertible Shares and 400,000 Class "B" Special Shares of which on
Closing 1,031,110 Common Shares, 88,889 warrants for Common Shares
And 8,000 Convertible Preference Shares will have been validly
issued and outstanding as fully paid and non-assessable, and will be
the only outstanding Shares of the Purchaser.
(c) NO OPTIONS
There is not now, or at Closing will there be, any agreement or
option existing pursuant to which the Purchaser is or might be
required to issue any further shares of its capital except those
options granted to Glen Kingswood as previously disclosed to the
Vendors.
(d) AUTHORIZATION
The Purchaser and its shareholders and board of directors have taken
all necessary or desirable actions, steps and corporate and other
proceedings to approve or authorize validly and effectively, the
entering into, and the execution, delivery and performance of this
Agreement and the issuance of the Special Shares by the Purchaser to
the Vendors. This Agreement is a legal, valid and binding obligation
of the Purchaser, enforceable against it in accordance with its
terms.
(e) SUBSIDIARIES
Except as has been disclosed to the Vendors, the Purchaser has now,
and at Closing will have no wholly or partially owned subsidiaries.
(f) RECORDS COMPLETE
All material financial transactions of the Purchaser have now, and
at Closing will have been properly recorded in its books and
records.
(g) COLLECTIVE AGREEMENTS
Except as has been disclosed to the Vendors, the Purchaser is not
now nor at Closing will be a party to any contract with or
commitment to, any labour union or employee association or
collective agreement.
<PAGE>
15
(h) CONTRACTS AFFECTED BY ISSUANCE OF SPECIAL SHARES
The Purchaser is not now nor at Closing will be bound by any
outstanding contract or commitment which requires prior approval of
the issuance of the Special Shares to the Vendor by the Purchaser
except for the Preference Shareholders.
(i) NO OTHER CONTRACTS
Except as has been disclosed to the Vendor, the Purchaser is not now
nor at Closing will be bound by any outstanding contract or
commitment except those entered into in the ordinary course of
business and having not more than twelve months to run; and is not
now nor at Closing will be materially in default under any material
contract by which it is bound or under which it is entitled to the
benefits of and advantages thereof.
(j) TITLE TO ASSETS
The Purchaser now has, and at Closing will have, a good and
marketable title to all its assets, free and clear of any claim,
liens, encumbrances and security interests whatsoever except as
listed in Schedule "H" hereto.
(k) TAX MATTERS
The Purchaser is not now and at Closing will not be in arrears or in
default in respect of the filing of any required federal, provincial
or municipal tax or other returns; and at each of such times:
1. All taxes, filing fees and other assessments due and payable
or collectible from the Purchaser shall have been payed or
collected;
2. No claim for additional taxes, filing fees or other amounts
and assessments has been made which have not been paid; and
3. To the best of the Purchaser's knowledge, no returns shall
have contained any misstatement or concealed any statement
that should have been included therein.
The Purchaser has withheld and will withhold up to the Closing Date
from each payment made to any employee, the amount of all taxes
(included but not limited to income tax) and other deductions
required to be withheld therefrom and have been paid or will pay
such amount or other receiving authority.
<PAGE>
16
(l) NO BREACH CAUSED BY THIS AGREEMENT
Neither the execution nor delivery of this Agreement, nor the
fulfilment or compliance with any of the terms hereof, will conflict
with or result in a breach of the terms, conditions or provisions
of, or constitute a default under the Articles and By-laws, as
amended, of the Purchaser, or any material agreement or instrument
to which the Vendor or the Purchaser or the Business is subject, or
will require any consent or other action by any administrative or
governmental body.
(m) LITIGATION
There are now, and at Closing will be, no actions, claims, demands
or other proceedings, pending or threatened before any court or
administrative agency, which could materially adversely affect the
financial condition or overall operations of the purchaser, and no
judgment, order or decree, enforceable against the Purchaser which
involves or may involve, or restricts or may restrict, or requires
or may require, the expenditure of money as a condition to or a
necessity for, the right of ability of the Purchaser to conduct its
business in the manner in which such business has been carried on
prior to the date hereof.
(n) CONTRACTUAL AND REGULATORY APPROVALS
The Purchaser is not under any obligation, contractual or otherwise,
to request or obtain the consent of any person, and no permits,
licenses, certifications, authorizations or approvals of, or
notifications to, any federal, provincial, municipal or local
government or governmental agency, board, commission or authority
are required to be obtained by the Purchaser;
(o) COMPLIANCE WITH CONSTATING DOCUMENTS, AGREEMENTS AND LAWS
The execution, delivery and performance of this Agreement and each
of the other agreements contemplated or referred to herein by the
Purchaser, and the completion of the transactions contemplated
hereby, will not constitute or result in a violation or breach or
default under, or cause the acceleration of any obligations of the
Purchaser under:
1. Any term or provision of any of the articles, by-laws or other
constating documents of the Purchaser;
<PAGE>
17
2. Subject to obtaining the consents of the Preferred
Shareholders referred to in Section 4.1(f) hereof, the terms
of any agreement (written or oral), indenture, instrument or
understanding or other obligation or restriction to which the
Purchaser is a party or by which it is bound; or
3. Any term or provision of any of licenses or any order of any
court, governmental authority or regulatory body or any law or
regulation of any jurisdiction in which the Purchaser's
business is carried on.
(p) FINANCIAL RECORDS
All material financial transaction of the Purchaser have been
recorded in the financial books and records of the Purchaser in
accordance with good business practice, and such financial books and
records:
1. Accurately reflect in all material respects the bass for the
financial condition and the revenues, expenses and results of
operations of the Purchaser shown in the Purchaser's internal
monthly financial statements; and
2. Together with all disclosures made in this Agreement or in the
Schedules hereto, present fairly in all material respects the
financial condition and the revenues, expenses and results of
the operations of the Purchaser as of and to the date hereof.
(q) PARTNERSHIPS OR JOINT VENTURES
The Purchaser is not, and at Closing will not be, a partner or
participant in any partnership, joint venture, profit-sharing
arrangement or other association of any kind and is not party to any
agreement under which the Purchaser agrees to carry on any part of
the Purchaser's Business or any other activity in such manner or by
which the Purchaser agrees to share any revenue or profit with any
other person.
(r) RESTRICTIONS ON DOING BUSINESS
The Purchaser is not a party to nor will be at Closing or bound by
any agreement which would restrict or limit its right to carry on
any business or activity or to solicit business from any person or
in any geographical area or otherwise to conduct its business as the
Purchaser may determine. The Purchaser is not subject to any
<PAGE>
18
legislation or any judgment, order or requirement of any court or
governmental authority which is not of general application to
persons carrying on a business similar to the Purchaser's business.
There are no facts or circumstances which could materially adversely
affect the ability of the Purchaser to continue to operate its
business as presently conducted following the completion of the
transactions contemplated by this Agreement.
