SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22602
CONTINENTAL WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2909512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
67 Walnut Avenue, Suite 103
Clark, New Jersey 07066
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 396-0018
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
15,349,897 shares of Common Stock, $0.0006 par value, were outstanding as of
November 5, 1996.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited):
(Restated - See Note 1)
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995...........................3
Condensed Consolidated Statements of Income for
Three Months Ended September 30, 1996 and 1995.....................4
Condensed Consolidated Statements of Income for
Nine Months Ended September 30, 1996 and 1995......................5
Condensed Consolidated Statements of Cash Flows for
Nine Months Ended September 30, 1996 and 1995......................6
Notes to Condensed Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................21
SIGNATURE............................................................24
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Restated - (Restated
See Note 1) See Note 1)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 1,601,079 $ 3,483,154
Accounts receivable - net.................... 11,881,059 8,169,121
Other current assets......................... 3,871,616 2,835,588
------------ -------------
Total current assets........................... 17,353,754 14,487,863
Landfill sites, property and equipment - net... 110,029,274 83,081,324
Excess cost over the fair value of net assets
acquired - net............................ 23,526,951 14,614,475
Other assets................................... 12,585,432 12,037,669
------------ -------------
Total assets................................... $163,495,411 $124,221,331
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt........................... $ 5,198,782 $ 4,646,241
Accounts payable.............................. 3,089,624 2,543,768
Other accrued liabilities..................... 11,945,405 9,287,339
------------ -------------
Total current liabilities....................... 20,233,811 16,477,348
Long-term debt, less current maturities......... 45,096,996 20,774,991
Accrued landfill closure costs, less
current portion.......................... 7,369,475 6,748,474
Other long-term liabilities..................... 15,251,684 9,949,265
Stockholders' equity:
Common stock, $.0006, authorized 40,000,000
shares, 15,428,210 and 14,089,742 shares
issued in 1996 and 1995, respectively.... 9,257 8,454
Additional paid-in capital.................... 74,808,221 63,063,241
Retained earnings............................. 1,198,066 7,671,657
Treasury stock (79,375 common shares at cost). (472,099) (472,099)
------------ -------------
Total stockholders' equity.................. 75,543,445 70,271,253
------------ -------------
Total liabilities and stockholders' equity.. $163,495,411 $124,221,331
============ =============
The accompanying notes to condensed consolidated
financial statements are an integral part of
these balance sheets.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
September 30,
-----------------------------
(Restated -
See Note 1)
1996 1995
------------ ------------
Revenue........................................ $20,899,082 $12,964,500
Costs and expenses:
Operating expenses........................... 18,027,449 5,974,828
General and administrative expenses.......... 3,377,587 2,085,693
Depreciation and amortization................ 3,045,930 1,807,220
Special charge............................... 7,623,124 -
------------ ------------
Income (loss) from operations.................. (11,175,008) 3,096,759
------------ ------------
Other income (expenses):
Interest expense............................. (1,166,738) (913,875)
Other, net................................... 779,672 72,653
------------ ------------
Other income (expenses), net............... (387,066) (841,222)
------------ ------------
Income before income taxes..................... (11,562,074) 2,255,537
(Provision) benefit for income taxes........... 1,946,029 (885,893)
------------ ------------
Net income (loss).............................. ($9,616,045) $ 1,369,644
============ ============
Earnings (loss) per share...................... ($0.63) $0.12
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------
(Restated -
See Note 1)
1996 1995
----------------- ---------------
Revenue............................ $53,708,980 $33,442,798
Costs and expenses:
Operating expenses............... 36,049,688 15,351,100
General and administrative expen. 7,489,697 5,586,128
Depreciation and amortization.... 8,080,115 4,566,201
Special charge................... 7,623,124 -
----------------- ---------------
Income (loss) from operations...... (5,533,644) 7,939,369
----------------- ---------------
Other income (expenses):
Interest expense................. (2,293,831) (2,126,457)
Other, net....................... 1,129,655 (13,005)
----------------- ---------------
Other income (expenses), net... (1,164,176) (2,139,462)
----------------- ---------------
Income (loss) before income taxes . (6,697,820) 5,799,907
Provision for income taxes......... (207,711) (2,394,206)
----------------- ---------------
Net income (loss).................. ($6,905,531) $ 3,405,701
=============== ===============
Earnings (loss) per share.......... ($0.45) $0.30
=============== ===============
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
---------------------------
(Restated -
See Note 1)
1996 1995
------------- ------------
Cash flows from operating activities:
Net income (loss)................................. ($6,905,531) $3,405,701
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation ................................... 7,489,064 4,125,948
Amortization.................................... 986,659 440,253
Non-cash components of special charge........... 6,298,735 -
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable, net........................ (1,351,477) (1,281,920)
Other current assets............................ (523,307) (261,326)
Accounts payable................................ (327,991) 324,631
Other current liabilities....................... (1,559,313) (674,713)
Other long-term liabilities..................... 2,810,986 31,413
Other long-term assets.......................... (417,316) (897,088)
---------- -----------
Net cash provided by operating activities......... 6,500,509 5,212,899
---------- -----------
Cash flows from investing activities:
Proceeds from sale of Mexico operations......... 2,574,089 -
Capital expenditures............................ (19,043,729) (15,412,583)
Cash paid for businesses, net of cash acquired.. (11,139,535) (5,328,309)
Cash paid for common and preferred stock of
minority interest............................. - (1,219,739)
Increase in cash held in escrow................. (662,080) (1,901,355)
---------- ------------
Net cash used in investing activities............. (28,271,255) (23,861,986)
---------- ------------
Cash flows from financing activities:
Net borrowings under revolving line of credit... 22,200,000 41,550,000
Issuance of long-term debt...................... 4,078,716 262,968
Payments on long-term debt...................... (6,991,746) (24,767,867)
Deferred financing costs paid................... (90,505) (607,877)
Issuance of common stock........................ 80,930 305,479
Purchase of treasury stock...................... - (365,550)
Exercise of warrants for common stock........... 688,997 218,715
Other........................................... (77,721) -
---------- ------------
Net cash provided by financing activities......... 19,888,671 16,595,868
---------- ------------
Net decrease in cash and cash equivalents........... (1,882,075) (2,053,219)
Cash and cash equivalents, beginning of year........ 3,483,154 4,677,237
---------- ------------
Cash and cash equivalents, end of period............ $1,601,079 $2,624,018
========== ==========
The accompanying notes to condensed
consolidated financial statements are an
integral part of these statements.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. Operating results for the three and nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in Continental Waste
Industries, Inc.'s (the "Company") Form 10-KSB for the year ended December 31,
1995.
On December 28, 1995, the Company effected a 5 for 3 stock split of its common
stock (the "Shares"). All common share information has been restated for all
periods to reflect the 5 for 3 stock split. The Company's $0.0006 par value
common stock is hereinafter referred to as Shares.
On June 27, 1996, the Company signed a definitive agreement to be acquired by
Republic Industries, Inc. ("Republic"). Under the terms of the agreement, each
Share of the Company's common stock would be converted into .8 of a share of
Republic's common stock.
The proposed transaction would be accounted for on a pooling of interests basis
and is subject to final approval by the stockholders of the Company, the filing
and clearance of the Republic registration statement and the Company's related
proxy statement by the Securities and Exchange Commission. The Company
anticipates that the merger with Republic will be consummated in the fourth
quarter of 1996.
Certain amounts in previously issued financial statements have been reclassified
to conform to 1996 classifications.
The Company's previously filed consolidated balance sheet as of December 31,
1995 and condensed consolidated statements of income and cash flows for the nine
months ended September 30, 1995 have been restated herein to reflect certain
costs as compensatory rather than as consideration paid in a business
acquisition. The income statement effect of this restatement was as follows:
1995
------------------------------
As previously
filed As restated
------------------------------
General and administrataive expenses $4,811,381 $5,586,128
Income from operations 8,714,116 7,939,369
Net income 3,858,463 3,405,701
Earnings per share 0.34 0.30
The restatement's effect on total stockholders' equity was decrease of
$1,773,721 to $70,271,253 as of December 31, 1995.
In addition to the above restatement, the Company also reclassified certain
landfill cell development costs which were previously reflected as a component
of prepaid expenses into land, landfill site and improvements. Such costs were
$4,420,587 and $4,048,465 as of December 31, 1995 and September 30, 1996,
respectively.
Note 2 - Business Combinations and Dispositions
From January 1, 1995 to August 15,1995, the Company expanded its operations
through the acquisition of six businesses engaged in waste management
operations. The aggregate of these business acquisitions (the "1995
Acquisitions") was significant to the Company. These entities included ASCO
Sanitation, Inc., Larry's Disposal, Inc., Terre Haute Recycling, Inc., Gilliam
Sanitation, Inc./Gilliam Transfer, Inc., Anderson Refuse Company, Inc./M.V.
