<PAGE>
This Quarterly Report is filed by Norcal Waste Systems, Inc.
pursuant to certain contractual requirements and not
pursuant to the Securities Exchange Act of 1934
and the rules and regulations thereunder.
QUARTERLY REPORT
For the quarterly period ended June 30, 1997
NORCAL WASTE SYSTEMS, INC.
(Exact name of company as specified in its charter)
CALIFORNIA 94-2922974
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Thomas Mellon Circle, Suite 304
San Francisco, California 94134
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (415) 330-1000
----------------
Norcal Waste Systems, Inc. is currently 100% owned by an employee stock
ownership plan.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date. On August 12, 1997, there
were 24,134,973 shares of $.01 par value Common Stock outstanding.
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
June 30, September 30,
1997 1996
---------- -------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $20,925 $14,378
Marketable securities 5,552 6,889
Trust accounts, current portion 3,808 4,066
Accounts receivable, less allowance for doubtful
accounts of $1,966 at June 30, 1997 and $1,611
at September 30, 1996 39,075 37,554
Other receivables 924 1,566
Parts and supplies 2,515 2,434
Prepaid expenses 4,568 3,836
-------- --------
Total current assets 77,367 70,723
-------- --------
Property and equipment:
Land 44,558 42,691
Landfills 24,692 24,481
Buildings and improvements 45,829 43,189
Vehicles and equipment 111,687 107,822
Construction in progress 4,568 4,412
-------- --------
Total property and equipment 230,891 222,595
Less accumulated depreciation and amortization 93,735 85,448
-------- --------
Property and equipment, net 137,156 137,147
-------- --------
Franchises, permits and other intangibles, net 77,792 76,166
Trust accounts 28,724 24,209
Prepaid pension costs 2,442 3,090
Deferred financing costs, net 8,596 9,636
Other assets 467 264
-------- --------
Total other assets 118,039 113,365
-------- --------
Total assets $332,562 $321,235
======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
June 30, September 30,
1997 1996
---------- -------------
Liabilities and Stockholder's Equity
<S> <C> <C>
Current liabilities:
Current portion:
Long-term debt $306 $354
Capital lease obligations 1,013 935
Accounts payable 8,065 12,133
Accrued expenses 43,994 44,632
Deferred revenues 3,318 2,722
Other accrued liabilities 4,775 5,091
-------- --------
Total current liabilities 61,471 65,867
-------- --------
Long-term debt 174,025 172,386
Obligations under capital leases 2,295 3,065
Deferred income taxes 12,021 12,503
Landfill closure liability 19,911 18,668
Postretirement medical benefits 33,061 33,318
Other liabilities 11,950 9,311
-------- --------
Total liabilities 314,734 315,118
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value; 100,000,000 shares
authorized;
24,134,973 shares issued and outstanding 241 241
Additional paid-in-capital 166,378 166,378
Accumulated deficit (109,555) (112,915)
Unrealized gains and losses on securities (169) 581
-------- --------
56,895 54,285
Less net scheduled contribution to the ESOP (39,067) (48,168)
-------- --------
Total stockholder's equity 17,828 6,117
-------- --------
Total liabilities and stockholder's equity $332,562 $321,235
======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $79,959 $71,228 $231,027 $208,632
Cost of operations:
Operating expenses 54,726 49,537 162,831 146,016
Depreciation and amortization 5,035 4,280 14,647 13,710
ESOP compensation expense 3,476 (232) 10,426 3,311
General and administrative 8,420 7,860 24,572 22,784
------- ------- -------- --------
Total cost of operations 71,657 61,445 212,476 185,821
Operating income 8,302 9,783 18,551 22,811
Interest expense (6,459) (6,403) (19,159) (17,882)
Interest income 705 443 1,526 1,238
Gain (loss) on dispositions, net 49 321 156 (519)
Settlement of litigation - - - (3,648)
Other income (expense) (47) (398) 2,286 (906)
------- ------- -------- --------
Income from operations
before income taxes and
and extraordinary item 2,550 3,746 3,360 1,094
Income tax expense - - - -
------- ------- -------- --------
Income before
extraordinary item 2,550 3,746 3,360 1,094
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - - 31,379
------- ------- -------- --------
Net income $2,550 $3,746 $3,360 $32,473
======= ======= ======== ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the nine months ended June 30, 1997
(in thousands)
(unaudited)
<CAPTION>
Unrealized Net
Additional gains and scheduled
Common Stock paid-in Accumulated losses on contribution
Shares Amount capital deficit securities to the ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1996 24,135 $241 $166,378 ($112,915) $581 ($48,168) $6,117
Contributions to reduce
ESOP debt, net - - - - - 9,101 9,101
Net income - - - 3,360 - - 3,360
Net activity on available
for sale securities - - - - (750) - (750)
------- -------- --------- ---------- ---------- --------- ---------
Balances, June 30, 1997 24,135 $241 $166,378 ($109,555) ($169) ($39,067) $17,828
======= ======== ========= ========== ========== ========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
June 30,
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,360 $32,473
Extraordinary gain on early extinguishment of
long-term debt - (31,379)
--------- --------
Income before extraordinary gain 3,360 1,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,647 13,710
ESOP compensation expense 10,163 3,091
Senior notes interest and amortized financing costs (4,473) 3,881
Other (2,775) (2,371)
Changes in assets and liabilities, net of
effects of acquisitions and dispositions (139) (9,898)
--------- --------
Net cash provided by operating activities 20,783 9,507
--------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (11,474) (15,467)
Payments for businesses acquired (3,495) -
Proceeds from dispositions 361 1,204
Withdrawals from restricted cash and trust accounts - 9,554
Proceeds from the sales of marketable securities 1,350 -
Other 42 (327)
--------- --------
Net cash used in investing activities (13,216) (5,038)
--------- --------
<PAGE>
Cash flows from financing activities:
Proceeds from senior debt - 170,172
Principal payments on long-term debt and capitalized
leases (1,020) (97,459)
Principal payments on subordinated debt - (73,061)
Proceeds from long-term debt and capitalized leases - 676
Payment on notes receivable from ESOP - 3,531
Deferred financing costs - (9,944)
--------- --------
Net cash used in financing activities (1,020) (6,085)
--------- --------
Net increase (decrease) in cash and cash equivalents 6,547 (1,616)
Cash and cash equivalents, beginning balance 14,378 8,416
--------- --------
Cash and cash equivalents, ending balance $20,925 $6,800
========= ========
Supplemental schedule of net cash paid for:
Interest $23,783 $13,597
========= ========
Income taxes - $3,713
========= ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
Notes to Consolidated Financial Statements
(1) General
The interim consolidated financial statements presented herein include Norcal
Waste Systems, Inc. ("Norcal") and its subsidiaries (collectively, Norcal and
its subsidiaries are referred to herein as the "Company"). These interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto, which
include information as to significant accounting policies, for the year ended
September 30, 1996. Such interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments necessary
(consisting of items of a normal recurring nature) for a fair presentation of
the Company's interim financial position, results of operations, and cash
flows. Results of operations for interim periods are not necessarily
indicative of those of a full year.
(2) Nature of Business
Through its subsidiaries, the Company provides integrated waste services to
residential, commercial, municipal and industrial customers in California.
The Company's services include refuse collection, recycling and other waste
diversion, transfer station and hauling operations, and operation of
Company-owned landfills and third party landfill management services
(including engineering and construction management services). The Company
continues to be, with limited exceptions, the sole provider of commercial and
residential refuse collection for the City and County of San Francisco.
(3) Business Acquisitions
On November 18, 1996, the Company completed the acquisition of substantially
all of the assets of a solid waste business in Butte County. Results of
operations of this entity have been included in the consolidated financial
statements from the acquisition date. The Company paid $2.6 million in cash
and issued a note with a face value of $2.0 million repayable over 20 years
at 6.5% interest. The note was discounted to $1.7 million to yield an imputed
rate of 8.75%. The purchase price was allocated to the assets acquired based
on estimates of their relative fair value. As a result, the financial
information included in the Company's consolidated financial statements is
subject to adjustment prospectively as subsequent revisions to the fair
value, if any, are determined.
In February and April 1997, the Company acquired certain assets from
businesses operating in the collection and disposal of medical wastes.
At June 30, 1997, the Company had paid $0.9 million in cash and expects to
make a final payment of $0.2 million based on the terms in one of the
acquisition agreements.
