-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D0d2WF9zyO0PRp/T913RgWsHazI8bURsy2lYM2gqx/QihDMlmBVt4YKOUxi3abTI 8dnLZ4f0ypTh5eJK1UhYCQ== 0000950149-98-000438.txt : 19980317 0000950149-98-000438.hdr.sgml : 19980317 ACCESSION NUMBER: 0000950149-98-000438 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19980316 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE CONNECTIONS INC/DE CENTRAL INDEX KEY: 0001057058 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943283464 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-48029 FILM NUMBER: 98566567 BUSINESS ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 BUSINESS PHONE: 9167722221 MAIL ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 S-1 1 FORM S-1 FOR WASTE CONNECTIONS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998. REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ WASTE CONNECTIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4953 94-3283464 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
2260 DOUGLAS BOULEVARD, SUITE 280 ROSEVILLE, CALIFORNIA 95661 (916) 772-2221 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) RONALD J. MITTELSTAEDT PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN WASTE CONNECTIONS, INC. 2260 DOUGLAS BOULEVARD, SUITE 280 ROSEVILLE, CALIFORNIA 95661 (916) 772-2221 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES OF ALL COMMUNICATIONS TO: ROBERT D. EVANS, ESQ. STEPHEN A. RIDDICK, ESQ. SHARTSIS, FRIESE & GINSBURG LLP PIPER & MARBURY L.L.P. ONE MARITIME PLAZA, 18TH FLOOR 36 SOUTH CHARLES STREET SAN FRANCISCO, CALIFORNIA 94111 BALTIMORE, MARYLAND 21201 (415) 421-6500 (410) 539-2530
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ===================================================================================================================== TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value...................... $27,600,000 $8,142.00 =====================================================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION , 1998 2,000,000 SHARES [LOGO] WASTE CONNECTIONS, INC. COMMON STOCK ------------------ All of the 2,000,000 shares of Common Stock (the "Common Stock") offered hereby are being sold by Waste Connections, Inc. (the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. For information relating to factors to be considered in determining the initial public offering price, see "Underwriting." Application has been made to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "WCNX." ------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ============================================================================================================ PRICE UNDERWRITING PROCEEDS TO DISCOUNTS AND TO PUBLIC COMMISSIONS COMPANY(1) - ------------------------------------------------------------------------------------------------------------ Per Share................................. $ $ $ - ------------------------------------------------------------------------------------------------------------ Total(2).................................. $ $ $ ============================================================================================================
(1) Before deducting expenses of the offering payable by the Company estimated at $ . (2) The Company has granted the Underwriters a 30-day option to purchase up to an additional 300,000 shares of Common Stock solely to cover over-allotments, if any. To the extent the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about , 1998. BT ALEX. BROWN CIBC OPPENHEIMER THE DATE OF THIS PROSPECTUS IS , 1998. 3 This Prospectus contains registered services marks, trademarks and trade names of the Company, including the Waste Connections, Inc. name and logo. The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by its independent auditors and with quarterly reports containing unaudited interim consolidated financial information for each of the first three quarters of each fiscal year. ------------------------ CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise noted herein, all information in this Prospectus: (i) gives effect to the automatic conversion upon consummation of this offering of all outstanding shares of Series A Preferred Stock into 2,499,998 shares of Common Stock; and (ii) assumes no exercise of the Underwriters' over-allotment option. See "Description of Capital Stock," "Underwriting" and Notes 8 and 9 of Notes to the Company's Financial Statements included elsewhere herein. Unless otherwise specified herein, all references to the "Company" or "Waste Connections" mean Waste Connections, Inc. and its subsidiaries, and all references to "solid waste" mean non-hazardous solid waste. THE COMPANY Waste Connections is a regional, integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in secondary markets of the Western U.S. As of March 1, 1998, the Company served more than 120,000 commercial, industrial and residential customers in Washington, California and Idaho. The Company owns six collection operations and operates two transfer stations, one Subtitle D landfill and one recycling facility. Waste Connections was founded in September 1997 to execute an acquisition-based growth strategy in secondary markets of the Western U.S. The Company has acquired five solid waste services operations since its formation and has identified more than 300 independent operators of such businesses in the states where it currently operates, many of which it believes may be suitable for acquisition by the Company. In addition, the Company is currently assessing potential acquisitions of solid waste services operations in Kansas, Montana, Nebraska, Oklahoma, Oregon, South Dakota, Texas and Wyoming. The Company has targeted secondary markets in the Western U.S. because it believes that (i) a large number of independent solid waste services companies suitable for acquisition by the Company are located in these markets; (ii) there is less competition in these markets from large, well-capitalized solid waste services companies; and (iii) these markets have strong projected economic and population growth rates. In addition, the Company's senior management team has extensive experience acquiring and operating solid waste services businesses in the Western U.S. The Company has developed a market-based operating strategy tailored to the competitive and regulatory factors that affect the markets in which it operates. In certain Western U.S. markets, where waste collection services are governed by exclusive franchise agreements, municipal contracts and governmental certificates (referred to in Washington as "G certificates"), the Company generally intends to pursue a collection-based operating strategy. In these markets, which include the Company's current markets of Washington, California and Idaho, the Company believes that controlling the waste stream by providing collection services under exclusive franchise agreements, municipal contracts and governmental certificates is often more important to a solid waste services company's growth and profitability than owning or operating landfills. In markets where the Company considers ownership of landfills advantageous due to competitive and regulatory factors, the Company generally intends to pursue an integrated, disposal-based strategy. The Company's objective is to build a leading solid waste services company in the secondary markets of the Western U.S. by (i) acquiring collection, transfer, disposal and recycling operations in new markets and through "tuck-in" acquisitions in existing markets; (ii) securing additional exclusive franchises, municipal contracts and governmental certificates; (iii) generating internal growth in existing markets by increasing market penetration and adding services to its existing operations; and (iv) enhancing profitability by increasing operating efficiencies of existing and acquired operations. The Company believes that the experience of the members of its senior management team and their knowledge of and reputation in the solid waste industry in the 3 5 Company's targeted markets will provide the Company with significant competitive advantages as it pursues its growth strategy. The Company was incorporated in Delaware in 1997. Its principal executive offices are located at 2260 Douglas Boulevard, Suite 280, Roseville, California 95661, and its telephone number is (916) 772-2221. BACKGROUND In September 1997, the Company joined with two other parties to bid on certain solid waste and recycling businesses offered for sale by Browning-Ferris Industries, Inc. ("BFI"). The Company acquired the stock of Browning-Ferris Industries of Washington, Inc., a provider of solid waste services to more than 75,000 customers through three municipal contracts and one G certificate in and around Clark County, Washington, and the stock of its subsidiary, Fibres International, Inc., a provider of solid waste services to more than 27,000 customers through eight municipal contracts and one G certificate in King and Snohomish Counties, Washington. The acquired companies subsequently changed their names to Waste Connections of Washington, Inc. and Waste Connections International, Inc., respectively. The two other parties acquired selected BFI solid waste collection and transportation assets and operations in Idaho, and BFI's recycling assets and operations in Washington, Idaho and Oklahoma. RECENT DEVELOPMENTS MADERA ACQUISITION Effective February 1, 1998, the Company acquired Madera Disposal Systems, Inc. ("Madera"), an integrated solid waste services company operating in north central California, with 1997 revenues of approximately $7.8 million. In connection with the Madera acquisition, the Company acquired one franchise agreement and one municipal contract, pursuant to which it serves more than 8,000 commercial, industrial and residential customers, and agreements to operate two transfer stations, one Subtitle D landfill (the "Fairmead Landfill") and one recycling facility. The operating agreement for the Fairmead Landfill has a remaining term of approximately 11 years. As of March 1, 1998, the Fairmead Landfill was estimated to have a remaining life of approximately 26 years. Approximately 45% of the solid waste disposed of at the Fairmead Landfill in 1997 was delivered by Madera. IDAHO ACQUISITIONS On January 30, 1998, the Company acquired the stock of Waste Connections of Idaho, Inc., a provider of solid waste collection services to more than 12,000 customers in and around Idaho Falls and Pocatello, Idaho through subscription agreements with residential customers and seven municipal contracts. Waste Connections of Idaho, Inc. was formed in September 1997 by affiliates of the Company for the purpose of acquiring certain assets of Browning-Ferris Industries of Idaho, Inc. Effective March 1, 1998, the Company acquired certain solid waste collection assets from Hunter Enterprises, Inc., a solid waste services company located in eastern Idaho. These assets "tuck in" to the Company's Idaho operations and serve approximately 3,500 residential and commercial customers. REVOLVING CREDIT FACILITY On January 30, 1998, the Company entered into a revolving credit facility with BankBoston, N.A., which provides a borrowing capacity of $25.0 million. The revolving credit facility was obtained primarily to fund acquisitions and to refinance debt incurred in connection with the acquisition the Company completed in September 1997. As of March 1, 1998, the aggregate 4 6 outstanding principal indebtedness under the revolving credit facility was approximately $17.0 million. THE OFFERING Common Stock offered by the Company.................. 2,000,000 shares Common Stock to be outstanding after this offering... 7,799,998 shares(1) Use of proceeds...................................... Repayment of existing indebtedness and for general corporate purposes, including possible acquisitions and capital expenditures. Proposed Nasdaq National Market symbol............... WCNX
- --------------- (1) Excludes 2,308,800 shares of Common Stock issuable upon the exercise of warrants and options outstanding as of March 1, 1998, at a weighted average exercise price of $3.58 per share. See "Management -- Stock Option Plan," "Management -- Certain Transactions" and Note 9 of Notes to the Company's Financial Statements included elsewhere herein. 5 7 WASTE CONNECTIONS, INC. AND PREDECESSORS SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSORS COMBINED(1) WASTE ----------------------------------------------------- CONNECTIONS, INC. PRO FORMA AS NINE MONTHS THREE MONTHS ADJUSTED YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED ------------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1993 1994 1995 1996 1997 1997(2) 1997(3) ------- ------- ------- ------- ------------- ------------------ ------------ STATEMENTS OF OPERATIONS DATA: Revenues............... $24,581 $27,613 $27,595 $22,160 $18,114 $ 6,237 $32,812 Cost of operations..... 19,512 22,730 22,573 17,594 14,753 4,703 24,338 Selling, general and administrative....... 4,112 3,871 4,207 3,775 3,009 619 3,867 Depreciation and amortization......... 948 1,248 1,417 1,286 1,083 354 1,986 Start-up and integration.......... -- -- -- -- -- 493 493 Stock compensation..... -- -- -- -- -- 2,484 2,484 ------- ------- ------- ------- ------- --------- ------- Income (loss) from operations........... 9 (236) (602) (495) (731) (2,416) (356) Interest expense....... (468) (739) (369) (237) (456) (600) -- Other income (expense), net.................. 686 868 103 2,514 14 (36) 151 ------- ------- ------- ------- ------- --------- ------- Income (loss) before income taxes......... 227 (107) (868) 1,782 (1,173) (3,052) (205) Income tax (provision) benefit.............. (77) -- 269 (505) -- 186 (876) ------- ------- ------- ------- ------- --------- ------- Net income (loss)...... $ 150 $ (107) $ (599) $ 1,277 $(1,173) $ (2,866) $(1,081) ======= ======= ======= ======= ======= ========= ======= Redeemable convertible preferred stock accretion............ $ (531) $ -- --------- ------- Net loss applicable to common stockholders.. $ (3,397) $(1,081) ========= ======= Basic net loss per share................ $ (1.48) $ (0.14) ========= ======= Shares used in the per share calculations... 2,300,000 7,799,998
WASTE CONNECTIONS, INC. DECEMBER 31, 1997 ----------------------------------------- PRO FORMA AS ACTUAL PRO FORMA(4) ADJUSTED(4)(5) ------- ------------ -------------- BALANCE SHEET DATA: Cash...................................................... $ 820 $ 1,296 $ 3,313 Working capital........................................... 836 297 3,764 Property and equipment, net............................... 4,185 7,215 7,215 Total assets.............................................. 18,880 33,414 35,431 Long-term debt(6)......................................... 6,762 15,732 -- Redeemable convertible preferred stock.................... 7,523 7,523 -- Redeemable common stock(7)................................ -- 2,800 -- Total stockholders' equity (deficit)...................... (697) (697) 28,825
(see footnotes on following page) 6 8 - --------------- (1) The combined financial data for the Company's predecessors for the years ended December 31, 1993, 1994, 1995 and 1996 do not purport to present the combined results of operations of the Company's predecessors in accordance with generally accepted accounting principles ("GAAP"). Instead, they represent merely a summation of statement of operations data and balance sheet data of the individual predecessor companies on an historical basis and exclude the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's results of operations. In addition, the combined financial data of the predecessor operations may not necessarily be indicative of the financial position or results of operations that would have been realized had the predecessor companies been operated as stand-alone entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements of the Company and its predecessors. (2) Represents the period from inception of the Company (September 9, 1997) through December 31, 1997. Operations commenced October 1, 1997. (3) Assumes the Company's acquisitions of Madera Disposal Systems, Inc., Waste Connections of Idaho, Inc. and the Company's predecessors occurred on January 1, 1997, adjusted to reflect the sale of the Common Stock offered hereby at an assumed initial public offering price of $11.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Unaudited Pro Forma Financial Statements." (4) Assumes the Company's acquisitions of Madera Disposal Systems, Inc. and Waste Connections of Idaho, Inc. occurred on December 31, 1997. (5) Adjusted to reflect the sale of the Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share and the application of the estimated net proceeds therefrom, as described in "Use of Proceeds." (6) Excludes redeemable convertible preferred stock. (7) Common Stock issued in connection with the acquisition of Madera is redeemable in certain circumstances, as defined in the Stock Purchase Agreement between the Company and the Madera shareholders; however, the redemption right expires upon the closing of this offering. See Notes 2 and 9 of Notes to the Company's Financial Statements included elsewhere herein. 7 9 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the shares of Common Stock offered by this Prospectus. This Prospectus contains certain forward-looking statements that involve risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as in the Prospectus generally. The cautionary statements contained in this Prospectus should be read as applying to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed here as a result of various factors, including without limitation those discussed below and elsewhere in this Prospectus. Limited Operating History; Integration of Completed Acquisitions. The Company was formed in September 1997 and commenced operations on October 1, 1997. Accordingly, the Company has only a limited operating history upon which to base an evaluation of its business and its prospects. The disclosures regarding the Company contained in this Prospectus must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development. In addition, there can be no assurance that the Company's recently assembled senior management team will be able to manage the Company successfully and implement the Company's operating and growth strategies effectively. The Company's effective integration of acquired businesses into its organization and operations is and will continue to be important to the Company's growth and future financial performance. A part of the Company's strategy is to achieve economies of scale and operating efficiencies by increasing its size through acquisitions. These goals may not be achieved unless the Company effectively combines the operations of acquired businesses with its existing operations. Because of the Company's limited operating history, there can be no assurance that its recently assembled senior management team will succeed in integrating the Company's completed and future acquisitions. Any difficulties the Company encounters in the integration process could have a material adverse effect on its business, financial condition and results of operations. Growth Strategy Implementation; Ability to Manage Growth. The Company's growth strategy includes (i) expanding through acquisitions, (ii) acquiring additional exclusive franchise agreements and municipal contracts and (iii) generating internal growth. The Company's ability to execute its growth strategy will depend on a number of factors, including the success of existing and emerging competition, the availability of acquisition targets, the ability to maintain profit margins in the face of competitive pressures, the ability to continue to recruit, train and retain qualified employees, the strength of demand for the Company's services and the availability of capital to support its growth. If the Company is able to execute its growth strategy, it may experience periods of rapid growth. Such growth, if it occurs, could place a significant strain on the Company's management, operational, financial and other resources. The Company's ability to maintain and manage its growth effectively will require it to expand its management information systems capabilities and its operational and financial systems and controls. Moreover, the Company will need to attract, train, motivate, retain and manage additional senior managers, technical professionals and other employees. Any failure to expand the Company's operational and financial systems and controls or to recruit and integrate appropriate personnel at a pace consistent with the Company's revenue growth would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Strategy." Availability of Acquisition Targets. The Company expects that a substantial part of its future growth will come from acquiring solid waste collection, transfer and disposal operations. There can be no assurance that the Company will be able to identify suitable acquisition candidates or, if such 8 10 candidates are identified, to negotiate their acquisition at prices or on terms and conditions favorable to the Company. The Company's failure to implement its acquisition strategy successfully would limit its potential growth. See "Business -- Strategy" and "-- Acquisition Program." The Company competes for acquisition candidates with other entities, some of which have greater financial resources than the Company. Increased competition for acquisition candidates may result in fewer acquisition opportunities being available to the Company, as well as less attractive acquisition terms, including increased purchase prices. These circumstances may increase acquisition costs to levels that are beyond the Company's financial capability or pricing parameters or that may have an adverse effect on the Company's results of operations and financial condition. The Company believes that a significant factor in its ability to consummate acquisitions after completion of this offering will be the relative attractiveness of shares of the Company's Common Stock as consideration for potential acquisition candidates. This attractiveness may depend in large part on the relative market price and capital appreciation prospects of the Common Stock compared to the equity securities of the Company's competitors. If the market price of the Company's Common Stock were to decline materially over a prolonged period of time, the Company's acquisition program could be materially adversely affected. Highly Competitive Industry. The solid waste services industry is highly competitive and fragmented and requires substantial labor and capital resources. Certain of the markets in which the Company competes or will likely compete are served by one or more large, national solid waste companies, as well as by numerous regional and local solid waste companies of varying sizes and resources, some of which have accumulated substantial goodwill. The Company also competes with counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. These counties, municipalities and solid waste districts may have financial advantages over the Company, because of their access to user fees and similar charges, tax revenues and tax-exempt financing. Certain of the Company's competitors may also be better capitalized, have greater name recognition or be able to provide services at a lower cost than the Company. The Company's inability to compete with governmental service providers and larger and better capitalized companies could have a material adverse effect on the Company's business, financial condition and results of operations. The Company derives a substantial portion of its revenue from exclusive municipal contracts and franchise agreements, of which a significant number will be subject to competitive bidding at some time in the future. See "Business -- Services." The Company intends to bid on additional municipal contracts and franchise agreements as a means of adding customers. There can be no assurance that the Company will be the successful bidder to obtain or retain contracts that come up for competitive bidding. In addition, some of the Company's contracts may be terminated by the customer before the end of the contract term. Municipalities in Washington may by law annex unincorporated territory, which would remove such territory from the area covered by G certificates issued by the Washington Utilities and Transportation Commission. Such annexation could reduce the areas covered by the Company's G certificates and subject more of the Company's Washington operations to competitive bidding in the future. See "Business -- G Certificates." The Company's inability to replace revenues from contracts lost through competitive bidding or early termination or the renegotiation of existing contracts with other revenues within a reasonable time period could have a material adverse effect on the Company's business, financial condition and results of operations. Intense competition exists not only to provide services to customers but also to acquire other businesses within each market. Other companies have adopted or should be expected to adopt the Company's strategy of acquiring and consolidating regional and local businesses to develop a national presence. Increasing consolidation in the solid waste services industry is expected to increase competitive pressures. See "Business -- Competition." 9 11 Potential Inability to Finance the Company's Potential Growth. The Company anticipates that any future business acquisitions will be financed through cash from operations, borrowings under its bank line of credit, the issuance of shares of the Company's Common Stock and/or seller financing. If acquisition candidates are unwilling to accept, or the Company is unwilling to issue, shares of the Company's Common Stock as part of the consideration for such acquisitions, the Company may be required to use more of its available cash resources or borrowings under its credit facility to fund such acquisitions. To the extent that cash from operations and borrowings under the Company's credit facility are insufficient to fund acquisitions, the Company will require additional equity and/or debt financing. Additionally, growth through the development or acquisition of new landfills, transfer stations and other facilities, as well as the ongoing maintenance of such landfills, transfer stations or other facilities, may require substantial capital expenditures. There can be no assurance that the Company will have sufficient existing capital resources or be able to raise sufficient additional capital resources on terms satisfactory to the Company to meet any or all of the foregoing capital requirements. The terms of the Company's credit facility require the Company to obtain the consent of the lending banks prior to consummating acquisitions of other businesses for cash consideration (including all liabilities assumed) in excess of $3.0 million. The Company's inability to obtain such consent could prevent the Company from completing certain acquisitions, which could inhibit the Company's ability to execute its growth strategy. Furthermore, the Company's credit facility contains various financial covenants predicated on the Company's current and projected financial condition following completion of an acquisition. If the Company is unable to satisfy these financial covenants on a pro forma basis following completion of an acquisition, it would be unable to complete the acquisition without a waiver from its lending banks. Whether or not a waiver is needed, if the results of the Company's future operations differ materially from those that are anticipated, the Company may no longer be able to comply with the covenants in the credit facility. The Company's failure to comply with such covenants may result in a default under the credit facility, which could result in acceleration of the date for repayment of debt incurred under the credit facility and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Dependence on Management. The Company depends significantly on the services of the members of its senior management team, the loss of any of whom may have a material adverse effect on the Company's business, financial condition and results of operations. The Company currently maintains "key man" life insurance with respect to Ronald J. Mittelstaedt, its President, Chief Executive Officer and Chairman, in the amount of $3.0 million. See "Management." Geographic Concentration. The Company's operations and customers are located in Washington, California and Idaho, and the Company expects to focus its operations on the Western U.S. for at least the foreseeable future. As of March 1, 1998, approximately 68% of the Company's total annualized revenues were derived from customers located in Washington. Therefore, the Company's business, financial condition and results of operations are susceptible to downturns in the general economy in the Western U.S., particularly in Washington, and other factors affecting the region, such as state regulations affecting the solid waste services industry and severe weather conditions. In addition, the costs and time involved in permitting, and the scarcity of, available landfills in the Western U.S. could make it difficult for the Company to expand vertically in those markets. There can be no assurance that the Company will complete a sufficient number of acquisitions in other markets to lessen its geographic concentration. See "Business -- Strategy." Seasonality of Business. Based on historic trends experienced by the businesses acquired by the Company, the Company's results of operations will vary seasonally, with revenues typically lowest in the first quarter of the year, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring months, resulting from decreased solid 10 12 waste volume relating to construction and demolition activities during the winter months in the Western U.S. In addition, certain of the Company's operating costs should be generally higher in the winter months, because adverse winter weather conditions slow waste collection activities, resulting in higher labor costs, and greater precipitation increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis. Because a majority of the Company's operating expenses are expected to remain fairly constant throughout the fiscal year, operating income should be expected to be generally lower in the winter months. There can be no assurance that future seasonal and quarterly fluctuations will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Government Regulation. The Company is subject to extensive and evolving environmental laws and regulations, the enforcement of which has become increasingly stringent in recent years as a result of greater public interest in protecting the environment. These laws and regulations impose substantial costs on the Company and affect the Company's business in many ways, including as set forth below and under "Business -- Regulation." If the Company implements its strategy for landfill ownership and operation, it will be necessary to obtain and maintain in effect one or more licenses or permits, as well as zoning, environmental and/or other land use approvals. These licenses or permits and approvals are difficult and time- consuming to obtain and renew and are frequently subject to opposition by various elected officials or citizens' groups. See "Business -- Legal Proceedings." There can be no assurance that the Company will be successful in obtaining and maintaining in effect the permits and approvals required for the successful ownership or operation (including capacity increases) of any future landfill activities engaged in by the Company, and the failure by the Company to obtain or maintain in effect a permit or approval significant to its landfill business could have a material adverse effect on the Company's results of operations and financial condition. The design, operation and closure of landfills is extensively regulated. These regulations include, among others, the regulations ("Subtitle D Regulations") establishing minimum federal requirements adopted by the U.S. Environmental Protection Agency (the "EPA") in October 1991 under Subtitle D of the Resource Conservation and Recovery Act of 1976 ("RCRA"). Failure to comply with these regulations could require the Company to undertake investigatory or remedial activities, to curtail operations or to close a landfill temporarily or permanently. Future changes to these regulations may require the Company to modify, supplement or replace equipment or facilities at costs that may be substantial. The failure of regulatory agencies to enforce these regulations vigorously or consistently may give an advantage to competitors of the Company whose facilities do not comply with the Subtitle D Regulations or their state counterparts. The Company's financial obligations arising from any failure to comply with these regulations could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Companies in the solid waste services business, including the Company, are frequently subject in the normal course of business to judicial and administrative proceedings involving federal, state or local agencies or citizens' groups. Governmental agencies may seek to impose fines or penalties on the Company or to revoke or deny renewal of the Company's operating permits, franchises or licenses for violations or alleged violations of environmental laws or regulations or require the Company to make expenditures to remediate potential environmental problems relating to waste disposed of or stored by the Company or its predecessors, or resulting from its or its predecessors' transportation and collection operations. The Company may also be subject to actions brought by individuals or community groups in connection with the permitting, franchising or licensing of its operations, any alleged violation of such permits, franchises or licenses or other matters. Any adverse outcome in these proceedings could have a material adverse effect on the Company's 11 13 business, financial condition and results of operations and may subject the Company to adverse publicity. See "Potential Environmental Liability" below and "Business -- Legal Proceedings." Potential Environmental Liability. The Company is subject to liability for any environmental damage that its solid waste facilities may cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water. The Company's potential liability includes damage resulting from conditions existing prior to the acquisition of such facilities by the Company. The Company may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by the Company or its predecessors. Any substantial liability for environmental damage incurred by the Company could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Regulation." The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), imposes strict, joint and several liability on the present owners and operators of facilities from which a release of hazardous substances into the environment has occurred, as well as any party that owned or operated the facility at the time of disposal of the hazardous substances, regardless of when the hazardous substance was first detected. CERCLA defines the term "hazardous substances" very broadly to include more than 700 substances that are specified under RCRA, have specific hazardous characteristics defined under RCRA or are regulated under any of several other statutes. Similar liability is imposed on the generators of waste that contains hazardous substances and on hazardous substance transporters that select the treatment, storage or disposal site. All such persons, who are referred to as potentially responsible parties ("PRPs"), generally are jointly and severally liable for the expense of waste site investigation, waste site cleanup costs and natural resource damages, regardless of whether they exercised due care and complied with all relevant laws and regulations. These costs can be very substantial. Furthermore, such liability can be based on the existence of even very small amounts of hazardous substances; unlike most of the other statutes that regulate hazardous substances, CERCLA does not require any minimum volume or concentration of a hazardous substance to be present before imposing liability. It is likely that hazardous substances have in the past come to be located in landfills with which the Company is or will become associated. If any of the Company's sites or operations ever experiences environmental problems, the Company could be subject to substantial liability, which could have a material adverse effect on its business, financial condition and results of operations. See "Business -- Regulation." With respect to each business that the Company acquires or has acquired, there may be liabilities that the Company fails or is unable to discover, including liabilities arising from noncompliance with environmental laws by prior owners, and for which the Company, as a successor owner, may be legally responsible. Representations, warranties and indemnities from the sellers of such businesses, if obtained and if legally enforceable, may not cover fully the resulting environmental liabilities, because of their limited scope, amount or duration, the financial limitations of the warrantor or indemnitor or other reasons. Certain environmental liabilities, even though expressly not assumed by the Company, may nonetheless be imposed on the Company under certain legal theories of successor liability, particularly under CERCLA. The Company's insurance program does not cover liabilities associated with any environmental cleanup or remediation of the Company's own sites. An uninsured claim against the Company, if successful and of sufficient magnitude, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Acquisition Program." Limitations on Landfill Permitting and Expansion. The Company currently owns no landfills and operates only one landfill. The Company's ability to meet its growth objectives may depend in part, however, on its ability to acquire, lease and expand landfills and develop new landfill sites. As of March 1, 1998, the estimated total remaining permitted disposal capacity of the Fairmead Landfill 12 14 in Madera County, California operated by the Company was approximately 600,000 tons, with approximately 3.5 million additional tons of disposal capacity in various stages of permitting. There can be no assurance that the Company will be successful in obtaining new landfill sites or expanding the permitted capacity of the Fairmead Landfill once its remaining permitted disposal capacity has been consumed. In some areas in which the Company operates, suitable land for new sites or expansion of existing landfill sites may be unavailable. Landfills in states in which the Company operates are subject to state regulations and practices that generally require operating permits to be renewed at least every five years. The process of obtaining required permits and approvals to build, operate and expand solid waste management facilities, including landfills and transfer stations, has become increasingly difficult and expensive, often taking several years, requiring numerous hearings and compliance with zoning, environmental and other requirements and often subject to resistance from citizen, public interest or other groups. There can be no assurance that the Company will succeed in obtaining or maintaining the permits it requires to expand or that such permits will not contain burdensome terms and conditions. Even when granted, final permits to expand are often not approved until the remaining permitted disposal capacity of a landfill is very low. Furthermore, local laws and ordinances also may affect the Company's ability to obtain permits to expand landfills. If the Company were to exhaust its permitted capacity at a landfill, its ability to expand internally would be limited, and the Company could be required to cap and close that landfill and forced to dispose of collected waste at more distant landfills or at landfills operated by its competitors. The resulting increased costs would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Services -- Landfills." Alternatives to Landfill Disposal; Waste Reduction Programs. Alternatives to landfill disposal, such as recycling, composting and incineration, are available in some areas in which the Company operates. In addition, state and local authorities increasingly mandate recycling and waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard wastes, at landfills. These developments may result in the volume of waste being reduced in certain areas. For example, California has adopted plans that set goals for percentages of certain solid waste items to be recycled, which are being phased in over the next several years. Increased use of alternatives to landfill disposal may have a material adverse effect on the Company's business, financial condition and results of operations. Potential Inadequacy of Accruals for Closure and Post-Closure Costs. Although the Company currently owns no landfills and operates only one landfill, it may own and/or operate additional landfills in the future. In such case, the Company will have material financial obligations relating to closure and post-closure costs of landfills and any disposal facilities that it owns or operates. The Company will in the future provide accruals for future financial obligations relating to closure and post-closure costs of its owned or operated landfills (generally for a term of 30 years after final closure of a landfill), based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. There can be no assurance that the Company's financial obligations for closing or post-closing costs will not exceed the amount accrued and reserved or amounts otherwise receivable pursuant to funds or reserves established for such purpose. Such a circumstance could have a material adverse effect on the Company's business, financial condition and results of operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Services -- Landfills." Incurrence of Charges Related to Capitalized Expenditures. In accordance with generally accepted accounting principles, the Company capitalizes certain expenditures and advances relating to acquisitions, pending acquisitions and landfill development projects. Indirect acquisition costs such as executive salaries, general corporate overhead, public affairs and other corporate services are expensed as incurred. The Company's policy is to charge against earnings any unamortized capitalized expenditures and advances (net of any portion thereof that the Company estimates will be recoverable, through sale or otherwise) relating to any operation that is permanently shut down, 13 15 any pending acquisition that is not consummated and any landfill development project that is not expected to be completed successfully. Therefore, the Company may be required to incur a charge against earnings in future periods, which charge, depending on its magnitude, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Potential Inability to Obtain Performance or Surety Bonds, Letters of Credit or Insurance. Municipal solid waste services contracts and landfill closure obligations may require performance or surety bonds, letters of credit, or other means of financial assurance to secure contractual performance. Ten of the Company's existing 29 solid waste collection and recycling contracts require the Company to obtain performance bonds, which it has obtained. If the Company in the future were unable to obtain performance or surety bonds or letters of credit in sufficient amounts or at acceptable rates, it could be precluded from entering into additional municipal solid waste services contracts or obtaining or retaining landfill operating permits. Any future difficulty in obtaining insurance could also impair the Company's ability to secure future contracts conditioned on the contractor's having adequate insurance coverage. Accordingly, the failure of the Company to obtain performance or surety bonds, letters of credit or other means of financial assurance or to maintain adequate insurance coverage could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Risk Management, Insurance and Performance Bonds." Commodity Risk Upon Resale of Recyclables. The Company provides recycling services to some of its customers. The sale prices of and demand for recyclable waste products, particularly wastepaper, have been, and may continue to be, volatile and subject to changing market conditions. Accordingly, the Company's results of operations may be affected by changing resale prices or demand for certain recyclable waste products, particularly wastepaper. These changes may contribute to variability in the Company's period-to-period results of operations. See "Business -- Services -- Recycling and Other Services." Potential Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware Law. The Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") and Amended and Restated By-Laws (the "Restated By-Laws") provide for the Company's Board of Directors to be divided into three classes of directors serving staggered three-year terms. As a result, beginning in 1998, approximately one-third of the Company's Board will be elected each year. The classified Board is designed to ensure continuity and stability in the Board's composition and policies in the event of a hostile takeover attempt or proxy contest. The classification of the Board would extend the time required to effect any changes in control of the Board and may discourage any hostile takeover bid for the Company. The classified Board may also make the removal of the Company's incumbent management more difficult, even if such removal would be beneficial to stockholders generally, and therefore may discourage certain tender offers. The authorized capital of the Company includes 10,000,000 shares of "blank check" Preferred Stock, of which 2,500,000 shares have been authorized and 2,499,998 shares have been issued as Series A Preferred Stock. All outstanding shares of Series A Preferred Stock automatically convert into shares of Common Stock on a one-for-one basis upon the closing of this offering. The Board of Directors has the authority to issue shares of Preferred Stock and to determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of these shares of Preferred Stock without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any additional Preferred Stock. See "Description of Capital Stock." 14 16 The Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years following the time that such stockholder became an interested stockholder. The application of Section 203 also could have the effect of delaying or preventing a change of control of the Company. These provisions, and provisions of the Restated Certificate of Incorporation and Restated By-Laws, may deter hostile takeovers or delay or prevent changes in control or management of the Company, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. See "Description of Capital Stock -- Preferred Stock" and "-- Certain Statutory, Charter and By-Law Provisions." Shares Eligible for Future Sale; Registration Rights. The sale of substantial amounts of the Company's Common Stock in the public market following this offering (including shares issued on the exercise of outstanding warrants and stock options), or the perception that such sales could occur, could adversely affect prevailing market prices of the Company's Common Stock. All of the shares offered hereby will be freely saleable in the public market after completion of this offering, unless acquired by affiliates of the Company. The remaining 5,799,998 shares of Common Stock held by existing stockholders on completion of this offering will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or 701 promulgated under the Securities Act. All of the shares outstanding prior to completion of this offering are subject to contractual restrictions that prohibit the stockholders from selling or otherwise disposing of such shares for a period of 180 days after the date of this Prospectus without the prior written consent of BT Alex. Brown Incorporated. The Company has also agreed not to sell any shares of Common Stock for 180 days after the date of this Prospectus without the prior written consent of BT Alex. Brown Incorporated, except as consideration for business acquisitions or upon the exercise of currently outstanding stock options or warrants. After this 180-day period expires, 5,749,998 of the shares of Common Stock that are either currently outstanding or will be outstanding on conversion of the currently outstanding Series A Preferred Stock will be eligible for resale in the public market under Rule 144 promulgated under the Securities Act. An additional 50,000 of the currently outstanding shares of Common Stock will become saleable in the public market ratably over three years, subject to the restrictions of Rule 144. In addition, certain stockholders, who after the closing of this offering will own approximately 5,799,998 shares of Common Stock, have the right for the five years after the closing of this offering, subject to certain conditions, to include their shares in future registration statements relating to the Company's securities and to cause the Company to register certain shares of Common Stock owned by them. See "Shares Eligible for Future Sale." After the completion of this offering, the Company intends to file a registration statement under the Securities Act to register all shares issuable on exercise of stock options or other awards granted or to be granted under its existing stock plan. See "Management -- 1997 Stock Option Plan." After the filing of such registration statement and subject to certain restrictions under Rule 144, those shares will be freely saleable in the public market immediately following exercise of such options. The Company currently intends to file a shelf registration statement on Form S-1 covering up to an additional 3,000,000 shares of Common Stock under the Securities Act for its use in connection with future acquisitions. Such shares, when issued, could be freely saleable in the public market 180 days after the date of this Prospectus, or earlier on prior written approval of BT Alex. Brown Incorporated by persons not affiliated with the Company, unless the Company contractually restricts their resale. See "Shares Eligible for Future Sale" and "Underwriting." No Prior Public Market; Fluctuations in Quarterly Results; Potential Stock Price Volatility. Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active trading market will develop or be sustained after completion of 15 17 this offering. The initial public offering price will be determined through negotiations between the Company and the representatives of the Underwriters based on several factors, and may not be indicative of the market price of the Common Stock after completion of this offering. See "Underwriting." The Company believes that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance. Due to a variety of factors, including general economic conditions, government regulatory action, acquisitions, capital expenditures and other costs related to the expansion of operations and services, pricing changes and adverse weather conditions, it is possible that in some future quarter, the Company's operating results will be below the expectations of securities analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. The price of the Company's Common Stock may be highly volatile and is likely to be affected by the foregoing and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies whose securities are publicly traded. These broad market fluctuations, however, may adversely affect the market price of the publicly traded securities of such companies, including the Company's Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been commenced against such company. There can be no assurance that such litigation will not occur in the future with respect to the Company. Litigation could result in substantial costs and divert management's attention and resources, which could have a material adverse effect on the Company's business, financial condition and results of operations. Any adverse determination in any such litigation could also subject the Company to significant liabilities. Immediate and Substantial Dilution. Purchasers of shares of Common Stock in this offering will incur an immediate and substantial dilution in the net tangible book value per share of the Common Stock from the initial public offering price. See "Dilution." 16 18 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered hereby (after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company) are estimated to be $19.3 million ($22.3 million if the Underwriters' overallotment option is exercised in full), assuming an initial public offering price of $11.00 per share. The Company intends to use approximately $18.0 million of the net proceeds to repay all outstanding indebtedness under its credit facility with BankBoston, N.A. The Company's credit facility provides for borrowing capacity of up to $25.0 million, presently bears interest based on either an adjusted prime rate or the Eurodollar rate plus 2.0% to 2.75% per annum (the applicable rate was 8.44% as of the date of this Prospectus) and will mature on January 30, 2001. The credit facility was obtained primarily to fund acquisitions and to refinance debt incurred in connection with the acquisition the Company completed in September 1997. The terms of the credit facility permit the Company to redraw on the credit facility as needed for future acquisitions and capital expenditures (subject to certain restrictions) and general corporate purposes. The balance of the estimated net offering proceeds will be used for acquisitions, capital expenditures and working capital. Pending specific application of the net proceeds, the Company intends to invest unused net proceeds in short-term, interest-bearing securities. The Company continually evaluates potential acquisition candidates and intends to continue to pursue acquisition opportunities that may become available. The Company is not currently a party to any letters of intent or similar agreements with respect to any material pending acquisitions. DIVIDEND POLICY The Company has never paid cash dividends on its Common Stock, and the Company does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. The Company intends to retain all earnings for use in the operation and expansion of its business. In addition, the Company's credit facility contains restrictions on the payment of cash dividends. The Series A Preferred Stock provides for cumulative dividends, which the Company intends to pay in cash prior to the conversion of the Series A Preferred Stock into Common Stock upon consummation of this offering. 17 19 CAPITALIZATION The following table sets forth, as of December 31, 1997, (i) the long-term debt and capitalization of the Company on an historical basis, (ii) the pro forma long-term debt and capitalization of the Company, giving effect to the acquisitions of Waste Connections of Idaho, Inc. and Madera and the financing of those acquisitions as if they had occurred on December 31, 1997 and (iii) such pro forma long-term debt and capitalization as adjusted to give effect to the sale by the Company of the 2,000,000 shares offered hereby at an assumed initial public offering price of $11.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses, after conversion of all outstanding shares of Series A Preferred Stock into 2,499,998 shares of Common Stock and after the application of a portion of the estimated net offering proceeds to repay indebtedness as described under "Use of Proceeds." This table should be read in conjunction with the Company's Financial Statements and Notes thereto and the Unaudited Pro Forma Financial Statements and Notes thereto, which are included elsewhere in this Prospectus. See "Description of Capital Stock."
DECEMBER 31, 1997 -------------------------------------- (IN THOUSANDS) PRO FORMA ACTUAL PRO FORMA AS ADJUSTED(1) ------- --------- -------------- Long-term debt.............................................. $ 6,762 $17,182 $ -- ------- ------- ------- Redeemable Convertible Preferred Stock, $.01 par value, 2,500,000 shares authorized; 2,499,998 shares issued and outstanding actual and pro forma; no shares issued and outstanding pro forma as adjusted......................... 7,523 7,523 -- Redeemable Common Stock, $.01 par value; no shares issued and outstanding actual, 1,000,000 shares issued and outstanding pro forma and no shares issued and outstanding pro forma as adjusted(2).................................. -- 2,800 -- Stockholder's equity: Preferred Stock, $.01 par value, 7,500,000 shares authorized; no shares issued and outstanding, actual, pro forma and pro forma as adjusted.................... -- -- -- Common Stock, $.01 par value, 50,000,000 shares authorized; 2,300,000 shares issued and outstanding actual and pro forma, 7,799,998 shares issued and outstanding pro forma as adjusted(3)................... 23 23 78 Additional paid-in capital................................ 2,759 2,759 32,226 Stockholder notes receivable.............................. (82) (82) (82) Accumulated deficit....................................... (3,397) (3,397) (3,397) ------- ------- ------- Total stockholders' equity (deficit)...................... (697) (697) 28,825 ------- ------- ------- Total capitalization.............................. $13,588 $26,808 $28,825 ======= ======= =======
- --------------- (1) A portion of the estimated net proceeds from this offering will be used to repay all of the Company's then outstanding indebtedness. (2) Common Stock issued in connection with the acquisition of Madera is redeemable in certain circumstances. Upon completion of this offering, these shares will no longer be redeemable. See Notes 2 and 9 of Notes to the Company's Financial Statements included elsewhere herein. (3) Excludes 2,308,800 shares issuable on the exercise of options and warrants outstanding at March 1, 1998, at a weighted average exercise price of $3.58 per share. See "Management -- 1997 Stock Option Plan," "-- Certain Transactions" and Note 9 of Notes to the Company's Financial Statements included elsewhere herein. 18 20 DILUTION The pro forma net tangible book value of the Company's Common Stock as of December 31, 1997, was $(8.8) million, or $(1.52) per share. Pro forma net tangible book value per share represents the amount of the Company's total tangible assets, less its total liabilities (excluding redeemable Common Stock and redeemable Convertible Preferred Stock), after giving effect to the acquisitions of Waste Connections of Idaho, Inc. and Madera as if they had occurred on December 31, 1997, divided by the total number of shares of Common Stock outstanding immediately prior to this offering. After giving effect to the sale by the Company of 2,000,000 shares of Common Stock in this offering at the assumed initial public offering price of $11.00 per share (and after deduction of the underwriting discounts and commissions and estimated offering expenses), the Company's pro forma net tangible book value as of December 31, 1997, would have been approximately $10.4 million, or $1.33 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of approximately $2.85 per share to existing stockholders and an immediate dilution of pro forma net tangible book value of $9.67 per share to new investors purchasing Common Stock in this offering, as illustrated in the following table: Assumed initial public offering price per share............. $11.00 Pro forma negative net tangible book value per share prior to this offering................................ $(1.52) Increase in pro forma net tangible book value per share attributable to new investors......................... 2.85 ------ Pro forma net tangible book value per share after this offering.................................................. 1.33 ------ Dilution in net tangible book value per share to new investors................................................. $ 9.67 ======
The following table sets forth, as of December 31, 1997, on a pro forma basis giving effect to the issuance of 1,000,000 shares of Common Stock in connection with the Madera Acquisition as if it had occurred on December 31, 1997, the difference between existing stockholders and new investors purchasing shares of Common Stock in this offering with respect to the number of shares purchased from the Company (before deduction of the underwriting discounts and commissions and estimated offering expenses), the total consideration paid and the average price per share paid:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- --------- Existing stockholders.............. 5,799,998 74.4% $ 9,823,000 30.9% $ 1.69 New investors...................... 2,000,000 25.6 22,000,000 69.1 $ 11.00 --------- ----- ----------- ----- Total.................... 7,799,998 100.0% $31,823,000 100.0% ========= ===== =========== =====
As of March 1, 1998, the Company had outstanding stock options and warrants exercisable for 2,308,800 shares of Common Stock at a weighted average exercise price of $3.58 per share. If these options and warrants are exercised, further dilution to new investors will occur. The Company may also issue additional shares to effect future business acquisitions or upon exercise of stock options granted in the future or other equity awards, which could result in additional dilution to then existing stockholders. See "Management -- Stock Options and Warrants." 19 21 SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA The following table presents selected historical and pro forma consolidated statements of operations and balance sheet data of the Company and its predecessors for the periods indicated. The combined selected financial information of the Company's predecessors as of December 31, 1996, and for the nine months ended September 30, 1997, and the years ended December 31, 1995 and 1996 has been derived from audited financial statements included elsewhere in this Prospectus. The combined selected financial information of the Company's predecessors as of December 31, 1995, and for the years ended December 31, 1993 and 1994 has been derived from financial statements that have not been audited. In the opinion of the Company's management, the unaudited financial data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for the unaudited periods. The combined financial statements of the Company's predecessors have been prepared to present the financial position and results of operations of Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc., and each of their respective predecessors, related to the assets acquired and liabilities assumed by the Company under the terms of the Purchase and Sale Agreement dated September 29, 1997, with BFI. The combined financial data for the Company's predecessors for the years ended December 31, 1993, 1994, 1995 and 1996 do not purport to present the combined results of operations of the Company's predecessors in accordance with generally accepted accounting principles. Instead, they represent merely a summation of statements of operations data and balance sheet data of the individual predecessor companies on an historical basis and exclude the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's future results of operations. In addition, the combined financial data of the predecessor operations may not necessarily be indicative of the financial position or results of operations that would have been realized had the predecessor companies been operated as stand-alone entities. The selected financial information for the Company as of December 31, 1997, and for the period from inception (September 9, 1997) through December 31, 1997, has been derived from audited financial statements included elsewhere in this Prospectus. The selected financial information for Madera as of December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 has been derived from audited financial statements included elsewhere in this Prospectus. The selected pro forma financial information as of and for the year ended December 31, 1997, gives effect to this offering and the Company's acquisitions of Waste Connections of Idaho, Inc., Madera Disposal Systems, Inc. and the Company's predecessors as of the dates and for the periods indicated, and has been derived from unaudited pro forma financial statements included elsewhere in this Prospectus. The pro forma financial information does not purport to represent what the Company's results actually would have been if such events had occurred at the dates indicated, nor does such information purport to project the results of the Company for any future period. The Combined Company and Predecessor statements of operations data for the year ended December 31, 1997, reflect the summation of the operating results of the Company's predecessors for the nine months ended September 30, 1997, with the operating results of the Company for the period from inception (September 9, 1997) through December 31, 1997. The combined financial data do not purport to present the combined results of operations of the Company and its predecessors in accordance with generally accepted accounting principles. Instead, they represent merely a summation of statements of operations data of the Company and its predecessors on an historical basis and exclude the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's future results of operations. The selected historical and pro forma financial information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, the audited Financial Statements and Notes thereto of the Company and its predecessors, the audited Financial Statements and Notes thereto of Madera, and the Unaudited Pro Forma Financial Statements and Notes thereto included elsewhere in this Prospectus. 20 22 WASTE CONNECTIONS, INC. AND PREDECESSORS SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSORS COMBINED(1) WASTE COMBINED ----------------------------------------------------- CONNECTIONS, INC. COMPANY AND NINE MONTHS THREE MONTHS PREDECESSORS YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED ------------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1993 1994 1995 1996 1997 1997(2) 1997(3) ------- ------- ------- ------- ------------- ----------------- ------------- STATEMENTS OF OPERATIONS DATA: Revenues.......................... $24,581 $27,613 $27,595 $22,160 $ 18,114 $ 6,237 $ 24,351 Cost of operations................ 19,512 22,730 22,573 17,594 14,753 4,703 19,456 Selling, general and administrative.................. 4,112 3,871 4,207 3,775 3,009 619 3,628 Depreciation and amortization..... 948 1,248 1,417 1,286 1,083 354 1,437 Start-up and integration.......... -- -- -- -- -- 493 493 Stock compensation................ -- -- -- -- -- 2,484 2,484 ------- ------- ------- ------- ------------- ---------- ---------- Income (loss) from operations..... 9 (236) (602) (495) (731) (2,416) (3,147) Interest expense.................. (468) (739) (369) (237) (456) (600) (1,056) Other income (expense), net....... 686 868 103 2,514 14 (36) (22) ------- ------- ------- ------- ------------- ---------- ---------- Income (loss) before income taxes........................... 227 (107) (868) 1,782 (1,173) (3,052) (4,225) Income tax (provision) benefit.... -- -- 269 (505) -- 186 186 ------- ------- ------- ------- ------------- ---------- ---------- Net income (loss)................. $ 227 $ (107) $ (599) $ 1,277 $ (1,173) $ (2,866) $ (4,039) ======= ======= ======= ======= ============= ========== ========== Redeemable convertible preferred stock accretion................. $ (531) $ (531) ---------- ---------- Net loss applicable to common stockholders.................... $ (3,397) $ (4,570) ========== ========== Basic net loss per share.......... $ (1.48) $ (1.99) ========== ========== Shares used in the per share calculations.................... 2,300,000 2,300,000 PRO FORMA AS ADJUSTED YEAR ENDED DECEMBER 31, 1997(4) ------------ STATEMENTS OF OPERATIONS DATA: Revenues.......................... $32,812 Cost of operations................ 24,338 Selling, general and administrative.................. 3,867 Depreciation and amortization..... 1,986 Start-up and integration.......... 493 Stock compensation................ 2,484 ------- Income (loss) from operations..... (356) Interest expense.................. -- Other income (expense), net....... 151 ------- Income (loss) before income taxes........................... (205) Income tax (provision) benefit.... (876) ------- Net income (loss)................. $(1,081) ======= Redeemable convertible preferred stock accretion................. $ -- ------- Net loss applicable to common stockholders.................... $(1,081) ======= Basic net loss per share.......... $ (0.14) ======= Shares used in the per share calculations.................... 7,799,998
PREDECESSORS COMBINED(1) WASTE CONNECTIONS, INC. -------------------- DECEMBER 31, 1997 DECEMBER 31, -------------------------------------------- -------------------- PRO FORMA 1995 1996 ACTUAL PRO FORMA(5) AS ADJUSTED(5)(6) ------- ------- ------- ------------ ----------------- BALANCE SHEET DATA Cash and equivalents...................................... $ 1,145 $ 102 $ 820 $ 1,296 $ 3,313 Working capital........................................... 2,291 695 836 297 3,764 Property and equipment, net............................... 6,256 5,069 4,185 7,215 7,215 Total assets.............................................. 7,039 15,291 18,880 33,414 35,431 Long-term debt(7)......................................... -- 89 6,762 15,732 -- Redeemable convertible preferred stock.................... -- -- 7,523 7,523 -- Redeemable common stock(8)................................ -- -- -- 2,800 -- Total stockholders' equity (deficit)...................... (2,066) -- (697) (697) 28,825
(see footnotes on following page) 21 23 - --------------- (1) The combined financial data for the Company's predecessors for the years ended December 31, 1993, 1994, 1995 and 1996 and as of December 31, 1995 and 1996 do not purport to present the combined results of operations of the Company's predecessors in accordance with generally accepted accounting principles ("GAAP"). Instead, they represent merely a summation of statement of operations data and balance sheet data of the individual predecessor companies on an historical basis and exclude the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's results of operations. In addition, the combined financial data of the predecessor operations may not necessarily be indicative of the financial position or results of operations that would have been realized had the predecessor companies been operated as stand-alone entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements of the Company and its predecessors. (2) Represents the period from inception of the Company (September 9, 1997) through December 31, 1997. Operations commenced October 1, 1997. (3) Represents the results of operations of the Company's predecessors for the nine months ended September 30, 1997, combined with the results of operations of the Company for the three months ended December 31, 1997. (4) Assumes the Company's acquisitions of Waste Connections of Idaho, Inc., Madera Disposal Systems, Inc. and the Company's predecessors occurred on January 1, 1997, adjusted to reflect the sale of the Common Stock offered hereby at an assumed initial public offering price of $11.00 per share, and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Unaudited Pro Forma Financial Statements." (5) Assumes the Company's acquisitions of Waste Connections of Idaho, Inc. and Madera Disposal Systems, Inc. occurred on December 31, 1997. (6) Adjusted to reflect the sale of the Common Stock offered hereby at an assumed initial public offering price of $11.00 per share, and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Unaudited Pro Forma Financial Statements." (7) Excludes redeemable convertible preferred stock. (8) Common stock issued in connection with the acquisition of Madera is redeemable in certain circumstances. Upon completion of this offering, these shares will no longer be redeemable. See Notes 2 and 9 of Notes to the Company's Financial Statements included elsewhere herein. 22 24 MADERA DISPOSAL SYSTEMS, INC. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------- ------- ------- STATEMENTS OF INCOME DATA: Revenues.................................................... $ 7,008 $ 7,770 $ 7,845 Operating expenses: Cost of operations........................................ 5,288 5,512 5,289 Selling, general and administrative....................... 996 969 1,041 Depreciation and amortization............................. 467 585 627 ------- ------- ------- Income from operations...................................... 257 704 888 Interest expense............................................ (237) (259) (280) Other income, net........................................... 68 113 173 ------- ------- ------- Net income.................................................. $ 88 $ 558 $ 781 ======= ======= ======= Pro forma income taxes(1)................................... $ 30 $ 208 $ 295 ------- ------- ------- Pro forma net income(1)..................................... $ 58 $ 350 $ 486 ======= ======= =======
DECEMBER 31, ------------------ 1996 1997 ------- ------- BALANCE SHEET DATA: Cash and equivalents........................................ $ 1,064 $ 1,527 Working capital............................................. 622 942 Property and equipment, net................................. 3,800 3,636 Total assets................................................ 6,004 6,297 Long-term obligations, net of current portion............... 2,194 1,894 Total shareholders' equity.................................. 2,264 2,800
- --------------- (1) Prior to its acquisition by the Company, Madera operated under Subchapter S of the Internal Revenue Code and was not subject to corporate federal and state income tax. The Subchapter S election was terminated upon its acquisition by the Company. Had Madera filed federal and state income tax returns as a regular corporation for 1995, 1996 and 1997, income tax expense under the provisions of Financial Accounting Standards No. 109 would have been $30, $208 and $295, respectively. See Note 7 of Notes to Madera's Financial Statements included elsewhere herein. 23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Unaudited Pro Forma Financial Statements and Notes thereto, the audited Financial Statements and Notes thereto of the Company and its predecessors, Madera's audited Financial Statements and Notes thereto, and other financial information included elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including without limitation those set forth in "Risk Factors" and the matters set forth in this Prospectus generally. OVERVIEW Waste Connections is a regional, integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in secondary markets of the Western U.S. As of March 1, 1998, the Company served more than 120,000 commercial, industrial and residential customers in Washington, California and Idaho. The Company has six collection operations and operates two transfer stations, one Subtitle D landfill and one recycling facility. In September 1997, the Company joined with two other parties to bid on certain solid waste and recycling businesses offered for sale by Browning-Ferris Industries, Inc. ("BFI"). The Company acquired the stock of Browning-Ferris Industries of Washington, Inc., a provider of solid waste services to more than 75,000 customers through three municipal contracts and one G certificate in and around Clark County, Washington, and the stock of its subsidiary, Fibres International, Inc., a provider of solid waste services to more than 27,000 customers through eight municipal contracts and one G certificate in King and Snohomish Counties, Washington. The acquired companies subsequently changed their names to Waste Connections of Washington, Inc. and Waste Connections International, Inc., respectively. The two other parties acquired selected BFI solid waste collection and transportation assets and operations in Idaho, and BFI's recycling assets and operations in Washington, Idaho and Oklahoma. On January 30, 1998, the Company acquired the stock of Waste Connections of Idaho, Inc., a provider of solid waste collection services to more than 12,000 customers in and around Idaho Falls and Pocatello, Idaho through subscription agreements with residential customers and seven municipal contracts. Waste Connections of Idaho, Inc., was formed in September 1997 by affiliates of the Company for the purpose of acquiring certain assets of Browing-Ferris Industries of Idaho, Inc. Effective February 1, 1998, the Company acquired Madera, an integrated solid waste services company operating in north central California, with 1997 revenues of approximately $7.8 million. In connection with the Madera acquisition, the Company acquired one franchise agreement and one municipal contract, pursuant to which it serves more than 8,000 commercial, industrial and residential customers, and agreements to operate two transfer stations, one Subtitle D landfill and one recycling facility. Effective March 1, 1998, the Company acquired certain solid waste collection assets from Hunter Enterprises, Inc., a solid waste services company located in eastern Idaho. These assets "tuck in" to the Company's Idaho operations and serve approximately 3,500 residential and commercial customers. All of the foregoing acquisitions were accounted for under the purchase method of accounting for business combinations. Accordingly, the results of operations of these acquired businesses are included in the Company's Financial Statements from the actual dates of acquisition. The entities the Company acquired in September 1997 from various subsidiaries of BFI are collectively referred to herein as the Company's predecessors. BFI acquired the predecessor 24 26 operations at various times during 1995 and 1996, and prior to being acquired by BFI, the predecessors operated as separate stand-alone businesses. GENERAL The Company's revenues are attributable primarily to fees charged to customers for solid waste collection, transfer, disposal and recycling services. The Company derives a substantial portion of its collection revenues from commercial, industrial and residential services, which are frequently performed under service agreements or pursuant to franchise agreements with counties or municipal contracts. County franchise agreements and municipal contracts generally last from one to ten years. The Company's existing franchise agreement and all of its existing municipal contracts give the Company the exclusive right to provide specified waste services in the specified territory during the contract term. Such exclusive arrangements are awarded, at least initially, on a competitive bid basis and thereafter on a bid or negotiated basis. Some of the Company's residential collection services are also performed on a subscription basis with individual households. A substantial portion of the Company's collection business in Washington is performed under G certificates awarded by the Washington Utilities and Transportation Commission, which grant the Company collection rights in certain areas. These rights are generally perpetual and exclusive. See "Business -- G Certificates." Contracts with counties and municipalities and G certificates provide relatively consistent cash flow during the term of the contracts. Because most residential customers on a subscription basis are billed quarterly, subscription agreements also are a stable source of revenues for the Company. The Company's collection business also generates revenues from the sale of recyclable commodities. Transfer station and landfill customers are charged a tipping fee on a per ton basis for disposing of their solid waste at the transfer stations and disposal facility operated by the Company under contract with the County of Madera. The majority of the Company's transfer and landfill customers are under one to ten year disposal contracts, most of which provide for annual cost of living increases. The Company's prices for its solid waste services are typically determined by the collection frequency and level of service, route density, volume, weight and type of waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing, and prices charged by competitors for similar services. The Company's ability to pass on price increases is sometimes limited by the terms of its contracts. Long-term solid waste collection contracts typically contain a formula, generally based on a predetermined published price index, for automatic adjustment of fees to cover increases in some, but not all, operating costs. Costs of operations include labor, fuel, equipment maintenance and tipping fees paid to third party disposal facilities, worker's compensation and vehicle insurance, the cost of materials purchased to be recycled, third party transportation expense, district and state taxes, host community fees and royalties. The Company operates two transfer stations, which reduce the Company's costs by improving its utilization of collection personnel and equipment and by consolidating the waste stream to gain more favorable disposal rates. Selling, general and administrative ("SG&A") expenses include management, clerical and administrative compensation and overhead costs associated with the Company's marketing and sales force, professional services and community relations expense. Depreciation and amortization expense includes depreciation of fixed assets over the estimated useful life of the assets using the straight line method and the amortization of goodwill and other intangible assets using the straight line method. The Company capitalizes certain third party expenditures related to pending acquisitions or development projects, such as legal and engineering expenses. Indirect acquisition costs, such as 25 27 executive and corporate overhead, public relations and other corporate services, are expensed as incurred. The Company's policy is to charge against net income any unamortized capitalized expenditures and advances (net of any portion thereof that the Company estimates to be recoverable, through sale or otherwise) relating to any operation that is permanently shut down, any pending acquisition that is not consummated and any landfill development project that is not successfully completed. At December 31, 1997, the Company had recorded approximately $20,000 in such capitalized costs, all of which related to the Madera acquisition. The Company routinely evaluates all capitalized costs, and expenses those related to projects the Company believes are not likely to be successful. Because it does not currently own any landfills, the Company does not accrue for estimated landfill closure and post-closure maintenance costs. Under regulations pursuant to which the permit for the Fairmead Landfill was issued, the Company and Madera County, as operator and owner, respectively, are jointly liable for closure and post-closure liabilities with respect to the landfill. The Company has not accrued for such liabilities because Madera County, as required by state law, has established a special fund, into which a designated portion of tipping fee surcharges are deposited, to pay such liabilities. Consequently, management of the Company does not believe Madera had any financial obligation for closure and post-closure costs for the Fairmead Landfill as of December 31, 1997. The Company will have material financial obligations relating to closure and post-closure costs of any disposal facilities it may own or operate in the future, and in such case the Company will provide accruals for future financial obligations relating to closure and post-closure costs of its landfills (generally for a term of 30 years after final closure of a landfill), based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. RESULTS OF OPERATIONS The combined selected financial information of the Company's predecessors for the years ended 1995 and 1996 and the combined results of operations of the Company for the three months ended December 31, 1997 and its predecessors for the nine months ended September 30, 1997 has been derived from audited financial statements included in this prospectus. Such combined financial information represents merely a summation of statement of operations data of the Company and its predecessors on an historical basis. The information excludes the effects of pro forma adjustments. The statements therefore do not fully reflect (i) potential cost savings, synergies and efficiencies that may be achieved through the integration of the businesses and operations of the Company's predecessors; and (ii) expenses that the Company may incur as it seeks to increase the efficiency of the predecessor operations. Waste Connections, Inc. and Predecessors 1997 vs. Predecessors 1996 Revenue. Total revenues increased $2.2 million, or 9.9%, to $24.4 million in 1997 from $22.2 million in 1996. This increase was primarily attributable to: (i) increased volumes resulting from new contracts and existing G certificates, franchise agreements and municipal contracts and (ii) to a lesser extent, increased pricing for collection and disposal services. Cost of Operations. Total cost of operations increased $1.9 million to $19.5 million in 1997 from $17.6 million in 1996. The principal reason for the increase was the addition of new customers and contracts during the year. Cost of operations as a percent of revenue increased to 79.9% in 1997 from 79.4% in 1996. The percentage increase was the result of proportionately more growth in lower-margin services and an increase in waste stream processing and disposal costs. SG&A. SG&A expenses decreased $147,000 to $3.6 million in 1997 from $3.8 million in 1996. As a percentage of revenues, SG&A decreased to 14.9% from 17.0% in 1996 due to improved economies of scale related to the revenue increase discussed above. Depreciation and Amortization. Depreciation and amortization expense increased approximately $151,000 to $1.4 million in 1997 from $1.3 million in 1996. Depreciation and 26 28 amortization increased as a percentage of revenues, to 5.9% from 5.8% in 1996. This increase was principally due to the revaluation of assets associated with the BFI purchase of The Disposal Group in 1996 and the Company's purchase of the BFI assets in 1997. Interest Expense. Interest expense increased $819,000 to $1.1 million in 1997 from $237,000 in 1996. The principal reason for the increase was an increase in financing fees and a higher level of average annual outstanding indebtedness as a result of the purchase of the BFI operations in September 1997. In anticipation of the refinancing of all indebtedness, the Company amortized loan fees and warrant costs associated with the financing of the purchase of the BFI operations in the fourth quarter 1997. Interest as a percentage of revenues increased to 4.3% in 1997 from 1.1% in 1996. Predecessors 1996 vs. Predecessors 1995 Revenue. Total revenues decreased $5.4 million, or 19.7%, to $ 22.2 million in 1996 from $27.6 million in 1995. The decrease was primarily attributable to the expiration of a residential waste collection contract and to a lessor extent, pricing associated with recycling material sales. Cost of Operations. Total cost of operations decreased $5.0 million to $17.6 million in 1996 from $22.6 million in 1995. The principal reason for the decrease is related to the revenue decrease discussed above. Cost of operations as a percentage of revenues decreased to 79.4% in 1996 from 81.8% in 1995. This percentage decrease was the result of the loss of lower-margin services associated with the expired residential contract. SG&A. SG&A expenses decreased approximately $432,000 to $3.8 million in 1996 from $4.2 million in 1995. As a percentage of revenues, SG&A increased to 17.0% from 15.2% in 1995 due to reduced economies of scale in the Company's collection operations associated with the expired residential contract. Depreciation and amortization. Depreciation and Amortization expense decreased approximately $131,000 to $1.3 million in 1996 compared to $1.4 million in 1995. Depreciation and amortization increased as percentage of revenues to 5.8% from 5.1% in 1995, primarily as a result of lower revenue associated with the expired residential contract. Interest Expense. Interest expense decreased $132,000 to $237,000 in 1996 from $369,000 in 1995. Interest as a percentage of revenues decreased to 1.1% in 1996 from 1.3% in 1995. Madera 1997 vs. 1996 Revenue. Total revenues increased $75,000, or 1.0%, to $ 7.8 million in 1997 from $7.8 million in 1996. Exclusive of Madera's Professional Cleaning Division ("PCD"), which ceased operations in July, 1997, revenues increased $667,000, or 9.5%, to $7.7 million in 1997 from $7.0 million in 1996. This increase was primarily attributable to increased landfill and collection volumes resulting from existing franchise contracts offset by a reduction in landfill construction revenues. Cost of Operations. Total cost of operations decreased $223,000, to $5.3 million in 1997 from $5.5 million in 1996. The decrease was principally due to the elimination of PCD, which was offset by increased operating cost associated with volume increases from existing contracts. Cost of operations as a percentage of revenues decreased to 67.4% from 70.9% in 1996. The percentage decrease was primarily due to the elimination of PCD. SG&A. SG&A expenses increased approximately $72,000 to $1.0 million in 1997 from $969,000 in 1996. As a percentage of revenues, SG&A increased to 13.3% from 12.5% in 1996. Depreciation and Amortization. Depreciation and amortization expense increased approximately $42,000 to $627,000 in 1997 from $585,000 in 1996. Depreciation and amortization increased as a percentage of revenues to 8.0% from 7.5%. 27 29 Interest Expense. Interest expense increased approximately $21,000 to $280,000 in 1997 from approximately $259,000 in 1996. Interest expense as a percentage of revenues increased to 3.6% in 1997 from 3.3% in 1996. Madera 1996 vs. 1995 Revenue. Total revenues increased $762,000, or 10.9%, to $ 7.8 million in 1996 from $7.0 million in 1995. Exclusive of PCD, revenues increased $508,000, or 7.8%, to $7.0 million in 1996 from $6.5 million in 1995. This increase was primarily attributable to increased landfill and collection volumes resulting from existing franchise contracts and landfill construction revenues. This was partially offset by decreased pricing associated with recycling material sales. Cost of Operations. Total cost of operations increased $224,000 to $5.5 million in 1996 from $5.3 million in 1995. The principal reason for the increase was the start up of the PCD. Cost of operations as a percentage of revenues decreased to 70.9% from 75.5% in 1996. The decrease was primarily due to the increased volume of proportionately higher margin services. SG&A. SG&A expenses decreased approximately $27,000 to $969,000 in 1996 from $996,000 in 1995. As a percentage of revenues, SG&A decreased to 12.5% from 14.2% in 1996 due to improved economies of scale in the Company's landfill and collections operations as a result of additional volumes from existing customers. Depreciation and Amortization. Depreciation and amortization expense increased approximately $118,000 to $585,000 in 1996 compared to $467,000 in 1995. Depreciation and amortization increased as a percentage of revenues to 7.5% in 1996 from 6.7% in 1995. Interest Expense. Interest expense increased approximately $22,000 to $259,000 in 1996 from approximately $237,000 in 1995. Interest expense as a percentage of revenues decreased to 3.3% in 1996 from 3.4% in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's business is capital intensive. The Company's capital requirements include acquisitions and fixed asset purchases and are expected in the future to include capital expenditures for landfill cell construction, landfill development and landfill closure activities. The Company plans to meet its capital needs through various financing sources, including internally generated funds and debt and equity financing. The Company has a $25.0 million revolving credit facility with BankBoston, N.A., which is secured by all assets of the Company, including the Company's interest in the equity securities of its subsidiaries. The credit facility matures in 2001. It requires the Company to maintain certain financial ratios and satisfy other predetermined requirements, such as minimum net worth, net income and limits on capital expenditures. At March 1, 1998, an aggregate of approximately $17.0 million was outstanding under the revolving line of credit. The Company believes that, through a combination of internally generated funds, its credit facility and the net proceeds of this offering, it will be able to satisfy its anticipated working capital needs for at least the next 12 months. Net cash provided by operations for the year ended December 31, 1997 was $794,000, compared to $2.0 million for the same period in 1996. The decrease was primarily due to the favorable settlement of a lawsuit in the amount of $2.6 million in 1996. Net cash used in investing activities for the year ended December 31, 1997 was $11.9 million compared to $139,000 for the same period in 1996. The increase was primarily due to the payment of $11.5 million for the acquisition by the Company of the predecessor companies. Net cash provided by financing activities for the year ended December 31, 1997 was $11.9 million compared to $318,000 for the same period in 1996. The increase was primarily due to 28 30 borrowings under the Company's credit facility then in effect of $5.5 million and proceeds from the sale of redeemable convertible preferred stock of $7.0 million. At December 31, 1997, the Company had approximately $6.8 million of long-term debt outstanding. The Company recorded an income tax benefit of $186,000 for the period from inception (September 9, 1997) through December 31, 1997. The income tax benefit was recognized because of the likelihood that it will be utilized through the reversal of existing temporary differences. INFLATION To date, inflation has not had a significant effect on the Company's operations. Consistent with industry practice, many of the Company's contracts provide for a pass-through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. The Company believes, therefore, that it should be able to implement price increases to offset many cost increases resulting from inflation. However, competitive pressures may require the Company to absorb at least part of these cost increases, particularly during periods of high inflation. SEASONALITY Based on historic trends experienced by the businesses the Company has acquired, the Company's results of operations should be expected to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring months, resulting from decreased solid waste volume relating to construction and demolition activities during the winter months in the Western U.S. In addition, certain of the Company's operating costs should be expected to be generally higher in the winter months; winter weather conditions slow waste collection activities, resulting in higher labor costs, and greater precipitation increases the weight of collected waste, resulting in higher disposal costs (which are calculated per ton). Because a majority of the Company's operating expenses are expected to remain fairly constant throughout the fiscal year, operating income should be expected to be generally lower during the winter. IMPACT OF YEAR 2000 The Company will need to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 ("Year 2000") and thereafter. The Company expects to complete those modifications and upgrades during 1999. The total Year 2000 project cost is estimated to be approximately $100,000, which includes approximately $40,000 for the purchase of new software that will be capitalized and approximately $60,000 that will be expensed as incurred. To date, the Company has not incurred any costs related to the Year 2000 project. The Company does not believe that its expenditures relating to the Year 2000 project will be material. However, if the required Year 2000 modifications and conversions are not made or are not completed in a timely manner, the Year 2000 issue could materially affect the Company's operations. 29 31 BUSINESS INTRODUCTION Waste Connections is a regional, integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in secondary markets of the Western U.S. As of March 1, 1998, the Company served more than 120,000 commercial, industrial and residential customers in Washington, California and Idaho. The Company owns six collection operations and operates two transfer stations, one Subtitle D landfill and one recycling facility. Waste Connections was founded in September 1997 to execute an acquisition-based growth strategy in secondary markets of the Western U.S. The Company has acquired five solid waste services operations since its formation and has identified more than 300 independent operators of such businesses in the states where is currently operates, many of which it believes may be suitable for acquisition by the Company. In addition, the Company is currently assessing potential acquisitions of solid waste services operations in Kansas, Montana, Nebraska, Oklahoma, Oregon, South Dakota, Texas and Wyoming. The Company has targeted secondary markets in the Western U.S. because it believes that: (i) a large number of independent solid waste services companies suitable for acquisition by the Company are located in these markets; (ii) there is less competition in these markets from large, well-capitalized solid waste services companies; and (iii) these markets have strong projected economic and population growth rates. In addition, the Company's senior management team has extensive experience acquiring and operating solid waste services businesses in the Western U.S. INDUSTRY OVERVIEW According to Waste Age, an industry trade publication, the U.S. solid waste services industry generated estimated revenues of $36.9 billion in 1997. The solid waste services industry has undergone significant consolidation and integration since 1990. The Company believes that, particularly in the Western U.S., this consolidation and integration have been caused primarily by: (i) stringent environmental regulation and enforcement, resulting in increased capital requirements for collection companies and landfill operators; (ii) the evolution of an industry competitive model that emphasizes integrating collection and disposal capabilities; (iii) the ability of larger integrated operators to achieve certain economies of scale; and (iv) the existence of a regulatory framework that allows the acquisition of exclusive, long-term waste collection rights through franchise agreements, municipal contracts and governmental certificates. Increased Regulatory Impact. Stringent industry regulations, such as the Subtitle D regulations, have resulted in rising operating and capital costs and have accelerated consolidation and acquisition activities in the solid waste collection and disposal industry. Many smaller industry participants have found these costs difficult to bear and have decided to either close their operations or sell them to larger operators. In addition, Subtitle D requires more stringent engineering of solid waste landfills, including liners, leachate collection and monitoring and gas collection and monitoring. These ongoing costs are combined with increased financial reserve requirements for solid waste landfill operators relating to closure and post-closure monitoring. As a result, the number of solid waste landfills is declining while the size of solid waste landfills is increasing. Integrating Collection and Disposal Operations. The evolution of the industry competitive model is forcing operators to become more efficient by establishing an integrated network of solid waste collection operations and transfer stations, through which they secure solid waste streams for disposal. Operators have adopted a variety of disposal strategies, including owning landfills, establishing strategic relationships to secure access to landfills and otherwise capturing significant waste stream volumes, to gain leverage in negotiating lower landfill fees and securing long-term, most-favored-pricing contracts with high capacity landfills. 30 32 Economies of Scale. Larger integrated operators achieve economies of scale through vertical integration of their operations. These integrated companies have increased their acquisition activity to expand the breadth of services and density in their market areas. Control of the waste stream in these market areas, combined with access to significant financial resources to make acquisitions, has allowed larger solid waste collection and disposal companies to be more cost-effective and competitive. Despite the considerable consolidation and integration that has occurred in the solid waste industry since 1990, the Company believes the industry remains primarily regional in nature and highly fragmented. Based on published industry sources, the Company believes that approximately 27% of the total revenues of the U.S. solid waste industry is accounted for by more than 5,000 private, predominantly small, collection and disposal businesses, approximately 41% by publicly traded solid waste companies and approximately 32% by municipal governments that provide collection and disposal services. The Company expects the current consolidation trends in the solid waste industry to continue, because many independent landfill and collection operators lack the capital resources, management skills and technical expertise necessary both to operate in compliance with stringent environmental and other governmental regulations and to compete with larger, more efficient integrated operators. The Company believes that the fragmented nature of the industry presents substantial consolidation and growth opportunities for companies with disciplined acquisition programs, decentralized operating strategies and access to financial resources. Regulatory Framework. In the Western U.S., waste collection services are provided largely under three types of contractual arrangements: certificates or permits, franchise agreements and municipal contracts. Certificates or permits, such as G certificates awarded to waste collection service providers in unincorporated areas and electing municipalities of Washington by the Washington Utilities and Transportation Commission, typically grant the certificate holder the right, which is generally perpetual and exclusive, to provide specific residential, commercial and industrial waste services in a specified area. See "G Certificates" below. Franchise agreements typically provide an exclusive service period of five to ten years or longer and specify the service territory, a broad range of services to be provided, and rates for the services. They also often give the service provider a right of first refusal to extend the term of the agreement. Municipal contracts typically provide a shorter service period and a more limited scope of services than franchise agreements and generally require competitive bidding at the end of the contract term. Unless customers within the areas covered by certain permits or certificates (including G certificates), franchise agreements and municipal contracts elect not to receive any waste collection services, they are required to pay collection fees to the company providing such services in their area. The Company operates one landfill and may acquire or operate others in the future. The Company believes, however, that in those secondary markets of the Western U.S. where waste collection services are provided under exclusive certificates, franchises or contracts, or where waste disposal is municipally funded or available from multiple sources, controlling the waste stream by providing collection services under exclusive arrangements is often more important to a waste services company's growth and profitability than owning or operating landfills. Several other characteristics of secondary markets in the Western U.S. limit the economic attractiveness of owning or operating landfills in those markets. For example, certain state and local regulations in the Western U.S. restrict the amount of waste that may be accepted from specific geographic areas. In addition, the relatively expansive geographic area of many western states increases the cost of interstate and long haul disposal, which heightens the effects of state and local regulations limiting the type and origin of waste that may be accepted at a landfill and makes it more difficult for a landfill to achieve the disposal volume necessary to operate profitably, given its capital and operating costs. The Company believes that significant opportunities exist for a well-capitalized company operating in secondary markets of the Western U.S., and that the highly fragmented nature of this industry should allow the Company to consolidate existing solid waste services businesses in this region. 31 33 STRATEGY The Company's objective is to build a leading integrated solid waste services company in secondary markets of the Western U.S. The Company's strategy for achieving this objective is to: (i) acquire collection, transfer, disposal and recycling operations in new markets and through "tuck-in" acquisitions in existing markets; (ii) secure additional franchises, municipal contracts and governmental certificates; (iii) generate internal growth in existing markets by increasing market penetration and adding services to its existing operations; and (iv) enhance profitability by increasing operating efficiencies of existing and acquired operations. The Company's ability to implement this strategy is enhanced by the experience of the members of its senior management team and their knowledge of and reputation in the solid waste services industry in the Company's targeted markets. The Company intends to implement its strategy as follows: Expansion Through Acquisitions The Company intends to expand significantly the scope of its operations by: (i) acquiring solid waste collection, transfer, disposal and recycling operations in new markets; and (ii) acquiring solid waste collection, transfer, disposal and recycling operations in existing and adjacent markets through "tuck-in" acquisitions. The Company intends to follow a regional expansion strategy by entering new markets through acquisitions. An initial acquisition in a new market is used as an operating base for the Company in that area. The Company then seeks to strengthen the acquired operation's presence in that market by providing additional services, adding new customers and making tuck-in acquisitions. The Company can then broaden its regional presence by adding additional operations in markets adjacent to the new location. The Company is currently examining opportunities to expand its presence in the Western U.S. in states other than Washington, California and Idaho, and is assessing potential acquisitions of solid waste services operations in Kansas, Montana, Nebraska, Oklahoma, Oregon, South Dakota, Texas and Wyoming. The Company believes that numerous "tuck-in" acquisition opportunities exist within its current and targeted market areas. For example, the Company believes that more than 300 independent entities provide collection and disposal services in California, Washington and Idaho. The Company believes that throughout the Western U.S., many independent entities are suitable for acquisition by the Company and would provide the Company opportunities to improve market share and route density. Franchise Agreements, Municipal Contracts and Governmental Certificates The Company intends to devote significant resources to securing additional franchise agreements and municipal contracts through competitive bidding and additional governmental certificates through the acquisition of other companies. In bidding for franchises and municipal contracts and evaluating the acquisition of companies holding governmental certificates, the Company's management team draws on its experience in the waste industry and its knowledge of local service areas in existing and target markets. The Company's district managers manage relationships with local governmental officials within their respective service areas, and sales representatives may be assigned to cover specific municipalities. These personnel focus on maintaining, renewing and renegotiating existing franchise agreements and municipal contracts and on securing additional agreements, contracts and governmental certificates. Internal Growth To generate continued internal growth, the Company will focus on increasing market penetration in its current and adjacent markets, soliciting new commercial, industrial, and residential customers in markets where such customers may elect whether or not to receive waste collection services, marketing upgraded or additional services (such as compaction or automated 32 34 collection) to existing customers and, where appropriate, raising prices. Where possible, the Company intends to leverage its franchise-based platforms to expand its customer base beyond its exclusive market territories. As customers are added in existing markets, the Company's revenue per routed truck increases, which generally increases the Company's collection efficiencies and profitability. In markets in which it has exclusive contracts, franchises and certificates, the Company expects internal growth to at least track population and business growth. The Company expects to use transfer stations as an important part of its internal growth strategy, by extending the direct-haul reach of the Company and linking disparate collection operations with Company-owned, operated or contracted disposal capacity. The Company currently operates two transfer stations. By operating transfer stations, the Company also engages in direct communications with municipalities and private operators that deliver waste to its transfer stations. This better positions the Company to gain additional business in its markets in the event any municipality privatizes its solid waste operations or rebids existing contracts, and it increases the Company's opportunities to acquire private collection operations. Operating Enhancements The Company has developed company-wide operating standards, which are tailored for each of its markets based on industry standards and local conditions. Using these standards, the Company tracks collection and disposal routing efficiency and equipment utilization. It also implements cost controls and employee training and safety procedures, and establishes a sales and marketing plan for each market. The Company has installed a wide area network, implemented advanced management information systems and financial controls, and consolidated accounting functions, customer service, productivity reporting and dispatching systems. The Company believes that by establishing operating standards, closely monitoring performance and streamlining certain administrative functions, it can improve the profitability of existing operations. To improve an acquired business' operational productivity, administrative efficiency and profitability, the Company applies the same operating standards, information systems and financial controls to acquired businesses as are employed at the Company's existing operations. Moreover, if the Company is able to internalize the waste stream of acquired operations, it can further increase operating efficiencies and improve capital utilization. Where not restricted by exclusive agreements, contracts, permits or certificates, the Company also solicits new commercial, industrial and residential customers in areas within and surrounding the markets served by acquired collection operations, as a means of further improving operating efficiencies and increasing the volume of solid waste collected by the acquired operations. ACQUISITION PROGRAM The Company currently operates in Washington, California and Idaho and believes that these and other markets in the Western U.S. with similar characteristics offer significant opportunities for achieving its objective. The Company focuses on markets that are generally characterized by: (i) a geographically dispersed population, which the Company believes deters competition from larger, established waste management companies; (ii) a potential revenue base of at least $15 million; (iii) the opportunity for the Company to acquire a significant market share; (iv) the availability of adequate disposal capacity, either through acquisition by the Company or through agreements with third parties; (v) a favorable regulatory environment; or (vi) strong projected economic or population growth rates. The Company believes that these market characteristics provide significant growth opportunities for a well-capitalized market entrant and create economic and operational barriers to entry by new competitors. The Company believes that its experienced management, decentralized operating strategy, financial strength and size make it an attractive buyer to certain solid waste collection and disposal acquisition candidates. The Company has developed a set of financial, geographic and management 33 35 criteria to assist management in evaluating acquisition candidates. These criteria evaluate a variety of factors, including, but not limited to: (i) the candidate's historical and projected financial performance; (ii) the candidate's internal rate of return, return on assets and return on revenue; (iii) the experience and reputation of the candidate's management and customer service providers, their relationships with local communities and their willingness to continue as employees of the Company; (iv) the composition and size of the candidate's customer base and whether the customer base is served under franchise agreements, municipal contracts, governmental certificates or other exclusive arrangements; (v) whether the geographic location of the candidate will enhance or expand the Company's market area or ability to attract other acquisition candidates; (vi) whether the acquisition will augment or increase the Company's market share or help protect the Company's existing customer base; (vii) any potential synergies that may be gained by combining the candidate with the Company's existing operations; and (viii) the liabilities of the candidate. Before completing an acquisition, the Company performs extensive environmental, operational, engineering, legal, human resources and financial due diligence. All acquisitions are subject to initial evaluation and approval by the Company's management before being recommended to the Executive Committee of the Board of Directors. The Company seeks to integrate each acquired business promptly and to minimize disruption to the ongoing operations of both the Company and the acquired business, and generally attempts to retain the senior management of acquired businesses. The Company believes its senior management team has a proven track record in integrating acquisitions. SERVICES Commercial, Industrial and Residential Waste Services The Company serves more than 120,000 commercial, industrial and residential customers. Of these, more than 49,000 are served under G certificates that grant the Company rights, which are generally perpetual and exclusive, to provide services within specified areas, approximately 6,600 are served under an exclusive franchise agreement with a remaining term of 11 years, and approximately 60,000 are served under exclusive municipal contracts with shorter contract terms. The Company's commercial and industrial services that are not performed under G certificates, franchise agreements or municipal contracts are provided under one to five year service agreements. Fees under these agreements are determined by such factors as collection frequency, level of service, route density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged in its markets for similar service. Collection of larger volumes associated with commercial and industrial waste streams generally helps improve the Company's operating efficiencies, and consolidation of these volumes allows the Company to negotiate more favorable disposal prices. The Company's commercial and industrial customers use portable containers for storage, enabling the Company to service many customers with fewer collection vehicles. Commercial and industrial collection vehicles normally require one operator. The Company provides one to eight cubic yard containers to commercial customers, 10 to 50 cubic yard containers to industrial customers, and 30 to 95 gallon carts to residential customers. For an additional fee, stationary compactors that compact waste prior to collection are installed on the premises of a substantial number of large volume customers. No single commercial or industrial contract is material to the Company's results of operations. The Company's residential waste services that are not performed under G certificates, franchise agreements or municipal contracts are provided under contracts with homeowners' associations, apartment owners or mobile home park operators, or on a subscription basis with individual households. Residential contract fees are based primarily on route density, the frequency and level of service, the distance to the disposal or processing facility, the cost of disposal or processing and 34 36 prices charged in that market for similar services. Collection fees are paid either by the municipalities from tax revenues or directly by the residents receiving the services. Transfer Station Services The Company has an active program to acquire, develop, own and operate transfer stations in markets proximate to its operations. Currently, the Company operates two transfer stations in California which receive, compact, and transfer solid waste to larger Company-owned vehicles for transport to landfills. The Company believes that the transfer stations benefit the Company by: (i) concentrating the waste stream from a wider area, which increases the volume of disposal at Company-operated landfills and gives the Company greater leverage in negotiating for more favorable disposal rates at other landfills; (ii) improving utilization of collections personnel and equipment; and (iii) building relationships with municipalities and private operators that deliver waste, which can lead to additional growth opportunities. Landfills The Company operates one Subtitle D landfill, the Fairmead Landfill, under an operating agreement with Madera County with a remaining term of 11 years. In fiscal 1997, approximately 45% of the solid waste disposed of at the Fairmead Landfill was delivered by Madera. As of March 1, 1998, the Fairmead Landfill consisted of 160 total acres, of which 20 acres were permitted for disposal. As of that date, the Fairmead Landfill had approximately 600,000 tons of unused permitted capacity remaining, with approximately 3.5 million additional tons of capacity in various stages of permitting, and was estimated to have a remaining life of 26 years. The Fairmead Landfill is currently permitted to accept up to 395 tons per day of municipal solid waste. The Company monitors the available permitted in-place disposal capacity of the Fairmead Landfill on an ongoing basis and evaluates whether to seek to expand this capacity. In making this evaluation, the Company considers various factors, including the volume of waste projected to be disposed of at the landfill, the size of the unpermitted acreage included in the landfill, the likelihood that the Company will be successful in obtaining the necessary approvals and permits required for the expansion and the costs that would be involved in developing the additional capacity. The Company also regularly considers whether it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams or to seek other permit modifications. The Company is actively engaged in identifying solid waste landfill acquisition candidates to achieve vertical integration in markets where the economic and regulatory environment makes such acquisitions attractive. The Company believes that in some markets, acquiring landfills would provide opportunities to vertically integrate its collection, transfer and disposal operations while improving operating margins. The Company evaluates landfill candidates by determining, among other things, the amount of waste that could be diverted to the landfill in question, whether access to the landfill is economically feasible from the Company's existing market areas either directly or through transfer stations, the expected life of the landfill, the potential for expanding the landfill, and current disposal costs compared to the cost of acquiring the landfill. Where the acquisition of a landfill is not attractive, the Company pursues long term disposal contracts with facilities located in proximity to its markets. Recycling and Other Services The Company offers municipal, commercial, industrial and residential customers recycling services for a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. The Company operates one recycling processing facility and sells other collected recyclable materials to third parties for processing before resale. The profits from the Company's resale of recycled materials are often shared between the Company 35 37 and the other parties to its recycling contracts. For example, certain of the Company's municipal recycling contracts in Washington and Idaho, which were negotiated before the Company acquired those businesses, specify certain benchmark resale prices for recycled commodities. To the extent the prices the Company actually receives for the processed recycled commodities collected under the contract exceed the prices specified in the contract, the Company shares the excess with the municipality, after recovering any previous shortfalls resulting from actual market prices falling below the prices specified in the contract. In an effort to reduce its exposure to commodity price risk with respect to recycled materials, the Company has adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. The Company believes that recycling will continue to be an important component of local and state solid waste management plans, due to the public's increasing environmental awareness and expanding regulations that mandate or encourage recycling. The Company also provides other waste management services, most of which are project-based, including transporting and disposing of non-hazardous contaminated soils and similar materials, transporting special waste products, including asbestos, and arranging for the transportation of construction and demolition waste and disposal of soil and special waste products. OPERATIONS The Company is managed on a decentralized basis, which places decision-making authority close to the customer, enabling the Company to identify customers' needs quickly and to address those needs in a cost-effective manner. The Company believes that decentralization provides a low-overhead, highly efficient operational structure that allows the Company to expand into geographically contiguous markets and operate in relatively small communities that larger competitors may not find attractive. The Company believes that this structure gives the Company a strategic competitive advantage, given the relatively rural nature of much of the Western U.S., and makes the Company an attractive buyer to many potential acquisition candidates. The Company currently delivers its services from seven operating locations serving four market areas, or districts. Each district has a district manager, who has autonomous service and decision-making authority for that district and is responsible for maintaining service quality, promoting safety in the district's operations, implementing marketing programs, and overseeing day-to-day operations, including contract administration. District managers also assist in identifying acquisition candidates. Once the Company begins the acquisition process, business development managers, under the supervision of district and executive managers, obtain the permits and other governmental approvals required for the Company to operate the acquired business, including those related to zoning, environmental and land use. The Company's financial management, accounting, management information systems, environmental compliance, risk management and certain personnel functions are centralized and shared among locations to improve productivity, lower operating costs and stimulate internal growth. The Company has installed a Company-wide management information system that assists district personnel in making decisions based on centralized, real-time financial, productivity, maintenance and customer information. While district management operates with a high degree of autonomy, the Company's senior officers monitor district operations and require adherence to the Company's accounting, purchasing, marketing and internal control policies, particularly with respect to financial matters. The Company's executive officers review the performance of district managers and operations on a regular basis. G CERTIFICATES A substantial portion of the Company's collection business in Washington is performed under G certificates awarded by the Washington Utilities and Transportation Commission (the "WUTC"). G certificates apply only to unincorporated areas of Washington and municipalities that have elected 36 38 to have their solid waste collection overseen by the WUTC. G certificates typically grant the holder the perpetual right to provide specified solid waste collection and transportation services in a specified territory. The WUTC has repeatedly determined that, in enacting the statute authorizing G certificates, the Washington Legislature intended to favor grants of exclusive, rather than overlapping, service rights for conventional solid waste services. Accordingly, most G certificates currently grant exclusive solid waste collection and transportation rights for conventional solid waste services in their specified territories. G certificates have generally been construed by the WUTC and the Washington Legislature as conferring vested property rights that may be defeated, diminished or cancelled only upon the occurrence of specified events of default, the demonstrated lack of fitness of the certificate holder, or municipalities' annexation of territory covered by a certificate. Thus, a certificate holder is entitled to due process in challenging any action that affects its rights. In addition, legislation passed in 1997 requires a municipality that annexes territory covered by a G certificate either to grant the certificate holder an exclusive franchise, with a minimum term of seven years, to continue to provide services in the affected area, or to negotiate with the certificate holder some other compensation for the collection rights in the affected area. The statute expressly permits the certificate holder to sue the annexing municipality for measurable damages that exceed the value of a seven-year franchise agreement to provide services in the affected area. Under one of the contracts with a municipality in Washington acquired by a predecessor of the Company, the predecessor purported to waive its rights to compensation or damages under the statute in return for the right to service any current or prospectively annexed areas formerly covered by its G certificate. In addition to awarding G certificates, the WUTC is required by statute to establish just, fair and equitable rates to customers of solid waste collection companies. The WUTC is charged with balancing the needs of service providers to earn fair and sufficient returns on their investments in plant and equipment against the needs of commercial and residential customers to receive adequate and reasonably priced services. Over the past decade, the WUTC has employed a ratemaking methodology known as the "Lurito-Gallagher" method. This method calculates rates based on the income statements and balance sheets of each service provider, with the goal of establishing rates that reflect the costs of providing service and that motivate service providers to invest in equipment that improves operating efficiency in a cost-effective manner. The Lurito-Gallagher rate-setting methodology was adjusted in the early 1990's to better reflect the costs of providing recycling services, by accounting for providers' increasing use of automated equipment and adjusting for the cyclicality of the secondary recyclables markets. This has resulted in more frequent rate adjustments in response to material cost shifts. SALES AND MARKETING In most of the Company's existing markets, waste collection, transfer and disposal services are provided to municipalities and governmental authorities under exclusive franchise agreements, municipal contracts and G certificates; service providers do not contract directly with individual customers. In addition, because the Company's growth to date has primarily been through acquisitions, the Company has generally assumed existing franchise agreements, municipal contracts and G certificates from the acquired companies, rather than obtaining new contracts. For these reasons, the Company's sales and marketing efforts to date have been narrowly focused. The Company expects to add sales and marketing personnel as necessary to: (i) solicit new customers in markets where it is not the exclusive provider of solid waste services; (ii) expand its presence into areas adjacent to or contiguous with its existing markets; and (iii) market additional services to existing customers. The Company has a diverse customer base. Its largest single contract, with the City of Vancouver, accounted for approximately 14.0% of the Company's revenues during the three months ended December 31, 1997. Under this contract, the Company serves more than 34,000 residential and commercial customers. There are approximately nine years remaining under that contract. No 37 39 other single contract or customer accounted for more than 5.0% of the Company's revenues during the three-month period ended December 31, 1997. COMPETITION The solid waste services industry is highly competitive and fragmented and requires substantial labor and capital resources. The industry includes five large national waste companies: Allied Waste Industries, Inc., Browning-Ferris Industries, Inc., Republic Industries, Inc., USA Waste Services, Inc. and Waste Management, Inc. Several other public companies have annual revenues in excess of $100 million, including American Disposal Services, Inc., Casella Waste Systems, Inc., Eastern Environmental Services, Inc., Superior Services, Inc. and Waste Industries, Inc. Certain of the markets in which the Company competes or will likely compete are served by one or more large, national solid waste companies, as well as by numerous regional and local solid waste companies of varying sizes and resources, some of which have accumulated substantial goodwill in their markets. The Company also competes with operators of alternative disposal facilities, including incinerators, and with counties, municipalities, and solid waste districts that maintain their own waste collection and disposal operations. Public sector operations may have financial advantages over the Company, because of their access to user fees and similar charges, tax revenues and tax-exempt financing. The Company competes for collection, transfer and disposal volume based primarily on the price and quality of its services. From time to time, competitors may reduce the price of their services in an effort to expand their market shares or service areas or to win competitively bid municipal contracts. These practices may cause the Company to reduce the price of its services or, if it elects not to do so, to lose business. The Company provides a substantial portion of its residential, commercial and industrial collection services under exclusive franchise and municipal contracts and certificates, some of which are subject to periodic competitive bidding. The balance of the Company's services are provided under subscription agreements with individual households and one to five year service contracts with commercial and industrial customers. Intense competition exists not only for collection, transfer and disposal volume, but also for acquisition candidates. The Company generally competes for acquisition candidates with publicly owned regional and large national waste management companies. REGULATION Introduction The Company is subject to extensive and evolving federal, state and local environmental laws and regulations, the enforcement of which has become increasingly stringent in recent years. The environmental regulations affecting the Company are administered by the EPA and other federal, state and local environmental, zoning, health and safety agencies. A substantial portion of the Company's collection business in Washington is performed under G certificates awarded by the Washington Utilities and Transportation Commission, which grant the Company perpetual and generally exclusive collection rights in certain areas. The Company believes that it is currently in substantial compliance with applicable federal, state and local environmental laws, permits, orders and regulations, and it does not currently anticipate any material environmental costs necessary to bring its operations into compliance (although there can be no assurance in this regard). The Company anticipates that regulation, legislation and regulatory enforcement actions related to the solid waste services industry will continue to increase. The Company attempts to anticipate future regulatory requirements and to plan in advance as necessary to comply with them. To transport solid waste, the Company must possess and comply with one or more permits from state or local agencies. These permits also must be periodically renewed and may be modified or revoked by the issuing agency. 38 40 The principal federal, state and local statutes and regulations that apply to the Company's operations are described below. The Resource Conservation and Recovery Act of 1976 ("RCRA") RCRA regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA divides solid waste into two groups, hazardous and nonhazardous. Wastes are generally classified as hazardous if they either (i) are specifically included on a list of hazardous wastes, or (ii) exhibit certain characteristics defined as hazardous. Household wastes are specifically designated as nonhazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as nonhazardous, and businesses that deal with hazardous waste are subject to regulatory obligations in addition to those imposed on handlers of nonhazardous waste. The EPA regulations issued under Subtitle C of RCRA impose a comprehensive "cradle to grave" system for tracking the generation, transportation, treatment, storage and disposal of hazardous wastes. The Subtitle C Regulations impose obligations on generators, transporters and disposers of hazardous wastes, and require permits that are costly to obtain and maintain for sites where such material is treated, stored or disposed. Subtitle C requirements include detailed operating, inspection, training and emergency preparedness and response standards, as well as requirements for manifesting, record keeping and reporting, corrective action, facility closure, post-closure and financial responsibility. Most states have promulgated regulations modelled on some or all of the Subtitle C provisions issued by the EPA. Some state regulations impose different, additional and more stringent obligations, and may regulate certain materials as hazardous wastes that are not so regulated under the federal Subtitle C Regulations. For the three-month period ended December 31, 1997, the Company believes it did not transport hazardous wastes in volumes that would subject the Company to hazardous waste regulations under RCRA. In October 1991, the EPA adopted the Subtitle D Regulations governing solid waste landfills. The Subtitle D Regulations, which generally became effective in October 1993, include location restrictions, facility design standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation standards and corrective action requirements. In addition, the Subtitle D Regulations require that new landfill sites meet more stringent liner design criteria (typically, composite soil and synthetic liners or two or more synthetic liners) intended to keep leachate out of groundwater and have extensive collection systems to carry away leachate for treatment prior to disposal. Groundwater monitoring wells must also be installed at virtually all landfills to monitor groundwater quality and, indirectly, the effectiveness of the leachate collection system. The Subtitle D Regulations also require, where certain regulatory thresholds are exceeded, that facility owners or operators control emissions of methane gas generated at landfills in a manner intended to protect human health and the environment. Each state is required to revise its landfill regulations to meet these requirements or such requirements will be automatically imposed by the EPA on landfill owners and operators in that state. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills in the state comply with the Subtitle D Regulations. Various states in which the Company operates or in which it may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations. The Federal Water Pollution Control Act of 1972, as amended (the "Clean Water Act") The Clean Water Act regulates the discharge of pollutants from a variety of sources, including solid waste disposal sites and transfer stations, into waters of the United States. If run-off from the Company's transfer stations or run-off or collected leachate from the Company's owned or operated landfills is discharged into streams, rivers or other surface waters, the Clean Water Act would require the Company to apply for and obtain a discharge permit, conduct sampling and monitoring and, 39 41 under certain circumstances, reduce the quantity of pollutants in such discharge. Also, virtually all landfills are required to comply with the EPA's storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water runoff from flowing into surface waters. The Company believes that its facilities comply in all material respects with the Clean Water Act requirements. Various states in which the Company operates or in which it may operate in the future have been delegated authority to implement the Clean Water Act permitting requirements, and some of these states have adopted regulations that are more stringent than the federal requirements. For example, states often require permits for discharges to ground water as well as surface water. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") CERCLA established a regulatory and remedial program intended to provide for the investigation and cleanup of facilities where or from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA's primary mechanism for remedying such problems is to impose strict joint and several liability for cleanup of facilities on current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranges for the transportation, disposal or treatment of the hazardous substances, and the transporters who select the disposal and treatment facilities. CERCLA also imposes liability for the cost of evaluating and remedying any damage to natural resources. The costs of CERCLA investigation and cleanup can be very substantial. Liability under CERCLA does not depend on the existence or disposal of "hazardous waste" as defined by RCRA; it can also be based on the existence of even very small amounts of the more than 700 "hazardous substances" listed by the EPA, many of which can be found in household waste. In addition, the definition of "hazardous substances" in CERCLA incorporates substances designated as hazardous or toxic under the federal Clean Water Act, Clear Air Act and Toxic Substances Control Act. If the Company were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold the Company, or any other generator, transporter or the owner or operator of the contaminated facility, responsible for all investigative and remedial costs, even if others were also liable. CERCLA also authorizes the imposition of a lien in favor of the United States on all real property subject to, or affected by, a remedial action for all costs for which a party is liable. CERCLA gives a responsible party the right to bring a contribution action against other responsible parties for their allocable shares of investigative and remedial costs. The Company's ability to obtain reimbursement from others for their allocable shares of such costs would be limited by the Company's ability to find other responsible parties and prove the extent of their responsibility and by the financial resources of such other parties. The Clean Air Act The Clean Air Act generally, through state implementation of federal requirements, regulates emissions of air pollutants from certain landfills based on the date of the landfill construction and volume per year of emissions of regulated pollutants. Larger landfills and landfills located in areas that do not comply with certain requirements of the Clean Air Act may be subject to even more extensive air pollution controls and emission limitations. In addition, the EPA has issued standards regulating the disposal of asbestos-containing materials. Air permits to construct may be required for gas collection and flaring systems, and operating permits may be required, depending on the estimated volume of emissions. All of the federal statutes described above contain provisions authorizing, under certain circumstances, the institution of lawsuits by private citizens to enforce the provisions of the statutes. In addition to a penalty award to the United States, some of those statutes authorize an award of attorneys' fees to parties successfully advancing such an action. 40 42 The Occupational Safety and Health Act of 1970 (the "OSH Act") The OSH Act is administered by the Occupational Safety and Health Administration ("OSHA"), and in many states by state agencies whose programs have been approved by OSHA. The OSH Act establishes employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, to comply with adopted worker protection standards, to maintain certain records, to provide workers with required disclosures and to implement certain health and safety training programs. Various OSHA standards may apply to the Company's operations, including standards concerning notices of hazards, safety in excavation and demolition work, the handling of asbestos and asbestos-containing materials, and worker training and emergency response programs. Flow Control/Interstate Waste Restrictions Certain permits and approvals, as well as certain state and local regulations, may limit a landfill to accepting waste that originates from specified geographic areas, restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some flow control schemes violate constitutional limits on state or local regulation of interstate commerce. From time to time, federal legislation is proposed that would allow some local flow control restrictions. Although no such federal legislation has been enacted to date, if such federal legislation should be enacted in the future, states in which the Company operates landfills could act to limit or prohibit the importation of out-of-state waste or direct that wastes be handled at specified facilities. Such state actions could adversely affect the Company's landfills. These restrictions may also result in higher disposal costs for the Company's collection operations. If the Company were unable to pass such higher costs through to its customers, the Company's business, financial condition and results of operations could be adversely affected. Even in the absence of federal legislation, certain state and local jurisdictions may seek to enforce flow control restrictions through local legislation or contractually and, in certain cases, the Company may elect not to challenge such restrictions based on various considerations. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which may adversely affect the Company's ability to operate its landfills at their full capacity and/or reduce the prices that the Company can charge for landfill disposal services. These restrictions may also result in higher disposal costs for the Company's collection operations. If the Company were unable to pass such higher costs through to its customers, the Company's business, financial condition and results of operations could be adversely affected. State and Local Regulation Each state in which the Company now operates or may operate in the future has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws and regulations affecting Company operations. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and then put such franchises out for bid, and bans or other restrictions on the movement of solid wastes into a municipality. 41 43 Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period, and/or specify the types of waste that may be accepted at the landfill. Once an operating permit for a landfill is obtained, it must generally be renewed periodically. There has been an increasing trend at the state and local level to mandate and encourage waste reduction at the source and waste recycling, and to prohibit or restrict the disposal of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect the Company's ability to operate its facilities at their full capacity. Some state and local authorities enforce certain federal laws in addition to state and local laws and regulations. For example, in some states, RCRA, OSHA, parts of the Clean Air Act and parts of the Clean Water Act are enforced by local or state authorities instead of by the EPA, and in some states those laws are enforced jointly by state or local and federal authorities. Public Utility Regulation The rates that landfill operators may charge are regulated in many states by public authorities. The rates that the Company may charge at its Fairmead Landfill for the disposal of municipal solid waste are regulated by the Madera County Board of Supervisors. The adoption of rate regulation or the reduction of current rates in states in which the Company owns or operates landfills could have an adverse effect on the Company's business, financial condition and results of operations. Solid waste collection services in all unincorporated areas of Washington and in electing municipalities in Washington are provided under G certificates awarded by the Washington Utilities and Transportation Commission (the "WUTC"). The WUTC also sets rates for solid waste collection services in Washington. RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS The Company maintains an environmental and other risk management programs appropriate for its business. The Company's environmental risk management program includes evaluating existing facilities and potential acquisitions for environmental law compliance. The Company also maintains a worker safety program that encourages safe practices in the workplace. Operating practices at all Company operations emphasize minimizing the possibility of environmental contamination and litigation. The Company believes that all of its facilities comply in all material respects with applicable federal and state regulations. The Company carries a broad range of insurance, which the Company's management considers adequate to protect the Company's assets and operations. The coverage includes general liability, comprehensive property damage, workmen's compensation and other coverage customary in the industry. These policies generally exclude coverage for damages associated with environmental conditions. Because of the limited availability and high cost of environmental impairment liability insurance, and in light of the Company's limited landfill operations, the Company has not obtained such coverage. If the Company were to incur liability for environmental cleanups, corrective action or damage, its financial condition could be materially and adversely affected. The Company will continue to investigate the possibility of obtaining environmental impairment liability insurance, particularly if it acquires landfills or operates landfills other than the Fairmead Landfill. The Company believes that most other landfill operators do not carry such insurance. Municipal solid waste collection contracts may require performance bonds or other means of financial assurance to secure contractual performance. Certain environmental regulations also require demonstrated financial assurance to meet closure and post-closure requirements for landfills. The Company has not experienced difficulty in obtaining performance bonds or letters of credit for its current operations. At March 1, 1998, the Company had provided customers and various 42 44 regulatory authorities with bonds and letters of credit in the aggregate amount of approximately $800,000 to secure its obligations. The Company's credit facility provides for the issuance of letters of credit in an amount up to $5 million, but any letters of credit issued reduce the availability of borrowings for acquisitions and other general corporate purposes. If the Company were unable to obtain surety bonds or letters of credit in sufficient amounts or at acceptable rates, it could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits. PROPERTY AND EQUIPMENT The Company leases the real estate, buildings and other physical properties for its solid waste operations. These leases include a lease of approximately 5,500 square feet of office space in Roseville, California for the Company's principal executive offices, which lease expires in November 2002. The Company also leases real property in Issaquah, Washington under a lease expiring in 2008 and in Maltby, Washington, Idaho Falls and Pocatello, Idaho, under leases expiring at the end of 1999. The Company subleases real property in Vancouver, Washington under a lease expiring in 2001, with an option to extend the term for five years. Under its agreement with the County of Madera to operate Fairmead Landfill, the Company is permitted to maintain an equipment yard and office on the landfill premises without charge. At March 1, 1998, the Company owned or leased approximately 150 pieces of equipment, including waste collection vehicles and related support vehicles, as well as bulldozers, compactors, earth movers and related heavy equipment used in landfill operations, and had more than 52,000 carts and containers in use, with such carts ranging in size from 30 to 95 gallons and such containers ranging from one to 50 cubic yards. The Company believes that its vehicles, equipment and operating properties are well maintained and adequate for its current operations. However, the Company expects to make substantial investments in additional equipment and property for expansion and replacement of assets and in connection with future acquisitions. EMPLOYEES At March 1, 1998, the Company employed approximately 240 full-time employees, including approximately 25 persons classified as professionals or managers, approximately 190 employees involved in collection, transfer, disposal and recycling operations, and approximately 25 sales, clerical, data processing or other administrative employees. Approximately 55 drivers and mechanics at the Company's Vancouver, Washington operation are represented by the Teamsters Union, with which Browning-Ferris Industries of Washington, Inc., the Company's predecessor in Vancouver, entered a four-year collective bargaining agreement in January 1997. In addition, in July 1997, the employees at the Company's facility in Issaquah, Washington, adopted a measure to select a union to represent them in labor negotiations with management. The union and management are currently operating under a one-year negotiating agreement, and, if those negotiations are unsuccessful, the earliest date on which the union would be permitted to take additional action is July 27, 1998. Such additional action includes calling a strike or, if the Company agrees, continuing to negotiate or commencing arbitration of the outstanding issues. The Company is not aware of any other organizational efforts among its employees and believes that its relations with its employees are good. 43 45 LEGAL PROCEEDINGS In the normal course of its business and as a result of the extensive governmental regulation of the solid waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company or to revoke or deny renewal of an operating permit held by the Company. From time to time, the Company may also be subject to actions brought by citizens' groups or adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which the Company operates. In addition, the Company may become party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a waste management business. However, there is no current proceeding or litigation involving the Company that the Company believes will have a material adverse impact on the Company's business, financial condition, results of operations or cash flows. 44 46 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information concerning the Company's executive officers and directors as of March 1, 1998:
NAME AGE POSITIONS ---- --- --------- Ronald J. Mittelstaedt(1).............. 34 President, Chief Executive Officer and Chairman Steven F. Bouck........................ 41 Executive Vice President and Chief Financial Officer Eugene V. Dupreau...................... 50 Vice President -- Madera; Director Charles B. Youngclaus.................. 58 Vice President -- Madera; Advisory Director Darrell W. Chambliss................... 33 Vice President -- Operations; Secretary Michael R. Foos........................ 32 Vice President and Corporate Controller Eric J. Moser.......................... 31 Treasurer and Assistant Corporate Controller Michael W. Harlan(1)(2)................ 37 Director William J. Razzouk(1)(3)............... 50 Director
- --------------- (1) Member of the Executive Committee. (2) Member of the Audit Committee, upon consummation of the offering. (3) Member of the Compensation Committee, upon consummation of the offering. Ronald J. Mittelstaedt has been President, Chief Executive Officer and a director of the Company since it was formed, and was elected Chairman in January 1998. He also served as a consultant to the Company in August and September 1997. Mr. Mittelstaedt has more than ten years of experience in the solid waste industry. He served as a consultant to United Waste Systems, Inc., with the title of Executive Vice President, from January 1997 to August 1997, where he was responsible for corporate development for all states west of Colorado. As Regional Vice President of USA Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.) from November 1993 to January 1997, he was responsible for all operations in 16 states and Canada. Mr. Mittelstaedt held various positions at Browning-Ferris Industries, Inc. from August 1987 to November 1993, most recently as Division Vice President in northern California, overseeing the San Jose market. Previously he was the District Manager responsible for BFI's operations in Sacramento and the surrounding areas. He holds a B.S. in Finance from the University of California at Santa Barbara. Steven F. Bouck has been Executive Vice President and Chief Financial Officer of the Company since February 1998. Mr. Bouck held various positions with First Analysis Corporation from 1986 to 1998, including most recently as Managing Director coordinating corporate finance. In that capacity, he provided merger and acquisition advisory services to companies in the environmental industry. Mr. Bouck was also responsible for assisting in investing venture capital funds focussed on the environmental industry that were managed by First Analysis. In connection with those investments, he served on the boards of directors of several companies. While at First Analysis, Mr. Bouck also provided analytical research coverage of a number of publicly traded environmental services companies. Mr. Bouck holds B.S. and M.S. degrees in mechanical engineering from Rensselaer Polytechnic Institute and an M.B.A. in Finance from the Wharton School. He has been a Chartered Financial Analyst since 1990. Eugene V. Dupreau has been Vice President -- Madera and a director of the Company since February 23, 1998. Mr. Dupreau served as President and a director of Madera Disposal Systems, Inc. beginning in 1981 and 1985, respectively, and held both positions until the Company acquired Madera in 1998. Mr. Dupreau holds a B.S. in Business Administration from Fresno State University 45 47 and has completed advanced coursework in waste management. He serves as a director of several civic and charitable organizations in Madera County. Charles B. Youngclaus has been Vice President -- Madera and an advisory director of the Company since February 23, 1998. Mr. Youngclaus founded Madera Disposal Systems, Inc. in 1981 and was its Chief Operating Officer and Vice President before its acquisition by the Company in 1998. Mr. Youngclaus owned and operated Madera's predecessor company, Madera County Disposal, from 1965 to 1981. Mr. Youngclaus holds a B.S. from Fresno State University and has completed advanced coursework in waste management, including certification in clay liner construction by the University of Texas in 1992. Mr. Youngclaus is a Board Member of the California Refuse Removal Council and is incoming Treasurer of the Northern California chapter. Darrell W. Chambliss has been Vice President -- Operations and Secretary of the Company since October 1, 1997. Mr. Chambliss held various management positions at USA Waste Services, Inc. (including Sanifill, Inc. and United Waste, Inc., both of which were acquired by USA Waste Services, Inc.) from April 1995 to September 1997, including most recently Division Manager in Corning, California, where he was responsible for the operations of 19 operating companies as well as supervising and integrating acquisitions. From July 1989 to April 1995, he held various management positions with Browning-Ferris Industries, Inc., including serving as Assistant District Manager in San Jose, California, where he was responsible for a significant hauling operation, and serving as District Manager in Tucson, Arizona for more than three years. Mr. Chambliss holds a B.S. in Business Administration from the University of Arkansas. Michael R. Foos has been Vice President and Corporate Controller of the Company since October 1, 1997. Mr. Foos served as Division Controller of USA Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.) from October 1996 to September 1997, where he was responsible for financial compilation and reporting and acquisition due diligence for a seven-state region. Mr. Foos served as Assistant Regional Controller at USA Waste Services, Inc. from August 1995 to September 1996, where he was responsible for internal financial reporting for operations in six states and Canada. Mr. Foos also served as District Controller for Waste Management, Inc. from February 1990 to July 1995, and was a member of the audit staff of Deloitte & Touche from 1987 to 1990. Mr. Foos holds a B.S. in Accounting from Ferris State University. Eric J. Moser has been the Company's Treasurer and Assistant Corporate Controller since October 1, 1997. From August 1995 to September 1997, Mr. Moser held various finance positions at USA Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.), most recently as Controller of the Ohio Division, where he was responsible for internal financial compilation and reporting and acquisition due diligence. Previously Mr. Moser was Controller of the Michigan Division of USA Waste Services, Inc., where he was responsible for internal financial reporting. Mr. Moser served as Controller for Waste Management, Inc. from June 1993 to August 1995, where he was responsible for internal financial reporting for a hauling company, landfill and transfer station. Mr. Moser holds a B.S. in Accounting from Illinois State University. Michael W. Harlan has been a director of the Company since January 30, 1998. From November 1997 to January 30, 1998, Mr. Harlan served as a consultant to the Company on various financial matters. Since March 1997, Mr. Harlan has been Vice President and Chief Financial Officer of Apple Orthodontix, Inc., a publicly traded company that provides practice management services to orthodontic practices in the U.S. and Canada. From April 1991 to December 1996, Mr. Harlan held various positions in the finance and acquisition departments of USA Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.), including serving as Treasurer and Assistant Secretary beginning in September 1993. From May 1982 to April 1991, Mr. Harlan held various positions in the tax and corporate financial consulting services division of Arthur Andersen LLP, where he was a Manager since July 1986. Mr. Harlan is a Certified Public Accountant and holds a B.A. from the University of Mississippi. 46 48 William J. Razzouk has been a director of the Company since January 30, 1998. Since September 1997, Mr. Razzouk has been the President, Chief Operating Officer and a director of Storage USA, Inc., a publicly traded real estate investment trust that owns and operates more than 350 mini storage warehouses. He also owns a management consulting business and an investment company that focuses on identifying strategic acquisitions. He served as the President and Chief Operating Officer of America Online from February 1996 to June 1996. From 1983 to 1996, Mr. Razzouk held various management positions at Federal Express Corporation, most recently as Executive Vice President, World Wide Customer Operations, with full worldwide profit and loss responsibility. Mr. Razzouk previously held management positions at ROLM Corporation, Philips Electronics and Xerox Corporation. He is a member of the Board of Directors of La Quinta Motor Inns and Fritz Companies, Inc. and previously was a director of Sanifill, Inc. and Cordis Corp. He holds a Bachelor of Journalism degree from the University of Georgia. CLASSIFICATION OF BOARD OF DIRECTORS The Board of Directors is divided into three classes. The term of office of the first class (currently comprised of Eugene V. Dupreau) will expire at the annual meeting of stockholders following the fiscal year ending December 31, 1998, the term of office of the second class (currently comprised of Michael W. Harlan and William J. Razzouk) will expire at the annual meeting of stockholders following the fiscal year ending December 31, 1999, and the term of office of the third class (currently comprised of Ronald J. Mittelstaedt) will expire at the annual meeting of stockholders following the fiscal year ending December 31, 2000. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. See "Description of Capital Stock -- Certain Charter and By-Law Provisions -- Classified Board of Directors." COMMITTEES OF THE BOARD The Board of Directors has established an Executive Committee and has authorized an Audit Committee and a Compensation Committee to become operative upon the closing of this offering. A majority of the members of the Executive Committee are, and both members of each of the Audit and Compensation Committees will be, independent directors who are not employees of the Company or one of its subsidiaries. COMPENSATION OF DIRECTORS Directors do not currently receive any compensation for attending meetings of the Board of Directors. After completion of this offering, each independent director will receive a fee of $1,500 for attendance at each Board meeting and each committee meeting (unless held on the same day as the full Board meeting), in addition to reimbursement of reasonable expenses. Each independent director who has not been an employee of the Company at any time during the 12 months preceding his initial election and appointment to the Board is granted an option to purchase 15,000 shares of the Company's Common Stock at the time of his or her initial election or appointment. The Company has granted to each of Messrs. Harlan and Razzouk options to purchase 15,000 shares of Common Stock at $3.00 per share, exercisable on October 1, 1998. Commencing in 1999, the Company will grant each independent director, on February 1 of each year during which such person serves on the Board, an option to purchase 7,500 shares of the Company's Common Stock. All such options will have an exercise price equal to the fair market value of the Common Stock on the grant date, will vest in full on the grant date, and will expire upon the earlier to occur of ten years after the grant date or one year after the director ceases to be a member of the Board. 47 49 EXECUTIVE COMPENSATION Summary Compensation Information The Company was incorporated in September 1997. The following table sets forth information with respect to the annual and long-term compensation earned in 1997 by the Chief Executive Officer. The Chief Executive Officer has been compensated in accordance with the terms of his Employment Agreement described below. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------------ SHARES ANNUAL COMPENSATION UNDERLYING ---------------------------- RESTRICTED OPTIONS/ WARRANTS ALL OTHER SALARY(1) BONUS(1) OTHER STOCK GRANTED(2) COMPENSATION(3) --------- -------- ----- ---------- ----------------- --------------- Ronald J. Mittelstaedt.. $39,903 $30,000 -- $0 200,000 $10,000
- --------------- (1) Salary and bonus figures reflect employment from October 1, 1997 through December 31, 1997. Bonus figure reflects portion earned during 1997; such bonus is payable in 1998. (2) See "Option and Warrant Grants" below. (3) Consists of consulting fees for services rendered prior to the Company's formation. Stock Options and Warrants Option and Warrant Grants. The following table contains information concerning the grant of options and warrants to purchase shares of the Company's Common Stock to the Company's Chief Executive Officer during the period from inception (September 9, 1997) through December 31, 1997: 1997 OPTION AND WARRANT GRANTS
POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF SHARES % OF TOTAL STOCK PRICE UNDERLYING OPTIONS AND APPRECIATION FOR OPTIONS WARRANT OPTION/WARRANT AND GRANTED TO TERM(2) NAME OF WARRANT EMPLOYEES IN EXERCISE PRICE ----------------------- BENEFICIAL OWNER GRANTED 1997 PER SHARE(1) EXPIRATION DATE 5% 10% ---------------- ---------- ------------ -------------- --------------- ---------- ---------- Ronald J. Mittelstaedt.. 100,000(3) 15.9% $2.80 Dec. 14, 2007 $1,512,000 $2,573,000 100,000(4) 15.9% $2.80 Dec. 14, 2007 $1,512,000 $2,573,000
- --------------- (1) The options and warrant were granted at or above fair market value as determined by the Board of Directors on the date of grant. (2) Amounts reported in these columns represent amounts that may be realized on exercise of options and warrant immediately prior to the expiration of their term assuming the specified assumed rates of stock price appreciation (5% and 10%) on the Company's Common Stock over the term of the options and warrant, assuming an initial public offering price of $11.00 per share. The potential realizable values set forth above do not take into account applicable tax and expense payments that may be associated with such exercises. Actual realizable value, if any, will depend on the future price of the Common Stock on the actual date of exercise, which may be earlier than the stated expiration date. The 5% and 10% assumed annualized rates of stock price appreciation over the exercise period of the options and warrants used in the table above are mandated by the rules of the Securities and Exchange Commission (the "Commission") and do not represent the Company's estimate or projection of the future price of the Common Stock on any date. There is no representation, either express or implied, that 48 50 the stock price appreciation rates for the Common Stock assumed for purposes of this table will actually be achieved. (3) Warrant vested immediately on date of grant. (4) Options vest 33% on October 1, 1998, 33% on October 1, 1999, and 34% on October 1, 2000. Option and Warrant Values. The following table sets forth information for the Chief Executive Officer with respect to the value of unexercised options and warrants outstanding as of December 31, 1997. The Chief Executive Officer did not exercise any options or warrants during 1997. 1997 OPTION AND WARRANT VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AND IN-THE-MONEY OPTIONS AND WARRANT AT WARRANT AT DECEMBER 31, 1997 DECEMBER 31, 1997 (1) ---------------------------- ---------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------- ----------- ------------- Ronald J. Mittelstaedt............... 100,000 100,000 -- --
- --------------- (1) There was no public trading market for the Company's Common Stock at December 31, 1997. Accordingly, as permitted by the rules of the Commission, these values have been calculated based on the fair market value of the Company's Common Stock as of December 31, 1997, of $2.02 per share, as determined by the Board of Directors based on an independent valuation, less the aggregate exercise price. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with Steven F. Bouck, Eugene V. Dupreau, Charles B. Youngclaus, Darrell W. Chambliss, Michael R. Foos and Eric J. Moser. Each agreement has a three-year term. The Company entered into an employment agreement with Ronald J. Mittelstaedt, the President and the Chief Executive Officer, on October 1, 1997. The initial annual base salary is $170,000. If this offering is consummated by October 1, 1998, Mr. Mittelstaedt's base salary will be adjusted to at least $250,000. The agreement provides for a minimum bonus of $125,000 for the 15-month period ending December 31, 1998, if the Company achieves certain acquisition and financial targets. The agreement provides for an initial five-year term, at the end of which the agreement automatically renews for additional successive one-year terms unless terminated earlier upon written notice of either Mr. Mittelstaedt or the Company or extended further by the Board. The Company or Mr. Mittelstaedt may at any time terminate the agreement, with or without cause, provided that if the Company terminates the agreement without cause (as defined in the agreement) or if Mr. Mittelstaedt terminates the agreement for good reason (as defined in the agreement), the Company is required to make certain severance payments, and all of Mr. Mittelstaedt's unvested options, warrants and rights relating to capital stock of the Company will immediately vest. The agreement also provides that a change of control of the Company (as defined in the agreement) will be deemed a termination of Mr. Mittelstaedt without cause, unless Mr. Mittelstaedt waives that provision. Pursuant to the employment agreement, the Company sold Mr. Mittelstaedt 617,500 shares of the Company's Common Stock for $0.01 per share and 357,143 shares of the Company's Series A Preferred Stock for $1,000,000. Mr. Mittelstaedt may recommend nominees for election to the Company's Board of Directors. If the Board consists of five or fewer members, Mr. Mittelstaedt may recommend two nominees, and if it consists of more than five members, he may recommend three nominees. 49 51 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The full Board of Directors served as the compensation committee of the Board during 1997. At the time the employment agreement with Mr. Mittelstaedt was approved by the Board of Directors, Mr. Mittelstaedt was one of three members of the Board of Directors. No executive officer of the Company served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or member of the Compensation Committee of the Company. 1997 STOCK OPTION PLAN The 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the Board of Directors effective as of October 1, 1997, and was approved by the stockholders on March 12, 1998. the Stock Option Plan is intended to provide employees, consultants and directors with additional incentives by increasing their proprietary interests in the Company. Under the Stock Option Plan, the Company may grant options with respect to a maximum of 1,200,000 shares of Common Stock. As of March 1, 1998, the Company had granted options to purchase 857,800 shares of Common Stock at a weighted average exercise price of $5.23 per share. The Stock Option Plan is currently administered by the Board of Directors. Upon consummation of the offering, the Compensation Committee will administer the Stock Option Plan. The administrator of the Stock Option Plan has the authority to determine the employees, consultants and directors to whom options are granted (the "Optionees"), the type, size and term of the options, the grant date, the expiration date, the vesting schedule and other terms and conditions of the options. The Stock Option Plan provides for the grant of incentive stock options ("ISOs") as defined in section 422 of the Internal Revenue Code, as amended, and nonqualified stock options. Only employees of the Company may receive ISOs. The aggregate fair market value, as of the grant date, of the Common Stock subject to ISOs that become exercisable by any employee during any calendar year may not exceed $100,000. Options generally become exercisable in installments pursuant to a vesting schedule set forth in the option agreement. no option shall be granted after September 30, 2007. No option will remain exercisable later than 10 years after the grant date (or five years in the case of ISOs granted to Optionees owning more than 10% of the total combined voting power of all classes of the Company's outstanding capital stock (a "Ten Percent Stockholder")). The exercise price of ISOs granted under the Stock Option Plan may be no less than the fair market value of a share of Common Stock on the grant date (or 110% of such fair market value, in the case of ISOs granted to Ten Percent Stockholders). If an Optionee with outstanding options retires or becomes disabled and does not die within the three months following retirement or disability, the Optionee may exercise his or her options, but only within the period ending, subject to the discretion of the administrator of the Stock Option Plan, on the earlier of: (i) six months after retirement or disability; or (ii) the expiration of the option set forth in the option agreement. If the Optionee does not exercise his or her options within that time period, the options will terminate, and the shares of Common Stock subject to the options will become available for issuance under the Stock Option Plan. If the Optionee ceases to be an employee, consultant or director of the Company other than because of retirement, death or disability, his or her options terminate on the date such relationship terminates, subject to the discretion of the administrator of the Stock Option Plan, and the shares of Common Stock subject to the options will become available for issuance under the Stock Option Plan. Each option agreement may include the right of the Company to repurchase any and all shares acquired by an Optionee under the Stock Option Plan upon termination of the Optionee, whether voluntary or involuntary or with or without cause. 50 52 CERTAIN TRANSACTIONS INITIAL FUNDING In September and October 1997, the Company sold an aggregate of 2,300,000 shares of Common Stock at a price of $0.01 per share and 2,499,998 shares of Series A Preferred Stock at a price of $2.80 per share to 19 accredited investors, including certain officers and directors of the Company, in a private placement. Such sales were made in accordance with Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The investors included the following officers and directors of the Company, their immediate family members, and entities controlled by them: Mittelstaedt Family Trust dated 6/18/97 (trustee is Ronald J. Mittelstaedt, President, Chief Executive Officer and Chairman): 357,143 shares of Series A Preferred for $1,000,000 and 617,500 shares of Common Stock for $6,175; J. Bradford Bishop (former director; resigned January 30, 1998): 678,750 shares of Common Stock for $6,787.50; James N. Cutler, Jr. (former director; resigned January 30, 1998): 678,750 shares of Common Stock for $6,787.50; Bishop-Cutler L.L.C. (controlled by former directors J. Bradford Bishop and James N. Cutler, Jr.): 339,285 shares of Series A Preferred Stock for $950,000; Frank W. Cutler (brother of former director James N. Cutler, Jr.): 142,857 shares of Series A Preferred Stock for $400,000 and 275,000 shares of Common Stock for $2,750; Darrell W. Chambliss (Vice President -- Operations): 20,000 shares of Common Stock for $200; Michael R. Foos (Vice President and Corporate Controller): 20,000 shares of Common Stock for $200; Eric J. Moser (Treasurer and Assistant Corporate Controller): 10,000 shares of Common Stock for $100. OPTIONS AND WARRANTS TO MANAGEMENT GROUP On October 1, 1997, Darrell W. Chambliss, Michael R. Foos and Eric J. Moser were granted options to purchase 150,000, 150,000 and 85,000 shares, respectively, of Common Stock, pursuant to their respective employment agreements with the Company. On December 15, 1997, each of then directors James N. Cutler and J. Bradford Bishop and Board consultant Frank W. Cutler was granted a warrant to purchase 247,000 shares of Common Stock at an exercise price of $2.80 per share. Messrs. Cutler and Bishop resigned as directors on January 30, 1998, and Frank W. Cutler's consulting relationship with the Board terminated on that date. On December 15, 1997, Ronald J. Mittelstaedt was granted a warrant to purchase 100,000 shares of Common Stock at an exercise price of $2.80 per share and an option to purchase 100,000 shares of Common Stock at an exercise price of $2.80 per share. All of the above warrants and options are currently exercisable, except for the option to purchase 100,000 shares granted to Mr. Mittelstaedt, one-third of which becomes exercisable on each of October 1, 1998, October 1, 1999, and October 1, 2000. On December 15, 1997, Michael W. Harlan was granted a warrant to purchase 5,000 shares of Common Stock at an exercise price of $2.80 per share, exercisable on October 1, 1998. On January 30, 1998, Mr. Harlan and William J. Razzouk were each granted an option to purchase 15,000 shares of Common Stock at an exercise price of $3.00 per share, exercisable on October 1, 1998. 51 53 On February 1, 1998, Steven F. Bouck was granted options to purchase 230,000 shares of Common Stock, pursuant to his employment agreement with the Company. These options include an option to purchase 100,000 shares at an exercise price of $2.80 per share, of which one-third is exercisable on each of October 1, 1998, October 1, 1999, and October 1, 2000. Of Mr. Bouck's remaining options, an option to purchase 50,000 shares has an exercise price of $9.50 per share, and an option to purchase 50,000 shares has an exercise price of $12.50 per share; one-third of each of these options vests on each of October 1, 1998, October 1, 1999, and October 1, 2000. Mr. Bouck also received an option to purchase 30,000 shares of Common Stock at an exercise price of $2.80 per share, which vests ratably on October 1, 1998, 1999 and 2000 if certain events occur. On February 1, 1998, Mr. Bouck was granted an immediately exercisable warrant to purchase 50,000 shares of Common Stock at an exercise price of $2.80 per share. On February 23, 1998, Eugene V. Dupreau and Charles B. Youngclaus were granted warrants in connection with the Company's acquisition of Madera. See "Purchase of Madera Disposal Systems, Inc." below. PURCHASE OF WASTE CONNECTIONS OF IDAHO, INC. On January 30, 1998, the Company purchased all of the outstanding stock of Waste Connections of Idaho, Inc. ("Waste Connections Idaho") from Ronald J. Mittelstaedt, J. Bradford Bishop and James N. Cutler, Jr., the sole shareholders of Waste Connections Idaho. The aggregate purchase price was $3,000, which was the aggregate price paid initially by Messrs. Mittelstaedt, Bishop and Cutler for such shares. Messrs. Mittelstaedt, Bishop and Cutler formed Waste Connections Idaho in September 1997 for the purpose of acquiring certain assets from Browning-Ferris Industries of Idaho, Inc. PURCHASE OF MADERA DISPOSAL SYSTEMS, INC. Eugene V. Dupreau was President and a 16.7% shareholder of Madera Disposal Systems, Inc. before it was acquired by the Company on February 23, 1998. Charles B. Youngclaus was Chief Operating Officer and a 16.7% shareholder of Madera before it was acquired by the Company. For their shares of Madera's common stock, each of Messrs. Dupreau and Youngclaus received $630,662 in cash, 333,333 shares of the Company's Common Stock and warrants to purchase 66,667 shares of the Company's Common Stock at an exercise price of $4.00 per share. Each of Messrs. Dupreau and Youngclaus has been engaged by the Company as Vice President -- Madera. Mr. Dupreau was appointed a director of the Company, effective February 23, 1998. In addition, the Company is required to pay contingent consideration to certain former Madera shareholders, subject to their involvement in the events that give rise to the consideration, if the Company enters into certain specified business transactions by February 3, 2001. These shareholders may include Messrs. Dupreau and Youngclaus. OTHER TRANSACTIONS. The Company has entered into certain transactions with Continental Paper, LLC, an Oregon limited liability company doing business as Fibres International ("Fibres"). J. Bradford Bishop and James N. Cutler, Jr. own 60% of the membership interests in Fibres, were directors of the Company when some of these transactions occurred and may be deemed promoters of the Company. In markets where Fibres has processing facilities (which include three of the Company's four current markets), the Company delivers to Fibres' processing facilities all of the Company's collected recyclable materials for which Fibres pays the market rate (adjusted to reflect the Company's costs of transporting the materials to Fibres or another processor) otherwise obtainable by the Company for such materials. The gross revenues received by the Company from Fibres from the Company's inception through December 31, 1997, were approximately $222,701. The net amount retained by the Company, after deducting the fees the Company paid to Fibres for the right to collect the recyclables, was approximately $10,860 for such period. 52 54 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of March 1, 1998, and after the sale of the shares of Common Stock offered hereby and the automatic conversion to Common Stock of all outstanding shares of Series A Preferred Stock, by: (i) each person or entity known to the Company to beneficially own more than 5% of the Company's Common Stock; (ii) Mr. Mittelstaedt and each director of the Company; and (iii) all current directors and executive officers of the Company as a group.