(s) GUARANTEES, WARRANTIES AND DISCOUNTS
Except as has been disclosed to the Vendors, the Purchaser is not a
party to or bound by any material agreement of guarantee,
indemnification, assumption or endorsement or any other like
commitment of the obligations, liabilities (contingent or otherwise)
or indebtedness of any person other than the guaranteed redemption
of the Vendors' Shares in the Purchaser;
(t) COMPLIANCE WITH LAWS
The Purchaser is not in violation of any federal, provincial,
municipal or other law, regulation or order of any government or
governmental or regulatory authority, domestic or foreign;
(u) DISCLOSURE
No representation or warranty contained in this section 5.02 and no
statement contained in any schedule, certificate, list, summary or
other disclosure document provided or to be provided to the Vendor
pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact which is
necessary in order to make the statements contained therein not
misleading.
(v) OUTSTANDING AGREEMENTS
The Purchaser is not a party to or bound by any outstanding or
executory agreement, contract or commitment, whether written or oral
except for:
1. Any contract, lease or agreement described or referred to in
this Agreement or in the schedules hereto; and
2. Any contract, lease or agreement made in the ordinary course
of the routine daily affairs of the Purchaser.
<PAGE>
19
(w) GOOD STANDING OF AGREEMENTS
The Purchaser is not in default or breach of any of its obligations
under any one or more contracts, agreements (written or oral),
commitments, indentures or other instruments to which it is a party
or by which it is bound and there exists no state of facts which,
after notice or lapse of time or both, would constitute such a
default or breach. All such contracts, agreements, commitments,
indentures and other instruments are now in good standing and in
full force and effect without amendment thereto, the Purchaser is
entitled to all benefits thereunder and the other parties to such
contracts, agreements, commitments, indentures and other instruments
are not in default or breach or any of their obligations thereunder.
There are no contracts, agreements, commitments, indentures or
other instruments under which the Purchaser's rights or the
performance of its obligations are dependent upon or supported by
the guarantee of or any security provided by any other person.
5.3 LIMITATIONS AND SET OFF
(a) The representations and warranties of the Vendor contained herein
shall survive the Closing of the sale and the purchase of Shares
herein provided for and, notwithstanding such Closing, shall
continue in full force and effect for the benefit of the Purchaser
for a period of three (3) year following the Closing Date, after
which time the Vendor shall be released from all obligations and
liabilities hereunder in respect of such representations and
warranties except with respect to any claims made by the Purchaser
in writing prior to the expiration of such period.
(b) The representations and warranties of the Purchaser herein contained
shall survive the Closing of the sale and purchase of Shares herein
provided for and, notwithstanding such Closing, shall continue in
full force and effect for the benefit of the Vendor for a period of
three (3) year following the Closing Date, after which time the
Purchaser shall be released from all obligations and liabilities
hereunder in respect of such representations and warranties except
with respect to any claims made by the Vendor in writing prior to
the expiration of such period.
<PAGE>
20
representations and warranties except with respect to any claims
made by the Vendor in writing prior to the expiration of such
period.
ARTICLE VI - RIGHTS OF VENDORS FOLLOWING CLOSING
6.1 The Vendors and the Purchaser agree that following Closing:
(a) Lynn Bishop shall sit on the Purchaser's Board of Directors (the
"Board") as a director of the Purchaser. The Board shall be enlarged
to four (4) directors, two of whom shall be nominees of Branard, one
shall be a nominee of the Preference Shareholders and one a nominee
of the Vendor. A Branard nominee shall be entitled to a casting or
deciding vote in the event of a tie. Lynn Bishop shall continue to
sit on the Board of Directors of the Corporation and have signing
authority for the Corporation to a maximum of $100,000.00 per
transaction without prior approval of the Board of Directors.
(b) In the event that the Purchaser does not complete the IPO of its
Common Shares at a share price of at least $30.00 per Share and/or
in the event at least 50% of the Common Shares of the Purchaser
which the Vendor receives on Closing are not sold for at least
$30.00 per share on a secondary offering of the said IPO within
three years of the Effective Date the Vendors are hereby entitled to
require the Purchaser to redeem the Vendor's Special Shares or any
Common Shares into which the Special Shares have been converted as
applicable at a price which is the greater of:
1. fair market value, or
2. a price to be calculated by multiplying the
Corporation's EBITDA for the six months prior to the
third year anniversary after the Effective Date, plus
its forecasted EBITDA for the next six months following
the third year anniversary after the Effective Date, by
six and by deducting from the product of that
calculation the sum of $22,000,000.00 and any debt
incurred by the Corporation or equity advances by the
Purchaser after Closing for the purpose of acquisitions
or internal growth, which sum shall then be divided by
three and deducting from the product of that calculation
the sum of $2,000,000.00, or
3. $10,500,000.00.
<PAGE>
21
(which price is herein referred to as the "Redemption Price").
PROVIDED THAT in the event the Purchaser does complete the IPO but
at a share price of less than $30.00 per share the Purchaser shall
have the right to make up the difference between the initial
offering price per share and $30.00 per share by issuance of
additional Common Shares to the Vendors or by the payment of the
cash difference to the Vendors at the Purchaser's sole option and in
such event the parties hereto agree that the IPO shall be deemed for
the purposes of this Agreement to have been completed at $30.00 per
share.
(c) In the event the Purchaser successfully completes the IPO at a share
price of at least $30.00 per share within three (3) years of the
Effective Date then the Vendors shall have the option, upon written
notice to the Purchaser delivered at least thirty (30) days prior to
the initial filing of the registration statement for such IPO, to
require the Purchaser to include the Vendors' Common Shares of a
value up to $5,250,000.00 (which Common Shares were issued as a
result of the conversion of the Special Shares) as a secondary
offering in the IPO at not less than $30.00 per share. The Purchaser
shall have the option upon receipt of such written notice and prior
to the IPO, to fulfil such obligation by purchasing at a price of
$30.00 per share that number of Common Shares requested by the
Vendors to be included.
6.2 In order to exercise the entitlement referred to in Section 6.1(b) hereof
the Vendors shall:
1. Tender to the Purchaser at its registered office a
request in writing specifying:
A. that the Vendors desire to have the Special Shares
registered in the name of the Vendors redeemed by
the Corporation; and
B. the business day, which shall not be less than 30
days after the day on which the request in writing
is given to the Purchaser, on which the Vendors
desire to have the Purchaser redeem the Special
Shares (the "Redemption Date"), together with the
share certificates, representing the Special
Shares;
2. Upon receipt of such request and share certificates, the
Purchaser shall, on the
<PAGE>
22
Redemption Date and thereafter such shares shall cease
to be entitled to dividends and the Vendors shall not be
entitled to exercise any of the rights of shareholders
in respect thereof, unless payment of the applicable
Redemption Price is not made on the Redemption Date, in
which case the rights of the Vendors shall remain
unaffected.
