-----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, SX7XkGT+K9b2elM3MjDdZkcr9GrrZFlVME6tm3SWsZEb40IQXyCKyqPROdefqme2 NctRYnUOCgQ+FQba2Q6zIg== 0001072613-02-001257.txt : 20020813 0001072613-02-001257.hdr.sgml : 20020813 20020813092721 ACCESSION NUMBER: 0001072613-02-001257 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE CONNECTIONS INC/DE CENTRAL INDEX KEY: 0001057058 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 943283464 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23981 FILM NUMBER: 02728035 BUSINESS ADDRESS: STREET 1: 620 COOLIDGE DRIVE STREET 2: SUITE 350 CITY: FOLSOM STATE: CA ZIP: 95630 BUSINESS PHONE: 9166088200 MAIL ADDRESS: STREET 1: 620 COOLIDGE DRIVE STREET 2: SUITE 350 CITY: FOLSOM STATE: CA ZIP: 95630-3155 10-Q 1 form10-q_11403.txt WASTE CONNECTIONS, INC. FORM 10-Q 06/30/2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2002 COMMISSION FILE NO. 0-23981 WASTE CONNECTIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 94-3283464 (I.R.S. Employer Identification No.) 620 COOLIDGE DRIVE, SUITE 350, FOLSOM, CA 95630 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (916) 608-8200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock: As of July 31, 2002: 27,807,690 Shares of Common Stock ================================================================================ PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets - December 31, 2001 and June 30, 2002 Condensed Consolidated Statements of Income for the three and six months ended June 30, 2001 and 2002 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002 Notes to Condensed Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 2 - Changes in Securities and Use of Proceeds Item 4 - Submission of Matters to a Vote of Security Holders Item 6 - Exhibits and Reports on Form 8-K Signatures PART I - FINANCIAL INFORMATION Item 1 - Financial Statements WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, JUNE 30, 2001 2002 ----------- ----------- ASSETS (UNAUDITED) Current assets: Cash and equivalents $ 7,279 $ 5,151 Accounts receivable, less allowance for doubtful accounts of $2,167 and $1,928 at December 31, 2001 and June 30, 2002, respectively 51,372 63,560 Prepaid expenses and other current assets 8,123 9,601 ----------- ----------- Total current assets 66,774 78,312 Property and equipment, net 465,806 549,087 Goodwill 411,757 493,024 Intangible assets, net 16,248 30,854 Other assets, net 18,768 25,544 ----------- ----------- $ 979,353 $ 1,176,821 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 29,224 $ 35,175 Accrued liabilities 23,555 32,721 Deferred revenue 13,355 17,265 Current portion of long-term debt and notes payable 5,305 4,307 ----------- ----------- Total current liabilities 71,439 89,468 Long-term debt and notes payable 416,171 552,404 Other long-term liabilities 13,264 18,619 Deferred income taxes 78,689 83,803 ----------- ----------- Total liabilities 579,563 744,294 Commitments and contingencies Minority interests 19,825 19,662 Stockholders' equity: Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding -- -- Common stock: $0.01 par value; 50,000,000 shares authorized; 27,423,669 and 27,801,658 shares issued and outstanding at December 31, 2001 and June 30, 2002, respectively 274 278 Additional paid-in capital 316,594 323,773 Deferred stock compensation -- (958) Retained earnings 68,032 94,545 Unrealized loss on market value of interest rate swaps (4,935) (4,773) ----------- ----------- Total stockholders' equity 379,965 412,865 ----------- ----------- $ 979,353 $ 1,176,821 =========== ===========
See accompanying notes. WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2002 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2001 2002 2001 2002 ------------ ------------ ------------ ------------ Revenues $ 93,967 $ 128,091 $ 179,081 $ 233,833 Operating expenses: Cost of operations 51,864 72,022 98,881 131,201 Selling, general and administrative 8,400 12,465 15,059 21,855 Depreciation and amortization 8,704 10,085 16,896 18,113 Loss on disposal of operations 4,879 -- 4,879 -- ------------ ------------ ------------ ------------ Income from operations 20,120 33,519 43,366 62,664 Interest expense (7,643) (7,921) (15,245) (15,426) Other income (expense), net 327 (181) (6,145) (581) ------------ ------------ ------------ ------------ Income before income tax provision and Minority interests 12,804 25,417 21,976 46,657 Minority interests (2,168) (2,470) (3,498) (4,236) ------------ ------------ ------------ ------------ Income before income tax provision 10,636 22,947 18,478 42,421 Income tax provision (4,238) (8,605) (7,368) (15,908) ------------ ------------ ------------ ------------ Net income $ 6,398 $ 14,342 $ 11,110 $ 26,513 ============ ============ ============ ============ Basic earnings per common share $ 0.24 $ 0.52 $ 0.41 $ 0.96 ============ ============ ============ ============ Diluted earnings per common share $ 0.23 $ 0.49 $ 0.40 $ 0.91 ============ ============ ============ ============ Shares used in the per share calculations: Basic 27,067,906 27,723,136 26,953,148 27,676,913 ============ ============ ============ ============ Diluted 27,637,147 32,347,458 27,626,398 32,214,488 ============ ============ ============ ============
See accompanying notes. WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2002 (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED JUNE 30, 2001 2002 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,110 $ 26,513 Adjustments to reconcile net income to Net cash provided by operating activities: Loss on disposal of operations 4,879 -- Gain on sale of assets -- (45) Depreciation 11,723 17,317 Amortization of intangibles 5,173 796 Loss on termination of interest rate swap 6,337 -- Minority interests 3,498 4,236 Amortization of debt issuance costs and debt guarantee fees 635 1,031 Early extinguishment of debt 240 -- Stock compensation -- 679 Net change in operating assets and liabilities, net of acquisitions (14,794) 9,780 --------- --------- Net cash provided by operating activities 28,801 60,307 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions, net of cash acquired (28,275) (100,511) Capital expenditures for property and equipment (15,886) (24,929) Proceeds from disposal of assets 2,869 1,875 Decrease in other assets (336) (750) --------- --------- Net cash used in investing activities (41,628) (124,315) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 185,021 300,000 Principal payments on long-term debt (160,427) (233,181) Termination of interest rate swap (6,337) -- Distributions to minority interest holders (1,230) (4,165) Proceeds from options and warrants 4,640 5,604 Debt issuance costs (6,144) (6,378) --------- --------- Net cash provided by financing activities 15,523 61,880 --------- --------- Net increase (decrease) in cash and equivalents 2,696 (2,128) Cash and equivalents at beginning of period 2,461 7,279 --------- --------- Cash and equivalents at end of period $ 5,157 $ 5,151 ========= ========= See accompanying notes. WASTE CONNECTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except share and per share amounts) 1. BASIS OF PRESENTATION AND SUMMARY The accompanying financial statements relate to Waste Connections, Inc. and its subsidiaries (the "Company") as of June 30, 2002 and for the three and six month periods ended June 30, 2001 and 2002. The consolidated financial statements of the Company include the accounts of Waste Connections, Inc. and its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The Company's consolidated balance sheet as of June 30, 2002, the consolidated statements of income for the three and six months ended June 30, 2001 and 2002, and the consolidated statements of cash flows for the six months ended June 30, 2001 and 2002 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. The consolidated financial statements presented herein should be read in conjunction with the Company's annual report on Form 10-K for the year 2001. 2. ADOPTION OF NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets", (collectively, the "Statements") effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets, including those meeting new recognition criteria under the Statements, will continue to be amortized over their estimated useful lives. The Company fully adopted the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. The Company tests goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. In 2002, the Company performed the first of the required impairment tests of goodwill and indefinite-lived intangible assets based on the carrying values as of January 1, 2002. As a result of performing the test for potential impairment, the Company determined that no impairment existed as of January 1, 2002 and therefore, it was not necessary to write down any of its goodwill or indefinite-lived intangible assets. Net income for the three and six months ended June 30, 2001, adjusted for the nonamortization provisions of SFAS No. 142, was $8,137 and $14,521, respectively. Basic and diluted shares outstanding were 27,067,906 and 27,637,147, respectively, for the three months ended June 30, 2001 and 26,953,148 and 27,626,398, respectively, for the six months ended June 30, 2001. The Company expects application of the nonamortization provisions of SFAS No. 142 to result in an increase in pre-tax income of approximately $9,600 and an increase in net income of approximately $6,800 in 2002, based on goodwill amortization occurring in 2001 that will not occur in 2002. The Company estimates its 2002 earnings per share will be calculated using basic and diluted shares of 27.8 million and 32.4 million, respectively. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations", effective for fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company's adoption of SFAS No. 143 is not expected to have a material effect on its financial statements. Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 did not have a material impact on the Company's financial statements and related disclosures. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Modifications to Reporting of Extinguishments of Debt and Accounting for Certain Capital Lease Modifications and Technical Corrections", effective for transactions occurring after May 15, 2002. SFAS No. 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items. SFAS No. 145 also requires that certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). The Company elected to adopt SFAS No. 145 early, which resulted in the reclassification from extraordinary items to other expenses of $240 of losses incurred during the six months ending June 30, 2001 resulting from early extinguishments of debt. 3. ACQUISITIONS During the six months ended June 30, 2002, the Company acquired eleven non-hazardous solid waste collection businesses that were accounted for using the purchase method of accounting. Aggregate consideration, exclusive of debt assumed, for the acquisitions consisted of $100,511 in cash (net of cash acquired), $217 of notes issued to sellers and warrants valued at $102. In connection with an acquisition occurring in 2002, the Company may be required to pay contingent consideration to certain former shareholders, subject to the occurrence of specified events. As of June 30, 2002, the estimated potential contingent payments relating to the 2002 acquisition totaled $2,000 in cash, and are to be earned if an expansion permit for an acquired landfill is obtained. The Company has not included any of the contingent consideration from the 2002 acquisition in these financial statements as it is too early in the contingency period to assess the probability of obtaining the expansion permit. The purchase prices have been allocated to the identified intangible assets and tangible assets acquired based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill. The purchase price allocations are considered preliminary until the Company is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. Although the time required to obtain the necessary information will vary with circumstances specific to an individual acquisition, the "allocation period" for finalizing purchase price allocations generally does not exceed one year from the consummation of a business combination. As of June 30, 2002, the Company had 19 acquisitions for which purchase price allocations were preliminary, mainly as a result of tax-related settlements. The Company believes the potential changes to its preliminary purchase price allocations will not have a material impact on its financial condition, results of operations or cash flows. A summary of the preliminary purchase price allocations for the acquisitions consummated in the six months ended June 30, 2002 is as follows: Acquired assets: Accounts receivable $ 9,738 Prepaid expenses and other current assets 653 Property and equipment 77,500 Goodwill 81,384 Indefinite-lived intangible assets 5,990 Contracts 8,630 Non-competition agreements 665 Assumed liabilities: Deferred revenue (3,859) Accounts payable (6,187) Deferred taxes (5,115) Debt and other liabilities assumed (68,569) ----------- $ 100,830 =========== Goodwill acquired in the six months ended June 30, 2002 totaling $7,692 is expected to be deductible for tax purposes. 