Dulworth, and a 72% interest in Procesa Continental S.A., de C.V. The aggregate
purchase price of these businesses was $8.9 million, plus the assumption or
refinancing of $2.1 million of debt and $0.6 million of future contingent
payments. The purchase prices were paid by issuing 164,846 Shares with a market
value of $1.1 million at the time of issuance, paying $5.8 million of cash
obtained from the Company's credit facility (the "Credit Facility") with LaSalle
National Bank ("LNB") and issuing $2.0 million of notes payable to the sellers.
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Business Combinations and Dispositions (Continued)
In October 1995, the Company purchased, through one of its subsidiaries, a
sanitary landfill in Richland County, South Carolina ("Richland"). The acquiring
subsidiary, which is 85% owned by the Company, was organized recently to make
acquisitions of landfills and related solid waste management operations and to
pursue privatization and public- private partnership opportunities in the
Southeastern United States. The Company has an option to acquire the remaining
15% of the subsidiary for approximately $2.4 million of common stock of the
Company. The Company, on behalf of its subsidiary, paid $2.4 million in cash and
notes, and assumed $1.1 million of debt for Richland. As a condition of the
landfill purchase, a South Carolina collection company has entered into, among
other things, a 10-year put-or-pay disposal contract with the Company to provide
a minimum of 300 tons of waste per day.
In March 1996, the Company purchased two construction and demolition landfills
in central Florida for approximately $2.1 million in Shares (195,864 Shares) and
$2.3 million in cash.
In March 1996, the Company sold its 72% interest in Procesa Continental S.A., de
C.V., which encompassed all of the Company's Mexico City operations, for
approximately $2.6 million in cash resulting in a pre-tax gain of approximately
$500,000 which was recorded in the first quarter of 1996.
In March 1996, the Company ceased operations at its West Virginia landfill. The
site had been experiencing declining volumes and was not in a position to
effectively compete with two Kentucky landfills which were less than 25 miles
away. Management began an evaluation of the sale of the assets or the marketing
of special waste into the facility to allow for reopening. As a result of the
suspension, the Company recorded an approximate $500,000 charge. The charge
consisted primarily of costs to place a temporary cap on the active cell and
identified severance and miscellaneous costs. During the third quarter of 1996,
the Company completed its evaluation and recorded additional charges related to
the suspension of this operation. See Note 4 for a description of these
additional charges.
In May 1996, the Company purchased a residential and commercial collection
business for $1.2 million in cash, which was combined into the Company's Jamax
division in Terre Haute, Indiana.
On July 1, 1996, the Company completed its acquisition of Statewide
Environmental Contractors, Inc. and its affiliated companies, Recycling
Industries, Inc. and Lomac Realty (collectively, "Statewide"). These three
companies are engaged in the waste management business in central New Jersey.
The purchase price of Statewide was $18.6 million and consisted of $7.5 million
in cash, 555,512 Shares (valued at $8.1 million based on the quoted market price
as of the date of the definitive letter of intent to acquire Statewide) and $3.0
million in notes payable to the sellers. The cash portion of the purchase price
was financed from borrowings under the Company's Credit Facility. The total
purchase price of Statewide was allocated to various assets and liabilities
baesd on management's best estimate using the latest information as possible.
The major categories of the purchase price are as follows:
Property and equipment $12,315,000
Accounts receivable 1,546,000
Goodwill 8,680,000
Other insignificant assets 1,030,000
Accruals (4,971,000)
-----------
$18,600,000
===========
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Business Combinations and Dispositions (Continued)
All of the business acquisitions described above were accounted for under the
purchase method.
The following summarizes the pro forma operating results of the Company for the
nine months ended September 30, 1996 and 1995 as if the 1995 Acquisitions (for
1995) and the Statewide acquisition had occurred at the beginning of the
applicable period (in 000's):
Nine Months Ended
September 30,
-------------------------------
1996 1995
(Restated -
See Note 1)
-------------- --------------
Pro forma revenue......................... $59,799 $49,011
======== ========
Pro forma net income (loss)............... ($7,245) $ 3,745
======== ========
Pro forma earnings (loss) per share....... ($0.46) $0.50
======== ========
The pro forma operating results include each acquiree's pre-acquisition results
of operations for the indicated periods with adjustments to reflect amortization
of goodwill, additional depreciation on the increases to the fair market value
of fixed assets, interest expense on the acquisition borrowings, the effect of
income taxes thereon and the effect of the issuance of Shares. Future
adjustments, if any as a result of pending analyses of certain judgmental
reserves and functionality of certain equipment, will be made prior to the one
year anniversary of the related acquisition and are not expected to be material.
Operating results of acquired businesses have been included in the condensed
consolidated financial statements from the date of acquisition. The pro forma
information given above does not purport to be indicative of the results that
actually would have been obtained if the operations were combined during the
periods presented and is not intended to be a projection of future results or
trends.
On September 13, 1996, the Company acquired Reliable Disposal, Inc., Reliable
Recycle (a partnership) and various properties owned by certain shareholders of
Reliable Disposal, Inc. or their wholly-owned partnership (collectively,
"Reliable"). All entities and properties of Reliable were commonly owned and
integral to the Reliable business. The Company exchanged 457,001 Shares for all
of the outstanding shares and interests and for the properties of Reliable. The
acquisition was accounted for as a pooling of interests. Accordingly,
Continental's historical statement of income for the nine months ended September
30, 1996 includes the operating results of Reliable for the entire nine month
period. The acquisition of Reliable was not significant and, as a consequence,
prior period financial statements were not restated. Separate financial data of
the Company and Reliable for the nine months ended September 30, 1996 are as
follows (in 000's, except per share data):
Continental Reliable Total
--------------- ------------- --------------
Revenue $48,791 $4,918 $53,709
Net loss (6,880) (25) (6,905)
Loss per share (0.45) - (0.45)
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Earnings Per Share
Earnings per share for the three and nine months ended September 30, 1996 and
1995 was based on the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
9/30/96 9/30/95 9/30/96 9/30/95
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares:
Shares outstanding...................... 15,297,000 10,612,000 14,819,000 10,462,000
Dilutive stock options and warrants..... - 687,000 398,000 751,000
---------- ---------- ---------- ----------
15,297,000 11,299,000 15,217,000 11,213,000
========== ========== ========== ==========
</TABLE>
Note 4 - Special Charge
The Company recorded a $7.6 million charge during the third quarter of 1996 for
costs related to (a) the pending purchase of the Company by Republic, (b) the
suspended operations at the Company's West Virginia landfill and (c) an impaired
agreement not to compete.
The costs related to Republic's acquisition of the Company ($1.3 million)
primarily relate to obtaining an opinion from the Company's financial advisor
regarding the fairness of the consideration offered by Republic for the
Company's Shares and various legal, accounting and printing fees incurred in
filing the required information regarding the Republic transaction with the
Securities and Exchange Commission. In addition to this $1.3 million, the
Company expects to incur another $1.1 million in completing the Republic deal in
the fourth quarter of 1996. The majority of such additional costs relate to a
fee payable at closing to a significant shareholder of the Company for services
related to the deal.
As described in Note 2, during the first quarter of 1996, the Company ceased
operations at its West Virginia landfill and began evaluating its options
regarding the facility. The evaluation was completed in the third quarter of
1996 after a critical analysis of current and expected future market conditions
and various failed attempts to sell the facility. Accordingly, management
decided to write-off the Company's investment in the facility which consisted
primarily of land, unamortized landfill costs and equipment. Additionally, since
a sale was no longer being considered, the Company recorded the full amount of
the estimated closure and post-closure costs related to the facility. The total
charge related to this matter amounted to $5.3 million. The remaining portion of
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Special Charge (Continued)
the special charge ($1.0 million) related to the write-off of the unamortized
costs of an agreement not to compete entered into with the prior owner of a
previously-acquired business. With the acquisitions completed during the third
quarter of 1996, the Company believes that any new competition in the area
covered by the agreement not to compete is remote.
Of the $7.6 million charge, $6.3 million represents the non-cash write-off of
assets and accrual of closure/post-closure costs. The remaining $1.3 million
(the Republic deal costs) have been spent or will be spent as the related
invoices become due during the fourth quarter of 1996.
Note 5 - Supplemental Cash Flows Disclosure
Nine Months Ended
September 30,
-----------------------------------
1996 1995
---------------- ----------------
Cash paid during the period for:
Interest, net of interest capitalized.. $1,684,663 $2,069,170
---------------- ----------------
---------------- ----------------
Income taxes........................... $2,820,215 $1,233,011
---------------- ----------------
---------------- ----------------
Business acquisitions:
Shares issued.......................... $10,212,351 $ 496,688
Notes issued to sellers................ 3,000,000 2,034,284
Cash paid.............................. 11,228,806 5,328,309
---------------- ----------------
Total consideration paid.............
Assets received......................