<PAGE>
(4) Long-term Debt and Subordinated Notes Refinancing
<TABLE>
Long-term debt at June 30, 1997 and September 30, 1996 is summarized
as follows:
(in thousands)
<CAPTION>
June 30 September 30
----------- ------------
<S> <C> <C>
Senior Notes due November 15, 2005, interest
at 13.25% adjusting to 13.5% by November 16, 1997
if certain conditions are not met $170,604 $170,392
Note payable for business acquired due in monthly
installments through 2016, interest imputed at 8.75% 1,666 -
Notes payable to former shareholders, due in
monthly installments through 2017, interest
at 6% to 8.5% 807 850
Other Notes 1,254 1,498
---------- -----------
Total debt 174,331 172,740
Less current portion 306 354
---------- -----------
Long-term debt $174,025 $172,386
========== ===========
</TABLE>
On November 21, 1995, the Company completed a private debt offering of $175.0
million in Senior Notes (the "Senior Notes"). The Senior Notes mature in
November 2005 with interest payable semi-annually. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time
during or after November 2000. Prior to this date, the Senior Notes may be
partially redeemed in the event of a public offering, or would be required to
be redeemed in the event of a change in control of the Company. The Senior
Notes are unsecured and rank pari passu in right of payment to all existing
and future senior indebtedness of the Company. The Senior Notes are
guaranteed, on a senior unsecured basis, by the Company's wholly-owned
subsidiaries. The Indenture governing the Senior Notes contains provisions
which, among other things, (i) limit the Company's and its subsidiaries'
ability to declare or pay dividends or other distributions (other than
dividends or distributions payable to Norcal or any wholly owned subsidiary
of Norcal), (ii) limit the purchase, redemption or retirement of capital stock
and (iii) limit the incurrence of additional debt. In September 1996, the
Company completed the exchange of all of its outstanding privately-placed
Senior Notes for Senior Notes with identical terms and provisions, which
exchange was registered under the Securities Act of 1933. The interest rate on
the Senior Notes is currently 13.25% and will increase .25% per annum on
November 16, 1997 to a maximum of 13.5%. The interest rate reverts to 12.5%
if Norcal (in one or more transactions) offers to purchase (whether or not
any actual purchases are made) or redeems an aggregate of $25.0 million in
principal amount of Senior Notes out of the proceeds of equity sales.
The Company received net proceeds of $170.2 million (after original issue
discount of $4.8 million) in connection with the sale of the Senior Notes. The
Company used the proceeds from the Senior Notes, proceeds from the liquidation
of an indemnification trust and cash balances to repay $94.0 million of
long-term debt, $2.2 million of capital leases, redeem and/or extinguish
subordinated notes for $73.1 million and make an additional $3.6 million
payment in connection with the settlement of litigation. The recorded value of
the subordinated notes was $102.9 million, accordingly the Company recorded an
extraordinary gain of $31.4 million in November 1995. Deferred financing costs
at June 30, 1997 include commissions and other costs related to the offering
and new Credit Agreement (see below) and are amortized over the life of the
Senior Notes and new Credit Agreement using the straight-line method.
<PAGE>
In conjunction with the private debt offering, the Company entered into a new
Credit Agreement (the "Credit Agreement") with a group of lenders and the
First National Bank of Boston as Agent. The agreement, as amended, provides
for a revolving credit facility in an amount of up to $100.0 million
(depending upon certain financial ratios), up to $25.0 million of which may
be used for letters of credit. At June 30, 1997, the Company had utilized $6.8
million of its credit facility for letters of credit and had availability
under the agreement (based on limitations imposed by certain financial ratios)
of $67.2 million along with $18.2 million which may be utilized for additional
letters of credit.
(5) Guarantee of Securities
Norcal is a holding company and has no independent operations other than
those relating to its subsidiaries. The Senior Notes are guaranteed by all
wholly owned subsidiaries of Norcal. The guarantees of the guarantors are
full, unconditional and joint and several. Separate financial statements of
each guarantor have not been presented since management has determined such
separate financial statements are not material to investors.
(6) Commitments and Contingencies
On April 24, 1997 employees represented by the Sanitary Truck Drivers and
Helpers Union Local 350 International Brotherhood of Teamsters ("Local 350")
initiated a strike against certain San Francisco operations of the Company.
The strike was resolved on April 26, 1997 when Local 350 voted to accept a
five-year contract. A provision of the contract related to an increase in
pension benefits. The Company believes that it was agreed that the increase to
certain pension benefits was to be prospective. Subsequently, Local 350
asserted that they understood the increase to be retroactive. The Company
intends to pursue a resolution of this dispute through arbitration.
Under Generally Accepted Accounting Principles ("GAAP") any deficiency between
the liability for pension benefits (defined as the Accumulated Benefit
Obligation ("ABO")) and the market value of plan assets can result in a charge
to the Minimum Pension Liability in the equity section of the Company's
balance sheet. The Company estimates that the increase to the ABO as a result
of the union negotiations is approximately $3.2 million dollars, which the
Company believes will not result in a charge to the Minimum Pension Liability.
If Local 350 were to prevail in the arbitration discussed above, the Company
estimates that the ABO would increase by an additional $7.7 million dollars.
Furthermore, should the union prevail in the arbitration, the Company
estimates that a substantial charge to the Minimum Pension Liability would
result. The above estimates are based on a discount rate of 8%. The discount
rate applied under GAAP is volatile given market conditions today and subject
to periodic revision. A change in the discount rate can result in significant
fluctuations in the ABO.
Although the ultimate outcome of such a proceeding cannot be determined at
this time and the results of legal proceedings cannot be predicted with
certainty, the Company, after consultation with outside labor counsel,
believes it should prevail and therefore the resolution of this matter will
not have a material adverse effect on the financial condition or results of
operations of the Company. However, if the Company does not prevail, as
discussed above, there could be a material adverse impact on the financial
condition and results of operations of the Company. Arbitration could conclude
that there has been no meeting of the minds on this provision of the contract
and the provision could have to be renegotiated. If the matter is not
satisfactorily renegotiated, the Company could be subject to another work
stoppage.
(7) Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the fiscal 1997 presentation.
<PAGE>
Item II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion pertains to the Company's operations for the three
and nine months ended June 30, 1997 and 1996 and should be read in conjunction
with the Company's September 30, 1996 audited consolidated financial
statements contained in the Company's Form 10-K for the fiscal year ended
September 30, 1996, the unaudited quarterly reports for the periods ended
December 31, 1996 and March 31, 1997 and the unaudited consolidated financial
statements and related notes thereto included elsewhere herein. On November
21, 1995, the Company issued 12.5% Series A Senior Notes in an aggregate
principal amount of $175.0 million, for which it received proceeds, after
original issue discount, of approximately $170.2 million (the "Offering").
The Company used the proceeds from the Offering (less certain associated
expenses), together with certain cash balances, to retire approximately $199.1
million of its then outstanding indebtedness and certain of the ESOP's
indebtedness to third parties. Concurrent with the Offering, the Company
entered into a new bank credit agreement providing for a revolving credit
facility with a maximum availability of $100.0 million, of which up to $25.0
million may be used for letters of credit. These transactions are collectively
referred to as the "Refinancing Transaction."
Forward Looking Statements. Those statements followed by an asterisk (*) are
forward looking statements. Any such statements should be considered in light
of various risks and uncertainties that could cause results to differ
materially from expectations, estimates or forecasts expressed. These risks
and uncertainties include, but are not limited to: changes in general economic
conditions, inability to obtain timely rate increases sufficient to cover
costs, fluctuations in commodities prices, changes in the amount of ESOP
compensation expense recorded by the Company, uncertainties of legal
proceedings and unfavorable resolutions of such proceedings, changes in
environmental regulations or related laws and competition. The Company does
not undertake to update any forward-looking statement that may be made from
time to time by it or on its behalf.
Introduction
Norcal Waste Systems, Inc. ("Norcal") and its subsidiaries (collectively
referred to herein as the "Company") provide solid waste management services
throughout California, including collection, transfer, disposal, landfill
management, recycling and other waste services. The Company owns 5 landfills
and operates an additional 18 for local government entities. The Company
currently serves an estimated 445,000 customers.
The Company's revenues are comprised primarily of fees charged to residential,
commercial, municipal and industrial customers for the collection and disposal
of solid waste, disposal fees (known as "tipping fees") charged to third
party waste collectors who dispose of solid waste at the Company's transfer
stations and landfills, fees charged to third party landfill owners for
landfill operations and solid waste systems management activities and revenues
generated from the sale of recyclable materials.
Operating expenses include labor, disposal fees paid to third parties, fuel,
equipment maintenance and rental, engineering, consulting and other
professional services and other direct costs of operating collection,
recycling, transfer station, hauling and landfill operations. Also included
are accruals for future landfill closure, post-closure and corrective action
costs, consistent with regulatory requirements. General and administrative
expenses include management salaries, administrative and clerical overhead
costs, professional services costs and other fees and expenses. ESOP
compensation expense reflects in part the cost of the shares to be released
by the ESOP as determined by the contributions to be made to the ESOP by the
Company. ESOP compensation expense also includes amounts contributed by the
Company to the ESOP to fund distributions to retired, terminated or
withdrawing participants.