OWNED AS OF MARCH 1, TO BE OWNED AFTER 1998 THE OFFERING NAME OF ----------------------- ----------------------- BENEFICIAL OWNER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE ------------------- --------- ---------- --------- ---------- James N. Cutler, Jr.(2)(3)................ 923,750 28.0% 959,465 12.3% J. Bradford Bishop(2)(3).................. 905,750 27.5 923,607 11.8 Ronald J. Mittelstaedt(2)(4)(5)........... 717,500 21.7 1,074,643 13.8 Frank W. Cutler(2)(3)(4).................. 522,000 15.8 672,246 8.6 Eugene V. Dupreau(2)(6)................... 400,000 12.1 400,000 5.1 Charles B. Youngclaus(2)(6)............... 400,000 12.1 400,000 5.1 Melvin G. Dias(2)(7)...................... 400,000 12.1 400,000 5.1 Imperial Bank(2)(8)....................... 200,000 6.1 200,000 2.6 Kieckhefer Partnership 84-1(2)(4)......... -- -- 562,104 7.2 Michael W. Harlan(2)...................... -- -- -- -- William J. Razzouk(2)..................... -- -- -- -- Eugene P. Polk(2)(9)...................... -- -- 468,418 6.0 All executive officers and directors as a group (9 persons)(4)(5)................. 1,617,500 49.0% 2,010,358 25.8%
- --------------- (1) Beneficial ownership is determined in accordance with the rules of the Commission, and includes generally voting power and/or investment power with respect to securities. Shares of Common Stock subject to options and/or warrants currently exercisable or exercisable within 60 days of the date hereof are deemed outstanding for computing the percentage beneficially owned by the person holding such options but are not deemed outstanding for computing the percentage beneficially owned by any other person. Except as otherwise indicated by footnote, the Company believes that the persons named in this table, based on information provided by such persons, have sole voting and investment power with respect to the shares of Common Stock shown. (2) The address of Mr. Mittelstaedt is 2260 Douglas Boulevard, Suite 280, Roseville, California 95661. The address of J. Bradford Bishop and James N. Cutler, Jr. is 6950 S.W. Hampton Street, Suite 200, Portland, Oregon 97223. The address of Kieckhefer Partnership 84-1 and Eugene P. Polk is P.O. Box 1151, Prescott, Arizona 86302. The address of Frank W. Cutler is 711 North Bayfront, Newport Beach, California 92662. The address of Eugene V. Dupreau, Charles B. Youngclaus and Melvin G. Dias is Madera Disposal Systems, Inc., 21739 Road 19, Chowchilla, California 93610. The address of Michael W. Harlan is 2777 Allen Parkway, Suite 700, Houston, Texas 77019. The address of William J. Razzouk is 165 Madison Avenue, Suite 1300, Memphis, Tennessee 38103. The address of Imperial Bank is 777 108th Avenue NE, Suite 1670, Bellevue, Washington 98004. (3) Includes 247,000 shares purchasable under currently exercisable warrants. (4) As of March 1, 1998, the Mittelstaedt Family Trust, J. Bradford Bishop, James N. Cutler, Jr., Kieckhefer Partnership 84-1, Kieckhefer Trust Partnership 61-1 and Frank W. Cutler beneficially owned 357,143, 17,857, 35,715, 562,104, 281,052 and 7,389 shares, respectively, of Series A Preferred Stock. Those shares automatically convert to the same number of shares of Common Stock on the closing of the offering. 53 55 (5) Includes 100,000 shares purchasable under currently exercisable warrants. Also includes 567,900 shares held by the Mittelstaedt Family Trust dated 6/18/97, of which Mr. Mittelstaedt is the Trustee. (6) Includes 66,667 shares purchasable under immediately exercisable warrants. (7) Includes 66,666 shares purchasable under immediately exercisable warrants. (8) Shares purchasable under currently exercisable warrants. (9) As of March 1, 1998, Eugene Polk beneficially owned 468,418 shares of Series A Preferred Stock: 285,713 through three trusts for which he serves as a trustee (190,562 shares -- Eugene P. Polk and Barbara J. Polk Revocable Trust U/A 11/18/68; 53,571 shares -- Margaret T. Morris Trust U/A 5/1/67; and 53,571 shares -- Margaret T. Morris Trust U/A 4/19/69) and 170,714 shares through the Polk Investment Partnership 93-1, for which he serves as a Manager. Those shares automatically convert to the same number of shares of Common Stock on the closing of the offering. 54 56 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). As of the date of this Prospectus, there are 3,300,000 shares of Common Stock outstanding and 2,499,998 shares of Series A Preferred Stock outstanding. The Series A Preferred shares will automatically convert to 2,499,998 shares of Common Stock upon the consummation of this offering. After giving effect to this offering, there will be 7,799,998 shares of Common Stock outstanding (8,099,998 if the Underwriters' over-allotment option is exercised in full). The following description of the Company's capital stock is a summary of the material terms of such stock. The following does not purport to be complete and is subject in all respects to applicable Delaware law and to the provisions of the Company's Amended and Restated Certificate of Incorporation and Amended and Restated By-laws. COMMON STOCK The holders of shares of Common Stock are entitled to one vote per share held on all matters submitted to a vote at a meeting of stockholders. Cumulative voting for the election of directors is not permitted. Subject to such preferences to which holders of shares of Preferred Stock, if any, may be entitled, the holders of outstanding shares of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of outstanding shares of Common Stock are entitled to share ratably in all assets of the Company which are legally available for distribution to stockholders, subject to the prior rights on liquidation of creditors and to preferences, if any, to which holders of shares of Preferred Stock, if any, may be entitled. In connection with the acquisition of Madera, the Company issued 1,000,000 shares of Common Stock, which was redeemable under certain circumstances. Upon the consummation of this offering, those shares will no longer be redeemable. The holders of outstanding shares of Common Stock do not have any preemptive, subscription, redemption, conversion or sinking fund rights. The outstanding shares of Common Stock are fully paid and nonassessable. PREFERRED STOCK The Company is authorized by its Amended and Restated Certificate of Incorporation to issue a maximum of 10,000,000 shares of Preferred Stock, in one or more series and containing such rights, privileges and limitations, including dividend rights, voting rights, conversion privileges, redemption rights, liquidation rights and/or sinking fund rights, as may from time to time be determined by the Board of Directors of the Company. The Company has issued 2,499,998 shares of Series A Preferred Stock, which on the closing of this offering will convert automatically to 2,499,998 shares of Common Stock. The Series A Preferred Stock provides for cumulative dividends, which if not paid in cash prior to the Preferred Stock's conversion into Common Stock are to be paid in additional shares of Common Stock. The Company intends to pay any such accumulated dividends in cash prior to conversion. Additional Preferred Stock may be issued in the future in connection with acquisitions, financings or such other matters as the Board of Directors deems to be appropriate. The effect of having such Preferred Stock authorized is that the Company's Board of Directors alone, within the bounds and subject to the federal securities laws and the Delaware General Corporation Law (the "Delaware Law"), may be able to authorize the issuance of Preferred Stock, which may adversely affect the voting and other rights of holders of Common Stock. The issuance of Preferred Stock may also have the effect of delaying, deferring or preventing a change in control of the Company. 55 57 CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS The following brief description of certain provisions of the Delaware Law and the Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate") and Amended and Restated By-laws (the "Restated By-laws") does not purport to be complete and is subject in all respects to the provisions of the Delaware Law, the Restated Certificate and the Restated By-laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus forms a part. Classified Board of Directors. The Restated Certificate provides that the Board shall be divided into three classes and that the number of directors in each class shall be as nearly equal as is possible based on the number of directors constituting the entire Board. The Restated Certificate effectively provides that the term of office of the first class will expire at the annual meeting of stockholders following December 31, 1998, the term of office of the second class will expire at the annual meeting of stockholders following December 31, 1999, and the term of office of the third class will expire at the annual meeting of stockholders following December 31, 2000. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. The classification of directors has the effect of making it more difficult for stockholders to change the composition of the Board. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the Board. Such a delay may help ensure that the Company's directors, if confronted by a third party attempting to force a proxy contest, a tender or exchange offer or other extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interests of the stockholders. However, such classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. The classification of the Board could thus increase the likelihood that incumbent directors will retain their positions. Number of Directors; Removal; Filling Vacancies. The Restated Certificate provides that, subject to any rights of holders of Preferred Stock to elect additional directors under specified circumstances, the number of directors comprising the entire Board will be fixed from time to time by action of not less than a majority of the directors then in office. In no event shall such number be less than three or more than nine, unless approved by action of not less than two-thirds of the directors then in office. In addition, the Restated Certificate provides that, subject to any rights of holders of Preferred Stock, newly created directorships resulting from an increase in the authorized number of director, vacancies on the Board resulting from death, resignation, retirement, disqualification or removal of directors or any other cause may be filled only by the Board (and not by the stockholders unless there are no directors in office), provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. Accordingly, the Board could prevent any stockholder from enlarging the Board and filling the new directorships with such stockholder's own nominees. Under the Delaware Law, unless otherwise provided in the certificate of incorporation, directors serving on a classified board may only be removed by the stockholders for cause. The Restated Certificate provides that following the offering, directors may be removed only for cause and only on the affirmative vote of holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class. The provisions of the Restated Certificate governing the number of directors, their removal and the filling of vacancies may have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of the Company, or of attempting to change the composition or policies of the Board, even though such attempts might be 56 58 beneficial to the Company or its stockholders. These provisions of the Restated Certificate could thus increase the likelihood that incumbent directors retain their positions. Limitation on Special Meetings; No Stockholder Action by Written Consent. The Restated Certificate and the Restated By-laws provide that (subject to the rights, if any, of holders of any class or series of Preferred Stock then outstanding): (i) only a majority of the Board of Directors or the President or Chairman of the Board will be able to call a special meeting of stockholders; (ii) the business permitted to be conducted at a special meeting of stockholders shall be limited to matters stated in the notice of meeting or properly brought before the meeting by or at the direction of the Board of Directors; and (iii) following the offering, stockholder action may be taken only at a duly called and convened annual or special meeting of stockholders and may not be taken by written consent. These provisions, taken together, prevent stockholders from forcing consideration by the stockholders of stockholder proposals over the opposition of the Board, except at an annual meeting. Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals. The Restated By-laws establish an advance notice procedure for stockholders to make nominations of candidates for election as director, or to bring other business before an annual meeting of stockholders of the Company (the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that, subject to the rights of any holders of Preferred Stock, only persons who are nominated by or at the direction of the Board, any committee appointed by the Board, or by a stockholder who has given timely written notice to the Secretary of the Company prior to the meeting at which directors are to be elected, will be eligible for election as directors of the Company. The Stockholder Notice Procedure provides that at an annual meeting, only such business may be conducted as has been brought before the meeting by, or at the direction of, the Board, any committee appointed by the Board, or by a stockholder who has given timely written notice to the Secretary of the Company of such stockholder's intention to bring such business before such meeting. Under the Stockholder Notice Procedure, to be timely, notice of stockholder nominations or proposals to be made at an annual or special meeting must be received by the Company not less than 60 days nor more than 90 days prior to the scheduled date of the meeting (or, if less than 70 days' notice or prior public disclosure of the date of the meeting is given, then the 15th day following the earlier of: (i) the day such notice was mailed; or (ii) the day such public disclosure was made). Under the Stockholder Notice Procedure, a stockholder's notice to the Company proposing to nominate a person for election as director must contain certain information about the nominating stockholder and the proposed nominee, and a stockholder's notice relating to the conduct of business other than the nomination of directors must contain certain information about such business and about the proposing stockholder. If the Chairman or other officer presiding at a meeting determines that a person was not nominated, or other business was not brought before the meeting, in accordance with the Stockholder Notice Procedure, such person will not be eligible for election as a director, or such business will not be conducted at such meeting, as the case may be. By requiring advance notice of nominations by stockholders, the Stockholder Notice Procedure affords the Board an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board, to inform stockholders about such qualifications. By requiring advance notice of other proposed business, the Stockholder Notice Procedure also provides a more orderly procedure for conducting annual meetings of stockholders and, to the extent deemed necessary or desirable by the Board, provides the Board with an opportunity to inform stockholders, prior to such meetings, of any business proposed to be conducted at such meetings, together with any recommendations as to the Board's position regarding action to be taken with respect to such business, so that stockholders can better decide whether to attend such a meeting or to grant a proxy regarding the disposition of any such business. 57 59 Although the Restated By-laws do not give the Board any power to approve or disapprove stockholder nominations for the election of directors or proposals for action, the forgoing provisions may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, if the proper advance notice procedures are not followed, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to the Company and its stockholders. Certain Provisions Relating to Potential Change of Control. The Restated Certificate authorizes the Board and any committee of the Board to take such action as it may determine to be reasonably necessary or desirable to encourage any person or entity to enter into negotiations with the Board and management regarding any transaction which may result in a change of control of the Company, or to contest or oppose any such transaction which the Board determines to be unfair, abusive or otherwise undesirable to the Company, its business, assets, properties or stockholders. The Board or any such committee is specifically authorized to adopt plans or to issue securities of the Company including plans, rights, options, capital stock, notes, debentures or other debt securities, which securities may be exchangeable or convertible into cash or other securities on such terms and conditions as the Board or any such committee determines. In addition, the Board or such committee of the Board may provide that any holder or class of holders of such designated securities will be treated differently than, and unequally to, all other security holders in respect of the terms, conditions, provisions and rights of such securities. The existence of this authority or the actions which may be taken by the Board pursuant thereto are intended to give the Board flexibility in order to act in the best interests of stockholders in the event of a potential change of control transaction. Such provisions may, however, deter potential acquirors from proposing unsolicited transactions not approved by the Board and might enable the Board to hinder or frustrate such a transaction if proposed. Limitation of Liability of Directors. The Restated Certificate provides that a director will not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware Law, which concerns unlawful payments of dividends, stock purchases or redemptions; or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware Law is subsequently amended to permit further limitation of the personal liability of directors, the liability of a director of the Company will be eliminated or limited to the fullest extent permitted by the Delaware Law as so amended. Amendment of the Certificate of Incorporation and By-laws. The Restated Certificate contains provisions requiring the affirmative vote of the holders of at least 66 2/3% of the voting power of the Voting Stock to amend certain provisions of the Restated Certificate (including the provisions discussed above relating to the size and classification of the Board, replacement and/or removal of Board members, action by written consent, special stockholder meetings, the authorization for the Board to take steps to encourage or oppose, as the case may be, transactions which may result in a change of control of the Company, and limitation of the liability of directors) or to amend any provision of the Restated By-laws by action of stockholders following the offering. These provisions make it more difficult for stockholders to make changes in the Restated Certificate and the Restated By-laws, including changes designed to facilitate the exercise of control over the Company. Business Combination Provisions of Delaware Law. The Company is a Delaware corporation and is subject to section 203 of the Delaware Law. In general, section 203 prevents a Delaware corporation from engaging in a "business combination" (as defined) with an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock or affiliate or associate) for three years following the time such stockholder became an 58 60 interested stockholder, unless: (i) before such person became an interested stockholder, the board of directors of the corporation approved the business combination or the transaction in which the interested stockholder became an interested stockholder; (ii) upon consummation of the transaction that resulted in the interested stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) at or subsequent to the time such person became an interested stockholder, the business combination was approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. Under section 203, the restrictions described above also do not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of one of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. TRANSFER AGENT AND REGISTRAR BankBoston, N.A., c/o Boston EquiServe, L.P., will serve as transfer agent and registrar for the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 7,799,998 shares of Common Stock outstanding. All of the shares offered hereby will be freely saleable in the public market after completion of this offering, unless acquired by affiliates of the Company. All of the shares outstanding prior to completion of this offering are subject to contractual restrictions that prohibit the stockholder from selling or otherwise disposing of shares for a period of 180 days after the date of this Prospectus without the prior written consent of BT Alex. Brown Incorporated. After this 180-day period expires, 7,749,998 of the currently outstanding shares will be eligible for resale in the public market under Rule 144 promulgated under the Securities Act, and an additional 50,000 of the currently outstanding shares will become eligible for resale in the public market ratably over three years, subject to the restrictions of Rule 144. Shares of Common Stock held by affiliates of the Company will be subject to certain volume and other limitations discussed below under Rule 144. The Company has agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus, except as consideration for business acquisitions or upon exercise of currently outstanding stock options or warrants, without the prior written consent of BT Alex. Brown Incorporated. In general, under Rule 144, a person (or persons whose shares are aggregated), including persons who may be deemed affiliates of the Company, who has beneficially owned his or her shares for at least one year is entitled to sell within any three-month period that number of shares which does not exceed the greater of 1% of the outstanding shares of the Common Stock (78,000 shares after completion of this offering) or the average weekly trading volume during the four calendar weeks preceding each such sale. Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Under Rule 144(k), a person (or persons whose shares are aggregated) who is not or has not been deemed an "affiliate" of the Company for at least three months and who has beneficially 59 61 owned his or her shares for at least two years would be entitled to sell such shares under Rule 144 without regard to the limitations discussed above. There has been no public market for the Common Stock prior to this offering and no assurance can be given that an active public market for the Common stock will develop or be sustained after completion of this offering. Sales of substantial amounts of the Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock and could impair the Company's ability to raise capital or effect acquisitions through the issuance of Common Stock. After the completion of this offering, the Company intends to file a registration statement under the Securities Act to register all shares issuable on exercise of stock options or other awards granted or to be granted under its Stock Option Plan. After the filing of such registration statement and subject to certain restrictions under Rule 144, those shares will be freely saleable in the public market immediately following exercise of such options. The Company currently intends to file a shelf registration statement on Form S-1 covering up to an additional 3,000,000 shares of Common Stock under the Securities Act, for its use in connection with acquisitions that may be made by the Company. Such shares, when issued, could be freely saleable in the public market 180 days after the date of this Prospectus, or earlier on prior approval of BT Alex. Brown Incorporated by persons not affiliated with the Company, unless the Company contractually restricts their resale. See "Underwriting." 60 62 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their Representatives, BT Alex. Brown Incorporated and CIBC Oppenheimer Corp., have severally agreed to purchase from the Company the following respective number of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES ----------- --------------- BT Alex. Brown Incorporated................................. CIBC Oppenheimer Corp....................................... Total............................................. 2,000,000 ==========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all of the shares of Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After commencement of the initial public offering, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company has granted the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares offered by the Company hereunder, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. If purchased, such additional shares will be offered by the Underwriters on the same terms as those on which the 2,000,000 shares are being offered. To facilitate the offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Stock. Specifically, the Underwriters may over-allot shares of the Common Stock in connection with the offering, thereby creating a short position in the Underwriters' syndicate account. Additionally, to cover such over- allotments or to stabilize the market price of the Common Stock, the Underwriters may bid for, and purchase, shares of the Common Stock in the open market. Any of these activities may maintain the market price of the Common Stock at a level above that which might otherwise prevail in the open market. The Underwriters are not required to engage in these activities, and, if commenced, any such activities may be discontinued at any time. The Representatives, on behalf of the syndicate of Underwriters, also may reclaim selling concessions allowed to an Underwriter or dealer, if the syndicate repurchases shares distributed by that Underwriter or dealer. 61 63 The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The Company has agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus, except as consideration for business acquisitions or upon exercise of currently outstanding stock options or warrants, without the prior written consent of BT Alex. Brown Incorporated. All stockholders, directors and officers of the Company have agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 180 days without the prior written consent of BT Alex. Brown Incorporated. The Representatives of the Underwriters have advised the Company that they do not intend to confirm sales to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price will be determined by negotiations between the Company and the Representatives of the Underwriters. Among the factors to be considered in such negotiations are prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies that the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Shartsis, Friese & Ginsburg LLP, San Francisco, California. Certain legal matters related to this offering will be passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland. The statements pertaining to the Company's G certificates awarded by the WUTC under "Risk Factors -- Highly Competitive Industry," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- General," "Business -- Western U.S. Markets," and "Business -- G Certificates" will be passed upon for the Company by Williams, Kastner & Gibbs PLLC, Seattle, Washington. EXPERTS The financial statements of Waste Connections, Inc. and Predecessors as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, and the Financial Statements of Madera Disposal Systems, Inc. at December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere in this Prospectus and Registration Statement. Such financial statements have been included in this Prospectus in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement (of which the Prospectus is a part) on Form S-1 (together with all amendments thereto, the "Registration Statement"), under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules filed therewith, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus regarding the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete and, in each instance, reference is made to the copy of such contract or other document 62 64 filed as an exhibit to the Registration Statement, each such statement being deemed to be qualified in its entirety by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. The Registration Statement, including all exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549, at prescribed rates. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's web-site is http:\\www.sec.gov. 63 65 INDEX TO FINANCIAL STATEMENTS
PAGE ---- WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA FINANCIAL STATEMENTS Introduction to Unaudited Pro Forma Consolidated Financial Statements............................................. F-2 Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 1997................... F-3 Notes to Unaudited Pro Forma Consolidated Statements of Operations............................................. F-4 Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997...................................... F-6 Notes to Unaudited Pro Forma Consolidated Balance Sheet... F-7 WASTE CONNECTIONS, INC. AND PREDECESSORS Report of Ernst & Young LLP, Independent Auditors......... F-8 Combined Balance Sheet of Predecessors as of December 31, 1996................................................... F-9 Consolidated Balance Sheet of Waste Connections, Inc. as of December 31, 1997................................... F-9 Combined Statement of Operations of Predecessors for the nine months ended September 30, 1997................... F-10 Consolidated Statement of Operations of Waste Connections, Inc. for the period from inception (September 9, 1997) through December 31, 1997.............................. F-10 Combined Statement of Operations of The Disposal Group for the period from January 1, 1996 through July 31, 1996................................................... F-11 Combined Statement of Operations of Predecessors for the period ended December 31, 1996......................... F-11 Combined Statement of Operations of The Disposal Group for the year ended December 31, 1995....................... F-12 Statement of Operations of Fibres International, Inc. for the period from January 1, 1995 through November 30, 1995................................................... F-12 Statement of Operations of Predecessors for the one month ended December 31, 1995................................ F-12 Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) of Waste Connections, Inc. for the period from inception (September 9, 1997) through December 31, 1997.......... F-13 Combined Statement of Cash Flows of Predecessors for the nine months ended September 30, 1997................... F-14 Consolidated Statement of Cash Flows of Waste Connections, Inc. for the period from inception (September 9, 1997) through December 31, 1997.............................. F-14 Combined Statement of Cash Flows of The Disposal Group for the period from January 1, 1996 through July 31, 1996................................................... F-15 Combined Statement of Cash Flows of Predecessors for the period ended December 31, 1996......................... F-15 Combined Statement of Cash Flows of The Disposal Group for the year ended December 31, 1995....................... F-16 Statement of Cash Flows of Fibres International, Inc. for the period from January 1, 1995 through November 30, 1995................................................... F-16 Statement of Cash Flows of Predecessors for the one month ended December 31, 1995................................ F-16 Notes to Financial Statements............................. F-17 MADERA DISPOSAL SYSTEMS, INC. Report of Ernst & Young LLP, Independent Auditors......... F-34 Balance sheets as of December 31, 1996 and 1997........... F-35 Statements of income and retained earnings for the years ended December 31, 1995, 1996 and 1997................. F-36 Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997.................................... F-37 Notes to Financial Statements............................. F-38
F-1 66 WASTE CONNECTIONS, INC. INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997, and the Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1997, give effect to this offering and the business combinations involving Waste Connections, Inc., (the "Company"), its predecessors, Waste Connections of Idaho, Inc. ("WCII") and Madera Disposal Systems, Inc. ("Madera"). Such combinations were accounted for using the purchase method of accounting. The Unaudited Pro Forma Consolidated Balance Sheet is presented as if this offering and the Company's acquisitions of WCII and Madera had occurred on December 31, 1997, and the Pro Forma Consolidated Statements of Operations is presented as if this offering and the Company's acquisitions of its predecessors and Madera had occurred as of January 1, 1997 and its acquisition of WCII occurred on September 30, 1997, the date of inception of WCII. The Company has preliminarily analyzed the savings that it expects to be realized by consolidating certain operational and general and administrative functions. The Company has not and cannot quantify all of these savings due to the short period of time since the predecessor, Madera and WCII acquisitions occurred. It is anticipated that these savings will be partially offset by the costs of being a publicly held company and the incremental increase in costs related to the Company's corporate management. However, these costs, like the savings they offset, cannot be quantified accurately. Neither the anticipated savings nor the anticipated costs have been included in the Unaudited Pro Forma Consolidated Financial Statements. The Unaudited Pro Forma Consolidated Financial Statements include certain adjustments to the historical combined financial statements of the predecessors, including adjusting depreciation expense to reflect purchase price allocations, reducing interest expense to reflect retirement of the outstanding acquisition-related debt with the proceeds of this offering and the related income tax effects of these adjustments. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. The Unaudited Pro Forma Consolidated Financial Statements do not purport to represent what the Company's financial position or results of operations would actually have been if such transactions in fact had occurred on those dates or to project the Company's financial position or results of operations for any future period. Because the Company, the predecessors, Madera and WCII were not under common control or management for all periods, historical combined results may not be comparable to, or indicative of, future performance. The Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus, as well as information included under the headings "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" included elsewhere herein. F-2 67 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA ADJUSTED WASTE WASTE CONNECTIONS, WASTE CONNECTIONS, PRO FORMA INC. AND MADERA CONNECTIONS INC. PREDECESSORS ADJUSTMENTS PREDECESSORS DISPOSAL OF IDAHO, INC. THREE MONTHS COMBINED NINE TO COMBINE WASTE COMBINED SYSTEMS, INC. THREE MONTHS ENDED MONTHS ENDED CONNECTIONS, YEAR ENDED YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, INC. AND DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1997 PREDECESSORS 1997 1997 1997 ------------ ------------- ---------------- -------------- ------------- -------------- Revenues............... $ 6,237 $18,114 $ -- $24,351 $7,845 $764 Operating expenses: Cost of operations.... 4,703 14,753 (146)(a) 18,880 5,289 433 (195)(b) (100)(c) (135)(d) Selling, general and administrative...... 619 3,009 (570)(e) 2,926 1,041 56 (132)(f) Depreciation and amortization........ 354 1,083 81(g) 1,416 627 94 (102)(h) Start-up and integration......... 493 -- -- 493 -- -- Stock compensation.... 2,484 -- -- 2,484 -- -- --------- ------- ------ ------- ------ ---- Income (loss) from operations............ (2,416) (731) 1,299 (1,848) 888 181 Interest expense....... (600) (456) 456(i) (818) (280) (50) (218)(i) Other income (expense), net................... (36) 14 -- (22) 173 -- --------- ------- ------ ------- ------ ---- Income (loss) before (provision) benefit for income taxes...... (3,052) (1,173) 1,537 (2,688) 781 131 (Provision) benefit for income taxes.......... 186 -- (615)(j) 40 -- (52) 469(k) --------- ------- ------ ------- ------ ---- Net income (loss)...... $ (2,866) $(1,173) $1,391 $(2,648) $ 781 $ 79 ========= ======= ====== ======= ====== ==== Redeemable convertible preferred stock accretion............. (531) --------- Net loss applicable to common stockholders... $ (3,397) ========= Basic net loss per common share.......... $ (1.48) ========= Shares used in the per share calculation..... 2,300,000 ========= PRO FORMA PRO FORMA COMBINED ADJUSTMENTS AS ADJUSTED ----------- ----------- Revenues............... $ (148)(l) $ 32,812 Operating expenses: Cost of operations.... (264)(l) 24,338 Selling, general and administrative...... (73)(l) 3,867 (83)(m) Depreciation and amortization........ (377)(n) 1,986 226(o) Start-up and integration......... -- 493 Stock compensation.... -- 2,484 -------- --------- Income (loss) from operations............ 423 (356) Interest expense....... 280(p) (897)(q) -- 1,765(r) Other income (expense), net................... -- 151 -------- --------- Income (loss) before (provision) benefit for income taxes...... 1,571 (205) (Provision) benefit for income taxes.......... (236)(s) (876) (628)(j) -------- --------- Net income (loss)...... $ 707 $ (1,081) ======== ========= Redeemable convertible preferred stock accretion............. -- --------- Net loss applicable to common stockholders... $ (1,081) ========= Basic net loss per common share.......... $ (0.14) ========= Shares used in the per share calculation..... 7,799,998 =========
F-3 68 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) ASSUMPTIONS. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1997, are presented as if the acquisitions of the predecessors, WCII and Madera had occurred on January 1, 1997. The following adjustments have been made to the unaudited pro forma consolidated statements of operations: (a) To eliminate BFI corporate environmental accrual related to landfill closure costs. (b) To record amortization of loss contract accrual. (c) To adjust facilities lease expense. (d) To reduce franchise fees based upon renegotiated amounts. (e) To reduce BFI corporate overhead allocation to corporate overhead amounts for the Company. (f) To eliminate consulting expense related to BFI's acquisition of The Disposal Group. (g) To increase depreciation for the increase of property, plant and equipment's carrying value to fair value. (h) To adjust amortization of goodwill. (i) To eliminate the predecessors' interest expense and record interest expense on the debt obligations incurred by the Company in connection with the acquisitions of the predecessors. (j) To record the estimated 40% tax provision associated with the pro forma adjustments. (k) To record income tax benefit for the net operating loss incurred by the predecessors for the nine months ended September 30, 1997. (l) To reverse revenues and expenses associated with the Professional Cleaning Division of Madera which ceased operating in July 1997. (m) To adjust officers' salaries. (n) To reduce depreciation for the reduction of property, plant and equipment's carrying value to fair value. (o) To record amortization of goodwill. (p) To eliminate interest expense associated with the outstanding debt obligations of Madera. (q) To record interest expense on the long-term debt obligation incurred by the Company in connection with the Madera acquisition. (r) To eliminate interest expense, as the offering proceeds will be used to pay off all outstanding debt obligations. (s) To record income taxes for Madera, which was a subchapter S corporation prior to its acquisition by the Company. F-4 69 PRO FORMA PER SHARE DATA. The shares used in computing the unaudited pro forma net loss per share for the year ended December 31, 1997, are based upon the pro forma historical weighted average common shares outstanding as summarized in the table below. See Note 1 of the Company's Notes to Financial Statements included elsewhere herein for information concerning the computation of basic net loss per share. Company weighted average shares outstanding................. 2,300,000 Shares issued in connection with acquisition of Madera...... 1,000,000 Shares issuable upon conversion of redeemable Convertible Preferred Stock........................................... 2,499,998 Shares issuable in connection with the offering............. 2,000,000 --------- 7,799,998 =========
ACQUISITION COSTS. It is expected that the Company will incur costs of $150 related to the Madera acquisition, which have been factored into the purchase price. Costs incurred by Madera were expensed as incurred. F-5 70 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS)
WASTE MADERA WASTE CONNECTIONS, DISPOSAL CONNECTIONS PRO FORMA PRO FORMA INC. SYSTEMS, INC. OF IDAHO, INC. ADJUSTMENTS AS ADJUSTED ------------ ------------- -------------- ----------- ----------- ASSETS Current assets: Cash and equivalents.................... $ 820 $1,527 $ 1 $ (7,566)(1) $ 3,313 (2,456)(5) 8,970(6) 19,260(9) (61)(9) (17,182)(9) Accounts receivable, net................ 3,940 691 899 (168)(2) 5,362 Prepaid expenses and other current assets................................ 358 327 -- -- 685 ------- ------ ------ -------- ------- Total current assets............. 5,118 2,545 900 797 9,360 Property and equipment, net............... 4,185 3,636 1,073 (1,679)(3) 7,215 Goodwill, net............................. 9,408 -- -- 9,163(4) 18,571 Other assets.............................. 169 116 -- 285 ------- ------ ------ -------- ------- $18,880 $6,297 $1,973 $ 8,281 $35,431 ======= ====== ====== ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable........................ $ 2,609 $ 644 $ 57 $ (168)(2) $ 3,142 Deferred revenue........................ 597 219 246 -- 1,062 Accrued liabilities..................... 825 178 138 -- 1,141 Current portion of accrued losses on acquired contracts.................... 251 -- -- -- 251 Notes payable........................... -- -- 1,450 (1,450)(9) -- Current portion of capital lease obligations..................... -- 274 -- (274)(5) -- Current portion of long-term debt....... -- 288 -- (288)(5) -- ------- ------ ------ -------- ------- Total current liabilities........ 4,282 1,603 1,891 (2,180) 5,596 Accrued losses on acquired contracts...... 702 -- -- -- 702 Capital lease obligations................. -- 1,565 -- (1,565)(5) -- Long-term debt, net....................... 6,762 329 -- (329)(5) -- 8,970(6) (15,732)(9) Deferred income taxes..................... 308 -- -- -- 308 Redeemable convertible preferred stock.... 7,523 -- -- (61)(9) -- (7,462)(9) Redeemable common stock................... -- -- -- 2,800(7) -- (2,800)(9) Stockholders' equity (deficit): Common stock............................ 23 50 3 (53)(8) 78 20(9) 25(9) 10(9) Additional paid-in capital.............. 2,759 -- -- 19,240(9) 32,226 7,437(9) 2,790(9) Stockholder notes receivable............ (82) -- -- -- (82) Retained earnings (accumulated deficit).............................. (3,397) 2,750 79 (2,829)(8) (3,397) ------- ------ ------ -------- ------- Total stockholders' equity (deficit)............... (697) 2,800 82 26,640 28,825 ------- ------ ------ -------- ------- $18,880 $6,297 $1,973 $ 8,281 $35,431 ======= ====== ====== ======== =======
See accompanying notes. F-6 71 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSUMPTIONS. The unaudited pro forma consolidated balance sheet as of December 31, 1997 is presented as if the WCII and Madera acquisitions and the Company's initial public offering had occurred on December 31, 1997. The acquisitions will be accounted for under the purchase method of accounting for business combinations. The estimated purchase prices of WCII and Madera consist of the following:
WCII MADERA ---- ------- Cash paid to shareholders................................... $3 $ 7,413 Common stock issued......................................... -- 2,800 Pay-off of long-term debt and capital lease obligations..... -- 2,456 Acquisition costs........................................... -- 150 -- ------- $3 $12,819 == =======
The Company has preliminarily allocated the purchase prices as follows:
WCII MADERA ------- -------- Tangible assets purchased............................... $ 1,894 $ 4,697 Goodwill................................................ -- 9,163 Liabilities assumed..................................... (1,891) (1,041) ------- -------- $ 3 $(12,819) ======= ========
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the unaudited pro forma consolidated balance sheet: (1) Cash payments to the former shareholders of Madera ($7,413) and WCII ($3) and payment of acquisition costs ($150). (2) To eliminate accounts receivable and accounts payable between the Company and WCII. (3) To reduce the property, plant and equipment acquired from Madera ($1,600) and WCII ($79) to fair value. (4) To record the excess of the purchase price over the net assets acquired from Madera of $9,163. (5) To pay off the outstanding debt obligations of Madera. (6) To record additional long-term debt borrowings relative to the acquisition of Madera. (7) To record redeemable common stock issued to the Madera shareholders. (8) To eliminate the equity accounts of Madera and WCII. (9) To reflect the following related to the Company's initial public offering: - Issuance of 2,000,000 shares of Common Stock with estimated net proceeds of $19,260 - Pay-off of all outstanding debt obligations of the Company ($17,182) and accumulated preferred stock dividends ($61) - Conversion of 2,499,998 shares of Series A Preferred Stock into 2,499,998 shares of Common Stock - Reclassification of 1,000,000 shares of redeemable Common Stock to Common Stock since the Company's initial public offering will cause the redemption feature to be cancelled. F-7 72 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Stockholders Waste Connections, Inc. We have audited the accompanying financial statements of Waste Connections, Inc. and Predecessors as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997 as listed in the accompanying Index to Financial Statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Waste Connections, Inc. and Predecessors at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Sacramento, California March 6, 1998 F-8 73 WASTE CONNECTIONS, INC. AND PREDECESSORS BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WASTE CONNECTIONS, INC. CONSOLIDATED ------------------------------------ PRO FORMA REDEEMABLE CONVERTIBLE PREFERRED PREDECESSORS STOCK AND COMBINED STOCKHOLDERS' EQUITY DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 (NOTE 1) 1997 1997 (NOTE 14) ------------- ------------ --------------------- (UNAUDITED) ASSETS Current assets: Cash.............................................. $ 102 $ 820 Accounts receivable, less allowance for doubtful accounts of $19 ($81 in 1996).................. 2,650 3,940 Prepaid expenses and other current assets......... 339 358 ------- ------- Total current assets...................... 3,091 5,118 Property and equipment, net......................... 5,069 4,185 Goodwill, net....................................... 6,762 9,408 Other assets........................................ 369 169 ------- ------- $15,291 $18,880 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................................. $ 1,025 $ 2,609 Deferred revenue.................................. 564 597 Accrued liabilities............................... 634 825 Current portion of accrued losses on acquired contracts...................................... 119 251 Current portion of long-term debt................. 54 -- ------- ------- Total current liabilities................. 2,396 4,282 Accrued losses on acquired contracts................ -- 702 Long-term debt...................................... 89 6,762 Deferred income taxes............................... -- 308 Commitments and contingencies (Note 7) Redeemable convertible preferred stock: $.01 par value; 2,500,000 shares authorized; 2,499,998 shares issued and outstanding (aggregate liquidation preference of $10,500 at December 31, 1997)............................................. -- 7,523 $ -- ======= Net intercompany balance............................ 12,806 -- -- Stockholders' equity (deficit): Preferred stock: $.01 par value; 7,500,000 shares authorized; none issued........................ -- -- -- Common stock: $.01 par value; 50,000,000 shares authorized; 2,300,000 shares issued and outstanding.................................... -- 23 48 Additional paid-in capital........................ -- 2,759 10,257 Stockholder notes receivable...................... -- (82) (82) Accumulated deficit............................... -- (3,397) (3,397) ------- ------- ------- Total stockholders' equity (deficit)...... -- (697) $ 6,826 ------- ------- ======= $15,291 $18,880 ======= =======
See accompanying notes. F-9 74 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WASTE CONNECTIONS, INC. PREDECESSORS CONSOLIDATED COMBINED PERIOD FROM NINE MONTHS INCEPTION ENDED (SEPTEMBER 9, 1997) SEPTEMBER 30, THROUGH 1997 (NOTE 1) DECEMBER 31, 1997 ------------- ------------------- - ------------------------------------------------------------ Revenues.................................................... $18,114 $ 6,237 Operating expenses: Cost of operations........................................ 14,753 4,703 Selling, general and administrative....................... 3,009 619 Depreciation and amortization............................. 1,083 354 Start-up and integration.................................. -- 493 Stock compensation........................................ -- 2,484 ------- ---------- Loss from operations........................................ (731) (2,416) Interest expense............................................ (456) (600) Other income (expense), net................................. 14 (36) ------- ---------- Loss before income taxes.................................... (1,173) (3,052) Income tax benefit.......................................... -- 186 ------- ---------- Net loss.................................................... $(1,173) (2,866) ======= Redeemable convertible preferred stock accretion............ (531) ---------- Net loss applicable to common stockholders.................. $ (3,397) ========== Basic net loss per share.................................... $ (1.48) Shares used in calculating basic net loss per share......... 2,300,000 Pro forma basic net loss per share.......................... $ (0.60) Shares used in calculating pro forma basic net loss per share..................................................... 4,799,998 - ------------------------------------------------------------
See accompanying notes. F-10 75 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
PREDECESSORS ------------------------------------ THE DISPOSAL GROUP COMBINED PREDECESSORS PERIOD FROM COMBINED PERIOD JANUARY 1, 1996 ENDED THROUGH DECEMBER 31, 1996 JULY 31, 1996 (NOTE 1) --------------- ----------------- Revenues.................................................. $8,738 $13,422 Operating expenses: Cost of operations...................................... 6,174 11,420 Selling, general and administrative..................... 2,126 1,649 Depreciation and amortization........................... 324 962 ------ ------- Income (loss) from operations............................. 114 (609) Interest expense.......................................... (12) (225) Other income (expense), net............................... 2,661 (147) ------ ------- Income (loss) before income taxes......................... 2,763 (981) Income tax (provision) benefit............................ (505) -- ------ ------- Net income (loss)......................................... $2,258 $ (981) ====== =======
See accompanying notes. F-11 76 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
PREDECESSORS ---------------------------------------------------- THE DISPOSAL FIBRES GROUP INTERNATIONAL, INC. PREDECESSORS COMBINED PERIOD FROM ONE MONTH YEAR ENDED JANUARY 1, 1995 ENDED DECEMBER 31, THROUGH DECEMBER 31, 1995 NOVEMBER 30, 1995 1995(NOTE 1) ------------ -------------------- ------------ Revenues.............................. $19,660 $7,340 $595 Operating expenses: Cost of operations.................. 16,393 5,653 527 Selling, general and administrative................... 3,312 823 72 Depreciation and amortization....... 628 715 74 ------- ------ ---- Income (loss) from operations......... (673) 149 (78) Interest expense...................... (206) (162) (1) Other income, net..................... -- 98 5 ------- ------ ---- Income (loss) before income taxes..... (879) 85 (74) Income tax (provision) benefit........ 298 (29) -- ------- ------ ---- Net income (loss)..................... $ (581) $ 56 $(74) ======= ====== ====
See accompanying notes. F-12 77 WASTE CONNECTIONS, INC. AND PREDECESSORS CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM INCEPTION (SEPTEMBER 9, 1997) THROUGH DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
WASTE CONNECTIONS, INC. CONSOLIDATED --------------------------------------------------------------------- REDEEMABLE STOCKHOLDERS' EQUITY (DEFICIT) CONVERTIBLE --------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDER ------------------ ------------------ PAID-IN NOTES ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL --------- ------ --------- ------ ---------- ----------- ----------- ------- Balances at inception............ -- $ -- -- $-- $ -- $ -- $ -- $ -- Sale of common stock... -- -- 2,300,000 23 2,484 -- -- 2,507 Sale of redeemable convertible preferred stock................ 2,499,998 6,992 -- -- -- -- -- -- Issuance of common stock warrants....... -- -- -- -- 275 -- -- 275 Issuance of stockholder notes receivable..... -- -- -- -- -- (82) -- (82) Accretion of redeemable convertible preferred stock................ -- 531 -- -- -- -- (531) (531) Net loss............... -- -- -- -- -- -- (2,866) (2,866) --------- ------ --------- --- ------ ---- ------- ------- Balances at December 31, 1997............. 2,499,998 $7,523 2,300,000 $23 $2,759 $(82) $(3,397) $ (697) ========= ====== ========= === ====== ==== ======= =======
See accompanying notes. F-13 78 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
WASTE PREDECESSORS CONNECTIONS, INC. COMBINED CONSOLIDATED PERIOD NINE MONTHS FROM INCEPTION ENDED (SEPTEMBER 9, 1997) SEPTEMBER 30, 1997 THROUGH (NOTE 1) DECEMBER 31, 1997 ------------------ ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(1,173) $ (2,866) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain on sale of assets.................................. (4) -- Depreciation and amortization........................... 863 354 Deferred income taxes................................... -- (223) Amortization of debt issuance costs, debt guarantee fees and accretion of discount on long-term debt........... -- 425 Stock compensation...................................... -- 2,484 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net.............................. (604) (1,021) Prepaid expenses and other current assets............. (74) (71) Accounts payable...................................... (221) 2,607 Deferred revenue...................................... (137) 169 Accrued liabilities................................... (450) 801 Accrued losses on acquired contracts.................. -- (65) ------- -------- Net cash provided by (used in) operating activities....... (1,800) 2,594 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.............. 188 -- Payments for acquisitions................................. -- (11,493) Capital expenditures for property and equipment........... (285) (264) Decrease (increase) in other assets....................... 22 (19) Issuance of stockholder notes receivable.................. -- (82) ------- -------- Net cash used in investing activities....................... (75) (11,858) CASH FLOWS FROM FINANCING ACTIVITIES: Net intercompany balance.................................. 1,912 -- Proceeds from short-term borrowings....................... -- 600 Proceeds from long-term debt.............................. -- 5,500 Principal payments on notes payable....................... (38) (2,724) Principal payments on long-term debt...................... -- (157) Proceeds from sale of redeemable convertible preferred stock................................................... -- 6,992 Proceeds from sale of common stock........................ -- 23 Debt issuance costs....................................... -- (150) ------- -------- Net cash provided by financing activities................... 1,874 10,084 ------- -------- Net increase (decrease) in cash............................. (1) 820 Cash at beginning of period................................. 102 -- ------- -------- Cash at end of period....................................... $ 101 $ 820 ======= ======== SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND NON- CASH TRANSACTIONS: Cash paid for income taxes................................ $ -- $ -- ======= ======== Cash paid for interest.................................... $ -- $ 183 ======= ======== Redeemable convertible preferred stock accretion.......... $ 531 ======== In connection with the BFI related acquisitions (Note 2), the Company assumed liabilities as follows: Fair value of assets acquired........................... $ 17,040 Cash paid for acquisitions (including acquisition costs)................................................ (11,493) -------- Liabilities assumed and notes payable to seller......... $ 5,547 ========
See accompanying notes. F-14 79 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF CASH FLOWS (CONTINUED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
PREDECESSORS ------------------------------- THE DISPOSAL GROUP COMBINED PREDECESSORS PERIOD FROM COMBINED JANUARY 1, PERIOD ENDED 1996 THROUGH DECEMBER 31, JULY 31, 1996 1996 (NOTE 1) --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $2,258 $ (981) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 324 962 Deferred income taxes.................................. 298 -- Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net............................. 1,201 (1,992) Prepaid expenses and other current assets............ (2) (104) Accounts payable..................................... (45) 713 Deferred revenue..................................... (522) 421 Accrued liabilities.................................. (987) 428 ------ ------ Net cash provided by (used in) operating activities....... 2,525 (553) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.............. -- 117 Capital expenditures for property and equipment........... (7) (282) Decrease in other assets.................................. -- 33 ------ ------ Net cash used in investing activities....................... (7) (132) CASH FLOWS FROM FINANCING ACTIVITIES: Net intercompany balance.................................. -- 642 Proceeds from long-term debt.............................. 142 -- Principal payments on long-term debt...................... (427) -- Principal payments on notes payable....................... -- (39) ------ ------ Net cash provided by (used in) financing activities......... (285) 603 ------ ------ Net increase (decrease) in cash............................. 2,233 (82) Cash at beginning of period................................. 961 184 ------ ------ Cash at end of period....................................... $3,194 $ 102 ====== ======
See accompanying notes. F-15 80 WASTE CONNECTIONS, INC. AND PREDECESSORS STATEMENTS OF CASH FLOWS (CONTINUED) YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
PREDECESSORS ----------------------------------- THE DISPOSAL FIBRES GROUP INTERNATIONAL, INC. PREDECESSORS COMBINED PERIOD FROM ONE MONTH YEAR ENDED JANUARY 1, 1995 ENDED DECEMBER 31, THROUGH DECEMBER 31, 1995 NOVEMBER 30, 1995 1995 (NOTE 1) ------------ ------------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................... $ (581) $ 56 $ (74) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: (Gain) loss on sale of assets.......... 18 -- -- Depreciation and amortization.......... 628 778 74 Deferred income taxes.................. (298) -- -- Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net............. 592 59 10 Prepaid expenses and other current assets............................ (18) -- (30) Accounts payable..................... (49) 53 (30) Deferred revenue..................... 65 30 (26) Accrued liabilities.................. 2,218 47 20 ------- ----- ----- Net cash provided by (used in) operating activities............................. 2,575 1,023 (56) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment.............................. (87) (827) -- Decrease in other assets.................. -- 3 10 ------- ----- ----- Net cash provided by (used in) investing activities................................ (87) (824) 10 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt.............. 306 -- -- Principal payments on long-term debt...... (2,037) (288) -- Principal payments on notes payable....... -- -- (2) ------- ----- ----- Net cash used in financing activities..... (1,731) (288) (2) ------- ----- ----- Net increase (decrease) in cash............. 757 (89) (48) Cash at beginning of period................. 204 321 232 ------- ----- ----- Cash at end of period....................... $ 961 $ 232 $ 184 ======= ===== =====
See accompanying notes. F-16 81 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Waste Connections, Inc. ("WCI" or "the Company") was incorporated in Delaware on September 9, 1997 and commenced its operations on October 1, 1997 through the purchase of certain solid waste operations in Washington, as more fully described below and in Note 2. The Company is a regional, integrated, non-hazardous solid waste services company that provides collection, transfer, disposal and recycling services to commercial, industrial and residential customers. Basis of Presentation The consolidated financial statements of the Company include the accounts of WCI and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The entities the Company acquired in September 1997 from Browning-Ferris Industries, Inc. ("BFI") are collectively referred to herein as the Company's predecessors. BFI acquired the predecessor operations at various times during 1995 and 1996, and prior to being acquired by BFI, the predecessors operated as separate stand-alone businesses. During the periods in which the Company's predecessors operated as wholly owned subsidiaries of BFI, they maintained noninterest-bearing intercompany accounts with BFI for recording intercompany charges for costs and expenses, intercompany purchases of equipment and additions under capital leases and intercompany transfers of cash, among other transactions. It is not feasible to ascertain the amount of related interest expense that would have been recorded in the historical financial statements had the predecessors been operated as stand-alone entities. Accordingly, the historical financial statements for the predecessors during these periods do not include interest expenses directly related to predecessor intercompany accounts with BFI. Moreover, the financial position and results of operations of the predecessors during this period may not necessarily be indicative of the financial position or results of operations that would have been realized had the predecessors been operated as stand-alone entities. For the periods in which the predecessors operated as wholly owned subsidiaries of BFI, the statements of operations include amounts allocated by BFI to the predecessors for selling, general and administrative expenses based on certain allocation methodologies. During the periods prior to their acquisition by BFI, the Company's predecessors operated as separate stand-alone businesses. The acquisitions of the predecessors by BFI were accounted for using the purchase method of accounting, and the respective purchase prices were allocated to the fair values of the assets acquired and liabilities assumed. Similarly, the Company's acquisitions of the predecessors from BFI in September 1997 were accounted for using the purchase method of accounting, and the purchase price was allocated to the fair value of the assets acquired and liabilities assumed. Consequently, the amounts of depreciation and amortization included in the statements of operations for the periods presented reflect the changes in basis of the underlying assets that were made as a result of the changes in ownership that occurred during the periods presented. In addition, because the predecessor companies operated independently and were not under common control or management during these periods, and because different tax strategies may have influenced their results of operations, the data may not be comparable to or indicative of their operating results after their acquisition by BFI. F-17 82 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Due to the manner in which BFI intercompany transactions were recorded, it is not feasible to present a detailed analysis of transactions reflected in the net intercompany balance with BFI. The change in the predecessors' combined intercompany balance with BFI (net of income (loss) and initial investment in the acquired companies) was $642 and $1,912 during the period ended December 31, 1996 and the nine months ended September 30, 1997, respectively. The accompanying statements of operations and cash flows for the Company and its predecessors for the years ended December 31, 1995, 1996 and 1997 are comprised of the following entities for the periods indicated: YEAR ENDED DECEMBER 31, 1995: The Disposal Group Combined Year ended December 31, 1995 Fibres International, Inc. January 1, 1995 through November 30, 1995 (BFI acquisition date) Predecessors One month ended December 31, 1995 (represents the results of operations of Fibres International, Inc. subsequent to the BFI acquisition date) YEAR ENDED DECEMBER 31, 1996: The Disposal Group Combined January 1, 1996 through July 31, 1996 (BFI acquisition date) Predecessors Combined Period ended December 31, 1996 (represents the combined results of operations of The Disposal Group subsequent to the BFI acquisition date and the operations for the year ended December 31, 1996 of Fibres International, Inc. which was acquired by BFI in 1995) YEAR ENDED DECEMBER 31, 1997: Predecessors Combined Nine months ended September 30, 1997 (represents the combined results of operations for the nine month period of the entities acquired by BFI in 1995 and 1996 described above) Waste Connections, Inc. Period from inception (September 9, 1997) through December 31, 1997
The Disposal Group Combined consists of three entities that were under common control prior to their acquisition by BFI: Diamond Fab and Welding Service, Inc., Buchmann Sanitary Service, Inc., and The Disposal Group. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-18 83 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Common Stock Valuation In connection with the Company's organization and initial capitalization in September 1997, the Company sold 2.3 million shares of common stock for $.01 per share to certain directors, consultants, and management. As a result, the Company recorded a non-recurring, non-cash stock compensation charge of $2,484 in the accompanying consolidated statement of operations, representing the difference between the amount paid for the shares and the estimated fair value of the shares of $1.09 per share on the date of sale. The estimated fair value of the common shares was determined by the Company based on an independent valuation of the common stock. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risks consist primarily of accounts receivable. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company's customer base. The Company maintains an allowance for losses based on the expected collectibility of accounts receivable. Credit losses have been within management's expectations. Property and Equipment Property and equipment are stated at cost. Improvements or betterments which significantly extend the life of an asset are capitalized. Expenditures for maintenance and repair costs are charged to operations as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains and losses resulting from property disposals are included in other income (expense). Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: Machinery and equipment........ 3 - 10 years Rolling stock.................. 10 years Containers..................... 5 - 12 years Furniture and fixtures......... 3 - 6 years
In connection with the BFI acquisitions (Note 2) the Company acquired certain used property and equipment. This used property and equipment is being depreciated using the straight-line method over its estimated remaining useful lives, which range from one to nine years. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets of the acquired entities (Note 2), and is amortized on a straight-line basis over the period of expected benefit of 40 years. Accumulated amortization amounted to $279 and $64 as of December 31, 1996 and 1997, respectively. Fair Value of Financial Instruments The carrying values of the line of credit (Note 5) and other long-term debt (Note 6) approximate their fair values as of December 31, 1997, based on current incremental borrowing rates for similar types of borrowing arrangements. F-19 84 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Income Taxes The Company, The Disposal Group, and Fibres International, Inc., use the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. During the periods in which the predecessors were owned by BFI, their operations were included in the consolidated income tax returns of BFI, and no allocations of income taxes were reflected in the historical statements of operations. For purposes of the combined predecessor financial statements, current and deferred income taxes have been provided on a separate income tax return basis. Revenue Recognition Revenues are recognized as services are provided. Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided. Start-Up and Integration Expenses During the period from inception (September 9, 1997) through December 31, 1997, the Company incurred certain start-up expenses relating to the formation of the Company, primarily for legal and other professional services, and the costs associated with recruiting the Company's initial management team. In addition, the Company incurred certain integration expenses relating to the Acquisitions (Note 2). These start-up and integration expenses have been charged to operations as incurred. As described in Note 9, the Company issued warrants during the period from inception (September 9, 1997) through December 31, 1997 to a bank in connection with a line of credit and term loan payable, and to certain directors and stockholders of the Company in connection with their guarantee of certain of the Company's debt obligations. The fair value of these warrants is being amortized into interest expense. During the period from inception (September 9, 1997) through December 31, 1997, $275 relating to these warrants is included in interest expense in the accompanying statement of operations of the Company. Stock-Based Compensation As permitted under the provisions of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"), the Company has elected to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board's Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market price or fair value of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. None of the predecessor entities awarded stock-based compensation to employees. Consequently, the related disclosures in the accompanying financial statements and notes relate solely to the Company. F-20 85 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Per Share Information In 1997, the Financial Accounting Standards Board ("FASB")issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts have been presented on the basis set forth in Statement 128 (Note 11). Earnings per share data have not been presented for the predecessor operations because such data is not meaningful. Pro-forma basic net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding and common shares issuable upon the conversion of all outstanding shares of Redeemable Convertible Preferred Stock (Note 8) as though such conversion occurred at the beginning of the period. Closure and Post-Closure Costs Because it does not currently own any landfills, the Company does not accrue for estimated landfill closure and post-closure maintenance costs. The Company may have material financial obligations relating to closure and post-closure costs of any disposal facilities it may own or operate in the future, and in such case the Company will provide accruals for future financial obligations relating to closure and post-closure costs of its landfills (generally for a term of 30 years after final closure of a landfill), based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. New Accounting Pronouncements In February 1997, the FASB issued Statement No. 129, Disclosure of Information about Capital Structure, which is effective for financial statements for periods ending after December 15, 1997. This statement establishes standards for disclosing information about an entity's capital structure. Adoption of Statement 129 will have no impact on the Company's existing disclosures. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. Statement 130 establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Statement 130, which is effective for fiscal years beginning after December 15, 1997, requires reclassification of financial statements for earlier periods to be provided for comparative purposes. The Company anticipates that implementing the provisions of Statement 130 will not have a significant impact on the Company's existing disclosures. In June 1997, the FASB issued Statement No. 131, Disclosure About Segments of an Enterprise and Related Information. Statement 131 establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years must be restated. The Company anticipates that implementing the provisions of Statement 131 will not have a significant impact on the Company's existing disclosures. F-21 86 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2. ACQUISITIONS Browning-Ferris Industries Related On September 29, 1997, the Company purchased all of the outstanding stock of Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc. from BFI (collectively the "Acquisitions"). The total purchase price for the Acquisitions was approximately $15,036, comprised principally of $11,493 in cash and promissory notes payable to BFI totaling $3,543. Of the combined $15,036 purchase price, $9,578 was recorded as goodwill and $150 was assigned to a non-competition agreement. The Acquisitions were accounted for in accordance with the purchase method of accounting and, accordingly, the net assets acquired were included in the Company's consolidated balance sheet based upon their estimated fair values on the date of the Acquisitions. The Company's consolidated statement of operations includes the revenues and expenses of the acquired businesses after the effective date of the transaction. Certain items affecting the purchase price and the allocation are preliminary. A summary of the preliminary purchase price allocation for the Acquisitions is as follows: Acquired assets: Accounts receivable................................... $ 2,919 Prepaid expenses and other current assets............. 287 Property and equipment................................ 4,106 Goodwill.............................................. 9,578 Non-competition agreement............................. 150 Assumed liabilities: Deferred revenue...................................... (428) Accounts payable and accrued liabilities.............. (26) Accrued losses on acquired contracts.................. (1,018) Deferred income taxes................................. (532) ------- $15,036 =======
Waste Connections of Idaho, Inc. On January 30, 1998, the Company acquired all of the outstanding stock of Waste Connections of Idaho, Inc. ("WCII") for $3. WCII was owned by affiliates of the Company and commenced operations in September 1997 through the purchase of certain solid waste collection assets located in Eastern Idaho from Browning-Ferris of Idaho, Inc. The acquisition will be accounted for in accordance with the purchase method of accounting. Madera Disposal Systems, Inc. On February 23, 1998, the Company purchased all of the outstanding stock of Madera Disposal Systems, Inc. ("Madera") effective February 1, 1998, pursuant to a Stock Purchase Agreement (the "Agreement"). The Agreement requires the Company to pay to the shareholders of Madera $9,869 in cash (a portion of which was used to repay Madera outstanding debt on the date of acquisition and which is subject to other adjustments as specified in the Agreement), 1,000,000 shares of the Company's common stock (the "Stock"), warrants to purchase 200,000 shares of the Company's common stock at $4.00 per share (the "Warrants") and other contingent consideration. The Agreement provides that in the event the Company does not complete an initial public offering F-22 87 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ("IPO") of its stock by March 31, 1999, with aggregate gross proceeds of at least $5,000, the Company may be required to repurchase the Stock and the Warrants from the former shareholders of Madera for $2,800 in cash if certain other conditions are also met. The Madera acquisition will be accounted for in accordance with the purchase method of accounting. The total purchase price and the excess of the purchase price over the fair value of the net assets acquired in the Madera acquisition are estimated to be approximately $12,819 and $9,163, respectively. Predecessor Acquisitions As described in Note 1, BFI acquired for cash and debt Fibres International, Inc. on November 30, 1995 and The Disposal Group Combined on July 31, 1996 in transactions that were accounted for as purchases. Accordingly, the respective purchase prices were allocated to the fair values of the assets acquired and liabilities assumed. The following presents purchase price information for these acquisitions:
THE FIBRES DISPOSAL INTERNATIONAL, GROUP INC. COMBINED -------------- --------- Tangible assets acquired................... $5,076 $2,076 Goodwill................................... 4,187 2,671 Assumed liabilities........................ (969) (33) ------ ------ $8,294 $4,714 ====== ======
3. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 1996 and 1997 consists of the following:
PREDECESSORS COMBINED COMPANY 1996 1997 ------------ ------- Land and buildings............................ $2,314 $ -- Machinery and equipment....................... 146 60 Rolling stock................................. 2,068 2,353 Containers.................................... 1,084 1,995 Furniture and fixtures........................ 137 67 ------ ------ 5,749 4,475 Less accumulated depreciation................. (680) (290) ------ ------ $5,069 $4,185 ====== ======
Combined depreciation expense for the predecessor operations was $1,304, $1,101, and $789 for the years ended December 31, 1995 and 1996, and the nine months ended September 30, 1997, respectively. The Company's depreciation expense for the period from inception (September 9, 1997) through December 31, 1997 was $290. F-23 88 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. OTHER ASSETS Other assets as of December 31, 1996 and 1997 consist of the following:
PREDECESSORS COMBINED COMPANY 1996 1997 ------------ ------- Non-competition agreement, net................ $ -- $ 142 Other......................................... 369 27 ------ ------ $ 369 $ 169 ====== ======
Related to the Acquisitions (Note 2), the Company entered into a non-competition agreement with BFI. The estimated fair value of the non-competition agreement was determined by management based on the discounted adjusted operating income stream that would have otherwise been subject to competition. The amount assigned to the non-competition agreement ($150) is being amortized on a straight-line method over the term of the agreement (five years). Accumulated amortization amounted to $8 as of December 31, 1997. 5. LINE OF CREDIT On September 30, 1997, the Company obtained a revolving line of credit (the "Line") from a bank (the "Bank"). The maximum amount available under the terms of the Line was $2,000 and borrowings bore interest based on the prime rate plus 1.5% (aggregating 10.0% at December 31, 1997). Interest was payable monthly and the Line was to expire on September 29, 1998. Borrowings under the Line were secured by substantially all of the Company's assets and were subordinate to the notes payable to BFI (Note 6) with respect to certain specified assets. The Line was personally guaranteed by certain officers and stockholders of the Company (Note 9). As of December 31, 1997, $600 was outstanding under the Line. Management used borrowings from a new credit facility obtained in January 1998 (Note 12) to pay off amounts outstanding under the Line, and as such, these amounts have been included in long-term debt as of December 31, 1997. F-24 89 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 6. OTHER LONG-TERM DEBT Other long-term debt consists of the following as of December 31, 1997: Term loan payable to the Bank bearing interest at the Bank's prime rate plus 2.0% (aggregating 10.5% as of December 31, 1997); monthly principal payments of $76 plus interest beginning October 1997 through August 2002; all outstanding principal and interest are due September 2002; secured by substantially all of the Company's assets; subordinate to the notes payable to BFI with respect to certain specified assets.................................. $5,343 Note payable to BFI bearing interest at 6.0%; all outstanding principal and interest are due December 1997; secured by substantially all of the Company's accounts receivable................................................ 319 Note payable to BFI bearing interest at 10.0%; quarterly payments of interest beginning December 1997; all outstanding principal and interest are due March 1998; secured by substantially all of WCII's assets............. 500 ------ $6,162 ======
The term loan payable to the Bank and the notes payable to BFI were personally guaranteed by certain officers and stockholders of the Company (Note 9). As of December 31, 1997, aggregate contractual future principal payments by calendar year on long-term debt are due as follows: 1998................................ $1,736 1999................................ 917 2000................................ 917 2001................................ 917 2002................................ 917 Thereafter.......................... 758 ------ $6,162 ======
Management used borrowings from a new credit facility obtained in January 1998 (Note 12) to pay off all amounts outstanding under the term loan payable to the Bank and all notes payable to BFI, and as such, these amounts have been classified as long-term debt as of December 31, 1997. 7. COMMITMENTS AND CONTINGENCIES COMMITMENTS Leases The Company leases its facilities and certain equipment under non-cancelable operating leases for periods ranging from one to five years. Combined rent expense for the predecessor operations was $398, $412, and $441 for the years ended December 31, 1995 and 1996, and the nine months ended September 30, 1997, respectively. The Company's rent expense under operating leases during the period from inception (September 9, 1997) through December 31, 1997 amounted to $52. F-25 90 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) As of December 31, 1997, future minimum lease payments under these leases, by calendar year, are as follows: 1998................................. $206 1999................................. 196 2000................................. 192 2001................................. 140 2002................................. 10 ---- $744 ====
Performance Bonds and Letters of Credit Municipal solid waste collection contracts may require performance bonds or other means of financial assurance to secure contractual performance. As of December 31, 1997, the Company had provided customers and various regulatory authorities with bonds and letters of credit of approximately $800 to secure its obligations. The Company's new credit facility (Note 12) provides for the issuance of letters of credit in an amount up to $5,000, but any letters of credit issued reduce the availability of borrowings for acquisitions or other general corporate purposes. If the Company were unable to obtain surety bonds or letters of credit in sufficient amounts or at acceptable rates, it could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits. CONTINGENCIES Environmental Risks The Company is subject to liability for any environmental damage that its solid waste facilities may cause to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water, including damage resulting from conditions existing prior to the acquisition of such facilities by the Company. The Company may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by the Company or its predecessors. Any substantial liability for environmental damage incurred by the Company could have a material adverse effect on the Company's financial condition, results of operations or cash flows. As of December 31, 1997, the Company is not aware of any such environmental liabilities. Legal Proceedings In the normal course of its business and as a result of the extensive governmental regulation of the solid waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company or to revoke or deny renewal of an operating permit held by the Company. From time to time the Company may also be subject to actions brought by citizens' groups or adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which the Company operates. In addition, the Company may become party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. However, as of F-26 91 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) December 31, 1997 there is no current proceeding or litigation involving the Company that the Company believes will have a material adverse impact on the Company's business, financial condition, results of operations or cash flows. During the period from January 1, 1996 through July 31, 1996, The Disposal Group won a lawsuit against the city of Vancouver, Washington relating to the city's annexation of certain territories served by The Disposal Group. The Disposal Group received approximately $2.6 million from the lawsuit, which is included in other income in the accompanying statement of operations. Employees Approximately 55 drivers and mechanics at the Company's Vancouver, Washington operation are represented by the Teamsters Union, with which Browning-Ferris Industries of Washington, Inc., the Company's predecessor in Vancouver, entered a four-year collective bargaining agreement in January 1997. In addition, in July 1997, the employees at the Company's facility in Issaquah, Washington, adopted a measure to select a union to represent them in labor negotiations with management. The union and management are currently operating under a one-year negotiating agreement, and, if those negotiations are unsuccessful, the earlier date on which the union would be permitted to take additional action is July 27, 1998. Such additional action includes calling a strike or, if the Company agrees, continuing to negotiate or commencing arbitration of the outstanding issues. The Company is not aware of any other organizational efforts among its employees and believes that its relations with its employees are good. 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK In September 1997, the Company received net proceeds of $6,992 from the sale of 2,499,998 shares of redeemable convertible preferred stock (the "Preferred Stock"). The Preferred Stock accrues cumulative dividends at the rate of $.098 per share annually. Accumulated and unpaid dividends on Preferred Stock amounted to $61 as of December 31, 1997. The Preferred Stock and any accumulated and unpaid dividends are convertible at the holder's option into shares of the Company's common stock at the calculated rate of $2.80 per share divided by the "Conversion Price" subject to certain anti-dilution adjustments. As of December 31, 1997, the Conversion Price was $2.80 per share. Each share will automatically be converted into common stock immediately upon the closing of a registered public offering of the Company's common stock with proceeds to the Company of at least $5.00 per share and aggregate proceeds of at least $5,000. Each share of Preferred Stock is redeemable, at the holder's option, during the period from April 1, 1999 through October 1, 1999 for $4.20 per share plus any accumulated and unpaid dividends. The difference between the carrying value of the Preferred Stock and the redemption value (including accumulated dividends) is being accreted using the interest method through the earliest redemption date. The redemption of the Preferred Stock is not mandatory if it would cause the Company to incur additional indebtedness or if it is prohibited under any of the Company's then existing debt agreements. The preferred stockholders are entitled to one vote for each share of common stock into which such shares can be converted, and are also entitled to liquidation preferences equal to the greater of the initial purchase price per share ($2.80) plus any accumulated and unpaid dividends, plus the greater of $4.20 per share or an amount which equals an internal rate of return of 50% to the investor. After receiving such preference, the holders of the preferred stock share remaining proceeds with the common stockholders on an as converted basis. F-27 92 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 9. STOCKHOLDERS' EQUITY Common Stock Of the 47,700,000 shares of common stock authorized but unissued as of December 31, 1997, the following shares were reserved for issuance: Preferred Stock.................................. 2,521,874 Madera acquisition (Note 2)...................... 1,200,000 Stock option plan................................ 1,200,000 Stock purchase warrants.......................... 1,056,000 --------- 5,977,874 =========
Stockholder Notes Receivable In December 1997, the Company provided loans in the aggregate amount of $82 to certain employees, who are also common stockholders, for the purchase of shares of the Company's Preferred Stock. The notes bear interest at 8%, are due on January 1, 1999 and are secured by the Preferred Stock purchased and common stock owned by the employees. Stock Options In November 1997, the Company's Board of Directors adopted a stock option plan in which all officers, employees, directors and consultants may participate (the "Option Plan"). Options granted under the Option Plan may either be incentive stock options or nonqualified stock options (the "Options") and they will generally have a term of 10 years from the date of grant and will vest over periods determined at the date of grant. The exercise prices of the options are determined by the Company's Board of Directors and will be at least 100% or 110% of the fair market value of the Company's common stock on the date of grant as provided for in the Option Plan. In connection with the Option Plan, the Company's Board of Directors approved the reservation of 1,200,000 shares of common stock for issuance thereunder. As of December 31, 1997, no options to purchase common stock were exercisable under the Option Plan. In addition, as of December 31, 1997, options for 671,500 shares of common stock were available for future grants under the Option Plan. A summary of the Company's stock option activity and related information during the period from inception (September 9, 1997) through December 31, 1997 is presented below:
NUMBER OF WEIGHTED AVERAGE SHARES (OPTIONS) EXERCISE PRICE ---------------- ---------------- Outstanding at beginning of period.......................... -- $ -- Granted........................... 528,500 4.92 Forfeited......................... -- -- Exercised......................... -- -- ------- ----- Outstanding at end of period...... 528,500 4.92 ======= ===== Exercisable at end of period...... -- $ -- ======= =====
F-28 93 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following table summarizes information about stock options outstanding as of December 31, 1997:
EXERCISE PRICES NUMBER --------------- ------- $ 2.80.................................. 376,000 $ 5.00.................................. 9,500 $10.50.................................. 143,000 ------- 528,500 =======
The weighted average remaining contractual life of stock options outstanding as of December 31, 1997, was 10 years. Pro Forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the period from inception (September 9, 1997) through December 31, 1997: risk-free interest rate of 6%; dividend yield of zero; volatility factor of the expected market price of the Company's common stock of .40; and a weighted-average expected life of the option of 4 years. The Black-Scholes option valuation model was developed for us in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net loss and pro forma basic net loss per share for the period from inception (September 9, 1997) through December 31, 1997 were $(2,870) and $(1.48) per share, respectively. Stock Purchase Warrants In September 1997, the Company issued a warrant to purchase 200,000 shares of the Company's common stock to the Bank that provided the Line and term loan payable (Notes 5 and 6). The exercise price of the warrant is $.01 per share. The warrant was valued at $216 on its date of issuance using the Black-Scholes pricing model with an assumed stock price volatility of .40, risk-free interest rate of 6.0%, estimated fair value of the common stock of $1.09 per share and an expected life of 7 years. The value assigned to the warrant was reflected as a discount on long-term debt. The discount was fully accreted to interest expense using the straight-line method over the expected term of the debt agreements (approximately three months). In connection with their guarantee of certain of the Company's debt obligations (Notes 5 and 6), the Company issued warrants to purchase 841,000 shares of the Company's common stock to certain directors and stockholders of the Company. The exercise price of the warrants is $2.80 per share. The warrants were valued at $59 on their date of issuance using the Black-Scholes pricing model with an assumed stock price volatility of .40, risk-free interest rate of 6.0%, estimated fair value of the common stock of $1.09 per share and expected lives of 3 years. The value assigned to F-29 94 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) these warrants was fully amortized to interest expense over the expected term of the debt agreements (approximately three months). In December 1997, the Company issued to consultants warrants to purchase 15,000 shares of the Company's common stock. Warrants to purchase 10,000 and 5,000 shares of common stock had exercise prices of $5.00 per share and $2.80 per share, respectively. Initial Public Offering In December 1997, the Company's board of directors authorized the filing of a registration statement with the Securities and Exchange Commission permitting the Company to sell up to an aggregate of 2,300,000 shares of common stock (including the underwriters' over-allotment option) to the public. Under the terms of the offering currently contemplated, the Preferred Stock will be converted into common stock, prior to or concurrently with the completion of the offering, and the redemption provisions of the common stock issued in connection with the Madera acquisition (Note 2) will expire. 10. INCOME TAXES The provision (benefit) for income taxes for the periods ended December 31, 1995 and 1996, the nine months ended September 30, 1997 and for the period from inception (September 9, 1997) through December 31, 1997 consists of the following:
PREDECESSORS ------------------------------------------------------------- FIBRES THE DISPOSAL GROUP WASTE CONNECTIONS, INC. INTERNATIONAL, INC. COMBINED CONSOLIDATED THE DISPOSAL GROUP PERIOD FROM PERIOD FROM PERIOD FROM INCEPTION COMBINED JANUARY 1, 1995 JANUARY 1, 1996 (SEPTEMBER 9, 1997) YEAR ENDED THROUGH THROUGH THROUGH DECEMBER 31, 1995 NOVEMBER 30, 1995 JULY 31, 1996 DECEMBER 31, 1997 ------------------ ------------------- ------------------ ----------------------- Current: Federal............ $ -- $ 29 $207 $ 38 State.............. -- -- -- -- Deferred: Federal............ (298) -- 298 (224) State.............. -- -- -- -- ----- ---- ---- ----- $(298) $ 29 $505 $(186) ===== ==== ==== =====
F-30 95 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Significant components of the Company's deferred income tax assets and liability were as follows as of December 31, 1996 and 1997:
PREDECESSORS COMBINED COMPANY 1996 1997 ------------ ------- Deferred income tax assets: Accounts receivable reserves...................... $ 32 $ 8 Amortization...................................... -- 144 Accrued expenses.................................. 4 -- Vacation accrual.................................. 2 15 Net operating losses.............................. 208 54 ------ ------ Total deferred income tax assets.................... 246 221 Deferred income tax liability: Depreciation...................................... -- (529) ------ ------ Net deferred income tax asset (liability)........... 246 (308) Less valuation allowance............................ (246) -- ------ ------ $ -- $ (308) ====== ======
The differences between the Company's provision (benefit) for income taxes as presented in the accompanying statements of operations and benefit for income taxes computed at the federal statutory rate is comprised of the items shown in the following table as a percentage of pre-tax income (loss):
PREDECESSORS ------------------------------------------------------------------------------- THE DISPOSAL FIBRES GROUP THE DISPOSAL INTERNATIONAL, INC. COMBINED GROUP PERIOD FROM PERIOD FROM COMBINED JANUARY 1, 1995 PREDECESSORS JANUARY 1, 1996 YEAR ENDED THROUGH ONE MONTH ENDED THROUGH DECEMBER 31, 1995 NOVEMBER 30, 1995 DECEMBER 31, 1995 JULY 31, 1996 ----------------- ------------------- ----------------- ----------------- Income tax provision (benefit) at the statutory rate....... (34.0%) 34.0% 34.0% 34.0% Effect of valuation allowance............ -- -- (34.0%) (16.0%) ------- ------- ------- -------- (34.0%) 34.0% -- 18.0% ======= ======= ======= ========
PREDECESSORS ------------------------------------- PREDECESSORS WASTE CONNECTIONS, INC. COMBINED CONSOLIDATED PREDECESSORS NINE MONTHS PERIOD FROM INCEPTION COMBINED ENDED (SEPTEMBER 9, 1997) PERIOD ENDED SEPTEMBER 30, THROUGH DECEMBER 31, 1996 1997 DECEMBER 31, 1997 ----------------- ----------------- ----------------------- Income tax benefit at the statutory rate.............................. (34.0%) (34.0%) (34.0%) Effect of valuation allowance....... 34.0% 34.0% -- Stock compensation expense.......... -- -- 28.0% -------- -------- -------- -- -- (6.0%) ======== ======== ========
F-31 96 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 11. NET LOSS PER SHARE INFORMATION The following table sets forth the computation of basic net loss per share and pro forma basic net loss per share for the period from inception (September 9, 1997) through December 31, 1997:
PRO FORMA BASIC NET LOSS BASIC NET LOSS PER SHARE PER SHARE -------------- -------------- Numerator: Net loss...................................... $ (2,866) $ (2,866) Redeemable convertible preferred stock accretion.................................. (531) -- --------- --------- $ (3,397) $ (2,866) ========= ========= Denominator: Weighted average common shares outstanding.... 2,300,000 2,300,000 Common shares issuable upon conversion of preferred stock............................ -- 2,499,998 --------- --------- 2,300,000 4,799,998 ========= ========= $ (1.48) $ (0.60) ========= =========
As of December 31, 1997, outstanding options to purchase 528,500 shares of common stock (with exercise prices ranging from $2.80 to $10.50), outstanding warrants to purchase 1,056,000 shares of common stock (with exercise prices from $0.01 to $5.00), and the outstanding Redeemable Convertible Preferred Stock could potentially dilute basic earnings per share in the future and have not been included in the computation of diluted net loss per share because to do so would have been antidilutive for the period presented. Subsequent to December 31, 1997 and through March 6, 1998, the Company had the following equity related transactions: - In connection with the Madera acquisition (Note 2) the Company issued 1,000,000 shares of common stock and issued warrants to purchase 200,000 shares of common stock. - Options to purchase an aggregate of 329,300 shares of common stock at exercise prices ranging from $2.80 to $12.50 per share, which includes 30,000 options to purchase common stock at $2.80 per share which vest ratably over 3 years if certain events occur, and warrants to purchase an aggregate of 195,000 shares of common stock at exercise prices ranging from $2.80 to $5.00 per share were granted. 12. NEW CREDIT FACILITY On January 30, 1998, the Company obtained a new revolving credit facility from BankBoston (the "Credit Facility"). The maximum amount available under the Credit Facility is $25,000 including stand-by letters-of-credit and the borrowings will bear interest at various fixed and/or variable rates at the Company's option. The Credit Facility allows for the Company to issue up to $5,000 in stand-by letters-of-credit. The Credit Facility requires quarterly payments of interest and it matures in January 2001. Borrowings under the Credit Facility are secured by all of the Company's assets. The borrowings are further secured by the shares of the Company's common and preferred stock owned by the Company's President and Chief Executive Officer. The Credit Facility requires the Company to pay an annual commitment fee equal to 0.5% of the unused portion of the Credit Facility. The F-32 97 WASTE CONNECTIONS, INC. AND PREDECESSORS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Credit Facility places certain business, financial and operating restrictions on the Company and it's subsidiaries including among other things, the incurrence of additional indebtedness, investments, acquisitions, asset sales, mergers, dividends, distributions and repurchases and redemptions of capital stock. The Credit Facility also requires that specified financial ratios and balances be maintained. In connection with the Credit Facility the Company granted to an affiliate of BankBoston a warrant to purchase 140,000 shares of the Company's common stock with an exercise price of $2.80 per share and an expiration date of January 29, 2008. 13. RELATED PARTY TRANSACTIONS The Company has entered into certain transactions with Continental Paper, LLC ("Continental"), in which the Company delivers to Continental all of the Company's collected recyclable materials in areas in which Continental has processing facilities and Continental pays the Company market rates for the recyclable materials. Certain of the Company's stockholders are the majority owners of Continental. During the period from inception (September 9, 1997) through December 31, 1997, the Company received approximately $223 from Continental in these transactions. 14. UNAUDITED PRO FORMA REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY The Company's unaudited pro forma redeemable convertible preferred stock and stockholders' equity as of December 31, 1997, gives effect to the conversion of the Preferred Stock into 2,499,998 shares of common stock. The conversion of the Preferred Stock into common stock will occur prior to or concurrently with the completion of the Company's initial public offering (Note 9). In addition, the redemption provisions of the common stock issued in connection with the Madera acquisition (Note 2) will expire upon completion of the initial public offering. F-33 98 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Madera Disposal Systems, Inc. We have audited the accompanying balance sheets of Madera Disposal Systems, Inc. as of December 31, 1996 and 1997, and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Madera Disposal Systems, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Sacramento, California February 20, 1998 F-34 99 MADERA DISPOSAL SYSTEMS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ---------------- 1996 1997 ------ ------ ASSETS Current assets: Cash and equivalents................................... $1,064 $1,527 Accounts receivable, less allowance for doubtful accounts of $111 ($90 in 1996)........................ 788 691 Receivables from shareholders.......................... 100 113 Prepaid expenses and other current assets.............. 216 214 ------ ------ Total current assets................................... 2,168 2,545 Property and equipment, net................................. 3,800 3,636 Assets held for sale........................................ -- 77 Other assets................................................ 36 39 ------ ------ $6,004 $6,297 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable....................................... $ 750 $ 644 Deferred revenue....................................... 208 219 Accrued liabilities.................................... 193 178 Current portion of capital lease obligations........... 218 274 Current portion of long-term debt...................... 177 288 ------ ------ Total current liabilities................................... 1,546 1,603 Long-term portion of capital lease obligations.............. 1,557 1,565 Long-term debt.............................................. 637 329 Commitments and contingencies (Note 4) Shareholders' equity: Common stock: $100 par value; 1,000,000 shares authorized; 500 shares issued and outstanding......... 50 50 Retained earnings...................................... 2,214 2,750 ------ ------ Total shareholders' equity.................................. 2,264 2,800 ------ ------ $6,004 $6,297 ====== ======
See accompanying notes. F-35 100 MADERA DISPOSAL SYSTEMS, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------ ------ ------ Revenues.................................................... $7,008 $7,770 $7,845 Operating expenses: Cost of operations..................................... 5,288 5,512 5,289 Selling, general and administrative.................... 996 969 1,041 Depreciation and amortization.......................... 467 585 627 ------ ------ ------ Income from operations...................................... 257 704 888 Interest expense............................................ (237) (259) (280) Other income, net........................................... 68 113 173 ------ ------ ------ Net income.................................................. 88 558 781 Retained earnings, beginning of year........................ 1,863 1,656 2,214 Distributions to shareholders............................... (295) -- (245) ------ ------ ------ Retained earnings, end of year.............................. $1,656 $2,214 $2,750 ====== ====== ====== Pro forma income taxes (unaudited -- Note 7)................ $ 30 $ 208 $ 295 ------ ------ ------ Pro forma net income (unaudited -- Note 7).................. $ 58 $ 350 $ 486 ====== ====== ======
See accompanying notes. F-36 101 MADERA DISPOSAL SYSTEMS, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------- 1995 1996 1997 ----- ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 88 $ 558 $ 781 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 467 585 627 Gain on sale of property & equipment................... (13) (37) (71) Changes in operating assets and liabilities: Accounts receivable, net............................. (252) (23) 97 Receivables from shareholders........................ (21) (33) (13) Prepaid expenses and other assets.................... -- (52) 2 Other assets......................................... (2) (9) (3) Accounts payable..................................... 265 (29) (106) Deferred revenue..................................... 4 16 11 Accrued liabilities.................................. 105 44 (15) ----- ------ ------ Net cash provided by operating activities:.................. 641 1,020 1,310 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment........... (274) (902) (183) Proceeds from sale of assets.............................. 13 97 140 ----- ------ ------ Net cash used in investing activities....................... (261) (805) (43) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt.............................. 265 591 -- Principal payments on long-term debt and capital lease obligations............................................ (576) (351) (559) Cash distributions made to shareholders................... (295) -- (245) ----- ------ ------ Net cash provided by (used in) financing activities......... (606) 240 (804) ----- ------ ------ Net increase (decrease) in cash and equivalents............. (226) 455 463 Cash and equivalents: Beginning of year......................................... 835 609 1,064 ----- ------ ------ End of year............................................... $ 609 $1,064 $1,527 ===== ====== ====== SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS: Cash paid for interest...................................... $ 237 $ 237 $ 279 ===== ====== ====== Capital lease obligations and long-term debt incurred for the purchase of property and equipment.................... $ 854 $ -- $ 426 ===== ====== ======
See accompanying notes. F-37 102 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (IN THOUSANDS) 1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Madera Disposal Systems, Inc. ("Madera") is a regional, integrated, non-hazardous solid waste services company that provides collection, transfer disposal and recycling services to residential, commercial and industrial customers. Madera Landfill is contracted by the County of Madera to operate the Fairmead, the North Fork Transfer Station and the materials recovery facility (aka, Mammoth Recycling Facility), all of which are located in the County of Madera, State of California. Madera also holds an exclusive contract with the County of Madera to collect solid waste within the unincorporated areas of the County of Madera. The contracts continue in force and effect until August 2004, and will automatically be extended for one five year period unless Madera is then in material breach or default of its obligations under the materials recovery facility contract. All contracts may be extended for additional periods and upon terms as the County of Madera and Madera may mutually agree upon. On November 9, 1993, Madera entered into an agreement with the County of Madera, whereby Madera was to design, permit, finance, construct, equip, staff, operate and maintain a materials recovery facility (the "Facility") at the County's Fairmead Landfill for the purpose of providing the County of Madera with a guaranteed reduction in the quantity of municipal solid waste requiring landfill disposal. The Facility was to be designed, constructed and operated to receive all municipal solid waste from the Cities of Madera and Chowchilla and the unincorporated areas of the County of Madera. It was also to meet the twenty-five percent (25%) waste reduction requirements of Assembly Bill 939 (Chapter 1095 of the Statutes of 1989) for the Cities of Madera and Chowchilla and the County of Madera by January 11, 1995, through the recycling of recovered material, and work toward the waste reduction requirements of fifty percent (50%) that each jurisdiction must achieve by January 1, 2000. The Facility became operational on August 15, 1994. The County of Madera will compensate Madera for its capital costs incurred in designing, permitting, financing, constructing and equipping the Facility. These costs were $1,661 and are included in property and equipment in the accompanying balance sheets. The County of Madera will reimburse Madera for the equipment and interest costs over a ten year operational period. The County of Madera will also reimburse Madera for its other operational costs incurred in connection with the staffing, maintaining and operating of the materials recovery facility. All of the aforementioned costs are reimbursed to Madera through receipt of a specified portion of waste disposal fees collected by Madera on behalf of the County of Madera for landfill operations. At the termination of the contracts described above, the improvements made by Madera become the sole and exclusive property of the County of Madera, subject only to the County of Madera's continuing obligation to pay or reimburse the Company for any remaining unamortized capital costs of the Facility. In 1995, Madera started a new line of business which provided clean-up and waste removal services to residential and commercial construction businesses. Due to continued losses, in July 1997 Madera ceased operations in this line of business. The estimated fair value of the remaining assets of the business is reflected in the accompanying balance sheets as assets held for sale at December 31, 1997. For the years ended December 31, 1995, 1996, and 1997, this business had revenues of $531, $785 and $193, respectively, and had operating losses of $290, $397, and $215, respectively. F-38 103 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) Madera entered into an exclusive franchise agreement with the City of Chowchilla on April 8, 1996, whereby Madera was granted the exclusive right and franchise to collect, haul, and dispose of all solid waste, recyclable solid waste, and green waste within the city limits of the City of Chowchilla. The term of this franchise shall continue in force and effect for a period of seven years, and the City of Chowchilla may renew and extend the franchise for an additional period of five years or more. SALE OF THE COMPANY Effective February 1, 1998, Madera's shareholders entered into an agreement to sell their stock to Waste Connections, Inc. ("WCI") for cash and stock in WCI. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH EQUIVALENTS Madera considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject Madera to concentrations of credit risks consist primarily of accounts receivable. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of Madera's customer base. Madera maintains an allowance for losses based on the expected collectibility of accounts receivable. Credit losses have been within management's expectations. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Improvements or betterments which significantly extend the life of an asset are capitalized. Expenditures for maintenance and repair costs are charged to operations as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains and losses resulting from property disposals are included in other income (expense). Depreciation is computed using the straight-line method over the estimated useful lives of the assets or lease term, whichever is shorter. The estimated useful lives are as follows: Machinery and equipment............................... 6 - 10 years Leasehold improvements................................ 10 - 40 years Furniture and fixtures................................ 6 - 10 years
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and equivalents approximate their fair values as of December 31, 1996 and 1997. The carrying values of the long-term debt and capital lease obligations (Notes 3 and F-39 104 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) 4) approximate their fair values as of December 31, 1996 and 1997, based on current incremental borrowing rates for similar types of borrowing arrangements. REVENUE RECOGNITION Madera recognizes revenues as services are provided. Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided. INCOME TAXES Madera operates under Subchapter S of the Internal Revenue Code for federal and state income tax reporting purposes. Consequently, all of the income tax attributes and liabilities of the Madera's operations flow through to the individual shareholders. CLOSURE AND POST-CLOSURE COSTS Under regulations pursuant to which the permit for the Fairmead Landfill was issued, Madera and Madera County, as operator and owner, respectively, are jointly liable for closure and post-closure liabilities with respect to the landfill. Madera has not accrued for such liabilities because Madera County, as required by state law, has established a special fund, into which a designated portion of tipping fee surcharges are deposited, to pay such liabilities. Consequently, management of Madera does not believe Madera has any financial obligation for closure and post-closure costs for the Fairmead Landfill as of December 31, 1997. 2. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 1996 and 1997 consists of the following:
1996 1997 ------ ------ Machinery and equipment..................................... $5,480 $5,777 Leasehold improvements...................................... 498 500 Furniture and fixtures...................................... 137 133 ------ ------ 6,115 6,410 Less accumulated depreciation and amortization.............. 2,315 2,774 ------ ------ $3,800 $3,636 ====== ======
F-40 105 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) 3. LONG-TERM DEBT Long-term debt as of December 31, 1996 and 1997 consists of the following:
1996 1997 ---- ---- Equipment financing notes payable bearing interest at various fixed and variable rates (ranging from 6.0% to 12.9% at December 31, 1997); monthly payments of principal and interest aggregating $16; maturing at various dates through August 31, 2001; secured by equipment with net book values aggregating $522 at December 31, 1997....................... $664 $467 Notes payable to related parties bearing interest at 10.0%; monthly payments of interest; maturing December 1, 1998..... 150 150 ---- ---- 814 617 Less: Current portion....................................... 177 288 ---- ---- Long-term debt.............................................. $637 $329 ==== ====
One of the equipment financing notes, with an outstanding balance of $236 at December 31, 1997, contains certain restrictive covenants, which among other things require that specified financial balances and ratios be maintained, restrict the payment of dividends and prohibit the incurrence of additional indebtedness. As of December 31, 1997, Madera was in compliance with the covenants. As of December 31, 1997, aggregate contractual future principal payments by calendar year on long-term debt are due as follows: 1998........................................................ $288 1999........................................................ 149 2000........................................................ 122 2001........................................................ 58 ---- $617 ====
4. COMMITMENTS AND CONTINGENCIES COMMITMENTS Capital Leases Madera leases certain equipment under capital leases. As of December 31, 1996 and 1997, the following amounts are included in property and equipment as assets under these capital leases:
1996 1997 ------ ------ Cost..................................................... $2,235 $2,605 Less: accumulated amortization........................... 527 780 ------ ------ Net assets under capital leases.......................... $1,708 $1,825 ====== ======
F-41 106 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) The future minimum lease payments under these capital leases along with the present value of the minimum lease payments as of December 31, 1997 are as follows:
MINIMUM LEASE PAYMENTS YEAR ENDING DECEMBER 31: ------------------------ 1998.............................................. $ 448 1999.............................................. 489 2000.............................................. 427 2001.............................................. 352 2002.............................................. 294 Thereafter........................................ 494 ------ Total minimum lease payments................................ 2,504 Less amount representing interest........................... 665 ------ Present value of minimum lease payments..................... 1,839 Less current portion........................................ 274 ------ Long-term portion........................................... $1,565 ======
OPERATING LEASES Madera leases its facilities and certain equipment under cancelable operating leases for periods of one year or less. Rent expense under all operating leases during the years ended December 31, 1995, 1996 and 1997 amounted to $47, $41 and $33, respectively. PERFORMANCE BONDS AND LETTERS OF CREDIT Municipal solid waste collection contracts may require performance bonds to secure contractual performance. At December 31, 1997, Madera had provided customers and various regulatory authorities with bonds of approximately $200 to secure its obligations. If Madera were unable to obtain surety bonds in sufficient amounts or at acceptable rates, it could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits. ENVIRONMENTAL RISKS Madera is subject to liability for any environmental damage that its solid waste facilities may cause to neighboring landowners, particularly as a result of the contamination of drinking water sources or soil, including damage resulting from conditions existing prior to the acquisition of such facilities by Madera. Madera may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by Madera or its predecessors. Any substantial liability for environmental damage incurred by Madera could have a material adverse effect on Madera's financial condition, results of operations or cash flows. LEGAL PROCEEDINGS In the normal course of its business and as a result of the extensive governmental regulation of the solid waste industry, Madera may periodically become subject to various judicial and administrative proceeding involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on Madera or to revoke or deny renewal of an operating permit held by F-42 107 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) Madera. From time to time Madera may also be subject to actions brought by citizens' groups or adjacent landowners in connection with the permitting and licensing of landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which Madera operates. In addition, Madera may become party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. However, as of December 31, 1997, there is no current proceeding or litigation involving Madera that Madera believes will have a material adverse impact on Madera's business, financial condition, results of operations or cash flows. 5. RELATED PARTY TRANSACTIONS Madera performs repair services on equipment owned and operated by shareholders of Madera. Revenues relating to these activities were $41, $60 and $51 for the years ended December 31, 1995, 1996 and 1997, respectively. As of December 31, 1996 and 1997, Madera has receivables of $100 and $113, respectively, relating to these activities. 6. 401(K) PLAN Madera has a voluntary savings and investment plan (the "401(k) Plan"). The 401(k) Plan is available to all eligible employees of Madera. Under the 401(k) Plan Madera is required to match 100% of employees' contributions up to a maximum of 3% of the employees' wages. During the years ended December 31, 1995, 1996 and 1997, Madera's 401(k) Plan expenses were approximately $78, $107 and $108, respectively. F-43 108 MADERA DISPOSAL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (IN THOUSANDS) 7. PRO FORMA INCOME TAX INFORMATION (UNAUDITED) The following unaudited pro forma information reflects income tax expense (benefit) as if Madera had been subject to federal and state income taxes:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------ ------ ------ Current: Federal........................................... $(16) $(19) $197 State............................................. -- 12 57 Deferred: Federal........................................... 32 188 33 State............................................. 14 27 8 ---- ---- ---- Pro forma income taxes.............................. $ 30 $208 $295 ==== ==== ====
The pro forma provisions for income taxes for the years ended December 31, 1995, 1996 and 1997 differ from the amounts computed by applying the applicable statutory federal income tax rate (34%) to income before income taxes due to state franchise taxes, certain non-deductible expenses and refundable tax credits. Madera's pro forma deferred income tax asset of approximately $20 and $54 at December 31, 1996 and 1997, respectively, relates principally to differences in the recognition of bad debt expenses, state franchise taxes and certain other temporary differences. Madera also has pro forma deferred tax liabilities at December 31, 1996 and 1997 of approximately $534 and $570, respectively, which relate to differences between tax and financial methods of depreciation. 8. SUBSEQUENT EVENTS On January 12, 1998, Madera distributed $131 to its shareholders. F-44 109 ====================================================== NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary................... 3 Risk Factors......................... 8 Use of Proceeds...................... 17 Dividend Policy...................... 17 Capitalization....................... 18 Dilution............................. 19 Selected Historical and Pro Forma Financial and Operating Data....... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 24 Business............................. 30 Management........................... 45 Certain Transactions................. 51 Principal Stockholders............... 53 Description of Capital Stock......... 55 Shares Eligible for Future Sale...... 59 Underwriting......................... 61 Legal Matters........................ 62 Experts.............................. 62 Available Information................ 62 Index to Financial Statements........ F-1 - ------------------------------------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ===========================================
====================================================== 2,000,000 SHARES [LOGO] WASTE CONNECTIONS, INC. COMMON STOCK ------------------- PROSPECTUS ------------------- BT ALEX. BROWN CIBC OPPENHEIMER , 1988 ====================================================== 110 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Registration Fee........................................ $ Listing Fee*................................................ $ NASD Filing Fee............................................. $ Accounting Fees and Expenses*............................... $ Printing and Engraving Expenses*............................ $ Legal Fees and Expenses*.................................... $ Transfer Agent and Registrar Fees*.......................... $ Director and Officer Insurance Premiums..................... $18,900 Miscellaneous Expenses*..................................... $ Total*...................................................... $
- --------------- * Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Amended and Restated Certificate of Incorporation (the "Restated Certificate") of the Company provides that a director will not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (the "Delaware Law"), which concerns unlawful payments of dividends, stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware Law is subsequently amended to permit further limitation of the personal liability of directors, the liability of a director of the Company will be eliminated or limited to the fullest extent permitted by the Delaware Law as amended. Section 145(a) of the Delaware Law provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of non contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 145(b) of the Delaware Law states that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suite by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the II-1 111 request or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 145(c) of the Delaware Law provides that to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of section 145, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 145(d) of the Delaware Law states that any indemnification under subsections (a) and (b) of section 145 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 145(e) of the Delaware Law provides that expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in section 145. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 145(f) of the Delaware Law states that the indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 145(g) of the Delaware Law provides that a corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of section 145. Section 145(j) of the Delaware Law states that the indemnification and advancement of expenses provided by, or granted pursuant to, section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. II-2 112 Pursuant to Section 145 of the Delaware Law, the Registrant has purchased insurance on behalf of its present and former directors and officers against any liability asserted against or incurred by them in such capacity or arising out of their status as such. The Company has entered into indemnification agreements with each of its directors and officers providing for mandatory indemnification and advancement of expenses to the maximum extent permitted by the Delaware Law. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is a listing of all sales by the Company of unregistered securities since the Company was incorporated on September 9, 1997. All such sales were exempt from registration under the Securities Act, pursuant to Section 4(2) of the Securities Act (and, as noted below, Regulation D or Rule 701 thereunder), as they were transactions not involving a public offering. The Company believes that each of the issuances made pursuant to Section 4(2) was made to a sophisticated investor, who had the financial resources to bear the risk of the investment and who had the means and opportunity to obtain information concerning the Company. The consideration paid to the Company in respect of each issuance was cash, unless otherwise indicated. All sales described below were made by the Company without the assistance of any underwriters. 1. In September and October 1997, the Company in a private placement sold an aggregate of 2,300,000 shares of Common Stock at a price of $0.01 per share and 2,499,998 shares of Series A Preferred Stock at a price of $2.80 per share to 19 accredited investors, including certain officers and directors of the Company. Such sales were made in accordance with Regulation D promulgated under the Securities Act. 2. In September 1997, the Company issued warrants to purchase 200,000 shares of Common Stock, with an exercise price of $0.01 per share, to Imperial Bank in connection with the credit facility with Imperial Bank entered into by the Company. Such warrants were issued pursuant to Regulation D under the Securities Act. 3. In October and November 1997, the Company issued options to purchase 428,500 shares of Common Stock to employees of the Company. Such options have exercise prices ranging from $2.80 per share to $10.50 per share and a weighted average exercise price of $5.42 per share. Some of such options were issued pursuant to Regulation D under the Securities Act and others were issued pursuant to Rule 701 under the Securities Act. 4. In December 1997, the Company issued warrants to purchase an aggregate of 841,000 shares of Common Stock to the Company's directors and options to purchase 100,000 shares of Common Stock to Ronald J. Mittelstaedt. Such warrants and options have an exercise price of $2.80 per share and were issued pursuant to Regulation D under the Securities Act. 5. In December 1997 and January 1998, the Company issued warrants to purchase an aggregate of 15,000 shares of Common Stock to three consultants, with an exercise price of $5.00 per share, and warrants to purchase 5,000 shares of Common Stock to a fourth consultant, with an exercise price of $2.80 per share. Such warrants were issued pursuant to Rule 701 under the Securities Act. 6. In January 1998, the Company issued warrants to purchase 140,000 shares of Common Stock to BankBoston, N.A., at an exercise price of $2.80 per share, in connection with the Company's credit facility with BankBoston, N.A. Such warrants were issued pursuant to Regulation D under the Securities Act. 7. In January and February 1998, the Company issued options to purchase 104,300 shares of Common Stock to various employees of the Company, at exercise prices ranging from $2.80 to $10.50 per share, and a weighted average exercise price of $5.27 per share. Such options were issued pursuant to Rule 701 and Regulation D under the Securities Act. II-3 113 8. In January 1998, the Company issued options to purchase an aggregate of 30,000 shares of Common Stock to Michael W. Harlan and William J. Razzouk, at an exercise price of $3.00 per share. Such options were issued pursuant to Regulation D under the Securities Act. 9. In February 1998, the Company issued to the shareholders of Madera an aggregate of 1,000,000 shares of Common Stock and warrants to purchase 200,000 shares of Common Stock at an exercise price of $4.00 per share, all as part of the consideration for the acquisition by the Company of Madera. Such shares and warrants were issued pursuant to Regulation D under the Securities Act. 10. In February 1998, the Company issued options to purchase 230,000 shares of Common Stock to Steven Bouck, of which 130,000 are exercisable at $2.80 per share, 50,000 are exercisable at $9.50 per share, and 50,000 are exercisable at $12.50 per share. On the same date, the Company issued to Mr. Bouck warrants to purchase 50,000 shares of Common Stock, at an exercise price of $2.80 per share. Such options and warrants were issued pursuant to Regulation D under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE A. EXHIBITS. The following exhibits are filed herewith and made a part hereof:
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 1.1* Form of Underwriting Agreement among the Registrant and the Underwriters 3.1 Amended and Restated Certificate of Incorporation of the Company, in effect as of the date hereof 3.2 Amended and Restated By-laws of the Company, in effect as of the date hereof 4.1* Form of Common Stock Certificate 5.1* Opinion of Shartsis, Friese & Ginsburg LLP 10.1+ Revolving Credit Agreement, dated as of January 30, 1998, between the Company and various banks represented by BankBoston, N.A 10.2 1997 Stock Option Plan 10.3 Form of Option Agreement(1) 10.4 Form of Warrant Agreement(2) 10.5 Warrant Agreement and related Anti-Dilution Agreement issued to Imperial Bank 10.6 Warrant Agreement and related Anti-Dilution Agreement issued to BankBoston, N.A 10.7 Form of Stock Purchase Agreement dated as of September 30, 1997(3) 10.8 Form of Second Amended and Restated Investors' Rights Agreement dated as of September 30, 1997(3) 10.9 Form of Stockholders' Agreement dated as of September 30, 1997(3) 10.10 Employment Agreement among the Company, J. Bradford Bishop, Frank W. Cutler, James N. Cutler, Jr. and Ronald J. Mittelstaedt, dated as of October 1, 1997 10.11 First Amended Employment Agreement between the Company and Darrell Chambliss, dated as of October 1, 1997 10.12 First Amended Employment Agreement between the Company and Michael Foos, dated as of October 1, 1997 10.13 First Amended Employment Agreement between the Company and Eric Moser, dated as of October 1, 1997
II-4 114
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 10.14 Employment Agreement between the Company and Steven Bouck, dated as of February 1, 1998 10.15 Employment Agreement between the Company and Eugene V. Dupreau, dated as of February 23, 1998 10.16 Employment Agreement between the Company and Charles B. Youngclaus, dated as of February 23, 1998 10.17+ Purchase and Sale Agreement, dated as of September 29, 1997, between Browning-Ferris Industries, Inc., Browning-Ferris, Inc. and Browning-Ferris Industries of Idaho, Inc., as Sellers, and the Company, Waste Connections of Idaho, Inc. and Continental Paper Recycling, L.L.C. as Buyers 10.18 Stock Purchase Agreement, dated as of January 26, 1998, among the Company, Waste Connections of Idaho, Inc. and the shareholders of Waste Connections of Idaho, Inc. 10.19+ Stock Purchase Agreement, dated as of February 4, 1998, among the Company and the shareholders of Madera Disposal Company, Inc. 10.20+ Asset Purchase Agreement, dated as of March 1, 1998, among the Company, Waste Connections of Idaho, Inc., Hunter Enterprises, Inc. and the shareholder of Hunter Enterprises, Inc. 10.21* Form of Indemnification Agreement entered into by the Company and each of its directors and officers 11* Statement re: Computation of per share earnings 21.1 Subsidiaries of the Registrant 23.1* Consent of Shartsis, Friese & Ginsburg LLP (included in opinion filed as Exhibit 5.1) 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3* Consent of Williams, Kastner & Gibbs PLLC 24.1 Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27.1 Financial Data Schedule
- --------------- * To be filed by amendment + Filed without exhibits and schedules (to be provided supplementally on request of the Commission). (1) Pursuant to the 1997 Stock Option Plan, the Company issued options in this form to the following officers of the Company (or in certain cases to an entity controlled by such individual) for the number of shares of Common Stock indicated: Darrell W. Chambliss (150,000); Michael R. Foos (150,000); Ronald J. Mittelstaedt (100,000); Eric J. Moser (85,000); Steven F. Bouck (230,000); Eugene V. Dupreau (10,000) and Charles B. Youngclaus (10,000). The Company also issued options in this form to the following directors of the Company: Michael W. Harlan (15,000); and William J. Razzouk (15,000). (2) The Company issued warrants in this form to the following directors of the Company (or in certain cases to an entity controlled by such individual) for the number of shares of Common Stock indicated: James N. Cutler, Jr. (247,000); J. Bradford Bishop (247,000); Ronald J. Mittelstaedt (100,000). The Company also issued warrants in this form as follows: warrants to purchase 247,000 shares of Common Stock to Board consultant Frank W. Cutler; warrants to purchase an aggregate of 200,000 shares of Common Stock to the shareholders of Madera in connection with the Company's acquisition of Madera; warrants to purchase 20,000 shares of II-5 115 Common Stock to four consultants to the Company; and warrants to purchase 50,000 shares of Common Stock to Steven Bouck. (3) Each purchaser of shares in the Company's September 1997 private placement of 2,300,000 shares of Common Stock and 2,499,998 shares of Series A Preferred Stock entered into a Stock Purchase Agreement, Investors' Rights Agreement and Stockholders' Agreement in these forms with respect to the shares purchased. Subsequent holders of the Company's Common Stock have also become parties to the Investors' Rights and Stockholders' Agreements. B. FINANCIAL STATEMENT SCHEDULE. The following financial statement schedule is filed herewith and made a part hereof: Schedule II -- Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 116 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Roseville, State of California, on , 1998. WASTE CONNECTIONS, INC. By: ------------------------------------ Ronald J. Mittelstaedt President, Chief Executive Officer and Chairman Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in their respective capacities and on the respective dates set forth opposite their names. Each person whose signature appears below hereby appoints Ronald J. Mittelstaedt and Steven F. Bouck and each of them, each of whom may act without joinder of the other, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute in the name and on behalf of each such person any amendment or any post-effective amendment to this Registration Statement, and any registration statement relating to any offering made in connection with the offering covered by this Registration Statement that is to be effective on filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing appropriate or necessary to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March , 1998.
