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FILED PURSUANT TO RULE NO. 424(b)(3)
REGISTRATION NO. 333-47966
PROXY STATEMENT-PROSPECTUS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
OF WASTE INDUSTRIES, INC.
-------------------------
PROPOSED REORGANIZATION
-------------------------
Waste Industries, Inc., a North Carolina corporation, is proposing a
reorganization of the company. To effect the reorganization, Waste Industries
recently formed Waste Holdings, Inc., a North Carolina corporation, as a
wholly-owned subsidiary which in turn formed Waste Industries MergeCo, LLC, a
North Carolina limited liability company. Waste Industries, Waste Holdings and
Waste LLC have entered into an Amended and Restated Agreement and Plan of
Merger and Reorganization, dated November 16, 2000. Under the merger agreement,
Waste Industries will merge into Waste LLC. Waste LLC will be the surviving
entity, which will change its name to Waste Industries, LLC and will continue
to be the wholly-owned subsidiary of Waste Holdings. In the reorganization,
each outstanding share of Waste Industries common stock will automatically be
converted into one share of Waste Holdings common stock. The board of directors
of Waste Industries has unanimously approved the merger agreement.
A special meeting of the shareholders of Waste Industries will be held on
January 30, 2001 at 9:00 a.m., at 3301 Benson Drive, First Floor, Raleigh,
North Carolina. At the special meeting, the shareholders of Waste Industries
will be asked to approve the merger agreement governing the reorganization.
Waste Industries common stock is traded on the Nasdaq National Market under
the symbol "WWIN". We have applied to and received approval from Nasdaq for the
common stock of Waste Holdings to be traded on the Nasdaq National Market under
the symbol "WWIN" after the reorganization.
Shareholders of Waste Industries do not have statutory dissenters' rights as
a result of the reorganization.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares of Waste Holdings
common stock to be issued in the merger or determined if this proxy
statement-prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The date of this proxy statement-prospectus is December 29, 2000. It is
first being mailed on or about December 30, 2000.
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WASTE INDUSTRIES, INC.
3301 Benson Drive, Suite 601
Raleigh, North Carolina 27609
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 30, 2001
----------------------------------------------
TO THE SHAREHOLDERS OF WASTE INDUSTRIES, INC.:
Waste Industries, Inc. will hold a special meeting of shareholders at 3301
Benson Drive, First Floor, Raleigh, North Carolina, on January 30, 2001, at
9:00 a.m., to vote on:
1. The Amended and Restated Agreement and Plan of Merger and Reorganization
dated November 16, 2000 providing for the merger of Waste Industries,
Inc., a North Carolina corporation, with and into Waste Industries
MergeCo, LLC, North Carolina limited liability company which is wholly-
owned by Waste Holdings, Inc., a North Carolina corporation organized by
Waste Industries for the purpose of becoming its holding company.
Pursuant to the merger agreement, all of Waste Industries' shareholders
will become shareholders of Waste Holdings on a share-for-share basis
and Waste LLC will continue to be wholly-owned by Waste Holdings; and
2. Any other matters that may properly come before the special meeting or
any adjournment of the special meeting.
Record holders of Waste Industries common stock at the close of business on
December 28, 2000, will receive notice of and may vote at the special meeting,
including any adjournments. The agreement and the plan of merger require
approval by the holders of a majority of the outstanding shares of Waste
Industries common stock.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you sign, date and mail your proxy card without indicating how
you want to vote, we will vote your proxy in favor of the merger. If you do not
return your card or attend and vote in favor at the special meeting, the effect
will be a vote against the merger.
Your board of directors unanimously recommends that you vote for approval of
the merger.
By Order of the Board of directors
Lonnie C. Poole, Jr.,
Chairman of the Board and
Chief Executive Officer
Raleigh, North Carolina
December 29, 2000
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PLEASE NOTE
No one has been authorized to provide Waste Industries shareholders with
any information other than the information included in this document.
Shareholders of Waste Industries should not rely on other information as
being authorized by Waste Industries or Waste Holdings.
This proxy statement-prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, the securities offered by this proxy
statement-prospectus, or the solicitation of a proxy, in any jurisdiction,
to or from any person to whom it is unlawful to make such offer or
solicitation of an offer or proxy solicitation in such jurisdiction.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION........................................ 1
SUMMARY.................................................................... 2
RISK FACTORS............................................................... 6
PROPOSAL NO. 1 -- APPROVAL OF THE REORGANIZATION........................... 12
General.................................................................. 12
Effects of the Reorganization............................................ 12
Reorganization Share Exchange............................................ 12
Exchange Method.......................................................... 12
Operation and Management of Waste Holdings and Waste LLC after the
Reorganization.......................................................... 13
Background of and Reasons for the Reorganization......................... 13
Recommendation........................................................... 13
Vote Required............................................................ 14
Certain Differences in Shareholders' Rights.............................. 14
Termination.............................................................. 14
Amendments and Waivers................................................... 14
Effective Time........................................................... 14
Expenses of the Reorganization........................................... 14
Federal Income Tax Consequences of the Reorganization.................... 14
Accounting Treatment of the Reorganization............................... 16
Restrictions on Resale of Waste Holdings Common Stock.................... 16
INFORMATION RELATING TO WASTE LLC.......................................... 17
INFORMATION RELATING TO WASTE HOLDINGS..................................... 17
BUSINESS OF WASTE INDUSTRIES............................................... 17
General.................................................................. 17
Recent Developments...................................................... 17
Industry Overview........................................................ 18
Strategy................................................................. 19
Internal Growth.......................................................... 19
Expansion Through Acquisitions........................................... 19
Operating Enhancements................................................... 21
Acquisition Program...................................................... 21
Contracts Program........................................................ 24
Services................................................................. 24
Operations............................................................... 26
Landfill Closure and Post-Closure Costs.................................. 29
Marketing and Sales...................................................... 29
Competition.............................................................. 30
Competitive Bid Contracts................................................ 30
Employees................................................................ 30
Risk Management, Insurance and Performance Bonds......................... 31
Regulation............................................................... 31
Property and Equipment................................................... 35
Legal Proceedings........................................................ 36
MANAGEMENT................................................................. 37
Directors................................................................ 37
Executive Officers....................................................... 38
Other Key Employees...................................................... 38
</TABLE>
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<TABLE>
<S> <C>
Executive Compensation........................................... 39
Compensation of Directors........................................ 40
Compensation Committee Interlocks and Insider Participation...... 40
CERTAIN TRANSACTIONS............................................... 41
PRINCIPAL SHAREHOLDERS............................................. 41
MARKET FOR COMMON STOCK............................................ 42
DIVIDEND POLICY.................................................... 43
SELECTED FINANCIAL DATA............................................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.............................................. 46
DESCRIPTION OF CAPITAL STOCK....................................... 54
DEADLINE FOR SHAREHOLDER PROPOSALS................................. 56
EXPERTS............................................................ 56
OPINIONS........................................................... 57
OTHER MATTERS...................................................... 57
FINANCIAL STATEMENTS............................................... F-1
Appendices:
Amended and Restated Agreement and Plan of Merger and
Reorganization.................................................... Appendix A
Articles of Incorporation of Waste Holdings, Inc................... Appendix B
Bylaws of Waste Holdings, Inc...................................... Appendix C
</TABLE>
ii
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WHERE YOU CAN FIND MORE INFORMATION
Waste Industries files, and after the reorganization Waste Holdings will
file, annual, quarterly and current reports, proxy statements, and other
information with the SEC under the Securities Exchange Act of 1934. You may
read and copy this information at the Public Reference Section at the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information about issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov. In
addition, you can read and copy this information at the regional offices of the
SEC at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
also inspect reports, proxy and information statements, and other information
about Waste Industries at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Waste Holdings filed a registration statement with the SEC under the
Securities Act of 1933, as amended, relating to the Waste Holdings common stock
offered to the Waste Industries shareholders. The registration statement
contains additional information about the reorganization, Waste Holdings and
the Waste Holdings common stock. The SEC allows Waste Holdings to omit certain
information included in the registration statement from this proxy statement-
prospectus. The registration statement may be inspected and copied at the SEC's
public reference facilities described above.
You may obtain copies of our SEC filings or copies of exhibits to the
registration statement by writing or calling Trish Mueller, Investor Relations,
Waste Industries, Inc., 3301 Benson Drive, Suite 601, Raleigh, North Carolina
27609, telephone (919) 325-3000.
1
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SUMMARY
This summary highlights selected information from this proxy statement-
prospectus and might not contain all of the information that is important to
you. You should carefully read this entire document, including the appendices.
This will give you a more complete description of the reorganization we are
proposing.
Business of Waste Industries, Waste Holdings and Waste LLC
Waste Industries is a regional solid waste services company providing solid
waste collection, transfer, recycling, processing and disposal services to its
customers. Waste Industries has also recently expanded its business activities
to the ownership and operation of landfills. Waste LLC is a North Carolina
limited liability company that is wholly-owned by Waste Holdings. Waste LLC has
no present operations of its own and was recently formed by Waste Industries
(and is currently owned by Waste Holdings) to effect the reorganization. Waste
Holdings, a North Carolina corporation, is a company which has no present
operations of its own and was recently formed (and is currently owned) by Waste
Industries for the purpose of serving as its holding company after the
reorganization.
Proposed Reorganization
Waste Holdings is the holding company for Waste LLC. Waste Industries will
merge with and into Waste LLC. Waste Holdings will continue to be the sole
owner of Waste LLC. In the reorganization, the shareholders of Waste Industries
immediately prior to the reorganization will become the shareholders of Waste
Holdings.
It is also contemplated that some of the companies that are currently owned
by Waste Industries (and which will be owned by Waste LLC as a result of the
reorganization) will be merged with and into Waste LLC in order to consolidate
certain business assets. Ownership interests in the other companies that are
currently owned by Waste Industries (and which will be owned by Waste LLC as a
result of the merger) will be distributed by Waste LLC to Waste Holdings after
the reorganization in order that these companies will thereafter be directly or
indirectly owned by Waste Holdings.
The executive officers and directors of Waste Holdings immediately following
the reorganization will be the same executive officers and directors of Waste
Industries immediately prior to the reorganization.
The articles of incorporation of Waste Holdings are identical to those of
Waste Industries. The bylaws of Waste Holdings are substantially similar to
those of Waste Industries.
The merger agreement governs the reorganization and is included in this
proxy statement-prospectus as Appendix A.
2
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The following diagrams illustrate the present and proposed corporate
structures of Waste Industries and Waste Holdings before and after the
reorganization.
[DIAGRAM]
Present Structure Proposed Structure
----------------- ------------------
Public Shareholders Public Shareholders
Waste Industries Waste Holdings
Merge Waste Waste Waste Waste
Holdings Subsidiaries LLC Subsidiaries
Waste
LLC
Share Exchange
In the reorganization, each share of Waste Industries common stock
outstanding immediately prior to the reorganization will be converted into one
share of Waste Holdings common stock.
Our Reasons for the Reorganization
Waste Industries' Board of directors has unanimously approved the merger
agreement and the related transactions because it believes that they will
enable Waste Industries to (i) simplify its organizational structure, (ii)
segregate for operational and liability purposes the distinct business
activities of Waste Industries and its subsidiaries, (iii) allow greater
autonomy to companies currently owned or to be acquired in the future, and (iv)
make it easier to implement future secured credit facilities at reduced costs
of implementation.
Federal Income Tax Consequences of the Reorganization
Upon consummation of the reorganization, all outstanding shares of Waste
Industries common stock will be converted into the right to receive shares of
Waste Holdings common stock. For federal income tax purposes, the
reorganization will be tax-free to Waste Industries, Waste Holdings, Waste LLC
and the shareholders of Waste Industries.
3
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No Dissenters' Rights in the Reorganization
Waste Industries shareholders do not have statutory dissenters' rights in
relation to the reorganization.
Special Meeting
This proxy statement-prospectus is being furnished by Waste Industries'
Board of directors to the shareholders of Waste Industries for their use to
determine how to vote their shares at the special meeting of shareholders to be
held on January 30, 2001 at 9:00 a.m. (local time) at 3301 Benson Drive, First
Floor, Raleigh, North Carolina.
In order for the special meeting to be held, a quorum must be present. A
quorum is established when a majority of the shares of Waste Industries common
stock entitled to be cast on a matter are represented at the special meeting
either in person or by proxy.
Shareholder Votes Required
Assuming that a quorum is present at the special meeting, to approve the
merger agreement, shareholders who own a majority of the outstanding shares of
Waste Industries common stock must vote for the merger agreement.
Voting Rights at the Special Meeting
If you owned shares of Waste Industries stock as of the close of business on
December 28, 2000, the record date, you are entitled to vote at the special
meeting. On the record date approximately 13,113,000 shares of Waste Industries
common stock were outstanding. You will be entitled to one vote for each share
of Waste Industries common stock that was validly issued and outstanding and
that you owned on the record date. You may vote either by attending the special
meeting and voting your shares or by completing the enclosed proxy card and
mailing it to us in the enclosed envelope.
We are seeking your proxy to use at the special meeting. We have prepared
this proxy statement-prospectus to assist you in deciding how to vote and
whether or not to grant your proxy to us. Please indicate on your proxy card
how you want to vote. Then sign, date and mail it to us as soon as possible so
that your shares will be represented at the special meeting. If you sign, date
and mail your proxy card without indicating how you wish to vote, your proxy
will be counted as a vote to approve the merger agreement. You cannot vote
shares held in "street name"; only your broker can. If you do not provide your
broker with instructions on how to vote your shares, your broker will not be
permitted to vote them.
How to Revoke a Proxy
If you sign a proxy, you may revoke it at any time before its exercise at
the special meeting by giving written notice of the revocation to the Secretary
of Waste Industries, submitting a properly executed proxy bearing a later date
or attending the special meeting and voting in person.
Solicitation of Proxies by Management of Waste Industries
In addition to solicitation by mail, our officers, directors and employees
may, without additional compensation, solicit proxies from our shareholders in
person or by telephone. Any expenses of such proxy solicitation will be paid by
us.
Recommendation to Shareholders
Waste Industries' board of directors has unanimously approved the merger
agreement. The board of directors recommends that Waste Industries shareholders
vote to approve the merger agreement.
4
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Share Ownership of Management
At September 30, 2000, Waste Industries' directors and executive officers,
their immediate family members and entities they control owned 7,992,154
shares, or approximately 61% of the outstanding shares, of Waste Industries
common stock. This number does not include stock that the directors and
executive officers may acquire through exercising stock options. These
individuals and entities intend to vote their shares in favor of the
reorganization.
Use of Proxies for Other Matters
Properly executed proxies that we receive before the vote at the special
meeting that are not revoked will be voted in the proxy holders' discretion as
to any other matter which may come properly before the special meeting.
5
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RISK FACTORS
You should be aware that there are various risks to an investment in our
common stock, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
proxy statement-prospectus.
If any of the following risks, or other risks not presently known to us or
that we currently believe to not be significant, develop into actual events,
then our business, financial condition, results of operations or prospects
could be materially adversely affected. If that happens, the market price of
our common stock could decline, and you might lose all or part of your
investment.
You might not receive any value upon a liquidation of our company because of
our holding company structure.
Waste Holdings will be a holding company with no direct operations and no
significant assets other than the stock of Waste Industries. Waste Holdings
will be dependent on the cash flow of Waste Industries to meet its obligations.
Any right of Waste Holdings to receive assets of Waste Industries upon its
liquidation (and the consequent right of holders of our common stock to
participate in the distribution or realize proceeds from those assets) will be
effectively subordinated to the claims of the creditors of Waste Industries
(including trade creditors and holders of indebtedness of Waste Industries),
except if and to the extent Waste Holdings is itself a creditor of Waste
Industries, in which case the claims of Waste Holdings would still be
effectively subordinated to any security interest in the assets of Waste
Industries held by other creditors. As of September 30, 2000,Waste Industries
had approximately $239.6 million of liabilities (excluding intercompany
payables), including approximately $200.4 million of indebtedness (including
capital leases). Approximately $169.0 million of this indebtedness was secured
debt under credit facilities, under which Waste Industries could borrow up to
an additional $131.0 million
We might be unable to manage our growth if we cannot retain our existing
employees and attract new employees.
Our goal is to increase the size of our operations both through internal
growth and acquisition of other solid waste companies. As we pursue this goal,
we might experience periods of rapid growth that could strain our management,
as well as our operational, financial and other resources which might
negatively impact our ability to retain our existing employees. In order to
maintain and manage our growth effectively, we will need to expand our
management information systems capabilities and improve our operational and
financial systems and controls. As we grow, our staffing requirements will
increase significantly. We will need to attract, train, motivate, retain and
manage our senior managers, technical professionals and other employees. We
might not be able to find and train qualified personnel, or do so on a timely
basis, or expand our operations and systems to the extent, and in the time,
required.
We operate in a highly competitive industry and might be unable to compete
effectively, which would result in less income.
As a result of all the following factors, we might have difficulty competing
effectively, which would result in less income because of unprofitable service
contracts or a loss of service contracts.
Our industry is highly competitive and fragmented and requires substantial
labor and capital resources. Some of the markets in which we compete or will
likely compete are served by one or more large, national solid waste companies,
as well as by numerous regional and local solid waste companies of varying
sizes and resources, some of which have accumulated substantial goodwill in
their markets. Some of our competitors may also be better capitalized, have
better name recognition or be able to provide services at lower cost than Waste
Holdings.
We also compete with counties, municipalities and solid waste districts that
maintain their own waste collection and disposal operations. These municipal
operators may have financial advantages over us because of their access to user
fees and similar charges, tax revenues and tax-exempt financing.
6
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In each market in which we own or operate a landfill, we compete for solid
waste volume on the basis of disposal or "tipping" fees, geographical location
and quality of operations. Our ability to obtain solid waste
volume for our landfills might be limited by the fact that some major
collection companies also own or operate landfills to which they send their
waste.
We compete for collection accounts primarily on the basis of price and the
quality of services. Our competitors might reduce the price of their services
in an effort to expand their market share. Also, we derive a substantial
portion of our revenues from services provided under municipal contracts. As is
generally the case in the industry, these contracts are subject to periodic
competitive bidding. Some of our competitors might be able to bid lower than us
for these contracts. We might not be able to obtain or retain any of these
contracts.
We face intense competition not only to provide services to customers but
also to acquire other businesses within our target market. Some of our
competitors have adopted, and others are likely to adopt, a strategy like ours
to acquire and consolidate regional and local solid waste businesses. The solid
waste industry is constantly changing as a result of rapid consolidation. We
expect that increased consolidation in the industry will increase the
competitive pressures on our company.
Our operations are geographically concentrated, which makes our results of
operations susceptible to regional factors.
Given our current focus on the Southeastern United States, our results of
operations are susceptible to downturns in the general economy of the region,
as well as to other factors affecting the region, such as adverse weather
conditions and state regulations affecting the solid waste services industry.
Our operations and customers are currently located primarily in North Carolina,
South Carolina, Virginia, Tennessee, Mississippi, Alabama, Georgia and Florida,
and our internal growth and acquisition strategies target these and other
markets in the Southeastern United States.
Seasonal changes and economic fluctuations might adversely affect our business
and operations.
Our results of operations tend to vary seasonally, with the first quarter of
the year typically generating the least revenues, then higher revenues in the
second and third quarter, followed by a decline in the fourth quarter. These
seasonal changes reflect the fact that less waste is generated and revenues
decrease from project-based and other integrated waste services during the fall
and winter months, as well as operating difficulties associated with bad
weather in the winter months. Certain operating and other fixed costs stay
relatively constant throughout the calendar year, resulting in similar
seasonality of operating income.
Other factors might cause our results of operations to vary seasonally. Our
operations may be adversely affected by periods of bad weather at any time
during the year which could delay the collection and disposal of waste, reduce
the volume of waste generated or delay the construction or expansion of our
landfill sites and other facilities. For example, hurricanes, flooding and an
unusually heavy snowfall have adversely affected our revenue in the past two
years. In addition, our commercial and industrial collection operations, and
our landfills that accept construction and demolition debris, might be
adversely affected by periods of economic downturn or declines in the
construction industry.
We might incur charges against earnings related to capitalized expenditures and
advances.
We might incur charges against earnings relating to capitalized expenditures
and advances that could materially and adversely affect our business, financial
condition and results of operations. Under generally accepted accounting
principles, we capitalize certain expenditures and advances relating to
acquisitions and landfill development projects. As of September 30, 2000, we
had capitalized approximately $300,000 of these expenditures and advances. We
expense indirect acquisition costs, such as executive salaries, general
corporate overhead and public affairs and other corporate services, as
incurred. We charge against earning any unamortized capitalized expenditures
and advances (net of any portion we estimate will be recoverable through sale
or otherwise) relating to any operation that is permanently shut down and any
pending acquisition or landfill development project that is not expected to be
successfully completed.
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Compliance with environmental regulation may impede our growth or erode our
earnings or capital.
We might need to spend considerable time, effort and capital to keep our
facilities in compliance with federal, state and local requirements regulating
health, safety, environment, zoning and land use. In addition, some of our
waste operations that cross state boundaries could be adversely affected if the
federal government, or the state or locality in which these waste operations
are located, imposes discriminatory fees on, or otherwise limits or prohibits,
the transportation or disposal of solid waste. If environmental laws become
more stringent, our environmental capital expenditures and costs for
environmental compliance would increase. In addition, due to the possibility of
unanticipated events or regulatory developments, the amounts and timing of
future environmental expenditures could vary substantially from those we
currently anticipate. Because of the nature of our operations, we could be
named as a potentially responsible party in connection with the investigation
or remediation of environmental conditions. These investigations might have a
material adverse effect on our financial condition or results of operations. A
significant judgment or fine against us, or our loss of significant permits or
licenses, could have a material adverse effect on our financial condition,
results of operations or prospects.
Citizens' groups have become increasingly active in challenging the grant or
renewal of permits and licenses for landfills and other waste facilities.
Responding to any challenges presented by those citizens' groups might further
increase our costs and extend the time associated with establishing new
facilities and expanding existing facilities.
State and local governments, as well as citizens' groups, are increasingly
demanding alternatives to landfill disposal, such as recycling and composting.
In some of our markets, incineration is an alternative to landfill disposal.
State and local governments are increasingly mandating recycling and waste
reduction at the source, and prohibiting the disposal of certain types of
waste, such as yard waste, at landfills. These initiatives might result in
reduced waste volume in some of our markets. In addition, several states in our
market, including North Carolina, South Carolina and Virginia, have adopted
plans that set goals for recycling, specifying increasing percentages of
certain solid waste items to be recycled. These recycling goals are being
phased in over the next few years. Meeting them might result in less income
from landfill operations and increased expenses.
Changing market conditions for recyclable commodities will affect, and possible
negatively affect, our results of operations.
We resell recycled waste products. The resale prices of, and demand for,
recyclable commodities, particularly wastepaper, can be volatile and subject to
changing market conditions. Accordingly, our results of operations will be
affected, and might be affected materially and negatively, by changing resale
prices or demand for certain recyclable commodities, particularly wastepaper.
These changes might also contribute to significant variability in our period-
to-period results of operations.
There are potential environmental liability risks associated with our business,
which, if realized, might require significant expenditures.
We are liable for any environmental damage that our solid waste facilities
and operations cause, including damage to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater or surface
water, and especially drinking water. We might be liable for damage resulting
from conditions existing before we acquired these facilities. We might also be
liable for off-site environmental contamination caused by pollutants or
hazardous substances whose transportation, treatment or disposal was arranged
by us or our predecessors. The expense of any substantial liability for
environmental damage could materially and adversely affect our business and
financial results.
Our insurance program does not cover liabilities associated with any
environmental cleanup or remediation of our own sites. If initiated, a
successful uninsured claim against us could materially and adversely affect our
business and financial results.
8
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We face limitations on landfill permitting and expansion, which might increase
our costs, and cause a material adverse impact on our business and results of
operations.
Our ability to meet our growth objectives depends in part on our ability to
acquire, lease and expand landfills and develop new landfill sites. If we were
to exhaust our permitted capacity at a landfill, our ability to expand
internally would be limited, and we could be required to cap and close our
existing landfills and be forced to dispose of collected waste at more distant
landfills or at landfills operated by our competitors. The resulting increased
costs would materially and adversely affect our business and financial results.
In some areas where we operate, suitable land for new sites or expansion of
existing landfill sites might be unavailable. Operating permits for landfills
in states where we operate must generally be renewed at least every five years.
In our market area landfills not in compliance with Subtitle D regulations have
been closed. It has become increasingly difficult and expensive 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 often resisted by citizen,
public interest and other groups. We might not be able to obtain or maintain
the permits required to expand, and the permits we get might contain burdensome
terms and conditions. Even when granted, final permits to expand are often not
approved until the remaining permitted disposal capacity of a landfill is very
low. Local laws and ordinances also might affect our ability to obtain permits
to expand landfills.
We might have material financial obligations relating to landfill closure and
post-closure costs.
Our reserves for landfill and environmental costs might not be adequate to
cover the requirements of existing environmental regulations, future changes or
interpretations of existing regulations or the identification of adverse
environmental conditions previously unknown to us. We currently accrue for
landfill closure and post-closure costs based on consumption of landfill
airspace. As of September 30, 2000, assuming that all available landfill
capacity is used, we expect to expense approximately $16.3 million to $16.5
million of landfill closure and post-closure costs over the remaining lives of
our landfill facilities.
We might be unable to obtain performance or surety bonds, letters of credit or
insurance as needed, which might result in the loss of contracts and income.
Our failure to obtain means of financial assurance or adequate insurance
coverage could materially and adversely affect our business and financial
results. Municipal solid waste services contracts and landfill closure
obligations might require us to obtain performance or surety bonds, letters of
credit, insurance or other means of financial assurance to secure our
performance. Some of our existing solid waste collection and recycling
contracts require us to obtain performance bonds, which we have obtained. In
the future, if we are unable to obtain performance or surety bonds or letters
of credit in sufficient amounts or at acceptable rates, we might not be able to
enter into additional municipal solid waste services contracts or obtain or
retain landfill operating permits. Any difficulty we encounter in obtaining
insurance could also make it more difficult for us to secure future contracts
conditioned on our having adequate insurance coverage.
We might be unable to finance our growth strategy.
Our financial condition, results of operation and stock price depend in part
on our growth strategy. Part of our future growth will come from acquisitions
of solid waste companies. We anticipate that any future business acquisitions
will be financed principally through the issuance of shares of our common
stock. The relative attractiveness of our common stock to potential acquisition
candidates will thus be a significant factor in our ability to finance our
acquisition growth strategy as planned. If acquisition candidates are unwilling
to accept shares of our common stock for the sale of their businesses, we might
be required to offer more cash to acquisition candidates, and this would
require us to draw more on our available cash resources or borrowings under our
credit facilities to finance our acquisition growth strategy. To the extent
that then available cash or credit resources are insufficient to fund our
acquisition requirements, we would need additional equity and/or
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debt financing to provide the cash needed to effect acquisitions as planned. In
addition, once companies have been acquired, ongoing maintenance of those
companies, particularly those with landfill operations, might require
substantial capital expenditures. Our existing capital resources, together with
any additional capital resources that we may be able to raise, if at all, on
terms that are satisfactory to us, might not be sufficient to meet the capital
requirements of our acquisition growth strategy.
We might be unable to execute our growth strategy.
Our financial condition, results of operation and stock price depend in part
on our growth strategy. Part of our future growth will come from acquiring
solid waste companies and integrating their operations into our existing
business. Our success in executing our growth strategy depends, in part, on our
ability to identify and acquire desirable acquisition candidates, as well as
our ability to successfully integrate the acquired companies' operations into
our business. The consolidation of our operations with the operations of
companies we acquire, including the integration of systems, procedures,
personnel and facilities, the relocation of staff and the achievement of
anticipated cost savings, economies of scale and other business efficiencies,
presents significant challenges to our management, particularly if several
acquisitions occur at the same time. In short, we cannot assure you that:
. we will be able to identify desirable acquisition candidates;
. we will be able to acquire any of the identified candidates;
. we will effectively integrate the companies we acquire and fully realize
expected costs savings, economies of scale or business efficiencies; or
. any acquisitions will be profitable or increase our earnings.
Additional factors might negatively affect our ability to implement our
acquisition strategy. The recent consolidation and integration activity in our
industry, combined with the difficulties, uncertainties and expenses related to
developing landfills and transfer stations, has increased competition among
companies like ours that are looking to grow by acquiring existing solid waste
companies in addition, or as an alternative, to developing new operations of
their own. Also, many of the companies we compete against for acquisition
candidates are larger, better-known companies with significantly greater
capital resources than ours. The intense competition of companies in our
industry pursuing the same acquisition candidates might result in fewer
acquisition opportunities for us, as well as less advantageous acquisition
terms, including higher purchase prices. Higher acquisition costs could
increase our capital requirements, or they could force us to reduce the scope
of our acquisition growth strategy. Either outcome could have a material
adverse effect on our growth prospects, our financial condition and results of
operations and the market price of our common stock.
Businesses we acquire might have undisclosed liabilities for which we would be
responsible.
In pursuing our acquisition strategy, our investigations of acquisition
candidates might fail to discover certain undisclosed liabilities of the
acquisition candidates. If we acquire a business having undisclosed
liabilities, as a successor owner, we might be responsible for any of the
undisclosed liabilities, which could negatively impact our financial condition.
We typically try to limit our exposure by getting indemnification from each
seller of the acquired companies, and by deferring payment of a portion of the
purchase price as security for the indemnification. We might not be able to
obtain indemnification, or it might not be enforceable, collectible or
sufficient in amount, scope or duration to fully offset any undisclosed
liabilities.
We depend on key personnel, the loss of any of whom might have a material
adverse impact on our operations.
Our success depends on the continued contributions of several key employees
and officers. Most of our officers do not have employment agreements and we do
not maintain key man life insurance policies on any of
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our officers. The loss of the services of key employees and officers, whether
such loss is through resignation or other causes, or the inability to attract
additional qualified personnel, could have a material adverse effect on our
financial condition, results of operations and growth prospects.
Management controls our company, which could hinder an acquisition of our
company you might favor.
As of September 30, 2000, our executive officers and directors and their
immediate families and entities they control, as a group, beneficially owned
61% of our outstanding common stock. As a result, these insiders, acting
together, are able to control the election of directors and the outcome of
other matters submitted to shareholder vote, including the proposed
reorganization. In addition, this control could make it difficult for an
acquisition of Waste Holdings that might be favored by shareholders other than
our management.
We could issue preferred stock and take other actions that might discourage
third parties from attempting to acquire our company.
Our board of directors has the authority, without further action by the
shareholders, to issue up to 10,000,000 shares of preferred stock and to fix
the rights, preferences, privileges and restrictions, including voting rights,
of such shares. The rights of the holders of our common stock will be subject
to, and might be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Issuing preferred stock could
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock, thereby delaying, deferring or
preventing a change in control of our company. Also, the preferred stock might
have other rights, including economic rights, senior to our common stock, and
as a result, issuing preferred stock could have a material adverse effect on
the market value of our common stock.
We do not anticipate paying cash dividends on our common stock.
We intend to retain all earnings for the foreseeable future for funding our
business operations. In addition, our credit facilities prohibit us from
declaring and paying dividends on our common stock. Consequently, we do not
anticipate paying any cash dividends on our common stock to our stockholders
for the foreseeable future.