<PAGE>
The following tables present, for the periods indicated, the percentage
relationship to total consolidated revenues, along with the period to
period change in dollars and percentages:
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues:
Waste collection and
disposal operations 76.8% 79.1% 77.0% 80.3%
Third party landfill
management operations 17.8% 15.1% 18.0% 13.4%
Recycled commodities sales 5.4% 5.8% 5.0% 6.3%
-------- -------- -------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of operations:
Operating expenses 68.4% 69.6% 70.5% 70.0%
Depreciation and amortization 6.3% 6.0% 6.4% 6.6%
ESOP compensation expense 4.4% -0.3% 4.5% 1.6%
General and administrative 10.5% 11.0% 10.6% 10.9%
-------- -------- -------- --------
Total cost of operations 89.6% 86.3% 92.0% 89.1%
-------- -------- -------- --------
Operating income 10.4% 13.7% 8.0% 10.9%
Interest expense -8.1% -9.0% -8.3% -8.6%
Interest income 0.9% 0.6% 0.7% 0.6%
Gain (loss) on dispositions, net 0.1% 0.5% 0.1% -0.2%
Settlement of litigation - - - -1.7%
Other income (expense) -0.1% -0.5% 1.0% -0.4%
-------- -------- -------- --------
Income from operations
before income taxes and
extraordinary item 3.2% 5.3% 1.5% 0.6%
Income tax expense - - - -
-------- -------- -------- --------
Income before
extraordinary item 3.2% 5.3% 1.5% 0.6%
-------- -------- -------- --------
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - - 15.0%
-------- -------- -------- --------
Net income 3.2% 5.3% 1.5% 15.6%
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
(in thousands)
<CAPTION>
Period to period change Period to period change
for the Three Months for the Nine Months
Ended June 30, 1997 Ended June 30, 1997
$ % $ %
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Waste collection and
disposal operations 5,078 9.0% 10,248 6.1%
Third party landfill
management operations 3,495 32.6% 13,575 48.6%
Recycled commodities sales 158 3.8% (1,428) -10.8%
-------- -------- -------- --------
Total revenues 8,731 12.3% 22,395 10.7%
-------- -------- -------- --------
Cost of operations:
Operating expenses 5,189 10.5% 16,815 11.5%
Depreciation and amortization 755 17.6% 937 6.8%
ESOP compensation expense 3,708 1598.3% 7,115 214.9%
General and administrative 560 7.1% 1,788 7.8%
-------- -------- -------- --------
Total cost of operations 10,212 16.6% 26,655 14.3%
-------- -------- -------- --------
Operating income (1,481) -15.1% (4,260) -18.7%
Interest expense (56) -0.9% (1,277) -7.1%
Interest income 262 59.1% 288 23.3%
Gain (loss) on dispositions, net (272) -84.7% 675 130.1%
Settlement of litigation - - 3,648 100.0%
Other income 351 88.2% 3,192 352.3%
-------- -------- -------- --------
Income from operations
before income taxes and
extraordinary item (1,196) -31.9% 2,266 207.1%
Income tax expense - - - -
-------- -------- -------- --------
Income before
extraordinary item (1,196) -31.9% 2,266 207.1%
-------- -------- -------- --------
Extraordinary gain on early
extinguishment of long-term
debt net of $0 income taxes - - (31,379) -100.0%
-------- -------- -------- --------
Net income (1,196) -31.9% (29,113) -89.7%
======== ======== ======== ========
</TABLE>
<PAGE>
Revenues. Revenues for the three months ended June 30, 1997 increased $8.7
million (12.3%) to $80.0 million from $71.2 million for the three months ended
June 30, 1996. The increase in revenues was primarily due to higher waste
collection and disposal revenues and third-party landfill management services
revenues. Waste collection and disposal revenues were higher due to rate
increases in several service areas (primarily an 11.0% increase in San
Francisco, effective March 1, 1997), volume increases, particularly in San
Francisco and operations acquired in November 1996. Third party landfill
management services revenues were higher due to expanded landfill operations
and solid waste management activities in San Bernardino County along with a
contractual rate increase effective July 1, 1996 and the expansion into Kern
County, California with a new landfill management contract effective May 1,
1997. Recycling revenues increased slightly with higher commodity prices
offset by the elimination of a recycling program in one service area in
October 1996.
Operating expenses. Operating expenses for the three months ended June 30,
1997 increased $5.2 million (10.5%) to $54.7 million from $49.5 million for
the three months ended June 30, 1996. As a percentage of revenues, operating
expenses decreased to 68.4% for the three months ended June 30, 1997 from
69.6% for the three months ended June 30, 1996. The increased costs were
primarily due to higher project management costs of $2.0 million resulting
from an increased level of project management activities in San Bernardino
County. Payroll and related costs were higher by $1.3 million as a result of
wage increases. Disposal costs were $0.6 million higher due to volume and
tipping fee increases.
ESOP compensation expense. ESOP compensation expense is primarily based on
the cost of shares allocated as determined by the Company's contribution to
the ESOP, along with contributions to fund distributions to retired,
terminated and withdrawing participants. ESOP compensation expense increased
$3.7 million for the three months ended June 30, 1997 as compared to the same
period in 1996. ESOP compensation expense for the period ended June 30, 1997
was higher due to an anticipated additional $1.7 million tax deductible
contribution to be made to the ESOP that would allow the ESOP to prepay a
portion of its loans to the Company.* No such accrual was made for the three
months ended June 30, 1996 as the Company made a prepayment contribution to
the ESOP and recorded a corresponding expense for the entire fiscal year in
September 1996. In addition, ESOP compensation expense in 1996 included a
reduction of $1.0 million which reflected the year to date effects of an
unanticipated decrease in the Company's contribution to the ESOP. The
reduction resulted from the ESOP's use of $3.5 million received from the
settlement of litigation to reduce ESOP debt to the Company.
General and administrative. General and administrative expenses for the three
months ended June 30, 1997 increased $0.6 million (7.1%) to $8.4 million from
$7.9 million for the three months ended June 30, 1996. As a percentage of
revenues, general and administrative expenses decreased to 10.5% for the three
months ended June 30, 1997 from 11.0% for the three months ended June 30,
1996. The increased costs were attributable primarily to higher professional
services due to increased legal and other corporate matters.
Operating income. Operating income decreased $1.5 million (15.3%) to $8.3
million for the three months ended June 30, 1997 from $9.8 million for the
three months ended June 30, 1996. The primary cause of the decrease in
operating income for the three months ended June 30, 1997 was the
substantially higher ESOP compensation expense.
(Gain) loss on dispositions. The gain on dispositions for the three months
ended June 30, 1996, consisted primarily of a $0.3 million gain from the sale
of real estate.
Income tax expense. There was no income tax expense for the three months
ended June 30, 1997 or 1996. The Company has experienced an effective tax
rate of zero for the three months ended June 30, 1997 and 1996 as a result of
realizing certain of its deferred tax assets for which a valuation allowance
has previously been established.
Net income. Net income decreased $1.2 million to $2.5 million for the three
months ended June 30, 1997 compared to $3.7 million for the three months ended
June 30, 1996. The decrease in net income for the three months ended June 30,
1997 is primarily due to the lower operating income partially offset by lower
non-operating expenses.
Nine months ended June 30, 1997 and 1996
Revenues. Revenues for the nine months ended June 30, 1997 increased $22.4
million (10.7%) to $231.0 million from $208.6 million for the nine months
ended June 30, 1996. The increase in revenues was primarily due to higher
waste collection and disposal revenues and third-party landfill management
services revenues partially offset by lower recycled commodities sales
revenues. Waste collection and disposal revenues were higher due to unusual
flood clean-up and disposal activities in the Central Valley of California,
rate increases in several service areas (primarily an 11.0% increase in San
Francisco, effective March 1, 1997), volume increases, particularly in San
Francisco and from operations acquired in November 1996. Third party landfill
management services revenues were higher due to expanded landfill operations
and solid waste management activities in San Bernardino County along with a
contractual rate increase effective July 1, 1996. Recycling revenues were
down due to lower commodity prices and the elimination of a recycling program
in one service area in October 1996.
Operating expenses. Operating expenses for the nine months ended June 30,
1997 increased $16.8 million (11.5%) to $162.8 million from $146.0 million for
the nine months ended June 30, 1996. As a percentage of revenues, operating
expenses increased to 70.5% for the nine months ended June 30, 1997 from 70.0%
for the nine months ended June 30, 1996. The increased costs were primarily
due to higher project management costs of $8.5 million resulting from an
increased level of project management activities in San Bernardino County.
Payroll and related costs were higher by $4.6 million as a result of wage
increases as well as additional labor related to unusual flood clean-up and
disposal activities. Disposal costs were $1.3 million higher due to volume
and tipping fee increases.