SIGNATURE TITLE DATE --------- ----- ---- /s/ President, Chief Executive - ----------------------------------------------------- Officer and Chairman Ronald J. Mittelstaedt /s/ Director and Vice President-- - ----------------------------------------------------- Madera Eugene V. Dupreau /s/ Director - ----------------------------------------------------- Michael W. Harlan /s/ Director - ----------------------------------------------------- William J. Razzouk /s/ Executive Vice President and - ----------------------------------------------------- Chief Financial Officer Steven F. Bouck /s/ Vice President and Corporate - ----------------------------------------------------- Controller Michael R. Foos
II-7 117 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ 1.1* Form of Underwriting Agreement among the Registrant and the Underwriters 3.1 Amended and Restated Certificate of Incorporation of the Company, in effect as of the date hereof 3.2 Amended and Restated By-laws of the Company, in effect as of the date hereof 4.1* Form of Common Stock Certificate 5.1* Opinion of Shartsis, Friese & Ginsburg LLP 10.1 Revolving Credit Agreement, dated as of January 30, 1998, between the Company and various banks represented by BankBoston, N.A 10.2 1997 Stock Option Plan 10.3 Form of Option Agreement(1) 10.4 Form of Warrant Agreement(2) 10.5 Warrant Agreement and related Anti-Dilution Agreement issued to Imperial Bank 10.6 Warrant Agreement and related Anti-Dilution Agreement issued to BankBoston, N.A 10.7 Form of Stock Purchase Agreement dated as of September 30, 1997(3) 10.8 Form of Investors' Rights Agreement dated as of September 30, 1997(3) 10.9 Form of Stockholders' Agreement dated as of September 30, 1997(3) 10.10 Employment Agreement among the Company, J. Bradford Bishop, Frank W. Cutler, James N. Cutler, Jr. and Ronald J. Mittelstaedt, dated as of October 1, 1997 10.11 First Amended Employment Agreement between the Company and Darrell Chambliss, dated as of October 1, 1997 10.12 First Amended Employment Agreement between the Company and Michael Foos, dated as of October 1, 1997 10.13 First Amended Employment Agreement between the Company and Eric Moser, dated as of October 1, 1997 10.14 Employment Agreement between the Company and Steven Bouck, dated as of February 1, 1998 10.15 Employment Agreement between the Company and Eugene V. Dupreau, dated as of February 23, 1998 10.16 Employment Agreement between the Company and Charles B. Youngclaus, dated as of February 23, 1998 10.17+ Purchase and Sale Agreement, dated as of September 29, 1997, between Browning-Ferris Industries, Inc., Browning-Ferris, Inc. and Browning-Ferris Industries of Idaho, Inc., as Sellers, and the Company, Waste Connections of Idaho, Inc. and Continental Paper Recycling, L.L.C. as Buyers 10.18 Stock Purchase Agreement, dated as of January 26, 1998, among the Company, Waste Connections of Idaho, Inc. and the shareholders of Waste Connections of Idaho, Inc. 10.19+ Stock Purchase Agreement, dated as of February 4, 1998, among the Company and the shareholders of Madera Disposal Company, Inc.
118
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ 10.20+ Asset Purchase Agreement, dated as of March 1, 1998, among the Company, Waste Connections of Idaho, Inc., Hunter Enterprises, Inc. and the shareholder of Hunter Enterprises, Inc. 10.21* Form of Indemnification Agreement entered into by the Company and each of its directors and officers 11* Statement re: Computation of per share earnings 21.1 Subsidiaries of the Registrant 23.1* Consent of Shartsis, Friese & Ginsburg LLP (included in opinion filed as Exhibit 5.1) 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3* Consent of Williams, Kastner & Gibbs PLLC 24.1 Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27.1 Financial Data Schedule
- --------------- * To be filed by amendment + Filed without exhibits and schedules (to be provided supplementally on request of the Commission). (1) Pursuant to the 1997 Stock Option Plan, the Company issued options in this form to the following officers of the Company (or in certain cases to an entity controlled by such individual) for the number of shares of Common Stock indicated: Darrell W. Chambliss (150,000); Michael R. Foos (150,000); Ronald J. Mittelstaedt (100,000); Eric J. Moser (85,000); Steven F. Bouck (230,000); Eugene V. Dupreau (10,000) and Charles B. Youngclaus (10,000). The Company also issued options in this form to the following directors of the Company: Michael W. Harlan (15,000); and William J. Razzouk (15,000). (2) The Company issued warrants in this form to the following directors of the Company (or in certain cases to an entity controlled by such individual) for the number of shares of Common Stock indicated: James N. Cutler, Jr. (247,000); J. Bradford Bishop (247,000); Ronald J. Mittelstaedt (100,000). The Company also issued warrants in this form as follows: warrants to purchase 247,000 shares of Common Stock to Board consultant Frank W. Cutler; warrants to purchase an aggregate of 200,000 shares of Common Stock to the shareholders of Madera in connection with the Company's acquisition of Madera; warrants to purchase 20,000 shares of Common Stock to four consultants to the Company; and warrants to purchase 50,000 shares of Common Stock to Steven Bouck. (3) Each purchaser of shares in the Company's September 1997 private placement of 2,300,000 shares of Common Stock and 2,499,998 shares of Series A Preferred Stock entered into a Stock Purchase Agreement, Investors' Rights Agreement and Stockholders' Agreement in these forms with respect to the shares purchased. Subsequent holders of the Company's Common Stock have also become parties to the Investors' Rights and Stockholders' Agreements. 119 WASTE CONNECTIONS, INC. AND PREDECESSORS SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
ADDITIONS ----------------------- DEDUCTIONS BALANCE AT CHARGED TO CHARGED TO (WRITE-OFFS, BALANCE BEGINNING COSTS AND OTHER NET OF AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS COLLECTIONS) OF PERIOD ----------- ---------- ---------- ---------- ------------ --------- Deducted from asset accounts: Allowance for doubtful accounts: Fibres International, Inc.: January 1, 1995 through November 30, 1995........... $ 18 $ 10 $ -- $ -- $ 28 The Disposal Group Combined: Year ended December 31, 1995... 73 139 -- (99) 113 Period from January 1, 1996 through July 31, 1996....... 113 72 -- (94) 91 Predecessors Combined: One month ended December 31, 1995........................ 28 -- -- -- 28 Period ended December 31, 1996........................ 28 61 -- (8) 81 Nine months ended September 30, 1997........................ 81 139 -- (97) 123 Waste Connections, Inc.: Period from inception (September 9, 1997) through December 31, 1997........... -- 19 -- -- 19
EX-3.1 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF WASTE CONNECTIONS, INC. Waste Connections, Inc., a Corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Waste Connections, Inc., and the original Certificate of Incorporation (the "Original Certificate") of the Corporation was filed with the Secretary of State of the State of Delaware on September 9, 1997. 2. Pursuant to Sections 242 and 245 of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation. 3. The terms and provisions of this Amended and Restated Certificate of Incorporation have been duly adopted pursuant to the provisions of Sections 242 and 245 of the Delaware General Corporation Law. 4. The text of the Original Certificate is hereby restated and further amended to read in its entirety as follows: ARTICLE I The name of this Corporation is Waste Connections, Inc. ARTICLE II The address of the registered office of this Corporation in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware, 19805. The Partnership's registered agent at that address is Corporation Service Company. ARTICLE III The purpose of this Corporation is to engage in any lawful act or activity for which a Corporation may be organized under the General Corporation Law of Delaware. ARTICLE IV This Corporation is to have perpetual existence. 2 ARTICLE V A. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock". The amount of the total authorized capital stock of the Corporation is 60,000,000 shares, divided into (a) 50,000,000 shares of Common Stock, par value $0.01 per share, and (b) 10,000,000 shares of Preferred Stock, par value $0.01 per share. B. The Preferred Stock may be issued from time to time in one or more series. Subject to the restrictions prescribed by law, the Board of Directors is authorized to fix by resolution or resolutions the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following: (a) the number of shares constituting that series and the distinctive designation of that series; (b) the dividend rate on the shares of that series, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) whether that series shall have voting rights in addition to the voting rights provided by law, and if so, the terms of such voting rights; (d) whether that series shall have conversion privileges, and if so, the terms and conditions of such privileges, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) whether or not the shares of that series shall be redeemable, and if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and if so, the terms and the amount of such sinking funds; (g) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) any other relative rights, preferences and limitations of that series. C. 2,500,000 shares of Preferred Stock are designated the Series A Preferred Stock, $0.01 par value (the "Series A Preferred Stock"), of this Corporation, with the following powers, designations, preferences and other special rights: 1. Dividend Provisions. Subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of shares of Series A Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock 2 3 or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Common Stock of this Corporation, at the rate of $0.098 per share of Series A Preferred Stock (as adjusted for any stock dividends, splits or combinations with respect to such shares) per annum, payable quarterly when, as and if declared by the Board of Directors on the last day of each calendar quarter beginning December 31, 1997. Such dividends shall accrue on each share from September 30, 1997, and shall accrue from day to day, whether or not earned or declared. Such dividends shall be cumulative so that, except as provided below, if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared and set apart for the Common Stock. Any accumulation of dividends on the Series A Preferred Stock shall not bear interest. Cumulative dividends with respect to a share of Series A Preferred Stock which are accrued, payable and/or in arrears shall, upon conversion of such share to Common Stock, subject to the rights of series of Preferred Stock which may from time to time come into existence, be converted into additional shares of Common Stock on the same terms as Series A Preferred Stock is convertible into Common Stock, based upon the Conversion Price (as defined below) at the time of such conversion. Unless full dividends on the Series A Preferred Stock for all past dividend periods and the then current dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart: (A) no dividend whatsoever (other than a dividend payable solely in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) shall be paid or declared, and no distribution shall be made, on any Common Stock and (B) no shares of Common Stock shall be purchased, redeemed, or acquired by this Corporation and no funds shall be paid into or set aside or made available for a sinking fund for the purchase, redemption, or acquisition thereof; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock held by employees, officers, directors, consultants or other persons performing services for this Corporation or any wholly-owned subsidiary (including, but not by way of limitation, distributors and sales representatives) that are subject to restrictive stock purchase agreements under which this Corporation has the option to repurchase such shares upon the occurrence of certain events, such as the termination of employment. 2. Liquidation Preference. a. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary (a "Liquidation"), subject to the rights of series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $2.80 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price"), (ii) an amount equal to accrued but unpaid dividends on such share ("Accrued Dividends"), and (iii) if a Liquidation occurs prior to October 1, 1998, $1.40 for each outstanding share of Series A Preferred Stock or, if a Liquidation occurs on or after October 1, 1998, an amount necessary to provide the holder of such share an internal rate of return of 50% (such amounts in clauses (ii) and (iii) being referred 3 4 to herein as the "Premium"). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the amount of such stock owned by each such holder. b. Upon the completion of the distribution required by subparagraph (a) of this Section C.2 and any other distribution that may be required with respect to series of Preferred Stock that may from time to time come into existence, if assets remain in this Corporation, the holders of the Common Stock and the Series A Preferred Stock of this Corporation, shall receive all of the remaining assets of this Corporation as if the Series A Preferred Stock had been converted to Common Stock immediately prior to the distribution of such remaining assets. c. For purposes of this Section C.2, a Liquidation of this Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of this Corporation); (B) a sale of all or substantially all of the assets of this Corporation; or (C) sale of the outstanding stock of this Corporation by its stockholders unless this Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for this Corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity. (1) In any of such events, if the consideration received by this Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (a) Securities not subject to investment letter or other similar restrictions on free marketability: i) If traded on a securities exchange or through The NASDAQ Stock Market, Inc., the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; ii) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and iii) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this Corporation and the holders of 4 5 at least a majority of the voting power of the then outstanding shares of Common Stock and of such Preferred Stock. (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (a) (i), (ii) or (iii) to reflect the approximate fair market value thereof, as mutually determined by this Corporation and the holders of at least a majority of the voting power of each of all then outstanding shares of Common Stock and of such Preferred Stock. (2) In the event the requirements of this subsection C.2(c) are not complied with, this Corporation shall forthwith either: (a) cause such closing to be postponed until such time as the requirements of this Section C.2 have been complied with; or (b) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection C.2.c.(3) hereof. (3) This Corporation shall give each holder of record of Series A Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section C.2, and this Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this Corporation has given the first notice provided for herein or sooner than ten (10) days after this Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. 3. Redemption. a. Subject to the rights of series of Preferred Stock which may from time to time come into existence, to statutory limitation on the right of this Corporation to repurchase its own stock and to any limitation imposed by this Corporation's bank or other institutional lenders to repurchase or redeem shares of its stock, at any time after April 1, 1999 and before October 1, 1999, at the individual option of each holder of shares of Series A Preferred Stock this Corporation shall redeem, from any source of funds legally available therefor, within 30 days after the date this Corporation receives a request for redemption, (each a "Series A Redemption Date"), the number of shares of Series A Preferred Stock held by such holder that 5 6 is specified in a request for redemption delivered to this Corporation by the holder on or prior to October 1, 1999, by paying in cash therefor: (i) $4.20 per share of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) plus (ii) an amount equal to Accrued Dividends on such share (the "Series A Redemption Price"). b. As used herein and in subsection C.3.c below, the term "Redemption Date" shall refer to each "Series A Redemption Date" and the term "Redemption Price" shall refer to each "Series A Redemption Price." Subject to the rights of series of Preferred Stock which may from time to time come into existence, at least ten (10) but no more than twenty (20) days prior to the Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series A Preferred Stock to be redeemed, at the address last shown on the records of this Corporation for such holder, confirming the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to this Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in subsection C.3.c on or after the Redemption Date, each holder of Series A Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. c. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series A Preferred Stock designated for redemption in the Redemption Notice as holders of Series A Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any purpose whatsoever. Subject to the rights of series of Preferred Stock which may from time to time come into existence, if the funds of this Corporation legally available for redemption of shares of Series A Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed on such date, this Corporation shall use reasonable efforts to sell additional shares of capital stock but this Corporation shall be under no obligation to incur debt or sell assets to effect any such redemption. Those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series A Preferred Stock. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. Subject to the rights of series of Preferred Stock which may from time to time come into existence, at any time thereafter when additional funds of this Corporation are legally available for the redemption of shares of Series A Preferred Stock, such funds will immediately be used to redeem the balance of the shares which this Corporation has become obliged to redeem on any Redemption Date but which it has not redeemed. 6 7 4. Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for such stock, into: (i) such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion; plus (ii) such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Accrued Dividends attributable to such share of Series A Preferred Stock as of such date by the Conversion Price as of such date. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price; provided, however, that the Conversion Price for the Series A Preferred Stock shall be subject to adjustment as set forth in subsection C.4.d. b. Automatic Conversion. Each share of Series A Preferred Stock and any Accrued Dividends attributable to such share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock immediately upon the earlier of (i) except as provided below in subsection C.4.c, this Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended, the public offering price of which was not less than $5.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and $5,000,000 in the aggregate (an "IPO") or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock. c. Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion 7 8 of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities. d. Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (1) (a) If this Corporation shall issue, after the date upon which any shares of Series A Preferred Stock were first issued (the "Purchase Date" with respect to such series), any Additional Stock (as defined below in Section C.4.d.(2)) without consideration or for a consideration per share less than the Conversion Price for such series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this paragraph (1)) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (not including shares excluded from the definition of Additional Stock by Section C.4.d.(2)(b)) plus the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (not including shares excluded from the definition of Additional Stock by subsection C.4.d.(2)(b)) plus the number of shares of such Additional Stock. (b) No adjustment of the Conversion Price for the Series A Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to 3 years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of 3 years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections C.4.d.(1)(e)(iii) and C.4.d.(1)(e)(iv), no adjustment of such Conversion Price pursuant to this subsection C.4.d.(1)(b) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (c) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (d) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (e) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options, warrants or other rights to purchase or subscribe for 8 9 Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options, warrants or other rights to purchase or subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection C.4.d.(1) and subsection C.4.d.(2): i) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options, warrants, or other rights to purchase or subscribe for Common Stock shall be deemed to have been issued at the time such options, warrants or other rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections C.4.d.(1)(c) and C.4.d.(1)(a)), if any, received by this Corporation upon the issuance of such options, warrants or other rights plus the minimum exercise price provided in such options, warrants or other rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. ii) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options, warrants or other rights to purchase or subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options, warrants, or other rights were issued and for a consideration equal to the consideration, if any, received by this Corporation for any such securities and related options, warrants or other rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise in full of any related options, warrants or other rights (the consideration in each case to be determined in the manner provided in subsections C.4.d.(1)(c) and C.4.d.(1)(a)). iii) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options, warrants or other rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series A Preferred Stock to the extent in any way affected by or computed using such options, warrants, or other rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such 9 10 consideration upon the exercise of any such options, warrants or other rights or the conversion or exchange of such securities. iv) Upon the expiration of any such options, warrants or other rights, the termination of any such rights to convert or exchange or the expiration of any options, warrants or other rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, warrants or other rights or securities or options, warrants or other rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options, warrants or other rights, upon the conversion or exchange of such securities or upon the exercise of the options, warrants or other rights related to such securities. v) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections C.4.d.(1)(e)(i) and (ii) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection C.4.d.(1)(e)(iii) or (iv). (2) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection C.4.d.(1)(e)) by this Corporation after the Purchase Date other than (a) shares of Common Stock issued or issuable upon exercise of Warrants to purchase up to 4% of this Corporation's outstanding stock and granted to Imperial Bank on or about the Purchase Date, (b) shares of Common Stock issued or issuable i) in a public offering before or in connection with which all outstanding shares of Series A Preferred Stock will be converted to Common Stock or ii) upon exercise of warrants or rights granted to underwriters in connection with such a public offering. (3) In the event this Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock shall be appropriately decreased so that the number of shares 10 11 of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4.d.(1)(e). (4) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the outstanding shares of Common Stock as a result of such combination. e. Other Distributions. In the event this Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection C.4.d.(3), then, in each such case for the purpose of this subsection C.4.e., the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this Corporation into which their shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of this Corporation entitled to receive such distribution. f. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section C.4 or Section C.2) provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of this Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section C.4 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section C.4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. g. No Impairment. This Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all he provisions of this Section C.4 and in the taking of all such action as may bc necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment. 11 12 h. No Fractional Shares and Certificate as to Adjustments. (1) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (2) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section C.4, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series A Preferred Stock. i. Notices of Record Date. In the event of any taking by this Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Series A Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. j. Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock and any Premium attributable to such shares of Series A Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock and any Premium attributable to such shares of Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock and any Premium attributable to such Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these articles. 12 13 k. Notices. Any notice required by the provisions of this Section C.4 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. 5. Voting Rights. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 6. Protective Provisions. Subject to the rights of series of Preferred Stock which may from time to time come into existence, so long as at least fifty percent (50%) of the originally issued shares of Series A Preferred Stock are outstanding, this Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting together as a single class, and Common Stock, voting separately as a class, voting in accordance with Section C.5, except where otherwise required by law: a. sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other Corporation (other than a wholly-owned subsidiary Corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is disposed of; or b. alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock so as to affect adversely the shares; or c. increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock; or d. authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the Series A Preferred Stock with respect to voting, dividends or upon Liquidation; or e. redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the redemption of Series A Preferred Stock as provided in Section C.3 or to the repurchase of shares of Common Stock from 13 14 employees, officers, directors, consultants or other persons performing services for this Corporation or any subsidiary pursuant to agreements under which this Corporation has the option to repurchase such shares on terms approved by the Board of Directors upon the occurrence of certain events, such as the termination of employment; or f. effect a reclassification or recapitalization of the outstanding capital stock of this Corporation; or g. increase the authorized number of directors of this Corporation beyond nine directors; h. amend or repeal any provision of, or add any provision to this Corporation's Certificate of Incorporation or Bylaws to change the rights of the Series A Preferred Stock, or increase or decrease the number of authorized shares of stock of this Corporation; or i. create any bonds, notes or other obligations convertible into, exchangeable for or having option rights to purchase shares of stock with any preference or priority as to dividends or assets superior to or on a parity with that of the Preferred. 7. Status of Converted or Redeemed Stock. In the event any shares of Series A Preferred Stock shall be redeemed or converted pursuant to Section C.3 or Section C.4 hereof, the shares so converted or redeemed shall be cancelled and shall not be issuable by this Corporation. The Certificate of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in this Corporation's authorized capital stock. ARTICLE VI In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal from time to time any or all of the Bylaws of this Corporation. Any By-Laws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the By-Laws shall not be amended or repealed by the stockholders, and no provision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE VII Notwithstanding any other provision contained in this Amended and Restated Certificate of Incorporation and notwithstanding that a lesser percentage may be specified by law, the By-Laws or otherwise, this Article VII and Articles VIII, IX, X and XI of this Amended and Restated Certificate of Incorporation shall not be amended or repealed, and no provision inconsistent therewith or providing for cumulative voting in the election of directors shall be adopted, unless such adoption, amendment or repeal is approved by the affirmative vote 14 15 of holders of at least 66-2/3% of the voting power of all shares of capital stock of the Corporation entitled to vote generally for the election of directors; provided, however, that the provisions of this Article VII shall not apply unless and until the Corporation shall have completed an IPO. ARTICLE VIII The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors (the "Board"). The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Amended and Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders. A. Number of Directors. The number of directors comprising the entire Board shall, at the time of filing of this Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the "Effective Time"), be the number of directors then in office and shall thereafter, subject to the right, if any, of holders of Preferred Stock to elect directors under specified circumstances, be such number as may be fixed from time to time exclusively by the Board by action of a majority of the directors then in office provided that in no event shall such number be fewer than three or greater than nine, unless approved by action of not less than two-thirds of the directors then in office. No director need be a stockholder. B. Classes and Terms of Directors. The directors shall be divided into three classes: Class I, Class II and Class III. The number of directors comprising each class (assuming no vacancy in any class) shall be as nearly equal in number as possible based upon the number of directors comprising the entire Board. The Board shall, at or before the first meeting of the Board following the Effective Time, designate the class to which each director then serving shall be a member. The initial term of the directors in Class I shall extend until the first annual meeting of stockholders following the end of the Corporation's fiscal year ending December 31, 1998; the initial term of the directors in Class II shall extend until the first annual meeting of stockholders following the end of the Corporation's fiscal year ending December 31, 1999; and the initial term of the directors in Class III shall extend until the first annual meeting of stockholders following the end of the Corporation's fiscal year ending December 31, 2000. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. C. Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. Subject to the rights of the holder of any class or series of preferred stock then outstanding, in the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as director of the class of which he is a member until the expiration of his current term or his prior death, retirement or resignation and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that the number of directors comprising each class (assuming no 15 16 vacancy in any class) shall be as nearly equal in number as possible based on the number of directors comprising the entire Board. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of office are to expire at the earliest dates following such allocation, unless otherwise provided for from time to time by resolution adopted by a majority of the directors then in office, although less than a quorum. D. Newly-Created Directorships and Vacancies. Subject to the rights of the holders of any class or series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or any other cause may be filled by the Board (and not by the stockholders unless there are no directors then in office), provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. A director elected to fill a newly created directorship or other vacancy shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor has been elected and qualified. E. Removal of Directors. Subject to the rights of the holders of any class or series of Preferred Stock then outstanding, the directors or any director may be removed from office any time, but only for cause, at a meeting called for that purpose, and only by the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, that the directors or any director may be removed with or without cause, by the affirmative vote of the holders of at least a majority of such voting power, at any time prior to the completion of an IPO. F. Rights of Holders of Preferred Stock. Notwithstanding the foregoing provisions of this Article VIII, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the rights and preferences of such Preferred Stock, and such directors so elected shall not be divided into classes pursuant to this Article VIII unless expressly provided by such rights and preferences. G. Written Ballot Not Required. The election of directors need not be By written ballot unless the By-Laws of the Corporation shall so provide. ARTICLE IX The By-Laws of the Corporation may provide, without limitation, requirements relating to the notice and conduct of annual meetings, special meetings, and the nomination and election of directors of the Corporation. 16 17 ARTICLE X In furtherance and not in limitation of the powers conferred by law or in this Amended and Restated Certificate of Incorporation, the Board (and any committee of the Board) is expressly authorized, to the extent permitted by law, to take such action or actions as the Board or such committee may determine to be reasonably necessary or desirable to (a) encourage any person to enter into negotiations with the Board and management of the Corporation with respect to any transaction which may result in a change in control of the Corporation which is proposed or initiated by such person or (b) contest or oppose any such transaction which the Board or such committee determines to be unfair, abusive or otherwise undesirable with respect to the Corporation and its business, assets or properties or the stockholders of the Corporation, including, without limitation, the adoption of plans or the issuance of rights, options, capital stock, notes, debentures or other evidences of indebtedness or other securities of the Corporation, which rights, options, capital stock, notes, evidences of indebtedness and other securities (i) may be exchangeable for or convertible into cash or other securities on such terms and conditions as may be determined by the Board or such committee and (ii) may provide that any holder or class of holders thereof designated by the Board or any such committee will be treated differently than, and unequally to, all other holders in respect of the terms, conditions, provisions and rights of such securities. ARTICLE XI Subject to the rights, if any, of holders of any class or series of Preferred Stock then outstanding, (i) stockholders are not permitted to call a special meeting of stockholders or to require the Board or officers of the Corporation to call such a special meeting, (ii) a special meeting of stockholders may only be called by a majority of the Board, by the President or by the Chairman of the Board, (iii) the business permitted to be conducted at a special meeting of stockholders shall be limited to matters properly brought before the meeting by or at the direction of the Board, and (iv) any action required or permitted to be taken by the stockholders must be taken at a duly called and convened annual meeting or special meeting of stockholders and cannot be taken by consent in writing; provided, however, that the provisions of the foregoing clause (iv) shall not apply prior to the completion of an IPO. ARTICLE XII A director of this Corporation shall not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of this Article XII, nor the adoption of any provision of the Certificate of Incorporation or Bylaws or of any statute inconsistent with this Article XII, shall eliminate or reduce the effect of this Article XII in respect of any acts or omissions occurring, or any causes of action, suits or claims that, but for this Article XII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. If 17 18 the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. ARTICLE XIII Meetings of stockholders may be held outside the State of Delaware, if the Bylaws so provide. The books of this Corporation may be kept (subject to any provision of law) outside of the State of Delaware. Elections of directors need not be by ballot unless the Bylaws of this Corporation shall so provide. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be duly executed this _____ day of March, 1998. WASTE CONNECTIONS, INC. By: _____________________________________ Ronald J. Mittelstaedt, President, Chief Executive Officer and Chairman 18 EX-3.2 3 AMENDED & RESTATED BY-LAWS OF THE COMPANY 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF WASTE CONNECTIONS, INC. (EFFECTIVE MARCH __, 1998) ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be in the City of Wilmington, County of Newcastle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of Directors shall be held at the principal office of the corporation in Roseville, California, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be designated by the Board of Directors. Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1999, shall be held on the second Tuesday of May in each year, if not a legal holiday and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the Board of Directors, at which they shall transact such business as may properly be brought before the meeting. Section 3. Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote 2 at such meeting not less than ten nor more than sixty days before the date of the meeting, except as may otherwise be provided by law. Section 4. Special Meetings. Stockholders are not permitted to call a special meeting of stockholders or to require the Board of Directors or officers of the Corporation to call such a special meeting. A special meeting of stockholders may only be called by a majority of the Board of Directors, by the President or by the Chairman of the Board. The business permitted to be conducted at a special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of the meeting or properly brought before the meeting by or at the direction of the Board of Directors. Any action required or permitted to be taken by the stockholders must be taken at a duly called and convened annual meeting or special meeting of stockholders and cannot be taken by consent in writing; provided, however, that the foregoing shall not apply prior to the completion by the Corporation of an IPO (as defined in the Certificate of Incorporation). Section 5. Notice of Special Meetings. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 6. Quorum. The holders of a majority of the shares entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. Section 7. Organization. Meetings of stockholders shall be presided over by the Chairman, if any, or in his absence (or election not to preside) by the Vice Chairman, if any, or in his absence (or election not to preside) by the President, or in his absence (or election not to preside) by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence (or election not to so act) the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 8. Conduct of Meetings. The Board of Directors may adopt such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting 2 3 to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 9. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors; provided, however, that the following procedures shall not apply to the nomination of persons for election as Directors by vote of any class or series of preferred stock of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee appointed by the Board of Directors or by any common stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 9. Such nominations, other than those made by or at the direction of the Board of Directors or by any committee appointed by the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the person and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder, (ii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder and (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. Such notice shall be accompanied by the executed consent of each nominee to serve as a Director if so elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. No person shall be eligible for election as a Director of the Corporation by the holders of Common Stock of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine that a nomination was not made in 3 4 accordance with the foregoing procedure and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 10. Advance Notification of Business to be Transacted at Stockholder Meetings. To be properly brought before the annual or any special meeting of stockholders, business must be either (a) specified in the notice of meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors or any committee appointed by the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before an annual meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before any annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. No business shall be conducted at the annual or any special meeting of stockholders unless it is properly brought before the meeting in accordance with the procedures set forth in this Section 10, provided, however, that nothing in this Section 10 shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting in accordance with the procedures set forth in this Section 10. The officer of the Corporation presiding at the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section 10 and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 11. Compliance with Securities and Exchange Act of 1934. Notwithstanding any other provision of these bylaws, on completion of an IPO the Corporation shall be under no obligation to include any stockholder proposal in its proxy statement materials or otherwise present any such proposal to stockholders at a special or annual meeting of stockholders if the Board of Directors reasonably believes that the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and the Corporation shall not be required to include in its proxy statement material to stockholders any stockholder proposal not required to 4 5 be included in its proxy material to stockholders in accordance with such Act, rules, or regulations. Section 12. Adjournment of Meetings. If a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 13. Voting. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of Directors which shall constitute the entire Board of Directors shall be as set by the Board of Directors from time to time, and shall initially be five. No reduction in the number of Directors constituting the entire Board of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 2. Term of Office. Subject to the provisions of the certificate of incorporation, each Director, including a Director elected to fill a vacancy, shall hold office until such Director's successor is elected and qualified or the earlier resignation or removal of such Director. Section 3. Meetings of the Board of Directors. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 4. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, the Vice Chairman, the President or the Secretary or by resolution of 5 6 the Board of Directors. Unless waived, notice of the time and place of special meetings shall be delivered to each Director either (i) personally (either orally or in writing), (ii) by telephone, (iii) by telex, telecopy or other facsimile transmission, or (iv) by first-class mail, postage prepaid, addressed to a Director at that Director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting (ten days in the case of a Director whose address as shown on the records of the Corporation is outside of the United State of America). If the notice to a Director is delivered in any other manner it shall be delivered (which shall for this purpose mean received by the Director) at least 24 hours before the time of the holding of the meeting. Section 6. Quorum. At all meetings of the Board, a majority of the entire Board shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Action Without A Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Written consents representing actions taken by the Board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. Section 8. Meetings by Conference Telephone. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee established by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 9. Organization. Meetings of the Board of Directors shall be presided over by the Chairman, if any, or in his absence by the Vice Chairman, if any, or in the absence of the foregoing persons by a chairman chosen at the meeting. Section 10. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board, establish one or more committees, each committee to consist of one or more of the Directors of the corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 6 7 In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided that no such committee shall have power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 11. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Notice of Meetings of Stockholders and Directors. Except as provided in Article III, Section 5 of these bylaws, whenever notice is required by law, the certificate of incorporation or these bylaws to be given to any Director or stockholder, such notice shall be in writing and delivered personally, by mail or by telegram or other electronic means, postage and charges prepaid, addressed to such Director or stockholder, at his or her address as it appears on the records of the corporation, and such notice shall be deemed given when the same shall be delivered personally, delivered to the agent for transmission or deposited in the United States mail. Section 2. Waiver of Notice. Whenever any notice is required by law, the certificate of incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 7 8 ARTICLE V OFFICERS Section 1. Officers. The officers of the corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors may also appoint a Chairman of the Board and one or more vice chairmen, vice presidents, assistant secretaries or assistant treasurers. Any number of offices may be held by the same person, unless the certificate or incorporation or these bylaws otherwise provide. Section 2. Appointment of Officers. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a President, a Secretary and a Treasurer. Section 3. Assistant Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. Officers' Salaries. The salaries of all officers and agents of the corporation shall be fixed by or pursuant to the authority of the Board of Directors. Section 5. Terms of Office. The officers of the corporation shall hold office until their successors are chosen and qualify, or until his resignation or removal. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. Powers and Duties of Officers. The President shall be the Chief Executive Officer of the Corporation shall have such powers in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to such office. The President and Chief Executive Officer shall see that all orders and resolutions of the Board of Directors are carried into effect. The other officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors or delegated to them by the President and Chief Executive Officer and, to the extent not so provided or delegated, as generally pertain to their respective offices, subject to the control of the Board of Directors and the President and Chief Executive Officer. Without limiting the foregoing, the Secretary shall have the duty to record the proceedings of the meetings of the stockholders and Directors in a book to be kept for that purpose. 8 9 ARTICLE VI STOCK CERTIFICATES Section 1. Form of Certificate. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice chairman of the Board of Directors or the president or a vice president and by the treasurer, an assistant treasurer, the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. Section 2. Consideration. Certificates may be issued for partly paid shares and, in such case, the total amount of the consideration to be paid therefor and the amount paid thereon shall be specified on the face or back of the certificates issued to represent any such partly paid shares. Section 3. Classes or Series of Stock. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences or rights shall be set forth in full or summarized on the face or back of any certificate that the corporation shall issue to represent shares of such class or series of stock; provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu thereof, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights may be set forth on the face or back of each certificate that the corporation shall issue to represent shares of such class or series of stock. Section 4. Facsimile Signatures. Any or all of the signatures on any such certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he, she or it were such officer, transfer agent or registrar at the date of issue. Section 5. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, on the taking of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his, her or its legal representative, to advertise the same in such manner as it shall require or to give the corporation a bond in such sum as it 9 10 may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 6. Transfer of Stock. Subject to applicable law, on surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Section 7. Stockholders of Record. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Subject to applicable law and the certificate of incorporation, dividends on the capital stock of the corporation may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, shares of the capital stock or other property. Section 2. Payment of Dividends. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, for equalizing dividends, for repairing or maintaining any property of the corporation or for such other purpose as the Directors shall think conducive to the interest of the corporation, and the Directors may modify or abolish any such reserve in the manner in which it is created. Section 3. Annual Statement. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. Section 4. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by the Board of Directors. 10 11 Section 6. Seal. The corporation shall have a corporate seal, which may be altered at pleasure, and which may have inscribed thereon the name of the corporation, the year of its organization and the words "Incorporated, Delaware", or which may have inscribed thereon, any other words, including but not limited to the words "Corporate Seal" as the officers may designate. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or otherwise. Section 7. Entire Board. As used in these bylaws, "entire Board of Directors" means the total number of Directors which the Corporation would have if there were no vacancies in the Board of Directors. Section 8. Severability. Any determination that any provision of these bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these bylaws. Section 9. Pronouns. All pronouns used in these bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. 11 12 CERTIFICATE OF SECRETARY The undersigned, Secretary of Waste Connections, Inc., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Amended and Restated Bylaws of said corporation, as amended and in full force and effect at the date of this Certificate. WITNESS the signature of the undersigned and the seal of the corporation this March __, 1998. [SEAL] _________________________________ Darrell Chambliss, Secretary of Waste Connections, Inc. 12 EX-10.1 4 REVOLVING CREDIT AGREEMENT, DATED JAN 30, 1998 1 EXHIIBIT 10.1 ================================================================================ REVOLVING CREDIT AGREEMENT Dated as of January 30, 1998 by and among WASTE CONNECTIONS, INC. AND ITS SUBSIDIARIES (the "Borrowers") THE LENDING INSTITUTIONS PARTY HERETO (the "Banks") and BANKBOSTON, N.A., AS AGENT With BANCBOSTON SECURITIES INC., as Arranger ================================================================================ 2 TABLE OF CONTENTS Section 1. DEFINITIONS AND RULES OF INTERPRETATION......................................................1 Section 1.1. Definitions. .................................................................1 Section 1.2. Rules of Interpretation........................................................17 Section 2. THE REVOLVING CREDIT FACILITY................................................................18 Section 2.1. Commitment to Lend. ..........................................................18 Section 2.2. Reduction of Total Commitment. ...............................................18 Section 2.3. The Revolving Credit Notes. ..................................................19 Section 2.4. Interest on Revolving Credit Loans. ..........................................19 Section 2.5. Election of Eurodollar Rate; Notice of Election; Interest Periods; Minimum Amounts................................................................20 Section 2.6. Requests for Revolving Credit Loans. .........................................21 Section 2.7. Funds for Revolving Credit Loans. ............................................21 Section 2.8. Maturity of the Loans. .......................................................22 Section 2.9. Mandatory Repayments of the Revolving Credit Loans. ..........................22 Section 2.10. Optional Prepayments or Repayments of Revolving Credit Loans. .................23 Section 3. LETTERS OF CREDIT............................................................................23 Section 3.1. Letter of Credit Commitments...................................................23 Section 3.2. Reimbursement Obligation of the Borrowers. ...................................24 Section 3.3. Letter of Credit Payments. ...................................................25 Section 3.4. Obligations Absolute. ........................................................25 Section 3.5. Reliance by Agent. ...........................................................26 Section 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY................................26 Section 4.1. Fees...........................................................................26 Section 4.2. Payments.......................................................................27 Section 4.3. Computations. ................................................................28 Section 4.4. Capital Adequacy. ............................................................28 Section 4.5. Certificate. .................................................................29 Section 4.6. Interest on Overdue Amounts. .................................................29 Section 4.7. Interest Limitation. .........................................................29 Section 4.8. Eurodollar Indemnity. ........................................................29 Section 4.9. Illegality; Inability to Determine Eurodollar Rate. ..........................30 Section 4.10. Additional Costs, Etc. ........................................................30 Section 4.11. Replacement of Banks. ........................................................31 Section 4.12. Concerning Joint and Several Liability of the Borrowers. ......................32 Section 5. REPRESENTATIONS AND WARRANTIES. ............................................................34 Section 5.1. Corporate Authority............................................................34 Section 5.2. Governmental Approvals. ......................................................35 Section 5.3. Title to Properties; Leases. .................................................35 Section 5.4. Financial Statements; Solvency.................................................36 Section 5.5. No Material Changes, Etc. ....................................................36 Section 5.6. Permits, Franchises, Patents, Copyrights, Etc. ...............................36 Section 5.7. Litigation. ..................................................................36
3 -ii- Section 5.8. No Materially Adverse Contracts, Etc. ........................................37 Section 5.9. Compliance With Other Instruments, Laws, Etc. ................................37 Section 5.10. Tax Status. ..................................................................37 Section 5.11. No Event of Default. .........................................................38 Section 5.12. Holding Company and Investment Company Acts. .................................38 Section 5.13. Absence of Financing Statements, Etc. ........................................38 Section 5.14. Employee Benefit Plans.........................................................38 Section 5.15. Use of Proceeds. .............................................................39 Section 5.15.1. General. ....................................................39 Section 5.15.2. Regulations U and X. ........................................39 Section 5.15.3. Ineligible Securities. ......................................40 Section 5.16. Environmental Compliance. ....................................................40 Section 5.17. Perfection of Security Interests. ............................................41 Section 5.18. Transactions with Affiliates. ................................................42 Section 5.19. Subsidiaries. ................................................................42 Section 5.20. True Copies of Charter and Other Documents. ..................................42 Section 5.21. Disclosure. ..................................................................42 Section 5.22. Capitalization. ..............................................................43 Section 5.23. Year 2000 Problem. ...........................................................43 Section 6. AFFIRMATIVE COVENANTS OF THE BORROWERS. ....................................................43 Section 6.1. Punctual Payment. ............................................................43 Section 6.2. Maintenance of Offices. ......................................................44 Section 6.3. Records and Accounts. ........................................................44 Section 6.4. Financial Statements, Certificates and Information. ..........................44 Section 6.5. Corporate Existence and Conduct of Business. .................................46 Section 6.6. Maintenance of Properties. ...................................................46 Section 6.7. Insurance. ...................................................................46 Section 6.8. Taxes. .......................................................................47 Section 6.9. Inspection of Properties, Books, and Contracts. ..............................47 Section 6.10. Compliance with Laws, Contracts, Licenses and Permits; Maintenance of Material Licenses and Permits. .................................47 Section 6.11. Environmental Indemnification. ...............................................48 Section 6.12. Further Assurances. ..........................................................48 Section 6.13. Notice of Potential Claims or Litigation. ....................................48 Section 6.14. Notice of Certain Events Concerning Insurance and Environmental Claims...........................................................49 Section 6.15. Response Actions. ............................................................50 Section 6.16. Environmental Assessments. ...................................................50 Section 6.17. Notice of Default. ...........................................................50 Section 6.18. New Subsidiaries. ............................................................50 Section 6.19. Employee Benefit Plans. ......................................................51 Section 6.20. Notice of Loss of Material Contracts. ........................................51 Section 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. ...............................................51 Section 7.1. Restrictions on Indebtedness. ................................................51 Section 7.2. Restrictions on Liens. .......................................................52
4 -iii- Section 7.3. Restrictions on Investments. .................................................54 Section 7.4. Merger, Consolidation and Disposition of Assets. .............................55 Section 7.4.1. Mergers and Acquisitions. ....................................55 Section 7.4.2. Disposition of Assets. .......................................56 Section 7.5. Sale and Leaseback. ..........................................................57 Section 7.6. Restricted Distributions and Redemptions. ....................................57 Section 7.7. Employee Benefit Plans. ......................................................57 Section 7.8. Negative Pledges. ............................................................58 Section 7.9. Business Activities. .........................................................58 Section 7.10. Transactions with Affiliates. ................................................58 Section 8. FINANCIAL COVENANTS. .......................................................................58 Section 8.1. Leverage Ratio. ..............................................................58 Section 8.2. Funded Debt to Capitalization Ratio. .........................................59 Section 8.3. Interest Coverage Ratio. .....................................................59 Section 8.4. Profitable Operations. .......................................................59 Section 8.5. Consolidated Net Worth. ......................................................59 Section 8.6. Capital Expenditures. ........................................................59 Section 9. CLOSING CONDITIONS. ........................................................................59 Section 9.1. Corporate Action. ............................................................60 Section 9.2. Loan Documents, Etc. .........................................................60 Section 9.3. Certificate of Secretary; Good Standing Certificates. ........................60 Section 9.4. Validity of Liens. ...........................................................60 Section 9.5. Perfection Certificates and UCC Search Results. ..............................60 Section 9.6. Certificates of Insurance. ...................................................61 Section 9.7. Legal Opinions. ..............................................................61 Section 9.8. Environmental Permit Certificate. ............................................61 Section 9.9. Payment of Fees. .............................................................61 Section 9.10. Payoff Letters. ..............................................................61 Section 9.11. Closing Certificate. .........................................................61 Section 9.12. Audit. .......................................................................61 Section 9.13. Contracts. ...................................................................62 Section 9.14. Consents. ....................................................................62 Section 10. CONDITIONS OF ALL LOANS. ...................................................................62 Section 10.1. Representations True; No Event of Default. ...................................62 Section 10.2. Performance; No Event of Default. ............................................62 Section 10.3. No Legal Impediment. .........................................................62 Section 10.4. Governmental Regulation. .....................................................63 Section 10.5. Proceedings and Documents. ...................................................63 Section 11. COLLATERAL SECURITY. .......................................................................63 Section 11.1. Security of Borrowers. .......................................................63 Section 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT. ................................63 Section 12.1. Events of Default and Acceleration. ..........................................63 Section 12.2. Termination of Commitments. ..................................................67 Section 12.3. Remedies. ....................................................................67
5 -iv- Section 13. SETOFF. ....................................................................................68 Section 14. THE AGENT. .................................................................................68 Section 14.1. Appointment of Agent, Powers and Immunities. .................................68 Section 14.2. Actions By Agent. ............................................................69 Section 14.3. INDEMNIFICATION. .............................................................70 Section 14.4. Reimbursement. ...............................................................70 Section 14.5. Documents. ...................................................................71 Section 14.5.1. Closing Documentation. ......................................71 Section 14.5.2. Other Documents. ............................................71 Section 14.6. Non-Reliance on Agent and Other Banks. .......................................71 Section 14.7. Resignation or Removal of Agent. .............................................72 Section 14.8. Consents, Amendments, Waivers, Etc. ..........................................72 Section 14.9. Delinquent Banks. ............................................................73 Section 15. EXPENSES AND INDEMNIFICATION. ..............................................................74 Section 15.1. Expenses. ....................................................................74 Section 15.2. Indemnification. .............................................................74 Section 15.3. Survival. ....................................................................75 Section 16. SURVIVAL OF COVENANTS, ETC. ................................................................75 Section 17. ASSIGNMENT AND PARTICIPATION. ..............................................................76 Section 18. PARTIES IN INTEREST. .......................................................................77 Section 19. NOTICES, ETC. ..............................................................................77 Section 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. .............................................78 Section 20.1. Sharing of Information with Section 20 Subsidiary. ...........................78 Section 20.2. Confidentiality. .............................................................78 Section 20.3. Prior Notification. ..........................................................79 Section 20.4. Other. .......................................................................79 Section 21. MISCELLANEOUS. .............................................................................79 Section 22. ENTIRE AGREEMENT, ETC. .....................................................................79 Section 23. WAIVER OF JURY TRIAL. ......................................................................80 Section 24. GOVERNING LAW. .............................................................................80 Section 25. SEVERABILITY. ..............................................................................80
6 SCHEDULES & EXHIBITS Exhibit A Form of Revolving Credit Note Exhibit B Form of Loan and Letter of Credit Request Exhibit C Form of Compliance Certificate Exhibit D Form of Environmental Compliance Certificate Exhibit E Form of Assignment and Acceptance Exhibit F Form of Reliance Letter Schedule 1 Banks; Addresses; Commitment Percentages Schedule 2 Subsidiaries Schedule 5.7 Litigation Schedule 5.9 Material Contracts Schedule 5.16 Environmental Matters Schedule 5.18 Transactions with Affiliates Schedule 7.2 Existing Liens Schedule 7.3 Existing Investments 7 REVOLVING CREDIT AGREEMENT This REVOLVING CREDIT AGREEMENT is made as of January 30, 1998 (the "Credit Agreement"), by and among (a) WASTE CONNECTIONS, INC., a Delaware corporation (the "Parent"), the subsidiaries of the Parent identified on Schedule 2 hereto (the "Subsidiaries," and collectively with the Parent, the "Borrowers"), (b) BankBoston, N.A., a national banking association having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 (acting in its individual capacity, "BKB") and the other BANKS and lending institutions which become parties hereto (collectively, the "Banks"), and (c) BANKBOSTON, N.A., as agent for the Banks (the "Agent"). Section 1. DEFINITIONS AND RULES OF INTERPRETATION. Section 1.1. DEFINITIONS. The following terms shall have the meanings set forth in this Section 1 or elsewhere in the provisions of this Credit Agreement referred to below: Accountants. An independent accounting firm of national standing reasonably acceptable to the Banks and the Agent. Affected Bank. See Section 4.11. Agent. See Preamble. Agent's Head Office. The Agent's head office located at 100 Federal Street, Boston, Massachusetts 02110, or such other location as the Agent may designate from time to time. Applicable Base Rate Margin. The applicable margin with respect to Base Rate Loans as set forth in the Pricing Table. Applicable Commitment Rate. The applicable rate with respect to the Commitment Fee as set forth in the Pricing Table. Applicable Eurodollar Margin. The applicable margin with respect to Eurodollar Loans as set forth in the Pricing Table. Applicable Laws. See Section 6.10. Applicable L/C Margin. The applicable margin with respect to the Letter of Credit Fee as set forth in the Pricing Table. Arranger. BancBoston Securities Inc. Assignment and Acceptance. See Section 17. Balance Sheet Date. December 31, 1997. 8 -2- Banks. See Preamble. Base Rate. The higher of (a) the annual rate of interest announced from time to time by the Agent at the Agent's Head Office as its "base rate" (it being understood that such rate is a reference rate and not necessarily the lowest rate of interest charged by the Agent) or (b) one percent (1%) above the overnight federal funds effective rate, as published by the Board of Governors of the Federal Reserve System, as in effect from time to time. Base Rate Loans. Loans bearing interest calculated by reference to the Base Rate. BFI. Browning-Ferris Industries, Inc., a Delaware corporation. BFI Notes. Collectively, the (a) Waste Bridge Note made by the Parent payable to BFI in the principal amount of $500,000 and (b) Promissory Note made by W.C. of Idaho payable to BFI in the principal amount of $1,450,000, each dated as of September 30, 1997, as amended and in effect from time to time. BKB. See Preamble. Borrowers. See Preamble. Business Day. Any day on which banking institutions in Boston, Massachusetts, New York, New York, and Los Angeles, California are open for the transaction of banking business. Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and goodwill); provided that Capital Assets shall not include (a) any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles, or (b) any item obtained through an acquisition permitted by Section 7.4 hereof. Capital Expenditures. Amounts paid or indebtedness incurred by the Borrowers and their Subsidiaries in connection with (i) the purchase or lease of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with GAAP or (ii) the lease of any assets by the Borrowers or any Subsidiary as lessee under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated for accounting purposes as a Capitalized Lease. Capitalized Leases. Leases under which any Borrower is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with GAAP. 9 -3- CERCLA. See definition of Release. Certified. With respect to the financial statements of any Person, such statements as audited by a firm of independent auditors, whose report expresses the opinion, without qualification, that such financial statements present fairly the financial position of such Person. CFO. See Section 6.4(b). Closing Date. The date on which the conditions precedent set forth in Section 9 are satisfied. Code. The Internal Revenue Code of 1986, as amended and in effect from time to time. Collateral. All of the property, rights and interests of the Borrowers (other than with respect to moneys due under the Excluded Contracts) that are or are intended to be subject to the security interests created by the Security Documents. Commitment. With respect to each Bank, the amount determined by multiplying such Bank's Commitment Percentage by the Total Commitment specified inSection 2.1 hereof, as the same may be reduced from time to time. Commitment Fee. See Section 4.1. Commitment Percentage. With respect to each Bank, the percentage initially set forth beside its name on Schedule 1 (subject to adjustment in accordance withSection 17). Compliance Certificate. See Section 6.4(c). Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrowers and their Subsidiaries consolidated in accordance with GAAP. Consolidated Earnings Before Interest and Taxes or EBIT. For any period, the Consolidated Net Income (or Deficit) of the Borrowers, plus (a) interest expense for such period (including, for the fiscal quarters ending December 31, 1997 and March 31, 1998, non-cash charges for interest expense attributable to loan fees paid, and warrants issued to, Imperial Bank in connection with the Imperial Credit Agreement of up to $650,000 in the aggregate), (b) income taxes for such period, and (c) for the fiscal quarters ending December 31, 1997 and March 31, 1998, start-up or organizational expenses taken as a special charge in such quarters of up to $400,000 (pre-tax) in the aggregate and non-cash stock compensation charges of up to $3,500,000 in the aggregate, to the extent that each was deducted in determining Consolidated Net Income (or Deficit), provided that, for purposes of calculating the 10 -4- financial covenants under Section 8 (but not the Pricing Ratio) for a Compliance Certificate delivered pursuant to Section 7.4(a), EBIT (excluding any projected cost savings or adjustments other than nonrecurring private company expenses that are discontinued upon acquisition by the Parent or its Subsidiaries, such as owner compensation and insurance and benefit cost reductions, and that are approved by the Agent and the Majority Banks) of Subsidiaries acquired since the date of the most recent financial statements delivered to the Banks pursuant to Section 6.4 shall be included in the calculation of EBIT if (i) the financial statements of such acquired Subsidiaries have been audited for the period sought to be included by the Accountants or (ii) the Agent and the Majority Banks consent to such inclusion after being furnished with unaudited financial statements, together with a Compliance Certificate and other appropriate documentation certifying the historical operating results and balance sheet of the acquired companies. Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA. For any period, EBIT plus (a) depreciation expense for such period and (b) amortization expense relating to intangible assets for such period, to the extent that each was deducted in determining Consolidated Net Income (or Deficit), provided that, for purposes of calculating the financial covenants under Section 8 (but not the Pricing Ratio), EBITDA (excluding any projected cost savings or adjustments other than nonrecurring private company expenses that are discontinued upon acquisition by the Parent or its Subsidiaries, such as owner compensation and insurance and benefit cost reductions, and that are approved by the Agent and the Majority Banks) of Subsidiaries acquired since the date of the most recent financial statements delivered to the Banks pursuant to Section 6.4 shall be included in the calculation of EBITDA if (i) the financial statements of such acquired Subsidiaries have been audited for the period sought to be included by the Accountants or (ii) the Agent and the Majority Banks consent to such inclusion after being furnished with unaudited financial statements, together with a Compliance Certificate and other appropriate documentation certifying the historical operating results and balance sheet of the acquired companies. Consolidated Net Income (or Deficit). The consolidated net income (or deficit) of the Borrowers after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP. Consolidated Net Worth. The excess of Consolidated Total Assets over Consolidated Total Liabilities, less, to the extent otherwise includable in the computation of Consolidated Net Worth, any subscriptions receivable, plus the value of the Preferred Stock to the extent otherwise excluded in the computation of Consolidated Net Worth. Consolidated Total Assets. All assets of the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with GAAP, plus (i) without duplication, all assets leased by the Borrowers or any Subsidiary as lessee under any 11 -5- Synthetic Lease to the extent that such assets would have been consolidated balance sheet assets had the Synthetic Lease been treated for accounting purposes as a Capitalized Lease, plus (ii) without duplication, all sold receivables referred to in clause (vii) of the definition of the term "Indebtedness" to the extent that such receivables would have been consolidated balance sheet assets had they not been sold. Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by the Borrowers and their Subsidiaries during such period on all Indebtedness of the Borrowers and their Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any Capitalized Lease or any Synthetic Lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money (but excluding, for the fiscal quarters ending December 31, 1997 and March 31, 1998, non-cash charges for interest expense attributable to loan fees paid, and warrants issued to, Imperial Bank in connection with the Imperial Credit Agreement of up to $650,000 in the aggregate). Consolidated Total Liabilities. All liabilities of the Borrowers determined on a consolidated basis in accordance with GAAP and classified as such on the consolidated balance sheet of the Borrowers, but excluding the Preferred Stock to the extent that it is treated as a liability under GAAP. Credit Agreement. This Revolving Credit Agreement, including the Schedules and Exhibits hereto, as amended and in effect from time to time. Default. See Section 12. Delinquent Bank. See Section 14.9. Disposal (or Disposed). See definition of Release. Distribution. The declaration or payment of any dividend or distribution on or in respect of any shares of any class of capital stock, any partnership interests or any membership interests of any Person (other than dividends or other distributions payable solely in shares of common stock, partnership interests or membership units of such Person, as the case may be); the purchase, redemption, or other retirement of any shares of any class of capital stock, partnership interests or membership units of such Person, directly or indirectly through a Subsidiary or otherwise; the return of equity capital by any Person to its shareholders, partners or members as such; or any other distribution on or in respect of any shares of any class of capital stock, partnership interest or membership unit of such Person. Dollars or $. Dollars in lawful currency of the United States of America. 12 -6- Drawdown Date. The date on which any Revolving Credit Loan is made or is to be made, and the date on which any Revolving Credit Loan is converted or continued in accordance with Section 2.5. EBIT. See definition of Consolidated Earnings Before Interest and Taxes. EBITDA. See definition of Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization. Eligible Assignee. Any of (i) a commercial bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; and (v) if, but only if, any Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution approved by the Agent, such approval not to be unreasonably withheld. Eligible Foreign Bank. (a) Any commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; or (b) the central bank of any country which is a member of the OECD. Employee Benefit Plan. Any employee benefit plan within the meaning of Section 3(3) of ERISA maintained or contributed to by the Borrowers or any ERISA Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan. Environmental Laws. See Section 5.16(a). EPA. See Section 5.16(b). ERISA. The Employee Retirement Income Security Act of 1974, as amended and in effect from time to time. ERISA Affiliate. Any Person which is treated as a single employer with the Borrowers under Section 414 of the Code. 13 -7- ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder. Eurodollar Business Day. Any Business Day on which dealings in foreign currency and exchange are carried on among banks in London, England. Eurodollar Interest Determination Date. For any Interest Period, the date two Eurodollar Business Days prior to the first day of such Interest Period. Eurodollar Loans. Revolving Credit Loans bearing interest calculated by reference to the Eurodollar Rate. Eurodollar Offered Rate. The rate per annum at which deposits of dollars are offered to the Agent by prime banks in whatever Eurodollar interbank market may be selected by the Agent, in its sole discretion, acting in good faith, at or about 11:00 a.m. local time in such interbank market, on the Eurodollar Interest Determination Date, for a period equal to the requested Interest Period in an amount substantially equal to the principal amount requested to be loaned at or converted to a rate based on the Eurodollar Rate. Eurodollar Rate. The rate per annum, rounded upwards to the nearest 1/16 of 1%, determined by the Agent with respect to an Interest Period in accordance with the following formula: Eurodollar Rate = Eurodollar Offered Rate ----------------------- 1-Reserve Rate Event of Default. See Section 12. Excluded Contracts. The (a) Contract for Curbside and Drop Box Recycling Services among (i) the Six East Snohomish County Cities of Snohomish, Monroe, Lake Stevens, Sultan, Granite Falls and Gold Bar (Operating as ESCARC) and (ii) Fibres International, Incorporated d.b.a. Pacific Resource Management/Bill's Disposal, dated as of September 1, 1995 and (b) Single Family Recyclables Collection Contract between City of Vancouver and Browning Ferris Industries of Washington, Inc., dated as of December 2, 1996, each as amended and in effect from time to time. Funded Debt. Consolidated Indebtedness of the Borrowers for borrowed money, the net present value (using the Base Rate as the discount rate) of every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), and guarantees of such Indebtedness, recorded on the Consolidated balance sheet of the Borrowers, including reimbursement obligations 14 -8- of the Borrowers with respect to letters of credit and the amount of any Indebtedness of such Persons for Capitalized Leases which corresponds to principal. generally accepted accounting principles or GAAP. When used in general, generally accepted accounting principles means (1) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, as shall be concurred in by independent certified public accountants of recognized standing whose report expresses an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been applied; and (2) when used with reference to the Borrowers, such principles shall include (to the extent consistent with such principles) the accounting practices reflected in the consolidated financial statements for the year ended on the Balance Sheet Date. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of Section 3(2) of ERISA maintained or contributed to by the Borrowers or any ERISA Affiliate, the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Hazardous Substances. See Section 5.16(b). Imperial Credit Agreement. The Loan and Security Agreement, dated as of September 30, 1997, among Imperial Bank and the Parent, Browning-Ferris Industries of Washington, Inc., and Fibres International, Inc., as amended and in effect from time to time. Indebtedness. As to any Person and whether recourse is secured by or is otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) the net present value (using the Base Rate as the discount rate) of every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding (A) trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being 15 -9- contested in good faith and (B) contingent purchase price obligations solely to the extent that the contingency upon which such obligation is conditioned has not yet occurred), (v) every obligation of such Person under any Capitalized Lease, (vi) every obligation of such Person under any Synthetic Lease, (vii) all sales by such Person of (A) accounts or general intangibles for money due or to become due, (B) chattel paper, instruments or documents creating or evidencing a right to payment of money or (C) other receivables (collectively, "receivables"), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, provided, however, that sales referred to in clauses (B) and (C) shall not constitute Indebtedness to the extent that such sales are non-recourse to such Person; (viii) every obligation of such Person (an "equity related purchase obligation") to purchase, redeem, retire or otherwise acquire for value any shares of capital stock of any class issued by such Person, any warrants, options or other rights to acquire any such shares, or any rights measured by the value of such shares, warrants, options or other rights, excluding the Preferred Stock to the extent that it is treated as a liability under GAAP, (ix) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices, (x) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (xi) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (i) through (x) (the "primary obligation") of another Person (the "primary obligor"), in any manner, whether directly or indirectly, and including, without limitation, any 16 -10- obligation of such Person (A) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (B) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (C) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. The "amount" or "principal amount" of any Indebtedness at any time of determination represented by (v) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (w) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (x) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Borrowers) thereof, excluding amounts representative of yield or interest earned on such investment, (y) any Synthetic Lease shall be the stipulated loss value, termination value or other equivalent amount and (z) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price. Ineligible Securities. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. Section 24, Seventh), as amended. Interest Period. With respect to each Eurodollar Loan: (a) initially, the period commencing on the date of the making of a Eurodollar Loan or the conversion from a Base Rate Loan into a Eurodollar Loan and ending one (1), two (2), three (3), or six (6) months thereafter, as selected by the Borrowers in a Loan and Letter of Credit Request; and (b) thereafter, each subsequent Interest Period shall begin on the last day of the preceding Interest Period and shall end one (1), two (2), three (3), or six (6) months thereafter, as selected by the Borrowers in a Loan and Letter of Credit Request; provided, however, that whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. Interim Balance Sheet Date. November 30, 1997. 17 -11- Letter of Credit Applications. Letter of Credit Applications in such form as may be agreed upon by the Borrowers and the Agent from time to time which are entered into pursuant to Section 3 hereof, as such Letter of Credit Applications are amended, varied or supplemented from time to time. Letter of Credit Fee. See Section 4.1(b). Letter of Credit Participation. See Section 3.1(b). Letters of Credit. Standby Letters of Credit issued or to be issued by the Agent under Section 3 hereof for the account of the Borrowers. Leverage Ratio. See Section 8.1. Loan and Letter of Credit Request. See Section 2.6. Loan Documents. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, and the Security Documents, each as amended and in effect from time to time. Loans. The Revolving Credit Loans. Majority Banks. As of any date, the Banks holding sixty-six and two-thirds percent (66-2/3%) of the outstanding principal amount of the Loans on such date; and if no such principal is outstanding, the Banks whose aggregate Commitments constitute sixty-six and two-thirds percent (66-2/3%) of the Total Commitment. Material Contract. Any contract, franchise agreement or G Permit from which the Borrowers derived more than five percent (5%) of their consolidated revenues for the fiscal year most recently ending. Maturity Date. January 30, 2001. Maximum Drawing Amount. The maximum aggregate amount from time to time that the beneficiaries may draw under outstanding Letters of Credit. Maximum Rate. With respect to each Bank, the maximum lawful nonusurious rate of interest (if any) which under Applicable Law such Bank may charge the Borrowers on the Loans and other Obligations from time to time. Mittelstaedt Pledge Agreement. The Stock Pledge Agreement, dated as of the date hereof, between the Trustee and the Agent in form and substance satisfactory to the Agent, as amended and in effect from time to time, pursuant to which all of the capital stock of the Parent issued to the Trustee is pledged to the Agent for the benefit of the Banks. 18 -12- Multiemployer Plan. Any multiemployer plan within the meaning of Section 3(37) of ERISA maintained or contributed to by the Borrowers or any ERISA Affiliate. Notes. The Revolving Credit Notes. Obligations. All indebtedness, obligations and liabilities of the Borrowers to any of the Banks or the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents, or under any Swap Contract between the Borrowers and any Bank, or in respect of any of the Loans made or Reimbursement Obligations incurred or the Letters of Credit, the Notes or any other instrument at any time evidencing any thereof. PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of ERISA and any successor entity or entities having similar responsibilities. Permitted Liens. See Section 7.2. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Preferred Stock. The Series A Preferred Stock issued by the Parent pursuant to the Certificate of Designations, Preferences and Rights of Preferred Stock, Series A, dated as of September 29, 1997, consisting of not more than 2,500,000 shares. Pricing Ratio. As of the end of any fiscal quarter of the Borrowers commencing with the fiscal quarter ending September 30, 1998, the ratio of (a) Funded Debt as at the end of such quarter to (b) EBITDA for the period of four (4) consecutive fiscal quarters ending on such date. For the fiscal quarter ending (i) December 31, 1997, the denominator of such ratio shall be EBITDA for such quarter multiplied by four (4), (ii) March 31, 1998, the denominator of such ratio shall be EBITDA for the period of two consecutive fiscal quarters ending on such date multiplied by two (2), and (iii) June 30, 1998, the denominator of such ratio shall be EBITDA for the period of three consecutive fiscal quarters ending on such date multiplied by 1.33. Pricing Table:
- --------------------------------------------------------------------------------------------------------------------- APPLICABLE APPLICABLE BASE RATE APPLICABLE PRICING RATIO EURODOLLAR MARGIN APPLICABLE COMMITMENT RATE MARGIN (PER ANNUM) L/C MARGIN (PER ANNUM) (PER ANNUM) (PER ANNUM) - --------------------------------------------------------------------------------------------------------------------- Less than 2.50:1 2.00% 0.00% 2.00% 0.50% - ---------------------------------------------------------------------------------------------------------------------
19 -13- - --------------------------------------------------------------------------------------------------------------------- Greater than or equal to 2.50:1 2.25% 0.25% 2.25% 0.50% but less than 3.00:1 - --------------------------------------------------------------------------------------------------------------------- Greater than or equal to 3.00:1 2.75% 0.50% 2.75% 0.50% - --------------------------------------------------------------------------------------------------------------------- Initial Pricing 2.75% 0.50% 2.75% 0.50% - ---------------------------------------------------------------------------------------------------------------------
Any change in the applicable margin shall become effective on the first day after receipt by the Banks of financial statements delivered pursuant to Section 6.4(a) or (b) which indicate a change in the Pricing Ratio or, with respect to the Eurodollar Applicable Margin, on the first day of each Interest Period which begins three (3) or more days after receipt of such financial statements. If at any time such financial statements are not delivered within the time periods specified in Section 6.4(a) or (b), the applicable margin shall be the highest rate set forth in the respective column of the Pricing Table, subject to adjustment upon actual receipt of such financial statements. The initial pricing set forth in the table above shall be effective until the Borrowers deliver to the Agent a calculation of the Pricing Ratio for the fiscal quarter ending December 31, 1997. RCRA. See definition of Release. Real Property. All real property heretofore, now, or hereafter owned or leased by the Borrowers. Reimbursement Obligation. The Borrowers' obligation to reimburse the Agent and the Banks on account of any drawing under any Letter of Credit as provided in Section 3.2. Release. Shall have the meaning specified in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq. ("CERCLA") and the term "Disposal" (or "Disposed") shall have the meaning specified in the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq. ("RCRA") and regulations promulgated thereunder; provided that in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply as of the effective date of such amendment and provided further, to the extent that the laws of a state wherein the property lies establishes a meaning for "Release" or "Disposal" which is broader than specified in either CERCLA or RCRA, such broader meaning shall apply. Replacement Bank. See Section 4.11. Replacement Notice. See Section 4.11. Reserve Rate. The rate, expressed as a decimal, at which the Banks would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any subsequent or similar regulation relating to such reserve requirements) against "Eurocurrency Liabilities" (as such term is defined in 20 -14- Regulation D), or against any other category of liabilities which might be incurred by the Banks to fund Eurodollar Loans, if such liabilities were outstanding. Revolving Credit Loans. Revolving credit loans made or to be made by the Banks to the Borrowers pursuant to Section 2. Revolving Credit Notes. The promissory notes of the Borrowers evidencing the Revolving Credit Loans hereunder, dated as of the date hereof and in substantially the form of Exhibit A hereto. Section 20 Subsidiary. A subsidiary of the bank holding company controlling any Bank, which subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Security Agreement. The Security Agreement, dated as of the date hereof, among the Borrowers and the Agent in form and substance satisfactory to the Agent, as amended and in effect from time to time. Security Documents. The Security Agreement, Stock Pledge Agreements and Mittelstaedt Pledge Agreement, each as amended and in effect from time to time, and any other instruments or documents evidencing or perfecting the Agent's lien on the assets of the Borrowers for the benefit of the Banks. Stock Pledge Agreements. Collectively, the Stock Pledge Agreements, dated as of the date hereof, (a) between the Parent and the Agent, pursuant to which 100% of the capital stock of the Subsidiaries (other than W.C. International) is pledged to the Agent for the benefit of the Banks and (b) between W.C. of Washington and the Agent, pursuant to which 100% of the stock of W.C. International is pledged to the Agent for the benefit of the Banks, each in form and substance satisfactory to the Agent, as amended and in effect from time to time. Subsidiary. Any corporation, association, trust, or other business entity of which any Borrower shall at any time own directly, or indirectly through a Subsidiary or Subsidiaries, at least a majority of the outstanding capital stock or other interest entitled to vote generally. Swap Contracts. Any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, currency swap agreement, cross-currency rate swap agreement, swaption, currency option or other similar agreement (including any option to enter into any of the foregoing). 21 -15- Synthetic Lease. Any lease treated as an operating lease under generally accepted accounting principles and as a loan or financing for U.S. income tax purposes. Total Commitment. See Section 2.1. Trustee. Ron J. Mittelstaedt, as Trustee for the Mittelstaedt Family Trust dated 6/18/97. W.C. of Idaho. Waste Connections of Idaho, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Parent. W.C. International. Waste Connections International, Inc., a Washington corporation and a wholly-owned Subsidiary of W.C. of Washington. W.C. of Washington. Waste Connections of Washington, Inc., a Washington corporation and a wholly-owned Subsidiary of the Parent. Year 2000 Problem. The risk that computer applications used by the Borrowers may be unable to recognize and properly perform date-sensitive functions involving certain dates prior to, and any date after, December 31, 1999. Section 1.2. RULES OF INTERPRETATION. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms capitalized but not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include," "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in 22 -16- effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein. (h) Reference to a particular "Section" refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein," "hereof," "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." Section 2. THE REVOLVING CREDIT FACILITY. Section 2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrowers and the Borrowers may borrow, repay, and reborrow from time to time from the Closing Date to the Maturity Date, upon notice by the Borrowers to the Agent given in accordance with Section 2.6, its Commitment Percentage of the Revolving Credit Loans as are requested by the Borrowers, provided that the outstanding amount of Revolving Credit Loans, unpaid Reimbursement Obligations, and the Maximum Drawing Amount shall not exceed a maximum aggregate amount outstanding of $25,000,000 at any time, as such amount may be reduced pursuant to Section 2.2 hereof (the "Total Commitment"), and provided further that the maximum amount of Loans and Letters of Credit available hereunder shall be $17,000,000 until a CFO acceptable to the Banks has commenced employment with the Borrowers. The Revolving Credit Loans shall be made pro rata in accordance with each Bank's Commitment Percentage. Each request for a Loan hereunder shall constitute a representation and warranty by the Borrowers that the conditions set forth in Section 9 and Section 10, as the case may be, have been satisfied on the date of such request. Section 2.2. REDUCTION OF TOTAL COMMITMENT. (a) The Borrowers shall have the right at any time and from time to time upon five (5) Business Days' prior written notice to the Agent to reduce by $1,000,000 or an integral multiple of $500,000 in excess thereof, or terminate entirely, the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. The Agent will notify the Banks promptly after receiving any notice of the Borrowers delivered pursuant to this Section 2.2. 23 -17- (b) No reduction or termination of the Commitments once made may be revoked; the portion of the Commitments reduced or terminated may not be reinstated; and amounts in respect of such reduced or terminated portion may not be reborrowed. Section 2.3. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be evidenced by separate promissory notes of the Borrowers in substantially the form of Exhibit A hereto (each a "Revolving Credit Note"), dated as of the Closing Date and completed with appropriate insertions. One Revolving Credit Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment or, if less, the outstanding amount of all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as set forth below. The Borrowers irrevocably authorize each Bank to make or cause to be made, in connection with a Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on such Bank's Revolving Credit Note, an appropriate notation on such Bank's records reflecting the making of such Loan or the receipt of such payment (as the case may be). The outstanding amount of the Loans set forth on such Bank's record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount shall not limit or otherwise affect the obligation of the Borrowers hereunder or under any Revolving Credit Note to make payments of principal of or interest on any Revolving Credit Note when due. Section 2.4. INTEREST ON REVOLVING CREDIT LOANS. The outstanding principal amount of the Revolving Credit Loans shall bear interest at the rate per annum equal to (a) the Base Rate plus the Applicable Base Rate Margin on Base Rate Loans or (b) the Eurodollar Rate plus the Applicable Eurodollar Margin on Eurodollar Loans. Interest shall be payable (i) quarterly in arrears on the first Business Day of each calendar quarter, commencing April 1, 1998, on Base Rate Loans, (ii) on the last day of the applicable Interest Period, and if such Interest Period is longer than three (3) months, also on the day which is three (3) months after the commencement of such Interest Period, on Eurodollar Loans, and (iii) on the Maturity Date for all Revolving Credit Loans. Section 2.5. ELECTION OF EURODOLLAR RATE; NOTICE OF ELECTION; INTEREST PERIODS; MINIMUM AMOUNTS. (a) At the Borrowers' option, so long as no Default or Event of Default has occurred and is then continuing, the Borrowers may (i) elect to convert any Revolving Credit Loan which is a Base Rate Loan or a portion thereof to a Eurodollar Loan, (ii) at the time of any Loan and Letter of Credit Request, specify that a requested Revolving Credit Loan shall be a Eurodollar Loan, or (iii) upon expiration of the applicable Interest Period, elect to maintain an existing Eurodollar Loan as such, provided that the Borrowers give notice to the Agent pursuant to Section 2.5(b) hereof. Upon determining any Eurodollar Rate, the Agent shall forthwith 24 -18- provide notice thereof to the Borrowers and the Banks, and each such notice to the Borrowers and the Banks shall be considered prima facie correct and binding, absent manifest error. (b) Three (3) Eurodollar Business Days prior to the making of any Eurodollar Loan or the conversion of any Base Rate Loan to a Eurodollar Loan, or, in the case of an outstanding Eurodollar Loan, the expiration date of the applicable Interest Period, the Borrowers shall give telephonic notice (confirmed by telecopy on the same Eurodollar Business Day) to the Agent not later than 11:00 a.m. (Boston time) of their election pursuant to Section 2.5(a). Each such notice delivered to the Agent shall specify the aggregate principal amount of the Loans to be borrowed or maintained as or converted to Eurodollar Loans and the requested duration of the Interest Period that will be applicable to such Eurodollar Loan, and shall be irrevocable and binding upon the Borrowers. If the Borrowers shall fail to give the Agent notice of their election hereunder together with all of the other information required by this Section 2.5(b) with respect to any Revolving Credit Loan, such Loan shall be deemed a Base Rate Loan. In the event that the Borrowers fail to provide any such notice with respect to the continuation of any Eurodollar Loan as such, then such Eurodollar Loan shall be automatically converted to a Base Rate Loan at the end of the then expiring Interest Period relating thereto. (c) Notwithstanding anything herein to the contrary, the Borrowers may not specify an Interest Period that would extend beyond the Maturity Date. (d) All Revolving Credit Loans shall be in a minimum amount of $100,000 or an integral multiple of $100,000 in excess thereof. In no event shall the Borrowers have more than five (5) different maturities of Eurodollar Loans outstanding at any time. Section 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrowers shall give to the Agent written notice in the form of Exhibit B hereto (or telephonic notice confirmed by telecopy on the same Business Day in the form of Exhibit B hereto) of each Revolving Credit Loan requested hereunder (a "Loan and Letter of Credit Request") not later than (a) 11:00 a.m. Boston time one (1) Business Day prior to the proposed Drawdown Date of any Revolving Credit Loan which is a Base Rate Loan, or (b) 11:00 a.m. Boston time three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Loan. Each such notice shall be given by the Borrowers and shall specify the principal amount of the Revolving Credit Loan requested and shall include a current Loan and Letter of Credit Request reflecting the Maximum Drawing Amount. Each Loan and Letter of Credit Request shall be irrevocable and binding on the Borrowers and shall obligate the Borrowers to accept the Revolving Credit Loan requested from the Banks on the proposed Drawdown Date. Each of the representations and warranties made by or on behalf of the Borrowers to the Banks or the Agent in this Credit Agreement or any other Loan Document shall be true and correct in all material respects when made and shall, for 25 -19- all purposes of this Credit Agreement, be deemed to be repeated on and as of the date of the submission of any Loan and Letter of Credit Request and on and as of the Drawdown Date of such Revolving Credit Loan, or the date of issuance of such Letter of Credit (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, or to the extent that such representations and warranties expressly relate solely to an earlier date). The Agent shall promptly notify each Bank of each Loan and Letter of Credit Request received by the Agent. Section 2.7. FUNDS FOR REVOLVING CREDIT LOANS. (a) Not later than 1:00 p.m. (Boston time) on the proposed Drawdown Date of any Revolving Credit Loan, each of the Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Revolving Credit Loans. Upon receipt from each Bank of such amount, and upon receipt of the documents required by Section ss.9 and 10 and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrowers in immediately available funds the aggregate amount of such Revolving Credit Loans made available to the Agent by the Banks. The failure or refusal of any Bank to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its Commitment Percentage of the requested Revolving Credit Loans shall not relieve any other Bank from its several obligation hereunder to make available to the Agent the amount of such other Bank's Commitment Percentage of any requested Revolving Credit Loans. (b) The Agent may, unless notified to the contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and the Agent may (but shall not be required to), in reliance upon such assumption, make available to the Borrowers a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (ii) the amount of such Bank's Commitment Percentage of such Revolving Credit Loans, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Bank's Commitment Percentage of such Revolving Credit Loans shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this paragraph shall be prima facie evidence, absent manifest error, of the amount due and 26 -20- owing to the Agent by such Bank. If the amount of such Bank's Commitment Percentage of such Revolving Credit Loans is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrowers on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date. Section 2.8. MATURITY OF THE LOANS. The Revolving Credit Loans shall be due and payable on the Maturity Date. The Borrowers jointly and severally promise to pay on the Maturity Date all Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. Section 2.9. MANDATORY REPAYMENTS OF THE REVOLVING CREDIT LOANS. If at any time the outstanding amount of the Revolving Credit Loans plus the Maximum Drawing Amount plus unpaid Reimbursement Obligations exceeds the Total Commitment, whether by reduction of the Total Commitment or otherwise, then the Borrowers shall immediately pay the amount of such excess to the Agent for application to the Revolving Credit Loans, or if no Revolving Credit Loans shall be outstanding, to be held by the Agent as collateral security for the Reimbursement Obligations, provided, however, that if the amount of cash collateral held by the Agent pursuant to this Section 2.9 exceeds the amount of the Obligations, the Agent shall return such excess to the Borrowers. Section 2.10. OPTIONAL PREPAYMENTS OR REPAYMENTS OF REVOLVING CREDIT LOANS. The Borrowers shall have the right, at their election, to repay or prepay the outstanding amount of the Revolving Credit Loans, as a whole or in part, at any time without penalty or premium (other than the obligation to reimburse the Banks and the Agent pursuant to Section 4.8 hereof). The Borrowers shall give written notice to the Agent (or telephonic notice confirmed in writing) no later than (a) 1:00 p.m. (Boston time) on the Business Day of the proposed prepayment or repayment of any Base Rate Loan or (b) 1:00 p.m. (Boston time) three (3) Eurodollar Business Days prior to the proposed prepayment or repayment of any Eurodollar Loan, in each case specifying the proposed date of prepayment or repayment of Revolving Credit Loans and the principal amount to be paid. Each such partial repayment of the Revolving Credit Loans shall be $50,000 or an integral multiple of $50,000 in excess thereof, and shall be accompanied by the payment of accrued interest on the principal prepaid to the date of repayment and shall be applied, in the absence of instruction by the Borrowers, first to the principal of Base Rate Loans and then to the principal of Eurodollar Loans. Each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Revolving Credit Loans, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. Unless the Borrowers elect to repay the total aggregate outstanding amount of the Revolving Credit Loans, the Borrowers 27 -21- may not elect to make any repayments which would reduce the total aggregate outstanding amount of the Revolving Credit Loans to an amount less than $50,000. Section 3. LETTERS OF CREDIT. Section 3.1. LETTER OF CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof and the execution and receipt of a Loan and Letter of Credit Request reflecting the Maximum Drawing Amount of all Letters of Credit (including the requested Letter of Credit) and a Letter of Credit Application, the Agent, on behalf of the Banks and in reliance upon the agreement of the Banks set forth in Section 3.1(b) and upon the representations and warranties of the Borrowers contained herein, agrees to issue standby letters of credit, in such form as may be requested from time to time by the Borrowers and agreed to by the Agent; provided, however, that, after giving effect to such request, the Maximum Drawing Amount shall not exceed the lesser of (i) $5,000,000 or (ii) the Total Commitment minus the aggregate outstanding amount of the Revolving Credit Loans. No Letter of Credit shall have an expiration date later than the earlier of (i) one (1) year after the date of issuance of the Letter of Credit (which may incorporate automatic renewals for periods of up to one (1) year, provided that the Agent may, upon 30 days' notice to the beneficiary, cancel such Letter of Credit which has been renewed beyond its initial one (1) year term), or (ii) thirty (30) days prior to the Maturity Date. (b) Each Bank severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Bank's Commitment Percentage thereof, to reimburse the Agent on demand for the amount of each draft paid by the Agent under each Letter of Credit issued in accordance with the terms hereof to the extent that such amount is not reimbursed by the Borrowers pursuant to Section 3.2 (such agreement for a Bank being called herein the "Letter of Credit Participation" of such Bank). (c) Each such payment made by a Bank shall be treated as the purchase by such Bank of a participating interest in the Borrowers' Reimbursement Obligation under Section 3.2 in an amount equal to such payment. Each Bank shall share in accordance with its participating interest in any interest which accrues pursuant to Section 3.2. Section 3.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to induce the Agent to issue, extend and renew each Letter of Credit and the Banks to participate therein, the Borrowers hereby agree to reimburse or pay to the Agent with respect to each Letter of Credit issued, extended or renewed by the Agent hereunder as follows: 28 -22- (a) on each date that any draft presented under any Letter of Credit is honored by the Agent or the Agent otherwise makes payment with respect thereto, (i) the amount paid by the Agent under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Agent or any Bank in connection with any payment made by the Agent or any Bank under, or with respect to, such Letter of Credit; provided however, if the Borrowers do not reimburse the Agent on the Drawdown Date, such amount shall, provided that no Event of Default under Sections 12.1(h) or 12.1(i) has occurred, become automatically a Revolving Credit Loan which is a Base Rate Loan advanced hereunder in an amount equal to such sum; and (b) upon the Maturity Date, or the termination of the Total Commitment, or the acceleration of the Reimbursement Obligations in accordance with Section 12, an amount equal to the Maximum Drawing Amount, which amount shall be held by the Agent for the benefit of the Banks and the Agent as cash collateral for all Reimbursement Obligations. Section 3.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Agent shall notify the Borrowers of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. On the date that such draft is paid or other payment is made by the Agent, the Agent shall promptly notify the Banks of the amount of any unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Bank shall make available to the Agent, at the Agent's Head Office, in immediately available funds, such Bank's Commitment Percentage of such Reimbursement Obligation, together with an amount equal to the product of (a) the weighted average, computed for the period referred to in clause (c) below, of the interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (b) the amount equal to such Bank's Commitment Percentage of such unpaid Reimbursement Obligation, times (c) a fraction, the numerator of which is the number of days that have elapsed from and including the date the Agent paid the draft presented for honor or otherwise made payment until the date on which such Bank's Commitment Percentage of such unpaid Reimbursement Obligation shall become immediately available to the Agent, and the denominator of which is 365. The responsibility of the Agent to the Borrowers and the Banks shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. Section 3.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which the Borrowers may have or 29 -23- have had against the Agent, any Bank or any beneficiary of a Letter of Credit. Subject to the obligations of the Banks pursuant to Article V of the Uniform Commercial Code and the obligations of the Agent pursuant to the last sentence of Section 3.3, the Borrowers further agree with the Agent and the Banks that the Agent and the Banks shall not be responsible for, and the Borrowers' Reimbursement Obligations under Section 3.2 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrowers, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrowers against the beneficiary of any Letter of Credit or any such transferee. The Agent and the Banks shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrowers agree that any action taken or omitted by the Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrowers and shall not result in any liability on the part of the Agent or any Bank to the Borrowers. Section 3.5. RELIANCE BY AGENT. To the extent not inconsistent with Section 3.4, the Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants or other experts selected by the Agent. Section 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY. Section 4.1. FEES. (a) COMMITMENT FEE. The Borrowers agree to pay to the Agent, for the respective account of each Bank, a fee (the "Commitment Fee") equal to the Applicable Commitment Rate multiplied by the average daily amount of the unused portion of such Bank's Commitment during each calendar quarter or portion thereof from the Closing Date to the Maturity Date (or to the date of termination in full of the Total Commitment, if earlier). The Commitment Fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on April 1, 1998, with a final payment on the Maturity Date. (b) LETTER OF CREDIT FEES. The Borrowers shall pay a fee (the "Letter of Credit Fee") equal to the Applicable L/C Margin multiplied by the Maximum Drawing Amount of each Letter of Credit. Such Letter of Credit Fee shall 30 -24- be payable to the Agent for the account of the Banks, to be shared pro rata by the Banks in accordance with their respective Commitment Percentages. The Borrowers shall also pay a fee (the "Issuance Fee") to the Agent, for its own account, equal to 0.125% per annum on the Maximum Drawing Amount of all Letters of Credit issued by such Bank, plus its customary administrative charges. The Letter of Credit Fee and the Issuance Fee shall be payable for the number of days each Letter of Credit is outstanding, and shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter, and on the Maturity Date. (c) CLOSING FEES. The Borrowers shall pay at closing any fees owing to any of the Banks, as previously agreed between the Borrowers and the Agent. Section 4.2. PAYMENTS. (a) All payments of principal, interest, Reimbursement Obligations, fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, to be received at the Agent's Head Office in immediately available funds by 12:00 p.m. (Boston time) on any due date. (b) All payments by the Borrowers hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrowers are compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrowers with respect to any amount payable by them hereunder or under any of the other Loan Documents, the Borrowers will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrowers. In the event that the Borrowers are required to make such deduction or withholding as a result of the fact that a Bank is organized outside of the United States, such Bank shall use its reasonable best efforts to transfer its Loans to an affiliate organized within the United States if such transfer would have no adverse effect on such Bank or the Loans. The Borrowers will deliver promptly to the Bank certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrowers hereunder or under such other Loan Document. (c) Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such 31 -25- payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension; provided that any Interest Period for any Eurodollar Loan which ends on a day that is not a Eurodollar Business Day shall end on the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day. Section 4.3. COMPUTATIONS. All computations of interest on Base Rate Loans and of Commitment Fees, Letter of Credit Fees or other fees shall, unless otherwise expressly provided herein, be based on a 365-day year (or 366-day year, as applicable) and paid for the actual number of days elapsed. All computations of interest on Eurodollar Loans shall, unless otherwise expressly provided herein, be based on a 360-day year and paid for the actual number of days elapsed. Section 4.4. CAPITAL ADEQUACY. If any present or future law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) or the interpretation thereof by a court or governmental authority with appropriate jurisdiction affects the amount of capital required or expected to be maintained by any Bank or the Agent or any corporation controlling such Bank or the Agent, and such Bank or the Agent determines that the amount of capital required to be maintained by it is increased by or based upon the existence of such Bank's or the Agent's Loans, Letter of Credit Participations or Letters of Credit, or commitment with respect thereto, then such Bank or the Agent may notify the Borrowers of such fact. To the extent that the costs of such increased capital requirements are not reflected in the Base Rate (if relating to Base Rate Loans), the Borrowers and such Bank or (as the case may be) the Agent shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Borrowers receive such notice, an adjustment payable hereunder that will adequately compensate such Bank or the Agent in light of these circumstances. If the Borrowers and such Bank or the Agent are unable to agree to such adjustment within thirty (30) days of the date on which the Borrowers receive such notice, then commencing on the date of such notice (but not earlier than the effective date of any such increased capital requirement), the fees payable hereunder shall increase by an amount that will, in such Bank's or the Agent's reasonable determination, provide adequate compensation. Each Bank and the Agent shall allocate such cost increases among its customers in good faith and on an equitable basis. Section 4.5. CERTIFICATE. A certificate setting forth any additional amounts payable pursuant to Section 4.4 and a reasonable explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrowers, shall be conclusive, absent manifest error, that such amounts are due and owing. Section 4.6. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest 32 -26- compounded monthly and payable on demand at a rate per annum equal to the Base Rate plus the Applicable Base Rate Margin plus two (2) percentage points (2.00%) until such amount shall be paid in full (after, as well as before, judgment). Section 4.7. INTEREST LIMITATION. Notwithstanding any other term of this Credit Agreement or any Note or any other document referred to herein or therein, the maximum amount of interest which may be charged to or collected from any person liable hereunder or under any Note by any Bank shall be absolutely limited to, and shall in no event exceed, the maximum amount of interest which could lawfully be charged or collected under applicable law (including, to the extent applicable, the provisions of Section 5197 of the Revised Statutes of the United States of America, as amended, 12 U.S.C. Section 85, as amended), so that the maximum of all amounts constituting interest under applicable law, howsoever computed, shall never exceed as to any Person liable therefor such lawful maximum, and any term of this Credit Agreement, the Notes, the Letter of Credit Applications, or any other document referred to herein or therein which could be construed as providing for interest in excess of such lawful maximum shall be and hereby is made expressly subject to and modified by the provisions of this paragraph. Section 4.8. EURODOLLAR INDEMNITY. The Borrowers agree to indemnify the Banks and the Agent and to hold them harmless from and against any loss, cost or expenses (including loss of anticipated profits) that the Banks and the Agent may sustain or incur as a consequence of (a) default by the Borrowers in payment of the principal amount of or any interest on any Eurodollar Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by any Bank or the Agent to lenders of funds obtained by it in order to maintain its Eurodollar Loans, (b) a prepayment of principal on any Eurodollar Loan, including prepayments which are the result of acceleration by the Banks, or (c) default by the Borrowers in making a borrowing or conversion after the Borrowers have given (or are deemed to have given) notice pursuant to Section 2.5 or Section 2.6, the making of any payment of a Eurodollar Loan or the making of any conversion of any such Eurodollar Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by any Bank to lenders of funds obtained by it in order to maintain any such Loans. Section 4.9. ILLEGALITY; INABILITY TO DETERMINE EURODOLLAR RATE. Notwithstanding any other provision of this Credit Agreement, if (a) the introduction of, any change in, or any change in the interpretation of, any law or regulation applicable to the Agent or any Bank shall make it unlawful, or any central bank or other governmental authority having jurisdiction thereof shall assert that it is unlawful, for any Bank or the Agent to perform its obligations in respect of any Eurodollar Loans, or (b) if any Bank or the Agent shall reasonably determine with respect to Eurodollar Loans that (i) by reason of circumstances affecting any Eurodollar interbank market, adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate which would otherwise be 33 -27- applicable during any Interest Period, or (ii) deposits of Dollars in the relevant amount for the relevant Interest Period are not available to such Bank or the Agent in any Eurodollar interbank market, or (iii) the Eurodollar Rate does not or will not accurately reflect the cost to such Bank or the Agent of obtaining or maintaining the applicable Eurodollar Loans during any Interest Period, then such Bank or the Agent shall promptly give telephonic, telex or cable notice of such determination to the Borrowers (which notice shall be conclusive and binding upon the Borrowers). Upon such notification by such Bank or the Agent, the obligation of such Bank or the Agent to make Eurodollar Loans shall be suspended until such Bank or the Agent determines that such circumstances no longer exist, and the outstanding Eurodollar Loans shall continue to bear interest at the applicable rate based on the Eurodollar Rate until the end of the applicable Interest Period, and thereafter shall be deemed converted to Base Rate Loans in equal principal amounts. Section 4.10. ADDITIONAL COSTS, ETC. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall impose on any Bank any tax, levy, impost, duty, charge fees, deduction or withholdings of any nature or requirements with respect to this Credit Agreement, the other Loan Documents, the Loans, such Bank's Commitment, the Letters of Credit or any class of loans or commitments or letters of credit of which any of the Loans, the Commitments or the Letters of Credit forms a part, and the result of any of the foregoing is: (i) to increase the cost to such Bank of making, funding, issuing, renewing, extending or maintaining the Loans, such Bank's Commitment, or the Letters of Credit; or (ii) to reduce the amount of principal, interest or other amount payable to such Bank hereunder on account of such Bank's Commitment, the Loans, or drawings under the Letters of Credit, or (iii) to require such Bank to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank from the Borrowers hereunder, then, and in each such case, the Borrowers will, upon demand made by such Bank at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank such additional amounts as will be sufficient to compensate such Bank for such additional cost, reduction, payment or foregone interest or other sum (after such 34 -28- Bank shall have allocated the same fairly and equitably among all customers of any class generally affected thereby). Section 4.11. REPLACEMENT OF BANKS. If any Bank (an "Affected Bank") (i) makes demand upon the Borrowers for (or if the Borrowers are otherwise required to pay) amounts pursuant to Sections 4.4 or 4.10 or (ii) is unable to make or maintain Eurodollar Loans as a result of a condition described in Section 4.9, the Borrowers may, within 90 days of receipt of such demand or notice (or the occurrence of such other event causing the Borrowers to be required to pay such compensation or causing Section 4.9 to be applicable), by notice in writing to the Agent and such Affected Bank (a "Replacement Notice") (A) request the Affected Bank to cooperate with the Borrowers in obtaining a replacement bank satisfactory to the Agent and the Borrowers (the "Replacement Bank"); (B) request the non-Affected Banks to acquire and assume all of the Affected Bank's Loans and Commitment, as provided herein, but none of such Banks shall be under an obligation to do so; or (C) designate a Replacement Bank reasonably satisfactory to the Agent. If any satisfactory Replacement Bank shall be obtained, and/or any of the non-Affected Banks shall agree to acquire and assume all of the Affected Bank's Loans and Commitment, then such Affected Bank shall, so long as no Event of Default shall have occurred and be continuing, assign, in accordance with Section 17, all of its Commitment, Loans, Notes and other rights and obligations under this Credit Agreement and all other Loan Documents to such Replacement Bank or non-Affected Banks, as the case may be, in exchange for payment of the principal amount so assigned and all interest and fees accrued on the amount so assigned, plus all other Obligations then due and payable to the Affected Bank; provided, however, that (i) such assignment shall be without recourse, representation or warranty and shall be on terms and conditions reasonably satisfactory to such Affected Bank and such Replacement Bank and/or non-Affected Banks, as the case may be, and (ii) prior to any such assignment, the Borrowers shall have paid to such Affected Bank all amounts properly demanded and unreimbursed under Sections 4.4, 4.8, 4.9 and 4.10. Upon the effective date of such assignment, the Borrowers shall issue replacement Notes to such Replacement Bank and/or non-Affected Banks, as the case may be, and such institution shall become a "Bank" for all purposes under this Credit Agreement and the other Loan Documents. Section 4.12. CONCERNING JOINT AND SEVERAL LIABILITY OF THE BORROWERS. (a) Each of the Borrowers is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Banks under this Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of each other Borrower to accept joint and several liability for the Obligations. (b) Each of the Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and 35 -29- several liability with the other Borrowers with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this Section 4.12), it being the intention of the parties hereto that all of the Obligations shall be the joint and several Obligations of each of the Borrowers without preferences or distinction among them. (c) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation. (d) The Obligations of each of the Borrowers under the provisions of this Section 4.12 constitute full recourse Obligations of each of the Borrowers enforceable against each such corporation to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Credit Agreement or any other circumstance whatsoever. (e) Except as otherwise expressly provided in this Credit Agreement, each of the Borrowers hereby waives notice of acceptance of its joint and several liability, notice of any Loans made under this Credit Agreement, notice of any action at any time taken or omitted by the Banks under or in respect of any of the Obligations, and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Credit Agreement. Each of the Borrowers hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Banks at any time or times in respect of any default by any of the Borrowers in the performance or satisfaction of any term, covenant, condition or provision of this Credit Agreement, any and all other indulgences whatsoever by the Banks in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any of the Borrowers. Without limiting the generality of the foregoing, each of the Borrowers assents to any other action or delay in acting or failure to act on the part of the Banks with respect to the failure by any of the Borrowers to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 4.12, afford grounds for terminating, discharging or relieving any of the Borrowers, in whole or in part, from any of its Obligations under this Section 4.12, it being the intention of each of the Borrowers that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of such Borrowers under this Section 4.12 shall not be discharged except by performance and then only to the extent 36 -30- of such performance. The Obligations of each of the Borrowers under this Section 4.12 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, re-construction or similar proceeding with respect to any of the Borrowers or the Banks. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any of the Borrowers or the Banks. (f) The provisions of this Section 4.12 are made for the benefit of the Banks and their successors and assigns, and may be enforced in good faith by them from time to time against any or all of the Borrowers as often as the occasion therefor may arise and without requirement on the part of the Banks first to marshal any of their claims or to exercise any of their rights against any other Borrower or to exhaust any remedies available to them against any other Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 4.12 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by the Banks upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or otherwise, the provisions of this Section 4.12 will forthwith be reinstated in effect, as though such payment had not been made. Section 5. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and severally represent and warrant to the Banks that on and as of the date of this Credit Agreement, each Drawdown Date, and the date of issuance of any Letter of Credit (with any disclosure on a schedule pursuant to this Section 5 applying to all relevant representations and warranties, regardless of whether such schedule is referenced in each relevant representation): Section 5.1. CORPORATE AUTHORITY. (a) INCORPORATION; GOOD STANDING. Each Borrower (i) is a corporation duly organized, validly existing and in good standing or in current status under the laws of its respective state of incorporation, (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction in which its property or business as presently conducted or contemplated makes such qualification necessary except where a failure to be so qualified would not have a material adverse effect on the business, assets or financial condition of such Borrower. (b) AUTHORIZATION. The execution, delivery and performance of the Loan Documents and the transactions contemplated hereby and thereby (i) are within the corporate authority of each Borrower, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any material breach or 37 -31- contravention of any provision of law, statute, rule or regulation to which any Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to any Borrower so as to materially adversely affect the assets, business or any activity of the Borrowers, and (iv) do not conflict with any provision of the corporate charter or bylaws of any Borrower or any agreement or other instrument binding upon them. (c) ENFORCEABILITY. The execution, delivery and performance of the Loan Documents will result in valid and legally binding obligations of the Borrowers enforceable against each in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. Section 5.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by the Borrowers of the Loan Documents and the transactions contemplated hereby and thereby do not require any approval or consent of, or filing with, any governmental agency or authority other than those already obtained. Section 5.3. TITLE TO PROPERTIES; LEASES. The Borrowers own all of the assets reflected in the consolidated balance sheets as at the Interim Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no mortgages, capitalized leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. Section 5.4. FINANCIAL STATEMENTS; SOLVENCY. (a) There has been furnished to the Banks audited consolidated financial statements of the Borrowers dated the Interim Balance Sheet Date. Said financial statements have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of the Borrowers on a consolidated basis, as at the close of business on the date thereof and the results of operations for the period then ended. There are no contingent liabilities of the Borrowers involving material amounts, known to the officers of the Borrowers, which have not been disclosed in said balance sheets and the related notes thereto or otherwise in writing to the Banks. (b) The Borrowers on a consolidated basis (both before and after giving effect to the transactions contemplated by this Credit Agreement) are and will be solvent (i.e., they have assets having a fair value in excess of the amount required to pay their probable liabilities on their existing debts as they become absolute and 38 -32- matured) and have, and expect to have, the ability to pay their debts from time to time incurred in connection therewith as such debts mature. Section 5.5. NO MATERIAL CHANGES, ETC. Since the Interim Balance Sheet Date, there have occurred no material adverse changes in the financial condition or businesses of the Borrowers, taken as a whole, as shown on or reflected in the consolidated balance sheet of the Borrowers as of the Interim Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended. Since the Interim Balance Sheet Date, there have not been any Distributions other than as permitted by Section 7.6 hereof. Section 5.6. PERMITS, FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each Borrower possess all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of their businesses substantially as now conducted without known conflict with any rights of others. Section 5.7. LITIGATION. Except as shown on Schedules 5.7 and 5.16 hereto, there are no actions, suits, proceedings or investigations of any kind pending or, to the knowledge of any Borrower, threatened against any Borrower before any court, tribunal or administrative agency or board which, if adversely determined, might, either in any individual case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrowers, taken as a whole, or materially impair the right of the Borrowers, taken as a whole, to carry on business substantially as now conducted, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet or which question the validity of any of the Loan Documents or any action taken or to be taken pursuant hereto or thereto. Section 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. No Borrower is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Borrowers' officers has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrowers, taken as a whole. No Borrower is a party to any contract or agreement which in the judgment of the Borrowers' officers has or is expected to have any materially adverse effect on the business of the Borrowers, taken as a whole, except as otherwise reflected in adequate reserves. Section 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. No Borrower is violating any provision of its charter documents or by-laws or any agreement or instrument by which any of them may be subject or by which any of them or any of their properties may be bound or any decree, order, judgment, or any statute, license, rule or regulation, in a manner which could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of any Borrower. All Material Contracts (a complete and accurate list of 39 -33- which is attached hereto as Schedule 5.9) are in full force and effect, and no default or event of default has occurred and is continuing under any Material Contract. Section 5.10. TAX STATUS. Each Borrower has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject (unless and only to the extent that such Borrower has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes); and have paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith; and have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrowers know of no basis for any such claim. Section 5.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing as of the date of this Credit Agreement. Section 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. No Borrower is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935; nor is any of them a "registered investment company," or an "affiliated company" or a "principal underwriter" of a "registered investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Section 5.13. ABSENCE OF FINANCING STATEMENTS, ETC. Other than Permitted Liens and the liens of Imperial Bank and BFI to be discharged in accordance with the payoff letters under Section 9.10, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, which purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of any Borrower, or any rights relating thereto. Section 5.14. EMPLOYEE BENEFIT PLANS. (a) Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by Section 412 of ERISA. Each Borrower has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement 40 -34- required to be submitted under Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan. (b) No Employee Benefit Plan, which is an employee welfare benefit plan within the meaning of Section 3(1) or Section 3(2)(B) of ERISA, provides benefit coverage subsequent to termination of employment, except as required by Title I, Part 6 of ERISA or the applicable state insurance laws. A Borrower may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of such Borrower without liability to any Person other than for claims arising prior to termination. (c) Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and no Borrower nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment to a Guaranteed Pension Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by any Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event (other than an ERISA Reportable Event as to which the requirement of 30 days notice has been waived), or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of Section 4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. (d) No Borrower nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of assets described in Section 4204 of ERISA. No Borrower nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA or is at risk of entering reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate or has been terminated under Section 4041A of ERISA. Section 5.15. USE OF PROCEEDS. Section 5.15.1. GENERAL. The proceeds of the Loans shall be used solely as follows: (a) to repay existing Indebtedness of the Borrowers; (b) to finance 41 -35- acquisitions permitted pursuant to Section 7.4; and (c) for capital expenditures, working capital, and general corporate purposes. Section 5.15.2. REGULATIONS U AND X. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. Section 5.15.3. INELIGIBLE SECURITIES. No portion of the proceeds of any Loans is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrowers or other Affiliate of the Borrowers. Section 5.16. ENVIRONMENTAL COMPLIANCE. Each Borrower has investigated the past and present condition and usage of the Real Property and the operations conducted thereon and, based upon such diligent investigation, has determined that, except as shown on Schedule 5.16: (a) No Borrower, nor any operator of the Borrowers' properties, is in violation, or alleged violation, of any judgment, decree, order, law, permit, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under RCRA, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (the "Environmental Laws"), which violation would have a material adverse effect on the business, assets or financial condition of the Borrowers on a consolidated basis. (b) No Borrower has received notice from any third party, including, without limitation: any federal, state or local governmental authority, (i) that any of the Borrowers has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substance, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous 42 -36- Substances") which any of the Borrowers has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that any Borrower conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, legal or administrative proceeding arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances. (c) Except where it would not have a material adverse effect on the value of the Real Property, (i) no portion of the Real Property has been used for the handling, processing, storage or disposal of Hazardous Substances; and no underground tank or other underground storage receptacle for Hazardous Substances is located on such properties; (ii) in the course of any activities conducted by the Borrowers, or operators of the Real Property, no Hazardous Substances have been generated or are being used on such properties; (iii) there have been no unpermitted Releases or threatened Releases of Hazardous Substances on, upon, into or from the Real Property; (iv) to the best of the Borrowers' knowledge, there have been no Releases on, upon, from or into any real property in the vicinity of the Real Property which, through soil or groundwater contamination, may have come to be located on such properties; and (v) in addition, when required under applicable Environmental Laws, any Hazardous Substances that have been generated on the Real Property have been transported offsite only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities, to the best of the Borrowers' knowledge, have been and are operating in material compliance with such permits and applicable Environmental Laws. (d) None of the Real Property is or shall be subject to any applicable environmental clean-up responsibility law or environmental restrictive transfer law or regulation, by virtue of the transactions set forth herein and contemplated hereby. Section 5.17. PERFECTION OF SECURITY INTERESTS. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary or advisable under applicable law to establish and perfect the Agent's security interest in the Collateral. The Collateral and the Agent's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. Section 5.18. TRANSACTIONS WITH AFFILIATES. Except as disclosed in Schedule 5.18 or filings made by the Borrowers under the Securities Exchange Act of 1934 prior to the Closing Date, and except for arm's length transactions pursuant to which a Borrower makes payments in the ordinary course of business upon terms no less favorable than such Borrower could obtain from third parties, none of the officers, directors, or employees of any Borrower is presently a party to any transaction with another 43 -37- Borrower (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of any Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. Section 5.19. SUBSIDIARIES. Schedule 2 sets forth a complete and accurate list of the Subsidiaries of the Parent, including the name of each Subsidiary, the location of its chief executive office, and its jurisdiction of incorporation, together with the number of authorized and outstanding shares of each Subsidiary. Each Subsidiary listed on Schedule 2 is (a) wholly owned by the Parent (other than W.C. International, which is wholly-owned by W.C. of Washington) and (b) is a Borrower hereunder, 100% of the assets and stock of which have been pledged to the Agent on behalf of the Banks pursuant to the Security Documents. The Parent has good and marketable title to all of the shares it purports to own of the stock of each such Subsidiary, and W.C. of Washington has good and marketable title to all of the shares it purports to own of the stock of W.C. International, free and clear in each case of any lien. All such shares have been duly issued and are fully paid and non-assessable. Section 5.20. TRUE COPIES OF CHARTER AND OTHER DOCUMENTS. Each Borrower has furnished the Agent copies, in each case true and complete as of the Closing Date, of its (a) charter and other incorporation documents and (b) by-laws, each including any amendments thereto. Section 5.21. DISCLOSURE. Neither this Credit Agreement, nor any of the other Loan Documents, nor any document or information furnished by the Borrowers in connection therewith contains any untrue statement of a material fact or omits to state a material fact (known to any Borrower in the case of any document or information not furnished by the Borrowers) necessary in order to make the statements herein or therein not misleading. There is no fact known to any Borrower which materially adversely affects, or which is reasonably likely in the future to materially adversely affect, the business, assets, or financial condition of any Borrower, exclusive of effects resulting from changes in general economic conditions, legal standards or regulatory conditions. Section 5.22. CAPITALIZATION. (a) As of the Closing Date, the authorized capital stock of the Parent consists of 15,000,000 shares of common stock (par value $0.01) per share) of which 2,300,000 shares were outstanding as of the Closing Date and 10,000,000 shares of preferred stock (par value $0.01) of which 2,499,998 shares were outstanding as of the Closing Date. All of such outstanding shares are fully paid and non-assessable. In addition, as of the Closing Date, the Board of Directors of the Parent has duly 44 -38- reserved 1,451,000 shares of the Parent's common stock for issuance pursuant to outstanding warrants, and has reserved 819,000 shares of the Parent's common stock for issuance upon the exercise of employee stock options. (b) The shares of the capital stock of the Subsidiaries pledged to the Agent pursuant to the Stock Pledge Agreements are held of record as set forth on the respective Annex A to each Stock Pledge Agreement. Such capital stock constitutes, of record, 100% of the outstanding capital stock of each such Subsidiary, and, to our knowledge, on a fully-diluted basis, 100% of such outstanding capital stock. Section 5.23. YEAR 2000 PROBLEM. The Borrowers have reviewed the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the Year 2000 Problem. Based on such review and program, the Year 2000 Problem will not have a material adverse effect on their business and operations. Section 6. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers jointly and severally covenant and agree that, so long as any Loan or Note is outstanding or the Banks have any obligation to make Loans or the Agent has any obligation to issue, extend, or renew any Letters of Credit hereunder: Section 6.1. PUNCTUAL PAYMENT. The Borrowers will duly and punctually pay or cause to be paid the principal and interest on the Loans, all Reimbursement Obligations, fees and other amounts provided for in this Credit Agreement and the other Loan Documents, all in accordance with the terms of this Credit Agreement and such other Loan Documents. Section 6.2. MAINTENANCE OF OFFICES. The Parent will maintain its chief executive offices at 2260 Douglas Boulevard, Suite 280, Roseville, California 95661, and each Subsidiary will maintain its chief executive offices at the location set forth on Schedule 2, or at such other place in the United States as the Borrowers shall designate upon 30 days' prior written notice to the Agent. Section 6.3. RECORDS AND ACCOUNTS. Each Borrower will (i) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties, contingencies, and other reserves, and (iii) at all times engage the Accountants as the independent certified public accountants of the Borrowers. Section 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrowers will deliver to the Banks: 45 -39- (a) as soon as practicable, but, in any event not later than 90 days after the end of each fiscal year of the Borrowers, the consolidated and consolidating balance sheets of the Borrowers as at the end of such year, statements of cash flows, and the related consolidated and consolidating statements of operations, each setting forth in comparative form the figures for the previous fiscal year, all such consolidated and consolidating financial statements to be in reasonable detail, prepared in accordance with GAAP and, with respect to the consolidated financial statements, certified by the Accountants. In addition, simultaneously therewith, the Borrowers shall use reasonable efforts to provide the Banks with a written statement from the Accountants to the effect that the Borrowers are in compliance with the covenants set forth in Section 8 hereof, and that, in making the examination necessary to said certification, nothing has come to the attention of the Accountants that would indicate that any Default or Event of Default exists, or, if the Accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that the Accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than 45 days after the end of each fiscal quarter of the Borrowers, copies of the consolidated and consolidating balance sheets and statement of operations of the Borrowers as at the end of such quarter, subject to year end adjustments, and the related statement of cash flows, all in reasonable detail and prepared in accordance with GAAP, with a certification by the principal financial or accounting officer of the Borrowers (the "CFO") that the consolidated financial statements are prepared in accordance with GAAP and fairly present the consolidated financial condition of the Borrowers as at the close of business on the date thereof and the results of operations for the period then ended; (c) as soon as practicable, but in any event within thirty (30) days after the end of each month in each fiscal year of the Borrowers, unaudited monthly consolidated and consolidating financial statements of the Borrowers for such month, prepared in accordance with GAAP, with a certification by the CFO that the information contained in such financial statements fairly presents the financial condition of the Borrowers on the date thereof (subject to year-end adjustments); (d) simultaneously with the delivery of the financial statements referred to in (a) and (b) above, a statement in the form of Exhibit C hereto (the "Compliance Certificate") certified by the CFO that the Borrowers are in compliance with the covenants contained in Sections 6, 7 and 8 hereof as of the end of the applicable period setting forth in reasonable detail computations evidencing such compliance, provided that if the Borrowers shall at the time of issuance of such certificate or at any other time obtain knowledge of any Default or Event of Default, the Borrowers shall include in such certificate or otherwise deliver forthwith to the Banks a certificate 46 -40- specifying the nature and period of existence thereof and what action the Borrowers propose to take with respect thereto and a certificate of the Borrowers' Chief Operating Officer in the form attached hereto as Exhibit D with respect to environmental matters; (e) contemporaneously with or promptly following the delivery thereof to the boards of directors of the Borrowers, copies of the financial statements, financial projections, annual budget, variance reports and business plan concerning the Borrowers in substantially the same form in which such information is supplied to the boards of directors of the Borrowers; (f) contemporaneously with, or promptly following, the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrowers; and (g) from time to time, such other financial data and other information (including accountants' management letters) as the Banks may reasonably request. The Borrowers hereby authorize the Banks to disclose any information obtained pursuant to this Credit Agreement to all appropriate governmental regulatory authorities where required by law; provided, however, that this authorization shall not be deemed to be a waiver of any rights to object to the disclosure by the Banks of any such information which the Borrowers have or may have under the federal Right to Financial Privacy Act of 1978, as in effect from time to time. Section 6.5. CORPORATE EXISTENCE AND CONDUCT OF BUSINESS. Each Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, corporate rights and franchises; effect and maintain its foreign qualifications, licensing, domestication or authorization except as terminated by such Borrower's Board of Directors in the exercise of its reasonable judgment and except where the failure of a Borrower to remain so qualified would not materially adversely impair the financial condition of the Borrowers on a consolidated basis; use its best efforts to comply with all applicable laws; and shall not become obligated under any contract or binding arrangement which, at the time it was entered into would materially adversely impair the financial condition of the Borrowers on a consolidated basis. Each Borrower will continue to engage primarily in the businesses now conducted by it and in related businesses. Section 6.6. MAINTENANCE OF PROPERTIES. The Borrowers will cause all material properties used or useful in the conduct of their businesses to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrowers may be necessary so that the businesses carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this 47 -41- section shall prevent the Borrowers from discontinuing the operation and maintenance of any of their properties if such discontinuance is, in the judgment of the Borrowers, desirable in the conduct of their business and which does not in the aggregate materially adversely affect the businesses of the Borrowers on a consolidated basis. Section 6.7. INSURANCE. The Borrowers will maintain with financially sound and reputable insurance companies, funds or underwriters' insurance of the kinds, covering the risks (other than risks arising out of or in any way connected with personal liability of any officers and directors thereof) and in the relative proportionate amounts usually carried by reasonable and prudent companies conducting businesses similar to that of the Borrowers, but in no event less than that required under Section 7 of the Security Agreement. In addition, the Borrowers will furnish from time to time, upon the Agent's request, a summary of the insurance coverage of each of the Borrowers, which summary shall be in form and substance satisfactory to the Agent and, if requested by the Agent, will furnish to the Agent copies of the applicable policies. Section 6.8. TAXES. The Borrowers will duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions which in the aggregate are not material to the business or assets of any Borrower on an individual basis or of the Borrowers on a consolidated basis) imposed upon it and its real properties, sales and activities, or any material part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies, which if unpaid might by law become a lien or charge upon any material portion of its property, unless such lien is a Permitted Lien; provided, however, that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if such Borrower shall have set aside on its books adequate reserves with respect thereto; and provided, further, that the Borrowers will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. Section 6.9. INSPECTION OF PROPERTIES, BOOKS, AND CONTRACTS. The Borrowers will permit the Banks, the Agent or any of their designated representatives, upon reasonable notice and during normal business hours, to visit and inspect any of their properties, to examine their books of account (including the making of periodic accounts receivable reviews), or contracts (and to make copies thereof and extracts therefrom), and to discuss their affairs, finances and accounts with, and to be advised as to the same by, their officers, all at such times and intervals as the Banks may reasonably request. Section 6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS; MAINTENANCE OF MATERIAL LICENSES AND PERMITS. The Borrowers will (i) comply 48 -42- with the provisions of their charter documents and by-laws and all agreements and instruments by which they or any of their properties may be bound; and (ii) comply with all applicable laws and regulations (including Environmental Laws), decrees, orders, judgments, licenses and permits, including, without limitation, all environmental permits hereto ("Applicable Laws"), except where noncompliance with such Applicable Laws would not have a material adverse effect in the aggregate on the consolidated financial condition, properties or businesses of the Borrowers. If at any time while the Notes, or any Loan or Letter of Credit is outstanding or any Bank or the Agent has any obligation to make Loans or issue Letters of Credit hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrowers may fulfill any of their obligations hereunder, the Borrowers will immediately take or cause to be taken all reasonable steps within the power of the Borrowers to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. Section 6.11. ENVIRONMENTAL INDEMNIFICATION. Each Borrower covenants and agrees that it will indemnify and hold the Banks harmless from and against any and all claims, expense, damage, loss or liability incurred by the Banks (including all costs of legal representation incurred by the Banks) relating to (a) any release or threatened release of hazardous substances on the Real Property; (b) any violation of any Environmental Laws with respect to conditions at the Real Property or the operations conducted thereon; or (c) the investigation or remediation of offsite locations at which any Borrower or its predecessors are alleged to have directly or indirectly disposed of hazardous substances. It is expressly acknowledged by each Borrower that this covenant of indemnification shall include claims, expense, damage, loss or liability incurred by the Banks based upon the Banks' negligence, and this covenant shall survive any foreclosure or any modification, release or discharge of the Loan Documents or the payment of the Loans and shall inure to the benefit of the Banks, their successors and assigns. Section 6.12. FURTHER ASSURANCES. The Borrowers will cooperate with the Banks and execute such further instruments and documents as the Banks shall reasonably request to carry out to the Banks' satisfaction the transactions contemplated by this Credit Agreement and the Loan Documents. Section 6.13. NOTICE OF POTENTIAL CLAIMS OR LITIGATION. The Borrowers will deliver to the Banks, within 30 days of receipt thereof, written notice of the initiation of any action, claim, complaint, or any other notice of dispute or potential litigation (including without limitation any alleged violation of any Environmental Law), wherein the potential liability is in excess of $150,000, together with a copy of each such notice received by any Borrower. 49 -43- Section 6.14. NOTICE OF CERTAIN EVENTS CONCERNING INSURANCE AND ENVIRONMENTAL CLAIMS. (a) The Borrowers will provide the Banks with written notice as to any material cancellation or material change in any insurance of the Borrowers within ten (10) Business Days after the Borrowers' receipt of any notice (whether formal or informal) of such cancellation or change by any of their insurers. (b) The Borrowers will promptly notify the Banks in writing of any of the following events: (i) upon any Borrower obtaining knowledge of any violation of any Environmental Law regarding the Real Property or any Borrower's operations, which violation could have a material adverse effect on the Real Property or on such Borrower's operations; (ii) upon any Borrower obtaining knowledge of any potential or known Release or threat of Release of any Hazardous Substance at, from, or into the Real Property which any Borrower reports in writing or is reportable by it in writing to any governmental authority and which is material in amount or nature or which could materially affect the value of the Real Property; (iii) upon any Borrower's receipt of any notice of violation of any Environmental Laws or of any Release or threatened Release of Hazardous Substances, including a notice or claim of liability or potential responsibility from any third party (including without limitation any federal, state or local governmental officials) and including notice of any formal inquiry, proceeding, demand, investigation or other action with regard to (A) any Borrower's or any Person's operation of the Real Property, (B) contamination on, from or into the Real Property, or (C) investigation or remediation of offsite locations at which any Borrower or any of its predecessors is alleged to have directly or indirectly Disposed of Hazardous Substances, which violation or Release in any such case could have a material adverse effect on the Real Property or on any Borrower's operations; or (iv) upon any Borrower obtaining knowledge that any material expense or loss has been incurred by such governmental authority in connection with the assessment, containment, removal or remediation of any Hazardous Substances with respect to which any Borrower may be liable or for which a lien may be imposed on the Real Property. Section 6.15. RESPONSE ACTIONS. The Borrowers covenant and agree that if any Release or Disposal of Hazardous Substances shall occur or shall have occurred on the Real Property, the Borrowers will cause the prompt containment and removal of such Hazardous Substances and remediation of the Real Property as necessary to comply with all Environmental Laws or to preserve the value of the Real Property. Section 6.16. ENVIRONMENTAL ASSESSMENTS. If the Banks in their good faith judgment, after discussion with the Borrowers, have reason to believe that the environmental condition of the Real Property has deteriorated, after reasonable notice by the Banks, whether or not an Event of Default shall have occurred, the Banks may, 50 -44- from time to time, for the purpose of assessing and ensuring the value of the Real Property, obtain one or more environmental assessments or audits of the Real Property prepared by a hydrogeologist, an independent engineer or other qualified consultant or expert approved by the Banks to evaluate or confirm (i) whether Hazardous Substances are present in the soil or water at the Real Property in material amounts and (ii) whether the use and operation of the Real Property is in material compliance with all Environmental Laws. Environmental assessments may include without limitation detailed visual inspections of the Real Property including, without limitation, any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil samples, surface water samples and ground water samples, as well as such other investigations or analyses as the Banks deem appropriate. All such environmental assessments shall be at the sole cost and expense of the Borrowers. Section 6.17. NOTICE OF DEFAULT. The Borrowers will promptly notify the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of Indebtedness, indenture or other obligation evidencing Indebtedness in excess of $250,000 as to which any Borrower is a party or obligor, whether as principal or surety, the Borrowers shall forthwith give written notice thereof to the Banks, describing the notice of action and the nature of the claimed default. Section 6.18. NEW SUBSIDIARIES. (a) Any newly-created or acquired Subsidiaries permitted under Section 7.4 shall become Borrowers hereunder by (i) signing a joinder agreement in form and substance satisfactory to the Agent, (ii) entering into an amendment to this Credit Agreement and the Security Documents, as applicable, with the other parties hereto and thereto providing that such Subsidiary shall become a Borrower hereunder, 100% of the stock and assets of which shall be pledged to the Agent for the benefit of the Banks, and (iii) providing such other documentation as the Banks or the Agent may reasonably request, including, without limitation, documentation with respect to the conditions specified in Section 9 hereof. In such event, the Agent is hereby authorized by the parties to amend Schedule 2 to include such new Subsidiary. (b) The Parent shall at all times directly or indirectly through a Subsidiary own all of the shares of capital stock of each of the Subsidiaries which are corporations, and such shares shall at all times be pledged to the Agent pursuant to the Stock Pledge Agreements. The Parent shall at all times directly or indirectly through a Subsidiary own all of the partnership or joint venture interests in each of the Subsidiaries which are partnerships or joint ventures, and such interests shall at all times be pledged to the Agent pursuant to a partnership pledge agreement in form and substance satisfactory to the Agent. 51 -45- Section 6.19. EMPLOYEE BENEFIT PLANS. The Borrowers will (i) promptly upon filing the same with the Department of Labor or Internal Revenue Service, upon request of the Agent, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under Section 103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA. Section 6.20. NOTICE OF LOSS OF MATERIAL CONTRACTS. The Borrowers will promptly (and in any event within fifteen (15) Business Days after the occurrence thereof) notify the Banks in writing of the termination, or (if earlier) the receipt of a notice of termination of, or any default by any Borrower under, any Material Contract. Section 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. Each Borrower agrees that, so long as any Loan or any Note or other Obligation is outstanding or the Banks have any obligation to make Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit hereunder: Section 7.1. RESTRICTIONS ON INDEBTEDNESS. No Borrower shall become or be a guarantor or surety of, or otherwise create, incur, assume, or be or remain liable, contingently or otherwise, with respect to any Indebtedness, or become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services or otherwise) with respect to any undertaking or Indebtedness of any other Person, or incur any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under this Credit Agreement or the Loan Documents; (b) incurrence of guaranty, suretyship or indemnification obligations in connection with the Borrowers' performance of services for their respective customers in the ordinary course of their businesses; (c) Indebtedness of one Borrower to another Borrower; (d) Subject to Section 8.6, Indebtedness of the Borrowers with respect to equipment leases or equipment chattel mortgages, including any such Indebtedness assumed in connection with an acquisition permitted under Section 7.4, in an aggregate amount not to exceed $250,000 at any time outstanding; (e) Indebtedness of the Borrowers, including assumed obligations, incurred in connection with acquisitions after the date hereof of any stocks of, partnership or joint venture interests in, or assets of any Person and owing to the seller(s) of such 52 -46- stocks, partnership or joint venture interests, or assets; provided that such acquisitions are otherwise permitted pursuant to Section 7.4 and the principal amount of any such Indebtedness shall not exceed $250,000 in the aggregate (excluding Indebtedness of acquired companies which is discharged within 30 days of such acquisition); (f) Indebtedness of the Borrowers with respect to performance bonds existing as of the Closing Date, including extensions and renewals thereof, in an aggregate amount not to exceed $500,000. Section 7.2. RESTRICTIONS ON LIENS. No Borrower shall create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any property or assets of any character, whether now owned or hereafter acquired, or upon the income or profits therefrom; or transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; or acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; or suffer to exist for a period of more than 30 days after the same shall have been incurred any Indebtedness or claim or demand against it which if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles or chattel paper, with or without recourse, except as follows (the "Permitted Liens"): (a) Liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (b) Deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (c) Liens in respect of judgments or awards which have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the applicable Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review and in respect of which such Borrower maintains adequate reserves; (d) Liens of carriers, warehousemen, mechanics and materialmen, and other like liens, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue, provided that such liens may continue to exist for a period of more than 120 days if the validity or amount thereof shall currently be contested by the applicable Borrower in good faith by appropriate proceedings and if such 53 -47- Borrower shall have set aside on its books adequate reserves with respect thereto as required by GAAP and provided further that such Borrower will pay any such claim forthwith upon commencement of proceedings to foreclose any such lien; (e) Encumbrances on Real Property consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which any Borrower is a party, and other minor liens or encumbrances none of which in the opinion of such Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of such Borrower, which defects do not individually or in the aggregate have a material adverse effect on the business of such Borrower individually or of the Borrowers on a consolidated basis; (f) Liens existing as of the date hereof and listed on Schedule 7.2 on the terms and conditions in effect as of the date hereof; (g) Liens securing Indebtedness permitted under Section 7.1(d) incurred in connection with the lease or acquisition of property or fixed assets useful or intended to be used in carrying on the business of the Borrowers, provided that such Liens shall encumber only the property or assets so acquired and shall not exceed the fair market value thereof; (h) Liens securing Indebtedness permitted by Section 7.1(e); (i) Liens in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents. Section 7.3. RESTRICTIONS ON INVESTMENTS. No Borrower shall purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or other obligations or securities of, or any interest in, any other Person, or make or commit to make any acquisition under Section 7.4, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any other Person, other than: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks or Eligible Foreign Banks having unimpaired capital and surplus in excess of $250,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for 54 -48- which are not less than "P 1" if rated by Moody's Investors Service, Inc., and not less than "A 1" if rated by Standard and Poor's Rating Group; (d) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (e) investments existing on the date hereof and listed on Schedule 7.3; (f) loans and advances by any Borrower to another Borrower; (g) investments with respect to Indebtedness permitted by Section 7.1(e); (h) investments permitted under Section 7.4; (i) loans to employees of the Parent for the purpose of financing such employees' acquisition of equity of the Parent (through the exercise of stock options or otherwise) in an aggregate principal amount not to exceed $107,000 at any time outstanding. Section 7.4. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS. Section 7.4.1. MERGERS AND ACQUISITIONS. No Borrower will become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices) except the merger or consolidation of two or more Borrowers and except as otherwise provided in this Section 7.4. The Parent may purchase or otherwise acquire all or substantially all of the assets or stock of any class of, or joint venture interest in, any Person provided that: (a) the Borrowers are in current compliance with and, giving effect to the proposed acquisition (including any borrowings made or to be made in connection therewith), will continue to be in compliance with all of the covenants in Section 8 hereof on a pro forma historical combined basis as if the transaction occurred on the first day of the period of measurement, and a Compliance Certificate demonstrating such compliance shall have been provided to the Banks; (b) at the time of such acquisition, no Default or Event of Default has occurred and is continuing, and such acquisition will not otherwise create a Default or an Event of Default hereunder; (c) the business to be acquired is predominantly in the same lines of business as the Borrowers, or businesses reasonably related or incidental thereto; (d) the business to be acquired operates predominantly in the continental United States; 55 -49- (e) all of the assets to be acquired shall be owned by an existing or newly created Subsidiary of the Parent which shall be a Borrower, 100% of the assets and stock of which have been or will be pledged to the Agent on behalf of the Banks or, in the case of a stock acquisition, the acquired company shall become or shall be merged with a wholly-owned Subsidiary that is a Borrower; (f) a copy of the purchase agreement and financial projections, together with audited (if available, or otherwise unaudited) financial statements for any Subsidiary to be acquired or created for the preceding two (2) fiscal years shall have been furnished to the Banks; (g) each acquisition is preceded by the Borrowers' standard due diligence practices, summaries of which shall have been provided to the Banks; (h) each acquisition of a landfill is preceded by a Phase I environmental assessment, and a copy of such report, together with a reliance letter in substantially the form of Exhibit F, shall have been provided to the Banks; (i) the board of directors and (if required by applicable law) the shareholders, or the equivalent thereof, of the business to be acquired has approved such acquisition; (j) if such acquisition is made by a merger, a Borrower shall be the surviving entity; and (k) after giving effect to such acquisition, the cash consideration to be paid by the Parent in connection with such acquisition or series of related acquisitions (including deferred payments and the aggregate amount of all liabilities assumed) shall not exceed, without the consent of the Majority Banks: (I) $1,000,000 if the Leverage Ratio is equal to or greater than 3.00:1 or if such acquisition includes a landfill, (II) $2,000,000 if the Leverage Ratio is less than 3.00:1 and greater than or equal to 2.50:1, or (III) $3,000,000 if the Leverage Ratio is less than 2.50:1. Section 7.4.2. DISPOSITION OF ASSETS. No Borrower will become a party to or agree to or effect any disposition of assets in excess of $100,000 in the aggregate (the "Basket"), provided that the proceeds of any such disposition shall be applied toward repayment of the Revolving Credit Loans. Notwithstanding the foregoing, the sale of inventory, the licensing of intellectual property and the disposition of obsolete assets, in each case in the ordinary course of business consistent with past practices, are permitted hereunder without being charged against the Basket. Section 7.5. SALE AND LEASEBACK. The Borrowers shall not enter into any arrangement, directly or indirectly, whereby any Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property which such Borrower intends to use for substantially the same purpose as the 56 -50- property being sold or transferred, without the prior written consent of the Majority Banks. Section 7.6. RESTRICTED DISTRIBUTIONS AND REDEMPTIONS. The Borrowers shall not make Distributions except as set forth in this Section 7.6. Any Borrower may make Distributions to another Borrower. In addition, no Borrower shall redeem, convert, retire or otherwise acquire shares of any class of its capital stock. Notwithstanding the foregoing, no Borrower shall make any Distribution under this Section 7.6 if a Default or Event of Default exists or would be created by the making of such Distribution. The Borrowers shall not effect or permit any change in or amendment to any document or instrument pertaining to the terms of any Borrower's capital stock. Section 7.7. EMPLOYEE BENEFIT PLANS. No Borrower nor any ERISA Affiliate will: (a) engage in any "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code which could result in a material liability for any Borrower; or (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of any Borrower pursuant to Section 302(f) or Section 4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (within the meaning of Section 4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. Section 7.8. NEGATIVE PLEDGES. No Borrower shall enter into or permit to exist any arrangement or agreement, enforceable under applicable law, which directly or indirectly prohibits such Borrower from creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents other than customary anti-assignment provisions in leases and licensing agreements entered into by such Borrower in the ordinary course of its business 57 -51- Section 7.9. BUSINESS ACTIVITIES. No Borrower will engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by such Borrower on the Closing Date and in related businesses. Section 7.10. TRANSACTIONS WITH AFFILIATES. No Borrower will engage in any transaction with any Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. Section 8. FINANCIAL COVENANTS. The Borrowers covenant and agree that, so long as any Loan, any Note, or any Reimbursement Obligation is outstanding or the Banks have any obligation to make Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit hereunder: Section 8.1. LEVERAGE RATIO. As of the end of any fiscal quarter of the Borrowers commencing with the fiscal quarter ending September 30, 1998, the ratio of (a) Funded Debt as at the end of such quarter to (b) EBITDA for the period of four (4) consecutive fiscal quarters ending on such date shall not exceed 3.50:1. For the fiscal quarter ending (i) December 31, 1997, the denominator of such ratio shall be EBITDA for such quarter multiplied by four (4), (ii) March 31, 1998, the denominator of such ratio shall be EBITDA for the period of two consecutive fiscal quarters ending on such date multiplied by two (2), and (iii) June 30, 1998, the denominator of such ratio shall be EBITDA for the period of three consecutive fiscal quarters ending on such date multiplied by 1.33. Section 8.2. FUNDED DEBT TO CAPITALIZATION RATIO. The Borrowers shall not at any time permit the ratio of (a) Funded Debt to (b) the sum of Funded Debt plus Consolidated Net Worth to exceed 65%. Section 8.3. INTEREST COVERAGE RATIO. As of the end of any fiscal quarter of the Borrowers, the ratio of (a) EBIT to (b) Consolidated Total Interest Expense shall not be less than 2.25:1 (i) for the fiscal quarter ending on December 31, 1997, (ii) for the period of two (2) consecutive fiscal quarters ending on March 31, 1998, (iii) for the period of three (3) consecutive fiscal quarters ending on June 30, 1998, and (iv) for the period of four (4) consecutive fiscal quarters ending thereafter. Section 8.4. PROFITABLE OPERATIONS. The Borrowers will not permit Consolidated Net Income to be less than $1.00 for any fiscal quarter, provided that Consolidated Net Income for the fiscal quarters ending December 31, 1997 and March 31, 1998 may exclude (a) start-up or organizational expenses taken as a special charge of up to 58 -52- $400,000 (pre-tax) in the aggregate, (b) non-cash charges for interest expense attributable to loan fees paid, and warrants issued to, Imperial Bank in connection with the Imperial Credit Agreement of up to $650,000 in the aggregate, and (c) non-cash stock compensation charges of up to $3,500,000 in the aggregate. Section 8.5. CONSOLIDATED NET WORTH. The Borrowers will not permit Consolidated Net Worth at any time to be less than (i) $6,750,000 from the Closing Date to March 31, 1998 or (ii) thereafter, $6,750,000 plus the sum of (A) 100% of positive Consolidated Net Income for each fiscal quarter on a cumulative basis, beginning with the fiscal quarter ended March 31, 1998, and (B) 100% of the proceeds of any sale by the Borrowers of equity securities issued by the Borrowers or warrants or subscription rights for equity securities issued by the Borrowers. Section 8.6. CAPITAL EXPENDITURES. The Borrowers will not make Capital Expenditures in any fiscal year that exceed $1,000,000 in the aggregate; provided, however, that, if during any fiscal year the amount of Capital Expenditures permitted for that fiscal year is not so utilized, such unutilized amount may be utilized in the next succeeding fiscal year but not in any subsequent fiscal year. Section 9. CLOSING CONDITIONS. The obligations of the Banks to make the Loans and the Agent to issue Letters of Credit on the Closing Date and otherwise be bound by the terms of this Credit Agreement shall be subject to the satisfaction of each of the following conditions precedent: Section 9.1. CORPORATE ACTION. All corporate action necessary for the valid execution, delivery and performance by the Borrowers of the Loan Documents shall have been duly and effectively taken, and satisfactory evidence thereof shall have been provided to the Agent. Section 9.2. LOAN DOCUMENTS, ETC. Each of the Loan Documents shall have been duly and properly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect in a form satisfactory to the Banks. Section 9.3. CERTIFICATE OF SECRETARY; GOOD STANDING CERTIFICATES. The Agent shall have received from each Borrower a certificate as to the good standing of each from the Secretary of State or other appropriate official of the state of its organization, dated as of a recent date. The Agent shall also have received from each Borrower a certificate of its Secretary certifying the following attachments thereto: (a) a copy of its certificate or articles of incorporation or constitutive documents, in each case as amended to date, certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization, (b) a true and correct copy of its by-laws, including all amendments thereto, (c) a true and correct copy of the resolutions of its board of directors authorizing the transactions contemplated hereunder and under the other Loan Documents. Such Secretary's Certificate shall also give the name and bear a specimen signature of each individual who shall be 59 -53- authorized (i) to sign the Loan Documents on behalf of the Borrowers; (ii) to make Loan and Letter of Credit Requests; and (iii) to give notices and to take other action on the Borrowers' behalf under the Loan Documents. Section 9.4. VALIDITY OF LIENS. The Security Documents shall be effective to create in favor of the Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and lien upon the Collateral. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected. The Agent shall have received evidence thereof in form and substance satisfactory to the Agent. Section 9.5. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent shall have received from each Borrower a completed and fully executed Perfection Certificate and the results of UCC searches with respect to the Collateral, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. Section 9.6. CERTIFICATES OF INSURANCE. The Agent shall have received a certificate of insurance signed by the insurer or an agent authorized to bind the insurer dated as of the Closing Date, or within 15 days prior thereto, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the Borrowers' insurance coverage. Section 9.7. LEGAL OPINIONS. The Agent shall have received a favorable legal opinion from counsel to the Borrowers, addressed to the Agent and each Bank, dated as of the Closing Date, in form and substance satisfactory to the Agent, including but not limited to an opinion regarding the Borrowers' Material Contracts. Section 9.8. ENVIRONMENTAL PERMIT CERTIFICATE. The Banks shall have received an environmental permit certificate from the Borrowers satisfactory to the Agent concerning principal operating permits at the Borrowers' principal operating facilities. Section 9.9. PAYMENT OF FEES. The Borrowers shall have paid any fees owing to any of the Banks. Section 9.10. PAYOFF LETTERS. The Agent shall have received payoff letters from (a) Imperial Bank with respect to the Imperial Credit Agreement and (b) BFI with respect to the BFI Notes, each indicating the amount of the loan obligations of the Borrowers under such agreement or instrument to be discharged on the Closing Date and an acknowledgment by Imperial Bank and BFI, as applicable, that upon receipt of such funds it will forthwith execute and deliver to the Agent for filing all termination statements and take such other actions as may be necessary to discharge all mortgages, deeds of trust and security interests granted by any Borrower in favor of such lenders. 60 -54- Section 9.11. CLOSING CERTIFICATE. The Borrowers shall have delivered to the Agent a certificate, dated as of the Closing Date, stating that, as of such date (a) the representations and warranties set forth herein or in any other Loan Document are true and correct (b) no Default or Event of Default has occurred and is continuing, and (c) each Material Contract is in full force and effect, and no default or event of default has occurred and is continuing under any Material Contract. Section 9.12. AUDIT. The Borrowers shall have delivered to the Agent an audit conducted by the Accountants, acceptable to the Agent, certifying the Borrowers' consolidated balance sheet as of the Interim Balance Sheet Date and the Borrowers' operations through such date. Section 9.12. CONTRACTS. The Agent shall have received copies of all Material Contracts. Section 9.14. CONSENTS. Evidence that all requisite third-party consents to the transactions contemplated hereunder and under the other Loan Documents have been received. Section 10. CONDITIONS OF ALL LOANS. The obligations of the Banks to make any Loan (including without limitation the obligation of the Agent to issue, extend or renew any Letter of Credit) on and subsequent to the Closing Date is subject to the following conditions precedent: Section 10.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the representations and warranties of the Borrowers contained in this Credit Agreement or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of any Drawdown Date or the issuance of any Letter of Credit with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse, or to the extent that such representations and warranties relate solely and expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. Section 10.2. PERFORMANCE; NO EVENT OF DEFAULT. The Borrowers shall have performed and complied with all terms and conditions herein required to be performed or complied with by the Borrowers prior to or at the time of any Loan, and at the time of any Loan, there shall exist no Event of Default or condition which would result in an Event of Default upon consummation of such Loan (including without limitation any amounts to be drawn under a Letter of Credit). Each request by the Borrowers for a Loan (including without limitation each request for issuance of a Letter of Credit) subsequent to the first Loan shall constitute certification by the Borrowers 61 -55- that the conditions specified in Sections 10.1 and 10.2 will be duly satisfied on the date of such Loan or Letter of Credit issuance. Section 10.3. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or regulations thereunder or interpretations thereof which in the reasonable opinion of the Banks would make it illegal for the Banks to make Loans hereunder. Section 10.4. GOVERNMENTAL REGULATION. The Banks shall have received such statements in form and substance reasonably satisfactory to the Banks as they shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. Section 10.5. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the transactions contemplated by this Credit Agreement and all documents incident thereto shall have been delivered to the Banks as of the date hereof in form and substance satisfactory to the Banks, including without limitation a Loan and Letter of Credit Request in the form attached hereto as Exhibit B, and the Banks shall have received all information and such counterpart originals or certified or other copies of such documents as the Banks may reasonably request. Section 11. COLLATERAL SECURITY. Section 11.1. SECURITY OF BORROWERS. The Obligations shall be secured by a (i) perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in all of the assets of the Borrowers (other than moneys due under the Excluded Contracts), whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which the Borrowers are a party, (ii) a pledge of all of the stock of each Subsidiary pursuant to the terms of the Stock Pledge Agreements, and (iii) a pledge of all of the Parent's stock held by the Trustee, provided that the stock of the Parent shall be released by the Agent in connection with an initial public offering of such stock. Section 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT. Section 12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice and/or lapse of time, "Defaults") shall occur: (a) if the Borrowers shall fail to pay any principal of the Loans or any Reimbursement Obligation when the same shall become due and payable, whether at the Maturity Date or any accelerated date of maturity or at any other date fixed for payment; 62 -56- (b) if the Borrowers shall fail to pay any interest or fees or other amounts owing hereunder within five (5) Business Days after the same shall become due and payable whether at the Maturity Date or any accelerated date of maturity or at any other date fixed for payment; (c) if the Borrowers shall fail to comply with the covenants contained in Sections 6.1, 6.7, 6.8, 6.10, 6.13, 6.14, 6.17, 6.18, 6.20, 7 or 8; (d) if the Borrowers shall fail to comply with the covenants contained in (i) Sections 6.2, 6.3, 6.5, 6.6, 6.9, 6.11, 6.12, 6.15, 6.16 or 6.19 within thirty (30) days of the Borrowers' knowledge of a violation of such covenants or (ii) Section 6.4 within five (5) days of the Borrowers' knowledge of a violation of such covenant; (e) if the Borrowers shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified in subsections (a), (b), (c) and (d) above) within 30 days after written notice of such failure has been given to the Borrowers by the Agent or any Bank; (f) if any representation or warranty contained in this Credit Agreement or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or repeated; (g) if any Borrower shall fail to pay at maturity, or within any applicable period of grace, any and all obligations for borrowed money (other than the Obligations) or any guaranty with respect thereto in an aggregate amount greater than $250,000 or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money in an aggregate amount greater than $250,000 for such period of time as would, or would have permitted (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof, unless the same shall have been waived by the holder(s) thereof; or (h) if any Borrower makes an assignment for the benefit of creditors, or admits in writing its inability to pay or generally fails to pay its debts as they mature or become due, or petitions or applies for the appointment of a trustee or other custodian, liquidator or receiver of any Borrower or of any substantial part of the assets of any Borrower or commences any case or other proceeding relating to any Borrower under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or takes any action to authorize or in furtherance of any of the foregoing, or if any such petition or application is filed or any such case or other proceeding is commenced against any Borrower or such Borrower indicates its approval thereof, consent thereto or acquiescence therein, or such petition or 63 -57- application shall not have been dismissed within sixty (60) days following the filing thereof; (i) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any Borrower bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of any Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (j) if there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment against any Borrower which, with other outstanding final judgments against the Borrowers, exceeds in the aggregate $250,000 after taking into account any undisputed insurance coverage; (k) any Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $250,000, or any Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $250,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of Section 302(f)(1) of ERISA), provided that the Agent determines in its reasonable discretion that such event (A) could be expected to result in liability of any Borrower to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $250,000 and (B) could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a United States District Court of a trustee to administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such Guaranteed Pension Plan; (l) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded or the Agent's security interests or liens in a substantial portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Security Documents, in each case otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any Borrower or any stockholder of any Borrower who is an officer or director of such Borrower, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; 64 -58- (m) (i) the Parent shall at any time, legally or beneficially own less than one hundred percent (100%) of the shares of the capital stock of each other Borrower (indirectly through W.C. of Washington in the case of W.C. International), as adjusted pursuant to any stock split, stock dividend or recapitalization or reclassification of the capital of such Borrower; or (ii) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than existing shareholders of the Parent as of the Closing Date shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Parent; or, during any period of twelve consecutive calendar months, individuals who were directors of the Parent on the first day of such period shall cease to constitute a majority of the board of directors; provided, however, that any such change of control resulting from an acquisition permitted under Section 7.4 shall not constitute a Default or an Event of Default hereunder, and provided further, that any change in the composition of the board of directors of the Parent which occurs between the Closing Date and April 1, 1998 with the approval of Ron J. Mittelstaedt shall not constitute a Default or an Event of Default hereunder; or (n) the early termination or cancellation of, or any material default by a Borrower under, any Material Contract; then, and in any such event, so long as the same may be continuing, the Agent may, and at the request of the Majority Banks shall, by notice in writing to the Borrowers, declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents and all Reimbursement Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that in the event of any Event of Default specified in Sections 12.1(h) or 12.1(i), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. Upon demand by the Banks after the occurrence of any Event of Default, the Borrowers shall immediately provide to the Agent cash in an amount equal to the Maximum Drawing Amount, to be held by the Agent as collateral security for the Obligations, provided that in the event of any Event of Default specified in Sections 12.1(h) or 12.1(i), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. Section 12.2. TERMINATION OF COMMITMENTS. If any Event of Default shall occur, the Agent may, and at the request of the Majority Banks shall, by notice to the Borrowers, terminate the unused portion of the Total Commitment hereunder, and upon such notice being given, such unused portion of the Total Commitment hereunder shall terminate immediately and the Banks shall be relieved of all further obligations to make Loans to or issue Letters of Credit for the account of the Borrowers hereunder, provided that in the event of any Event of Default specified in 65 -59- Sections 12.1(h) or 12.1(i), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. No termination of any portion of the Total Commitment hereunder shall relieve the Borrowers of any of their existing Obligations to the Banks hereunder or elsewhere. Section 12.3. REMEDIES. Subject to Section 13, in case any one or more Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to Section 12.1, each Bank, if owed any amount with respect to the Loans or the Reimbursement Obligations, may, with the consent of the Majority Banks but not otherwise, and if the Agent shall have received opinions of nationally recognized law firms specializing in California law, Louisiana law, and the law of any other state, as applicable, having a one form of action rule to the effect that actions by such Bank under such circumstances shall not constitute an action for purposes of such state's one form of action rule or in any other way impair the Collateral or the other Banks' rights hereunder or under the other Loan Documents, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including, without limitation, as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note or purchaser of any Letter of Credit Participation is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. Section 13. SETOFF. Regardless of the adequacy of any collateral, during the continuance of an Event of Default, any deposits or other sums credited by or due from any Bank to the Borrowers and any securities or other property of the Borrowers in the possession of such Bank may be applied to or set off against the payment of the Obligations and any and all other liabilities, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrowers to the Banks. The Banks agree among themselves that, if a Bank shall obtain payment on any Obligation outstanding under this Credit Agreement through the exercise of a right of offset, banker's lien or counterclaim, or from any other source including under Section 12.3 (other than by way of a pro rata payment under this Credit Agreement), it shall promptly make such adjustments with the other Banks as shall be equitable to the end that all the Banks shall share the benefits of such payments pro rata in accordance with the aggregate unpaid amount of the Revolving Credit Notes held by each Bank immediately prior to the payment obtained by such Bank as aforesaid. The Banks further agree among themselves that if any payment to a Bank obtained by such Bank through the exercise of a right of offset, banker's lien 66 -60- or counterclaim, or from any other source (other than by way of a pro rata payment) as aforesaid shall be rescinded or must otherwise be restored, the Banks who shall have shared the benefit of such payment shall return their share of that benefit to the Bank whose payment shall have been rescinded or otherwise restored. Section 14. THE AGENT. Section 14.1. APPOINTMENT OF AGENT, POWERS AND IMMUNITIES. Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents, provided, however, the Agent is hereby authorized to serve only as an administrative and collateral agent for the Banks and to exercise such powers as are reasonably incidental thereto and as are set forth in this Credit Agreement and the other Loan Documents. The Agent hereby acknowledges that it does not have the authority to negotiate any agreement which would bind the Banks or agree to any amendment, waiver or modification of any of the Loan Documents or bind the Banks except as set forth in this Credit Agreement or the Loan Documents. Except as provided in this Section 14 and in the other Loan Documents, the Agent shall take action or refrain from acting only upon instructions of the Banks and no action taken or failure to act without the consent of the Banks shall be binding on any Bank which has not consented. Each Bank irrevocably authorizes the Agent to execute the Security Documents and all other instruments relating thereto and to take such action on behalf of each of the Banks and to exercise all such powers as are expressly delegated to the Agent under the Loan Documents and all related documents, together with such other powers as are reasonably incidental thereto. It is agreed that the duties, rights, privileges and immunities of BKB, in its capacity as issuer of Letters of Credit hereunder, shall be identical to its duties, rights, privileges and immunities as a Bank as provided in this Section 14. The Agent shall not have any duties or responsibilities or any fiduciary relationship with any Bank except those expressly set forth in this Credit Agreement. Neither the Agent nor any of its affiliates shall be responsible to the Banks for any recitals, statements, representations or warranties made by the Borrowers or any other Person whether contained herein or otherwise or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Credit Agreement, the other Loan Documents or any other document referred to or provided for herein or therein or for any failure by the Borrowers or any other Person to perform its obligations hereunder or thereunder or in respect of the Notes. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall exercise the same care in administering the Loans as it exercises with respect to similar transactions entered into solely for its own account; however, neither the Agent nor any of its directors, officers, employees or agents shall be responsible for any action taken or omitted to be taken in good faith by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct. The Bank in its separate capacity as a Bank shall have the same rights and powers hereunder as any other Bank. 67 -61- Section 14.2. ACTIONS BY AGENT. The Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement as it reasonably deems appropriate unless it shall first have received such advice or concurrence of the Banks and shall be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Credit Agreement or any of the Loan Documents in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Notes or any Letter of Credit Participation. Section 14.3. INDEMNIFICATION. Without limiting the obligations of the Borrowers under this Credit Agreement or any other Loan Document, the Banks ratably agree hereby to indemnify and hold harmless the Agent, the Arranger, and their affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent, the Arranger or such affiliate has not been reimbursed by the Borrowers as required by Section 15), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence, it being the intent of the parties hereto that all such indemnified parties shall be indemnified for their ordinary sole or contributory negligence. Section 14.4. REIMBURSEMENT. Without limiting the provisions of Section 14.3, the Banks and the Agent hereby agree that the Agent shall not be obliged to make available to any Person any sum which the Agent is expecting to receive for the account of that Person until the Agent has determined that it has received that sum. The Agent may, however, disburse funds prior to determining that the sums which the Agent expects to receive have been finally and unconditionally paid to the Agent, if the Agent wishes to do so. If and to the extent that the Agent does disburse funds and it later becomes known that the Agent did not then receive a payment in an amount equal to the sum paid out, then any Person to whom the Agent made the funds available shall, on demand from the Agent, refund to the Agent the sum paid to that Person. If, in the opinion of the Agent, the distribution of any amount received by it in such capacity hereunder or under the Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 68 -62- Section 14.5. DOCUMENTS. Section 14.5.1 CLOSING DOCUMENTATION. Section 14.5.1. CLOSING DOCUMENTATION. For purposes of determining compliance with the conditions set forth in Section 9, each Bank that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Agent or the Arranger to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank, unless the Agent shall have received notice from such Bank prior to the Closing Date specifying such Bank's objection thereto and such objection shall not have been withdrawn by notice to the Agent to such effect on or prior to the Closing Date. Section 14.5.2. OTHER DOCUMENTS. The Agent will forward to each Bank, promptly after the Agent's receipt thereof, a copy of each notice or other document furnished to the Agent for such Bank hereunder; provided, however, that notwithstanding the foregoing, the Agent may furnish to the Banks a monthly summary with respect to Letters of Credit issued hereunder in lieu of copies of the related Letter of Credit Applications. Section 14.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank represents that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of the financial condition and affairs of the Borrowers and decision to enter into this Credit Agreement and the other Loan Documents and agrees that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action under this Credit Agreement or any other Loan Document. The Agent shall not be required to keep informed as to the performance or observance by the Borrowers of this Credit Agreement, the other Loan Documents or any other document referred to or provided for herein or therein or by any other Person of any other agreement or to make inquiry of, or to inspect the properties or books of, any Person. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning any person which may come into the possession of the Agent or any of its affiliates. Each Bank shall have access to all documents relating to the Agent's performance of its duties hereunder at such Bank's request. Unless any Bank shall promptly object to any action taken by the Agent hereunder (other than actions to which the provisions of Section 14.8 are applicable and other than actions which constitute gross negligence or willful misconduct by the Agent), such Bank shall conclusively be presumed to have approved the same. Section 14.7. RESIGNATION OR REMOVAL OF AGENT. The Agent may resign at any time by giving 60 days' prior written notice thereof to the Banks and the Borrowers. Upon 69 -63- any such resignation, the Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Banks (and, provided that no Default or Event of Default shall have occurred and be continuing, approved by the Borrowers, such approval not to be unreasonably withheld) and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a combined capital and surplus in excess of $150,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Any new Agent appointed pursuant to this Section 14.7 shall immediately issue new Letters of Credit in place of Letters of Credit previously issued by the Agent (to the extent such Letters of Credit are returned by the beneficiaries for purposes of such exchange). Section 14.8. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval required or permitted by this Credit Agreement to be given by the Banks may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrowers of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrowers and the written consent of the Majority Banks, provided however, that the Agent may, in its reasonable discretion, release Collateral with an aggregate value of $500,000 or less in any calendar year. Notwithstanding the foregoing, no amendment, waiver or consent shall do any of the following unless in writing and signed by the Borrowers and each of the Banks affected thereby: (a) increase the Commitments of the Banks or subject any Bank to any additional obligations, or (b) reduce the principal of or the rate of interest on the Notes (including, without limitation, interest on overdue amounts) or any fees payable hereunder; and FURTHER, no amendment, waiver or consent shall do any of the following unless in writing and signed by ALL of the Banks: (c) postpone the Maturity Date or any date fixed for any payment in respect of principal or interest (including, without limitation, interest on overdue amounts) on the Notes, (d) change the definition of "Majority Banks" or the number of Banks which shall be required for the Banks or any of them to take any action under the Loan Documents; (e) amend this Section 14.8 or Section 18; (f) release any Collateral with an aggregate value exceeding $500,000 in any calendar year or (g) release any Borrower from its obligations hereunder. 70 -64- No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. Section 14.9. DELINQUENT BANKS. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its pro rata share of any Loan or to purchase any Letter of Credit Participation or (ii) to comply with the provisions of Section 13 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrowers, whether on account of outstanding Loans, Reimbursement Obligations, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans and Reimbursement Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans and Reimbursement Obligations. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Reimbursement Obligations of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Loans and Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. Section 15. EXPENSES AND INDEMNIFICATION. Section 15.1. EXPENSES. Whether or not the transactions contemplated herein shall be consummated, the Borrowers agree to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrowers hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of counsel to the Agent incurred in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, any amendments, 71 -65- modifications, approvals, consents or waivers hereto or hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the Obligations or pursuant to any terms of such Loan Document providing for such cancellation, (iv) the fees, expenses and disbursements of the Agent, the Arranger, or any of their affiliates incurred by the Agent, the Arranger, or such affiliate in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering and appraisal charges, (v) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against the Borrowers or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or under any of the other Loan Documents, in any way related to any Bank's or the Agent's relationship with the Borrowers and (vi) all reasonable fees, expenses and disbursements of the Agent incurred in connection with UCC searches and UCC filings. Section 15.2. INDEMNIFICATION. The Borrowers agree to indemnify and hold harmless the Agent, its affiliates and the Banks from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by the Borrowers of the proceeds of any of the Loans or Letters of Credit, (ii) the Borrowers entering into or performing this Credit Agreement or any of the other Loan Documents or (iii) with respect to the Borrowers and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Banks and the Agent, the Arranger, and their affiliates shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrowers agree to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrowers under this Section 15.2 are unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. 72 -66- Section 15.3. SURVIVAL. The covenants contained in this Section 15 shall survive payment or satisfaction in full of all other Obligations. Section 16. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein, all covenants, agreements, representations and warranties made herein, in the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrowers pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans and the issuance, extension or renewal of any Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Credit Agreement, any Letter of Credit or the Notes remains outstanding and unpaid or any Bank has any obligation to make any Loans or issue any Letters of Credit hereunder. All statements contained in any certificate or other paper delivered by or on behalf of the Borrowers pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrowers hereunder. Section 17. ASSIGNMENT AND PARTICIPATION. It is understood and agreed that each Bank shall have the right to assign or participate at any time all or a portion of its Commitment and interests in the risk relating to any Loans and outstanding Letters of Credit hereunder in an amount equal to or greater than $5,000,000 (which assignment shall be of an equal percentage of such Bank's Commitment, the Revolving Credit Loans and outstanding Letters of Credit) to Eligible Assignees with the prior written consent of the Agent and, unless a Default or an Event of Default shall have occurred and be continuing, the Borrowers, which approvals shall not be unreasonably withheld. It is further agreed that each Eligible Assignee which executes and delivers to the Banks and the Borrowers an Assignment and Acceptance in substantially the form of Exhibit E (an "Assignment and Acceptance") shall, on the date specified in such Assignment and Acceptance, become a party to this Credit Agreement and the other Loan Documents for all purposes of this Credit Agreement and the other Loan Documents, and its Commitment shall be as set forth in such Assignment and Acceptance. Upon the execution and delivery of such Assignment and Acceptance and payment by the assigning bank of an assignment fee in the amount of $3,500 to the Agent, (a) the Borrowers shall issue to such Eligible Assignee a Revolving Credit Note in the amount of such Eligible Assignee's Commitment dated the Closing Date or such other date as may be specified by the Agent and otherwise completed in substantially the form of Exhibit A hereto and, to the extent any assigning Bank has retained a portion of its obligations hereunder, a replacement Revolving Credit Note to the assigning Bank; (b) the Agent shall distribute to the Borrowers, the Banks and such Eligible Assignee a schedule reflecting such changes; (c) this Credit Agreement shall be appropriately amended to reflect (i) the status of such Eligible Assignee as a party hereto and (ii) the status and rights of the Banks and Agent hereunder; and (d) the Borrowers shall take such action as the Agent may reasonably request to perfect any security interests in favor of the Banks, including any Eligible Assignee 73 -67- which becomes a party to this Credit Agreement. The documents evidencing any such participation may provide that, except with the consent of the bank or financial institution that is a party thereto, such Bank will not consent to (a) the reduction in or forgiveness of the stated principal of or rate of interest on or Commitment Fee with respect to the portion of any Loan subject to such participation or assignment, (b) the extension or postponement of any stated date fixed for payment of principal or interest or Commitment Fee with respect to the portion of any Loan subject to such participation or assignment, or (c) the waiver or reduction of any right to indemnification of such Bank hereunder. Notwithstanding the foregoing, no syndication or participation shall operate to increase the Total Commitment hereunder or otherwise alter the substantive terms of this Credit Agreement. Anything contained in this Section 17 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. Section 18. PARTIES IN INTEREST. All the terms of this Credit Agreement and the other Loan Documents shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto and thereto; provided that the Borrowers shall not assign or transfer their rights hereunder without the prior written consent of each Bank. Section 19. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the other Loan Documents shall be in writing and shall be delivered in hand, mailed by United States first-class mail, postage prepaid, or sent by telex or facsimile and confirmed by letter, addressed as follows: (a) if to the Borrowers, at Waste Connections, Inc., 2260 Douglas Boulevard, Suite 280, Roseville, California 95661, Attention: Ron J. Mittelstaedt, President and CEO, telephone number 916-772-2221, fax number 916-772-2920; (b) if to the Agent or BKB, at 100 Federal Street, Boston, Massachusetts 02110, Attention: Timothy M. Laurion, Director, telephone number 617-434-9689, telecopy number 617-434-2160; or such other address for notice as shall have last been furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (a) if delivered by hand to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer, (b) if sent by registered or certified first-class mail, postage prepaid, five Business Days 74 -68- after the posting thereof, (c) if sent by telex or cable, at the time of the dispatch thereof, if in normal business hours in the country of receipt, or otherwise at the opening of business on the following Business Day, and (d) if sent by facsimile, when transmitted, confirmation received. Section 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. Section 20.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY. The Borrowers acknowledge that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrowers, in connection with this Credit Agreement or otherwise, by a Section 20 Subsidiary. The Borrowers hereby authorize (a) such Section 20 Subsidiary to share with the Agent and each Bank any information delivered to such Section 20 Subsidiary by the Borrowers, and (b) the Agent and each Bank to share with such Section 20 Subsidiary any information delivered to the Agent or such Bank by the Borrowers pursuant to this Credit Agreement, or in connection with the decision of such Bank to enter into this Credit Agreement; it being understood, in each case, that any such Section 20 Subsidiary receiving such information shall be bound by the confidentiality provisions of this Credit Agreement. Such authorization shall survive the payment and satisfaction in full of all of the Obligations. Section 20.2. CONFIDENTIALITY. Each of the Banks and the Agent agrees, on behalf of itself and each of their affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrowers pursuant to this Credit Agreement that is identified by such Person as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (a) after such information shall have become public other than through a violation of this Section 20, (b) to the extent required by statute, rule, regulation or judicial process, (c) to counsel for any of the Banks or the Agent, (d) to bank examiners or any other regulatory authority having jurisdiction over any Bank or the Agent, or to auditors or accountants, (e) to the Agent, any Bank or any Section 20 Subsidiary, (f) in connection with any litigation to which any one or more of the Banks, the Agent or any Section 20 Subsidiary is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, (g) to a subsidiary or affiliate of such Bank as provided in Section 20.1 or (h) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant agrees to be bound by the provisions of this Section 20. Section 20.3. PRIOR NOTIFICATION. Unless specifically prohibited by applicable law or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Borrowers of any request for disclosure of any such non-public information 75 -69- by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Bank by such governmental agency) or pursuant to legal process. Section 20.4. OTHER. In no event shall any Bank or the Agent be obligated or required to return any materials furnished to it or any Section 20 Subsidiary by the Borrowers. The obligations of each Bank under this Section 20 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of this financing signed and delivered by such Bank to the Borrowers prior to the date hereof and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans or Reimbursement Obligations from any Bank. Section 21. MISCELLANEOUS. The rights and remedies herein expressed are cumulative and not exclusive of any other rights which the Banks or Agent would otherwise have. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 14.8. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. Section 23. WAIVER OF JURY TRIAL. EACH BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, 76 -70- ACTUAL DAMAGES. THE BORROWERS (A) CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY BANK OR THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS' WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. Section 24. GOVERNING LAW. This Credit Agreement and each of the other Loan Documents are contracts under the laws of the Commonwealth of Massachusetts and shall for alL purposes be construed in accordance with and governed by the laws of said commonwealth (excluding the laws applicable to conflicts or choice of law). The Borrowers consent to the jurisdiction of any of the federal or state courts located in the Commonwealth of Massachusetts in connection with any suit to enforce the rights of any Bank or the Agent under this Credit Agreement or any of the other Loan Documents. Section 25. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or iN part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. [Signature Pages Follow] 77 IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement under seal as of the date first set forth above. THE BORROWERS: - -------------- WASTE CONNECTIONS, INC. WASTE CONNECTIONS OF WASHINGTON, INC. WASTE CONNECTIONS OF IDAHO, INC. WASTE CONNECTIONS INTERNATIONAL, INC. By: _________________________________________ Ron J. Mittelstaedt President and Chief Executive Officer THE LENDERS: BANKBOSTON, N.A., individually and as Agent By: _________________________________________ Timothy M. Laurion, Director 78 FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT AND SECURITY DOCUMENTS This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT AND SECURITY DOCUMENTS (this "Amendment") is made and entered into as of February 23, 1998, by and among (a) WASTE CONNECTIONS, INC., a Delaware corporation (the "Parent"), the subsidiaries of the Parent identified on Schedule 2 hereto (the "Subsidiaries," and collectively with the Parent, the "Borrowers"), (b) BankBoston, N.A., a national banking association having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 (acting in its individual capacity, "BKB") and the other BANKS and lending institutions which become parties to the Credit Agreement, defined below (collectively, the "Banks"), and (C) BANKBOSTON, N.A., as agent for the Banks (the "Agent"). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement, defined below. WHEREAS, the Borrowers, the Banks and the Agent are parties to a Revolving Credit Agreement dated as of January 30, 1998 (as amended and in effect from time to time, the "Credit Agreement"), pursuant to which the Banks have extended credit to the Borrowers on the terms set forth therein; WHEREAS, the Borrowers have informed the Banks that the Parent is entering into an agreement to acquire all of the capital stock of Madera Disposal Systems, Inc., a California corporation ("Madera"), in exchange for the following consideration: (a) $8,185,000 in cash, as adjusted pursuant to Section 1.2 of the Stock Purchase Agreement (defined below), (b) 1,000,000 shares of common stock of the Parent, and (c) warrants to purchase an aggregate of 200,000 shares of common stock of the Parent, plus (d) any additional contingent purchase price pursuant to Section 1.3 of the Stock Purchase Agreement (collectively, the "Total Consideration"); WHEREAS, the acquisition of Madera (the "Madera Acquisition") is to be consummated substantially in accordance with the terms set forth in the Stock Purchase Agreement dated as of February 4, 1998 (the "Stock Purchase Agreement") among (a) Madera, (b) Alma Sciacqua, as trustee of the Sciacqua Family Trust B, (c) Eugene Dupreau, (d) Melvin G. Dias, (e) Charles B. Youngclaus, (f) Alma Sciacqua, and (g) the Parent; WHEREAS, the Borrowers have requested that the Banks consent to the Madera Acquisition, and the Banks are willing to consent thereto on the terms set forth herein; 79 -2- WHEREAS, the Banks, the Agent, and the Borrowers have agreed to further amend the Credit Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. CONSENT TO MADERA ACQUISITION. Each of the undersigned Banks hereby consents to the Madera Acquisition, provided that the total aggregate purchase price paid by the Borrowers in connection therewith shall not exceed the Total Consideration. 2. AMENDMENT TO DEFINITIONS. (b) Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in the proper alphabetical order: Madera. Madera Disposal Systems, Inc., a California corporation. Madera Adjustment. The applicable amount set forth in the following table for the respective period, provided that such amount shall be added to EBITDA for purposes of calculating the financial covenants under Section 8 only, and not for calculation of the Pricing Ratio:
- ------------------------------ ------------------------------- Fiscal Quarter Ending: Adjustment - ------------------------------ ------------------------------- March 31, 1998 $726,667 - ------------------------------ ------------------------------- June 30, 1998 $726,667 - ------------------------------ ------------------------------- September 30, 1998 $726,667 - ------------------------------ ------------------------------- December 31, 1998 $181,667 - ------------------------------ -------------------------------
(b) The definition of "Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA" is hereby amended to read as follows: Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA. For any period, EBIT plus (a) depreciation expense for such period and (b) amortization expense relating to intangible assets for such period, to the extent that each was deducted in determining Consolidated Net Income (or Deficit), plus the Madera Adjustment, if applicable, provided that, for purposes of calculating the financial covenants under Section 8 (but not the Pricing Ratio), EBITDA (excluding any projected cost savings or adjustments other than nonrecurring private company expenses that are discontinued upon acquisition by the Parent or its Subsidiaries, such as owner compensation and insurance and benefit cost reductions, and that are approved by the Agent and the Majority Banks) of Subsidiaries (other than Madera) acquired since the date of the most recent financial statements 80 -3- delivered to the Banks pursuant to Section 6.4 shall be included in the calculation of EBITDA if (i) the financial statements of such acquired Subsidiaries have been audited for the period sought to be included by the Accountants or (ii) the Agent and the Majority Banks consent to such inclusion after being furnished with unaudited financial statements, together with a Compliance Certificate and other appropriate documentation certifying the historical operating results and balance sheet of the acquired companies. 3. AMENDMENT TO THE CREDIT AGREEMENT. The Credit Agreement is hereby amended by deleting Schedule 2 attached thereto and substituting therefor the Schedule 2 attached hereto. 4. AMENDMENT TO PARENT STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement between the Agent and the Parent (the "Parent Stock Pledge Agreement") is hereby amended by deleting Annex A thereto and substituting therefor the Annex A attached hereto. The Parent hereby pledges, assigns, grants a security interest in, and delivers to the Agent for the benefit of the Banks and the Agent all of the Parent's shares of capital stock of Madera listed on Annex A attached hereto, and Madera hereby agrees to be bound by the applicable provisions of the Parent Stock Pledge Agreement. 5. AMENDMENT TO SECURITY AGREEMENT. (a) Madera is hereby added as a party to the Security Agreement, and agrees to be bound by all of its terms and conditions, in all respects as if it were an original signatory thereto. (b) Madera hereby unconditionally, and jointly and severally with the Borrowers, grants to the Agent, for the benefit of the Banks and the Agent, to secure the payment and performance in full of all of the Obligations, a security interest in, and so pledges and assigns to the Agent, for the benefit of the Banks and the Agent, the Collateral, as defined in the Security Agreement, on the terms set forth therein. Madera expressly acknowledges that it has reviewed the definition of the term "Collateral" contained in the Security Agreement, including the description of the existing and after-acquired assets of Madera included and to be included therein. 6. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWERS. (a) Madera acknowledges that it has received and reviewed a copy of the Credit Agreement and each of the other Loan Documents. Madera hereby agrees to become a Borrower under the Credit Agreement and to be bound by all of the terms, conditions and provisions thereof as if it were an original signatory thereto. Madera acknowledges, without limitation, that such terms include provisions concerning joint and several liability contained in Section 4.12 of the Credit Agreement, the environmental 81 -4- indemnification contained in Section 6.11 of the Credit Agreement, the expense and indemnification provisions contained in Sections 14 and 15 of the Credit Agreement, the waiver of jury trial contained in Section 23 of the Credit Agreement, and the governing law contained in Section 24 of the Credit Agreement. In consideration therefor, the Banks and the Agent agree that, as a Borrower under the Credit Agreement, Madera will be entitled to the benefits thereof afforded to Borrowers under the Credit Agreement, upon the terms and subject to the conditions contained therein. (b) Each of the Borrowers and Madera hereby ratifies and confirms all of its Obligations to the Agent and the Banks including, without limitation, the Loans and the Reimbursement Obligations, and each of the Borrowers and Madera hereby affirms its absolute and unconditional promise to pay to the Banks and the Agent the Loans, Reimbursement Obligations and all other amounts due or to become due and payable to the Banks and the Agent under the Credit Agreement and the other Loan Documents, as amended hereby. Each of the Borrowers and Madera hereby confirms that the Obligations are and remain secured pursuant to the Security Documents and pursuant to all other instruments and documents executed and delivered by such Borrower as security for the Obligations. (c) The Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Amendment. This Amendment and the Parent Stock Pledge Agreement shall hereafter be read and construed together as a single document, and all references in the Parent Stock Pledge Agreement or any related agreement or instrument to the Parent Stock Pledge Agreement shall hereafter refer to the Parent Stock Pledge Agreement as amended by this Amendment. 7. REPRESENTATIONS. The Borrowers represent and warrant to the Agent and the Banks that: (a) as of the date hereof, no Default or Event of Default has occurred and is continuing, and the Madera Acquisition will not otherwise create a Default or an Event of Default under the Credit Agreement; and (b) the Borrowers have delivered to the Agent all items required under Section 7.4 of the Credit Agreement. 8. EFFECTIVENESS. This Amendment shall become effective upon the execution and delivery of this Amendment by the Borrowers and Majority Banks and the satisfaction of the following conditions (the "Effective Date"): 82 -5- (i) Allonge to Revolving Credit Note. The Agent shall have received an executed allonge to the Revolving Credit Note, in form and substance satisfactory to the Agent, adding Madera as a maker of the Revolving Credit Note. (ii) Certified Copies of Charter Documents. The Agent shall have received from Madera a certificate as to the good standing of Madera from the Secretary of State or other appropriate official of the state of its organization, dated as of a recent date. The Agent shall also have received from Madera a certificate of its Secretary certifying the following attachments thereto: (a) a copy of its certificate or articles of incorporation or constitutive documents, in each case as amended to date, certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization, (b) a true and correct copy of its by-laws, including all amendments thereto, (c) a true and correct copy of the resolutions of its board of directors authorizing the execution and delivery of this Amendment, the allonge to the Revolving Credit Note, and all related documents. Such Secretary's Certificate shall also give the name and bear a specimen signature of each individual who shall be authorized (i) to sign this Amendment and related documents on behalf of Madera; (ii) to make Loan and Letter of Credit Requests; and (iii) to give notices and to take other action on Madera's behalf under the Loan Documents. (iii) Delivery of Stock. The stock certificates evidencing all of the issued and outstanding shares of capital stock of Madera, together with undated stock powers thereto duly executed in blank, shall have been delivered to the Agent to be held upon the terms of the Parent Stock Pledge Agreement. (iv) Perfection Certificate and UCC Search Results. The Agent shall have received from Madera a completed and fully executed Perfection Certificate and the results of UCC searches with respect to the Collateral, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. (v) Environmental Permit Certificate. The Agent shall have received an environmental permit certificate from the Parent satisfactory to the Agent, concerning principal operating permits of Madera's principal operating facilities. (vi) Consummation of Purchase Agreements. The Madera Acquisition (other than the exchange of consideration) shall have been completed on terms no less favorable to Madera and the Parent than those set forth in the Stock Purchase Agreement dated as of February 4, 1998 among (a) Madera, 83 -6- ( b) Alma Sciacqua, as trustee of the Sciacqua Family Trust, Trust B, under a Trust Agreement dated March 8, 1997, (c) Gene Dupreau, (d) Mel Dias, (e) The Administrators, as trustee of the Charles B. Youngclaus Living Trust under a Trust Agreement dated 1/1/96, and (f) the Parent, a copy of which was delivered to the Agent in connection with the Consent. (vii) Legal Opinion. The Agent shall have received an opinion of counsel to the Borrowers and Madera as to the due authorization and enforceability of this Amendment as it relates to Madera, the allonge to the Revolving Credit Note, the due organization, legal existence, and good standing of Madera, the consummation of the Madera Acquisition, and all other matters as the Agent may reasonably request; (viii) Payoff Letters. The Agent shall have received payoff letters, in form and substance satisfactory to the Agent, with respect to all Indebtedness of Madera which is not permitted under the Credit Agreement. 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS. 10. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. [Signature Pages Follow] 84 IN WITNESS WHEREOF, each of the undersigned has duly executed this Amendment under seal as of the date first set forth above. THE BORROWERS: WASTE CONNECTIONS, INC. WASTE CONNECTIONS OF WASHINGTON, INC. WASTE CONNECTIONS OF IDAHO, INC. WASTE CONNECTIONS INTERNATIONAL, INC. By: --------------------------------- Ronald J. Mittelstaedt President and Chief Executive Officer MADERA DISPOSAL SYSTEMS, INC. By: --------------------------------- Ronald J. Mittelstaedt President THE LENDERS: BANKBOSTON, N.A., individually and as Agent By: --------------------------------- Timothy M. Laurion, Director 85 SCHEDULE 2 SUBSIDIARIES
- --------------------------------- ------------------------ ---------------------------- Jurisdiction of Subsidiary Incorporation 100% Owned By: - --------------------------------- ------------------------ ---------------------------- Waste Connections of Idaho, Inc. Delaware Parent - --------------------------------- ------------------------ ---------------------------- Waste Connections of Washington Parent Washington, Inc. - --------------------------------- ------------------------ ---------------------------- Waste Connections Washington Waste Connections of International, Inc. Washington, Inc. - --------------------------------- ------------------------ ---------------------------- Madera Disposal Systems, Inc. California Parent - --------------------------------- ------------------------ ----------------------------
86 ANNEX A TO PLEDGE AGREEMENT None of the issuers has any authorized, issued or outstanding shares of its capital stock of any class or any commitments to issue any shares of its capital stock of any class or any securities convertible into or exchangeable for any shares of its capital stock of any class except as otherwise stated in this Annex A.
