AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2004.
REGISTRATION NO. 333-97231
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
WASTE CONNECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3283464
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
35 IRON POINT CIRCLE, SUITE 200
FOLSOM, CALIFORNIA 95630
(916) 608-8200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
________________
RONALD J. MITTELSTAEDT
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN
WASTE CONNECTIONS, INC.
35 IRON POINT CIRCLE, SUITE 200
FOLSOM, CALIFORNIA 95630
(916) 608-8200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
CAROLYN S. REISER, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP
ONE MARITIME PLAZA, 18TH FLOOR
SAN FRANCISCO, CALIFORNIA 94111
(415) 421-6500
________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only Securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
________________
CALCULATION OF REGISTRATION FEE
=============================================================== =================== ================ ================== ============
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE FEE
--------------------------------------------------------------- ------------------- ---------------- ------------------ ------------
Floating Rate Convertible Subordinated Notes Due 2022........ $175,000,000 100%(1) $175,000,000 $16,100(2)
--------------------------------------------------------------- ------------------- ---------------- ------------------ ------------
Common Stock, $0.01 par value................................ 3,616,445 shares(3) (4) (4) (4)
=============================================================== =================== ================ ================== ============
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(i) of the Securities Act of 1933.
(2) Previously paid.
(3) This number represents the number of shares of common stock that are
initially issuable upon the conversion of Floating Rate Convertible
Subordinated Notes due 2022 registered hereby. For purposes of estimating
the number of shares of common stock to be included in the Registration
Statement upon the conversion of the notes, we calculated the number of
shares issuable upon conversion of the notes based on a conversion rate of
approximately 20.6654 shares per $1,000 principal amount of the notes. In
addition to the shares set forth in the table, pursuant to Rule 416 under
the Securities Act of 1933, as amended, the amount to be registered
includes an indeterminate number of shares of common stock issuable upon
conversion of the notes, as this amount may be adjusted as a result of
stock splits, stock dividends and antidilution provisions.
(4) No additional consideration will be received for the common stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
Subject to completion, dated March 17, 2004
[WASTE CONNECTIONS INC. LOGO]
$175,000,000
Floating Rate Convertible Subordinated Notes Due 2022 and 3,616,445 Shares of
Common Stock Issuable Upon Conversion of the Notes
We issued $175,000,000 aggregate principal amount of Floating Rate
Convertible Subordinated Notes due 2022 in April 2002 in a Rule 144 offering.
This prospectus covers the resale of the notes and shares of our common stock
into which the notes are convertible that have not previously been sold in a
public offering. As of March 1, 2004, $136,695,000 principal amount of the notes
have previously been sold in public offerings pursuant to the registration
statement of which this prospectus is a part.
Selling holders will use this prospectus to sell the notes and the shares
of common stock into which the notes are convertible at any time at market
prices prevailing at the time of the sale or at privately negotiated prices. The
selling holders may sell the notes or the common stock directly to purchasers or
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions.
The notes are convertible, at the option of the holder into shares of
common stock of Waste Connections, Inc., only in the following circumstances:
o the sale price of our common stock is more than 110% of the conversion
price measured over a specified number of trading days;
o if we have called the notes for redemption;
o during any period in which the credit rating assigned to the notes by
Moody's Investors Service, Inc. and Standard & Poor's Rating Group are
reduced below B3 or B-, respectively, or if neither rating agency is
rating the notes;
o 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 was less than 95% of the product of
the closing sale price of our common stock multiplied by the number of
shares issuable upon conversion of $1,000 principal amount of the notes;
or
o if any of certain specified corporate transactions occur.
The notes are convertible at a conversion rate of approximately 20.6654
shares per $1,000 principal amount of notes. The conversion price is $48.39 per
share. The notes bear interest at a per annum rate equal to the 3-month LIBOR,
adjusted quarterly, plus a spread of 0.50%; provided that the interest rate
borne by the notes will never be less than zero. Interest on the notes is
generally payable on May 1, August 1, November 1 and February 1 of each year.
We may redeem some or all of the notes at any time on or after May 7, 2006,
at redemption prices set forth in this prospectus, plus accrued and unpaid
interest. Holders may require us to repurchase the notes on May 1, 2009, May 1,
2012 and May 1, 2017, and upon a change in control, as defined in the indenture
governing the notes, at 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase.
The notes are our general unsecured obligations. The indenture governing
the notes does not restrict the incurrence by us of senior indebtedness or other
indebtedness. As of December 31, 2003, we had $286.6 million of indebtedness
that constituted senior indebtedness to which the notes are subordinated in
right of payment, and $150 million of convertible subordinated indebtedness that
ranked pari passu with the notes.
We do not intend to list the notes for trading on any national securities
exchange or The Nasdaq National Market. Our common stock is listed on The New
York Stock Exchange under the symbol "WCN." On March 1, 2004, the closing sale
price of our common stock, as reported on The New York Stock Exchange, was
$37.70.
INVESTING IN THE NOTES AND OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
THE SECURITIES OFFERED OR SOLD UNDER THIS PROSPECTUS HAVE NOT BEEN APPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is .
3
[INSIDE FRONT COVER]
This prospectus contains registered service marks, trademarks and trade
names of Waste Connections, including the Waste Connections, Inc. name and logo.
4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. 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. Waste
Connections' 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. Factors that could cause actual
results to differ from those projected include, but are not limited to, the
following:
o competition or unfavorable economic or industry conditions could lead to
a decrease in demand for our services and/or to a decline in prices we
realize for our services;
o 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, or finding
acquisition targets suitable to our growth strategy;
o 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;
o governmental regulations may require increased capital expenditures or
otherwise affect our business;
o businesses that we acquire could have undiscovered liabilities;
o large, long-term collection contracts on which we depend may not be
replaced when they expire or are terminated;
o we are highly dependent on the services of our senior management, who
would be difficult or impossible to replace;
o we have a substantial amount of goodwill; if indicators of impairment
arise, a write-down of our goodwill may be required, which could
materially impair our net worth; and
o if our financial condition deteriorates, we may be unable to repurchase
the notes if a change in control occurs.
These risks and uncertainties, as well as others, are discussed in greater
detail in Waste Connections' filings with the SEC, including our most recent
annual report on Form 10-K. You should read carefully the section of this
prospectus under the heading "Risk Factors" beginning on Page 10. We make no
commitment to revise or update any forward-looking statements in this prospectus
to reflect events or circumstances after the date of this prospectus.
5
SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. THIS
DOCUMENT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO
UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THIS PROSPECTUS CAREFULLY,
INCLUDING THE RISK FACTORS AND THE FINANCIAL STATEMENTS INCORPORATED BY
REFERENCE HEREIN. YOU SHOULD ALSO READ AND CONSIDER THE INFORMATION IN THE
DOCUMENTS WE HAVE REFERRED YOU TO IN "WHERE YOU CAN FIND MORE INFORMATION."
UNLESS OTHERWISE SPECIFIED, ALL REFERENCES TO "WASTE CONNECTIONS" MEAN WASTE
CONNECTIONS, INC. AND OUR SUBSIDIARIES, AND ALL REFERENCES TO "SOLID WASTE' MEAN
NON-HAZARDOUS SOLID WASTE.
OUR BUSINESS
Waste Connections, Inc., a Delaware corporation organized in 1997, is an
integrated solid waste services company that provides solid waste collection,
transfer, disposal and recycling services in mostly secondary markets in the
Western and Southern U.S. As of December 31, 2003, we served more than one
million commercial, residential and industrial customers from operations in 22
states: Alabama, Arizona, California, Colorado, Georgia, Illinois, Iowa, Kansas,
Kentucky, Minnesota, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma,
Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming. As of
that date, we owned or operated a network of 101 collection operations, 33
transfer stations, 34 municipal solid waste landfills, one construction and
demolition landfill and 26 recycling operations. We also owned one municipal
solid waste landfill site that is permitted for operation, but not constructed
as of December 31, 2003.
Our growth strategy focuses on expanding into secondary markets located
primarily in the Western and Southern U.S. that have strong demographic growth
trends and where competitive barriers to entry can be developed. We target
markets where we can either (1) provide waste collection services under
franchises, exclusive contracts or other arrangements, or (2) garner a leading
market position and provide vertically integrated collection and disposal
services. We generally seek to avoid operating in highly competitive, larger
urban markets. We are a leading provider of solid waste services in most of our
markets, and more than 50% of our revenues are derived from market areas where
we have franchise or exclusive rights to provide our services.
We have focused on secondary markets mostly in the Western and Southern
U.S. because we believe that in those areas: (1) there is a greater opportunity
to enter into exclusive arrangements; (2) there is less competition from larger
solid waste services companies; (3) strong economic and population growth rates
are projected; and (4) there remain a number of independent solid waste services
companies suitable for acquisition.
We have developed a two-pronged business strategy tailored to the
competitive and regulatory factors that affect our markets:
- Control the Waste Stream. In markets where waste collection services are
provided under exclusive arrangements, or where waste disposal is
municipally funded or available at multiple municipal sources, we believe
that controlling the waste stream by providing collection services is often
more important to our growth and profitability than owning or operating
landfills. In addition, contracts in some western U.S. markets dictate the
disposal facility to be used. The large size of many western states
increases the cost of interstate and long haul disposal, heightening the
effects of regulations that direct waste disposal, which may make it more
difficult for a landfill to obtain the disposal volume necessary to operate
profitably. In markets with these characteristics, we believe that landfill
ownership or vertical integration is not as critical to our success.
- Provide Vertically Integrated Services. In markets where we believe that
owning landfills is a strategic element to a collection operation because
of competitive and regulatory factors, we generally focus on providing
integrated services, from collection through disposal of solid waste in
landfills that we own or operate. In December 2003, approximately 69% of
waste we collected in our markets was disposed of at landfills we owned or
operated.
6
Our senior management team has extensive experience in acquiring,
integrating and operating solid waste services businesses, and we intend to
continue to pursue an acquisition-based growth strategy. As of December 31,
2003, we had acquired 167 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.
________________
Waste Connections' executive offices are located at 35 Iron Point Circle,
Suite 200, Folsom, California 95630. Our telephone number is (916) 608-8200. Our
website is www.wasteconnections.com. The information provided on our website is
not incorporated into this prospectus.
7
SUMMARY FINANCIAL DATA
The following historical consolidated statement of operations data for the
years ended December 31, 2001, 2002 and 2003 are derived from our audited
consolidated financial statements included in our 2003 Annual Report on Form
10-K filed with the SEC.
YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2002 2003
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA(1):
Revenues ......................................... $ 377,533 $ 498,661 $ 563,509
Operating expenses:
Cost of operations ............................. 211,064 282,187 316,841
Selling, general and administrative ............ 32,007 47,366 54,367
Depreciation and amortization .................. 36,138 38,977 47,347
Loss on disposal of operations(2) .............. 4,879 -- --
------------ ------------ ------------
Income from operations ........................... 93,445 130,131 144,954
Interest expense ................................. (29,571) (31,372) (31,666)
Other expense, net(3) ............................ (6,196) (813) (192)
------------ ------------ ------------
Income before income tax provision and
minority interests ............................. 57,678 97,946 113,096
Minority interests ............................... (7,338) (9,367) (10,549)
------------ ------------ ------------
Income before income tax provision ............... 50,340 88,579 102,547
Income tax provision ............................. (19,812) (33,113) (37,233)
------------ ------------ ------------
Income before cumulative effect of change in
accounting principle ........................... 30,528 55,466 65,314
Cumulative effect of change in accounting
principle, net of tax expense of $166 .......... -- -- (282)
------------ ------------ ------------
Net income ....................................... $ 30,528 $ 55,466 $ 65,596
============ ============ ============
Diluted net income per share ..................... $ 1.10 $ 1.90 $ 2.18
============ ============ ============
Shares used in calculating diluted net income
per share ...................................... 27,675,639 32,325,624 32,871,652
============ ============ ============
OTHER DATA:
Pro forma net income reflecting adoption of
SFAS Nos. 141, 142 and 143(4) .................. $ 37,575 $ 55,784 N/A
Pro forma diluted net income per share
reflecting adoption of SFAS Nos. 141, 142
and 143(4) ..................................... 1.36 1.91 N/A
Net cash provided by operating activities ........ 87,198 131,488 157,215
Net cash used in investing activities ............ (90,840) (222,891) (160,951)
Net cash provided by financing activities ........ 8,460 88,191 4,945
DECEMBER 31,
2003
------------
BALANCE SHEET DATA(1):
Cash and equivalents..................................................................... $ 5,276
Working capital (deficit)................................................................ (15,060)
Property and equipment, net.............................................................. 613,225
Total assets............................................................................. 1,395,952
Long-term debt, net of current portion................................................... 601,891
Total stockholders' equity............................................................... 537,494
8
The ratio of earnings to fixed charges for Waste Connections are set forth
below for the periods indicated.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Ratio of earnings to fixed charges (5)(6).......... 2.7 2.6 2.6 3.6 4.0
__________
(1) Waste Connections' historical financial statements have been retroactively
restated to reflect the acquisitions that were accounted for using the
pooling-of-interests method.
(2) During 2001, we sold some of our Utah operations that were deemed to no
longer be of strategic importance. We recognized a pre-tax loss of $4,879
from this sale.
(3) Other expense in 2001 includes $6,337 of expenses resulting from cash
payments made to terminate an interest rate swap prior to its original
maturity date.
(4) 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 are no longer being
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, continue to be amortized over
their estimated useful lives. Net income and diluted net income per share
for the year ended December 31, 2001 have been adjusted to reflect the
retroactive application of the nonamortization provisions of SFAS No. 142.
On January 1, 2003, we adopted SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which provides standards for
accounting for obligations associated with the retirement of long-lived
assets. The adoption of SFAS No. 143 impacted the calculation and
accounting for landfill retirement obligations, which we have historically
referred to as closure and post-closure obligations. Adopting SFAS No. 143
required a cumulative adjustment as of January 1, 2003 to reflect the
change in accounting for landfill obligations retroactively to the date of
the inception of the landfills. Net income and diluted net income per
share for the years ended December 31, 2001 and 2002, have been adjusted
to reflect the retroactive application of SFAS No. 143.
(5) For purposes of calculating the ratios, fixed charges consist of interest
on debt, amortization of discount on debt and the interest portion of
rental expense on operating leases.
The ratio of earnings to fixed charges is calculated as follows:
(income before extraordinary charges and income taxes) + (fixed charges) -- (capitalized interest)
--------------------------------------------------------------------------------------------------
(fixed charges)
(6) The difference between the historical and pro forma ratios (which give
effect to the note offering, which occurred on April 30, 2002, as if it
had occurred on January 1, 2002) for the year ended December 31, 2002 was
less than 10%.
9
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS.
ANY OR ALL OF THE FOLLOWING RISKS COULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. AS A RESULT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE OR OUR ABILITY TO SERVICE OUR
DEBT MAY BECOME IMPAIRED, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISKS DESCRIBED
BELOW AND ELSEWHERE IN THIS PROSPECTUS AND OTHER FACTORS THAT WE CANNOT NOW
FORESEE.
RISKS RELATED TO OUR BUSINESS
DIFFICULTIES IN MAKING ACQUISITIONS, ACQUIRING EXCLUSIVE CONTRACTS AND
GENERATING INTERNAL GROWTH MAY CAUSE OUR GROWTH TO BE SLOWER THAN EXPECTED.
Our growth strategy includes expanding through acquisitions, acquiring
additional exclusive arrangements and generating internal growth. Most of our
growth has been through acquisitions. From inception through December 31, 2003,
we acquired 167 solid waste services related businesses. Although we have
identified numerous acquisition candidates that we believe are suitable, we may
not be able to acquire them at prices or on terms and conditions favorable to
us. Our ability to grow also depends on several other factors, including:
o the availability of capital to support our growth;
o our ability to compete with existing and emerging companies;
o our ability to maintain profit margins in the face of competitive
pressures;
o our ability to continue to recruit, train and retain qualified
employees; and
o continued strong demand for our services.
Difficulties in any of these areas could hinder our growth.
OUR GROWTH AND FUTURE FINANCIAL PERFORMANCE DEPEND SIGNIFICANTLY ON OUR ABILITY
TO INTEGRATE ACQUIRED BUSINESSES INTO OUR ORGANIZATION AND OPERATIONS.
Part of our strategy is to achieve economies of scale and operating
efficiencies by growing through acquisitions. We may not achieve these goals
unless we effectively combine the operations of acquired businesses with our
existing operations. Our senior management team may not be able to integrate our
completed and future acquisitions. Any difficulties we encounter in the
integration process could interfere with our operations and reduce our operating
margins.
OUR ACQUISITIONS MAY NOT BE SUCCESSFUL, RESULTING IN CHANGES IN STRATEGY,
OPERATING LOSSES OR A LOSS ON SALE OF THE BUSINESS ACQUIRED.
Even if we are able to make acquisitions on advantageous terms and are able
to integrate them successfully into our operations and organization, some may
not fulfill our strategy in a given market due to factors that we cannot
control, such as market position or customer base. As a result, operating
margins could be less than we originally anticipated when we made those
acquisitions. We then may change our strategy with respect to that market or
those businesses and decide to sell the operations at a loss, or keep those
operations and recognize an impairment of goodwill and/or intangible assets.