ESOP compensation expense. ESOP compensation expense is primarily based on
the cost of shares allocated as determined by the Company's contribution to
the ESOP, along with contributions to fund distributions to retired,
terminated and withdrawing participants. ESOP compensation expense increased
$7.1 million for the nine months ended June 30, 1997 as compared to the same
period in 1996. ESOP compensation expense for the period ended June 30, 1997
was higher due to an anticipated additional $4.8 million tax deductible
contribution to be made to the ESOP that would allow the ESOP to prepay a
portion of its loans to the Company.* No such accrual was made for the nine
months ended June 30, 1996 as the Company made a prepayment contribution to
the ESOP and recorded a corresponding expense for the entire fiscal year in
September 1996. In addition, ESOP compensation expense in 1996 included a
reduction of $1.0 million which reflected the year to date effects of an
unanticipated decrease in the Company's contribution to the ESOP. The
reduction resulted from the ESOP's use of $3.5 million received from the
settlement of litigation to reduce ESOP debt to the Company.
General and administrative. General and administrative expenses for the nine
months ended June 30, 1997 increased $1.8 million (7.9%) to $24.6 million from
$22.8 million for the nine month ended June 30, 1996. As a percentage of
revenues, general and administrative expenses decreased to 10.6% for the nine
months ended June 30, 1997 from 10.9% for the nine months ended June 30, 1996.
The increased costs were attributable primarily to higher professional
services due to increased legal and other corporate matters.
Operating income. Operating income decreased $4.3 million (18.9%) to $18.5
million for the nine months ended June 30, 1997 from $22.8 million for the
nine months ended June 30, 1996. The primary cause of the decrease in
operating income for the nine months ended June 30, 1997 was the substantially
higher ESOP compensation expense.
Interest expense. Interest expense increased by $1.3 million (7.3%) to $19.2
million for the nine months ended June 30, 1997 from $17.9 million for the
nine months ended June 30, 1996. The increase was due to the interest
associated with the Senior Notes issued in November 1995, a higher interest
rate on the Senior Notes in the current period and interest from a note issued
for an acquisition dated November 18, 1996.
(Gain) loss on dispositions. The loss on dispositions for the nine months
ended June 30, 1996, included a loss of $0.8 million on the sale/exchange of
real estate and a gain of $0.3 million from the sale of real estate.
Settlement of litigation. Settlement of litigation for the nine months ended
June 30, 1996 reflects the payment of $3.6 million made to the holders of ESOP
notes.
Other income (expense). Other income increased $3.2 million to income of $2.3
million for the nine months ended June 30, 1997 from expense of $0.9 million
for the nine months ended June 30, 1996. Other income for the current period
included a gain from the sale of marketable securities of $1.3 million and
$1.0 million for a settlement from a third party in connection with a landfill
engineering matter at one of the Company's landfills. For the nine months
ended June 30, 1996, other expense included $0.3 million for losses incurred
from the sales of investments held in trust accounts and $0.3 in expenses
related to debt refinanced by the Senior Notes.
Income tax expense. There was no income tax expense for the nine months ended
June 30, 1997 or 1996. The Company has experienced an effective tax rate of
zero for the nine months ended June 30, 1997 and 1996 as a result of realizing
certain of its deferred tax assets for which a valuation allowance has
previously been established.
Extraordinary gain. The Company recorded an extraordinary gain of $31.4
million for the nine months ended June 30, 1996 as a result of the early
extinguishment of subordinated notes.
Net income. The Company recorded net income of $3.4 million for the nine
months ended June 30, 1997 compared to net income of $32.5 million for the
nine months ended June 30, 1996. The net income for the nine months ended
June 30, 1996 is primarily attributable to the extraordinary gain.
Liquidity and Capital Resources
The Company's cash requirements consist principally of working capital
requirements, interest on outstanding indebtedness, capital expenditures and
deposits to trust funds to satisfy certain environmental statutes and
regulations. The Company had working capital of $15.9 million at June 30,
1997 compared to $4.9 million at September 30, 1996.
As part of the refinancing transaction the Company entered into a Credit
Agreement that provides for up to $100.0 million of additional borrowings
which, subject to certain limitations and covenant restrictions (including
financial ratios), can be drawn by the Company to fund ongoing operations,
invest in capital equipment and/or facilities and to finance acquisitions. At
June 30, 1997 the Company had utilized $6.8 million of its credit facility for
letters of credit and had availability under the agreement (based on
limitations imposed by certain financial ratios) of $67.2 million along with
$18.2 million which was available to be utilized for additional letters of
credit. Changes in availability under the Credit Agreement are a function of,
among other things, changes in operating results. Availability is expected to
be adversely affected by the increasing effect of the disallowance of ESOP
expense reimbursement in San Francisco rates.
In September 1996, the Company applied for a 14.9% increase to its collection
and disposal rates in the City of San Francisco with the Refuse Collection and
Disposal Rate Board (the "Rate Board"). In February 1997, the Rate Board
issued two rate orders (the "Orders") approving an 11.0% rate increase to the
Company's refuse collection rates effective March 1, 1997. The Orders
disallowed 50% of the ESOP expense requested by the Company for rate
reimbursement and after March 1, 1998, ESOP expense will be fully disallowed.
The Rate Board also directed the Department of Public Works ("DPW") to examine
solid waste rate setting methods in other jurisdictions and to propose changes
to the Board of Supervisors in the current system for regulation of refuse
collection and disposal in San Francisco. A significant modification to the
rate setting methodology could have a material adverse financial impact on the
Company's operating results and financial condition. The Company intends to
propose a new rate setting methodology for its San Francisco operations in
connection with recycling programs it will propose to address state mandated
recycling requirements.* See Certain Other Cash Requirements.
The Indenture governing the Senior Notes contains provisions which, among
other things, (i) limit the Company's and its subsidiaries' ability to declare
or pay dividends or other distributions (other than dividends or distributions
payable to Norcal or any wholly owned subsidiary of Norcal or, in certain
cases, the ESOP), (ii) limit the purchase, redemption or retirement of capital
stock and (iii) limit the incurrence of certain additional debt.
Cash Flow from Operating Activities. Cash provided by operating activities
was $20.8 million for the nine months ended June 30, 1997 compared to $9.5
million for the same period last year. The increase was primarily due to the
higher non-cash ESOP compensation expense in 1997 along with income from
operations of $3.4 million for 1997 as compared to income from operations of
$1.1 million in 1996. As a result of the Orders, annual operating income and
cash flow will be adversely affected by as much as $4.0 million in future
years (the amount of ESOP expense recovery denied reimbursement.)* While in
any particular period the Company's cash flow from operations may be adversely
affected by the semi-annual interest payment on the Senior Notes, the Company
expects future cash flow generated from operating activities and available
financing will be adequate to support ongoing activities of the Company for
the next 18 months.*
Cash Flow from Investing Activities. Cash used in investing activities was
$13.2 million for the nine months ended June 30, 1997 compared to cash used of
$5.0 million for the same period last year. During the current period, the
Company utilized $2.6 million to purchase substantially all of the assets of a
solid waste collection company in Butte County in November 1996 and utilized
$0.9 million to acquire other assets of medical waste businesses, used $11.5
million for capital expenditures, and generated $1.3 million from the sale of
marketable securities. For the comparable period last year, the Company
generated $6.8 million from the liquidation of trust funds that were released
upon termination of an indemnification trust by current and former directors
of the Company. In addition, $2.7 million was received from restricted cash
accounts which were released upon completion of the Refinancing Transaction
and applied to the then outstanding debt balance. The Company also generated
$1.2 million from the sale of miscellaneous assets and used $15.5 million for
capital expenditures.
Cash Flow from Financing Activities. Cash used in financing activities was
$1.0 million for the nine months ended June 30, 1997. Current year activity
consisted of scheduled note and capital lease payments. For the nine months
ended June 30, 1996, the Company completed the Refinancing Transaction which
resulted in $8.4 million of cash used in financing activities. In addition,
the Company received $3.5 million from the ESOP as payment on notes receivable
which the ESOP paid from the proceeds of the litigation settlement mentioned
above.
Certain Other Cash Requirements. The Company is in discussions with the City
of San Francisco regarding plans for the construction of materials recovery
and other facilities for use in connection with the Company's San Francisco
operations and to facilitate compliance with mandated recycling requirements.
If the Company and the City reach agreement on the scope and terms of the
project, the Company believes construction of the facilities could begin in 12
to 18 months from that time. Over the term of the Senior Notes, the Company
estimates it will need to invest substantial capital to acquire waste
processing and household hazardous waste facilities, maintenance and
administrative complexes and equipment, including those necessary to meet
mandated recycling requirements. The Company intends to seek continued rate
recovery, potentially through a new rate making methodology in San Francisco,
for amounts expended on these projects and will seek to finance such costs
through additional secured borrowings, including $30.0 million of borrowing
for certain "Designated Capital Expenditures" (as defined in the Indenture)
and/or alternative financing mechanisms as allowed under the Indenture.*
The Company observed significant cracking of an earthfill berm under
construction at one of the Company's landfills. A third party design engineer
retained by the Company has concluded the cracking is the result of settlement
of the earthfill overlying old refuse. The earthfill was placed by a
contractor in accordance with design plans and specifications prepared by the
original design engineer as part of a corrective action plan required by the
Regional Water Quality Control Board. In June 1997, an independent third
party engineer estimated the costs to mitigate cracking of the berm, to
reconstruct a portion of a groundwater interception trench and to provide
long-term monitoring and maintenance to range between $0.9 million and $1.2
million. The Company intends to pursue recovery of any costs (including the
impact of lost airspace) from the original design engineer. It is management's
opinion that this matter will be resolved and will not have any adverse
impact on the Company.