6.3 In consideration of the Vendors entering into this transaction for the sale
and purchase of the Shares, the Purchaser and the Corporation jointly and
severally hereby unconditionally guarantee prompt payment to the Vendor of the
Redemption Price on the terms stipulated in Section 6.1(b). The guarantee of
Western shall be supported by the Western GSA. It is understood and agreed by
the parties hereto that the Vendors would not have entered into this Agreement
if it were not for this guarantee.
ARTICLE VII - INDEMNIFICATION
7.1 INDEMNIFICATION OF PURCHASER
The Vendors agree to indemnify and save harmless the Purchaser from or
against any claims, demands, debts, actions, causes of action or other
proceedings, for a period of three (3) years from the Closing Date, arising from
or in respect of:
(a) Any non-performance or non-fulfilment of any covenant or agreement
on the part of the Vendors contained in this Agreement or in any
document given in order to carry out the transactions contemplated
hereby;
(b) Any misrepresentation, inaccuracy, incorrectness or breach of any
representation or warranty made by the Vendors contained in this
Agreement or contained in any document or certificate given in order
to carry out the transactions contemplated hereby;
(c) All costs and expenses including, without limitation, legal fees on
a solicitor-and-client basis, incidental to or in respect of the
foregoing;
The obligations of indemnification by the Vendors pursuant to paragraph
(a) of this section will be subject to the limitations referred to in section
5.3 hereof with respect to the survival of the representations and warranties by
the Vendors.
7.2 INDEMNIFICATION OF VENDORS
The Purchaser agrees to indemnify and save harmless the Vendors from or
against any claims, demands, debts, actions, causes
<PAGE>
23
of action or other proceedings, for a period of three (3) years from the Closing
Date, arising from or in respect of:
(a) Any non-performance or non-fulfilment of any covenant or agreement
on the part of the Purchaser contained in this Agreement or in any
document given in order to carry out the transactions contemplated
hereby;
(b) Any misrepresentation, inaccuracy, incorrectness or breach of any
representation or warranty made by the Purchaser contained in this
Agreement or contained in any document or certificate given in order
to carry out the transactions contemplated hereby;
(c) All costs and expenses including, without limitation, legal fees on
a solicitor-and-client basis, incidental to or in respect of the
foregoing;
The obligations of indemnification by the Purchaser pursuant to paragraph
(a) of this section will be subject to the limitations referred to in section
5.3 hereof with respect to the survival of the representations and warranties by
the Purchaser.
ARTICLE VIII - GENERAL
8.1 INTERPRETATION:
(a) DEFINITIONS
Where used herein or in any amendment or supplement hereof, unless
the context otherwise requires, the words and phrases with initial
capitals set forth in Article 1.0 hereto will have the meanings so
set forth therein.
(b) SCHEDULES
Schedules and other documents attached or referred to in this
Agreement are an integral part of this Agreement.
(c) SECTIONS AND HEADINGS
The division of this Agreement into Articles, Section and
Subsections, and the insertion of headings, are for convenience of
reference only, and shall not affect the construction or
interpretation hereof.
(d) EXTENDED MEETINGS
Words importing the singular number include the plural and
vice-versa, words importing the masculine gender include the
feminine and neuter genders.
<PAGE>
24
(e) FUNDS
All dollar amounts referred to in this Agreement are in lawful money
of Canada.
8.2 EXPENSES
Each party shall be responsible for its own legal and audit fees and other
charges incurred in connection with the preparation of this Agreement, all
negotiations between the parties and the consummation of the transactions
contemplated hereby.
8.3 FURTHER ASSURANCES
Each of the parties hereto will, from time to time, at the other's request
and expense and without further consideration, execute and deliver such other
instruments of transfer, conveyance and assignment and take such further action
as the other may require to more effectively complete any matter provided
herein.
8.4 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement among the parties and,
except as herein stated and in the instruments and documents to be executed and
delivered pursuant hereto, contains all of the representations and warranties of
the respective parties. There are no oral representations and warranties among
the parties of any kind. This Agreement may not be amended or modified in any
respect except by written instrument signed by both parties.
8.5 NON-MERGER
Each party hereby agrees that all provisions of this Agreement, other than
the conditions in Article IV and (subject to the provisions of Article 5.4) the
warranties and representations contained in Article V, shall forever survive the
execution and delivery of this Agreement and any and all documents delivered in
connection herewith.
8.6 APPLICABLE LAW
This Agreement shall be interpreted in accordance with the laws of the
Province of Alberta.
8.7 NOTICES
Any notice required or permitted to be given hereunder shall be in writing
and shall be effectively given if (1) delivered personally, (2) sent by prepared
courier service or mail, or (3) sent prepaid by telecopier, telex or other
similar means of electronic communication (confined on the same or following day
by
<PAGE>
25
prepaid mail) addressed, in the case of the notice to the Vendor, as follows:
Lynn Bishop/L & S Bishop Enterprises Inc.
206, 52245 Range Road 232
Sherwood Park, Alberta
T8A 2B1
and in the case of notice to the Purchaser, as follows:
Capital Environmental Resource Inc.
500 Rennie Street
Hamilton, Ontario
L8H 3P6
Any notice so given shall be deemed conclusively to have been given and
received when so personally delivered or sent by telex, telecopier or other
electronic communications, or on the second day following the sending thereof by
private courier or mail. Any party hereto or others mentioned above may charge
any particulars of its address for notice by notice to the others in the manner
aforesaid.
8.8 SUCCESSORS AND ASSIGNS
This Agreement shall enure to the benefit of and be binding upon the
parties hereto, their heirs, the executors, administrators, successors and
assigns.
*
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*
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<PAGE>
26
8.9 EXECUTION BY COUNTERPART & EXECUTION BY COUNTERPART AND FACSIMILE
This Agreement, and any supplementary agreements or documents required by
the terms hereof, may be executed by counterpart and, provided all parties
execute one copy of the Agreement, each copy bearing an original signature of
one party shall be deemed to be an original. This Agreement may be executed by
facsimile machine and each facsimile signature shall be deemed to be an original
signature.
IN WITNESS WHEREOF the parties of the First and Third Parts have executed
this Agreement by the hand of their proper signing authorities under their
Corporate Seals, and the parties of the Second Part have hereunto signed and
sealed this Agreement.
L & S BISHOP ENTERPRISES INC.
Per: /s/ Lynn Bishop
----------------------------------
[ILLEGIBLE] /s/ Lynn Bishop
- ------------------------------ ---------------------------------------
Witness to Lynn Bishop LYNN BISHOP
CAPITAL ENVIRONMENTAL RESOURCE INC.
Per: /s/ Tony Busseri
----------------------------------
Tony Busseri
WESTERN WASTE SERVICES INC.
Per: /s/ Lynn Bishop
----------------------------------
Lynn Bishop
<PAGE>
Exhibit 10.9
PURCHASE and SALE AGREEMENT
made this 4th day of June, 1997.