4. INTANGIBLE ASSETS Intangible assets, exclusive of goodwill, consist of the following as of June 30, 2002: GROSS WEIGHTED-AVERAGE CARRYING ACCUMULATED AMORTIZATION AMOUNT AMORTIZATION PERIOD IN YEARS ------ ------------ --------------- Amortizable intangible assets: Long-term franchise agreements and contracts $ 12,014 $ (899) 26 Non-competition agreements 3,523 (1,688) 5 Other, net 2,229 (529) 13 ---------- ---------- $ 17,766 $ (3,116) ========== ========== Nonamortized intangible assets: Indefinite-lived intangible assets $ 16,204 - - ========== ========== The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories. These indefinite-lived intangible assets were subject to amortization prior to the Company's adoption of SFAS No. 142. Estimated future amortization expense for the next five years of amortizable intangible assets is as follows: For the year ended December 31, 2002 $ 1,224 For the year ended December 31, 2003 1,128 For the year ended December 31, 2004 991 For the year ended December 31, 2005 859 For the year ended December 31, 2006 703 5. LONG-TERM DEBT In April 2002, Waste Connections issued Floating Rate Convertible Subordinated Notes due 2022 (the "Notes") with an aggregate principal amount of $175,000 in a Rule 144A private placement. The Notes are unsecured and rank pari passu with the Company's 5.5% Convertible Subordinated Notes due 2006 and junior to all other existing and future senior indebtedness, as defined in the indenture governing the Notes. The Notes bear interest at the 3-month LIBOR rate plus 50 basis points, payable quarterly. The holders may surrender notes for conversion into common stock at a conversion price of $48.39 per share on or after August 1, 2002, but prior to the maturity date, only if any of the following conditions are satisfied: (a) the closing sale price per share for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter preceding the calendar quarter in which the conversion occurs is more than 110% of the conversion price per share on that thirtieth trading day; (b) during such period, if any, that the credit ratings assigned to the Notes by Moody's Investors Service, Inc. and Standard & Poor's Rating Group (the "Rating Agencies") are reduced below B3 or B-, respectively; (c) if neither Rating Agency is rating the Notes; (d) during the five business day period after any nine consecutive trading day period in which the trading price of the Notes (per $1,000 principal amount) for each day of such period is less than 95% of the product of the closing sale price of the Company's common stock multiplied by the number of shares issuable upon conversion of $1,000 principal amount of the Notes; (e) upon the occurrence of specified corporate transactions; or (f) if the Notes have been called for redemption and the redemption has not yet occurred. The Company may redeem all or a portion of the Notes for cash at any time on or after May 7, 2006. Holders of the Notes may require the Company to purchase their Notes at a price of $1,000 per Note in cash plus accrued interest, if any, upon a change in control of the Company, as defined in the indenture, or on any of the following dates: May 1, 2009, May 1, 2012 and May 1, 2017. The proceeds from the sale of the Notes were used to repay a portion of the outstanding indebtedness and related costs under the Company's credit facility and for general corporate purposes, including payment for an acquisition. 6. EARNINGS PER SHARE CALCULATION The following table sets forth the numerator and denominator used in the computation of earnings per common share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------- ----------- 2001 2002 2001 2002 ----------- ----------- ----------- ----------- Numerator: Net income for basic earning per share $ 6,398 $ 14,342 $ 11,110 $ 26,513 Interest expense on convertible subordinated notes due 2006, net of tax effects -- 1,462 -- 2,921 ----------- ----------- ----------- ----------- Net income for diluted earnings per share $ 6,398 $ 15,804 $ 11,110 $ 29,434 =========== =========== =========== =========== Denominator: Basic shares outstanding 27,067,906 27,723,136 26,953,148 27,676,913 Dilutive effect of convertible subordinated notes due 2006 -- 3,944,775 -- 3,944,775 Dilutive effect of options and warrants 569,241 679,547 673,250 592,800 ----------- ----------- ----------- ----------- Diluted shares outstanding 27,637,147 32,347,458 27,626,398 32,214,488 =========== =========== =========== ===========
7. COMPREHENSIVE INCOME Comprehensive income includes changes in the fair value of interest rate swaps that qualify for hedge accounting. The difference between net income and comprehensive income for the three and six months ended June 30, 2001 and 2002 is as follows: THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 2001 2002 2001 2002 -------- -------- -------- -------- Net income $ 6,398 $ 14,342 $ 11,110 $ 26,513 Unrealized gain (loss) on interest rate swaps, net of tax benefit (expense) of $(155) and $491 for the three months ended June 30, 2001 and 2002, respectively, and $1,881 and $(345) for the six months ended June 30, 2001 and 2002, respectively 233 (818) (2,834) 162 -------- -------- -------- -------- Comprehensive income $ 6,631 $ 13,524 $ 8,276 $ 26,675 ======== ======== ======== ======== The components of other comprehensive income and related tax effects for the three and six months ended June 30, 2001 and 2002 are as follows:
THREE MONTHS ENDED JUNE 30, 2001 -------------------------------- Gross Tax effect Net of tax ----- ---------- ---------- Amounts reclassified into earnings 603 241 362 Changes in fair value of interest rate swaps (215) (86) (129) ------- ------- ------- $ 388 $ 155 $ 233 ======= ======= ======= THREE MONTHS ENDED JUNE 30, 2002 -------------------------------- Gross Tax effect Net of tax ----- ---------- ---------- Amounts reclassified into earnings $ 1,573 $ 590 $ 983 Changes in fair value of interest rate swaps (2,882) (1,081) (1,801) ------- ------- ------- $(1,309) $ (491) $ (818) ======= ======= ======= SIX MONTHS ENDED JUNE 30, 2001 ------------------------------ Gross Tax effect Net of tax ----- ---------- ---------- Cumulative effect of accounting change $(5,940) $(2,370) $(3,570) Amounts reclassified into earnings 1,013 404 609 Changes in fair value of interest rate swaps (6,125) (2,444) (3,681) Changes associated with current period swap transactions 6,337 2,529 3,808 ------- ------- ------- $(4,715) $(1,881) $(2,834) ======= ======= ======= SIX MONTHS ENDED JUNE 30, 2002 ------------------------------ Gross Tax effect Net of tax ----- ---------- ---------- Amounts reclassified into earnings $ 3,095 $ 1,161 $ 1,934 Changes in fair value of interest rate swaps (2,588) (816) (1,772) ------- ------- ------- $ 507 $ 345 $ 162 ======= ======= =======
The estimated net amount of the existing losses as of June 30, 2002 (based on the interest rate yield curve at that date) included in accumulated other comprehensive income expected to be reclassified into pre-tax earnings as payments are made under the terms of the interest rate swap agreements within the next 12 months is approximately $6,092. The timing of actual amounts reclassified into earnings is dependent on future movements in interest rates. 8. LEGAL PROCEEDINGS In January 2002,the Oklahoma Department of Environmental Quality Land Protection Division (the "Department") issued an order to Waste Connections requiring the Company to cease accepting more than 200 tons per day of out-of-state waste at its Red Carpet Landfill in Oklahoma due to its alleged failure to obtain the Department's prior approval of a disposal plan for that waste. At that time, the Department assessed the Company a fine of $220 for past violations related to accepting more than 200 tons per day of out-of-state waste prior to obtaining the Department's approval of a disposal plan. While seeking the Department's approval of a disposal plan, the Company continued to accept more than 200 tons a day of out-of-state waste because it believed, based on the advice of legal counsel, that the Department did not have the legal right to require the Company to obtain its approval of a disposal plan prior to accepting more than 200 tons per day of out-of-state waste. In June 2002, the Department issued an amended order approving the Company's disposal plan subject to conditions and increasing the fine assessed against the Company to $2,160 because the Company continued to accept more than 200 tons per day of out of state waste prior to obtaining its approval of the Company's plan. The Company has objected to some of the conditions imposed in the order and has initiated litigation against the Department challenging this order. Based on the advice of its legal counsel, the Company believes that it will prevail in this litigation. Therefore, the Company believes that any payment resulting from the order will not materially affect its cash flows, financial condition or results of operations. As a result, the Company has not recorded a liability in connection with this order. 9. RESTRICTED STOCK PLAN During the second quarter of 2002, the Company's Board of Directors adopted a restricted stock plan in which selected employees, other than officers and directors, may participate (the "2002 Restricted Stock Plan"). Restricted stock awards under the 2002 Restricted Stock Plan may or may not require a cash payment from a participant to whom an award is made and become free of the stated restrictions over periods determined at the date of the grant, subject to continuing employment. A total of 95,000 shares were reserved for issuance under the 2002 Restricted Stock Plan. During the second quarter of 2002, the Company issued 23,428 shares of restricted stock to selected employees. The fair value of the issued stock was $826 and will be amortized to expense over the three year restriction period. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere herein. FORWARD LOOKING STATEMENTS Certain information contained in this Quarterly Report on Form 10-Q, including, without limitation, information appearing under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," is forward-looking in nature These statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "should" or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may materially differ from those projected by any forward-looking statements in this Quarterly Report on Form 10-Q. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) competition or unfavorable industry or economic conditions could lead to a decrease in demand for our services and/or to a decline in prices we realize for our services, (2) we depend in part on acquisitions for growth; we may be required to pay higher prices for acquisitions, and we may experience difficulty in integrating and deriving synergies from acquisitions, (3) we may not always have access to the additional capital that we require to execute our growth strategy or our cost of capital may increase, (4) governmental regulations may require increased capital expenditures or otherwise affect our business, (5) businesses that we acquire may have undiscovered liabilities, (6) we depend on large, long-term collection contracts, and (7) key members of senior management may depart and may be difficult or impossible to replace. These risks and uncertainties, as well as others, are discussed in greater detail in our other filings with the Securities and Exchange Commission. We make no commitment to revise or update any forward-looking statements to reflect events or circumstances after the date any such statement is made. OVERVIEW Waste Connections, Inc. is a regional, integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in secondary markets located primarily in the Western U.S. As of June 30, 2002, we served more than 925,000 commercial, industrial and residential customers in Alabama, California, Colorado, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, New Mexico, Minnesota, Mississippi, Montana, Nebraska, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming. As of that date, we owned 85 collection operations and operated or owned 40 transfer stations, 30 Subtitle D landfills and 19 recycling facilities. We generally intend to pursue an acquisition-based growth strategy and as of June 30, 2002 had acquired 145 businesses since our inception in September 1997. We anticipate that a substantial part of our future growth will come from acquiring additional solid waste collection, transfer and disposal businesses and, therefore, we expect additional acquisitions could continue to affect period-to-period comparisons of our operating results. Critical Accounting Policies We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorated, impairing their ability to make payments, additional allowances may be required. In addition, if certain customer and billing information is not properly integrated from acquisitions that we close, additional allowances may be required. Impairment of intangible assets. We periodically evaluate acquired businesses for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of our acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill or other intangibles associated with our acquired businesses are impaired. Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations. As of June 30, 2002, goodwill and intangible assets represented 44.5% of our total assets. Accounting for landfills. We amortize landfill permitting, acquisition and preparation costs using a units-of-production method as permitted airspace of the landfill is consumed. Landfill preparation costs include the costs of construction associated with excavation, liners, site berms and the installation of leak detection and leachate collection systems. In determining the amortization rate for a landfill, we include preparation costs in the total estimated costs to complete construction of the landfill's permitted capacity. We determine units-of-production amortization rates annually for our operating landfills. We periodically evaluate our landfill sites for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of our landfills. Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs are impaired. Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations. Our management determines landfill depletion rates based on estimates provided by our internal and third party engineers and information provided by surveys that are performed at least annually. Significant changes in our estimates could materially increase our landfill depletion rates, which could have a material adverse effect on our financial condition and results of operations. We reserve for estimated closure and post-closure maintenance costs at the landfills we own. We could have additional material financial obligations relating to closure and post-closure costs of the other disposal facilities that we currently own or operate and that we may own or operate in the future. We calculate the net present value of the closure and post closure commitment assuming an inflation rate of 3% and a discount rate of 7.5%. We accrete discounted amounts previously recorded to reflect the passage of time. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations. GENERAL Our revenues consist mainly of fees we charge customers for solid waste collection, transfer, disposal and recycling services. Our collection business also generates revenues from the sale of recyclable commodities, which have significant variability. A large part of our collection revenues comes from providing commercial, industrial and residential services. We frequently perform these services under service agreements or franchise agreements with counties or municipal contracts. Our existing franchise agreements and all of our existing municipal contracts give Waste Connections the exclusive right to provide specified waste services in the specified territory during the contract term. These exclusive arrangements are awarded, at least initially, on a competitive bid basis and subsequently on a bid or negotiated basis. We also provide residential collection services on a subscription basis with individual households. Approximately 50% of our revenues for the three and six months ended June 30, 2002 were derived from services provided under exclusive franchise agreements, long term municipal contracts and governmental certificates. Governmental certificates grant Waste Connections perpetual and exclusive collection rights in the covered areas. Contracts with counties and municipalities and governmental certificates provide relatively consistent cash flow during the terms of the contracts. Because we bill most residential customers quarterly, subscription agreements also provide a stable source of revenues for Waste Connections. We charge transfer station and landfill customers a tipping fee on a per ton basis for disposing of their solid waste at the transfer stations and the landfill facilities we own and operate. Many of our transfer and landfill customers have entered into one to ten year disposal contracts with us, most of which provide for annual indexed price increases. We typically determine the prices for our solid waste services 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 terms of our contracts sometimes limit our ability to pass on price increases. Long-term solid waste collection contracts often contain a formula, generally based on a published price index that automatically adjusts 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 we purchase for recycling, third party transportation expense, district and state taxes and host community fees and royalties. As of June 30, 2002, Waste Connections owned and/or operated 40 transfer stations, which reduce our costs by allowing us to use collection personnel and equipment more efficiently and by consolidating waste to reduce transportation costs to remote sites and gain more favorable disposal rates that may be available for larger quantities of waste. Selling, general and administrative ("SG&A") expenses include management, clerical and administrative compensation overhead costs associated with our marketing and sales force, professional services and community relations expense. Depreciation expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method. Prior to January 1, 2002, amortization expense included the amortization of goodwill (for businesses acquired prior to July 1, 2001) and other intangible assets using the straight-line method. As discussed more fully below, beginning January 1, 2002, goodwill and indefinite-lived intangible assets are no longer amortized. Waste Connections capitalizes some third-party expenditures related to pending acquisitions or development projects, such as legal, engineering and interest expenses. We expense indirect acquisition costs, such as executive and corporate overhead, public relations and other corporate services, as we incur them. We charge against net income any unamortized capitalized expenditures and advances (net of any portion that we believe we may recover, through sale or otherwise) that relate to any operation that is permanently shut down and any pending acquisition or landfill development project that we believe will not be completed. We routinely evaluate all capitalized costs, and expense those related to projects that we believe are not likely to succeed. During the three and six months ended June 30, 2002, we did not capitalize interest related to landfill and transfer station development projects. At June 30, 2002, we had $0.2 million in capitalized expenditures relating to pending acquisitions and $1.1 million of capitalized expenditures related to landfill development projects seeking to obtain permits for new landfill disposal sites. Goodwill represents the excess of the purchase price over the fair value of the net assets of the acquired entities. In allocating the purchase price of an acquired company among its assets, we first assign value to the tangible assets, followed by intangible assets, including covenants not to compete and certain contracts. We determine the value of the other intangible assets by considering, among other things, the present value of the cash flows associated with those assets. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets" (collectively, the "Statements"), effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets, including those meeting new recognition criteria under the Statements, will continue to be amortized over their estimated useful lives. We adopted the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. In 2001, we recognized $7.4 million of tax deductible goodwill amortization expense and $2.2 million of non-tax deductible goodwill amortization expense. We expect application of the nonamortization provisions of SFAS No. 142 to result in an increase in pre-tax income of approximately $9.6 million and an increase in net income of approximately $6.8 million in 2002, based on goodwill amortization occurring in 2001 that will not occur in 2002. We estimate our 2002 earnings per share will be calculated using basic and diluted shares of 27.8 million and 32.4 million, respectively. We are required to test goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. In 2002, we performed the first of the required impairment tests of goodwill and indefinite-lived intangible assets based on the carrying values as of January 1, 2002. As a result of performing the test for potential impairment, we determined that no impairment existed as of January 1, 2002 and therefore, it was not necessary to write down any of our goodwill or indefinite-lived intangible assets. We will continue to perform the potential impairment test on an annual basis, beginning in the fourth quarter of 2002. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations", effective for fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We do not expect the adoption of SFAS No. 143 to have a material effect on our financial statements. Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 did not materially affect our financial statements and related disclosures. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Modifications to Reporting of Extinguishments of Debt and Accounting for Certain Capital Lease Modifications and Technical Corrections", effective for transactions occurring after May 15, 2002. SFAS No. 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items. SFAS No. 145 also requires that certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). We elected to adopt SFAS No. 145 early, which resulted in the reclassification from extraordinary items to other expenses of $240 of losses incurred during the six months ending June 30, 2001 resulting from early extinguishments of debt. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2002 The following table sets forth items in Waste Connections' consolidated statement of operations as a percentage of revenues for the periods indicated. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2001 2002 2001 2002 -------- -------- -------- -------- Revenues 100.0% 100.0% 100.0% 100.0% Cost of operations 55.2 56.2 55.2 56.1 Selling, general and administrative expenses 8.9 9.7 8.4 9.3 Depreciation and amortization expense 9.3 7.9 9.5 7.8 Loss on disposal of operations 5.2 -- 2.7 -- -------- -------- -------- -------- Operating income 21.4 26.2 24.2 26.8 Interest expense, net (8.1) (6.2) (8.5) (6.6) Other expense, net 0.3 (0.2) (3.4) (0.3) Minority interests (2.3) (1.9) (2.0) (1.8) Income tax expense (4.5) (6.7) (4.1) (6.8) -------- -------- -------- -------- Net income 6.8% 11.2% 6.2% 11.3% ======== ======== ======== ======== Revenues. Total revenues increased $34.1 million, or 36.3%, to $128.1 million for the three months ended June 30, 2002 from $94.0 million for the three months ended June 30, 2001. Revenues earned in the three months ended June 30, 2002 from acquisitions closed throughout the balance of 2001 and the first six months of 2002 totaled $28.1 million. The remaining increase was attributable to selected price increases and growth in the existing business. Revenues for the six months ended June 30, 2002 increased $54.7 million, or 30.6%, to $233.8 million from $179.1 million for the six months ended June 30, 2001. Revenues earned in the six months ended June 30, 2002 from acquisitions closed throughout the balance of 2001 and the first six months of 2002 totaled $44.4 million. The remaining increase was attributable to selected price increases and growth in the existing business. Cost of Operations. Total cost of operations increased $20.1 million, or 38.9%, to $72.0 million for the three months ended June 30, 2002 from $51.9 million for the three months ended June 30, 2001. Cost of operations for the six months ended June 30, 2002 increased $32.3 million, or 32.7%, to $131.2 million from $98.9 million for the six months ended June 30, 2001. The increases were primarily attributable to acquisitions closed over the balance of 2001 and the first six months of 2002, growth in our existing business and higher insurance costs. Cost of operations as a percentage of revenues increased 1.0 percentage point to 56.2% for the three months ended June 30, 2002 from 55.2% for the three months ended June 30, 2001. Cost of operations as a percentage of revenues for the six months ended June 30, 2002 increased 0.9 percentage points to 56.1% from 55.2% for the six months ended June 30, 2001. The increases as a percentage of revenues were primarily attributable to the mix of revenues associated with acquisitions closed over the balance of 2001 and the first six months of 2002, which had operating margins below our company average, and higher insurance costs, partially offset by greater integration of collection volumes into landfills we own or operate. SG&A. SG&A expenses increased $4.1 million, or 48.4%, to $12.5 million for the three months ended June 30, 2002 from $8.4 million for the three months ended June 30, 2001. SG&A expenses for the six months ended June 30, 2002 increased $6.8 million, or 45.1%, to $21.9 million from $15.1 million for the six months ended June 30, 2001. Our SG&A expenses for the three and six months ended June 30, 2002 increased from the prior year periods as a result of additional personnel from acquisitions closed over the balance of 2001 and the first six months of 2002, additional corporate, regional and district level overhead and the incurrence of $1.3 million of employment expenses associated with the termination of our search for a chief operating officer and the hiring of two new corporate officers. During the three months ended June 30, 2001, we recognized $0.9 million of expenses related to the termination of negotiations and due diligence for a large potential acquisition. SG&A as a percentage of revenues increased 0.8 percentage points to 9.7% for the three months ended June 30, 2002 from 8.9% for the three months ended June 30, 2001. SG&A as a percentage of revenues for the six months ended June 30, 2002 increased 0.9 percentage points to 9.3% from 8.4% for the six months ended June 30, 2001. The increases in SG&A as a percentage of revenues resulted from additional corporate, regional and district level overhead to accommodate our current and future growth and the incurrence of $1.3 million of employment expenses associated with the termination of our search for a chief operating officer and the hiring of two new corporate officers. The $1.3 million of employment expense increased SG&A as a percentage of revenues 1.0 and 0.5 percentage points for the three and six months ended June 30, 2002, respectively. The overall increases were partially offset by the recognition during the three months ended June 30, 2001 of $0.9 million of expenses related to the termination of negotiations and due diligence for a large potential acquisition. Depreciation and Amortization. Depreciation and amortization expense increased $1.4 million, or 15.9%, to $10.1 million for the three months ended June 30, 2002 from $8.7 million for the three months ended June 30, 2001. Depreciation and amortization expenses for the six months ended June 30, 2002 increased $1.2 million, or 7.2%, to $18.1 million from $16.9 million for the six months ended June 30, 2001. The increases resulted primarily from increased depletion due to higher volumes of waste disposed at our landfills and depreciation and depletion associated with acquisitions closed over the balance of 2001 and the first six months of 2002, partially offset by decreased amortization expense from not amortizing goodwill during the three months and six months ended June 30, 2002, due to the application of the nonamortization provisions of SFAS No. 142. Total goodwill amortization expense recognized in the three and six months ended June 30, 2001 was $2.4 million and $4.8 million, respectively. No goodwill amortization expense was recognized in the three and six months ended June 30, 2002. Depreciation and amortization as a percentage of revenues decreased 1.4 percentage points to 7.9% for the three months ended June 30, 2002 from 9.3% for the three months ended June 30, 2001. Depreciation and amortization as a percentage of revenues for the six months ended June 30, 2002 decreased 1.7 percentage points to 7.8% from 9.5% for the six months ended June 30, 2001. The decreases in depreciation and amortization as a percentage of revenues were the result of applying the nonamortization provisions of SFAS No. 142, partially offset by increased depletion due to higher volumes of waste disposed at our landfills. Goodwill amortization expense as a percentage of revenues for the three and six months ended June 30, 2001 was 2.5% and 2.7%, respectively. Loss on Disposal of Operations. During the three months ended June 30, 2001, we sold some of our Utah operations that were deemed to no longer be of strategic importance. We recognized a non-cash pre-tax loss of $4,879 from this sale. Operating Income. Operating income increased $13.4 million, or 66.6%, to $33.5 million for the three months ended June 30, 2002 from $20.1 million for the three months ended June 30, 2001. Operating income for the six months ended June 30, 2002 increased $19.3 million, or 44.5%, to $62.7 million from $43.4 million for the six months ended June 30, 2001. The increases were primarily attributable to the growth in revenues, applying the nonamortization provisions of SFAS No. 142 and the prior year loss associated with the disposal of some of our Utah operations, partially offset by higher operating costs, depreciation and SG&A expenses. Operating income as a percentage of revenues increased 4.8 percentage points to 26.2% for the three months ended June 30, 2002 from 21.4% for the three months ended June 30, 2001. Operating income as a percentage of revenues for the six months ended June 30, 2002 increased 2.6 percentage points to 26.8% from 24.2% for the six months ended June 30, 2001. The increases in operating income as a percentage of revenues were attributable to applying the nonamortization provisions of SFAS No. 142 and not incurring losses on the disposal of operations, partially offset by declines in gross margins, higher depreciation expenses and an increase in SG&A expenses as a percentage of revenues. Interest Expense. Interest expense increased $0.3 million, or 3.6%, to $7.9 million for the three months ended June 30, 2002 from $7.6 million for the three months ended June 30, 2001. Interest expense for the six months ended June 30, 2002 increased $0.2 million, or 1.2%, to $15.4 million from $15.2 million for the six months ended June 30, 2001. The increases were primarily attributable to higher debt levels incurred to fund our acquisitions, partially offset by lower interest rates on our revolving credit facility and our replacing a portion of the borrowings under our revolving credit facility with lower interest subordinated debt obligations. Other Income (Expense). Other income (expense) decreased to an expense total of ($0.2) million for the three months ended June 30, 2002 from an income total of $0.3 million for the three months ended June 30, 2001. Other expense decreased to an expense total of ($0.6) million for the six months ended June 30, 2002 from an expense total of ($6.1) million for the six months ended June 30, 2001. The primary component of the net expense for the six months ended June 30, 2001 was $6.3 million of expenses resulting from cash payments for the early termination of an interest rate swap. During the first quarter of 2001, we determined that the debt, the specific cash flows of which an interest rate swap was designated as hedging, would be repaid prior to its due date from the net proceeds of our convertible subordinated debt offering; therefore, it was probable that the future variable interest payments under the related debt (the hedged transactions) would not occur. The remaining components of other income (expense) for these periods were gains and losses incurred on the disposal of certain assets. Minority Interests. Minority interests increased $0.3 million, or 13.9%, to $2.5 million for the three months ended June 30, 2002, from $2.2 million for the three months ended June 30, 2001. The increase for the three months ended June 30, 2002 was due to increased earnings by our majority-owned subsidiaries. Minority interests increased $0.7 million, or 21.1%, to $4.2 million for the six months ended June 30, 2002, from $3.5 million for the six months ended June 30, 2001. The increase for the six months ended June 30, 2002 is attributable to increased earnings by our majority-owned subsidiaries, as well as our owning majority interests in those entities, acquired in February 2001, for the entire six months ended June 30, 2002, compared to owning them for approximately five months of the six month period ended June 30, 2001. Provision for Income Taxes. Income taxes increased $4.4 million, or 103.0%, to $8.6 million for the three months ended June 30, 2002, from $4.2 million for the three months ended June 30, 2001. Income taxes increased $8.5 million, or 115.9%, to $15.9 million for the six months ended June 30, 2002, from $7.4 million for the six months ended June 30, 2001. These increases were due to increased pre-tax earnings, partially offset by a 1.5 percentage point reduction in our effective tax rate due to the elimination of non-deductible goodwill. The effective income tax rate for the three and six months ended June 30, 2002 was 37.5%, which is above the federal statutory rate of 35.0% primarily due to state and local taxes. Net Income. Net income increased $7.9 million, or 124.2%, to $14.3 million for the three months ended June 30, 2002, from $6.4 million for the three months ended June 30, 2001. The increase was primarily attributable to increased operating income and the prior year loss associated with the disposal of some of our Utah operations, partially offset by increases in interest expense, income tax expense, other expense and minority interests. Net income increased $15.4 million, or 138.6%, to $26.5 million for the six months ended June 30, 2002, from $11.1 million for the six months ended June 30, 2001. The increase was primarily attributable to increased operating income and prior year losses associated with the disposal of some of our Utah operations and the termination of interest rate swaps, partially offset by increases in interest expense, income tax expense and minority interests. LIQUIDITY AND CAPITAL RESOURCES Our business is capital intensive. Our capital requirements include acquisitions and fixed asset purchases. We expect that we will also make capital expenditures for landfill cell construction, landfill development and landfill closure activities in the future. We plan to meet our capital needs through various financing sources, including internally generated funds, debt and equity financings. As of June 30, 2002, we had a working capital deficit of $11.2 million, including cash and equivalents of $5.2 million. Our strategy in managing our working capital is generally to apply the cash generated from our operations that remains after satisfying our working capital and capital expenditure requirements to reduce our indebtedness under our bank revolving credit facility and to minimize our cash balances. We have a $435 million revolving credit facility with a syndicate of banks for which Fleet Boston Financial Corp. acts as agent (the "Credit Facility"). As of June 30, 2002, we had an aggregate of $188.5 million outstanding under the Credit Facility, and the interest rate on outstanding borrowings, including unused credit fees and amortization of debt issuance costs, under the Credit Facility was approximately 8.5%. The Credit Facility allows us to issue up to $40 million in stand-by letters of credit, which reduce the amount of total borrowings available under the Credit Facility. As of June 30, 2002, we had $17.6 million of outstanding letters of credit issued under the Credit Facility. Virtually all of our assets, including our interest in the equity securities of our subsidiaries, secure our obligations under the Credit Facility. The Credit Facility matures in 2005 and bears interest at a rate per annum equal to, at our discretion, either the Fleet National Bank Base Rate plus applicable margin, or the Eurodollar Rate plus applicable margin. The Credit Facility places certain business, financial and operating restrictions on Waste Connections relating to, among other things, incurring additional indebtedness, investments, acquisitions, asset sales, mergers, dividends, distributions, and repurchases and redemption of capital stock. The Credit Facility also contains covenants requiring that specified financial ratios and balances be maintained. As of June 30, 2002, we are in compliance with these covenants. The Credit Facility also requires the lenders' approval of acquisitions in certain circumstances. We use the Credit Facility for acquisitions, capital expenditures, working capital, standby letters of credit and general corporate purposes. During April 2002, we sold $175 million of Floating Rate Convertible Subordinated Notes due 2022 (the "Notes"). The Notes bear interest at the 3-month LIBOR rate plus 50 basis points, payable quarterly. The Notes are unsecured and rank pari passu with our 5.5% Convertible Subordinated Notes due 2006 and junior to all existing and future senior indebtedness, as defined in the indenture governing the Notes. Upon the incurrence of certain conditions, the Notes are convertible into common stock at 20.6654 shares per $1,000 principal amount of notes. No change in the available borrowing capacity under our Credit Facility or material covenants resulted from our issuance of the Notes. Proceeds from the sale of the Notes were used to repay a portion of the outstanding indebtedness and related costs under our credit facility and for general corporate purposes. As of June 30, 2002, we had the following contractual obligations and commercial commitments (in thousands):