24,441,157 7,859,281
Liabilities assumed.................. 34,149,798 10,789,901
---------------- ----------------
$9,708,641 $2,930,620
---------------- ----------------
---------------- ----------------
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<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Other Information
Selected balance sheet account disclosures follow:
September 30, December 31,
1996 1995
------------- -------------
Allowance for doubtful accounts................... $ 1,102,575 $ 396,000
------------- -------------
------------- -------------
Accumulated depreciation and amortization of
property and equipment.......................... $19,883,121 $14,215,696
------------- -------------
------------- -------------
Accumulated amortization of excess cost over
the fair value of net assets acquired........... $ 1,898,171 $ 1,395,054
------------- -------------
------------- -------------
Note 7 - Debt
In the first quarter of 1996, the Company and its lenders amended the Credit
Facility effective as of January 1, 1996. As amended, each borrowing under the
Credit Facility bears interest based on the Company's leverage ratio, as
defined, of funded debt to earnings before interest, taxes, depreciation and
amortization. If the leverage ratio is 2.0 to 1 or less, then the interest rate
is, at the Company's option, prime or LIBOR plus 1.5% and the fee on outstanding
letters of credit is .75%. If the leverage ratio falls between 2.01 to 2.5
compared to 1, then the interest rate is prime plus 0.5% or LIBOR plus 1.75% and
the fee on outstanding letters of credit is 1.0%. If the leverage ratio falls
between 2.51 and 3.0 compared to 1, then the interest rate is prime plus 1.0% or
LIBOR plus 2.0% and the fee on outstanding letters of credit is 1.5%. If the
leverage ratio is greater than 3.0 to 1, then the interest rate is prime plus 1%
or LIBOR plus 2.5% and the fee on outstanding letters of credit is 2.0%. The
Company and its lenders amended the Credit Facility again during the second
quarter of 1996 to increase the line of credit from $45 million to $70 million.
The Credit Facility now expires in June 1999 and is secured by all corporate
assets and a pledge of the stock of all subsidiaries.The Credit Facility
includes provisions for letters of credit up to $15.0 million. The Company will
also pay a 0.5% fee on the average unused portion of the Credit Facility. As of
September 30, 1996, $23.3 million of unused credit under this facility remained
available. Borrowings under the Credit Facility bore a weighted average interest
rate of 7.0% on outstanding loans as of September 30, 1996.
In April 1996, the Company entered into a $10.0 million facility ("Lease
Agreement") with B.A. Leasing and Capital Corporation which has provided funds
for capital expenditures. The capital equipment financed must be delivered to
and accepted by the Company no later than December 31, 1997. As of September 30,
1996, $6.3 million of unused credit under this facility remained available. Each
lease the Company enters into has a term of six years. Such borrowings will bear
interest at the prevalent market rates. As of September 30, 1996, the
outstanding borrowings bore a weighted average interest rate of 8.51%.
Under the Credit Facility and the Lease Agreement, the Company is required to
meet certain financial covenants. As of September 30, 1996, the Company was in
violation of such covenants. LNB and B.A. Leasing and Capital Corporation have
issued waivers of non-compliance regarding these covenant violations.
-12-
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Excess Cost Over the Fair Value of Net Assets Acquired
Prior to 1996, the excess cost over the fair value of assets acquired
("goodwill") was amortized on a straight-line basis over twenty-five to thirty
years. In the first quarter of 1996, the Company changed the amortization period
for goodwill generated from all non-landfill acquisitions to 40 years consistent
with industry trend and due to the life of operating conditions at such
businesses not being dependent on the capacity of available landfill airspace.
This change in accounting estimate is applied prospectively from January 1, 1996
for non-landfill acquisitions through that date. The effect of the change in the
third quarter and first nine months of 1996 was to decrease amortization expense
by approximately $59,000 and $177,000, respectively.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background:
Continental Waste Industries, Inc. (the "Company") provides integrated solid
waste management services to residential, commercial and industrial customers
concentrated primarily in the eastern half of the United States. The Company
conducts its operations through 10 landfills, 10 waste collection operations, 16
transfer stations and 6 recycling facilities located in 10 states and in Costa
Rica. Since its founding in 1988, the Company has experienced significant growth
in revenues and operating income due primarily to the acquisition of 32 solid
waste service businesses.
The Company's strategy is focused on an integrated operational model over a
geographically diverse base of operations. In general, the Company seeks to own
or control both waste collection and disposal operations in each of the local
markets in which it competes. This integration strategy is intended to improve
cost competitiveness and mitigate operating risk by reducing the dependence of
the Company's landfills on waste streams from unaffiliated haulers, and by
reducing the exposure of the Company's collection operations to disposal cost
fluctuations at facilities owned by third parties.
On June 27, 1996, the Company signed a definitive agreement to be acquired by
Republic Industries, Inc. ("Republic"). Under the terms of the agreement, each
share of the Company's common stock would be converted into .8 of a share of
Republic's common stock.
The proposed transaction would be accounted for on a pooling of interests basis
and is subject to final approval by the stockholders of the Company, the filing
and clearance of a Republic registration statement and the Company's related
consent solicitation by the Securities and Exchange Commission. The Company
anticipates that the merger with Republic will be consummated in the fourth
quarter of 1996.
On September 13, 1996, the Company acquired Reliable Disposal, Inc., Reliable
Recycle (a partnership) and various properties owned by certain shareholders of
Reliable Disposal, Inc. or their wholly-owned partnership (collectively,
"Reliable"). This acquisition was accounted for as a pooling of interests.
Accordingly, Continental's historical statement of income for the nine months
ended September 30, 1996 includes the operating results of Reliable for the
entire nine month period. The acquisition of Reliable was not significant and,
as a consequence, prior period financial statements were not restated. The
comparative discussions below are therefore impacted by the acquisition of
Reliable as if Reliable was combined with the Company on January 1, 1996.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Opertions and elsewhere in this quarterly report on
Form 10-Q constitues "forward looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements to be mutually
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, among other
things, the Company's merger with a subsidiary of Republic Industries;
regulatory changes; the on-going consolidation in the solid waste management
industry; the availability of acquisition and expansion opportunities on
attractive terms; the ability to integrate and successfully operate acquired
businesses and the risks associated with these businesses.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995 (Restated)
Revenue:
Revenue increased by $7.9 million, or 61.2%, from $13.0 million to $20.9
million. The increase in revenue was primarily due to several 1995 and 1996
acquisitions: a landfill in the fourth quarter of 1995; two construction and
demolition landfills and a recycling center in the first quarter of 1996; two
hauling and collection companies, three recycling centers and three transfer
stations in the third quarter of 1996; as well as growth in base waste
collection services.
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<PAGE>
Results of Operations (Continued)
Operating Expenses:
Operating expenses increased by $12.0 million from $6.0 million to $18.0 million
and increased as a percentage of revenue from 46.1% to 86.3%. The dollar and
percentage increases are partially due to the fourth quarter 1995 and 1996
acquisitions of non-landfill operations which, on average, have significantly
higher operating costs than do landfills. Additional increases are due to higher
operating labor costs and costs incurred in converting collection routes.
Additionally, the Company, pursuant to revised construction and operating
permits and revised state agency mandates at two of its landfills and the
necessity to incorporate a more expensive plastic liner in the closure plan at a
third landfill, recorded expenses of $3.9 million during the third quarter of
1996.
General and Administrative Expenses:
General and administrative expenses increased by $1.3 million from $2.1 million
to $3.4 million and increased as a percentage of revenues from 16.1% to 16.2%.
The dollar increase was primarily due to the above mentioned acquisitions and
the write-off of certain receivables related to the suspended operations of the
Company's West Virginia landfill. The percentage increase resulted from the
additional bad debt expense more than offsetting the lower general and
administrative expenses as a percent of sales due to the synergies obtained with
the acquired companies.
Depreciation and Amortization Expenses:
Depreciation and amortization expenses increased by $1.2 million, from $1.8
million to $3.0 million. The increase was due to the above mentioned
acquisitions, increased capital expenditures and increased landfill cell
amortization costs due to compliance with Subtitle D Regulations.
Special Charge:
The Company recorded a $7.6 million charge during the third quarter of 1996 for
costs related to (a) the pending purchase of the Company by Republic, (b) the
suspended operations at the Company's West Virginia landfill and (c) an impaired
agreement not to compete.
The costs related to Republic's acquisition of the Company ($1.3 million)
primarily relate to obtaining an opinion from the Company's financial advisor
regarding the fairness of the consideration offered by Republic for the
Company's Shares and various legal, accounting and printing fees incurred in
filing the required information regarding the Republic transaction with the
Securities and Exchange Commission. In addition to this $1.3 million, the
Company expects to incur another $1.1 million in completing the Republic deal in
the fourth quarter of 1996. The majority of such additional costs relate to a
fee payable at closing to a significant shareholder of the Company for services
related to the deal.