- ---------------- ----------- ----------- ------------ ----------- ----------- ------------ Number of Number of Number of Par or Record Class of Authorized Issued Outstanding Liquidation Issuer Owner Shares Shares Shares Shares Value - ---------------- ----------- ----------- ------------ ----------- ----------- ------------ Waste Connections of Idaho, Inc. Parent Common 10,000 300 300 $0.01 - ---------------- ----------- ----------- ------------ ----------- ----------- ------------ Waste Connections of Washington, Inc. Parent Common 1,000 1,000 1,000 $1.00 - ---------------- ----------- ----------- ------------ ----------- ----------- ------------ Madera Disposal Systems, Inc. Parent Common 1,000,000 500 500 None - ---------------- ----------- ----------- ------------ ----------- ----------- ------------
EX-10.2 5 1997 STOCK OPTION PLAN 1 EXHIBIT 10.2 WASTE CONNECTIONS, INC. 1997 STOCK OPTION PLAN 1. PURPOSE. The purpose of the Plan is to provide a means for the Company and any Subsidiary, through the grant of Incentive Stock Options and Nonqualified Stock Options to selected Employees, Consultants and Directors, to attract and retain persons of ability as Employees, Consultants and Directors, and to motivate such persons to exert their best efforts on behalf of the Company and any Subsidiary. 2. DEFINITIONS. (a) "BOARD" means the Company's Board of Directors. (b) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. (c) "COMMITTEE" means a committee appointed by the Board in accordance with section 4(b) of the Plan. (d) "COMPANY" means Waste Connections, Inc., a Delaware corporation. (e) "CONSULTANT" means any person, including an advisor, engaged by the Company or a Subsidiary to render consulting services and who is compensated for such services; provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (f) "CONTINUOUS STATUS AS AN EMPLOYEE, CONSULTANT OR DIRECTOR" means the employment or relationship as a Consultant or Director is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Consultant or Director shall be considered interrupted in the case of (i) any leave of absence approved by the Board, including sick leave, military leave or any other personal leave, or (ii) transfers between locations of the Company or between the Company and a Subsidiary or their successors. (g) "DIRECTOR" means a member of the Company's Board. (h) "DISABILITY" means permanent and total disability within the meaning of section 422(c)(6) of the Code. 1 2 (i) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Subsidiary of the Company. Neither service as a Consultant or a Director nor receipt of a director's fee from the Company shall be sufficient to constitute "employment" by the Company. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (k) "INCENTIVE STOCK OPTIONS" means Options that are intended to qualify as incentive stock options within the meaning of section 422 of the Code. (l) "NON-EMPLOYEE DIRECTOR" means a Director who satisfies the requirements established from time to time by the Securities and Exchange Commission for non-employee directors under Rule 16b-3. (m) "NONQUALIFIED STOCK OPTIONS" means Options that are not intended to qualify as Incentive Stock Options. (n) "OFFICER" means a person who is an officer of the Company or a Subsidiary within the meaning of section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (p) "OPTIONEE" means an Employee, Consultant or Director who holds an outstanding Option. (q) "OPTIONS" means, collectively, Incentive Stock Options and Nonqualified Stock Options. (r) "OUTSIDE DIRECTOR" means a member of the Board who satisfies the requirements established from time to time for outside directors under section 162(m) of the Code. (s) "PLAN" means this Waste Connections, Inc., 1997 Stock Option Plan. (t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act or any successor to Rule 16b-3, as amended from time to time and as in effect when discretion is being exercised with respect to the Plan. (u) "SECURITIES ACT" means the Securities Act of 1933, as amended. (v) "STOCK" means the Common Stock of the Company. 2 3 (w) "SUBSIDIARY" means any corporation that at the time an Option is granted under the Plan qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" contained in section 424(f) of the Code, or any similar provision hereafter enacted. (x) "TEN PERCENT SHAREHOLDER" means an individual who, at the time of an Option grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company. 3. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in section 6 for changes in Stock, the Stock that may be sold pursuant to Options shall not exceed in the aggregate 1,200,000 shares. That number of shares shall be reserved for Options (subject to adjustment as provided in section 6). If any Option for any reason terminates, expires or is cancelled without having been exercised in full, the Stock not purchased under such Option shall revert to and again become available for issuance under the Plan. 4. ADMINISTRATION. (a) The Plan shall be administered by the Board or, at the election of the Board, by a Committee, as provided in subsection (b). Subject to the Plan, the Board shall: (i) determine and designate from time to time those Employees, Consultants and Directors to whom Options are to be granted, and whether the Options granted will be Incentive Stock Options or Nonqualified Stock Options; (ii) authorize the granting of Incentive Stock Options, Nonqualified Stock Options or combinations thereof; (iii) determine the number of shares subject to each Option and the Exercise Price of each Option; (iv) determine the time or times when and the manner in which each Option shall be exercisable and the duration of the exercise period; (v) construe and interpret the Plan and the Options, and establish, amend and revoke rules and regulations for the Plan's administration, and correct any defect, omission or inconsistency in the Plan or any Option Agreement in a manner and to the extent it deems necessary or expedient to make the Plan fully effective; and (vi) make such other determinations as it may be authorized to make in the Plan and as it may deem necessary and desirable for the purposes of the Plan. 3 4 Notwithstanding the foregoing, however, (1) no Option shall be granted after the expiration of ten years from the effective date of the Plan specified in section 9 below, (2) the aggregate fair market value (determined as of the date the Option is granted) of the Stock subject to Options that become exercisable for the first time by any Employee during any calendar year under all Incentive Stock Options of the Company and its Subsidiaries shall not exceed $100,000, and (3) no person who is not an Employee of the Company or a Subsidiary shall be entitled to receive Incentive Stock Options under the Plan. (b) The Board may delegate administration of the Plan to a Committee of the Board. The Committee shall consist of not less than three members appointed by the Board. Subject to the foregoing, the Board may from time to time increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint new members in substitution therefor, or fill vacancies, however caused. If the Board delegates administration of the Plan to a Committee, the Committee shall have the powers theretofore possessed by the Board with respect to the administration of the Plan (and references in this Plan to the Board shall apply to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (c) Notwithstanding anything in this section 4 to the contrary, beginning at such time as the Company first registers a class of equity securities under section 12 of the Exchange Act, all decisions to grant Options shall be made by the Board or by a Committee comprised solely of two or more Directors, each of whom is both a Non-Employee Director and an Outside Director, or shall be made in another manner that satisfies the requirements of Section 16b-3, so that transactions between the Company and any Officer or Director relating to such Options may be exempt from section 16(b) of the Exchange Act. 5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted shall be evidenced by an Option Agreement in substantially the form attached hereto as Annex A or Annex B or such other form as may be approved by the Board. Each Option Agreement shall include the following terms and conditions and such other terms and conditions as the Board may deem appropriate: (a) OPTION TERM. Each Option Agreement shall specify the term for which the Option thereunder is granted and shall provide that such Option shall expire at the end of such term. The Board may extend such term; provided that, in the case of an Incentive Stock Option, such extension shall not in any way disqualify the Option as an Incentive Stock Option. The term of any Option, including any such extensions, shall not exceed ten years from the date of grant; provided that, in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, such term, including extensions, shall not exceed five years from the date of grant. 4 5 (b) EXERCISE PRICE. Each Option Agreement shall specify the exercise price per share, as determined by the Board at the time the Option is granted; provided that the exercise price of an Incentive Stock Option shall be not less than the fair market value, or if granted to a Ten Percent Shareholder, 110 percent of the fair market value, of one share of Stock on the date the Option is granted, as such fair market value is determined by the Board. (c) VESTING. Each Option Agreement shall specify when it is exercisable. The total number of shares of Stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not be, equal). An Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period or any prior period as to which the Option shall have become vested but shall not have been fully exercised. An Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board deems appropriate. (d) PAYMENT OF PURCHASE PRICE ON EXERCISE. Each Option Agreement shall provide that the purchase price of the shares as to which such Option may be exercised shall be paid to the Company at the time of exercise either (i) in cash, or (ii) in the absolute discretion of the Board (which discretion may be exercised in a particular case without regard to any other case or cases), at the time of the grant or thereafter, (A) by the withholding of shares of Stock issuable on exercise of the Option or the delivery to the Company of other Stock owned by the Optionee, provided in either case that the Optionee has owned shares of Stock equal in number to the shares so withheld for a period sufficient to avoid a charge to the Company's reported earnings, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of Stock) with the person to whom the Option is granted or to whom the Option is transferred pursuant to section 5(e), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement, or if less, the maximum rate permitted by law. (e) NONTRANSFERABILITY. An Option shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of by the Optionee during his or her lifetime, whether by operation of law or otherwise, other than by will or the laws of descent and distribution applicable to the Optionee, and shall not be made subject to execution, attachment or similar process; provided that the Board may in its discretion at the time of approval of the grant of an Option or thereafter permit an Optionee to transfer an Option to a trust or other entity established by the Optionee for estate planning purposes, and may permit further transferability or impose conditions or limitations on any permitted transferability. Otherwise, during the lifetime of an Optionee, an Option shall be exercisable only by such Optionee. 5 6 (f) CONDITIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES. (i) SECURITIES LAW COMPLIANCE. The Plan, the grant and exercise of Options thereunder and the obligation of the Company to sell and deliver shares on exercise of Options shall be subject to all applicable Federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required, in the opinion of the Board. Shares shall not be issued on exercise of an Option until (1) the listing of such shares on any stock exchange on which the Stock may then be listed and compliance with all requirements of such exchange, and (2) the completion of any registration or qualification of such shares under any Federal or state law, including without limitation the Securities Act and the Exchange Act, or any rule or regulation of any government body which the Company determines in its sole discretion to be necessary or advisable. (ii) INVESTMENT REPRESENTATION. The Company may require any Optionee, or any person to whom an Option is transferred, as a condition of exercising such Option, to (1) give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the Stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall not apply if (A) the issuance of the Stock on the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act, or (B) counsel for the Company determines as to any particular requirement that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, with the advice of its counsel, place such legends on stock certificates issued under the Plan as the Company deems necessary or appropriate to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Stock. (g) EXERCISE AFTER DEATH OF OPTIONEE. If an Optionee dies (i) while an Employee, Consultant or Director, or (ii) within three months after termination of the Optionee's Continuous Status as an Employee, Consultant or Director because of his or her Disability or retirement, his or her Options may be exercised (to the extent that the Optionee was entitled to do so on the date of death or termination) by the Optionee's estate or by a person who shall have acquired the right to exercise the Options by bequest or inheritance, but only within the period ending on the earlier of (1) one year after the Optionee's death (or such shorter or longer period specified in the Option Agreement, which period shall not be less than six months), or (2) the expiration date specified in the Option Agreement. If after the Optionee's death, the Optionee's estate or the person who acquired the right to exercise the Optionee's Options does not exercise 6 7 the Options within the time specified herein, the Options shall terminate and the shares covered by such Options shall revert to and again become available for issuance under the Plan. (h) EXERCISE AFTER TERMINATION OF OPTIONEE'S CONTINUOUS STATUS AS AN EMPLOYEE, CONSULTANT OR DIRECTOR AS A RESULT OF DISABILITY OR RETIREMENT. If an Optionee's Continuous Status as an Employee, Consultant or Director terminates as a result of the Optionee's Disability or retirement, and the Optionee does not die within the following three months, the Optionee may exercise his or her Options (to the extent that the Optionee was entitled to exercise them on the date of termination), but only within the period ending on the earlier of (i) six months after such termination (or such longer period specified in the Option Agreement), or (ii) the expiration of the term set forth in the Option Agreement. If after termination, the Optionee does not exercise his or her Options within the time specified herein, the Options shall terminate, and the shares covered by such Options shall revert to and again become available for issuance under the Plan. (i) NO EXERCISE AFTER TERMINATION OF OPTIONEE'S CONTINUOUS STATUS AS AN EMPLOYMENT, CONSULTANT OR DIRECTOR OTHER THAN AS A RESULT OF DEATH, DISABILITY OR RETIREMENT. If an Optionee's Continuous Status as an Employee, Consultant or Director terminates other than as a result of the Optionee's death, Disability or retirement, all right of the Optionee to exercise his or her Options shall terminate on the date of termination of such Continuous Status as an Employee, Consultant or Director. The Options shall terminate on such termination date, and the shares covered by such Options shall revert to and again become available for issuance under the Plan. (j) EXCEPTIONS. Notwithstanding subsections (h), (i) and (j), the Board shall have the authority to extend the expiration date of any outstanding Option in circumstances in which it deems such action to be appropriate, provided that no such extension shall extend the term of an Option beyond the expiration date of the term of such Option as set forth in the Option Agreement. (k) INCENTIVE STOCK OPTIONS. Each Option Agreement that provides for the grant of an Incentive Stock Option shall contain such terms and conditions as the Board determines to be necessary or desirable to qualify such Option as an Incentive Stock Option within the meaning of section 422 of the Code. (l) COMPANY'S REPURCHASE RIGHT. Each Option Agreement may, but is not required to, include provisions whereby the Company shall have the right to repurchase any and all shares acquired by an Optionee on exercise of any Option granted under the Plan, at such price and on such other terms and conditions as the Board may approve and as may be set forth in the Option Agreement. Such right shall be exercisable by the Company after termination of an Optionee's Continuous Status as an Employee, Consultant or Director, whenever such termination may occur and whether such termination is voluntary or involuntary, with cause or without cause, without regard to the reason therefor, if any. 7 8 6. ADJUSTMENTS ON CHANGES IN STOCK. (a) If any change in the Stock subject to the Plan or subject to any Option occurs (through stock dividend, dividend in property other than cash, recapitalization, reorganization, reclassification, stock split or reverse stock split, liquidating dividend, combination or exchange of shares, merger or consolidation, any direct or indirect offering of Stock at a price substantially below fair market value, or any similar change affecting the Stock), the Board will appropriately adjust the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of Stock subject to the outstanding Options. (b) In the event of (i) a merger or consolidation in which the Company is not the surviving corporation, or (ii) a reverse merger in which the Company is the surviving corporation but the shares of the Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (1) any surviving corporation shall assume any Options outstanding under the Plan or shall substitute similar options for those outstanding under the Plan, or (2) any Options outstanding under the Plan shall continue in full force and effect. If any surviving corporation refuses to assume or continue such Options, or to substitute similar options for those outstanding under the Plan, then such Options shall be terminated if not exercised prior to the merger or reverse merger. If the Company dissolves or is liquidated, any Options outstanding under the Plan shall terminate if not exercise prior to such event. 7. AMENDMENT OF THE PLAN. (a) The Board may from time to time amend or modify the Plan for any reason; provided that the Company will seek shareholder approval for any change if and to the extent required by applicable law, regulation or rule. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the Code and the regulations promulgated thereunder relating to Incentive Stock Options or to cause the Plan or Incentive Stock Options to comply therewith. (c) Rights and obligations under any Option granted before amendment of the Plan shall not be altered or impaired by any amendment, unless the Optionee consents in writing. 8. TERMINATION OR SUSPENSION OF THE PLAN. The Board may suspend or terminate the Plan at any time for any reason. Unless sooner terminated, the Plan shall terminate on the day prior to the tenth anniversary of the earlier of the date the Plan is adopted by the Board or the date the Plan is approved by the Company's 8 9 shareholders. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the written consent of the Optionee. 9. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan shall be determined by the Board, subject to approval by the shareholders of the Company holding not less than a majority of the shares present and voting at an annual or special meeting or by written consent. Notwithstanding the foregoing, if the Plan is approved by the Board prior to such meeting or the giving of such consent, Options may be granted by the Board as provided herein subject to such subsequent shareholder approval. 9 10 10. WITHHOLDING TAXES. Whenever the Company proposes or is required to issue or transfer shares of Stock under the Plan, the Company shall have the right to require the grantee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Alternatively, the Company may issue or transfer such shares net of the number of shares sufficient to satisfy the withholding tax requirements. For withholding tax purposes, the shares of Stock shall be valued on the date the withholding obligation is incurred. 11. MISCELLANEOUS. (a) NO RIGHTS AS SHAREHOLDER. No Optionee, as such, shall have any rights as a shareholder of the Company. (b) NO RIGHTS TO CONTINUED EMPLOYMENT OR ENGAGEMENT. The Plan and any Options granted under the Plan shall not confer on any Optionee any right with respect to continuation of employment by the Company or any Subsidiary or engagement as a Consultant or Director, nor shall they interfere in any way with the right of the Company or any Subsidiary that employs or engages an Optionee to terminate the Optionee's employment or engagement at any time. (c) COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT. Beginning at such time as the Company first registers a class of equity securities under section 12 of the Exchange Act, the Company intends that the Plan shall comply in all respects with Rule 16b-3. If after such time any provision of this Plan is found not to be in compliance with Rule 16b-3, that provision shall be deemed to have been amended or deleted as and to the extent necessary to comply with Rule 16b-3, and the remaining provisions of the Plan shall continue in full force and effect without change. All transactions under the Plan after such time shall be executed in accordance with the requirements of section 16 of the Exchange Act and the applicable regulations promulgated thereunder. 10 EX-10.3 6 FORM OF OPTION AGREEMENT 1 EXHIBIT 10.3 THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. INCENTIVE STOCK OPTION AGREEMENT __________________, Optionee: Waste Connections., Inc. (the "Company"), pursuant to its 1997 Stock Option Plan (the "Plan"), has this ______________, 19___, granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant under this Incentive Stock Option Agreement (the "Agreement") is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's Employees (including Officers), Directors or Consultants and is intended to comply with Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Plan. The option granted hereunder shall be subject to and governed by the following terms and conditions: 1. The total number of shares of Stock subject to this option is ______________ shares. Subject to the limitations herein and in the Plan, this option shall become exercisable (vest) as follows: Number of Shares Date of Earliest Exercise (Installment) (Vesting) 1. 2 The installments provided for are cumulative. Each such installment that becomes exercisable shall remain exercisable until expiration or earlier termination of the option. 2. (a) The exercise price of this option is $_____________________ per share, being not less than 100 percent of [110 percent if Optionee is a Ten Percent Shareholder] the fair market value of the Stock on the date of grant of this option. (b) Payment of the exercise price per share is due in full in cash (including check) on exercise of all or any part of each installment that has become exercisable by you; provided that, if at the time of exercise the Stock is publicly traded and quoted regularly in the Wall Street Journal, payment of the exercise price, to the extent permitted by the Company and applicable statutes and regulations, may be made by having the Company withhold shares of Stock issuable on such exercise, by delivering shares of Stock already owned by you, or by delivering a combination of cash and such shares. Such Stock (i) shall be valued at its fair market value at the close of business on the date of exercise, (ii) if originally acquired from the Company, must have been held for the period required to avoid a charge to the Company's reported earnings, and (iii) must be owned free and clear of any liens, claims, encumbrances or security interests. (c) Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of Stock. 3. (a) Subject to the provisions of this Agreement, you may elect at any time during your Continuous Status as an Employee, Consultant or Director to exercise this option as to any part or all of the shares subject to this option at any time during the term hereof, including, without limitation, a time prior to the date of earliest exercise (vesting) stated in paragraph 1 hereof; provided that: (i) a partial exercise of this option shall be deemed to cover first vested shares and then unvested shares next vesting; (ii) any shares so purchased that shall not have vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Early Exercise Stock Purchase Agreement available from the Company; (iii) you shall enter into an Early Exercise Stock Purchase Agreement in the form available from the Company with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and (iv) you acknowledge that the aggregate fair market value (determined as of the date options are granted) of any Stock subject to Incentive Stock Options granted to you by the Company or any parent or Subsidiary that become exercisable for the first time during any 2. 3 calendar year may not exceed $100,000, and agree that to the extent that the aggregate fair market value of Stock with respect to which such Incentive Stock Options are exercisable by you for the first time in a calendar year exceeds $100,000, the options or portions thereof in excess of such limit shall be treated (according to the order in which they were granted) as Nonqualified Stock Options. (b) The election provided in this paragraph 3 to purchase shares on the exercise of this option prior to the vesting dates shall cease on termination of your Continuous Status as an Employee, Consultant or Director and may not be exercised from or after the date thereof. 4. This option may not be exercised for any number of shares that would require the issuance of anything other than whole shares. 5. Notwithstanding anything to the contrary herein, this option may not be exercised unless the shares issuable on exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company shall have determined that such exercise and issuance would be exempt from the registration requirements of the Act. 6. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on ___________________ (which date shall be no more than [ten years] [five years if Optionee is a Ten Percent Shareholder] from the date this option is granted). In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term on the day after the termination of your Continuous Status as an Employee, Consultant or Director for any reason or for no reason, unless: (a) such termination is due to your retirement or Disability and you do not die within the three months after such termination, in which event the option shall terminate on the earlier of the termination date set forth above or six months after such termination of your Continuous Status as an Employee, Consultant or Director; or (b) such termination is due to your death, or such termination is due to your retirement or Disability and you die within three months after such termination, in which event the option shall terminate on the earlier of the termination date set forth above or the first anniversary of your death. Notwithstanding any of the foregoing provisions to the contrary however, this option may be exercised following termination of your Continuous Status as an Employee, Consultant or Director only as to that number of shares as to which it shall have been exercisable under paragraph 1 of this Agreement on the date of such termination. 3. 4 7. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 5(f) of the Plan. (b) By exercising this option you agree that: (i) the Company may require you to enter into an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired on such exercise; (ii) you will notify the Company in writing within fifteen days after the date of any disposition of any of the shares of the Stock issued on exercise of this option that occurs within two years after the date of this option grant or within one year after such shares of Stock are issued on exercise of this option; and (iii) the Company (or a representative of the underwriters) may, in connection with an underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Stock or other securities of the Company during such period (not to exceed 180 days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. For purposes of this restriction, you will be deemed to own securities which (i) are owned directly or indirectly by you, including securities held for your benefit by nominees, custodians, brokers or pledgees; (ii) may be acquired by you within sixty days of the Effective Date; (iii) are owned directly or indirectly, by or for your brothers or sisters (whether by whole or half blood) spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which you are a shareholder, partner or beneficiary, but only to the extent of your proportionate interest therein as a shareholder, partner or beneficiary thereof. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 8. You hereby represent and warrant to and agree with the Company as follows: (a) You have been granted access to, and have reviewed carefully, the Plan and such records of the Company as may be necessary to permit you to evaluate the option and, before any exercise of the option, you will review such records of the Company as may be necessary to permit you to evaluate the merits and risks of an investment in Stock. You are entering into this Agreement and the transactions contemplated hereby solely in reliance on your own investigation and such review. You have had an opportunity to meet with the officers of the 4. 5 Company subsequent to review of such information to discuss with them your questions concerning the Company and the terms and conditions of the acquisitions hereunder. (b) You are acquiring the option and will acquire the Stock, if at all, pursuant to this Agreement with your own funds, and not with the funds of anyone else. You are acquiring the option and will acquire the Stock, if at all, for your own account, not as a nominee or agent and not for the account of any other person or firm. No one else has or will have on any exercise of the option any interest, beneficial or otherwise, in the option or, on the exercise of the option, in any of the shares of Stock to be acquired on such exercise. You are not, and prior to any exercise of the option will not be, obligated to transfer the option or any Stock or any interest therein to anyone else, and you do not and will not have any agreement or understanding to do so. You are acquiring the option and will purchase Stock on the exercise hereof, if at all, for investment for an indefinite period and not with a view to the sale or distribution of the option or any Stock or any part or all thereof, by public or private sale or other disposition, and you have no intention of selling, granting any participation in or otherwise distributing or disposing of any or all of the option or any Stock or any interest therein. You do not, and on any exercise of the option will not, intend to subdivide the option or any shares purchased on exercise thereof with anyone. (c) At the time of any acquisition of Stock you will be able to bear the economic risk of the investment in any Stock purchased. You are aware that if you exercise the option, you must be prepared to hold any Stock received for an indefinite period. You understand that neither the option nor the Stock has been registered under the Act, on the ground, among others, that no distribution or public offering of the Company's securities is to be effected and any Stock acquired on exercise thereof will be acquired in connection with transactions not involving any public offering within the meaning of section 4(2) of the Act. The Stock, if and when issued, will be "restricted securities", as that term is defined in Rule 144 under the Act, and, accordingly, apart from exercise of the option, the option and such Stock must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. You understand and agree that the Company is not under any obligation to register the option or any Stock under the Act or to comply with any exemption under the Act. You understand that the Company is relying in part on your representations as set forth herein for purposes of claiming the exemption from registration under the Act provided in section 3(b) or 4(2) thereof and that the basis for such exemption may not be present if, notwithstanding your representations herein, you have in mind merely acquiring the option or shares for resale on the occurrence or nonoccurrence of some predetermined event. You do not have in mind merely acquiring the option or any shares for resale on the occurrence or nonoccurrence of any predetermined event. (d) You have such knowledge and experience in financial and business matters that the you are capable of evaluating the merits and risks of the prospective investment contemplated by this Agreement, and you have carefully reviewed and will carefully review all 5. 6 the information regarding the Company, access to which has been and will be accorded to you hereunder, are thoroughly familiar with the business, operations and properties of the Company by virtue of such review and of your relationship with the Company and have discussed with the officers of the Company any questions you have with respect to the Company. (e) Without in any way limiting your representations as set forth herein, you further agree that you shall in no event make any disposition of all or any part of or interest in the Stock or the option and that the Stock and the option shall not be encumbered, pledged, hypothecated, sold, assigned or transferred by you nor shall you receive any consideration for the option or any Stock or for any interest therein from any person, unless and until prior to any proposed encumbrance, pledge, hypothecation, sale, assignment, transfer or other disposition of the option or any Stock, either (i) a registration statement on Form S-1 (or any other form replacing such form or appropriate for the purpose under the Act) with respect to the option or the Stock, as the case may be, proposed to be transferred or otherwise disposed of shall be then effective or (ii)(1) you have notified the Company of the proposed disposition and have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (2) you have furnished the Company with an opinion of counsel (obtained at your expense) in form and substance satisfactory to the Company to the effect that such disposition will not require registration of the option or any Stock, as the case may be, under the Act or qualification of the option or any Stock, as the case may be, under any other securities law and (3) counsel for the Company shall have concurred in such opinion and the Company shall have advised you of such concurrence. (f) If the Company proposes to sell Stock in a public offering registered under the Act or exempt from registration under the Act, the administrators of the securities laws of certain states may require as a condition of registration or such exemption that some or all of the Shares be deposited in an escrow or be subject to waivers of rights to dividends and assets on liquidation, or both, for an extended period of time, subject to release if specified financial or market requirements are met and partial cancellation if such requirements are not met. You agree that you will enter into any such escrow or waiver agreement that the Company may consider necessary for the successful completion of such public offering. (g) If, in the opinion of counsel for the Company, you at any time act in any manner not consistent with your representations, warranties and agreements in this Agreement, the Company may refuse to transfer the option or any Stock until such time as counsel for the Company is of the opinion that such transfer may be effected in compliance with all provisions of this Agreement and such transfer will not require registration of the option or any Stock under the Act or qualification of the option or any Stock under any other securities law. (h) You hereby agree to indemnify and defend the Company and its directors, officers, employees and agents and hold them harmless from and against any and all claims, liabilities, damages or expenses incurred on account of or arising out of (i) any inaccuracy in or breach of any of your representations, warranties or agreements in this Agreement, including, 6. 7 without limitation, the defense of any claim based on any allegation of fact inconsistent with any of such representations, warranties or agreements; (ii) the disposition of the option or any Stock that you may receive, contrary to any of such representations, warranties and agreements; or (iii) any action, suit or proceeding based on a claim that any of such representations, warranties or agreements were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company under the Act or any other securities law. (i) Certificates representing any Stock received on exercise of the option will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) substantially in the form set forth below, which legend restricts the sale, transfer or disposition of the Stock otherwise than in accordance with this Agreement: THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. IN ADDITION, SALE, TRANSFER, ENCUMBRANCE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OR ALIENATION OF SUCH SHARES OR ANY INTEREST THEREIN IS RESTRICTED BY AND SUBJECT TO AN INCENTIVE STOCK OPTION AGREEMENT DATED ________________, 19__, A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. (j) If Stock acquired on exercise of this option is transferred other than by will or by the laws of descent and distribution within two years after the date this option is granted or within one year after the issuance of such Stock on exercise of this option, such transfer shall be a "disqualifying disposition" under the Code, and you must bear the tax consequences thereof. (k) The Company may require you to furnish to the Company, prior and as a condition to the issuance of any Stock on any exercise of the option, an agreement (in such form as the Company may specify) in which you confirm the foregoing representations, warranties and agreements or make similar or additional representations, warranties and agreements with respect to such Stock. 7. 8 9. This option is generally not transferable, except by will or by the laws of descent and distribution, unless the Company expressly permits a transfer, such as to a trust or other entity for estate planning purposes. Unless the Company approves such a transfer, this option is exercisable during your life only by you. 10. This Agreement is not an employment contract and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. 11. Any notice or other communication to be given under or in connection with this Agreement or the Plan shall be given in writing and shall be deemed effectively given on receipt or, in the case of notices from the Company to you, five days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you may hereafter designate by notice to the Company. 12. This Agreement is subject to all provisions of the Plan, a copy of which is attached hereto and made a part of this Agreement, including, without limitation, the provisions of section 5 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. WASTE CONNECTIONS, INC. By --------------------------------------- Duly authorized on behalf of the Board of Directors ATTACHMENTS: 1997 Stock Option Plan Notice of Exercise 8. 9 The undersigned: (a) Acknowledges receipt of the foregoing Incentive Stock Option Agreement and the attachments referenced therein and understands that all rights and liabilities with respect to the option granted under the Agreement are set forth in such Agreement and the Plan; and (b) Acknowledges that as of the date of grant set forth in such Agreement, the Agreement sets forth the entire understanding between the undersigned optionee and the Company and its Subsidiaries regarding the acquisition of Stock pursuant to the option and supersedes all prior oral and written agreements on that subject with the exception of (i) the options, if any, previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: NONE: ------------- (Initial) OTHER: ------------------------- ------------------------- ------------------------- ------------------------------------- OPTIONEE Address: ----------------------------- ----------------------------- 9. EX-10.4 7 FORM OF WARRANT AGREEMENT 1 EXHIBIT 10.4 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK PURCHASABLE ON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S COUNSEL TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. Warrant No. ___ Warrant to Purchase ________ shares of Common Stock (Subject to Adjustment) WARRANT TO PURCHASE COMMON STOCK of WASTE CONNECTIONS, INC. Void after December 14, 2008 This certifies that for value received,____, ("Holder") is entitled, subject to the terms set forth below, at any time or from time to time before 5:00 p.m., Pacific standard time, on December 14, 2008, to purchase from Waste Connections, Inc., a Delaware corporation (the "Company"), up to ____ fully paid and nonassessable shares of the common stock, par value $0.01 per share, of the Company (the "Common Stock") as constituted on December 15, 1998 (the "Issue Date"), upon surrender hereof at the principal office of the Company, with the subscription form attached hereto properly completed and duly executed, and simultaneous payment therefor in lawful money of the United States at the price of $2.80 per share, subject to adjustment as provided in Section 4 hereof (the "Purchase Price"). The number and character of such shares of Common Stock are also subject to adjustment as provided below. Such number shall be reduced at such time or times as this Warrant is exercised in part by the number of shares as to which this Warrant is then exercised. The term "Warrant Stock" shall mean, unless the context otherwise requires, the stock and other securities and property at any time receivable upon the exercise of this Warrant. The term "warrant" as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. 1. Method of Exercise; Payment. Subject to compliance with the provisions of Section 7 hereof: 2 A. Cash Exercise. This Warrant may be exercised as a whole, or in part from time to time, by the Holder by delivering this Warrant, for cancellation if it is exercised as a whole or for endorsement if it is exercised in part, together with a Subscription in the form appearing at the end hereof properly completed and duly executed by or on behalf of the Holder, to the Company at its office in Roseville, California (or at the office of the agency maintained for such purpose), accompanied by payment in cash or by certified or official bank check payable to the order of the Company, in an aggregate amount equal to the Purchase Price as then adjusted times the number of shares of Warrant Stock as to which this Warrant is then being exercised. In the event of any such exercise that is partial, the Company shall endorse this Warrant as having been exercised to that extent and return this Warrant to the Holder. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. B. Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 1.A, Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at such office together with notice of such election, in which event the Company shall issue to Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Warrant Stock to be issued to Holder. Y = the number of shares of Warrant Stock purchasable under this Warrant at the date of such calculation or, if only a portion of this Warrant is being exercised, the portion of this Warrant being cancelled at the date of such calculation. A = the fair market value of one share of Warrant Stock purchasable under this Warrant at the date of such calculation. B = Purchase Price (as adjusted to the date of such calculations). For purposes of this Warrant, fair market value of one share of Warrant Stock shall mean: (1) The average of the closing bid and asked prices of the Common Stock quoted on the NASDAQ Stock Market or the closing price quoted on any national securities 2 3 exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the date of determination of fair market value; or (2) If the Common Stock is not traded on the NASDAQ stock market or on such an exchange, an amount reasonably determined in good faith by the Board of Directors to be the fair market value. C. Delivery of Stock Certificates. The Company will, or will direct its transfer agent to, issue, as soon as practicable after any exercise of this Warrant under Section 1 and in any event within thirty days thereafter, at its expense (including the payment by it of any applicable issue taxes), in the name of and deliver to the Holder, or as the Holder may direct (on payment by the Holder of any applicable transfer taxes) a certificate or certificates for the number of fully paid and nonassessable shares of Warrant Stock as to which this warrant is so exercised. 2. Payment of Taxes. All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issuance or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Warrant Stock in any name other than that of the Holder and, in such case, the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid, or it has been established to the Company's satisfaction that no tax or other charge is due. 3. A. Transfer. Subject to Section 7, this Warrant and all rights hereunder are transferable, as a whole or in part, on the books of the Company maintained for such purpose at the office specified pursuant to Section 1.A, by the Holder in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to the Holder a new warrant or warrants of like tenor with respect to the shares of Warrant Stock not so transferred. In lieu of any fraction of a share to which the Holder would otherwise be entitled, the Company may deliver to the Holder cash in an amount equal to such fraction of the current fair market value of one full share determined in the manner provided in Section 1.B. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable and that when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner 3 4 hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding, but until a transfer of this Warrant on the books of the Company, the Company may treat the Holder as the owner for all purposes. B. Exchange. At the request of the Holder, the Company shall exchange this Warrant for two or more Warrants of like tenor entitling the Holder to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder shall designate at the time of such exchange; provided that the Holder shall not be entitled so to exchange this Warrant or any warrant received in any such exchange on more than an aggregate of five occasions. 4. A. Adjustment for Dividends in Other Stock or Property. In case at any time, or from time to time, after the Issue Date the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant), shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor: (1) Other or additional stock or other securities or property (other than cash) by way of a dividend; (2) Any cash paid or payable out of capital, or capital surplus, or surplus created as a result of a revaluation of property; or (3) Other or additional stock or other securities or property (including cash) by way of a stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement; then, and in each such case, the Holder, upon the exercise hereof (as provided in Section 1), shall be entitled to receive the number of shares of Warrant Stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which the Holder would hold on the date of such exercise if on the Issue Date the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the Issue Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) receivable by the Holder as aforesaid during such period, giving effect to all adjustments during such period pursuant to this Section 4. B. Merger, Sale of Assets, etc. If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), 4 5 (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Purchase Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.B shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. C. Reclassification, etc. If the Company, at any time while this Warrant, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change the Warrant Stock into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the Warrant Stock immediately prior to such reclassification or other change and the Purchase Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. D. Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the Warrant Stock, into a different number of securities of the same class, the Purchase Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. 5 6 E. Adjustments for Dividends in Stock or Other Securities or Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of Warrant Stock receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such Holder would hold on the date of such exercise had it been the holder of record of the Warrant Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 4. F. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Purchase Price at the time in effect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant. G. No Dilution or Impairment. The Company will not by amendment of its Articles of Incorporation, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of Warrant Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares upon the exercise of this Warrant, and (c) will take no action to amend its Articles of Incorporation which would change to the detriment of the holders of Common Stock (whether or not any Common Stock be at the time outstanding) the dividend or voting rights of the Company's Common Stock (as constituted on the Issue Date). H. Notices of Record Date. In case: 6 7 (1) The Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend or other distribution or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (2) Of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any split or combination of shares of any class of capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation, or (3) Of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Holder a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, split, combination, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, split, combination, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least 90 days prior to the date therein specified. 5. Loss or Mutilation. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new warrant of like tenor. 6. Reservation of Common Stock. The Company shall at all times reserve and keep available for issue upon the exercise of this Warrant such number of its authorized but unissued shares of Warrant Stock as will be sufficient to permit the exercise in full of this Warrant. 7. Investment Intent. The Holder, by accepting this Warrant, represents and warrants to the Company as follows: A. Acquisition for Own Account. The Holder is acquiring this Warrant and will acquire the shares of Warrant Stock on exercise of this Warrant with the Holder's own funds, for the Holder's own account, not as a nominee or agent. The Holder is not obligated to 7 8 transfer this Warrant or any Warrant Stock to anyone else nor has any agreements or understandings to do so. The Holder is purchasing or will purchase this Warrant and the Warrant Stock for investment for an indefinite period and not with a view to any sale or distribution thereof, by public or private sale or other disposition, and has no intention of selling, granting any participation in or otherwise distributing or disposing of any thereof. The Holder does not intend to subdivide the Holder's purchase with anyone. B. Restricted Securities. The Holder is able to bear the economic risk of the Holder's investment in this Warrant and the Warrant Stock and is aware that the Holder must be prepared to hold this Warrant and the Warrant Stock for an indefinite period and that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Act"), on the ground that no distribution or public offering of this Warrant or the Warrant Stock is to be effected and this Warrant or the Warrant Stock are being or will be issued by the Company without any public offering within the meaning of Section 4(2) of the Act. C. Sophistication. The Holder is an "accredited investor" as that term is defined in Regulation D under the Act. The Holder has such knowledge and experience in financial and business matters that the Holder is capable of evaluating the merits and risks of the Holder's investment in this Warrant and the Warrant Stock. D. Agreement to Refrain from Resales. Without in any way limiting the Holder's representations herein, the Holder further agrees that the Holder shall not encumber, pledge, hypothecate, sell, assign, transfer or otherwise dispose of this Warrant or any Warrant Stock, unless and until, prior to any proposed encumbrance, pledge, hypothecation, sale, assignment, transfer or other disposition, either (i) a registration statement on Form S-l (or any other form appropriate for the purpose or replacing such form) under the Act with respect thereto shall be then effective (ii)(a) the Holder shall have furnished the Company with a statement of the circumstances of the proposed disposition and an opinion of counsel (obtained at the Holder's expense) satisfactory to the Company to the effect that such disposition will not require registration under the Act and (b) counsel for the Company shall have concurred in such opinion of counsel and the Company shall have advised the Holder of such concurrence; or (iii) the Warrant Stock can then be sold pursuant to Rule 144 under the Act. E. Certificates to be Legended. The Holder understands and agrees that this Warrant, any warrant issued to replace this Warrant and any certificate representing Warrant Stock will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) in substantially the form set forth on the first page of this Warrant and any other legend that the Company considers necessary or appropriate to comply with any applicable securities law. 8 9 8. Registration. The Company acknowledges that it has granted to certain holders of its capital stock certain rights to registration of such capital stock for resale under the Act, the terms and conditions of which rights are set forth in an Investors' Rights Agreement dated as of September 30, 1997. The Company covenants and agrees to seek an amendment to the Investors' Rights Agreement to include the Warrant Stock in the Registrable Securities to which the registration rights set forth in Section 1 of the Investors' Rights Agreement so that the Holder shall be entitled to identical registration rights pari passu with such holders of capital stock as if the Holder had acquired the Warrant Stock concurrently with such holders and pursuant to the Investors' Rights Agreement. If such amendment is not consented to by the holders of a majority of the Registrable Securities as required by the Investors' Rights Agreement, the Company shall promptly prepare and thereafter enter into with the Holder a Registration Rights Agreement providing for the same registration rights as the Investors' Rights Agreement, which rights shall be subject and subordinate only to those set forth in the Investors' Rights Agreement. 9. Notices. All notices and other communications from the Company to the Holder shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last Holder who shall have furnished an address to the Company in writing. 10. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 11. Attorneys' Fees. In the event any party is required to engage the services of attorneys for the purpose of enforcing this Warrant, or any provision hereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and any other costs or expenses. 12. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 13. Law Governing. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of California. DATED: December 15, 1997 WASTE CONNECTIONS, INC. By: ____________________________________ 9 10 Ronald J. Mittelstaedt President and Chief Executive Officer 10 11 ENDORSEMENTS
Number of Shares Number of Shares Remaining as to Which Available for Signature of Authorized Officer Exercise Date Exercised Exercise of the Company ------------- ---------------- ------------- -------------------------------
11 12 SUBSCRIPTION FORM (To be executed only upon exercise of warrant) The undersigned Holder of this Warrant irrevocably exercises this Warrant for the purchase of _________ shares of Common Stock of Waste Connections, Inc., purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant. Dated: ___________________________ ________________________________________ (signature of Holder) ________________________________________ (Street Address) ________________________________________ (city) (state) (zip Code) 12 13 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned Holder of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below: Name of Assignee Address No. of Shares ---------------- ------- ------------- and does hereby irrevocably constitute and appoint ____________ [Attorney] to make such transfer on the books of Waste Connections, Inc., maintained for the purpose, with full power of substitution in the premises. Dated: ____________________ [Holder] By: ____________________________________ Name: ______________________________ Title: _____________________________ 13 EX-10.5 8 WARRANT AGREEMENT/IMPERIAL BANK 1 EXHIBIT 10.5 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Company: WASTE CONNECTIONS, INC. Number of Shares: 200,000 Class of Stock: Common Initial Exercise Price: $0.01 per Share Issue Date: September 30, 1997 Expiration Date: September 29, 2004 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, IMPERIAL BANK, or its designee ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. ARTICLE 1. EXERCISE. 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share as of the date of conversion. The fair market value of the Shares shall be determined pursuant Section 1.4. 1.3 Omitted. 1.4 Fair Market Value. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall negotiate in good faith for up to four days as to the correct valuation. If they have not agreed upon such valuation after such negotiation, Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1 2 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 Repurchase on Sale, Merger, or Consolidation of the Company. 1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2. Assumption of Warrant. Upon the closing of any Acquisition the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. 1.7.3. Purchase Right. Notwithstanding the foregoing, at the election of Holder, the Company shall purchase the unexercised portion of this Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received by Holder in consideration of the Shares had Holder exercised the unexercised portion of this Warrant immediately before the record date for determining the shareholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event less than zero. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased, and vice versa. 2 3 2.4 Adjustments for Diluting Issuances. The Warrant Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time in the manner set forth in Holder's Anti-Dilution Agreement. 2.5 No Impairment. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws; the number of Shares that may be purchased under this Warrant is equal to four percent (4.0%) of the issued and outstanding stock of the Company on the Issue Date of this Warrant; and the Initial Purchase Price is equal to the purchase price at which the Company last sold its shares of Common Stock to any person. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3 4 3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the shareholders of the Company, (b) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. 3.4 Registration Under Securities Act of 1933, as amended. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit A, if attached. ARTICLE 4. MISCELLANEOUS. 4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. If Holder proposes to transfer the Warrant before the Company has sold the Shares under the Securities Act of 1933, as amended, Holder shall first offer to transfer the Warrant to the Company on substantially the same terms and for the same price. If the Company elects within five (5) days to accept such offer, the Company shall promptly purchase the Warrant on such terms. If the Company fails to accept such offer, then Holder may transfer the Warrant to the proposed transferee in accordance with such terms. 4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 4 5 4.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. "COMPANY" WASTE CONNECTIONS, INC. By ------------------------------------- Name ----------------------------------- (Print) Title: Chairman of the Board, President, or Vice President By ------------------------------------- Name ----------------------------------- (Print) Title: Chief Financial Officer, Secretary Assistant Treasurer, or Assistant Secretary 5 6 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase shares ____________________ of the Common Stock of __________________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ---------------------------------------- (Name) ---------------------------------------- ---------------------------------------- (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ---------------------------------------- (Signature) - -------------------- (Date) 6 7 EXHIBIT A Registration Rights The Shares (if common stock), or the common stock issuable upon conversion of the Shares, shall be deemed "registrable securities" or otherwise entitled to "piggy back" registration rights in accordance with the terms of the following agreement (the "Agreement") between the Company and its investor(s): WASTE CONNECTIONS, INC. INVESTORS' RIGHTS AGREEMENT Dated as of September 30, 1997 by and among the Company and the investors party thereto. The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder's registration rights thereunder without the consent of Holder. By acceptance of the Warrant to which this Exhibit A is attached, Holder shall be deemed to be a party to the Agreement. If no Agreement exists, then the Company and the Holder shall enter into Holder's standard form of Registration Rights Agreement as in effect on the Issue Date of the Warrant. 7 8 EXHIBIT 10.5 WASTE CONNECTIONS, INC. ANTIDILUTION AGREEMENT THIS ANTIDILUTION AGREEMENT is entered into as of September 30, 1997, by and between IMPERIAL BANK ("Purchaser") and WASTE CONNECTIONS, INC. (the "Company"). RECITALS A. Concurrently with the execution of this Antidilution Agreement, the Purchaser is purchasing from the Company two Warrants to Purchase Stock (each, a "Warrant') pursuant to which Purchaser has the right to acquire from the Company the Shares (as defined in the Warrant). B. By this Antidilution Agreement, the Purchaser and the Company desire to set forth the adjustment in the number of Shares issuable upon exercise of the Warrant as a result of a diluting issuance. C. Capitalized terms used herein shall have the same meaning as set forth in the Warrant. NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Definitions. As used in this Antidilution Agreement, the following terms have the following respective meanings: (a) "Option" means any right, option, or warrant to subscribe for, purchase, or otherwise acquire common stock or Convertible Securities. (b) "Convertible Securities" means any evidences of indebtedness, shares of stock, or other securities directly or indirectly convertible into or exchangeable for common stock. (c) "Issue" means to grant, issue, sell, assume, or fix a record date for determining persons entitled to receive, any security (including Options), whichever of the foregoing is the first to occur. (d) "Additional Common Shares" means any common stock (including reissued shares) issued (or deemed to be issued pursuant to Section 2) after the date of the Warrant. Additional Common Shares does not include, however, any common stock issued in a transaction described in Sections 2.1 and 2.2 of the Warrant; any common stock Issued upon conversion of preferred stock outstanding on the date of the Warrant; the Shares; or common stock Issued as incentive or in a nonfinancing transaction to employees, officers, directors, or consultants to the Company; or the exercise of any Option. (e) The shares of common stock ultimately Issuable upon exercise of an Option (including the shares of common stock ultimately Issuable upon conversion or exercise of a Convertible Security Issuable pursuant to an Option) are deemed to be Issued when the Option is Issued. The shares of common stock ultimately Issuable upon conversion or exercise of a Convertible Security (other than a Convertible Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible Security. 2. Deemed Issuance of Additional Common Shares. The shares of common stock ultimately Issuable upon exercise of an Option (including the shares of common stock ultimately Issuable upon conversion or exercise of a Convertible Security Issuable pursuant to an Option) are 1 9 deemed to be Issued when the Option is Issued. The shares of common stock ultimately Issuable upon conversion or exercise of a Convertible Security (other than a Convertible Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible Security. The maximum amount of common stock Issuable is determined without regard to any future adjustments permitted under the instrument creating the Options or Convertible Securities. 3. Adjustment of Warrant Price for Diluting Issuances. 3.1 Weighted Average Adjustment. If the Company Issues Additional Common Shares after the date of the Warrant and the consideration per Additional Common Share (determined pursuant to Section 9) is less than the Warrant Price in effect immediately before such Issue, the Warrant Price in effect immediately before such Issue shall be reduced, concurrently with such Issue, to a price (calculated to the nearest hundredth of a cent) determined by multiplying the Warrant Price by a fraction: (a) the numerator of which is the amount of common stock outstanding immediately before such Issue plus the amount of common stock that the aggregate consideration received by the Company for the Additional Common Shares would purchase at the Warrant Price in effect immediately before such Issue, and (b) the denominator of which is the amount of common stock outstanding immediately before such Issue plus the number of such Additional Common Shares. 3.2 Adjustment of Number of Shares. Upon each adjustment of the Warrant Price, the number of Shares issuable upon exercise of the Warrant shall be increased to equal the quotient obtained by dividing (a) the product resulting from multiplying (i) the number of Shares issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case as in effect immediately before such adjustment, by (b) the adjusted Warrant Price. 3.3 Securities Deemed Outstanding. For the purpose of this Section 3, all securities issuable upon exercise of any outstanding Convertible Securities or Options, warrants, or other rights to acquire securities of the Company shall be deemed to be outstanding. 4. No Adjustment for Issuances Following Deemed Issuances. No adjustment to the Warrant Price shall be made upon the exercise of Options or conversion of Convertible Securities. 5. Adjustment Following Changes in Terms of Options or Convertible Securities. If the consideration payable to, or the amount of common stock Issuable by, the Company increases or decreases, respectively, pursuant to the terms of any outstanding Options or Convertible Securities, the Warrant Price shall be recomputed to reflect such increase or decrease. The recomputation shall be made as of the time of the Issuance of the Options or Convertible Securities. Any changes in the Warrant Price that occurred after such Issuance because other Additional Common Shares were Issued or deemed Issued shall also be recomputed. 6. Recomputation Upon Expiration of Options or Convertible Securities. The Warrant Price computed upon the original Issue of any Options or Convertible Securities, and any subsequent adjustments based thereon, shall be recomputed when any Options or rights of conversion under Convertible Securities expire without having been exercised. In the case of Convertible Securities or Options for common stock, the Warrant Price shall be recomputed as if the only Additional Common Shares Issued were the shares of common stock actually Issued upon the exercise of such securities, if any, and as if the only consideration received therefor was the consideration actually received upon the Issue, exercise or conversion of the Options or Convertible Securities. In the case of Options for Convertible Securities, the Warrant Price shall be recomputed as if the only Convertible Securities 2 10 Issued were the Convertible Securities actually Issued upon the exercise thereof, if any, and as if the only consideration received therefor was the consideration actually received by the Company (determined pursuant to Section 9), if any, upon the Issue of the Options for the Convertible Securities. 7. Limit on Readjustments. No readjustment of the Warrant Price pursuant to Sections 5 or 6 shall increase the Warrant Price more than the amount of any decrease made in respect of the Issue of any Options or Convertible Securities. 8. 30 Day Options. In the case of any Options that expire by their terms not more than 30 days after the date of Issue thereof, no adjustment of the Warrant Price shall be made until the expiration or exercise of all such Options. 9. Computation of Consideration. The consideration received by the Company for the Issue of any Additional Common Shares shall be computed as follows: (a) Cash shall be valued at the amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends. (b) Property. Property other than cash shall be computed at the fair market value thereof at the time of the Issue as determined in good faith by the Board of Directors of the Company. (c) Mixed Consideration. The consideration for Additional common Shares Issued together with other property of the Company for consideration that covers both shall be determined in good faith by the Board of Directors. (d) Options and Convertible Securities. The consideration per Additional Common Share for Options and Convertible Securities shall be determined by dividing: (i) the total amount, if any, received or receivable by the Company for the Issue of the Options or Convertible Securities, plus the minimum amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon exercise of the Options or conversion of the Convertible Securities, by (ii) the maximum amount of common stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) ultimately Issuable upon the exercise of such Options or the conversion of such Convertible Securities. 10. General. 10.1 Governing Law. This Antidilution Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 10.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 10.3 Entire Agreement. Except as set forth below, this Antidilution Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 3 11 10.4 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, certified or registered mail, return receipt requested, addressed (a) if to Purchaser at Purchaser's address as set forth below, or at such other address as Purchaser shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address set forth below, or at such other address as the Company shall have furnished to the Purchaser in writing. 10.5 Severability. In case any provision of this Antidilution Agreement shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions of this Antidilution Agreement shall not in any way be affected or impaired thereby. 10.6 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Antidilution Agreement. 10.7 Counterparts. This Antidilution Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. PURCHASER COMPANY IMPERIAL BANK WASTE CONNECTIONS, INC. By: /s/ JAMES E. ELLISON By: /s/ RON J. MITTELSTAEDT --------------------------------- ---------------------------------------- Name: James E. Ellison Name: Ron J. Mittelstaedt ------------------------------- ---------------------------------- (Print) (Print) Title: Senior Vice President Title: President ------------------------------- ---------------------------------- 4 EX-10.6 9 WARRANT AGREEMENT/BANKBOSTON, N.A. 1 EXHIBIT 10.6 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK PURCHASABLE ON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE CORPORATION AND CONCURRED IN BY THE CORPORATION'S COUNSEL TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT. Warrant No. 5 Warrant to Purchase 140,000 shares of Common Stock (Subject to Adjustment) WARRANT TO PURCHASE COMMON STOCK of WASTE CONNECTIONS, INC. Void after January 29, 2008 This certifies that for value received, FSC Corp. ("Holder"), is entitled, subject to the terms set forth below, at any time or from time to time before 5:00 p.m., Pacific standard time, on January 29, 2008, to purchase from Waste Connections, Inc., a Delaware corporation (the "Company"), up to 140,000 fully paid and nonassessable shares of the common stock, par value $0.01 per share, of the Company (the "Common Stock") as constituted on January 30, 1998 (the "Issue Date"), upon surrender hereof at the principal office of the Company, with the subscription form attached hereto properly completed and duly executed, and simultaneous payment therefor in lawful money of the United States at the price of $2.80 per share, subject to adjustment as provided in Section 4 hereof (the "Purchase Price"). The number and character of such shares of Common Stock are also subject to adjustment as provided below. Such number shall be reduced at such time or times as this Warrant is exercised in part by the number of shares as to which this Warrant is then exercised. The term "Warrant Stock" shall mean, unless the context otherwise requires, the stock and other securities and property at any time receivable upon the exercise of this Warrant. The term "warrant" as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. 1. Method of Exercise; Payment. Subject to compliance with the provisions of Section 7 hereof: 2 A. Cash Exercise. This Warrant may be exercised as a whole, or in part from time to time, by the Holder by delivering this Warrant, for cancellation if it is exercised as a whole or for endorsement if it is exercised in part, together with a Subscription in the form appearing at the end hereof properly completed and duly executed by or on behalf of the Holder, to the Company at its office in Roseville, California (or at the office of the agency maintained for such purpose), accompanied by payment in cash or by certified or official bank check payable to the order of the Company, in an aggregate amount equal to the Purchase Price as then adjusted times the number of shares of Warrant Stock as to which this Warrant is then being exercised. In the event of any such exercise that is partial, the Company shall endorse this Warrant as having been exercised to that extent and return this Warrant to the Holder. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. B. Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 1.A, Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at such office together with notice of such election, in which event the Company shall issue to Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A-B) ------ A Where X = the number of shares of Warrant Stock to be issued to Holder. Y = the number of shares of Warrant Stock purchasable under this Warrant at the date of such calculation or, if only a portion of this Warrant is being exercised, the portion of this Warrant being cancelled at the date of such calculation. A = the fair market value of one share of Warrant Stock purchasable under this Warrant at the date of such calculation. B = Purchase Price (as adjusted to the date of such calculations). For purposes of this Warrant, fair market value of one share of Warrant Stock shall mean: (1) The average of the closing bid and asked prices of the Common Stock quoted on the NASDAQ Stock Market or the closing price quoted on any national securities exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the date of determination of fair market value; or 3 (2) If the Common Stock is not traded on the NASDAQ stock market or on such an exchange, an amount jointly determined by the Board of Directors and the Holder, or in the event such persons are unable to reach agreement upon such fair market value within 10 days of the exercise of this Warrant, the fair market value as determined by an independent third-party appraiser jointly selected by the Company's Board of Directors and the Holder hereof. C. Delivery of Stock Certificates. The Company will, or will direct its transfer agent to, issue, as soon as practicable after any exercise of this Warrant under Section 1 and in any event within thirty days thereafter, at its expense (including the payment by it of any applicable issue taxes), in the name of and deliver to the Holder, or as the Holder may direct (on payment by the Holder of any applicable transfer taxes) a certificate or certificates for the number of fully paid and nonassessable shares of Warrant Stock as to which this warrant is so exercised. 2. Payment of Taxes. All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issuance or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Warrant Stock in any name other than that of the Holder and, in such case, the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid, or it has been established to the Company's satisfaction that no tax or other charge is due. 3. A. Transfer. Subject to Section 7, this Warrant and all rights hereunder are transferable, as a whole or in part, on the books of the Company maintained for such purpose at the office specified pursuant to Section 1.A, by the Holder in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to the Holder a new warrant or warrants of like tenor with respect to the shares of Warrant Stock not so transferred. In lieu of any fraction of a share to which the Holder would otherwise be entitled, the Company may deliver to the Holder cash in an amount equal to such fraction of the current fair market value of one full share determined in the manner provided in Section 1.B. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable and that when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding, but until a transfer of this Warrant on the books of the Company, the Company may treat the Holder as the owner for all purposes. 4 B. Exchange. At the request of the Holder, the Company shall exchange this Warrant for two or more Warrants of like tenor entitling the Holder to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder shall designate at the time of such exchange; provided that the Holder shall not be entitled so to exchange this Warrant or any warrant received in any such exchange on more than an aggregate of seven occasions. 4. A. Adjustment for Dividends in Other Stock or Property. In case at any time, or from time to time, after the Issue Date the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant), shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor: (1) Other or additional stock or other securities or property (other than cash) by way of a dividend; (2) Any cash paid or payable out of capital, or capital surplus, or surplus created as a result of a revaluation of property; or (3) Other or additional stock or other securities or property (including cash) by way of a stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement; then, and in each such case, the Holder, upon the exercise hereof (as provided in Section 1), shall be entitled to receive the number of shares of Warrant Stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which the Holder would hold on the date of such exercise if on the Issue Date the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the Issue Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) receivable by the Holder as aforesaid during such period, giving effect to all adjustments during such period pursuant to this Section 4. B. Merger, Sale of Assets, etc. If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this 5 Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Purchase Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.B shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. C. Reclassification, etc. If the Company, at any time while this Warrant, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change the Warrant Stock into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the Warrant Stock immediately prior to such reclassification or other change and the Purchase Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. D. Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the Warrant Stock, into a different number of securities of the same class, the Purchase Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. E. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Purchase Price at the time in effect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant. 6 F. No Dilution or Impairment. The Company will not by amendment of its Articles of Incorporation, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of Warrant Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares upon the exercise of this Warrant, and (c) will take no action to amend its Articles of Incorporation which would change to the detriment of the holders of Common Stock (whether or not any Common Stock be at the time outstanding) the dividend or voting rights of the Company's Common Stock (as constituted on the Issue Date). G. Notices of Record Date. In case: (1) The Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend or other distribution or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (2) Of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any split or combination of shares of any class of capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation, or (3) Of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Holder a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, split, combination, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, split, combination, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least 90 days prior to the date therein specified. 7 H. Adjustments for Diluting Issuances. The Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be subject to adjustment from time to time in the manner set forth in the Holder's Antidilution Agreement with the Company dated January 30, 1998. 5. Loss or Mutilation. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new warrant of like tenor. 6. Reservation of Common Stock. The Company shall at all times reserve and keep available for issue upon the exercise of this Warrant such number of its authorized but unissued shares of Warrant Stock as will be sufficient to permit the exercise in full of this Warrant. 7. Investment Intent. The Holder, by accepting this Warrant, represents and warrants to the Company as follows: A. Acquisition for Own Account. The Holder is acquiring this Warrant and will acquire the shares of Warrant Stock on exercise of this Warrant with the Holder's own funds, for the Holder's own account, not as a nominee or agent. The Holder is not obligated to transfer this Warrant or any Warrant Stock to anyone else nor has any agreements or understandings to do so. The Holder is purchasing or will purchase this Warrant and the Warrant Stock for investment for an indefinite period and not with a view to any sale or distribution thereof, by public or private sale or other disposition, and has no intention of selling, granting any participation in or otherwise distributing or disposing of any thereof. The Holder does not intend to subdivide the Holder's purchase with anyone. B. Restricted Securities. The Holder is able to bear the economic risk of the Holder's investment in this Warrant and the Warrant Stock and is aware that the Holder must be prepared to hold this Warrant and the Warrant Stock for an indefinite period and that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Act"), on the ground that no distribution or public offering of this Warrant or the Warrant Stock is to be effected and this Warrant or the Warrant Stock are being or will be issued by the Company without any public offering within the meaning of Section 4(2) of the Act. C. Sophistication. The Holder is an "accredited investor" as that term is defined in Regulation D under the Act. The Holder has such knowledge and experience in financial and business matters that the Holder is capable of evaluating the merits and risks of the Holder's investment in this Warrant and the Warrant Stock. D. Agreement to Refrain from Resales. Without in any way limiting the Holder's representations herein, the Holder further agrees that the Holder shall not encumber, 8 pledge, hypothecate, sell, assign, transfer or otherwise dispose of this Warrant or any Warrant Stock, unless and until, prior to any proposed encumbrance, pledge, hypothecation, sale, assignment, transfer or other disposition, either (i) a registration statement on Form S-l (or any other form appropriate for the purpose or replacing such form) under the Act with respect thereto shall be then effective (ii)(a) the Holder shall have furnished the Company with a statement of the circumstances of the proposed disposition and an opinion of counsel (obtained at the Holder's expense) satisfactory to the Company to the effect that such disposition will not require registration under the Act and (b) counsel for the Company shall have concurred in such opinion of counsel and the Company shall have advised the Holder of such concurrence; or (iii) the Warrant Stock can then be sold pursuant to Rule 144 under the Act. E. Certificates to be Legended. The Holder understands and agrees that this Warrant, any warrant issued to replace this Warrant and any certificate representing Warrant Stock will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) in substantially the form set forth on the first page of this Warrant and any other legend that the Company considers necessary or appropriate to comply with any applicable securities law. 8. Registration. The Company acknowledges that it has granted to certain holders of its capital stock certain rights to registration of such capital stock for resale under the Act, the terms and conditions of which rights are set forth in an Investors' Rights Agreement dated as of September 30, 1997. The Company covenants and agrees to seek an amendment to the Investors' Rights Agreement to include the Warrant Stock in the Registrable Securities to which the registration rights set forth in Section 1 of the Investors' Rights Agreement so that the Holder shall be entitled to identical registration rights pari passu with such holders of capital stock as if the Holder had acquired the Warrant Stock concurrently with such holders and pursuant to the Investors' Rights Agreement. If such amendment is not consented to by the holders of a majority of the Registrable Securities as required by the Investors' Rights Agreement, the Company shall promptly prepare and thereafter enter into with the Holder a Registration Rights Agreement providing for the same registration rights as the Investors' Rights Agreement, which rights shall be subject and subordinate only to those set forth in the Investors' Rights Agreement. 9. Notices. All notices and other communications from the Company to the Holder shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last Holder who shall have furnished an address to the Company in writing. 10. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 9 11. Attorneys' Fees. In the event any party is required to engage the services of attorneys for the purpose of enforcing this Warrant, or any provision hereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and any other costs or expenses. 12. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 13. Law Governing. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of California. 14. Conflict With Other Laws. Any other provisions hereof to the contrary notwithstanding, no Bank Affiliate shall be entitled to exercise the right under this Warrant to purchase any share or shares of the Common Stock if, under any law or under any regulation, rule or other requirement of any governmental authority at any time applicable to such Bank Affiliate, (a) as a result of such purchase, such Bank Affiliate would own, control or have power to vote a greater quantity of securities of any kind than the Bank Affiliate shall be permitted to own, control or have power to vote, or (b) such purchase would not be permitted. For purposes of this Section 14, a written statement of the Bank Affiliate exercising this Warrant, delivered upon surrender of the Warrant, to the effect that such Bank Affiliate is legally entitled to exercise its right under this Warrant to purchase securities and that such purchase will not violate the prohibitions set forth in the preceding sentence, shall be conclusive and binding upon the Company and shall obligate the Company to deliver certificates representing the shares of Common Stock so purchased in accordance with the other provisions hereof and shall relieve the Company of any liability under this Section 14. "Bank Affiliate" as used herein means any person which is a bank holding company or a subsidiary of a bank holding company as defined in the Bank Holding Company Act of 1956, as amended, or other applicable banking laws of the United States of America and the rules and regulations promulgated thereunder. 15. Delivery of Financial Statements. The Company shall deliver to the Holder: A. as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; and B. as soon as practicable, but in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement for such fiscal quarter, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. 10 16. Inspection. The Company shall permit the Holder, at the Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Section 16 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 11 DATED: January 30, 1998 WASTE CONNECTIONS, INC. By: ------------------------------------- Ronald J. Mittelstaedt President and Chief Executive Officer 12 ENDORSEMENTS
Number of Shares Number of Shares Remaining as to Which Available for Signature of Authorized Officer Exercise Date Exercised Exercise of the Company ------------- ----------------- ------------- --------------------------------
13 SUBSCRIPTION FORM (To be executed only upon exercise of warrant) The undersigned Holder of this Warrant irrevocably exercises this Warrant for the purchase of _________ shares of Common Stock of Waste Connections, Inc., purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant. Dated: -------------------------------- ---------------------------------------- (signature of Holder) ---------------------------------------- (Street Address) ---------------------------------------- (city) (state) (zip Code) 14 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned Holder of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ____________ [Attorney] to make such transfer on the books of Waste Connections, Inc., maintained for the purpose, with full power of substitution in the premises. Dated: -------------------------------- [Holder] By: ------------------------------------- Name: ------------------------------ Title: ----------------------------- 15 WASTE CONNECTIONS, INC. ANTIDILUTION AGREEMENT THIS ANTIDILUTION AGREEMENT is entered into as of January 30, 1998, by and between FSC CORP. and WASTE CONNECTIONS, INC., a Delaware corporation (the "Company"). RECITALS A. Concurrently with the execution of this Antidilution Agreement, the Company is issuing FSC Corp. a Warrant to purchase 140,000 shares (the "Shares") of the Company's Common Stock (the "Common Stock") for $2.80 per share. B. By this Antidilution Agreement, FSC Corp. and the Company desire to set forth the adjustment in the number of Shares issuable upon exercise of the Warrant as a result of a diluting issuance. NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Definitions. As used in this Antidilution Agreement, the following terms have the following respective meanings: 1.1 "Option" means any right, option, or warrant to subscribe for, purchase, or otherwise acquire Common Stock or Convertible Securities. 1.2 "Convertible Securities" means any evidences of indebtedness, shares of stock, or other securities directly or indirectly convertible into or exchangeable for Common Stock other than Options. 1.3 "Issue" means to grant, issue, sell, assume, or fix a record date for determining persons entitled to receive, any security, whichever of the foregoing is the first to occur. 1.4 "Additional Common Shares" means any of the Common Stock (including reissued shares) issued after the date of the Warrant. Additional Common Shares does not include, however, any Options; any Convertible Securities; any Common Stock Issued upon conversion of preferred stock outstanding on the date of the Warrant; the Shares; or Common Stock Issued as incentive or in a nonfinancing transaction to employees, officers, directors, or consultants to the Company; or the exercise of any Option or Convertible Security. 2. Adjustment of Warrant Price for Diluting Issuances. 2.1 Weighted Average Adjustment. If the Company Issues Additional Common Shares after the date of the Warrant and the consideration per Additional Common 16 Share (determined pursuant to Section 4) is less than the Purchase Price (as defined in the Warrant) in effect immediately before such Issue, the Purchase Price in effect immediately before such Issue shall be reduced, concurrently with such Issue, to a price (calculated to the nearest hundredth of a cent) determined by multiplying the Purchase Price by a fraction: (a) the numerator of which is the amount of Common Stock outstanding immediately before such Issue plus the amount of Common Stock that the aggregate consideration received by the Company for the Additional Common Shares would purchase at the Purchase Price in effect immediately before such Issue, and (b) the denominator of which is the amount of Common Stock outstanding immediately before such Issue plus the number of such Additional Common Shares. 2.2 Adjustment of Number of Shares. Upon each adjustment of the Purchase Price, the number of Shares issuable upon exercise of the Warrant shall be increased to equal the quotient obtained by dividing (a) the product resulting from multiplying (i) the number of Shares issuable upon exercise of the Warrant and (ii) the Purchase Price, in each case as in effect immediately before such adjustment, by (b) the adjusted Purchase Price. 3. No Adjustment for Issuances Following Deemed Issuances. No adjustment to the Purchase Price shall be made upon the exercise of Options or conversion of Convertible Securities. 4. Computation of Consideration. The consideration received by the Company for the Issue of any Additional Common Shares shall be computed as follows: 4.1 Cash shall be valued at the amount of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends. 4.2 Property. Property other than cash shall be computed at the fair market value thereof at the time of the Issue as determined in good faith by the Board of Directors of the Company. 4.3 Mixed Consideration. The consideration for Additional common Shares Issued together with other property of the Company for consideration that covers both shall be determined in good faith by the Board of Directors. 5. General. 5.1 Governing Law. This Antidilution Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 5.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2 17 5.3 Entire Agreement. Except as set forth below, this Antidilution Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 5.4 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, certified or registered mail, return receipt requested, addressed (a) if to FSC Corp. at FSC Corp.'s address as set forth below, or at such other address as FSC Corp. shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address set forth below, or at such other address as the Company shall have furnished to FSC Corp. in writing. 5.5 Severability. In case any provision of this Antidilution Agreement shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions of this Antidilution Agreement shall not in any way be affected or impaired thereby. 5.6 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Antidilution Agreement. 5.7 Counterparts. This Antidilution Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 5.8 Initial Public Offering. This Antidilution Agreement will be void upon the consummation of a bona fide, firmly underwritten public offering of shares of the Company's common stock registered under the Securities Act of 1933, as amended (the "Act"), pursuant to a registration statement on Form S-1, at an offering price of at least $5.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) with aggregate gross proceeds to the Company of at least $5,000,000. FSC CORP. COMPANY: WASTE CONNECTIONS, INC. By: By: ---------------------------------- ------------------------------------- Name: Name: -------------------------------- ----------------------------------- (Print) (Print) Title: Title: ------------------------------- ---------------------------------- 3 EX-10.7 10 FORM OF STOCK PURCHASE AGREEMENT DATED SEPT 30, 97 1 EXHIBIT 10.7 STOCK PURCHASE AGREEMENT Dated as of September 30, 1997 among Waste Connections, Inc. and the Purchasers Listed on Exhibit A 2 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of September 30, 1997, by and among Waste Connections, Inc., a Delaware corporation (the "Company"), and each of the Purchasers listed on Exhibit A attached hereto (collectively the "Purchasers" and individually either a "Series A Purchaser," if the purchaser buys Series A Preferred Stock, or a "Common Purchaser," if the purchaser buys Common Stock, with reference to the following facts: The Company wishes to issue and sell to the Series A Purchasers an aggregate of 2,500,000 shares of the Series A Preferred Stock of the Company (the "Series A Preferred Stock") and to the Common Purchasers an aggregate of 2,500,000 shares of Common Stock of the Company (the "Common Stock"). Each of the Purchasers wishes to purchase either the Series A Preferred Stock or the Common Stock or both on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions set forth in this Agreement, the parties agree as follows: 1. Purchase and Sale of the Series A Preferred Stock and the Common Stock. 1.1 Sale and Issuance of the Series A Preferred Stock and the Common Stock. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Certificate of Designations, Preferences and Rights of Preferred Stock (the "Certificate of Designation") in the form attached hereto as Exhibit B. (b) Subject to the terms and conditions of this Agreement, each of the Purchasers, severally and not jointly, agrees to purchase, the Company agrees to sell and issue to the Purchasers, an aggregate of 2,500,000 shares of Series A Preferred Stock at a price of $2.80 per share and an aggregate of 2,500,000 shares of Common Stock at a price of $0.01 per share, in consideration for cash, which shares shall be issued to each Purchaser in such amount as provided in Exhibit A. 1.2 Closing. (a) The purchase and sale of the Series A Preferred Stock and the Common Stock shall take place at Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, 18th Floor, San Francisco, CA 94111, on September 30, 1997, at 10:00 a.m., California time, or at such other time and place as the Company and the Purchasers mutually agree upon (the "Closing"). 3 (b) At the Closing the Company shall deliver to each Purchaser a certificate representing the number of shares of Series A Preferred Stock or Common Stock as listed next to each Purchaser's name on Exhibit A and the Purchaser shall pay to the Company $2.80 per share of Series A Preferred Stock acquired and $0.01 per share for Common Stock acquired, in cash, in the form of a check or federal funds wire transfer. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each of the Purchasers that, except as set forth on the Schedules attached hereto: 2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties and assets, to carry on its business as now and heretofore conducted, to issue and sell the Series A Preferred Stock and the Common Stock and to execute, deliver and carry out the terms of the Related Documents. The Company has conducted no operations and was formed to acquire, concurrent with the Closing hereunder, certain solid waste assets in the states of Washington and Idaho ("the Acquisition"). The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties or the nature of its business make such qualification necessary and where a failure to be so qualified would have a material adverse effect on the business, operations, prospects or condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole (the "Condition of the Company"). 2.2 Capitalization. (a) The Company has been recently formed and has not yet issued any shares of capital stock. (b) Except as set forth in Schedule 2.2 and pursuant to the transactions contemplated by this Agreement, there are not on the date hereof authorized, outstanding or contemplated any subscriptions, options, conversion rights, warrants or other agreements, securities or commitments obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock of the Company or any securities convertible into or exchangeable for shares of capital stock of the Company or obligating the Company to grant, extend or enter into any such agreement or commitment. (c) The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of authorized capital stock of the Company are as set forth in the Certificate of Designation, and all such designations, powers, preferences, rights, qualifications, 2 4 limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. (d) The Series A Preferred Stock and the Common Stock which is being purchased hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, subject to the truth and accuracy of the representations and warranties of the Purchasers contained in Section 3 of this Agreement. 2.3 Execution and Binding Effect. The execution and delivery of the Related Documents, the adoption of the Company's Certificate of Incorporation (the "Certificate of Incorporation") and the Certificate of Designation and the consummation of the transactions contemplated hereby or thereby have been duly authorized by all necessary corporate action on the part of the Company. The Related Documents have been duly executed and delivered by the Company and the Related Documents constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. The Series A Preferred Stock and the Common Stock will be free of restrictions on transfer other than under applicable federal and state securities laws and as provided in the Related Documents. 2.4 Authorization and Filings. Except as set forth in Schedule 2.4, no authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Authority or any other Person is required to be made or obtained by the Company in order to execute or deliver the Related Documents or to consummate the transactions contemplated hereby or thereby. 2.5 Absence of Conflicts. Neither the execution and delivery of the Related Documents nor the consummation of the transactions contemplated hereby or thereby nor the performance of or compliance with the terms and conditions in the Related Documents will (a) violate any Law; (b) conflict with or result in a breach or violation of or a default or loss of benefit under or permit the acceleration of any obligation under any provision of the Certificate of Incorporation or Bylaws of the Company, or any agreement or instrument to which the Company is a party or by which the Company is bound, or (c) result in the creation or imposition of any Lien on any property or asset of the Company, in each case or in the aggregate which would have a material adverse effect on the Condition of the Company. 2.6 Taxes. The Company has filed on a timely basis, within the original filing period or any applicable extension period, all returns and reports of all Taxes, including, without limitation, federal income tax returns, withholding tax returns and declarations of estimated Tax and Tax reports, that are required to be filed with respect to the Company and or its income, 3 5 properties or operations, except where the failure to so file would not have a material adverse effect on the Condition of the Company. 2.7 Contracts. Except as set forth in Schedule 2.7, (a) the Company is not in violation of or default under its Certificate of Incorporation, Bylaws, any other governing document or any Material Contract, and no condition or event exists that after notice or lapse of time or both, would result in a breach or violation of, or a default or loss of benefit by the Company thereunder; (b) to the best of the Company's knowledge, none of the other parties to any Material Contract are in violation of or default under any Material Contract in any material respect which would cause a material adverse effect on the Condition of the Company; and (c) the Company has not received any notice of cancellation or any written communication threatening cancellation of any Material Contract by any party thereto. Schedule 2.7 lists all Material Contracts. 2.8 Permits; Compliance with Laws. The Company has obtained or will obtain and maintains or will maintain in full force and effect all permits, licenses, consents, approvals, registrations, memberships, authorizations and qualifications under all applicable Laws, and with all applicable Authorities, required for the conduct by it of its businesses and the ownership or possession by it of its properties and assets, except to the extent the failure to so obtain and maintain would not have a material adverse effect, individually or in the aggregate, on the Condition of the Company. The Company is in compliance in all respects with all Laws applicable to it or to the conduct by it of its businesses or to its ownership and possession of its properties and assets, except where the failure to so comply, does not, individually or in the aggregate, have a material adverse effect on the Condition of the Company. 2.9 Debt. Following the Closing of the Acquisition, the Company will be indebted in the approximate amounts set forth on Schedule 2.9, which indebtedness will be secured by all of the Company's assets. 2.10 Brokers and Finders. The Company has not employed any broker, finder, consultant or intermediary in connection with the transactions contemplated by the Related Documents that would be entitled to a broker's, finder's or similar fee or commission in connection therewith. 2.11 Reservation of Shares. The Common Stock issuable on conversion of the Series A Preferred Stock has been duly and validly reserved for issuance and upon conversion will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under applicable Federal and state securities laws and as provided herein. 4 6 2.12 Registration Rights. Except as required pursuant to the Investors' Rights Agreement, the Company is presently not under any obligation, and has not granted any rights, to register (as defined in Section 1.1 of the Investors' Rights Agreement) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued. 2.13 Full Disclosure. This Agreement, the Exhibits hereto, the Related Documents and all other documents delivered by the Company to the Purchasers or their attorneys or agents in connection herewith or therewith at the Closing or with the transactions contemplated hereby or thereby, do not contain any untrue statement of a material fact, in the light of the circumstances under which they were made, nor, to the Company's knowledge, omit to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. To the Company's knowledge, there are no facts which (individually or in the aggregate) materially adversely affect the Condition of the Company that have not been set forth in the Agreement, the Exhibits hereto, the Related Documents or in other documents delivered to the Purchasers or their attorneys or agents in connection herewith; provided that it is understood that the level of disclosure to the Purchasers is less than that which would be provided in a securities offering registered under the 1933 Act, including, without limitation, the omission of risk factors, in reliance on the sophistication and investment experience of the Purchasers. 3. Representations and Warranties of the Purchasers. This Agreement is made with each Purchaser in reliance upon that Purchaser's representations to the Company, which by that Purchaser's acceptance hereof that Purchaser severally, but not jointly, represents and warrants, that: 3.1 Investment Intent. The Purchasers are acquiring the Series A Preferred Stock and the Common Stock issuable hereunder or upon conversion of the Series A Preferred Stock (collectively, "Securities") pursuant to this Agreement with the Purchasers' own funds for the Purchasers' own account and not as a nominee or agent. No one else has any interest, beneficial or otherwise, in any of the Securities to be purchased by the Purchasers. Except as provided herein, the Purchasers are not obligated to transfer any Securities to anyone else nor do the Purchasers have any agreements or understandings to do so. The Purchasers are purchasing the Securities for investment for an indefinite period and not with a view to the sale or distribution of any Securities, by public or private sale or other disposition, and the Purchasers have no intention of selling, granting any participation in or otherwise distributing or disposing of any Securities. The Purchasers do not intend to subdivide the Purchasers' purchase of Securities with anyone. Notwithstanding the foregoing, the disposition of the Purchasers' property shall be at all times within the Purchasers' own control, and that the Purchasers' right to sell or otherwise dispose of all or any part of the Securities purchased by the Purchasers pursuant to an effective registration statement under the 1933 Act or under an exemption 5 7 available from such registration available under the 1933 Act shall not be prejudiced; provided that the Purchasers comply with Section 6.11. 3.2 No Public Offering. The Purchasers are able to bear the economic risk of the Purchasers' investment in the Securities. The Purchasers are aware that the Purchasers must be prepared to hold the Securities for an indefinite period and that the Securities have not been registered under the 1933 Act or registered or qualified under any state securities law, on the ground, among others, that no distribution or public offering of Securities is to be effected and Securities are being issued by the Company without any public offering within the meaning of Section 4(2) of the 1933 Act. The Purchasers have had an opportunity to discuss the Company's business, management and financial affairs with its management. The Purchasers are not subscribing for the Securities as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or any solicitation of a subscription by a person not previously known to the Purchasers in connection with investments in securities generally. 3.3 Certificates to be Legended. The Purchasers understand that each Security will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) required by the Securities and Exchange Commission or a state securities commission. 3.4 Securities Will be "Restricted Securities". The Purchasers understand that the Securities will be "restricted securities" as that term is defined in Rule 144 under the 1933 Act and, accordingly, that the Securities must be held indefinitely unless they are subsequently registered under the 1933 Act or an exemption from such registration is available. The Purchasers understand and agree that except as provided herein the Company is not under any obligation to register Securities under the 1933 Act or to comply with Regulation A or any other exemption and that Rule 144 is not currently available for sales of the Securities. 3.5 Accredited Investor. The Purchasers have been advised or are aware of the provisions of Regulation D under the 1933 Act relating to the accreditation of investors, and by checking the appropriate boxes below, each of the Purchasers represents that such Purchaser is an "accredited investor" as defined in Regulation D under the 1933 Act. ___ (a) A natural person (not an entity) whose individual net worth, or joint net worth with his or her spouse, at the time of his or her purchase exceeds $1,000,000; ___ (b) A natural person (not an entity) who [initial appropriate blank(s)] (i) ___ had an individual income in excess of $200,000 in each of the preceding two years or (ii) ___ had joint income with his or her spouse in excess of $300,000 in each of 6 8 those years and (iii) in either case (i) or (ii), has a reasonable expectation of reaching the same income level in the current year; ___ (c) An employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, [initial appropriate blank] (i) if the investment decision is made by a plan fiduciary, as defined in section 3(21) thereof, which is (1) ___ a bank, (2) ___ a savings and loan association, (3) ___ an insurance company or (4) ___ a registered investment adviser, or (ii) ___ if the employee benefit plan has total assets in excess of $5,000,000, or (iii) ___ if the employee benefit plan is a self-directed plan, with investment decisions made solely by persons that are accredited investors; ___ (d) A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities of the Company being offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment in the Company; ___ (e) A bank as defined in section 3(a)(2) of the 1933 Act, whether acting in its individual or fiduciary capacity; ___ (f) A savings and loan association or other institution as defined in section 3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary capacity; ___ (g) A broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; ___ (h) An insurance company as defined in section 2(13) of the 1933 Act; ___ (i) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of the Investment Company Act of 1940; ___ (j) A Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; ___ (k) A private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; 7 9 ___ (l) [Initial applicable blank] (i) ___ An organization described in section 501(c)(3) of the Internal Revenue Code, as amended December 29, 1981, or (ii) ___ a corporation, a Massachusetts or similar business trust, or a partnership not formed for the specific purpose of acquiring the securities of the Company being offered, or (iii) ___ a plan established or maintained by a state or its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, in either case (i), (ii) or (iii) with total assets in excess of $5,000,000 (in case (i), such total assets include endowment, annuity and life income funds and are to be determined according to the investor's most recent audited financial statements); ___ (m) A director or executive officer of the Company; or ___ (n) An entity in which all the equity owners are accredited investors. If you have indicated category (c)(iii) or (n) above, please list below the names and categories of accreditation of the accredited investors making the investment decisions (category (c)(iii)) or who are the equity owners (category (n)) (attach additional pages if necessary): 8 10
Accredited Investor Person Making Decision/Equity Owner Category ----------------------------------- -------- - -------------------------------------------------------- -------------- - -------------------------------------------------------- -------------- - -------------------------------------------------------- -------------- - -------------------------------------------------------- --------------
Special Note for Trusts, Partnerships and Certain Plans: The application of the "accredited investor" categories to trusts (including Massachusetts or similar business trusts), partnerships and self-employed individual retirement plans is subject to complex regulatory interpretations and may differ under state and federal law. Accordingly, such an entity attempting to qualify may be required to deliver additional information, including a satisfactory opinion of its counsel. 3.6 Sophistication of the Purchaser. The Purchasers have such knowledge and experience in financial and business matters that the Purchasers are capable of evaluating the merits and risks of the Purchasers' investment contemplated by this Agreement and have the capacity to protect the Purchasers' own interests. The Purchasers acknowledge that investment in the Securities is highly speculative and involves a substantial and high degree of risk of loss of the Purchasers' entire investment. The Purchasers have adequate means of providing for current and anticipated financial needs and contingencies, are able to bear the economic risk for an indefinite period of time and have no need for liquidity of the investment in the Securities and could afford complete loss of such investment. 3.7 Authorization. All partnership, limited liability or corporate action on the part of the Purchasers (if applicable) necessary for the authorization, execution and delivery of the Related Documents and the performance of all obligations of the Purchasers under the Related Documents has been taken or will be taken on or prior to the Closing, and the Related Documents constitute legal, valid and binding agreements of the Purchasers, enforceable against the Purchasers in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 3.8 Brokers' Fees. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Purchasers. 9 11 3.9 Governmental Consents. No consent, approval, order or authorization of, or representation, qualification, designation, declaration or filings with, any United States federal, state, local or provincial government authority on the part of the Purchasers is required in connection with the Purchasers' valid execution, delivery or performance of the Related Documents or the purchase of the Common Stock or the Series A Preferred Stock by the Purchasers. 3.10 Review of Documents. The Purchasers have conducted a thorough investigation of the Company. The Purchasers have carefully reviewed all the information provided to them by the Company and are familiar with the proposed business, operations, properties and management of the Company by virtue of such review and of their relationship with the Company. The Purchasers are entering into this Agreement and the transactions contemplated hereby in reliance on their own investigation and review of the information concerning the Company provided to it and the representations contained in this Agreement. 4. The Purchasers' Conditions to Closings. The Purchasers' obligation to purchase and pay for the Common Stock and the Series A Preferred Stock to be sold to the Purchasers at the Closing is subject to the fulfillment to the Purchasers' satisfaction, prior to or at such Closing, of the following conditions: 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed by it or complied in all material respects with on or before the Closing. 4.3 Certificate of Designation. The Company shall have adopted and filed the Certificate of Designation with the Secretary of State of the State of Delaware on or before the Closing. 4.4 Schedule of Exceptions. Any revisions to the schedules attached hereto delivered by the Company after the date of this Agreement are signed by the Purchasers and shall not contain anything which causes the Purchaser to believe that it is imprudent for it to proceed with the Closing. 4.5 Investors' Rights Agreement. The Investors' Rights Agreement in the form attached hereto as Exhibit C (the "Investors' Rights Agreement") shall have been executed by all the parties thereto. 10 12 4.6 Stockholders Agreement. The Stockholders Agreement in the form attached hereto as Exhibit D (the "Stockholders Agreement") shall have been executed by all the parties thereto. 4.7 BFI Purchase and Sale Agreement. The Company shall have entered into a Purchase and Sale Agreement with Browning Ferris Industries ("BFI") relating to the Acquisition. 4.8 Financing. The Company shall have arranged the financing described on Schedule 2.9 or suitable alternate financing in the same amount. 4.9 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers, and the Purchasers shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 4.10 Election of Directors. Effective upon the consummation of the Closing, the members of the Board of Directors shall consist of: Ronald J. Mittelstaedt; J. Bradford Bishop and James N. Cutler. 5. The Company's Conditions to Closing. The Company's obligation to deliver the Series A Preferred Stock and the Common Stock at the Closing is subject to the fulfillment to its satisfaction, prior to or at such Closing, of the following conditions: 5.1 Representations and Warranties. The representations and warranties of the Purchasers contained in Section 3 hereof shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Payment of Purchase Price. Each Purchaser shall have delivered the purchase price specified in Section 1.2 for each share of Common Stock or Series A Preferred Stock purchased by that Purchaser. 5.3 Certificate of Designation. The Company shall have adopted and filed the Certificate of Designation with the Secretary of State of the State of Delaware on or before the Closing. 5.4 Stockholders Agreement. The Stockholders Agreement shall have been executed by all the parties thereto. 11 13 5.5 Investors' Rights Agreement. The Investors' Rights Agreement shall have been executed by all the parties thereto. 5.6 BFI Purchase and Sale Agreement. The Company shall have entered into a Purchase and Sale Agreement with Browning Ferris Industries relating to the Acquisition. 5.7 Financing. The Company shall have arranged the financing described on Schedule 2.9 or suitable alternate financing in the same amount. 6. Miscellaneous. 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 6.2 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and a Majority of the Investors. Any amendment or waiver effective in accordance with this Section 6.2 shall be binding upon each holder of any Common Stock and Series A Preferred Stock, each future holder of all such Common Stock and Series A Preferred Stock and the Company. 6.3 Notices. Any notice, consent, authorization or other communication to be given hereunder shall be in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile transmission with receipt acknowledged by the addressee or three days after being mailed by first class mail, or the next business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the following address for such party (or at such other address as shall be specified by like notice): (a) if to the Company, to: Waste Connections, Inc. 3510 Trenton Way El Dorado Hills, CA 95762 Attention: Ronald J. Mittelstaedt Telephone: (916) 939-7986 Facsimile: (916) 939-7987 12 14 with copies to: Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, CA 94111 Attention: Robert D. Evans, Esq. Telephone: (415) 421-6500 Facsimile: (415) 421-2922 (b) if to the Purchasers, to the address indicated on Exhibit A. 6.4 Entire Agreement. This Agreement (including the Schedules and Exhibits), and the Related Documents contain the entire agreement of the parties and supersede all prior negotiations, correspondence, agreements and understandings, written and oral, between or among the parties, regarding the subject matter hereof. 6.5 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Common Stock or Series A Preferred Stock). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.6 Severability. If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held invalid or unenforceable, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held to be invalid or unenforceable, shall not be affected thereby. 6.7 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the Law of the State of California, without regard to that state's conflict of laws principles. 6.8 Interpretation. This Agreement shall be construed according to its fair language. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 13 15 6.9 Further Assurances. Each party shall execute such other and further certificates, instruments and other documents as may be necessary and proper to implement, complete and perfect the transactions contemplated by this Agreement. 6.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, and all of which together shall be considered one and the same agreement. 6.11 Assignment. The Purchasers may assign or transfer all or any part of the Securities provided that the conditions specified in this Section are satisfied, which conditions are intended to insure compliance with the provisions of the 1933 Act and state securities laws in respect of the transfer of any of the Securities. Prior to any transfer or attempted transfer of any Securities, the holder thereof shall give the Company written notice of its intention to transfer, describing briefly the nature of any such proposed transfer. If, in the written opinion of counsel for such holder, in form and substance reasonably satisfactory to the Company and its counsel, the proposed transfer may be effected without registration of such Securities, the Securities proposed to be transferred may be transferred in accordance with the terms of said notice and in compliance with applicable securities laws and regulations. The Company shall not be required to effect any such transfer prior to the receipt of such favorable opinion. The Company shall not assign this Agreement or any rights hereunder or delegate any duties hereunder. Any attempted or purported assignment or delegation in violation of the preceding sentence shall be void. 6.12 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25102(f) OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 14 16 6.14 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm, or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Common Stock or Series A Preferred Stock or the Common Stock issuable upon conversion of such shares of Series A Preferred Stock. 7. Definitions. 7.1 Glossary. For purposes of this Agreement, the following terms shall have the following meanings, which shall be equally applicable to both the singular and plural forms of any of such terms: "AUTHORITY" shall mean any government or political subdivision, or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury, arbitrator or mediator, in each case whether federal, state, local or foreign. "LAW" shall mean any judgment, decree, order, statute, law, ordinance, rule or regulation of any Authority (including common law), constitution, statute, treaty, regulation, rule, ordinance, judgment, order, foreign injunction, writ, decree or award of any Authority. "LIEN" shall mean any voluntary or involuntary lien, security interest, mortgage, pledge, charge, encumbrance, title defect or title retention agreement that are entered into in the ordinary course of business. "MAJORITY OF THE INVESTORS" means (i) holders of the Common Stock who in the aggregate hold more than 50% of the Common Stock and (ii) holders of the Preferred Stock who in the aggregate hold more than 50% of the Preferred Stock. "MATERIAL CONTRACT" means any agreement to which the Company is a party or by which any of its properties or assets are bound or affected material to the Condition of the Company. "PERSON" shall mean a natural person, corporation, partnership, trust, unincorporated association, joint venture, joint-stock company, limited liability company, Authority, or any other entity. 15 17 "RELATED DOCUMENTS" shall mean this Agreement, the Certificate of Designation, the Investors' Rights Agreement and the Stockholders Agreement. "TAX" or "TAXES" shall be understood to include any tax or similar governmental charge, impost or levy (including, without limitation, income taxes, franchise taxes, transfer taxes or fees, sales taxes, excise taxes, ad valorem taxes, withholding taxes, minimum taxes, use taxes, occupancy taxes, property taxes, employment taxes, stamp taxes or windfall profit taxes), together with any related liabilities, penalties, fines, additions to tax or interest, imposed by the United States or any state, county, local or foreign government or subdivision or agency therefor. "1933 ACT" shall mean the Securities Act of 1933, as amended. 7.2 Index. The following terms shall have the respective meanings specified on the indicated page of this Agreement: Agreement........................................................1 Certificate of Designation.......................................1 Certificate of Incorporation.....................................2 Closing..........................................................1 Common Purchaser.................................................1 Company..........................................................1 Condition of the Company.........................................2 Investors' Rights Agreement......................................9 Purchasers.......................................................1 Securities.......................................................5 Series A Preferred Stock.........................................1 Series A Purchaser...............................................1 Stockholders Agreement...........................................9
16 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above. WASTE CONNECTIONS, INC. By: ------------------------------------- Ronald J. Mittelstaedt President and CEO PURCHASER: ---------------------------------------- (Name of Purchaser) By: ------------------------------------- Name: ----------------------------- Title: ---------------------------- NOTE: EACH PURCHASER SHOULD CHECK THE APPROPRIATE LINE IN SECTION 3.5 AND FILL IN SUCH PURCHASER'S ADDRESS ON EXHIBIT A. 17 19 EXHIBIT A 20 EXHIBIT B CERTIFICATE OF DESIGNATION 21 EXHIBIT C INVESTORS' RIGHTS AGREEMENT 22 EXHIBIT D STOCKHOLDERS AGREEMENT 23 TABLE OF CONTENTS
PAGE ---- 1. Purchase and Sale of the Series A Preferred Stock and the Common Stock................................................................ 1 1.1 Sale and Issuance of the Series A Preferred Stock and the Common Stock............................................................ 1 1.2 Closing.......................................................... 1 2. Representations and Warranties of the Company........................ 2 2.1 Organization and Qualification................................... 2 2.2 Capitalization................................................... 2 2.3 Execution and Binding Effect..................................... 3 2.4 Authorization and Filings........................................ 3 2.5 Absence of Conflicts............................................. 3 2.6 Taxes............................................................ 3 2.7 Contracts........................................................ 3 2.8 Permits; Compliance with Laws.................................... 4 2.9 Debt............................................................. 4 2.10 Brokers and Finders............................................. 4 2.11 Reservation of Shares........................................... 4 2.12 Registration Rights............................................. 4 2.13 Full Disclosure................................................. 4 3. Representations and Warranties of the Purchasers..................... 5 3.1 Investment Intent................................................ 5 3.2 No Public Offering............................................... 5 3.3 Certificates to be Legended...................................... 6 3.4 Securities Will be "Restricted Securities........................ 6 3.5 Accredited Investor.............................................. 6 3.6 Sophistication of the Purchaser.................................. 8 3.7 Authorization.................................................... 8 3.8 Brokers' Fees.................................................... 8 3.9 Governmental Consents............................................ 8 3.10 Review of Documents............................................. 9 4. The Purchasers' Conditions to Closings............................... 9 4.1 Representations and Warranties................................... 9 4.2 Performance...................................................... 9 4.3 Certificate of Designation....................................... 9 4.4 Schedule of Exceptions........................................... 9 4.5 Investors' Rights Agreement...................................... 9
i 24 4.6 Stockholders Agreement........................................... 9 4.7 BFI Purchase and Sale Agreement.................................. 10 4.8 Financing........................................................ 10 4.9 Proceedings and Documents........................................ 10 4.10 Election of Directors........................................... 10 5. The Company's Conditions to Closing.................................. 10 5.1 Representations and Warranties................................... 10 5.2 Payment of Purchase Price........................................ 10 5.3 Certificate of Designation....................................... 10 5.4 Stockholders Agreement........................................... 10 5.5 Investors' Rights Agreement...................................... 10 5.6 BFI Purchase and Sale Agreement.................................. 10 5.7 Financing........................................................ 11 6. Miscellaneous........................................................ 11 6.1 Survival of Warranties........................................... 11 6.2 Amendments and Waivers........................................... 11 6.3 Notices.......................................................... 11 6.4 Entire Agreement................................................. 12 6.5 Successors and Assigns........................................... 12 6.6 Severability..................................................... 12 6.7 Governing Law.................................................... 12 6.8 Interpretation................................................... 12 6.9 Further Assurances............................................... 12 6.10 Counterparts.................................................... 12 6.11 Assignment...................................................... 12 6.12 Titles and Subtitles............................................ 13 6.13 Corporate Securities Law........................................ 13 6.14 Exculpation Among Purchasers.................................... 13 7. Definitions.......................................................... 13 7.1 Glossary......................................................... 13 7.2 Index.............................................................14
ii 25 EXHIBIT A List of Purchasers EXHIBIT B Certificate of Designation EXHIBIT C Investors' Rights Agreement EXHIBIT D Stockholders Agreement SCHEDULE 2.2 Capitalization SCHEDULE 2.4 Authorization and Filings SCHEDULE 2.7 Material Contracts SCHEDULE 2.9 Debt iii 26 Agreement....................................................................1 Certificate of Designation...................................................1 Certificate of Incorporation.................................................2 Closing......................................................................1 Common Purchaser.............................................................1 Company......................................................................1 Condition of the Company.....................................................2 Investors' Rights Agreement..................................................9 Purchasers...................................................................1 Securities...................................................................5 Series A Preferred Stock.....................................................1 Series A Purchaser...........................................................1 Stockholders Agreement.......................................................9
iv 27 Schedule 2.2 Capitalization PRIOR TO CLOSING: Common Stock: 15,000,000 shares authorized.
Common Stockholders Amount of Common Stock Held ------------------- --------------------------- NONE NONE
Series A Preferred Stock: 10,000,000 shares authorized.