WE COMPETE FOR ACQUISITION CANDIDATES WITH OTHER PURCHASERS, SOME OF WHICH HAVE
GREATER FINANCIAL RESOURCES THAN WE DO. THESE COMPETITORS MAY BE ABLE TO OFFER
MORE FAVORABLE ACQUISITION TERMS, THUS LIMITING OUR ABILITY TO GROW THROUGH
ACQUISITION.
Other companies have adopted or will probably adopt our strategy of
acquiring and consolidating regional and local businesses. We expect that
increased consolidation in the solid waste services industry will increase
competitive pressures. Increased competition
10
for acquisition candidates may make fewer acquisition opportunities available to
us, and may cause us to make acquisitions on less attractive terms, such as
higher purchase prices. Acquisition costs may increase to levels beyond our
financial capability or to levels that would adversely affect our operating
results and financial condition.
TIMING OF ACQUISITIONS MAY CAUSE FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH
MAY CAUSE OUR STOCK PRICE TO DECLINE.
We are not always able to control the timing of our acquisitions. Obtaining
third-party consents and regulatory approvals, completing due diligence on the
acquired businesses, and finalizing transaction terms and documents are not
entirely within our control and may take longer than we anticipate, causing
certain transactions to be delayed. Our inability to complete acquisitions in
the time frames that we expect may cause our operating results to be less
favorable than expected, which could cause our stock price to decline.
RAPID GROWTH MAY STRAIN OUR MANAGEMENT, OPERATIONAL, FINANCIAL AND OTHER
RESOURCES.
To maintain and manage our growth, we will need to expand our management
information systems capabilities and our operational and financial systems and
controls. We will also need to attract, train, motivate, retain and manage
additional senior managers, technical professionals and other employees. Failure
to do any of these things would restrict our ability to maintain and improve our
profitability while continuing to grow.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH GOVERNMENTAL SERVICE PROVIDERS AND
LARGER AND BETTER CAPITALIZED COMPANIES, WHICH MAY RESULT IN REDUCED REVENUES
AND LOWER PROFITS.
Our industry is highly competitive and requires substantial labor and
capital resources. Some of the markets in which we compete or will likely
compete are served by one or more large, national solid waste companies, as well
as by regional and local solid waste companies of varying sizes and resources,
some of which have accumulated substantial goodwill in their markets.
We also compete with counties, municipalities and solid waste districts
that maintain their own waste collection and disposal operations. These
operators may have financial advantages over us because of their access to user
fees and similar charges, tax revenues and tax-exempt financing. Some of our
competitors may also be better capitalized than we are, have greater name
recognition than we do or be able to provide or be willing to bid their services
at a lower price than we may be willing to offer.
WE MAY LOSE CONTRACTS THROUGH COMPETITIVE BIDDING, EARLY TERMINATION OR
GOVERNMENTAL ACTION, WHICH WOULD CAUSE OUR REVENUES TO DECLINE.
We derive a substantial portion of our revenue from services provided under
exclusive municipal contracts, franchise agreements and governmental
certificates. Many of these will be subject to competitive bidding at some time
in the future. For example, at December 31, 2003, we had approximately 47
municipal contracts, representing annual revenues of approximately $4.2 million,
that could expire in the next 12 months and have no renewal provisions. We also
intend to bid on additional municipal contracts and franchise agreements. We may
not be the successful bidder. In addition, some of our customers may terminate
their contracts with us before the end of the contract term. Municipalities may
annex unincorporated areas within counties where we provide collection services;
as a result, our customers in annexed areas may be required to obtain services
from competitors that have been franchised by the annexing municipalities to
provide those services. Municipalities in which services are currently provided
on a competitive basis may elect to franchise collection services. Unless we are
awarded franchises by these municipalities, we will lose customers.
Municipalities may decide to provide services to their residents themselves on
an optional or mandatory basis, causing us to lose customers. Municipalities in
Washington may by law annex unincorporated territory, which would likely remove
such territory from the area covered by governmental certificates issued to us
by the Washington Utility and Transportation Commission. Annexation would reduce
the areas covered by our governmental certificates and subject more of our
Washington operations to competitive bidding in the future. Moreover,
legislative action could amend or repeal the laws governing WUTC regulation,
which could harm our competitive position by subjecting more areas to
competitive bidding. If we are not able to replace revenues from contracts lost
through competitive bidding or early termination or from the renegotiation of
existing contracts with other revenues within a reasonable time period, our
revenues will decline.
11
WE DEPEND SIGNIFICANTLY ON THE SERVICES OF THE MEMBERS OF OUR SENIOR MANAGEMENT
TEAM, AND THE DEPARTURE OF ANY OF THOSE PERSONS COULD CAUSE OUR OPERATING
RESULTS TO SUFFER.
Our success depends significantly on the continued individual and
collective contributions of our senior and district management team. Key members
of our management have entered into employment agreements, but we may not be
able to enforce these agreements. The loss of the services of any member of our
senior or district management or the inability to hire and retain experienced
management personnel could harm our operating results.
OUR DECENTRALIZED DECISION-MAKING STRUCTURE COULD ALLOW LOCAL MANAGERS TO MAKE
DECISIONS THAT ADVERSELY AFFECT OUR OPERATING RESULTS.
We manage our operations on a decentralized basis. Local managers have the
authority to make many decisions concerning their operations without obtaining
prior approval from executive officers, subject to compliance with general
company-wide policies. Poor decisions by local managers could result in loss of
customers or increases in costs, in either case adversely affecting operating
results.
EFFORTS BY LABOR UNIONS TO ORGANIZE OUR EMPLOYEES COULD DIVERT MANAGEMENT
ATTENTION AND INCREASE OUR OPERATING EXPENSES.
From time to time, labor unions attempt to organize our employees, and
these efforts will likely continue in the future. Some groups of our employees
are represented by unions, and we have negotiated collective bargaining
agreements with some of these groups. Additional groups of employees may seek
union representation in the future, and negotiating collective bargaining
agreements with these groups could divert management attention and result in
increased operating expenses and lower net income. If we are unable to negotiate
acceptable collective bargaining agreements, we might have to wait through
"cooling off" periods, which are often followed by union-initiated work
stoppages, including strikes. Depending on the type and duration of any labor
disruptions, our operating expenses could increase significantly, which could
adversely affect our financial condition, results of operations and cash flows.
THE GEOGRAPHIC CONCENTRATION OF OUR BUSINESS MAKES OUR RESULTS VULNERABLE TO
FACTORS AFFECTING THE REGIONS IN WHICH WE OPERATE, AND SEASONAL FLUCTUATIONS MAY
CAUSE OUR BUSINESS AND FINANCIAL RESULTS TO VARY AMONG QUARTERS, WHICH COULD
CREATE VOLATILITY IN OUR STOCK PRICE.
Our business and financial results would be harmed by downturns in the
general economy of the regions in which we operate and other factors affecting
the regions, such as state regulations affecting the solid waste services
industry and severe weather conditions. Based on historic trends experienced by
the businesses we have acquired, we expect our operating results to vary
seasonally, with revenues typically lowest in the first quarter, higher in the
second and third quarters, and lower in the fourth quarter than in the second
and third quarters. We expect the fluctuation in our revenues between our
highest and lowest quarters to be in the range of approximately 10% to 12%. This
seasonality reflects the lower volume of solid waste generated during the late
fall, winter and early spring months because of decreased construction and
demolition activities during the winter months. In addition, some of our
operating costs may be higher in the winter months. Adverse winter weather
conditions slow waste collection activities, resulting in higher labor and
operational costs. Greater precipitation in the winter increases the weight of
collected waste, resulting in higher disposal costs, which are calculated on a
per ton basis. Because of these factors, we expect operating income to be
generally lower in the winter months, and our stock price may be negatively
affected by these variations.
UNUSUALLY ADVERSE WEATHER CONDITIONS MAY INTERFERE WITH OUR OPERATIONS, HARMING
OUR OPERATING RESULTS.
Our collection and landfill operations could be adversely affected, beyond
the normal seasonal variations described above, by unusually long periods of
inclement weather, which could interfere with collection and landfill
operations, reduce the volume of waste generated by our customers and delay the
development of landfill capacity. Periods of particularly harsh weather may
force us to temporarily suspend some of our operations.
INCREASES IN THE COSTS OF LABOR, DISPOSAL, FUEL OR ENERGY COULD REDUCE OPERATING
MARGINS.
Our continued success will depend on our ability to attract and retain
qualified personnel. We compete with other businesses in our markets for
qualified employees. From time to time, the labor supply is tight in some of our
markets. A shortage of qualified employees would require us to enhance our wage
and benefits packages to compete more effectively for employees or to hire more
expensive temporary employees. Labor is one of our largest costs, and even
relatively small increases in labor costs per employee
12
could materially affect our cost structure. If we fail to attract and retain
qualified employees, to control our labor costs, or to recover any increased
labor costs through increased prices we charge for our services or otherwise
offset such increases with cost savings in other areas, our operating margins
could suffer. If we incur increased disposal costs in areas where we do not
dispose of solid waste at landfills that we own or operate or if we incur
increased disposal costs at landfills that we do own or operate and if, in
either case, we are unable to pass these costs on to our customers, our
operating results would suffer. Although fuel and energy costs account for a
relatively small portion of our total operating expenses, the price of fuel and
energy is volatile, and shortages sometimes occur. Significant increases in the
cost of fuel or energy, or shortages of fuel or energy, could interrupt or
curtail our operations and lower our operating margins.
DECREASED AVAILABILITY OF SURETY BONDS COULD REQUIRE US TO OBTAIN OTHER MEANS OF
FINANCIAL ASSURANCE, WHICH COULD RESULT IN ADDITIONAL CAPITAL OUTLAYS AND
INCREASED EXPENSE AND CAUSE A REDUCTION IN OUR OPERATING MARGINS.
We use financial surety bonds for a variety of corporate guarantees. The
two largest uses of financial surety bonds are for municipal contract
performance guarantees and landfill closure and post-closure financial assurance
required under certain environmental regulations. Environmental regulations
require demonstrated financial assurance to meet closure and post-closure
requirements for landfills. In addition to surety bonds, these requirements may
also be met through alternative financial assurance instruments, including
insurance, letters of credit and restricted cash deposits.
If our current bond underwriters are unwilling to issue additional bonds,
renew existing bonds when such bonds expire, or increase their total bond
commitment, or if we are unable to obtain surety bonds through new underwriters
as such needs arise, we would need to arrange other means of financial
assurance, such as a cash trust or a letter of credit, to secure contract
performance or meet closure and post-closure requirements. Such alternate
financial assurance may not be readily available, and may result in additional
expense or capital outlays.
INCREASES IN INSURANCE COSTS AND IN THE AMOUNT THAT WE SELF-INSURE FOR VARIOUS
RISKS COULD REDUCE OUR OPERATING MARGINS AND REPORTED EARNINGS.
We maintain insurance programs for employee group health, automobile
liability, property, general liability, workers' compensation, employer's
liability, environmental protection and directors and officers' liability. To
control rising insurance costs, beginning August 2002, we became effectively
self-insured by increasing our per incident deductibles. We carry umbrella
policies for certain types of claims to provide excess coverage over the
underlying policies and per incident deductibles. The increased amounts that we
self-insure could cause significant volatility in our operating margins and
reported earnings based on the occurrence and claim costs of incidents,
accidents and injuries. Our insurance accruals are based on claims filed and
estimates of claims incurred but not reported and are developed by our
management with assistance from our third-party actuary and our third-party
claims administrator. To the extent these estimates are inaccurate, we may
recognize substantial additional expenses in future periods that would reduce
operating margins and reported earnings. Significant increases in premiums on
insurance that we retain also could reduce our margins.
EACH BUSINESS THAT WE ACQUIRE OR HAVE ACQUIRED MAY HAVE LIABILITIES THAT WE FAIL
OR ARE UNABLE TO DISCOVER, INCLUDING LIABILITIES THAT ARISE FROM PRIOR OWNERS'
FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS, WHICH MAY HARM OUR FINANCIAL
CONDITION.
As a successor owner, we may be legally responsible for liabilities that
arise from businesses that we acquire. Even if we obtain legally enforceable
representations, warranties and indemnities from the sellers of such businesses,
they may not cover the liabilities fully. Some environmental liabilities, even
if we do not expressly assume them, may be imposed on us under various legal
theories. Our insurance program does not cover liabilities associated with some
environmental issues that may exist prior to attachment of coverage. A
successful uninsured claim against us could harm our financial condition.
OUR GROWTH MAY BE LIMITED BY THE INABILITY TO OBTAIN NEW LANDFILLS AND EXPAND
EXISTING ONES.
We currently own and/or operate a number of landfills. Our ability to meet
our growth objectives may depend in part on our ability to acquire, lease and
expand landfills and develop new landfill sites. We may not be able to obtain
new landfill sites or expand the permitted capacity of our landfills when
necessary. Obtaining new landfill sites is important to our expansion into new
non-exclusive markets; if we do not believe that we can obtain a landfill site
in a non-exclusive market, we may choose not to enter that market. Expanding
existing landfill sites is important in those markets where the remaining lives
of our landfills are relatively short. We may
13
choose to forego acquisitions and internal growth in these markets because
increased volumes would further shorten the lives of these landfills. Either of
these circumstances could result in slower growth.
IN SOME AREAS IN WHICH WE OPERATE, SUITABLE LAND FOR NEW SITES OR EXPANSION OF
EXISTING LANDFILL SITES MAY BE UNAVAILABLE, WHICH COULD INCREASE OUR DISPOSAL
COSTS AND REDUCE OUR OPERATING MARGINS.
Operating permits for landfills in states where we operate must generally
be renewed every five to ten years. It has become increasingly difficult and
expensive to obtain required permits and approvals to build, operate and expand
solid waste management facilities, including landfills and transfer stations.
The process often takes several years, requires numerous hearings and compliance
with zoning, environmental and other requirements, and is frequently resisted by
citizen, public interest and other groups. We may not be able to obtain or
maintain the permits we require to expand, and such permits may contain
burdensome terms and conditions. Even when granted, final permits to expand are
often not approved until the remaining permitted disposal capacity of a landfill
is very low. Local laws and ordinances also may affect our ability to obtain
permits to expand landfills. If we were to exhaust our permitted capacity at a
landfill, our ability to expand internally would be limited, and we could be
required to cap and close that landfill and be forced to dispose of collected
waste at more distant landfills or at landfills operated by our competitors. The
resulting increased costs would reduce our operating margins.
OUR ACCRUALS FOR OUR LANDFILL CLOSURE AND POST-CLOSURE COSTS MAY BE INADEQUATE,
AND OUR EARNINGS WOULD BE LOWER IF WE ARE REQUIRED TO PAY ADDITIONAL AMOUNTS.
We will generally be required to pay closure and post-closure costs for
landfills and disposal facilities that we own or operate under a life-of-site
operating agreement. Closure and post-closure costs are generally paid for a
term of 30 years after final closure of a landfill, and accrued during the
operating life of the landfill based on engineering estimates of future
requirements associated with the final landfill design, final landfill capping
and closure and post-closure process. Our obligations to pay closure or
post-closure costs may exceed the amount we accrued and reserved and other
amounts available from funds or reserves established to pay such costs. Paying
additional amounts would lower our earnings and could cause our stock price to
decline.
WE MAY INCUR ADDITIONAL CHARGES RELATED TO CAPITALIZED EXPENDITURES, WHICH WOULD
LOWER OUR EARNINGS.
In accordance with accounting principles generally accepted in the United
States, we capitalize some expenditures and advances relating to acquisitions,
pending acquisitions and landfill development projects. We expense indirect
acquisition costs such as executive salaries, general corporate overhead, public
affairs and other corporate services as we incur those costs. We charge against
earnings any unamortized capitalized expenditures and advances (net of any
amount that we estimate we will recover, through sale or otherwise) that relate
to any operation that is permanently shut down or determined to be impaired, any
pending acquisition that is not consummated and any landfill development project
that we do not expect to complete. Any such charges against earnings could lower
our stock price.
RECENT ACCOUNTING PRONOUNCEMENTS MAY REQUIRE A WRITE-DOWN OF OUR GOODWILL, WHICH
COULD MATERIALLY IMPAIR OUR NET WORTH.
As a result of our acquisition strategy, we have a material amount of
goodwill recorded on our financial statements. Under SFAS No. 142, effective
January 1, 2002, we no longer amortize our existing goodwill. 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. We perform the first of the
required impairment tests of goodwill and indefinite-lived intangible assets
annually on October 1. To date, no events or changes in circumstances have
occurred that indicated the potential existence of goodwill or indefinite-lived
intangible asset impairment and it has not been necessary to write down any of
our goodwill or indefinite-lived intangible assets. If, as a result of
performing impairment tests, we are required to write down any of our goodwill
or indefinite-lived intangible assets, our operating results would be negatively
impacted and our net worth would be reduced. Our credit agreement contains a
covenant requiring us to maintain a minimum net worth. A reduction in net worth,
therefore, if substantial, could limit the amount that we can borrow under our
credit agreement and any failure to comply with the agreement could result in an
event of default under the credit agreement.
14
IF WE FAIL TO COMPLY WITH COVENANTS AND CONDITIONS IN OUR CREDIT FACILITY, WE
MAY BE UNABLE TO MAKE ACQUISITIONS AND MAY BE REQUIRED TO REPAY OUR DEBT EARLY,
WHICH COULD HARM OUR FINANCIAL RESULTS.