Between:
Canadian Waste Services Inc., an Ontario company;
Canadian Waste Services of Ontario Ltd., an Ontario company;
CWS Canadian Waste Services Ltd., a Canada company;
CWS Canadian Waste Services (Canada) Ltd., a Canada company; and
1236886 Ontario Inc., an Ontario company,
all having a business address at 1275 North Service Road West,
Suite 700, Oakville, Ontario, L6M 3G4 (collectively the
"Vendor")
324 of 20 Canada Inc.
- and -
1233666 Ontario Inc., an Ontario company having an address at
Unit 213, 2511 Lakeshore Road West, Oakville, Ontario L6L 6L9
(the "Purchaser")
WHEREAS, the Vendor is required by the Director of
Investigations (the "Director") acting under the authority of the Competition
Act of Canada to divest of certain solid waste collection, removal and
transportation for disposal businesses in the communities of Barrie, Brantford,
Kitchener, Ottawa and Sarnia, Ontario, and in Calgary and Edmonton, Alberta, and
in Vancouver, British Columbia;
AND WHEREAS, the Purchaser is willing to purchase the said
business from the Vendor;
NOW, THEREFORE, this Purchase and Sale Agreement witnesses that
in consideration of the articles of agreement set out herein, the parties agree
with each other as follows:
ARTICLE ONE
1.1 Definitions
In this Purchase and Sale Agreement (the "Agreement"), unless there is
something in the subject matter or context inconsistent therewith, the following
terms shall have the following meanings respectively:
"Assets" means the waste collection motor vehicles, containers, and the
equipment listed in Schedules 1.1 to 1.9 collectively.
<PAGE>
-2-
"Business" means collectively; (a) the solid waste collection, removal and
transportation for disposal service businesses conducted by the Vendor as
of the Closing date for the customers listed in Schedules 1.1 to 1.9
collectively, in the communities of Barrie, Brantford, Kitchener, Ottawa
and Outaouais, and Sarnia in the Province of Ontario, and Calgary and
Edmonton in the Province of Alberta, and Vancouver in the Province of
British Columbia; and (b) the transfer station business in Strathcona,
Alberta and the landfill operating and management business in Ryley,
Alberta.
"Closing" means the completion of the purchase and sale contemplated by
this Agreement on or before June 6, 1997.
"Customer Contracts" means the solid waste collection, removal and
transportation for disposal service customer accounts and contracts listed
in Schedules 1.1 to 1.8 collectively, and the transfer station customer
accounts and contracts and the Beaver County Regional Waste Commission
operating agreement set out in Schedule 1.9, and including all files, data
and information relating thereto in the possession or control of the
Vendor.
"Permits" means any and all authorizations, licenses or permits used in
the conduct of the Business, including but not limited to the transfer
station permit for the facility located in Strathcona, Alberta.
"Purchased Assets" means collectively the Assets, the Permits, the
Customer Contracts and the Real Property.
"Real Property" means the real property owned by the Vendor and used in
the conduct of the Business in Brantford and Kitchener, Ontario, as
identified in Schedules 1.2, and 1.5, and the leased property, including
all leasehold improvements owned by the Vendor and forming part of such
leased property, used by the Vendor in the Business in Sarnia, Ontario, a
copy of which lease is set out in Schedule 1.7, and in Strathcona,
Alberta, a copy of which lease is set out in Schedule 1.8.
1.2 Schedules
The following schedules are incorporated into this Agreement as if set out
in full herein, and are deemed to be an integral part of this Agreement:
Schedules 1.1 to 1.9 - Assets, Customer Contracts, Real Property &
Employees
Schedule 2 - Disposal Agreements
Schedule 3 - Promissory Note
<PAGE>
-3-
ARTICLE TWO
2.1 Purchase and Sale
Subject to the terms and provisions of this Agreement, the Purchaser shall
purchase and assume, and the Vendor shall sell, transfer and assign to the
Purchaser, the Purchased Assets.
The parties acknowledge that some of the Customer Contracts proposed to be
assigned may not be assignable without the consent of the customer or, even if
assignable, the customer may object to assignment. The parties agree that
customer satisfaction is important and the Vendor will substitute other
contracts of approximately equal value to offset losses as a result of customer
dissatisfaction or route efficiency considerations.
2.2 Price and Payment
The total purchase price (consisting of the price for the Purchased Assets
and the transitional license and assistance set out in Sections 2.03 and 2.10
below) payable by the Purchaser to the Vendor for the Purchased Assets shall be
SIXTEEN MILLION AND SEVENTY-FOUR THOUSAND DOLLARS ($16,074,,000.00), subject to
adjustment as hereinafter provided, which shall be paid by Purchaser to Vendor
as follows:
(a) the amount of $825,000.00 shall be paid on or before June 30th, 1997;
(b) the amount of $800,000.00 shall be paid on or before July 15th, 1997;
(c) the amount of $2,500,000.00 shall be paid on the date six months after the
Closing date;
(d) the Purchaser shall make monthly payments of interest only on the last day
of each month, calculated at 6.75% per year from the Closing date, on the
outstanding principal for such month;
(e) the Purchaser shall make annual installment payments of $1,195,000.00 each
on the first and second anniversary dates of the Closing date; and
(f) the Purchaser shall pay the remaining principal balance and interest in
full on the third anniversary date of the Closing date.
Attached as Schedule 3 is an unexecuted promissory note setting out the
foregoing payments, which note the Purchaser shall execute and deliver to the
Vendor at Closing.
<PAGE>
-4-
2.3 Allocation, Security and Taxes
The Purchaser and Vendor acknowledge that $5,500,000.00 of the purchase
price is allocated to the grant by the Vendor to the Purchaser of the
transitional licence and assistance set out in Section 2.10 below, which
allocated monies shall be treated as an expense to the Purchaser and as revenue
to the Vendor. The allocation of the remaining part of the purchase price shall
be agreed to by the parties and finalized within 30 days of the Closing date,
and the Vendor and the Purchaser shall record the purchase and sale for tax
purposes in accordance with such allocation.
As security for the payment of the purchase price, the Purchaser hereby
grants the Vendor a security interest in and first lien and charge against the
Purchased Assets, and shall enter into a security agreement with Vendor within
30 days following Closing date in this regard. Notwithstanding the foregoing
sentence, the Vendor agrees to postpone its security interest in the Purchased
Assets to the security interest of a third party lender to the Purchaser, on
notice in writing to the Vendor, and the Vendor will execute and deliver such
documents as may reasonably be required by the Purchaser to evidence such
postponement. The Purchaser and its solicitors are hereby authorized to file any
statements required pursuant to the Personal Property Security Act of Ontario to
record the postponement of the Vendor's security interest in the Purchased
Assets.
The Purchaser shall be solely responsible for and shall pay, and shall
indemnify the Vendor from and against, any and all GST, retail sales taxes, and
similar taxes or charges relating to the purchase and sale of the Purchased
Assets.