During the first quarter of 1996, the Company ceased operations at its West
Virginia landfill and began evaluating its options regarding the facility. The
evaluation was completed in the third quarter of 1996 after a critical analysis
of current and expected future market conditions and various failed attempts to
sell the facility at a reasonable price. Accordingly, management decided to
write-off the Company's investment in the facility which consisted primarily of
land, unamortized landfill costs and equipment. Additionally, since a sale was
no longer being considered, the Company recorded the full amount of the
estimated closure and post-closure costs related to the facility. The total
charge related to this matter amounted to $5.3 million.
The remaining portion of the special charge ($1.0 million) related to the
write-off of the unamortized costs of an agreement not to compete entered into
with the prior owner of a previously-acquired business. With the acquisitions
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<PAGE>
Results of Operations (Continued)
completed during the third quarter of 1996, the Company believes that any new
competition in the area covered by the agreement not to compete is remote.
Interest Expense:
Interest expense was $1.2 million for the third quarter of 1996 compared to
$914,000 for the same period in 1995. The increase in interest expense is
primarily due to a higher borrowing level resulting from the Statewide
acquisition.
Other Income:
The $707,000 increase in other income in 1996 was primarily due to a gain from
the sale of the remaining portion of the Company's minority investment in an
unaffiliated company during the third quarter of 1996.
Provision (Benefit) for Income Taxes:
The provision (benefit) for income taxes was a $886,000 provision for the third
quarter of 1995 and a benefit of $1.9 million for the same period of 1996. This
change was the result of the special charge and the loss incurred in the third
quarter of 1996. No income tax benefit was recorded for the losses associated
with suspended operations at the Company's 662/3 owned landfill in West Virginia
due to the significant uncertainty related to the realizability of such benefit.
Net Income (Loss):
For the reasons discussed above, the Company's net income decreased by $11.0
million from the comparable prior year period.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995 (Restated)
Revenue:
Revenue increased by $20.3 million, or 60.6%, from $33.4 million to $53.7
million. The increase in revenue was primarily due to several 1995 and 1996
acquisitions: two hauling and collection companies in the second quarter and two
hauling companies and a recycling facility in the third quarter of 1995; a
landfill in the fourth quarter of 1995; two construction and demolition
landfills and a recycling center in the first quarter of 1996; two hauling and
collection companies, three recycling centers and three transfer stations in the
third quarter of 1996; as well as growth in base waste collection services.
Operating Expenses:
Operating expenses increased by $20.7 million from $15.4 million to $36.0
million and increased as a percentage of revenue from 45.9% to 67.1%,
respectively. The dollar and percentage increases are partially due to the
fourth quarter 1995 and 1996 acquisitions of non-landfill operations which, on
average, have significantly higher operating costs than do landfill operations.
Additional increases are due to higher operating labor costs and costs incurred
in converting collection routes. Additionally, the Company, pursuant to revised
construction and operating permits and revised state agency mandates at two of
its landfills and the necessity to incorporate a more expensive plastic liner in
the closure plan at a third landfill, recorded expenses of $3.9 million during
the third quarter of 1996.
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<PAGE>
Results of Operations (Continued)
General and Administrative Expenses: General and administrative expenses
increased by $1.9 million from $5.6 million to $7.5 million and decreased as a
percentage of revenues from 16.7% to 13.9%. The percentage decrease was
primarily attributable to synergies obtained with the 1995 acquired companies
somewhat offset by the write-off in the third quarter of 1996 of certain
receivables related to the suspended operations of the Company's West Virginia
landfill. The dollar increase was primarily due to the above mentioned
acquisitions and receivables write-off, offset by compensation expenses related
to certain officers who were terminated in December 1995.
Depreciation and Amortization Expenses:
Depreciation and amortization expenses increased by $3.5 million, from $4.6
million to $8.1 million. The increase was due to the above mentioned
acquisitions, increased capital expenditures and increased landfill cell
amortization due to compliance with Subtitle D Regulations.
Special Charge:
The Company recorded a $7.6 million charge during the third quarter of 1996 for
costs related to (a) the pending purchase of the Company by Republic, (b) the
suspended operations at the Company's West Virginia landfill and (c) an impaired
agreement not to compete.
The costs related to Republic's acquisition of the Company ($1.3 million)
primarily relate to obtaining an opinion from the Company's financial advisor
regarding the fairness of the consideration offered by Republic for the
Company's Shares and various legal, accounting and printing fees incurred in
filing the required information regarding the Republic transaction with the
Securities and Exchange Commission. In addition to this $1.3 million, the
Company expects to incur another $1.1 million in completing the Republic deal in
the fourth quarter of 1996. The majority of such additional costs relate to a
fee payable at closing to a significant shareholder of the Company for services
related to the deal.
As described in Note 2, during the first quarter of 1996, the Company ceased
operations at its West Virginia landfill and began evaluating its options
regarding the facility. The evaluation was completed in the third quarter of
1996 after a critical analysis of current and expected future market conditions
and various failed attempts to sell the facility. Accordingly, management
decided to write-off the Company's investment in the facility which consisted
primarily of land, unamortized landfill costs and equipment. Additionally, since
a sale was no longer being considered, the Company recorded the full amount of
the estimated closure and post-closure costs related to the facility. The total
charge related to this matter amounted to $5.3 million.
The remaining portion of the special charge ($1.0 million) related to the
write-off of the unamortized costs of an agreement not to compete entered into
with the prior owner of a previously-acquired business. With the acquisitions
completed during the third quarter of 1996, the Company believes that any new
competition in the area covered by the agreement not to compete is remote.
Interest Expense:
Interest expense increased by $.2 million from $2.1 million to $2.3 million.
Interest expense was comparable due to the Company maintaining consistent
average borrowing levels.
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<PAGE>
Results of Operations (Continued)
Other Income:
The $1.1 million increase in other income in 1996 was primarily due to a gain
from the sale of the Company's minority investment in an unaffiliated company
during the second and third quarters of 1996.
Provision for Income Taxes:
The provision for income taxes decreased by $2.2 million from $2.4 million to
$208,000 as a result of the special charge and a loss in the 1996 period. No
income tax benefit was recorded for the losses associated with suspended
operation oat the Company's 662/3 owned landfill in West Virginia due to the
significant uncertainty related to the realizability of such benefits.
Net Income (Loss):
For the reasons discussed above, the Company's net income decreased by $10.3
million from the comparable prior year period.
Liquidity and Capital Resources
The Company's cash applications consist principally of working capital, payments
of principal and interest on its outstanding indebtedness, capital expenditures
and acquisitions. At September 30, 1996, the Company had a working capital
deficit of $2.9 million compared to $2.0 million at December 31, 1995. Cash and
cash equivalents balances were $1.6 million at September 30, 1996 versus $3.5
million at December 31, 1995. The decrease in working capital is primarily due
to increased long-term equipment-related borrowings recorded as a current
liability and a larger portion of accrued landfill closure costs recorded as a
current liability.
Cash Flows From Operating Activities:
During the nine months ended September 30, 1996 and 1995, net cash provided by
operating activities was $6.5 million and $5.2 million, respectively. The
increase is primarily due to reflecting the impact of revised construction and
excavation requirements on the Company's landfill operations.
Of the $7.6 million special charge, $6.3 million represents the non-cash
write-off of assets and accrual of closure/post-closure costs. The remaining
$1.3 million (the Republic deal costs) have been spent or will be spent as the
related invoices become due during the fourth quarter of 1996.
Cash Flows From Investing Activities:
During the nine months ended September 30, 1996 and 1995, the Company made
capital expenditures of $19.0 and $15.4 respectively, for landfill expansion and
equipment additions. The Company expects total expenditures for 1996 to be $21.0
million to $23.0 million primarily for existing landfill expansions and
equipment additions. In March 1996, the Company sold its 72% interest in Process
Continental S.A., de C.V., which encompassed all of the Company's Mexico City
operations, for approximately $2.6 million in cash.
In March 1996, the Company purchased two construction and demolition landfills
in central Florida for approximately $2.1 million in Shares of common stock
(195,864 Shares) and $2.1 million in cash. In May 1996, the Company purchased a
residential and commercial collection business for $1.2 million in cash, which
was combined into the Company's Terre Haute, Indiana collection division. In
July 1996 the Company purchased a commercial and residential collection business
and a related transfer and recycling facility in central New Jersey for $8.1
million in Shares of common stock (555,512 Shares), $7.5 million in cash and
$3.0 million in sellers' debt. In September 1996 the Company acquired a
residential and commercial collection business and two related transfer and
recycling facilities in southwest Michigan for 457,001 Shares of common stock.
This transaction was accounted for as a pooling of interests.
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<PAGE>
Liquidity and Capital Resources (Continued)
Cash Flows From Financing Activities:
During the nine months ended September 30, 1996 and 1995, cash flow from
financing activities were $20.0 million and $16.6 million, respectively. The
increase in cash provided by financing activities was primarily due to increased
borrowings in 1996 primarily to fund acquisitions.