Our credit facility requires us to obtain the consent of the lending banks
before acquiring any other business for more than $100 million in cash and
assumed debt. If we are not able to obtain our banks' consent to acquisitions of
this size, we may not be able to complete them, which could inhibit our growth.
Our credit facility also contains financial covenants based on our current and
projected financial condition after completing an acquisition. If we are not
able to satisfy these financial covenants on a pro forma basis upon completing
an acquisition, we would not be able to complete the acquisition without a
waiver from our lending banks. Whether or not a waiver is needed, if the results
of our future operations differ materially from what we expect, we may no longer
be able to comply with the covenants in the credit facility. Our failure to
comply with these covenants may result in a default under the credit facility,
which would allow our lending banks to accelerate the date for repayment of debt
incurred under the credit facility and could harm our business and financial
results.
PROVISIONS IN OUR CHARTER AND BYLAWS MAY DETER CHANGES IN CONTROL THAT COULD
BENEFIT OUR STOCKHOLDERS.
Provisions in our Certificate of Incorporation and By-Laws, and in the
Delaware General Corporation Law, may deter tender offers and hostile takeovers
and delay or prevent changes in control or management of Waste Connections,
including transactions in which stockholders might be paid more than current
market prices for their shares. These provisions may also limit our
stockholders' ability to approve transactions that they believe are in their
best interests.
WE FACE UNCERTAINTIES RELATING TO PENDING LITIGATION.
We and some of our subsidiaries are currently involved in civil litigation
relating to the conduct of our business. The timing and final resolution of
these matters are uncertain. Additionally, the possible outcomes or resolutions
of these matters could include judgments against us or settlements, either of
which could require substantial payments by us, adversely affecting our
operating results.
RISKS RELATED TO OUR INDUSTRY
EXTENSIVE AND EVOLVING ENVIRONMENTAL LAWS AND REGULATIONS MAY RESTRICT OUR
OPERATIONS AND GROWTH AND INCREASE OUR COSTS.
Environmental laws and regulations have been enforced more and more
stringently in recent years because of greater public interest in protecting the
environment. These laws and regulations impose substantial costs on us and
affect our business in many ways, including as described below. In addition,
federal, state and local governments may change the rights they grant to, and
the restrictions they impose on, solid waste services companies, and those
changes could restrict our operations and growth.
WE MAY BE UNABLE TO OBTAIN AND MAINTAIN LICENSES OR PERMITS AND ZONING,
ENVIRONMENTAL AND/OR OTHER LAND USE APPROVALS THAT WE NEED TO OWN AND OPERATE
OUR LANDFILLS.
These licenses or permits and approvals are difficult and time-consuming to
obtain and renew, and elected officials and citizens' groups frequently oppose
them. Failure to obtain and maintain the permits and approvals we need to own or
operate landfills (including increasing their capacity) could force us to
dispose of collected waste at more distant landfills or at landfills owned by
our competitors, thus increasing our disposal costs and reducing our operating
margins.
EXTENSIVE REGULATIONS THAT GOVERN THE DESIGN, OPERATION AND CLOSURE OF LANDFILLS
MAY RESTRICT OUR LANDFILL OPERATIONS OR INCREASE OUR COSTS OF OPERATING
LANDFILLS.
Regulations that govern landfill operations include the regulations that
establish minimum federal requirements adopted by the EPA in October 1991 under
Subtitle D of the RCRA. If we fail to comply with these regulations, we could be
required to undertake investigatory or remedial activities, curtail operations
or close landfills temporarily or permanently. Future changes to these
regulations may require us to modify, supplement or replace equipment or
facilities at substantial costs. If regulatory agencies fail to enforce these
regulations vigorously or consistently, our competitors whose facilities do not
comply with the Subtitle D regulations or their state counterparts may obtain an
advantage over us. Our financial obligations arising from any failure to comply
with these regulations could harm our business and earnings.
15
WE MAY BE SUBJECT IN THE NORMAL COURSE OF BUSINESS TO JUDICIAL AND
ADMINISTRATIVE PROCEEDINGS INVOLVING FEDERAL, STATE OR LOCAL AGENCIES OR
CITIZENS' GROUPS, WHICH COULD INTERRUPT OUR OPERATIONS, REQUIRE EXPENSIVE
REMEDIATION AND CREATE NEGATIVE PUBLICITY.
Governmental agencies may impose fines or penalties on us. They may also
attempt to revoke or deny renewal of our operating permits, franchises or
licenses for violations or alleged violations of environmental laws or
regulations, or require us to remediate potential environmental problems
relating to waste that we or our predecessors collected, transported, disposed
of or stored. Individuals or community groups might also bring actions against
us in connection with our operations. Any adverse outcome in these proceedings
could harm our operations and financial results and create adverse publicity,
which could damage our competitive position and stock price.
LIABILITIES FOR ENVIRONMENTAL DAMAGE MAY ADVERSELY AFFECT OUR BUSINESS AND
EARNINGS.
We are liable for any environmental damage that our solid waste facilities
cause, including damage to neighboring landowners or residents, particularly as
a result of the contamination of soil, groundwater or surface water, and
especially drinking water. We may be liable for damage resulting from conditions
existing before we acquired these facilities. We may also be liable for any
on-site environmental contamination caused by pollutants or hazardous substances
whose transportation, treatment or disposal we or our predecessors arranged. We
have limited insurance coverage to compensate us for damages associated with
environmental conditions. If we were to incur liability for environmental
damage, environmental cleanups, corrective action or damage not covered by
insurance or in excess of the amount of our coverage, our financial condition
could be materially and adversely affected.
FLUCTUATIONS IN PRICES FOR RECYCLED COMMODITIES THAT WE SELL MAY CAUSE OUR
REVENUES AND OPERATING RESULTS TO DECLINE.
We provide recycling services to some of our customers. The sale prices of
and demand for recyclable materials, particularly paper products, are frequently
volatile and when they decline our revenues and operating results may decline.
FUTURE CHANGES IN LAWS REGULATING THE FLOW OF SOLID WASTE IN INTERSTATE COMMERCE
COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
The U.S. Supreme Court has held that states may not regulate the flow of
solid waste in interstate commerce if the effect would be to discriminate
between interstate and intrastate commerce. If legislation is enacted that
overturns or modifies this decision, and if one or more of the states in which
we dispose of interstate waste takes action that would prohibit or increase the
costs of our continued disposal of interstate waste, our operating results could
be adversely affected.
RISKS RELATED TO THE NOTES
OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION; WE MAY INCUR
SUBSTANTIALLY MORE DEBT BY INCREASING OUR COSTS AND LIMITING OUR ABILITY TO TAKE
ACTIONS THAT WOULD INCREASE OUR REVENUE AND EXECUTE OUR GROWTH STRATEGY.
As of December 31, 2003, we had $286.6 million of Senior Indebtedness
outstanding, and $150 million of convertible subordinated indebtedness that
ranked PARI PASSU with the notes. Our indebtedness could have important
consequences to you. For example, it could:
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to obtain additional financing;
o require the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to
fund our growth strategy, working capital, capital expenditures and
other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
o place us at a competitive disadvantage relative to our competitors with
less debt.
16
We may incur substantial additional debt in the future. The terms of our
credit facility and the notes do not fully prohibit us from doing so. If new
debt is added to our current levels, the related risks described above could
intensify.
WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS; THE
NOTES BEAR INTEREST AT A FLOATING RATE THAT COULD RISE SIGNIFICANTLY AND
INCREASE OUR INTEREST COST.
We are required to generate cash sufficient to pay all amounts due on the
notes and our other indebtedness and to conduct our business operations.
Additionally, the notes bear interest at a per annum rate which equals 3-month
LIBOR, adjusted quarterly plus a spread of 0.50%. LIBOR could rise significantly
in the future, increasing our interest cost associated with the notes. As of
December 31, 2003, our debt service obligations for the following 12 months will
be approximately $30.5 million. We may not be able to cover our anticipated debt
service obligations. This may materially hinder our ability to make payments on
the notes. Our ability to meet our future debt service obligations will depend
upon our future performance, which will be subject to financial, business and
other factors affecting our operations, many of which are beyond our control.
THE NOTES ARE SUBORDINATED TO SENIOR INDEBTEDNESS, SO THAT IN THE EVENT OF A
DEFAULT, OUR SENIOR INDEBTEDNESS WOULD BE REPAID IN FULL BEFORE ANY PAYMENT IS
MADE ON THE NOTES.
The notes are unsecured and subordinated in right of payment to all of our
existing and future Senior Indebtedness, as defined in the "Description of Notes
-- Subordination" section of this prospectus. As a result, in the event of
bankruptcy, liquidation or reorganization or upon acceleration of the notes due
to an event of default, as defined below, and in specific other events, our
assets will be available to pay obligations on the notes and on convertible
subordinated indebtedness ranking PARI PASSU with the notes only after all
Senior Indebtedness has been paid in full in cash or other payment satisfactory
to the holders of Senior Indebtedness. There may not be sufficient assets
remaining to pay amounts due on any or all of the notes then outstanding. The
notes are also effectively subordinated to the indebtedness and other
liabilities, including trade payables, of our subsidiaries. The indenture does
not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by us. Our credit facility provides for
borrowing of up to $600 million including the refinancing of the term loan
portion of the credit facility that occurred on March 2, 2004. Our incurring
additional indebtedness and other liabilities could adversely affect our ability
to pay our obligations on the notes. As of December 31, 2003, we had $286.6
million of Senior Indebtedness to which the notes were subordinated in right of
payment, and $150 million of convertible subordinated indebtedness that ranked
PARI PASSU with the notes. We anticipate that from time to time, we and our
subsidiaries will incur additional indebtedness, including Senior Indebtedness.
WE MAY REDEEM SOME OR ALL OF THE NOTES AT ANY TIME BEGINNING ON MAY 7, 2006, AND
MAY DO SO AT PRICES AND TIMES THAT ARE DISADVANTAGEOUS TO THE NOTE HOLDERS.
We have the right to redeem some or all of the notes at specified prices on
or after May 7, 2006. Depending on the market price of our common stock and the
outlook for our business, those redemptions may occur at prices and times
disadvantageous to the note holders.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES WHEN REQUIRED TO, RESULTING IN A
DEFAULT.
On May 1, 2009, May 1, 2012 and May 1, 2017, and upon the occurrence of
certain change in control events, holders of the notes may require us to offer
to repurchase all of their notes. We may not have sufficient funds at the time
of any such events to make the required repurchases. Additionally, a change in
control would be an event of default under our credit facility, which would
permit the lenders to accelerate the debt, which could also cause an event of
default under the indenture.
The source of funds for any repurchase required as a result of any such
events will be our available cash or cash generated from operating activities or
other sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling entity. Sufficient funds may not be available at
the time of any such events to make any required repurchases of the notes
tendered. Furthermore, the use of available cash to fund the repurchase of the
notes may impair our ability to obtain additional financing in the future.
17
HOLDERS OF THE NOTES WILL SUFFER IMMEDIATE DILUTION IN NET TANGIBLE BOOK VALUE
ON CONVERSION OF THE NOTES INTO COMMON STOCK.
Net tangible book value represents the amount of our total tangible assets
less total liabilities. Upon conversion of the notes into shares of common
stock, holders of such notes will suffer immediate substantial dilution in the
net tangible book value per share of the common stock issued upon such
conversion.
OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE, WHICH MAY
MAKE IT DIFFICULT FOR YOU TO RESELL THE NOTES OR THE COMMON STOCK INTO WHICH THE
NOTES ARE CONVERTIBLE WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE.
The trading price of our common stock has been and is likely to be
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
o actual or anticipated variations in quarterly operating results;
o changes in financial estimates by securities analysts;
o conditions or trends in the solid waste services industry;
o changes in the economic performance and/or market valuations of other
solid waste services companies and the solid waste services industry in
general;
o our announcement of significant acquisitions or capital commitments;
o adverse or unfavorable publicity regarding us or our services;
o additions or departures of key personnel;
o sales of common stock; and
o other events or factors that may be beyond our control.
In addition, the stock markets in general have experienced extreme price
and volume volatility and a significant cumulative decline in recent months.
Such volatility and decline have affected many companies irrespective of or
disproportionately to the operating performance of these companies. These broad
market and industry factors may materially and adversely further affect the
market price of our common stock, regardless of our actual operating
performance.
THERE IS NO CURRENT MARKET FOR THE NOTES, AND IT IS UNCERTAIN WHETHER AN ACTIVE
TRADING MARKET WILL DEVELOP. LACK OF AN ACTIVE TRADING MARKET FOR THE NOTES MAY
CAUSE THE PRICE OF THE NOTES TO DECLINE.
There is no established trading market for the notes, and a market for the
notes may not develop or, if developed, be maintained. We do not intend to apply
to list the notes for trading on any securities exchange. If an active market
for the notes fails to develop or be maintained, their price may decline.
Furthermore, if a market were to develop, the market price for the notes may be
adversely affected by changes in our financial performance, changes in the
overall market for similar securities and performance or prospects for companies
in our industry.
USE OF PROCEEDS
We will not receive any proceeds from the future sale of the notes or the
common stock into which the notes are convertible. The selling holders will
receive all of the net proceeds from the future sale of the notes and the common
stock into which the notes are convertible, which they respectively own.
18
PRICE RANGE OF COMMON STOCK
Our common stock trades on The New York Stock Exchange under the symbol
"WCN." The following table sets forth, for the periods indicated, the high and
low sales prices per share for our common stock, as reported on The Nasdaq Stock
Market - National Market for the periods indicated through October 23, 2002, and
as reported on the New York Stock Exchange beginning October 24, 2002.
HIGH LOW
-------- --------
2001
First Quarter...................................... $ 33.50 $ 23.00
Second Quarter..................................... 37.31 25.70
Third Quarter...................................... 34.90 22.20
Fourth Quarter..................................... 32.90 25.47
2002
First Quarter...................................... $ 34.26 $ 23.49
Second Quarter..................................... 37.68 30.60
Third Quarter...................................... 36.24 25.60
Fourth Quarter..................................... 39.56 29.73
2003
First Quarter...................................... $ 39.98 $ 30.75
Second Quarter..................................... 37.20 31.78
Third Quarter...................................... 36.90 31.57
Fourth Quarter..................................... 38.08 31.90
2004
First Quarter (January 1, 2004 to March 1, 2004)... $ 40.75 $ 36.41
On March 1, 2004, the last reported sale price of our common stock as
reported on The New York Stock Exchange was $37.70 per share. On March 1, 2004,
there were approximately 79 holders of record of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not currently
anticipate paying any cash dividends on our common stock. We intend to retain
all earnings to fund the operation and expansion of our business. In addition,
our existing credit facility limits the payment of cash dividends.
SELLING HOLDERS
We originally issued the notes and the notes were sold by the initial
purchaser in a transaction exempt from the registration requirements of the
Securities Act of 1933 to persons reasonably believed by the initial purchaser
to be qualified institutional buyers as defined by Rule 144A under the
Securities Act of 1933. Selling holders, including their transferees, pledgees
or donees or their successors, may from time to time offer and sell pursuant to
this prospectus any or all of the notes and common stock into which the notes
are convertible. We agreed to use reasonable efforts to keep the registration
statement covering the notes and the common stock into which the notes are
convertible effective until April 30, 2004. Our registration of the notes and
the shares of common stock into which the notes are convertible does not
necessarily mean that the selling holders will sell any or all of the notes or
the shares of the common stock into which the notes are convertible.
The following table sets forth information, as of March 1, 2004, with
respect to the selling holders and the principal amounts of notes beneficially
owned by each selling holder that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders. The selling holders may offer all, some or none of the notes or common
stock into which the notes are convertible. Because the selling holders may
offer all or some portion of the notes or the common stock, no estimate can be
given as to the amount of the notes or the common stock that will be held by the
selling holders upon termination of any sales. In addition, the selling holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act of 1933.
19
Each selling holder proposes to sell up to all of the common stock issuable
to that holder upon conversion of the notes.
PRINCIPAL AMOUNT OF COMMON STOCK ISSUABLE
NOTES BENEFICIALLY UPON CONVERSION
SELLING HOLDER OWNED AND OFFERED OF THE NOTES (1)
-------------- ----------------- ----------------
Associated Electric & Gas Insurance Services Limited 300,000 6,199
White River Securities LLC 2,000,000 41,330
Deutsche Bank Securities, Inc. 22,025,000 455,156
Clinton Riverside Convertible Portfolio Limited 2,395,000 49,493
Clinton Multistrategy Master Fund, Ltd. 2,660,000 54,970
S.A.C. Capital Associates, LLC 2,000,000 41,330
WPG Convertible Arbitrage Overseas Master Fund 1,500,000 30,998
WPG MSA Convertible Arbitrage Fund 250,000 5,166
Univest Multi-Strategy Fund - CONV-ARB 250,000 5,166
Argent Classic Convertible Arbitrage Fund II, L.P. 300,000 6,199
All other holders 4,625,000 95,611
----------------- ----------------
38,305,000 (2) 791,618
================= ================
----------
(1) Assumes a conversion rate of approximately 20.6654 shares of common stock
per $1,000 principal amount of notes and a cash payment in lieu of any
fractional interest.
(2) The remaining $136,695,000 principal amount of the notes were previously
sold in public offerings pursuant to the registration statement of which
this prospectus is a part.