Our stock price might be volatile.
The price at which our common stock trades depends on a number of factors,
including:
. variations in our annual or quarterly financial results or our
competitors' annual or quarterly financial results;
. changes in research analysts' estimates of our earnings or our
competitors' earnings;
. conditions in the economy in general or our industry in particular;
. announcements by our company or our competitors;
. unfavorable publicity; or
. changes in applicable laws and regulations affecting us or our industry.
Some of these factors are beyond our control.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations might adversely
affect the market price of our common stock. You might not be able to resell
our common stock at a price equal to or higher than that at which you received
it.
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PROPOSAL NO. 1--APPROVAL OF THE REORGANIZATION
General
Waste Industries, Waste LLC and Waste Holdings have entered into the merger
agreement, which provides for the merger of Waste Industries with and into
Waste LLC. A copy of the merger agreement is included in this proxy statement-
prospectus as Appendix A and the merger agreement is incorporated into this
proxy statement-prospectus by reference. This proxy statement-prospectus
discloses all material terms of the merger agreement and the other appendices.
All references to and summaries of the appendices to this proxy statement-
prospectus are qualified in their entirety by reference to the full text of the
respective Appendix.
Effects of the Reorganization
Waste Industries plans to effect the reorganization on January 31, 2001 or
as soon thereafter as practicable. In the reorganization, Waste Industries will
be merged with and into Waste LLC. Each share of Waste Industries common stock
outstanding will be converted into one share of Waste Holdings common stock,
and Waste LLC will continue to be wholly-owned by Waste Holdings. Waste LLC
will be the surviving entity in the merger, and the separate corporate
existence of Waste Industries will terminate. The powers, assets, rights and
liabilities of Waste Industries will be merged into Waste LLC.
The reorganization will not result in any change in the business,
management, fiscal year, operating assets, liabilities or location of the
principal facilities of Waste Industries. The directors of Waste Industries
prior to the reorganization will continue as the directors of Waste Holdings.
All stock plans of Waste Industries will be continued by Waste Holdings, and
each outstanding option or right to purchase shares of Waste Industries common
stock will automatically be converted into an option or right to purchase that
same number of shares of Waste Holdings common stock upon the same terms and
subject to the same conditions. Shareholders should note that approval of the
reorganization will also constitute approval of the assumption of all of Waste
Industries' stock plans by Waste Holdings. Waste Industries' other employee
benefit arrangements will be maintained by Waste LLC after the reorganization
upon the terms, and subject to the conditions, currently in effect.
Reorganization Share Exchange
In the reorganization, each outstanding share of Waste Industries common
stock held by shareholders will be converted into one share of Waste Holdings
common stock. The shares so exchanged will be all of Waste Holdings ' issued
and outstanding shares immediately after the reorganization. The number of
shares of Waste Holdings common stock outstanding immediately after the
reorganization will be the same number of shares of Waste Industries common
stock outstanding immediately before the reorganization.
Exchange Method
Promptly following the reorganization, Waste Holdings' exchange agent will
mail letters of transmittal to each holder of record of Waste Industries common
stock, accompanied by instructions for exchanging certificates for shares of
Waste Industries common stock for certificates for shares of Waste Holdings
common stock. After receipt of such transmittal form, each shareholder may, at
such shareholder's option, surrender his or her certificates, together with a
duly completed and executed transmittal form, to the exchange agent, as
indicated on the transmittal form, and each shareholder will receive in
exchange therefor a certificate representing an identical number of shares of
common stock of Waste Holdings.
It is not necessary for shareholders of Waste Industries to exchange their
existing stock certificates for certificates of Waste Holdings. Until
surrendered and exchanged, each certificate evidencing Waste Industries common
stock will be deemed for all purposes to evidence the identical number of
shares of Waste Holdings common stock.
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Operation and Management of Waste Holdings and Waste LLC after the
Reorganization
The board of directors of Waste Holdings immediately following the
reorganization will be the existing board of directors of Waste Industries,
namely Lonnie C. Poole, Jr., Jim W. Perry, J. Gregory Poole, Jr., Thomas F.
Darden II, Thomas C. Cannon and Paul L. Brunswick. The executive officers of
Waste LLC and of Waste Holdings immediately following the reorganization will
be the current executive officers of Waste Industries, namely: Lonnie C. Poole,
Jr., Chairman and Chief Executive Officer, Jim W. Perry, President and Chief
Operating Officer, Thomas C. Cannon, Vice President and Stephen C. Shaw, Chief
Financial Officer, Secretary and Treasurer. Since its inception in September
2000, the board of directors of Waste LLC has consisted of Lonnie C. Poole, Jr.
and Jim W. Perry and the officers have been the same as for Waste Holdings, all
of whom will continue as the directors and officers of Waste LLC immediately
after the reorganization.
Background and Reasons for the Reorganization
Waste Industries' board of directors has unanimously approved the merger
agreement and the related transactions because it believes that they will
provide organizational flexibility, administrative simplicity and planning
opportunities for business activities in which it is currently engaged and in
which it may engage in the future. Management also believes that the use of a
holding company will permit certain businesses currently owned and operated by
the Waste Industries, or acquired in the future by Waste Holdings, to retain
its operating identity if that appears desirable and may contribute to improved
management performance by giving the managers of one or more operating
subsidiaries a greater sense of identity and autonomy and a greater feeling of
individual responsibility for their business decisions. In addition, there may
be circumstances in which it will be advisable to insulate an existing or
acquired business from potential liability of other operating subsidiaries of
Waste Holdings. Neither Waste Holdings nor Waste Industries has any current
plans to engage in any business other than those in which Waste Industries is
currently engaged. Furthermore, management believes it will have greater
flexibility to undertake future secured credit facilities with a holding
company structure at reduced costs of implementation. Neither Waste Holdings
nor Waste Industries currently has any intention to replace its current credit
facility or to increase its current credit facility.
The board of directors of Waste Industries based its approval and
recommendation of the reorganization on a number of factors, including its
knowledge of the business, operations, financial needs, financial alternatives
and prospects of Waste Industries and its belief that the reorganization is in
the best interests of Waste Industries and Waste Industries' shareholders.
Creation of a holding company structure and the contemplated direct or indirect
ownership by the Waste Holdings after the reorganization of those subsidiaries
of Waste Industries that are not merged into Waste LLC will result in a
simplified organizational structure whereby the distinct business activities of
Waste Industries and its current subsidiaries will be conducted through
separate brother-sister entities. In light of the wide variety of factors
considered in reaching its recommendation, Waste Industries' board of directors
did not find it practicable to assign any relative weight to the factors it
considered.
The boards of directors of Waste Industries, Waste Holdings and Waste LLC
have unanimously approved the merger agreement. As the sole member of Waste
LLC, Waste Holdings has approved the merger agreement, and, as the sole
shareholder of Waste Holdings, Waste Industries also has approved the merger
agreement.
Recommendation
Waste Industries' Board of directors believes that the proposed
reorganization is fair to and in the best interests of Waste Industries and its
shareholders and recommends a vote FOR approval of the merger agreement.
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Vote Required
Pursuant to the terms of the merger agreement and the provisions of the
North Carolina Business Corporation Act, approval of the merger agreement
requires the affirmative vote of the holders of at least a majority of all of
the shares of Waste Industries common stock outstanding on the record date. As
of September 30, 2000, the directors and executive officers of Waste
Industries, their immediate family members and entities they control owned
7,992,154 shares, or approximately 61% of the outstanding shares, of Waste
Industries common stock. These individuals and entities intend to vote their
shares in favor of the reorganization.
Certain Differences in Shareholders' Rights
The provisions of the articles of incorporation of Waste Holdings are the
same as the articles of incorporation and the bylaws of Waste Holdings are
substantially similar to the bylaws of Waste Industries. A full discussion of
the similarities and minor differences in these organizational documents is
found under the heading "DESCRIPTION OF CAPITAL STOCK" on page 54.
Termination
Even if Waste Industries shareholders approve the merger agreement, it may
be terminated and the reorganization abandoned at any time prior to its
completion by action of the Board of directors of either Waste Holdings or
Waste Industries.
Amendments and Waivers
The merger agreement may be amended or modified and any of its provisions or
conditions (including those which otherwise would be cause for the abandonment
of the reorganization) may be waived either before or after the special meeting
upon the mutual agreement in writing of Waste Industries and Waste Holdings. No
amendment effected after the special meeting may affect the amount or type of
consideration to be delivered to shareholders of Waste Industries for their
Waste Industries common stock.
Effective Time
The merger agreement provides that, subject to its approval by the
shareholders of Waste Industries, the reorganization shall be effected on the
date and time specified in the articles of merger to be filed with the North
Carolina Secretary of State, which is anticipated to be January 31, 2001, at
11:58 p.m.
Expenses of the Reorganization
Waste Industries will pay the expenses of the reorganization and any related
transactions regardless of whether the reorganization is completed.
Federal Income Tax Consequences of the Reorganization
The material United States federal income tax consequences to Waste
Industries, Waste LLC, Waste Holdings and the Waste Industries shareholders who
receive Waste Holdings common stock pursuant to the reorganization are
described below. Waste Industries and Waste Holdings have not requested and do
not intend to seek a ruling from the Internal Revenue Service as to the federal
income tax consequences of the reorganization. This discussion is based upon
the current provisions of the Internal Revenue Code of 1986, as amended,
Treasury regulations, administrative decisions and rulings and court decisions.
This discussion does not address:
. state, local or foreign tax consequences of the reorganization;
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. federal income tax consequences to Waste Industries shareholders who
hold their common stock as part of a hedge, straddle or conversion
transaction or who are subject to special rules under the Internal
Revenue Code, such as insurance companies, tax-exempt organizations,
individuals who are neither United States citizens nor United States
residents, foreign corporations, foreign partnerships, foreign trusts,
financial institutions, or brokers or dealers in stocks and securities;
. the federal tax consequences affecting Waste Industries shareholders who
do not hold their common stock as a capital asset; and
. the federal tax consequences affecting Waste Industries shareholders who
have acquired their common stock upon the exercise of options or
otherwise as compensation.
The merger is intended to qualify as a reorganization under section 368(a)
of the Code. It is a condition to the obligation of Waste Industries to
consummate the merger that Waste Industries shall have received a tax opinion
from Deloitte & Touche LLP to the effect that the merger will be treated as a
reorganization within the meaning of section 368(a) of the Code. Waste
Industries has received the tax opinion. In rendering its opinion, Deloitte &
Touche LLP will rely upon the truth and accuracy, at all relevant times, of the
statements, covenants, representations and warranties contained in (i) the
Merger Agreement, (ii) certificates executed by officers of Waste Industries,
Waste Holdings and Waste LLC attached as an exhibit to the tax opinion and
(iii) such other documents and corporate records as Deloitte & Touche has
deemed necessary or appropriate for purposes of the opinion. The tax opinion is
an exhibit to the registration statement. The following discussion of the tax
treatment of the reorganization is based on the tax opinion.
Tax Treatment of the Merger of Waste Industries into Waste LLC. Assuming the
accuracy of the representations and assumptions set forth in the tax opinion
and upon which the opinion is based, the reorganization will constitute a
reorganization within the meaning of Section 368(a) of the Code. Based on the
conclusion that the reorganization qualifies as a reorganization within the
meaning of section 368(a) of the Code, Waste Industries, Waste Holdings and
Waste LLC will recognize no gain or loss for federal income tax purposes as a
result of the reorganization. Insofar as you are concerned, assuming that you
are not a "dealer" with respect to any Waste Industries common stock you hold,
the following federal income tax consequences will result to you as a Waste
Industries shareholder as a result of the reorganization:
1. No gain or loss will be recognized as a result of the exchange of your
shares of Waste Industries common stock for shares of Waste Holdings common
stock in the reorganization.
2. The basis in the shares of Waste Holdings common stock you receive in the
reorganization will equal your basis in the Waste Industries common stock you
surrendered in exchange therefor.
3. The holding period for the shares of Waste Holdings common stock you
receive will include the holding period for the shares of Waste Industries
common stock you exchanged in the reorganization.
Reporting Requirements. As a Waste Industries shareholder receiving Waste
Holdings stock as a result of the reorganization, you will be required to
retain certain records and file with your federal income tax return a statement
setting forth certain facts relating to the merger. The specific filing
requirements are found in Treasury Regulations section 1.368-3.
Treatment as a Taxable Transaction. The issuance of the tax opinion by
Deloitte & Touche LLP is no guarantee that the Internal Revenue Service would
agree with the characterization of the reorganization as a tax-free
transaction. A successful challenge by the Internal Revenue Service to the tax-
free status of the reorganization would result in characterization of the
transaction by the Internal Revenue Service as a taxable sale by shareholders
of their Waste Industries common stock in exchange for the shares of Waste
Holdings common stock. In this event, you would recognize taxable gain or loss
with respect to each share of Waste Industries common stock exchanged in the
reorganization equal to the difference between the fair market value, on the
effective date of the reorganization, of the total consideration received for
such share in the
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reorganization (i.e., the Waste Holdings common stock) and your basis in the
Waste Industries common stock so exchanged. Your aggregate basis in the Waste
Holdings common stock received in the reorganization would equal the fair
market value of such stock at the time of receipt, and your holding period for
such stock would begin on the date the reorganization was effective.
Irrespective of the possible tax-free nature of the reorganization, a
recipient of shares of Waste Holdings would recognize gain to the extent such
shares are considered to be received in exchange for services or for property
other than solely Waste Industries common stock. All or a portion of such gain
may be taxable as ordinary income.
The tax consequences of the reorganization may vary depending upon the
specific circumstances of each Waste Industries shareholder. Accordingly, we
urge you to consult your own tax advisors as to the particular tax consequences
to you of the reorganization, including the applicability and effect of any
state, local, foreign, or other tax laws, and of changes in applicable tax
laws.
Accounting Treatment of the Reorganization
There will be no accounting effect or change in the carrying amount of the
assets and liabilities of Waste Industries as a result of the merger of Waste
Industries into Waste LLC. The consolidated capitalization, assets, liabilities
and financial statements of Waste Holdings and Waste LLC immediately following
the reorganization will be the same as those of Waste Industries immediately
prior to the reorganization.
Restrictions on Resale of Waste Holdings Common Stock
The shares of Waste Holdings common stock to be issued pursuant to the
merger agreement have been registered under the Securities Act. Persons who are
not affiliates of Waste Industries and who will not be affiliates of Waste
Holdings after the reorganization may resell their shares of Waste Holdings
common stock without restriction as long as there is an available exemption.
Generally, you are an "affiliate" of Waste Industries or Waste Holdings if you
are a director or executive officer of either company or own 10% or more of the
outstanding common stock of either company. Under present law, any reoffering
or sale of such shares by any person who is an affiliate of Waste Industries at
the time the merger agreement is submitted to a vote of Waste Industries'
shareholders will require either (i) the further registration of such shares
under the Securities Act, (ii) compliance with Rule 145 promulgated under the
Securities Act, which permits sales under certain conditions, as discussed
below, or (iii) the availability of another exemption from further
registration. In general, under Rule 145, assuming that a person is, at the
time of sale, an affiliate of Waste Holdings, that person may sell such stock
if the person: (1) sells during any three-month period no more than the number
of shares permitted under Rule 144(e) (which is generally the greater of (i) 1%
of the total number of shares of Waste Holdings common stock outstanding, or
(ii) the average weekly volume of trading of Waste Holdings common stock for
the four calendar weeks prior to the sale); (2) sells in a "brokers'
transaction" (which means, generally, that the broker can do no more than
execute the order as agent for the seller, can receive no more than the usual
broker's commission, cannot solicit orders to buy in connection with the
transaction, and cannot believe that the seller is an underwriter of the
securities being sold); (3) does not solicit orders to buy in connection with
the transaction and does not make any payment in connection with such sale to
anyone other than the selling broker; and (4) sells at a time when there is
adequate current public information about Waste Holdings (which will be
satisfied so long as Waste Holdings common stock remains registered under the
Exchange Act and Waste Holdings continues to file the necessary reports under
the Exchange Act). If a person who was an affiliate of Waste Industries at the
time of the special meeting is not an affiliate of Waste Holdings at the time
of resale and has not been an affiliate for at least three months, he, she or
it can also resell without subsequent registration, as long as there is an
available exemption, if he, she or it (a) holds the shares for at least one
year and sells at a time where there is adequate public information about Waste
Holdings (as in (4) above); or (b) holds the shares for at least two years
after the reorganization.
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INFORMATION RELATING TO WASTE LLC
Waste Holdings organized Waste LLC, with Waste Holdings as its sole member,
on September 28, 2000. Waste LLC conducts no business and has no assets, and
exists for the primary purpose of effecting the reorganization. Waste
Industries will be merged with and into Waste LLC pursuant to the merger
agreement. After the reorganization, Waste LLC will continue to be wholly owned
by Waste Holdings, Waste LLC will carry on the business and operations of Waste
Industries and the separate corporate existence of Waste Industries will
terminate. Waste LLC's address and telephone number are the same as Waste
Industries' address and telephone number.
INFORMATION RELATING TO WASTE HOLDINGS
Waste Holdings, a North Carolina corporation, was incorporated by Waste
Industries on September 28, 2000. Waste Holdings currently conducts no business
and has virtually no assets, and exists solely for the purpose of serving as a
holding company. After the reorganization, Waste LLC will continue to be wholly
owned by Waste Holdings, and Waste Holdings will have no assets (other than the
membership interests of Waste LLC), no liabilities and no operations (other
than certain administrative functions) independent of those of Waste LLC.
Consequently, financial statements of Waste Holdings following the
reorganization will be virtually identical to those of Waste Industries prior
to the reorganization. Accordingly, historical financial statements of Waste
Holdings and pro forma financial statements reflecting completion of the
reorganization have not been included in this proxy statement-prospectus. Waste
Holdings' address and telephone number are the same as Waste Industries'
address and telephone number.
BUSINESS OF WASTE INDUSTRIES
General
Waste Industries is a regional, vertically integrated solid waste services
company that provides solid waste collection, transfer, disposal and recycling
services to commercial, industrial and residential customer locations in North
Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama, Georgia
and Florida. Our principal operations as of September 30, 2000 consisted of 42
collection operations, 24 transfer stations, approximately 100 county
convenience drop-off centers, eight recycling facilities and nine landfills,
serving more than 360,000 municipal, residential, commercial and industrial
customer locations.
Members of the senior management team founded Waste Industries in 1970 and
are recognized for their leadership roles throughout the solid waste management
industry and trade organizations. Our management team collectively has over 119
years of experience in the solid waste industry and over 101 years with Waste
Industries.
Recent Developments
During 2000, we made seven acquisitions and sold one collection operation.
For more detail on these transactions, see "2000 Acquisitions" starting on page
23.
Total revenues increased $25.4 million, or 16.2%, for the nine-month period
ended September 30, 2000, compared to the same period in 1999. However, net
income decreased $2.9 million, or 32.4%, for the nine-month period ended
September 30, 2000, compared to the same period in 1999. For more detail on our
results of operations and the causes of these changes, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
starting on page 46.
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Industry Overview
In recent years, the solid waste collection and disposal industry has
undergone a period of significant consolidation and integration. We believe
that this consolidation and integration has been caused primarily by:
(1) increasingly stringent environmental regulation and enforcement
resulting in increased capital requirements for collection companies
and landfill operators;
(2) the ability of larger integrated operators to achieve certain economies
of scale;
(3) the increased integration of collection, transfer, disposal and
recycling capabilities; and
(4) the continued privatization of solid waste collection and disposal
services by municipalities and other governmental bodies and
authorities.
Despite the considerable consolidation and integration that has occurred in
the solid waste industry in recent years, we believe, based on our experience
in the industry, that the industry remains primarily regional in nature because
of the localized nature of collecting and disposing of waste and highly
fragmented because of the many small competitors in many markets.
The increasingly stringent industry regulations, such as the Subtitle D
Regulations, have resulted in rising operating and capital costs and have
caused consolidation and acquisition activities to accelerate in the solid
waste collection and disposal industry. Many of the smaller industry
participants have found these costs difficult to bear and have decided to
either close their operations or sell them to larger operators. In addition,
Subtitle D requires more stringent engineering of solid waste landfills
including liners, leachate collection and monitoring and gas collection and
monitoring. These ongoing costs are coupled with increased financial reserves
from solid waste landfill operators for closure and post-closure monitoring. As
a result, we believe, based on our market research, the number of solid waste
landfills is declining while the size of solid waste landfills is increasing.
In many markets in which we operate or intend to expand, competitive
pressures are forcing operators to become more efficient by establishing an
integrated network of solid waste collection operations and transfer stations,
through which they secure solid waste streams for disposal. Operators have
adopted a variety of disposal strategies, including owning landfills,
establishing strategic relationships to secure access to landfills, or by
otherwise capturing significant waste stream volumes to gain leverage in
negotiating lower landfill fees and securing long-term contracts with high
capacity landfills on most favored pricing status terms.
In the Southeastern U.S. solid waste market, which is our market, city and
county governments have historically provided a variety of solid waste services
using their own personnel. Over time, many municipalities have opted to
privatize or contract out their collection and disposal services to the private
sector. Landfills, transfer stations and incinerators located in our market
area, which is the Southeastern market, are predominantly municipally owned.
The Southeastern market is currently undergoing significant economic and
population growth. Certain of the states in the Southeastern U.S. exceed the
national average in terms of economic growth as measured by gains in jobs,
personal income and population.
There is an increasing trend at the state and local levels to encourage
waste reduction at the source and to prohibit the disposal of certain types of
wastes, such as yard wastes and recyclable materials, at landfills. For
example, North Carolina, South Carolina and Virginia have each established the
goal of reducing by 25% the solid waste disposed of in their respective
landfills. We believe, based on our experience in the industry, that these
trends and laws have created significant opportunities for solid waste services
companies to provide additional recycling services to generators of solid waste
who are not otherwise able to dispose of such waste.
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Strategy
Our objective is to build the premier solid waste services company in the
Southeastern U.S. by expanding our operations and capitalizing on our strong
market presence. Our strategy for achieving this objective is:
(1) to generate internal growth by adding customers and services to our
existing operations;
(2) to acquire solid waste collection companies, customers and, under
appropriate circumstances, landfills in existing and new areas of our
target market; and
(3) to increase operating efficiencies and enhance profitability in our
existing and acquired operations.
We intend to implement this strategy as follows:
Internal Growth
In order to continue to achieve internal growth, we will focus on increasing
sales penetration in current and adjacent market areas, marketing upgraded or
additional services (such as on-site solid waste compaction) to existing
customers and implementing selective price increases. We are the first or
second largest provider, in terms of market share, of waste services in the
majority of the markets in which we operate. Current levels of population
growth and economic development in the Southeastern U.S. and our strong market
presence should provide an opportunity for us to increase revenues and market
share in our region. As customers are added in existing markets, our density is
improved, which should increase our collection efficiencies and profitability.
At June 30, 2000, we had an approximately 40-person sales force dedicated to
maintaining and increasing our sales to new and existing commercial,
industrial, municipal and residential customers.
An important part of our internal growth strategy is to operate transfer
stations strategically located throughout our geographic area to improve our
consolidation of collected solid waste and permit us to deliver the collected
solid waste to landfills where we have negotiated favorable volume rates with
landfill operators. At September 30, 2000, we operated 24 transfer stations,
six of which we own. By operating transfer stations, we engage in direct
communication with municipalities that own the transfer stations regarding
waste disposal services, better positioning us to gain additional business in
our markets in the event any of these municipalities privatize their solid
waste operations. To the extent we are unable to operate existing transfer
stations owned by municipalities, we would consider constructing our own
transfer station. We currently have one transfer station under construction.
Expansion Through Acquisitions
Our strategy for growth includes:
(1) "tuck-in" and other acquisitions of solid waste collection companies
and customers in existing and adjacent markets;
(2) the acquisition of solid waste collection companies and customers in
new markets; and
(3) the acquisition of landfills in certain circumstances.
We seek to acquire companies with a significant market presence, high
service standards and an experienced management team willing to remain with
Waste Industries.
Based on our market research, we believe that numerous "tuck-in" acquisition
opportunities exist within our current market area. A "tuck-in" acquisition
refers to an acquisition in which we acquire a solid waste collection company,
a division of a company or certain customers of a company located in our
existing market area, and integrate the acquired operations or customers into
the operations of one of our existing branch facilities. These acquisitions
have become an integral part of the industry competitive model due to the
efficiencies involved. Such acquisitions, if consummated, provide us with
opportunities to improve market share and route density.
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As we enter new markets through acquisitions, we intend to continue to
implement a regional expansion strategy. The regional expansion strategy
provides us with a base of operations to grow internally through price
increases, providing additional services to existing customers, adding new
private and public customers and tuck-in acquisitions. We can then expand our
presence in the targeted region by adding solid waste collection and transfer
operations in regional markets adjacent to or contiguous with the new location.
Because our goal is to increase the scale of our operations through internal
growth and through the acquisition of other solid waste businesses, we may
experience periods of rapid growth with significantly increased staffing
requirements. Such growth, if it were to occur, could place a significant
strain on our management and on our operational, financial and other resources.
Our ability to maintain and manage our growth effectively will require us to
expand our management information systems capabilities and improve our
operational and financial systems and controls. Moreover, we will need to
attract, train, motivate, retain and manage our senior managers, technical
professionals and other employees. Any failure to expand our management
information systems capabilities and our operational and financial systems and
controls or to recruit appropriate additional personnel in an efficient manner
at a pace consistent with any business growth we may experience would have a
material adverse effect on our company.
We currently intend to focus on internal growth, supplemented by tuck-in
acquisitions in our existing markets. We expect acquisitions in new markets to
be more limited than in the last two years. We continue to examine
opportunities to expand our presence in new and existing markets in the
Southeastern U.S. There can be no assurance that we will be able to identify
suitable acquisition candidates or, if identified, negotiate successfully their
acquisition. If we fail to implement successfully our acquisition strategy, our
growth potential will be limited.
The recent consolidation and integration activity in the solid waste
industry, as well as the difficulties, uncertainties and expenses relating to
the development and permitting of solid waste landfills and transfer stations,
has increased competition for the acquisition of existing solid waste
collection, transfer and disposal operations. Increased competition for
acquisition candidates may result in fewer acquisition opportunities being made
available to us as well as less advantageous acquisition terms, including
increased purchase prices. These circumstances may increase acquisition costs
to levels beyond our financial capability or pricing parameters that, as to
acquisitions made by us, may have an adverse effect on our results of
operations. Many of our competitors for acquisitions are larger, better known
companies with significantly greater resources than we have. We also believe,
based on our experience, that a significant factor in our ability to consummate
acquisitions will be the relative attractiveness of shares of our common stock
as an investment instrument to potential acquisition candidates. This
attractiveness may, in large part, be dependent upon the relative market price
and capital appreciation prospects of our common stock compared to the equity
securities of our competitors.
We have been in the past two years and expect to continue to be actively
engaged in identifying solid waste landfill acquisition candidates in the
Southeastern U.S., although the number of candidates is limited in our current
market area. Based on our experience in the industry, we believe that the
successful acquisition of landfills will provide us with opportunities to
integrate vertically our collection, transfer and disposal operations while
improving operating margins. Generally, we will evaluate a landfill target by
determining, among other things, whether access to the landfill is economically
feasible from our existing market areas either directly or through
strategically located transfer stations, expected landfill life, the potential
for landfill expansion, and current disposal costs compared with the cost to
acquire the landfill. In addition, where the acquisition of a landfill site is
either not available or not economically feasible, we seek to enter into long-
term disposal contracts with facilities that are located in proximity to our
market areas.
As of September 30, 2000, we had no new material acquisitions planned.
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Operating Enhancements
We have implemented advanced management information systems, financial
controls, shared support services and benchmarking systems designed to improve
productivity, efficiency and profitability of our existing and acquired
operations. Each branch facility has on-line real time access to our financial,
operating, cost and customer information. This access enables our managers to
evaluate continuously our performance record and to establish benchmarks in all
phases of our operations. Management utilizes these systems to:
. improve collection and transportation efficiencies;
. enhance equipment and personnel utilization;
. reduce equipment acquisition and maintenance costs;
. reduce disposal costs by maximizing waste streams directed to lower cost
landfills;
. timely monitor and collect customer accounts; and
. provide current information to our sales force to ensure properly
structured pricing for new customers.
Through the utilization of our systems and controls, we will continue to
manage our landfill disposal costs and to negotiate long-term disposal
contracts with Subtitle D landfill operators. In addition, we have developed an
extensive network of transfer stations that we use to consolidate waste streams
to gain greater leverage in negotiating landfill disposal fees. As of September
30, 2000, approximately 30% of our waste volume was directed through transfer
stations owned or operated by us.
Acquisition Program
From 1990 through September 30, 2000, we acquired, either by merger or asset
purchase, 59 solid waste collection or disposal operations, with seven being
acquired in 2000, 15 being acquired in 1999 and 13 in 1998. We have developed a
set of financial, geographic and management criteria designed to assist
management in the evaluation of acquisition candidates engaged in solid waste
collection and disposal. These criteria evaluate a variety of factors,
including, but not limited to:
(1) historical and projected financial performance;
(2) internal rate of return, return on assets and return on revenue;
(3) experience and reputation of the candidate's management and customer
service reputation and relationships with the local communities;
(4) composition and size of the candidate's customer base;
(5) whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;
(6) whether the acquisition will augment or increase our market share or
help protect our existing customer base;
(7) any synergies gained by combining the acquisition candidate with our
existing operations; and
(8) liabilities of the candidate.
We have an established integration procedure for newly acquired companies
designed to effect a prompt and efficient integration of the acquired business
while minimizing disruption to our ongoing business and that of the acquired
business. Once a solid waste collection operation is acquired, programs
designed to improve collection and disposal routing, equipment maintenance and
utilization, employee productivity, operating efficiencies and overall
profitability are implemented. To improve an acquired business' operational
productivity, administrative efficiency and profitability, we apply the same
benchmarking programs and systems
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<PAGE>
to the acquired business as are employed at our existing operations. We also
solicit new commercial, industrial and residential customers in areas within
and surrounding the markets served by the acquired collection operations as a
means of further improving operating efficiencies and increasing the volumes of
solid waste collected by the acquired operation. We typically attempt to retain
the acquired company's management and key employees and to decentralize
operations, while consolidating administrative and management information
systems through our corporate offices.
Prior to completing an acquisition, we perform extensive environmental,
operational, engineering, legal, human resource and financial due diligence.
All acquisitions are subject to initial evaluation and approval by our
management before being recommended to the Board of directors.
1999 Acquisitions
On December 1, 1999, we acquired assets from Traco Waste Systems, Inc.,
related to its solid waste disposal business in and around Newport News,
Virginia, for approximately $705,000 in cash.
On November 1, 1999, we made a tuck-in acquisition of the assets of Matthews
Sanitation Services related to its solid waste collection, disposal and
recycling business in and around the Wake County, North Carolina area, for
approximately $175,000 in cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Southern Waste Services, Inc., which operates a solid waste collection and
hauling business in southern Mississippi, for approximately $3.3 million in
cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Southern Waste of Alabama, Inc., which operates a solid waste collection and
hauling business in and around Mobile, Alabama, for approximately $580,000 in
cash.