PAYMENTS DUE BY PERIOD - --------------------------- ------------------------------------------------------------------------------ Contractual Obligations Total Less Than 1 Year 1 to 3 Years 4 to 5 Years Over 5 Years - --------------------------- -------------- ------------------ -------------- -------------- -------------- Long-Term Debt $ 556,711 $ 4,307 $ 7,725 $ 342,764 $ 201,915 - --------------------------- -------------- ------------------ -------------- -------------- -------------- Operating Leases 7,098 1,433 2,506 1,779 1,380 - --------------------------- -------------- ------------------ -------------- -------------- -------------- Unconditional Purchase Obligations 3,052 3,052 - - - - --------------------------- -------------- ------------------ -------------- -------------- -------------- Total Contractual Cash Obligations $ 566,861 $ 8,792 $ 10,231 $ 344,543 $ 203,295 - --------------------------- -------------- ------------------ -------------- -------------- -------------- AMOUNT OF COMMITMENT EXPIRATION PER PERIOD - ----------------------------- ------------------------------------------------------------------------------- Total Amounts Commercial Commitments Committed Less Than 1 Year 1 to 3 Years 4 to 5 Years Over 5 Years - ----------------------------- --------------- ------------------ -------------- -------------- -------------- Standby Letters of Credit $ 17,608 $ 17,608 $ - $ - $ - - ----------------------------- --------------- ------------------ -------------- -------------- -------------- Performance Bonds 50,334 45,661 4,663 10 - - ----------------------------- --------------- ------------------ -------------- -------------- -------------- Total Commercial Commitments $ 67,942 $ 63,269 $ 4,663 $ 10 $ - - ----------------------------- --------------- ------------------ -------------- -------------- --------------
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. We have experienced less availability of performance bonds for our current operations due to changes in the insurance industry. At June 30, 2002, we had provided customers and various regulatory authorities with surety in the aggregate amount of approximately $50.3 million to secure our obligations (exclusive of letters of credit backing certain municipal bond obligations). Our current surety bond underwriters have provided us with non-binding commitments to issue up to $50 million of performance bonds. This facility does not have a stated expiration date; however, individual performance bonds issued typically have expiration dates ranging from one to five years. If we are unable to increase the maximum commitment by our surety bond underwriters, obtain surety bonds through new underwriters, or obtain letters of credit in sufficient amounts or at acceptable rates, we could have difficulty retaining existing or entering into new municipal solid waste collection contracts or obtaining or retaining landfill operating permits. For the six months ended June 30, 2002, net cash provided by operations was approximately $60.3 million. Of this, $9.8 million was provided by working capital for the period. For the six months ended June 30, 2002, net cash used by investing activities was $124.3 million. Of this, $100.5 million was used to fund the cash portion of acquisitions. Cash used for capital expenditures was $24.9 million, which was primarily for investments in fixed assets, consisting primarily of trucks, containers, landfill development and other equipment. Cash inflows from investing activities include $1.9 million received from the disposal of assets. For the six months ended June 30, 2002, net cash provided by financing activities was $61.9 million, which was provided by $66.8 million of net borrowings under our various debt arrangements and $5.6 million of proceeds from stock option and warrant exercises, less $4.2 million of cash distributions to minority interest holders and $6.4 million of debt issuance costs. We made approximately $24.9 million in capital expenditures during the six months ended June 30, 2002. We expect to make capital expenditures of approximately $48 million in 2002 in connection with our existing business. We intend to fund our planned 2002 capital expenditures principally through existing cash, internally generated funds, and borrowings under our existing credit facility. In addition, we may make substantial additional capital expenditures in acquiring solid waste collection and disposal businesses. If we acquire additional landfill disposal facilities, we may also have to make significant expenditures to bring them into compliance with applicable regulatory requirements, obtain permits or expand our available disposal capacity. We cannot currently determine the amount of these expenditures because they will depend on the number, nature, condition and permitted status of any acquired landfill disposal facilities. We believe that our credit facility and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future. From time to time we evaluate our existing operations and their strategic importance to Waste Connections. If we determine that a given operating unit does not have future strategic importance, we may sell or otherwise dispose of those operations. Although we believe our operations would not be impaired by such dispositions, we could incur losses on them. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to market risk, including changes in interest rates and certain commodity prices. We use hedge agreements to manage a portion of our risks related to interest rates. While we are exposed to credit risk in the event of non-performance by counterparties to our hedge agreements, in all cases such counterparties are highly rated financial institutions and we do not anticipate non-performance. We do not hold or issue derivative financial instruments for trading purposes. We monitor our hedge positions by regularly evaluating the positions at market and by performing sensitivity analyses. In December 1999, we entered into an interest rate swap with Fleet Boston Financial Corporation. Under the swap agreement, which was effective through December 2001, the interest rate on a $125 million LIBOR-based loan under the Credit Facility was effectively fixed with an interest rate of 6.1% plus an applicable margin. This rate remained at 6.1% if LIBOR was less than 7.0%. If LIBOR exceeded 7.0%, the interest rate under the swap agreement would increase one basis point for every LIBOR basis point above 7.0%. In May 2000, we entered into another interest rate swap with Union Bank of California. Under the swap agreement, which was effective through December 2003, the interest rate on a separate $125 million LIBOR-based loan under the Credit Facility was effectively fixed with an interest rate of 7.0% plus an applicable margin. In December 2000, we restructured both of those interest rate swap agreements, extending their maturity through December 2003 and removing their embedded option features. As of December 31, 2000, the Fleet Boston swap had a notional amount of $125 million at a fixed rate of 6.17% plus applicable margin and the Union Bank of California swap had a notional amount of $125 million at a fixed rate of 7.01% plus applicable margin. In March 2001, $110 million of the notional amount under the Union Bank of California swap was terminated because we used the proceeds from our Convertible Subordinated Notes offering to repay $110 million of the LIBOR loan, the cash flows of which this swap was designated as hedging. We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our market risk sensitive hedge positions and all other debt. Such an analysis is inherently limited in that it represents a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the $48.5 million remaining floating rate balance owed under our credit facility, $175 million of our Floating Rate Convertible Subordinated Notes due 2022, $12.3 million of floating rate debt under various notes payable to third parties and floating rate municipal bond obligations of approximately $8.9 million. A one percentage point increase in interest rates on our variable-rate debt as of June 30, 2002 would decrease our annual pre-tax income by approximately $2.4 million. All of our remaining debt instruments are at fixed rates, or effectively fixed under the interest rate swap agreements described above; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations. We market a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate 19 recycling processing facilities and sell other collected recyclable materials to third parties for processing before resale. We often share the profits from our resale of recycled materials with other parties to our recycling contracts. For example, certain of our municipal recycling contracts in Washington, negotiated before we acquired those businesses, specify benchmark resale prices for recycled commodities. If the prices we actually receive for the processed recycled commodities collected under the contract exceed the prices specified in the contract, we share the excess with the municipality, after recovering any previous shortfalls resulting from actual market prices falling below the prices specified in the contract. To reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. Although there can be no assurance of market recoveries in the event of a decline, because of the provisions within certain of our contracts that pass commodity risk along to the customers, we believe, given historical trends and fluctuations in the recycling commodities market, that a 10% decrease in average recycled commodity prices from the prices that were in effect at June 30, 2002 would not materially affect our cash flows or pre-tax income. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In January 2002,the Oklahoma Department of Environmental Quality Land Protection Division (the "Department") issued an order to Waste Connections requiring us to cease accepting more than 200 tons per day of out-of-state waste at our Red Carpet Landfill in Oklahoma due to our alleged failure to obtain the Department's prior approval of a disposal plan for that waste. At that time, the Department assessed Waste Connections a fine of $0.2 million for past violations related to accepting more than 200 tons per day of out-of-state waste prior to obtaining the Department's approval of a disposal plan. While seeking the Department's approval of a disposal plan, we continued to accept more than 200 tons a day of out-of-state waste because we believed, based on the advice of our legal counsel, that the Department did not have the legal right to require us to obtain its approval of a disposal plan prior to accepting more than 200 tons per day of out-of-state waste. In June 2002, the Department issued an amended order approving our disposal plan subject to conditions and increasing the fine assessed against us to $2.2 million because we continued to accept more than 200 tons per day of out of state waste prior to obtaining its approval of our plan. We have objected to some of the conditions imposed in the order and have initiated litigation against the Department challenging this order. Based on the advice of our legal counsel, we believe that we will prevail in this litigation. Therefore, we believe that any payment resulting from the order will not materially affect our cash flows, financial condition or results of operations. As a result, we have not recorded a liability in connection with this order. Additionally, we are a party to various legal proceedings in the ordinary course of business and as a result of the extensive governmental regulation of the solid waste industry. Our management does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on our business, financial condition, operating results or cash flows. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the three months ended June 30, 2002, we issued warrants to purchase 500 shares of our common stock to a business development consultant as part of a compensation plan for services rendered. This consultant is a sophisticated investor, familiar with our business and industry in which we operate. The consultant is also an "accredited investor" as defined in Rule 501(a) under the Securities Act, received copies of our most recent annual report to shareholders and the proxy statement accompanying that annual report, and had access to all of our reports filed with the Securities and Exchange Commission during our last fiscal year and the current year. The consultant was able to ask questions of our management concerning the terms of offering and to obtain additional information necessary to verify the accuracy of information to which he had access. No general solicitation or advertising was used in connection with the issuance of the warrants. The warrants were issued with legends stating that they have not been registered under the Securities Act and setting forth restrictions on transfer. The warrants were issued in reliance on the exemptions from registration provided by Sections 3(b) and 4(2) of the Securities Act and Regulation D under that Act. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our Annual Meeting of stockholders was held on May 16, 2002. Robert H. Davis was elected as director by the votes indicated: Total Votes For: 22,656,579 Total Votes Withheld: 1,137,248 Total Votes Instructed: 2,380 Eugene V. Dupreau was elected as director by the votes indicated: Total Votes For: 22,658,359 Total Votes Withheld: 1,135,468 Total Votes Instructed: 2,380 The terms for Messrs. Davis and Dupreau expire on the date of the annual meeting in 2005. The following proposals were also adopted at the annual meeting by the votes indicated: To ratify the appointment of Ernst & Young LLP as Independent Auditors for Waste Connections for the year 2002: Total Votes For: 23,204,624 Total Votes Against: 564,057 Total Votes Abstained: 25,146 To approve the adoption of the 2002 Senior Management Equity Incentive Plan: Total Votes For: 13,315,150 Total Votes Against: 8,121,527 Total Votes Abstained: 2,357,150 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: Exhibit Number Description of Exhibits ------ ----------------------- 4.1* Form of Note for Waste Connections, Inc.'s Floating Rate Convertible Subordinated Notes Due 2022 4.2* Indenture between Waste Connections, Inc., as Issuer, and State Street Bank and Trust Company of California, N.A., as Trustee, dated as of April 30, 2002 4.3* Purchase Agreement between Waste Connections, Inc. and Deutsche Bank Securities Inc. dated April 26, 2002 4.4* Registration Rights Agreement between Waste Connections, Inc. and Deutsche Bank Securities Inc. dated as of April 30, 2002 10.1 Employment Agreement between Waste Connections, Inc. and Kenneth O. Rose 10.2 Employment Agreement between Waste Connections, Inc. and Robert D. Evans 10.3** Waste Connections, Inc. 2002 Senior Management Equity Incentive Plan 99.1 Certificate of Chief Executive Officer and Chief Financial Officer *Incorporated by reference to the exhibits to Waste Connections, Inc.'s registration statement on Form S-3 (No. 333-97231). **Incorporated by reference to the exhibit to Waste Connections, Inc.'s registration statement on Form S-8 (No. 333-83172). b. Reports on Form 8-K: On April 24, 2002, we filed a report on Form 8-K reporting our sale of $150 million principal amount of Floating Rate Convertible Subordinated Notes due 2022 in a private placement, with an option to issue up to an additional $25 million of notes. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. WASTE CONNECTIONS, INC. Date: August 13, 2002 BY: /s/ Ronald J. Mittelstaedt -------------------------------------- Ron J. Mittelstaedt, President and Chief Executive Officer Date: August 13, 2002 BY: /s/ Steven F. Bouck -------------------------------------- Steven F. Bouck, Executive Vice President and Chief Financial Officer EX-10.1 3 ex10-1_11403.txt EMPLOYMENT AGREEMENT - KENNETH O. ROSE EXHIBIT 10.1 ------------ EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of May 1, 2002 or such earlier date as the parties agree (the "Effective Date"), by and between KENNETH O. ROSE (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), with reference to the following facts. Thc Company desires to engage the services and employment of the Employee, and the Employee is willing to accept employment by the Company, 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, on the terms and conditions stated herein. 2. POSITION AND RESPONSIBILITIES. During the Term the Employee shall serve as the Senior Vice President - Administration of the Company, reporting directly to the Company's Executive Vice President - Operations. The Employee shall be based in the Company's corporate headquarters in California and shall be responsible for the Company's Risk Management and Loss Control Programs, as well as the Company's Human Resource Administration and Employee Benefit program administration. The employee shall 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 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") shall commence on the Effective Date and continue until the third anniversary of the Effective Date, 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 $135,000.00 dollars ($135,000.00) per year in installments consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on each anniversary of the Effective Date 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 reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal up to fifty(50%) of the applicable year's beginning 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. The Bonus 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 fiscal year be paid more than seventy-five (75) days after the end of such fiscal year. For the Employee's bonus to be paid in 2003, for the fiscal 2002 year, any bonus earned shall be prorated from the first day of employment to the end of the year. (3) GRANT OF OPTIONS OR RESTRICTED STOCK. On the Effective Date, the Company sha11 grant to the Employee, for no additional consideration, the following awards: (a.) Nonqualified stock options (the "Options") to purchase an amount of the Company's Common Stock under the Company's 2002 Senior Management Equity Incentive Plan, a grant of forty thousand (40,000) non-qualified stock options of the Company's Common Stock. These stock options will be issued to the Employee in his name effective on April 26, 2002. The price of each stock option will be equal to the close of market price for one share of the Company's common stock on the April 26, 2002. The ownership of these shares shall vest 33 1/3% on the first, second and third anniversaries of the grant date to the Employee, pursuant to the Company's 2002 Senior Management Equity Incentive Plan. The terms of the Options shall be described in more detail in a Stock Option Agreement 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. (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 benefits after applicable waiting period. The Employee shall be entitled to three (3) weeks of paid vacation during each of the first three twelve-month periods of his employment, and four (4) weeks per twelve-month period beginning with the fourth twelve-month period of employment under this agreement. (c) REIMBURSEMENT OF OTHER EXPENSES. The Company agrees to pay or reimburse the Employee for a11 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, 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 sha11 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. (a) TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EMPLOYEE. The employment of the Employee may be terminated for cause at any time by the "Board" on written Notice of Termination (as defined in Section 8(a)) delivered to the Employee describing with specificity the grounds for termination. The employment of the Employee may also be terminated at any time by the Employee on written Notice of Termination delivered to the Company. 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 8(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. For purposes of this Agreement, Cause shall mean: (1) a material breach of any of the terms of this Agreement that is not immed1ately corrected following written notice of default specifying such breach; (2) a breach of any of the provisions of Section 10; (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 respons1b1l1tles 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 8(a)). On the Date of Termination (as defined in Section 8(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary payable under Section 4(a)(1) at the rate in effect on the Date of Termination a period of 18 months or, if termination occurs within the first 18 months of the initial term of the contract, employee will be entitled to the balance of the initial term of the contract as severance, provided the Employee agrees to a full time transition period to assist the Company of up to one hundred and twenty (120) days as directed by the Company. At the end of this transition period, the Company shall pay the Employee the eighteen months lump sum payment or the balance of the initial term, whichever is applies. In addition, 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 shal1 immediately vest and become exercisable. The term of any such options and rights shall be extended to the second 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) or 7(d), 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 8(8)) 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 8(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), 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. (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 8(b))pursuant to 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. The term of any such options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of the 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. PROVISIONS APPLICABLE TO TERMINATION OF EMPLOYMENT. (a) NOTICE OF TERMINATION. Any purported termination of Employee's employment by thc Company or by the employee pursuant to Section 7 shall be communicated by Notice of Termination to the Employee or the Company, as the case may be, as provided herein ("Notice of Termination"). (b) DATE OF TERMINATION. For all purposes, "Date of Termination" shall mean the date on which a Notice of Termination is given. (c) BENEFITS ON TERMINATION. On termination of this Agreement pursuant to Section 7, 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. Except as otherwise provided in Sections 7(b), 7(c), 7(d), and 9, if the Employee's employment by the Company is terminated before all of the Employee's options, warrants and rights with respect to the Company's capital stock have vested, the Employee shall forfeit any such options, warrants and rights that are unvested as of the termination date. 9. 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 shal1 be entitled to receive and the Company agrees to pay to the Employee in a lump sum under Section 7(b) that is payable to the Employee on termination without Cause except, if such a change in control happens during the initial three (3) year term of the agreement, the salary paid shall equal 36 months instead of 18 months. 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, and 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 or other option or right (the "Termination 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 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. 