None of the selling holders nor any of their affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with us within the past three years. The selling holders
purchased all of the notes in a private transaction. All of the notes and the
shares of common stock into which the notes are convertible are "restricted
securities" under the Securities Act of 1933.
Information concerning the selling holders may change from time to time and
any changed information will be set forth in post-effective amendments to the
registration statement of which this prospectus is a part if and when necessary.
In addition, the conversion price, and therefore, the number of shares of common
stock issuable upon conversion of the notes, is subject to adjustment.
Accordingly, the aggregate principal amount of notes and the number of shares of
common stock into which the notes are convertible may increase or decrease.
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees, or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to the prevailing market prices, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions:
o on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
o through the writing of options, whether the options are listed on an
options exchange or otherwise;
20
o by pledge to secure debts and other obligations;
o through the settlement of short sales; or
o a combination of any of the above transactions.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or the common stock into which the notes
are convertible in the course of hedging the positions they assume. The selling
holders may also sell the notes or the common stock into which the notes are
convertible, short and deliver these securities to close out their short
positions, or loan or pledge the notes or the common stock into which the notes
are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them will be the
purchase price of the notes or common stock less discounts and commissions, if
any. Each of the selling holders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part, any proposed
purchase of notes or common stock to be made directly or through agents. We will
not receive any of the proceeds from this offering.
Our common stock is listed for trading on The New York Stock Exchange. We do
not intend to list the notes for trading on any national securities exchange or
on The New York Stock Exchange and a trading market for the notes might not
develop.
To comply with the securities laws of some states, the notes and common
stock into which the notes are convertible may be sold in these jurisdictions
only through registered or licensed brokers or dealers. In addition, in some
states the notes and common stock into which the notes are convertible may not
be sold unless they have been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933. By virtue of being registered broker-dealers, the
following holders are underwriters within the meaning of Section 2(11) of the
Securities Act of 1933: Deutsche Bank Securities, Inc. and White River
Securities LLC. There are no holders listed that are affiliates of registered
broker-dealers. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act of 1933. Selling holders who are "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933 will be subject to the
prospectus delivery requirements of the Securities Act of 1933. The selling
holders have acknowledged that they understand their obligations to comply with
the provisions of the Securities Exchange Act of 1934 and the rules thereunder
relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act of 1933 may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
holder may not sell, transfer, make a gift of, or otherwise dispose of any notes
or common stock described in this prospectus by any means other than as
described in this prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and us and their and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act of 1933.
A prospectus has not been and will not be filed under the securities laws of
any province or territory of Canada to qualify the sale of notes in such
jurisdictions. The notes are not being offered and may not be offered or sold,
directly or indirectly, in Canada or to or for the account of any resident of
21
Canada except in compliance with or pursuant to an exemption from the
registration and prospectus requirements of applicable securities laws in
Canada.
DESCRIPTION OF NOTES
The notes were issued under an indenture between Waste Connections, Inc. and
State Street Bank and Trust Company of California, N.A., as Trustee. The
following description is only a summary of the material provisions of the
indenture, the notes and the registration rights agreement. We urge you to read
the indenture, the notes and the registration rights agreement in their entirety
because they, and not this description, define your rights as holders of the
notes. You may request copies of these documents at our address shown under the
caption "Where You Can Find More Information." The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended. For purposes of this section,
references to "we," "us," "ours" and "Waste Connections" include only Waste
Connections, Inc. and not its subsidiaries.
GENERAL
We issued the notes with a principal amount of $175,000,000. The notes are
unsecured, subordinated obligations of Waste Connections and mature on May 1,
2022, unless earlier redeemed at our option as described under "Optional
Redemption of the Notes," repurchased by us at a holder's option at certain
dates as described under "Description of Notes -- Repurchase of Notes at the
Option of the Holder" or repurchased by us at a holder's option upon a change in
control of Waste Connections as described under "Right to Require Purchase of
Notes upon a Change in Control." Interest on the notes will accrue at a variable
rate, as described under "Interest." The indenture does not contain any
restriction on:
o the payment of dividends;
o the issuance of Senior Indebtedness (as defined below) or other
indebtedness; or
o the repurchase of securities of Waste Connections;
and does not contain any financial covenants. Other than as described under
"Right to Require Purchase of Notes upon a Change in Control," the indenture
contains no covenants or other provisions to afford protection to holders of
notes in the event of a highly leveraged transaction or a change in control of
Waste Connections.
We will pay the principal of, premium, if any, and interest on the notes at
the office or agency maintained by us in the Borough of Manhattan in New York
City. Holders may register the transfer of their notes at the same location. We
reserve the right to pay interest to holders of the notes by check mailed to the
holders at their registered addresses. Except under the limited circumstances
described below, the notes will be issued only in fully registered book-entry
form, without coupons, and will be represented by one or more global notes.
There will be no service charge for any registration of transfer or exchange of
notes. We may, however, require holders to pay a sum sufficient to cover any tax
or other governmental charge payable in connection with any transfer or
exchange.
INTEREST
The notes bear interest at a per annum rate equal to 3-month LIBOR plus
0.50%, adjusted quarterly as described below. Notwithstanding any quarterly
adjustments of the interest rate, the interest rate borne by the notes will
never be less than zero.
We pay interest quarterly in arrears on May 1, August 1, November 1 and
February 1 of each year, unless any such interest payment date (other than an
interest payment date at maturity) would otherwise be a day that is not a
business day, in which case the interest payment date will be postponed to the
next succeeding business day (except if that business day falls in the next
succeeding calendar month, that interest payment date will be the immediately
preceding business day). If the maturity date of the notes is a day that is not
a business day, all payments to be made on such day will be made on the next
succeeding business day, with the same force and effect as if made on the due
date, and no additional interest will be payable as a result of such a delay in
payment. We will pay interest to the holders of record at the close of business
on the fifteenth calendar day of the month preceding each interest payment date.
The interest rate is determined by the trustee acting as calculation agent.
The interest rate for each quarterly period (other than the period before the
first interest payment date) will be adjusted on the first day of such quarterly
period (which we refer to as the interest adjustment date), which will be the
22
interest payment date for the immediately preceding quarterly period. The
adjusted interest rate is based upon 3-month LIBOR, determined on the second
preceding London banking day prior to the applicable interest adjustment date
(which we refer to as the interest determination date) as described below, plus
0.50%. Interest on the notes accrues from the date of original issuance at a
rate for the period before the first interest payment date of 3-month LIBOR plus
0.50%, for which the interest determination date is the second preceding London
banking day prior to the date of original issuance.
Interest generally is computed on the basis of the actual number of days for
which interest is payable in the relevant interest period, divided by 360.
The term "3-month LIBOR" means, with respect to any interest determination
date:
(a) the rate for 3-month deposits in United States dollars commencing
on the related interest adjustment date, that appears on the Moneyline
Telerate Page 3750 (as described below) as of 11:00 A.M., London time, on
the interest determination date, unless fewer than two such offered rates so
appear; or
(b) if fewer than two offered rates appear, or no rate appears, as the
case may be, on the particular interest determination date on the Moneyline
Telerate Page 3750, the rate calculated by the calculation agent of at least
two offered quotations obtained by the calculation agent after requesting
the principal London offices of each of four major reference banks in the
London interbank market to provide the calculation agent with its offered
quotation for deposits in United States dollars for the period of three
months, commencing on the related interest adjustment date, to prime banks
in the London interbank markets at approximately 11:00 A.M., London time, on
that interest determination date and in principal amount that is
representative for a single transaction in United States dollars in that
market at that time; or
(c) if fewer than two offered quotations referred to in clause (b) are
provided as requested, the rate calculated by the calculation agent as the
arithmetic mean of the rates quoted at approximately 11:00 A.M., New York
time, on the particular interest determination date by three major banks in
the City of New York selected by the calculation agent for loans in United
States dollars to leading European banks for a period of three months and in
a principal amount that is representative for a single transaction in United
States dollars in that market at that time; or
(d) if the banks so selected by the calculation agent are not quoting
as mentioned in clause (c), 3-month LIBOR in effect immediately prior to the
particular interest determination date.
"Moneyline Telerate Page 3750" means the display on Moneyline Telerate (or
any successor service) on such page (or any other page as may replace such page
on such service) or such other service or services as may be nominated by the
British Bankers' Association as the information vendor for the purpose of
displaying the London interbank rates of major banks for United States dollars.
"London banking day" means a day on which commercial banks are open for
business, including dealings in United States dollars, in London.
The term "business day" means any day, other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New York.
CONVERSION RIGHTS
A holder may convert any outstanding notes into shares of our common stock
at the conversion price per share of, initially, $48.39. This represents an
initial conversion rate of approximately 20.6654 shares per $1,000 principal
amount at maturity of the notes.
The conversion price (and resulting conversion rate) is, however, subject to
adjustment as described below. A holder may convert notes only in denominations
of $1,000 and integral multiples of $1,000.
23
General
Holders may surrender notes for conversion into shares of our common stock
prior to the maturity date only if one of the following conditions is satisfied:
o the closing sale price per share of our common stock 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 of our common stock on that thirtieth trading day;
o if we have called the notes for redemption;
o during such period, if any, that the credit rating assigned to the
notes by both Moody's Investors Service, Inc. and Standard & Poor's
Rating Group is below a specified level, or if neither rating agency is
rating the notes;
o 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 was less than 95% of the
product of the closing sale price per share of our common stock
multiplied by the number of shares of our common stock issuable upon
conversion of $1,000 principal amount of the notes; or
o upon the occurrence of specified corporate transactions.
Conversion Upon Satisfaction of Market Price Condition
A holder may surrender any of its notes for conversion during any calendar
quarter if the closing sale price per share of our common stock for at least 20
trading days in the period of 30 consecutive trading days ending on the last
trading day of the preceding calendar quarter, exceeds 110% of the prevailing
conversion price per share of our common stock on that thirtieth trading day.
The conversion agent, which will initially be the trustee, will, on our behalf,
determine at the end of each quarter if the notes are convertible as a result of
the market price of the share and notify us.
Conversion Upon Notice of Redemption
A holder may surrender for conversion any note called for redemption at any
time prior to the close of business on the day that is two business days prior
to the redemption date, even if it is not otherwise convertible at such time.
Conversion Upon Credit Rating Event
A holder may surrender any of its notes for conversion during any period in
which the respective credit ratings assigned to the notes by both Moody's
Investors Service, Inc. and Standard & Poor's Rating Group are reduced below B3
or B-, respectively, if the credit rating assigned to the notes is suspended or
withdrawn by both such rating agencies of if neither agency is rating the notes.
Conversion Upon Satisfaction of Trading Price Condition
A holder may surrender any of its notes for conversion 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) (as determined
following a request by a holder of the notes in accordance with the procedures
described below) for each day of such period was less than 95% of the product of
the closing sale price per share of our common stock multiplied by the number of
shares of our common stock issuable upon conversion of $1,000 principal amount
of the notes; provided, however, that if on the date of any conversion pursuant
to this 95% price condition the closing sale price per share of our common stock
is greater than the conversion price, then a holder surrendering notes for such
conversion will receive, in lieu of shares of our common stock based on the
conversion price, cash or shares of our common stock or a combination of both,
at our option, with a value equal to the principal amount of such holder's notes
so surrendered as of the conversion date (which we refer to as a principal value
conversion). If a holder surrenders its notes for such conversion, we will
notify such holder by the second trading day following the date of conversion
whether we will pay such holder in cash, shares or a combination of cash and
shares, and in what percentage. Any share delivered will be valued at the
greater of (x) the conversion price on the conversion date and (y) the closing
sale price per share of our common stock on the third trading day after the
conversion date. We will pay such holder any portion of the principal amount of
such holder's notes so surrendered to be paid in cash on the third trading day
24
after the conversion date. With respect to any portion of the sum of the
principal amount of such holder's notes so surrendered to be paid in shares of
our common stock, we will deliver the shares to such holder on the fourth
trading day following the conversion date.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations per $1,000 principal amount of
notes obtained by the conversion agent for $5,000,000 principal amount of the
notes at approximately 3:30 p.m., New York City time, on such determination date
from three independent nationally recognized securities dealers we select,
provided that if at least three such bids cannot reasonably be obtained by the
conversion agent, but two such bids are obtained, then the average of the two
bids shall be used, and if only one such bid can reasonably be obtained by the
conversion agent, this one bid shall be used. If the conversion agent cannot
reasonably obtain at least one bid for $5,000,000 principal amount of the notes
from a nationally recognized securities dealer or in our reasonable judgment,
the bid quotations are not indicative of the secondary market value of the
notes, then the trading price of the notes will be deemed to equal (a) the
number of shares of our common stock issuable upon conversion of $1,000
principal amount of the notes multiplied by (b) the closing sale price per share
of our common stock on such determination date. The conversion agent shall have
no obligation to determine the trading price of the notes unless we have
requested such determination; and we shall have no obligation to make such
request unless a holder provides us with reasonable evidence that the trading
price of the notes would be less than 95% of the product of the closing sale
price per share of our common stock and the number of shares of our common stock
issuable upon conversion of $1,000 principal amount of the notes; at which time,
we shall instruct the conversion agent to determine the trading price of the
notes beginning on the next trading day and on each successive trading day until
the trading price is greater than or equal to 95% of the product of the closing
sale price per share of our common stock and the number of shares of our common
stock issuable upon conversion of $1,000 principal amount of the notes.
Conversion Upon Specified Corporate Transactions
If we elect to:
o distribute to substantially all holders of our common stock, rights,
warrants or options entitling them to subscribe for or purchase, for a
period expiring within 60 days of the date of distribution, our common
stock at less than the then current market price; or
o distribute to substantially all holders of our commons stock, our
assets, debt securities or certain rights to purchase our securities,
which distribution has a per share value exceeding 10% of the closing
price per share or our common stock on the day preceding the
declaration date for such distribution,
we must notify the holders of notes at least 20 days prior to the ex-dividend
date for such distribution. At any time once we have given such notice, holders
may surrender their notes for conversion until the earlier of the close of
business on the business day prior to the ex-dividend date or our announcement
that such distribution will not take place. No adjustment to the ability of a
holder to convert will be made if the holder will otherwise participate in the
distribution without conversion.
In addition, if we are a party to a consolidation, merger, share exchange,
sale of all or substantially all of our assets or other transaction, in each
case pursuant to which our common stock would be converted into cash, securities
or other property, a holder may surrender its notes for conversion at any time
from and after the date which is 15 days prior to the anticipated effective date
of such transaction until and including the date which is 15 days after the
actual date of such transaction. If we are a party to a consolidation, merger,
share exchange, sale of all or substantially all of our assets or other
transaction, in each case pursuant to which our common stock is converted into
cash, securities, or other property, then at the effective time of the
transaction, a holder's right to convert its notes into shares of our common
stock will be changed into a right to convert such notes into the kind and
amount of cash securities and other property which such holder would have
received if such holder had converted such notes immediately prior to the
transaction. If the transaction also constitutes a change in control, such
holder can require us to repurchase all or a portion of its notes as described
under "Right to Require Purchase of Notes upon a Change in Control".
If a holder of a note has delivered notice of its election to have the note
repurchased at the option of such holder or as a result of a change in control,
the note may be converted only if the notice of election is withdrawn as
described, respectively, under "Repurchase of Notes at the Option of the Holder"
or "Right to Require Purchase of Notes upon a Change in Control."
25
We will adjust the conversion price if (without duplication):
(1) we issue common stock as a dividend or distribution on our common
stock;
(2) we subdivide, combine or reclassify our common stock;
(3) we issue to substantially all holders of our common stock rights,
warrants or options entitling them to subscribe for or purchase common stock
at less than the then current market price;
(4) we distribute to substantially all holders of common stock
evidences of our indebtedness, shares of capital stock (other than common
stock), securities, cash, property, rights, warrants or options, excluding:
o those rights, warrants or options referred to in clause (3) above;
o any dividend or distribution paid exclusively in cash not referred to
in clause (5) below; and
o any dividend or distribution referred to in clause (1) above;
(5) we make a cash distribution to substantially all holders of our
common stock that together with all other all-cash distributions and
consideration payable in respect of any tender or exchange offer by us or
one of our subsidiaries for our common stock made within the preceding 12
months exceeds 10% of our aggregate market capitalization on the date of the
distribution; or
(6) we complete a repurchase (including by way of a tender offer) of
our common stock which involves an aggregate consideration that, together
with:
o any cash and other consideration payable in respect of any tender or
exchange offer by us or one of our subsidiaries for shares concluded
within the preceding twelve months; and
o the amount of any all-cash distributions to all holders of shares made
within the preceding 12 months exceeds 10% of our aggregate market
capitalization on the expiration of the tender or exchange offer.
The conversion price will not be adjusted until adjustments amount to 1% or
more of the conversion price as last adjusted. We will carry forward any
adjustment we do not make and will include it in any future adjustment.
If our common stock is converted into the right to receive cash, securities
or other property as a result of any consolidation, merger, share exchange, sale
of all or substantially all of our assets or other transaction, each note then
outstanding would, without the consent of any holders of notes, become
convertible only into the kind and amount of cash, securities and other property
which the holder of such note would have received if the holder had converted
the note immediately prior to the transaction.
We will not issue fractional shares to a holder who converts a note. In lieu
of issuing fractional shares, we will pay cash based upon the market price.