On October 31, 1999, we acquired all of the outstanding capital stock of S.
& S. Enterprises, Inc., which owns and operates a Class I rubbish site in
Harrison County, Mississippi, for approximately $202,000 in cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Quick-Way Salvage, Inc., which operates a solid waste collection, disposal,
recycling and scrap metal salvage business in and around Danville and South
Boston, Virginia, for approximately $2.9 million in cash.
On October 30, 1999, we made a tuck-in acquisition of the assets of Jerry's
Sanitation, Inc. related to its solid waste collection, disposal and recycling
business in and around the Mecklenburg County, North Carolina area, for
approximately $550,000 in cash.
On June 11, 1999, we acquired assets from A&S Waste Services, Inc. related
to its solid waste collection and recycling business located in the Douglas,
Georgia area for approximately $550,000 in cash.
On June 1, 1999, we acquired assets from Keith D. Threet of Crossville,
Tennessee related to his waste collection business known as Keith's Disposal
Service for approximately $200,000 in cash.
On May 31, 1999, we acquired assets from Elaine Woodard related to her
residential solid waste collection and recycling business located in the
Raleigh, North Carolina area and known as A&B Sanitation for approximately
$320,000 in cash.
On May 20, 1999, we purchased customer routes, containers and certain other
assets of K&S Sanitation, Inc. related to its residential solid waste
collection business located in the Charlotte, North Carolina area for
approximately $550,000 in cash.
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On May 1, 1999, we acquired the assets of S&T Haulers, LLC associated with
its solid waste collection and recycling business located in and around
Marietta, Georgia for approximately $1.6 million in cash.
On May 1, 1999, we acquired North Mecklenburg Sanitation, Inc., which
operates a solid waste collection business in and around Charlotte, North
Carolina. The purchase price for this company was approximately $4.5 million in
cash and 281,250 unregistered shares of our common stock which were registered
effective June 1, 1999. This transaction expands our operations into the
Charlotte, North Carolina area.
On April 30, 1999, we made a tuck-in acquisition of Central Georgia Waste
Services, Inc. for $500,000 in cash. This tuck-in acquisition further expands
our existing operations in and around Atlanta, Georgia.
On April 1, 1999, we acquired Old Kings Road Solid Waste Services, Inc.,
which operates a landfill and a related solid waste collection business in and
around Jacksonville, Florida, for approximately $5.0 million in cash. This
acquisition gives Waste Industries its fourth landfill and expands its
operations into northeastern Florida, a new market for us in the southeastern
U.S.
On February 12, 1999 we purchased equipment and customer contracts related
to the commercial, industrial and residential solid waste collection and
recycling businesses of Clary's Container Corporation, located in Max Meadows,
Virginia, for approximately $1.3 million in cash.
On January 14, 1999, we acquired a regional municipal solid waste landfill
in Decatur County, Tennessee from Waste Services of Decatur, LLC through
Liberty Waste Services, LLC for approximately $12.9 million in cash.
We primarily used borrowings under our revolving credit facility to fund
acquisitions during 1999.
2000 Acquisitions
On March 1, 2000, we acquired Trashbusters, LLC for approximately $900,000
in cash. This tuck-in acquisition further expands our existing operations in
our Easley, South Carolina facility, which serves the Greenville/Spartanburg
area.
On March 23, 2000, we acquired a construction and demolition landfill in the
Greenville/Spartanburg, South Carolina area from South Eastern Associates, Inc.
known as Loveless & Loveless, for $2.3 million in cash. This acquisition
provides us with our seventh landfill.
On March 23, 2000, we acquired substantially all of the assets of J&B
Partnership, LLC for $500,000 in cash. This tuck-in to our Easley, South
Carolina facility provides transfer operations for the Greenville/Spartanburg
area.
On May 30, 2000, through an asset swap, we acquired the Sampson County
Landfill, a municipal solid waste landfill in Roseboro, North Carolina, and a
collection operation as a tuck-in to our existing Fayetteville, North Carolina
operation, from Allied Waste Industries for $27.4 million in cash.
Simultaneously, we sold our collection operations in Ooltewah, Tennessee and
Dalton, Georgia to Allied Waste Industries for $9.9 million in cash. This
acquisition provides us with our eighth landfill.
On June 23, 2000, we acquired a construction and demolition landfill in
Atlanta, Georgia from Safeguard Landfill Management, Inc. for $7.3 million in
cash. This acquisition provides us with our ninth landfill.
On July 21, 2000, we acquired a transfer station in Wilson County, North
Carolina from a subsidiary of Allied Waste Industries, Inc. for approximately
$2.2 million in cash.
On September 1, 2000, we acquired all of the outstanding capital stock of
Shamrock Environmental, Inc., a waste-hauling operation serving the Macon,
Georgia area, for approximately $1.7 million in cash.
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We primarily used borrowings under our revolving credit facility to fund
acquisitions during the first nine months of 2000.
Contracts Program
We currently have approximately 244 municipal contracts. We believe that
opportunities for gaining larger contracts are increasing due to trends among
municipalities to privatize or outsource solid waste services. In most cases,
only larger disposal services companies such as Waste Industries are
financially acceptable to the municipality. Historically, in the Southeastern
U.S., city and county governments have provided a variety of solid waste
services using their own personnel. Over time, many municipalities have opted
to privatize or contract out their collection and disposal services to the
private sector. Typically, these contracts are competitively bid and have
initial terms of one to five years. In bidding for large contracts, our
management team draws on its experience in the waste industry and its knowledge
of local service areas in existing and target markets. We engage in extensive
due diligence using our advanced management information systems and
productivity and cost modeling analyses to respond to requests for proposals to
provide services. Our regional managers are responsible for managing the
relationships with local governmental officials within their respective service
area and sales representatives may be assigned specific municipalities for
coverage. We may be required to bid for renewal of a contract previously
awarded to us, or in certain cases to renegotiate the contract as a result of
changed market conditions. During 1999, we retained over 74% of our municipal
contracts that were up for bid or renewal.
Services
Commercial, Industrial and Residential Waste Services
We provide commercial and industrial collection and disposal services under
one-year to five-year service agreements. Fees are determined by such factors
as collection frequency, level of service, route density, the type, volume and
weight of the waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing and prices charged in our markets for similar service. Collection of
larger volumes associated with commercial and industrial waste streams
generally helps improve our operating efficiencies and, through consolidation
of these volumes, we can negotiate more favorable disposal prices. Our
commercial and industrial customers utilize portable containers for storage
thereby 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 42
cubic yard containers to industrial customers. As a part of the services
provided by Waste Industries and for an additional fee under our waste services
contract, we install stationary compactors that compact waste prior to
collection are installed on the premises of a substantial number of large
volume customers. No single commercial or industrial contract is individually
material to our results of operations.
Our residential solid waste collection and disposal services are performed
either on a subscription basis with individual households, or under contracts
with municipalities, homeowners associations, apartment owners or mobile home
park operators. Municipal contracts grant us the right to service all or a
portion of the residences in a specified community or to provide a central
repository for residential waste drop-off. We had approximately 244 municipal
contracts in place as of September 30, 2000. No single municipal or other
residential contract is individually material to our results of operations.
Municipal contracts in our market areas are typically awarded on a competitive
bid basis and thereafter on a bid or negotiated basis and usually range in
duration from one to five years. Residential contract fees are based primarily
on route density, the frequency and level of service, the distance to the
disposal or processing facility, the cost of disposal or processing and prices
charged in its markets for similar service. Municipal collection fees are paid
either by the municipalities from tax revenues or through direct service
charges to the residents receiving the service.
At September 30, 2000, we owned and operated nine solid waste landfills in
Florida, Georgia, Mississippi, North Carolina and Tennessee. Our landfill
facilities are designed and operated to meet federal, state and local
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regulations in all material respects and we believe each of our landfill sites
are in compliance with current applicable state and federal Subtitle D
regulations in all material respects. None of our landfills are permitted to
accept hazardous waste.
Transfer Station Services
The 24 transfer stations operated by Waste Industries at September 30, 2000
receive, compact and transfer solid waste to larger company-owned vehicles for
transport to landfills. We believe that transfer stations benefit us by:
(1) providing access to multiple landfills;
(2) improving utilization of collection personnel and equipment;
(3) concentrating the waste stream to gain leverage in negotiating for more
favorable disposal rates; and
(4) building relationships with municipalities that can lead to
opportunities for additional business in the future.
Depending on the location, size and local regulatory environment, transfer
stations can be constructed for as little as $150,000 for a small rural
facility or as much as $1.0 million for larger sites. We believe that we have
obtained all permits and authorizations necessary to operate our existing
transfer stations and that each of our existing transfer stations has been
operated in compliance in all material respects with applicable environmental
regulations.
At September 30, 2000, we owned six of the transfer stations we operate, and
operate the remaining 18 transfer stations pursuant to operating agreements.
These operating agreements have terms ranging from annual one-year renewals to
an indefinite period. We generally receive a fixed monthly operating fee for
our services under these agreements, together with a variable fee based upon
the number of hauls made by us from the station. At September 30, 2000,
approximately 60% of waste directed to the transfer stations operated by us is
delivered by third parties, who pay us a fee based on the tonnage delivered.
Control of these third-party waste streams coupled with our waste stream adds
to our bargaining power in our negotiations for favorable solid waste disposal
rates with landfill operators.
Recycling Services
Recycling involves the removal of reusable materials from the waste stream
for processing and sale in various applications. Based on our experience in the
industry, we believe that recycling will continue to be an important component
of local and state solid waste management plans as a result of the public's
increasing environmental awareness and expanding regulations mandating or
encouraging waste recycling. We offer commercial, industrial and residential
customers recycling for office paper, cardboard, newspaper, aluminum and steel
cans, plastic, glass, pallets and yard waste. At September 30, 2000, we
operated approximately 100 convenience sites where residents can dispose of
recyclables. These commodities are delivered either to third-party processing
facilities in exchange for a fee or to one of eight facilities operated by us
for processing prior to resale.
From January 1, 1995 through September 30, 2000, we invested approximately
$5 million in infrastructure to develop regionally located recycling facilities
and equipment. Through these facilities, we recycle office paper, cardboard,
aluminum and steel cans, plastic, glass, pallets and yard waste. At September
30, 2000, less than 3% of our waste stream was recycled. Through a centralized
effort, we resell recycled waste products using commercially reasonable
practices and seek to manage commodity-pricing risk by spreading the risk among
our customers. The resale prices of, and demand for, recyclable commodities,
particularly wastepaper, can be volatile and subject to changing market
conditions. Accordingly, our results of operations will be affected, and might
be affected materially, by changing resale prices or demand for certain
recyclable commodities, particularly wastepaper. These changes might also
contribute to significant variability in our period-to-period results of
operations.
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Convenience Sites and Other Specialized Services
In 1982, we developed the concept of a convenience site in response to
increasing volumes of waste dumped randomly in rural areas. Each site typically
consists of a ramp for easy disposal access, a trash compactor and trash and
recycling containers. Most sites have posted operating hours during which Waste
Industries personnel assist residents with the deposit of waste and recyclables
while monitoring the types of waste deposited at the sites. Because these
convenience sites reduce the amount of trash dumped along roads and adjacent to
recreational areas, we believe that county and local governments will contract
for these sites to be strategically located. At September 30, 2000, we operated
approximately 100 convenience sites located in 14 counties in our market area.
In addition, we have increased our efforts to secure additional contracts to
manage comprehensive disposal services for large corporations and
municipalities. For example, after thorough review and evaluation, we may
provide a lump sum quote for handling all the waste in a company's facility.
This would include source separating various wastes into commodities for resale
and non-recyclables for disposal. The process of sorting at the source,
processing through a compaction system and scheduling waste and recyclable
removals only when the containers are full reduces our cost and increases our
operating efficiency. Furthermore, confidential documents can be controlled
throughout the process and destroyed to the customer's satisfaction.
Operations
Branch Facility Structure
Based on our experience in the industry, we believe that a branch facilities
structure retains decision-making authority close to the customer, which
enables us to identify customers' needs quickly and implement cost-effective
solutions. Furthermore, we believe that it provides a low-overhead, highly
efficient operational structure that allows us to branch into geographically
contiguous markets and operate in small communities which larger competitors
may not find attractive. Based on our experience in the industry, we believe
that branch facilities and decentralized management of operations provide us
with a strategic competitive advantage given the relatively rural nature of the
Southeastern U.S.
We deliver our waste services from branch locations, in contiguous service
areas, which permit our branch facilities to provide back-up services and
support to one another. Each manager of a branch facility has autonomous
service and decision-making authority for the local market area. Each
designated region is overseen by a regional manager, who is typically located
at one of our branch facilities. As of September 30, 2000, the branch network
was divided into the eight regions set forth below:
Collection Operations
<TABLE>
<CAPTION>
Carolinas Mississippi
Central Carolinas South Carolinas West Valley Tennessee Valley
--------- --------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Durham, NC Wilmington, NC Graham, NC Olive Branch, MS Crossville, TN
Garner, NC Bolivia, NC Greensboro, NC Biloxi, MS Lilburn, GA
Hope Mills,
NC Charleston, SC Henderson, NC Mobile, AL Easley, SC
Morrisville,
NC Conway, SC Oxford, NC Decatur, TN Alpharetta, GA
Sumter, SC Wytheville, VA Dawson, GA
Huntersville, NC Americus, GA
Carolinas
East Carolinas Coastal Danville, VA Warner Robbins, GA
--------- -----------------
Douglas, GA
Elizabeth
City, NC Newport, NC Albany, GA
Goldsboro,
NC Jacksonville, NC Moultrie, GA
Greenville,
NC Warner Robbins AFB, GA
Kinston, NC Oglethorpe, GA
Norfolk, VA
Rocky Mount,
NC
Wilson, NC
</TABLE>
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Disposal Operations
<TABLE>
<CAPTION>
Mississippi
Carolinas Central Valley Tennessee Valley
----------------- ----------- ----------------
<S> <C> <C>
Durham, NC Olive Branch, MS Jacksonville, FL
Biloxi, MS Douglas, GA
Carolinas Sampson Decatur, TN Graycourt, SC
-----------------
Sampson County, NC Fairburn, GA
</TABLE>
Our managerial philosophy centers on the principle that customers' needs can
best be served at the local level by a staff of well-trained personnel led by a
branch manager. Each branch manager is responsible for implementing sales
programs, maintaining service quality, promoting safety in the branch's
operations and overseeing the day-to-day operations for the branch, including
contract administration. Branch managers also assist regional managers in
identifying potential acquisition candidates. Frequently, the branch manager is
also the branch facility's sales manager; but in larger market areas, branch
facilities will have one or more sales persons. Branch managers are compensated
based on the performance of their branch. Each branch manager reports to a
regional manager or Vice President, who reports directly to our President.
In addition to delivering our services, branch staff responsibilities
include setting up customer accounts, answering customer questions, processing
accounts payable and maintaining accurate payroll and personnel information.
Maintenance support for collection equipment is also provided at the branch
facility. The facility size, number of maintenance personnel and capabilities
are determined by the number of vehicles operated and the type of services
provided within the branch facility's market area.
On a monthly basis, the corporate and/or regional officers meet with each
branch manager to discuss and evaluate the branch operations. This evaluation
is conducted through the use of flash reports on a weekly basis at the branch
and regional levels and monthly at the corporate level. Flash reports highlight
key operating data such as man-hours, overtime hours, truck hours, revenues and
extraordinary costs. These meetings are oriented to identifying trends,
opportunities and strategies in the branch facility's proximate geographic
area. Using a decentralized approach, but with strong corporate monitoring and
strict budgetary and operating guidelines and quality control standards, each
branch manager has the authority to exercise discretion in business decisions.
Our management information systems provide corporate management timely
oversight of branch performance.
Information Technologies
A cornerstone of our desire to deliver responsive and cost-effective waste
services is our management information systems network. Many of our information
systems, controls and services are designed to assist branch facilities'
personnel in making decisions based upon centralized information. Financial
control is maintained through personnel, fiscal and accounting policies which
are established at the corporate level for implementation at the branch
locations. Our systems allow for centralized billing and collection through a
lock-box system, thus enhancing cash management. An internal audit program
monitors compliance with our policies and the benchmarks are monitored
continuously using an advanced management information system. This information
system links our IBM AS/400 computer to each branch using satellite technology
which allows each branch on-line, real-time financial, productivity,
maintenance and customer information.
Support Services
In order to ensure focus at the branch facility level and to support branch
operations, we established our Support Services Team in 1995. Support services
include:
(1) safety and training services;
(2) risk management;
(3) capital expenditure evaluation;
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(4) human resources services;
(5) equipment maintenance;
(6) location of most economical disposal facilities;
(7) purchasing;
(8) sales and marketing support;
(9) productivity analysis;
(10) research and development services; and
(11) acquisition due diligence.
The Support Services Team provides significant assistance to the branch
facilities in the integration of newly acquired operations and in securing new
and retaining existing customers. Successful integration of an acquired
business is critical to achieving operational and administrative efficiencies
and improved profitability of the incremental business.
Support services include a comprehensive safety and risk management program
that has strong management support and includes strict safety rules and
policies, accident investigations, tracking and statistical analysis, employee
safety awards, branch safety committees and random facility inspections by both
corporate staff and an outside loss control specialist.
Management believes that its safety program has resulted in accident rates
and insurance loss ratios that are consistently lower than industry averages.
Landfill and Other Disposal Alternatives
At September 30, 2000, we used approximately 100 landfill disposal sites in
the markets we serve and we owned and operated nine of these landfill sites. We
have historically opted to contract for landfill services due to the
availability of disposal space at favorable tipping fees in close proximity to
our current markets. In some markets, we have been able to control disposal
costs by negotiating long-term disposal contracts with Subtitle D landfill
operators. In addition, we operate an extensive network of transfer stations to
consolidate waste streams and receive volume discounts on disposal costs.
Based on our market research, we believe that many landfills not in
compliance with Subtitle D Regulations will close in our market area in the
next few years. Despite this, the absolute volume of disposal capacity is
increasing due both to the expansion of capacity at existing landfills and the
opening of new landfills. Landfill operators are aggressively soliciting solid
waste volumes to ensure cash flows sufficient to support the expansion costs
and other capital expenditures made to achieve compliance with the provisions
of Subtitle D. Based on our market research, we believe there will continue to
be a significant supply of low-cost disposal capacity in our current markets
and that by controlling a large volume of the waste stream we will be able to
continue to negotiate favorable disposal costs. We plan to continue to secure
long-term disposal contracts with Subtitle D landfill operators and to continue
expansion of transfer stations. Transfer stations allow us access to additional
disposal sites and are substantially less expensive to develop than landfills.
Based on our experience in the industry, we believe that landfills that have
been targeted for closure might provide prime sites to develop transfer
stations.
We acquired five landfills in 1999 and three landfills in the first nine
months of 2000 and intend to acquire more. We might acquire other existing
landfills or we might develop landfills or partner with an experienced landfill
operator for the acquisition, development or assumption of the operation of
additional landfills. In our current markets, such action would be pursued if
we believed that ownership or operation of a landfill in a particular market
would provide significant cost benefits compared to our traditional system of
consolidating waste and negotiating favorable disposal rates. In a new market,
we may become a landfill owner or operator if that market lacks the amount of
disposal capacity that we have experienced in our current markets.
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We also intend to develop land clearing and inert debris ("LCID") landfills
in the near future. Such development would provide us an opportunity to dispose
of a portion of our waste stream in our own landfill, rather than paying a
third party to do so. LCID landfills can only take limited kinds of waste
(namely land-clearing and inert debris such as trees, rocks and concrete), as
opposed to traditional solid waste landfills, which can take any kind of waste
(except hazardous waste). Traditional solid waste landfills are therefore
subject to more stringent regulation than LCID landfills. As a result, LCID
landfills generally can be constructed in a relatively short time and involve
fewer regulatory hurdles compared to traditional solid waste landfills.
Alternatives to landfill disposal, such as recycling and composting, are
increasingly being used. In addition, incineration is an alternative to
landfill disposal in certain of our markets. There also has been an increasing
trend at the state and local levels to mandate recycling and waste reduction at
the source and to prohibit the disposal of certain type of wastes, such as yard
wastes, at landfills. These developments may result in the volume of waste
being reduced in certain areas. North Carolina, South Carolina and Virginia
have each adopted plans or requirements that set goals for specified
percentages of certain solid waste items to be recycled. These recycling goals
are being phased in over the next few years. These alternatives, if and when
adopted and implemented, might have a material adverse effect on our business,
financial condition and results of operations.
Landfill Closure and Post-Closure Costs
We have financial obligations relating to closure and post-closure or
remediation costs, or long-term care, for the landfill sites we now own and
operate, and our obligations for these costs will increase if we decide to
develop or acquire additional landfill sites in the future.
Landfill closure and post-closure costs include estimated costs to be
incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. We estimate
these future cost requirements based on our interpretation of the technical
standards of the Environmental Protection Agency's Subtitle D regulations.
While the precise amounts of these future obligations cannot be determined, at
September 30, 2000, we estimate the total costs to be approximately $16.4
million for remediation, final closure of our operating facilities and post-
closure monitoring costs. Our estimate of these costs is expressed in current
dollars and is not discounted to reflect anticipated timing of future
expenditures. We had accrued approximately $262,000, $1.6 million and $2.5
million for such projected costs at December 31, 1998 and 1999 and September
30, 2000, respectively. At September 30, 2000, we had not paid any amounts out
of these accruals. We provide accruals for these future costs (generally for a
term of 30 years after final closure of any landfill), and will provide
additional accruals for these and other landfills we may acquire or develop in
the future, based on engineering estimates of consumption of airspace over the
useful lives of such facilities. There can be no assurance that our ultimate
financial obligations for actual closure or post-closure costs will not exceed
the amount accrued and reserved or amounts otherwise receivable pursuant to
insurance policies or trust funds. Such a circumstance could have a material
adverse effect on our financial condition and results of operation.
Marketing and Sales
We market our services locally through our regional and branch managers and
approximately 40 direct sales representatives who focus on commercial,
industrial and residential customers. We also obtain new customers from
referral sources, our general reputation and local market print advertising.
Leads are also developed from a construction reporting service, new building
permits, business licenses and other public records. Additionally, each branch
facility advertises in the yellow pages and other local business print media
that cover its service area. A variety of methods are used to market services
directly to individual households. Some branch locations have dedicated sales
representatives that market residential services. We engage in direct mail
campaigns and door-to-door marketing and works with real estate agents and
developers to sell services to
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<PAGE>
new developments. We recently installed telemarketing programs to sell
residential services. All Waste Industries containers display the Waste
Industries logo, name and telephone number. Additionally, we attend and make
presentations at municipal and state conferences and advertise in governmental
associations' membership publications.
Our sales representatives visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon certain incentive
formulas. We emphasize providing quality services and customer satisfaction and
retention, and believe that its focus on quality service will help retain
existing and attract additional customers. Maintenance of a local presence and
identity is an important aspect of our marketing plan, and many of our managers
are involved in local governmental, civic and business organizations.
No single customer of ours accounted for more than 4% of our revenues in
1999 and the first nine months of 2000. We do not believe that the loss of any
single customer would have a material adverse effect on our results of
operations.
Competition
The solid waste management industry is highly competitive, very fragmented
and requires substantial labor and capital resources. Intense competition
exists within the industry not only for collection, transportation and disposal
volume, but also for acquisition candidates. The industry includes three large
national waste companies: Waste Management, Inc.; Allied Waste Industries, Inc.
and Republic Services, Inc. There are several other public companies in the
industry with annual revenue in excess of $100 million, including Casella Waste
Systems, Inc. and Waste Connections, Inc. We compete with a number of these and
other regional and local companies, including publicly or privately owned
providers of incineration services.
We also compete with certain municipalities that operate their own solid
waste collection and disposal facilities. These municipalities may have certain
advantages over us due to the availability of tax revenues and tax-exempt
financing.
We compete for collection and recycling accounts primarily on the basis of
price and quality of our services. From time to time, competitors may reduce
the price of their services in an effort to expand market share or to win a
competitively bid municipal contract. These practices may also lead to reduced
pricing for our services or the loss of business.
Competitive Bid Contracts
We provide a substantial portion of our residential collection services
under municipal contracts and, at September 30, 2000, approximately 37% of our
revenues came from municipal contracts. As is generally the case in the
industry, municipal contracts are subject to periodic competitive bidding. The
balance of our residential services are provided on a subscription basis.
However, no single customer of any type accounted for more than 4% of our
revenues in 1999 or the first nine months of 2000. At September 30, 2000, we
had not lost, nor do we reasonably expect to lose a contract that would have a
material adverse effect on our financial condition or results of operations
because the contract either was or is not material. Our inability to compete
with larger and better capitalized companies, or to replace a significant
number of municipal contracts lost through the competitive bidding process with
comparable contracts or other revenue sources within a reasonable time period,
could have a material adverse effect on our results of operations.
Employees
At September 30, 2000, we employed approximately 1,800 full-time employees.
None of our employees are represented by unions. We have experienced low
turnover among our employees and believe that our relations with our employees
are good. We are highly dependent upon the services of the members of our
management team, the loss of any of whom may have an adverse effect on our
operations.
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Risk Management, Insurance and Performance Bonds
We actively maintain an environmental and other risk management programs
appropriate for our business. Our environmental risk management program
includes evaluating both existing facilities, as well as potential
acquisitions, for environmental law compliance and operating procedures. We
also maintain a worker safety program that encourages safe practices in the
workplace. Operating practices at all of our existing operations stress
minimizing the possibility of environmental contamination and litigation. We
believe that all of our facilities are in compliance in all material respects
with applicable state and federal regulations.
We carry a range of insurance intended to protect our assets and operations,
including a commercial general liability policy and a property damage policy.
If a partially or completely uninsured claim were made against us (including
liabilities associated with cleanup or remediation at our own facilities) and
it was successful and of sufficient magnitude, it could have a material adverse
effect on our results of operations or financial condition. Any future
difficulty in obtaining insurance could also impair our ability to secure
future contracts, which may be conditioned upon the availability of adequate
insurance coverage.
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. We have
not experienced difficulty in obtaining performance bonds or letters of credit
for our current operations. At September 30, 2000, we had provided customers
and various regulatory authorities with bonds and letters of credit of
approximately $4.7 million to secure our obligations. If we were unable to
obtain surety bonds or letters of credit in sufficient amounts or at acceptable
rates, we may be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits.
Regulation
Introduction
We are subject to extensive and evolving federal, state and local
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations not only strictly regulate the conduct of our operations but also
are related directly to the demand for many of the services we offer.
The regulations affecting us are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies. We
believe that we are currently in substantial compliance with applicable
federal, state and local laws, permits, orders and regulations, and we do not
currently anticipate any material environmental costs (although there can be no
assurance in this regard). We anticipate there will continue to be increased
regulation, legislation and regulatory enforcement actions related to the solid
waste services industry. As a result, we attempt to anticipate future
regulatory requirements and to plan accordingly to remain in compliance with
the regulatory framework.
In order to transport waste, we must have one or more permits from state or
local agencies. These permits also must be periodically renewed and are subject
to modification and revocation by the issuing agency. None of our permits has
ever been revoked.
In order to develop, own or operate a landfill, a transfer station or most
other solid waste facilities, we are required to go through several
governmental review processes and obtain one or more permits and often zoning
or other land use approvals. Obtaining these permits and zoning or land use
approvals is difficult, time consuming and expensive and is often opposed by
various local elected officials and citizens' groups. Once obtained, operating
permits generally must be periodically renewed and are subject to modification
and revocation by the issuing agency.
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Our facilities are subject to a variety of operational, monitoring, site
maintenance, closure, post-closure and financial assurance obligations which
change from time to time and which could give rise to increased capital
expenditures and operating costs. We do not expect to make material capital
expenditures for environmental control facilities in 2000 or 2001. In
connection with any such landfills, it is often necessary to expend
considerable time, effort and money in complying with the governmental review
and permitting process necessary to maintain or increase the capacity of these
landfills. Governmental authorities have broad power to enforce compliance with
these laws and regulations and to obtain injunctions or impose civil or
criminal penalties in the case of violations.
The principal federal, state and local statutes and regulations applicable
to our various operations are as follows:
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 are generally classified as hazardous if
they (i) either (a) are specifically included on a list of hazardous wastes or
(b) exhibit certain hazardous characteristics and (ii) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous.
Among the wastes that are specifically designated as non-hazardous waste are
household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most non-
hazardous industrial waste products.
Although we currently are not involved with transportation or disposal of
hazardous substances, we transported hazardous substances in the past and might
become involved with hazardous substance transportation and disposal in the
future. The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure, post-closure and financial responsibilities.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. Because we own and operate landfills, we must comply with
these regulations. We believe that we are in compliance with these regulations.
The Subtitle D Regulations, which generally became effective in October
1993, include location restrictions, facility design standards, operating
criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) designed to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the leachate
collection system operation. The Subtitle D Regulations also require, where
threshold test levels are present, that methane gas generated at landfills be
controlled in a manner that protects human health and the environment. We are
not aware of any problem with methane gas at any of our facilities. Each state
is required to revise its landfill regulations to meet these requirements or
such requirements will be automatically imposed upon it by the EPA. Each state
is also required to adopt and implement a permit program or other appropriate
system to ensure that landfills within the state comply with the Subtitle D
Regulations criteria. Various states in which we operate or might enter
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have adopted regulations or programs as stringent as, or more stringent than,
the Subtitle D Regulations. Failure to comply with these regulations could
require us to undertake investigatory or remedial activities, to curtail
operations or to close a landfill temporarily or permanently. Future changes in
these regulations might in the future require us to modify, supplement or
replace equipment or facilities at costs that may be substantial. The failure
of regulatory agencies to enforce these regulations vigorously or consistently
may give an advantage to our competitors whose facilities do not comply with
the Subtitle D Regulations or its state counterparts. Our ultimate financial
obligations related to any failure to comply with these regulations could have
a material adverse effect on our operations and financial condition.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended, known as the
Clean Water Act, establishes rules regulating the discharge of pollutants from
a variety of sources, including solid waste disposal sites and transfer
stations, into waters of the U.S. Because we own and operate landfills and
transfer stations, we must comply with this Act. For example, if run-off from
our transfer stations or if run-off or collected leachate from our owned or
operated landfills is discharged into streams, rivers or other surface waters,
the Clean Water Act would require us to apply for and obtain a discharge
permit, conduct sampling and monitoring and, under certain circumstances,
reduce the quantity of pollutants in such discharge. Also, virtually all
landfills are required to comply with the EPA's storm water regulations issued
in November 1990, which are designed to prevent possibly contaminated landfill
storm water runoff from flowing into surface waters. We believe that our
facilities are in compliance in all material respects with Clean Water Act
requirements. Various states in which we operate, or in which we might operate
in the future, have been delegated authority to implement the Clean Water Act
permitting requirements, and some of these states have adopted regulations that
are more stringent than the federal requirements. We believe we are in
compliance with this Act.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, also known as CERCLA, established a regulatory and remedial program
intended to provide for the investigation and cleanup of facilities from which
there has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to
impose strict joint and several liability for cleanup of facilities on current
owners and operators of the site, former owners and operators of the site at
the time of the disposal of the hazardous substances, as well as the generators
of the hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be very substantial. Liability under CERCLA does not depend
upon the existence or disposal of "hazardous waste" as defined by RCRA, but can
also be founded upon the existence of even very small amounts of the more than
700 "hazardous substances" listed by the EPA, many of which can be found in
household waste.