The Company expects it will expend approximately $3.0 million to upgrade and
enhance the Company's information systems over the next 18 to 24 months.*
Environmental Regulations
The Company's business activities are subject to extensive and evolving
regulation under complex federal, state and local laws for the protection of
public health and the environment. These laws, and the numerous regulatory
bodies responsible for interpreting and enforcing them, impose significant
restrictions and requirements on the Company and also impact the
municipalities the Company serves and operators of non-owned landfills used by
the Company. The Company believes that this regulation will continue in the
future.*
Various federal and state regulations require owners or operators of solid
waste landfill sites to provide financial assurances for the closure and
post-closure monitoring and maintenance of these sites. The Company uses
independent engineers to assist it in assessing the estimates of future costs
of complying with such regulations. A significant portion of the landfill
closure and post-closure liability relates to the leachate and groundwater
management and remediation. There are many unknowns and uncertainties which
may affect the accuracy of the Company's estimates, including potential
changes to and interpretations of regulatory requirements and incomplete data
with respect to projected volumes, quality and cost of treatment among others.
Accordingly, estimates for closure and post-closure management and remediation
of leachate and contaminated groundwater could be subject to periodic and
substantial revision as the Company's knowledge increases concerning these
factors.
Inflation and Prevailing Economic Conditions
Historically, the Company has experienced cost increases due to the effects of
inflation on its operating expenses, particularly the cost of compensation and
benefits, and the replacement of or additions to property and equipment. Fuel
costs which fluctuate with inflation and other market conditions also have
affected operating results. Most of the Company's operations are subject to
rate setting processes which allow for the recovery of certain costs including
labor and fuel. However, inflationary increases in operating costs may cause
the Company to incur lower operating margins, at least until such time as new
rates can be implemented. Rate adjustments, if approved, can take several
months.*
On April 24, 1997 employees represented by the Sanitary Truck Drivers and
Helpers Union Local 350 International Brotherhood of Teamsters ("Local 350")
initiated a strike against certain San Francisco operations of the Company.
The strike was resolved on April 26, 1997 when Local 350 voted to accept a
five-year contract. A provision of the contract related to an increase in
pension benefits. The Company believes that it was agreed that the increase to
certain pension benefits was to be prospective. Subsequently, Local 350
asserted that they understood the increase to be retroactive. The Company
intends to pursue a resolution of this dispute through arbitration.
Under Generally Accepted Accounting Principles ("GAAP") any deficiency between
the liability for pension benefits (defined as the Accumulated Benefit
Obligation ("ABO")) and the market value of plan assets can result in a charge
to the Minimum Pension Liability in the equity section of the Company's
balance sheet. The Company estimates that the increase to the ABO as a result
of the union negotiations is approximately $3.2 million dollars, which the
Company believes will not result in a charge to the Minimum Pension
Liability.* If Local 350 were to prevail in the arbitration discussed above,
the Company estimates that the ABO would increase by an additional $7.7
million dollars. Furthermore, should the union prevail in the arbitration,
the Company estimates that a substantial charge to the Minimum Pension
Liability would result. The above estimates are based on a discount rate of
8%. The discount rate applied under GAAP is volatile given market conditions
today and subject to periodic revision. A change in the discount rate can
result in significant fluctuations in the ABO.
Although the ultimate outcome of such a proceeding cannot be determined at
this time and the results of legal proceedings cannot be predicted with
certainty, the Company, after consultation with outside labor counsel,
believes it should prevail and therefore the resolution of this matter will
not have a material adverse effect on the financial condition or results of
operations of the Company. However, if the Company does not prevail, as
discussed above, there could be a material adverse impact on the financial
condition and results of operations of the Company. Arbitration could conclude
that there has been no meeting of the minds on this provision of the contract
and the provision could have to be renegotiated. If the matter is not
satisfactorily renegotiated, the Company could be subject to another work
stoppage.
Included in the five-year contract referred to above, is an aggregate 13.3%
wage increase. The first year cost of the contract is included in the rate
recently approved in San Francisco and the Company intends to seek rate
recovery of scheduled future cost increases through the rate setting process.*
There can be no assurance that the Company will succeed in obtaining timely
rate increases sufficient to cover all costs or sufficient to maintain profit
levels at historic levels.
Due to the Company's concentration in California, cyclical economic conditions
in California may have an impact on the Company's results.* The Company is
unable to determine the significance a California economic downturn would have
on its operations.
Seasonality
The Company's revenues tend to be higher during spring and summer (third and
fourth fiscal quarters) than fall and winter when lower volumes of certain
types of waste, such as yard clippings and construction and demolition debris
are generated. This typically results in increased volume at the Company's
transfer stations, waste collection, and landfill operations during the
summer.*
Accounting Matters
In October 1995, Statement of Financial Accounting Standard No. 123
"Accounting for Stock Based Compensation"(SFAS No. 123) was issued. This
Statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25 (APB 25) Accounting for Stock Issued to Employees. The
Company has concluded it will continue to utilize the method of accounting
prescribed by APB 25 and adopt only the disclosure requirements of SFAS No.
123 by providing pro forma disclosure of net income.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
IRS Dispute.
In May, the Company and the Internal Revenue Service executed an agreement in
principle previously reported regarding the deductibility of postretirement
health and welfare benefits paid to former employee-shareholders.
Pacific Lumber Lawsuit.
A subsidiary of the Company and The Pacific Lumber Company ("Pacific Lumber")
have reached an agreement in principle regarding the settlement of a lawsuit
alleging property owned by Pacific Lumber has been affected by contamination
of groundwater emanating from the Company's Cummings Road Landfill.
Management has determined that the terms of the settlement will not have a
material adverse effect on the Company's financial condition or cash flow.
Also see the Company's quarterly report for the periods ended December 31,
1996 and March 31, 1997.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 26, 1997 by written consent of the sole shareholder of the Company,
such shareholder (i) resolved that the administrator of the Company of each of
the Company's 1996 Employee Stock Incentive Plan, 1996 Non-Employee Director
Stock Option Plan, 1990 Stock Option Plan and the Deferred Stock Option Plan
(collectively the "Plans") administer the Plans to treat a person's domestic
partner as his or her spouse for all purposes under the Plans, and (ii)
approved certain related amendments and interpretations to such Plans.
Item 5. Other Information
On April 18, 1997, San Diego County (the "County") issued a Descriptive
Memorandum for the sale of its solid waste assets. On August 12, 1997, the
County approved the sale to Allied Waste Industries, Inc. The Company expects
the contract between the Company and the County whereby the Company manages
the County's solid waste assets will be terminated. The Company believes the
contract termination will not have a material adverse effect on the Company's
financial condition, results of operations or cash flow.*
Item 6. Exhibits and Certain Reports
(a) Exhibits:
10.1 Indemnification Agreement, dated July 24, 1997.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
On April 25, 1997, the Company filed a current report relating to the
initiation of a strike against certain operations in San Francisco. On
April 28, 1997, the Company filed a current report relating to a contract
agreement ending the union strike in San Francisco.
SIGNATURES
NORCAL WASTE SYSTEMS, INC.
(Company)
/s/ Mark R. Lomele
Mark R. Lomele
Senior Vice President and
Chief Financial Officer
Dated: August 14, 1997
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of July 1, 1997,
by and between NORCAL WASTE SYSTEMS, INC., a California corporation (the
"Company"), and Gale R. Kaufman ("Indemnitee") (together, the "Parties").