In the first quarter of 1996, the Company and the lenders amended the Credit
Facility effective as of January 1, 1996. The Credit Facility expires in January
1999 and is secured by all corporate assets and a pledge of the stock of all
subsidiaries. As amended, each borrowing under the Credit Facility bears
interest based on the Company's leverage ratio, as defined, of funded debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA"). If
the leverage ratio is 2.0 to 1 or less, then the interest rate is, at the
Company's option, prime or LIBOR plus 1.5% and the fee on outstanding letters of
credit is .75%. If the leverage ratio falls between 2.01 to 2.5 compared to 1,
then the interest rate is prime plus .5% or LIBOR plus 1.75% and the fee on
outstanding letters of credit is 1.0%. If the leverage ratio falls between 2.51
and 3.0 compared to 1, then the interest rate is prime plus 1.0% or LIBOR plus
2.0% and the fee on outstanding letters of credit is 1.5%. If the leverage ratio
is greater than 3.0 to 1, then the interest rate is prime plus 1% or LIBOR plus
2.5% and the fee on outstanding letters of credit is 2.0%. The Credit Facility
includes provisions for letters of credit up to $15.0 million. The Company will
also pay a 0.5% fee on the average unused portion of the Credit Facility. As of
September 30, 1996, $23.3 million of unused credit under this facility remained
available.
In April 1996, the Company entered into a $10.0 million facility with B.A.
Leasing & Capital Corporation which will provide funds for capital expenditures.
The capital equipment financed must be delivered to and accepted by the Company
no later than December 31, 1997. As of September 30, 1996, $6.3 million of
unused credit under this facility remained available. Each lease the Company
enters into has a term of six years. Such borrowings will bear interest at the
prevalent market rates.
Under the terms of the Credit Facility, the Company is required to meet certain
covenants regarding, among other things, financial position and results of
operations. The terms of the Credit Facility impose restrictions that affect,
among other things, the Company's ability to (i) incur additional indebtedness,
(ii) create liens on assets, (iii) sell assets, (iv) engage in mergers,
acquisitions or consolidations, (v) make investments, (vi) pay dividends or make
distributions and (vii) engage in certain transactions with affiliates and
subsidiaries.
Under the Credit Facility and the Lease Agreement, the Company is required to
meet certain financial covenants. As of September 30, 1996, the Company was in
violation of such covenants. LNB and B.A. Leasing and Capital Corporation have
issued waivers of non-compliance regarding these covenant violations.
The Credit Facility also contains subjective covenants providing that the
Company would be in default if, in the judgment of the lenders, there is a
material adverse change in the financial condition of the Company.
During the nine months ended September 30,1996 and 1995, the average monthly
amount of debt outstanding was $34.8 million and $34.4 million, respectively.
The average interest rate on such debt for those periods were 8.79% and 8.78%
respectively.
In October 1995, the Company and certain of its stockholders completed a public
offering of 3,780,680 Shares (3,292,760 Shares were sold by the Company and
487,920 Shares were sold by certain stockholders of the Company). The Company
received approximately $30.1 million of net proceeds from the sale. The proceeds
were used to reduce the outstanding indebtedness under the Credit Facility which
provided the Company with renewed borrowing capacity under the Credit Facility
for future acquisitions, capital expenditures and general corporate purposes.
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<PAGE>
Liquidity and Capital Resources (Continued)
The Company believes that cash on hand, cash from operating activities,
additional borrowings under the Credit Facility and the lease facility and the
issuance of additional debt as permitted by the Credit Facility will be
sufficient to: (i) finance its planned 1996 and 1997 development projects and
capital expenditures; (ii) meet its 1996 and 1997 operating cash requirements;
and (iii) meet expected debt service obligations during the remainder of 1996
and 1997.
It is the policy of the Company to accrue the estimated landfill closure and
post-closure maintenance costs expected to be incurred upon and subsequent to
the closing of existing operating landfill areas ratably in relation to the
airspace consumed. Such costs will principally include costs for the final cap
and cover of the landfill area, management of leachate, groundwater monitoring
and general area maintenance.
The Company constructs landfill cells with an average useful disposal life of
two to three years. This construction policy usually results in partial or total
cell closure within two to five years of a cell first accepting waste. Closure
requirements and post-closure care requirements are governed by various state
regulatory agencies and are typically a component of the landfills operating
permit. All of the Company's operating landfills are required to provide 30
years of post-closure care. Closure costs are determined by many factors
including total acreage to be closed, composition of the closure cap, on-site
availability of materials and others. While management estimates such future
costs for each landfill site, such estimates of the amount and timings are fixed
or reliably determinable. Accordingly, the Company's estimate of these costs in
current dollars is inflated at a rate of 4% until the expected time of payment
and then discounted to present value at 8%.
The Company provides for such discounted costs ratably as the airspace in each
cell is consumed. The resulting accrued landfill closure costs are not reduced
by funds set aside by the Company, either voluntarily or by statute, to pay for
such costs. Such funding, if appropriate, is recorded as a long-term asset. Had
the Company not discounted this liability, the amounts recorded would have been
increased by approximately $12.8 million as of December 31, 1995. Total
estimated closure and post-closure costs to be spent after December 31, 1995,
inflated as described above, are approximately $50.4 million of which
approximately $1.6 million, on average, is expected to be expended each year
over the next five years.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) None.
Exhibit Sequential
Number Document Description Page
Number
2.1 Agreement and Plan of Merger by and among Republic Industries, Inc., RI/CW
Merger Corp. Continental Waste Industries, Inc. and Thomas A. Volini and
Carlos E. Aguero, dated June 27, 1996 (incorporated by reference to Exhibit
2.1 to Form 8-K of Continental Waste Industries, Inc. filed on July 15,
1996, Commission File No. 0-22602).
2.2 Acquisition Agreement by and among Continental Waste Industries, Inc.,
Statewide Environmental Contractors, Inc. and the Stockholders of Statewide
Environmental Contractors, Inc., dated April 11, 1996 (incorporated by
reference to Exhibit 2.2 to Form 8-K of Continental Waste Industries, Inc.
filed on July 15, 1996, Commission File No. 0- 22602).
2.3 Acquisition Agreement by and among Continental Waste Industries, Inc.,
Recycling Industries, Inc. and the Stockholders of Recycling Industries,
Inc., dated April 11, 1996 (incorporated by reference to Exhibit 2.3 to
Form 8-K of Continental Waste Industries, Inc. filed on July 15, 1996,
Commission File No. 0-22602).
3.1 Certificate of Incorporation of Continental Waste Industries, Inc.
(incorporated by reference to Exhibit 3.1 to the Annual Report on Form
10-KSB of Continental Waste Industries, Inc. filed on March 31, 1994,
Commission File No. 0-22602).
3.2 By-Laws of Continental Waste Industries, Inc. (incorporated by reference to
Exhibit 3.3 to the Registration Statement on Form SB-2 of Continental Waste
Industries, Inc. filed on November 4, 1994, Commission File No. 33-84130).
3.3 Amendment to Certificate of Incorporation of Continental Waste Industries,
Inc. (incorporated by reference to Exhibit 3.3 to the Registration
Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
November 4, 1994, Commission File No. 33- 84130).
3.4 Amendment 2 to Certificate of Incorporation of Continental Waste
Industries, Inc. (incorporated by reference to Exhibit 3.4 to the Annual
Report on Form 10-KSB of Continental Waste Industries, Inc. filed on March
29, 1996, Commission File No. 0- 22602).
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<PAGE>
10.1 Employment Agreement between Continental Waste Industries, Inc. and Thomas
A. Volini (incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
September 12, 1995, Commission File No. 33- 62589).
10.2 Employment Agreement between Continental Waste Industries, Inc. and Carlos
E. Aguero (incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
September 12, 1995, Commission File No. 33- 62589).
10.3 Employment Agreement between Continental Waste Industries, Inc. and Michael
J. Drury (incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
September 12, 1995, Commission File No. 33- 62589).
10.4 Employment and Stock Option Agreements between Continental Waste
Industries, Inc. and Jeffrey E. Levine.
10.5 Credit Agreement by and among LaSalle National Bank as agent, the Lenders
Signatory or Parties Thereto and Continental Waste Industries, Inc. and its
Subsidiaries (incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
September 12, 1995, Commission File No. 33-62589).
10.6 First Amendment to Credit Agreement by and among LaSalle National Bank as
agent, the Lenders Signatory or Parties Thereto and Continental Waste
Industries, Inc. and its Subsidiaries (incorporated by reference to Exhibit
10.8 to the Registration Statement on Form SB-2 of Continental Waste
Industries, Inc. filed on September 12, 1995, Commission File No.
33-62589).
10.7 Second Amendment to Credit Agreement by and among LaSalle National Bank as
agent, the Lenders Signatory or Parties Thereto and Continental Waste
Industries, Inc. and its Subsidiaries (incorporated by reference to the
Current Report on Form 8-K to Continental Waste Industries, Inc. filed on
October 27, 1995, Commission File No. 0-22602).