We currently do not handle hazardous waste, but because we own and operate
landfills and transfer stations, we might be subject to CERCLA. If we were to
be 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 facility, completely responsible for all investigative and remedial costs
even if others might also be liable. CERCLA also authorizes the imposition of a
lien in favor of the U.S. upon all real property subject to, or affected by, a
remedial action for all costs for which a party is liable. CERCLA provides a
responsible party with the right to bring legal action against other
responsible parties for their allocable share of investigative and remedial
costs. Our ability to get others to reimburse us for their allocable share of
such costs would be limited by our ability to find other responsible parties
and prove the extent of their responsibility and by the financial resources of
such other parties. We are not aware that we currently have any CERCLA
liability.
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The Clean Air Act
The Clean Air Act provides for regulation, through state implementation of
federal requirements, of the emission of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. Because we own and operate landfills, we
must comply with this Act. We believe we are in compliance with this Act. The
EPA has proposed new source performance standards regulating air emissions of
certain regulated pollutants (methane and non-methane organic compounds) from
municipal solid waste landfills. Landfills located in areas with air pollution
problems may be subject to even more extensive air pollution controls and
emission limitations. In addition, the EPA has issued standards regulating the
disposal of asbestos-containing materials. Some 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.
The Occupational Safety and Health Act of 1970
OSHA establishes employer responsibilities and authorizes the promulgation
by the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
worker protection standards established by OSHA, to maintain certain records,
to provide workers with required disclosures and to implement certain health
and safety training programs. Various of those promulgated standards might
apply to our operations, including those standards concerning notices of
hazards, safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials, and worker training and emergency response
programs. Our employees are trained to respond appropriately in the event there
is an accidental spill or release of packaged asbestos-containing materials or
other regulated substances during transportation or landfill disposal. We
believe we are in compliance with applicable OSHA standards.
State and Local Regulations
Each state in which we now operate or might operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and, in
most cases, the siting, design, operation, maintenance, closure and post-
closure maintenance of landfills and transfer stations. Because of our
business, we must comply with these laws and regulations. We believe we are in
compliance with them. In addition, many states have adopted Superfund statutes
comparable to, and in some cases more stringent than, CERCLA. These statutes
impose requirements for investigation and cleanup of contaminated sites and
liability for costs and damages associated with such sites, and some provide
for the imposition of liens on property owned by responsible parties.
Furthermore, many municipalities also have ordinances, local laws and
regulations affecting our operations. These include zoning and health measures
that limit solid waste management activities to specified sites or activities,
flow control provisions that direct the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection
services and then put out for bid the right to provide collection services, and
bans or other restrictions on the movement of solid wastes into a municipality.
Permits and approvals may limit the types of waste that may be accepted at a
landfill or the quantity of waste that may be accepted at a landfill during a
given time period. In addition, permits and approvals, as well as certain state
and local regulations, might limit a landfill to accepting waste that
originates from specified geographic areas or seek to restrict the importation
of out-of-state waste or otherwise discriminate against out-of-state waste.
Generally, restrictions on the importation of out-of-state waste have not
withstood judicial challenge. However, from time to time federal legislation is
proposed which would allow individual states to prohibit the disposal of out-
of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. Although Congress has not
yet passed such legislation, if this or similar legislation is enacted, states
in which we operate landfills could act to limit or prohibit the importation of
out-of-state waste. Such state actions could materially adversely affect
landfills within those states that receive a significant portion of waste
originating from out-of-state.
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In addition, certain states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the U.S. Supreme Court held unconstitutional, and
therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local
jurisdictions continue to seek to enforce such restrictions and, in certain
cases, we may elect not to challenge such restrictions based upon various
considerations. In addition, the aforementioned proposed federal legislation
would allow states and localities to impose certain flow control restrictions.
These restrictions could result in the volume of waste going to landfills
being reduced in certain areas, which may materially adversely affect our
ability to operate our landfills at their full capacity and/or affect the
prices that can be charged for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to its customers, our business,
financial condition and results of operations could be materially adversely
affected.
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 facilities at their full
capacity.
We believe we are in compliance with applicable state and local regulations.
Property and Equipment
Our principal executive offices are located at 3301 Benson Drive, Raleigh,
North Carolina, where we currently lease approximately 25,000 square feet of
office space. Our principal property and equipment consists of land (primarily
transfer stations, bases for collection operations and landfill sites),
buildings, and vehicles and equipment. Our land and buildings are located in
North Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama,
Georgia and Florida. We also lease real property in the states in which we do
business. At September 30, 2000, we operated 42 collection operations, 24
transfer stations, eight recycling facilities and nine landfills aggregating
approximately 2,276 acres. All our property and equipment are used in our one
industry segment, which includes collection, transfer, recycling, processing
and disposal of municipal solid and industrial wastes.
Containers
Some type of container is used in almost every service we provide, and we
therefore have an extensive inventory on-hand or on-site at customers'
locations throughout North Carolina, South Carolina, Virginia, Tennessee,
Mississippi, Alabama, Georgia and Florida. We own all of our containers and
centrally manage our inventory located at the branch facility level. We also
own a significant number of on-site compaction containers, which provide
efficiency for high-volume solid waste generators. Container life is dependent
on the location of the container, the type of waste that is deposited into the
container and how the container is maintained. Proper maintenance of commercial
and industrial front loader and roll-off containers consists of regular
repainting, scheduled repairs and switch-outs, quality cleaning, sanding and
priming and monitoring of the container by our employees to check for needed
repairs. Residential collection containers require minor maintenance.
Collection Vehicles
We use a fleet of specialized collection vehicles to collect and transport
waste and to provide recycling and convenience site services. At September 30,
2000, we owned approximately 95% of our transportation fleet and lease the
remainder. We have implemented an aggressive and reliable maintenance program
to extend the useful lives of our equipment. Preventative and long-term
maintenance is performed on regularly scheduled cycles
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that are more frequent than most manufacturers' suggested schedules.
Preventative maintenance is performed on collection vehicles after every 150 to
250 hours of operation depending on its class, and long-term maintenance
(reconstruction of engines, transmissions, etc.) is performed every four to six
years. Additionally, cosmetic repairs (painting, interior upholstery repairs)
are performed as needed. The majority of the maintenance program is done by our
personnel located in branch facilities.
Legal Proceedings
We are not a party to any material pending legal proceedings. In the normal
course of our business and as a result of the extensive governmental regulation
of the waste industry, we might periodically become subject to various judicial
and administrative proceedings involving federal, state or local agencies. In
these proceedings, an agency might seek to impose fines on us or to revoke, or
to deny renewal of, an operating permit held by us. In addition, we might
become party to various claims and suits pending for alleged damages to persons
and property, alleged violation of certain laws and for alleged liabilities
arising out of matters occurring during the normal operation of the waste
management business.
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MANAGEMENT
The directors and executive officers of Waste Holdings will be the same as
those of Waste Industries. As of September 30, 2000, the directors and officers
of Waste Industries were as follows:
Directors
<TABLE>
<CAPTION>
Director
Name Age Since
---- --- --------
<S> <C> <C>
Lonnie C. Poole, Jr............................................. 63 1970
Jim W. Perry.................................................... 56 1974
J. Gregory Poole, Jr............................................ 65 1994
Thomas F. Darden II............................................. 45 1997
Thomas C. Cannon................................................ 50 1999
Paul L. Brunswick............................................... 60 1999
</TABLE>
LONNIE C. POOLE, JR., founded Waste Industries in 1970 and has served as
Chief Executive Officer and Chairman of the Board of directors of Waste
Industries since that time. Mr. Poole holds a B.S. in Civil Engineering from
North Carolina State University and an M.B.A. from the University of North
Carolina at Chapel Hill. Mr. Poole has more than 29 years' experience in the
solid waste industry. He has served in the Environmental Industry Association,
("EIA", formerly the National Solid Waste Management Association or the
"NSWMA"), a non-profit business association established to, among other things,
inform, educate and assist its members in cost-effective, safe and
environmentally responsible management of waste in the following positions:
Chairman, Vice-Chairman, Board Member. In addition, Mr. Poole has served in the
EIA Research and Education Foundation as Chairman and now is a member of its
Board of directors. Mr. Poole was inducted into the EIA Hall of Fame in 1994.
JIM W. PERRY joined Waste Industries in 1971 and has served as our President
and Chief Operating Officer since 1987 and as a director since 1974. Mr. Perry
holds a B.S. in Agricultural and Biological Engineering from North Carolina
State University and an M.S. in Systems Management from the University of
Southern California. Mr. Perry has more than 29 years' experience in the solid
waste industry and has received the Distinguished Service Award from the NSWMA.
In addition, Mr. Perry has served in the Carolinas Chapter of NSWMA as Chairman
and on the Membership Committee. Mr. Perry was inducted into the EIA Hall of
Fame in 1997.
J. GREGORY POOLE, JR., an original investor in the Company in 1970, has
served as a member of the Board of Directors since 1994. Until March 1999, Mr.
Poole was Chairman of the Board and Chief Executive Officer of Gregory Poole
Equipment Company. Mr. Poole is a member of the Board of Directors of First
Union Corporation. Mr. Poole holds a B. S. in Business Administration from the
University of North Carolina at Chapel Hill.
THOMAS F. DARDEN II, has served as a director of the Company since June
1997. Since 1984, Mr. Darden has served as Chairman of Cherokee Sanford Group
LLC, or its predecessors and affiliates, which include a brick manufacturing
company and a $250 million brownfield investment fund. He is also a principal
of Franklin Street/Fairview Capital, a private equity investment company. Mr.
Darden chaired the Triangle Transit Authority and is on the boards of Shaw
University, Winston Hotels, Inc. and BTI Telecom Corp. In addition, Mr. Darden
has served on the Board of Visitors and currently serves on the Honors Advisory
Board at the University of North Carolina at Chapel Hill. Mr. Darden holds a B.
A. with Highest Honors and an M.R.P. in Environmental Planning from the
University of North Carolina at Chapel Hill, and a J. D. from Yale University.
THOMAS C. CANNON has served as a Vice President of the Company since its
acquisition of TransWaste Services, Inc. in September 1998. Mr. Cannon founded
TransWaste Services in 1994 and has served as its President since that time. He
holds a B.B.A. in Industrial Management from the University of Georgia and has
done graduate work in Accounting at Georgia Southwestern College.
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PAUL L. BRUNSWICK has served as a director of the Company since December
1999. Currently Mr. Brunswick is President of General Management Advisory. From
1992 to 1999, Mr. Brunswick served as Vice President and Chief Financial
Officer of GoodMark Foods, Inc., a public company that was acquired by ConAgra,
Inc. in July 1998. From 1987 to 1992, he served as Vice President and Chief
Financial Officer for CompuChem Corporation, a public company that was acquired
by Hoffman-La Roche in 1992. Mr. Brunswick has served on several company boards
of directors and is currently the President of the North Carolina Chapter of
the Financial Executives Institute and serves on the board of Life Experiences,
a nonprofit public service organization. He has previously served on the boards
of United Way and Junior Achievement. Mr. Brunswick holds a B.S. in Accounting
and an M.B.A. from Ohio State University.
Executive Officers
As of September 30, 2000, the executive officers of Waste Industries were as
follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Lonnie C. Poole, Jr........ 63 Chairman, Chief Executive Officer and Director
Jim W. Perry............... 56 President, Chief Operating Officer and Director
Stephen C. Shaw............ 40 Chief Financial Officer, Secretary and Treasurer
</TABLE>
STEPHEN C. SHAW joined the company in 1985 and was appointed Chief Financial
Officer in November 1999. Mr. Shaw served as our Vice President, Finance from
1991 to 1999 and as our controller from 1985 to 1999. He is a Certified Public
Accountant and holds a B.S. in Business Administration from the University of
North Carolina at Chapel Hill. Mr. Shaw has more than 15 years' experience in
the solid waste industry.
Other Key Employees
The following table sets forth certain information concerning our other key
employees as of September 30, 2000:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Lonnie C. Poole, III........ 38 Vice President and Director of Support Services
Richard D. Lauck............ 54 Vice President--Carolinas Region
Thomas C. Cannon............ 50 Vice President--Georgia/Tennessee Valley Region
James J. Becher............. 50 Vice President--Mississippi Valley Region
</TABLE>
LONNIE C. POOLE, III has served as our Vice President, Director of Support
Services since 1995. From 1990 to 1995, he served as our Risk Management
Director. Mr. Poole holds a B.S. in Aerospace Engineering from North Carolina
State University. Mr. Poole is the son of Lonnie C. Poole, Jr. Mr. Poole has
more than 10 years' experience in the solid waste industry.
RICHARD D. LAUCK has served as a Vice President of the company since March
1998. From November 1995 until March 1998, he served as our Central Regional
Manager. Prior to joining Waste Industries, Mr. Lauck worked for 14 years with
Waste Management, Inc., where he held various operational positions including
General Manager, Vice President and Region Manager. Mr. Lauck holds a B.S.
degree, specializing in Marketing, from the University of Northern Colorado and
an M.S. from Colorado State University. Mr. Lauck has more than 18 years'
experience in the solid waste industry.
THOMAS C. CANNON has served as a Vice President of Waste Industries since
September 1998. Mr. Cannon joined us during our acquisition of TransWaste
Services, Inc. He holds a B.B.A. in Industrial Management from the University
of Georgia and has done graduate work in Accounting at Georgia Southwestern
College. Mr. Cannon has 6 years of experience in the solid waste industry.
38
<PAGE>
JAMES J. BECHER has served as a Vice President of the company since March
1998. He joined Waste Industries in 1986 as a Branch Manager. Mr. Becher holds
a B.A. in History from Guilford College in North Carolina. He has 14 years'
experience in the solid waste industry.
None of our executive officers, directors or other key employees is related
to any other executive officer, director or other such key employee, except
that Lonnie C. Poole, Jr. and Lonnie C. Poole, III are father and son.
Executive Compensation
Summary Compensation
The following table sets forth all compensation paid by Waste Industries for
services rendered to it in all capacities for the fiscal years ended December
31, 1997, 1998, and 1999 to its Chief Executive Officer and its other executive
officers who earned at least $100,000 in the respective fiscal year
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Stock
Name and Principal Fiscal Options All Other
Position Year Salary Bonus (Shares) Compensation(1)
------------------ ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr...... 1999 $ -- $ -- 26,833 $ --
Chairman and Chief
Executive Officer 1998 $ -- $ -- -- $ 4,200
1997 $224,324 $141,127 -- $42,632(2)
Jim W. Perry ............ 1999 $214,798 -- 22,979 $ 7,956
President 1998 $212,381 -- -- $15,132
1997 $201,676 $107,828 -- $42,760(2)
Stephen C. Shaw ......... 1999 $ 92,450 $ 19,747 3,000 $ 4,447
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
--------
(1) Includes for Mr. Poole and Mr. Perry:
. profit sharing contributions of $4,511 in 1997;
. auto allowances of $4,200 in 1997 and 1998;
. life insurance premiums paid by us on executive group policy insurance
coverage in excess of $50,000 payable to the Named Executive Officer or
his family as follows: Mr. Poole, $2,488 in 1997; and Mr. Perry, $874,
$932 and $1,456 in 1997, 1998 and 1999, respectively;
. 401(k) Plan contributions in the following amounts for 1997, 1998 and
1999: Mr. Poole, $673, $0 and $0; and Mr. Perry, $2,375, $10,000 and
$6,500.
Includes for Mr. Shaw, in 1999:
. life insurance premiums of $67 paid by us on executive group policy
insurance coverage in excess of $50,000 payable to Mr. Shaw or his
family; and
. 401(k) Plan contributions of $4,380.
(2) Includes director's fees of $30,800.
39
<PAGE>
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values
The following table sets forth certain information concerning all grants of
stock options made during the year ended December 31, 1999 to the Named
Executive Officers:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options/SARs Exercise Appreciation for
Underlying Granted to or Base Option Term(1)
Options/SARs Employees in Price Expiration -----------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
---- ------------ ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lonnie C. Poole Jr...... 26,833 34.8% $16.78 April 2004 $124,505 $274,769
Jim W. Perry............ 22,979 29.7% $16.78 April 2004 $106,623 $235,305
Stephen C. Shaw......... 3,000 3.9% $15.25 April 2004 $ 12,630 $ 21,240
</TABLE>
--------
(1) Potential realizable value is based on the assumption that the common stock
will appreciate at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated for SEC-mandated disclosure purposes and do not reflect our
estimate of future stock prices.
The following table sets forth certain information concerning the number and
value of unexercised options held by the Named Executive Officers as of
December 31, 1999:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
Shares at December 31, 1999(#) December 31, 1999($)(2)
Acquired on Value ---------------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr..... -- $ -- 199,320 26,833 $1,233,392 $ --
Jim W. Perry............ -- $ -- 76,800 43,015 $ 475,238 $123,983
Stephen C. Shaw......... 2,000 $19,895 -- 9,875 $ 25,198 $ --
</TABLE>
--------
(1) Market value of our common stock on the exercise date, as quoted on the
Nasdaq Stock Market, minus the exercise price.
(2) Market value of our common stock at December 31, 1999 ($11.31 per share),
as quoted on the Nasdaq Stock Market, minus the exercise price. Options are
considered in-the-money if the market value of the shares covered thereby
is greater than the exercise price.
Compensation of Directors
In 1999, employee directors of Waste Industries received no compensation for
service as a member of the Board of directors. Non-employee directors (Paul L.
Brunswick, J. Gregory Poole, Jr. and Thomas F. Darden II) are entitled to
receive an annual retainer fee in cash or stock of Waste Industries equal in
value to $5,000, plus $500 in cash or stock at the option of the individual
director for attending each meeting of the Board of directors and each Board of
directors' committee meeting, in addition to reimbursement of out-of-pocket
expenses.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of directors consists of Paul L.
Brunswick, chairman, J. Gregory Poole, Jr. and Thomas F. Darden II, neither of
whom was at any time during the fiscal year ended December 31, 1999 or at any
other time an officer or employee of Waste Industries. Mr. Perry, President and
a
40
<PAGE>
director of Waste Industries, is also a member of the compensation committee of
Gregory Poole Equipment Company, of which J. Gregory Poole, Jr., a member of
the Compensation Committee, was the Chairman and Chief Executive Officer until
his retirement in March 1999. Mr. Poole also terminated his ownership interest
in Gregory Poole Equipment Company in March 1999. No other executive officer of
Waste Industries serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of the Board of directors or the Compensation Committee.
CERTAIN TRANSACTIONS
In December 1999, we made loans to Lonnie C. Poole, Jr., in the aggregate
principal amount of $500,000, and to Jim W. Perry, in the principal amount of
$150,000, as advances to pay premiums on life insurance policies purchased by
Mr. Poole and Mr. Perry. The loans are full recourse obligations of Mr. Poole
and Mr. Perry, and Mr. Poole and Mr. Perry are the sole and absolute owners of
the life insurance policies. The loans bear interest at 7% per annum and
premiums advanced under the loans are also secured by collateral assignments of
policy proceeds and the surrender value of the policies.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of shares of Waste Industries common stock as of September 30, 2000 by (i) each
person known by us to beneficially own more than 5% of the outstanding shares
of our common stock, (ii) each director of Waste Industries, (iii) each of the
Named Executive Officers and (iv) all directors and executive officers of Waste
Industries as a group. The ownership of shares of Waste Holdings by these
individuals and entity will not change as a result of the reorganization.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name(1) Owned Owned
------- ------------ ----------
<S> <C> <C>
Lonnie C. Poole, Jr.(2).............................. 4,786,879 36.5%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Lonnie C. Poole, III(3).............................. 2,891,952 22.1%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Scott J. Poole(4).................................... 2,905,763 22.2%
2408 Mt. Vernon Church Road
Raleigh, NC 27614
Jim W. Perry(5)...................................... 1,554,108 11.9%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Goldman Sachs Asset Management....................... 1,028,600 7.4%
1 New York Plaza
New York, NC 10004
J. Gregory Poole, Jr. (6)............................ 635,032 4.8%
Thomas C. Cannon(7).................................. 425,087 3.2%
Stephen C. Shaw(8)................................... 13,872 1.0%
Paul L. Brunswick.................................... 2,827 *
Thomas F. Darden II(9)............................... 2,000 *
All directors and executive officers as a group (7
persons)(10)........................................ 7,419,805 56.6%
</TABLE>
--------
*Less than one percent.
41
<PAGE>
(1) This table is based upon information supplied by officers, directors and
principal shareholders of Waste Industries and from Schedules 13D and 13G
filed with SEC. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, each of the
shareholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Share ownership in
each case includes shares issuable upon exercise of warrants and options
that may be exercised within 60 days after September 30, 2000 for purposes
of computing the percentage of common stock owned by such person but not
for purposes of computing the percentage owned by any other person.
Applicable percentages are based on 13,109,327 shares outstanding on
September 30, 2000.
(2) Includes 211,059 shares underlying vested options, 1,000 shares owned by
Mr. Poole's wife and 2,108,018 shares held by three grantor trusts of which
Lonnie C. Poole, III and Scott J. Poole, Mr. Poole's children, are
beneficiaries and/or trustees.
(3) Includes 67,975 shares underlying vested options, 936,760 shares held by a
trust of which Mr. Poole is a co-trustee and beneficiary and 936,758 shares
held by a trust of which he is a beneficiary with shared investment power.
(4) Includes 65,611 shares underlying vested options, 936,760 shares held by a
trust of which Mr. Poole is a co-trustee and beneficiary and 936,758 shares
held by a trust of which he is a beneficiary with shared investment power.
(5) Includes 106,889 shares underlying vested options.
(6) Includes 540,000 shares owned by Mr. Poole's three adult children and 2,520
shares held by Mr. Poole's children as custodian for his three
grandchildren. As to all of such shares, Mr. Poole disclaims beneficial
ownership.
(7) Includes 1,050 shares underlying vested options.
(8) Includes 7,312 shares underlying vested options.
(9) The shares are held in a custodial account managed by Mr. Darden's wife for
the benefit of Mr. Darden's son.
(10) Includes the shares (including shares underlying vested options) discussed
in footnotes (2) and (5)-(9).
MARKET FOR COMMON STOCK
Our common stock trades on the Nasdaq National Market under the symbol
"WWIN". After the reorganization, the common stock of Waste Holdings will
continue to trade on the Nasdaq National Market under the symbol "WWIN". The
following sets forth the quarterly high and low bid prices for the years
indicated as reported by Nasdaq. These prices are based on quotations between
dealers, which do not reflect retail mark-up, mark-down or commissions and
might not reflect actual transactions.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
1998
First quarter............................................. $21 1/4 $15 1/4
Second quarter............................................ $22 3/4 $16 1/8
Third quarter............................................. $24 $19
Fourth quarter............................................ $25 5/8 $16 1/2
1999
First quarter............................................. $19 1/2 $12 13/16
Second quarter............................................ $18 13/16 $14 7/8
Third quarter............................................. $18 1/4 $12 3/8
Fourth quarter............................................ $14 3/4 $10 1/4
2000
First quarter............................................. $12 7/8 $ 9 1/2
Second quarter............................................ $11 1/4 $ 8 1/4
Third quarter............................................. $11 3/4 $ 7 1/2
Fourth quarter (through December 20, 2000)................ $ 7 7/8 $ 4 3/8
</TABLE>
42
<PAGE>
As of September 30, 2000, the number of record holders of our common stock
was 105 and we believe that the number of beneficial owners was more than 400.
The amount and percentage of shares currently owned by our shareholders will
not change as a result of the reorganization.
DIVIDEND POLICY
Since its conversion from S corporation to C corporation status in
connection with and prior to its initial public offering in June 1997, Waste
Industries has never paid a cash dividend on its common stock and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
Our credit facilities contain covenants that prohibit the payment of cash
dividends. The ability of Waste Holdings to pay dividends will be affected by
the ability of its subsidiaries to pay dividends.
43
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto included elsewhere in the proxy
statement-prospectus. The consolidated statement of operations data set forth
below with respect to the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 are derived
from, and are referenced to, the audited consolidated financial statements of
the company included elsewhere in this proxy statement-prospectus. The
consolidated statement of operations data set forth below with respect to the
years ended December 31, 1995 and 1996 and the consolidated balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from financial statements
not included in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- -----------------------
1999 2000
1995(1) 1996(1) 1997(1) 1998 1999 (unaudited) (unaudited)
------- -------- -------- -------- -------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Service revenues........ $96,051 $104,509 $127,581 $169,527 $213,384 $155,915 $181,034
Equipment sales......... 2,080 1,769 1,601 1,732 1,335 948 1,262
------- -------- -------- -------- -------- -------- --------
Total revenues.......... 98,131 106,278 129,182 171,259 214,719 156,863 182,296
Cost of service
operations............. 57,806 66,542 79,775 105,633 133,923 97,589 112,660
Cost of equipment
sales.................. 1,646 1,240 1,171 1,268 821 602 920
------- -------- -------- -------- -------- -------- --------
Total cost of
operations............. 59,452 67,782 80,946 106,901 134,744 98,191 113,580
Selling, general and
administrative......... 18,713 18,990 23,105 26,386 31,196 22,864 28,715
Depreciation and
amortization........... 8,939 9,307 11,797 16,981 22,298 16,349 19,538
Merger costs and start-
up costs............... -- -- -- 926 432 334 --
Loss on sale of
collection operations.. -- -- -- -- -- -- 1,677
------- -------- -------- -------- -------- -------- --------
Operating income........ 11,027 10,199 13,334 20,065 26,049 19,125 18,786
Interest expense........ (2,399) (2,497) (3,021) (4,812) (8,653) (6,251) (10,011)
Interest income......... 430 194 312 93 1,287 918 1,078
Other income............ -- 612 322 538 441 293 143
------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 9,058 8,508 10,947 15,884 19,124 14,085 9,996
Income taxes (2)........ -- -- 7,011 5,606 7,100 5,214 4,002
------- -------- -------- -------- -------- -------- --------
Net income.............. $ 9,058 $ 8,508 $ 3,936 $ 10,278 $ 12,024 $ 8,871 $ 5,994
======= ======== ======== ======== ======== ======== ========
Earnings per share:
Basic................... $ 0.85 $ 0.80 $ 0.34 $ 0.80 $ 0.88 $ 0.65 $ 0.44
======= ======== ======== ======== ======== ======== ========
Diluted................. $ 0.85 $ 0.78 $ 0.33 $ 0.77 $ 0.86 $ 0.63 $ 0.43
======= ======== ======== ======== ======== ======== ========
Pro forma income before
income taxes (2)....... $ 9,058 $ 8,508 $ 10,947 $ 15,884
Pro forma income taxes
(2).................... 3,632 3,434 4,202 5,803
------- -------- -------- --------
Pro forma net income
(2).................... $ 5,426 $ 5,074 $ 6,745 $ 10,081
======= ======== ======== ========
Pro forma earnings per
share (2):
Basic................... $ 0.51 $ 0.48 $ 0.58 $ 0.78
======= ======== ======== ========
Diluted................. $ 0.51 $ 0.47 $ 0.56 $ 0.76
======= ======== ======== ========
Weighted-average shares
outstanding:
Basic................... 10,625 10,660 11,709 12,875 13,707 13,707 13,778
======= ======== ======== ======== ======== ======== ========
Diluted................. 10,660 10,880 12,068 13,266 14,051 14,063 13,999
======= ======== ======== ======== ======== ======== ========
Other Operating Data:
Net cash provided by
operating activities... $18,717 $ 17,340 $ 22,949 $ 27,927 $ 28,890 $ 16,722 $ 23,398
Net cash used in
investing activities... (8,912) (15,688) (59,284) (57,097) (70,001) (54,679) (66,119)
Net cash provided by
(used in) financing
activities............. (9,336) (1,973) 35,431 31,659 40,622 35,209 43,206
EBITDA (3).............. 20,396 20,312 25,765 37,584 48,788 35,767 38,467
Balance Sheet Data:
Cash and cash
equivalents............ $ 2,400 $ 2,145 $ 1,176 $ 3,665 $ 3,176 $ 917 $ 3,661
Working capital
(deficit).............. 2,214 1,998 1,635 6,943 7,815 11,257 6,548
Property and equipment,
net.................... 36,700 43,233 65,044 88,801 138,523 127,559 191,272
Total assets............ 54,167 63,140 113,417 176,201 249,204 229,956 305,101
Long-term debt and
capital lease
obligations, net of
current maturities..... 28,349 34,526 50,788 86,465 139,700 129,486 190,106
Shareholders' equity.... $14,554 $ 15,138 $ 41,167 $ 64,662 $ 70,141 $ 67,649 $ 65,479
</TABLE>
-------
(1) On June 16, 1998, we exchanged 21,344 shares of our common stock (with a
fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters, Inc. On June 30, 1998, we exchanged 330,000
shares
44
<PAGE>
of our common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of Reliable Trash Services,
Inc. On August 28, 1998, we exchanged 388,311 shares of our common stock
(with a fair value of approximately of $8.5 million) for all of the issued
and outstanding shares of common stock of Railroad Avenue Disposal, Inc.
These business combinations have been accounted for as poolings-of-
interests. Accordingly, we have restated our previously issued consolidated
financial statements as of and for each of the four years in the period
ended December 31, 1997.
(2) For each of the fiscal years presented through 1996 (and for the period
from January 1, 1997 to May 8, 1997), Waste Industries was an S corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. Additionally, certain companies acquired in pooling-of-
interests transactions were previously taxed as S corporations. The pro
forma information has been computed as if we were subject to federal and
all applicable state corporate income taxes for each of the periods
presented assuming the tax rate that would have applied had we been taxed
as a C corporation. For a more detailed discussion see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
(3) EBITDA is defined as income before income taxes plus interest expense (net
of interest income) and depreciation and amortization. EBITDA should not be
considered an alternative to (i) operating income or net income (as
determined in accordance with GAAP) as an indicator of our operating
performance or (ii) cash flows from operating activities (as determined in
accordance with GAAP) as a measure of operating performance or liquidity.
However, we have included EBITDA data (which is not a measure of financial
performance under GAAP) because we understand that such data is commonly
used by certain investors to evaluate a company's performance in the solid
waste industry. Furthermore, we believe that EBITDA data is relevant to an
understanding of our performance because it reflects our ability to
generate cash flows sufficient to satisfy our debt service, capital
expenditure and working capital requirements. We therefore interpret the
trends that EBITDA depicts as one measure of our operating performance.
However, funds depicted by the EBITDA measure may not be available for debt
service, capital expenditures or working capital due to legal or functional
requirements to conserve funds or other commitments or uncertainties.
EBITDA, as measured by us, might not be comparable to similarly titled
measures reported by other companies. Therefore, in evaluating EBITDA data,
investors should consider, among other factors: the non-GAAP nature of
EBITDA data; actual cash flows; the actual availability of funds for debt
service, capital expenditures and working capital; and the comparability of
our EBITDA data to similarly titled measures reported by other companies.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto included in this proxy statement-prospectus for
the year ended December 31, 1999 and the nine months ended September 30, 2000.