WHEREAS, Indemnitee is a non-employee member of the board of directors of
the Company (the "Board of Directors") who has been in the past and is
currently engaged as a consultant to the Company;
WHEREAS, the Company desires to provide Indemnitee with the maximum protection
permitted by law;
WHEREAS, Indemnitee agreed to serve and remains willing to continue to serve
and to take on additional service for or on behalf of the Company on the
condition that Indemnitee be indemnified as herein provided:
NOW, THEREFORE, the Parties hereby agree as follows:
1. Basic Indemnification Arrangement. Subject to the limitations set forth in
Section 6 and otherwise in this Agreement, the Company hereby agrees to
indemnify Indemnitee as follows:
The Company shall indemnify Indemnitee to the fullest extent permitted by law
and its articles of incorporation and bylaws in effect on the date hereof, or
as such law or articles or bylaws may from time to time be changed as provided
below, against Expenses and Liabilities actually and reasonably incurred by
Indemnitee or on his behalf in connection with the investigation, defense,
settlement or appeal of any Indemnifiable Proceeding (including an
Indemnifiable Proceeding brought by or in the right of the Company) if and
wherever Indemnitee is a party or a witness, is threatened to be made a party
or a witness or is required to produce documents or other evidence with
respect to such Indemnifiable Proceeding. With respect to a third party
action, unless no longer required by law, Indemnitee's indemnification shall
be conditioned upon Indemnitee having acted in good faith and in a manner
Indemnitee reasonably believed to be in the best interests of the Company, and
in the case of a criminal Proceeding the Company having no reasonable cause to
believe Indemnitee's acts were unlawful. With respect to a derivative action,
unless no longer required by law, Indemnitee's indemnification shall be
conditioned on Indemnitee having acted in good faith in a manner believed to
be in the best interests of the Company. Further, in the event of a
derivative action no indemnification shall be made (i) in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company
and its shareholders, unless and only to the extent that the court in which
such Proceeding is or was pending shall determine that Indemnitee is fairly
or reasonable entitled to indemnity for expenses or (ii) in respect of amounts
paid in settlement of or otherwise disposing of a threatened or pending action
without court approval, or amounts incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
If, after the date of this Agreement, a change in any applicable law or the
Company's articles of incorporation or bylaws expands the Company's right to
indemnify Indemnitee, such change shall be within the purview of the Parties'
rights and obligations under this Agreement. If such a change narrows the
Company's right to indemnify Indemnitee, such change, to the extent not
otherwise required by such law, article or bylaw shall have no effect on
this Agreement or the Parties' rights and obligations under it. In addition
to, and not as a limitation of, the foregoing, the rights of indemnification
of Indemnitee provided under this Agreement shall include those rights set
forth in Sections 2 and 9 below. The right to indemnification conferred
herein shall be presumed to have been relied upon by Indemnitee in serving or
continuing to serve the Company as an Agent and shall be enforceable as a
contract right.
If Indemnitee is entitled under this Agreement to indemnification by the
Company for some or a portion of the Expenses or Liabilities incurred by
Indemnitee, but not for the total amount thereof, the Company shall indemnify
Indemnitee, pursuant to the procedures set forth in this Agreement, for that
portion of the Expenses or Liabilities to which Indemnitee is entitled.
2. Advancement of Expenses. The Company shall advance to Indemnitee from time
to time all reasonable Expenses incurred by or on behalf of Indemnitee in
connection with an Indemnifiable Proceeding, as soon as practicable but in any
event no later than ten (10) business days after the receipt by the Company of
a written request for such advancement identifying the incurred Expenses in
reasonable detail (except to the extent that there has been a Final Adverse
Determination that Indemnitee is not entitled to be indemnified for such
Expenses). By execution of this Agreement, Indemnitee makes such undertaking
as is required by law at the time of such advancement of Expenses with respect
to repayment to the Company including, if required, the undertaking to repay
such advanced amounts to the Company only if and to the extent that there is a
Final Adverse Determination. Indemnitee's obligation to reimburse the Company
for any advancement of Expenses shall be unsecured and no interest shall be
charged thereon. In the event that the Company shall breach its obligation to
advance Expenses, the Parties agree that Indemnitee's remedies available at
law would not be adequate and that Indemnitee would be entitled to specific
performance.
3. Cooperation by Indemnitee. With respect to any Proceeding as to which
Indemnitee seeks indemnification, Indemnitee shall provide the Company with
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
4. Establishment of Trust. In the event of a Change in Control, the Company
shall, upon written request by Indemnitee, create a trust for the benefit of
Indemnitee and from time to time upon written request of Indemnitee shall fund
such trust in an amount sufficient to satisfy any and all Expenses reasonably
anticipated at the time of each such request to be incurred in connection with
an Indemnifiable Proceeding, and any and all judgments, fines, penalties and
settlement amounts from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid by Indemnitee in connection with an
Indemnifiable Proceeding. The terms of the trust shall provide that upon a
Change in Control (i) the trust shall not be revoked or the principal thereof
invaded, without the written consent of Indemnitee, (ii) the trustee shall
advance within ten (10) business days of a request by Indemnitee any and all
Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the trust
under the circumstances under which Indemnitee would be required to reimburse
the Company under this Agreement), (iii) the trust shall continue to be funded
by the Company in accordance with the funding obligation set forth above, (iv)
the trustee shall promptly pay to Indemnitee all amounts for which Indemnitee
shall be entitled to indemnification pursuant to this Agreement or otherwise
and (v) all unexpended funds in such trust shall revert to the Company upon a
Final Adverse Determination. The trustee shall be chosen by Indemnitee.
Nothing in this Section 4 shall relieve the Company of any of its obligations
under this Agreement. All income earned on the assets held in the trust shall
be reported as income by the Company for federal, state, local and foreign
tax purposes.
5. Presumptions and Effect of Certain Proceedings.
(a) Upon making a request for indemnification or advancement of Expenses,
Indemnitee shall be presumed to be entitled to such indemnification or
advancement of Expenses under this Agreement and the Company shall have the
burden of proof to overcome that presumption in reaching any contrary
determination. The termination of any Proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent shall not affect this presumption or, except as determined
by a Final judgment or other Final adjudication adverse to Indemnitee,
establish a presumption with regard to any factual matter relevant to
determining Indemnitee's rights to indemnification or advancement of Expenses
hereunder.
(b) For the purposes of any determination under Section 6 of this Agreement,
Indemnitee shall be deemed to have acted in good faith and in a manner
Indemnitee believed to be in the best interests of the Company, or, with
respect to any criminal action or proceeding, to have had no reasonable cause
to believe his conduct was unlawful, if his action is based on the records or
books of account of the Company or another enterprise, or on information
supplied to him by the officers of the Company or another enterprise in the
course of their duties, or on the advice of legal counsel for the Company or
another enterprise or on information or records given or reports made to the
Company or another enterprise by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company
or another enterprise. The provisions of this subsection shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth in this
Agreement.
6. Procedure for Determination of Entitlement to Indemnification and Payment
Thereof.
(a) The procedures in this Section 6 shall not govern requests for and
payments of advancements of Expenses, which requests shall be made by
Indemnitee and responded to by the Company pursuant to the provisions of
Section 2 of this Agreement.
(b) Whenever Indemnitee seeks indemnification pursuant to this Agreement
(other than advancement of Expenses), Indemnitee shall submit to the Company
a written request for indemnification ("Indemnification Request") that shall
include sufficient documentation or information reasonably available to
Indemnitee for the determination of entitlement to indemnification.
Notwithstanding any other provision of this Agreement, no request for
indemnification for Liabilities, other than amounts paid in settlement, may
be made before a determination thereof in a Proceeding. Indemnitee shall
submit the Indemnification Request within a reasonable time, not to exceed
two years after any Final judgment, order, settlement, dismissal, arbitration
award, conviction, acceptance of a plea of nolo contendere or its equivalent,
or other termination of the Proceeding with respect to which Indemnitee
requested indemnification, whichever is the later date. The Company's Chief
Executive Officer or other appropriate officer shall, promptly upon receipt
of Indemnitee's request, advise the Board of Directors in writing that
Indemnitee has made such request. The determination of Indemnitee's
entitlement to indemnification as specified in Section 6(b) hereof shall be
made not later than thirty days after the Company's receipt of an
Indemnification Request that comports with the requirements of this Section
6(b) ("Proper Indemnification Request").
(c) The determination of whether Indemnitee is entitled to indemnification
shall be made, at the Company's sole election, by one of the following
(provided that if there is a Change in Control of the Company, Independent
Legal Counsel shall make such determination):
(i) a majority vote of the shareholder(s) of the Company, with shares
"beneficially owned" (as defined in Rule 13d-3 under the Exchange Act) by the
Indemnitee not being entitled to vote; provided, however, that nothing set
forth in this Section shall require a "pass-through" vote of the beneficial
owners of shares;
(ii) a majority vote of a quorum consisting of Disinterested Directors; or
(iii) Independent Legal Counsel, whose determination shall be made in a
written opinion.
(d) Unless a Final Adverse Determination has occurred or a determination has
been made pursuant to this Section 6 that Indemnitee is not entitled to
indemnification, the Company shall pay Indemnitee the amount sought by any
Proper Indemnification Request within thirty days of receipt of such Request.
7. Specific Limitations on Indemnification and Advancement of Expenses. Both
the Company and Indemnitee acknowledge that in certain instances, federal law
or applicable public policy may prohibit the Company from indemnifying its
Agents or advancing Expenses to them under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification or advancement of
Expenses to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify or advance Expenses to
Indemnitee. Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated under this Agreement to make any payment to
Indemnitee with respect to any Proceeding:
(a) If prior to a Change of Control Indemnitee commenced such Proceeding
against the Company or officers or directors of the Company (other than a
Proceeding commenced by Indemnitee to enforce Indemnitee's rights under this
Agreement), unless Indemnitee's commencing such Proceeding was authorized by
the Board of Directors;
(b) To the extent that payment in connection with such Proceeding is actually
made to Indemnitee under any insurance policy, or is made to Indemnitee by the
Company or an affiliate otherwise than pursuant to this Agreement.