2.4 Price Adjustment
The Vendor represents and warrants to the Purchaser that the aggregate
projected earnings before interest, depreciation and amorization ("EBITDA") of
the Business for the twelve month period commencing August 1, 1997 and ending
July 31, 1998 shall not be less than $4,994,000.00. The aggregate EBITDA
calculation provided for in this Section 2.4 shall not incorporate any EBITDA
arising by virtue of the transfer station business in Strathcona, Alberta and
the landfill operating and management business in Ryley, Alberta, set out in
Schedule 1.8. In the event the aggregate EBITDA in such twelve month period is
less than $4,994,000.00 then the purchase price shall be reduced by 4.5 times
the amount of any such shortfall in the EBITDA, provided always that no
reduction in the purchase price shall be made by reason of a shortfall in the
EBITDA arising from:
(a) the cancellation of any of the Customer Contracts or the withholding
or reduction of any amounts otherwise payable pursuant to the
Customer Contracts as a result of the Purchaser's default during the
said 12 month period;
<PAGE>
-5-
(b) any failure of the Purchaser to comply with applicable laws, regulations,
by-laws, Permits or any other authorizations, orders or judgments relating
to the conduct of the Business during the said 12 month period;
(c) any event of force majeure which affects the Purchaser or the Business and
which causes a disruption in service to the Customer Contracts, including
but not limited to unusually severe weather, labour disruptions (including
strikes, lockouts or work-to-rule actions, except to the extent that any
of these events result from the non-compliance with a collective agreement
relating to the transfer of the Purchased Assets set out in this
Agreement), earthquakes, fires, blockage or failure of transportation
systems, or change in the laws applicable to the conduct of the Business
which increases the costs of doing business; and
(d) any material increase from or after the Closing date in the costs
reasonably and properly incurred by the Purchaser in the conduct of the
Business, as measured against the historical costs incurred in the conduct
of the Business, and any sales, general or administrative costs in excess
of 9% of the gross revenues of the Business.
In calculating the EBITDA the parties shall treat any event referred to in
subsections (a) through (d) above as if it had not occurred for the purposes of
such calculation, and shall project the applicable EBITDA accordingly based upon
historical information and the best information available to the parties.
The parties shall exercise their best efforts to complete the EBITDA
calculation and corresponding price adjustment, if any, by September 30th, 1998,
failing which either party may take the matter to arbitration in accordance with
and subject to the provisions of the Arbitration Act of Ontario and for the
purposes of any such arbitration the parties shall promptly select a person from
a chartered accounting firm to act as the sole arbitrator.
2.5 Closing
The Closing of the purchase and sale set out in this Agreement shall occur
on or before June 6th, 1997, simultaneously with and subject to the completion
of that certain transaction between the Vendor and WMI Waste Management of
Canada Inc., at the offices of the Vendor's lawyers in Toronto, Ontario at a
time to be mutually agreed upon by the parties. At Closing the Vendor shall
sell, deliver, transfer and assign to the Purchaser, and the Purchaser shall
assume, take possession of and pay for, the Purchased Assets.
2.6 Employees
At Closing the Purchaser shall assume the employment of the employees of
the Business listed in Schedules 1.1 to 1.9, as well as any and all obligations
arising from and after the Closing date with respect to such employees,
including all wages, salaries, bonuses, vacation and vacation pay, benefits and
pensions, and collective agreements
<PAGE>
-6-
with respect to such employees. The Purchaser shall recognize the seniority of
the employees listed in Schedules 1.1 to 1.9 in terms of salaries, vacation and
benefits. The Vendor shall pay all wages, salaries and bonuses and all amounts
due in lieu of holiday pay to all employees listed in Schedules 1.1 to 1.9 owing
up to and including the Closing date.
2.7 Assumed Liabilities
Subject to the representations, warranties and undertakings of the Vendor
set out in this Agreement from and after the time of Closing the Purchaser
shall, without any further responsibility or liability of or recourse to the
Vendor or its affiliated companies or their respective officers, directors,
employees or representatives, indemnify and hold the Vendor harmless for any and
all claims, liabilities, obligations, losses, costs, expenses, litigation, and
demands whatsoever related to, arising from, asserted against or associated with
any and all Assumed Liabilities. For the purposes of this Agreement, "Assumed
Liabilities" shall mean:
(a) all liabilities, claims, proceedings, demands or litigation, and
obligations or debts of the Purchaser, relating to the use, ownership or
possession by the Purchaser of the Purchased Assets;
(b) all liabilities relating in any manner to the obligations of Vendor
arising from and after the Closing date under the Customer Contracts or
with respect to the Real Property, including but not limited to any
violation, breach or failure to perform any obligation or requirement
relating to the Customer Contracts or with respect to the Real Property.
The Purchaser shall from and after the Closing date fulfill and comply
with all the terms and provisions of the Customer Contracts as if the
Purchaser were originally a party to the said agreements; and
(c) all liabilities and obligations arising from and after the Closing date
with respect to the employees of the Business listed in Schedules 1.1 to
1.9, including any and all obligations relating to salary, wages, bonuses,
vacations and vacation pay, benefits, pensions, collective agreements,
terminations of any such employees after the Closing date.
In the event the landfill operating and management agreement with the
Beaver Regional Waste Management Services Commission set out in Schedule 1.8 is
not assigned and transferred to the Purchaser, then the Purchaser shall not
assume or be liable for any closure and/or post-closure costs relating to the
landfill site which is the subject of the said landfill operating and management
agreement.
2.8 Assets
The Purchaser acknowledges that the Vendor has not directly managed or
operated the Business in several instances, having very recently acquired such
parts of
<PAGE>
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the Business, and has been required by the Director to manage and operate some
parts of the Business through an intermediary in other instances. It is the
intention of the parties that the Assets, taken as a whole and as of the Closing
date, be representative in terms of age, quality and condition, of the assets of
the Vendor's business within the communities comprising the Business. In the
event the Assets are not so representative then the parties shall agree to
substitute assets of the Vendor's business in order to achieve the
aforementioned intention.
Subject to the foregoing, the Purchaser hereby agrees that it is buying
and assuming the Purchased Assets on an "as-is, where-is" basis. The Vendor does
not make any representations or warranties whatsoever to the Purchaser as to the
state of repair, condition, quality, durability or suitability of the Purchased
Assets for the Purchaser's purposes. THE PURCHASER HEREBY WAIVES, RELEASES AND
FOREVER DISCHARGES THE VENDOR FROM ANY AND ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS OF MERCHANTABLE QUALIFY OR FITNESS FOR PURPOSE, WHETHER EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, RELATING TO THE PURCHASED ASSETS. The
limitations on the liability of the Vendor set out in this Section 2.8 shall
survive the Closing and continue in full force and effect thereafter.