Except as described in this paragraph, no holder of notes will be entitled,
upon conversion of the notes, to any actual payment or adjustment on account of
accrued and unpaid interest or on account of dividends on shares issued in
connection with the conversion. If any holder surrenders a note for conversion
between the close of business on any record date for the payment of an
installment of interest and the opening of business on the related interest
payment date the holder must deliver payment to us of an amount equal to the
interest payable on the interest payment date on the principal amount converted
together with the note being surrendered. The foregoing sentence shall not apply
to notes called for redemption on a redemption date within the period between
and including the record date and interest payment date.
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for federal income tax purposes and the conversion
price of the notes is decreased, this decrease may be deemed to be the receipt
of taxable income to holders of the notes.
26
In addition, we may make any decreases in the conversion price that our
board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of
stock, or rights to acquire stock, or from any event treated as such for income
tax purposes or for any other reasons.
SUBORDINATION
The payment of the principal or, premium, if any, and interest on the notes
will, to the extent described in the indenture, be subordinated in right of
payment to the prior payment in full of all our Senior Indebtedness. The holders
of all Senior Indebtedness will first be entitled to receive payment in full of
all amounts due or to become due on the Senior Indebtedness, or provision for
payment in money or money's worth, before the holders of the notes will be
entitled to receive any payment in respect of the notes, when there is a payment
or distribution of assets to creditors upon our:
o liquidation;
o dissolution;
o winding up;
o reorganization;
o assignment for the benefit of creditors;
o marshaling of assets;
o bankruptcy;
o insolvency; or
o similar proceedings.
In addition, because our subsidiaries are not obligated under the notes, the
notes will be effectively subordinated to all existing and future indebtedness
and other liabilities of our subsidiaries.
No payments on account of the notes or on account of the purchase or
acquisition of notes may be made if a default in any payment with respect to
Senior Indebtedness has occurred and is continuing. If (1) there is a default on
any designated senior indebtedness (as defined below) other than a payment
default that occurs that permits the holders of that designated senior
indebtedness to accelerate its maturity and (2) the trustee and Waste
Connections receive the notice required by the indenture, no payments may be
made on the notes for up to 180 days in any 365-day period unless the default is
cured or waived. By reason of this subordination, in the event of our
insolvency, holders of the notes may recover less ratably than holders of our
Senior Indebtedness.
Payments on the notes may and shall be resumed, in the case of a payment
default, upon the date on which such default is cured or waived, and in the case
of a non-payment default, upon the earliest of (1) the date on which such
non-payment default is cured or waived, (2) 180 days after the date on which the
applicable payment blockage notice is received, or (3) the date on which the
payment blockage period is terminated by written notice from the representative
of the Senior Indebtedness to the trustee and Waste Connections, unless a
payment default has occurred and is continuing. Only one payment blockage period
may be commenced within any 365-day period. No event of default with respect to
designated senior indebtedness that existed or was continuing at the
commencement of any payment blockage period with respect to such designated
senior indebtedness can be the basis for the commencement of a second payment
blockage period whether or not within a period of 365 days, unless such event of
default was cured or waived for at least 90 days. No payment blockage period may
extend beyond 180 days.
No action may be taken to declare the notes due and payable nor may any
judicial or other proceedings to collect the notes be initiated during any
standstill period. A standstill period commences on the occurrence of a payment
default or the date on which Waste Connections and the trustee receive notice of
a payment blockage period and continues until (1) the date on which the default
is cured or waived, (2) holders of Senior Indebtedness take action to declare
the Senior Indebtedness due and payable or take certain actions to collect the
Senior Indebtedness, (3) the date on which the Senior Indebtedness becomes
automatically due and payable, (4) the occurrence of a bankruptcy, insolvency or
27
reorganization of Waste Connections or a significant subsidiary of Waste
Connections or (5) 120 days after a payment default or 180 days after a payment
blockage notice is given. The trustee or the holders of the notes must give the
agent for holders of Senior Indebtedness at least five business days' prior
written notice of any intent to declare the notes due and payable or to make any
other amount owing under the indenture due and payable.
"Senior Indebtedness" means:
o the principal of and premium, if any, and interest on, and fees, costs,
enforcement expenses, collateral protection expenses and other
reimbursement or indemnity obligations in respect of all of our
indebtedness or obligations to any person for money borrowed that is
evidenced by a note, bond, debenture, loan agreement, or similar
instrument or agreement including default interest and interest
accruing after a bankruptcy;
o commitment or standby fees due and payable to lending institutions with
respect to credit facilities available to us;
o all of our noncontingent obligations (1) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (2) under interest rate swaps, caps, collars, options, and
similar arrangements, and (3) under any foreign exchange contract,
currency swap agreement, futures contract, currency option contract or
other foreign currency hedge;
o all of our obligations for the payment of money relating to capitalized
lease obligations;
o any liabilities of others described in the preceding clauses that we
have guaranteed or which are otherwise our legal liability; and
o renewals, extensions, refundings, refinancings, restructurings,
amendments and modifications of any such indebtedness or guarantee,
other than any indebtedness or other obligation of ours that by its
terms is not superior in right of payment to the notes.
Senior Indebtedness does not include our 5 1/2% Convertible Subordinated
Notes Due 2006. The notes rank pari passu with our 5 1/2% Convertible
Subordinated Notes Due 2006.
"Designated senior indebtedness" means our obligations under our credit
facility and any particular Senior Indebtedness in which the instrument creating
or evidencing the same or the assumption or guarantee thereof, or related
agreements or documents to which we are a party, expressly provides that such
indebtedness shall be designated Senior Indebtedness for purposes of the
indenture. The instrument, agreement or other document evidencing any designated
senior indebtedness may place limitations and conditions of the right of such
senior debt to exercise the rights of designated senior indebtedness.
As of December 31, 2003, we had approximately $286.6 million of indebtedness
constituting Senior Indebtedness. We expect from time to time to incur
additional indebtedness. The indenture does not limit or prohibit us from
incurring additional Senior Indebtedness or other indebtedness. See "Risk
Factors -- Risks Related to the Notes and the Offering -- The Notes are
Subordinated to Senior Indebtedness."
OPTIONAL REDEMPTION OF THE NOTES
At any time on or after May 7, 2006, subject to the consent of the lenders
under our credit facility, we may redeem the notes in whole, or from time to
time, in part, at our option on at least 30 days' notice. The redemption price,
expressed as a percentage of the principal amount, will be as follows:
REDEMPTION PERIOD REDEMPTION PRICE
----------------- ----------------
May 7, 2006 through April 30, 2007....................... 102%
May 1, 2007 through April 30, 2008....................... 101%
and 100% of the principal amount on or after May 1, 2008, plus accrued and
unpaid interest, if any, thereon to the redemption date.
28
If we opt to redeem less than all of the notes at any time, the trustee will
select or cause to be selected the notes to be redeemed by any method that it
deems fair and appropriate. In the event of a partial redemption, the trustee
may provide for selection for redemption of portions of the principal amount of
any note of a denomination larger than $1,000.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER
A holder has the right to require us to repurchase all or a portion of the
notes on May 1 of 2009, 2012 and 2017. We will repurchase the notes for an
amount of cash equal to 100% of the principal amount of the notes on the date of
purchase, plus accrued and unpaid interest, if any, to the date of repurchase.
To exercise the repurchase right, the holder of a note must deliver, during the
period beginning at any time from the opening of business on the date that is 20
business days prior to the repurchase date until the close of business on the
business day before the repurchase date, a written notice to us and the trustee
of such holder's exercise of the repurchase right. This notice must be
accompanied by certificates evidencing the note or notes with respect to which
the right is being exercised, duly endorsed for transfer. This notice of
exercise may be withdrawn by the holder at any time on or before the close of
business on the business day preceding the repurchase date.
We may not repurchase any note at any time when the subordination provisions
of the indenture otherwise would prohibit us from making payments of principal
in respect of the notes. If we fail to repurchase the notes when required under
the preceding paragraph, this failure will constitute an event of default under
the indenture whether or not repurchase is permitted by the subordination
provisions of the indenture.
MANDATORY REDEMPTION
Except as set forth under "Right to Require Purchase of Notes upon a Change
in Control" and "Repurchase of Notes at the Option of the Holder," we are not
required to make mandatory redemption of, or sinking fund payments with respect
to, the notes.
RIGHT TO REQUIRE PURCHASE OF NOTES UPON A CHANGE IN CONTROL
If a change in control (as defined below) occurs, each holder of notes may
require that we repurchase the holder's notes on the date fixed by us that is
not less than 45 nor more than 60 days after we give notice of the change in
control. We will repurchase the notes for an amount of cash equal to 100% of the
principal amount of the notes on the date of purchase, plus accrued and unpaid
interest, if any, to the date of repurchase.
"Change in control" means the occurrence of one or more of the following
events: (i) 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
Waste Connections and its subsidiaries, taken as a whole, to any person or group
of related persons, as defined in Section 13(d) of the Securities Exchange Act
of 1934; (ii) the approval by the holders of capital stock of Waste Connections
of any plan or proposal for the liquidation or dissolution of Waste Connections
(whether or not otherwise in compliance with the provisions of the applicable
indenture); (iii) any person or group shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by Waste Connections' issued and
outstanding voting stock of, or any successor to, all or substantially all of
Waste Connections' assets; or (iv) the first day on which a majority of the
members of Waste Connections' board of directors are not continuing directors.
The definition of change of control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Waste Connections and its subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
Waste Connections to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
Waste Connections and its subsidiaries taken as a whole to another person or
group may be uncertain.
"Continuing directors" means, as of any date of determination, any member of
the board of directors of Waste Connections who (i) was a member of such board
of directors on the date of the original issuance of the notes or (ii) was
nominated for election or elected to such board of directors with the approval
of a majority of the continuing directors who were members of such board at the
time of such nomination or election.
29
On or prior to the date of repurchase, we will deposit with a paying agent
an amount of money sufficient to pay the aggregate repurchase price of the notes
which is to be paid on the date of repurchase.
We may not repurchase any note at any time when the subordination provisions
of the indenture otherwise would prohibit us from making payments of principal
in respect of the notes. If we fail to repurchase the notes when required under
the preceding paragraph, this failure will constitute an event of default under
the indenture whether or not repurchase is permitted by the subordination
provisions of the indenture.
On or before the 30th day after the change in control, we must mail to the
trustee and all holders of the notes a notice of the occurrence of the change in
control, stating:
o the repurchase date;
o the date by which the repurchase right must be exercised;
o the repurchase price for the notes; and
o the procedures which a holder of notes must follow to exercise the
repurchase right.
To exercise the repurchase right, the holder of a note must deliver, on or
before the third business day before the repurchase date, a written notice to us
and the trustee of the holder's exercise of the repurchase right. This notice
must be accompanied by certificates evidencing the note or notes with respect to
which the right is being exercised, duly endorsed for transfer. This notice of
exercise may be withdrawn by the holder at any time on or before the close of
business on the business day preceding the repurchase date.
The effect of these provisions granting the holders the right to require us
to repurchase the notes upon the occurrence of a change in control may make it
more difficult for any person or group to acquire control of us or to effect a
business combination with us. Moreover, under the indenture, we will not be
permitted to pay principal of or interest on, or otherwise acquire the notes,
including any repurchase at the election of the holders of notes upon the
occurrence of a change in control, if a payment default on our Senior
Indebtedness has occurred and is continuing, or if our Senior Indebtedness is
not paid in full in the event of our insolvency, bankruptcy, reorganization,
dissolution or other winding up. Our ability to pay cash to holders of notes
following the occurrence of a change in control may be limited by our then
existing financial resources. We cannot assure you that sufficient funds will be
available when necessary to make any required repurchases. See "Risk Factors --
We may not be able to repurchase the notes when required to."
If a change in control occurs and the holders exercise their rights to
require us to repurchase notes, we intend to comply with applicable tender offer
rules under the Securities Exchange Act of 1934 with respect to any repurchase.
The term "beneficial owner" shall be determined in accordance with Rules
13d-3 and 13d-5 promulgated by the SEC under the Securities Exchange Act of 1934
or any successor provision, except that a person shall be deemed to have
"beneficial ownership" of all shares of our common stock that the person has the
right to acquire, whether exercisable immediately or only after the passage of
time.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of any of the notes, consolidate
with, or merge into any other person or convey, transfer or lease our properties
and assets substantially as an entirety to, any other person, if:
o we are the resulting or surviving corporation or the successor,
transferee or lessee, if other than us, is a corporation organized
under the laws of any U.S. jurisdiction and expressly assumes our
obligations under the indenture and the notes by means of a
supplemental indenture entered into with the trustee; and
o after giving effect to the transaction, no event of default and no
event which, with notice or lapse of time, or both, would constitute an
event of default, shall have occurred and be continuing.
30
Under any consolidation, merger or any conveyance, transfer or lease of our
properties and assets as described in the preceding paragraph, the successor
company will be our successor and shall succeed to, and be substituted for, and
may exercise every right and power of, Waste Connections under the indenture. If
the predecessor is still in existence after the transaction, it will be released
from its obligations and covenants under the indenture and the notes.
MODIFICATION AND WAIVER
We and the trustee may enter into one or more supplemental indentures that
add, change or eliminate provisions of the indenture or modify the rights of the
holders of the notes with the consent of the holders of at least a majority in
principal amount of the notes then outstanding. Without the consent of each
holder of an outstanding note, however, no supplemental indenture may, among
other things:
o change the stated maturity of the principal of, or any installment of
interest on, any note;
o reduce the principal amount of, or the premium or rate of interest on,
any note;
o change the currency in which the principal of any note or any premium
or interest is payable;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any note when due;
o adversely affect the right provided in the indenture to convert any
note;
o modify the subordination provisions of the indenture in a manner
adverse to the holders of the notes;
o modify the provisions of the indenture relating to our requirement to
offer to repurchase notes upon a change in control in a manner adverse
to the holders of the notes;
o reduce the percentage in principal amount of the outstanding notes
necessary to modify or amend the indenture or to consent to any waiver
provided for in the indenture; or
o waive a default in the payment of principal of, or any premium or
interest on, any note.
The holders of a majority in principal amount of the outstanding notes may,
on behalf of the holders of all notes:
o waive compliance by us with restrictive provisions of the indenture
other than as provided in the preceding paragraph; and
o waive any past default under the indenture and its consequences, except
a default in the payment of the principal of or any premium or interest
on any note or in respect of a provision which under the indenture
cannot be modified or amended without the consent of the holder of each
outstanding note affected.
Without the consent of any holders of notes, we and the trustee may enter
into one or more supplemental indentures for any of the following purposes:
o to cure any ambiguity, omission, defect or inconsistency in the
indenture;
o to evidence a successor to us and the assumption by the successor of
our obligations under the indenture and the notes;
o to make any change that does not adversely affect the rights of any
holder of the notes;
o to comply with any requirement in connection with the qualification of
the indenture under the Trust indenture Act; or
o to complete or make provision for certain other matters contemplated by
the indenture.
EVENTS OF DEFAULT
Each of the following is an "event of default":
31
(1) a default in the payment of any interest upon any of the notes when
due and payable, continued for 30 days;
(2) a default in the payment of the principal of and premium, if any,
on any of the notes when due, including on a redemption date;
(3) failure to pay when due the principal of or interest on
indebtedness for money borrowed by us or our subsidiaries in excess of $20.0
million, or the acceleration of that indebtedness that is not withdrawn
within 15 days after the date of written notice to us by the trustee or to
us and the trustee by the holders of at least 25% in principal amount of the
outstanding notes;
(4) a default by us in the performance, or breach, of any of our other
covenants in the indenture which are not remedied by the end of a period of
60 days after written notice to us by the trustee or to us and the trustee
by the holders of at least 25% in principal amount of the outstanding notes;
or
(5) events of bankruptcy, insolvency or reorganization of Waste
Connections or any significant subsidiary of Waste Connections.
If an event of default described in clauses (1), (2), (3) or (4) occurs and
is continuing, either the trustee or the holders of at least 25% in principal
amount of the outstanding notes may declare the principal amount of, and accrued
interest on, all notes to be immediately due and payable. This declaration may
be rescinded if the conditions described in the indenture are satisfied. If an
event of default of the type referred to in clause (5) occurs, the principal
amount of and accrued interest on the outstanding notes will automatically
become immediately due and payable.
"Significant subsidiary" means a "significant subsidiary" as defined in
Regulation S-X under the Securities Exchange Act of 1934.
Within 90 days after a default, the trustee must give to the registered
holders of notes notice of all uncured defaults known to it. The trustee will be
protected in withholding the notice if it in good faith determines that the
withholding of the notice is in the best interests of the registered holders,
except in the case of a default in the payment of the principal of, or premium,
if any, or interest on, any of the notes when due or in the payment of any
redemption obligation.
The holders of not less than a majority in principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceedings for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee. Subject to the provisions of the indenture
relating to the duties of the trustee, if an event of default occurs and is
continuing, the trustee will be under no obligation to exercise any of the
rights or powers under the indenture at the request or direction of any of the
holders of the notes unless the holders have offered to the trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium, if any, or interest when due
or the right to convert a note in accordance with the indenture, no holder may
institute a proceeding or pursue any remedy with respect to the indenture or the
notes unless it complies with the conditions provided in the indenture,
including:
o holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy; and
o holders have offered the trustee security or indemnity satisfactory, to
the trustee against any loss, liability or expense.