Notwithstanding the availability of insurance, Indemnitee also may claim
indemnification from the Company pursuant to this Agreement by assigning to
the Company any claims under such insurance to the extent Indemnitee is paid
by the Company;
(c) Provided there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the Company's written consent,
which consent shall not be unreasonably withheld;
(d) For an accounting of profits made from the purchase or sale by Indemnitee
of securities of the Company within the meaning of section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or similar
provisions of any state statutory or common law;
(e) To the extent it would be otherwise prohibited by law, if so established by
a Final judgment adverse to Indemnitee or a Final Adverse Determination.
8. Fees and Expenses of Independent Legal Counsel. The Company agrees to pay
the reasonable fees and expenses of Independent Legal Counsel should such
Counsel be retained to make a determination of Indemnitee's entitlement to
indemnification or advancement of Expenses pursuant to Section 6(b) of this
Agreement and to fully indemnify such Counsel against any and all expenses and
losses incurred by it arising out of or relating to this Agreement or its
engagement pursuant hereto.
9. Remedies of Indemnitee.
(a) In the event that (i) a determination pursuant to this Agreement is made
that Indemnitee is not entitled to indemnification, (ii) advances of Expenses
are not timely made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification
pursuant to this Agreement or (iv) Indemnitee otherwise seeks enforcement of
this Agreement, Indemnitee shall be entitled to file suit in any court in the
State of California having subject matter jurisdiction thereof and in which
venue is proper seeking determination of Indemnitee's rights under this
Agreement.
(b) In the event that a determination that Indemnitee is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 6
hereof, the decision in the judicial proceeding provided in Section 9(a)
shall be made de novo and Indemnitee shall not be prejudiced by reason of
the determination made pursuant to Section 6.
(c) If a determination that Indemnitee is entitled to indemnification or
advancement of Expenses has been made (or deemed to have been made) pursuant
to the terms of this Agreement, the Company shall be bound by such
determination in the absence of a misrepresentation of a material fact by
Indemnitee in connection with such determination.
(d) The Company shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Company shall stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary.
10. Contribution. To the fullest extent permissible under applicable law, if
the indemnification provided for in this Agreement is unavailable to Indemnitee
for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount incurred by Indemnitee whether for Expenses
and/or Liabilities, in connection with any Indemnifiable Proceeding under this
Agreement, in such proportion as is deemed fair and reasonable in light of all
the circumstances of such Indemnifiable Proceeding in order to reflect (i) the
relative benefits received by the Company and Indemnitee as a result of the
event(s) and/or transaction(s) giving cause to such Indemnifiable Proceeding;
and/or (ii) the relative fault of the Company(and its directors, officers,
employees and agents) and Indemnitee in connection with such event(s) and/or
transaction(s).
11. Subrogation. In the event Indemnitee receives any payments under this
Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
12. Maintenance of Insurance.
(a) The Company represents that it presently has in place certain policies of
directors' and officers' liability insurance. Subject only to the provisions
of this Section 12, the Company agrees that so long as Indemnitee shall have
consented to serve or shall continue to serve as a director of the Company or
as an Agent of the Company, and thereafter so long as Indemnitee shall be
subject to any possible Proceeding by reason of the fact that Indemnitee was
serving as a director or Agent of the Company (such periods being hereinafter
sometimes referred to as the "Indemnification Period"), the Company will use
its best efforts to purchase and maintain in effect for the benefit of
Indemnitee one or more valid, binding and enforceable policies of directors'
liability insurance providing, in all respects, coverage both in scope and
amount which is no less favorable than that presently provided.
Notwithstanding the foregoing, the Company shall not be required to maintain
said policies of directors' liability insurance if such insurance is not
reasonably available or if it is in good faith determined by the then
directors of the Company either that:
(i) The premium cost of maintaining such insurance is substantially
disproportionate to the amount of coverage provided thereunder; or
(ii) The protection provided by such insurance is so limited by exclusions,
deductions or otherwise that there is insufficient benefit to warrant the cost
of maintaining such insurance.
(b) Anything in this Agreement to the contrary notwithstanding, to the extent
that and for so long as the Company chooses to continue to maintain any
policies of directors' liability insurance during the Indemnification Period,
the Company shall maintain similar and equivalent insurance for the benefit of
Indemnitee (unless such insurance is less favorable to Indemnitee than the
Company's other policies).
13. Notice to Insurers; Payments Irrespective of Insurance. If, at the time of
the receipt of a notice from Indemnitee pursuant to Section 16 hereof, the
Company has director or other pertinent liability insurance in effect, the
Company shall give prompt notice of the commencement of such Proceeding to the
insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts
payable as a result of such Proceeding in accordance with the terms of such
policies. Notwithstanding the fact that the Company may have liability
insurance, the Company shall make payments of advances of Expenses to
Indemnitee in accordance with Sections 2, 4 and 6 of this Agreement even if
the Company has not yet received insurance proceeds with respect to such
payments.
14. Period of Limitations. No legal action shall be bought and no cause of
action shall be asserted by or in the right of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors,
administrators or personal or legal representatives after the expiration of
two years from the date of accrual of such cause of action, and any claim or
cause of action of the Company or its affiliate shall be extinguished and
deemed released unless asserted by the timely filing of a legal action within
such two-year period; provided, however, that if any shorter period of
limitations is otherwise applicable to any such cause of action such shorter
period shall govern.
15. Modification, Waiver, Termination and Cancellation. No supplement,
modification, termination, cancellation or amendment of this Agreement shall
be binding unless executed in writing by both of the Parties. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall
such waiver constitute a continuing waiver.
16. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter, whether civil, criminal, administrative or investigative. Indemnitee
shall also notify the Company promptly of any actual or potential Proceeding
that is, will or is reasonably likely to become an Indemnifiable Proceeding.
Indemnitee's failure to notify the Company will not relieve the Company from
any liability it may have to Indemnitee if such omission does not prejudice
the Company's rights. If such omission does prejudice the Company's rights,
the Company will be relieved from liability only to the extent of such
prejudice; and such omission will not relieve the Company from any liability
it may have to Indemnitee otherwise than under this Agreement. With respect
to any Proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own expense;
(b) The Company jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee; provided, however, that the Company shall not be
entitled to assume the defense of any Proceeding if there has been a Change in
Control or if Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee with respect to such
Proceeding. After notice from the Company to Indemnitee of its election to
assume the defense thereof, the Company will not be liable to Indemnitee under
this Agreement for any Expenses subsequently incurred by Indemnitee in
connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right
to employ its own counsel in such Proceeding, but the fees and expenses of
such counsel incurred after notice from the Company of its assumption of the
defense thereof shall be at the expense of Indemnitee unless:
(i) the employment of counsel by Indemnitee has been authorized by the Company;
(ii) Indemnitee shall have reasonably concluded that counsel engaged by the
Company may not adequately represent Indemnitee; or
(iii) the Company shall not in fact have employed counsel to assume the
defense in such Proceeding or shall not in fact have assumed such defense and
be acting in connection therewith with reasonable diligence;
in each of which cases the fees and expenses of such counsel shall be at the
expense of the Company;
(c) The Company shall not settle any Proceeding in a manner that would prevent
Indemnitee from engaging in Indemnitee's usual lawful business, without the
prior written consent of Indemnitee (which consent shall not be unreasonably
withheld); provided, how ever, that the Company may settle a Proceeding
without consent of Indemnitee in a manner that would prevent Indemnitee from
providing services to the Company, as a Director or otherwise.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered by hand and receipted for by the party to whom said notice or
other communication shall have been directed or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
Gale R. Kaufman
c/o Norcal Waste Systems, Inc.
Five Thomas Mellon Circle
San Francisco, CA 94134
(b) If to the Company, to:
Norcal Waste Systems, Inc.
Five Thomas Mellon Circle
San Francisco, CA 94134
Attn: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
18. Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under
applicable law, the Company's articles of incorporation or bylaws, or any
agreements, vote of shareholders, resolution of the Board of Directors or
otherwise, and to the extent that during the Indemnification Period the rights
of the then existing directors and officers are more favorable to such
directors or officers than the rights currently provided to Indemnitee
thereunder or under this Agreement, Indemnitee shall be entitled to the full
benefits of such more favorable rights.
19. No Construction as Employment Agreement. Nothing in this Agreement shall
be construed as giving Indemnitee any right to be retained in the employ of
the Company or any of its subsidiaries or affiliates.