10. NON-COMPETITION AND NON-SOLICITATION. (a) In consideration of the provisions hereof, for the period commencing on the date hereof and ending on the later of the first anniversary of the termination of this Agreement, or one year after receipt by the Employee of all compensation owed under this Agreement, 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 in 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 tender 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, 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 ool1ection 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 l0(a); provided that if the Employee is terminated by the Company without Cause by the Company pursuant to Section 7(b), the restrictions in this Section 10(b)shall apply only for as many months after such termination as are used to calculate the amount actually paid under Section 7(b){iii) to the Employee on such termination. For example, if the Employee waives his right to be paid any amount under Section 7(b)(iii) {relating to the Total Compensation paid to him during the previous twelve months, the restrictions in this Section l0(b) shall not apply at a1l; if the Employee elects to receive under Section 7(b)(iii)an amount equal to only eight months' Total Compensation. the restrictions shall apply for only eight months. (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 10 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. 11. INDEMNIFICATION. As an employee and agent of the Company: the Emp1oyee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 12. SURVIVAL OF PROVISIONS. The obligations of the Company under Section 11 of this Agreement, and of the Employee under Sections 5,6 and 10 of this Agreement, shall survive both the termination of the Employee's employment and this Agreement. 13. 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 thc 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. 14. 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 sha11 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 sha11 assign this Agreement to any entity that acquires its assets or business. 15. 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. 16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supercedes 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. 17. 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. 18. 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. 19. SEVERABILITY. In case anyone 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. 20. 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 10 of this Agreement, and, in any action or proceeding to enforce the provisions of Sections 5, 6, or 10 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 re1ief 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 broaches any provision of Section 10, 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. 21. 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. 22. 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: Ronald J. Mittelstaedt Title: President and Chief Executive Officer EMPLOYEE: - ------------------------------------ Kenneth O. Rose EX-10.2 4 ex10-2_11403.txt EMPLOYMENT AGREEMENT - ROBERT D. EVANS EXHIBIT 10.2 ------------ EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of May 10, 2002, by and between Robert D. Evans (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, General Counsel and Secretary of the Company, reporting directly to the Company's Chairman and Chief Executive Officer, and shall perform such other duties and responsibilities as the Chairman and Chief Executive 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 Folsom, 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") shall commence on the date of this Agreement, and shall continue through May 31, 2005, unless terminated earlier as provided herein or extended by the Board. On June 1 of each year, commencing June 1, 2003, this Agreement shall be extended automatically for an additional year, thus extending the Term to three years from such date, 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. Commencing June 1, 2002, the Employee shall be paid a base salary ("Base Salary") of not less than Two Hundred Thousand Dollars ($200,000) 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. (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. For fiscal year 2002, the Bonus will not be pro rated. The Bonus 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) Contract Signing Bonus. As an additional inducement for the Employee to enter into this Agreement, the Company will pay the Employee an initial cash bonus of Four Hundred Thousand Dollars ($400,000), which amount shall be paid in one or more installments of at least One Hundred Thousand Dollars ($100,000) at any time prior to May 31, 2002, within fifteen days after request by the Employee. (4) Loan Facility. The Company will make available to the Employee a loan facility (the "Loan Facility") in the principal amount of Four Hundred Thousand Dollars, ($400,000) on the following terms: (i) One Hundred Thousand Dollars ($100,000) of the Loan Facility will be made available during each one-year period commencing June 1, 2002, 2003, 2004 and 2005; (ii) any portion of the Loan Facility not drawn in any such one-year period may be carried forward and borrowed during any subsequent one-year period; (iii) borrowings under the Loan Facility shall bear interest at the annual rate of six percent (6%), which need not be paid currently, but shall accrue and be added to principal; (iv), the Loan Facility shall be unsecured provided that the Employee may request that the Loan Facility be secured by a deed of trust on the Employee's residence; (v) if the Loan Facility should be secured by a deed of trust on the Employee's residence, the Company agrees that, at the Employee's request at any time, the Company's deed to trust shall be subordinated to one or more deeds of trust securing other indebtedness without regard to the amount secured, and the Company further agrees that such deed of trust shall be released promptly after any request by Employee whether or not the Loan Facility has been repaid in whole or in part and whether or not it is in default; (vi) the Loan Facility shall be due and payable on May 31, 2006, provided, however, that if the Market Value of the Initial Option Grant (as defined below) does not exceed One Million Five Hundred Thousand Dollars ($1,500,000) during any period of ten consecutive trading days on which the Company's Common Stock could have been traded on the principal exchange on which it is then listed when the Employee could have sold shares of the Company's Common Stock without regard to Company "black out" periods (whether a regular quarterly black out period or due to the pendency of a material announcement or transaction by the Company) or "lock-ups" imposed by underwriters of the Company's securities (each such ten consecutive trading day period "Trading Window") between June 1, 2005 and May 31, 2006, the principal and all accrued but unpaid interest on the Loan Facility shall be forgiven on June 1, 2006, (vii) if the Market Value of the Initial Option Grant does not exceed One Million Five Hundred Thousand Dollars ($1,500,000) during any Trading Window between June 1, 2005, and May 31, 2006, the Employee may by notice to the Company elect to extend the date on which principal and accrued interest on the Loan Facility are due to June 1, 2007, provided that if the Market Value of the Initial Option Grant exceeds One Million Five Hundred Thousand Dollars ($1,500,000) during any Trading Window between June 1, 2006, and May 31, 2007, the principal and accrued 2 interest under the Loan Facility shall not be forgiven but shall be due and payable in full on June 1, 2007, provided, further, that if Employee makes the election provided for in this clause (vii), no interest shall accrue on any principal or interest payable under the Loan Facility after June 1, 2006; and (viii) notwithstanding clause (vi), if at any time prior to June 1, 2006, the Employee has exercised any or all of the Options granted in the Initial Option Grant and sold the shares of the Company's Common Stock received on such exercise and if the net proceeds received by the Employee on such sale, before payment of any taxes but after payment of the exercise price of the Options exercised, exceeds One Million Five Hundred Thousand Dollars ($1,500,000), the principal and all accrued but unpaid interest on the Loan Facility shall be due and payable on June 1, 2006. Borrowings under the Loan Facility shall be evidenced by one or more promissory notes in form and substance reasonably satisfactory to the Company and the Employee. As used in this Section, "Market Value of the Initial Option Grant" means the amount by which the fair market value of the number of shares of the Company's Common Stock that may be purchased by the Employee on exercise of the Options subject to the Initial Option Grant exceeds the exercise price of the Options subject to the Initial Option Grant, in each case as adjusted pursuant to Section 6(b) of the Company's 2002 Senior Management Equity Incentive Plan. "Fair market value" of the Company's Common Stock shall have the same meaning as "Fair Market Value" in the Company's 2002 Senior Management Equity Incentive Plan. "Initial Option Grant" means the grant of options provided in Section 4(a)(5). (5) Initial Option Grant. In connection with the Employee entering into this Agreement, the Company shall grant the Employee Options to purchase seventy thousand (70,000) shares of the Company's Common Stock at an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. Such options shall vest one third each on the first, second and third anniversaries of the date of grant. Such Options shall be nonqualified Stock Options issued pursuant to the Company's 2002 Senior Management Equity Incentive Plan. The terms of such Options shall be described in more detail in a Stock Option Agreement to be entered into between the Employee and the Company. (6) Below Market Grant. In connection with the Employee entering into this Agreement, the Company shall grant to the Employee Options to purchase sixty thousand (60,000) shares of the Company's Common Stock at a price per share equal to ten dollars ($10.00) per share less than the fair market value of the Company's Common Stock on the date of grant. Such Options shall be fully vested on the date of grant, but the Employee shall not sell a cumulative total of more than the following number of shares purchased on exercise of such Options prior to the dates indicated: June 1, 2003, twenty thousand (20,000) shares; June 1, 2004, forty thousand (40,000) shares; and, June 1, 2005, sixty thousand (60,000). Such Options shall be nonqualified Stock Options issued pursuant to the Company's 2002 Senior Management Equity Incentive Plan. The terms of such Options shall be describe in more detail in a Stock Option Agreement to be entered into between the Employee and the Company. (7) Grant of Options. The Employee shall be eligible for annual grants of Options commensurate with his position and with option grants to other management employees of the Company, based on the recommendation of the Company's Chairman and Chief Executive Officer and as approved by the Board. Such Options shall be nonqualified Stock Options issued pursuant to the Company's 2002 Senior Management Equity Incentive Plan, or any other plan hereafter adopted by the Company. The terms of the Options shall be 3 described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. (b) Benefits. (1) Annual Executive Physical. The Employee shall be entitled to participate annually in the Mayo Clinic at Scottsdale Executive Medical Review Program at the expense of the Company. The Company may discontinue this benefit for all management employees at any time. (2) Relocation. The Company recognizes that the Employee does not intend to relocate his principal residence at this time. The Company will make local housing available to the Employee as reasonably necessary on terms reasonably acceptable to both parties. Should Employee decide to locate his principal residence from Lafayette, California, to a location near Folsom, California, on or before June 1, 2006, the Company will provide the Employee relocation benefits in accordance with the Relocation Agreement attached hereto as Exhibit A. The Company may credit against the amount to be reimbursed to the Employee in the event the Employee relocates his principal residence that amount paid or reimbursed by the Company for local housing pursuant to the second sentence of this section through the date the Employee relocates his residence. (3) Automobile Allowance. Beginning June 1, 2006, unless he has relocated his principal residence to the Folsom area, the Employee shall be entitled to a vehicle allowance of Ten Thousand Dollars ($10,000) per year net after payment of all taxes. The Employee shall pay all fuel and maintenance on the Employee's vehicle. The provisions of this Section 4(b)(3) shall terminate if the Employee relocates his principal residence to the Folsom area. (4) Home Office. To facilitate the Employee's ability to work at home for the convenience of the Company, the Company will pay or reimburse the Employee the cost of a fax line and data line to the Employee's house, and shall provide the Employee with a fax machine and a computer. (5) Bar Dues and Continuing Education. The Company shall reimburse Employee for dues payable to the State Bar of California and the American Bar Association, or other professional organizations reasonably related to the Employee's duties and shall pay or reimburse the Employee for costs reasonably incurred in attending seminars and conferences to satisfy minimum continuing education requirements of the State Bar of California or to further his expertise in areas relevant to his employment by the Company. The Company recognizes that some conference may require travel by the Employee and the Company agrees to reimburse Employee for the reasonable costs of travel. (6) 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 4 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, including the year commencing on the date of this Agreement. (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. 