We are required to deliver to the trustee annually a certificate indicating
whether the officers signing the certificate know of any default by us in the
performance or observance of any of the terms of the indenture. If the officers
know of a default, the certificate must specify the status and nature of all
defaults.
BOOK ENTRY, DELIVERY AND FORM
We issued the notes sold in the United States in reliance on Rule 144A in
the form of global notes. The global notes were deposited with, or on behalf of,
the clearing agency registered under the Securities Exchange Act of 1934 that is
designated to act as depositary for the notes and registered in the name of the
depositary or its nominee. The DTC was the initial depositary.
32
Investors who are "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act of 1933) and who purchase notes in reliance on Rule
144A under the Securities Act of 1933, may hold their interests in a global note
directly through DTC if they are DTC participants, or indirectly through
organizations that are DTC participants.
Except as set forth below, a global note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
DTC has advised us that DTC is:
o a limited-purpose trust company organized under the laws of the State
of New York;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
o a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934.
DTC was created to hold securities of institutions that have accounts with
DTC and to facilitate the clearance and settlement of securities transactions
among its participants in securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
Access to DTC's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, whether directly or indirectly.
We expect that pursuant to the procedures established by DTC (1) upon the
issuance of a global note, DTC will credit, on its book-entry registration and
transfer system, the respective principal amount of the individual beneficial
interests represented by the global note to the accounts of participants and (2)
ownership of beneficial interests in a global note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by DTC (with respect to participants' interests) and the participants
(with respect to the owners of beneficial interests in the global note other
than participants). The accounts to be credited will be designated by the
initial purchasers of the beneficial interests. Ownership of beneficial
interests in a global note is limited to participants or persons that may hold
interests through participants.
So long as DTC or its nominee is the registered holder and owner of a global
note, DTC or its nominee, as the case may be, will be considered the sole legal
owner of the notes represented by the global note for all purposes under the
indenture and the notes. Except as set forth below, owners of beneficial
interests in a global note will not be entitled to receive definitive notes and
will not be considered to be the owners or holders of any notes under the global
note. We understand that under existing industry practice, in the event an owner
of a beneficial interest in a global note desires to take any action that DTC,
as the holder of the global note, is entitled to take, DTC would authorize the
participants to take the action, and that participants would authorize
beneficial owners owning through the participants to take the action or would
otherwise act upon the instructions of beneficial owners owning through them. No
beneficial owner of an interest in a global note will be able to transfer the
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the indenture.
We will make payments of the principal of, and interest on, the notes
represented by a global note registered in the name of and held by DTC or its
nominee to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants and indirect participants
to owners of beneficial interests in a global note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for accounts of customers registered in
the names of nominees for these customers. The payments, however, will be the
responsibility of the participants and indirect participants, and neither we,
the trustee nor any paying agent will have any responsibility or liability for:
o any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a global note;
o maintaining, supervising or reviewing any records relating to the
beneficial ownership interests;
33
o any other aspect of the relationship between DTC and its participants;
or
o the relationship between the participants and indirect participants and
the owners of beneficial interests in a global note.
Unless and until it is exchanged in whole or in part for definitive notes, a
global note may not be transferred except as a whole by DTC to a nominee of DTC
or by a nominee of DTC to DTC or another nominee of DTC.
Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. If a holder requires physical delivery of a definitive note for any
reason, including to sell notes to persons in jurisdictions which require
physical delivery or to pledge notes, the holder must transfer its interest in a
global note in accordance with the normal procedures of DTC and the procedures
set forth in the indenture.
We expect that DTC will take any action permitted to be taken by a holder of
notes (including the presentation of notes for exchange as described below) only
at the direction of one or more participants to whose accounts at the DTC
interests in a global note are credited and only in respect of the portion of
the aggregate the principal amount of the notes as to which the participant or
participants has or have given direction. If there is an event of default under
the notes, however, DTC will exchange the global notes for definitive notes,
which it will distribute to its participants. These definitive notes are subject
to certain restrictions on registration of transfers and will bear appropriate
legends restricting their transfer. Neither we nor the trustee have any
responsibility for the performance by DTC nor its participants or indirect
participants of its obligations under the rules and procedures governing its
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
global notes or ceases to be a clearing agency registered under the Securities
Exchange Act of 1934 and we do not appoint a successor depositary within 90
days, we will issue definitive notes in exchange for the global notes. The
definitive notes will be subject to certain restrictions on registration of
transfers and will bear appropriate legends concerning these restrictions.
REGISTRATION RIGHTS
We entered into a registration rights agreement with the initial purchaser
of the notes for the benefit of the holders of the notes and the common stock
issuable on conversion of the notes. Under such agreement, at our cost, we:
o filed a shelf registration statement with the SEC covering resales of
the notes and the common stock issuable on conversion of the notes;
o used all reasonable efforts to cause the shelf registration statement
to be declared effective under the Securities Act of 1933; and
o will use all reasonable efforts to keep the shelf registration
statement effective after its effective date until April 30, 2004, or
such shorter period ending when (i) all of the notes covered by the
shelf registration statement have been sold in the manner disclosed in
the registration statement, or (ii) the date on which all the notes (x)
held by persons who are not affiliates of Waste Connections may be
resold pursuant to Rule 144(k) under the Securities Act or (y) cease to
be outstanding.
We have the right to suspend use of the shelf registration statement, during
specified periods of time relating to pending corporate developments and public
filings with the SEC and similar events. If we fail to keep the shelf
registration statement effective or usable in accordance with and during the
periods specified in the registration rights agreement, then, in each case, we
will pay liquidated damages to all holders of notes and all holders of common
stock issued on conversion of the notes equal to 0.5% of the aggregate principal
amount of notes per annum until such failure is cured.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
o will be required to be named as selling security holder;
o will be required to deliver a prospectus to purchasers;
34
o will be subject to the civil liability provisions under the Securities
Act of 1933 in connection with any sales; and
o will be bound by the provisions of the registration rights agreement,
which are applicable, including indemnification obligations.
We refer to the notes and the common stock issuable on conversion of the
notes as registrable securities. Promptly upon request from any holder of
registrable securities, we will provide a form of notice and questionnaire to be
completed and delivered by that holder to us at least three business days before
any intended distribution of registrable securities under the shelf registration
statement. If we receive from a holder of registrable securities a completed
questionnaire, together with other information that we reasonably request, after
the effectiveness of the shelf registration statement, we will file an amendment
to the shelf registration statement, or supplement to the related prospectus, to
permit the holder to deliver a prospectus to purchasers of registrable
securities. Any holder that does not complete and deliver a questionnaire or
provide such other information will not be named as a selling security holder in
the prospectus and therefore will not be permitted to sell any registrable
securities under the shelf registration statement.
GOVERNING LAW
The indenture and the notes are governed by and will be construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 7,500,000 shares of preferred stock, par value
$0.01 per share.
COMMON STOCK
As of March 1, 2004, there were 28,925,102 shares of our common stock
outstanding held of record by approximately 79 holders.
The holders of our common stock are entitled to one vote per share held on
all matters submitted to a vote of our stockholders. Cumulative voting for the
election of directors is not permitted. Holders of our common stock are entitled
to receive pro rata dividends when, as and if declared by our board of directors
out of any funds that we can legally use to pay dividends. We may pay dividends
in cash, stock or other property. In some cases, holders of common stock may not
receive dividends until we have satisfied our obligations to any holders of our
preferred stock. If we liquidate, dissolve or wind up our business, holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding shares
of our preferred stock.
Holders of our common stock have no preemptive rights to subscribe for
additional shares of our stock or other securities of ours, except as may be
granted by our board of directors. The common stock has no conversion rights and
is not redeemable. There are no sinking fund provisions applicable to our common
stock. There is no restriction on our purchase of shares of our common stock
except for regulatory limits. All outstanding shares of our common stock are
fully paid and non-assessable.
PREFERRED STOCK
We may, by resolution of our board of directors, and without any further
vote or action by our stockholders, authorize and issue, subject to limitations
prescribed by law, up to an aggregate of 7,500,000 shares of preferred stock, in
one or more series. The board of directors determines the rights, privileges and
limitations of preferred stock, including dividend rights, conversion rights,
voting rights, conversion privileges, redemption rights, liquidation rights
and/or sinking fund rights. Preferred stock may be issued in the future in
connection with acquisitions, financings or other matters that the board of
directors believes appropriate. No shares of preferred stock are outstanding and
we presently have no plans to issue shares of preferred stock.
One effect of having preferred stock authorized is that the board of
directors alone may be able to authorize the issuance of preferred stock in ways
that render more difficult or discourage an attempt to obtain control of Waste
Connections by a tender offer, proxy contest, merger or otherwise, and thereby
protect the continuity of our management. The issuance of shares of preferred
stock may adversely affect the voting and other rights of holders of common
stock. For example, preferred stock may rank prior to the common stock as to
dividend rights, liquidation preferences or both, may have full or limited
35
voting rights and may be convertible into common stock. Accordingly, the
issuance of preferred stock may discourage bids for the common stock or
otherwise adversely affect the market price of the common stock.
LIMITATION ON LIABILITY
Our certificate of incorporation provides that a director will not be
personally liable to Waste Connections or our stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to the company or our
stockholders;
o for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
o for unlawful payments of dividends, stock purchases or redemptions
prohibited by Delaware corporate law; or
o for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is amended in the future to permit
further limitation of the personal liability of directors, the liability of a
director of Waste Connections will be eliminated or limited to the fullest
extent permitted by that amended law.
CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS
CLASSIFIED BOARD OF DIRECTORS. Our certificate of incorporation provides
that our board of directors will be divided into three classes serving staggered
terms, and that the number of directors in each class will be as nearly equal as
is possible based on the number of directors constituting the entire board of
directors. At each annual meeting of stockholders, successors to directors of
the class whose term expires at such meeting will be elected to serve for
three-year terms.
The classification of directors makes it more difficult for stockholders to
change the composition of the board of directors. At least two annual meetings
of stockholders, instead of one, will generally be required to change the
majority of the board of directors. This delay helps ensure that Waste
Connections' directors, if confronted by a third party attempting to force a
proxy contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal and available
alternatives and to act in what they believe to be the best interests of the
stockholders. Classification, however, could also discourage a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of Waste Connections, even though that attempt might benefit
Waste Connections and our stockholders. The classification of the board of
directors could thus make it more likely that incumbent directors will retain
their positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. Our certificate of
incorporation provides that the number of directors will be fixed from time by a
majority of the directors then in office, and may not be less than three or more
than nine unless approved by at least two-thirds of the directors then in
office. In addition, newly created directorships resulting from an increase in
the authorized number of directors, vacancies on the board of directors
resulting from death, resignation, retirement, disqualification or removal of
directors or any other cause may be filled only by the board of directors (and
not by the stockholders unless there are no directors in office), if a quorum is
then in office and present, or by a majority of the directors then in office, if
less than a quorum is then in office, or by the sole remaining director.
Accordingly, the board of directors could prevent any stockholder from enlarging
the board of directors and filling the new directorships with that stockholder's
own nominees.
Our certificate of incorporation allows directors to be removed only for
cause and only on the affirmative vote of at least 66 2/3% of the voting power
of all the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
The provisions in our certificate of incorporation governing the number of
directors, their removal and the filling of vacancies may discourage a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Waste Connections, or attempting to change the
composition or policies of the board of directors, even though those attempts
might benefit Waste Connections or our stockholders. These provisions of our
certificate of incorporation could thus increase the likelihood that incumbent
directors retain their positions.
36
LIMITATIONS ON SPECIAL MEETINGS; NO STOCKHOLDER ACTION BY WRITTEN CONSENT.
Our certificate of incorporation and the By-Laws provide that only a majority of
the board of directors or the President or Chairman of the board of directors
may call a special meeting of stockholders, only matters stated in the notice of
meeting or properly brought before the meeting by or at the direction of the
board of directors may be transacted at the meeting, and stockholder action may
be taken only at a duly called and convened meeting and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration of stockholder proposals over the opposition of the board
of directors, except at an annual meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS. The By-Laws establish an advance notice procedure for stockholders to
make nominations of candidates for election as a director, or to bring other
business before an annual meeting of stockholders. In general, only persons
nominated by or at the direction of the board of directors, any committee
appointed by the board of directors, or a stockholder who has given timely
written notice to the Secretary of Waste Connections, may be elected as
directors. At an annual meeting, only business that has been brought before the
meeting by, or at the direction of, the board of directors, any committee
appointed by the board of directors, or a stockholder who has given timely
written notice to the Secretary of Waste Connections, may be conducted. To be
timely, notice of stockholder nominations or proposals to be made at an annual
or special meeting must be received by Waste Connections not less than 60 days
nor more than 90 days before the scheduled date of the meeting (or, if less than
70 days' notice or prior public disclosure of the date of the meeting is given,
then the 15th day following the earlier of the day the notice was mailed or the
day the public disclosure was made).
By requiring advance notice of nominations by stockholders, the stockholder
notice procedure gives the board of directors an opportunity to consider the
qualifications of the proposed nominees and inform stockholders about those
qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure provides a more orderly procedure for conducting
annual meetings of stockholders. It also gives the board of directors an
opportunity to inform stockholders in advance of any business proposed to be
conducted at meetings, together with the board of directors' recommendations
regarding action to be taken with respect to that business, so that stockholders
can better decide whether to attend such a meeting or to grant a proxy regarding
the disposition of any business.
Although the By-Laws do not give the board of directors any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, the stockholder notice procedure may preclude a contest for the
election of directors or the consideration of stockholder proposals. It may also
discourage or deter a third party from soliciting proxies to elect its own slate
of directors or to approve its own proposal, even though consideration of those
nominees or proposals might benefit Waste Connections and our stockholders.
CERTAIN PROVISIONS RELATING TO POTENTIAL CHANGE OF CONTROL. Our certificate
of incorporation authorizes the board of directors and any board of directors
committee to take action it determines to be reasonably necessary or desirable
to encourage any person or entity to enter into negotiations with the board of
directors and management about transactions that may result in a change of
control of Waste Connections. The board of directors and its committees may also
contest or oppose any such transaction that the board of directors determines to
be unfair, abusive or otherwise undesirable to Waste Connections, our business,
assets, properties or stockholders. The board of directors or any board of
directors committee may adopt plans to issue securities of Waste Connections,
and to determine the terms and conditions on which those securities may be
exchangeable or convertible into cash or other securities. In addition, the
board of directors or any board of directors committee may treat any holder or
class of holders of those designated securities differently than all other
security holders in respect of the terms, conditions, provisions and rights of
those securities.
This authority is intended to give the board of directors flexibility to act
in the best interests of stockholders in the event of a potential change of
control. These provisions may, however, deter potential acquirors from proposing
unsolicited transactions not approved by the board of directors and might enable
the board of directors to hinder or frustrate such a transaction if proposed.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS. Our certificate
of incorporation contains provisions requiring the affirmative vote of the
holders of at least 66 2/3% of the voting power of the voting stock to amend
some provisions of the certificate of incorporation (including the provisions
discussed above relating to the size and classification of the board of
directors, replacement and/or removal of board of directors members, action by
written consent, special stockholder meetings, the authorization by the board of
directors to take steps to encourage or oppose transactions that may result in a
change of control of Waste Connections, and limitation of the liability of
directors) or to amend any provision of the By-Laws by action of stockholders.
These provisions make it more difficult for stockholders to make changes in our
certificate of incorporation and the By-Laws, including changes designed to
facilitate the exercise of control over Waste Connections.
37
Waste Connections is a Delaware corporation and is subject to section 203 of
the Delaware General Corporation Law. Section 203 generally prevents a person
who, together with affiliates and associates, owns, or within the past three
years did own, 15% or more of the outstanding voting stock of a corporation from
engaging in some types of business combinations with the corporation for three
years after the date that person became a 15% stockholder, subject to some
exceptions. Business combinations covered by section 203 include a wide variety
of transactions with or caused by a 15% stockholder, including mergers, asset
sales and other transactions in which that Stockholder receives or could receive
a benefit on other than a pro rata basis with other stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the notes and common
stock into which the notes may be converted, but does not purport to be a
complete analysis of all the potential tax considerations relating thereto. This
summary is based on laws, regulations, rulings and decisions now in effect, all
of which are subject to change or differing interpretation possibly with
retroactive effect. Except as specifically discussed below with regard to
non-U.S. holders, this summary applies only to beneficial owners that will hold
notes and common stock into which the notes may be converted as "capital assets"
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended,) and who, for U.S. federal income tax purposes, are (i) individual
citizens or residents of the U.S., (ii) corporations created or organized in or
under the laws of the U.S. or of any political subdivision thereof, (iii)
estates, the income of which is subject to U.S. federal income taxation
regardless of the source of such income or (iv) trusts, the administration of
which is subject to the primary supervision of a U.S. court and which has one or
more U.S. persons with authority to control all substantial decisions or any
trust that has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person ("U.S. holders").