20. Restricted Payments. Notwithstanding any other provision of this
Agreement, the Company will not establish any trusts, acquire any letters of
credit, or make any payments under this Agreement if and to the extent such
actions would be prohibited by (i) the Indenture dated as of November 21,
1995 among the Company, its Affiliates and IBJ Schroeder Bank & Trust Company,
as trustee, (ii) the Revolving Credit Agreement dated as of November 21, 1995
among the Company, its affiliates and First National Bank of Boston or (iii)
other credit agreements the Company may enter into in the future.
21. Certain Definitions.
(a) "Agent" shall mean any person who is or was a director, officer, employee,
fiduciary or other agent (including a consultant) of the Company or a
subsidiary or affiliate of the Company, or any other entity (including,
without limitation, a trust, corporation, joint venture, partnership, employee
stock ownership plan, other employee benefit plan or other enterprise) either
at the request of, for the convenience of, or otherwise to benefit the Company
or a subsidiary or affiliate of the Company.
(b) A "Change in Control" shall mean the occurrenceof any of the following:
(i) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (which
includes a "group," as the terms person and group are used for purposes of
Section 13(d) or 14(d) of the Exchange Act), immediately after which such
Person has "beneficial ownership" (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of 25% or
more of the combined voting power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a "Non-Control Acquisition"
(as hereinafter defined) will not constitute an acquisition which would cause
a Change in Control. A "Non-Control Acquisition" will mean an acquisition by
(i) an employee benefit plan (or a trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Subsidiary") or (ii) the Company or its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined); (ii) The
individuals who, as of the date this Agreement, are members of the Board (the
"Incumbent Board"), cease for any reason to constitute at least two-thirds of
the members of the Board; provided, however, that if the election, or
nomination for election by the Company's common stockholders, of any new
director is approved by a vote of at least two-thirds of the Incumbent Board,
such new director will, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further, however, that no individual
will be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board (a "Proxy Contest"), including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(iii) The consummation of:
(A) a merger, consolidation or reorganization involving the Company, unless
such merger, consolidation or reorganization is a "Non-Control Transaction."
A "Non-Control Transaction" will mean a merger, consolidation or
reorganization of the Company where:
i) the shareholders of the Company, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least 75% of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
Voting Securities immediately before such merger, consolidation or
reorganization;
ii) the individuals who were members of the Incumbent Board immediately prior
to the execution of the agreement providing for such merger, consolidation or
reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or a corporation beneficially directly
or indirectly owning a majority of the Voting Securities of the Surviving
Corporation;
iii) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming apart thereof) maintained by the
Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had
Beneficial Ownership of 25% or more of the then outstanding Voting Securities,
has Beneficial Ownership of 25% or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities.
(B) A complete liquidation or dissolution of the Company; or
(C) The sale or other disposition of all or substantially all of the assets
of the Company to any Person (other than a transfer to a Subsidiary in which
the Company retains at least 80% of the voting securities and the value of
ownership interests in such Subsidiary).
(iv) The Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control;
(v) Any person (including the Company or any of its subsidiaries, affiliates
or employee stock ownership plans) publicly announces an intention to take or
to consider taking actions that if consummated would constitute a Change in
Control;
(vi) The Company's Board of Directors adopts a resolution to the effect that,
for purposes of this Agreement, a Change in Control has occurred.
Notwithstanding the foregoing, a Change in Control will not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then-outstanding Voting Securities as
a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities that increases the
percentage of the then-outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control will occur.
(c) "Disinterested Director" shall mean a director of the Company who is not
or was not a party to or otherwise involved in the Proceeding in respect of
which indemnification is being sought by Indemnitee.
(d) "Expenses" shall include all direct and indirect costs (including, without
limitation, attorneys fees, retainers, court costs, transcripts, fees of
experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Indemnitee for which Indemnitee is otherwise not compensated by the
Company or any third party) actually and reasonably incurred in connection
with a Proceeding (including, but not limited to the investigation, defense,
settlement or appeal of a Proceeding) or establishing or enforcing a right to
indemnification or advancement of Expenses under this Agreement, applicable
law or otherwise; provided, however, that "Expenses" shall not include any
Liabilities.
(e) "Final" with respect to a judgment or other adjudication shall mean that
(i) all rights of appeal have been exhausted or (ii) no appeal was filed and
the time for filing or noticing an appeal has expired, whichever event occurs
first.
(f) "Final Adverse Determination" shall mean that a determination that
Indemnitee is not entitled to indemnification shall have been made pursuant to
Section 6 hereof and either (i) a Final adjudication pursuant to Section 9(a)
hereof shall have denied Indemnitee's right to indemnification hereunder, or
(ii) Indemnitee shall have failed to file suit pursuant to Section 9(a) for a
period of 120 days after the determination made pursuant to Section 6 hereof.
(g) "Indemnifiable Proceeding" shall mean any Proceeding that arises from or
is in any way associated with (i) a dispute between the Parties with respect
to this Agreement or (ii) any event or occurrence related to the fact that
Indemnitee is or was an Agent of the Company, or is or was serving at the
request of the Company as an Agent of another corporation, partnership, joint
venture, employee benefit plan, employee stock ownership plan, trust or other
enterprise, or by reason of anything done or not done by Indemnitee in any
such capacity.
(h) "Independent Legal Counsel" shall mean a law firm or a member of a firm
selected by the Company and approved by Indemnitee (which approval shall not
be unreasonably withheld) or, if there has been a Change in Control, selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld), that neither is presently nor in the past five years
has been retained to represent: (i) the Company or any of its subsidiaries
or affiliates, or Indemnitee or any corporation of which Indemnitee was or
is a director, officer, employee or agent, or any subsidiary or affiliate of
such a corporation, in any material matter or (ii) any other party to the
Proceeding giving rise to a claim for indemnification or advancement of
Expenses hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's right to indemnification or advancement of Expenses
under this Agreement.
(i) "Liabilities" shall mean liabilities of any type whatsoever including,
but not limited to, any judgments, fines, ERISA excise taxes and penalties,
penalties and amounts paid in settlement (including all interest assessments
and other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) incurred in any
Proceeding, as well as any federal, state, local or foreign taxes imposed on
the Indemnitee as a result of the actual or deemed receipt of any payments
under this Agreement; provided, however, that "Liabilities" shall not include
any tax payments pursuant to the Internal Revenue Code Section 4999, any
successor to such section, or any similar tax imposed by any state or local
government.
(j) "Proceeding" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternate dispute resolution mechanism, inquiry
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative.
22. Binding Effect; Duration and Scope of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the Parties and
their respective successors and assigns (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs
and personal and legal representatives. This Agreement shall continue in
effect during the Indemnification Period, regardless of whether Indemnitee
continues to serve as an Agent. In addition, this Agreement will apply to acts
or omissions of Indemnitee which occurred prior to the date of this Agreement
if Indemnitee was a director or other Agent of the Company or was serving at
the request of the Company as an officer, director, employee or Agent of
another corporation, partnership, joint venture, trust or other enterprise,
at the time such act or omission occurred.
23. Severability. If any provision or provisions of this Agreement (or any
portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever:
(a) The validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby;
(b) To the fullest extent legally possible, the provisions of this Agreement
shall be construed so as to give effect to the intent of any provision held
invalid, illegal or unenforceable;
(c) The Company's obligations under such provision or provisions shall be null
and void and Indemnitee shall have no breach of contract or other remedy with
respect to the Company's failure to satisfy such provision or provisions.
24. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, as applied
to contracts between California residents entered into and to be performed
entirely within the State of California, without regard to conflict of laws
rules.
25. Entire Agreement. This Agreement represents the entire agreement between
the Parties, and there are no other agreements, contracts or understandings
between the Parties with respect to the subject matter of this Agreement,
except as specifically referred to herein or as provided in Section 17 hereof.
26. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original.
Executed as of the 24th day of July, 1997.
NORCAL WASTE SYSTEMS, INC.
/s/Michael J. Sangiacomo
By: Michael J. Sangiacomo
Its: President
INDEMNITEE
/s/Gale Kaufman
Gale Kaufman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED FINANCIAL STATEMENTS OF NORCAL WASTE SYSTEMS, INC., FOR
THE NINE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
(IN THOUSANDS EXCEPT PER SHARE DATA.)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 20,925
<SECURITIES> 5,552
<RECEIVABLES> 41,041
<ALLOWANCES> 1,966
<INVENTORY> 2,515
<CURRENT-ASSETS> 77,367
<PP&E> 230,891
<DEPRECIATION> 93,735
<TOTAL-ASSETS> 332,562
<CURRENT-LIABILITIES> 61,471
<BONDS> 176,320
0
0
<COMMON> 241
<OTHER-SE> 17,587
<TOTAL-LIABILITY-AND-EQUITY> 332,562
<SALES> 0
<TOTAL-REVENUES> 231,027
<CGS> 0
<TOTAL-COSTS> 211,589
<OTHER-EXPENSES> (3,968)
<LOSS-PROVISION> 887
<INTEREST-EXPENSE> 19,159
<INCOME-PRETAX> 3,360
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,360
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