Series A Preferred Stockholders Amount of Series A Preferred Stock Held ------------------------------- --------------------------------------- NONE NONE
AFTER CLOSING: See Exhibit A 28 SCHEDULE 2.4 Authorizations and Filings State Blue Sky Filings Federal Securities Laws Filings Certificate of Designation 29 SCHEDULE 2.7 Material Contracts NONE 30 SCHEDULE 2.9 Debt
Lender Amount Rate Due Date - ---------------- ---------------- -------------- -------------------------- Imperial Bank $5,500,000 Prime + 2% 60 Month Term Loan - ---------------- ---------------- -------------- -------------------------- Imperial Bank up to $2,000,000 Prime + 1.5% Revolving Line of Credit - ---------------- ---------------- -------------- -------------------------- BFI $500,000 10% Six Months - ---------------- ---------------- -------------- -------------------------- BFI $2,593,767 6% By December 1, 1997 - ---------------- ---------------- -------------- -------------------------- BFI $359,514 6% October 31, 1997 - ---------------- ---------------- -------------- --------------------------
EX-10.8 11 FORM OF INVESTOR'S RIGHTS AGREEMENT 1 EXHIBIT 10.8 WASTE CONNECTIONS, INC. SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT Dated as of September 30, 1997 2 TABLE OF CONTENTS
Page ---- 1. Registration Rights............................................ 1 1.1 Definitions.............................................. 1 1.2 Request for Registration................................. 2 1.3 Company Registration..................................... 4 1.4 Obligations of the Company............................... 4 1.5 Furnish Information...................................... 6 1.6 Expenses of Company Registration......................... 6 1.7 Underwriting Requirements................................ 6 1.8 Delay of Registration.................................... 7 1.9 Indemnification.......................................... 7 1.10 Reports Under Securities Exchange Act of 1934............ 9 1.11 Form S-3 Registration.................................... 10 1.12 Assignment of Registration Rights........................ 11 1.13 "Market Stand-Off" Agreement............................. 11 1.14 Termination of Registration Rights....................... 12 1.15 Registration of Common Stock............................. 12 2. Covenants of the Company....................................... 12 2.1 Delivery of Financial Statements......................... 12 2.2 Inspection............................................... 13 2.3 Right of First Offer..................................... 13 2.4 Termination of Certain Covenants......................... 14 3. Miscellaneous.................................................. 14 3.1 Restrictive Legend....................................... 14 3.2 Notice of Proposed Transfer.............................. 15 3.3 Successors and Assigns................................... 15 3.4 Governing Law............................................ 15 3.5 Counterparts............................................. 15 3.6 Titles and Subtitles..................................... 15 3.7 Notices.................................................. 15 3.8 Expenses................................................. 16 3.9 Amendments and Waivers................................... 16 3.10 Severability............................................. 16 3.11 Aggregation of Stock..................................... 17 3.12 Entire Agreement......................................... 17 3.13 Further Assurances....................................... 17 3.14 Interpretation........................................... 17 3.15 Additional Investors..................................... 17
i 3 Exhibit A Schedule of Investors ii 4 INVESTORS' RIGHTS AGREEMENT THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of September 30, 1997, by and among Waste Connections, Inc., a Delaware corporation (the "Company"), and the investors listed on Exhibit A hereto, each of which is herein referred to as an "Investor," with reference to the following facts: The Company and the Investors are parties to the Stock Purchase Agreement dated as of September 30, 1997 (the "Stock Purchase Agreement") with respect to the purchase of shares of Series A Preferred Stock (the "Series A Preferred Stock") and Common Stock (the "Common Stock") of the Company. In order to induce the Company to enter into the Stock Purchase Agreement and to induce the Investors to invest funds in the Company pursuant to the Stock Purchase Agreement, the Investors and the Company hereby agree that this Agreement shall govern the rights of certain of the Investors to cause the Company to register shares of Common Stock issuable to such Investors and certain other matters as set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions set forth in this Agreement, the parties agree as follows: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Agreement: (a) The term "ACT" means the Securities Act of 1933, as amended. (b) The term "FORM S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "HOLDER" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12. (d) The term "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended. (e) The term "PREFERRED STOCK" shall mean the Series A Preferred Stock of the Company. (f) The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in 5 compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (g) The term "REGISTRABLE SECURITIES" means the Common Stock sold pursuant to the Stock Purchase Agreement, the Common Stock issued pursuant to the Stock Purchase Agreement dated as of February 4, 1998, by and among Waste Connections, Inc., Madera Disposal Systems, Inc., Alma Sciacqua, as trustee of the Sciacqua Family Trust B, Eugene Dupreau, Melvin G. Dias, and Charles B. Youngclaus, the Common Stock issuable upon exercise of the Warrants to purchase Common Stock issued to Eugene Dupreau, Melvin G. Dias, Charles B. Youngclaus, Imperial Bank, FSC Corp., Ronald J. Mittelstaedt, J. Bradford Bishop, Frank W. Cutler, James N. Cutler, Jr., Michael Harlan, Phil Rivard, Greg Popovich, Ed Quinnan and Steven Bouck, the Common Stock issuable or issued upon conversion of the Preferred Stock, and any other securities issued by the Company from time to time that the Company's Board of Directors determines should be included in the definition of "Registrable Securities", excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned; provided, however, that shares of Common Stock or other securities shall not be treated as Registrable Securities for the purposes of any registration if and so long as at the time of such registration all transfer restrictions and restrictive legends with respect thereto have been or, in the opinion of the Company's counsel, may be removed, and all the Registrable Securities held by such Holder may be sold without restriction (including any volume limitations) under Rule 144 under the Act. (h) The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. (i) The term "SEC" shall mean the Securities and Exchange Commission. (j) The term "UNDERWRITTEN OFFERING" means an offering of Common Stock to the public pursuant to an effective Registration Statement that is firmly underwritten by a United States nationally recognized underwriter or underwriters that are selected or approved by the Company in accordance with this Agreement. 1.2 Request for Registration. (a) If the Company shall receive at any time after the earlier of (i) four years after the Closing of the Series A Preferred Stock offering or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from Holders holding at least fifty percent (50%) of the 2 6 Registrable Securities then outstanding (the "Initiating Holders") that the Company file a registration statement under the Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price would exceed $100,000,000), then the Company shall, within twenty-one (21) days after the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations and pursuant to the provisions of this Section 1.2, use reasonable efforts to file a registration statement under the Act covering all Registrable Securities which the Holders request to be registered. (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action to effect any such registration pursuant to this Section 1.2: (i) if the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.11; (ii) if the Holders shall have initiated two registrations pursuant to this Section 1.2, which have been declared or ordered effective and pursuant to which securities have been sold or have been withdrawn by the Holders other than as a result of a material adverse change to the Company; or (iii) if the Company has effected a registration pursuant to this Section 1.2 within one year prior to receipt of a requested pursuant to Section 1.2(a). (c)(i) Subject to the provisions of this Agreement, including, but not limited to, the foregoing Section 1.2(b) and Section 1.4(a), the Company shall file a registration statement as soon as practicable after receipt of the request or requests of the Initiating Holders under this Section 1.2, but in any event within ninety (90) days after receipt of such request or requests. (ii) Notwithstanding anything to the contrary herein, the Company shall not be obligated to effect a registration pursuant to this Section 1.2 during the period starting with the date approximately 10 days prior to the Company's good faith estimate of the date of filing of, and ending on the date six months following the effective date of, a Company-initiated registration statement pertaining to the initial registered underwritten public offering of securities for the Company's account (the "Initial Offering"); provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective. (d) The right of any Holder to registration pursuant to this Section 1.2 shall be conditioned on such Holder's participation in an Underwritten Offering and the inclusion of such Holder's Registrable Securities to be registered in the Underwritten Offering. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or 3 7 underwriters selected by the Company, which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriters advise the Initiating Holders and the Company in writing that marketing factors require a limitation of the number of shares to be underwritten and that the total amount of securities that all Holders (initiating and noninitiating) request pursuant to this Section 1.2(d) to be included in such offering exceeds the amount of securities that the underwriters reasonably believe compatible with the success of the offering, the Company shall so advise all Holders and all of the Holders' shares to be included in the registration shall be allocated among all Holders requesting inclusion (initiating and noninitiating) pro rata according to the total amount of securities entitled to be included in such registration owned by each Holder requesting inclusion (initiating or noninitiating) or in such other proportions as shall be mutually agreed by such selling shareholders. Shares of Registrable Securities held by the Holders shall not be subject to cutback following the allocation unless shares of all other selling shareholders have been eliminated from the offering. If any Holder does not agree to the terms of any such underwriting, that person shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If shares are so withdrawn from the registration and the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion pro rata according to the total amount of securities entitled to be included in such registration owned by each such person or in such other proportions as shall be mutually agreed by such selling shareholders. For purposes of the preceding sentence concerning apportionment, for any selling shareholder which is a holder of Registrable Securities and which is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and shareholders of such holder, or the estates and family members of any such partners, retired partners, members, retired members and shareholders and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro-rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. 1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for any shareholders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the 4 8 only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.7, the Company shall, subject to the provisions of Section 1.7, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (i) includes any prospectus required by Section 10(a)(3) of the Act or (ii) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (i) and (ii) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement. Notwithstanding anything to the contrary in this Agreement, the Company may delay filing a Registration Statement, and may withhold efforts to cause a Registration Statement to become effective, for a period not to exceed 120 days, if the Company shall furnish to Holders a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period. If, after a Registration Statement becomes effective, the Company advises the holders of registered shares that the Company considers it appropriate for the Registration Statement to be amended or supplemented, the holders of such shares shall suspend any further sales of their registered shares, for a period not to exceed 90 days, until the Company advises them that the registration statement has been amended or updated. 5 9 (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 6 10 1.6 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section 1 for each Holder (which right may be assigned as provided in Section 1.12), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company and one separate counsel for the selling Holders hereunder (selected by the Holders of a majority of the Registrable Securities that are included in the corresponding registration), but excluding underwriting discounts and commissions relating to Registrable Securities. 1.7 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under this Section 1 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities that the underwriters determine in good faith is compatible with the success of the offering, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the amount of securities of the selling Holders included in the registration below fifteen percent (15%) of the total amount of securities included in such registration, unless such offering is the Initial Offering and such registration does not include shares of any other selling shareholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than two-thirds (66 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder does not agree to the terms of any such underwriting, the holder shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If shares are so withdrawn from the registration and or if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion pro rata according to the total amount of securities entitled to be included in such registration owned by each such person or in such other proportions as shall be mutually agreed by such selling shareholders. For 7 11 purposes of the preceding sentence concerning apportionment, for any selling shareholder which is a holder of Registrable Securities and which is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and shareholders of such holder, or the estates and family members of any such partners, retired partners, members, retired members and shareholders and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro-rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. 1.8 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.9 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the 8 12 registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.9(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1,9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that 9 13 resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11 Form S-3 Registration. In case the Company shall receive written request or requests from at least ten percent (10%) of the Holders of the Registrable Securities that the 10 14 Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 20 days after effectiveness of such written notice from the Company pursuant to Section 3.7; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 1.11: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at any aggregate price to the public less than $1,000,000; or (iii) as provided in Section 1.4(a) or Section 1.4(d). (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.11 shall not be counted as demands for registration effected pursuant to Section 1.2. 1.12 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned to a transferee or assignee (other than a competitor of the Company) who acquires at least twenty-five percent (25%) of the shares held by a Holder provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement and the Stockholders Agreement, including without limitation the provisions of Section 1.13 below; (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act; and (d) transfer of registration rights to a limited or general partner of any Holder that is a partnership will be without restriction as to minimum shareholding. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership or limited liability company who are partners or retired partners of such partnership or members or retired members of such limited liability company (including spouses and ancestors, lineal descendants and siblings of such partners, members or spouses who acquire Registrable Securities by gift, will or intestate 11 15 succession) shall be aggregated together and with the partnership or limited liability company; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.13 "Market Stand-Off" Agreement. Each Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement filed under the Act for the first public offering of the Company's Common Stock, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: (a) all officers and directors of the Company, all holders of Common Stock and options to purchase Common Stock and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and (b) such market stand-off time period shall not exceed 180 days. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, the obligations described in this Section 1.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-14 or Form 915 or similar forms which may be promulgated in the future. 1.14 Termination of Registration Rights. (a) No Holder shall be entitled to exercise any right provided for in this Section 1 after five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the Initial Offering. (b) In addition, the right of any Holder to request registration or inclusion in any registration pursuant to Section 1 shall terminate on the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may 12 16 immediately be sold under Rule 144 during any 90 day period, or on such date after the closing of the first Company-initiated registered public offering of Common Stock of the Company as all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90 day period. 1.15 Registration of Common Stock. For purposes of Section 1 of this Agreement, the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock, provided, however, that, in any underwritten public offering contemplated by Section 1 hereof, the holders of Preferred Stock shall be entitled to sell such Preferred Stock to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof. 2. Covenants of the Company. 2.1 Delivery of Financial Statements. The Company shall deliver to each holder of Series A Preferred Stock (or Common Stock issued upon conversion of Series A Preferred Stock): (a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; and (b) as soon as practicable, but in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement for such fiscal quarter, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. 2.2 Inspection. The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 Right of First Offer. Subject to the terms and conditions specified in this Section 2.3, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.3, Investor includes any general partners, managers and affiliates of an Investor. An 13 17 Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, members and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) By written notification received by the Company, within 20 calendar days after giving of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of common stock issued and held, or issuable upon conversion of the Preferred Stock then held by such Investor bears to the total number of shares of common stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). The Company shall promptly, in writing, inform each Investor which purchases all the shares available to it ("Fully-Exercising Investor") of any other Investor's failure to do likewise. During the ten-day period commencing after such information is given, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Investors were entitled to subscribe but which were not subscribed for by the Investors which is equal to the proportion that the number of shares of common stock issued and held, or issuable upon conversion of Preferred Stock then held by such Fully-Exercising Investor bears to the total number of shares of common stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. (c) If all Shares which Investors are entitled to obtain pursuant to subsection 2.3(b) are not elected to be obtained as provided in subsection 2.3(b) hereof, the Company may, during the 60-day period following the expiration of the period provided in subsection 2.3(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 30 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith. (d) The right of first offer in this Section 2.3 shall not be applicable (i) to consummation of a bona fide, firmly underwritten public offering of shares of common stock registered under the Act pursuant to a registration statement on Form S-1, at an offering price of 14 18 at least $5.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) with aggregate gross proceeds to the Company of at least $5,000,000, (ii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iii) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (iv) the issuance of options or warrants to purchase shares of Common Stock to officers, directors and employees of, or consultants to, the Company, with an exercise price greater than the then current conversion price of the Company's Series A Preferred Stock. (e) The right of first offer set forth in this Section 2.3 may be assigned or transferred to the same parties, subject to the same restrictions pursuant to Section 1.12. 2.4 Termination of Certain Covenants. The covenants set forth in this Section 2 shall terminate and be of no further force or effect upon the consummation of a bona fide, firmly underwritten public offering of shares of Common Stock registered under the Act pursuant to a registration statement on Form S-1, at an offering price of at least $5.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) with aggregate gross proceeds to the Company of at least $5,000,000. 3. Miscellaneous. 3.1 Restrictive Legend. Each certificate representing Preferred Stock or Common Stock issued upon conversion thereof shall, except as otherwise provided in Section 3.2, be stamped or otherwise imprinted with a legend substantially in the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH OTHER APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. A certificate shall not bear such legend if in the opinion of counsel satisfactory to the Company the securities being sold thereby may be publicly sold without registration under the Act and any applicable state securities laws. 3.2 Notice of Proposed Transfer. Prior to any proposed transfer of any Preferred Stock or Common Stock issued upon conversion thereof (other than under the circumstances described in Section 1), the holder thereof shall give written notice to the Company of his or her intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if reasonably requested by the Company, shall be accompanied by an opinion of counsel satisfactory to the Company to the effect that the proposed transfer may be effected without registration under the Act and any applicable state securities 15 19 laws, whereupon the holder of such stock shall be entitled to transfer such stock in accordance with the terms of the notice; provided, however, that no such opinion of counsel shall be required for a transfer to one or more partners or members of the transferor (in the case of a transferor that is a partnership or limited liability company) or to an affiliated corporation (in the case of a transferor that is a corporation). Each certificate for Preferred Stock or Common Stock issued upon conversion thereof transferred as above provided shall bear the legend set forth in Section 3.1, except that such certificate shall not bear such legend if (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Act) or (ii) the opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Act. The restrictions provided for in this Section 3.2 shall not apply to securities which are not required to bear the legend prescribed by Section 3.1 in accordance with the provisions of that Section. 3.3 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.4 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California, without regard to that state's conflict of laws principles. 3.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 3.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.7 Notices. Any notice, consent, authorization or other communication to be given hereunder shall be in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile transmission with receipt acknowledged by the addressee or three days after being mailed by first class mail, or the next business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the following address for such party (or at such other address as shall be specified by like notice): 16 20 (a) if to the Company, to: Waste Connections, Inc. 3510 Trenton Way El Dorado Hills, CA 95762 Attention: Ronald J. Mittelstaedt Telephone: (916) 939-7986 Facsimile: (916) 939-7987 with copies to: Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Attention: Robert D. Evans, Esq. Telephone: (415) 421-6500 Facsimile: (415) 421-2922 (b) if to the Investors, to the address indicated on Exhibit A. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such part on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.8 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 17 21 3.10 Severability. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held to be invalid or unenforceable, shall not be affected thereby. 3.11 Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 3.12 Entire Agreement. This Agreement, the Stockholders Agreement and the Stock Purchase Agreement of even date contain the entire agreement of the parties and supersede all prior negotiations, correspondence, agreements and understandings, written and oral, between or among the parties, regarding the subject matter hereof. 3.13 Further Assurances. Each party shall execute such other and further certificates, instruments and other documents as may be necessary and proper to implement, complete and perfect the transactions contemplated by this Agreement. 3.14 Interpretation. All parties have been assisted by counsel in the preparation and negotiation of this Agreement and the transactions contemplated hereby, and this Agreement shall be construed according to its fair language. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 3.15 Additional Investors. If the Company shall at any future time desire to issue or reissue any shares of Common Stock or Series A Preferred Stock to any person or firm (including any Investors), all such issuees shall become parties to this Agreement with respect to such shares of the Company's stock by executing a counterpart of this Agreement or a writing agreeing to be bound hereby. Such additional Investors shall be added to Exhibit A hereto. 18 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: WASTE CONNECTIONS, INC. By: ------------------------------------- Ronald J. Mittelstaedt President & CEO INVESTOR: ---------------------------------------- (Name of Investor) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 19 23 Exhibit A LIST OF COMMON AND SERIES A PREFERRED STOCKHOLDERS EX-10.9 12 FORM OF STOCKHOLDER'S AGREEMENT 1 EXHIBIT 10.9 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT ("Agreement") is entered into as of September 30, 1997, by and among Waste Connections, Inc., a Delaware corporation (the "Company"), the persons named on Exhibit A attached to this Agreement, each of whom is a holder of shares of Series A Preferred Stock of the Company (each a "Series A Preferred Stockholder") or a holder of shares of Common Stock of the Company (each a "Common Stockholder"), (the Series A Preferred Stockholders and the Common Stockholders sometimes shall be hereinafter collectively referred to as "Investors"), with reference to the following facts: As of the date of this Agreement, certain of the Series A Preferred Stockholders have acquired 2,500,000 shares of Series A Preferred Stock of the Company and certain of the Common Stockholders have acquired 2,500,000 shares of Common Stock of the Company pursuant to the terms of the Stock Purchase Agreement (the "Purchase Agreement") among the Series A Preferred Stockholders, the Common Stockholders and the Company. It is a condition to the closing of the transactions contemplated by the Purchase Agreement that this Agreement be executed by the parties hereto. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions set forth in this Agreement, the parties agree as follows: 1. Voting Agreement. Each of the Investors hereby agrees with respect to the election of directors of the Company that upon request of the holders of at least 50% of the outstanding shares of Series A Preferred Stock of the Company, the Investors shall vote the shares of the Company's stock then owned by them in favor of the number of Series A Nominees (the "Series A Nominees") listed below opposite the then applicable authorized number of directors, which nominees shall be nominated by the holders of at least 50% of the outstanding shares of Series A Preferred Stock of the Company:
Authorized Number of Directors Series A Nominees ------------ ----------------- 3 1 4 2 5 2 6 3 7 3 8 4 9 4
If at the time such request is made, the authorized number of directors is five or fewer, the Board of Directors of the Company shall promptly amend the Bylaws of the Company to increase the number of directors to a number that would allow the number of Series A Nominees derived from the above table to be elected, and then shall promptly elect the Series A Nominees selected by the holders of at least 50% of the outstanding shares of Series A Preferred Stock of 1 2 the Company to fill the vacancies created by such increase in the authorized number of directors. If at the time such request is made, the authorized number of directors exceeds five, the Board of Directors of the Company shall promptly amend the Bylaws of the Company to increase the number of directors to nine, and one or more of the directors then in office shall resign so that the number of directors then in office is five. Following such resignations, the Board of Directors shall elect four Series A Nominees selected by the holders of at least 50% of the outstanding shares of Series A Preferred Stock of the Company to fill the vacancies created by such increase. If any director refuses to resign after being asked to do so by the Board, each of the Investors hereby agrees to vote the shares of the Company's stock then owned by such Investor for the removal of such director. 2. Co-Sale Agreement. 2.1 Definitions. (a) "Co-Sale Shares" shall mean shares of the Company's Common Stock and securities convertible (other than the Preferred Stock) into, exchangeable for, or exercisable for, Common Stock now owned or subsequently acquired by the Investors. The number of Co-Sale Shares relating to a convertible security shall be the number of shares of Common Stock of the Company into which such security is convertible, exchangeable or exercisable. (b) "Preferred Stock" shall mean the Series A Preferred Stock of the Company. 2.2 Sales by a Stockholder. (a) Except for certain sales and gifts permitted by Section 3, if any of the Investors or Permitted Transferees (as defined below) proposes to sell or transfer any Co-Sale Shares (any one of such Investors and Permitted Transferees being hereinafter sometimes called the "Transferring Stockholder"), then the Transferring Stockholder shall promptly give written notice (the "Co-Sale Notice") to the Company and to each of the Investors at least 20 days prior to the closing of such sale or transfer. The Co-Sale Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the number of Co-Sale Shares to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. In the event that the sale or transfer is being made pursuant to the provisions of Section 3 hereof, the Co-Sale Notice shall state under which subparagraph the sale or transfer is being made. (b) With respect to a proposed transfer by a Transferring Stockholder, the Investors shall have the right, exercisable upon written notice to the Transferring Stockholder within 15 days after receipt of the Co-Sale Notice, to participate in such sale on the same terms and conditions specified in the Co-Sale Notice. To the extent that Investors exercise such right 2 3 of participation in accordance with the terms and conditions set forth below, the number of Co-Sale Shares that the Transferring Stockholder may sell in the transaction shall be reduced. (c) Each Investor may sell all or any part of that number of Co-Sale Shares at the same price per share and on the same terms and conditions as involved in the sale by the Transferring Stockholder equal to the total number of shares to be sold in the transaction multiplied by a fraction, the numerator of which is the number of Co-Sale Shares held by such Investor and the denominator of which is the total number of Co-Sale Shares outstanding. (d) Each Investor to participate in the right of co-sale (a "Participant") shall effect his, her or its participation in the sale by promptly delivering to the Transferring Stockholder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: (i) the number of Co-Sale Shares which such Participant elects to sell; or (ii) that number of shares of Series A Preferred Stock which is at such time convertible into the number of Co-Sale Shares which such Participant elects to sell; provided, however, that if the prospective purchaser objects to the delivery of Series A Preferred Stock in lieu of Co-Sale Shares, such Participant shall convert such Series A Preferred Stock into Co-Sale Shares and deliver Co-Sale Shares as provided above. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser. (e) The stock certificate or certificates that the Participant delivers to the Transferring Stockholder pursuant to Section 2.2(d) shall be transferred to the prospective purchaser in consummation of the sale of the Co-Sale Shares pursuant to the terms and conditions specified in the Co-Sale Notice, and the Transferring Stockholder shall concurrently therewith remit to such Participant the sale proceeds to which such Participant is entitled by reason of his, her or its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Participant exercising his, her or its rights of co-sale hereunder, the Transferring Stockholder shall not sell to such prospective purchaser or purchasers any Co-Sale Shares unless and until, simultaneously with such sale, the Transferring Stockholder shall purchase such shares or other securities from such Participant. (f) The exercise or non-exercise of the rights of the Participants hereunder to participate in one or more sales of Co-Sale Shares made under this Agreement shall not adversely affect their rights to participate in subsequent sales of Co-Sale Shares subject to this Agreement. (g) If none of the Investors elects to participate in the sale of the Co-Sale Shares subject to the Co-Sale Notice, the Transferring Stockholder may, not later than sixty (60) days following delivery to the Company and each of the Investors of the Co-Sale Notice, enter 3 4 into an agreement providing for the closing of the transfer of the Co-Sale Shares covered by the Co-Sale Notice within thirty (30) days after the date of such agreement on terms and conditions not more favorable to the Transferring Stockholder than those described in the Co-Sale Notice. Any proposed transfer on terms and conditions more favorable than those described in the Co-Sale Notice, as well as any subsequent proposed transfer of any of the Co-Sale Shares by an Investor, shall again be subject to the co-sale rights of the other Investors and shall require compliance with the procedures described in this Section 2.2. (h) Any Co-Sale Shares sold pursuant to this Section 2.2 shall no longer be subject to this Agreement. 3. Exempt Transfers. (a) Notwithstanding the foregoing, the provisions of Section 2 shall not apply to (i) any transfer to the ancestors, descendants or spouse or to trusts for the benefit of a Transferring Stockholder; or (ii) any bona fide gift by an Investor; provided that (A) the Transferring Stockholder shall inform the Investors of such transfer or gift prior to effecting it and (B) the transferee or donee shall furnish the Investors with a written agreement to be bound by and comply with all provisions of this Agreement, the Investors' Rights Agreement and the Stock Purchase Agreement. Such transferred Co-Sale Shares shall remain "Co-Sale Shares" hereunder and such transferee or donee shall be treated as a "Transferring Stockholder" and as an "Investor". In addition, notwithstanding the foregoing, the provisions of Section 2.2 shall not apply to any transfers from an Investor to a partner, active or retired of an Investor, the estate of any such partner or a parent or subsidiary corporation of an Investor, or a corporation which has the same parent corporation as an Investor provided that such Investor notifies the other Stockholders prior to effecting the transfer and the transferee shall furnish the Stockholders with a written agreement to be bound by and comply with all provisions of this Agreement, the Investors' Rights Agreement and the Stock Purchase Agreement. Such transferred shares shall remain "Co-Sale Shares" hereunder and such transferee (a "Permitted Transferee") shall be treated as an additional "Transferring Stockholder" for purposes of this Agreement. (b) Notwithstanding the foregoing, the provisions of Section 2 of this Agreement shall not apply to the sale of any Co-Sale Shares (i) to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act") or (ii) to the Company on termination of the employment of a Transferring Stockholder pursuant to the terms of any agreement between that Transferring Stockholder and the Company or as otherwise approved by the Board of Directors of the Company. 4 5 4. Prohibited Transfers. (a) In the event a Transferring Stockholder should sell any Co-Sale Shares in contravention of the co-sale rights of the Investors under this Agreement (a "Prohibited Transfer"), each Investor who had co-sale rights in connection with the Prohibited Transfer, in addition to such other remedies as may be available at law, in equity or hereunder, shall have the put option provided below, and the Transferring Stockholder shall be bound by the applicable provisions of such option. (b) In the event of a Prohibited Transfer, each Investor shall have the right to sell to the Transferring Stockholder the type and number of shares of Co-Sale Shares equal to the number of shares each Investor would have been entitled to transfer to the purchaser had the Prohibited Transfer been effected pursuant to and in compliance with the terms of Section 2.2 this Agreement. Such sale shall be made on the following terms and conditions: (i) The price per share at which the shares are to be sold to the Transferring Stockholder shall be equal to the price per share paid by the purchaser to the Transferring Stockholder in the Prohibited Transfer. The Transferring Stockholder shall also reimburse each Investor for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Investor's rights under Section 2.2. (ii) Within 90 days after the later of the dates on which the Investor (A) received notice of the Prohibited Transfer or (B) otherwise became aware of the Prohibited Transfer, each Investor shall, if exercising the option created hereby, deliver to the Transferring Stockholder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. (iii) The Transferring Stockholder shall, upon receipt of the certificate or certificates for the shares to be sold by an Investor, pursuant to this Section 4(b), pay the aggregate purchase price therefor and the amount of reimbursable fees and expenses, as specified in Section 4(b)(i), in cash or by other means acceptable to the Investor. (c) Notwithstanding the foregoing, any attempt by a Transferring Stockholder to transfer Co-Sale Shares in violation of Section 2.2 hereof shall be void and the Company agrees it will not effect such a transfer nor will it treat any alleged transferee as the holder of such shares without the prior written consent of a majority-in-interest of the Investors. 5. Further Assurances. The parties shall do or perform any and all such further acts and things and execute and deliver any and all such documents and instruments as may be reasonably necessary to carry out the provisions of this Agreement. Exercise of the parties' rights under this Agreement shall be subject to and conditioned upon, and each Transferring 5 6 Stockholder, Investor and the Company shall use their best efforts to assist each Transferring Stockholder in, compliance with applicable laws. 6. Spousal Consents. Any natural person to whose benefit this Agreement may now or hereafter inure shall use his or her best efforts to obtain the acknowledgment and consent of his or her spouse, whether such party is now married or marries or remarries hereafter, in substantially the form attached hereto following the signature page hereof. 7. Stop Transfer Instructions. The parties agree that stop order instructions prohibiting transfer of certificates for Shares will be issued and filed by the Company on its records or with the Company's transfer agent to prevent any disposition otherwise than strictly in accordance with this Agreement and agree to cause the officers of the Company to refuse to record on the books of the Company any assignments or transfers made or attempted to be made except in accordance with this Agreement and to cause said officers to refuse to cancel certificates, or issue or deliver new certificates therefor, where the purchaser, assignee, pledgee, donee or other transferee has acquired certificates or any Shares represented thereby otherwise than strictly in accordance with this Agreement. 8. Additional Stockholders. If the Company shall at any future time desire to issue or reissue Shares to any Investor, all such issuees shall become parties to this Agreement (and their spouses shall acknowledge and consent thereto as provided in Section 6) with respect to such Shares by executing a writing agreeing to be bound hereby. 9. Legend. Each certificate representing shares of stock now or hereafter owned by any Permitted Transferee shall include the following legend: THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER AND THE VOTING OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS AGREEMENT, BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. 10. Repurchase Agreement. This Stockholder Agreement is subject to, and shall in no manner limit the right of the Company to repurchase securities from an Investor pursuant to any stock restriction agreement or other agreement between the Company and the Investor. 11. Ownership. Each Transferring Stockholder represents and warrants that such Transferring Stockholder is the sole legal and beneficial owner of the shares of stock subject to this Agreement and that no other person has any interest (other than a community property interest) in such shares. 6 7 12. Notices. Any notice, consent, authorization or other communication to be given hereunder shall be in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile transmission with receipt acknowledged by the addressee or three days after being mailed by first class mail, or the next business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, charges and postage prepaid, properly addressed to the party to receive such notice at the following address for such party (or at such other address as shall be specified by like notice): (a) if to the Company, to: Waste Connections, Inc. 3510 Trenton Way El Dorado Hills, CA 95762 Attention: Ronald J. Mittelstaedt Telephone: (916) 939-7986 Facsimile: (916) 939-7987 with copies to: Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Attention: Robert D. Evans, Esq. Telephone: (415) 421-6500 Facsimile: (415) 421-2922 (b) if to the Transferring Stockholders, to the address indicated on the Company's records. 13. Severability. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held to be invalid or unenforceable, shall not be affected thereby. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 15. Entire Agreement; Amendment; Waiver. This Agreement contain the entire agreement of the parties and supersede all prior negotiations, correspondence, agreements and understandings, written and oral, between or among the parties, regarding the subject matter hereof. 7 8 16. Successors and Assigns. Without limiting the restrictions on transfers herein, this Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective successors, permitted assigns, personal or legal representatives, heirs and legatees, whether herein so expressed or not, and this Agreement shall be binding on any person who acquires any interest in any Shares, whether or not in accordance with this Agreement, and on any executor, administrator, successor or assign of any such person. 17. Voting Trust. Notwithstanding anything herein to the contrary, Shares may be transferred by one or more Transferring Stockholders to voting trustees subject to all of the terms and conditions of this Agreement; provided that the beneficial ownership of such Shares is not transferred, that any voting trust certificates issued refer to the provisions of this Agreement and that such Shares may not be transferred without the same being considered a transfer of Shares within the scope of this Agreement. 18. Amendment. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) as to the Company, only by the Company, and (ii) as to each Investor, that Investor. Any amendment or waiver effected in accordance with clauses (i) or (ii) of this paragraph shall be binding upon that Investor, and the successors and permitted assigns of that Investor, as the case may be. 19. Termination. This Agreement shall terminate on the earliest of (a) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of the Company's Common Stock (A) at a price per share of not less than $5.00 (as adjusted for stock splits, reverse stock splits and the like effected after the date of this Agreement) and an aggregate offering price of not less than $5,000,000 or (B) upon the request of Investors pursuant to the terms of the Investors' Rights Agreement, dated as of September 30, 1997, to file a registration statement with the Securities and Exchange Commission, (b) the written agreement of the Company and parties hereto holding two-thirds or more of the Shares then outstanding, (c) the dissolution, bankruptcy, insolvency or receivership of the Company or (d) ten years from the date of this Agreement. 20. Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 21. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California, without regard to that state's conflict of laws principles. 22. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8 9 23. Interpretation. This Agreement shall be construed according to its fair language. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: WASTE CONNECTIONS, INC. By: ------------------------------ Ronald J. Mittelstaedt President and CEO INVESTOR: --------------------------------- (Name of Investor) By: ------------------------------ Name: --------------------------- Title: -------------------------- 9 10 Exhibit A LIST OF COMMON AND SERIES A PREFERRED STOCKHOLDERS EX-10.10 13 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and effective as of October 1, 1997, by and between Ronald J. Mittelstaedt (the "Employee"), Waste Connections, Inc., a Delaware corporation (the "Company"), and J. Bradford Bishop, Frank W. Cutler and James N. Cutler, Jr. (the "Founders"), with reference to the following facts. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as Chief Executive Officer and President of the Company, and perform such other duties and responsibilities as the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. In addition, the Employee shall serve as a member of the Board for an initial term of three (3) years beginning on the date hereof. While the Employee is a member of the Board, he shall serve on the Executive and Finance Committees of the Board. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. 3. Term. The period of the Employee's employment under this Agreement shall commence on the effective date of this Agreement and shall continue through September 30, 2002, unless terminated earlier as provided herein or extended by the vote of a majority of the Board (the "Term"). At the end of the Term, this Agreement shall be renewed automatically for successive periods of one year, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. (a) Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows: 1 2 (1) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than One Hundred Seventy Thousand Dollars ($170,000) per year in installments consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company. In addition, if an IPO Closing (as defined below) with respect to the Company's Common Stock occurs on or before October 1, 1998, the Employee's Base Salary shall be adjusted on October 1, 1998, to the greater of (i) Two Hundred Fifty Thousand Dollars ($250,000) per year, or (ii) the average of the annual base salaries of Chief Executive Officers of comparable small- to mid-cap solid waste management companies as determined and approved by the Board. An "IPO Closing" means (x) the date the shares of the Company's Common Stock issued in an initial public offering registered under the Securities Act of 1933, as amended (an "IPO"), are sold to the underwriter, if the IPO is a fully underwritten offering, or (y) the day following the closing of the Company's IPO, if the IPO is a best efforts offering. (2) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal one hundred percent (100%) of the applicable year's ending Base Salary and will be payable if a majority of the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. Notwithstanding the foregoing, the Employee will receive an aggregate minimum Bonus of One Hundred Twenty-Five Thousand Dollars ($125,000) for the 15-month period ending December 31, 1998, if the following conditions are met: (i) If by December 31, 1998, the Company consummates the acquisition of another company or companies or businesses with aggregate annual revenues of at least $10,000,000 (for this purpose, the annual revenues of each such company or business acquired shall equal its revenues in the most recent four full quarters before the acquisition), the Employee shall receive a Bonus of at least Seventy-Five Thousand Dollars ($75,000), to be paid in installments; each installment shall be paid within 30 days after the closing of such an acquisition and shall be in an amount equal to the product of $75,000 multiplied by a fraction, the numerator of which is the annual revenues of the company or business acquired, and the denominator of which is $10,000,000. (ii) If the Company's income before interest, depreciation and taxes for the six-month period ending March 31, 1998, is at least $1,475,754, the Employee shall receive a Bonus of at least $25,000 by April 15, 1998. In addition, if the Company's income before interest, depreciation and taxes for the twelve-month period ending September 30, 1998, is at least $3,016,841, the Employee shall receive an additional Bonus of at least $25,000 by October 15, 1998; provided, that if the Company's income before interest, depreciation and taxes for the six-month period ending March 31, 1998, is less than $1,475,754 but for the 2 3 twelve-month period ending September 30, 1998 is at least $3,016,841, the Employee shall receive a Bonus of at least $50,000 by October 15, 1998. The Bonus with respect to fiscal years beginning after December 31, 1998 shall be paid in accordance with the Company's bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than seventy-five (75) days after the end of such fiscal year. (b) Other Benefits. During the Term, the Employee shall be entitled to a vehicle allowance of Five Thousand Dollars ($5,000) per year net after payment of all taxes. In addition, the Company shall pay or reimburse the Employee for all fuel and maintenance on Employee's vehicle. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fee and costs of calls attributable to Company business. During the Term, the Company will also pay for the cost of a fax line to Employee's residence. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement benefits. The Employee shall be entitled to four (4) weeks of paid vacation each year of his employment. (c) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (d) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 3 4 6. Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the vote of a majority of the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company. For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (3) conviction of a felony; or 4 5 (4) misappropriation of property belonging to the Company and/or any of its affiliates. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the vote of a majority of the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to three times the Total Compensation paid to the Employee by the Company with respect to the twelve months preceding the termination date. For purposes of this section 7(b), the Employee's Total Compensation shall equal the sum of the Base Salary, Bonus, vehicle allowance and other benefits and expense reimbursements described in Section 4(b), and director's fees paid to the Employee by the Company. If the Employee is terminated without Cause before the first anniversary of the effective date of this Agreement, the Total Compensation paid to the Employee through the termination date shall be annualized before calculating the amount in clause (iii) above. In addition, on termination of the Employee under this Section 7(b), all of the Employee's unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options, warrants and rights shall be extended to the fifth anniversary of the Employee's termination. The Employee acknowledges that extending the term of any incentive stock option pursuant to this Section 7(b), or Section 7(c), 7(d) or 8(a), could cause such option to lose its tax-qualified status under the Internal Revenue Code of 1986, as amended (the "Code"), and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on 5 6 such termination, all of the Employee's unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options, warrants and rights shall be extended to the fifth anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee's unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options, warrants and rights shall be extended to the fifth anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 8(a), all of the Employee's unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options, warrants and rights shall be extended to the fifth anniversary of the Employee's termination. For purposes of this Agreement, "Good Reason" shall mean: (1) assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement; (2) the relocation of the Company's principal executive office to a location more than fifty (50) miles from its present location; (3) a reduction by the Company in the Employee's Base Salary; 6 7 (4) a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee's participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company); (5) any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity. (b) Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination pursuant to this Section 8(b), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company. 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. 7 8 (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee in a lump sum the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's unvested ISOs, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable, and the term of any such options, warrants and rights shall be extended to the fifth anniversary of the Employee's termination. After a Change in Control, if any option, warrant or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control, in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above 8 9 and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) 9 10 any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. In addition, the Company shall pay all legal costs and expenses reasonably incurred by the Employee (including attorneys' and expert witness fees), as such expenses are incurred, in defending against any claim by United Waste Systems, Inc. ("United"), or USA Waste Services, Inc., that by entering into and performing under this Agreement the Employee has violated any provision of his previous employment or consulting agreement with United prohibiting competition, use of confidential information, or solicitation of employees or prospective customers; provided that the Company shall not be liable for any other damages that the Employee incurs in connection with such a claim, including any amount the Employee pays to settle such a claim or to satisfy a judgment in connection with such a claim. 13. Board Representation. The Company agrees that during the Term, beginning on the date that the personal guarantees of Brad Bishop, Frank Butler, Jim Butler and the Employee to Imperial Bank with respect to indebtedness of the Company are removed, the Employee may recommend nominees for election to the Board, such that at all times that there are five (5) or fewer members of the Board, the Employee shall have recommended at least two (2) nominees for election to such Board, and at all times that there are more than five (5) members of the Board, the Employee shall have recommended at least three (3) nominees for election to such Board. 10 11 14. Additional Equity Investment by the Employee. On the date of this Agreement, the Company shall sell to the Employee, for $0.01 per share in cash, 617,500 shares of the Company's Common Stock, which amount is equal to 12.35% of the Company's total initial authorized number of shares of Common and Preferred Stock (such number of total initial authorized shares of Common and Preferred Stock is called the "Total Initial Shares"). In addition, the Employee agrees, concurrently with the date of this Agreement, to purchase a number of shares of Series A Preferred Stock of the Company equal to seven and one-eighth percent (7.125%) of the Company's Total Initial Shares, for consideration in the amount of One Million Dollars ($1,000,000), in the form of a cashier's check payable to the Company. The Company agrees that if on January 1, 1998, the Employee desires to sell shares of Series A Preferred Stock of the Company and has not yet obtained a commitment from a buyer on terms satisfactory to the Employee, the Company will use its best efforts to obtain additional equity financing, which shall be used to purchase from the Employee shares of the Company's Series A Preferred Stock representing three and nine-sixteenths percent (3.5625%) of the Company's Total Initial Shares, for cash consideration to the Employee in the amount of Five Hundred Thousand Dollars ($500,000). 15. Management Stock Pool. The Company agrees that at the IPO Closing, the Company shall reserve at least eight percent (8%) of the Company's Total Initial Shares (or, if the number of shares of Common Stock issued in the IPO exceeds the number included in the Total Initial Shares, the Company's Total Initial Shares plus such excess) for issuance to management employees of the Company pursuant to stock options and warrants. Such options and warrants shall be issued to management employees from time to time as approved by a majority of the Board, for the purposes of recruiting, retaining and motivating such management employees. 16. Survival of Provisions. The obligations of the Company under Section 12 of this Agreement shall survive both the termination of the Employee's employment and this Agreement. 17. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 18. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This 11 12 Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 19. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 20. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 21. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 22. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 23. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 24. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5 or 6 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5 or 6 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. 25. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 12 13 26. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: --------------------------------------------------- Printed Name: ------------------------------------------ Title: ------------------------------------------------- EMPLOYEE: ------------------------------------------------------- Ronald J. Mittelstaedt FOUNDERS: ------------------------------------------------------- J. Bradford Bishop ------------------------------------------------------- Frank W. Cutler ------------------------------------------------------- James N. Cutler, Jr. 13 EX-10.11 14 EMPLOYMENT AGREEMENT/DARRELL CHAMBLISS 1 EXHIBIT 10.11 FIRST AMENDED EMPLOYMENT AGREEMENT THIS FIRST AMENDED EMPLOYMENT AGREEMENT is made and entered into as October 1, 1997, by and between Darrell Chambliss (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), and amends and restates the Employment Agreement entered into by the parties as of October 1, 1997, with reference to the following facts. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as Vice President -- Operations of the Company, reporting directly to the Company's President, and perform such other duties and responsibilities as the President or the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. The Employee shall be based at the Company's corporate headquarters in Roseville, California. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. 3. Term. The period of the Employee's employment under this Agreement (the "Term") commenced on October 1, 1997, and shall continue through September 30, 2000, unless terminated earlier as provided herein or extended by the Board. At the end of the initial Term, this Agreement shall be renewed automatically for successive Terms of one year, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. (a) Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows: (1) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than Eighty-Five Thousand Dollars ($85,000) per year in installments 1 2 consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company; provided, however, that if an IPO Closing (as defined below) with respect to the Company's Common Stock occurs on or before October 1, 1998, the Employee's Base Salary shall be adjusted on October 1, 1998, to One Hundred Thousand Dollars ($100,000) per year, and if an IPO Closing has not occurred by October 1, 1998, the Employee's Base Salary shall be adjusted on that date to Ninety-Two Thousand Dollars ($92,000) per year. An "IPO Closing" means (i) the date the shares of the Company's Common Stock issued in an initial public offering registered under the Securities Act of 1933, as amended (an "IPO"), are sold to the underwriter, if the IPO is a fully underwritten offering, or (ii) the day following the closing of the Company's IPO, if the IPO is a best efforts offering. (2) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal fifty percent (50%) of the applicable year's ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. Notwithstanding the foregoing, the Employee will be guaranteed a minimum Bonus of $17,000 for the 15-month period ending December 31, 1998, and the total Bonus for such period shall not be subject to the maximum percentage limit described above. Such minimum Bonus shall be paid on February 15, 1998, and any additional Bonus for such period shall be paid no later than February 20, 1999. The Bonus with respect to fiscal years beginning after December 31, 1998 shall be paid in accordance with the Company's bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than seventy-five (75) days after the end of such fiscal year. (3) Grant of Options. The Company shall grant to the Employee, for no additional consideration, stock options (the "Options") to purchase 150,000 shares of the Company's Common Stock under the Company's Stock Option Plan. The Options shall have a term of 10 years from the date of such grant. Options to purchase 100,000 of the 150,000 shares of Common Stock shall be exercisable at a price of $2.80 per share and shall vest and become exercisable with respect to 33,333 such shares on each of October 1, 1998, and October 1, 1999, and with respect to 33,334 such shares on October 1, 2000. Options to purchase 50,000 of the 150,000 shares shall be exercisable at a price of $10.50 per share and shall vest and become exercisable with respect to 16,667 such shares on October 1, 1998, with respect to 16,667 such shares on October 1, 1999, and with respect to 16,666 such shares on October 1, 2000. The Options shall be incentive stock options to the extent permitted under the Copmany's Stock Option Plan, and the terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. If at any time while any of the Options are still outstanding the Company amends its Stock Option Plan to provide for a less favorable vesting schedule for stock options than that provided herein, any Options then outstanding shall thereupon be converted to warrants entitling the Employee to 2 3 purchase the number of shares of Common Stock for which the Employee's then outstanding Options may be exercised, on the same terms as provided under such Options. If the Employee's employment by the Company is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)) before all of the Options have vested, all of the outstanding Options shall become vested on such termination. If the Employee's employment by the Company is terminated by the Company for Cause or by the Employee without Good Reason before all of the Options have vested, the Employee shall forfeit any Options that are unvested as of the termination date. (4) Grant of Restricted Stock. On the date of this Agreement, the Company shall sell to the Employee, for $0.01 per share in cash, 20,000 shares of the Company's Common Stock (the "Restricted Stock"). Such Restricted Stock shall not be transferable initially by the Employee, but 6,667 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on each of October 1, 1998, and October 1, 1999, and the remaining 6,666 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on October 1, 2000. If a Change in Control of the Company (as defined in Section 10(b)) occurs before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such Change of Control, and all shares of Restricted Stock granted to the Employee hereunder shall be treated as owned by the Employee without restriction for the purpose of determining the Employee's percentage ownership of the Company on such Change of Control. If before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), the Employee's employment is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such termination. If the Employee's employment is terminated by the Company for Cause or by the Employee without Good Reason before all of the Restricted Stock has become unrestricted and freely transferable, the Company may, within 90 days after such termination of employment, repurchase from the Employee for $0.01 per share in cash any shares of Restricted Stock that are subject to restrictions on transfer under this Section 4(a)(4) as of the termination date. The Employee may in his sole discretion file an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the Restricted Stock. (b) Other Benefits. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fee and costs of calls attributable to Company business. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement 3 4 benefits. The Employee shall be entitled to three (3) weeks of paid vacation each year of his employment. (c) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses (including mileage for business use of employee's personal automobile at the maximum rate permitted under Internal Revenue Service regulations) incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (d) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 6. Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, 4 5 the Company shall first send the Employee written notice of its intention to terminate this Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) a breach of any of the provisions of Section 12; (3) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (4) conviction of a felony; or (5) misappropriation of property belonging to the Company and/or any of its affiliates. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to the aggregate Total Compensation paid to the Employee by the Company with respect to the twelve months preceding the termination date. For purposes of this section 7(b), the Employee's Total Compensation shall equal the sum of the Base Salary, Bonus, and other benefits and expense reimbursements described in Section 4(b) paid to the Employee by the Company. In addition, 5 6 on termination of the Employee under this Section 7(b), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The Employee acknowledges that extending the term of any Options pursuant to this Section 7(b), or Section 7(c), 7(d) or 8(a), could cause such Option to lose its tax-qualified status if it is an incentive stock option under the Code and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on such termination, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. 6 7 (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 8(a), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. For purposes of this Agreement, "Good Reason" shall mean: (1) assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement; (2) the relocation of the Company's principal executive office to a location more than fifty (50) miles from its present location; (3) a reduction by the Company in the Employee's Base Salary without the Employee's prior approval; (4) a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee's participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company); (5) any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity. (b) Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his 7 8 current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination pursuant to this Section 8(b), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee in a lump sum the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, the term of any such options and rights shall be extended to the third anniversary of the Employee's termination, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. 8 9 After a Change in Control, if any previously outstanding Option or other option or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the 9 10 membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof, for the period commencing on the date hereof and ending on the first anniversary of the termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee will not, except as specifically provided below, anywhere in any county in any state in which the Company is engaged in business as of such termination date, directly or indirectly, acting individually or as the owner, shareholder, partner or 10 11 management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. (b) After termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in any county in any state in which the Company is engaged in business as of such termination date, (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in any such county, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer, employee or contractor of the Company to enter into an employment or contractor agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the second anniversary of the date of such termination, unless otherwise permitted to do so by Section 12(a). (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 13. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 11 12 14. Survival of Provisions. The obligations of the Company under Section 13 of this Agreement, and of the Employee under Section 12 of this Agreement, shall survive both the termination of the Employee's employment and this Agreement. 15. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 16. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 17. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 18. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 19. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 20. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 21. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 22. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5, 6, or 12 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6 or 12 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a 12 13 remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. The Employee agrees that if the Employee breaches any provision of Section 12, the Company may recover as partial damages all profits realized by the Employee at any time prior to such recovery on the exercise of any warrant, option or right to purchase the Company's Common Stock and the subsequent sale of such stock, and may also cancel all outstanding such warrants, options and rights. 23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 24. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this First Amended Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: ------------------------------------ Printed Name: -------------------------- Title: --------------------------------- EMPLOYEE: --------------------------------------- Darrell Chambliss 13 EX-10.12 15 EMPLOYMENT AGREEMENT/MICHAEL FOOS 1 EXHIBIT 10.12 FIRST AMENDED EMPLOYMENT AGREEMENT THIS FIRST AMENDED EMPLOYMENT AGREEMENT is made and entered into as of October 1, 1997, by and between Michael Foos (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), and amends and restates the Employment Agreement entered into by the parties as of October 1, 1997, with reference to the following facts. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as Vice President and Corporate Controller of the Company, reporting directly to the Company's Chief Financial Officer, and perform such other duties and responsibilities as the Chief Financial Officer or the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. The Employee shall be based at the Company's corporate headquarters in Roseville, California. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. 3. Term. The period of the Employee's employment under this Agreement (the "Term") commenced on October 1, 1997, and shall continue through September 30, 2000, unless terminated earlier as provided herein or extended by the Board. At the end of the initial Term, this Agreement shall be renewed automatically for successive Terms of one year, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. (a) Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows: (1) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than Eighty-Five Thousand Dollars ($85,000) per year in installments 1 2 consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company; provided, however, that if an IPO Closing (as defined below) with respect to the Company's Common Stock occurs on or before October 1, 1998, the Employee's Base Salary shall be adjusted on October 1, 1998, to One Hundred Thousand Dollars ($100,000) per year, and if an IPO Closing has not occurred by October 1, 1998, the Employee's Base Salary shall be adjusted on that date to Ninety-Two Thousand Dollars ($92,000) per year. An "IPO Closing" means (i) the date the shares of the Company's Common Stock issued in an initial public offering registered under the Securities Act of 1933, as amended (an "IPO"), are sold to the underwriter, if the IPO is a fully underwritten offering, or (ii) the day following the closing of the Company's IPO, if the IPO is a best efforts offering. (2) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal thirty-five percent (35%) of the applicable year's ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. Notwithstanding the foregoing, the Employee will be guaranteed a minimum Bonus of $32,000 for the 15-month period ending December 31, 1998, and the total Bonus for such period shall not be subject to the maximum percentage limit described above. Such Bonus shall be paid in installments, as follows: $22,000 on February 15, 1998, $10,000 on October 15, 1998, and any additional Bonus for such period shall be paid no later than February 20, 1999. The Bonus with respect to fiscal years beginning after December 31, 1998 shall be paid in accordance with the Company's bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than seventy-five (75) days after the end of such fiscal year. (3) Grant of Options. The Company shall grant to the Employee, for no additional consideration, stock options (the "Options") to purchase 150,000 shares of the Company's Common Stock under the Company's Stock Option Plan. The Options shall have a term of 10 years from the date of such grant. Options to purchase 100,000 of the 150,000 shares of Common Stock shall be exercisable at a price of $2.80 per share and shall vest and become exercisable with respect to 33,333 such shares on each of October 1, 1998, and October 1, 1999, and with respect to 33,334 such shares on October 1, 2000. Options to purchase 50,000 of the 150,000 shares shall be exercisable at a price of $10.50 per share and shall vest and become exercisable with respect to 16,667 such shares on October 1, 1998, with respect to 16,667 such shares on October 1, 1999, and with respect to 16,666 such shares on October 1, 2000. The Options shall be incentive stock options to the extent permitted under the Company's Stock Option Plan, and the terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. If at any time while any of the Options are still outstanding the Company amends its Stock Option Plan to provide for a less favorable vesting schedule for stock options than that provided herein, any Options then outstanding shall thereupon be converted to warrants entitling the Employee to 2 3 purchase the number of shares of Common Stock for which the Employee's then outstanding Options may be exercised, on the same terms as provided under such Options. If the Employee's employment by the Company is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)) before all of the Options have vested, all of the outstanding Options shall become vested on such termination. If the Employee's employment by the Company is terminated by the Company for Cause or by the Employee without Good Reason before all of the Options have vested, the Employee shall forfeit any Options that are unvested as of the termination date. (4) Grant of Restricted Stock. On the date of this Agreement, the Company shall sell to the Employee, for $0.01 per share in cash, 20,000 shares of the Company's Common Stock (the "Restricted Stock"). Such Restricted Stock shall not be transferable initially by the Employee, but 6,667 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on each of October 1, 1998, and October 1, 1999, and the remaining 6,666 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on October 1, 2000. If a Change in Control of the Company (as defined in Section 10(b)) occurs before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such Change of Control, and all shares of Restricted Stock granted to the Employee hereunder shall be treated as owned by the Employee without restriction for the purpose of determining the Employee's percentage ownership of the Company on such Change of Control. If before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), the Employee's employment is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such termination. If the Employee's employment is terminated by the Company for Cause or by the Employee without Good Reason before all of the Restricted Stock has become unrestricted and freely transferable, the Company may, within 90 days after such termination of employment, repurchase from the Employee for $0.01 per share in cash any shares of Restricted Stock that are subject to restrictions on transfer under this Section 4(a)(4) as of the termination date. The Employee may in his sole discretion file an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the Restricted Stock. (b) Other Benefits. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fee and costs of calls attributable to Company business. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement 3 4 benefits. The Employee shall be entitled to three (3) weeks of paid vacation each year of his employment. (c) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses (including mileage for business use of employee's personal automobile at the maximum rate permitted under Internal Revenue Service regulations) incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (d) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 6. Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this 4 5 Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) a breach of any of the provisions of Section 12; (3) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (4) conviction of a felony; or (5) misappropriation of property belonging to the Company and/or any of its affiliates. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to the aggregate Total Compensation paid to the Employee by the Company with respect to the twelve months preceding the termination date. For purposes of this section 7(b), the Employee's Total Compensation shall equal the sum of the Base Salary, Bonus, and other benefits and expense reimbursements described in Section 4(b) paid to the Employee by the Company. In addition, on termination of the Employee under this Section 7(b), all of the Employee's outstanding but 5 6 unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The Employee acknowledges that extending the term of any Option pursuant to this Section 7(b), or Section 7(c), 7(d) or 8(a), could cause such Option to lose its tax-qualified status if it is an incentive stock option under the Code and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on such termination, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. 6 7 (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 8(a), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. For purposes of this Agreement, "Good Reason" shall mean: (1) assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement; (2) the relocation of the Company's principal executive office to a location more than fifty (50) miles from its present location; (3) a reduction by the Company in the Employee's Base Salary without the Employee's prior approval; (4) a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee's participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company); (5) any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity. (b) Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his 7 8 current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination pursuant to this Section 8(b), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee in a lump sum the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, the term of any such options and rights shall be extended to the third anniversary of the Employee's termination, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. 8 9 After a Change in Control, if any previously outstanding Option or other option or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the 9 10 membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof, for the period commencing on the date hereof and ending on the first anniversary of the termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee will not, except as specifically provided below, anywhere in any county in any state in which the Company is engaged in business as of such termination date, directly or indirectly, acting individually or as the owner, shareholder, partner or 10 11 management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. (b) After termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in any county in any state in which the Company is engaged in business as of such termination date, (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in any such county, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer, employee or contractor of the Company to enter into an employment or contractor agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the second anniversary of the date of such termination, unless otherwise permitted to do so by Section 12(a). (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 13. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 11 12 14. Survival of Provisions. The obligations of the Company under Section 13 of this Agreement, and of the Employee under Section 12 of this Agreement, shall survive both the termination of the Employee's employment and this Agreement. 15. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 16. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 17. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 18. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 19. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 20. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 21. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 22. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5, 6, or 12 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6 or 12 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a 12 13 remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. The Employee agrees that if the Employee breaches any provision of Section 12, the Company may recover as partial damages all profits realized by the Employee at any time prior to such recovery on the exercise of any warrant, option or right to purchase the Company's Common Stock and the subsequent sale of such stock, and may also cancel all outstanding such warrants, options and rights. 23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 24. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this First Amended Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: ----------------------------------- Printed Name: ------------------------- Title: -------------------------------- EMPLOYEE: -------------------------------------- Michael Foos 13 EX-10.13 16 EMPLOYMENT AGREEMENT/ERIC MOSER 1 EXHIBIT 10.13 FIRST AMENDED EMPLOYMENT AGREEMENT THIS FIRST AMENDED EMPLOYMENT AGREEMENT is made and entered into as of October 1, 1997, by and between Eric Moser (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), and amends and restates the Employment Agreement entered into by the parties as of October 1, 1997, with reference to the following facts. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as the Company's Divisional Controller for Washington and Idaho, reporting directly to the Company's Corporate Controller, and perform such other duties and responsibilities as the Corporate Controller or the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. The Employee shall be based in Vancouver, Washington. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. 3. Term. The period of the Employee's employment under this Agreement (the "Term") commenced on October 1, 1997, and shall continue through September 30, 2000, unless terminated earlier as provided herein or extended by the Board. At the end of the initial Term, this Agreement shall be renewed automatically for successive Terms of one year, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. (a) Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows: (1) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than Sixty Thousand Dollars ($60,000) per year in installments consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on 1 2 October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company; provided, however, that if an IPO Closing (as defined below) with respect to the Company's Common Stock occurs on or before October 1, 1998, the Employee shall be offered the position of Assistant Corporate Controller beginning October 1, 1998, with a Base Salary of Eighty Thousand Dollars ($80,000) per year, provided that the Employee relocates to the Sacramento, California area by November 1, 1998. If the Employee is offered such position and rejects it, he and the Company shall renegotiate his Base Salary as of October 1, 1998. If an IPO Closing does not occur by October 1, 1998, the Employee's Base Salary shall be adjusted on that date to Seventy Thousand Dollars ($70,000) per year. An "IPO Closing" means (i) the date the shares of the Company's Common Stock issued in an initial public offering registered under the Securities Act of 1933, as amended (an "IPO"), are sold to the underwriter, if the IPO is a fully underwritten offering, or (ii) the day following the closing of the Company's IPO, if the IPO is a best efforts offering. (2) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal twenty percent (20%) of the applicable year's ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. Notwithstanding the foregoing, the Employee will be guaranteed a minimum Bonus of $5,000 for the 15-month period ending December 31, 1998, and the total Bonus for such period shall not be subject to the maximum percentage limit described above. Such minimum Bonus shall be paid on February 15, 1998, and any additional Bonus for such period shall be paid no later than February 20, 1999. The Bonus with respect to fiscal years beginning after December 31, 1998 shall be paid in accordance with the Company's bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any such fiscal year be paid more than seventy-five (75) days after the end of such fiscal year. (3) Grant of Options. On the date of this Agreement, the Company shall grant to the Employee, for no additional consideration, stock options (the "Options") to purchase 85,000 shares of the Company's Common Stock under the Company's Stock Option Plan. The Options shall have a term of 10 years from the date of such grant. Options to purchase 50,000 of the 85,000 shares of Common Stock shall be exercisable at a price of $2.80 per share and shall vest and become exercisable with respect to 25,000 such shares on October 1, 1998, and with respect to 25,000 such shares on October 1, 1999. Options to purchase 35,000 of the 85,000 shares shall be exercisable at a price of $10.50 per share and shall vest and become exercisable with respect to 11,667 such shares on October 1, 1998, with respect to 11,667 such shares on October 1, 1999, and with respect to 11,666 such shares on October 1, 2000. The Options shall be incentive stock options to the extent permitted under the Company's Stock Option Plan, and the terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. If at any time while any of the Options are still outstanding the Company amends its Stock Option Plan to provide for a less favorable vesting schedule for stock options than that provided herein, any Options then outstanding shall thereupon be converted to warrants entitling the Employee to 2 3 purchase the number of shares of Common Stock for which the Employee's then outstanding Options may be exercised, on the same terms as provided under such Options. If the Employee's employment by the Company is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)) before all of the Options have vested, all of the outstanding Options shall become vested on such termination. If the Employee's employment by the Company is terminated by the Company for Cause or by the Employee without Good Reason before all of the Options have vested, the Employee shall forfeit any Options that are unvested as of the termination date. (4) Grant of Restricted Stock. On the date of this Agreement, the Company shall sell to the Employee, for $0.01 per share in cash, 10,000 shares of the Company's Common Stock (the "Restricted Stock"). Such Restricted Stock shall not be transferable initially by the Employee, but 3,333 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on each of October 1, 1998, and October 1, 1999, and the remaining 3,334 shares of Restricted Stock shall become unrestricted and freely transferable (subject to compliance with all applicable Federal and state securities laws) on October 1, 2000. If a Change in Control of the Company (as defined in Section 10(b)) occurs before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such Change of Control, and all shares of Restricted Stock granted to the Employee hereunder shall be treated as owned by the Employee without restriction for the purpose of determining the Employee's percentage ownership of the Company on such Change of Control. If before all of the Employee's Restricted Stock has become unrestricted and freely transferable under this Section 4(a)(4), the Employee's employment is terminated by the Company without Cause (as defined in Section 7(a)) or by the Employee for Good Reason (as defined in Section 8(a)), all of the Employee's shares of Restricted Stock shall immediately become unrestricted and freely transferable on such termination. If the Employee's employment is terminated by the Company for Cause or by the Employee without Good Reason before all of the Restricted Stock has become unrestricted and freely transferable, the Company may, within 90 days after such termination of employment, repurchase from the Employee for $0.01 per share in cash any shares of Restricted Stock that are subject to restrictions on transfer under this Section 4(a)(4) as of the termination date. The Employee may in his sole discretion file an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the Restricted Stock. (b) Other Benefits. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fee and costs of calls attributable to Company business. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement 3 4 benefits. The Employee shall be entitled to three (3) weeks of paid vacation each year of his employment. (c) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses (including mileage for business use of employee's personal automobile at the maximum rate permitted under Internal Revenue Service regulations) incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (d) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 6. Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this 4 5 Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) a breach of any of the provisions of Section 12; (3) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (4) conviction of a felony; or (5) misappropriation of property belonging to the Company and/or any of its affiliates. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to the aggregate Total Compensation paid to the Employee by the Company with respect to the twelve months preceding the termination date. For purposes of this section 7(b), the Employee's Total Compensation shall equal the sum of the Base Salary, Bonus, and other benefits and expense reimbursements described in Section 4(b) paid to the Employee by the Company. In addition, on termination of the Employee under this Section 7(b), all of the Employee's outstanding but 5 6 unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The Employee acknowledges that extending the term of any Option pursuant to this Section 7(b), or Section 7(c), 7(d) or 8(a), could cause such Option to lose its tax-qualified status if such Option is an incentive stock option under the Code and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on such termination, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. 6 7 (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof. In addition, on termination of the Employee under this Section 8(a), all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. For purposes of this Agreement, "Good Reason" shall mean: (1) assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement; (2) the relocation of the Employee to a location more than fifty (50) miles from Vancouver; (3) a reduction by the Company in the Employee's Base Salary without the Employee's prior approval; (4) a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee's participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company); (5) any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity. (b) Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his 7 8 current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination pursuant to this Section 8(b), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and all shares of Restricted Stock that as of the termination date are still subject to the restrictions on transfer imposed by Section 4(a)(4) shall be subject to repurchase by the Company as provided in Section 4(a)(4). 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee in a lump sum the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's outstanding but unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, the term of any such options and rights shall be extended to the third anniversary of the Employee's termination, and all shares of the Employee's Restricted Stock shall immediately become unrestricted and freely transferable. 8 9 After a Change in Control, if any previously outstanding Option or other option or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person or any person that controls, is controlled by or is under common control with such person, who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the 9 10 membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof, for the period commencing on the date hereof and ending on the first anniversary of the termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee will not, except as specifically provided below, anywhere in any county in any state in which the Company is engaged in business as of such termination date, directly or indirectly, acting individually or as the owner, shareholder, partner or 10 11 management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. (b) After termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in any county in any state in which the Company is engaged in business as of such termination date, (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in any such county, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer, employee or contractor of the Company to enter into an employment or contractor agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the second anniversary of the date of such termination, unless otherwise permitted to do so by Section 12(a). (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 13. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 11 12 14. Survival of Provisions. The obligations of the Company under Section 13 of this Agreement, and of the Employee under Section 12 of this Agreement, shall survive both the termination of the Employee's employment and this Agreement. 15. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 16. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 17. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 18. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 19. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 20. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 21. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 22. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5, 6, or 12 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6 or 12 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a 12 13 remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. The Employee agrees that if the Employee breaches any provision of Section 12, the Company may recover as partial damages all profits realized by the Employee at any time prior to such recovery on the exercise of any warrant, option or right to purchase the Company's Common Stock and the subsequent sale of such stock, and may also cancel all outstanding such warrants, options and rights. 23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 24. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this First Amended Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: _____________________________________ Printed Name: ___________________________ Title: __________________________________ EMPLOYEE: _________________________________________ Eric Moser 13 EX-10.14 17 EMPLOYMENT AGREEMENT/STEVEN BOUCK 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of January 13, 1998, by and between Steven F. Bouck (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), with reference to the following facts. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as Executive Vice President and Chief Financial Officer of the Company, reporting directly to the Company's President, and perform such other duties and responsibilities as the President or the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. The Employee shall be based at the Company's corporate headquarters in Roseville, California. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. At the discretion of the President and the Board, the Employee shall attend Board meetings, except during executive sessions of the Board as determined by the Board, and shall make presentations to the Board from time to time. The Company recognizes and accepts that the Employee may, for a period of time not to exceed 90 days (the "Transition Period"), engage in such activities as are reasonably necessary to assist his previous employer in transferring the Employee's responsibilities to his successor. The Employee agrees to make every effort to minimize the effect of these transition activities on the Company and to perform fully his obligations hereunder during the Transition Period. The Employee agrees that either he or his previous employer shall be responsible for all costs incurred by the Employee or his previous employer in connection with the Employee's providing such transition assistance, including, but not limited to, travel costs. 3. Term. The period of the Employee's employment under this Agreement (the "Term") shall commence on March 1, 1998, or earlier by agreement between the Employee and the Company, and shall continue through February 28, 2001, unless terminated earlier as provided herein. At the end of the initial Term, this Agreement shall be renewed automatically 1 2 for successive Terms of one year, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. (a) Compensation. The Company shall compensate the Employee during the Term of this Agreement as follows: (1) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than One Hundred Fifteen Thousand Dollars ($115,000) per year in installments consistent with the Company's usual practices. On the first anniversary of the Employee's employment by the Company, the Employee's Base Salary shall be increased to One Hundred Thirty-Five Thousand Dollars ($135,000) per year. Thereafter, the Board shall review the Employee's Base Salary on March 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company. (2) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of financial objectives to be determined annually by the Board. The maximum annual Bonus will equal thirty-five percent (35%) of the applicable year's ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. Notwithstanding the foregoing, for calendar 1998, the Employee will be guaranteed a minimum Bonus of twenty percent (20%) of the Base Salary paid to the Employee during that year, and will be paid on a schedule agreed to by the Company and the Employee. The Bonus with respect to 1999 and each year thereafter shall be paid in February of the following year. (3) Signing Bonus. The Employee shall be entitled to a cash signing bonus in the amount of $69,166, payable no later than March 1, 1998. (4) Grant of Options. On the first day of the initial Term, the Company shall grant to the Employee, for no additional consideration, stock options (the "Options") to purchase 200,000 shares of the Company's Common Stock under the Company's Stock Option Plan. The Options shall have a term of 10 years from the date of such grant. Options to purchase 100,000 of the 200,000 shares of Common Stock shall be exercisable at a price of $2.80 per share and shall vest and become exercisable with respect to 33,333 such shares on each of October 1, 1998, and October 1, 1999, and with respect to 33,334 such shares on October 1, 2000. Options to purchase 50,000 of the 200,000 shares shall be exercisable at a price of $9.50 per share and shall vest and become exercisable with respect to 16,667 such shares on October 1, 1998, with respect to 16,667 such shares on October 1, 1999, and with respect to 16,666 such shares on October 1, 2000. Options to purchase 50,000 of the 200,000 shares shall be exercisable at a price of $12.50 per share and shall vest and become exercisable with respect to 16,667 such shares on October 1, 1998, with respect to 16,667 such shares on October 1, 1999, and with respect to 16,666 such shares on October 1, 2000. The Options shall 2 3 be incentive stock options to the extent permitted under the Company's Stock Option Plan, and the terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. If at any time while any of the Options are still outstanding the Company amends its Stock Option Plan to provide for a less favorable vesting schedule for stock options than that provided herein, any Options then outstanding shall thereupon be converted to warrants entitling the Employee to purchase the number of shares of Common Stock for which the Employee's then outstanding Options may be exercised, on the same terms as provided under such Options. (5) Contingent Option Grant. If (i) the Employee's previous employer announces an acquisition before February 15, 1998, (ii) such acquisition closes within 60 days after the commencement of the initial Term, and (iii) the acquisition is one with respect to which, under the Employee's employment agreement with his previous employer, the Employee would normally have received additional compensation, but the Employee's previous employer does not in this case compensate the Employee, the Company shall grant to the Employee, for no additional consideration, within 30 days after it has been conclusively determined that the Employee's previous employer will not pay such additional compensation, stock options (the "Contingent Options") to purchase 30,000 shares of the Company's Common Stock under the Company's Stock Option Plan. The Contingent Options shall have a term of 10 years from the date of such grant, shall be exercisable at a price of $2.80 per share, and shall vest and become exercisable with respect to 10,000 such shares on each of October 1, 1998, October 1, 1999, and October 1, 2000. The Contingent Options shall be incentive stock options to the extent permitted under the Company's Stock Option Plan, and the terms of the Contingent Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. If at any time while any of the Contingent Options are still outstanding the Company amends its Stock Option Plan to provide for a less favorable vesting schedule for stock options than that provided herein, any Contingent Options then outstanding shall thereupon be converted to warrants entitling the Employee to purchase the number of shares of Common Stock for which the Employee's then outstanding Contingent Options may be exercised, on the same terms as provided under such Contingent Options. If the Employee's employment by the Company is terminated by the Company without Cause (as defined in Section 7(a)) before all of the Options or Contingent Options have vested, all of the outstanding Options and Contingent Options shall become vested on such termination. If the Employee's employment by the Company is terminated by the Company for Cause or by the Employee before all of the Options or Contingent Options have vested, the Employee shall forfeit any Options (but not any Contingent Options) that are unvested as of the termination date. (b) Other Benefits. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fees and costs of calls attributable to Company business. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management 3 4 employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement benefits. The Employee shall be entitled to two (2) weeks of paid vacation in his first twelve months of employment by the Company, three (3) weeks during each of the second through the fifth twelve-month periods of employment, and four (4) weeks per twelve-month period beginning with the sixth twelve-month period of employment. (c) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses (including mileage for business use of employee's personal automobile at the maximum rate permitted under Internal Revenue Service regulations) incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (d) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 6. Property. Both during the Term and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 4 5 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as defined in Section 9(b)). On termination pursuant to this Section 7(a), the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs, and (ii) all outstanding but unvested Options (but not Contingent Options) and other options and rights relating to capital stock of the Company. For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) a breach of any of the provisions of Section 12; (3) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (4) conviction of a felony; or (5) misappropriation of property belonging to the Company and/or any of its affiliates. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs, and (iii) an amount equal to the 5 6 greater of (aa) the aggregate Total Compensation paid to the Employee by the Company with respect to the twelve months preceding the termination date, or (bb) the aggregate Remaining Compensation payable to the Employee by the Company for the balance of the Term remaining under this Agreement. For purposes of this section 7(b), the Employee's Total Compensation shall equal the sum of the Base Salary, Bonus, and other benefits and expense reimbursements described in Section 4(b) paid to the Employee by the Company. For purposes of this section 7(b), the Remaining Compensation for the balance of the Term shall equal the sum of the Base Salary and Bonus payable to the Employee under the remaining Term of this Agreement, assuming that the Employee would receive for the remaining Term the same Base Salary and Bonus earned by the Employee with respect to the previous year, unless otherwise specified in this Agreement. In addition, on termination of the Employee under this Section 7(b), all of the Employee's outstanding but unvested Options, Contingent Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The Employee acknowledges that extending the term of any Options or Contingent Options pursuant to this Section 7(b) or Section 7(c) or Section 7(d) could cause such Options or Contingent Options to lose their tax-qualified status if they are incentive stock options under the Code and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to physical or mental illness, the Employee shall continue to receive the full Base Salary provided for in Section 4(a)(1) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(a)(2) for the year in which the termination occurs. In addition, on such termination, all of the Employee's outstanding but unvested Options, Contingent Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) 6 7 hereof. In addition, on termination of the Employee under this Section 7(d), all of the Employee's outstanding but unvested Options, Contingent Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. The Employee may terminate his employment hereunder on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his current Base Salary under Section 4(a)(1) hereof on a prorated basis to such date of termination. On termination by the Employee, the Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which such termination occurs and (ii) all outstanding but unvested Options (but not any Contingent Options) and other options and rights relating to capital stock of the Company. 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. 7 8 (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee in a lump sum the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's outstanding but unvested Options, Contingent Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, the term of any such options and rights shall be extended to the third anniversary of the Employee's termination. After a Change in Control, if any previously outstanding Option, Contingent Option or other option or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one 8 9 transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the 9 10 Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof, for the period commencing on the date hereof and ending on the first anniversary of the termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee pursuant to Section 8, the Employee will not, except as specifically provided below, anywhere in any county in any state in which the Company is engaged in business as of such termination date, directly or indirectly, acting individually or as the owner, shareholder, partner or management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. (b) After termination of this Agreement by the Company with Cause pursuant to Section 7(a) or by the Employee pursuant to Section 8, the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in any county in any state in which the Company is engaged in business as of such termination date, (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in any such county, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer, employee or contractor of the Company to enter into an employment or contractor agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the second anniversary of the date of such termination, unless otherwise permitted to do so by Section 12(a). 10 11 (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 13. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 14. Survival of Provisions. The obligations of the Company under Section 13 of this Agreement, and of the Employee under Section 12 of this Agreement, shall survive both the termination of the Employee's employment and this Agreement. 15. Equity Investment by the Employee. On the first day of the initial Term, the Company shall sell to the Employee, for $2.80 per share in cash, up to 50,000 shares of the Company's Common Stock, at the Employee's election, but subject to any approvals of the Company's existing stockholders required under the Company's existing agreements with such stockholders. 16. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 17. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 18. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 19. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior 11 12 discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 20. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 21. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 22. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 23. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Sections 5, 6, or 12 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6 or 12 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. The Employee agrees that if the Employee breaches any provision of Section 12, the Company may recover as partial damages all profits realized by the Employee at any time prior to such recovery on the exercise of any warrant, option or right to purchase the Company's Common Stock and the subsequent sale of such stock, and may also cancel all outstanding such warrants, options and rights. 24. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 12 13 25. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: ____________________________________ Printed Name: __________________________ Title: _________________________________ EMPLOYEE: ________________________________________ Steven F. Bouck 13 EX-10.15 18 EMPLOYMENT AGREEMENT/EUGENE V. DUPREAU 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of February ___, 1998, by and between Waste Connections, Inc., a Delaware corporation (the "Company"), and Eugene Dupreau (the "Employee"), with reference to the following facts: The Company desires to employ the Employee and the Employee desires to be employed by the Company as one of the Vice Presidents of the Company's Madera, California division. In consideration of the foregoing recitals and the mutual covenants herein, the parties agree as follows: 1. Employment; Acceptance. The Company hereby employs the Employee and the Employee hereby accepts employment by the Company on the terms and conditions hereinafter set forth. 2. Duties and Powers. The Employee is hereby employed as a Vice President of the Company's Madera, California division and shall devote his full attention, energies and abilities in that capacity to the proper oversight and operation of the Company's business, to the exclusion of any other occupation. 3. Term. The employment of the Employee by the Company pursuant to this Agreement shall commence on the date hereof and shall continue until the third anniversary hereof or until terminated prior to such anniversary when and as provided in Section 5. This Agreement shall be renewable for successive one-year terms at the sole discretion of the Company. 4. Compensation. 4.1 Base Salary. The Company hereby agrees to pay to the Employee an annual base salary of $45,000 ("Base Salary"). Such Base Salary shall be payable in accordance with the Company's normal payroll practices, and such Base Salary is subject to withholding and social security, unemployment and other taxes. Increases in Base Salary shall be considered by the Compensation Committee of the Company's Board of Directors on an annual basis. 4.2 Bonus Compensation. Employee shall be eligible for an annual bonus ("Bonus Compensation") of up to thirty-five percent (35%) of Employee's Base Salary payable pursuant to Section 4.1. The actual amount of any such bonus will be determined by the board in its sole and absolute discretion, and shall be paid at such time or times as shall be determined by the Board. Bonus Compensation shall generally be paid on or before March 1, of the fiscal year following the fiscal year in which such Bonus Compensation was earned. 5. Termination. 2 5.1 For Cause. The Company may terminate this Agreement and the Employee's employment for cause, effective immediately on the day it sends notice of such termination to the Employee. "Cause" for this purpose shall be defined as insobriety; conviction of a misdemeanor involving moral turpitude or a felony; illegal business practices in connection with the Company's business; misappropriation of the Company's assets; excessive absence of the Employee from his employment during usual working hours for reasons other than vacation, disability or sickness; or any material breach by the Employee of any term or provision of this Agreement. On such termination for cause, the Employee shall be entitled only to his Base Salary hereunder to the date of such termination, and shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. Any stock options granted to the Employee by the Company that have not vested shall terminate on the day that the Company sends the notice of termination of employment to the Employee. 5.2 Without Cause. The Company may terminate this Agreement and the Employee's employment without cause, for any reason or no reason at all, effective immediately on the day it sends notice of such termination to the Employee. On such termination, Employee shall be entitled only to the greater of his compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the day that the Company sends the notice of termination of employment to the Employee. The Employee shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.3 By the Employee. The Employee may terminate this Agreement and his employment, effective not earlier than the fifteenth day after the Company receives his notice of such termination. On such termination by the Employee, Employee shall be entitled only to his Base Salary hereunder to the date of such termination, and shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. Any stock options granted to the Employee by the Company shall terminate upon the Company's receipt of notice of the Employee's intent to terminate this Agreement. 5.4 Disability. If, in the reasonable judgment of the Company, the Employee becomes unable to perform competently and efficiently his duties hereunder because of any physical, mental or legal disability (including sickness or an injunction or similar order or decree of a court of competent jurisdiction preventing or severely impairing the performance of his duties hereunder) that lasts for six (6) consecutive months (the "Disability Period"), he shall be entitled to the greater of his compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the last day of the Disability Period. The Employee shall not be entitled 2 3 to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.5 Death. In the event of the death of the Employee, the Employee's heirs, legatees, devisees, executors or legal representatives shall be entitled to the greater of the Employee's compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the day of the Employee's death. The Employee's heirs, legatees, devisees, executors, administrators and legal representatives shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.6 Merger; Sale of Assets. This Agreement shall not be terminated by any voluntary or involuntary dissolution, reorganization, merger, consolidation or transfer of assets of the Company, or by any other act or event of or suffered by the Company, if a surviving or resulting corporation or other entity or person continues (or resumes after a period of not more than sixty days) the business of the Company. In any such event, if the business of the Company is so continued or so resumed, this Agreement shall be binding on and shall inure to the benefit of the corporation or other entity or person surviving or resulting or to which such assets shall have been transferred and the Employee shall be an employee of that part or division of such corporation or other entity or person that shall have been the Company immediately prior to such transaction. If, in any such event, the business of the Company is not so continued or so resumed, such event shall be deemed to constitute termination without cause by the Company as provided in Section 5.2. 6. Trade Secrets, Patents, Competition, Etc. 6.1 Trade Secrets. The Employee acknowledges that as an employee of the Company he has had and will have access to and has and will become acquainted with various trade secrets and other proprietary and confidential information of the Company (the "Trade Secrets"), which may consist of, among other things, designs, equipment, devices, patterns, electronically recordable data or concepts, computer programs and software, software enhancements, modifications and improvements, secret inventions, processes, compilations of information, books, papers, records and specifications, names, buying habits and practices of customers or potential customers of the Company, marketing methods, operating practices and related data, names of vendors and suppliers names, names of acquisition targets, costs of materials, prices the Company obtains or has obtained or at which it sells or has sold its services, sales costs, lists or other written records used in the Company's business, compensation paid to Company employees and consultants and other terms of employment, all of which are owned by the Company and are regularly used or contemplated to be used in the business of the Company. 3 4 The Employee represents, warrants and agrees that he will not at any time, whether during or subsequent to the term of his employment by the Company, without the specific written consent of the Company in the particular case, directly or indirectly use, disclose or communicate to any person or entity any Trade Secrets, for any purpose, except such as have been publicly disclosed through no act or omission of the Employee. The Employee further acknowledges and agrees that this Section 6 prohibits and precludes any use of Trade Secrets by him or by any person obtaining any Trade Secrets directly or indirectly from him in competition with the Company. The Employee further agrees that all written materials, including without limitation files, records, documents, drawings and specifications, and all equipment and devices and all other items relating to the business of the Company, whether prepared by or with the assistance of the Employee or otherwise coming into his possession, control or knowledge, are and shall remain the exclusive property of the Company and shall not be removed from the premises of the Company under any circumstances. On termination of his employment with the Company for any reason, the Employee agrees to deliver promptly to the Company all of the foregoing which are or have been in his possession or under his control. 6.2 Inventions, Designs and Patents. The Employee further represents, warrants and agrees that he will fully inform and disclose to the Company all inventions, designs, improvements and discoveries ("Inventions") of which he obtains knowledge or information during his employment by the Company and which relate to the existing or contemplated business of the Company or to any experimental or developmental work carried on or contemplated by the Company, whether or not conceived by the Employee alone or with others and whether or not conceived during regular working hours. All Inventions are and shall remain the exclusive property of the Company. The Employee agrees to assist the Company to obtain any and all patents, trademarks, service marks and copyrights relating to Inventions and to execute all documents and do all things necessary to obtain letters patent and trademark, service mark and copyright registrations, to vest the Company with full and exclusive title to each Invention, and to protect the Inventions against infringement by others, all as and to the extent the Company may request. Notwithstanding the foregoing provisions of this Section 6.2, this Section 6.2 shall not apply to an Invention developed entirely on the Employee's own time without using the Company's equipment, supplies, facilities, or trade secret information except for those Inventions that either (a) relate at the time of conception or reduction to practice of the Invention to the Company's business or demonstrably anticipated research or development of the Company, or (b) result from any work performed by the Employee for the Company. The Employee acknowledges that this paragraph constitutes the notification contemplated by California Labor Code section 2872. 4 5 6.3 Competition and Solicitation. The Employee acknowledges and agrees that he will not at any time during his employment by the Company directly or indirectly own an interest in, join, operate, control or participate in, or be connected as an officer, employee, agent, independent contractor, consultant, partner, shareholder or principal with, any corporation, partnership, proprietorship, association, or other entity or person engaged in developing, producing, designing, providing, soliciting orders for, selling, distributing or marketing products or services that directly or indirectly compete with the Company's products, services or business. The Employee further agrees that he will not at any time during his employment by the Company and if the Employee's employment is terminated for cause pursuant to Section 5.1, or if Employee voluntarily terminates employment pursuant to Section 5.3, for a period of five years following such termination of his employment, directly or indirectly, and whether or not for compensation, interfere with the business of the Company in any manner, including, without limitation, (a) by diverting or attempting to divert from the Company any business in which the Company is engaged or contemplates engaging, (b) assisting in bidding or negotiating any franchise or agreement with governmental entities to provide solid waste, collection, landfill or recycling services in California, or (c) by inducing any employee of the Company to leave the Company's employ or any consultant or other independent contractor for the Company to change or terminate any relationship between that person and the Company. This paragraph shall not apply if this Agreement is not renewed at the end of its term or if Employee's employment is terminated without cause pursuant to Section 5.2. Nothing in this paragraph shall be deemed to modify the Stock Purchase Agreement dated as of February 4, 1998 among the Company, Madera Disposal Systems, Inc. ("Madera") and the shareholders of Madera (including Employee), including without limitation Section 11 of that Agreement. 6.4 No Derogation. The Employee will not in any way or to any person or entity or governmental or regulatory body or agency, denigrate or derogate the Company or any of its affiliates or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Employee from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person or entity if it may reasonably adversely affect the regard or esteem in which such person or entity is held by investors, lenders, or licensing, rating, or regulatory entities. Without limiting the generality of the foregoing, the Employee will not directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any person, entity or governmental or regulatory body or agency who or which has dealings or prospective dealings with any such company or jurisdiction or prospective jurisdiction over any such company. This section does 5 6 not apply to the extent that testimony is required by legal process, provided that the Company has received not less than five days' prior written notice of such proposed testimony. 6.5 Injunctive Relief. The Employee acknowledges and agrees that his failure to perform any of his covenants in this Section 6 would cause irreparable injury to the Company and cause damages to the Company which would be difficult or impossible to ascertain or quantify. Accordingly, without limiting any remedies that may be available with respect to any breach of this Agreement, the Employee consents to the entry of an injunction to restrain any breach of this Section 6. 6.6 Infringement. The Employee represents and warrants that he does not possess and will not use, in connection with his employment by the Company, any trade secrets or other confidential or proprietary information or intellectual property in which any other person has any right, title or interest and that his employment by the Company as contemplated hereby will not infringe or violate the rights of any other corporation, partnership, firm, proprietorship, association or other person. 6.7 Survival. The representations, warranties and agreements in this Section 6 shall survive any cancellation, termination, rescission or expiration of this Agreement and any termination of the Employee's employment with the Company. 7. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. The Employee agrees that the provisions of this Agreement are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any provision of this Agreement, or any part thereof, is invalid or unenforceable, the remainder of this Agreement shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any provision of this Agreement, or any part thereof, is unenforceable because of duration or geographic scope, such court shall reduce the duration or scope of such provision to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. 8. Notices. Except as otherwise specifically provided herein, any notice, consent, demand or other communication to be given under or in connection with this Agreement shall be in writing and shall be deemed duly given when delivered personally, when transmitted by facsimile transmission, one day after being deposited with Federal Express or other nationally recognized overnight delivery service or three days after being mailed by first class mail, charges or postage prepaid, properly addressed, if to the Company, at its principal office, and, if to the Employee, at his address set forth following his signature below. Either party may change such address from time to time by notice to the other. 6 7 9. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California. 10. Assignment. Except as otherwise specifically provided herein, neither party shall assign this Agreement or any rights hereunder without the consent of the other party, and any attempted or purported assignment without such consent shall be void; provided that the Employee's consent shall not be required hereby for any of the transactions to which Section 5.6 hereof refers. This Agreement shall otherwise bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, legatees, devisees, executors, administrators and legal representatives. 11. Specific Enforcement. The Employee is obligated under this Agreement to render services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement peculiar value so that the loss thereof cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in addition to other remedies provided by law, the Company shall have the right during the term of this Agreement to compel specific performance by the Employee. 12. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the parties, regarding the subject matter of this Agreement. This Agreement may not be amended or modified except in writing signed by both parties and supported by new consideration. 7 8 IN WITNESS WHEREOF, this Agreement has been duly executed by or on behalf of the parties hereto as of the date first above written. WASTE CONNECTIONS, INC. By: - -------------------------------- ---------------------------------------- Eugene Dupreau Ronald J. Mittelstaedt President and Chief Executive Officer Address: - ----------------------------- - ----------------------------- 8 EX-10.16 19 EMPLOYMENT AGREEMENT/CHARLES B. YOUNGCLAUS 1 EXHIBIT 10.16 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of February ___, 1998, by and between Waste Connections, Inc., a Delaware corporation (the "Company"), and Charles B. Youngclaus (the "Employee"), with reference to the following facts: The Company desires to employ the Employee and the Employee desires to be employed by the Company as one of the Vice Presidents of the Company's Madera, California division. In consideration of the foregoing recitals and the mutual covenants herein, the parties agree as follows: 1. Employment; Acceptance. The Company hereby employs the Employee and the Employee hereby accepts employment by the Company on the terms and conditions hereinafter set forth. 2. Duties and Powers. The Employee is hereby employed as a Vice President of the Company's Madera, California division and shall devote his full attention, energies and abilities in that capacity to the proper oversight and operation of the Company's business, to the exclusion of any other occupation. The Employee shall also serve as an adviser to Madera Disposal Systems, Inc. Board of Directors (an "Advisory Director"). As an Advisory Director, the Employee shall be able to attend the Board's meetings, but shall have no other rights, preferences or powers of a Board member. The Employee's position as an Advisory Director shall be renewed at the sole discretion of the Board on a yearly basis, and such position can last for up to the term of this Employment Agreement. 3. Term. The employment of the Employee by the Company pursuant to this Agreement shall commence on the date hereof and shall continue until the third anniversary hereof or until terminated prior to such anniversary when and as provided in Section 5. This Agreement shall be renewable for successive one-year terms at the sole discretion of the Company. 4. Compensation. 4.1 Base Salary. The Company hereby agrees to pay to the Employee an annual base salary of $45,000 ("Base Salary"). Such Base Salary shall be payable in accordance with the Company's normal payroll practices, and such Base Salary is subject to withholding and social security, unemployment and other taxes. Increases in Base Salary shall be considered by the Compensation Committee of the Company's Board of Directors on an annual basis. 4.2 Bonus Compensation. Employee shall be eligible for an annual bonus 2 ("Bonus Compensation") of up to thirty-five percent (35%) of Employee's Base Salary payable pursuant to Section 4.1. The actual amount of any such bonus will be determined by the board in its sole and absolute discretion, and shall be paid at such time or times as shall be determined by the Board. Bonus Compensation shall generally be paid on or before March 1, of the fiscal year following the fiscal year in which such Bonus Compensation was earned. 4.3 Other Benefits. During the term of this Agreement, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of Madera Disposal Systems, Inc., and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by Madera Disposal Systems, Inc., medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement benefits. Neither the Company nor Madera Disposal Systems, Inc. shall be obligated to provide or continue any such benefit. The Employee shall be entitled to four (4) weeks of paid vacation each year of his employment. 4.4 Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements and receipts. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. It is understood that the Employee will continue to serve on the Board of Directors of the California Refuse Removal Council, Northern District, and the State Executive Board as Treasurer, at his own expense. 5. Termination. 5.1 For Cause. The Company may terminate this Agreement and the Employee's employment for cause, effective immediately on the day it sends notice of such termination to the Employee. "Cause" for this purpose shall be defined as insobriety; conviction of a misdemeanor involving moral turpitude or a felony; illegal business practices in connection with the Company's business; misappropriation of the Company's assets; excessive absence of the Employee from his employment during usual working hours for reasons other than vacation, disability or sickness; or any material breach by the Employee of any term or provision of this Agreement. On such termination for cause, the Employee shall be entitled only to his Base Salary hereunder to the date of such termination, and shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. Any stock options granted to the Employee by the Company that have not vested shall terminate on the day that the Company sends the notice of termination of employment to the Employee. 2 3 5.2 Without Cause. The Company may terminate this Agreement and the Employee's employment without cause, for any reason or no reason at all, effective immediately on the day it sends notice of such termination to the Employee. On such termination, Employee shall be entitled only to the greater of his compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the day that the Company sends the notice of termination of employment to the Employee. The Employee shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.3 By the Employee. The Employee may terminate this Agreement and his employment, effective not earlier than the fifteenth day after the Company receives his notice of such termination. (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the date that the Company receives the Employee's notice of termination pursuant to this Section 5.3(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination Without Cause set forth in Section 5.2 hereof. In addition, on termination of the Employee under this Section 5.3(a), all of the Employee's unvested incentive stock options, other stock options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. For the purposes of this Section 5.3(a), "Good Reason" shall mean: (i) relocation of Madera Disposal Systems, Inc.'s, principal executive office to a location more than fifty miles from its present location; or (ii) the failure of the Company to obtain the assumption of this Agreement by any successor entity to which it is assigned. (b) Termination Without Good Reason. If the Employee terminates his employment hereunder without Good Reason, the Employee shall be entitled only to his Base Salary hereunder to the date of such termination, and shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. Any stock options granted to the Employee by the Company shall terminate upon the Company's receipt of notice of the Employee's intent to terminate this Agreement. 5.4 Disability. If, in the reasonable judgment of the Company, the Employee becomes unable to perform competently and efficiently his duties hereunder because of any physical, mental or legal disability (including sickness or an injunction or similar order or decree of a court of competent jurisdiction preventing or severely impairing the performance of his duties hereunder) that lasts for six (6) consecutive months (the "Disability Period"), he shall be entitled to the greater of his compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the last day of the Disability Period. The Employee shall not be entitled 3 4 to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.5 Death. In the event of the death of the Employee, the Employee's heirs, legatees, devisees, executors or legal representatives shall be entitled to the greater of the Employee's compensation hereunder for the remainder of the term of this Agreement or one year's Base Salary. Any stock options granted to the Employee by the Company shall vest on the day of the Employee's death. The Employee's heirs, legatees, devisees, executors, administrators and legal representatives shall not be entitled to any other compensation, including, without limitation, any severance compensation or Bonus Compensation. 5.6 Merger; Sale of Assets. This Agreement shall not be terminated by any voluntary or involuntary dissolution, reorganization, merger, consolidation or transfer of assets of the Company, or by any other act or event of or suffered by the Company, if a surviving or resulting corporation or other entity or person continues (or resumes after a period of not more than sixty days) the business of the Company. In any such event, if the business of the Company is so continued or so resumed, this Agreement shall be binding on and shall inure to the benefit of the corporation or other entity or person surviving or resulting or to which such assets shall have been transferred and the Employee shall be an employee of that part or division of such corporation or other entity or person that shall have been the Company immediately prior to such transaction. If, in any such event, the business of the Company is not so continued or so resumed, such event shall be deemed to constitute termination without cause by the Company as provided in Section 5.2. 6. Trade Secrets, Patents, Competition, Etc. 6.1 Trade Secrets. The Employee acknowledges that as an employee of the Company he has had and will have access to and has and will become acquainted with various trade secrets and other proprietary and confidential information of the Company (the "Trade Secrets"), which may consist of, among other things, designs, equipment, devices, patterns, electronically recordable data or concepts, computer programs and software, software enhancements, modifications and improvements, secret inventions, processes, compilations of information, books, papers, records and specifications, names, buying habits and practices of customers or potential customers of the Company, marketing methods, operating practices and related data, names of vendors and suppliers names, names of acquisition targets, costs of materials, prices the Company obtains or has obtained or at which it sells or has sold its services, sales costs, lists or other written records used in the Company's business, compensation paid to Company employees and consultants and other terms of employment, all of which are owned by the Company and are regularly used or contemplated to be used in the business of the Company. 4 5 The Employee represents, warrants and agrees that he will not at any time, whether during or subsequent to the term of his employment by the Company, without the specific written consent of the Company in the particular case, directly or indirectly use, disclose or communicate to any person or entity any Trade Secrets, for any purpose, except such as have been publicly disclosed through no act or omission of the Employee. The Employee further acknowledges and agrees that this Section 6 prohibits and precludes any use of Trade Secrets by him or by any person obtaining any Trade Secrets directly or indirectly from him in competition with the Company. The Employee further agrees that all written materials, including without limitation files, records, documents, drawings and specifications, and all equipment and devices and all other items relating to the business of the Company, whether prepared by or with the assistance of the Employee or otherwise coming into his possession, control or knowledge, are and shall remain the exclusive property of the Company and shall not be removed from the premises of the Company under any circumstances. On termination of his employment with the Company for any reason, the Employee agrees to deliver promptly to the Company all of the foregoing which are or have been in his possession or under his control. 6.2 Inventions, Designs and Patents. The Employee further represents, warrants and agrees that he will fully inform and disclose to the Company all inventions, designs, improvements and discoveries ("Inventions") of which he obtains knowledge or information during his employment by the Company and which relate to the existing or contemplated business of the Company or to any experimental or developmental work carried on or contemplated by the Company, whether or not conceived by the Employee alone or with others and whether or not conceived during regular working hours. All Inventions are and shall remain the exclusive property of the Company. The Employee agrees to assist the Company to obtain any and all patents, trademarks, service marks and copyrights relating to Inventions and to execute all documents and do all things necessary to obtain letters patent and trademark, service mark and copyright registrations, to vest the Company with full and exclusive title to each Invention, and to protect the Inventions against infringement by others, all as and to the extent the Company may request. Notwithstanding the foregoing provisions of this Section 6.2, this Section 6.2 shall not apply to an Invention developed entirely on the Employee's own time without using the Company's equipment, supplies, facilities, or trade secret information except for those Inventions that either (a) relate at the time of conception or reduction to practice of the Invention to the Company's business or demonstrably anticipated research or development of the Company, or (b) result from any work performed by the Employee for the Company. The Employee acknowledges that this paragraph constitutes the notification contemplated by California Labor Code section 2872. 5 6 6.3 Competition and Solicitation. The Employee acknowledges and agrees that he will not at any time during his employment by the Company directly or indirectly own an interest in, join, operate, control or participate in, or be connected as an officer, employee, agent, independent contractor, consultant, partner, shareholder or principal with, any corporation, partnership, proprietorship, association, or other entity or person engaged in developing, producing, designing, providing, soliciting orders for, selling, distributing or marketing products or services that directly or indirectly compete with the Company's products, services or business. The Employee further agrees that he will not at any time during his employment by the Company and for a period of five years following termination (voluntary or involuntary, whether or not for cause, or otherwise) of this Agreement or his employment with the Company, directly or indirectly, and whether or not for compensation, interfere with the business of the Company in any manner, including, without limitation, (a) by diverting or attempting to divert from the Company any business in which the Company is engaged or contemplates engaging, (b) assisting in bidding or negotiating any franchise or agreement with governmental entities to provide solid waste, collection, landfill or recycling services in California, or (c) by inducing any employee of the Company to leave the Company's employ or any consultant or other independent contractor for the Company to change or terminate any relationship between that person and the Company. Despite the provisions of this Section 6.3, the Company agrees that the Employee may continue to operate Youngclaus Enterprises as it is operated on the date hereof, but the Employee cannot expand the operation of Youngclaus Enterprises. 6.4 No Derogation. The Employee will not in any way or to any person or entity or governmental or regulatory body or agency, denigrate or derogate the Company or any of its affiliates or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Employee from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person or entity if it may reasonably adversely affect the regard or esteem in which such person or entity is held by investors, lenders, or licensing, rating, or regulatory entities. Without limiting the generality of the foregoing, the Employee will not directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any person, entity or governmental or regulatory body or agency who or which has dealings or prospective dealings with any such company or jurisdiction or prospective jurisdiction over any such company. This section does not apply to the extent that testimony is required by legal process, provided that the Company has received not less than five days' prior written notice of such proposed testimony. 7 7 6.5 Injunctive Relief. The Employee acknowledges and agrees that his failure to perform any of his covenants in this Section 6 would cause irreparable injury to the Company and cause damages to the Company which would be difficult or impossible to ascertain or quantify. Accordingly, without limiting any remedies that may be available with respect to any breach of this Agreement, the Employee consents to the entry of an injunction to restrain any breach of this Section 6. 6.6 Infringement. The Employee represents and warrants that he does not possess and will not use, in connection with his employment by the Company, any trade secrets or other confidential or proprietary information or intellectual property in which any other person has any right, title or interest and that his employment by the Company as contemplated hereby will not infringe or violate the rights of any other corporation, partnership, firm, proprietorship, association or other person. 6.7 Survival. The representations, warranties and agreements in this Section 6 shall survive any cancellation, termination, rescission or expiration of this Agreement and any termination of the Employee's employment with the Company. 7. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. The Employee agrees that the provisions of this Agreement are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any provision of this Agreement, or any part thereof, is invalid or unenforceable, the remainder of this Agreement shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any provision of this Agreement, or any part thereof, is unenforceable because of duration or geographic scope, such court shall reduce the duration or scope of such provision to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. 8. Notices. Except as otherwise specifically provided herein, any notice, consent, demand or other communication to be given under or in connection with this Agreement shall be in writing and shall be deemed duly given when delivered personally, when transmitted by facsimile transmission, one day after being deposited with Federal Express or other nationally recognized overnight delivery service or three days after being mailed by first class mail, charges or postage prepaid, properly addressed, if to the Company, at its principal office, and, if to the Employee, at his address set forth following his signature below. Either party may change such address from time to time by notice to the other. 9. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California. 8 8 10. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 11. Specific Enforcement. The Employee is obligated under this Agreement to render services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement peculiar value so that the loss thereof cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in addition to other remedies provided by law, the Company shall have the right during the term of this Agreement to compel specific performance by the Employee. 12. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all prior or contemporaneous negotiations, correspondence, understandings and agreements between the parties, regarding the subject matter of this Agreement. This Agreement may not be amended or modified except in writing signed by both parties and supported by new consideration. IN WITNESS WHEREOF, this Agreement has been duly executed by or on behalf of the parties hereto as of the date first above written. WASTE CONNECTIONS, INC. By: _____________________________________ Ronald J. Mittelstaedt President and Chief Executive Officer ___________________________________ Charles B Youngclaus Address: ___________________________________ ___________________________________ 8 EX-10.17 20 PURCHASE AND SALES AGREEMENT 1 EXHIBIT 10.17 PURCHASE AND SALE AGREEMENT BETWEEN BROWNING-FERRIS INDUSTRIES, INC., BROWNING-FERRIS, INC., AND BROWNING-FERRIS INDUSTRIES OF IDAHO, INC., AS SELLERS, AND WASTE CONNECTIONS, INC. WASTE CONNECTIONS OF IDAHO, INC. AND CONTINENTAL PAPER RECYCLING, L.L.C., AS BUYERS SEPTEMBER 29,1997 2 PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS ----------------- ARTICLE 1. TRANSFER OF STOCK AND ASSETS AND PURCHASE PRICE.......... 2 1.1 Sale of Shares and Assets................................ 2 1.2 Consideration............................................ 3 1.3 Assignment............................................... 6 1.4 Further Cooperation...................................... 6 1.5 Excluded Assets.......................................... 6 1.6 Post-Closing Adjustment of the Purchase Price............ 7 1.7 Payment of Accounts Payable.............................. 8 1.8 Allocation of Purchase Price............................. 8 1.9 Definitions.............................................. 9 ARTICLE 2. CLOSING.................................................. 9 ARTICLE 3. BFI'S REPRESENTATIONS AND WARRANTIES..................... 9 3.1 Existence and Qualification.............................. 9 3.2 Authority................................................ 9 3.3 No Conflicts............................................. 9 3.4 Capitalization; Ownership of Shares...................... 10 3.5 Litigation............................................... 10 3.6 Equipment Schedules; Title to Equipment.................. 10 3.7 Real Property............................................ 11 3.8 Taxes.................................................... 11 3.9 Outstanding Obligations.................................. 11 3.10 Disposal Sites Used...................................... 11 3.11 Accounts Receivable...................................... 12 3.12 Material Contracts....................................... 12 3.13 Material Leases.......................................... 13 3.14 Permits.................................................. 13 3.15 Financial Information.................................... 13 3.16 Laws and Regulations..................................... 14 3.17 Compliance with Environmental Laws....................... 14 3.18 Underground Storage Tanks................................ 15 3.19 Employment and Labor Matters, Etc........................ 15 3.20 Status of Fibres Purchase Agreement...................... 15 3.21 Disclosure Schedules..................................... 15