Some matters discussed in this Management's Discussion and Analysis are
"forward-looking statements". These forward-looking statements can generally be
identified as such because the context of the statement will include words such
as we "believe", "anticipate," "expect" or words of similar import. Similarly,
statements that describe our future plans, objectives or goals are also
forward-looking statements. Forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those currently anticipated. These risks and uncertainties include those
related to the ability to manage growth, the availability and integration of
acquisition targets, competition, geographic concentration, government
regulation and others set forth in this proxy statement-prospectus under the
heading "RISK FACTORS". You should consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
made herein are only made as of the dates of the respective financial
statements and we undertake no obligation to publicly update these forward-
looking statements to reflect subsequent events or circumstances.
Overview
Waste Industries is a regional, vertically integrated provider of solid
waste services. Waste Industries was founded by members of the current senior
management team in 1970. We operate primarily in North Carolina, South
Carolina, Virginia, Tennessee, Mississippi, Alabama, Georgia and Florida,
providing solid waste collection, transfer, recycling, processing and disposal
services for commercial, industrial, municipal and residential customers. At
September 30, 2000, we operated 42 collection operations, 24 transfer stations,
approximately 100 county convenience drop-off centers, eight recycling
facilities and nine landfills in the southeastern U.S. We had revenues of
$214.7 million and operating income of $26.0 million in the year ended December
31, 1999, and revenues of $182.3 million and operating income of $18.8 million
in the nine months ended September 30, 2000.
Our presence in high-growth markets in the southeastern U.S., including
North Carolina, Georgia and Virginia, has supported our internal growth. From
1990 through September 30, 2000, we acquired, either by merger or asset
purchase, 59 solid waste collection or disposal operations. Fifty-four of these
acquisitions were accounted for as purchases. Accordingly, the results of
operations of these acquired businesses have been included in our financial
statements only from the respective dates of acquisition and have affected
period-to-period comparisons of our operating results. The 1998 acquisition of
ECO Services, Inc. and Air Cargo Services, Inc., which were both common control
mergers, and the 1998 acquisitions of Railroad Avenue Disposal, Inc., Reliable
Trash Service, Inc. and Dumpsters, Inc., which were all pooling-of-interests
transactions, have been included in our financial statements for all periods
presented. We anticipate that a significant part of our future growth will come
from acquiring additional solid waste collection, transfer and disposal
businesses and, therefore, we expect that additional acquisitions could
continue to affect period-to-period comparisons of our operating results. For
the nine months ended September 30, 2000, we did not have any significant
acquisitions requiring historical or pro forma financial statements to be
presented. Current levels of population growth and economic development in the
southeastern U.S. and our strong market presence in the region should provide
an opportunity to increase out revenues and market share. As we add customers
in existing markets, our density should improve, which we expect will increase
our collection efficiencies and profitability.
From 1986 until May 8, 1997, Waste Industries was subject to taxation under
Subchapter S of the Internal Revenue Code. As a result, during that time our
net income for federal and certain state income tax purposes, was reported by
and taxable directly to our shareholders, rather than to the company. Primarily
to provide funds for tax obligations payable by our shareholders on account of
our income in 1996 and 1997, we made cash
46
<PAGE>
distributions of approximately $1.8 million to our shareholders. In connection
with our conversion from S corporation to C corporation status in May of 1997,
we effected an S corporation distribution (consisting of approximately $1.5
million in cash payments) to our S corporation shareholders. The remaining S
corporation retained earnings of approximately $8.5 million have been
reclassified to additional capital. Our S corporation status was terminated on
May 9, 1997 and, accordingly, we became fully subject to federal and state
income taxes on that date.
Results of Operations
General
Our branch waste collection operations generate revenues from fees collected
from commercial, industrial and residential collection and transfer station
customers. We derive a substantial portion of our collection revenues from
commercial and industrial services that are performed under one-year to five-
year service agreements. Our residential collection services are performed
either on a subscription basis with individual households, or under contracts
with municipalities, apartment owners, homeowners associations or mobile home
park operators. Residential customers on a subscription basis are billed
quarterly in advance and provide us with a stable source of revenues. A
liability for future service is recorded upon billing and revenues are
recognized at the end of each month in which services are actually provided.
Municipal contracts in our existing markets are typically awarded, at least
initially, on a competitive bid basis and thereafter on a bid or negotiated
basis and usually range in duration from one to five years. Municipal contracts
generally provide consistent cash flow during the term of the contracts.
Our prices for our solid waste services are typically determined by the
collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged in our markets for similar services.
Our ability to pass on price increases is sometimes limited by the terms of
our contracts. Long-term solid waste collection contracts typically contain a
formula, generally based on a predetermined published price index, for
automatic adjustment of fees to cover increases in some, but not all, operating
costs.
At September 30, 2000, we operated approximately 100 convenience sites under
contract with 14 counties in order to consolidate waste in rural areas. These
contracts, which are usually competitively bid, generally have terms of one to
five years and provide consistent cash flow during the term of the contract
since we are paid regularly by the local government. At September 30, 2000, we
also operated eight recycling processing facilities as part of our collection
and transfer operations where we collect, process, sort and recycle paper
products, aluminum and steel cans, pallets, plastics, glass and other items.
Our recycling facilities generate revenues from the collection, processing and
resale of recycled commodities, particularly recycled wastepaper. Through a
centralized effort, we resell recycled commodities using commercially
reasonable practices and seek to manage commodity pricing risk by spreading the
risk among our customers. We also operate curbside residential recycling
programs in connection with our residential collection operations in most of
the communities we serve.
Operating expenses for our collection operations include labor, fuel,
equipment maintenance and tipping fees paid to landfills. At September 30,
2000, we owned, operated or transferred from 24 transfer stations that reduce
our costs by improving our utilization of collection personnel and equipment
and by consolidating the waste stream to gain more favorable disposal rates. At
September 30, 2000, we owned and operated nine landfills. Operating expenses
for these landfill operations include labor, equipment, legal and
administrative, ongoing environmental compliance, host community fees, site
maintenance and accruals for closure and post-closure maintenance. Cost of
equipment sales primarily consists of our cost to purchase the equipment that
we resell.
We capitalize certain expenditures related to pending acquisitions or
development projects. Indirect acquisition and project development costs, such
as executive and corporate overhead, public relations and other
47
<PAGE>
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 expected to be successfully completed. Engineering, legal, permitting,
construction and other costs directly associated with the acquisition or
development of a landfill, together with associated interest, are capitalized.
Selling, general and administrative ("SG&A") expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with our marketing and sales force and community relations expense.
Property and equipment is depreciated over the estimated useful life of the
assets using the straight line method.
Other income and expense, which is comprised primarily of interest income
has not historically been material to our results of operations.
To date, inflation has not had a significant impact on our operations.
The following table sets forth for the periods indicated the percentage of
revenues represented by the individual line items reflected in our unaudited
condensed statements of operations (certain items have been reclassified for
presentation purposes only):
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------- -----------------------
1997 1998 1999 1999 2000
----- ----- ----- ----------- -----------
(1) (1) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Service revenues................. 98.8 99.0 99.4 99.4 99.3
Equipment sales.................. 1.2 1.0 0.6 0.6 0.7
----- ----- ----- ----- -----
Total cost of operations......... 62.7 62.4 62.8 62.6 62.3
Selling, general and
administrative.................. 17.8 15.4 14.5 14.6 15.8
Depreciation and amortization.... 9.1 9.9 10.4 10.4 10.7
Merger and start-up costs........ -- 0.5 0.2 0.2 0.0
Loss on sale of collection
operations...................... -- -- -- -- 0.9
----- ----- ----- ----- -----
Operating income................. 10.4 11.8 12.1 12.2 10.3
Interest expense................. (2.3) (2.8) (4.0) 3.4 5.5
Interest and other income........ 0.5 0.3 0.8 (0.2) (0.7)
----- ----- ----- ----- -----
Income before income taxes....... 8.6 9.3 8.9 9.0 5.5
Income taxes .................... 3.4 3.4 3.3 3.3 2.2
Net income ...................... 5.2% 5.9% 5.6% 5.7% 3.3%
</TABLE>
--------
(1) For the period from January 1, 1997 to May 8, 1997, Waste Industries was an
S corporation and, accordingly, was not subject to federal and certain
state corporate income taxes. Additionally, certain companies acquired by
us in pooling-of-interests transactions were previously taxed as S
corporations. The pro forma information has been computed as if we were
subject to federal and all applicable state corporate income taxes for each
of the periods presented assuming the tax rate that would have applied had
we been taxed as a C corporation.
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<PAGE>
Nine-Month Period Ended September 30, 2000 vs. Nine-Month Period Ended
September 30, 1999
Revenues. Total revenues increased approximately $25.4 million, or 16.2%,
for the nine-month period ended September 30, 2000, as compared with the same
period in 1999. This increase was attributable primarily to the following
factors: (1) the effect of 17 businesses acquired during the year ended
December 31, 1999 and seven businesses acquired through September 30, 2000
resulting in a $16.1 million increase, offset by the decrease in revenues due
to the loss on the sale of collection operations of $3.3 million; and (2)
increased prices and collection volumes resulting from new municipal and
commercial contracts and residential subscriptions of $12.6 million.
Cost of Service Operations. Cost of service operations increased $15.1
million, or 15.4%, for the nine-month period ended September 30, 2000, as
compared to the same period in 1999. This increase was attributable primarily
to increased labor costs and associated expenses of approximately $4.3 million,
increased fuel expense of approximately $2.6 million, increased landfill and
disposal expenses of approximately $4.5 million, increased repairs and
maintenance of approximately $1.6 million, and the remaining $4.2 million
increase was due to collection volumes resulting from new municipal and
commercial contracts and residential subscriptions, all of which increases were
offset by operating costs related to collection operations sold of $2.1
million. Of this increase attributable to collection volume, $3.8 million, was
directly related to the acquisition of new businesses during the period. Cost
of service operations as a percentage of revenues decreased from 62.2% to 61.8%
for the nine months ended September 30, 1999 and 2000, respectively, due
primarily to synergies achieved through acquisitions in existing markets.
SG&A. SG&A increased $5.9 million, or 25.6%, for the nine-month period ended
September 30, 2000, as compared with the same period in 1999. This increase was
attributable primarily to increased labor costs and associated expenses of
approximately $3.2 million, increased legal and accounting services of
approximately $0.2 million, increased rent expense of approximately $0.4
million, offset by the sale of collection operations of $0.6 million, with the
remaining increases due to increased collection volumes resulting from new
municipal and commercial contracts and residential subscriptions. Of this
increase attributable to collection volume, 19.2% was directly related to the
acquisition of new businesses during the period. SG&A increased from 14.6% of
revenue for the nine-month period ended September 30, 2000 to 15.8% of revenue
for the same period in 2000 due to the increases previously described.
Depreciation and Amortization. Depreciation and amortization increased $3.2
million, or 19.5%, for the nine-month period ended September 30, 2000, compared
to the same period in 1999. The primary components of this increase were (1)
the effect of additional depreciation related to the 17 businesses acquired
during the year ended December 31, 1999 and seven businesses acquired through
September 30, 2000 resulting in a $0.9 million increase; (2) depreciation
resulting from additional property acquired and placed into service due to
higher collection volumes of $1.2 million and (3) increased amortization
related to newly acquired landfills of approximately $1.0 million.
Loss on Sale of Collection Operations. We recognized a loss on sale of
collections operations totaling $1.7 million. This sale was made in connection
with the acquisition of collection and landfill operations to better align us
for enhanced profitability.
Interest Expense. Interest expense (net of interest income) increased
$3.6 million, or 67.5%, for the nine month period ended September 30, 2000,
compared to the same period in 1999. This increase was primarily due to the
higher level of our average outstanding indebtedness as well as a higher
interest rate related to our purchases of assets of businesses acquired and the
debt required to fund our stock repurchase plan.
Income Tax Expense. Income tax expense decreased $1.2 million, or 23.2%, for
the nine-month period ended September 30, 2000, compared to the same period in
1999. This decrease was attributable to a decline in income before taxes, which
was offset by an increase in the effective tax rate of approximately 3.0% (from
37.0% to 40.0%). The increase in the effective tax rate was due to reduced tax
credits available to us.
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<PAGE>
Net Income. Net income decreased $2.9 million, or 32.4%, for the nine-month
period ended September 30, 2000, compared to the same period in 1999. This
decrease was primarily attributable to increased labor costs and associated
expenses, landfill and disposals costs, loss on sale of collection operations
and interest expense (net of interest income) offset by a decrease in income
tax expense for the nine-month period ended September 30, 2000.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Revenues. Total revenues increased $43.4 million, or 25.4%, to $214.7
million in 1999 from $171.3 million in 1998. This increase was primarily
attributable to the following two factors: (1) the effect of a full year of
revenues from the 13 businesses acquired in 1998, as well as a partial year of
results from 15 businesses acquired in 1999; and (2) increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions, totaling approximately 7%. Price increases in 1999 for solid
waste collection and disposal services contributed approximately 2% to 1999
revenues.
Cost of Operations. Total cost of operations increased $27.8 million to
$134.7 million in 1999 from $106.9 million in 1998. The principal reason for
the increase was the addition of new customers and contracts during the year,
including those from the acquisition of new businesses acquired during 1998 and
1999. Total cost of operations as a percentage of revenues increased to 62.8%
in 1999 from 62.4% in 1998.
SG&A. SG&A expenses increased $4.8 million to $31.2 million in 1999 from
$26.4 million in 1998. As a percentage of revenues, SG&A decreased to 14.5% in
1999 from 15.4% in 1998. This decrease was primarily the result of synergy
achieved through acquisitions.
Merger and Start-Up Costs. Merger costs totaled approximately $818,000 and
$327,000 at December 31, 1998 and 1999 and consisted primarily of professional
fees. We incurred nonrecurring start-up costs related to deployment of service
equipment and personnel associated with a new service contract of approximately
$108,000 and $105,000, respectively. These merger and start-up costs had been
expended at December 31, 1998 and 1999.
Depreciation and Amortization. Depreciation and amortization increased by
$5.3 million to $22.3 million in 1999 from $17.0 million for the prior year.
The principal reason for the increase was depreciation of the additional
property and equipment acquired and put into service due to higher collection
volumes, and depreciation of the additional assets of businesses acquired
during 1998 and 1999. Depreciation and amortization, as a percentage of
revenues, increased to 10.4% in 1999 from 9.9% in 1998, primarily as a result
of acquisitions in 1998 and 1999.
Interest Expense. Interest expense (net of interest income) increased $2.6
million to $7.4 million in 1999 from $4.7 million in 1998. This increase was
due to the higher level of average annual outstanding indebtedness. Interest
expense (net of interest income) as a percentage of revenues increased to 3.4%
in 1999 from 2.8% in 1998.
Income Tax Expense. Certain companies acquired by us in pooling-of-interests
transactions in 1998 were previously taxed as S corporations. 1998 pro forma
net income and earnings per share amounts have been computed as if we were
subject to federal and all applicable state corporate income taxes for each
period presented. Income taxes increased $1.3 million, or 22.4%, to $7.1
million in 1999 from $5.8 million in pro forma income taxes in 1998. Our
effective tax rate increased to 37.1% in 1999 from a pro forma effective tax
rate of 36.5% in 1998. This increase was primarily attributable to
nondeductible goodwill amortization and reduced tax credits. As a percentage of
revenues, income taxes decreased to 3.3% in 1999 from 3.4% in 1998.
Net Income. Net income increased $1.9 million, or 19.3%, to $12.0 million in
1999 from pro forma net income of $10.1 million in 1998. This increase was
primarily attributable to the increase in revenues and the decrease in SG&A as
a percentage of sales, as discussed above. As a percentage of revenues, net
income decreased to 5.6% in 1999 from 5.9% in pro forma net income 1998.
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<PAGE>
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenues. Total revenues increased $42.1 million, or 32.6%, to $171.3
million in 1998 from $129.2 million in 1997. This increase was primarily
attributable to the following two factors: (1) the effect of a full year of
revenues from the seven businesses acquired in 1997, as well as a partial year
of results from 13 businesses acquired in 1998; and (2) increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions, totaling approximately 11%. Price increases in 1998 for our
solid waste collection and disposal services contributed approximately 1% to
1998 revenues.
Cost of Operations. Total cost of operations increased $26.0 million to
$106.9 million in 1998 from $80.9 million in 1997. The principal reason for the
increase was the addition of new customers and contracts during the year,
including those from the acquisition of new businesses acquired during 1997 and
1998. Total cost of operations as a percentage of revenues decreased to 62.4%
in 1998 from 62.7% in 1997.
SG&A. SG&A expenses increased $3.3 million to $26.4 million in 1998 from
$23.1 million in 1997. As a percentage of revenues, SG&A decreased to 15.4% in
1998 from 17.8% in 1997. This decrease was primarily the result of synergy
achieved through acquisitions.
Merger and Start-Up Costs. Merger costs related to pooling-of-interests
transactions totaled approximately $818,000 and consisted primarily of
professional fees. During 1998, we incurred nonrecurring start-up costs related
to deployment of service equipment and personnel associated with a new service
contact of approximately $108,000. These merger and start-up costs had been
expended at December 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased by
$5.2 million to $17.0 million in 1998 from $11.8 million for the prior year.
The principal reason for the increase was depreciation of the additional
property and equipment acquired and put into service due to higher collection
volumes, and depreciation of the additional assets of businesses acquired
during 1997 and 1998. Depreciation and amortization, as a percentage of
revenues, increased to 9.9% in 1998 from 9.1% in 1997, primarily as a result of
acquisitions in 1997 and 1998.
Interest Expense. Interest expense (net of interest income) increased $2.0
million to $4.7 million in 1998 from $2.7 million in 1997. This increase was
due to the higher level of average annual outstanding indebtedness, partially
offset by a decrease in interest rates. Interest expense (net of interest
income) as a percentage of revenues increased to 2.8% in 1998 from 2.1% in
1997.
Pro Forma Income Taxes. From 1986 until May 9, 1997, Waste Industries was
subject to taxation under Subchapter S of the Internal Revenue Code. As a
result, during that time our net income for federal and certain state income
tax purposes, was reported by and taxable directly to our shareholders, rather
than to the company. Our S corporation status was terminated on May 9, 1997
and, accordingly, we became fully subject to federal and state income taxes on
that date. In accordance with the provisions of SFAS No. 109, "Accounting For
Income Taxes", the financial statements give effect to the recognition of
deferred tax assets of $800,000 and the assumption of a deferred tax liability
of $5,100,000 as a result of our S corporation election.
Additionally, certain companies acquired in pooling-of-interests
transactions were previously taxed as S corporations. Pro forma net income and
earnings per share amounts have been computed as if we were subject to federal
and all applicable state corporate income taxes for each period presented.
Pro forma income taxes increased $1.6 million, or 38.1%, to $5.8 million in
1998 from $4.2 million in 1997. Our pro forma effective tax rate decreased to
36.5% in 1998 from 38.4% in 1997. This decrease was primarily attributable to
state-targeted jobs tax credits, which we had not been historically qualified
to receive. As a percentage of revenues, pro forma income taxes remained flat
at 3.4%.
Pro Forma Net Income. Pro forma net income increased $3.4 million, or 50.7%,
to $10.1 million in 1998 from $6.7 million in 1997. This increase was primarily
attributable to the increase in revenues and the decrease
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<PAGE>
in SG&A as a percent of sales, as discussed above. As a percentage of revenues,
pro forma net income increased to 5.9% in 1998 from 5.2% in 1997.
Liquidity and Capital Resources
Our working capital at September 30, 2000 was $6.5 million, $7.8 million at
December 31, 1999, and $6.9 million at December 31, 1998. Our strategy in
managing our working capital has been to apply the cash generated from
operations that remains available after satisfying our working capital and
capital expenditure requirements to reduce indebtedness under our bank
revolving credit facility and to minimize our cash balances. We generally
finance our working capital requirements from internally generated funds and
bank borrowings. In addition to internally generated funds, we have in place
financing arrangements to satisfy our currently anticipated working capital
needs in 2000. As of September 30, 2000, we had fully drawn upon our three $25
million term facilities with Prudential Insurance Company of America, leaving
us with an uncommitted shelf facility of $25 million. The Prudential facilities
require us to maintain financial ratios, such as minimum net worth, net income,
and limits on capital expenditures and indebtedness. Interest on the three
Prudential facilities is paid quarterly, based on fixed rates for the three
facilities of 7.28%, 6.96% and 6.84%, respectively, and the facilities mature
as follows: $25 million in April 2006, $25 million in June 2008 and $25 million
in February 2009, subject to renewal.
In November 1999, we entered into a revolving credit agreement with a
syndicate of lending institutions for which Fleet National Bank, formerly known
as BankBoston, N.A., acts as agent. This credit facility provides up to $200
million through November 2004. Virtually all of our assets, and those of our
subsidiaries, including our interest in the equity securities of our
subsidiaries, secure our obligations under the Fleet credit facility. Pursuant
to an intercreditor agreement with Fleet, Prudential shares in the collateral
pledged under the Fleet credit facility. In addition, our subsidiaries have
guaranteed our obligations under the Prudential term loan facilities. The Fleet
credit facility bears interest at a rate per annum equal to, at our option,
either a Fleet base rate or at the Eurodollar rate (based on Eurodollar
interbank market rates) plus, in each case, a percentage rate that fluctuates,
based on the ratio of our funded debt to EBITDA, from 0% to 0.5% for base rate
borrowings and 1.5% to 2.5% for Eurodollar rate borrowings. The Fleet facility
requires us to maintain financial ratios and satisfy other requirements, such
as minimum net worth, net income, and limits on capital expenditures and
indebtedness. It also requires the lenders' approval of acquisitions in some
circumstances. At September 30, 2000, we did not meet the minimum net worth
covenant under the Prudential and Fleet facilities. On November 22, 2000, the
Prudential and Fleet facilities were amended, effective with the fiscal quarter
ended September 30, 2000, to lower the minimum tangible net worth covenant to
$62,250,000 plus the sum of 50% of positive consolidated net income for each
fiscal quarter beginning with the fiscal quarter ending December 31, 2000. This
amendment cured the violation that existed on September 30, 2000. As of
September 30, 2000, an aggregate of approximately $120 million was outstanding
under the Fleet credit facility, and the average interest rate on outstanding
borrowings was approximately 8.2%.
Net cash provided by operating activities totaled $23.4 million for the nine
months ended September 30, 2000, compared to $16.7 million for the nine months
ended September 30, 1999. This increase was caused principally by an increase
in cash provided by operations of $1.8 million and a reduction in the use of
working capital of $4.9 million.
Net cash used in investing activities totaled $66.1 million for the nine
months ended September 30, 2000, compared to $54.7 million for the nine months
ended September 30, 1999. This increase was caused principally by a higher
level of acquisitions of related businesses offset by proceeds received from
sale of collection operations, and an increase in capital expenditures of $4.9
million.
We currently expect capital expenditures for 2000 to be approximately $37.0
million, compared to $35.0 million in 1999. In 2000, we expect to use
approximately $27.0 million for vehicle and equipment additions and
replacements, approximately $2.3 million for landfill site and cell
development, approximately $2.1 million for support equipment and approximately
$5.6 million for facilities, additions and improvements. We intend to fund our
planned 2000 capital expenditures principally through internally generated
funds and
52
<PAGE>
borrowings under existing credit facilities. As an owner of and potential
acquirer of additional new landfill disposal facilities, we might also be
required to make significant expenditures to bring newly acquired disposal
facilities into compliance with applicable regulatory requirements, obtain
permits for newly acquired disposal facilities or expand the available disposal
capacity at any such newly acquired disposal facilities. The amount of these
expenditures cannot be currently determined, because they will depend on the
nature and extent of any acquired landfill disposal facilities, the condition
of any facilities acquired and the permitting status of any acquired sites. We
expect we would fund any capital expenditures to acquire solid waste collection
and disposal businesses, to the extent we could not fund such acquisitions with
our common stock, and any regulatory expenses for newly acquired disposal
facilities through borrowings under our existing credit facilities.
We have financial obligations relating to closure and post-closure costs, or
long-term care, or remediation of disposal facilities it operates or for which
it is or may become responsible. Landfill closure and post-closure costs
include estimated costs to be incurred for final closure of landfills and
estimated costs for providing required post-closure monitoring and maintenance
of landfills. We estimate these future cost requirements based on its
interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations.
While the precise amounts of these future obligations cannot be determined
at December 31, 1999, we estimate the total costs to range from approximately
$16.3 million to approximately $16.5 million for remediation, final closure of
our operating facilities and post-closure monitoring costs. Our estimate of
these costs is expressed in current dollars and is not discounted to reflect
anticipated timing of future expenditures. We provide accruals for these future
costs (generally for a term of 30 years after final closure of any landfill),
and will provide additional accruals for these and other landfills we might
acquire or develop in the future, based on engineering estimates of consumption
of airspace over the useful lives of such facilities. There can be no assurance
that our ultimate financial obligations for actual closure or post-closure
costs will not exceed the amount accrued and reserved or amounts otherwise
receivable pursuant to insurance policies or trust funds. Such a circumstance
could have a material adverse effect on our financial condition and results of
operations. Due to the inherent uncertainties related to the total costs for
remediation, final closure of our operating facilities and post-closure
monitoring costs, we cannot reasonably estimate any additional financial
obligation, if any.
Prepaid expenses increased $1.4 million from $1.6 million in fiscal year
ended December 31, 1998 to $3.0 million in fiscal year ended December 31, 1999.
The increase is primarily due to an increase in notes receivable acquired in
acquisitions totaling $1.3 million. Prepaid expenses increased $0.9 million
from $3.0 million to $3.9 million from December 31, 1999 to September 30, 2000.
The increase is primarily due to an increase in deposits associated with
acquisitions totaling $0.9 million.
Net cash provided by financing activities totaled $43.2 million for the nine
months ended September 30, 2000, compared to $35.2 million for the nine months
ended September 30, 1999. The increase was primarily attributable to increased
borrowings (net of repayments) of $11.3 million and a loan to Liberty Waste
Services, LLC of $11.5 million in 1999, offset by repurchases of the Company's
outstanding common stock of $11.0 million in 2000.
At September 30, 2000, we had approximately $182.3 million of long-term and
short-term borrowings outstanding (including capital leases) and approximately
$2.5 million in letters of credit. At September 30, 2000, the ratio of our
total debt (including capital leases) to total capitalization was 71.2%,
compared to 67.6% at December 31, 1999.
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<PAGE>
Seasonality
Our results of operations tend to vary seasonally, with the first quarter
typically generating the least amount of revenues, higher revenues in the
second and third quarters, and a decline in the fourth quarter. This
seasonality reflects the lower volume of waste during the fall and winter
months. Also, operating and fixed costs remain relatively constant throughout
the calendar year, which, when offset by these revenues, results in a similar
seasonality of operating income.
Quantitative and Qualitative Disclosure of Market Risks
Quantitative Disclosures. We currently utilize no material derivative
financial instruments which expose us to significant market risk. We are
exposed to cash flow and fair value risk due to changes in interest rates with
respect to our long-term debt. The table below presents principal cash flows
and related weighted average interest rates of our long-term debt at December
31, 1999 by expected maturity dates. Fair values have been determined based on
quoted market prices as of December 31, 1999.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
------ ------ ------ ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate
7.28%................. $3,924 $3,924 $3,924 $ 3,924 $ 3,924 $ 8,411 $ 28,031
6.96%................. -- -- 3,714 3,714 3,714 15,385 26,527
6.84%................. -- -- -- 3,672 3,672 18,882 26,226
Various (1.00%-
7.00%)............... 1,232 346 293 54 44 966 2,935
Variable Rate
8.44%................. 1,023 -- -- -- -- 65,000 66,023
$6,179 $4,270 $7,931 $11,364 $11,354 $108,644 $149,742
</TABLE>
Our market risk exposure has not changed materially during the nine months
ended September 30, 2000.
Qualitative Disclosures. Our primary exposure relates to:
. interest rate risk on long-term and short-term borrowings,
. the impact of interest rate movements on our ability to meet interest
expense requirements and exceed financial covenants, and
. the impact of interest rate movements on our ability to obtain adequate
financing to fund future acquisitions.
We manage interest rate risk on outstanding long-term and short-term debt
through the use of fixed and variable rate debt. While we cannot predict the
impact interest rate movements will have on existing debt, we continue to
evaluate our financial position on an ongoing basis.
DESCRIPTION OF CAPITAL STOCK
Articles of Incorporation
The provisions of the articles of incorporation of Waste Industries and
Waste Holdings are the same. The articles of incorporation of Waste Holdings
are attached to this proxy statement-prospectus as Appendix B.
The authorized capital of Waste Industries and Waste Holdings is the same,
consisting of 80,000,000 shares of common stock, no par value per share, and
10,000,000 shares of undesignated preferred stock, par value $0.01 per share.
The following discussion of common and preferred stock applies to both Waste
Industries and Waste Holdings.
Common Stock. As of the record date, November 17, 2000, assuming no
exercise of options, there were shares of common stock outstanding of
Waste Industries. After the reorganization is effected, it
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<PAGE>
is expected that the same number of shares of common stock of Waste Holdings
will be outstanding. The holders of the common stock are entitled to one vote
fore each share held of record on all matters submitted to a vote of
shareholders. Holders of the common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
Waste Industries, holders of the common stock are entitled to share ratably on
all assets remaining after payment of all liabilities. The outstanding shares
of the common stock are fully paid and nonassessable. No preemptive rights,
conversion rights, redemption rights or sinking fund provisions are applicable
to the common stock.
Preferred Stock. No shares of preferred stock of Waste Holdings are
outstanding and, after the reorganization, there will be no shares of preferred
stock of Waste Holdings outstanding. Our board of directors is authorized,
without further shareholder action, to issued preferred stock in one or more
series and to fix the voting rights, liquidation preferences, dividend rights,
repurchase rights, conversion rights, redemption rights and terms, including
sinking fund provisions, and certain other rights and preferences, of the
preferred stock. Although there is no current intention to do so, our board of
directors, may, without shareholder approval, issue shares of a class of series
of preferred stock with voting and conversion rights which could adversely
affect the voting power or dividend rights of the holders of common stock and
may have the effect of delaying, deferring or preventing a change in control of
the company.
Certain Statutory Provisions
The State of North Carolina has designed two statutes to provide North
Carolina corporations with protection against hostile takeovers. These statutes
are intended to discourage various takeover practices by impeding the ability
of a hostile acquiror to engage in various transactions with the target
company.