2.9 Purchaser's Undertakings
The Purchaser shall replace the bid and performance bonds and letters of
credit which the Vendor has given to the customers of the Business, or provide
back-up letters of credit satisfactory to the Vendor acting reasonably in
respect of such bonds or letters of credit, in favor of the Vendor at or as soon
as practicable after Closing, but in any event within 180 days of Closing. The
Purchaser shall defend, indemnify and save the Vendor harmless from and against
any and all costs, claims or damages incurred by Vendor pertaining to any claims
or draws made against any such bid or performance bonds or letters of credit
with respect to any such bonds or letters of credit not so replaced or backed-up
by letters of credit as of Closing.
As soon as reasonably possible following the Closing, and in any event not
later than 180 days after the Closing date, the Purchaser shall remove the
Vendor's name and logos from the Purchased Assets, as well as the names and
logos of any predecessor companies to the Vendor. The Vendor does not grant the
Purchaser any rights in and to the name of the Vendor or any trademarks of the
Vendor with respect to the ownership or use by the Purchaser of the Purchased
Assets.
2.10 Transitional License and Assistance
The Vendor hereby grants the Purchaser the right and non-exclusive license
to use and share part of the Vendor's facilities relating to the conduct of the
Business in the communities of Barrie, Ottawa and Sarnia in the Province of
Ontario, Calgary and Edmonton in the Province of Alberta, and Vancouver, British
Columbia for the period from the date hereof up to and including December 31,
1997 for the purposes of
<PAGE>
-9-
(b) all liabilities, for taxes, duties, levies, assessments and other charges,
including penalties, interest and fines with respect thereto, payable by
the Vendor to any federal, provincial, municipal or other government
agency, including without limitation any taxes in respect of or measured
by the sale, consumption or performance by the Vendor of any service prior
to the Closing date or any tax payable in respect of remuneration payable
to all persons employed by the Business prior to the Closing date;
(c) all liabilities and obligations with respect to the employees of the
Business listed in Schedules 1.1 to 1.9, including any obligations
relating to salary, bonuses, vacation pay, benefits, pensions, collective
agreements and termination of any such employee against the Vendor or the
Purchaser in respect of such employment to the extent relating to the
period prior to the Closing date;
(d) all liabilities for claims of third parties in respect of events occurring
at any time prior to the Closing date, including without limitation any
claim in respect of the breach of any applicable environmental laws,
regulations, ordinances, by-laws and codes in respect of the Real Property
or the operation of the Business;
(e) all costs and expenses reasonably and properly incurred by the Purchaser
in respect of the remediation of the Real Property or the Ryley Regional
Landfill Site where such remediation related to conditions, events or
circumstances existing prior to the Closing date (whether known or
unknown) and not caused by any act or omission of the Purchaser.
Notwithstanding any other provision of this Agreement, the Purchaser shall
have a right to satisfy any amount from time to time owing by it to the Vendor
for the balance of the purchase price, by way of set-off against any amount
owing by the Vendor to the Purchaser, as a result of the Vendor's obligation to
indemnify pursuant to this Section 2.13.
2.14 Purchaser's Covenant.
The Vendor will not be liable for, and the Purchaser will indemnify the
Vendor from and against, all obligations, commitments and liabilities of the
Purchaser (whether absolute, accrued or contingent) related to, arising from,
asserted against or associated with events, circumstances, conditions or
occurrences (whether known or unknown) to the extent occurring after the Closing
date. Without limiting the generality of the foregoing, the Vendor shall have no
liability for and shall be indemnified by the Purchaser for each of the
following:
(a) all liabilities, claims, proceedings, demands or litigation and
obligations or debts in respect of or relating to the operation of the
Business after the Closing date;
(b) all liabilities, for taxes, duties, levies, assessments and other charges,
including penalties, interest and fines with respect thereto, payable by
the Purchaser to any federal, provincial, municipal or other government
agency, including without limitation any taxes in respect of or measured
by the sale, consumption or performance by the Purchaser of any service
after the Closing date or any tax
<PAGE>
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payable in respect of remuneration payable to all persons employed by the
Business after the Closing date;
(c) all liabilities and obligations with respect to the employees of the
Business listed in Schedules 1.1 to 1.9, including any obligations
relating to salary, bonuses, vacation pay, benefits, pensions, collective
agreements and termination of any such employee against the Vendor or the
Purchaser in respect of such employment to the extent relating to the
period after the Closing date;
(d) all liabilities for claims of third parties in respect of events occurring
at any time after the Closing date, including without limitation any claim
in respect of the breach of any applicable environmental laws,
regulations, ordinances, by-laws and codes in respect of the Real
Property.
(e) all costs and expenses reasonably and properly incurred by the Vendor in
respect of the remediation of the Real Property or the Ryley Regional
Landfill Site where such remediation related to conditions, events or
circumstances arising after the Closing date (whether known or unknown)
and not caused by any act or omission of the Vendor.
ARTICLE THREE
3.1 Representations and Warranties of Vendor
The Vendor represents and warrants to the Purchaser as follows:
(a) Organization
The Vendor is a corporation which has been duly incorporated and organized
and is validly subsisting and in good standing under the laws of its
jurisdiction, and has the corporate power and authority and possesses all
authorizations necessary to own or lease the Purchased Assets and to sell,
transfer and assign the Purchased Assets to the Purchaser.
(b) Authority
The Vendor has the legal capacity to enter into and carry out it
obligations under this Agreement. Neither the execution of this Agreement,
nor the completion of the sale set out in this Agreement violates,
conflicts with or results in, or will violate, conflict with or result in,
a breach by the Vendor of the respective terms, conditions or provisions,
as applicable, of its articles or other constating document or by-laws or
of any deed of trust, loan agreement, to which it is a party or by which
it is bound. All necessary corporate action on the part of the Vendor has
been taken to authorize and approve the execution and delivery of this
Agreement and the performance by the Vendor of its obligations hereunder.
This Agreement has been duly executed and delivered by, and constitutes a
valid and binding obligation of the Vendor.
<PAGE>
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(c) Title
The Vendor does now and shall at Closing, own, possess and have a good and
marketable title to the Purchased Assets free and clear of any charges or
other encumbrances whatsoever and has full right to assign and sell the
Purchased Assets to Purchaser free and clear of all claims.
(d) Proceedings
There are no actions, suits or proceedings, pending or threatened, before
any court which, if successful, would adversely affect the title to the
Purchased Assets, or the Vendor's right to sell the same to the Purchaser
free and clear of all encumbrances.
(e) Executions
There are no judgments or executions outstanding against the Vendor which
affect the Purchased Assets.
(f) Compliance
The Vendor is not now and at Closing will not be in default in any
material respect under the terms of any of the Customer Contracts or
Permits, nor to the best of the knowledge of the Vendor is any default
threatened or pending under any such Customer Contracts or Permits.