i 3 ARTICLE 4. BUYERS' REPRESENTATIONS AND WARRANTIES................... 16 4.1 Existence................................................ 16 4.2 Authority................................................ 16 4.3 No Conflicts............................................. 16 ARTICLE 5. COVENANTS PRIOR TO CLOSING............................... 16 5.1 Access................................................... 16 5.2 Operations............................................... 16 5.3 Maintenance of Condition................................. 17 5.4 Disposal of Certain Assets............................... 17 5.5 Change of Name........................................... 18 ARTICLE 6. INDEMNIFICATION.......................................... 18 6.1 Indemnity By BFI......................................... 18 6.2 Indemnity By Buyers...................................... 19 6.3 Limitations on Indemnities............................... 20 6.4 Sole Remedy.............................................. 22 6.5 Notice of Indemnity Claim................................ 22 ARTICLE 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............. 23 7.1 Accuracy of Representations; Performance of Covenants.... 23 7.2 Governmental Consents; No Litigation..................... 23 7.3 No Material Adverse Change............................... 23 7.4 Updated Material Contracts............................... 23 7.5 Conveyancing Documents................................... 23 7.6 Lease of Maltby and Issaquah Properties.................. 23 7.7 Vancouver Sublease....................................... 23 7.8 Noncompete Agreement..................................... 24 7.9 Termination of Plans..................................... 24 7.10 Corporate Resignations, Terminations, Etc................ 24 7.11 Section 338(h)(10) Election.............................. 24 7.12 Financing................................................ 24 ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BFI............... 24 8.1 Accuracy of Representations; Performance of Covenants.... 24 8.2 Governmental Consents.................................... 25 8.3 Receipt of Purchase Price, Etc........................... 25 8.4 Carryover Lease of Brokerage Operations.................. 25 ARTICLE 9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................ 25 9.1 Customer Names........................................... 25
ii 4 9.2 Confidentiality.......................................... 25 ARTICLE 10. SURVIVAL OF REPRESENTATIONS.............................. 26 ARTICLE 11. TERMINATION, AMENDMENT AND WAIVER........................ 26 11.1 Termination.............................................. 26 11.2 Effect of Termination.................................... 27 ARTICLE 12. POST CLOSING COVENANTS................................. 27 12.1 Access to Records........................................ 27 12.2 Severance Pay............................................ 27 12.3 Employee Benefits........................................ 28 12.4 BFI Name and Logos....................................... 28 12.5 Termination of Insurance Policies........................ 28 12.6 Public Announcements..................................... 28 ARTICLE 13. GENERAL................................................ 28 13.1 Assignment............................................... 28 13.2 Arbitration.............................................. 29 13.3 Definition of Affiliate.................................. 29 13.4 Counterparts............................................. 29 13.5 Brokers.................................................. 29 13.6 Fees and Expenses........................................ 29 13.7 Notices.................................................. 29 13.8 Applicable Law........................................... 30 13.9 Captions................................................. 30 13.10 Entire Agreement......................................... 30
ANNEXES A $3 Million Note B First Lien Deed of Trust C Guaranty D $2.5 Million Note E Second Lien Deed of Trust F $1.45 Million Note G Idaho Security Agreement H Waste Working Capital Note I Security Agreement (Waste Working Capital Note) J Continental Working Capital Note K Security Agreement (Fibres Working Capital Note) iii 5 L Waste Bridge Note M Waste Inventory Note N Continental Inventory Note O Noncompete Agreement SCHEDULES 1.2(b) Property subject to Deeds of Trust 1.2(e) Assumed Obligations 1.8 Purchase Price Allocation 1.9 Definitions 3.5 Litigation 3.6 Equipment 3.7 Real Property 3.9 Outstanding Obligations 3.10 Disposal Sites 3.12 Material Contracts 3.13 Material Leases 3.14 Permits 3.15 Financial Information 3.16 Violations of Laws 3.17 Environmental Law Violations 3.18 Underground Storage Tanks 3.19 Labor Issues 5.4(b) Fibres Real Property To Be Conveyed 5.4(d) Vancouver Assets 5.4(f) Fibres Recycling Assets 7.11 338(h) Election Allocation iv 6 PURCHASE AND SALE AGREEMENT THIS AGREEMENT, dated as of the 29th day of September 1997, between BROWNING-FERRIS INDUSTRIES, INC., a Delaware corporation ("BFI"), BROWNING-FERRIS, INC., a Delaware corporation ("BFI OKC"), and BROWNING-FERRIS INDUSTRIES OF IDAHO, INC., an Idaho corporation ("BFI Idaho") (the foregoing being sometimes referred to herein individually as a "Seller" and collectively as "Sellers") and WASTE CONNECTIONS, INC., a Delaware corporation ("Waste"), WASTE CONNECTIONS OF IDAHO, INC., a Delaware corporation ("Waste of Idaho"), and CONTINENTAL PAPER RECYCLING, L.L.C., an Oregon limited liability company ("Continental") (Waste, Waste of Idaho and Continental are sometimes referred to herein collectively as "Buyers" and individually as a "Buyer"). W I T N E S S E T H: WHEREAS, BFI desires to sell and Waste desires to purchase the outstanding shares ("Company Shares" or "Shares") of Common Stock ("Stock") of Browning-Ferris Industries of Washington, Inc., a Washington corporation (the "Company"), pursuant to the terms and conditions set forth herein. WHEREAS, the Company owns all of the outstanding shares of common stock ("Fibres Shares") of Fibres International, Inc., a Washington corporation ("Fibres"), and is also engaged in the solid waste collection and recycling business in and around Vancouver, Washington (the "Vancouver Business"); WHEREAS, Fibres is engaged in the recycling business in and around Seattle, Washington ("Fibres Recycling Business") and owns various assets related thereto ("Fibres Recycling Assets"), including the Real Property defined herein; WHEREAS, Fibres intends to convey to Continental Property Holdings, Inc., a Washington corporation ("CPH"), to be formed and owned by BFI, all of the Fibres Recycling Assets and obligations related thereto; WHEREAS, BFI desires to sell and Continental desires to purchase the outstanding shares ("CPH Shares") of Common Stock of CPH pursuant to the terms and conditions set forth herein; WHEREAS, BFI OKC owns certain customer routes and recycling processing and related equipment and assets dedicated to the recycling business in and around Oklahoma City, Oklahoma (the "Oklahoma City Business"), and Continental desires to purchase and BFI OKC desires to sell such assets and business; WHEREAS, BFI Idaho is engaged in the recycling collection and processing business in and around Idaho Falls and Pocatello, Idaho and owns certain customer routes, equipment and assets 7 related thereto (the "Idaho Recycling Business"), and Continental desires to purchase and BFI Idaho desires to sell such assets and business; WHEREAS, BFI Idaho is also engaged in the solid waste collection and transportation business in and around Idaho Falls and Pocatello, Idaho and owns certain customer routes, equipment and assets related thereto ("Idaho Solid Waste Business"), and Waste of Idaho desires to purchase and BFI Idaho desires to sell such business and assets; NOW, THEREFORE, the parties agree as follows: ARTICLE 1. TRANSFER OF STOCK AND ASSETS AND PURCHASE PRICE 1.1 Sale of Shares and Assets. Subject to the terms and conditions of this Agreement and in consideration of the obligations of Buyers herein at the Closing (as defined in Article 2): (a) BFI agrees to sell, convey, assign, transfer and deliver (i) all right, title and interest of BFI in and to the Company Shares to Waste and (ii) all right, title and interest of BFI in and to the CPH Shares to Continental; (b) BFI OKC agrees to sell, convey, assign, transfer and deliver to Continental all of its right, title and interest in and to the following assets ("Oklahoma City Assets"): (i) the Equipment owned by BFI OKC set forth on SCHEDULE 3.6, (ii) the "OKC Contracts" consisting of the Material Contracts of BFI OKC, if any, set forth on SCHEDULE 3.12 ("Material OKC Contracts") and all other processing and service agreements not required to be set forth on SCHEDULE 3.12 related to the Oklahoma City Business, (iii) the "OKC Leases" consisting of the Material Leases of BFI OKC, if any, set forth on SCHEDULE 3.13 ("Material OKC Leases") and all other leases of BFI OKC not required to be set forth on SCHEDULE 3.13 related to the Oklahoma City Business, (iv) the permits, licenses, consents and authorizations of BFI OKC set forth on SCHEDULE 3.14, (v) all accounts receivable of BFI OKC existing on the Closing Date arising from the Oklahoma City Business ("OKC Receivables") and (vi) the spare parts and any other inventory of BFI OKC existing on the Closing Date related to the Oklahoma City Business ("OKC Inventory"); 2 8 (c) BFI Idaho agrees to sell, convey, assign, transfer and deliver to Continental all of its right, title and interest in and to the following assets ("Idaho Recycling Assets"): (i) the Equipment owned by BFI Idaho set forth on SCHEDULE 3.6 related to the Idaho Recycling Business, (ii) the "Idaho Recycling Contracts" consisting of the Material Contracts of BFI Idaho, if any, set forth on SCHEDULE 3.12 ("Material Idaho Recycling Contracts") related to the Idaho Recycling Business and all other processing and service agreements not required to be set forth on SCHEDULE 3.12 related to the Idaho Recycling Business, (iii) the "Idaho Recycling Leases," consisting of the Material Leases of BFI Idaho, if any, set forth on SCHEDULE 3.13 ("Material Idaho Recycling Leases") related to the Idaho Recycling Business and all other leases of BFI Idaho not required to be set forth on SCHEDULE 3.13 related to the Idaho Recycling Business, (iv) the permits, licenses, consents and authorizations of BFI Idaho set forth on SCHEDULE 3.14 related to the Idaho Recycling Business, (v) all accounts receivable of BFI Idaho existing on the Closing Date arising from the Idaho Recycling Business ("Idaho Recycling Receivables") and (vi) the spare parts and any other inventory of BFI Idaho existing on the Closing Date related to the Idaho Recycling Business ("Idaho Recycling Inventory"); (d) BFI Idaho agrees to sell, convey, assign, transfer and deliver to Waste of Idaho all of its right, title and interest in and to the following assets ("Idaho Solid Waste Assets"): (i) the Equipment owned by BFI Idaho set forth on SCHEDULE 3.6 related to the Idaho Solid Waste Business, (ii) the "Idaho Solid Waste Contracts" consisting of the Material Contracts of BFI Idaho set forth on Schedule 3.12 ("Material Idaho Solid Waste Contracts") related to the Idaho Solid Waste Business, and all other service agreements not required to be set forth on SCHEDULE 3.12 related to the Idaho Solid Waste Business, (iii) the "Idaho Solid Waste Leases" consisting of the Material Leases of BFI Idaho set forth on SCHEDULE 3.13 ("Material Idaho Solid Waste Leases") related to the Idaho Solid Waste Business and all other leases related to the Idaho Solid Waste Business not required to be set forth on SCHEDULE 3.13 related to the Idaho Solid Waste Business, (iv) the permits, licenses, consents and authorizations of BFI Idaho set forth on SCHEDULE 3.14 related to the Idaho Solid Waste Business, (v) the accounts receivable of BFI Idaho existing on the Closing Date arising from the Idaho Solid Waste Business ("Idaho 3 9 Solid Waste Receivables") and (vi) the spare parts and any other inventory of BFI Idaho existing on the Closing Date related to the Idaho Solid Waste Business ("Idaho Solid Waste Inventory"). (e) The sale of the Idaho Assets constitutes a sale of substantially all of the operating assets of a separate division, branch or identifiable segment of BFI Idaho. 1.2 Consideration. In consideration of the transfers described in Section 1.1 and subject to Section 1.8, at the Closing: (a) Buyers shall pay BFI or its designees in immediately available funds an amount equal to Eleven Million Four Hundred Seventy-One Thousand Nine Hundred Fifty and No/100 Dollars ($11,471,950.00); (b) Continental shall deliver to BFI a promissory note in substantially the form of ANNEX A hereto ("$3 Million Note") in the principal amount of Three Million Dollars ($3,000,000), payable on or before 6 months from the date thereof, bearing interest payable quarterly at the rate of ten percent (10%) per annum, secured by a first lien Deed of Trust on the real property of CPH described on SCHEDULE 1.2(b) pursuant to a Deed of Trust in substantially the form of ANNEX B ("First Lien Deed of Trust"), and guaranteed by J. Bradford Bishop and James Cutler (individually a "Guarantor" and collectively the "Guarantors") pursuant to a Guarantee in substantially the form of ANNEX C hereto (the "Guarantee"); (c) Continental shall deliver to BFI a promissory note in substantially the form of ANNEX D hereto ("$2.5 Million Note") in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000), payable on or before twenty-four (24) months from the date thereof, bearing interest payable quarterly at the rate of ten percent (10%) per annum, secured by a deed of trust on the real property of Fibres described on SCHEDULE 1.2(b) hereto, pursuant to a deed of trust in substantially the form of ANNEX E hereto ("Second Lien Deed of Trust") with such lien being subordinated to the First Lien Deed of Trust and any liens replacing the foregoing and securing indebtedness not exceeding $3 million principal amount and the lien of Imperial Bank securing indebtedness in the principal amount of $2,700,000 to Continental; and (d) Waste of Idaho shall deliver to BFI a promissory note in substantially the form of ANNEX F hereto ("$1.45 Million Note") in the principal amount of One Million Four Hundred Fifty Thousand Dollars ($1,450,000) payable on or before 120 4 10 days from the date thereof, bearing interest payable quarterly at the rate of ten percent (10%) per annum, secured by a security interest in the equipment, inventory, accounts and general intangibles of Waste of Idaho arising from the Idaho Solid Waste Business granted pursuant to a security agreement in substantially the form of ANNEX G hereto ("Idaho Security Agreement"), and guaranteed by the Guarantors pursuant to the Guarantee; (e) Waste shall deliver to BFI a promissory note in substantially the form of ANNEX H hereto ("Waste Working Capital Note") in the principal amount of Two Million Five Hundred Ninety-Three Thousand Seven Hundred Sixty-Seven and No/100 Dollars ($2,593,767.00) payable as to principal, plus interest at the rate of six percent (6%) per annum, as set forth therein, secured by a security interest of BFI in all accounts receivable of the Company and Fibres as of the Closing Date granted pursuant pursuant to a security agreement in substantially the form of ANNEX I hereto and guaranteed by the Guarantors pursuant to the Guaranty; (f) Continental shall deliver to BFI a promissory note in substantially the form of ANNEX J hereto, ("Continental Working Capital Note") in the principal amount of One Million Two Hundred Seventy Thousand Five Hundred Fifty-Six and No/100 Dollars ($1,270,556.00) payable as to principal, plus interest at the rate of six per cent (6%) per annum, as set forth therein secured by a security interest of BFI in all accounts receivable of CPH as of the Closing Date granted pursuant to a security agreement in substantially the form of ANNEX K hereto, and guaranteed by the Guarantors pursuant to the Guaranty; (g) Waste shall deliver to BFI a promissory note in substantially the form of ANNEX L hereto ("Waste Bridge Note") in the principal amount of Five hundred Thousand and No/100 Dollars ("$500,000 Note") payable on or before six months from the date thereof bearing interest at the rate of ten percent (10%) per annum, guaranteed by the Guarantors pursuant to the Guarantee, and secured by the Idaho Security Agreement; (h) Waste shall deliver to BFI a promissory note in substantially the form of ANNEX M hereto ("Waste Inventory Note") in the principal amount of Three Hundred Fifty-Nine Thousand Five Hundred Fourteen and No/100 Dollars ($359,514.00) payable 30 days from the date thereof together with interest at the rate of six per cent (6%) per annum and guaranteed by the Guarantors pursuant to the Guaranty; 5 11 (i) Continental shall deliver to BFI a promissory in substantially the form of ANNEX N hereto ("Continental Inventory Note") in the principal amount of Two Hundred Ninety-Four Thousand Seven Hundred Fifteen and No/100 Dollars ($294,715.00) payable 30 days from the date thereof with interest at the rate of six per cent (6%) per annum and guaranteed by the Guarantors pursuant to the Guaranty; (j) Waste of Idaho shall assume, perform, and discharge from and after the Closing Date the (i) obligations to be performed after the Closing Date under all Idaho Solid Waste Contracts and Idaho Solid Waste Leases and (ii) obligations to be performed after the Closing Date under all Material Idaho Solid Waste Contracts and Material Idaho Solid Waste Leases entered into prior to the Closing Date and after the date hereof in compliance with Section 5.3(a); (k) Continental shall assume, perform and discharge from and after the Closing Date the (i) obligations to be performed after the Closing Date under all Idaho Recycling Contracts and Idaho Recycling Leases and OKC Contracts and (ii) obligations to be performed after the Closing Date under any Material Idaho Recycling Contracts and Material Idaho Recycling Leases and Material OKC Contracts entered into prior to the Closing Date and after the date hereof in compliance with Section 5.3(a); (l) Buyers shall not assume any of the following liabilities or obligations of any Seller with respect to the Oklahoma City Business, the Idaho Solid Waste Business or the Idaho Recycling Business: (i) federal, state or local tax liabilities, or (ii) liabilities or obligations arising out of any breach by any Seller prior to the Closing Date of any OKC Contract, Idaho Recycling Contract or Idaho Solid Waste Contract, OKC Lease or Idaho Recycling Lease or Idaho Solid Waste Lease. Except as set forth above Buyers shall assume no obligations or liabilities of any Seller in connection with the purchase of the Oklahoma City Assets, Oklahoma City Business, Idaho Recycling Assets, Idaho Recycling Business, Idaho Solid Waste Business or Idaho Solid Waste Assets. The "Purchase Price" shall mean (i) the cash paid at Closing pursuant to Section 1.2(a), and (ii) the aggregate principal amount of the $3 Million Note, the $2.5 Million Note, the $1.45 Million Note, the Waste Working Capital Note, the Continental Working Capital Note, the Waste Bridge Note, the Waste Inventory Note and the Continental Inventory Note. 1.3 Assignment. At the Closing, BFI shall deliver or cause to be delivered to the appropriate Buyer (i) a stock certificate or certificates representing the Company Shares and the CPH 6 12 Shares accompanied by stock powers duly endorsed and in good delivery form and (ii) such assignments, bills of sale, deeds and other good and sufficient instruments of conveyance and transfer as shall be effective to vest in Continental all title of BFI OKC to the Oklahoma City Assets and all title of BFI Idaho to the Idaho Recycling Assets and to vest in Waste of Idaho all title of BFI Idaho to the Idaho Solid Waste Assets. Simultaneously with such delivery, BFI will take all such other steps reasonably requested by Buyers to put Continental in actual possession and operating control of the Oklahoma City Assets and Idaho Recycling Assets and to put Waste of Idaho in actual possession and operating control of the Idaho Solid Waste Assets. At the Closing, Buyers shall deliver such instruments as BFI may reasonably require confirming the appropriate Buyer's assumption of such liabilities and obligations of BFI Idaho and BFI OKC as such Buyer is to assume pursuant to Sections 1.2(j) and 1.2(k) of this Agreement. 1.4 Further Cooperation. From time to time after the Closing Date without further consideration, BFI OKC or BFI Idaho will execute and deliver such other instruments of conveyance and transfer and take such other action, as Buyers reasonably may request, to more effectively convey, transfer to and vest in the appropriate Buyer and to put such Buyer in possession of the Oklahoma City Assets, the Idaho Recycling Assets or Idaho Solid Waste Assets, and in the case of contracts and rights, if any, for which the consents of third parties required for assignment hereunder cannot be obtained, to use its reasonable business efforts to provide Buyer with the benefits thereof in some other manner. 1.5 Excluded Assets. The Oklahoma City Assets, Idaho Recycling Assets and Idaho Solid Waste Assets to be conveyed to Continental or Waste of Idaho hereunder shall not include (i) any deposits or prepaid items, except to the extent such items are reflected in the Working Capital Calculation defined in Section 1.6, (ii) any corporate record books or similar records related to the corporate existence of BFI OKC or BFI Idaho, (iii) cash, (iv) financial or tax records of BFI OKC or BFI Idaho, or (v) the use of the name "Browning-Ferris" or any name similar or related thereto, except as provided in Section 12.4. 1.6 Post-Closing Adjustment of the Purchase Price. The Purchase Price shall be adjusted in accordance with the following provisions: (a) On the Closing Date BFI shall deliver to Buyers (1) an estimate ("Estimated Working Capital") as of the Closing Date of the sum of (i) 90.5% of all accounts receivable of the Company ("Company Receivables") and Fibres (including the receivables to be transferred to CPH) ("Fibres Receivables"), the OKC Receivables, Idaho Solid Waste Receivables and the Idaho Recycling Receivables, 7 13 ("Receivables Calculation"), (ii) the value of the inventory of the Company ("Company Inventory") and Fibres (including the inventory to be transferred to CPH) ("Fibres Inventory") and the OKC Inventory, Idaho Recycling Inventory and Idaho Solid Waste Inventory, ("Inventory Calculation"), and (iii) any deposits or prepaid items of the Company, Fibres (including deposits or prepaid items to be transferred to CPH), BFI OKC with respect to the Oklahoma City Business and BFI Idaho with respect to the Idaho Solid Waste Business and Idaho Recycling Business, in each case which will not be refunded to the Company, Fibres, BFI OKC or BFI Idaho, and which will benefit Buyers, less (iv) the amount of any deferred revenues of the Company, Fibres (including any deferred revenues to be transferred to CPH), BFI OKC respecting the Oklahoma City Business and BFI Idaho respecting the Idaho Solid Waste Business and Idaho Recycling Business, and (2) a schedule of the items included in the Estimated Working Capital; the Estimated Working Capital as of the Closing Date is based on July 31, 1997, information. On or before October 10, 1997, BFI shall deliver to Buyers a revision of the Estimated Working Capital as of September 30, 1997 (the "Revised Estimated Working Capital"). If the Receivables Calculation based on the Revised Estimated Working Capital declines, the Waste Working Capital Note and/or the Continental Working Capital Note, as the case may be, shall be immediately amended to reduce the principal amount thereof to such new estimated number and to reduce the two installments due on such note by one-half of the amount of the reduction. (b) Within sixty (60) days after the Closing Date the appropriate Buyer shall deliver to BFI a final schedule and calculation ("Final Working Capital") of the Receivables Calculation, Company Inventory, Fibres Inventory, OKC Inventory, Idaho Recycling Inventory and Idaho Solid Waste Inventory, prepaid items and deposits less all deferred revenue of the Company and Fibres and all deferred revenues of BFI OKC respecting the Oklahoma City Business and BFI Idaho respecting the Idaho Solid Waste Business and Idaho Recycling Business as of the Closing Date; (c) Within ten (10) days thereafter, BFI shall deliver to Waste and/or Continental, or Waste and/or Continental shall deliver to BFI immediately available funds in the amount by which the Final Working Capital attributable to the Company Receivables and Fibres Receivables is less than or greater than the original principal amount of the Waste Working Capital Note and the Fibres Working Capital Note, respectively; provided, that if BFI disagrees with the Final Working Capital calculation it shall give written notice to Buyers within such ten (10) day period and, if Buyers and BFI are unable to resolve such disagreement within 8 14 thirty (30) days of the date of delivery of such notice of disagreement, they shall arbitrate such disagreement in accordance with the provisions of Section 13.2; and (d) Buyers shall make available to BFI all supporting information with respect to the calculation of the Final Working Capital. 1.7 Payment of Accounts Payable. BFI shall pay all trade accounts payable of the Company and of Fibres in existence on the Closing Date in accordance with the customary payment practices of BFI. Buyers shall have the right to pay any trade account payable prior to its payment by BFI if Buyers reasonably believe that the failure to pay such account at such time would have an adverse effect on the future business relationship between Buyers and the vendor, and any amount so paid shall be deducted from the amounts due to BFI by Buyer pursuant to Section 1.6(c) or shall be paid by BFI to Buyers instead of the holder of such trade account at the time BFI pays such trade account, subject to BFI's reasonable satisfaction that the account has been paid by Buyers. 1.8 Allocation of Purchase Price. The Purchase Price shall be allocated among the Company Shares, the CPH Shares, the Oklahoma City Assets, the Idaho Recycling Assets and the Idaho Solid Waste Assets as set forth on SCHEDULE 1.8, and, with respect to the portion of the Purchase Price allocated to the Oklahoma City Assets and the Idaho Assets, Buyer and BFI shall prior to the Closing Date agree upon the allocation of such portion among such Assets. BFI agrees that notwithstanding any other provisions of this Agreement, (i) the obligations of Buyers with respect to payment of the Purchase Price shall be several and not joint, (ii) Waste shall be obligated to pay the portion of the Purchase Price allocated to the Company Shares, (iii) Waste of Idaho shall be obligated to pay the portion of the Purchase Price allocated to the Idaho Solid Waste Business, and (iv) Continental shall be obligated to pay the portion of the Purchase Price allocated to the CPH Shares, the Idaho Recycling Business and Idaho Recycling Assets, and the Oklahoma City Business and Oklahoma City Assets. 1.9 Definitions. The terms defined herein are listed in SCHEDULE 1.9. ARTICLE 2. CLOSING The transfer of the Shares and Assets payment of the consideration referred to in Article 1 hereof (the "Closing") shall take place at 10:00 a.m. at the offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, San Francisco, California, on September 30, 1997, or at such other time and date as BFI and the Buyers may in writing designate or such exchange actually occurs (the "Closing Date"). 9 15 ARTICLE 3. BFI'S REPRESENTATIONS AND WARRANTIES BFI represents and warrants to Buyers as of the date hereof: 3.1 Existence and Qualification. Each of the Company and Fibres is, and CPH will be, a corporation duly incorporated, validly existing and in good standing under the laws of the State of Washington, and BFI OKC and BFI Idaho are each duly incorporated, validly existing and in good standing under the laws of their respective states of incorporation. Each of the Company and Fibres has, and CPH at the Closing will have, all requisite power and authority, corporate and otherwise, to carry on its business as presently conducted, and it is duly qualified to conduct such business as a foreign corporation in all jurisdictions where the failure to be so qualified would have a material adverse effect on the business of each. BFI OKC and BFI Idaho have all requisite power and authority, corporate and otherwise, to carry on the Oklahoma City Business and the Idaho Business, respectively. BFI has provided to Buyers true and complete copies of the articles of incorporation and bylaws of the Company and Fibres as in effect on the date hereof. CPH will be organized solely for purposes of the transactions contemplated by this Agreement and will have no assets or operations prior to receipt of the Fibres Recycling Assets and obligations related thereto. 3.2 Authority. Each Seller has all requisite power and authority, corporate and otherwise, to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary corporate action on the part of each Seller, and this Agreement constitutes a valid and binding obligation of each Seller. 3.3 No Conflicts. Neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions provided for herein, will conflict with or result in a breach of the charter or bylaws of any Seller, Fibres or the Company or of any of the terms, conditions or provisions of any agreement or instrument to which any Seller, Fibres or the Company is a party or by which any of them is bound or will result in a violation of any applicable law, ordinance, regulation, permit, authorization or decree or order of any court or other governmental agency applicable to any Seller, Fibres or the Company; provided, that BFI makes no representation with respect to whether the consent of any governmental entity or third party is required in connection with the consummation of the transactions contemplated by this Agreement. 3.4 Capitalization; Ownership of Shares. The authorized capitalization of Fibres consists of 2,500 shares of Common Stock, par value $10 per share, all of which shares are validly issued and outstanding, fully paid and nonassessable and free of preemptive rights. The 10 16 authorized capitalization of the Company consists of 1,000 shares of common stock, par value $10, all of which shares are validly issued and outstanding, fully paid and nonassessable and free of preemptive rights. The authorized capitalization of CPH will consist of 1,000 shares of Common Stock, par value $1 per share, all of which shares will be validly issued, fully paid and nonassessable and free of preemptive rights. There are no outstanding subscriptions, warrants, options, or other agreements or commitments obligating the Company or Fibres to issue any additional shares of stock. BFI owns or will own on the Closing Date all interest in the Shares and CPH Shares, and the Company owns all interest in the Fibres Shares, free and clear of any liens, claims, security interests, or rights of any other person or entity. 3.5 Litigation. Except as listed on SCHEDULE 3.5, (i) there is not pending and, to the best knowledge of BFI, there is not threatened any litigation, suit, action or proceeding in or before any court or governmental or regulatory agency or body to which any Seller, the Company, CPH or Fibres is or will be a party, and (ii) there is no judgment, order, decree, or injunction by any court or governmental or regulatory agency or body in effect against any Seller, the Company, CPH or Fibres which would have a material adverse effect on the future operations or business of the Company, Fibres, CPH, the Oklahoma City Business, the Idaho Recycling Business or the Idaho Solid Waste Business. 3.6 Equipment Schedules; Title to Equipment. SCHEDULE 3.6 lists all motor vehicles, containers, compactors, and other tangible equipment ("Equipment") owned by (i) the Company or Fibres (including the Fibres Recycling Assets) and used in connection with the respective business of either as presently conducted, excluding the equipment to be disposed of by Fibres prior to Closing as set forth in Section 5.4(a) hereof, (ii) BFI Idaho and used in connection with the Idaho Solid Waste Business or Idaho Recycling Business, or (iii) BFI OKC and used in connection with the Oklahoma City Business. The Company, Fibres, BFI OKC or BFI Idaho owns, and CPH at the Closing will own, such Equipment free and clear of any liens, claims, security interests or encumbrances of any type. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, NO SELLER, THE COMPANY OR FIBRES MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE CONDITION OR FITNESS FOR ANY PURPOSE OF ANY EQUIPMENT, ALL OF WHICH IS BEING PURCHASED BY BUYER "AS IS, WHERE IS." 3.7 Real Property. SCHEDULE 3.7 sets forth all real property ("Real Property") owned by Fibres (including the Real Property to be conveyed to CPH) and used in connection with its business as presently conducted, excluding the real property to be disposed of by Fibres prior to Closing as set forth in Section 5.4(b) hereof. Fibres has good and marketable title to the Real Property, subject to no liens, claims, or encumbrances except for (i) "Permitted Encumbrances" and (ii) encumbrances listed on SCHEDULE 3.7. The 11 17 term "Permitted Encumbrances" means any minor defects in title which do not, in the aggregate, materially interfere with the ability of Fibres to conduct its business and will not interfere with the ability of CPH to conduct its business. All activities and operations at the Real Property are being and, since December 18, 1995, have been conducted in compliance in all material respects with the requirements and conditions set forth in all applicable federal, state and local statutes, orders, approvals, permits, zoning or land use permits or requirements and all restrictions, variances, licenses, rules and regulations. 3.8 Taxes. The Company and Fibres are members of the affiliated group of BFI and are included in the consolidated income tax returns filed by BFI. (i) Each of the Company and Fibres has filed all federal, state, and local tax returns and reports required to be filed by it as of the date hereof, and all taxes, fees, assessments and governmental charges of any nature shown by such returns to be due and payable have been paid, except for those amounts being contested in good faith; (ii) there is no tax deficiency which has been, or to the knowledge of BFI might be, asserted against the Company or Fibres which would have a material adverse effect on its business; (iii) the Company or Fibres has not been, nor is it now being, audited by any federal, state, or local tax authorities; (iv) the Company and Fibres have made all required deposits for taxes applicable to the current and immediately preceding tax year; and (v) all tax returns and reports of the Company or Fibres were prepared in accordance with the relevant rules and regulations of each taxing authority having jurisdiction over the Company or Fibres and are true and correct in all material respects. 3.9 Outstanding Obligations. Except as set forth on SCHEDULE 3.9 and except for accounts payable of the Company and Fibres in existence on the Closing Date, neither Fibres nor the Company has and CPH will not have on the Closing Date any liability for (i) any indebtedness for borrowed money, whether as principal, guarantor, surety or otherwise, or (ii) any other obligation which would be material to the business of Fibres or the Company as presently conducted and which, in accordance with generally accepted accounting principles, would be reflected in financial statements (or the notes thereto) of Fibres or the Company as of the date hereof. The Assets are owned by the Sellers free and clear of any lien, claim, security interest or encumbrance of any type. 3.10 Disposal Sites Used. SCHEDULE 3.10 lists the name and address of all solid waste landfills or transfer stations or recycling processing facilities to which (i) Fibres since December 18, 1995 or the Company, BFI OKC with respect to the Oklahoma City Business, or BFI Idaho with respect to the Idaho Recycling Business or Idaho Solid Waste Business has transported material amounts of municipal solid waste or recyclable material in connection with the operation of its business, or (ii) Fibres, prior to December 18, 1995, transported material amounts of municipal solid waste or recyclable material as represented in the Stock Purchase Agreement dated as of December 18, 1995 ("Fibres 12 18 Purchase Agreement") among MacMillan Bloedel of America, Inc. and John Matheson ("Fibres Stockholders") and the Company. SCHEDULE 3.10 also states whether any listed facility is, to the best of BFI's knowledge, currently being remediated or currently scheduled to undergo remediation under the Comprehensive Environmental Response, Compensation and Liability Act or comparable state law. 3.11 Accounts Receivable. All of the Accounts Receivable will have arisen out of services performed in the ordinary course of business by Fibres, the Company, BFI OKC or BFI Idaho, no municipal account debtor will have any right of set-off against any Account Receivable and, to the best of BFI's knowledge, no other account debtor will have any right of set-off against any such Account Receivable; provided that BFI makes no representation with respect to the collectibility of any such Account Receivable. 3.12 Material Contracts. SCHEDULE 3.12 lists all customer service contracts, processing agreements, office supply contracts, maintenance contracts, consulting agreements, and any other service contracts or other agreements for the purchase or sale of goods or services relating to the Idaho Recycling Business, Idaho Solid Waste Business or Oklahoma City Business or the business of Fibres or the Company ("Material Contracts") (excluding Leases) which (i) are not cancelable without penalty on not more than 90 days notice by BFI Idaho, BFI OKC, Fibres or the Company, (ii) provide for the payment by BFI Idaho, BFI OKC, Fibres or the Company of more than $25,000 annually, (iii) provide for the receipt by BFI Idaho, BFI OKC, Fibres or the Company of more than $50,000 annually, (iv) provide for services by BFI Idaho, BFI OKC, Fibres or the Company to a governmental agency or unit of any kind and have a termination date which is less than 1 year from the date hereof, or (v) are with any Affiliate of BFI. BFI Idaho, BFI OKC, Fibres or the Company is not in default in any material respect under any such Material Contact, and BFI Idaho, BFI OKC, Fibres or the Company is not in default under any other contracts or agreements to which it is a party or by which it is bound (referred to collectively with the Material Contracts as the "Contracts") the result of which defaults would in the aggregate have a material adverse effect on the Idaho Recycling Business, Idaho Solid Waste Business or Oklahoma City Business or the business of the Company or Fibres. No municipality is in default in any material respect under any Material Contract, and to the best of BFI's knowledge, no other party to any Material Contract is in default in any material respect thereunder, nor are there defaults by the other parties to any of the other Contracts which would in the aggregate have a material adverse effect on the Idaho Recycling Business, Idaho Solid Waste Business or the Oklahoma City Business or the business of the Company or Fibres. BFI makes no representation with respect to whether the consent of any other party to any Contract is required in connection with consummation of the transactions contemplated by this Agreement, including the transfer of the Fibres Recycling Assets to CPH. 13 19 3.13 Material Leases. SCHEDULE 3.13 lists all leases of personal property and real property relating to the Idaho Recycling Business, Idaho Solid Waste Business or the Oklahoma City Business or the business of Fibres or the Company ("Material Leases") which (i) are not cancelable by BFI Idaho, BFI OKC, Fibres or the Company without penalty on not more than 90 days notice, (ii) provide for annual lease payments by BFI Idaho, BFI OKC, Fibres or the Company of at least $25,000, or (iii) are with any Affiliate of BFI. BFI Idaho, BFI OKC, Fibres or the Company is not in default in any respect under any Material Lease and BFI Idaho, BFI OKC, Fibres or the Company is not in default under any other leases to which it is a party (referred to collectively with the Material Leases as the "Leases") the result of which defaults in the aggregate would have a material adverse effect on the Idaho Recycling Business, Idaho Solid Waste Business or the Oklahoma City Business or the business of the Company or Fibres. To the best of BFI's knowledge, no other party to any Material Lease is in default in any material respect thereunder nor are there defaults by the other parties to the other Leases which would in the aggregate have a material adverse effect on the Idaho Recycling Business, Idaho Solid Waste Business or the Oklahoma City Business or the business of the Company or Fibres. BFI makes no representation with respect to whether the consent of any other party to any Lease is required in connection with the consummation of the transactions contemplated by this Agreement. 3.14 Permits. SCHEDULE 3.14 sets forth all material permits, licenses, consents and authorizations ("Permits") required to conduct the Idaho Recycling Business, Idaho Solid Waste Business or the Oklahoma City Business or the business of the Company or Fibres as presently conducted. BFI Idaho, BFI OKC, Fibres or the Company is not in default in any material respect under any Permit, and each Permit is in full force and effect. BFI makes no representation with respect to whether the consent of any governmental agency or authority issuing any such Permit is required in connection with the consummation of the transactions contemplated by this Agreement, including the transfer of the Fibres Recycling Assets to CPH. 3.15 Financial Information. SCHEDULE 3.15 lists certain financial information ("Financial Data") respecting the Idaho Recycling Business, Idaho Solid Waste Business and Oklahoma Business and the business of the Company and Fibres provided by BFI to Buyer. Such Financial Data has been compiled from the internal accounting records of BFI, the Company or Fibres without audit and does not constitute any representation with respect to future results of operations of the Idaho Recycling Business, Idaho Solid Waste Business, the Oklahoma City Business, the Company's business or the business of Fibres. The financial information described in SCHEDULE 3.15 is accurate in all material respects. The internal accounting records of BFI, the Company or Fibres from which such financial information has been compiled have been maintained on a consistent basis in all material respects by BFI, the Company or Fibres. 14 20 3.16 Laws and Regulations. Except as set forth on SCHEDULE 3.16, the Company, Fibres, BFI OKC with respect to the Oklahoma City Business or BFI Idaho with respect to the Idaho Recycling Business or Idaho Solid Waste Business is not in violation of or default under any material law or regulation, or any order of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over the Company, Fibres, BFI OKC or BFI Idaho, excluding any federal, state, or local law, statute, rule or regulation relating to protection of the environment ("Environmental Laws"). 3.17 Compliance with Environmental Laws. Except as set forth in SCHEDULE 3.17, the Company, Fibres, BFI Idaho, with respect to the Idaho Business, or BFI OKC, with respect to the Oklahoma City Business, is not in violation of or default under any material Environmental Laws or any order of any court or federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality having jurisdiction pursuant to any Environmental Laws over the Company, Fibres, BFI Idaho or BFI OKC. Specifically and without limiting the generality of the foregoing, except as disclosed on SCHEDULE 3.17: (a) Except as permitted under applicable laws and regulations, including, without limitation, the federal Resource Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the Company, Fibres (since December 18, 1995), BFI Idaho, with respect to the Idaho Business, and BFI OKC, with respect to the Oklahoma City Business, have not accepted, processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined below) nor accepted, processed, handled, transferred, generated, treated, stored or disposed of asbestos, medical waste, radioactive waste or municipal waste, except in compliance with Environmental Laws; (b) No Hazardous Material, other than that allowed under Environmental Laws, has been disposed of or otherwise released (i) on any real property included in the Oklahoma City Assets during the period such property was owned or leased by BFI OKC, (ii) on any interest in real property included in the Idaho Assets during the period such property was owned or leased by BFI Idaho, (iii) on any real property owned or leased by the Company, or (iv) since December 18, 1995, on any real property owned or leased by Fibres; (c) With respect to the Company's, Fibres', BFI Idaho's, with respect to the Idaho Business, and BFI OKC's, with respect to the Oklahoma City Business, ownership or leasing of the real property owned or leased by it, no such property has been subject to or received any notice of any private, administrative or 15 21 judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, upon or emanating from any such property since December 18, 1995 in the case of Fibres, or since the Company, BFI Idaho or BFI OKC has owned or leased any such property. There are no pending and, to the Sellers' knowledge, no threatened, actions or proceedings from any governmental agency or any other entity involving remediation of any condition of any such property, including, without limitation, petroleum contamination, pursuant to Environmental Laws; (d) Except as allowed under Environmental Laws, neither the Company, Fibres (since December 18, 1995), BFI Idaho, with respect to the Idaho Business, nor BFI OKC, with respect to the Oklahoma City Business, has knowingly sent, transported or arranged for the transportation or disposal of any Hazardous Material, to any site, location or facility; and (e) As used in this Agreement, "Hazardous Material" shall mean the substances (i) defined as "Hazardous Waste" in 40 CFR 261, and substances defined in any comparable statute or regulation of Washington, Idaho or Oklahoma; (ii) any substance the presence of which requires remediation pursuant to any Environmental Laws; and (iii) any substance disposed of in a manner not in compliance with Environmental Laws. 3.18 Underground Storage Tanks. Except as set forth on the SCHEDULE 3.18, no underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently or have been located on the Real Property or on any other real property owned or leased by the Company or Fibres or included in the Idaho Assets or the Oklahoma City Assets while the Company, Fibres, the Idaho Assets and the Oklahoma City Assets were owned by the Sellers. 3.19 Employment and Labor Matters, Etc. Except as set forth in SCHEDULE 3.19, the Company, Fibres, BFI Idaho with respect to the Idaho Business and BFI OKC with respect to the Oklahoma City Business is not a party to (i) any collective bargaining agreement, (ii) any agreement respecting the employment of any officer or any other employee of the Company or Fibres, or (iii) any agreement for the provision of consulting or other professional services which is not cancelable without penalty on not more than ninety (90) days notice. 3.20 Status of Fibres Purchase Agreement. The Company has not made any claim for indemnification or for Remediation Losses (as hereinafter defined) under the Fibres Purchase Agreement, and BFI is not aware of any event which has occurred which would 16 22 entitle the Company to make any such claim for indemnification or for any Remediation Losses. 3.21 Disclosure Schedules. The term "Disclosure Schedule" or "Disclosure Schedules" means any or all schedules referred to in any section of this Article 3. ARTICLE 4. BUYERS' REPRESENTATIONS AND WARRANTIES Buyers represent and warrant to BFI as follows: 4.1 Existence. Each of Waste and Waste of Idaho is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Continental is a limited liability company validly existing and in good standing under the laws of the State of Oregon. 4.2 Authority. Each Buyer has all requisite power and authority to enter into this Agreement and perform its obligations hereunder, and this Agreement constitutes a valid and binding obligation of each Buyer. The execution, delivery and performance of this Agreement by each Buyer have been duly and validly authorized by all necessary corporate action on the part of such Buyer, and this Agreement constitutes a valid and binding obligation of each Buyer. 4.3 No Conflicts. Neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions provided for herein, will conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which any Buyer is a party or by which it is bound or will result in a violation of any applicable law, ordinance, regulation, permit, authorization or decree or order of any court or other governmental agency applicable to any Buyer. ARTICLE 5. COVENANTS PRIOR TO CLOSING Between the date of this Agreement and the Closing Date: 5.1 Access. BFI will afford to the officers and authorized representatives of Buyers such access to the records of the Company, Fibres, BFI OKC with respect to the Oklahoma City Assets and BFI Idaho with respect to the Idaho Assets as Buyer may from time to time reasonably request. BFI will cooperate with Buyer, their representatives and counsel, in the preparation of any documents or other materials which may be required 17 23 by any governmental agency in connection with any approvals for consummation of the transaction contemplated by this Agreement. 5.2 Operations. Subject to Section 5.4, BFI will cause each of BFI OKC with respect to the Oklahoma City Business, BFI Idaho with respect to the Idaho Business, the Company and Fibres to: (a) carry on the Oklahoma City Business, the Idaho Business, and the business of the Company and Fibres in substantially the same manner as currently existing and in compliance with all applicable laws, rules, and regulations; (b) maintain the Equipment in its present condition, ordinary wear and tear excepted; (c) perform all its material obligations under any agreements to which it is a party; (d) keep in full force and effect present insurance policies or other comparable insurance coverage; (e) use its reasonable commercial efforts to maintain and preserve its business organization intact, retain its present employees and maintain its relationship with suppliers, customers and others having business relations with it; and 18 24 (f) not enter into any Material Contract or Material Lease without the consent of Buyers. 5.3 Maintenance of Condition. Subject to Section 5.4, the Company, Fibres, BFI OKC with respect to the Oklahoma City Business and BFI Idaho with respect to the Idaho Business will not, without the prior written consent of the applicable Buyer, which shall not be unreasonably withheld: (a) enter into any contract or lease which would be required to be included in Schedules 3.12 or 3.13 hereof or enter into any contact or commitment or incur or agree to incur any liability or make any capital expenditures except in the ordinary course of business; (b) except in the ordinary course of business, increase the compensation payable or to become payable to any officer, employee or agent, or make any bonus payment to such person; (c) sell, assign, lease or otherwise transfer or dispose of any property or equipment except in the ordinary course of business; (d) issue or commit to issue any securities of the Company or Fibres; (e) take any action which could cause any representation or warranty in Article 3 not to be true in any material respect as of the Closing Date; or (f) amend the articles of incorporation or bylaws of the Company or Fibres. 5.4 Disposal of Certain Assets. Notwithstanding the other provisions of Article 5 hereof, it is understood and agreed that prior to the Closing Date, Fibres or the Company will: (a) dispose of all assets and business of Fibres in the Salt Lake City, Utah area; (b) dispose of the real property described in SCHEDULE 5.4(b) hereto; (c) dispose of all brokerage operations, including all customer accounts and assets related thereto, outside of a radius of 100 miles from Seattle, Washington; 19 25 (d) dispose of its interest in and obligations under the leases and agreements described in SCHEDULE 5.4(d) relating to the business of the Company in Vancouver, Washington, including the Lease Agreement dated as of May 30, 1996 ("Vancouver Lease") between the Company and Leichner Brothers Land Reclamation, Inc. and the Consultant Agreement dated as of May 30, 1996 between the Company and M.C.T.C. Consulting L.L.C.; and (e) transfer to CPH the Fibres Recycling Assets, including the Fibres Recycling Assets described in SCHEDULE 5.4(e). 5.5 Change of Name. On or prior to the Closing, BFI will cause the name of the Company to be changed to Waste Connections of Washington, Inc. ARTICLE 6. INDEMNIFICATION 6.1 Indemnity By BFI. BFI covenants and agrees that it will, subject to the provisions set forth in this Article 6, indemnify and hold harmless the Buyers, from and after the Closing Date, against any and all losses, damages, liabilities, claims, deficiencies, costs, expenses, expenditures, including, without limitation, reasonable attorney's fees and court costs, (collectively, "Indemnity Losses") arising with respect to each of the following ("Indemnity Event"): (a) any federal, state or local tax liability of any Seller, CPH, the Company or Fibres arising out of any events occurring during any period ended on or before the Closing Date; (b) any federal income tax liability arising from the Section 338 Election (as hereinafter defined); (c) any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant to be performed by any Seller, Fibres or the Company under this Agreement; (d) any act or failure to act on or prior to the Closing Date relating to (i) any "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of Fibres, the Company or any Affiliate of the Company, (ii) any "prohibited transaction" as defined in ERISA and the Internal Revenue Code, as amended, ("Code") relating to such employee benefit plan, (iii) any failure of an "employee pension benefit plan," as defined in Section 3(2) of ERISA, of Fibres, the Company or any Affiliate of the 20 26 Company which is intended to be a tax-qualified plan under Code Section 401(a) to be so tax-qualified, (iv) any failure of any employee pension benefit plan of Fibres, the Company or any Affiliate of the Company, to timely comply with the funding requirements of ERISA or the Code, (v) any failure of any employee welfare benefit plan, as defined in Section 3(2) of ERISA, of Fibres, the Company or any Affiliate of the Company to comply with the Consolidated Omnibus Reconciliation Act of 1985, as amended, or (v) any other violation of ERISA relating to an employee benefit plan of Fibres, the Company or any Affiliate of the Company; (e) any liability arising from the termination by any Seller, the Company or Fibres of any employee on or prior to the Closing Date, including without limitation any liability for accrued but unpaid wages, vacation, expense reimbursements and any severance liability; (f) any proceeding listed in SCHEDULE 3.5; (g) any losses arising from the failure of BFI Idaho, Continental or Waste to receive the consent to assignment of any municipal contracts included in the Idaho Recycling Assets or Idaho Solid Waste Assets; (h) the obligations of the Company pursuant to Sections 3.19, 4.5, 7, 8.1 and 8.7 of the Asset Purchase Agreement dated as of October 18, 1995, as amended, by and between the Disposal Group, Inc., Buchman Sanitary Service, Inc., Diamond Fabrication & Welding, Inc. and the Company; and (i) all actions, suits, proceedings, demands, assessments, investigations, costs, expenses and claims incident to any of the foregoing, including, without limitation, any interim or final judicial or administrative decree, clean-up order or other remedial action. 6.2 Indemnity By Buyers. Each Buyer covenants and agrees, severally and not jointly, that it will indemnify and hold harmless BFI and its affiliates, from and after the Closing Date, against any and all Indemnity Losses arising with respect to each of the following Indemnity Events: (a) any sales or use tax liability arising out the transactions contemplated by this Agreement; (b) any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant to be performed by the applicable Buyer under this Agreement; 21 27 (c) any liability or obligation of BFI OKC or BFI Idaho expressly assumed by Waste or Continental pursuant to this Agreement. 6.3 Limitations on Indemnities. The obligations of indemnity provided above in Sections 6.1 and 6.2 are subject to the following terms, conditions and limitations: (a) The aggregate obligation of indemnity of BFI pursuant to Section 6.1 ("Aggregate Indemnity Limit") shall not exceed the portion of the Purchase Price allocated to (i) the Company Shares with respect to any Indemnity Losses relating to the Company, (ii) the Fibres Shares with respect to any Indemnity Losses relating to Fibres, (iii) the Oklahoma City Assets with respect to any Indemnity Losses relating to the Oklahoma City Business and the Oklahoma City Assets, (iv) the Idaho Recycling Assets with respect to any Indemnity Losses relating to the Idaho Recycling Business and the Idaho Recycling Assets, and (v) the Idaho Solid Waste Assets with respect to any Indemnity Losses relating to the Idaho Solid Waste Business and Idaho Solid Waste Assets. (b) BFI shall have no obligation for Indemnity Events described in Section 6.1(c) (other than for failure to transfer all of the Equipment, Company Shares, and CPH Shares or a misrepresentation under Section 3.4, 3.5, 3.8 or 3.9) until the aggregate amount of Indemnity Losses with respect to (i) the Company exceeds one percent (1%) of the portion of the Purchase Price allocated to the Company Shares, (ii) the Oklahoma City Assets exceeds one percent (1%) of the portion of the Purchase Price allocated to the Oklahoma City Assets, (iii) the Idaho Recycling Assets exceeds one percent (1%) of the portion of the Purchase Price allocated to the Idaho Recycling Assets, (iv) the Idaho Solid Waste Assets exceeds one percent (1%) of the portion of the Purchase Price allocated to the Idaho Solid Waste Assets and (v) Fibres exceeds one percent (1%) of the portion of the Purchase Price allocated to the Fibres Shares; provided, that BFI shall be liable for Indemnity Losses relating to the Company or Fibres, the Oklahoma City Assets and the Idaho Assets without regard to such 1% limitation if the Indemnity Losses with respect to the foregoing exceed 1% of the Purchase Price allocated to the Shares, the Oklahoma City Assets, the Idaho Recycling Assets or the Idaho Solid Waste Assets, respectively. (c) The obligations of indemnity described in Sections 6.1(a), 6.1(b) and 6.2(a) shall survive the Closing Date for the applicable statute of limitations, the obligations of indemnity described in Sections 6.1(d), 6.1(e) and 6.2(c) and the obligation of indemnity for a misrepresentation under Section 3.10 or under Section 3.17 shall survive indefinitely, and the obligations of indemnity described in Sections 6.1(c) 22 28 (except for a misrepresentation under Section 3.10 or under Section 3.17) and 6.2(b) shall survive the Closing Date for three (3) years. Any representations and warranties for which Buyers have made timely notice of a claim for Indemnity Losses ("Indemnity Claim") pursuant to Section 6.5 shall survive, with respect to such Indemnity Claim only, until the resolution of such Indemnity Claim. (d) The obligation of indemnity for any Indemnity Event in Sections 6.1 and 6.2 shall be reduced by the amount of any actual recovery by the Indemnified Party for such Indemnity Event under policies of insurance maintained by it or its affiliates with third parties less all reasonable out-of-pockets costs or expenses incurred by the Indemnified Party (excluding overhead costs) in recovering such amount under any such insurance policy. (e) BFI agrees with Buyers as follows with respect to (x) any claim ("Fibres Environmental Indemnity Claim") by the Company for indemnification from the Fibres Stockholders for a breach of any representation or warranty in Sections 3.19, 3.21 or 3.23 of the Fibres Purchase Agreement or (y) any claim ("Fibres Remediation Loss Claim") for "Remediation Losses"(as defined in Section 1.9 of the Fibres Purchase Agreement) at any Special Remediation Site (as defined in Section 1.9 of the Fibres Purchase Agreement): (i) Except as set forth in this Section 6.3(e), no Seller shall have any obligation of indemnity for any Fibres Environmental Indemnity Claim or Fibres Remediation Loss Claim; (ii) BFI will indemnify Buyers to the extent that the Company would be entitled to indemnification from the Fibres Stockholders for a Fibres Environmental Indemnity Claim (1) except for the fact that the claim for indemnification was not made on a timely basis date under the Fibres Agreement, provided, that the Fibres Environmental Indemnity Claim is made in accordance with the procedures set forth in Section 6.5 within four years of the Closing Date under this Agreement or (2) if the representations and warranties in Sections 3.19, 3.21 and 3.23 of the Fibres Purchase Agreement were not made "to the best of Stockholders' knowledge," i.e., were made without any limitation respecting the knowledge of the Fibres Stockholders, provided that Buyers use reasonable efforts to pursue any such Fibres Environmental Indemnity Claim against the Fibres Stockholders; (iii) BFI will indemnify Buyers to the extent that any Fibres Environmental Indemnity Claim or Fibres Remediation Loss Claim which is otherwise 23 29 payable by the Fibres Stockholders is not paid solely as a result of the bankruptcy, insolvency, or similar financial incapacity of the Fibres Stockholders; (iv) BFI will increase the aggregate liability of the Fibres Stockholders under the Fibres Purchase Agreement by and pay $1,000,000 so that the aggregate liability is $7,000,000, and such additional $1,000,000 may be applied either to Fibres Environmental Indemnity Claims or Fibres Remediation Loss Claims; (v) BFI will pay any Fibres Remediation Loss Claim which the Fibres Stockholders would be required to pay except for the fact that the "trigger event" described in Section 1.9 occurred after the date set forth therein; provided that such trigger event occurs prior to September 30, 2001 (or September 30, 2003, in the case of the Monroe Landfill). 6.4 Sole Remedy. The sole remedy of Buyer and BFI for breach of the representations, warranties, covenants and agreements set forth herein shall be pursuant to the sections in this Article 6; provided, that nothing in this Section 6.4 or elsewhere in this Agreement shall be deemed to limit any right or remedy of Buyers against Sellers for breach of the representations and warranties set forth in Sections 3.1, 3.2, 3.3 or 3.4, for breach of the Non Competition Agreement (as hereinafter defined) or for fraud, nor shall anything in this Section 6.4 or elsewhere in this Agreement be deemed to limit any right of Buyers against Sellers for statutory or equitable contribution with respect to liabilities not arising from this Agreement. 6.5 Notice of Indemnity Claim. A party seeking indemnity hereunder ("Indemnified Party") shall notify the other party ("Indemnifying Party") of its Indemnity Claim and the Indemnity Event in question within a reasonable time after the Indemnified Party becomes aware of the existence of such Indemnity Event, but in no event more than ninety (90) days; provided, that the failure so to timely notify shall relieve the Indemnifying Party from the obligation to indemnify against the liability respecting such Indemnity Event only to the extent the Indemnifying Party establishes by competent evidence that it is prejudiced thereby. Such Indemnity Claim must be delivered in any event prior to the expiration of Sellers' indemnity obligations with respect to the Indemnity Event relating to the Indemnity Claim as set forth in Section 6.4. In any case, if any such action shall be brought, and the Indemnified Party shall notify the Indemnifying Party of the commencement thereof, such Indemnified Party shall be entitled to participate in the defense thereof at his own expense; provided, however, that the Indemnifying Party shall have sole discretion to determine whether to contest, compromise, enter pleas, or settle any action brought against the Indemnified Party. If an Indemnity Claim includes a 24 30 request for relief other than monetary damages and such relief would be performed by an Indemnified Party or if the cumulative total of all Indemnity Claims exceeds the Aggregate Indemnity Limit, the Indemnified Party shall be entitled to assume control of the defense and/or compromise of the portion of the Indemnity Claim in excess of the Aggregate Indemnity Limit or of all of such Indemnity Claim if the amount of the Indemnity Claim in excess of the Aggregate Indemnity Limit is greater than the amount of the Indemnity Claims below the Aggregate Indemnity Limits. ARTICLE 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER Subject to the provisions of Section 7.7 hereof, the obligations of Buyer hereunder are, at its option, subject to the satisfaction, on or prior to the Closing Date, of the following conditions. 7.1 Accuracy of Representations; Performance of Covenants. The representations and warranties of BFI contained in Article 3 of this Agreement shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; each and all of the agreements of BFI and the Buyer to be performed on or before the Closing Date pursuant to the terms hereof shall have been performed; and BFI shall have delivered to Buyer a certificate dated the Closing Date to such effect. 7.2 Governmental Consents; No Litigation. All necessary consents of any governmental authority or agency relating to the consummation of the transactions contemplated in this Agreement shall have been obtained, including (i) consent to use all Permits necessary for Buyers to provide service contemplated by the Contracts and (ii) consents required pursuant to any municipal contracts included in the Contracts; and no action or proceeding before a court or any other governmental agency or body shall have been instituted or threatened to restrain or prohibit the appropriate Buyer's acquisition of the Shares, the Oklahoma City Assets or the Idaho Assets. 7.3 No Material Adverse Change. Since the date of this Agreement, there shall have occurred no material adverse change in (i) the business of the Company and Fibres, taken as a whole, (ii) the condition of the Idaho Assets, or (iii) the condition of the Oklahoma City Assets. 7.4 Updated Material Contracts. BFI shall have updated SCHEDULE 3.12 as of the Closing Date. 7.5 Conveyancing Documents. Buyers shall have received the documents referred to in Section 1.3 executed by the appropriate Seller. 25 31 7.6 Lease of Maltby and Issaquah Properties. BFI and one or more of the Buyers shall have entered into a mutually satisfactory lease pursuant to which such Buyer shall have agreed to lease from BFI or an Affiliate of BFI the two tracts of property described in SCHEDULE 7.6 for a term of six (6) months and month-to-month thereafter, with rentals of $2,500 per month for the property at Maltby and $3,500 per month for the property at Issaquah. 7.7 Vancouver Sublease. BFI and one of the Buyers shall have entered into sublease of the property and facilities subject to the Vancouver Lease for the remaining term of the Vancouver Lease for $11,000 per month plus other expenses on a "triple-net basis" and with other mutually satisfactory terms. 7.8 Noncompete Agreement. Buyers and Seller shall have entered into a noncompete agreement in substantially the form of ANNEX O hereto ("Noncompete Agreement") providing in general for BFI and its Affiliates not to engage in the business described in, and in the areas set forth in, the Noncompete Agreement for a period of five (5) years after the Closing Date. 7.9 Termination of Plans. BFI shall have terminated as to the Company and Fibres all employee benefit plans that are profit sharing plans, pension plans, plans described under Code Section 401(k), or any other employee benefit pension plans (as described in Section 3(2) of ERISA). 7.10 Corporate Resignations, Terminations, Etc. BFI shall have delivered to Buyers (i) resignations of all officers and directors of the Company and Fibres requested by Buyers, (ii) a list of all bank accounts of the Company and Fibres, and (iii) evidence of termination of all employees of the Company and Fibres requested by Buyers. 7.11 Section 338(h)(10) Election. BFI shall have joined with the appropriate Buyer in making an election under Section 338(h)(10) of the Internal Revenue Code of 1986 with respect to the purchase and sale of the Company Shares (but not with respect to Fibres or the Fibres Shares or CPH and the CPH Shares) and allocated to the Company Shares the amount set forth in SCHEDULE 7.11 (the "Section 338 Election"). 7.12 Financing. Buyers shall each have obtained on terms and conditions reasonably acceptable to each of them debt and/or equity financing in an amount sufficient to permit Buyers to complete the transactions contemplated by this Agreement and to provide adequate working capital for a reasonable period after the Closing Date. ARTICLE 8. 26 32 CONDITIONS PRECEDENT TO OBLIGATIONS OF BFI The obligations of BFI hereunder are, at its option, subject to the conditions that: 8.1 Accuracy of Representations; Performance of Covenants. The representations and warranties of Buyers contained in Article 4 of this Agreement shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; each and all of the agreements of Buyers to be performed on or before the Closing Date pursuant to the terms hereof shall have been performed; and Buyers shall have delivered to BFI a certificate dated the Closing Date to such effect. 8.2 Governmental Consents. BFI shall have received all governmental consents required from any governmental authority or agency relating to consummation of the transactions contemplated in this Agreement. 8.3 Receipt of Purchase Price, Etc. BFI shall have received (i) the Notes executed by the appropriate Buyers, (ii) the Deeds of Trust executed by Fibres, (iii) the Idaho Security Agreement executed by the appropriate Buyer, (iv) the Vancouver Sublease executed by the appropriate Buyer, (v) the Guarantee executed by the Guarantors, (vi) cash in the amount of $11,471,950, and (vii) the documents referred to in Section 1.3 executed by Waste of Idaho and Continental. 8.4 Carryover Lease of Brokerage Operations. Buyer and BFI shall have entered into a mutually satisfactory lease agreement permitting BFI to conduct its brokerage operations in space leased from Fibres or the Company for a period of ninety (90) days after the Closing. ARTICLE 9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 9.1 Customer Names. BFI agrees that it will not disclose the customer names and addresses and material terms in the Contracts to any person, firm, corporation, association or other entity not affiliated with BFI for any purpose or reason whatsoever for two (2) years after the Closing Date, except to authorized representatives of Buyers, or as required by applicable law. If any Seller becomes legally compelled to disclose such information, such Seller shall provide Buyers with prompt notice of such requirement so that Buyers may seek a protective order or other appropriate remedy. In the event of a breach or threatened breach of the provisions of this Section 9.1, Buyers shall be entitled to an injunction restraining BFI from disclosing, in whole or in part, such information. Nothing herein shall be construed as prohibiting Buyers from pursuing any other 27 33 available remedy for such breach or threatened breach, including the recovery of damages. 9.2 Confidentiality. (a) Buyers shall hold in confidence and not disclose to any person for any purpose the information received from BFI, Fibres or the Company, except that Buyers may disclose to their representatives, officers, directors, employees, agents and consultants ("Buyer Representatives") who need to evaluate the information on their behalf for the purposes described herein; provided, however, that Buyers may disclose the information in response to any legally enforceable summons or subpoena or in order to comply with any order, law, ruling, or regulation applicable to Buyers. If any Buyer becomes legally compelled to disclose such confidential information, Buyer shall provide BFI with prompt notice of such requirement so that BFI may seek a protective order or other appropriate remedy. Each Buyer shall take all steps necessary to assure adherence by Buyer's Representatives to the provisions of this Agreement respecting the confidentiality of information. The obligation of any Buyer to keep information confidential shall not apply to any information which: (i) is known to a Buyer prior to its disclosure by BFI; (ii) is in general use by competitors of a Buyer; (iii) is or becomes part of the public domain without any breach by a Buyer of any obligation of confidentiality set forth herein; or (iv) is communicated to a Buyer by a third party who is not bound by a confidentiality agreement with BFI with respect to such information. (b) Upon termination of this Agreement, each Buyer will, upon request of BFI, return to BFI or provide evidence satisfactory to BFI that it has destroyed, all information received from BFI, Fibres or the Company in connection with the transactions contemplated by this Agreement. ARTICLE 10. SURVIVAL OF REPRESENTATIONS The representations, warranties, covenants and agreements of the parties contained in this Agreement or in any writing delivered pursuant to the provisions of this Agreement shall survive the consummation of the transactions contemplated hereby and any examination on behalf of the 28 34 parties in accordance with the terms of this Agreement; provided, that the right of BFI or any Buyer to bring any action or make any claim for breach of any representation or warranty or default in the performance of any covenant or agreement shall be limited as set forth in Sections 6.3 and 6.4 hereof. ARTICLE 11. TERMINATION, AMENDMENT AND WAIVER 11.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written consent of Buyers and BFI. (b) by either Buyers or BFI: (i) if any court of competent jurisdiction or other governmental agency shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable; or (ii) if the transactions contemplated hereby have not been consummated on or before September 30, 1997, unless the failure to consummate the transactions is the result of a material breach of this Agreement by the party seeking to terminate this Agreement. (c) by Buyers if BFI breaches in any material respect any of its representations or warranties herein or BFI fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement, and any such breach or failure is not cured within thirty (30) days after written notice from Buyer; (d) by BFI if any Buyer breaches any of its representations or warranties in any material respect herein or fails to perform in any material respect any of its covenants, agreements, or obligations under this Agreement, and any such breach or failure is not cured within thirty (30) days after written notice from BFI. 11.2 Effect of Termination. In the event of termination of this Agreement by either BFI or Buyers as provided in Section 11.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of BFI or Buyers, other than the provisions of Sections 9.2, 13.5 and 13.6, and except to the extent that such termination 29 35 results from the breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement as provided in Sections 11.1(c) and 11.1(d). ARTICLE 12. POST CLOSING COVENANTS 12.1 Access to Records. From and after the Closing, the Buyers will be entitled (i) to possession of all documents, instruments, agreements, books, and records (including the corporate minute books and the stock transfer records, but excluding financial records and tax records) of the Company and Fibres, and (ii) to copies of financial records and tax records of the Company and Fibres. BFI shall make copies of any such records as soon as practicable after requested by Buyers. The Buyers shall make available to BFI, following receipt of reasonable advance notice, copies of any records delivered by BFI to the Buyers in conjunction with the transactions contemplated hereby, if BFI requires such copies in conjunction with any administrative or legal proceeding involving BFI or for any other reasonable purpose. 12.2 Severance Pay. BFI shall pay or shall reimburse the Buyer for all severance pay and related taxes, costs and expenses for any employee of the Company or any Seller who as of the Closing was employed directly or indirectly by the Company or Fibres or in connection with the Oklahoma City Business or the Idaho Business and who is hired at or after the Closing by any Buyer or retained by Fibres or the Company and terminated without cause by a Buyer, Fibres or the Company within 120 days after the Closing. Any such severance pay shall not exceed two weeks pay for each full year of employment. 12.3 Employee Benefits. The Buyers shall cause each employee of the Company or Fibres or any employee of any Seller who was employed directly in connection with the Oklahoma City Business or the Idaho Business and who is hired at or after the Closing by a Buyer or retained by Fibres or the Company to be covered (i) effective immediately following the Closing by all employee welfare benefit plans (as defined by ERISA) generally applicable to employees with similar job descriptions of the Buyer, and (ii) by any pension or profit sharing plans of the Buyer in which such employees are eligible to participate, subject to applicable participation requirements. For purposes of all employee benefit plans of a Buyer, such employees shall be given credit for all years of service with BFI or any affiliate of BFI. For purposes of medical and dental plans, the Buyer shall waive or cause to be waived any deferral of coverage on account of any prior existing condition. 30 36 12.4 BFI Name and Logos. As soon as practicable (but in any event within 180 days) after the Closing Date, each Buyer, at its expense, shall remove all names and logos of BFI from all Equipment. Nothing in this Agreement shall constitute a license or authorization for a Buyer to use in any manner any name, logo or mark owned by or licensed to BFI and its Affiliates, except for names, logos or marks owned by Fibres or relating to the name "Fibres" or variations thereof. 12.5 Termination of Insurance Policies. BFI will on the Closing Date or promptly thereafter cancel any insurance policies maintained by the Company or Fibres prior to the Closing and shall be entitled to any refunds or other amounts paid in connection with any such cancellations. 12.6 Public Announcements. Neither Buyers nor BFI will make any public disclosure of this Agreement or the transactions contemplated hereby without prior consultation with the other party hereto, except such disclosure as may be required by applicable laws or by obligations pursuant to any listing agreement with any national securities exchange to which either may be a party. ARTICLE 13. GENERAL 13.1 Assignment. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of law) prior to the Closing except with the prior written consent of the other party, and this Agreement shall be binding upon and inure to the benefit of the parties hereto and their authorized successors and assigns. 13.2 Arbitration. Any controversy or claim arising out of or related to this Agreement, or any transactions contemplated herein, that cannot be amicably resolved, including, without limitation, whether such controversy or claim is subject to arbitration, shall be resolved by binding arbitration held in Seattle, Washington, in accordance with the rules of the American Arbitration Association, subject to this Section 13.2. Arbitration proceedings shall be conducted by a panel of three (3) persons selected as follows: The party initiating arbitration shall select one qualified arbitrator and the other party shall select a second qualified arbitrator. Each party shall provide prompt written notice of the arbitrator selected by it in accordance with the terms of this Agreement. The two arbitrators shall select a third qualified arbitrator as soon as possible; provided, that if the two arbitrators cannot agree on a third arbitrator, the parties shall ask the Presiding Judge in Seattle, Washington to appoint the third arbitrator. No arbitrator shall have or previously have had any significant relationship with any of the parties. The decision of any two (2) of the arbitrators on any submitted matter shall be final. 31 37 13.3 Definition of Affiliate. As used herein the term "Affiliate" of any person or entity means any entity controlling, controlled by, or under common control with, such person or entity. 13.4 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. 13.5 Brokers. Each party agrees to indemnify the other against all loss, cost, damage or expense arising out of claims for fees or commissions of brokers or agents employed or alleged to have been employed by such indemnifying party. 13.6 Fees and Expenses. Whether or not the transactions herein contemplated shall be consummated, (i) BFI will pay the fees, expenses and disbursements of BFI and its agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments thereto, and (ii) Buyers will pay the fees, expenses and disbursements of Buyers and their agents, representatives, accountants and counsel incurred in connection with the subject matter of this Agreement and any amendments hereto. 13.7 Notices. Any notice or communication required or permitted hereunder shall be sufficiently given if sent by first class mail, postage prepaid: (a) If to Sellers, addressed as follows: P.O. Box 3151 Houston, Texas 77253 Attention: Secretary (b) If to Buyers, addressed as follows: If to Waste or Waste of Idaho: 3510 Trenton Way El Dorado Hills, CA 95762 If to Continental: 6950 S.W. Hampton Street Portland, OR 97223 32 38 13.8 Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Washington. 13.9 Captions. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 13.10 Entire Agreement. This Agreement (including the schedules and annexes hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding between Buyers and Sellers and supersede any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by Sellers and Buyers acting through their duly elected officers or authorized agents. 33 39 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BROWNING-FERRIS INDUSTRIES, INC. By: ____________________________________ Title: _________________________________ BROWNING-FERRIS, INC. By: ____________________________________ Title: _________________________________ BROWNING-FERRIS INDUSTRIES OF IDAHO, INC. By: ____________________________________ Title: _________________________________ CONTINENTAL PAPER RECYCLING, L.L.C. By: ____________________________________ Title: _________________________________ WASTE CONNECTIONS, INC. By: ____________________________________ Title: _________________________________ WASTE CONNECTIONS OF IDAHO, INC. By: ____________________________________ 34 40 Title: _________________________________ 35 41 SCHEDULE 1.9 DEFINITIONS The following terms are defined in the Agreement: "Affiliate(s)" has the meaning set forth in Section 3.13. "Aggregate Indemnity Limit" has the meaning set forth in Section 6.3. "Assets" means the Idaho Assets and the Oklahoma City Assets. "BFI" means Browning-Ferris Industries, Inc., a Delaware corporation, and its successors. "BFI Idaho" means Browning-Ferris Industries of Idaho, Inc., an Idaho corporation, and its successors. "BFI OKC" means Browning-Ferris, Inc., a Delaware corporation, and its successors. "Buyer Representative" has the meaning set forth in Section 9.2. "Buyers" means Continental, Waste of Idaho and Waste and their respective successors. "Closing" has the meaning set forth in Article 2. "Code" has the meaning set forth in Section 6.1. "Company" means Browning-Ferris Industries of Washington, Inc., a Washington corporation, and its successors. "Company Inventory" has the meaning set forth in Section 1.6(a). "Company Receivables" has the meaning set forth in Section 1.6(a). "Company Shares" or "Shares" means the shares of common stock, par value $10 per share, of the Company. "Continental" means Continental Paper Recycling L.L.C., an Oregon limited liability company, and its successors. "Continental Inventory Note" has the meaning set forth in Section 1.2(i). 1.9-1 42 "Continental Working Capital Note" has the meaning set forth in Section 1.2(f). "Contracts" has the meaning set forth in Section 3.12. "CPH" means Continental Property Holdings, Inc., and its successors. "CPH Shares" means the shares of common stock, par value $1 per share, of CPH. "Deeds of Trust" means the First Lien Deed of Trust and the Second Lien Deed of Trust. "Environmental Laws" has the meaning set forth in Section 3.16. "Equipment" has the meaning set forth in Section 3.6 and includes the equipment set forth in Schedule 3.6. "ERISA" has the meaning set forth in Section 6.1. "Estimated Working Capital" has the meaning set forth in Section 1.6(a). "Fibres" means Fibres International, Inc., a Washington corporation, and its successors. "Fibres Environmental Indemnity Claim" has the meaning set forth in Section 6.3(e). "Fibres Inventory" has the meaning set forth in Section 1.6(a). "Fibres Purchase Agreement" has the meaning set forth in Section 3.10. "Fibres Receivables" has the meaning set forth in Section 1.6(a). "Fibres Recycling Assets" means the assets related to recycling operations of Fibres, including the assets described in Schedule 5.4(e). "Fibres Recycling Business" means the recycling business conducted by Fibres. "Fibres Remediation Loss Claim" has the meaning set forth in Section 6.3(e). "Fibres Shares" means the shares of common stock, par value $10 per share, of Fibres. "Fibres Stockholders" has the meaning set forth in Section 3.10. "Final Working Capital" has the meaning set forth in Section 1.6(b). "Financial Data" has the meaning set forth in Section 3.15. 1.9-2 43 "First Lien Deed of Trust" has the meaning set forth in Section 1.2(b). "Guarantee" has the meaning set forth in Section 1.2(b). "Guarantors" has the meaning set forth in Section 1.2(b). "Hazardous Waste" has the meaning set forth in Section 3.17. "Idaho Assets" includes the Idaho Recycling Assets and the Idaho Solid Waste Assets. "Idaho Business" means the Idaho Recycling Business and the Idaho Solid Waste Business. "Idaho Contracts" means the Idaho Recycling Contracts and the Idaho Solid Waste Contracts. "Idaho Inventory" has the meaning set forth in Section 1.1(c). "Idaho Recycling Assets" has the meaning set forth in Section 1.1(c). "Idaho Recycling Business" means the recycling processing business conducted by BFI Idaho in and around Idaho Falls and Pocatello, Idaho. "Idaho Recycling Contracts" has the meaning set forth in Section 1.1(c). "Idaho Recycling Receivables" has the meaning set forth in Section 1.1(c). "Idaho Security Agreement" has the meaning set forth in Section 1.2(d). "Idaho Solid Waste Assets" has the meaning set forth in Section 1.1(d). "Idaho Solid Waste Business" means the solid waste collection and transportation business conducted by BFI Idaho in and around Idaho Falls and Pocatello, Idaho. "Idaho Solid Waste Contracts" has the meaning set forth in Section 1.1(d). "Idaho Solid Waste Receivables" has the meaning set forth in Section 1.1(c). "Indemnified Party" has the meaning set forth in Section 6.5. "Indemnifying Party" has the meaning set forth in Section 6.5. "Indemnity Claim" has the meaning set forth in Section 6.6. "Indemnity Event" has the meaning set forth in Section 6.1. 1.9-3 44 "Indemnity Losses" has the meaning set forth in Section 6.1. "Leases" has the meaning set forth in Section 3.13. "Material Contracts" has the meaning set forth in Section 3.12 and includes the Contracts set forth in Schedule 3.12. "Material Idaho Recycling Contracts" has the meaning set forth in Section 1.1(c). "Material Idaho Recycling Leases" has the meaning set forth in Section 1.1(c). "Material Idaho Solid Waste Contracts" has the meaning set forth in Section 1.1(d). "Material Idaho Solid Waste Leases" has the meaning set forth in Section 1.1(d). "Material Leases" has the meaning set forth in Section 3.13 and includes the Leases set forth in Schedule 3.13. "Material OKC Contracts" has the meaning set forth in Section 1.1(b) and includes the Contracts of BFI OKC set forth in Schedule 3.12. "Material OKC Leases" has the meaning set forth in Section 1.1(b) and includes the Leases of BFI OKC set forth in Schedule 3.13. "Noncompete Agreement" has the meaning set forth in Section 7.7. "Notes" means the $3 Million Note, the $2.5 Million Note, the $1.45 Million Note, the Continental Working Capital Note, the Waste Working Capital Note, the Waste Inventory Note, the Waste Bridge Note and the Continental Inventory Note. "OKC Contracts" has the meaning set forth in Section 1.1(b). "OKC Inventory" has the meaning set forth in Section 1.1(b). "OKC Leases" has the meaning set forth in Section 1.1(b). "OKC Receivables" has the meaning set forth in Section 1.1(b). "Oklahoma City Assets" has the meaning set forth in Section 1.1(b). "Oklahoma City Business" means the recycling processing business conducted by BFI OKC in and around Oklahoma City, Oklahoma. "$1.45 Million Note" has the meaning set forth in Section 1.2(d). 1.9-4 45 "Permits" has the meaning set forth in Section 3.14 and includes the permits set forth in Schedule 3.14. "Purchase Price" has the meaning set forth in Section 1.2. "RCRA" has the meaning set forth in Section 3.17. "Remediation Losses" has the meaning set forth in Section 6.3(e). "Second Lien Deed of Trust" has the meaning set forth in Section 1.2(c). "Seller(s)" means BFI, BFI OKC, and BFI Idaho collectively or individually. "Special Remediation Site" has the meaning set forth in Section 6.3(e). "Stock" means the shares of common stock, par value $10 per share, of the Company. "$2.5 Million Note" has the meaning set forth in Section 1.2(c). "$3 Million Note" has the meaning set forth in Section 1.2(b). "Vancouver Business" means the solid waste collection and recycling collection and processing business conducted by the Company in and around Vancouver, Washington. "Vancouver Lease" has the meaning set forth in Section 5.4. "Vancouver Purchase Agreement" has the meaning set forth in Section 3.10. "Waste" means Waste Connections, Inc., a Delaware corporation, and its successors. "Waste of Idaho" means Waste Connections of Idaho, Inc., a California corporation, and its successors. "Waste Bridge Note" has the meaning set forth in Section 1.2(g). "Waste Inventory Note" has the meaning set forth in Section 1.2(h). "Waste Working Capital Note" has the meaning set forth in Section 1.2(e). 1.9-5 EX-10.18 21 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.18 STOCK PURCHASE AGREEMENT Dated as of January 26, 1998, by and among Waste Connections, Inc. Waste Connections of Idaho, Inc. Ronald J. Mittelstaedt James N. Cutler, Jr. J. Bradford Bishop 2 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of January 26, 1998, is entered into by and among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste Connections of Idaho, Inc., a Delaware corporation (the "Corporation") and J. Bradford Bishop, Ronald J. Mittelstaedt and James N. Cutler, Jr. (collectively, the "Stockholders"). WHEREAS, the Corporation is engaged in the collection and transport of solid waste in Idaho, and other related activities; WHEREAS, the Stockholders own all of the issued and outstanding capital stock of the Corporation in the amount set forth on Schedule 3.2 hereto (the "Corporation's Stock"); WHEREAS, WCI wishes to acquire from the Stockholders all of the issued and outstanding capital stock of the Corporation; NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE OF CORPORATION'S STOCK 1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined), the Stockholders shall sell and deliver to WCI all of the issued and outstanding Corporation's Stock, being the number of shares of the Corporation set forth on Schedule 3.2. At the Closing, WCI shall purchase the Corporation's Stock and in exchange therefor shall deliver to the Stockholders at the Closing the purchase price described in Section 1.2 (the "Purchase Price"). 1.2 PURCHASE PRICE. The Purchase Price shall be $3,000.00. WCI shall pay $1,000.00 to each of the Stockholders at the Closing in cash by wire transfer or check payable in clearinghouse funds. 2. CLOSING TIME AND PLACE Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall take place concurrent with the closing of WCI's Credit Agreement with Bank Boston, N.A. and certain other financial institutions (the "Credit Agreement") (the "Closing Date"). The Closing shall take place at the Law Offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, Suite 1800, San Francisco, California 94111. At the Closing, WCI, the Corporation and the Stockholders shall deliver to each other the documents, instruments and other items described in Section 7 of this Agreement. 1 3 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE STOCKHOLDERS The Corporation and the Stockholders, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true as of the Closing Date, and (ii) agree that such representations and warranties shall survive the Closing. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Corporation has full corporate power and authority to own and lease its properties and to carry on its business as now conducted. 3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date, the authorized and outstanding capital of the Corporation, the names and addresses of the record and beneficial owners thereof, and the number of shares so owned. On the Closing Date, all of the issued and outstanding shares of the capital stock of the Corporation shall be owned of record and beneficially by the Stockholders as set forth in Schedule 3.2 and shall be free and clear of all liens, security interests, encumbrances and claims of every kind except as set forth in Schedule 3.2. Each share of the capital stock of the Corporation is duly and validly authorized and issued, fully paid and nonassessable, and was not issued in violation of any preemptive rights of any past or present stockholder of the Corporation. No option, warrant, call, conversion right or commitment of any kind (including any of the foregoing created in connection with any indebtedness of the Corporation) exists which obligates the Corporation to issue any of its authorized but unissued capital stock or other equity interest or which obligates the Stockholders to transfer any Corporation's Stock to any person. 3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being acquired by WCI hereunder constitutes all of the outstanding capital stock of the Corporation. 3.4 AUTHORITY FOR AGREEMENT. The Corporation and each of the Stockholders has full right, power and authority to enter into this Agreement and to perform its or his obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Corporation. This Agreement has been duly and validly executed and delivered by the Corporation and each of the Stockholders, subject to the due authorization, execution and delivery by WCI, constitutes the legal, valid and binding obligation of the Corporation and each of the Stockholders enforceable against each of them in accordance with its terms. 4. REPRESENTATIONS AND WARRANTIES OF WCI 2 4 WCI represents and warrants to the Stockholders that the following representations and warranties are true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, executed and delivered by WCI and, subject to the due authorization, execution and delivery by the Stockholders and the Corporation, constitutes a legal, valid and binding obligation of WCI. WCI has full corporate power, legal right and corporate authority to enter into and perform its obligations under this Agreement and to carry on its business as presently conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to WCI; (b) conflict with any of the provisions of the Certificate of Incorporation or Bylaws of WCI; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which WCI is a party or by which it is bound. 5. CONDITION PRECEDENT TO OBLIGATION OF WCI TO CLOSE The obligations of WCI under this Agreement are subject to the Stockholders delivery of the items which they are required to deliver under Section 7 of this Agreement and to the concurrent closing of the Credit Agreement. 6. CONDITION PRECEDENT TO OBLIGATION OF THE STOCKHOLDERS TO CLOSE The obligations of the Stockholders under this Agreement are subject to WCI's delivery of the items which it is required to deliver under Section 7 of this Agreement and to the concurrent closing of the Credit Agreement. 7. CLOSING DELIVERIES At the Closing, the respective parties shall make the deliveries indicated: 7.1 WCI DELIVERIES. WCI shall deliver the cash portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1. 7.2 STOCKHOLDERS DELIVERIES. 3 5 (a) The Stockholders shall deliver to WCI the endorsed certificates representing the outstanding Corporation's Stock free and clear of all liens, security interests, claims and encumbrances. (b) the Stockholders shall execute and deliver such other documents and instruments as are reasonably requested by WCI in order to consummate the transactions contemplated by this Agreement. 8. GENERAL 8.1 ADDITIONAL CONVEYANCES. Following the Closing, the Stockholders and WCI shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as WCI or the Stockholders may reasonably request for the purpose of carrying out this Agreement. The Stockholders will cooperate with WCI and/or the Corporation on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 8.2 ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the successors or assigns of WCI and the heirs, legal representatives or assigns of the Stockholders; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 8.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 8.4 NOTICES. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if in writing and either delivered personally, sent by facsimile transmission or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery or facsimile transmission thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to the Stockholders: at their respective addresses set forth on Schedule 3.2 If to WCI: Waste Connections, Inc. 4 6 2260 Douglas Boulevard, Suite 280 Roseville, California 95661 Attention: Ronald J. Mittelstaedt Fax: (916) 772-2920 With a copy to: Robert D. Evans, Esq. Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Fax: (415) 421-2922 8.5 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflict of laws provisions. 8.6 CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 8.7 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the singular number is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 8.8 ENTIRE AGREEMENT. This Agreement (including the Schedule hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between the Corporation, the Stockholders and WCI and supersedes any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Corporation, the Stockholders and WCI acting through its officers, thereunto duly authorized by its Board of Directors. 8.9 WAIVER. No waiver by any party hereto at any time of any breach of, or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 8.10 CONSTRUCTION. The language in all parts of this Agreement must be in all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in California. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. 5 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. THE CORPORATION: WASTE CONNECTIONS OF IDAHO, INC. By: ____________________________________ Ronald J. Mittelstaedt, President THE STOCKHOLDERS: ________________________________________ J. Bradford Bishop ________________________________________ Ronald J. Mittelstaedt ________________________________________ James N. Cutler, Jr. WCI: WASTE CONNECTIONS, INC. By: ____________________________________ Ronald J. Mittelstaedt Chief Executive Officer & President 7 8 TABLE OF CONTENTS
Page ---- 1. PURCHASE OF CORPORATION'S STOCK................................... 1 1.1 SHARES TO BE PURCHASED...................................... 1 1.2 PURCHASE PRICE.............................................. 1 2. CLOSING TIME AND PLACE............................................ 1 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE STOCKHOLDERS.................................. 2 3.1 ORGANIZATION, STANDING AND QUALIFICATION.................... 2 3.2 CAPITALIZATION.............................................. 2 3.3 ALL STOCK BEING ACQUIRED.................................... 2 3.4 AUTHORITY FOR AGREEMENT..................................... 2 4. REPRESENTATIONS AND WARRANTIES OF WCI............................. 2 AUTHORIZATION OF AGREEMENT........................................ 2 5. CONDITION PRECEDENT TO OBLIGATION OF WCI TO CLOSE............................................................. 3 6. CONDITION PRECEDENT TO OBLIGATION OF THE STOCKHOLDERS TO CLOSE............................................. 3 7. CLOSING DELIVERIES................................................ 3 7.1 WCI DELIVERIES.............................................. 3 7.2 STOCKHOLDERS DELIVERIES..................................... 3 8. GENERAL........................................................... 4 8.1 ADDITIONAL CONVEYANCES...................................... 4 8.2 ASSIGNMENT.................................................. 4 8.3 COUNTERPARTS................................................ 4 8.4 NOTICES..................................................... 4 8.5 APPLICABLE LAW.............................................. 4 8.6 CAPTIONS.................................................... 5 8.7 NUMBER AND GENDER OF WORDS; CORPORATION..................... 5 8.8 ENTIRE AGREEMENT............................................ 5 8.9 WAIVER...................................................... 5 8.10 CONSTRUCTION................................................ 5
i 9 SCHEDULE 3.2 Authorized capital of Waste Connections of Idaho, Inc.: 10,000 shares of Common Stock, with a par value of $0.01 per share. Record owners: (1) Ronald J. Mittelstaedt owns 100 shares of the Common Stock of Waste Connections of Idaho, Inc. represented by Stock Certificate number 1. Ronald J. Mittelstaedt's address is c/o Waste Connections, Inc., 2260 Douglas Boulevard, Suite 280, Roseville, California 95661. (2) J. Bradford Bishop owns 100 shares of the Common Stock of Waste Connections of Idaho, Inc. represented by Stock Certificate Number 2. J. Bradford Bishop's address is c/o Continental Paper Recycling, Inc., 6950 SW Hampton Street, Suite 200, Portland, Oregon 97223. (3) James N. Cutler, Jr., owns 100 shares of the Common Stock of Waste Connections of Idaho, Inc. represented by Stock Certificate Number 3. James N. Cutler, Jr.'s address is 6950 SW Hampton Street, Suite 200, Portland, Oregon 97223. EX-10.19 22 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.19 STOCK PURCHASE AGREEMENT Dated as of February 4, 1998, by and among Waste Connections, Inc. Madera Disposal Systems, Inc. Alma Sciacqua, as trustee of the Sciacqua Family Trust B Eugene Dupreau Melvin G. Dias Charles B. Youngclaus and Alma Sciacqua 2 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of February 4, 1998, is entered into by and among Waste Connections, Inc., a Delaware corporation ("WCI"), Madera Disposal Systems, Inc., a California corporation (the "Corporation"), Alma Sciacqua, as trustee of the Sciacqua Family Trust B, (the "Sciacqua Trust"), Eugene Dupreau ("Dupreau"), Melvin G. Dias ("Dias"), Charles B. Youngclaus ("Youngclaus" and, collectively with the Sciacqua Trust, Dupreau and Dias, the "Shareholders"), and Alma Sciacqua ("Alma"). WHEREAS, the Corporation is engaged in the collection and transport of solid waste in the City of Chowchilla and in the unincorporated areas of Madera County, California, the operation of two transfer stations and a recycling facility for the County of Madera, operating the Fairmead Landfill pursuant to an operating agreement with the County of Madera, and other related activities; WHEREAS, the Shareholders own all of the issued and outstanding capital stock of the Corporation in the amount set forth on Schedule 3.2 hereto (the "Corporation's Stock") in the amount set forth on Schedule 3.2; WHEREAS, WCI wishes to acquire from the Shareholders all of the issued and outstanding capital stock of the Corporation; NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE OF CORPORATION'S STOCK 1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined), the Shareholders shall sell and deliver to WCI all of the issued and outstanding Corporation's Stock, being the number of shares of the Corporation set forth on Schedule 3.2. At the Closing, WCI shall purchase the Corporation's Stock and in exchange therefor shall deliver to the Shareholders at the Closing or thereafter as provided by this Agreement the purchase price described in Section 1.2, plus any and all additions to the Purchase Price payable pursuant to Section 1.4 (the "Purchase Price"). 1.2 PURCHASE PRICE. The Purchase Price shall be payable as follows: (a) eight million one hundred eighty five thousand dollars ($8,185,000), (i) minus the Closing Date Debt (as defined in Section 3.22(a)), and (ii) plus or minus, as the case may be, the amount by which the Closing Date Current Assets (as defined in 1 3 Section 3.22(b)) are greater or less than the Closing Date Current Liabilities (as defined in Section 3.22(b)) shall be paid to the Shareholders at Closing in cash by wire transfer or check payable in clearinghouse funds. The adjustment to the Purchase Price based on the Closing Date Debt, the Closing Date Current Assets and the Closing Date Current Liabilities shall be based on estimates of such amounts provided at the Closing. Within 120 days after the Closing, WCI and the Shareholders' Representative (as hereinafter defined) shall determine the actual Closing Date Debt, Closing Date Current Assets and Closing Date Current Liabilities. If the difference between the actual amounts of such items and the estimated amounts provided at the Closing Date results in an increase in the amount that should have been paid at the Closing over the amount that was so paid, WCI shall promptly pay such amount to the Shareholders in the same proportion as cash was paid to them at the Closing; if the result is a decrease in the amount that should have been paid at the Closing below the amount that was so paid, the Shareholders shall promptly pay such amount to WCI in the same proportion as they received cash at the Closing. Of the cash portion of the Purchase Price paid at the Closing, five million five hundred forty-five thousand dollars ($5,545,000) shall be paid to the Sciacqua Trust and the balance shall be paid to Dupreau, Dias and Youngclaus as provided in Schedule 3.2. (b) At the Closing, WCI shall deliver to Dupreau, Dias and Youngclaus 1,000,000 shares (the "Shares") of its Common Stock, $0.01 par value (the "WCI Stock") as follows: Dupreau-333,333 shares; Dias-333,334 shares; and Youngclaus- 333,333 shares. (c) At the Closing, WCI shall deliver to Dupreau, Dias and Youngclaus warrants (the "Warrants") to purchase an aggregate of 200,000 shares of WCI Stock, substantially in the form of Exhibit 1.2(c), with an exercise price of four dollars ($4.00) per share of WCI Stock as follows: Dupreau-Warrants for 66,667 shares; Dias-Warrants for 66,666 shares; and Youngclaus-Warrants for 66,667 shares. The Shareholders acknowledge that the allocation of the Purchase Price among the Shareholders has been agreed to by the Shareholders among themselves as provided in Schedule 3.2. Such allocation provides that certain of the Shareholders will receive more cash and fewer Shares and Warrants, and conversely that certain of the Shareholders will receive more Shares and Warrants and less cash, than would be the case if the cash, Shares and Warrants were allocated in proportion to their ownership of the Corporation's Stock. 1.3 ADDITIONAL CONTINGENT PURCHASE PRICE. The Purchase Price may be increased by the additional contingent payments described in this Section. (a) If, prior to the third anniversary of the date of this Agreement (the "Signing Date"), the Corporation enters into an exclusive franchise agreement to provide residential refuse collection services to the City of Madera for a minimum term of at least five years on terms satisfactory to WCI, WCI shall pay to the Procuring Shareholders (as 2 4 defined below) as additional contingent Purchase Price cash in the amount of six hundred thousand dollars ($600,000), which amount shall be paid on the Closing Date if such franchise agreement is entered into on or prior to the Closing Date or thirty (30) days after the date such franchise agreement is entered into if it is entered into after the Closing Date. (b) If, prior to the third anniversary of the Signing Date, the Corporation enters into exclusive franchise agreements on terms satisfactory to WCI with any of the municipalities of Los Banos, Kerman or Dos Palos, or any other municipality in Madera, Kings, Merced and Fresno Counties not otherwise provided for in this Agreement, WCI shall pay to the Procuring Shareholders as additional contingent Purchase Price a cash amount equal to ten percent (10%) of the projected gross revenue (after deduction of any franchise fee) expected to be received by the Corporation pursuant to such exclusive franchise agreement during the first year of its term, which amount shall be paid on the Closing Date if such franchise agreement is entered into on or prior to the Closing Date or thirty (30) days after the date such franchise agreement is entered into if it is entered into after the Closing Date. (c) If, prior to the third anniversary of the Signing Date, the Corporation enters into an extension, on terms at least as favorable to the Corporation as the franchise agreement in effect on the Signing Date, of its existing exclusive franchise agreement with the County of Madera for at least seven (7) years from the present termination date of such agreement or an extension, on terms at least as favorable to the Corporation as the franchise agreement in effect on the Signing Date, of its existing exclusive franchise agreement with the City of Chowchilla for at least five (5) years from the present termination date of such agreement, then, in each such case, WCI shall pay the Procuring Shareholders as additional contingent Purchase Price a cash amount equal to five percent (5%) of the projected gross revenue (after deduction of any franchise fee) expected to be received by the Corporation pursuant to such exclusive franchise agreement during the first year of such extension, which amount shall be paid on the Closing Date if such extension is entered into on or prior to the Closing Date or thirty (30) days after the date such extension is entered into if it is entered into after the Closing Date. (d) If, prior to the third anniversary of the Signing Date, any of the Shareholders provides substantial assistance to WCI or any of its subsidiaries in acquiring directly or indirectly (through asset purchase, stock purchase, merger or otherwise) the waste collection operations of any other company providing such services within a seventy-five (75) mile radius of Madera, California, including without limitation the waste collection operations of Turlock Scavenger and EMADCO, WCI shall pay the Procuring Shareholders as additional contingent Purchase Price a cash amount equal to three percent (3%) of the projected gross revenue (after deduction of any franchise fee) with respect to such operations during the first year after they are acquired by WCI, which amount shall be paid on the Closing Date if such acquisition is consummated on or 3 5 prior to the Closing Date or thirty (30) days after the date any such acquisition is consummated if consummated after the Closing Date. WCI shall have sole discretion in determining whether and on what terms it will consummate any such acquisition, and WCI shall not be liable to any of the Procuring Shareholders for any decision not to pursue any such acquisition or its failure to consummate any such acquisition, without regard to the reason therefor. (e) If on March 1, 1999, the Corporation's franchise agreement with the County of Madera (or any extension described in Section 1.3(c)) remains in effect and the County of Madera has not threatened to terminate or revoke such franchise agreement, the Corporation shall pay to Dupreau, Dias and Youngclaus, in equal shares, as additional contingent Purchase Price cash in the amount of two million eight hundred thousand dollars ($2,800,000), and upon receipt of such payment Dupreau, Dias and Youngclaus shall return their shares of WCI Stock and Warrants to WCI for cancellation. WCI's obligations under this Section 1.3(e) shall terminate and be of no further force or effect on the closing date of a public offering of WCI common stock with an aggregate net proceeds to WCI of at least five million dollars ($5,000,000). So long as WCI's obligations under this Section 1.3(e) remain in effect, Dupreau, Dias and Youngclaus shall not dispose of any of their WCI Stock or Warrants. Dupreau, Dias and Youngclaus may elect, by written notice to WCI, to forego such payment of additional contingent Purchase Price, in which event they may retain their WCI Stock and Warrants. (f) For purposes of this Section 1.3, a Shareholder shall be deemed a "Procuring Shareholder" if such Shareholder is an employee of, or consultant to, the Corporation or WCI at the time the event in question occurs. (g) Subject to satisfaction of Federal and State Securities laws and execution by the Procuring Shareholders of such agreements containing such representations as counsel for WCI shall advise is reasonably necessary to satisfy such laws, the Procuring Shareholders may elect to take all or any portion of the additional contingent payments in shares of WCI Stock in lieu of receiving a cash payment. Any Procuring Shareholder electing to receive shares of WCI Stock shall advise WCI at least ten (10) days prior to the date any such payment is due pursuant to this Section of such Procuring Shareholder's intention to receive some or all of the additional continent payments in shares of WCI Stock and of the amount of such payments with respect to which such election is made. Subject to satisfaction of State and Federal Securities laws as aforesaid, WCI shall issue to such Procuring Shareholders on the date payment of such additional contingent payments are due shares of WCI Stock in a number determined by dividing the amount of the additional contingent payment elected to be received in shares of WCI Stock by the Fair Market Value of a share of WCI Stock. If such stock is to be delivered prior to the time that a public market for the WCI Stock exists, the Fair Market Value of WCI Stock shall be determined by the Board of Directors of WCI in good faith. If such stock is to be delivered at a time when a public market for WCI Stock exists, Fair Market Value shall 4 6 mean the average of the closing price of the WCI Stock as quoted on the NASDAQ Stock Market or the principal exchange on which the WCI Stock is listed if such stock is listed on an exchange for the ten successive trading days for which a closing price is quoted ending on the third trading day prior to the date on which such additional contingent payment is due. The Fair Market Value and the number of shares of WCI Stock to be delivered pursuant to this Section shall be appropriately adjusted in the event of any change in the WCI Stock between the first day for which a closing price is quoted in determining the Fair Market Value and such date, including without limitation any stock dividend, stock split, reverse stock split, recapitalization, reorganization, merger or consolidation. WCI shall not be obligated to issue any fractional shares of WCI Stock, but shall instead pay the Shareholder entitled thereto cash in lieu of any fractional share equal to the Fair Market Value multiplied by the fraction of a share of WCI Stock that would otherwise be issued. 1.4 EXCLUDED ASSETS. The Assets of the Corporation listed on Schedule 1.4 (the "Excluded Assets") shall be distributed to the Shareholders prior to the Closing, and WCI shall acquire no interest in or claim to any of the Excluded Assets. 2. CLOSING TIME AND PLACE Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall take place on such date (the "Closing Date") after the consents required by Section 6.7 have been obtained (or WCI has waived the requirement that one or more such consents be obtained) as WCI and the Shareholders' Representative shall agree. The Closing shall take place at the Law Offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, Suite 1800, San Francisco, California 94111. At the Closing, WCI, the Corporation and the Shareholders shall deliver to each other the documents, instruments and other items described in Section 8 of this Agreement. The Closing Date shall occur no earlier than February 5, 1998, but shall be deemed effective as of February 1, 1998, for financial reporting purposes. 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION, THE SHAREHOLDERS AND ALMA The Corporation, the Shareholders and Alma, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true as of the Signing Date and will be true as of the Closing Date, and (ii) agree that such representations and warranties shall survive the Closing. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is duly organized, validly existing and in good standing under the laws of the State of California. The Corporation has full corporate power and authority to own and lease its properties and to carry on its business 5 7 as now conducted. The Corporation is not required to be qualified or licensed to conduct business as a foreign corporation in any other jurisdiction. 3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Signing Date, the authorized and outstanding capital of the Corporation, the name, addresses and social security numbers or taxpayer identification numbers of the record and beneficial owners thereof, the number of shares so owned, and the allocation of the cash, Shares and Warrants among the Shareholders as agreed to among themselves. On the Closing Date, all of the issued and outstanding shares of the capital stock of the Corporation shall be owned of record and beneficially by the Shareholders as set forth in Schedule 3.2 and shall be free and clear of all liens, security interests, encumbrances and claims of every kind except as set forth in Schedule 3.2. Each share of the capital stock of the Corporation is and on the Closing Date will be duly and validly authorized and issued, fully paid and nonassessable, and was not issued in violation of any preemptive rights of any past or present shareholder of the Corporation. No option, warrant, call, conversion right or commitment of any kind (including any of the foregoing created in connection with any indebtedness of the Corporation) exists which obligates the Corporation to issue any of its authorized but unissued capital stock or other equity interest, which obligates the Shareholders to transfer any Corporation's Stock to any person. 3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being acquired by WCI hereunder constitutes all of the outstanding capital stock of the Corporation. 3.4 AUTHORITY FOR AGREEMENT. The Corporation, each of the Shareholders and Alma has full right, power and authority to enter into this Agreement and to perform its, his or her obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Corporation. This Agreement has been duly and validly executed and delivered by the Corporation, each of the Shareholders and Alma and, subject to the due authorization, execution and delivery by WCI, constitutes the legal, valid and binding obligation of the Corporation, each of the Shareholders and Alma enforceable against each of them in accordance with its terms. 3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5, the execution and delivery by the Corporation and the Shareholders of this Agreement, and the consummation by the Shareholders of the transactions contemplated hereby, will not: (a) result in the breach of any of the terms or conditions of, or constitute a default under, or allow for the acceleration or termination of, or in any manner release any party from any obligation under, any mortgage, lease, note, bond, indenture, or material contract, agreement, license or other instrument or obligation of any kind or nature to which the Corporation or any of the Shareholders is a party, or by which the Corporation, or any of its assets, is or may be bound or affected; or 6 8 (b) violate any law or any order, writ, injunction or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any governmental or regulatory authority; or (c) violate the Articles of Incorporation or Bylaws of the Corporation. 3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Signing Date any and all subsidiaries of the Corporation and any securities of any other corporation or any securities or other interest in any other business entity owned by the Corporation or any of its subsidiaries. 3.7 FINANCIAL STATEMENTS. The Corporation has delivered to WCI, as Schedule 3.7, copies of financial statements ("Financial Statements") for the fiscal years ended December 31, 1995 and 1996, audited by Larry A. Coffin, CPA, and unaudited interim financial statements for the Corporation for the period ended September 30, 1997 (the "Balance Sheet Date"), which interim financial statements were not compiled, reviewed or audited by Larry A. Coffin, CPA. The Financial Statements are true and correct and fairly present (i) the financial position of the Corporation as of the respective dates of the balance sheets included in said statements, and (ii) the results of operations for the respective periods indicated. The Financial Statements have been prepared in accordance with generally accepted accounting principles, applied consistently with prior periods. Except to the extent reflected or reserved against in the Corporation's balance sheet as of the Balance Sheet Date, or as disclosed on Schedule 3.7 or Schedule 3.8, the Corporation did not have as of the Balance Sheet Date, nor will it have as of the Closing Date, any liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due except, with respect to the period from the Signing Date through the Closing Date, as permitted by Section 5.2(d). 3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8, are accurate lists and descriptions of all liabilities of the Corporation required to be described below in the format set forth below. (a) Part I of Schedule 3.8 list, as of the Signing Date, other than with respect to trade payables and as of the end of the month prior to the Signing Date with respect to trade payables, all indebtedness for money borrowed and all other fixed and uncontested liabilities of any kind, character and description, whether reflected or not reflected on the Financial Statements and whether accrued or absolute, and states as to each such liability the amount of such liability and to whom payable. From the date as of which information is provided with respect to trade payables, trade payables have been incurred only in the ordinary course of business consistent with comparable prior periods. (b) Part II of Schedule 3.8 lists, as of the Signing Date, all claims, suits and 7 9 proceedings which are pending against the Corporation and, to the knowledge of the Corporation and the Shareholders, all contingent liabilities and all claims, suits and proceedings threatened or anticipated against the Corporation. For each such liability, the following is provided in Part II of Schedule 3.8: (i) a summary description of such liability together with copies of all material documents, reports and other records relating thereto; (ii) all amounts claimed or relief sought with respect to such liability and the identity of the claimant; and (iii) without limitation of the foregoing, (A) the name of each court, agency, bureau, board or body before which any such claim, suit or proceeding is pending, including, without limitation, those arising under Environmental Laws (as defined in Section 3.24), those relating to personal injury or property damage (including all workers' compensation and occupational disease and injury claims, suits and proceedings) and those citations arising under the Federal Occupational Safety and Health Act or any comparable state law, (B) the date such claim, suit or proceeding was instituted, (C) the parties to such claim, suit or proceeding, (D) a description of the factual basis alleged to underlie such claim, suit or proceeding, including the date or dates of all material occurrences, (E) the amount claimed and other relief sought, and (F) all material pleadings, briefs and other documents relating thereto to the extent the same are in the possession or under the control of the Corporation or the Shareholders. (c) Part III of Schedule 3.8 list, as of the Signing Date and to the extent not otherwise included in Part I of Schedule 3.8, all liens, claims and encumbrances secured by or otherwise affecting any asset of the Corporation (including any Corporate Property, as hereafter defined), including a description of the nature of such lien, claim or encumbrance, the amount secured if it secures a liability, the nature of the obligation secured, and the party holding such lien, claim or encumbrance. (d) Part IV of Schedule 3.8 lists, as of the Signing Date and to the extent not otherwise included in Part I or Part III of Schedule 3.8, all real and material personal property leasehold interests or to which the Corporation is a party as lessor or lessee or, to the knowledge of the Corporation or the Shareholders, affecting or relating to any Corporate Property, including a description of the nature and principal terms of such leasehold interest and the identity of the other party thereto. Except as described on the applicable part of Schedule 3.8, neither the Corporation nor any of the Shareholders has made any payment or committed to make any payment since the Balance Sheet Date on or with respect to any of the liabilities or obligations listed on Schedule 3.8 except, in the case of liabilities and obligations listed on Parts I, III and IV of Schedule 3.8, periodic payments required to be made under the terms of the agreements or instruments governing such obligations or liabilities. 8 10 3.9 CONDUCT OF BUSINESS. Except as set forth on Schedule 3.21, since the Balance Sheet Date: (a) The business of the Corporation has been conducted only in the ordinary course; and (b) There has been no change in the condition (financial or otherwise) of the assets, liabilities or operations of the Corporation other than changes in the ordinary course of business, none of which either singly or in the aggregate has been materially adverse. 3.10 PERMITS AND LICENSES. (a) Schedule 3.10(a) is a full and complete list, and includes copies, of all material permits, licenses, franchises, and service agreements pursuant to which the Corporation is authorized to collect and haul industrial, commercial and residential solid waste (the "Collection Franchises"), and of all other material permits, licenses, titles (including motor vehicle titles and current registrations), fuel permits, zoning and land use approvals and authorizations, including, without limitation, any conditional or special use approvals or zoning variances, occupancy permits, and any other similar documents constituting a material authorization or entitlement or otherwise material to the operation of the business of the Corporation (collectively the "Governmental Permits") owned by, issued to, held by or otherwise benefiting the Corporation or the Shareholders as of the Signing Date. The status of the Governmental Permits related to the disposal areas owned or used by the Corporation, including, without limitation, any conditions thereto and, if applicable, the expiration dates thereof, are also described in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any third party from whom the Shareholders, the Corporation or WCI must obtain consent (the "Required Governmental Consents") in order to effect a direct or indirect transfer of the Collection Franchises or other Governmental Permits required as a result of the consummation of the transactions contemplated by this Agreement. Except as set forth on Schedule 3.10(a), all of the Collection Franchises and other Governmental Permits enumerated and listed on Schedule 3.10(a) are adequate for the operation of the business of the Corporation and of each Corporate Property as presently operated and are valid and in full force and effect. All of said Collection Franchises and other Governmental Permits and agreements have been duly obtained and are in full force and effect, and there are no proceedings pending or, to the knowledge of the Corporation or the Shareholders, threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the Corporation nor any of the Shareholders has any knowledge of any reason why all such Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. 9 11 (b) Schedule 3.10(b) includes: (i) all records, notifications, reports, permit and license applications, engineering and geologic studies, and environmental impact reports, tests or assessments (collectively, "Records, Notifications and Reports") that (A) are material to the operation of the business of the Corporation, or (B) relate to the discharge or release of materials into the environment and/or the handling or transportation of waste materials or hazardous or toxic substances or otherwise relate to the protection of the public health or the environment, or (C) were filed with or submitted to appropriate governmental agencies during the past 24 months by the Corporation or any of the Shareholders or their agents, and (ii) all material notifications from such governmental agencies to the Corporation, the Shareholders or their agents in response to or relating to any of such Records, Notifications and Reports. (c) Schedule 3.10(c) lists, as of the Signing Date, each facility owned, leased, operated or otherwise used by the Corporation, the ownership, lease, operation or use of which is being transferred to, assumed by or otherwise acquired directly or indirectly by WCI pursuant to this Agreement (each, a "Facility" and collectively, the "Facilities"). Except as otherwise disclosed on Schedule 3.10(c): (i) Each Facility is fully licensed, permitted and authorized to carry on its current business under all applicable federal, state and local statutes, orders, approvals, zoning or land use requirements, rules and regulations and no Facility is a non-conforming use or otherwise subject to any restrictions regarding reconstruction. (ii) All activities and operations at each Facility are being and have been conducted in compliance in all material respects with the requirements, criteria, standards and conditions set forth in all applicable federal, state and local statutes, orders, approvals, permits, zoning or land use requirements and restrictions, variances, licenses, rules and regulations. (iii) Each Facility is located on real property owned or leased by a Corporation (each a "Facility Property") and each Facility Property owned by the Corporation is legally described on the surveys or site plans attached to Schedule 3.10(c) (the "Facility Surveys/Site Plans"), each of which when delivered will accurately depict the respective Facility Property. (iv) There are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any Facility's site assessments, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility owned by a Corporation or owned by any of the Shareholders or an Affiliate (as hereinafter defined) of any of the Shareholders and leased to the Corporation, and to the knowledge of the Corporation and the Shareholders there are no circumstances, conditions or 10 12 reasons which are likely to be the basis for revocation or suspension of any site assessment, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility. 3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of the Signing Date of the accounts and notes receivable of the Corporation from and advances to employees, former employees, officers, directors, the Shareholders and Affiliates of the foregoing. For purposes of this Agreement, the term "Affiliate" means, with respect to any person, any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such person, and in the case of a Corporation includes directors and officers, in the case of individuals includes the individual's spouse, father, mother, grandfather, grandmother, brothers, sisters, children and grandchildren and in the case of a trust includes the grantors, trustees and beneficiaries of the trust. 3.12 FIXED ASSETS AND REAL PROPERTY. (a) Schedule 3.12(a) lists, as of the Signing Date, substantially all the fixed assets (other than real estate) of each Corporation, including, without limitation, identification of each vehicle by description and serial number, identification of machinery, equipment and general descriptions of parts, supplies and inventory. Except as described on Schedule 3.12(a), all of the Corporation's containers, vehicles, machinery and equipment necessary for the operation of its business are in operable condition, and all of the motor vehicles and other rolling stock of each Corporation are in material compliance with all applicable laws, rules and regulations. All leases of fixed assets are in full force and effect and binding upon the parties thereto; neither the Corporation nor, to the knowledge of the Corporation or the Shareholders, any other party to such leases is in breach of any of the material provisions thereof. (b) Each parcel of real property leased, owned or being purchased by the Corporation as of the Signing Date (the "Corporate Property"), including the legal description and address thereof, is listed on Schedule 3.12(b) - Part I, and attached to said Schedule 3.12(b) - Part I are copies of all leases, deeds, outstanding mortgages, other encumbrances and title insurance policies or lawyer's title opinions relating to each Corporate Property, as well as a current commitment for title insurance issued by a title insurance company satisfactory to WCI with respect to each Corporate Property together with copies of all of the title exceptions referred to in said commitments. All leases listed on Schedule 3.12(b) - Part I are and shall be in full force and effect and binding on the parties thereto. Except as described on Schedule 3.12(b) - Part II, there are no material physical or mechanical defects in or any Facility located on any Corporate Property and each such Facility is in good condition and repair. (c) The Corporation has good, valid and marketable title to all properties and assets, real, personal, and mixed, tangible and intangible, actually used or necessary for 11 13 the conduct of its business, free of any encumbrance or charge of any kind except: (i) liens for current taxes not yet due; (ii) minor imperfections of title and encumbrances, if any, that are not substantial in amount, do not materially detract from the value of the property subject thereto, do not materially impair the value of the Corporation, and have arisen only in the ordinary course of business and consistent with past practice; and (iii) the liens identified on Part III of Schedule 3.8 (collectively, the "Permitted Liens"). Except as described on Schedule 3.12(b) - Part I, there are and as of the Closing Date will be no leases, occupancy agreements, options, rights of first refusal or any other agreements or arrangements, either oral or written, that create or confer in any person or entity the right to acquire, occupy or possess, now or in the future, any Facility, any Corporate Property, or any portion thereof, or create in or confer on any person or entity any right, title or interest therein or in any portion thereof. 3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on Schedule 3.13, since the Balance Sheet Date, the Corporation has not acquired or sold or otherwise disposed of any properties or assets which, singly or in the aggregate, have a value in excess of $10,000, or which are material to the operation of the Corporation's business as presently conducted, without the prior written consent of WCI. 3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. (a) Schedule 3.14(a) lists, as of the Signing Date, and includes copies of, all material contracts and agreements (other than leases included with Schedule 3.12(b) and documents included with Schedule 3.12(b)) to which the Corporation is a party or by which it or any of its property is bound (including, but not limited to, joint venture or partnership agreements, contracts with any labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements). Except as disclosed on Schedule 3.14(a), all such contracts and agreements included in Schedule 3.14(a) are and on the Closing Date shall be in full force and effect and binding upon the parties thereto. Except as described or cross referenced on Schedule 3.14(a), neither the Corporation nor, to the Corporation's or any of the Shareholders' knowledge, any other parties to such contracts and agreements is in breach thereof, and none of the parties has threatened to breach any of the material provisions thereof or notified the Corporation or any of the Shareholders of a default thereunder, or exercised any options thereunder. None of such contracts, agreements and licenses requires notice to, or consent or approval of, any third party to any of the transactions contemplated hereby, except such consents and approvals as are listed on Schedule 3.14(a). (b) Except as set forth on Schedule 3.14(b), there is no outstanding judgment, order, writ, injunction or decree against the Corporation, the result of which could materially adversely affect the Corporation or its business or any of the Corporate 12 14 Properties, nor has the Corporation been notified that any such judgment, order, writ, injunction or decree has been requested. 3.15 INSURANCE. Schedule 3.15 is a complete list and includes copies, as of the Signing Date, of all insurance policies in effect on the Signing Date or, with respect to "occurrence" policies that were in effect, carried by the Corporation in respect of the Corporate Properties or any other property used by the Corporation specifying, for each policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage, and the annual premium therefor. The Corporation currently carries insurance in the type and amount ordinarily carried by owners or corporations in similar circumstances, in respect to the Corporation' properties, assets and business. During the last five years, there has been no lapse in any material insurance coverage of the Corporation. For each insurer providing coverage for any of the contingent or other liabilities listed on Schedule 3.8, except to the extent otherwise set forth in Part II of Schedule 3.8, each such insurer, if required, has been properly and timely notified of such liability, no reservation of rights letters have been received by the Corporation and the insurer has assumed defense of each suit or legal proceeding. All such proceedings are fully covered by insurance, subject to normal deductibles. 3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the Signing Date, of all officers, directors and employees (by type or classification) of the Corporation and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, stock option, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non-union officers, directors and employees. Schedule 3.16 shall also lists the driver's license number for each driver of the Corporation's motor vehicles. 