10.8 Third Amendment to Credit Agreement by and among LaSalle National Bank as
agent, the Lenders Signatory or Parties Thereto and Continental Waste
Industries, Inc. and its Subsidiaries (incorporated by reference to Exhibit
10.7 to the Annual Report on Form 10- KSB of Continental Waste Industries,
Inc. filed on March 29, 1996, Commission File No. 0-22602).
10.9 Fourth Amendment to Credit Agreement by and among LaSalle National Bank as
agent, the Lenders Signatory or Parties Thereto and Continental Waste
Industries, Inc. and its Subsidiaries (incorporated by reference to Exhibit
10.8 to the Quarterly Report on Form 10-Q of Continental Waste Industries,
Inc filed on August 14, 1996, Commission File No. 0-22602).
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<PAGE>
10.10Agreement of Sale between Lomac Realty and Karat Corp., dated April 11,
1996 (incorporated by reference to Exhibit 2.4 to Form 8-K of Continental
Waste Industries, Inc. filed on July 15, 1996, Commission File No.
0-22602).
10.11Override Agreement Respecting Closing Consideration among Continental Waste
Industries, Inc., CWI of NJ, Inc., Statewide Environmental Contractors,
Inc., Recycling Industries, Inc., Lomac Realty, Mary Lemmo, Nicholas Lemmo,
Maurice Kirchofer, Don J. Lotano, Frank J. Lotano, Arline M. Lotano and
Joseph Lemmo, dated June 28, 1996 (incorporated by reference to Exhibit 2.5
to Form 8-K of Continental Waste Industries, Inc. filed on July 15, 1996,
Commission File No. 0-22602).
10.12Non-Compete Agreement (Schedule 2.2(k) among Recycling Industries, Inc.,
Continental Waste Industries, Inc., Don J. Lotano, Frank J. Lotano, Arline
Lotano (the "Stockholders") and among CWI, Stockholders, Maurice Kirchofer
and Joseph Lemmo, dated April 11, 1996, (incorporated by reference to
Exhibit 2.6 to Form 8-K of Continental Waste Industries, Inc. filed on July
15, 1996, Commission File No. 0-22602).
b) Reports on Form 8-K:
On July 12, 1996, the Company filed a report on Form 8-K under "Item 2.
Acquisition or Disposition of Assets", "Item 5. Other Events", and "Item 7.
Financial Statements and Exhibits". The historical and proforma financial
information required under "Item 7. Financial Statements and Exhibits" were
filed on Form 8-K Amendment No. 1 on August 9, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December , 1996
By: /s/ Michael J. Drury
MICHAEL J. DRURY
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER and
PRINCIPAL FINANCIAL OFFICER
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This Agreement (herein so called) is made and entered into as of the 4th
day of January 1995, by and between Continental Waste Industries, Inc., a New
Jersey corporation (hereinafter referred to as "Employer"), and Jeffrey E.
Levine, (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, as Executive Vice President and General Counsel and to
provide Employee with the opportunity to become a shareholder in the Employer as
provided herein, all upon the terms and conditions hereinafter set forth; NOW,
THEREFORE, in consideration of the premises, and of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment by Employer. Employer employs Employee, for the Term (as
herein defined), to render full-time services to Employer as its Executive Vice
President and General Counsel and, in connection therewith, to manage its
operations and that of its subsidiaries. Employee will perform the duties that
are consistent with such position as he shall reasonably be directed to perform
by Employer's Board of Directors.
1.2 Acceptance of Employment. Employee accepts such employment and shall
render the services described above.
1.3 Place of Employment. Employee's principal place of employment shall be
Employer's corporate offices in Clark, New Jersey subject to reasonable travel
as the rendering of the services hereunder may require.
2. Term.
The term of Employee's employment by Employer hereunder (the "Employment
Period") shall be for a period of three (3) years from the effective date, as
defined in Paragraph 13 hereof (the "Effective Period"), subject to the
termination provisions of Sections 9.1 through 9.5 hereof. There shall be
automatic one (1) year extensions of the Employment Period thereafter unless
this Agreement is terminated upon 30 days written notice by Employer or unless
superseded by subsequent Agreement by the parties.
3. Compensation.
During the Employment Period, for all services rendered by Employee under this
Agreement, Employer shall pay Employee a salary at the annual rate of One
Hundred Forty Thousand Dollars ($140,000) from the Effective Date hereof and
during the first three years hereof, with increases as the Board of Directors of
Employer determines from time to time, plus a nonaccountable "transportation
allowance," payable monthly on the first business day of each month, in the
amount of Five Hundred Dollars $500 per month. Such salary then in effect ("Base
Salary") is payable in accordance with the customary payroll policy of Employer
in effect at the time such payment is made, or as may otherwise be mutually
agreed upon by the parties. In addition to his Base Salary, Employee will
participate in a management incentive plan, the terms of which shall be
determined by the Board of Directors of the Employer.
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<PAGE>
3.1 Incentive Compensation. Employee is eligible to participate in such
annual executive incentive compensation program as developed and implement by
the Board of Directors, said incentive compensation program to include cash
bonuses and stock option grants, to be based on overall Company performance, in
such amounts or percentages of base salary as determined by, and in the sole
discretion of, the Board of Directors.
3.2 Loans. Employer shall from time to time as Employee may request make
loans up to an aggregate of fifteen percent (15%) of Employee's annual salary to
Employee, provided that such loans may be made on a monthly basis equal to
one-twelfth of the aggregate. All such loans must be repaid in full every
eighteen months. Interest shall accrue at the applicable federal rate defined by
the Internal Revenue Code of 1986.
4. Benefits.
Employee shall be entitled to such paid vacation, holidays, sick leave, and
shall be eligible for participation in such group insurance, hospitalization,
major medical, dental, profit sharing, stock options, and other fringe benefit
programs as those afforded executives of Employer; provided, however, that
Employer shall provide in the Employee's name life insurance in the face amount
of not less than Two Hundred Fifty Thousand Dollars ($250,000), and subject to
the provisions of Section 6.2, Employer may elect to provide disability
insurance (the "Disability Policy") with disability benefits of not less than
Two Hundred Fifty Thousand Dollars ($250,000) in the event of permanent total
disability (as defined in the insurance policy) of the Employee. In addition,
Employer agrees to reimburse Employee for all reasonable out-of-pocket expenses
incurred by Employee in the fulfillment of his duties hereunder, including
travel expenses. Such reimbursements will be made promptly, within thirty (30)
days of Employee's submission to Employer of an itemized list of such expenses,
together with receipts therefor indicating the date upon and the purpose for
which such expenses were incurred and such other information as may be
reasonably required from time to time by Employer to substantiate such
expenditures for federal income tax purposes.
5. Status as Employee.
At all times during the Employment Period, Employee shall be deemed to be an
Employee of Employer for purposes of determining Employee's coverage under and
eligibility to participate in, any Employee benefit plans or programs which
Employer now has or may hereafter initiate. In the event it is necessary to
amend any such plan or program in order to assure that Employee is not
discriminated against thereunder, Employer will promptly use its best efforts to
make all such amendments or cause the same to be made.
6. Options Grant Provisions.
6.1 Issuance of Options. Upon the execution of this Agreement, but subject
to the terms and conditions of Clauses 6, 7 and 8 hereof, Employer shall cause
to be issued to Employee 15,000 option to purchase a like number of shares of
common stock of Continental Waste Industries, Inc. at $9.50 per share (the
"Options").
6.2 Vesting. Although the Options shall be delivered on execution hereof,
Employee's ownership rights in the Options shall become vested ratably over
twelve (12) calendar quarters (the "Vested Options"), and shall expire five (5)
years from the date on which they become fully vested, PROVIDED, however, that,
unless otherwise provided for in this Agreement, each vesting will occur only if
Employee remains actively employed on the vesting date specified.
6.3 Restriction on Shares. Employee hereby covenants and agrees that he
shall not sell, transfer, mortgage, pledge or otherwise encumber any of the
unvested Options, or any interest therein. Any such attempt to so transfer or
encumber the unvested Options shall be null and void until such time as all of
the shares are vested under this Agreement.
6.4 Restriction: Unvested Shares and Transfer to Employer. In the event of
any voluntary or involuntary termination of Employee's employment, excluding
death or disability as those terms are described in Section 9 hereof
(hereinafter jointly and severally referred to as "Employment Termination"),
Employee hereby covenants and agrees that: within fifteen (15) days of the date
of Employment Termination, Employee shall transfer to Employer the Unvested
Options. In the event of death or disability as defined in Section 9.2 before
completion of vesting period, unvested Options will become fully vested.
6.5 Assignment. The right of Employer to receive any of the Unvested
Options may be assigned in whole or in part to one or more Employees, officers,
directors or shareholders of Employer or other persons or organizations.