The North Carolina Business Corporation Act contains a "Shareholder
Protection Act" which, with certain exceptions discussed below, requires
approval of certain business combinations between a North Carolina corporation
and any beneficial holder of more than 20% of the voting shares of the
corporation by the holders of at least 95% of the voting shares of the
corporation. Business combinations subject to the approval requirement include
any merger or consolidation of the corporation with or into any other
corporation, the sale or lease of all or any substantial part of the
corporation's assets to, or any payment, sale or lease to the corporation or
any subsidiary thereof or in exchange for securities of the corporation of any
assets (except assets having an aggregate fair market value of less than $5
million) of any other entity. The principal exception to the special voting
requirement applies to business combinations that satisfy various complex
statutory provision, including provisions relating to the fairness of the price
and the constituency of the board of directors. In addition, the special voting
requirement shall not be applicable to any corporation if (i) the corporation
was not a public corporation at the time such other entity acquired in excess
of 10% of the voting shares; (ii) the corporation adopted an amendment to its
bylaws or provided in its original articles of incorporation providing that the
provisions shall not apply to it in accordance with the statue; or (iii) the
business combination in question was the subject of an existing agreement of
the corporation on April 23, 1987. In addition, corporations with fewer than
2,000 shareholders of record and those whose stock is not listed on a national
securities exchange are exempt form the special voting requirement. None of
these exceptions or exemptions currently are applicable to Waste Industries or
will be applicable to Waste Holdings after the reorganization. We have not
"opted out" of the Shareholder Protection Act and it remains applicable to us
and to Waste Holdings.
Certain North Carolina public corporations are also subject to the "The
North Carolina Control Share Acquisition Act". This law provides that shares
acquired in a transaction that would cause the acquiring person's voting
strength to meet or exceed any of three thresholds (20%, 33.3% or a majority)
of voting power have no voting rights unless granted by a majority vote of all
the outstanding shares of the corporation (not including interested shares)
entitled to vote for the election of directors. "Interested shares" means the
shares of a corporation beneficially owned by (i) any person who has acquired
or proposes to acquire control shares in a control share acquisition; (ii) any
officer of the corporation; or (ii) any employee of the covered corporation
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who is also a director of the corporation. This provision empowers an acquiring
person to require the North Carolina corporation to hold a special meeting of
shareholders to consider the matter within 50 days of its request. We have not
"opted out" of The North Carolina Control Share Acquisition Act and it remains
applicable to us and to Waste Holdings.
Transfer Agent and Registrar
The transfer agent for the common stock of Waste Industries is, and of Waste
Holdings after the reorganization will be, Continental Stock Transfer & Trust
Company, New York, New York.
Bylaws
The bylaws of Waste Industries and Waste Holdings are practically identical.
The bylaws of Waste Holdings are attached to this proxy statement-prospectus as
Appendix C. The only differences, other than a few technical changes to reflect
current law and practice, are as follows.
The Chief Executive Officer of Waste Holdings may call a special meeting of
shareholders, as can the President, Secretary, Chairman and the board of
directors, whereas the Chief Executive Officer has no such right under the
bylaws of Waste Industries.
The bylaws of Waste Holdings require any shareholder who wishes to present a
proposal at a meeting of shareholders to give Waste Holdings between 50 and 90
days notice before the meeting of the business the shareholders wishes to
present. No such requirement is in the bylaws of Waste Industries. This
provision may make it more difficult for shareholders to bring a matter before
a meeting which could make it more difficult to vote new members onto the board
of directors or to effect a sale of Waste Holdings.
The bylaws of Waste Holdings set the board of directors at between five and
nine members with the exact number to be set by the shareholders or the board
of directors. The bylaws of Waste Industries sets the number of directors at a
minimum of three, with the exact number to be set by the shareholders.
DEADLINE FOR SHAREHOLDER PROPOSALS
Waste Holdings expects to hold its next annual meeting in May 2001.
Shareholders having proposals they desire to present at the 20001 annual
meeting of shareholders of the company should, if they desire that such
proposals be included in our proxy statement relating to such meeting, submit
such proposals in time to be received by us at our principal executive offices
in Raleigh, North Carolina, not later than January 1, 2000. To be included, all
such submissions must comply with the requirements of Rule 14a-8 adopted under
the Exchange Act and the board of directors directs your close attention to
that Rule. In addition, management's proxy holders will have discretion to vote
proxies given to them on any shareholder proposal of which we do not have
notice prior to March 16, 2001. Proposals should be mailed to Secretary, Waste
Industries, Inc., 3301 Benson Drive, Suite 601, Raleigh, North Carolina 27609.
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, included in
this proxy statement-prospectus and the related financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
56
<PAGE>
OPINIONS
The legality of the shares of common stock of Waste Holdings to be issued in
the reorganization will be passed upon for Waste Holdings by Wyrick Robbins
Yates & Ponton LLP, Raleigh, North Carolina.
The federal income tax consequences of the reorganization on Waste
Industries, Waste Holdings, Waste LLC and Waste Industries shareholders who
receive Waste Holdings common stock in the reorganization have been passed upon
by Deloitte & Touche LLP.
OTHER MATTERS
As of the date of this proxy statement-prospectus, we are not aware of any
matters that will be presented for action at the special meeting. However, if
any other matters properly come before the special meeting, the persons named
in the accompanying proxy intend to exercise the discretion conferred by the
proxy to vote in accordance with their judgment on such matters.
57
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999, and
September 30, 2000 (unaudited)........................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999, and the nine months ended September 30, 1999 and
2000 (unaudited)......................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999, and the nine months ended September 30, 1999 and
2000 (unaudited)......................................................... F-5
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of Waste Industries, Inc. and
Subsidiaries Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of Waste
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
1999, and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Waste Industries, Inc. and
Subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
/S/ DELOITTE & TOUCHE LLP
RALEIGH, NORTH CAROLINA
FEBRUARY 29, 2000
F-2
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30,
December 31, December 31, 2000
1998 1999 (unaudited)
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 3,286 $ 3,176 $ 3,661
Accounts receivable--trade, less
allowance for uncollectible accounts
(1998--$700; 1999--$921; 2000--
$1,034).............................. 16,835 26,756 28,417
Accounts receivable--other............ 1,966
Inventories........................... 1,334 1,624 1,885
Prepaid expenses and other current
assets............................... 1,968 3,017 4,053
Deferred income taxes (Note 12)....... 494 910 1,199
-------- -------- --------
Total current assets.................. 23,917 35,483 41,181
-------- -------- --------
PROPERTY AND EQUIPMENT, net (Notes 2
and 3)................................ 88,801 138,523 191,272
INTANGIBLE ASSETS, net (Note 2)........ 61,543 71,458 67,761
OTHER NONCURRENT ASSETS................ 1,940 3,740 4,887
-------- -------- --------
TOTAL ASSETS........................... $176,201 $249,204 $305,101
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 4)............................. $ 1,877 $ 5,826 $ 9,384
Current maturities of capital lease
obligations (Note 5)................. 1,042 940
Accounts payable trade................ 10,171 13,355 10,963
Accrued expenses and other liabilities
(Note 8)............................. 2,995 4,083 10,517
Income taxes payable (Note 12)........ 188 1,487 750
Deferred revenue...................... 1,743 1,875 2,079
-------- -------- --------
Total current liabilities............. 16,974 27,668 34,633
-------- -------- --------
LONG-TERM DEBT, net of current
maturities (Note 4)................... 86,465 137,363 188,507
LONG-TERM CAPITAL LEASE OBLIGATIONS,
net of current maturities (Note 5).... 2,337 1,599
NONCURRENT DEFERRED INCOME TAXES (Note
12)................................... 7,838 10,105 12,406
CLOSURE/POSTCLOSURE LIABILITIES (Note
9).................................... 262 1,590 2,477
COMMITMENTS AND CONTINGENCIES (Notes 5,
7 and 9)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Common stock, no par value, 80,000,000
shares authorized, shares issued and
outstanding: 1998--13,380,905; 1999--
13,854,355; 2000--13,109,327......... 41,148 46,700 37,058
Paid-in capital....................... 7,245 7,245 7,245
Retained earnings..................... 16,596 28,620 34,614
Note receivable--Liberty Waste........ (11,538) (11,538)
Shareholders' loans and receivables... (327) (886) (1,900)
-------- -------- --------
Total shareholders' equity............ 64,662 70,141 65,479
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $176,201 $249,204 $305,101
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, 1999 September 30, 2000
1997 1998 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues....... $127,581 $169,527 $213,384 $155,915 $181,034
Equipment sales........ 1,601 1,732 1,335 948 1,262
-------- -------- -------- -------- --------
Total revenues......... 129,182 171,259 214,719 156,863 182,296
-------- -------- -------- -------- --------
OPERATING COSTS AND
EXPENSES:
Operations............. 79,775 105,633 133,923 97,589 112,660
Equipment sales........ 1,171 1,268 821 602 920
Selling, general and
administrative
(Notes 5 and 8)....... 23,105 26,386 31,196 22,864 28,715
Depreciation and
amortization.......... 11,797 16,981 22,298 16,349 19,538
Merger, start-up and
refinancing costs
(Note 2).............. -- 926 432 334 --
Loss on sale of
collection
operations............ -- -- -- -- 1,677
-------- -------- -------- -------- --------
Total operating costs
and expenses.......... 115,848 151,194 188,670 137,738 163,510
-------- -------- -------- -------- --------
OPERATING INCOME........ 13,334 20,065 26,049 19,125 18,786
-------- -------- -------- -------- --------
Interest expense (Note
4).................... 3,021 4,812 8,653 6,251 10,011
Interest income........ (312) (93) (1,287) (918) (1,078)
Other (Note 7)......... (322) (538) (441) (293) (143)
-------- -------- -------- -------- --------
Total other expense,
net................... 2,387 4,181 6,925 5,040 8,790
-------- -------- -------- -------- --------
INCOME BEFORE INCOME
TAXES.................. 10,947 15,884 19,124 14,085 9,996
INCOME TAX EXPENSE (Note
12):
Current and deferred... 2,711 5,606 7,100 5,214 4,002
Effect of change in tax
status................ 4,300 -- -- -- --
-------- -------- -------- -------- --------
NET INCOME.............. $ 3,936 $ 10,278 $ 12,024 $ 8,871 $ 5,994
======== ======== ======== ======== ========
EARNINGS PER SHARE
(As Adjusted--Notes 6
and 12):
Basic.................. $ 0.34 $ 0.80 $ 0.88 $ 0.65 $ 0.44
Diluted................ $ 0.33 $ 0.77 $ 0.86 $ 0.63 $ 0.43
INCOME BEFORE INCOME
TAXES
(Note 12).............. $ 10,947 $ 15,884
PRO FORMA INCOME TAXES
(Note 12).............. 4,202 5,803
-------- --------
PRO FORMA NET INCOME
(Note 12).............. $ 6,745 $ 10,081
======== ========
PRO FORMA EARNINGS PER
SHARE
(Notes 6 and 12)
Basic.................. $ 0.58 $ 0.78
Diluted................ $ 0.56 $ 0.76
WEIGHTED-AVERAGE NUMBER
OF SHARES OUTSTANDING
(Notes 6 and 12)
Basic.................. 11,709 12,875 13,707 13,707 13,778
======== ======== ======== ======== ========
Diluted................ 12,068 13,266 14,051 14,063 13,999
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, 1999 September 30, 2000
1997 1998 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............ $ 3,936 $ 10,278 $ 12,024 $ 8,871 $ 5,994
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 11,797 16,981 22,298 16,349 19,538
Gain on sale of
property and
equipment............ (212) (305) (298) (236) (112)
Effect of change in
tax status........... 4,300 -- -- -- --
Loss on sale of
collection
operations........... -- -- -- -- 1,677
Provision for
deferred income
taxes................ 804 2,240 1,451 2,084 2,012
Change in
closure/postclosure
liabilities.......... 41 (13) 731 1,172 887
Changes in assets and
liabilities, net of
effects from
acquisitions of
related businesses:
Accounts
receivable--trade.. (1,431) 418 (7,208) (7,021) (698)
Inventories......... 1,335 (492) (290) (425) (314)
Prepaid and other
current assets..... (137) (1,327) (1,007) (2,029) (3.041)
Other noncurrent
assets............. (560) (92) (853) (245) (2,470)
Accounts payable--
trade.............. 2,158 1,726 1,912 (1,332) (350)
Federal and state
income taxes
payable............ 445 (257) 1,299 55 (737)
Accrued expenses and
other liabilities.. 316 (1,823) (1,201) (654) 556
Deferred revenue.... (403) 122 (442) 133 456
-------- --------- --------- ------- -------
Net cash provided
by operating
activities....... 22,389 27,456 28,416 16,722 23,398
-------- --------- --------- ------- -------
INVESTING ACTIVITIES:
Proceeds from sale of
property and
equipment............ 809 649 721 493 536
Proceeds from
disposal of
collection
operations........... -- -- -- -- 9,897
Purchases of property
and equipment........ (24,095) (30,005) (34,935) (27,685) (32,588)
Acquisition of
related business,
net of cash
acquired............. (35,438) (27,649) (34,934) (27,487) (43,964)
-------- --------- --------- ------- -------
Net cash used in
investing
activities....... (58,724) (57,005) (69,148) (54,679) (66,119)
-------- --------- --------- ------- -------
FINANCING ACTIVITIES:
Proceeds from
issuance of long-
term debt............ 40,119 114,995 186,809 96,566 88,423
Principal payments on
long-term debt....... (23,772) (82,527) (135,143) (53,202) (33,721)
Debt issuance costs... (1,323) -- --
Principal payments on
capital lease
obligations.......... (906) -- (840)
Repayments of loans
and receivables from
shareholders......... 33 127 91 91 --
Advances under
shareholder loans
and receivables...... (55) (147) (650) -- (1,014)
Net proceeds from
common stock
issuance............. 23,158 3,250 3,250 36
Net proceeds from
exercise of stock
options.............. 34 44 1,328
Repurchase of common
stock................ -- -- -- -- (11,006)
Cash distributions to
S-Corporation
shareholders......... (4,124) (790) -- --
Loan to Liberty
Waste................ (11,538) (11,538) --
Other................. 72 1 (2) (2) --
-------- --------- --------- ------- -------
Net cash provided
by financing
activities....... 35,431 31,659 40,622 35,209 43,206
-------- --------- --------- ------- -------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... (904) 2,110 (110) (2,748) 485
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 2,080 1,176 3,286 3,665 3,176
-------- --------- --------- ------- -------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 1,176 $ 3,286 $ 3,176 $ 917 $ 3,661
======== ========= ========= ======= =======
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION (IN
THOUSANDS)--
Cash paid for
interest............. $ 2,440 $ 4,926 $ 8,530 $ 6,016 $ 8,635
======== ========= ========= ======= =======
Cash paid for taxes... $ 1,445 $ 3,623 $ 4,301 $ 3,025 $ 2,737
======== ========= ========= ======= =======
</TABLE>
F-5
<PAGE>
Supplemental Schedule of Noncash Transactions--
During 1997, the Company issued common stock with a fair value of
approximately $1,275,000 as partial consideration for certain business
acquisitions. Also during 1997, the Company reclassified undistributed
S Corporation earnings to paid-in capital as a result of the Company
terminating its S Corporation election on May 9, 1997.
On March 31, 1998, the Company exchanged 320,555 shares of its common stock
(with a fair value of $6,125,000) for all of the issued and outstanding shares
of common stock of ECO Services, Inc. ("ECO") and Air Cargo Services, Inc.
("ACS"). Certain of the Company's executive officers, who are also Company
shareholders, owned substantially all of the common stock of ECO and ACS.
Accordingly, all assets and liabilities transferred have been accounted for at
historical cost in a manner similar to that of pooling-of-interests accounting
pursuant to the provisions of AIN #39 of APB No. 16. The Company's financial
statements have been restated to include the accounts and operations for all
periods presented.
On June 16, 1998, the Company exchanged 21,344 shares of its common stock
(with a fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters, Inc. On June 30, 1998, the Company exchanged 330,000
shares of its common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of Reliable Trash Services, Inc.
On August 28, 1998, the Company exchanged 388,311 shares of its common stock
(with a fair value of approximately of $8.5 million) for all of the issued and
outstanding shares of common stock of Railroad Avenue Disposal, Inc. These
business combinations have been accounted for as poolings-of-interests.
During 1998, the Company exchanged 729,204 shares of common stock with a
fair value of approximately $14.0 million as partial consideration for certain
business acquisitions.
During 1999, the Company issued 281,250 shares of common stock with a fair
value of approximately $4.5 million as partial consideration for certain
business acquisitions.
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to September 30, 1999 and 2000 Information)
Years Ended December 31, 1997, 1998 and 1999
1. Basis of Presentation and Accounting Policies
Business Operations--Waste Industries, Inc. (the "Company") is a regional
solid waste services company providing solid waste collection, transfer,
recycling, processing and disposal services to customers in North Carolina,
South Carolina, Alabama, Georgia, Mississippi, Tennessee, Virginia and Florida.
Basis of Presentation--The Company's consolidated financial statements
include its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated. The Company's revenues and income are
derived principally from one industry segment, which includes the collection,
transfer, recycling, processing and disposal of municipal solid waste and
industrial wastes.
Significant Accounting Policies--The significant accounting policies are
summarized below:
a. Cash and Cash Equivalents--For the purposes of presentation in the
financial statements, cash equivalents include highly liquid investments with
original maturities of three months or less.
b. Inventories--Inventories consist of (i) trucks and containers held for
sale and (ii) operating materials and supplies held for use and are stated at
the lower of cost or market (less costs to sell) using the specific-
identification method of costing.
c. Property and Equipment--Property and equipment are stated at cost.
Depreciation expense is calculated on the straight-line method. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment.... 5 to 10 years
Furniture, fixtures and
vehicles.................. 5 to 10 years
Building................... 30 years
</TABLE>
Landfill costs, including engineering and other professional fees, are
amortized using the units-of-production method, which is calculated using the
total units of airspace filled during the year in relation to total estimated
permitted airspace capacity. The determination of airspace usage and remaining
airspace is an essential component in the calculation of landfill asset
depletion. This determination is performed by independent surveyors conducting
annual topographic surveys, using aerial survey techniques, of the Company's
landfill facilities to determine remaining airspace in each landfill. The
surveys are reviewed by the Company's independent engineers and its accounting
staff.
Engineering and legal fees paid to third parties incurred to obtain a
disposal facility permit are capitalized as landfill costs and amortized over
the estimated related airspace capacity. These costs are not amortized until
the permit is obtained and operations have commenced. If the Company determines
that the facility cannot be developed, these costs are charged to expense.
d. Intangible Assets--Intangible assets primarily consist of goodwill,
customer lists and noncompete and consulting agreements acquired in business
combinations. Intangible assets are net of accumulated amortization and consist
of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Goodwill.................................................. $60,793 $70,859
Customer lists............................................ 27 14
Noncompete agreements..................................... 723 585
------- -------
Intangible assets......................................... $61,543 $71,458
======= =======
</TABLE>
F-7
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
Customer lists are amortized using the straight-line method over 5 to 10
years. Noncompete agreements are amortized using the straight-line method over
the lives of the agreements. Goodwill is amortized using the straight-line
method, generally over 15 to 40 years. (weighted-average life: 1998-31 years;
1999-32 years). Such estimated useful lives assigned to goodwill are based on
the period over which management believes that such goodwill can be recovered
through undiscounted future operating cash flows of the acquired operations.
Accumulated amortization was approximately $28,748,000 and $31,638,000 at
December 31, 1998 and 1999 respectively.
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 or other intangible assets, the Company will evaluate the
remaining useful life and balance of goodwill and make appropriate adjustments.
See also note 1.F.
e. Other Noncurrent Assets--Included in other noncurrent assets are debt
issue costs relating to the new borrowings (see Note 4). Debt issue costs are
amortized to interest expense using the effective interest method over the life
of the related debt.
f. Long-lived Assets--In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, long-lived assets are reviewed for
impairment on a market-by-market basis whenever events or changes in the
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an evaluation is required, the projected future net cash flows
on an undiscounted basis attributable to each market would be compared to the
carrying value of the long-lived assets (including an allocation of goodwill,
if appropriate) of that market. If an impairment is indicated, the amount of
the impairment is measured based on the fair value of the asset. The Company
also evaluates the remaining useful lives to determine whether events and
circumstances warrant revised estimates of such lives.
g. Disposal Site Closure and Long-term Care--The Company has financial
obligations relating to closure and post-closure costs (long-term care) or
remediation of disposal facilities it operates or for which it is or may become
responsible. While the precise amounts of these future obligations cannot be
determined at December 31, 1999, the Company estimates the total costs to range
from $16.3 million to $16.5 million for remediation, final closure of its
current operating facilities and post-closure monitoring costs pursuant to
applicable regulations (generally for a term of 30 years after final closure).
The Company's estimate of these costs is expressed in current dollars and is
not discounted to reflect anticipated timing of future expenditures. The
Company accrued approximately $262,000 and $1,590,000 for such projected costs
at December 31, 1998 and 1999, respectively. The Company will provide
additional accruals based on engineering estimates of airspace consumption over
the useful lives of the facilities.
h. Earnings Per Share and Pro Forma Information--In 1997, the Company
adopted SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires the
presentation of both basic and diluted earnings per share, regardless of
materiality unless per share amounts are equal.
The pro forma information has been computed as if the Company were subject
to federal and all applicable state corporate income taxes for each of the
periods presented assuming the tax rate that would have been applied had the
Company been taxed as a C Corporation. Additionally, certain companies acquired
in pooling-of-interests transactions were previously taxed as S Corporations.
Pro forma net income and earnings per share amounts have been computed as if
the Company were subject to federal and all applicable state corporate income
taxes for each period presented.
F-8
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
Basic earnings per share computations are based on the weighted-average
common stock outstanding. Diluted earnings per share include the dilutive
effect of stock options using the treasury stock method (using the initial
offering price of $13.50 per share for periods prior to the Company's initial
public offering). For the year ended December 31, 1997 no stock options were
excluded from the computation of diluted earnings per share because all stock
options were dilutive. For the years ended December 31, 1998 and 1999, 70,937
and 250,061 stock options, respectively, were excluded from the computations of
diluted earnings per share because the impact of their inclusion would be anti-
dilutive. For the six months ended June 30, 1999 and 2000, 189,156 and 217,208
stock options, respectively, were excluded from the computations of diluted
earnings per share because the impact of their inclusion would be anti-
dilutive. Common stock outstanding used to compute the weighted-average shares
was retroactively adjusted for the exchange of shares resulting from the merger
of affiliated companies, for the conversion of nonvoting to voting stock, and
for the 1-for-2.5 reverse stock split as discussed in Note 6.
i. Stock Option Plan--The Company accounts for employee stock compensation
in accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under
APB No. 25, the total compensation expense is equal to the difference between
the award's exercise price and the intrinsic value at the measurement date,
which is the first date that both the exercise price and number of shares to be
issued is known.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires disclosures
of stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are, however, permitted to continue to
apply APB No. 25. The Company applies APB No. 25 to its stock-based
compensation awards to employees and discloses the required information by SFAS
No. 123 (Note 11).
j. Deferred Revenue--Deferred revenue consists of collection fees billed in
advance. Revenue is recognized as services are provided.
k. Income Taxes--From 1986 until May 8, 1997, the Company was subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, during that time the net income of the Company, for
federal and certain state income tax purposes, was reported by and taxable
directly to the Company's shareholders, rather than to the Company.
The Company's S Corporation status was terminated on May 8, 1997 and,
accordingly, the Company became fully subject to federal and state income taxes
on that date. In accordance with the provisions of SFAS No. 109, ACCOUNTING FOR
INCOME TAXES, the financial statements give effect to the recognition of
deferred tax assets of $800,000 and the assumption of a deferred tax liability
of $5,100,000 as a result of the Company's S Corporation election on May 9,
1997. Deferred income taxes (benefits) are provided on temporary differences
between financial statement carrying values and the tax basis of assets and
liabilities.
l. New Accounting Standards--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
F-9
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
forecasted transaction, or (c) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is required to be adopted in fiscal 2001.
The Company has not determined if the adoption of SFAS No. 133 will have a
material impact on its consolidated financial statements.
m. Use of Estimates--In preparing financial statements that conform with
generally accepted accounting principles, management must use estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and amounts of revenue and expenses reflected during the reporting
period. Actual results could differ from those estimates.
n. Reclassifications--Certain 1997 and 1998 financial statement amounts have
been reclassified to conform with the 1999 presentation.
2. Acquisitions
On March 31, 1998, the Company exchanged 320,555 shares of its common stock
for all of the issued and outstanding shares of common stock of ECO Services,
Inc. ("ECO") and Air Cargo Services, Inc. ("ACS"). Certain of the Company's
executive officers, who are also Company shareholders, owned substantially all
of the common stock of ECO and ACS. Accordingly, all assets and liabilities
transferred have been accounted for at historical cost in a manner similar to
that of pooling-of-interests accounting pursuant to the provisions of AIN #39
of APB No. 16. The Company's financial statements were previously restated to
include the accounts and operations for all periods presented.
Pooling-of-Interests Transactions--During 1998, the Company completed the
following pooling-of-interests transactions:
. On June 16, 1998, the Company exchanged 21,344 shares of its common
stock with a fair value of approximately $449,000 for all the issued and
outstanding share of common stock of Dumpsters, Inc. ("Dumpsters"),
based in Memphis, Tennessee and engaged in the industrial solid waste
collection in Shelby County, Tennessee.
. On June 30, 1998, the Company exchanged 330,000 shares of its common
stock with a fair value of approximately $7.4 million for all of the
issued and outstanding shares of common stock of Reliable Trash Service,
Inc. ("RTS"), a Maryland corporation based in Columbia, Maryland and
engaged in the solid waste collection business in Tidewater Virginia.
. On August 28, 1998, the Company acquired, in exchange for 388,311 shares
of Company common stock valued at approximately $8.5 million, all of the
outstanding stock of Railroad Avenue Disposal, Inc. ("RAD"), a
Mississippi corporation that owns and operates a Class I rubbish pit in
northwest Mississippi.
The merger costs related to these pooling-of-interests transactions totaled
approximately $818,000 at December 31, 1998 and consisted primarily of
professional fees. All of these amounts had been expended at December 31, 1998.
F-10
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
2. Acquisitions--(Continued)
Purchase Transactions--During 1997, 1998, 1999, and the nine months ended
September 30, 2000 the Company acquired 7, 8, 15, and 5 waste collection and
disposal services businesses, respectively, to expand its operations. The
assets acquired and liabilities assumed were accounted for by the purchase
method of accounting and include the following (in thousands):
<TABLE>
<CAPTION>
September 30,
2000
1997 1998 1999 (unaudited)
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Tangible Net Assets Acquired:
Accounts receivable................. $ 1,902 $ 3,363 $ 2,713 $ 2,178
Inventories......................... 38 -- -- --
Prepaid expenses and other current
assets............................. 12 25 42 --
Property and equipment.............. 8,933 8,763 22,251 7,318
Landfill assets..................... -- -- 12,449 33,384
Accounts payable and accrued
expenses........................... (42) (1,040) (4,557) (4,048)
Deferred revenue.................... (511) (597) (574) --
Notes payable....................... (848) (3,290) (3,181) --
Capital lease obligations........... -- -- (4,506) --
------- ------- ------- -------
Total net tangible assets
acquired......................... 9,484 7,224 24,637 28,423
Intangible Assets:
Noncompete agreements............... 159 504 101 7
Customer lists, contracts and
goodwill........................... 27,070 33,948 14,648 5,125
------- ------- ------- -------
Total acquisition costs............... $36,713 $41,676 $39,386 $43,964
======= ======= ======= =======
</TABLE>
Purchase price allocations for two acquisitions (Southern Waste Services,
Inc.--$3.3 million total consideration paid; Southern Waste of Alabama, Inc.--
$0.6 million total consideration paid) were not finalized at December 31, 1999,
pending completion of asset appraisals. These purchase price allocations were
finalized during the nine months ended September 30, 2000. Adjustments to the
preliminary purchase prices were insignificant to the Company's financial
condition and results of operations. Net acquisition costs in 1997 include the
issuance of 63,634 shares of the Company's common stock with a fair value of
$1,275,000 as partial consideration for certain business acquisitions. Net
acquisition costs in 1998 include the issuance of 729,204 shares of the
Company's common stock with a fair value of $14.0 million as partial
consideration for certain business acquisitions. Net acquisition costs in 1999
include the issuance of 281,250 shares of the Company's common stock with a
fair value of $4.5 million as partial consideration for certain business
acquisitions. The Company primarily used borrowings under its revolving credit
facilities to fund the various purchase acquisitions.
Related to the above acquisitions, the Company entered into noncompete
agreements with the former owners of these businesses. These amounts are being
amortized on a straight-line basis over the terms of the agreements (generally
5 years).
2000 Acquisitions (Unaudited)
Subsequent to December 31, 1999, the Company had the following acquisitions
on March 1, 2000, we acquired Trashbusters, LLC for approximately $900,000 in
cash. This tuck-in acquisition further expands our existing operations in our
Easley, South Carolina facility, which serves the Greenville/Spartanburg area.
On March 23, 2000, we acquired a construction and demolition landfill in the
Greenville/Spartanburg, South Carolina area from South Eastern Associates, Inc.
known as Loveless & Loveless, for $2.3 million in cash. This acquisition
provides us with our seventh landfill.
On March 23, 2000, we acquired substantially all of the assets of J&B
Partnership, LLC for $500,000 in cash. This tuck-in to our Easley, South
Carolina facility provides transfer operations for the Greenville/Spartanburg
area.
F-11
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
2. Acquisitions--(Continued)
On May 30, 2000, through an asset swap, we acquired the Sampson County
Landfill, a municipal solid waste landfill in Roseboro, North Carolina, and a
collection operation as a tuck-in to our existing Fayetteville, North Carolina
operation, from Allied Waste Industries for $27.4 million in cash.
Simultaneously, we sold our collection operations in Ooltewah, Tennessee and
Dalton, Georgia to Allied Waste Industries for $9.9 million in cash. This
acquisition provides us with our eighth landfill.
On June 23, 2000, the Company acquired a construction and demolition
landfill in Atlanta, Georgia from Safeguard Landfll Management, Inc. for $7.3
million in cash. This acquisition provides the Company with its ninth landfill.
On July 21, 2000, the Company acquired a transfer station in Wilson County,
North Carolina from a subsidiary of Allied Waste Industries, Inc. for
approximately $2.2 million in cash.
On September 1, 2000, the Company acquired Shamrock Environmental, Inc., of
Oglethorpe, GA for $1.7 million in cash. This acquisition provides industrial
and commercial collection services and transportation services to the Southwest
Georgia Region.
These acquisitions were funded primarily with proceeds from the Company's
long-term revolving credit facilities.
The following unaudited pro forma results of operations assume the
transactions described above occurred as of January 1, 1998, 1999 and 2000
after giving effect to certain adjustments, including the amortization of the
excess of cost over the underlying assets and as if the Company were subject to
federal and all applicable state corporate income taxes for the period assuming
the tax rate that would have applied had the Company been taxed as a C
Corporation (in thousands):
<TABLE>
<CAPTION>
September 30,
1999 2000
1998 1999 (unaudited)
-------- -------- -----------------
<S> <C> <C> <C> <C>
Total revenues............................. $199,010 $225,527 $172,372 $190,240
Operating income........................... 24,979 28,243 24,084 21,322
Net income................................. 11,905 12,914 10,450 6,693
Earnings per common share:
Basic...................................... $ 0.89 $ 0.93 $ 0.76 $ 0.49
Diluted.................................... $ 0.86 $ 0.91 $ 0.74 $ 0.48
</TABLE>
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transactions taken place
at the beginning of the periods presented or of future operating results.
Other -- The Company incurred nonrecurring start-up costs related to a new
service contract of approximately $108,000 and $105,000 at December 31, 1998
and 1999, respectively. These costs related to the deployment of service
equipment and personnel. All of these amounts had been expended at December 31,
1998 and 1999.