3.17 BENEFIT PLANS AND UNION CONTRACTS. (a) Schedule 3.17(a) is a complete list as of the Signing Date, and includes complete copies, of all employee benefit plans and agreements currently maintained or contributed to by the Corporation, including employment agreements and any other agreements containing "golden parachute" provisions, retirement plans, welfare benefit plans and deferred compensation agreements, together with copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Signing Date. Except for the employee benefit plans described on Schedule 3.17(a), the Corporation has no other pension, profit sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plans or arrangements with any party. Except as disclosed on Schedule 3.17(a), all employee benefit plans listed on Schedule 3.17(a) are and shall be fully funded and in substantial compliance with all applicable federal, state and local statutes, ordinances and regulations. All such plans that are intended to qualify under Section 401(a) of the Internal Revenue Code have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are included as part of Schedule 3.17(a). Except as disclosed on Schedule 3.17(a), all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) have been timely filed or distributed, and copies thereof are included as part of Schedule 13 15 3.17(a). All employee benefit plans listed on such Schedule have been operated in accordance with the terms and provisions of the plan documents and all related documents and policies. The Corporation has not incurred any liability for excise tax or penalty due to the Internal Revenue Service or U.S. Department of Labor nor any liability to the Pension Benefit Guaranty Corporation for any employee benefit plan, nor has the Corporation, nor party-in-interest or disqualified person, engaged in any transaction or other activity which would give rise to such liability. The Corporation has not participated in or made contributions to any "multi-employer plan" as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"), nor would the Corporation or any affiliate be subject to any withdrawal liability with respect to such a plan if any such employer withdrew from such a plan immediately prior to the Signing Date. No employee pension benefit plan is under funded on a termination basis as of the date of this Agreement. (b) Schedule 3.17(b) is a complete list, as of the Signing Date, and includes complete copies of all union contracts and agreements between the Corporation and any collective bargaining group. The Corporation is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice. There is no charge pending or, to the Corporation's or the Shareholders' knowledge, threatened, against the Corporation before any court or agency and alleging unlawful discrimination in employment practices and there is no charge of or proceeding with regard to any unfair labor practice against it pending before the National Labor Relations Board. There is no labor strike, dispute, slow down or stoppage as of the Signing Date, existing or threatened against the Corporation nor has the Corporation experienced any labor strike, slow-down, work stoppage, labor difficulty or other job action during the last five years. No union organizational activity exists respecting employees of the Corporation not currently subject to a collective bargaining agreement. The union contracts or other agreements delivered as part of Schedule 3.17(b) constitute all agreements with the unions or other collective bargaining groups, and there are no other arrangements or established practices relating to the employees covered by any collective bargaining agreement; and Schedule 3.17(b) will contain as of the date it is delivered a list of all arbitration or grievance proceedings that have occurred since the Balance Sheet Date. No one has petitioned within the last five years, and no one is now petitioning, for union representation of any employees of the Corporation. (c) No payment made to any employee, officer, director or independent contractor of the Corporation (the "Recipient") pursuant to any employment contract, 14 16 severance agreement or other arrangement (the "Golden Parachute Payment") will be nondeductible by the Corporation because of the application of Sections 280G and 4999 of the Code to the Golden Parachute Payment, nor will the Corporation be required to compensate any Recipient because of the imposition of an excise tax (including any interest or penalties related thereto) on the Recipient by reason of Sections 280G and 4999 of the Code. 3.18 TAXES. (a) The Corporation has timely filed or will timely file all requisite federal, state, local and other tax and information returns due for all fiscal periods ended on or before the date of this Agreement. All such returns are accurate and complete. Except as set forth on Schedule 3.18, there are no open years (other than those within the statute of limitations), examinations in progress, extensions of any statute of limitations or claims against the Corporation relating to federal, state, local or other taxes (including penalties and interest) for any period or periods prior to and including the Signing Date and no notice of any claim for taxes has been received. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal income, and state franchise, income and sales tax returns of the Corporation for its last three fiscal years are attached as part of Schedule 3.18. Copies of all other federal, state, local and other tax and information returns for all prior years of the Corporation's existence have been made available to WCI and are among the records of the Corporation which will accrue to WCI at the Closing. The Corporation has not been contacted by any federal, state or local taxing authority regarding a prospective examination. (b) Except as set forth on Schedule 3.18 (which schedule also includes the amount due with respect to such Corporation) the Corporation has duly paid all taxes and other related charges required to be paid prior to the date of this Agreement. The reserves for taxes contained in the Financial Statements of the Corporation are adequate to cover its tax liability as of the date of this Agreement. (c) The Corporation has withheld all required amounts from its employees for all pay periods in full and complete compliance with the withholding provisions of applicable federal, state and local laws. All required federal, state and local and other returns with respect to income tax withholding, social security, and unemployment taxes have been duly filed by the Corporation for all periods for which returns are due, and the amounts shown on all such returns to be due and payable have been paid in full. 3.19 COPIES COMPLETE. Except as disclosed on Schedule 3.19, the certified copies of the Articles of Incorporation and Bylaws of the Corporation, both as amended to the Signing Date, and the copies of all leases, instruments, agreements, licenses, permits, certificates or other documents that have been delivered to WCI in connection with the transactions contemplated hereby are complete and accurate as of the Signing Date and are true and correct 15 17 copies of the originals thereof. Except as specifically disclosed on Schedule 3.19, the rights and benefits of the Corporation will not be adversely affected by the transactions contemplated hereby, and the execution of this Agreement and the performance of the obligations hereunder will not violate or result in a breach or constitute a default under any of the terms or provisions thereof. None of such leases, instruments, agreements, licenses, permits, site assessments, certificates or other documents requires notice to, or consent or approval of, any governmental agency or other third party to any of the transactions contemplated hereby, except such consents and approvals as are or shall be listed on Schedule 3.19 and which will have been obtained prior to the Closing. 3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES. Schedule 3.20 is a current, accurate and complete list of, and includes: (a) the customers the Corporation serves on an ongoing basis, including name, location and current billing rate, as of the Signing Date; (b) an accurate and complete aging of all accounts and notes receivable from customers as of the last day of the month preceding the month in which such Schedule is delivered, showing amounts due in 30-day aging categories. Except to the extent of the allowance for bad debts reflected on the Financial Statements or otherwise disclosed on Schedules 3.11 and 3.20, the Corporation's accounts and notes receivable are and on the date such Schedule is delivered shall be collectible in the amounts shown on Schedules 3.11 and 3.20; and (c) the average monthly revenues of the Corporation derived from billings to its customers for each of the twelve months preceding the Signing Date. Except as set forth on Schedule 3.20, the Corporation and the Shareholders have no knowledge of any reason why the Corporation's average monthly revenues derived from billings to its customers after the Closing Date should not continue at approximately the same rate as before the Signing Date. 3.21 NO CHANGE WITH RESPECT TO CORPORATION. Except as set forth on Schedule 3.21, with respect to the Corporation, since the Balance Sheet Date, there has not been: (a) any change in its financial condition, assets, liabilities (contingent or otherwise), income, operations or business which would have a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise), income, operations or business of the Corporation, taken as a whole; (b) any damage, destruction or loss (whether or not covered by insurance) adversely affecting any material portion of its properties or business; 16 18 (c) any change in or agreement to change (i) its shareholders, (ii) ownership of its authorized capital or outstanding securities, or (iii) its securities; (d) any declaration or payment of, or any agreement to declare or pay, any dividend or distribution in respect of its capital stock or any direct or indirect redemption, purchase or other acquisition of any of its capital stock; (e) any increase or bonus or promised increase or bonus in the compensation payable or to become payable by it, in excess of usual and customary practices, to any of its directors, officers, employees or agents, or any accrual or arrangement for or payment of any bonus or other special compensation to any employee or any severance or termination pay paid to any of its present or former officers or other key employees; (f) any labor dispute or any other event or condition of any character, materially adversely affecting its business or future prospects; (g) any sale or transfer, or any agreement to sell or transfer, any of its material assets, property or rights to any other person, including, without limitation, the Shareholders and their Affiliates, other than in the ordinary course of business; (h) any cancellation, or agreement to cancel, any material indebtedness or other material obligation owing to it, including, without limitation, any indebtedness or obligation of any of the Shareholders or any Affiliate thereof; (i) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of its assets, property or rights or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (j) any purchase or acquisition of, or any agreement, plan or arrangement to purchase or acquire, any of its property, rights or assets outside the ordinary course of its business; (k) any waiver of any of its material rights or claims; (l) any new or any amendment or termination of any existing material contract, agreement, license, permit or other right to which it is a party; (m) any decline in the stockholders equity of the Corporation to an amount less than the stockholders equity of the Corporation as of the Balance Sheet Date; (n) any decline in the current assets of the Corporation to an amount less than the current assets of the Corporation as of the Balance Sheet Date; 17 19 (o) any increase in the amount of indebtedness owed by the Corporation to the Shareholders or their respective Affiliates; (p) any increase in the amount of indebtedness owed by the Shareholders or their Affiliates to any person other than the Corporation and secured by one or more Corporate Properties; (q) any decline in any indebtedness of the type described in Sections 3.21(o) and 3.21(p) other than reductions attributable to normal, recurring installment payments due in the ordinary course under the terms of the instruments governing such indebtedness; (r) any increase in the amount of aggregate indebtedness owed by the Shareholders or its Affiliate to the Corporation; or (s) any other transaction outside the ordinary course of its business. 3.22 DEBT; CURRENT ASSETS AND CURRENT LIABILITIES. (a) At the Closing, the Corporation shall prepare and deliver to WCI Schedule 3.22(a), which shall set forth (i) the amount of the aggregate debt (excluding trade payables) of the Corporation outstanding on the Closing Date required to be repaid by WCI at or immediately after the Closing Date, (ii) the amount of the debt (excluding trade payables) of the Corporation outstanding on the Closing Date which will remain outstanding obligations of either Corporation after the Closing Date, including in each case all interest accrued through and including the Closing Date and all prepayment penalties (other than prepayment penalties associated with any obligations due Bank of America Leasing Company) to be incurred by WCI in connection with the repayment of any such debt required to be repaid, (iii) the present value of all capitalized lease obligations (determined in accordance with generally accepted accounting principals) of the Corporation and (iv) the present value, discounted at the lease rate factor, if known, inherent in the lease or, if the lease rate factor is not known, at the rate charged to the Corporation by a third party lender in connection with its most recent borrowing to finance equipment, of all lease obligations of the Corporation that are not capitalized lease obligations (the "Closing Date Debt"). (b) At the Closing, the Corporation shall prepare and deliver to WCI Schedule 3.22(b), which shall set forth the amount of the aggregate current liabilities (excluding the current portion of long-term debt to the extent such current portion is included in Closing Date Debt) and trade payables of the Corporation as of the Closing Date (the "Closing Date Current Liabilities") and the amount of the aggregate current assets of the Corporation as of the Closing Date and the accounts receivable of the Corporation earned 18 20 prior to the Closing Date and collectible (less an allowance for doubtful accounts) on or after the Closing Date (the "Closing Date Current Assets"). 3.23 BANK ACCOUNTS. Schedule 3.23 is a complete and accurate list, as of the Signing Date, of: (a) the name of each bank in which the Corporation has accounts or safe deposit boxes; (b) the name(s) in which the accounts or boxes are held; (c) the type of account; and (d) the name of each person authorized to draw thereon or have access thereto. 3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24, the Corporation has materially complied with, and the Corporation is presently in material compliance with, federal, state and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to it (collectively "Laws"), including, but not limited to, Laws relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"). Except as disclosed on Schedule 3.24, there has been no assertion by any party that a Corporation is in material violation of any Laws. Specifically and without limiting the generality of the foregoing, except as disclosed on Schedule 3.24: (a) Except as permitted under applicable laws and regulations, including, without limitation, the federal Resource Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the Corporation has not accepted, processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined in Section 3.24(e) below) nor has it accepted, processed, handled, transferred, generated, treated, stored or disposed of asbestos, medical waste, radioactive waste or municipal waste, except in compliance with Environmental Laws. (b) During the Corporation's ownership or leasing of the Corporate Property owned or leased by it and, to the knowledge of the Corporation and the Shareholders, prior to the Corporation's ownership or leasing of such Corporate Property, no Hazardous Material, other than that allowed under Environmental Laws, including, without limitation, RCRA, has been disposed of, or otherwise released on any Corporate Property. (c) During the Corporation's ownership or leasing of the Corporate Property owned or leased by it and, to the knowledge of the Corporation and the Shareholders, 19 21 prior to the Corporation's ownership or leasing of such Corporate Property, no Corporate Property has ever been subject to or received any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, upon or emanating from any Corporate Property or any real property now or previously owned or leased by the Corporation. There are no pending and, to the Corporation's and Shareholders' knowledge, no threatened actions or proceedings from any governmental agency or any other entity involving remediation of any condition of the Corporate Property, including, without limitation, petroleum contamination, pursuant to Environmental Laws. (d) Except as allowed under Environmental Laws, the Corporation has not knowingly sent, transported or arranged for the transportation or disposal of any Hazardous Material, to any site, location or facility. (e) As used in this Agreement, "Hazardous Material" shall mean the substances (i) defined as "Hazardous Waste" in 40 CFR 261, and substances defined in any comparable California statute or regulation; (ii) any substance the presence of which requires remediation pursuant to any Environmental Laws; and (iii) any substance disposed of in a manner not in compliance with Environmental Laws. 3.25 POWERS OF ATTORNEY. The Corporation has not granted any power of attorney (except routine powers of attorney relating to representation before governmental agencies) or entered into any agency or similar agreement whereby a third party may bind or commit either Corporation in any manner. 3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule 3.26, no underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently or have been located on any Corporate Property. Except as set forth on Schedule 3.26, no Corporation has ever owned or leased any real property not included in the Corporate Property having any underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280. As to each such underground storage tank ("UST") identified on Schedule 3.26, the Corporation has provided to WCI, on Schedule 3.26: (a) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether the Corporation currently owns or leases the property on which the UST is located (and if the Corporation does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (b) the date of installation and specific use or uses of the UST; 20 22 (c) copies of tank and piping tightness tests and cathodic protection tests and similar studies or reports for each UST; (d) a copy of each notice to or from a governmental body or agency relating to the UST; (e) other material records with regard to the UST, including, without limitation, repair records, financial assurance compliance records and records of ownership; and (f) to the extent not otherwise set forth pursuant to the above, a summary description of instances, past or present, in which, to the Corporation's, or the Shareholders' knowledge, the UST failed to meet applicable standards and regulations for tightness or otherwise and the extent of such failure, and any other operational or environmental problems with regard to the UST, including, without limitation, spills, including spills in connection with delivery of materials to the UST, releases from the UST and soil contamination. Except to the extent set forth on Schedule 3.26, the Corporation has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of any UST described on Schedule 3.26. 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists all patents, tradenames, trademarks, service marks, and copyrights owned by the Corporation or which it is licensed to use (other than licenses to use software for personal computer operating systems that are provided when the computer is purchased and licenses to use software for personal computers that are granted to retail purchasers of such software). No patents, trade secrets, know-how, intellectual property, trademarks, trade names, assumed names, copyrights, or designations used by the Corporation in its business infringe on any patents, trademarks, or copyrights, or any other rights of any person. Neither the Corporation nor any of the Shareholders knows or has any reason to believe that there are any claims of third parties to the use of any such names or any similar name, or knows of or has any reason to believe that there exists any basis for any such claim or claims. 3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or leases all properties and assets, real, personal, and mixed, tangible and intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(c), 3.14(a) and 3.19, is a party to all Collection Franchises and Governmental Permits and other agreements necessary to permit it to carry on its business as presently conducted. All of said Collection Franchises and Governmental Permits and agreements have been duly obtained and, except as disclosed on Schedules 3.5, 3.8-Part II, 3.10(a), 3.10(c) 3.14(a) and 3.19, are in full force and effect and there are no proceedings pending or threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the Corporation nor any of the Shareholders has any 21 23 knowledge of any reason why all such Collection Franchises and Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. 3.29 CONDEMNATION. No Corporate Property owned or leased by the Corporation is the subject of, or would be affected by, any pending condemnation or eminent domain proceedings, and, to the knowledge of the Corporation and the Shareholders, no such proceedings are threatened. 3.30 SUPPLIERS AND CUSTOMERS. The relations between the Corporation and its customers are good. Neither the Corporation nor any of the Shareholders has knowledge of any fact (other than general economic and industry conditions) which indicates that any of the suppliers supplying products, components, materials or providing use of, or access to, landfills or disposal sites to the Corporation intends to cease providing such items to the Corporation, nor does the Corporation or any of the Shareholders have knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of a Corporation intends to terminate, limit or reduce its business relations with the Corporation. 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Corporation nor any of the Shareholders or Alma has directly or indirectly within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of a Corporation in connection with any actual or proposed transaction which (a) might subject a Corporation to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (b) if not given in the past, might have had an adverse effect on the financial condition, business or results of operations of the Corporation, or (c) if not continued in the future, might adversely affect the financial condition, business or operations of the Corporation or which might subject the Corporation to suit or penalty in any private or governmental litigation or proceeding. 3.32 RELATED PARTY TRANSACTIONS. Since January 1, 1992, none of the Shareholders or Alma nor their respective Affiliates has entered into any transaction with or is a party to any agreement, lease or other instrument, or as of the date of this Agreement is indebted to or is owed money by, the Corporation not disclosed on the Financial Statements (with respect to the period since January 1, 1995) or on the financial statements of a Corporation for each of the years ended December 31, 1992, 1993 and 1994 delivered to WCI prior to the date of this Agreement. Except as disclosed in the Financial Statements or such financial statements, none of the Shareholders or Alma nor their Affiliates owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee, shareholder or partner of, or consultant to or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Corporation. 3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by 22 24 cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 3.34 NO MISLEADING STATEMENTS. The representations and warranties of the Corporation, the Shareholders and Alma contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to WCI and its representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading. 3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books, stock ledgers, books, ledgers, financial records and other records of the Corporation: (a) have been made available to WCI and its agents at the Corporation's offices or at the offices of WCI's attorneys or the Corporation's attorneys; (b) have been, in all material respects, maintained in accordance with all applicable laws, rules and regulations; and (c) are accurate and complete, reflect all material corporate transactions required to be authorized by the Boards of Directors and/or shareholders of the Corporation and do not contain or reflect any material discrepancies. 3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the "knowledge" of the Shareholders, such term means the actual knowledge of the Shareholders or any knowledge which should have been obtained by the Shareholders upon reasonable inquiry by a reasonable business person. In the case of a Shareholder that is a trust, the term "knowledge" means the actual knowledge of the trustee or trustees of the trust or any knowledge which should have been obtained by the trustee or trustees upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" of the Corporation, such term means the actual knowledge of any management employee, officer or director of the Corporation or any knowledge which should have been obtained by any such person upon reasonable inquiry by a reasonable business person. 3.37 BROKERS; FINDERS. No person has acted directly or indirectly as a broker, finder or financial advisor for the Corporation or the Shareholders in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Corporation or the Shareholders. 3.38 INVESTMENT REPRESENTATIONS. The Shareholders further represent that: 23 25 (a) Each of the Shareholders is an "accredited investor" as defined in Rule 501(a) under the Securities Act of 1933, as amended (the "Act"). Each of the Shareholders has such knowledge and experience in financial matters, either alone or with the Shareholder's professional advisors, that he or she is capable of evaluating the merits and risks of the investment in the Securities. (b) Each is a resident of the State of California. (c) Each of the Shareholders has had access to such information relating to WCI as such Shareholder feels is reasonably necessary to make an informed investment decision with respect to the Shares, and the Warrants (collectively, together with shares of WCI Stock issuable on exercise of the Warrants and any additional shares of WCI Stock issued pursuant to Section 1.3(c), the "Securities"). (d) Each of the Shareholders has had the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain additional information that WCI possesses or can obtain without unreasonable effort or expense that is necessary to verify the accuracy of the information provided. (e) Each of the Shareholders is acquiring the Securities pursuant to this Agreement for its own account, not as a nominee or agent. No one else has any interest, beneficial or otherwise, in any of the Securities. (f) Each of the Shareholders is able to bear the economic risk of such an investment in the Securities is aware that he, she or it must be prepared to hold such Securities for an indefinite period and is aware that the Securities have not been registered under the Act, or registered or qualified under the California Corporate Securities Law of 1968, as amended (the "Law"), or any other securities law, on the ground, among others, that no unregistered distribution or public offering of Securities is to be effected and the are being issued by WCI without any public offering within the meaning of section 4(2) of the Act. (g) Without in any way limiting the representations herein, each of the Shareholders further agrees that such Shareholder shall not encumber, pledge, hypothecate, sell, transfer, assign or otherwise dispose of, or receive any consideration for, any shares of the Securities or any interest in them, unless and until prior to any proposed encumbrance, pledge, hypothecation, sale, transfer, assignment or other disposition, (i) a registration statement on Form S-1 or S-3 (or any other form appropriate for the purpose or replacing such form) under the Act with respect to the shares proposed to be transferred or otherwise disposed of shall be then effective (ii)(a) he, she or it shall have furnished WCI with a detailed statement of the circumstances of the proposed disposition, and (b) he, she or it shall have furnished WCI with an opinion of counsel or 24 26 no-action letter issued by the Staff of the Securities and Exchange Commission ("SEC") (obtained at the Shareholders' expense) in form and substance satisfactory to WCI to the effect that such disposition will not require registration of any such Securities under the Act or qualification of any such shares under any other securities law; or (iii) Rule 144 is available with respect to such transaction. (h) Each of the Shareholders understands and agrees that each certificate or other instrument representing the Securities will bear a legend on the face thereof (or on the reverse thereof with a reference to such legend on the face thereof) which legend restricts the sale, transfer or other disposition of the Securities otherwise than in accordance with Sections 3.38(g) of this Agreement provided, however, that WCI shall, on the request of any of the Shareholders, cause such legends to be removed from the certificates or other instrument evidencing the Securities if such Shareholder has held such Securities for the period contemplated by Rule 144(k) under the Act and if the Shareholder is not then and has not been during the three months preceding such request an affiliate of WCI (as defined in Rule 144 under the Act). (i) Each of the Shareholders understands and agrees that the Securities will be "restricted securities" as that term is defined in Rule 144 under the Act and, accordingly, that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. (j) The Shareholders agree to be bound with respect to the Securities by any "lock up" provisions to which the executive officers and directors of WCI are also bound as may be requested by any underwriters of any offering of WCI Stock or securities convertible into WCI Stock. 3.39 MADERA COUNTY LANDFILL OPERATION. Any costs, expenses or liabilities associated with, or arising from, the closure of the landfills operated by the Corporation for Madera County, California, are the responsibility of Madera County. 4. REPRESENTATIONS AND WARRANTIES OF WCI WCI represents and warrants to the Shareholders that each of the following representations and warranties is true as of the date of this Agreement and will be true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: 4.1 EXISTENCE AND GOOD STANDING. WCI is a Corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article, document or instrument to which WCI is a party or by which it is bound which would be violated by consummation of the transactions contemplated by this Agreement. 25 27 4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, executed and delivered by WCI and, subject to the due authorization, execution and delivery by the Shareholders, constitutes a legal, valid and binding obligation of WCI. WCI has full corporate power, legal right and corporate authority to enter into and perform its obligations under this Agreement and to carry on its business as presently conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to WCI; (b) conflict with any of the provisions of the Certificate of Incorporation or Bylaws of WCI; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which WCI is a party or by which it is bound. 4.4 STATUS OF SHARES. When delivered to the Shareholders at the Closing in accordance with the terms and conditions of this Agreement, the Shares shall have been duly authorized and delivered shares of WCI, and shall be fully paid and nonassessable. 4.5 NO MISLEADING STATEMENTS. The representations and warranties of WCI contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to the Shareholders pursuant hereto are materially complete and accurate, and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading as of the Closing Date. 4.6 BROKERS; FINDERS. No person has acted directly or indirectly as a broker, finder or financial advisor for WCI in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of WCI. 4.7 DISCLOSURE SCHEDULES. Any matter disclosed by WCI on any Schedule to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 5. COVENANTS FROM SIGNING TO CLOSING DATE 5.1 OPERATIONS. Between the Signing Date and the Closing Date, the Corporation will, and the Shareholders will cause the Corporation to: (a) carry on its business in substantially the same manner as it has heretofore and not introduce any material new method, or discontinue any existing material method, of operation or accounting; 26 28 (b) maintain its properties and facilities, including those held under leases, in as good working order and condition as at present, ordinary wear and tear excepted; (c) perform all of its material obligations under agreements relating to or affecting its assets, properties, business operations and rights; (d) keep in full force and effect present insurance policies or other comparable insurance coverage; (e) use its best efforts to maintain and preserve its business organization intact, retain its present employees and maintain its relationship with suppliers, customers and others having business relations with it; (f) file on a timely basis all notices, reports or other filings required to be filed with or reported to any federal, state, municipal or other governmental department, commission, board, bureau, agency or any instrumentality of any of the foregoing wherever located with respect to the continuing operations of the Corporation; (g) maintain material compliance with all Collection Franchises and Governmental Permits and all laws, rules, regulations and consent orders; (h) file on a timely basis all complete and correct applications or other documents necessary to maintain, renew or extend any site assessment, permit, license, variance or any other approval required by any governmental authority necessary and/or required for the continuing operation of the Corporation's business operations, whether or not such approval would expire before or after the Closing; and (i) advise WCI promptly in writing of any material change in any document, Schedule, Exhibit, or other information delivered pursuant to this Agreement. 5.2 NO CHANGE. Between the Signing Date and the Closing Date, the Corporation will not, and the Shareholders will not permit the Corporation to, take any action described below without the prior written consent of WCI: (a) make any change in its Articles of Incorporation or Bylaws; (b) authorize, issue, transfer or distribute any securities; (c) declare or pay any dividend or make any distribution in respect of its capital stock whether now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire for value any shares of its capital stock; 27 29 (d) enter into any contract or commitment or incur or agree to incur any liability other than in the ordinary course of business other than the transactions contemplated by this Agreement or make any single capital expenditure in excess of $10,000 or in excess of $25,000 in the aggregate during any consecutive thirty (30) day period without regard to whether such capital expenditure is in the ordinary course of business; (e) except as set forth on Schedule 3.16, change or promise to change the compensation payable or to become payable to any director, officer, employee or agent, or make or promise to make any bonus payment to any such person; (f) create, assume or otherwise permit the imposition of any mortgage, pledge or other lien or encumbrance upon or grant any option or right of first refusal with respect to any assets or properties whether now owned or hereafter acquired; (g) sell, assign, lease or otherwise transfer or dispose of any property or equipment other than in the ordinary course of business; (h) merge or consolidate or agree to merge or consolidate with or into any firm, corporation or other entity; (i) waive any material rights or claims; (j) amend or terminate any material agreement or any site assessment, permit, license or other right; (k) enter into any other transaction outside the ordinary course of the Corporation's business or prohibited hereunder; or (l) take any action or suffer or permit any event to occur that would cause any representation or warranty of the Corporation or the Shareholders to become untrue as of the Closing Date. 5.3 OBTAIN CONSENTS. Promptly after the execution of this Agreement, the Corporation will, and the Shareholders shall cause the Corporation to, make all filings and take all steps reasonably necessary to obtain all other approvals and consents required to be obtained by the Corporation or the Shareholders to consummate the transactions contemplated by this Agreement and otherwise to satisfy the conditions of Sections 6.7. 5.4 ACCESS; CONFIDENTIAL INFORMATION. Between the Signing Date and the Closing Date, the Shareholders and the Corporation will, and the Shareholders will cause the Corporation to, afford to the officers and authorized representatives of WCI, including, without limitation, its engineers, counsel, independent auditors and investment bankers, access to the Facilities, plants, 28 30 Corporate Properties and other properties, books and records of the Corporation, and will furnish WCI with such additional financial and operating data and other information as to the business and properties of the Corporation as WCI may from time to time reasonably request. The Shareholders will and will cause the Corporation to cooperate with WCI, its representatives and counsel in the preparation of any documents or other material which may be required by any governmental agency. WCI will cause all information obtained from the Shareholders and the Corporation in connection with the negotiation and performance of this Agreement which the Shareholders or the Corporation have stamped or otherwise marked as confidential to be treated as confidential (except such information which is in the public domain or which WCI may be required to disclose to any governmental agency, or pursuant to any court or regulatory agency order) and will not use, and will not knowingly permit others to use, any such confidential information in a manner detrimental to the Corporation or the Shareholders. The Corporation will not, and the Shareholders will not and will cause the Corporation not to, disclose to any third persons other than their accountants, bankers or legal counsel any of the terms or provisions of this Agreement prior to or after the Closing Date without the prior written consent of WCI. 5.5 NOTICE OF MATERIAL ADVERSE CHANGE. WCI shall promptly notify the Shareholders' Representative of any material adverse change in its business or financial condition between the Signing Date and the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI TO CLOSE The obligations of WCI under this Agreement are subject to the satisfaction, at or before Closing, of all of the following conditions precedent, unless waived in writing by WCI: 6.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Corporation and the Shareholders contained in this Agreement or in any statement, Exhibit, Schedule, certificate or document delivered by the Corporation or the Shareholders under this Agreement shall be true, correct and complete on and as of the date when made and at all times prior to the Closing Date, shall be deemed to be made again on the Closing Date, and shall then be true, correct and complete in all material respects as of the Closing Date. 6.2 CONDITIONS. The Corporation and the Shareholders shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by them on or before the Closing Date. 6.3 NO MATERIAL ADVERSE CHANGE. Since the Signing Date, there shall not have been any material adverse change in the condition (financial or otherwise), business, properties or assets of the Corporation. 6.4 CERTIFICATES. The President of the Corporation shall have delivered to WCI a certificate, dated as of the Closing Date, in form and substance satisfactory to WCI, certifying to 29 31 the fulfillment of the conditions set forth in Sections 6.1, 6.2 and 6.3, and the Shareholders shall have delivered to WCI a certificate dated as of the Closing Date, in form and substance satisfactory to WCI, certifying to the fulfillment of the conditions set forth in Section 6.1, 6.2 and 6.3 applicable to the Shareholders. 6.5 NO LITIGATION. None of the transactions contemplated hereby shall have been enjoined by any court or by any federal or state governmental branch, agency, commission or regulatory authority and no suit or other proceeding challenging the transactions contemplated hereby shall have been threatened or instituted and no investigative or other demand shall have been made by any federal or state governmental branch, agency, commission or regulatory authority. 6.6 OTHER DELIVERIES. The Shareholders shall have delivered the items which they are required to deliver under Section 8 of this Agreement. 6.7 GOVERNMENTAL APPROVALS; CONSENTS TO TRANSFER. All governmental consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received, and each other party whose consent is required to the transactions contemplated by this Agreement, including without limitation (if applicable) each party to any contract with the Corporation, each municipality or other jurisdiction that has granted a franchise to the Corporation and each jurisdiction issuing or granting any other Governmental Permit, shall have consented to such transactions, and every other Required Governmental Consent shall have been obtained. 6.8 RELEASE OF SECURITY INTERESTS. All security interests in assets of the Corporation that have been created in favor of financial institutions or other lenders to secure indebtedness of the Shareholders or their Affiliates shall have been released. 6.9 DUE DILIGENCE. WCI shall have reviewed all of the schedules to this Agreement and all documents related to the Corporation's 401(k) plan, and all such schedules and documents shall be satisfactory to WCI or any problems reflected in, or indicated by, such schedules or documents shall have been resolved to the satisfaction of WCI. 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS TO CLOSE The obligations of the Shareholders under this Agreement are subject to the satisfaction, at or before Closing, of all of the following conditions precedent, unless waived in writing by the Shareholders: 7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of WCI contained in this Agreement or in any statement, Exhibit, Schedule, certificate or document delivered by WCI under this Agreement shall be true, correct and complete on and as of the date 30 32 when made and at all times prior to the Closing Date, shall be deemed to be made again on the Closing Date, and shall then be true, correct and complete in all respects as of the Closing Date. 7.2 CONDITIONS. WCI shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by it on or before the Closing Date. 7.3 CERTIFICATE. WCI shall have delivered to the Shareholders a certificate, dated as of the Closing Date, in form and substance satisfactory to the Shareholders, certifying to the fulfillment of the conditions set forth in Sections 7.1 and 7.2. 7.4 NO LITIGATION. None of the transactions contemplated hereby shall have been enjoined by any court or by any federal or state governmental branch, agency, commission or regulatory authority and no suit or other proceeding challenging the transactions contemplated hereby shall have been threatened or instituted and no investigative or other demand shall have been made by any federal or state governmental branch, agency, commission or regulatory authority. 7.5 OTHER DELIVERIES. WCI shall have delivered the items which it is required to deliver under Section 8 of this Agreement. 7.6 ELECTION OF DIRECTOR AND ADVISORY DIRECTOR. At the Closing, a nominee of the Shareholders, who shall be one of Dupreau, Youngclaus and Dias, shall be elected to the Board of Directors of WCI for a term of one year. In addition, a nominee of the Shareholders, who shall be one of Dupreau, Youngclaus and Dias and who is not elected to the Board of Directors of WCI pursuant to the preceding sentence, shall be an advisory director of WCI for a period of one year from the Closing Date, with the right to attend meetings of the Board of Directors of WCI at WCI's expense, but without authority to vote on any matter. 8. CLOSING DELIVERIES At the Closing, the respective parties shall make the deliveries indicated: 8.1 WCI DELIVERIES. (a) WCI shall deliver the cash portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.2(a). (b) WCI shall deliver to Dupreau, Dias and Youngclaus certificates for the Shares. (c) WCI shall deliver to Dupreau, Dias and Youngclaus the Warrants. 31 33 (d) WCI shall deliver to the Procuring Shareholders any payments due pursuant to Sections 1.3 (a)-(d). (e) WCI shall execute and deliver an Employment Agreement with Dupreau and Youngclaus substantially in the form of the draft included in Exhibit 8.1(e). (f) WCI shall execute and deliver the Consulting Agreement with Dias, substantially in the form of the draft included in Exhibit 8.1(f) with such changes therein as shall be applicable. (g) WCI shall execute and deliver the Investors' Rights Agreement, as amended, then in effect between WCI and its stockholders. (h) WCI shall execute and deliver the Stockholders Agreement with each Shareholder substantially in the form of Exhibit 8.1(h). 8.2 SHAREHOLDERS DELIVERIES. (a) The Shareholders shall deliver to WCI the certificates representing the outstanding Corporation's Stock free and clear of all liens, security interests, claims and encumbrances, accompanied by a stock power duly executed in blank. (b) The Shareholders shall deliver to WCI Uniform Commercial Code financing statement searches from the State of California, dated within thirty (30) days prior to the Closing Date, with an unofficial update on the Closing Date obtained from Information America or another reporting service, showing that there are no security interests, judgments, taxes, other liens or encumbrances outstanding against the Corporation or its assets, other than as disclosed on Part III of Schedule 3.8. (c) the Shareholders shall deliver to WCI an opinion of counsel for the Shareholders, dated as of the Closing Date, in substantially the form attached hereto as Exhibit 8.2(c). (d) the Shareholders shall execute and deliver such other documents and instruments as are reasonably requested by WCI in order to consummate the transactions contemplated by this Agreement. (e) The Corporation shall deliver to WCI evidence satisfactory to WCI showing that all written employment contracts and all oral employment contracts other than those that are terminable "at will" without payment of severance (other than normal severance benefits approved by WCI) or other benefits with non-union employees of the Corporation (including, without limitation, stock options or other rights to obtain equity in the Corporation) have been terminated, effective on or before the Closing Date. 32 34 (f) The Shareholders shall execute and deliver, and shall cause each officers and director of the Corporation who is not a Shareholder to execute and deliver, a release substantially in the form of Exhibit 8.2(f). (g) Each Shareholder shall execute and deliver the Investors' Rights Agreement. (h) Each Shareholder shall execute and deliver the Stockholders Agreement substantially in the form of Exhibit 8.1(h). 9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS 9.1 NO DELAY. The Corporation, the Shareholders and WCI covenant and agree from and after the date hereof not to hinder in any way or unreasonably delay the Closing Date and to use their respective reasonable efforts to obtain required Governmental Consents and otherwise to cause the Closing Date to occur as soon as reasonably practicable after the Signing Date, provided, however, that in using its reasonable efforts WCI shall not be required to take any action or to agree to any condition, including without limitation any condition imposed by any government authority with respect to the transfer of any Governmental Permit, that, in WCI's reasonable judgment, imposes a materially adverse financial burden or operating condition on WCI. 9.2 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to obtain the termination and release on or prior to the Closing Date of the personal guaranties of the Shareholders of any indebtedness of the Corporation included in the Financial Statements as of the Balance Sheet Date or WCI shall indemnify the Shareholders and hold them harmless from and against all losses, expenses or claims by third parties to enforce or collect indebtedness owed by the Corporation as of the Closing Date which is personally guaranteed by the Shareholders pursuant to such guaranties. The Shareholders shall cooperate with WCI in obtaining such releases. 9.3 RELEASE OF SECURITY INTERESTS. Between the Signing Date and the Closing Date, the Shareholders and their respective Affiliates shall cause those security interests in the assets of the Corporation that have been created in favor of financial institutions or other lenders to secure indebtedness (other than indebtedness of the Corporation) of the Shareholders or their respective Affiliates to be released in a manner reasonably satisfactory to WCI, and shall cause all guaranties by the Corporation relating to the indebtedness of the Shareholders to be released to the reasonable satisfaction of WCI. 9.4 CONFIDENTIALITY. Neither the Corporation nor any of the Shareholders shall disclose or make any public announcements of the transactions contemplated by this Agreement 33 35 without the prior written consent of WCI, unless required to make such disclosure or announcement by law, in which event the party making the disclosure or announcement shall notify WCI at least 24 hours before such disclosure or announcement is expected to be made. WCI shall not disclose or make any public announcement of the transactions contemplated by this Agreement without the prior written consent of the Shareholders' Representative, unless in connection with the IPO or otherwise required to make such disclosure or announcement by law, in which event WCI shall notify the Shareholders' Representative at least 24 hours before such disclosure or announcement is expected to be made. 9.5 BROKERS AND FINDERS FEES. Each party shall pay and be responsible for any broker's, finder's or financial advisory fee incurred by such party in connection with the transactions contemplated by this Agreement. 9.6 TAXES. WCI shall reasonably cooperate, at the expense of the Shareholders, with the Shareholders with respect to any matters involving the Shareholders arising out of the Shareholders' ownership of the Corporation prior to the Closing, including matters relating to tax returns and any tax audits, appeals, claims or litigation with respect to such tax returns or the preparation of such tax returns. In connection therewith, WCI shall make available to the Shareholders such files, documents, books and records of the Corporation for inspection and copying as may be reasonably requested by the Shareholders and shall cooperate with the Shareholders with respect to retaining information and documents which relate to such matters. 9.7 SHORT YEAR TAX RETURNS. After the Closing Date, the Shareholders shall prepare at their sole cost and expense, all short year federal, state, county, local and foreign tax returns required by law for the period beginning with the first day of each Corporation's fiscal year in which the Closing occurs and ending with the Closing Date. Each such return shall be prepared in a financially responsible and conservative manner and shall be delivered to WCI together with all necessary supporting schedules within 120 days following the Closing Date for its approval (but such approval shall not relieve the Shareholders of their responsibility for the taxes assessed under these returns). The Shareholders shall be responsible for the payment of all taxes shown to be due or that may come to be due on such returns. The Shareholders shall also be responsible for all taxes arising from the conversion of the Corporation from a cash to accrual basis of reporting whether or not due on such returns or on the first return filed by the Corporation for the period commencing after the Closing Date. At the time of the delivery of the returns, shall contemporaneously deliver to WCI checks payable to the respective taxing authorities in amounts equal to the amount due. WCI shall sign tax returns and cause such returns to be timely filed with the appropriate authorities. The Shareholders shall be entitled to receive all refunds shown on said returns and any such refunds received by the Corporation or WCI shall be remitted to the Shareholders. 9.8 SHAREHOLDERS' REPRESENTATIVE. 34 36 (a) In order to administer efficiently the rights and obligations of the Shareholders under this Agreement, the Shareholders hereby designate and appoint Dupreau as the Shareholders' Representative, to serve as the Shareholders' agent, proxy and attorney-in-fact for the limited purposes set forth in this Agreement. (b) Each of the Shareholders hereby appoints the Shareholders' Representative as such Shareholder's agent, proxy and attorney-in-fact, with full power of substitution, for all purposes set forth in this Agreement, including, without limitation, the full power and authority on such Shareholder's behalf (i) to consummate the transactions contemplated by this Agreement, (ii) to disburse any funds received hereunder to the Shareholders, (iii) to execute and deliver on behalf of each Shareholder any amendment or waiver under this Agreement, to agree to the amount of the actual Closing Date Debt, Closing Date Current Assets and Closing Date Current Liabilities pursuant to Section 1.2(a), and to agree to resolution of all Claims hereunder, (iv) to retain legal counsel and other professional services, at the expense of the Shareholders, in connection with the performance by the Shareholders' Representative of this Agreement, and (v) to do each and every act and exercise any and all rights which such Shareholder or Shareholders are permitted or required to do or exercise under this Agreement and the other agreements, documents and certificates executed in connection herewith. Each of the Shareholders agrees that such agency and proxy are coupled with an interest, are therefore irrevocable without the consent of the Shareholders' Representative and shall survive the death, bankruptcy or other incapacity of any Shareholder. (c) Each of the Shareholders hereby agrees that any amendment or waiver under this Agreement, and any action taken on behalf of the Shareholders to enforce the rights of the Shareholders under this Agreement, and any action taken with respect to any adjustment or Claim (including any action taken to object to, defend, compromise or agree to the payment of such adjustment or Claim), shall be effective if approved in writing by the Shareholders' Representative and the holders of a majority of the Corporation's Stock (including any Corporation's Stock held by the Shareholders' Representative), or, in the case of any amendment or waiver made or given or action taken after the Closing, if so approved by persons who were the holders of a majority of the Corporation's Stock immediately prior to the Closing, and that each and every action so taken shall be binding and conclusive on every Shareholder, whether or not such Shareholder had notice of, or approved, such amendment or waiver. (d) Dupreau shall serve as the Shareholders' Representative until he resigns or is otherwise unable or unwilling to serve. In the event that a Shareholders' Representative resigns from such position or is otherwise unable or unwilling to serve, the remaining Shareholders shall select, by the vote of the holders of a majority of the Corporation's Stock immediately prior to the Closing, a successor representative to fill such vacancy, shall provide prompt written notice to WCI of such change and such 35 37 substituted representative shall then be deemed to be the Shareholders' Representative for all purposes of this Agreement. 9.9 CERTAIN TAX MATTERS. The Shareholders acknowledge that WCI has indicated its intention to make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. The Shareholders agree that WCI, in its discretion, may make such election; provided, however, that such election shall be made no later than the due date for such election. If such election is made by WCI: (a) WCI shall be authorized to complete Form 8023-A; (b) The Shareholders shall sign such completed Form 8023-A at the Closing; and (c) WCI and the Shareholders shall agree upon the allocation of the Purchase Price among the assets (including intangible assets) of the Corporation. (d) If WCI does make its election under Section 338(h)(10) of the Internal Revenue Code of 1986 as amended, WCI shall reimburse the Shareholders and the Corporation for any additional taxes, penalties, interest and costs of preparation of amended income tax returns incurred due to such election resulting from the recapture of depreciation previously taken on various assets of the Corporation at ordinary income instead of capital gain rates. Such reimbursement shall be in a sum computed by a simultaneous equation computing the additional tax owed by stockholders, as well as the tax on the payment of that sum. 10. INDEMNIFICATION 10.1 INDEMNITY BY THE SHAREHOLDERS. The Shareholders and Alma jointly and severally, subject to the limitations set forth in Section 10.2, covenant and agree that they will indemnify and hold harmless WCI, the Corporation and their respective directors, officers and agents and their respective successors and assigns (collectively the "WCI Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, including, without limitation, any "Environmental Site Losses" (as such term is hereinafter defined) identified by a WCI Indemnitee in a Claims Notice (as defined in Section 10.3(a)), or asserted by a WCI Indemnitee in litigation commenced against the Shareholders provided that in either case any such Claims Notice shall be given or the litigation commenced prior to the third anniversary of the date of filing of the Corporation's federal and California income tax returns for the fiscal year ending on the Closing Date or, in the case of fraud, expiration of the applicable statute of limitations, with respect to each of the following contingencies (all, the "10.1 Indemnity Events"): 36 38 (a) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant on the part of the Shareholders or the Corporation pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument furnished or to be furnished to WCI pursuant to the terms of this Agreement, regardless of whether, in the case of a breach of a representation or a warranty, WCI relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (b) The design, development, construction or operation of any Facility or any other "Environmental Site" as hereinafter defined, or the installation or operation of a UST during any period on or prior to the Closing Date, in excess of the amount of liability with respect thereto, if any, set forth on Part II of Schedule 3.8. As used in this Agreement, "Environmental Site" shall mean any Facility, any UST and any other waste storage, processing, treatment or disposal facility, and any other business site or any other real property owned, leased, controlled or operated by the Corporation or by any predecessor thereof on or prior to the Closing Date, provided however, as to activities of such predecessors, only to the extent that the Corporation or the Shareholders had knowledge of such activities. As used in this Agreement, "Environmental Site Losses" shall mean any and all losses, damages (including exemplary damages and penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures (including, without limitation, expenses in connection with site evaluations, risk assessments and feasibility studies) arising out of or required by an interim or final judicial or administrative decree, judgment, injunction, mandate, interim or final permit condition or restriction, cease and desist order, abatement order, compliance order, consent order, clean-up order, exhumation order, reclamation order or any other remedial action that is required to be undertaken under federal, state or local law in respect of operating activities on or affecting any Facility, any UST or any other Environmental Site, including, but not limited to (x) any actual or alleged violation of any law or regulation respecting the protection of the environment, including, but not limited to, RCRA and CERCLA or any other law or regulation respecting the protection of the air, water and land and (y) any remedies or violations, whether by a private or public action, alleged or sought to be assessed as a consequence, directly or indirectly, of any "Release" (as defined below) of pollutants (including odors) or Hazardous Substances from any Facility, any UST or any other Environmental Site resulting from activities thereat, whether such Release is into the air, water (including groundwater) or land and whether such Release arose before, during or after the Closing Date. The term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the ambient environment. Notwithstanding anything in this paragraph to the contrary, it is specifically understood and agreed that a Release composed solely of Hazardous Substances contained in household waste lawfully disposed of in a landfill during the time a Corporation owned and/or operated such landfill does not constitute an Environmental Site Loss. 37 39 (c) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any of the foregoing. To the extent not covered by the Company's insurance, all matters on Schedule 3.8, Part II. 10.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES. (a) Subject to Section 10.2(b), the obligations of the Shareholders to indemnify the WCI Indemnitees as provided in Section 10.1 shall be equal to the amount by which the cumulative amount of all such liabilities, claims, damages deficiencies, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses, expenditures and Environmental Site Losses with respect to any or all 10.1 Indemnity Events exceed $100,000 (the "Deductible Amount"); provided, that the amount of any obligation of indemnity arising pursuant to Section 10.1 with respect to any representation, warranty or covenant contained in Sections 3.1 through 3.5, 3.18 and 3.22 hereof shall not be subject to the Deductible Amount. (b) Absent fraud, the maximum amount which WCI can recover as a result of one or more 10.1 Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed six million dollars ($6,000,000) with respect to Claims made prior to the first anniversary of the Closing Date, five million dollars ($5,000,000) with respect to Claims on or after the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, four million dollars ($4,000,000) with respect to Claims made on or after the second anniversary of the Closing Date and prior to the third anniversary of the filing of the Corporation's federal and California income tax returns for the fiscal year ending on the date of the Closing Date, and thereafter nothing in the absence of fraud. 38 40 10.3 NOTICE OF INDEMNITY CLAIM. (a) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any WCI Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, the WCI Indemnitee shall notify the Shareholders (as applicable collectively, the "Indemnifying Party") in writing thereof (the "Claims Notice") within 60 days after (i) receipt of written notice of commencement of any third party litigation against such WCI Indemnitee, (ii) receipt by such WCI Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such WCI Indemnitee, or (iii) such WCI Indemnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the WCI Indemnitee. (b) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) do not exceed the limit set forth in Section 10.2 at the time the Claim is made, by the Indemnifying Party's own counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify the WCI Indemnitee with respect to such action. The WCI Indemnitee may participate, at the WCI Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of the WCI Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (c) If, within thirty (30) days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 10.3(b) and elected to defend the Claim, the WCI Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees, shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within thirty (30) days reimburse the WCI Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (d) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the 39 41 parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 10.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that it has been prejudiced thereby. (e) In the event both the WCI Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel the WCI Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the WCI Indemnitee and the Indemnifying Party in the same action or proceeding and the WCI Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 10.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of this Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of this Agreement are relying solely on the representations, warranties, Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 10.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF. The Shareholders waive any right to require any WCI Indemnitee to (i) proceed against the Corporation; (ii) proceed against any other person; or (iii) pursue any other remedy whatsoever in the power of any WCI Indemnitee. WCI may, but shall not be obligated to, set off against any and all payments due any Shareholder any amount to which any WCI Indemnitee is entitled to be indemnified hereunder with respect to any 10.1 Indemnity Event. Such right of set off shall be separate and apart from any and all other rights and remedies that the Indemnities may have against Shareholders or their successors. 11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI 11.1 RESTRICTIVE COVENANTS. As to the Corporation, the Shareholders, Alma and their Affiliates acknowledge that (i) WCI, as the purchaser of the Corporation's Stock, is and will be 40 42 engaged in the same business as the Corporation (the "Business"); (ii) the Shareholders, Alma and their Affiliates are intimately familiar with the Business; (iii) the Business is currently conducted in the State of California and WCI intends to continue the Business in California and intends, by acquisition or otherwise, to expand the Business into other geographic areas of California where it is not presently conducted; (iv) the Shareholders, Alma and their Affiliates have had access to trade secrets of, and confidential information concerning, the Business; (v) the agreements and covenants contained in this Section 11.1 are essential to protect the Business and the goodwill being acquired; and (vi) the Shareholders, Alma and their Affiliates have the means to support themselves and their dependents other than by engaging in a business substantially similar to the Business and the provisions of this Section 11 will not impair such ability. The Shareholders covenant and agree as set forth in (a), (b) and (c) below with respect to each Corporation: (a) NON-COMPETE. For a period commencing on the Closing Date and terminating five years thereafter (the "Restricted Period"), neither of the Shareholders, Alma nor any of their Affiliates shall, anywhere in the counties of Madera, Fresno, Stanislaus, San Joaquin, and Calaveras, California where WCI or one of its subsidiaries owns or operates a business similar to the Business (the "Restricted Counties"), directly or indirectly, acting individually or as the owner, shareholder, partner, or employee of any entity, (i) engage in the operation of a solid waste collection, transporting, disposal and/or composting business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of salary, commissions or otherwise from, any business engaged in such activities; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including, without limitation, as a sole proprietor, partner, shareholder, officer, director, principal, agent, trustee or lender; provided, however, that any of the Shareholders and Alma may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided none of the Shareholders is a controlling person of, or a member of a group which controls, such business and further provided that the Shareholders do not, in the aggregate, directly or indirectly, own 2% or more of any class of securities of such business and provided further that Youngclaus shall be permitted to continue the business described on Schedule 11.1. (b) CONFIDENTIAL INFORMATION. During the Restricted Period and thereafter, the Shareholders, Alma and their Affiliates shall keep secret and retain in strictest confidence, and shall not use for the benefit of themselves or others, all data and information relating to the Business ("Confidential Information"), including without limitation, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding information, practices, policies or procedures, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include 41 43 information that (i) is or becomes generally available to the public other than as a result of disclosure by the Shareholders and Alma or (ii) is general knowledge in the solid waste handling and landfill business and not specifically related to the Business. (c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists, records and other documents or papers (and all copies thereof) relating to the Business, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of the Shareholders, Alma or the Corporation or made available to them relating to the Business, but excluding any materials (other than the minute books of the Corporation) maintained by any attorneys for the Corporation or the Shareholders prior to the Closing, are and shall be the property of WCI and have been delivered or will be delivered or made available to WCI at the Closing. (d) NON-SOLICITATION. Without the consent of WCI, which may be granted or withheld by WCI in its discretion, the Shareholders, Alma and their Affiliates shall not solicit any employees of the Corporation to leave the employ of the Corporation and join the Shareholders or any Affiliate in any business endeavor owned or pursued by the Shareholders. (e) NO DISPARAGEMENT. From and after the Closing Date, none of the Shareholders or Alma shall, in any way or to any person or entity or governmental or regulatory body or agency, denigrate or derogate WCI or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Shareholders or Alma from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person or entity if it adversely affects the regard or esteem in which such person or entity is held by investors, lenders or licensing, rating, or regulatory entities. Without limiting the generality of the foregoing, none of the Shareholders or Alma shall, directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any person, entity or governmental or regulatory body or agency who or which has dealings or prospective dealings with any such company or jurisdiction or prospective jurisdiction over any such company. This paragraph does not apply to the extent that testimony is required by legal process, provided that WCI has received not less than five days' prior written notice of such proposed testimony. 11.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholders or Alma or any Affiliate breaches, or threatens to commit a breach of, any of the provisions of Section 11.1 herein (the "Restrictive Covenants"), WCI shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each 42 44 of which is in addition to, and not in lieu of, any other rights and remedies available to WCI at law or in equity: (a) SPECIFIC PERFORMANCE. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to WCI and that money damages would not provide an adequate remedy to WCI. Accordingly, in addition to any other rights or remedies, WCI shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain the Shareholders and Alma from any violation thereof. (b) ACCOUNTING. The right and remedy to require the Shareholders and Alma to account for and pay over to WCI all compensation, profits, monies, accruals, increments or other benefits derived or received by the Shareholders and Alma as the result of any transactions constituting a breach of the Restrictive Covenants. (c) SEVERABILITY OF COVENANTS. The Shareholders and Alma acknowledge and agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (d) BLUE-PENCILING. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (e) ENFORCEABILITY IN JURISDICTION. WCI and the Shareholders and Alma intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of WCI and the Shareholders and Alma that such determination not bar or in any way affect WCI's right to the relief provided above in the courts of any other jurisdiction within the geographic scope of the Restrictive Covenants as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 43 45 12. TERMINATION OF AGREEMENT 12.1 TERMINATION DATE. (a) If the Closing Date has not occurred by March 31, 1998, this Agreement shall be terminated at 5:00 p.m., Pacific Time, March 31, 1998, unless the Corporation has not then obtained all of the consents required by Section 6.7, in which event this Agreement shall terminate 10 days after the later of (i) if any such consent is denied, the latest time for filing any appeal or further appeal of such denial has lapsed; (ii) if any such consent is denied and such denial is appealed, the day the last appeal of such denial has been dismissed, refused or decided adversely to the Corporation; and (iii) notice by WCI. (b) This Agreement may be terminated at any time prior to the Closing Date: (i) by WCI, by written notice to the Corporation and the Shareholders if the representations and warranties of the Corporation and the Shareholders shall not have been true and correct in all respects as of the date when made; or (ii) by the Corporation and the Shareholders by written notice to WCI if the representations and warranties of WCI shall not have been true and correct in all respects as of the date when made. 12.2 NOTICE AND EFFECT OF TERMINATION. On termination of this Agreement, the transactions contemplated herein shall forthwith be abandoned and all continuing obligations and liabilities of the parties under or in connection with this Agreement shall be terminated and of no further force or effect; provided, however, that nothing herein shall relieve any party from liability for any misrepresentation, breach of warranty or breach of covenant contained in this Agreement prior to such termination. 12.3 EXCLUSIVE NEGOTIATIONS. Following execution of this Agreement, the Corporation, the Shareholders and Alma shall not, and the Shareholders and Alma shall not permit the Corporation's or the Shareholders' and Alma's officers, directors, employees or agents to, initiate, negotiate or discuss with any other person or entity the possible sale of all or substantially all of the assets, business or stock of either Corporation, or to effect the merger of a Corporation with any party other than WCI. The Shareholders and Alma hereby confirm that no person or entity presently has or may acquire any rights to purchase or otherwise acquire the assets or the stock of the Corporation. 13. GENERAL 44 46 13.1 ADDITIONAL CONVEYANCES. Following the Closing, the Shareholders and WCI shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as WCI or the Shareholders may reasonably request for the purpose of carrying out this Agreement. The Shareholders will cooperate with WCI and/or the Corporation on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 13.2 ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the successors or assigns of WCI and the heirs, legal representatives or assigns of the Shareholders; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 13.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party shall make any public announcement or filing with respect to the transactions provided for herein prior to the Closing Date without the prior consent of the other parties hereto and in no case shall any such announcement be made prior to the filing by WCI of a registration statement under the Act relating to the IPO without the consent of WCI. 13.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 13.5 NOTICES. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if in writing and either delivered personally, sent by facsimile transmission or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery or facsimile transmission thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to the Shareholders: at their respective addresses set forth on Schedule 3.2 With a copy to: Richard W. Dietrich Dietrich, Glasrud, Mallek & Aune An Association Including Law Corporations 5250 North Palm, Suite 402 Fresno, California 93704 Fax: (209) 435-8776 If to WCI: Waste Connections, Inc. 45 47 2260 Douglas Boulevard, Suite 280 Roseville, California 95661 Attention: Ronald J. Mittelstaedt Fax: (916) 772-2920 With a copy to: Robert D. Evans, Esq. Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Fax: (415) 421-2922 13.6 ATTORNEYS' FEES. In the event of any dispute or controversy between WCI on the one hand and the Corporation or the Shareholders on the other hand relating to the interpretation of this Agreement or to the transactions contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 13.7 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflict of laws provisions. 13.8 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder (including, in the case of the Shareholders, any such fees, expenses and disbursements paid or accrued by, or charged to, the Corporation). 13.9 INCORPORATION BY REFERENCE. All Schedules and Exhibits attached hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 13.10 CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 13.11 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the singular number is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 13.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and 46 48 understanding between the Corporation, the Shareholders and WCI and supersedes any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Corporation, the Shareholders (or the Shareholders' Representative on their behalf) and WCI acting through its officers, thereunto duly authorized by its Board of Directors. 13.13 WAIVER. No waiver by any party hereto at any time of any breach of, or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 13.14 CONSTRUCTION. The language in all parts of this Agreement must be in all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in California. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. 47 49 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. THE CORPORATION: MADERA DISPOSAL SYSTEMS, INC. By: ------------------------------------ Eugene Dupreau President WCI: WASTE CONNECTIONS, INC. By: ------------------------------------ Ronald J. Mittelstaedt Chief Executive Officer & President 48 50 THE SHAREHOLDERS: ------------------------------------ Alma Sciacqua, as Trustee of the Sciacqua Family Trust B ------------------------------------ Eugene Dupreau ------------------------------------ Melvin G. Dias ------------------------------------ Charles B. Youngclaus 49 51 ALMA: ------------------------------------ Alma Sciacqua 50 52 TABLE OF CONTENTS
Page 1. PURCHASE OF CORPORATION'S STOCK................................................. 1 1.1 SHARES TO BE PURCHASED................................................... 1 1.2 PURCHASE PRICE........................................................... 1 1.3 ADDITIONAL CONTINGENT PURCHASE PRICE..................................... 2 1.4 EXCLUDED ASSETS.......................................................... 5 2. CLOSING TIME AND PLACE.......................................................... 5 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION, THE SHAREHOLDERS AND ALMA.......................................... 5 3.1 ORGANIZATION, STANDING AND QUALIFICATION................................. 5 3.2 CAPITALIZATION........................................................... 5 3.3 ALL STOCK BEING ACQUIRED................................................. 6 3.4 AUTHORITY FOR AGREEMENT.................................................. 6 3.5 NO BREACH OR DEFAULT..................................................... 6 3.6 SUBSIDIARIES............................................................. 6 3.7 FINANCIAL STATEMENTS..................................................... 6 3.8 LIABILITIES.............................................................. 7 3.9 CONDUCT OF BUSINESS...................................................... 8 3.10 PERMITS AND LICENSES..................................................... 8 3.11 CERTAIN RECEIVABLES...................................................... 10 3.12 FIXED ASSETS AND REAL PROPERTY........................................... 10 3.13 ACQUISITION/DISPOSAL OF ASSETS........................................... 11 3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS........................... 11 3.15 INSURANCE................................................................ 12 3.16 PERSONNEL................................................................ 12 3.17 BENEFIT PLANS AND UNION CONTRACTS........................................ 12 3.18 TAXES.................................................................... 14 3.19 COPIES COMPLETE.......................................................... 14 3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES.................... 15 3.21 NO CHANGE WITH RESPECT TO CORPORATION.................................... 15 3.22 DEBT; CURRENT ASSETS AND CURRENT LIABILITIES............................. 17 3.23 BANK ACCOUNTS............................................................ 17 3.24 COMPLIANCE WITH LAWS..................................................... 18 3.25 POWERS OF ATTORNEY....................................................... 19 3.26 UNDERGROUND STORAGE TANKS................................................ 19 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC.................................... 20 3.28 ASSETS, ETC., NECESSARY TO BUSINESS...................................... 20 3.29 CONDEMNATION............................................................. 20 3.30 SUPPLIERS AND CUSTOMERS.................................................. 20 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES.................................... 20 3.32 RELATED PARTY TRANSACTIONS............................................... 21
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Page 3.33 DISCLOSURE SCHEDULES..................................................... 21 3.34 NO MISLEADING STATEMENTS................................................. 21 3.35 ACCURATE AND COMPLETE RECORDS............................................ 21 3.36 KNOWLEDGE................................................................ 21 3.37 BROKERS; FINDERS......................................................... 22 3.38 INVESTMENT REPRESENTATIONS............................................... 22 3.39 MADERA COUNTY LANDFILL OPERATION......................................... 23 4. REPRESENTATIONS AND WARRANTIES OF WCI........................................... 24 4.1 EXISTENCE AND GOOD STANDING.............................................. 24 4.2 NO CONTRACTUAL RESTRICTIONS.............................................. 24 4.3 AUTHORIZATION OF AGREEMENT............................................... 24 4.4 STATUS OF SHARES......................................................... 24 4.5 NO MISLEADING STATEMENTS................................................. 24 4.6 BROKERS; FINDERS......................................................... 24 4.7 DISCLOSURE SCHEDULES..................................................... 24 5. COVENANTS FROM SIGNING TO CLOSING DATE.......................................... 25 5.1 OPERATIONS............................................................... 25 5.2 NO CHANGE................................................................ 25 5.3 OBTAIN CONSENTS.......................................................... 26 5.4 ACCESS; CONFIDENTIAL INFORMATION......................................... 26 5.5 NOTICE OF MATERIAL ADVERSE CHANGE........................................ 27 6. CONDITIONS PRECEDENT TO OBLIGATION OF WCI TO CLOSE........................................................................... 27 6.1 REPRESENTATIONS AND WARRANTIES........................................... 27 6.2 CONDITIONS............................................................... 27 6.3 NO MATERIAL ADVERSE CHANGE............................................... 27 6.4 CERTIFICATES............................................................. 27 6.5 NO LITIGATION............................................................ 28 6.6 OTHER DELIVERIES......................................................... 28 6.7 GOVERNMENTAL APPROVALS; CONSENTS TO TRANSFER............................. 28 6.8 RELEASE OF SECURITY INTERESTS............................................ 28 6.9 DUE DILIGENCE............................................................ 28
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Page 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS TO CLOSE........................................................... 28 7.1 REPRESENTATIONS AND WARRANTIES........................................... 28 7.2 CONDITIONS............................................................... 29 7.3 CERTIFICATE.............................................................. 29 7.4 NO LITIGATION............................................................ 29 7.5 OTHER DELIVERIES......................................................... 29 7.6 ELECTION OF DIRECTOR AND ADVISORY DIRECTOR............................... 29 8. CLOSING DELIVERIES.............................................................. 29 8.1 WCI DELIVERIES........................................................... 29 8.2 SHAREHOLDERS DELIVERIES.................................................. 30 9. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS............................................................ 31 9.1 NO DELAY................................................................. 31 9.2 RELEASE OF GUARANTIES.................................................... 31 9.3 RELEASE OF SECURITY INTERESTS............................................ 31 9.4 CONFIDENTIALITY.......................................................... 31 9.5 BROKERS AND FINDERS FEES................................................. 32 9.6 TAXES.................................................................... 32 9.7 SHORT YEAR TAX RETURNS................................................... 32 9.8 SHAREHOLDERS' REPRESENTATIVE............................................. 32 9.9 CERTAIN TAX MATTERS...................................................... 33 10. INDEMNIFICATION................................................................. 34 10.1 INDEMNITY BY THE SHAREHOLDERS............................................ 34 10.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES................................. 35 10.3 NOTICE OF INDEMNITY CLAIM................................................ 36 10.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS................... 37 10.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF............... 37 11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI............................................................ 37 11.1 RESTRICTIVE COVENANTS.................................................... 37 11.2 RIGHTS AND REMEDIES UPON BREACH.......................................... 39 12. TERMINATION OF AGREEMENT........................................................ 40 12.1 TERMINATION DATE......................................................... 40 12.2 NOTICE AND EFFECT OF TERMINATION......................................... 41
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Page 12.3 EXCLUSIVE NEGOTIATIONS................................................... 41 13. GENERAL......................................................................... 41 13.1 ADDITIONAL CONVEYANCES................................................... 41 13.2 ASSIGNMENT............................................................... 41 13.3 PUBLIC ANNOUNCEMENTS..................................................... 41 13.4 COUNTERPARTS............................................................. 42 13.5 NOTICES.................................................................. 42 13.6 ATTORNEYS' FEES.......................................................... 42 13.7 APPLICABLE LAW........................................................... 42 13.8 PAYMENT OF FEES AND EXPENSES............................................. 42 13.9 INCORPORATION BY REFERENCE............................................... 43 13.10 CAPTIONS................................................................. 43 13.11 NUMBER AND GENDER OF WORDS; CORPORATION.................................. 43 13.12 ENTIRE AGREEMENT......................................................... 43 13.13 WAIVER................................................................... 43 13.14 CONSTRUCTION............................................................. 43
iv EX-10.20 23 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.20 ASSET PURCHASE AGREEMENT Dated as of March 1, 1998, by and among Waste Connections, Inc., Waste Connections of Idaho, Inc., Hunter Enterprises, Inc. and Randy Hunter 2 TABLE OF CONTENTS
PAGE ---- 1. PURCHASE AND SALE OF ASSETS.......................................... 1 1.1. Sale and Transfer of Assets.................................. 1 1.2. Assumption by IWCI of Assumed Contracts...................... 2 1.3. Excluded Liabilities......................................... 2 1.4. Purchase Price............................................... 2 1.5. Certain Taxes................................................ 3 2. CLOSING TIME AND PLACE............................................... 3 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.......................................................... 3 3.1. Standing and Authority for Business.......................... 3 3.2. All Assets Being Acquired.................................... 4 3.3. Authority for Agreement...................................... 4 3.4. No Breach or Default......................................... 4 3.5. Financial Statements......................................... 4 3.6. Liabilities.................................................. 4 3.7. Conduct of Business.......................................... 5 3.8. Permits and Licenses......................................... 5 3.9. Certain Prepaid Customer Accounts............................ 5 3.10. Title........................................................ 5 3.11. Employees.................................................... 5 3.12. Contracts and Agreements; Adverse Restrictions............... 5 3.13. Personnel.................................................... 6 3.14. Benefit Plans and Union Contracts............................ 6 3.15. Taxes........................................................ 6 3.16. Copies Complete.............................................. 7 3.17. Customer List and Billings................................... 7 3.18. No Change With Respect to Seller............................. 7 3.19. Closing Date Debt............................................ 7 3.20. Compliance With Laws......................................... 7 3.21. Patents, Trademarks, Trade Names, etc........................ 7 3.22. Reserved..................................................... 7 3.23. Suppliers and Customers...................................... 8 3.24. Absence of Certain Business Practices........................ 8 3.25. Disclosure Schedules......................................... 8 3.26. No Misleading Statements..................................... 8 3.27. Accurate and Complete Records................................ 8 3.28. Knowledge.................................................... 8 3.29. Brokers; Finders............................................. 9 3.30. Bingham County, Idaho........................................ 9
i 3 TABLE OF CONTENTS
PAGE ---- 4. REPRESENTATIONS AND WARRANTIES OF BUYERS............................. 9 4.1. Existence and Good Standing.................................. 9 4.2. No Contractual Restrictions.................................. 9 4.3. Authorization of Agreement................................... 9 4.4. No Misleading Statements..................................... 9 5. OPERATIONS FROM SIGNING TO CLOSING DATE.............................. 10 5.1. Operations................................................... 10 5.2. No Change.................................................... 10 5.3. Access; Confidential Information............................. 11 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYERS TO CLOSE................ 12 6.1. Representations and Warranties............................... 12 6.2. Conditions................................................... 12 6.3. No Material Adverse Change................................... 12 6.4. No Litigation................................................ 12 6.5. Other Deliveries............................................. 12 6.6. Release of Security Interests................................ 12 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SELLER TO CLOSE................................................................ 12 7.1. Representations and Warranties............................... 12 7.2. Conditions................................................... 13 7.3. No Litigation................................................ 13 7.4. Other Deliveries............................................. 13 8. CLOSING DELIVERIES................................................... 13 8.1. Buyers' Deliveries........................................... 13 8.2. Seller's Deliveries.......................................... 13 9. ADDITIONAL COVENANTS OF WCI, SELLER AND SHAREHOLDER.................. 14 9.1. Confidentiality.............................................. 14 9.2. Brokers and Finders Fees..................................... 14 9.3. Payments Recorded by Seller After Closing Date............... 14 10. INDEMNIFICATION...................................................... 14 10.1. Indemnity by Seller.......................................... 14 10.2. Limitations on Seller's Indemnities.......................... 15 10.3. Notice of Indemnity Claim.................................... 15 10.4. Survival of Representations, Warranties and Agreements....... 16 10.5. No Exhaustion of Remedies or Subrogation; Right of Set Off... 16
ii 4 TABLE OF CONTENTS
PAGE ---- 11. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI....................... 17 11.1. Restrictive Covenants........................................ 17 11.2. Rights and Remedies Upon Breach.............................. 19 12. TERMINATION OF AGREEMENT............................................. 20 12.1. Termination Date............................................. 20 12.3. Notice and Effect of Termination............................. 20 12.4. Exclusive Negotiations....................................... 21 13. GENERAL.............................................................. 21 13.1. Additional Conveyances....................................... 21 13.2. Assignment................................................... 21 13.3. Public Announcements......................................... 21 13.4. Counterparts................................................. 21 13.5. Notices...................................................... 21 13.6. Attorneys' Fees.............................................. 22 13.7. Applicable Law............................................... 22 13.8. Payment of Fees and Expenses................................. 22 13.9. Incorporation by Reference................................... 22 13.10. Captions..................................................... 22 13.11. Number and Gender of Words................................... 22 13.12. Entire Agreement............................................. 22 13.13. Waiver....................................................... 23 13.14. Construction................................................. 23
iii 5 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of March 1, 1998, entered into by and among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste Connections of Idaho, Inc., a Delaware corporation ("IWCI" and, collectively with WCI, "Buyers"), Hunter Enterprises, Inc., an Idaho corporation ("Seller"), and Randy Hunter (the "Shareholder"). WHEREAS, the Seller is engaged in the collection and transport of solid waste in the City of Basalt, Idaho and in certain unincorporated areas of Bingham, Bonneville, Jefferson, Madison and Power Counties, Idaho, and other activities related to the collection and transport of solid waste in the above-referenced areas (the "Business"); WHEREAS, Seller is the sole owner of the Business; WHEREAS, the Shareholder owns all of the issued and outstanding Capital Stock of the Seller; WHEREAS, Buyers wish to purchase, and Seller wishes to sell certain assets that are necessary to operate the Business; NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE AND SALE OF ASSETS. 1.1. SALE AND TRANSFER OF ASSETS. Subject to and in accordance with the terms and conditions of this Agreement, at the Closing on the Closing Date (as defined below) Seller shall convey, transfer, deliver and assign to Buyers (and as among Buyers, as they shall designate to Seller), and Buyers shall accept from Seller all of the assets listed on Schedule 1.1 (collectively, the "Assets"), including without limitation: (a) five trucks (including a description of the model and year and the serial number), containers and route lists, used primarily in connection with the ownership, operation and management of the Business: (b) the agreement between Seller and Power County regarding collection and transport of solid waste (the "Power County Agreement") the terms of which are attached hereto as Exhibit 1.1(b), customer accounts, and any other commitments and arrangements specifically identified in Schedule 3.12(a) as contracts, agreements or accounts contemplated to be assumed by IWCI pursuant to this Agreement (the "Assumed Contracts"); 1 6 (c) all permits, licenses, titles (including motor vehicle titles and current registrations) and any other similar documents from any and all governmental authorities constituting a material authorization or entitlement or otherwise material to the operation or management of the Business owned by, issued to, or held by or otherwise benefiting Seller (the "Governmental Permits"); (d) all customer lists of the Seller relating to the Business; (e) the good will of the Business; (f) all deposits, credits, advance payments, claims or rights relating to the Assets or the Business accruing after the Closing Date, all guarantees, warranties, indemnities and similar rights in favor of Seller with respect to any of the Assets and all books and records primarily in connection with the operation of the Business; and (g) a non-exclusive license to use the name "Hunter Enterprises, Inc." on the Assets for up to 90 days after the Closing Date. Notwithstanding the foregoing, the Buyers shall not acquire any of the accounts receivable of the Seller. The Buyers agree not to send out their first bills to customer accounts acquired pursuant to this Agreement until at least March 17, 1998. 1.2. ASSUMPTION BY IWCI OF ASSUMED CONTRACTS. IWCI hereby assumes and agrees to perform and discharge, effective the day after the Closing Date all of the obligations and commitments of Seller accruing after the Closing Date under or with respect to each Assumed Contract, but not including any obligation or liability for any breach thereof occurring on or prior to the Closing Date. 1.3. EXCLUDED LIABILITIES. Notwithstanding the provisions of Section 1.2 or any other provision hereof or any Schedule or Exhibit hereto and regardless of any disclosure to Buyers, Buyers shall not assume or be bound by any other duties, responsibilities, obligations or liabilities of Seller or to which Seller or any of the Assets or the Business may be bound or affected, of whatever kind or nature, whether known, unknown, contingent or otherwise, arising before, on or after the Closing Date (including without limitation taxes arising from the operation of the Business or the sale of the Assets) except, as to obligations and liabilities arising after the Closing Date only, those obligations and liabilities expressly assumed by Buyers pursuant to Section 1.2 (the "Excluded Liabilities"). 1.4. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Assets shall be payable as follows: (a) Five Hundred Thousand Dollars ($500,000), (i) minus the Closing Date Debt as described on Schedule 3.19; (ii) minus the fees listed on Schedule 3.9 that Seller collected in advance for services that Buyers will render after the Closing; (iii) plus $9,828 for containers purchased by the Seller for which Buyers agreed to pay; and (iv) minus the fee 2 7 payable to Richard Kendall as listed on Schedule 3.29 hereto. The Purchase Price shall be paid in cash by wire transfer or check payable in clearinghouse funds at Closing. The cash portion of the Purchase Price paid at the Closing will be based on Schedules 3.19 and 3.9 as delivered at the Closing. (b) IWCI shall deliver to the Seller a non-interest bearing Promissory Note (the "Note") in the aggregate principal amount of one hundred and seventy-five thousand dollars ($175,000), which Note shall be paid in five equal annual installments of thirty-five thousand dollars ($35,000) and shall be substantially in the form of Exhibit 1.4(b)(i) attached hereto. The annual installments of the Note shall be paid on July 1, 1998, 1999, 2000, 2001 and 2002. WCI shall deliver to the Seller a Guarantee for the Note (the "Guarantee") substantially in the form of Exhibit 1.4(b)(ii). If prior to the first anniversary of the Closing Date, Power County does not allow WCI or IWCI to continue collecting and transporting solid waste for Power County pursuant to the terms of the Power County Agreement, for any reason except WCI's or IWCI's negligence or breach of the terms of the Power County Agreement, IWCI shall deduct from the fifth annual installment of the Note an amount equal to $21,600.00 multiplied by the product of the number of days that WCI or IWCI were not allowed to collect and transport solid waste for Power County pursuant to the terms of the Power County Agreement during the first year after the Closing Date multiplied by .0027397. 1.5. CERTAIN TAXES. The Buyers shall pay any and all sales, use, excise, transfer and conveyance taxes payable or assessable in connection with or as a result of the transfer of the Assets under the terms of this Agreement and the transactions contemplated hereby. Buyers shall not be responsible for any business, occupation, withholding, possessory interest or similar tax or assessment or any other tax or fee of any kind relating to any period on or prior to the Closing Date with respect to Seller, the Assets or the ownership, operation or management of the Business. 2. CLOSING TIME AND PLACE Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein (the "Closing") shall take place at such time on February 28, 1998, as the parties shall agree (the "Closing Date"). The effective date of the Closing shall be March 1, 1998. At the Closing, Buyers and Seller shall deliver to each other the documents, instruments and other items described in Section 8 of this Agreement by Federal Express. 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER Seller and the Shareholder, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true and complete as of the date of this Agreement (the "Signing Date") with respect to the Seller, the Assets and the Business, as the case may be, and will be true as of the Closing Date, and (ii) agree that such representations and warranties shall survive the Closing. 3 8 3.1. STANDING AND AUTHORITY FOR BUSINESS. Seller has full power and authority to own the Assets and to operate the Business as now conducted. 3.2. ALL ASSETS BEING ACQUIRED. The Assets being acquired by Buyers hereunder constitute all of the assets of Seller used and necessary to conduct and operate the Business as it is presently conducted, except for the assets that Seller will retain to service the Bingham County Contract, a copy of which is attached hereto as Schedule 3.2. 3.3. AUTHORITY FOR AGREEMENT. Each of the Seller and the Shareholder has full right, power and authority to enter into this Agreement and to perform its or his obligations hereunder. The execution and delivery of this Agreement by the Seller has been duly authorized by its Board of Directors. This Agreement has been duly and validly executed and delivered by Seller and the Shareholder, and, subject to the due authorization, execution and delivery by WCI and IWCI, constitutes the legal, valid and binding obligation of Seller and the Shareholder, enforceable against Seller and the Shareholder in accordance with its terms. 3.4. NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.4, the execution and delivery by Seller of this Agreement, and the consummation by Seller of the transactions contemplated hereby, will not: (a) result in the breach of any of the terms or conditions of, or constitute a default under any obligation by which Seller, the Shareholder, or any of the Assets, is or may be bound or affected; or (b) violate any law or any order, writ, injunction or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any governmental or regulatory authority; or (c) violate any agreements to which Seller or any Shareholder is a party relating to the Assets and the Business. 3.5. FINANCIAL STATEMENTS. Seller has delivered to Buyers, as Schedule 3.5, copies of the financial statements ("Financial Statements") of Seller relating to the Business for the three years ended June 30, 1997 (June 30, 1997 shall be referred to as the "Balance Sheet Date"). The Financial Statements are true and correct and fairly present (i) the financial position of the Business as of the respective dates of the balance sheets included in the Financial Statements, and (ii) the results of operations of the Business for the respective periods indicated. The Financial Statements have been prepared in accordance with generally accepted accounting principles, applied consistently with prior periods. Except as disclosed on Schedules 3.5, 3.6, 3.19, Seller had, as of the Signing Date, and will have, as of the Closing Date, no liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due except, with respect to the period from the date of this Agreement through the Closing Date, as permitted by Section 5.2(a). 4 9 3.6. LIABILITIES. There are no liabilities related to the Assets or the Business, except those described on Schedule 3.6, Part I hereto. There are no claims, suits, proceedings pending against the Seller relating to the Business or the Assets, except those described on Schedule 3.6, Part II hereof. There are no liens, claims or encumbrances secured by any of the Assets, except those listed on Schedule 3.6, Part III hereof. 3.7. CONDUCT OF BUSINESS. Except as set forth on Schedule 3.18, since the Balance Sheet Date: (a) The Business has been conducted only in the ordinary course; and (b) There has been no change in the condition (financial or otherwise) of the Assets or the liabilities or operations of Seller relating to the Business other than changes in the ordinary course of business, none of which either singly or in the aggregate has been materially adverse. 3.8. PERMITS AND LICENSES. No permits, licenses, franchises, titles (except the motor vehicle titles and current registrations copies of which are attached hereto as Schedule 3.8(a)(i)) or any other similar documents are necessary to operate the Business as it is currently conducted or to use the Assets as they are currently used. 3.9. CERTAIN PREPAID CUSTOMER ACCOUNTS. Schedule 3.9 is an accurate and complete list as of the Closing Date of the fees that Seller has collected from customers for services that have not yet been rendered and that Buyers will render after the Closing. Such list includes the amount of the fees paid in advance, the customer who paid such fees and the services owed to that customer. 3.10. TITLE. Seller has good, valid and marketable title to all the Assets to be sold pursuant to this Agreement, free of any encumbrance or charge of any kind except: (i) liens for current taxes not yet due; and (ii) minor imperfections of title and encumbrances, if any, that are not substantial in amount, do not materially detract from the value of the property subject thereto, do not materially impair the value of the Business or the Assets, and have arisen only in the ordinary course of business and consistent with past practice. There are and as of the Closing Date will be no leases, occupancy agreements, options, rights of first refusal or any other agreements or arrangements, either oral or written, that create or confer in any person or entity the right to acquire, occupy or possess, now or in the future, any Assets, or any portion thereof, or create in or confer on any person or entity any right, title or interest therein or in any portion thereof. 3.11. EMPLOYEES. All written and oral employment contracts with the Employees (as defined in Section 3.13 hereof) are terminable "at will" without payment of severance. 5 10 3.12. CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. (a) Schedule 3.12(a) lists, as of the Signing Date, and includes copies of, all insurance policies and any other material contracts and agreements relating to the Business to which Seller is a party or by which any of the Assets is bound. Except as disclosed on Schedule 3.12(a), all such contracts and agreements included in Schedule 3.12(a) are and on the Closing Date shall be in full force and effect and binding upon the parties thereto. Except as described or cross referenced on Schedule 3.12(a), neither the Seller nor, to the Seller' knowledge, any other parties to such contracts and agreements is in breach thereof, and none of the parties has threatened to breach any of the material provisions thereof or notified Seller of a default thereunder, or exercised any options thereunder. (b) There is no outstanding judgment, order, writ, injunction or decree against Seller, the result of which could materially adversely affect the Business or any of the Assets, nor has Seller been notified that any such judgment, order, writ, injunction or decree has been requested. 3.13. PERSONNEL. Seller agrees that Buyers may hire three of its employees whom are listed on Schedule 3.13 (the "Employees"). Schedule 3.13 also contains a complete list, as of the Signing Date, of the Employees' respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of their current employment agreements, if any exist. Schedule 3.13 also lists the driver's license number for each of the Employees that serves as a driver of motor vehicles used in the Business. 3.14. BENEFIT PLANS AND UNION CONTRACTS. (a) Except for the health care insurance provided to employees pursuant to a health plan included as Schedule 3.14(a), the Seller has no employee benefit plans relating to the Business, including employment agreements and any other agreements containing "golden parachute" provisions, retirement plans, welfare benefit plans and deferred compensation agreements. (b) There are no union contracts and agreements between the Seller and any collective bargaining group relating to the Business. In the operation of the Business, the Seller is in compliance in all material respects with all applicable federal, state and local laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice. There is no charge pending nor, to the Seller's or the Shareholder's knowledge, is there any charge threatened against the Seller relating to the Business before any court or agency and alleging unlawful discrimination in employment practices. There is no charge of or proceeding with regard to any unfair labor practice relating to the Business that is pending before the National Labor Relations Board. 6 11 3.15. TAXES. There are no outstanding taxes due on the Assets and there are no liens on any of the Assets for taxes that have not been paid by the Seller or the Shareholder. Copies of the federal income, and state franchise, income and sales tax returns of Seller for the last three fiscal years are attached as part of Schedule 3.15. Seller has withheld all required amounts from its employees for all pay periods in full and complete compliance with the withholding provisions of applicable federal, state and local laws. All required federal, state and local and other returns with respect to income tax withholding, social security, and unemployment taxes have been duly filed by Seller for all periods for which returns are due, and the amounts shown on all such returns to be due and payable have been paid in full. Seller will withhold all required amounts from its employees for all pay periods up to and including the Closing Date in full and complete compliance with the withholding provisions of applicable federal, state and local laws. 3.16. COPIES COMPLETE. Except as disclosed on Schedule 3.16, the copies of all instruments, agreements, licenses, certificates or other documents that have been delivered to Buyers in connection with the transactions contemplated hereby are complete and accurate as of the Signing Date and are true and correct copies of the originals thereof. None of such instruments, agreements, licenses, certificates or other documents requires notice to, or consent or approval of, any governmental agency or other third party to any of the transactions contemplated hereby. 3.17. CUSTOMER LIST AND BILLINGS. Schedule 3.17 is current, accurate and complete list of, and includes the customers of the Business that Seller serves on an ongoing basis, including name, location and current billing rate, as of the Signing Date. Since the Balance Sheet Date, Seller has not lost any customers and no customers have threatened or otherwise indicated to Seller that they intend to discontinue doing business with Seller. 3.18. NO CHANGE WITH RESPECT TO SELLER. Except as set forth on Schedule 3.18, with respect to Seller, since the Balance Sheet Date, there has not been, and prior to the Closing there will not be, any change in the conduct of the Business, the income, operations or financial condition of the Business, or the Assets. 3.19. CLOSING DATE DEBT. At the Closing, Seller shall prepare and deliver to Buyers Schedule 3.19, which shall set forth the amount of the aggregate debt (excluding trade payables) of Seller outstanding on the Closing Date relating to the Business or the Assets on the Closing Date (the "Closing Date Debt"). Buyers are not assuming any other debt of the Seller other than the debt listed on Schedule 3.19 which Buyers will pay on the Closing Date and which will be deducted from the Purchase Price pursuant to Section 1.4(a) hereof. 3.20. COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.20, Seller has complied with, and Seller is presently in compliance with, all federal, state and local laws, ordinances, codes, rules, regulations, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to Seller relating to the Business (collectively "Laws"), including, but not limited to, Laws relating to the public health, safety or protection of the 7 12 environment. Except as disclosed on Schedule 3.20, there has been no assertion by any party that Seller is in material violation of any Laws. 3.21. PATENTS, TRADEMARKS, TRADE NAMES, ETC. No patents, tradenames, fictitious business names, trademarks, service marks, copyrights or other intellectual property is currently used in the operation of the Business or in connection with the Assets. 3.22. Reserved. 3.23. SUPPLIERS AND CUSTOMERS. The relations between Seller and the customers of the Business are good. Seller has no knowledge of any fact (other than general economic and industry conditions) which indicates that any of the suppliers providing use of, or access to, landfills or disposal sites to Seller intends to cease providing such items to Seller, nor does Seller have knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of the Business intends to terminate, limit or reduce its business relations with Seller relating to the Business. 3.24. ABSENCE OF CERTAIN BUSINESS PRACTICES. Seller has not directly or indirectly within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Business in connection with any actual or proposed transaction which (a) if not given in the past, might have had an adverse effect on the financial condition, business or results of operations of the Business, or (b) if not continued in the future, might adversely affect the financial condition, business or operations of the Business or which might subject Buyers to suit or penalty in any private or governmental litigation or proceeding. 3.25. DISCLOSURE SCHEDULES. Any matter disclosed by Seller on any Schedule to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 3.26. NO MISLEADING STATEMENTS. The representations and warranties of Seller and Shareholder contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to Buyers and their representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading. 3.27. ACCURATE AND COMPLETE RECORDS. The books, ledgers, financial records and other records of Seller relating to the Business: (a) have been made available to Buyers and their agents at Seller's offices or at the offices of Buyers' attorneys or Seller' attorneys; 8 13 (b) have been, in all material respects, maintained in accordance with all applicable laws, rules and regulations; and (c) are accurate and complete, reflect all material transactions. 3.28. KNOWLEDGE. Wherever reference is made in this Agreement to the "knowledge" of Seller or the Shareholder, such term means the actual knowledge of Seller or the Shareholder or any management employee of Seller whose duties relate to the Business or any knowledge which should have been obtained by Seller, Shareholder or such employee upon reasonable inquiry by a reasonable business person. 3.29. BROKERS; FINDERS. Seller hired Richard Kendall to serve as a broker for Seller in connection with the transactions contemplated by this Agreement, and the fee owed to Richard Kendall for his services as a broker is listed on Schedule 3.29. Such fee will be deducted from the Purchase Price and paid to Richard Kendall on the Closing Date. No other person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of Seller. 3.30. BINGHAM COUNTY, IDAHO. Seller and the Shareholder represent that as of the Signing Date and the Closing Date, they know of no discussions in which Bingham County considered the possibility of granting an exclusive contract for refuse collection and disposal from residential customers in Bingham County, Idaho, and if Seller or Shareholder learn of any such discussions prior to the Closing Date, they will inform the Buyers. 4. REPRESENTATIONS AND WARRANTIES OF BUYERS Buyers represent and warrant to Seller that each of the following representations and warranties is true as of the Closing Date, and agree that such representations and warranties shall survive the Closing: 4.1. EXISTENCE AND GOOD STANDING. WCI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. IWCI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.2. NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article, document or instrument to which IWCI or WCI is a party or by which IWCI or WCI is bound which would be violated by consummation of the transactions contemplated by this Agreement. 4.3. AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, executed and delivered by Buyers and, subject to the due authorization, execution and delivery by Seller, constitutes a legal, valid and binding obligation of Buyers. Each of WCI and IWCI has full corporate power, legal right and corporate authority to enter into and perform its obligations under this Agreement and to carry on the Business as presently conducted. The execution and 9 14 delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to IWCI or WCI: (b) conflict with any of the provisions of the Certificate or Articles of Incorporation or Bylaws of IWCI or WCI; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which IWCI or WCI is a party or by which either is bound. 4.4. NO MISLEADING STATEMENTS. The representations and warranties of WCI and IWCI contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to Seller pursuant hereto are materially complete and accurate, and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading as of the Closing Date. 5. OPERATIONS FROM SIGNING TO CLOSING DATE 5.1. OPERATIONS. Between the Signing Date and the Closing Date, the Seller will: (a) carry on the Business in substantially the same manner as it has heretofore and not introduce any material new method, or discontinue any existing material method, of operation or accounting; (b) maintain the Assets, in as good working order and condition as at present, ordinary wear and tear excepted; (c) perform all of their material obligations under agreements relating to or affecting the Assets or the Business; (d) keep in full force and effect present insurance policies or other comparable insurance coverage for the Assets and the Business; (e) use its best efforts to maintain and preserve the Business intact, retain their present employees and maintain their relationship with suppliers, customers and others having business relations with the Business; (f) file on a timely basis all notices, reports or other filings required to be filed with or reported to any federal, state, municipal or other governmental department, commission, board, bureau, agency or any instrumentality of any of the foregoing wherever located with respect to the continuing operations of the Business; (g) maintain material compliance with all laws, rules and regulations applicable to the Assets or the Business; 10 15 (h) file on a timely basis all complete and correct applications or other documents necessary for the continuing operation of the Business, whether or not such approval would expire before or after the Closing; and (i) advise Buyers promptly in writing of any material change in any document, Schedule, Exhibit, or other information delivered pursuant to this Agreement. 5.2. NO CHANGE. Between the Signing Date and the Closing Date, the Seller will not take any action described below without the approval of WCI: (a) enter into any contract or commitment relating to the Business or incur or agree to incur any liability other than in the ordinary course of business other than the transactions contemplated by this Agreement or make any single capital expenditure in excess of $10,000 or in excess of $25,000 in the aggregate during any consecutive thirty (30) day period without regard to whether such capital expenditure is in the ordinary course of business; (b) change or promise to change the compensation payable or to become payable to any employee or agent, or make or promise to make any bonus payment to any such person; (c) create, assume or otherwise permit the imposition of any mortgage, pledge or other lien or encumbrance upon or grant any option or right of first refusal with respect to any of the Assets; (d) sell, assign, lease or otherwise transfer or dispose of any Assets other than in the ordinary course of business; (e) waive any material rights or claims relating to the Business or the Assets; (f) amend or terminate any material agreement or any site assessment, permit, license or other right relating to the Business or the Assets; or (g) enter into any other transaction outside the ordinary course of business related to the Business or prohibited hereunder. 5.3. ACCESS; CONFIDENTIAL INFORMATION. Between the Signing Date and the Closing Date, the Seller will afford to the officers and authorized representatives of Buyers, including, without limitation, its engineers, counsel, independent auditors and investment bankers, access to the Assets, books and records of the Seller relating to the Business, and will furnish Buyers with such additional financial and operating data and other information as to the Business and Assets as Buyers may from time to time reasonably request. The Seller will cooperate with Buyers, their representatives and counsel in the preparation of any documents or other material which may be required by any governmental agency. Buyers will cause all information obtained 11 16 from the Seller in connection with the negotiation and performance of this Agreement to be treated as confidential (except such information which is in the public domain or which Buyers may be required to disclose to any governmental agency, or pursuant to any court or regulatory agency order) and will not use, and will not knowingly permit others to use, any such confidential information in a manner detrimental to the Seller. Neither party will disclose to any third persons other than its key employees, accountants, bankers, financial consultants, insurance brokers or legal counsel any of the terms or provisions of this Agreement prior to or after the Closing Date without the prior written consent of the other party, but the parties agree that this Agreement may be included in WCI's filings with the Securities and Exchange Commission. 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYERS TO CLOSE The obligations of the Buyers under this Agreement are subject to the satisfaction, at or before Closing, of all of the following conditions precedent, unless waived in writing by the Buyers: 6.1. REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Seller contained in this Agreement or in any statement, Exhibit, Schedule, certificate or document delivered by the Seller under this Agreement shall be true, correct and complete on and as of the date when made and at all times prior to the Closing Date, shall be deemed to be made again on the Closing Date, and shall then be true, correct and complete in all material respects as of the Closing Date. 6.2. CONDITIONS. The Seller shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by it on or before the Closing Date. 6.3. NO MATERIAL ADVERSE CHANGE. Since the date of the this Agreement, there shall not have been any material adverse change in the condition (financial or otherwise) in the Business or the Assets. 6.4. NO LITIGATION. None of the transactions contemplated hereby shall have been enjoined by any court or by any federal or state governmental branch, agency, commission or regulatory authority and no suit or other proceeding challenging the transactions contemplated hereby shall have been threatened or instituted and no investigative or other demand shall have been made by any federal or state governmental branch, agency, commission or regulatory authority. 6.5. OTHER DELIVERIES. The Seller shall have delivered the items that they are required to deliver under Section 8 of this Agreement. 6.6. RELEASE OF SECURITY INTERESTS. All security interests in the Assets of the Seller that have been created in favor of financial institutions or other lenders to secure 12 17 indebtedness of any of the Seller shall have been released, subject, where applicable to payment of the Closing Date Debt. 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SELLER TO CLOSE The obligations of the Seller under this Agreement are subject to the satisfaction, at or before Closing, of all of the following conditions precedent, unless waived in writing by the Seller: 7.1. REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Buyers contained in this Agreement or in any statement, Exhibit, Schedule, certificate or document delivered by the Buyers under this Agreement shall be true, correct and complete on and as of the date when made and at all times prior to the Closing Date, shall be deemed to be made again on the Closing Date, and shall then be true, correct and complete in all material respects as of the Closing Date. 7.2. CONDITIONS. The Buyers shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by them on or before the Closing Date. 7.3. NO LITIGATION. None of the transactions contemplated hereby shall have been enjoined by any court or by any federal or state governmental branch, agency, commission or regulatory authority and no suit or other proceeding challenging the transactions contemplated hereby shall have been threatened or instituted and no investigative or other demand shall have been made by any federal or state governmental branch, agency, commission or regulatory authority. 7.4. OTHER DELIVERIES. The Buyers shall have delivered the items that they are required to deliver under Section 8 of this Agreement. 8. CLOSING DELIVERIES At the Closing, the respective parties shall make the deliveries indicated: 8.1. BUYERS' DELIVERIES. (a) WCI or IWCI shall deliver the cash portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.4(a) to Seller. (b) WCI shall deliver the Note and the Guarantee required to be delivered pursuant to Section 1.4(b) to the Seller. 13 18 8.2. SELLER'S DELIVERIES. (a) Seller shall deliver to IWCI (and/or its designee) an executed bill of sale or bills of sale and other instruments of transfer and conveyance for the full and complete transfer, conveyance, assignment and delivery to IWCI on the Closing Date of all of Seller' right, title and interest in and to all of the Assets, accompanied by all third party consents required with respect thereto, including, without limitation, written evidence of the release of the liens and encumbrances with respect to the Assets; (b) Reserved; (c) Seller shall deliver to IWCI (and/or its designee) all motor vehicle registrations and ownership documents for the motor vehicles being acquired by Seller; (d) Seller shall deliver to Buyers an opinion of counsel for Seller, dated as of the Closing Date, in substantially the form attached hereto as Exhibit 8.2(d). (e) Seller shall execute and deliver such other documents and instruments as are reasonably requested by WCI or IWCI in order to consummate the transactions contemplated by this Agreement. (f) Shareholder shall execute and deliver to Buyers a letter that Buyers can send to the customer accounts that Buyers are purchasing pursuant to this Agreement, substantially in the form of Exhibit 8.2(f) hereto. 9. ADDITIONAL COVENANTS OF WCI, SELLER AND SHAREHOLDER 9.1. CONFIDENTIALITY. Seller and Shareholder shall not disclose or make any public announcements of the existence or terms of this Agreement or the transactions contemplated by this Agreement without the prior written consent of WCI, unless required to make such disclosure or announcement by law, in which event Seller shall notify WCI at least 24 hours before such disclosure or announcement is expected to be made. 9.2. BROKERS AND FINDERS FEES. Each party shall pay and be responsible for any broker's, finder's or financial advisory fee incurred by such party in connection with the transactions contemplated by this Agreement. Richard Kendall's fee shall be payable according to Section 1.4(a)(iv) hereof. 9.3. PAYMENTS RECORDED BY SELLER AFTER CLOSING DATE. Seller shall receive in trust and pay over to IWCI any payments or other moneys received by Seller after the Closing Date that relate to the Business or the Assets. 10. INDEMNIFICATION 14 19 10.1. INDEMNITY BY SELLER. Subject to Section 10.2, Seller and the Shareholder covenant and agree that they will, jointly and severally, indemnify and hold harmless WCI and IWCI and their respective directors, officers and agents and their respective successors and assigns (individually, an "Indemnitee," and collectively the "Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, identified by a WCI Indemnitee with respect to each of the following contingencies (all, the "Indemnity Events"): (a) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant on the part of Seller pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument furnished or to be furnished to WCI or IWCI pursuant to the terms of this Agreement, regardless of whether, in the case of a breach of a representation or a warranty, WCI or IWCI relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (b) Any liability for Seller's or the Shareholder's violation or alleged violation of any state, local or federal law or regulation that occurred in connection with the use of the Assets or the operation of the Business, including, but not limited to, laws related to the environment or hazardous materials. (c) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any of the foregoing. 10.2. LIMITATIONS ON SELLER'S INDEMNITIES. The maximum amount which the Indemnitees can recover as a result of one or more Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed the Purchase Price. 10.3. NOTICE OF INDEMNITY CLAIM. (a) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, the Indemnitee shall notify the Seller and the Shareholder (collectively, the "Indemnifying Party") in writing thereof (the "Claims Notice") within 60 days after (i) receipt of written notice of commencement of any third party litigation against such Indemnitee, (ii) receipt by such Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such Indemnitee, or (iii) such Indemnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the Indemnitee. 15 20 (b) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) do not exceed the limit set forth in Section 10.2 at the time the Claim is made, by the Indemnifying Party's own counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify the Indemnitee with respect to such action. The Indemnitee may participate, at the Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of the Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (c) If, within 30 days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 10.3(b) and elected to defend the Claims, the Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees, shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within 30 days reimburse the Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (d) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 10.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that it has been prejudiced thereby. (e) In the event both the Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel, the Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the Indemnitee and the Indemnifying Party in the same action or proceeding and the Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 10.4. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the 16 21 provisions of this Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of this Agreement are relying solely on the representations, warranties, Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 10.5. NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF. Seller and the Shareholder waive any right to require any Indemnitee to (i) proceed against any other person or (iii) pursue any other remedy whatsoever in the power of any Indemnitee. The Buyers may, but shall not be obligated to, set off against any and all payments due Seller on the Note, any amount to which WCI, IWCI or any other Indemnitee is entitled to be indemnified hereunder with respect to any Indemnity Event. Such right of set off shall be separate and apart from any and all other rights and remedies that the Indemnities may have against Seller and the Shareholder or their successors. 11. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI 11.1. RESTRICTIVE COVENANTS. Seller and Shareholder acknowledge that (i) Buyers, as the purchasers of the Assets (including the goodwill of the Business), are and will be engaged in the same business as the Business; (ii) Seller and Shareholder are intimately familiar with the Business; (iii) the Business is currently conducted in the State of Idaho and Buyers, directly and indirectly through their Affiliates, currently conduct business in Idaho and intend, by acquisition or otherwise, to expand the Business into other geographic areas of Idaho where it is not presently conducted; (iv) Seller and Shareholder have had access to trade secrets of, and confidential information concerning, the Business; (v) the agreements and covenants contained in this Section 11.1 are essential to protect the Business and the goodwill being acquired; and (vi) Seller and Shareholder have the means to support themselves and their dependents other than by engaging in a business substantially similar to the Business and the provisions of this Section 11 will not impair such ability. Seller and Shareholder covenant and agree as set forth in (a), (b), (c) and (d) below with respect to the Business: (a) NON-COMPETE. For a period commencing on the Closing Date and terminating five years thereafter (the "Restricted Period"), Seller and Shareholder shall not, anywhere in the city of Basalt, Idaho and Bingham, Bonneville, Power, Jefferson and Madison Counties, Idaho, directly or indirectly, acting individually or as the owners, shareholders, partners, or employees of any entity, (i) engage in the operation of a solid waste collection, transporting, disposal and/or composting business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of salary, commissions or otherwise from, any business engaged in such activities; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any 17 22 capacity, including, without limitation, as a sole proprietor, partner, shareholder, officer, director, principal, agent, trustee or lender; provided, however, that Seller and Shareholder may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided Seller and Shareholder are not controlling persons of, or members of a group which controls, such business and further provided that Seller and Shareholder do not, in the aggregate, directly or indirectly, own 2% or more of any class of securities of such business. (b) EXCEPTION TO THE NON-COMPETE. Despite the restrictions imposed by section 11.1(a), Buyers and Seller agree that Seller may continue to: (i) collect and dispose of refuse collected from containers owned by Bingham County pursuant to Seller's contract with Bingham County dated as of September 1992 (the "Bingham County Contract") until the Bingham County Contract expires on September 30, 1999; (ii) bid or negotiate for the contract to operate the Bingham County transfer station, if such transfer station is built within five years after the Closing Date, and perform under that contract if it is awarded to Seller; and (iii) Seller may operate the Construction and Debris Landfill owned by Bingham County that is currently located on Ridge Street in Bingham County, Idaho but that the Seller expects to be relocated within Bingham County shortly. These exceptions to the non-competition provisions of Section 11.1(a) do not allow the Seller or the Shareholder or any of their affiliates to: (i) collect or dispose of refuse from any residential or other subscription customers in Bingham County during the Restricted Period; (ii) renew its Bingham County Contract or negotiate a new contract with Bingham County after the Bingham County Contract expires; (iii) compete with the Buyers in Bingham County after September 30, 1999; or (iv) bid or negotiate for the right to operate the Bingham County Transfer Station or the Bingham County Construction and Debris Landfill if Bingham County chooses to bundle such services with the exclusive right to collect and transport solid waste in Bingham County. (c) CONFIDENTIAL INFORMATION. During the Restricted Period and thereafter, Seller and Shareholder shall keep secret and retain in strictest confidence, and shall not use for the benefit of themselves or others, all data and information relating to the Business ("Confidential Information"), including without limitation, the existence of and terms of this Agreement, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding practices and policies, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by Seller and Shareholder, or (ii) is general knowledge in the solid waste handling and landfill business and not specifically related to the Business. (d) PROPERTY OF THE BUSINESS. All memoranda, notes, lists, records and other documents or papers (and all copies thereof) relating to the Business, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of Seller or Shareholder or made available to Seller or Shareholder relating to the Business, but excluding any materials maintained by any 18 23 attorneys for Seller or Shareholder prior to the Closing, are and shall be the property of WCI or IWCI and have been delivered or will be delivered or made available to WCI or IWCI at the Closing. (e) NON-SOLICITATION. Without the consent of WCI, which may be granted or withheld by WCI in its discretion, Seller and Shareholder shall not solicit any employees of WCI, IWCI or their Affiliates to leave the employ of WCI, IWCI or their Affiliates and join Seller in any business endeavor owned or pursued by Seller. (f) NO DISPARAGEMENT. From and after the Closing Date, none of the Seller or the Shareholder shall, in any way to any customer or employee of the Business or the Buyers, denigrate or derogate Buyers or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Seller or Shareholder from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person if it adversely affects the regard or esteem in which such person or entity is held by such person. Without limiting the generality of the foregoing, none of the Seller or Shareholder shall, directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any customer or employee of the Business or the Buyers. This paragraph does not apply to the extent that testimony is required by legal process, provided that WCI has received not less than five days' prior written notice of such proposed testimony. (g) ACCESS TO FINANCIAL STATEMENTS. For two years from the Closing Date, if necessary for Buyers to obtain financing, Seller shall allow Buyers or Buyers' designee to audit Seller's financial statements and accounting records for the period of January 1, 1995 through the Closing Date. Buyers shall assume any costs of such audit. (h) BINGHAM COUNTY CONTRACT. If Seller continues to perform under the Bingham County Contract after March 31, 1999, Seller agrees to pay Buyers forty percent (40%) of the gross revenue that Seller bills to Bingham County pursuant to the Bingham County Contract until the Bingham County Contract terminates. Seller also agrees that Buyers may audit Seller's invoices to Bingham County that are associated with the Bingham County Contract. 11.2. RIGHTS AND REMEDIES UPON BREACH. If Seller or Shareholder breach, or threaten to commit a breach of, any of the provisions of Section 11.1(a), (b), (c) or (e) herein (the "Restrictive Covenants"), WCI and IWCI shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to Buyers at law or in equity: 19 24 (a) SPECIFIC PERFORMANCE. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to WCI and IWCI and that money damages would not provide an adequate remedy to IWCI. Accordingly, in addition to any other rights or remedies, WCI and IWCI shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain Seller and Shareholder from any violation thereof. (b) ACCOUNTING. The right and remedy to require Seller and Shareholder to account for and pay over to WCI or IWCI all compensation, profits, monies, accruals, increments or other benefits derived or received by Seller and Shareholder as the result of any transactions constituting a breach of the Restrictive Covenants. (c) SEVERABILITY OF COVENANTS. Seller and Shareholder acknowledge and agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (d) BLUE-PENCILING. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (e) ENFORCEABILITY IN JURISDICTION. Buyers, Seller and Shareholder intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Buyers, Seller and Shareholder that such determination not bar or in any way affect Buyers' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of the Restrictive Covenants as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 12. TERMINATION OF AGREEMENT 20 25 12.1. TERMINATION DATE. If the Closing Date has not occurred by April 1, 1998, this Agreement shall be terminated on April 15, 1998. 12.2. This Agreement may be terminated at any time prior to the Closing Date: (a) by the Buyers, by written notice to the Seller if the representations and warranties of the Seller shall not have been true and correct in all respects as of the date when made; or (b) by the Seller by written notice to WCI if the representations and warranties of the Buyers shall not have been true and correct in all respects as of the date when made. 12.3. NOTICE AND EFFECT OF TERMINATION. On termination of this Agreement, the transactions contemplated herein shall forthwith be abandoned and all continuing obligations and liabilities of the parties under or in connection with this Agreement shall be terminated and of no further force or effect; provided, however, that nothing herein shall relieve any party from liability for any misrepresentation, breach of warranty or breach of covenant contained in this Agreement prior to such termination. 12.4. EXCLUSIVE NEGOTIATIONS. Following execution of this Agreement, the Seller and the Shareholder shall not, and the Seller shall not permit its employees or agents to, initiate, negotiate or discuss with any other person or entity the possible sale of all or substantially all of the Assets or the Business with any party other than the Buyers. The Seller and the Shareholder hereby confirm that no person or entity presently has or may acquire any rights to purchase or otherwise acquire the Assets or the Business. 13. GENERAL 13.1. ADDITIONAL CONVEYANCES. Following the Closing, Seller, the Shareholder and Buyers shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as Buyers, the Shareholder or Seller may reasonably request for the purpose of carrying out this Agreement. Seller and the Shareholder will cooperate with Buyers on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 13.2. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the successors or assigns of WCI, IWCI and Seller and the Shareholder and Seller's and the Shareholder's heirs, legal representatives or assigns; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. The Buyers may assign some or all of their rights hereunder to another affiliate of WCI. 21 26 13.3. PUBLIC ANNOUNCEMENTS. Except as required by law, Seller shall not make any public announcement or filing with respect to the transactions provided for herein without the prior written consent of WCI. 13.4. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 13.5. NOTICES. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if in writing and either delivered personally, or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to Seller: Randy Hunter 104 South Emerson Shelley ID 83274 With a copy to: Steve Blaser, Esq. Blaser, Sorensen & Hansen 285 NW Maine P.O. Box 1047 Blackfoot, ID 83221 If to Buyers: Waste Connections, Inc. 2260 Douglas, Suite 280 Roseville, CA 95661 Attention: Ronald J. Mittelstaedt With a copy to: Robert D. Evans, Esq. Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, CA 94111 13.6. ATTORNEYS' FEES. In the event of any dispute or controversy between Buyers on the one hand and Seller and Shareholder on the other hand relating to the interpretation of this Agreement or to the transactions contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 13.7. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Idaho without regard to its conflict of laws provisions. 22 27 13.8. PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder. 13.9. INCORPORATION BY REFERENCE. All Schedules and Exhibits attached hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 13.10. CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 13.11. NUMBER AND GENDER OF WORDS. Whenever the singular number is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 13.12. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between Seller and Shareholder and the Buyers and supersedes any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Seller and the Shareholder and the Buyers acting through their officers, thereunto duly authorized by their Boards of Directors. 13.13. WAIVER. No waiver by any party hereto at any time of any breach of, or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 13.14. CONSTRUCTION. The language in all parts of this Agreement must be in all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in California or Idaho. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. 23 28 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. SELLER: HUNTER ENTERPRISES, INC. ---------------------------------------- Randy Hunter SHAREHOLDER: ---------------------------------------- Randy Hunter WCI: Waste Connections, Inc. By: ------------------------------------ Ronald J. Mittelstaedt President IWCI: Waste Connections of Idaho, Inc. By: ------------------------------------ Ronald J. Mittelstaedt President 24 EX-21.1 24 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 Subsidiaries of the Registrant Waste Connections of Idaho, Inc., a Delaware corporation Waste Connections of Washington, Inc., a Washington corporation Waste Connections International, Inc., a Washington corporation Madera Disposal Systems, Inc., a California corporation EX-23.2 25 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 6, 1998, in the Registration Statement (Form S-1) and related Prospectus of Waste Connections, Inc. for the registration of 2,300,000 shares of its common stock. Our audits also included the financial statement schedule of Waste Connections, Inc. and Predecessors listed in Item 16.b. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 20, 1998, with respect to the financial statements of Madera Disposal Systems, Inc. included in the Registration Statement (Form S-1) and related Prospectus of Waste Connections, Inc. for the registration of 2,300,000 shares of its common stock. ERNST & YOUNG LLP Sacramento, California March 13, 1998 EX-27.1 26 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 SEP-09-1997 DEC-31-1997 820 0 3,940 19 0 339 4,475 290 18,880 4,282 0 0 7,523 23 (82) 18,880 6,237 6,237 0 8,653 36 0 600 (3,052) (186) (2,866) 0 0 0 (2,866) (1.48) (1.48)
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