-2-
<PAGE>
6.6 Changes in Common Stock of Employer. If from time to time during the
term of this Agreement:
6.6.1 There is a dividend of any security, stock split or other change
in the character or amount of any of the outstanding securities of
Employer; or
6.6.2 There is any consolidation, merger or sale of all, or
substantially all, of the assets of Employer, then, in such event, any and
all new, substituted or additional securities or other property to which
Employee is entitled by reason of his ownership of the Options or the
shares deliverable upon their exercise shall be immediately subject to the
provisions of this Agreement and be included in the definition "Option",
"Unvested Options" and "Vested Options" on a pro rata basis based upon the
number of vested and unvested shares then held by Employee for all purposes
of this Agreement with the same force and effect as the stock presently
subject to this Agreement and with respect to which such securities or
property were distributed. Whenever a specific number of Options is stated
in this Agreement that number shall be amended so as to reflect the
original intention of the parties.
6.7 Restrictive Legend. Shares of commons stock issued on exercise of the
Vested Options shall bear the following restrictive legends:
"[I] THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHTS OF PURCHASE IN FAVOR OF
CONTINENTAL WASTE INDUSTRIES, INC. AS SET FORTH IN AN AGREEMENT MADE
BETWEEN THE HOLDER OF THE SECURITIES AND CONTINENTAL WASTE INDUSTRIES,
INC. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF CONTINENTAL WASTE INDUSTRIES, INC. ANY ATTEMPT TO
TRANSFER ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN
VIOLATION OF SUCH RESTRICTIONS AND RIGHTS OF PURCHASE SHALL BE VOID.
[II] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, OR
PURSUANT TO RULE 144 UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT".
6.8 In the event of public offering of stock for sale, Shares issued to
Employee on exercise of his Vested Options shall be registered under the
Securities Act of 1933 at the expense of Employer. Employee may be restricted
from offering the Shares for sale for 120 days from the date of the public
offering.
7. Representations and Warranties of Employee. Employee hereby represents
and warrants that:
7.1 Investment. Employee is acquiring the Options for his own account, and
not for the account of any other person and is acquiring them for investment and
not with any view to distribution or resale thereof except in compliance with
the applicable security laws;
7.2 Registration. The offer and sale of the Options and the Shares for
which they may be exercised has not been registered under or qualified under the
Securities Act of 1933, as amended ["the Act"], and the Options and/or Shares
cannot be transferred by Employee unless registration or qualification under the
Act or an exemption from such registration or qualification is available.
Employer has made no Agreements, covenants or undertakings whatsoever to
register any of the Options and/or Shares granted to Employee under the Act.
Employer has made no representations, warranties or covenants whatsoever as to
whether any exemption from the Act will be available;
7.3 Tax Advice. Employer has made no representations or warranties to
Employee with respect to the income tax consequences of the transactions
contemplated by this Agreement and Employee is in no manner relying upon
Employer or Employer's representatives for an assessment of such tax
consequences. Employee has retained his own legal counsel for such advice; and
7.4 Employer Induced. Employer relies on the statements made by Employee in
Sections 7.1 and 7.3 inclusive and was, based on these statements, induced to
issue the Options to Employee on the terms and conditions herein contained.
8. Termination.
8.1 Termination upon Death. If Employee dies during the Term, this
Agreement shall terminate, except that the representative of Employee's estate
shall be entitled to receive the compensation herein provided for the month in
which death occurs, the amount accrued and payable under Section 3.1 hereof,
less the amount of any outstanding loans under Section 3.2 hereof.
-3-
<PAGE>
8.2 Termination upon Disability. If during the Term, Employee becomes
physically or mentally disabled, whether totally or partially, so that Employee
is unable substantially to perform his services hereunder for (i) a period of
six consecutive months, or (ii) for shorter periods aggregating six months
during any consecutive twelve month period (Employee's disability for such
period "Disability"), Employer may, at its option, at any time after the last
day of the six consecutive months of disability or the day on which such shorter
periods of disability during any consecutive twelve month period equal an
aggregate of six months, by written notice to Employee, terminate the Term of
Employee's employment hereunder. Nothing in this Section 9.2 shall be deemed to
extend the Term. Upon such termination, Employee shall be entitled to receive
the compensation herein provided for the month in which termination occurs, the
amount accrued and payable under Section 3.1 hereof less the amount of any
outstanding loans under Section 3.2 hereof plus his Base Salary for a period of
fifteen (15) months thereafter, unless Employer elects to purchase the
Disability Policy described in Section 4.
8.3 Termination for Cause. If Employee grossly neglects his duties
hereunder and such gross neglect shall not be discontinued promptly after
written notice thereof, is convicted of any felony, fails or refuses to comply
with the reasonable written policies of Employer or directives of the Board of
Directors of Employer that are not inconsistent with his position and such
failure shall not be discontinued promptly after written notice thereto, or
materially breaches affirmative or negative covenants or undertakings hereunder
and such breach shall not be remedied promptly after written notice thereof,
Employer may at any time by thirty days written notice to Employee terminate the
Term of Employee's employment hereunder. Except for accrued and unpaid salary to
the date of termination, Employee shall have no right to receive any
compensation or benefit from Employer hereunder or to receive any Shares which
are unvested on the date the notice is sent.
8.4 Voluntary Termination. In the event Employee voluntarily terminates his
employment with Employer, during or after the Employment Period, Employee shall
have no right to receive any compensation or benefit from Employer hereunder,
except for accrued and unpaid compensation due on the date of such termination,
and Employee's right to vesting of Options pursuant to Section 6.2 shall
terminate upon the date he gives notice of his intent to terminate.
9. Certain Covenants of Employee.
9.1 Covenants Against Competition. acknowledges that (i) the principal
businesses of Employer involve brokerage of solid waste transport and disposal,
operation and management of solid waste disposal facilities, consulting services
for the solid waste industry, recycling of solid waste and brokerage of
recycling services and materials, and such other and related activities as
Employer may become involved in; (ii) the Employer Business is national in
scope; and (iii) his work for Employer has brought him and will continue to
bring him into close contact with many confidential affairs not readily
available to the public. In order to induce Employer to enter into this
Agreement, Employee covenants and agrees that:
9.1.1 Non-Compete. (a) During Employee's employment with Employer, its
subsidiaries or its affiliates, Employee shall not in the Eastern United
States, including any market region Employer, its subsidiaries or
affiliates has done or contemplates doing business, directly or indirectly,
(i) engage in a business which is competitive with the Employer Business
for his own account; (ii) except for employment by Employer, its
subsidiaries or affiliates, enter the employ of, or render any services to,
any person engaged in such activities; and (iii) become interested in any
person engaged in a business which is competitive with the Employer
Business, directly or indirectly, as an individual, partner, shareholder,
officer, director, principal, agent, Employee, trustee, consultant or in
any other relationship or capacity; provided, however, that Employee may
own, directly or indirectly, solely as an investment, securities of any
entity which are traded on any national securities exchange or in the
over-the-counter market if Employee (a) is not a controlling person of, or
a member of a group which controls, such entity or (b) does not, directly
or indirectly, own 1% or more of any class of securities of such entity.
(b) for a period of two (2) years following the termination
(whether voluntary or involuntary) of Employee's employment with Employer or any
of its affiliates or subsidiaries, Employee shall not in the Untied States of
America directly or indirectly, contact, solicit, sell to, serve or divert
anyone who was a transporter or customer of Employer or did business with
Employer or of any of its affiliates during Employee's employment with Employer.
9.1.2. Confidential Information. During and after the term of
Employee's employment with Employer, Employee shall keep secret and retain
in strictest confidence, and shall not use for the benefit of himself or
others except in connection with the business and affairs of Employer, all
confidential matters of Employer and its subsidiaries or affiliates,
including, without limitation, trade "know-how", secrets, customer lists,
details of contracts, pricing policies, operational methods, marketing
plans or strategies, business acquisition plans, new personnel acquisition
plans, research projects, and other business affairs of Employer, its
subsidiaries, or affiliates, heretofore or hereafter, and shall not
disclose them to anyone, either during or after employment by Employer,
except as required in the course of performing duties hereunder or with
Employer's express written consent.
9.1.3 Property of Employer. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee or
made available to Employee concerning the business of Employer, its
subsidiaries or its affiliates shall be Employer's property and shall be
delivered to Employer promptly upon the termination of Employee's
employment with Employer, or at any other time on request.
9.1.4. Employees of Employer. During Employee's employment with
Employer, and for a period of two years following the termination (whether
voluntary or involuntary) of Employee's employment with Employer or any of
its subsidiaries or affiliates (the "Restricted Period"), Employee shall
not, directly or indirectly, solicit or encourage any Employee of Employer,
its subsidiaries or its affiliates to leave the employment of Employer, its
subsidiaries or its affiliates.