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 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 5 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, (ii) all outstanding but unvested Options and other options and rights relating to capital stock of the Company, and (iii) the Employee may exercise all vested Options within five (5) business days after the Date of Termination (as defined in Section 9(b)). 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, in lieu of any payments under Section 4(a)(1) and 4(a)(2) for the remainder of the Term, pay to the Employee an amount equal to the sum of (i) all Base Salary payable under Section 4(a)(1) through the termination date, (ii) the full (not pro-rated) 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 Employee's then current annual Base Salary under Section 4(a)(1) plus three times his maximum bonus under Section 4(a)(2) (whether or not the entire amount was actually earned or paid) for the year in which the termination occurs. Such amount shall be paid as follows: one third on the Date of Termination and, provided that Employee has complied with the provisions of Section 12 hereof, one third on each of the first and second anniversaries of the Date of Termination of the Employee's employment. In addition, on termination of the Employee under this Section 7(b), if not previously paid, the contract signing bonus payable pursuant to Section 4(c) shall become immediately due and payable, the principal and all accrued but unpaid interest on the Loan Facility shall be immediately forgiven, the Company shall pay a lump sum payment to the Employee in the amount of Four Hundred Thousand Dollars ($400,000) minus the sum of the principal amount of the Loan Facility that is forgiven, and all of the Employee's outstanding but 6 unvested Options and other options and rights relating to capital stock of the Company shall immediately vest and become exercisable, and the restrictions on resale of the Common Stock received or exercise of the Options described in Section 4(a)(6) shall terminate. The term of any such Options and other options and rights shall be extended to the third anniversary of the Employee's termination. The Employee acknowledges that extending the term of any incentive stock 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, if not previously paid, the contract signing bonus payable pursuant to Section 4(c) shall become immediately due and payable, the principal and all accrued but unpaid interest on the Loan Facility shall be immediately forgiven, the Company shall pay a lump sum payment to the Employee in the amount of Four Hundred Thousand Dollars ($400,000) minus the sum of the principal amount of the Loan Facility that is forgiven. 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 the restrictions on resale of the Common Stock received or exercise of the Options described in Section 4(a)(6) shall terminate. The term of any such Options and other 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 such termination, if not previously paid, the contract signing bonus payable pursuant to Section 4(c) shall become immediately due and payable, the principal and all accrued but unpaid interest on the Loan Facility shall be immediately forgiven, 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 the restrictions on resale of the Common Stock received on exercise of the Options described in Section 4(a)(6) shall terminate. The term of any such Options and other options and rights shall be extended to the third anniversary of the Employee's termination. The provisions of this Section 7(d) shall 7 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 at the times and subject to the conditions set forth therein. 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 the restrictions on resale of the Common Stock received in exercise of the Options described in Section 4(a)(6) shall terminate. The term of any such Options and other 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; (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity; (7) The Employee shall render legal advice to the Board or the Chairman and Chief Executive Officer of the Company on a matter of material importance to the Company that in the Employee's reasonable judgement a particular action or course of conduct is 8 required by law or would be prohibited by law, and the Board or the Chairman and Chief Executive Officer fails to cause the Company to take the action or course of conduct required by law or authorizes or permits the Company to engage in an action or course of conduct that is prohibited by law; or (8) Prior to May 31, 2005, Ron Mittelstaedt shall voluntarily terminate his employment with the Company or his employment is terminated without cause by the Company. (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 outstanding but unvested Options and other options and rights relating to capital stock of the Company. If the Employee terminates his employment hereunder without Good Reason, prior to May 31, 2004, he shall repay to the Company a pro rata portion of his contract signing bonus paid pursuant to Section 4(a)(3), such pro rata portion to be determined by multiplying the amount of such bonus paid by a fraction, the numerator of which is the number of full calendar months remaining from the date of termination through May 31, 2004, and the denominator of which is 24. 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. 9 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 the same amount determined under Section 7(b) that is payable to the Employee on termination without Cause provided, however, that such amount shall be payable in a lump sum on the Date of Termination and not in installments as provided in Section 7(b). 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, and the restrictions on resale of the Common Stock received on exercise of the Options described in Section 4(a)(6) shall terminate. The term of any such Options and other 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 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: (1) 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 (2) 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 10 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 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). 11 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof, for the Restricted Period (as defined below), the Employee will not, except as specifically provided below, anywhere in any county in the State of California or anywhere in any other state in which the Company is engaged in business as of such termination date (the "Restricted Territory"), 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 and provided that Employee may participate as a partner, shareholder, owner or employee of a law firm and in that capacity may advise clients engaged in the foregoing activities. The term "Restricted Period" shall mean the earlier of (i) the maximum period allowed under applicable law and (ii)(x) in the case of a Change of Control, until the third anniversary of the effective date of the Change of Control, (y) in the case of a termination by the Company without Cause pursuant to Section 7(b) or by the Employee for Good Reason pursuant to Section 8(a) and provided the Company has made the payments required under Section 7(b) or 8(a), as the case may be, until the third anniversary of the Date of Termination, or (z) in the case of Termination for Cause by the Company pursuant to Section 7(a) or by the Employee without Good Reason pursuant to Section 8(b), until the first anniversary of the Date of Termination. (b) After termination of this Agreement by the Company or the Employee pursuant to Section 7 or 8 or termination of this Agreement upon a Change in Control pursuant to Section 10, 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 the Restricted Territory (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 the Restricted Territory, (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 in the Restricted Territory that the Employee called on or was involved in soliciting on behalf of the Company during the Term, in each case until the third anniversary of the date of such termination or the effective date of such change of control (whichever is later), unless otherwise permitted to do so by Section 12(a). 12 (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. 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. The parties irrevocably and unconditionally submit to the jurisdiction and venue of any court, federal 13 or state, situated within Sacramento County, California, for the purpose of any suit, action or other proceeding arising out of, or relating to or in connection with, this Agreement. 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 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. 14 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: ---------------------------------------- Ronald J. Mittelstaedt Chairman and Chief Executive Officer and President EMPLOYEE: ---------------------------------------- Robert D. Evans 15 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT --------------------------------------- THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT is made and entered into as of July 22, 2002, by and between Robert D. Evans ("Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), with reference to the following facts: The Company and the Employee entered into an Employment Agreement as of May 10, 2002 (the "Employment Agreement"). The Company and The Employee now wish to amend the Employment Agreement in certain respects. NOW THEREFORE in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Amendment of Employment Agreement. Section 8(b) of the Employment Agreement is hereby amended by deleting the last sentence of that Section ("If the Employee terminates...of which is 24."). IN WITNESS WHEREOF, the parties have executed and delivered this Amendment No. 1 to Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC. By: _______________________ Ronald J. Mittelstaedt Chairman and Chief Executive Officer and President EMPLOYEE: - ---------------------------- Robert D. Evans 16 EX-99.1 5 ex99-1_11403.txt CERTIFICATE OF C.E.O. AND C.F.O. EXHIBIT 99.1 ------------ CERTIFICATE OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER The undersigned, Ronald J. Mittelstaedt and Steven F. Bouck, being the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Waste Connections, Inc., a Delaware corporation (the "Company"), hereby certify that the quarterly report of the Company on Form 10-Q for the quarterly period ended June 30, 2002, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 13, 2002 By: /s/ Ronald J. Mittelstaedt ----------------------------- Ronald J. Mittelstaedt Date: August 13, 2002 By: /s/ Steven F. Bouck ----------------------------- Steven F. Bouck -----END PRIVACY-ENHANCED MESSAGE-----