(g) Real Property
The Seller shall convey the owned Real Property to Purchaser at Closing by
deed/transfer of land made in favor of the Purchaser, free and clear of
any liens and encumbrances, except for recorded easements and other
property rights of record on title (but not including any liens or
mortgages), none of which interfere with the continued operation of the
Business as presently conducted.
(h) Lease Property
The Sarnia lease set out in Schedule 1.7 and the Strathcona lease set out
in Schedule 1.8 are both in good standing, no amounts payable by the
lessee thereunder are outstanding and the lessee thereunder is not in
default nor at Closing will be in default, in any material respect, of any
of the provisions of the said lease agreements.
(i) Non-Resident
The Vendor is not a non-resident within the meaning of the Income Tax Act
of Canada.
(j) Labor Relations
To the best of Vendor's knowledge there is no strike, walkout or other
labor disturbance threatened or pending with respect to any of the
employees or collective agreements set out in Schedules 1.1 to 1.9.
<PAGE>
-12-
3.2 Representations and Warranties of Purchaser
Purchaser represents and warrants to Vendor as follows:
(a) Organization
Purchaser is a corporation duly incorporated and validly existing under
the laws of the Province of Ontario.
(b) Authority
Neither the execution and delivery of this Agreement, nor the consummation
of the transactions contemplated herein violates, conflicts with or
results in, or will violate, conflict with or result in, a breach by
Purchaser of the terms, conditions or provisions, as applicable, of
Purchaser's articles or by-laws or of any deed of trust, debt instrument
or loan agreement, or any other agreement affecting its assets or
operations generally or its undertaking, to which it is a party of by
which it is bound.
(c) Corporate Action
All necessary corporate action on the part of the Purchaser has been taken
to authorize and approve the execution and delivery of this Agreement and
the performance by the Purchaser of its obligations hereunder. This
Agreement has been duly executed and delivered by, and constitutes a valid
and binding obligation of the Purchaser.
3.3 Representations True at Closing
The representations, warranties and covenants contained in Sections 3.1
and 3.2 hereof and in any certificate or document delivered in connection with
the transaction contemplated herein shall be true at and as of the time of
Closing as though such representations, warranties and covenants were made at
and as of the time of Closing.
3.4 Survival of Representations and Warranties
All representations and warranties set out in this Agreement, whether made
by the Vendor or the Purchaser, shall survive the Closing and remain in force
and effect for a period of one year following the Closing date, after which
period all such representions and warranties shall terminate and be void, and no
longer be actionable by the parties, except that any representations or
warranties concerning:
(a) environmental matters or claims shall survive for a period of 18 months
following the Closing date;
(b) employee matters or claims shall survive for a period of 3 years following
the Closing date; and
(c) taxes shall survive for the applicable statutory period;
(d) EBITDA in Section 2.4 shall survive until resolved pursuant to Section
2.4;
<PAGE>
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after which applicable periods such representations and warranties shall
terminate and be void, and no longer actionable by the parties.
ARTICLE FOUR
4.1 Conditions Precedent for Purchaser
The obligation of the Purchaser to complete the transaction set out in
this Agreement is subject to the fulfillment of each of the following
conditions:
(a) No Material Breach
There shall have been no material breach by the Vendor in the performance
of any of its covenants herein, and each of the representations and
warranties of the Vendor contained or referred to in this Agreement shall
be true and correct in all material respects at Closing.
(b) Covenants and Conditions Performed
Except as otherwise provided herein, all covenants and conditions of or to
be performed or satisfied by the Vendor at or before Closing, shall have
been performed or satisfied in all material respects.
(c) Permits
The Purchaser shall assign its interest in the Permits to the Vendor at
Closing by the delivery of an assignment agreement.
(d) Corporate Proceedings
The Vendor shall have taken or caused to be taken all necessary or
desirable actions, steps and corporate proceedings to approve and
authorize the transfer of the Purchased Assets to Purchaser.
(e) Documents
The Vendor shall have delivered to the Purchaser a bill of sale,
assignment agreements and deeds/transfer of land in order to effectively
transfer and assign the Purchased Assets to the Purchaser with a good and
marketable title free and clear of all liens and security interests.
4.2 Purchaser's Right of Waiver
In case any of the foregoing conditions shall not have been performed
prior to Closing, the Purchaser may terminate this Agreement by notice in
writing to the Vendor, in which event the Purchaser shall be under no obligation
to any other party under this Agreement; provided, however, that aforesaid
conditions are for the benefit of the Purchaser only and accordingly the
Purchaser shall be entitled to waive compliance with any of such conditions in
whole or in part if it sees fit to do so.
<PAGE>
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4.3 Conditions Precedent for Vendor
The obligation of the Vendor to complete the transaction set out in this
Agreement is subject to the fulfillment of each of the following conditions:
(a) There shall have been no material breach by the Purchaser in the
performance of any of its covenants herein, and each of the
representations and warranties of the Purchaser contained or referred to
in this Agreement shall be true and correct in all material respects at
Closing.
(b) Purchaser shall have delivered to Vendor all of the payments, instruments
and other documents and items required to be delivered to Vendor,
including the payment set out in Section 2.2 and the performance bonds in
Section 2.9.
4.4 Vendor's Right of Waiver
In case any of the foregoing conditions shall not have been performed
prior to Closing, the Vendor may terminate this Agreement by notice in writing
to the Purchaser, in which event the Vendor shall be under no obligation to any
other party under this Agreement; provided, however, that the aforesaid
conditions are for the benefit of the Vendor only and accordingly the Vendor
shall be entitled to waive compliance with any such condition in whole or in
part if it sees fit to do so.
ARTICLE FIVE
5.1 Indemnification by Vendor
Subject to the provisions of this Agreement, the Vendor shall indemnify
and hold harmless the Purchaser from and against all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, settlement costs
and any legal fees, court costs, accounting or other investigating or defending
expenses for any actions or threatened actions) in connection with: (i) any
misrepresentation or breach of any representation or warranty made by the Vendor
in this Agreement; or (ii) any breach of any covenant, agreement or obligation
of the Vendor contained in this Agreement.
Notwithstanding any other provision of this Agreement, the Purchaser shall
have a right to satisfy any amount from time to time owing by it to the Vendor
for the balance of the purchase price, by way of set-off against any amount
owing by the Vendor to the Purchaser, as a result of the Vendor's obligation to
indemnify pursuant to this Section 5.1.
5.2 Indemnification by Purchaser
The Purchaser shall indemnify and hold harmless the Vendor from and
against all claims, damages, losses, liabilities, costs and expenses (including,
without limitation, settlement costs and any legal, court costs, accounting or
other expenses for investigating or defending any actions or threatened actions)
in connection with: (i) any misrepresentation
<PAGE>
-15-
or breach of any representation or warranty made by the Purchaser in this
Agreement; or (ii) any breach of any covenant, agreement or obligation of the
Purchaser contained in this Agreement.