-4-
<PAGE>
9.2 Rights and Remedies upon Breach. If Employee breaches,or threatens to
commit a breach of, any of the provisions of Section 9.1 (the "Restrictive
Covenants"), Employer shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to Employer under law or
in equity:
9.2.1 Accounting. The right and remedy to require Employee to account
for and pay over to Employer all compensation, profits, monies, accruals or
other benefits (collectively, "Benefits") derived or received by Employee
as the result of any transactions constituting a breach of any of the
Restrictive Covenants, and Employee shall account for and pay over such
Benefits to Employer.
9.3 Injunctive Relief. Employee acknowledges that due to the confidential
nature of his employment relationship, any breach of the Restrictive Covenants
by Employee shall cause irreparable harm to Employer and Employer may, at its
option, obtain injunctive relief. Employee further acknowledges that the scope
and content of the Restrictive Covenants are reasonable.
9.4 Severability of Covenants. If a Court of competent jurisdiction
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
9.5 Blue-Pencilling. If a Court of competent jurisdiction construes any of
the Restrictive Covenants, or any part thereof, to be unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
10. Indemnification.
Employer shall indemnify and defend Employee if Employee is made a party, or
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that Employee is or was an officer or director or Employee of
Employer or any of its subsidiaries or affiliates, in which capacity Employee is
or was serving, including, without limitation, claims of professional
malpractice against the Employee, against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding to
the fullest extent and in the manner set forth in and permitted by the general
corporation law of the state of incorporation of Employer, and any other
applicable law, as from time to time in effect. In addition, Employer shall
maintain in force and effect at all times during the term hereof: (a) Lawyers
Professional Liability Insurance, in the face amount of $5,000,000/$5,000,000),
with a deductible of $10,000/$25,000, and (b) Directors & Officers Insurance and
Company Reimbursement Coverage, in the face amount of $1,000,000.
11. No Conflicting Agreement.
Employee represents and warrants that as of the effective date of this
Agreement, he will not be a party to any Agreement, contract or understanding
which would in any way restrict or prohibit him from undertaking or performing
his employment in accordance with the terms and conditions of this Agreement.
12. Effective Date.
This Agreement shall become effective as of January 4, 1995.
13. Other Provisions.
13.1 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed or telexed, or sent by certified, registered or express mail,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed or telexed, or if mailed, two days after the date of mailing, as
follows:
(i) Employer: Carlos E. Aguero 67 Walnut Avenue, Suite 103 Clark, New
Jersey 07066
(ii) Employee: Employee's home address as indicated in the personnel
records of Employer.
13.2 Entire Agreement. This Agreement contains the entire Agreement between
the parties with respect to the subject matter hereof and supersedes all prior
Agreements, written or oral, with respect thereto.
13.3 Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. 13.4 Governing
Law. The parties hereto have relied on New Jersey law in negotiating this
Agreement, which has been negotiated, prepared and executed in New Jersey, and
it is expressly agreed that this Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey applicable to Agreements
made and to be performed entirely within such State, without reference to the
conflicts of laws provisions of the State of New Jersey.
-5-
<PAGE>
13.5 Assignment. This Agreement, and the Employee's rights and obligations
hereunder, may not be assigned by Employee. Employer may assign this Agreement
and its rights, together with its obligation, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its assets or
business, whether by merger, consolidation or otherwise.
13.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13.7 Heading. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CONTINENTAL WASTE INDUSTRIES, INC.
EMPLOYER
By: /s/ Carlos E. Aguero
Title: President and C.E.O.
EMPLOYEE
/s/ Jeffrey E. Levine
-6-
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made as of the 4th day of January, 1995, by
and between CONTINENTAL WASTE INDUSTRIES, INC. (the "Company") and JEFFREY E.
LEVINE (the "Holder").
W H E R E A S:
A. The Holder is Executive Vice President, General Counsel and an employee of
the Company, providing management and legal services to the Company (an
"Employee").
B. The effective date of this Agreement and the date for reference shall be as
of and from the 4th day of January, 1995.
NOW THEREFORE WITNESSETH:
1. The Company hereby grants to the Holder upon the terms and conditions
hereinafter contained, the sole and exclusive right and option to purchase all
or part of Fifteen Thousand (15,000) shares of its capital as fully paid and
non-assessable freely trading shares, at a price of $9.50 per share (the "option
shares"), the grant of such option being subject always to the vesting and
termination provisions as set out in paragraphs 2 and 3 hereof.
2. The options granted herein shall become vested ratably over twelve calendar
quarters, i.e., 1,250 options shall become vested on each of the following
dates: April 1, 1995, July 1, 1995, October 1, 1995, January 1, 1996, April 1,
1996, July 1, 1996, October 1, 1996, January 1, 1997, April 1, 1997, July 1,
1997, October 1, 1997 and January 1, 1998, provided that Holder remains employed
by the Company on the specified vesting date. Except as otherwise provided
herein, the options shall expire five years from the date on which they become
fully vested.
3. In the event of the death of the Holder during the term of the options
granted to the Holder under this Agreement, the Holder's personal
representatives shall be entitled to purchase all or any part of the vested
option shares; PROVIDED ALWAYS that the option is exercised and the payment is
tendered within one (1) year of the date of death, SAVE AND EXCEPT that the
vesting of options shall cease and upon the Holder's death.
4. If the Holder at any time and from time to time during the option period
desires to purchase any of the option shares, the Holder may do so by giving
notice to the Company within the time or times herein limited for exercise of
the option and by tendering to the Company at its Registered Office or Head
Office the Holder's certified cheque in favour of the Company in the full amount
of the purchase price payable hereunder for such number of the shares comprised
in the election. The Company shall be required to register, at the Company's
expense, the purchased option shares by S-8 Registration Statement or otherwise,
within six (6) months of any such notice, but not more one time per year.
5. The option granted under this Agreement is non-assignable and
non-transferable.
6. (a) Save and except in the case of the issuance of additional shares
of the Company for a consideration, in the case of any reclassification or
reorganization of the capital of the Company or in the case of the merger
or amalgamation of the Company with or into any other company, or if and
whenever the shares of the Company are subdivided into a greater number or
consolidated into a lesser number of shares, or in the event of any payment
by the Company of a stock dividend, then as a condition of such
reclassification or reorganization of capital, merger, amalgamation,
subdivision, consolidation or payment of a stock dividend, this option
shall be adjusted and lawful and adequate provision shall be made whereby
the Holder hereof shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this Option
Agreement and in lieu of the shares of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares
equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reclassification or reorganization of capital, merger,
amalgamation, subdivision, consolidation or payment of a stock dividend not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation provisions for adjustments
of the option price and of the number of shares purchasable upon the
conversion of this option) shall thereafter be applicable, as nearly as may
be in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
-1-
<PAGE>
(b) The adjustments provided for in this section in the subscription
rights pursuant to this option are cumulative.
(c) If any question shall at any time arise with respect to any
adjustments to be made under this Clause 6, such question shall be
conclusively determined by the Company's auditor, and such determination
shall be binding upon the Company and the Holder.
7. This Agreement shall enure to the benefit of the Holder and shall to the
extent hereinbefore provided enure to the benefit of the Holder's heirs,
executors and administrators.
8. This Agreement shall be interpreted in connection with that certain
Employment Agreement of even date herewith by and between the Company and
Holder, which is incorporated herein by reference, including, without
limitation, Holder's representations and warranties contained in Paragraph 7 of
the Employment Agreement. Any inconsistencies between this Option Agreement and
the Employment Agreement shall be resolved in favor of the Employment Agreement.
IN WITNESS WHEREOF the parties hereto have caused these presents to be
executed as and from the day, month and year first above written.
CONTINENTAL WASTE INDUSTRIES, INC.
By: /s/ Carlos E. Aguero
Title: President and C.E.O.
HOLDER /s/ Jeffrey E. Levine
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at September 30, 1996 and Consolidated
Statement of Operations for the nine (9) months ended September 3o, 1996,
and is qualified in its entirety by reference to such financial statements.
(Restated
See Note 1)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 1,601,079
<SECURITIES> 0
<RECEIVABLES> 12,983,634
<ALLOWANCES> 1,102,575
<INVENTORY> 0
<CURRENT-ASSETS> 17,353,754
<PP&E> 129,912,395
<DEPRECIATION> 19,883,121
<TOTAL-ASSETS> 163,495,411
<CURRENT-LIABILITIES> 20,233,811
<BONDS> 0
0
0
<COMMON> 9,257
<OTHER-SE> 75,534,188
<TOTAL-LIABILITY-AND-EQUITY> 163,495,411
<SALES> 0
<TOTAL-REVENUES> 53,708,980
<CGS> 0
<TOTAL-COSTS> 51,752,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 786,695
<INTEREST-EXPENSE> 2,293,831
<INCOME-PRETAX> (6,697,820)
<INCOME-TAX> 207,711
<INCOME-CONTINUING> (6,905,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,905,531)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