F-12
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
3. Property and Equipment
Property and equipment consist of the following at December 31, 1998 and
1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land, land improvements and buildings.................. $ 15,575 $ 22,426
Landfills and associated land.......................... 1,753 15,789
Machinery and equipment................................ 137,106 180,126
Furniture, fixtures and vehicles....................... 3,046 4,210
In-process equipment................................... 1,326 1,210
-------- --------
Total property and equipment....................... 158,806 223,761
Less accumulated depreciation.......................... 70,005 85,238
-------- --------
Property and equipment, net............................ $ 88,801 $138,523
======== ========
</TABLE>
In-process equipment includes equipment not placed in service at year end.
Landfill costs include land held for development, representing various
landfill properties with an aggregate cost of approximately $1,340,000 and $-0-
at December 31, 1998 and 1999, respectively, which is not being amortized.
4. Long-term Debt
Long-term debt consist of the following at December 31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Bank Credit Facilities:
BB&T................................................... $36,000 $ --
Prudential............................................. 50,000 75,000
BankBoston............................................. -- 65,000
Other installment notes payable, interest ranging from 1%
to 7%................................................... 1,956 2,910
Present value of noncompete agreement liabilities with
the former shareholders of related businesses acquired,
due in various monthly installments through 2002........ 386 279
------- --------
Total notes payable...................................... 88,342 143,189
Less current portion..................................... 1,877 5,826
------- --------
Long-term portion........................................ $86,465 $137,363
======= ========
</TABLE>
On November 9, 1999, the Company entered into a revolving credit agreement
with a syndicate of lending institutions for which Fleet National Bank,
formerly known as Bank Boston, N.A. ("Fleet") acts as agent. This new credit
facility provides up to $200 million through November 2004. The Company has
drawn approximately $55 million on the new facility to terminate and pay off
its Branch Banking & Trust ("BB&T") facility. Virtually all of the assets of
the Company and its subsidiaries, including the Company's interest in the
equity securities of its subsidiaries, secure the Company's obligations under
the Fleet credit facility. Pursuant to an intercreditor agreement with Fleet,
Prudenital Insurance Company of America ("Prudential") shares in the collateral
pledged under the Fleet credit facility. In addition, the Company's
subsidiaries have guarantied the
F-13
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
4. Long-term Debt--(Continued)
Company's obligations under the Prudential term loan facilities. The Fleet
credit facility bears interest at a rate per annum equal to, at the Company's
option, either a Fleet base rate or at the Eurodollar rate (based on Eurodollar
interbank market rates) plus, in each case, a percentage rate that fluctuates,
based on the ratio of our funded debt to EBITDA, from 0% to 0.5% for base rate
borrowings and 1.5% to 2.5% for Eurodollar rate borrowings. The Fleet facility
requires the Company to maintain certain financial ratios and satisfy other
predetermined requirements, such as minimum net worth, net income, and limits
on capital expenditures and indebtedness. It also requires the lenders'
approval of acquisitions in some circumstances. As of December 31, 1999, an
aggregate of approximately $65.0 million was outstanding under the Fleet credit
facility, and the average interest rate on outstanding borrowings was
approximately 8%.
As of December 31, 1999, the Company had fully drawn three of the Prudential
$25 million term facilities, leaving the Company with an uncommitted shelf
facility of $25 million. The Prudential credit facilities require the Company
to maintain certain financial ratios, such as debt to earnings and fixed
charges to earnings, and satisfy other predetermined requirements, such as
minimum net worth, net income and deposit balances. Interest on the three
Prudential term facilities is paid quarterly, based on a fixed rate of 7.28%,
6.96% and 6.84%, respectively. Of the Company's committed Prudential
facilities, $25 million mature in April 2006, $25 million mature in June 2008,
and $25 million mature in February 2009, subject to renewal.
At September 30, 2000, the Company did not meet the minimum tangible net
worth covenant under its Prudential and Fleet facilities.
On November 22, 2000, the Prudential and Fleet facilities were amended,
effective with the fiscal quarter ended September 30, 2000, to lower the
minimum tangible net worth covenant to $62,250,000 plus the sum of 50% of
positive consolidated net income for each fiscal quarter beginning with the
fiscal quarter ending December 31, 2000. This amendment cured the violation
that existed on September 30, 2000. Under the agreement, there is no
compensating balance requirement and no dividend payments are permitted. At
December 31, 1998 the Company had a compensating balance arrangement with BB&T
for $379,000.
Annual aggregate principal maturities at December 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
2000............................................................. $ 5,826
2001............................................................. 3,947
2002............................................................. 7,460
2003............................................................. 10,772
2004............................................................. 40,184
Thereafter....................................................... 75,000
--------
Total............................................................ $143,189
========
</TABLE>
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is $99.5 million and $143.1 million at December 31, 1998 and 1999,
respectively.
F-14
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
5. Leases
The Company leases certain property and equipment under both capital and
operating leases. Gross property and equipment recorded under capital leases
and the related accumulated amortization were approximately $4,506,000 and
($744,000), respectively, at December 31, 1999. The Company had not entered
into capital leases prior to 1999.
Future minimum lease payments as of December 31, 1999 for capital and
operating leases that have initial or remaining terms in excess of one year are
as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000................................................. $ 1,184 $ 1,917
2001................................................. 1,119 1,386
2002................................................. 853 1,152
2003................................................. 461 1,044
2004................................................. 165 971
Thereafter........................................... -- 6,275
------- -------
Total minimum lease payments......................... 3,782 $12,745
======= =======
Less amount representing interest (ranging from 5.25%
to 6.96%)........................................... (403)
-------
3,379
Less current portion................................. (1,042)
-------
Long term lease obligation........................... $ 2,337
=======
</TABLE>
The total rental expense for all operating leases for the years ended
December 31, 1997, 1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Buildings and sites........................................ $ 887 $1,216 $1,474
Trucks and equipment....................................... 1,898 2,209 1,310
------ ------ ------
Total...................................................... $2,785 $3,425 $2,784
====== ====== ======
</TABLE>
Direct rental expense is included in cost of operations in the statements of
operations and indirect rental expense is included in selling, general and
administrative in the statements of operations.
F-15
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
6. Shareholders' Equity
Shareholders' equity consisted of the following for the years ended December
31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
Note
Shares Shareholders' Receivable
---------------------- Common Paid-In Loans And Retained Liberty
Authorized Outstanding Stock Capital Receivables Earnings Waste
---------- ----------- ------- ------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... 80,000 10,660 $ 2,687 $ -- $(285) $12,702 $ --
Net income.............. -- -- -- -- -- 3,936 --
Issuances of stock,
net.................... -- 1,992 24,433 -- -- -- --
Reclassification of
undistributed
S Corporation
earnings............... -- -- -- 8,500 -- (8,500)
Capital contribution.... -- -- -- 20 -- -- --
Subchapter S
distributions.......... -- -- -- -- -- (2,304) --
Increase in
shareholders' loans and
receivables............ -- -- -- -- (22) -- --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1997................... 80,000 12,652 27,120 8,520 (307) 5,834
Net income.............. -- -- -- -- -- 10,278 --
Issuances of stock,
net.................... 729 14,026
Subchapter S
distributions.......... -- -- -- -- -- (790) --
Reclassification of S-
Corporation deficit.... -- -- (1,275) -- 1,275
Increase in
shareholders' loans and
receivables............ -- -- -- (20)
Other................... -- -- 2 -- -- (1) --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1998................... 80,000 13,381 41,148 7,245 (327) 16,596
Net income.............. -- -- -- -- -- 12,024 --
Issuances of stock,
net.................... 464 7,699
Exercise of stock
options................ -- 9 34 -- -- --
Issue of Liberty Waste
receivable ............ (11,538)
Fair value adjustment
related to stock issued
in business purchase
transaction............ (2,181)
Increase in
shareholders' loans and
receivables............ -- -- -- -- (559) -- --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1999................... 80,000 13,854 $46,700 $7,245 $(886) $28,620 $(11,538)
====== ====== ======= ====== ===== ======= ========
</TABLE>
F-16
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
6. Shareholders' Equity--(Continued)
In April 1997, the Company's Board of Directors authorized a 1-for-2.5
reverse stock split and the conversion of all nonvoting common shares to voting
common shares. The Board of Directors also approved an increase in the
authorized capital of common stock from 4,020,395 shares to 80,000,000 shares
and canceled the nonvoting common shares outstanding. The common stock
previously had a par value of $.0380286 per share and was converted to no par
common stock. All share and per share information in the consolidated financial
statements has been adjusted to give retroactive effect to the reverse stock
split and conversion of nonvoting stock.
In April 1997, the Company's Board of Directors also authorized 10,000,000
shares of $0.01 par value preferred stock. Such shares have not been issued.
The Board of Directors can establish the series, the designation and number of
shares to be issued and the rights, preferences, privileges and restrictions of
the shares of each series, and to determine the voting powers, if any, of such
shares.
In June 1997, the Company completed an initial public offering in which it
issued 1,605,200 shares of common stock at a price of $13.50 per share
resulting in net proceeds after deduction of underwriting discounts and
commissions and other offering expenses to the Company of approximately $19.1
million. The proceeds from the offering were used to repay revolving bank debt.
In July 1997, the Company's underwriters exercised their option to purchase
an additional 322,500 shares. The net proceeds after deduction of underwriting
discounts and commissions and other offering expenses to the Company were
approximately $4.0 million. The Company used the proceeds to repay revolving
bank debt.
During 1997, the Company issued 63,634 shares of common stock with a fair
value of $1,275,000 as partial consideration for certain business acquisitions.
Also during 1997, the Company reclassified undistributed S Corporation
earnings to additional capital as a result of the Company terminating its S
Corporation election on May 9, 1997.
On March 31, 1998, the Company exchanged 320,555 shares of its common stock
(with a fair value of $6,125,000) for all of the issued and outstanding shares
of common stock of ECO and ACS.
On June 16, 1998, the Company exchanged 21,344 shares of its common stock
(with a fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters. On June 30, 1998, the Company exchanged 330,000
shares of its common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of RTS. On August 28, 1998, the
Company exchanged 388,311 shares of its common stock (with a fair value of $8.5
million) for all of the issued and outstanding shares of common stock of RAD.
These business combinations have been accounted for as poolings-of-interests.
See Note 2.
On August 28, 1998, the Company issued 22,474 shares of Company common stock
with a fair value of approximately $500,000 as partial consideration for the
stock of Greater Atlanta Sanitation, Inc. On September 10, 1998, the Company
issued 706,730 shares of Company common stock with a fair value of
approximately $13.5 million as partial consideration for the stock of
TransWaste Services, Inc. In 1999 and upon completion of a valuation of the
restricted stock issued in this transaction, the Company decreased common stock
and goodwill by an adjustment of $2.2 million.
F-17
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
6. Shareholders' Equity--(continued)
Certain companies acquired in 1998 accounted for as pooling-of-interests
transactions were previously taxed as S Corporations. The S Corporation
elections were effectively terminated on their respective acquisition dates.
Consequently, the Company reclassified a net S Corporation deficit to
additional capital as a result of the termination of the S Corporation
elections.
During 1999, the Company loaned Liberty Waste Services, LLC ("Liberty")
$11,538,000 under a senior subordinated note purchase agreement due December
31, 2001. Interest is payable annually at the rate of 11% per annum. The
Company also received an option to purchase ("Option") any subsidiary of
Liberty that operates a landfill or a waste disposal business within a 75 miles
radius of a landfill owned by one of the Liberty subsidiaries or any other
waste disposal business wherever located if the Company's funds loaned under
the note purchase agreement are used, directly or indirectly, to purchase,
develop or operate such business (a "Business Unit"). The Option will be
exercisable for an eighteen month period beginning July 1, 2000. The exercise
price for each Business Unit will equal seventy-five (75%) percent of the
Company's market capitalization multiple times the Business Unit's annualized
EBITDA, less the Business Unit's funded debt assumed by the Company, as defined
in the note purchase agreement.
Assuming Liberty's existing senior indebtedness is paid in full, principal
in the amount of $2,884,500 is payable upon each closing, if any, of the
acquisition or merger by the Company of a Business Unit from Liberty, or the
sale by Liberty to a third party if the Company elects not to exercise its
option with respect to a certain Business Unit, for a purchase price in excess
of $5.0 million. Any unpaid principal balance and accrued but unpaid interest
will be due and payable in full on December 31, 2001.
During 1999, the Company sold 183,000 shares of the Company's common stock
with a fair value of approximately $3.3 million to Liberty.
The classification of the note purchase agreement from Liberty is based on
SEC Staff Accounting Bulletin Topic 4E, Receivables from Sale of Stock, EITF
Issue No. 85-1, Classifying Notes Received for Capital Stock, and Footnote 2 to
APB Opinion 25, Accounting for Stock Issued to Employees. These pronouncements
address the presentation of shareholder receivables arising from capital stock
transactions and situations involving stock issued for nonrecourse receivables.
Based on (i) Liberty's equity ownership in the Company and (ii) the nature and
terms of the note purchase agreement, the Company believes these pronouncements
are applicable in evaluating the substance and, consequently, appropriate
classification, of the note from Liberty. Accordingly, the Company has
classified the note purchase agreement as a deduction in shareholders' equity.
Management believes the note purchase agreement is fully recoverable at each
balance sheet date presented. If, in the event it is subsequently determined
the note (or any portion thereof) has become impaired, the Company will record
a charge in its consolidated statement of operations in the period such
impairment occurs.
If, for any reason, the Company exercises its Option to acquire a Business
Unit and the total consideration paid, including forgiveness of any amounts due
under the note purchase agreement, exceeds the predetermined exercise price,
the Company will record such excess as a charge in its consolidated statement
of operations in the period such an event occurs.
During 1999, the Company issued 281,250 shares of Company common stock with
a fair value of approximately $4.5 million as partial consideration for certain
business acquisitions.
F-18
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
During the nine months ended September 30, 2000, the Company issued 2,824
shares of Company common stock with a fair value of approximately $39,000 was
recorded as director's fees.
During the nine months ended September 30, 2000, 264,309 stock options were
exercised. The net proceeds approximated $1.3 million.
On September 18, 2000, the Company completed its stock repurchase program
with the purchase of 1,000,000 shares of its common stock at a cost of $11.0
million. Cash for the stock repurchase program was funded by the Company's
existing revolving credit facilities.
7. Related Party Transactions
Shareholder loans, included in shareholders' equity of the accompanying
consolidated balance sheets, are notes receivable (including unpaid interest
thereon) from shareholders of $261,603, $134,939 and $694,226 at December 31,
1997 and 1998 and 1999, respectively. The notes bear interest at an annual rate
of 7% and are payable on demand. Shareholders' receivables, included in the
shareholders' equity of the accompanying consolidated balance sheets, are from
a related company owned by certain shareholders and officers of the Company.
These receivables of $44,860, $191,712 and $191,709 at December 31, 1997, 1998
and 1999, respectively, are interest-free and are payable on demand.
The Company has other related party transactions pertaining to the leasing
of office space and equipment from officers of the Company and from other
partnerships and corporations controlled by these officers, the sale and
leasing of equipment and vehicles to affiliated companies, and the providing of
management and accounting services and technical advice to other companies
affiliated by common shareholder interests (other affiliated companies). All of
the transactions are on terms comparable to those with third parties, and are
immaterial individually and in the aggregate.
8. Benefit Plans
401(K) Profit Sharing And Retirement Plan--The Company has a 401(k) Savings
and Retirement Plan and Trust ("401(k)" or the "Plan") for the benefit of its
full time employees who have more than one year of service and are over 21
years of age. The plan also benefits employees of certain related parties
through separate funding arrangements. Employees make contributions to this
retirement plan under a 401(k) pre-tax contribution plan and by the Company
through 401(k) matching contributions and discretionary profit sharing
contributions. The discretionary profit sharing contribution is made annually
as determined by management based on the Company's financial performance.
Effective October 1, 1997, the Company amended the Plan to discontinue the
profit sharing contribution and increase the employer's matching contribution
percentage. The Company's matching contributions to the 401(k) plan were
$256,772, $509,967 and $667,799 for the years ended December 31, 1997, 1998 and
1999, respectively. The Company's profit sharing contribution was $284,994 for
the year ended December 31, 1997. Contributions by the Company are included in
operating costs and expenses in the accompanying statements of operations.
Self-insured Medical Plan--The Company has a self-insured plan for employee
medical benefits. The plan covers all full-time employees of the Company
beginning on the 91st day of employment. The Company pays premiums for its
employees and dependents and withholds from employees additional amounts for
the premium balance. As claims are processed by the plan's third-party
administrator, the insurance carrier requests funds from the Company. The
Company maintains stop loss coverage for the plan. The Company's expense
relating to the plan for 1997, 1998 and 1999 was $149,226, $246,163 and
$239,580, respectively.
F-19
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
9. Contingencies
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of management,
all such matters have been adequately provided for, are adequately covered by
insurance, or are of such kind that if disposed of unfavorably, would not have
a material adverse effect on the Company's financial position or results of
operations.
Landfill closure and post-closure costs include estimated costs to be
incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. The Company
estimates these future cost requirements based on its interpretation of the
technical standards of the Environmental Protection Agency's Subtitle D
regulations.
While the precise amounts of these future obligations cannot be determined,
at December 31, 1999, the Company estimates the total costs to be approximately
$16.3 million to $16.5 million for remediation, final closure of its operating
facilities and post-closure monitoring costs. The Company's estimate of these
costs is expressed in current dollars and is not discounted to reflect
anticipated timing of future expenditures. The Company had accrued
approximately $262,000 and $1,590,000 for such projected costs at December 31,
1998 and 1999, respectively. The Company provides accruals for these future
costs (generally for a term of 30 years after final closure of any landfill),
and will provide additional accruals for these and other landfills the Company
may acquire or develop in the future, based on engineering estimates of
consumption of airspace over the useful lives of such facilities. There can be
no assurance that the Company's ultimate financial obligations for actual
closure or post-closure costs will not exceed the amount accrued and reserved
or amounts otherwise receivable pursuant to insurance policies or trust funds.
Such a circumstance could have a material adverse effect on the Company's
financial condition and results of operation.
Due to the inherent uncertainties related to the total costs for
remediation, final closure of its operating facilities and post-closure
monitoring costs, the Company cannot reasonably estimate any additional
financial obligation, if any, at December 31, 1998, 1999 and September 30,
2000.
In September 1999, the Company filed a lawsuit against one of its municipal
customers concerning payment of a promissory note and accounts receivable for
services the Company rendered to the customer. The customer has denied
liability for the indebtedness and has asserted counterclaims against the
Company. The Company strongly believes the counterclaims are groundless, and
that the receivables from the customer are valid. The Company does not believe
the outcome of this matter will have a material adverse impact on the Company's
financial position or results of operations.
10. Letters of Credit
At December 31, 1998 and 1999, the Company has entered into irrevocable
letters of credit totaling approximately $540,500 and $1,444,000, respectively.
According to the terms of the $200 million Fleet facility, the availability of
funds on that facility are reduced by the lesser of outstanding letters of
credit or $15 million. (Note 4).
F-20
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
11. Stock Option Plan
The Company's 1997 Stock Plan (the "Stock Plan") was adopted by the
Company's Board of Directors in April 1997 and approved by the Company's
shareholders prior to completion of the Company's public offering. A total of
1,800,000 shares of common stock have been reserved for issuance under the
Stock Plan. At the same time that the Stock Plan was adopted, the Board
terminated the Company's Employee Non-Qualified Stock Option Plan (the "Option
Plan"; together with the Stock Plan the "Plans") as to future grants. The Stock
Plan provides for grants of "incentive stock options,"within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors), and each of the Plans
provides for grants of nonstatutory options to employees and consultants. The
Stock Plan also allows for the grant of purchase rights. The Plans are
administered by the Compensation Committee of the Board of Directors. The Stock
Plan will terminate in April 2007, unless sooner terminated by the Board of
Directors. Options, under the Plans, have been retroactively adjusted for the
exchange of shares resulting from the merger of affiliated companies on April
1, 1996, for the stock dividend of nine nonvoting shares for each voting share
in 1995, and for the 1-for-2.5 reverse stock split and the conversion of all
nonvoting shares to common shares, each effected prior to consummation of the
Company's public offering. A summary of the status of the Plans as of December
31, 1997, 1998 and 1999 and changes during the years ending on those dates is
as follows:
OPTION PLAN
<TABLE>
<CAPTION>
Weighted-
Average Shares
---------------
Share Price
------- ------
<S> <C> <C>
Balance, December 31, 1996 and 1997...................... 6,000 $ 5.10
Granted.................................................. 138,697 14.37
Forfeitures.............................................. (4,948) 19.69
------- ------
Balance, December 31, 1998............................... 659,749 8.49
Granted.................................................. 127,387 18.05
Forfeitures.............................................. (13,311) 14.07
Exercised................................................ (9,200) 3.66
------- ------
Balance, December 31, 1999............................... 764,625 $ 9.55
======= ======
</TABLE>
The following table summarizes information about the Company's Plans at
December 31, 1999:
<TABLE>
<CAPTION>
Exercisable
--------------------
Weighted Weighted Weighted
Range of Number of Average Average Average
Exercise Shares Remaining Exercise Number Exercise
Prices Outstanding Life Price of Prices
-------- ----------- --------- -------- Shares --------
<S> <C> <C> <C> <C> <C>
$5.13 514,564 1.25 $ 5.13 396,800 $ 5.13
$15.25-$16.78 67,887 9.3 $15.80 -- --
$17.88 50,000 4.5 $17.88 50,000 $17.88
$19.69-$20.81 132,174 8.3 $20.11 -- --
</TABLE>
F-21
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
11. Stock Option Plan--(Continued)
The Company applies ABP No. 25 and related Interpretations in accounting for
the Plans. Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plan been determined based on the fair value at
the grant dates for awards under the Plans consistent with the method of SFAS
No. 123, the Company's net income, pro forma net income and pro forma earnings
per share for the years ended December 31, 1998 and 1999 would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Net Income:
As reported.............................................. $10,278 $12,024
Pro forma--for SFAS No. 123.............................. 10,043 11,182
Pro Forma Net Income:
As reported.............................................. 10,081
Pro forma--for SFAS No. 123.............................. 9,846
Historical Earnings Per Share:
Basic:
As Reported.............................................. 0.80 0.88
Pro forma--for SFAS no. 123.............................. 0.78 0.82
Diluted:
As Reported.............................................. 0.77 0.86
Pro forma--for SFAS no. 123.............................. 0.76 0.80
Pro Forma Earnings Per Share:
Basic:
As reported.............................................. $ 0.78 $ 0.88
Pro forma--for SFAS No. 123.............................. $ 0.76 $ 0.82
Diluted:
As reported.............................................. $ 0.76 $ 0.86
Pro forma--for SFAS No. 123.............................. $ 0.74 $ 0.80
</TABLE>
No stock options were granted in 1997 and previously issued grants had fully
vested; accordingly, pro forma amount have not been presented for 1997. As
permitted under SFAS No. 123, the fair value of options granted under the
Company's plan during 1998 and 1999 was estimated on the Black-Scholes option-
pricing model using the following assumptions:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Weighted-average grant-
date fair value of
options granted........ $16.33 $12.64
Weighted-average
expected lives
(years)................ 3.24 7.28
Risk-free interest
rate................... 5.50% 5.24%
Volatility.............. 39.00% 51.00%
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost might not be representative of that expected in future years.
F-22
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
12. Income Taxes
From 1986 until May 8, 1997, the Company was subject to taxation under
Subchapter S of the Code. The Company's S Corporation status was terminated on
May 8, 1997 and, accordingly, the Company became fully subject to federal and
state income taxes on May 9, 1997. In accordance with SFAS No. 109, the
financial statements give effect to the recognition of deferred tax assets of
$800,000 and the assumption of a deferred tax liability of $5.1 million as a
result of the termination of the Company's S Corporation election on May 8,
1997.
The balance of deferred income tax assets and liabilities at December 31,
1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Current deferred income tax assets (liabilities) relate
to:
Allowance for bad debts.............................. $ 281 $ 570
Accrued vacation..................................... 240 191
Accruals to related parties.......................... 14 --
Accrued health benefits.............................. (87) 140
Other accruals not currently deductible.............. 46 9
------ -------
Net current deferred tax assets........................ $ 494 $ 910
====== =======
Noncurrent deferred income tax liabilities relate to:
Basis and depreciation differences................... $7,728 $10,049
Other................................................ 110 56
------ -------
Net noncurrent deferred tax liabilities................ $7,838 $10,105
====== =======
</TABLE>
The components of income tax expense for May 9, 1997 to December 31, 1997
and for the years ended December 31, 1998 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current income taxes:
Federal............................................. $1,628 $2,807 $4,716
State............................................... 262 559 933
------ ------ ------
Total current income taxes.......................... 1,890 3,366 5,649
Deferred income taxes............................... 821 2,240 1,451
------ ------ ------
Total............................................... $2,711 $5,606 $7,100
====== ====== ======
</TABLE>
The following is a reconciliation of income taxes at the Federal statutory
rate (34%) to actual taxes provided for each of the three years in the period
ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Federal tax at the statutory rate.................... $3,722 $5,401 $6,502
State income taxes, net of federal tax benefit....... 311 528 791
Goodwill amortization................................ 6 -- --
Other................................................ 87 (116) (193)
------ ------ ------
4,126 5,813 7,100
Less federal taxes at the statutory rates for the
period from January 1 to May 8, 1997 and for the
periods companies acquired in poolings-of-interests
were taxed as S Corporations........................ 1,415 207 --
------ ------ ------
Total................................................ $2,711 $5,606 $7,100
====== ====== ======
</TABLE>
F-23
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to September 30, 1999 and 2000 Information)
13. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Total revenues........................... 1998 $39,340 $41,527 $44,804 $45,588
1999 47,537 52,855 56,471 57,856
2000 57,283 62,247 62,766
Gross profit............................. 1998 14,687 15,390 16,281 18,000
1999 18,200 19,663 20,809 21,303
2000 21,552 23,809 23,355
Net income............................... 1998 2,379 2,649 2,875 2,375
1999 2,852 3,065 2,954 3,153
2000 2,350 1,914 1,730
Pro forma net income (1)................. 1998 $ 2,353 $ 2,559 $ 2,815 $ 2,354
Historical Earnings Per Share:
Basic.................................... 1998 $0.19 $0.21 $0.22 $0.18
1999 0.21 0.22 0.21 0.23
2000 0.17 0.14 0.13
Diluted.................................. 1998 0.18 0.20 0.22 0.17
1999 0.21 0.22 0.21 0.22
2000 0.16 0.14 0.13
Pro forma Earnings per share(1):
Basic.................................... 1998 $ 0.19 $ 0.20 $ 0.22 $ 0.18
Diluted.................................. 1998 0.18 0.20 0.21 0.17
Weighted average number of shares
outstanding:
Basic.................................... 1998 12,652 12,652 12,817 13,381
1999 13,502 13,761 13,854 13,854
2000 13,854 13,850 13,633
Diluted.................................. 1998 13,038 13,048 13,218 13,766
1999 13,860 14,124 14,203 14,157
2000 14,132 14,098 13,815
</TABLE>
(1) See Note 1.H.
* * * * * * * * * *
F-24
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
OF
WASTE INDUSTRIES, INC.
WITH AND INTO
WASTE INDUSTRIES MERGECO, LLC
The following Amended and Restated Agreement and Plan of Merger and
Reorganization provides for the merger (the "Merger") of Waste Industries,
Inc., a North Carolina corporation, with and into Waste Industries MergeCo,
LLC, a North Carolina limited liability company.
ARTICLE I
The limited liability company existence of Waste Industries MergeCo, LLC,
with all its purposes, powers and objects, shall continue unaffected and
unimpaired by the Merger, and the identity and existence of Waste Industries,
Inc., which is sometimes referred to herein as the "Corporation", shall be
merged with and into Waste Industries MergeCo, LLC, which shall be the
surviving entity and which is sometimes referred to herein as the "LLC".
ARTICLE II
The name of the merging business entity that shall survive the Merger is
"Waste Industries MergeCo, LLC", subject to the amendment of such name as set
forth in Article V below.
ARTICLE III
The terms and conditions of the Merger shall be as follows:
1. The Articles of Organization of the surviving entity shall be the
Articles of Organization of the LLC as such Articles of Organization are in
effect at the effective time of the Merger until the same shall be
thereafter amended in accordance with law and said Articles.
2. The Operating Agreement of the surviving entity shall be the
Operating Agreement of the LLC, as in effect as of the effective time of
the Merger, until the same shall be further amended in accordance with law,
the Articles of Organization of the LLC and said Operating Agreement.
3. The officers of the surviving entity shall be the officers of the
Corporation immediately prior to the effective time of the Merger, each to
serve until his or her successor shall have been duly elected and qualified
or until his or her earlier death, resignation or removal. The manager and
directors of the surviving entity shall be as specified in the Operating
Agreement of the LLC as in effect as of the effective time of the Merger.
4. Except insofar as the same may be continued by law or in order to
carry out the purposes of this Agreement and Plan of Merger and
Reorganization, and except as continued in and merged into the LLC, the
separate existence of the Corporation shall cease as of the effective time
of the Merger, and the LLC shall have and possess all of the rights,
privileges, powers, immunities and franchises and all property of the
Corporation, and shall be responsible and liable for all of the debts,
duties, contracts, liabilities and obligations of the Corporation.
A-1
<PAGE>
ARTICLE IV
The manner and basis of converting the shares of the Corporation and
membership interests of the LLC participating in the Merger shall be as
follows:
1. Each share of common stock of the Corporation outstanding at the
effective time of the Merger shall be converted into one share of common
stock of Waste Holdings, Inc., a North Carolina corporation and the sole
member of the LLC ("Waste Holdings") without any action on the part of the
holder thereof at the effective time of the Merger. Promptly following the
effective time of the Merger, Waste Holdings will cause its exchange agent
to mail letters of transmittal to each holder of record of a certificate
that represented common stock of the Corporation immediately prior to the
effective time accompanied by instructions for use in effecting the
surrender of the certificates or instruments in exchange for common stock
of Waste Holdings. Similar documentation will be delivered by Waste
Holdings to each holder of options to purchase common stock of the
Corporation. After receipt of such transmittal form, each of such holders
may, at such holder's option, surrender their certificates or instruments,
together with a duly completed and executed transmittal form, to the
exchange agent, as indicated on the transmittal form, and each such holder
will receive in exchange therefor a certificate or instrument representing
an identical number of shares of common stock of Waste Holdings or the
right to purchase an identical number of shares of common stock of Waste
Holdings, as the case may be. It shall not be necessary for shareholders or
optionees of the Corporation to exchange their existing stock certificates
or instruments for certificates or instruments of Waste Holdings. Until so
surrendered and exchanged, each certificate or instrument evidencing common
stock of the Corporation or options to purchase common stock of the
Corporation will be deemed for all purposes to evidence the identical
number of shares of common stock of Waste Holdings or replacement options
to purchase common stock of Waste Holdings, as the case may be.
2. The membership interests in the LLC shall not be converted, exchanged
or altered in any manner as a result of the Merger, and will remain
outstanding membership interests of the LLC.