5.3 Limitation on Liability
Notwithstanding any other provision of this Agreement, it is understood
and agreed by the parties that the obligation of the Vendor, taken in the
aggregate, to indemnify the Purchaser shall in no event commence unless and
until the Purchaser has incurred indemnifiable claims in the aggregate in excess
of two hundred and fifty-thousand dollars ($250,000.00), in which case the
indemnity obligations of the Vendor shall apply to any indemnifiable claims in
excess of such amount and the Purchaser hereby waives and forever releases the
Vendor from any and all claims for damages or indemnification which taken in the
aggregate are less than two hundred and fifty-thousand dollars ($250,000.00).
ARTICLE SIX
6.1 Non-Competition
Neither the Vendor nor any affiliated company of the Vendor shall, for a
period of 12 months following the Closing date (whether on its own account or as
a stockholder, partner, joint venturer, advisor, consultant and/or agent of any
person, corporation or other entity) solicit, provide or enter into any
arrangement or agreement (whether written, oral, formal or informal) for the
provision of solid or special waste collection, removal, or transportation for
disposal or recycling services to any customer identified in the Customer
Contracts assigned by Vendor to the Purchaser pursuant to this Agreement, or use
any customer information pertaining to the Customer Contracts for any such
purpose, provided always that the foregoing prohibitions shall not apply to the
extent that any such Customer Contracts are subject to tender.
6.2 Announcements
No public announcement or press release concerning the transaction set out
in this Agreement shall be made at any time by the Vendor or the Purchaser, as
the case may be, without the prior consent of the other party.
6.3 Fees
The Vendor and the Purchaser represent and warrant to each other that it
has not engaged any broker or finder to act with respect to the purchase and
sale set out in this Agreement, and each agrees to indemnify the other against
any claim by any person for brokerage, commission or finder's or similar fees
based upon the alleged act of such party.
<PAGE>
-16-
6.4 Applicable Law
This Agreement and the rights, obligations and relations of the parties
shall be governed by and construed in accordance with the laws in force in the
Province of Ontario and the rights and obligations of the parties shall be
interpreted accordingly. Exclusive jurisdiction in any action, suit or
proceeding related to any dispute arising under this Agreement and the other
agreements relating to this Agreement (for purposes of this Section, a
"Dispute") shall be in any appropriate court in the Province of Ontario.
The Vendor and Purchaser waive any right to trial by jury or to have a
jury participate in resolving any Dispute, whether relating to contract, tort or
otherwise. The Vendor and Purchaser do not waive venue in any action, suit or
proceeding related to a Dispute brought before any court in the Province of
Ontario.
6.5 Entire Agreement
This Agreement contains the entire agreement of the parties hereto and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto or their respective representatives with respect to the matters
herein and shall not be modified or amended except by written agreement signed
by the parties to be bound thereby.
6.6 Time
Time shall be of the essence of this Agreement
6.7 Notices
All notices, requests, demands or other communications required to be
given or made hereunder shall be in writing and shall be deemed to be well and
sufficiently given if hand delivered or sent by prepaid courier or by means of
printed telephonic facsimile communication, if to the Vendor, addressed to:
Canadian Waste Services Inc.
1275 North Service Road West, Suite 700
Oakville, Ontario
L6M 3G4
Fax: (905) 825-5603
and if to the Purchaser, addressed to:
1233666 Ontario Inc.
Unit 213, 2511 Lakeshore Road West
Oakville, Ontario
L6L 6L9
Fax: (905) 847-7988
<PAGE>
-17-
Such notice shall be deemed to have been given on the date of delivery or
transmission. Any party may change its address for notice by written
communication, mailed or delivered as aforesaid.
6.8 Successors and Assigns
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
6.9 Confidentiality
In the event that the purchase and sale herein provided for is not
consummated, the Purchaser agrees that it will not, directly or indirectly, use
for its own purposes any information, trade secrets or confidential data
relating to the Vendor, or the Business (including the customers of the
Business) discovered or acquired by the Purchaser, its representatives or
auditors, or any of them, as a result of the Vendor making available to the
Purchaser or its representatives any information relating to the Vendor, the
Purchased Assets, and the Purchaser agrees that it will not disclose, divulge or
communicate orally, in writing or otherwise, any such information, trade secrets
or confidential data so discovered or acquired to any other person, firm or
corporation.
IN WITNESS WHEREOF the parties have signed this Agreement by their duly
authorized officers.
SIGNED AND DELIVERED:
(Canadian Waste Services Inc.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
(Canadian Waste Services of Ontario Ltd.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
signatures continued .......
<PAGE>
-18-
(CWS Canadian Waste Services Ltd.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
(CWS Canadian Waste Services (Canada) Ltd.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
(1236886 Ontario Inc.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
(1233666 Ontario Inc.
(By:
(
(/s/ [ILLEGIBLE]
(--------------------------------------
<PAGE>
Exhibit 21
SUBSIDIARIES
CANADA:
1312654 Ontario Inc. (non-operating)
231768 Ontario Inc.
3020378 Nova Scotia Company (non-operating)
Alberta Waste Ltd.
Bales Transfer Station Limited
Can Pak Environmental Inc.
Can Pak Waste Management Limited
Capital Environmental Inc.
Muskoka Containerized Services Limited
Premier Waste Systems Ltd.
Ram-Pak Compaction Systems Ltd.
West Coast Waste Systems Inc.
Western Waste Services Inc.
UNITED STATES:
Action Disposal, L.L.C.
Capital Environmental Holdings Inc.
Capital Environmental Resource (Pennsylvania) Inc.
Capital Environmental Resource (U.S.) Inc.
CERI, L.L.C. (non-operating)
CERI, L.P. (non-operating)
General Environmental Technical Services, Inc.
J.V. Services of Western N.Y., Inc.
Rubbish Removal of NY, Inc.
Tousley Trash Service, Inc.
Waste Leasing & Haulers, Inc.
<PAGE>
Exhibit 23.1
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333------) of our report dated March 8, 1999, except for notes 7 and
11(d) which are dated April 26, 1999, on our audits of the consolidated
financial statements of Capital Environmental Resource Inc. We also consent
to the references to our firm under the Caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
April 30, 1999
<PAGE>
Capital Environmental Resource Inc.
1005 Skyview Drive
Burlington, Ontario L7P 5B1 Canada
Ladies and Gentlemen:
The undersigned hereby consents to being designated as a person expected to
become a director of Capital Environmental Resource Inc., an Ontario
corporation (the "Company"), in the Company's Registration Statement on Form
F-1 to be filed with the United States Securities and Exchange Commission.
Very truly yours,
/s/ David Lowenstein
David Lowenstein
Date: March 11, 1999
<PAGE>
Exhibit 23.7
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333------) of our report dated May 29, 1998, on our audits of the
consolidated financial statements of Western Waste Services Inc. We also
consent to the references to our firm under the Caption "Experts".
/s/ Coopers & Lybrand
Coopers & Lybrand
Chartered Accountants
Edmonton, Canada
April 30, 1999