Persons other than U.S. holders are subject to special U.S. federal income
tax considerations, some of which are discussed below. This discussion does not
address tax considerations applicable to an investor's particular circumstances
or to investors that may be subject to special tax rules, such as banks or other
financial institutions, holders subject to the alternative minimum tax,
tax-exempt organizations, insurance companies, regulated investment companies,
foreign persons or entities (except to the extent specifically set forth below),
dealers in securities, commodities or currencies, initial holders whose
"functional currency" is not the U.S. dollar, persons that will hold notes as a
position in a hedging transaction, "straddle" or "conversion transaction" for
tax purposes or persons deemed to sell notes or common stock under the
constructive sale provisions of the Internal Revenue Code of 1986. This summary
is limited to the tax considerations applicable to holders of the notes who
purchase the notes upon their initial issuance at the initial offering price of
the notes. We have not sought any ruling from the IRS or an opinion of counsel
with respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will not challenge one or
more of the tax consequences described herein. In addition, the IRS is not
precluded from successfully adopting a contrary position. This summary does not
consider the effect of the federal estate or gift tax laws or the tax laws
(except as set forth below with respect to non-U.S. holders) of any applicable
foreign, state, local or other jurisdiction.
If a partnership (including for this purpose any entity, foreign or
domestic, classified as a partnership for U.S. federal income tax purposes) is a
beneficial owner of the notes or common stock into which the notes may be
converted, the U.S. federal income tax treatment of a partner in the partnership
generally will depend on the status of the partner and the activities of the
partnership. As a general matter, income earned through a foreign or domestic
partnership is attributed to its owner for United States federal income tax
purposes. A holder of the notes or common stock into which the notes may be
converted that is a partnership, and the partners in such partnership, should
consult their individual tax advisors regarding the federal, state, local and
foreign tax consequences of the purchase, ownership and disposition of the notes
(and the common stock into which the notes may be converted).
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE FEDERAL, ESTATE OR
GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
38
U.S. HOLDERS
TAXATION OF INTEREST
Except as provided below under the heading "Original Issue Discount,"
interest on a note will be includible in a U.S. holder's income as ordinary
interest income when actually or constructively received, if such holder uses
the cash method of accounting for federal income tax purposes, or when accrued,
if such holder uses an accrual method of accounting for federal income tax
purposes.
VARIABLE RATE DEBT INSTRUMENT
A note is a "variable rate debt instrument" (within the meaning of the
Treasury Regulations released by the IRS under the original discount provisions
of the Internal Revenue Code of 1986) if all of the four following conditions
are met:
o First, the "issue price" of the note, as described below, must not
exceed the total non-contingent principal payments by more than an
amount equal to the lesser of (i) .015 multiplied by the product of the
total non-contingent principal payments and the number of complete years
to maturity from the issue date, or, in the case of a note that provides
for payment of any amount other than qualified stated interest before
maturity, its weighted average maturity, and (ii) 15% of the total
non-contingent principal payments.
o Second, the note must provide for stated interest, compounded or paid at
least annually, at (a) one or more qualified floating rates, (b) a
single fixed rate and one or more qualified floating rates, (c) a single
objective rate or (d) a single fixed rate and a single objective rate
that is a "qualified inverse floating rate" as defined below.
o Third, the note must provide that a qualified floating rate or objective
rate in effect at any time during the term of the note is set at the
value of the rate on any day that is no earlier than three months prior
to the first day on which that value is in effect and no later than one
year following that first day.
o Fourth, the note may not provide for any principal payments that are
contingent except as provided in the first requirement set forth above.
Subject to certain exceptions, a variable rate of interest on a note is a
"qualified floating rate" if variations in the value of the rate can reasonably
be expected to measure contemporaneous fluctuations in the cost of newly
borrowed funds in the currency in which the debt instrument is denominated. A
variable rate will be considered a qualified floating rate if the variable rate
equals (i) the product of a qualified floating rate and a fixed multiple that is
greater than 0.65, but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate. In addition, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the note (e.g., two or more qualified floating
rates with values within 25 basis points of each other as determined on the
note's issue date) will be treated as a single qualified floating rate. Despite
the foregoing, a variable rate will not be considered a qualified floating rate
if the variable rate is subject to a cap, floor, governor (i.e., a restriction
on the amount of increase or decrease in the stated interest rate) or similar
restriction that is reasonably expected as of the issue date to cause the yield
on the note to be significantly more or less than the expected yield determined
without the restriction, other than a cap, floor or governor that is fixed
throughout the term of the note.
Subject to certain exceptions, an "objective rate" is a rate, other than a
qualified floating rate, that is determined using a single fixed formula and
that is based on objective financial or economic information that is neither
within our control (or the control of a related party) nor unique to our
circumstances (or the circumstances of a related party). For example, an
objective rate generally includes a rate that is based on one or more qualified
floating rates or on the yield of actively traded personal property within the
meaning of Section 1092(d)(1) of the Internal Revenue Code of 1986.
Notwithstanding the first sentence of this paragraph, a rate on a note is not an
objective rate if it is reasonably expected that the average value of the rate
during the first half of the note's term will be either significantly less than
or significantly greater than the average value of the rate during the final
half of the note's term. An objective rate is a "qualified inverse floating
rate" if (a) the rate is equal to a fixed rate minus a qualified floating rate
and (b) the variations in the rate can reasonably be expected to reflect
inversely contemporaneous variations in the cost of newly borrowed funds,
disregarding any caps, floors, governors or similar restrictions that would not,
as described above, cause a rate to fail to be a qualified floating rate.
If interest on a note is stated at a fixed rate for an initial period of one
year or less, followed by a variable rate that is either a qualified floating
rate or an objective rate for a subsequent period, and the value of the variable
rate on the issue date is intended to approximate the fixed rate, the fixed rate
and the variable rate together constitute a single qualified floating rate or
objective rate.
39
We believe that the variable rate on the notes will constitute a qualified
floating rate and that the notes will constitute variable rate debt instruments.
If the notes are not variable rate debt instruments, the notes will be taxable
under the rules applicable to contingent payment debt instruments and accrual of
interest would be determined using the noncontingent bond method, which method
generally requires interest to be included in the income of a holder according
to a projected payment schedule, subject to adjustment at year-end to reflect
actual payments made during the year.
ORIGINAL ISSUE DISCOUNT
The notes may be issued with original issue discount within the meaning of
Section 1273(a) of the Internal Revenue Code of 1986. Original issue discount
with respect to a note is the excess, if any, of the note's "stated redemption
price at maturity" over the note's "issue price." A note's "stated redemption
price at maturity" is the sum of all payments provided by the note, whether
designated as interest or as principal, other than payments of qualified stated
interest (i.e., stated interest that is unconditionally payable in cash or other
property (other than debt instruments of the issuer) at least annually at a
single, fixed rate). The "issue price" of a note is the first price at which a
substantial amount of the notes in the issuance that includes such note is sold
for money, excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers.
As described more fully below, U.S. holders of notes with original issue
discount that mature more than one year from their issue date generally will be
required to include such original issue discount in income as it accrues in
accordance with the constant yield method described below, irrespective of the
receipt of the related cash payments. A U.S. holder's tax basis in a note is
increased by each accrual of original issue discount and decreased by each
payment other than a payment of qualified stated interest.
The amount of original issue discount with respect to a note will be treated
as zero if the original issue discount is less than an amount equal to .0025
multiplied by the product of the stated redemption price at maturity and the
number of complete years to maturity, or, in the case of a note that provides
for payment of any amount other than qualified stated interest prior to
maturity, the weighted average maturity of the note. If the amount of original
issue discount with respect to a note is less than that amount, the original
issue discount that is not included in payments of stated interest is generally
included in income as capital gain as principal payments are made. The amount
includible with respect to a principal payment equals the product of the total
amount of original issue discount and a fraction, the numerator of which is the
amount of such principal payment and the denominator of which is the stated
principal amount of the note.
The taxation of original issue discount, including interest that does not
constitute qualified stated interest, on a floating rate note will depend on
whether the note is a "variable rate debt instrument," as that term is defined
above under the heading "Variable Rate Debt Instrument."
If a variable rate debt instrument provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof, any stated interest on the note which is unconditionally payable in
cash or property, other than debt instruments of the issuer, at least annually
will constitute "qualified stated interest" and will be taxed accordingly. Thus,
assuming that the notes constitute variable rate debt instruments, the notes
will generally not be treated as having been issued with original issue discount
unless the notes are issued at a "true" discount (i.e., at a price below the
variable rate debt instrument's stated principal amount) in excess of a
specified de minimis amount. Original issue discount on the notes arising from
"true" discount, if any, will be allocated to an accrual period using the
constant yield method described above by assuming that the variable rate is a
fixed rate equal to the value, as of the issue date, of the qualified floating
rate. Qualified stated interest allocable to an accrual period is increased, or
decreased, if the interest actually paid during an accrual period exceeds, or is
less than, the interest assumed to be paid during the accrual period.
LIQUIDATED DAMAGES
Our failure to file or cause to be declared effective a shelf registration
statement as described under "Description of Notes -- Registration Rights" may
result in the payment of predetermined liquidated damages in the manner
described therein. In addition, a holder may require us to redeem any and all of
his notes in the event of a change in control. Under Treasury Regulations, the
possibility of an additional payment under a note may be disregarded for
purposes of determining the amount of interest or original issue discount income
to be recognized by a holder in respect of such note (or the timing of such
recognition) if the likelihood of the payment, as of the date the notes are
issued, is remote. We believe that the likelihood of a liquidated damages
payment with respect to the notes is remote and do not intend to treat such
possibility as affecting the yield to maturity of any note. Similarly, we intend
to take the position that a change in control is remote under the Treasury
Regulations, and likewise do not intend to treat the possibility of a change in
control as affecting the yield to maturity of any note. In the event either
contingency occurs, it would affect the amount and timing of the income that
must be recognized by a U.S. holder of notes. Our determination that there is a
remote likelihood of paying additional interest on the notes is binding on each
U.S. holder unless the holder explicitly discloses in the manner required by
applicable Treasury Regulations that its determination is different from ours.
The IRS, however, may take a contrary position from that described above, which
could affect the timing and character of each U.S. holder's income from the
notes and our deduction with respect to additional payments under the notes.
40
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange (other than a conversion) or redemption of a note, a
U.S. holder generally will recognize capital gain or loss equal to the
difference between (i) the amount of cash proceeds and the fair market value of
any property received on the sale, exchange or redemption (except to the extent
such amount is attributable to accrued interest income not previously included
in income, which will be taxable as ordinary income, or is attributable to
accrued interest that was previously included in income, which amount may be
received without generating further income) and (ii) such holder's adjusted tax
basis in the note. A U.S. holder's adjusted tax basis in a note generally will
equal the cost of the note to such holder increased by the amount of original
issue discount included in income (and accrued market discount, if any, if the
U.S. holder has included such market discount in income) and decreased by the
amount of any payments, other than qualified stated interest payments, received
with respect to the note. Such capital gain or loss will be long-term capital
gain or loss if the U.S. holder's holding period in the note is more than one
year at the time of sale, exchange or redemption. Long term capital gains
recognized by certain non-corporate U.S. holders, including individuals, will
generally be subject to a maximum federal rate of tax of 15%. The deductibility
of capital losses is subject to limitations.
MARKET DISCOUNT
The resale of the notes may be affected by the impact on a purchaser of the
"market discount" provisions of the Internal Revenue Code of 1986. For this
purpose, the market discount on the notes generally will be equal to the amount,
if any, by which the stated redemption price at maturity of the notes
immediately after acquisition (other than at original issue) exceeds the
holder's adjusted tax basis in the notes. Subject to a de minimis exception,
these provisions generally require a U.S. holder who acquires notes at a market
discount to treat as ordinary income any gain recognized on the disposition of
such notes to the extent of the "accrued market discount" on such notes at the
time of disposition, unless the holder elects to include accrued market discount
in income currently. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS. In general, market discount
will be treated as accruing on a straight-line basis over the remaining term of
the notes at the time of acquisition, or, at the election of the holder, under
constant yield method. A holder who acquires notes at a market discount and who
does not elect to include accrued market discount in income currently may be
required to defer the deduction of a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the notes until such notes are
disposed of in a taxable transaction. If a holder acquires notes with market
discount and receives our common stock upon conversion of such notes, the amount
of accrued market discount not previously included in income with respect to the
converted notes through the date of conversion will be treated as ordinary
income upon the disposition of the common stock.
AMORTIZABLE PREMIUM
A holder who purchases a note at a premium over its stated principal amount,
plus accrued interest, generally may elect to amortize such premium from the
purchase date to the note's maturity date under a constant yield method that
reflects semiannual compounding based on the note's payment period. An
amortizable premium, however, will not include any premium attributable to a
note conversion feature. The premium attributable to the conversion feature is
the excess, if any, of the note's purchase price over what the note's fair
market value would be if there were no conversion feature. An amortizable
premium is treated as an offset to interest income on a note and not as a
separate deduction. The election to amortize a premium on a constant yield
method, once made, applies to all debt obligations held or subsequently acquired
by the electing U.S. holder on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
IRS.
41
DEDUCTIBILITY OF INTEREST
Under Section 279 of the Internal Revenue Code of 1986, deductions otherwise
allowable to a corporation for interest may be reduced or eliminated with
respect to corporate acquisition indebtedness, which indebtedness generally
includes any indebtedness that is:
o issued to provide consideration for the direct or indirect acquisition
of stock or assets of another corporation;
o subordinated to the claims of trade creditors of the issuing
corporation generally or expressly subordinated to any substantial
amount of unsecured indebtedness, whether outstanding or subsequently
issued, of the issuing corporation;
o convertible directly or indirectly into the stock of the issuing
corporation; and
o issued by a corporation that has a debt to equity ratio that exceeds 2
to 1 or as to which the projected earnings do not exceed three times
the annual interest to be paid or accrued by the corporation.
Our ability to deduct all of the interest payable on the notes will depend
on the application of the foregoing tests to us. We do not anticipate that the
Section 279 rules will apply to limit the deductibility of any of our interest
payments on the notes. The application of these rules, however, is subject to
uncertainties and depends on various factual matters, so that there is no
assurance that Section 279 will not apply. A limitation on the deductibility of
our interest payments could have an adverse effect on us.
Under Section 163(l) of the Internal Revenue Code of 1986, no deduction is
permitted for interest paid or accrued on any indebtedness of a corporation that
is payable in equity of the issuer or a related party. Debt is treated as debt
payable in equity of the issuer if the debt is part of an arrangement designed
to result in payment of the instrument with or by reference to the equity. Such
arrangements could include debt instruments that are convertible at the holder's
option if it is substantially certain that the option will be exercised. The
legislative history indicates that Section 163(l) of the Internal Revenue Code
of 1986 will not affect debt with a conversion feature where the conversion
price is significantly higher than the market price of the stock on the date of
the debt issuance. Accordingly, we do not believe that our interest deduction
with respect to interest payments on the notes will be adversely affected by
these rules; there can be no assurance, however, that the IRS will not take a
contrary position.
CONVERSION OF THE NOTES
A U.S. holder generally should not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to cash received in
lieu of a fractional share of common stock. A U.S. holder's tax basis in the
common stock received on conversion of a note should be the same as such
holder's adjusted tax basis in the note at the time of conversion (reduced by
any basis allocable to a fractional share interest), and the holding period for
the common stock received on conversion should generally include the holding
period of the note converted.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share).
CONSTRUCTIVE DIVIDENDS ON THE NOTES
The conversion price of the notes is subject to adjustment under certain
circumstances. Section 305 of the Internal Revenue Code of 1986 and the Treasury
Regulations issued thereunder may treat the holders of the notes as having
received a constructive distribution, resulting in ordinary income (subject to a
possible dividends received deduction in the case of corporate holders) to the
extent of our current and/or accumulated earnings and profits, if, and to the
extent that certain adjustments in the conversion price, which may occur in
limited, increase the proportionate interest of a holder of notes in the fully
diluted common stock, whether or not such holder ever exercises its conversion
privilege. Adjustments to the conversion price made pursuant to a bona fide
reasonable adjustment formula which has the effect of preventing the dilution of
the interest of the holders of the debt instruments, however, will not generally
be considered to result in a constructive dividend distribution. Certain
adjustments set forth in the notes, including, without limitation, adjustments
with respect of taxable dividends to our stockholders, will not qualify as a
bona fide reasonable adjustment formula. If such adjustments are made, U.S.
holders of the notes may recognize income in the event of a constructive
42
distribution even though they may not receive any cash or property. Moreover, if
there is not a full adjustment to the conversion ratio of the notes to reflect a
stock dividend or other event increasing the proportionate interest of the
holder of outstanding common stock in our assets or earnings and profits, then
such increase in the proportionate interest of the holders of the common stock
generally will be treated as a distribution to such holders, taxable as ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of our current and/or accumulated earnings
profits.
DISTRIBUTIONS ON COMMON STOCK
Distributions, if any, made on the common stock after a conversion will
generally be included in the income of a U.S. holder as ordinary dividend income
to the extent of our current or accumulated earnings and profits. Distributions
in excess of our current and accumulated earnings and profits will be treated as
a return of capital to the extent of the U.S. holder's basis in the common
stock, and thereafter as capital gain. A dividend distribution to a corporate
U.S. holder may qualify for a dividends received deduction. A dividend
distribution to a U.S. holder may qualify for a reduced rate of 15% on
"qualified dividends."
SALE OF COMMON STOCK
Upon the sale or exchange of common stock, a U.S. holder will generally
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such U.S. holder's adjusted tax basis in the common stock.