ARTICLE V
Pursuant to (S)57C-9A-21(a)(5) of the General Statutes of North Carolina,
effective upon the consummation of the Merger, the Articles of Organization of
Waste Industries MergeCo, LLC shall be amended by deleting the entire text of
Paragraph 1 thereof and substituting in its place the following new Paragraph
1:
"1. The name of the limited liability company is Waste Industries, LLC."
ARTICLE VI
The consummation of the Merger is contingent upon (1) receipt of all
required shareholder approvals and (2) an opinion that the Merger will be
treated as a tax-free reorganization under the Internal Revenue Code.
ARTICLE VII
If for any reason the consummation of the Merger is inadvisable in the
opinion of the Board of Directors of the Corporation or the sole member of the
LLC, this Agreement and Plan of Merger and Reorganization may be terminated at
any time before the effective time of the Merger by notice from one party to
the other. Upon termination by notice as provided in this Article, this
Agreement and Plan of Merger and Reorganization shall be void and of no further
force or effect.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
A-2
<PAGE>
ARTICLE VII
The Merger shall be effective upon filing of the Articles of Merger with the
Secretary of State of North Carolina or such date and time designated in the
Articles of Merger.
Date: November 16, 2000.
Waste Industries, Inc.
/s/ Lonnie C. Poole, Jr.
By:__________________________________
Lonnie C. Poole, Jr.
Chairman and CEO
Waste Industries Mergeco, LLC
By: Waste Holdings, Inc., Manager
and Sole Member
/s/ Jim W. Perry
By:__________________________________
Jim W. Perry
President
Waste Holdings, Inc.
/s/ Jim W. Perry
By:__________________________________
Jim W. Perry
President
A-3
<PAGE>
APPENDIX B
ARTICLES OF INCORPORATION OF
WASTE HOLDINGS, INC.
The undersigned, pursuant to Section 55-2-02 of the North Carolina General
Statutes, does hereby submit these Articles of Incorporation for the purpose
of forming a business corporation under and by virtue of the laws of the State
of North Carolina.
1. The name of the corporation is Waste Holdings, Inc. (the "Corporation").
2. The total number of shares of all classes of stock which the Corporation
is authorized to issue is 90,000,000 shares consisting of: (a) 80,000,000
shares of Common Stock, no par value per share and (b) 10,000,000 shares of
Preferred Stock, par value $0.01 per share. The Board of Directors is
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued series of Preferred
Stock, and within the limitations and restrictions stated in any resolution or
resolutions of the Board originally fixing the number of shares constituting
any series, to increase or decrease (but not below the number of shares of any
such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series, to determine the designation
of any series and to fix the number of shares of any series.
3. The street address and county of the initial registered office of the
Corporation in the State of North Carolina are 3301 Benson Drive, Suite 601,
Raleigh, Wake County, North Carolina 27609, and the name of the initial
registered agent at such address is Jim W. Perry. The mailing address of the
initial registered office of the Corporation is the same as its street
address.
4. The name and address of the incorporator are James M. Yates, Jr., 4101
Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607.
5. Except to the extent that the North Carolina General Statutes prohibit
such limitation or elimination of liability of directors for breaches of duty,
no director of the Corporation shall be liable to the Corporation or to any of
its shareholders for monetary damages for breach of duty as a director. No
amendment to or repeal of this provision or adoption of a provision
inconsistent herewith shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal or adoption of an inconsistent provision. The provisions of this
Article shall not be deemed to limit or preclude indemnification of a director
by the corporation for any liability that has not been eliminated by the
provisions of this Article.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation this
28th of September, 2000.
/s/ James M. Yates, Jr.
______________________________________
James M. Yates, Jr.,
Incorporator
B-1
<PAGE>
APPENDIX C
BYLAWS
OF
WASTE HOLDINGS, INC.
ARTICLE I
OFFICES
Section 1.01. Principal Office. The principal office of the Corporation
shall be located at such place, within or without the State of North Carolina,
as may be determined from time to time by the Board of Directors.
Section 1.02. Registered Office. The Corporation shall maintain a registered
office as required by the North Carolina Business Corporation Act, as amended
from time to time (the "Act"), at a location in the State of North Carolina
designated by the Board of Directors from time to time. The registered office
of the Corporation may, but need not be, identical with the principal office of
the Corporation.
Section 1.03. Other Offices. The Corporation may have such other offices
within and without the State of North Carolina as the business of the
Corporation may require from time to time. The authority to establish or close
such other offices may be delegated by the Board of Directors to one or more of
the Corporation's officers.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. All meetings of shareholders shall be held
at the principal office of the Corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the Chief Executive Officer, the President, the Secretary, the
Chairman of the Board, or the Board of Directors and designated in the notice
of meeting or (ii) agreed upon by a majority of the shareholders entitled to
vote at the meeting.
Section 2.02. Annual Meetings. The annual meeting of the Corporation's
shareholders shall be held in May of each year on any day (except Saturday,
Sunday or a legal holiday) in that month, as determined by the Board of
Directors, for the purpose of electing Directors and for the transaction of
such other business as may properly come before the meeting. If the annual
meeting shall not be held on the day designated pursuant to these Bylaws for
the annual meeting of shareholders, or at any adjournment thereof, then a
substitute annual meeting may be called in accordance with Section 2.03 of
these Bylaws, and the meeting so called may be designated as the annual
meeting.
Section 2.03. Special Meetings. Special meetings of the Corporation's
shareholders may be called for any one or more lawful purposes by the
Corporation's Chief Executive Officer, President, Secretary, Chairman of the
Board, the Board of Directors, or otherwise as authorized by the Act. Only
business within the purpose or purposes described in the notice of the meeting
may be conducted at a special meeting of shareholders.
Section 2.04. Notice of Meetings. Written or printed notice of all meetings
of shareholders shall be delivered not less than ten (10) nor more than sixty
(60) days before the meeting date, to all shareholders of record (determined
pursuant to Section 9.06 of these Bylaws) entitled to vote at such meeting, and
to such other persons as the Corporation is required to notify pursuant to the
Act or the Corporation's Articles of Incorporation. The notice shall state the
date, time, and place of the meeting and, in the case of a special meeting, the
purpose or purposes for which such meeting was called.
C-1
<PAGE>
Section 2.05. Shareholders' List. Not later than two (2) business days after
the date notice of a meeting of shareholders is first given, the Secretary or
other officer or person having charge of the stock transfer books of the
Corporation shall prepare an alphabetical list of the shareholders entitled to
notice of such meeting, with the address of and number of shares held by each,
arranged by voting group and by class or series of shares within each voting
group, which list shall be kept on file at the principal office of the
Corporation, or at a place in the city where the meeting is to be held and
identified in the notice of meeting, for the period commencing two (2) business
days after notice of the meting is first given and continuing through such
meeting, and which list shall be available for inspection by any shareholder,
or his or her agent or attorney, upon his or her demand, at any time during
regular business hours. This list shall also be produced and kept open at the
time and place of the meeting and shall be subject to inspection by any
shareholder, or his or her attorney, during the whole time of the meeting and
any adjournment thereof.
Section 2.06. Quorum. Except as may otherwise be required by the Act or the
Corporation's Articles of Incorporation, at any meeting of shareholders the
presence, in person or by proxy, of the holders of a majority of the
outstanding shares entitled to vote thereat shall constitute a quorum for the
transaction of any business properly before the meeting. Shares entitled to
vote as a separate voting group on a matter may take action at a meeting only
if a quorum of the shares in the separate voting group are present in person or
by proxy at the meeting. In the absence of a quorum a meeting may be adjourned
from time to time, in accordance with the provisions concerning adjournments
contained elsewhere in these Bylaws, by the holders of a majority of the shares
represented at the meeting in person or in proxy. At such adjourned meeting a
quorum of shareholders may transact any business as might have been properly
transacted at the original meeting.
Section 2.07. Organization. Each meeting of shareholders shall be presided
over by the Chairman of the Board, or, in the absence or at the request of the
Chairman of the Board, by the President, or, in the absence or at the request
of the President, by such other officer as the Board of Directors may
designate, or in their absence and in the absence of such designation, by any
person selected to preside by plurality vote of the shares represented and
entitled to vote at the meeting, with each share having the same number of
votes to which it would be entitled on any other matter on which all shares
represented and entitled to vote at the meeting would be entitled to vote. The
Secretary, or in the absence or at the request of the Secretary, any person
designated by the person presiding at the meeting, shall act as secretary of
the meeting.
Section 2.08. Voting. Except as may otherwise be required by the Act or the
Corporation's Articles of Incorporation, and subject to the provisions
concerning shareholders of record contained elsewhere in these Bylaws, a person
(or his or her proxy) present at a meeting of shareholders shall be entitled to
one vote for each share of voting stock an to which such person in the
shareholder of record.
Except in the election of Directors as governed by Section 3.03 of these
Bylaws, if a quorum of a voting group exists, action on a matter by such voting
group is approved by such voting group if the votes cast within such voting
group favoring the action exceed the votes cast within such voting group
opposing the action, unless a greater number of affirmative votes is required
by the Act or the Corporation's Articles of Incorporation or these Bylaws. As
used in these Bylaws, the term "voting group" has the meaning ascribed to that
term in the Act. So long as the Corporation shall have only one class of shares
outstanding and the voting rights of all shares of such class are identical,
then all such outstanding shares shall constitute a single voting group and the
sole voting group, except to the extent that the Act or the Corporation's
Articles of Incorporation requires that any of such shares be treated as a
separate voting group.
Section 2.09. Adjournments. A majority of the voting shares held by
shareholders of record present in person or by proxy at a meeting of
shareholders may adjourn a meeting from time to time to a date, time, and place
fixed by notice as provided for above or, if such date is less than thirty (30)
days from the date of adjournment, to a date, time, and place fixed by the
majority and announced at the original meeting prior to adjournment.
Section 2.10. Action Without Meeting. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on
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the action. The action must be evidenced by one or more written consents signed
by all of the shareholders entitled to vote with respect to the subject matter
thereof before or after such action, describing the action and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
Section 2.11. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary
of the Corporation before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution unless it qualifies as
an irrevocable proxy under the Act.
Section 2.12. Shareholder Proposals. Any shareholder wishing to bring any
business before a meeting of shareholders must provide notice to the
Corporation not more than ninety (90) and not less than fifty (50) days before
the meeting in writing by registered mail, return receipt requested, of the
business to be presented by such shareholder at the shareholder's meeting. Any
such notice shall set forth the following as to each matter the shareholder
proposes to bring before the meeting:
(i) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting and, if
such business includes a proposal to amend the bylaws of the Corporation,
the language of the proposed amendment;
(ii) the name and address, as they appear on the Corporation's books, of
the shareholder proposing such business;
(iii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder;
(iv) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such business; and
(v) any material interest of the shareholder in such business.
Notwithstanding the foregoing provisions of this Section, a shareholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Section. In the absence of such notice to the
Corporation meeting the above requirements, a shareholder shall not be entitled
to present any business at any meeting of the shareholders.
ARTICLE III
DIRECTORS
Section 3.01. Authority. All corporate power of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors.
Section 3.02. Number, Tenure and Qualification. The number of directors
constituting the Board of Directors shall not be more than nine (9) but not
less than five (5) and may be fixed or changed, within this minimum and
maximum, by the shareholders or the Board of Directors. The number of directors
constituting the initial Board of Directors shall be fixed at six (6).
Directors need not be residents of the State of North Carolina or shareholders
of the Corporation.
Section 3.03. Election. Directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election of Directors at a
meeting at which a quorum is present. Every shareholder entitled to vote at an
election of Directors shall have the right to vote the number of shares
standing of record in his name for as many persons as there are Directors to be
elected and for whose election he has a right to vote.
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Section 3.04. Removal. Except as otherwise provided in the Articles of
Incorporation or the Act, any Director may be removed from office, with or
without cause, by a vote of the holders of a majority of the shares of the
Corporation's voting stock.
Section 3.05. Vacancies. A vacancy occurring in the Board of Directors,
including positions not filled by the shareholders or those resulting from an
increase in the number of Directors, may be filled by a majority of the
remaining Directors, though less than a quorum, or by the sole remaining
Director. The shareholders may elect a Director at any time to fill any vacancy
not filled by the Directors.
Section 3.06. Regular Meetings. A regular meeting of the Board of Directors
shall be held without notice other than this Bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may by resolution provide for the holding of additional regular meetings
without notice other than such resolution; provided, however, the resolution
shall fix the date, time, and place (which may be anywhere within or without
the State of North Carolina) for these regular meetings.
Section 3.07. Special Meetings. Special meetings of the Board of Directors
may be called for any lawful purpose or purposes by the Chairman of the Board,
the Chief Executive Officer, the President or any two Directors. The person
calling a special meeting shall give, or cause to be given, to each Director at
his business address, notice of the date, time and place of the meeting by any
normal means of communication not less than two days prior thereto.
Section 3.08. Participation by Telecommunications. Any Director may
participate in, and be regarded as present at, any meeting of the Board of
Directors by means of conference telephone or any other means of communication
by which all persons participating in the meeting can hear each other at the
same time.
Section 3.09. Quorum. Unless the Corporation's Articles of Incorporation
provide otherwise, a majority of the number of Directors fixed by or pursuant
to these Bylaws shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, or if no number is so fixed the number
of Directors in office immediately before the meeting begins shall constitute a
quorum.
Section 3.10. Action. The Board of Directors shall take action adopted by
the affirmative vote of a majority of the Directors present at a meeting at
which a quorum is present, or the affirmative vote of a greater number of
Directors where required by the Corporation's Articles of Incorporation or the
Act.
Section 3.11. Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors at an annual, regular, or special meeting may
be taken without a meeting if a consent in writing, setting forth the action
taken, shall be signed by all of the Directors.
Section 3.12. Committees. The Board of Directors may by resolution designate
and delegate authority to an Executive Committee and other committees with such
authority as may be permitted by the Act. Special meetings of any committee may
be called at any time by any Director who is a member of the committee or by
any person entitled to call a special meeting of the full Board of Directors.
Except as otherwise provided in this Section, the conduct of all meetings of
any committee, including notice thereof, shall be governed by Sections 3.06
through 3.11 of this Article.
Section 3.13. Compensation. The Board of Directors, in its discretion, may
compensate Directors for their services as such and may provide for the payment
of all expenses reasonably incurred by Directors in attending meetings of the
Board or of any committee or in the performance of their other duties as
Directors. Nothing herein contained, however, shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.
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ARTICLE IV
OFFICERS
Section 4.01. In General. The principal officers of the Corporation shall
consist of a Chairman of the Board, a Chief Executive Officer, a President, one
or more Vice Presidents, a Chief Financial Officer, a Secretary and a
Treasurer. Each officer shall exercise such authority and perform such duties
as may be set forth in these Bylaws and any additional authority and duties as
the Board of Directors shall determine from time to time. The same individual
may simultaneously hold more than one office, but no individual may act in more
than one capacity where action of two or more officers is required.
Section 4.02. Election, Term of Office, Qualification. Each of the principal
officers of the Corporation shall be elected annually by the Board of Directors
and shall hold office until his successor shall have been duly elected and
shall have qualified, or until his death, or until he shall resign, or until he
shall have been removed in the manner hereinafter provided.
Section 4.03. Chairman of the Board. The Chairman of the Board of Directors
shall preside at the meetings of the Board of Directors and may call meetings
of the Board and of any committee thereof, whenever he deems it necessary, and
he shall call to order and preside at all meetings of the shareholders of the
Corporation. In addition he shall have such other powers and duties as the
Board of Directors shall designate from time to time. The Chairman of the Board
of Directors shall have power to execute on the Corporation's behalf any and
all contracts, agreements, notes, bonds, deeds, mortgages, certificates,
instruments, and other documents. If the Board of Directors shall fail to elect
a Chairman of the Board, the Chief Executive Officer shall serve in such
capacity and in the absence or nonexistence of a Chief Executive Officer, the
President shall serve in such capacity.
Section 4.04. Chief Executive Officer. Subject to such supervisory powers,
if any, as may be given by the Board of Directors to the Chairman of the Board,
the Chief Executive Officer of the Corporation shall, subject to the control of
the Board of Directors, have general supervision, direction and control of the
business and the officers of the Corporation. The Chief Executive Officer shall
have the general powers and duties of management usually vested in the office
of Chief Executive Officer of a Corporation and shall have such other powers
and duties as may be prescribed by the Board of Directors or these bylaws. The
Chief Executive Officer shall have the power to execute on the Corporation's
behalf any and all contracts, agreements, notes, bonds, deeds, mortgages,
certificates, instruments, and other documents except as may be specifically
limited by resolutions of the Board of Directors.
Section 4.05. President. The President, subject to the authority of the
Board of Directors and to such supervisory powers, if any, as may be given by
the Board of Directors to the Chief Executive Officer, shall manage the
business and affairs of the Corporation. The President shall see that the
resolutions of the Board of Directors are put into effect. The President shall
have full authority to execute on the Corporation's behalf any and all
contracts, agreements, notes, bonds, deeds, mortgages, certificates,
instruments, and other documents except as may be specifically limited by
resolution of the Board of Directors.
Section 4.06. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Board of Directors may from time to time
prescribe. The Board of Directors may elect or designate one or more of the
Vice Presidents as Executive Vice Presidents, Senior Vice Presidents or with
such other title as the Board may deem appropriate.
Section 4.07. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of
the Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any Director.
The Chief Financial Officer shall deposit all money and other valuables in the
name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. The
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Chief Financial Officer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the Chief Executive Officer,
President and Directors, whenever they request it, an account of all of his
transactions and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.
Section 4.08. Secretary. The Secretary shall attend all meetings of the
shareholders and the Board of Directors and record the proceedings thereof. The
Secretary shall give, or cause to be given, all notices in connection with such
meetings. The Secretary shall be the custodian of the corporate seal and affix
the seal to any document requiring it, attest the signature or certify the
incumbency or signature of any officer of the Corporation and in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned by the President or by the Board of
Directors.
Section 4.09. Treasurer. Subject to such supervisory powers as may have been
delegated to the Chief Financial Officer of the Corporation by the Board of
Directors, the Treasurer shall keep safe custody of the Corporation's funds and
maintain complete and accurate books and records of account. The Treasurer
shall upon request report to the Board of Directors on the financial condition
of the Corporation.
Section 4.10. Assistant Secretary. The Assistant Secretary, or, if there is
more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 4.11. Additional Officers. The Board of Directors may elect or
appoint such additional officers as it may deem necessary or advisable, and may
delegate the power to appoint such additional officers to any committee or
principal officer. Such additional officers shall have such powers and duties
and shall hold office for such terms as may be determined by the Board or such
committee or officer.
Section 4.12. Removal. Except as may otherwise be provided by law or in the
Articles of Incorporation, any officer may be removed by the Board of Directors
with or without cause at any time.
Section 4.13. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving a salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.01. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 5.02. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors, and such authority may be
general or confined to specific instances.
Section 5.03. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by the officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 5.04. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
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ARTICLE VI
SHARE CERTIFICATES
Section 6.01. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in the form approved by the Board of
Directors and shall be signed, either manually or in facsimile, by the Chairman
of the Board, Chief Executive Officer, the President or a Vice President and by
the Secretary or an Assistant Secretary. All certificates for shares shall be
consecutively numbered. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issuance,
shall be entered on the stock transfer books of the Corporation.
Section 6.02. Transfer of Shares. Subject to the provisions of the Act and
to any transfer restrictions binding on the Corporation, transfer of shares of
the Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his agent, attorney-in-fact
or other legal representative, who shall furnish proper evidence of authority
to transfer, upon surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the stock transfer books of
the Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes. All certificates surrendered to the Corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except as otherwise provided in these Bylaws.
Section 6.03. Lost Certificates. The Board of Directors may authorize the
issuance of a new share certificate in place of a certificate claimed to have
been lost, destroyed or wrongfully taken, upon receipt of an affidavit of such
fact from the person claiming the loss or destruction. When authorizing such
issuance of a new certificate, the Board may require the claimant to give the
Corporation a bond in such sum and with such sureties as it may direct to
indemnify the Corporation against loss from any claim with respect to the
certificate claimed to have been lost, destroyed or wrongfully taken; or the
Board may, by resolution reciting that the circumstances justify such action,
authorize the issuance of the new certificate without requiring such a bond
with respect to a certificate claimed to have been lost or destroyed. Any such
authorization by the Board of Directors may be general or confined to specific
instances. Nothing herein shall require the Board of Directors to authorize the
issuance of any such replacement certificate under any circumstances in which
the Corporation is not required to issue such certificate, this provision being
permissive and not mandatory.
Section 6.04. Shares Held By Nominees.
(a) The Corporation shall recognize the beneficial owner of shares
registered in the name of a nominee as the owner and shareholder of such shares
for certain purposes if the nominee in whose name such shares are registered
files with the Secretary of the Corporation a written certificate in a form
prescribed by the Corporation, signed by the nominee and indicating the
following: (1) the name, address and taxpayer identification number of the
nominee; (2) the name, address and taxpayer identification number of the
beneficial owner; (3) the number and class or series of shares registered in
the name of the nominee as to which the beneficial owner shall be recognized as
the shareholder; and (4) the purposes for which the beneficial owner shall be
recognized as the shareholder.
(b) The purposes for which the Corporation shall recognize a beneficial
owner as the shareholder may include the following: (1) receiving notice of,
voting at and otherwise participating in shareholders' meetings; (2) executing
consents with respect to the shares; (3) exercising dissenters' rights under
Article 13 of the North Carolina Business Corporation Act; (4) receiving
distributions and share dividends with respect to the shares; (5) exercising
inspection rights; (6) receiving reports, financial statements, proxy
statements and other communications from the Corporation; (7) making any demand
upon the Corporation required or permitted by law; and (8) exercising any other
rights or receiving any other benefits of a shareholder with respect to the
shares.
(c) The certificate shall be effective ten (10) business days after its
receipt by the Corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
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(d) If the certificate affects less than all of the shares registered in
the name of the nominee, the Corporation may require the shares affected by the
certificate to be registered separately on the books of the Corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that share certificate. registered separately on the books of the
Corporation and be represented by a share certificate that bears a conspicuous
legend stating that there is a nominee certificate in effect with respect to
the shares represented by that share certificate.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Right to Indemnification. Each person who was or is a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal (hereinafter, a "proceeding" and including without
limitation, a proceeding brought by or on behalf of the Corporation itself), by
reason that he is or was a Director or officer of the Corporation, or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, whether the basis of such
proceeding is alleged action in an official capacity as a Director or officer
or in any other capacity while serving as a Director, officer, partner,
trustee, employee, agent, trustee or administrator, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the Act as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Act permitted the Corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue as
to a person who has ceased to serve in the capacity that initially entitled
such person to indemnification hereunder and shall inure to the benefit of his
heirs, executors and administrators; provided, however, that the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article VII shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Act so requires, the payment of expenses
incurred by a Director or officer in his capacity as a Director or officer (and
not in any other capacity in which service was or is rendered by such person
while a Director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such Director or officer, to repay all amounts so advanced if it
shall ultimately be determined that the Director or officer is not entitled to
be indemnified under this Section or otherwise.
Section 7.02. Right of Claimant to Bring Suit. If a claim under Section 7.01
hereof is not paid in full by the Corporation within ninety (90) days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Act for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of
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the Corporation (including its Board of Directors, independent legal counsel,
or its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Act, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 7.03. Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), the Corporation's Articles of
Incorporation, these Bylaws, any agreement, the vote of shareholders or
disinterested Directors or otherwise.
Section 7.04. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a Director,
officer, employee or agent of the Corporation and is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee
or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or trustee or administrator under an
employee benefit plan against any liability asserted against and incurred by
that person in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify that person against
such liability under the Act.
Section 7.05. Savings Clause. If this Article VII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each Director
and officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VII that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE VIII
RECORDS AND REPORTS
Section 8.01. General. The Corporation shall keep all records and submit and
file all reports and filings as are required by applicable law. Unless the
Board of Directors otherwise directs, the Chief Financial Officer shall be
responsible for keeping, or causing to be kept, all financial and accounting
records of the Corporation and for submitting or filing, or causing to be
submitted or filed, all reports and filings of a financial or accounting
nature, and the Secretary shall be responsible for keeping, or causing to be
kept, all other records and for submitting or filing, or causing to be
submitted or filed, all other reports and filings.
The Corporation shall keep as permanent records minutes of all meetings of
its incorporator, shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by committees of the Board of Directors. The Corporation
shall maintain appropriate accounting records. The Corporation shall maintain
its records in written form or in another form capable of conversion into
written form within a reasonable time.
Section 8.02. Records at Principal Office. The Corporation shall keep a copy
of the following records at the Corporation's principal office:
(a) Its Articles of Incorporation or restated Articles of Incorporation
and all amendments to them currently in effect.
(b) Its Bylaws or restated Bylaws and all amendments to them currently
in effect.
(c) Resolutions adopted by the Board of Directors creating one or more
classes or series of shares, and fixing their relative rights, preferences
and limitations, if shares issued pursuant to those resolutions are
outstanding.
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(d) The minutes of all shareholders' meetings, and records of all action
taken by shareholders without a meeting, for the past three years.
(e) All written communications to shareholders generally within the past
three years and the financial statements required by law to be made
available to the shareholders for the past three years.
(f) A list of the names and business addresses of its current Directors
and officers.
(g) Its most recent annual report delivered to the North Carolina
Secretary of State pursuant to the Act.
Section 8.03. Financial Statements. The Corporation shall make available to
the shareholders annual financial statements, which may be consolidated or
combined statements of the Corporation and one or more of its subsidiaries, as
appropriate, that include a balance sheet as of the end of the fiscal year, an
income statement for that year, and a statement of cash flows for the year
unless that information appears elsewhere in the financial statements. If
financial statements are prepared for the Corporation on the basis of generally
accepted accounting principles, the annual financial statements shall also be
prepared on that basis.
If the annual financial statements are reported upon by a public accountant,
such accountant's report shall accompany them. If not, the statements shall be
accompanied by a statement of the President, the Chief Financial Officer or the
Treasurer or other person responsible for the Corporation's accounting records:
(a) stating his or her reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and, if
not, describing the basis of preparation; and
(b) describing any respects in which the statements were not prepared on
a basis of accounting consistent with the statements prepared for the
preceding year.
The Corporation shall mail the annual financial statements, or a written notice
of their availability, to each shareholder within 120 days after the close of
each fiscal year; provided that the failure of the Corporation to comply with
this requirement shall not constitute the basis for any claim of damages by any
shareholder unless such failure was in bad faith. Thereafter, on written
request from a shareholder who was not mailed the statements, the Corporation
shall mail such shareholder the latest financial statements.
Section 8.04. Annual Report. The Corporation shall prepare and deliver to
the North Carolina Secretary of State for filing each year the annual report
required by the Act.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by the Act and the
Corporation's Articles of Incorporation. The Board of Directors may fix in
advance a record date for determining the shareholders entitled to a dividend.
If such record date is not fixed by the Board of Directors, the date the Board
of Directors authorizes such dividend shall be the record date.
Section 9.02. Seal. The corporate seal of the Corporation shall consist of
two concentric circles between or within which are the name of the Corporation,
the year of incorporation and the word "SEAL." The seal may be used by causing
it or a facsimile thereof to be impressed, affixed, stamped or reproduced by
any means. Any officer of the Corporation authorized to execute or attest a
document on behalf of the Corporation may affix or reproduce on such document,
as and for the corporate seal of the Corporation, a seal in any other form
sufficient to evidence that it is intended by such officer to represent the
corporate seal of the Corporation, in which case such seal shall be as
effective as the corporate seal in the form herein prescribed.
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Section 9.03. Fiscal Year. The fiscal year of the Corporation shall be
established, and may be altered, by resolution of the Board of Directors from
time to time as the Board deems advisable.
Section 9.04. Amendments. Except an otherwise provided in the Articles of
Incorporation or the Act, these Bylaws may be amended or repealed and new
bylaws may be adopted by action of the Board of Directors or shareholders.
Notwithstanding the approval and adoption of these Bylaws by the shareholders,
these Bylaws may be amended or repealed and new bylaws may be adopted by action
of the Board of Directors.
Section 9.05. Notice; Waiver of Notice. Whenever any notice is required to
be given under the Act, the Corporation's Articles of Incorporation, or these
Bylaws, it shall be in writing and may be communicated in person, by telephone,
telegraph, teletype or other form of wire or wireless communication, or by
facsimile transmission, or by mail or private carrier. If mailed, notice to a
shareholder is effective when deposited in the United States mail with postage
thereon prepaid and correctly addressed to the shareholder's address shown in
the Corporation's current record of shareholders. All other notice is effective
at the earliest of the following: (i) when received; (ii) five days after its
deposit in the United States mail, as evidenced by the postmark, if mailed with
postage thereon prepaid and correctly addressed; and (iii) on the date shown on
the return receipt, if sent by certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee. A shareholder or
Director, as the case may be, may waive notice otherwise required by these
Bylaws, before or after the date stated in such notice, by delivery of a
written waiver of such notice signed by such shareholder or Director to the
Corporation for filing or inclusion with the minutes or corporate records, or,
to the extent provided by the Act, by attendance at the meeting to which such
notice relates.
Section 9.06. Shareholders of Record. For the purpose of determining
shareholders entitled to vote at any meeting of shareholders, or entitled to
receive dividends or other distributions, or in connection with any other
proper purpose requiring a determination of shareholders, the Board of
Directors shall by resolution fix a record date for such determination. The
date shall be not more than sixty (60) and not less than ten (10) days prior to
the date on which the activity requiring the determination is to occur. The
shareholders of record appearing in the stock transfer books of the Corporation
at the close of business on the record date so fixed shall constitute the
shareholders of record in respect of the activity in question. In the absence
of action by the Board of Directors to fix a record date, the record date
(unless otherwise specified in the Corporation's Articles of Incorporation or
these Bylaws) shall be ten (10) days prior to the date on which the activity
requiring a determination of shareholders is to occur.
Section 9.07. Conflict with Act and Articles of Incorporation;
Severability. In the event of a conflict between the Act or the Corporation's
Articles of Incorporation and these Bylaws, the Act or Articles of
Incorporation, as the case may be, shall prevail to the extent of such
conflict. Any provision of these Bylaws, or any amendment hereto, which is
determined to be in violation of the Act shall not in any way render the
remaining provisions invalid.
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CERTIFICATE OF ADOPTION OF BYLAWS
IN WITNESS WHEREOF, the undersigned certifies that the forgoing eleven (11)
pages are the true and accurate Bylaws of Waste Holdings, Inc., in full force
and effect as of the date hereof.
DATED: September 29, 2000
/s/ Stephen C. Shaw
_____________________________________
Stephen C. Shaw
Chief Financial Officer,
Secretary and Treasurer
[Seal]
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Secretary's Certificate
The undersigned, being the Secretary of Waste Holdings, Inc., a North
Carolina corporation (the "Company"), hereby certifies that attached hereto as
Exhibit A is a true, correct and complete copy of the Bylaws of the Company,
which Bylaws are in full force and effect on and as of the date hereof, and
have not been amended or rescinded.
Dated: December 27, 2000
/s/ Stephen C. Shaw
_____________________________________
Stephen C. Shaw,
Secretary
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