Such capital gain or loss will be long-term capital gain or loss if the U.S.
holder's holding period in common stock is more than one year at the time of the
sale or exchange. Long-term capital gains recognized by certain non-corporate
U.S. holders, including individuals, will generally be subject to a maximum
federal rate of tax of 15%. A U.S. holder's basis and holding period in common
stock received upon conversion of a note are determined as discussed above under
"Conversion of the Notes." The deductibility of capital losses is subject to
limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of U.S. federal income tax (at a rate of up to 28%) may
apply to payments regarding a note or common stock to a U.S. holder that is not
an exempt recipient and that fails to provide certain identifying information
(such as the holder's taxpayer identification number) in the manner required.
These backup withholding rules apply if the holder, among other things, (i)
fails to furnish a social security number or other taxpayer identification
number certified under penalties of perjury within a reasonable time after the
request therefor, (ii) fails to report property interest or dividends, (iii)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the taxpayer identification number furnished is
the correct number and that such holder is not subject to backup withholding or
(iv) if the IRS provides notification that the U.S. holder has furnished us with
an incorrect taxpayer identification number. Backup withholding is not an
additional tax and any amount withheld from a payment to a holder under the
backup withholding rules will be allowed as a refund or credited against the
holder's federal income tax liability, provided that the required information is
furnished to the IRS. Backup withholding will not apply, however, with respect
to payments made to certain holders, including corporations and tax exempt
organizations, provided their exemptions from backup withholding are properly
established.
Each calendar year, we will report to the U.S. holders of notes and common
stock and to the IRS the amount of our reportable payments, including interest
payments, dividend payments, proceeds from the disposition of the notes or
common stock to or through a broker and, under certain circumstances, principal
payments on the notes, and the amount of tax withheld, if any, with respect to
such payments.
SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS
The following discussion is limited to the United States federal income tax
consequences relevant to a non-U.S. holder.
TAXATION OF INTEREST
In general, subject to the discussion below concerning backup withholding,
payments of interest (including original issue discount, if any) on the notes by
us or any paying agent to a beneficial owner of a note that is a non-U.S. holder
will not be subject to U.S. withholding tax, provided that, (i) such non-U.S.
holder does not own, actually or constructively, 10% or more of our total
combined voting power of all classes of stock entitled to vote within the
meaning of Section 871(h)(3) of the Internal Revenue Code of 1986, (ii) such
non-U.S. holder is not a controlled foreign corporation with respect to which we
are a related person within the meaning of the
43
Internal Revenue Code of 1986, (iii) such non-U.S. holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Internal Revenue
Code of 1986, and (iv) the certification requirements under Section 871(h) or
Section 881(c) of the Internal Revenue Code of 1986 and Treasury Regulations
thereunder (discussed below) are satisfied.
Interest on notes not excluded from U.S. withholding tax as described above
generally will be subject to U.S. withholding tax at a rate of 30%, except where
an applicable tax treaty provides for the reduction or elimination of such
withholding tax.
To satisfy the certification requirements referred to in (iv) above,
Sections 871(h) and 881(c) of the Internal Revenue Code of 1986 and the Treasury
Regulations thereunder require that either (i) the beneficial owner of a note
must certify, under penalties of perjury, to us or our paying agent, as the case
may be, that such owner is a non-U.S. holder and must provide such owner's name
and address, and U.S. taxpayer identification number, if any, or (ii) a
securities clearing organization, bank or other financial institution that holds
customer securities in the ordinary course of its trade or business and holds
the note on behalf of the beneficial owner thereof must certify, under penalties
of perjury, to us or our paying agent, as the case may be, that such certificate
has been received from the beneficial owner and must furnish the payor with a
copy thereof. Such requirement will be fulfilled if the beneficial owner of a
note certifies on IRS Form W-8BEN or successor form, under penalties of perjury,
that it is a non-U.S. holder and provides its name and address or any financial
institution holding the note on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such a statement
from the beneficial owner (and furnishes the withholding agent with a copy
thereof).
The Treasury Regulations provide alternative methods for satisfying the
certification requirements described above. The Treasury Regulations also
require, in the case of notes held by a foreign partnership, that (i) the
certification be provided by the partners rather than by the foreign partnership
and (ii) the partnership provide certain information, including a taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships.
If a non-U.S. holder of a note is engaged in a trade or business in the U.S.
and if interest on the note is effectively connected with the conduct of such
trade or business (and, if certain tax treaties apply, is attributable to a U.S.
permanent establishment maintained by the non-U.S. holder in the U.S.), the
non-U.S. holder will generally be subject to U.S. federal income tax on such
interest on a net income basis in the same manner as if it were a U.S. holder.
In lieu of the certificate described above, such a non-U.S. holder must provide
us with a properly executed IRS Form W-8ECI or 4224 or successor form in order
to claim an exemption from any applicable withholding tax. In addition, if such
non-U.S. holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% (or such lower rate provided by an applicable treaty) of its
effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
CONVERSION OF THE NOTES
A non-U.S. holder generally will not be subject to U.S. federal income tax
on the conversion of a note into common stock. To the extent a non-U.S. holder
receives cash in lieu of a fractional share of common stock upon conversion,
such cash may give rise to gain that would be subject to the rules described
below with respect to the sale or exchange of a note or common stock. See "Sale,
Exchange or Redemption of the Notes or Common Stock" below.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment in certain
circumstances. Any such adjustment could, in certain circumstances, give rise to
a deemed distribution to non-U.S. holders of the notes. See "U.S. Holders --
Adjustment of Conversion Price" above. In such case, the deemed distribution
would be subject to the rules below regarding withholding of U.S. federal tax on
dividends in respect of common stock.
DISTRIBUTIONS ON COMMON STOCK
Distributions on common stock will constitute a dividend for U.S. federal
income tax purposes to the extent of our current or accumulated earnings and
profits as determined under U.S. federal income tax principles. Dividends paid
on common stock held by a non-U.S. holder will be subject to U.S. withholding
tax at a rate of 30% (or lower treaty rate, if applicable) unless the dividend
is effectively connected with the conduct of a U.S. trade or business by the
non-U.S. holder and, if required by a tax treaty, is attributable to a permanent
establishment maintained in the U.S., in which case the dividend will be subject
to U.S. federal income tax on net income that applies to U.S. persons generally
(and with respect to corporate holders under certain circumstances, the branch
profits
44
tax). A non-U.S. holder may be required to satisfy certain requirements in order
to claim a reduction of or exemption from withholding under the foregoing rules.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES OR COMMON STOCK
A non-U.S. holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other disposition
of such note or common stock unless (i) such non-U.S. holder is an individual
who is present in the U.S. for 183 days or more in the taxable year of sale,
exchange or other disposition, and certain conditions are met, (ii) such gain is
effectively connected with the conduct by the non-U.S. holder of a trade or
business in the U.S. and, if certain U.S. income tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the non-U.S.
holder, (iii) the non-U.S. holder is subject to provisions of the Internal
Revenue Code of 1986 applicable to certain U.S. expatriates, or (iv) in the case
of a note or common stock held by a person who holds more than 5% of our stock,
we are or have been, at any time within the shorter of the five-year period
preceding such sale or other disposition or the period such non-U.S. holder held
the common stock, a U.S. real property holding corporation for U.S. federal
income tax purposes. We do not believe that we currently are a U.S. real
property holding corporation or that we will become one in the future.
U.S. FEDERAL ESTATE TAX
The estates of nonresident alien individuals are subject to U.S. federal
estate tax on property with a U.S. situs. The notes will not be U.S. situs
property as long as interest on the notes paid immediately before the death of
the holder would have qualified as portfolio interest, exempt from withholding
tax as described above under "Special Tax Rules Applicable to non-U.S. holders--
Taxation of Interest." Because we are a U.S. corporation, our common stock will
be U.S. situs property, and therefore, will be included in the taxable estate of
nonresident alien decedent. The U.S. federal estate tax liability of the estate
of a nonresident alien may be affected by a tax treaty between the United States
and the decedent's country of residence.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In the case of payments of interest on a note to a non-U.S. holder, Treasury
Regulations provide that backup withholding and information reporting will not
apply to payments with respect to which either requisite certification has been
received or an exemption has otherwise been established (provided that neither
we nor our paying agent has actual knowledge that the holder is a U.S. holder or
that the conditions of any other exemption are not in fact satisfied).
Dividends on common stock paid to non-U.S. holders that are subject to U.S.
withholding tax, as described above, generally will be exempt from U.S. backup
withholding tax but will be subject to certain information reporting.
Payments of the proceeds of the sale of a note or common stock to or through
a foreign office of a U.S. broker or a foreign broker that is a controlled
foreign corporation within the meaning of the Internal Revenue Code of 1986 or a
foreign person, 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment was effectively connected with the conduct of a trade or business within
the U.S., are currently subject to certain information reporting requirements,
unless the payee is an exempt recipient or such broker has evidence in its
records that the payee is a non-U.S. holder and no actual knowledge that such
evidence is false and certain other conditions are met. Temporary Treasury
Regulations indicate that such payments are not currently subject to backup
withholding.
Under current Treasury Regulations, payments of the proceeds of a sale of a
note or common stock to or through the U.S. office of a broker will be subject
to information reporting and backup withholding unless the payee certifies under
penalties of perjury as to his or her status as a non-U.S. holder and satisfies
certain other qualifications (and no agent of the broker who is responsible for
receiving or reviewing such statement has actual knowledge that it is incorrect)
and provides his or her name and address or the payee otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder of a note or common stock will be allowed as a credit against
such holder's U.S. federal income tax, if any, or will be otherwise refundable
provided that the required information is furnished to the IRS in a timely
manner.
The Treasury Regulations permit the shifting of primary responsibility for
withholding to certain financial intermediaries acting on behalf of beneficial
owners. A non-U.S. holder of a note or common stock should consult with its tax
advisor regarding the application
45
of the backup withholding rules to its particular situation, the availability of
an exemption therefrom, the procedure for obtaining such an exemption, if
available.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO THE PARTICULAR U.S. FEDERAL,
STATE, AND LOCAL TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE
NOTES AND OUR COMMON STOCK INTO WHICH THE NOTES MAY BE CONVERTED. TAX ADVISORS
SHOULD ALSO BE CONSULTED AS TO THE U.S. ESTATE AND GIFT TAX CONSEQUENCES AND THE
FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING OR DISPOSING OF OUR NOTES AND
COMMON STOCK, AS WELL AS THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE
LAWS.
DESCRIPTION OF WASTE CONNECTIONS,
MANAGEMENT AND ADDITIONAL INFORMATION
A description of Waste Connections, and information relating to executive
compensation, various benefit plans, voting securities and the principal holders
of voting securities, relationships and related transactions and other related
matters as to Waste Connections is incorporated by reference or set forth in
Waste Connections' Annual Report on Form 10-K for the year ended December 31,
2003, which is incorporated into this prospectus by reference. Stockholders
desiring copies of such documents may contact Waste Connections at our address
or phone number indicated under "Incorporation by Reference."
LEGAL MATTERS
Some legal matters with respect to the validity of the notes offered by this
prospectus and the common stock issuable upon conversion of the notes are being
passed upon for Waste Connections by Shartsis, Friese & Ginsburg LLP, San
Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2003, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our consolidated financial statements and schedule are incorporated
by reference in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any materials we file with the
SEC at the SEC's public reference room at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., as well as at the SEC's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please
call the SEC at 1-800-SEC-0330 for more information about the operation of the
public reference rooms. Our SEC filings are also available at the SEC's website
at "http://www.sec.gov." In addition, we make our reports on Form 10-K, 10-Q and
8-K available on our internet website free of charge after we file them with the
SEC. Our internet website address is http:wasteconnections.com.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 prior to the termination of this offering:
o Annual Report on Form 10-K for the year ended December 31, 2003; and
o Report on Form 8-K filed on February 19, 2004.
46
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
INVESTOR RELATIONS
WASTE CONNECTIONS, INC.
35 IRON POINT CIRCLE, SUITE 200
FOLSOM, CA 95630
(916) 608-8200
This prospectus is part of a Registration Statement we filed with the SEC.
You should rely only on the information incorporated by reference or provided in
this prospectus, any prospectus supplement and the registration statement. We
have not authorized anyone to provide you with different information. You should
assume that the information in this prospectus and any prospectus supplement is
accurate only as of the date on the front of the document. Our business,
financial condition, results of operations and prospects may have changed since
that date. Any material changes that we do not disclose in a supplement to this
prospectus will be incorporated by reference to future filings with the SEC.
47
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS. WASTE CONNECTIONS
HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND IT
DOES NOT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS CURRENT
ONLY AS OF THE DATE OF THIS PROSPECTUS. ANY MATERIAL CHANGES THAT WE DO NOT
DISCLOSE IN A SUPPLEMENT TO THIS PROSPECTUS WILL BE INCORPORATED BY REFERENCE TO
FUTURE FILINGS WITH THE SEC.
[WASTE CONNECTIONS LOGO]
$175,000,000
PROSPECTUS
TABLE OF CONTENTS
PAGE
Summary.................................................................... 6
Risk Factors............................................................... 10
Use of Proceeds............................................................ 18
Price Range of Common Stock................................................ 19
Dividend Policy............................................................ 19
Selling Holders............................................................ 19
Plan of Distribution....................................................... 20
Description of Notes....................................................... 22
Description of Capital Stock............................................... 35
Certain United States Federal Income Tax Considerations.................... 38
Description of Waste Connections, Management and
Additional Information................................................... 46
Legal Matters.............................................................. 46
Experts.................................................................... 46
Where You Can Find More Information........................................ 46
Incorporation by Reference................................................. 46
================================================================================
48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee............................... $ 16,100
Printing Expenses*................................. 150,000
Accounting Fees and Expenses*...................... 300,000
Legal Fees and Expenses*........................... 150,000
Credit Rating Expenses............................. 150,000
-----------
Total*............................................. $ 766,100
===========
----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that a director will not be
personally liable to Waste Connections or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to the corporation or
its stockholders,
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
o under Section 174 of the Delaware General Corporation Law (the
"Delaware Law"), which concerns unlawful payments of dividends, stock
purchases or redemptions, or
o for any transaction from which the director derived an improper
personal benefit.
If the Delaware Law is subsequently amended to permit further limitation of
the personal liability of directors, the liability of a director of Waste
Connections will be eliminated or limited to the fullest extent permitted by the
Delaware Law as amended.
Section 145(a) of the Delaware Law provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
Section 145(b) of the Delaware Law states that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of
49
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 145(c) of the Delaware Law provides that to the extent that a
present or former director or officer of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the Delaware Law states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the applicable
standard of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority of the directors
who were not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders.
Section 145(e) of the Delaware Law provides that expenses (including
attorneys' fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
officers and directors or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of Section 145 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.
Section 145(g) of the Delaware Law provides that a corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of Section 145.
Section 145(j) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, Section 145 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Pursuant to Section 145 of the Delaware Law, Waste Connections has purchased
insurance on behalf of its present and former directors and officers against any
liability asserted against or incurred by them in such capacity or arising out
of their status as such. Waste Connections has entered into indemnification
agreements with each of its directors and officers providing for mandatory
indemnification and advancement of expenses to the maximum extent permitted by
the Delaware Law.
50
ITEM 16. 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
5.1* Opinion of Shartsis, Friese & Ginsburg LLP
12.1 Statement regarding computation of ratio of earnings to fixed charges
23.1* Consent of Shartsis, Friese & Ginsburg LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1* Power of Attorney (included in Part II of the Registration Statement
under the caption "Signatures")
25* Statement of Eligibility of Trustee
* Previously filed
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that provisions (i) and (ii) do
not apply if the information required to be included in a post-effective
amendment by those provisions is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
(4) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
51
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Folsom, State of California, on March 17, 2004.
WASTE CONNECTIONS, INC.
By: /s/ RONALD J. MITTELSTAEDT
--------------------------------
Ronald J. Mittelstaedt
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN
Such person whose signature appears below hereby appoints Ronald J.
Mittelstaedt and Steven F. Bouck, and each of them, each of whom may act without
joinder of the other, as his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to execute in the name and
on behalf of such person any amendment or any post-effective amendment to this
registration statement, and any registration statement relating to any offering
made in connection with the offering covered by this registration statement that
is to be effective on filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing appropriate or necessary to be done, as
fully and for all intents and purposes as he or she might or could to in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 17, 2004.
SIGNATURE TITLE DATE
/s/ RONALD J. MITTELSTAEDT* President, Chief Executive March 17, 2004
---------------------------- Officer and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU* Director and Regional Vice March 17, 2004
---------------------------- President -- Western Region
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN* Director March 17, 2004
----------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK* Director March 17, 2004
----------------------------
William J. Razzouk
/s/ ROBERT H. DAVIS* Director March 17, 2004
----------------------------
Robert H. Davis
/s/STEVEN F. BOUCK* Executive Vice President and March 17, 2004
---------------------------- Chief Financial Officer
Steven F. Bouck
/s/DAVID G. EDDIE* Vice President -- Corporate March 17, 2004
---------------------------- Controller
David G. Eddie
/s/ *STEVEN F. BOUCK
----------------------------
Attorney-in-Fact
53
EXHIBIT INDEX
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
5.1* Opinion of Shartsis, Friese & Ginsburg LLP
12.1 Statement regarding computation of ratio of earnings to fixed charges
23.1* Consent of Shartsis, Friese & Ginsburg LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1* Power of Attorney (included in Part II of the Registration Statement
under the caption "Signatures")
25* Statement of Eligibility of Trustee
* Previously filed
54