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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-7327
----------------
WASTE MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2660763
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3003 BUTTERFIELD ROAD, OAK BROOK, ILLINOIS 60523
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 572-8800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C> <C>
Common Stock, $1.00 par
value New York Stock Exchange Zurich Stock Exchange
Chicago Stock Exchange Geneva Stock Exchange
London Stock Exchange Basle Stock Exchange
Frankfurt Stock Exchange
Liquid Yield Option Notes
due 2001 New York Stock Exchange
8 3/4% Debentures due 2018 New York Stock Exchange
Liquid Yield Option Notes
due 2012 New York Stock Exchange
Chemical Waste Management,
Inc.
Liquid Yield Option Notes
due 2010 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
STOCKHOLDERS WHO WERE NOT AFFILIATES (AS DEFINED BY REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION) OF THE REGISTRANT WAS APPROXIMATELY
$10,657,397,087 AT FEBRUARY 1, 1998 (BASED ON THE CLOSING SALE PRICE ON THE NEW
YORK STOCK EXCHANGE COMPOSITE TAPE ON JANUARY 30, 1998, AS REPORTED BY THE WALL
STREET JOURNAL (MIDWEST EDITION)). AT MARCH 18, 1998, THE REGISTRANT HAD ISSUED
AND OUTSTANDING AN AGGREGATE OF 455,182,521 SHARES OF ITS COMMON STOCK OF RECORD
(EXCLUDING 10,886,361 SHARES HELD IN THE WASTE MANAGEMENT, INC. EMPLOYEE STOCK
BENEFIT TRUST).
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
ITEM 1. BUSINESS.......................................................... 1
GENERAL.................................................................. 1
NORTH AMERICAN SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES............. 3
Solid Waste Management, Recycling and Related Services.................. 4
Hazardous Waste Management and Related Services......................... 7
INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES...................... 9
Collection Services..................................................... 10
Treatment and Disposal Services......................................... 10
TRASH-TO-ENERGY AND RELATED SERVICES..................................... 12
REGULATION............................................................... 12
General................................................................. 12
Waste Management Services............................................... 14
Trash-to-Energy and Related Services.................................... 15
RCRA.................................................................... 17
Superfund............................................................... 18
International Waste Management and Related Services..................... 19
COMPETITION.............................................................. 19
INSURANCE................................................................ 21
EMPLOYEES................................................................ 21
ACQUISITIONS AND DISPOSITIONS............................................ 22
ITEM 2. PROPERTIES........................................................ 23
ITEM 3. LEGAL PROCEEDINGS................................................. 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 26
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.................................................................. 27
ITEM 6. SELECTED FINANCIAL DATA........................................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION...................................................... 30
RESULTS OF OPERATIONS.................................................... 30
FINANCIAL CONDITION...................................................... 44
OUTLOOK.................................................................. 48
FORWARD-LOOKING INFORMATION.............................................. 49
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........ 50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................................................... 97
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 98
DIRECTORS OF THE REGISTRANT.............................................. 98
EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 100
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................. 101
ITEM 11. EXECUTIVE COMPENSATION........................................... 102
STOCK OPTIONS............................................................ 104
LONG TERM INCENTIVE PLAN AWARDS.......................................... 106
PENSION AND RETIREMENT PLANS............................................. 107
</TABLE>
i
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PAGE
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COMPENSATION OF DIRECTORS................................................. 108
OUTSIDE DIRECTORS' PLANS.................................................. 108
STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS............................. 108
DIRECTORS' CHARITABLE ENDOWMENT PROGRAM................................... 109
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............... 109
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 110
SECURITY OWNERSHIP OF MANAGEMENT.......................................... 110
Ownership of Company Common Stock........................................ 110
Ownership of WTI Common Stock............................................ 112
Ownership of WM International Ordinary Shares............................ 113
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 115
MEETINGS AND COMMITTEES OF THE BOARD...................................... 115
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 117
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K.. 123
</TABLE>
ii
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Waste Management, Inc. (formerly "WMX Technologies, Inc.") is a leading
international provider of waste management services. Unless the context
indicates to the contrary, as used in this report the terms "Company" and
"Waste Management" refer to Waste Management, Inc. and its subsidiaries.
The Company provides integrated solid waste management services in North
America through Waste Management of North America, Inc., a wholly owned
subsidiary of the Company (referred to herein, together with its subsidiaries
and certain affiliated companies providing waste management and related
services, as "WMNA"). The Company's solid waste management services are
provided to commercial, industrial, municipal and residential customers, as
well as to other waste management companies, and consist of solid waste
collection, transfer, resource recovery and disposal services. As part of
these services, the Company is engaged in providing, through its Recycle
America(R) and other programs, paper, glass, plastic and metal recycling
services to commercial and industrial operations and curbside collection of
such materials from residences and in removing methane gas from sanitary
landfill facilities for use in electricity generation. In addition, through
WMNA, the Company provides Port-O-Let(R) portable sanitation services to
municipalities and commercial and special event customers. WMNA also manages
the on-site industrial cleaning services businesses owned by the Company's
Rust International Inc. subsidiary. In June 1997, the Company completed the
sale of most of the Company's solid waste assets in Canada to a subsidiary of
USA Waste Services, Inc. ("USA Waste"). See Note 5 to Consolidated Financial
Statements set forth in Item 8 herein.
The Company also provides hazardous waste management services. The Company's
chemical waste treatment, storage, disposal and related services in North
America are provided through WMNA and Chemical Waste Management, Inc., a
wholly owned subsidiary of the Company (referred to herein, together with its
subsidiaries, as "CWM"), and are provided to commercial and industrial
customers, as well as to other waste management companies and to governmental
entities. Through Advanced Environmental Technical Services, L.L.C., a wholly
owned subsidiary of the Company (referred to herein, together with its
subsidiaries as "AETS"), the Company provides on-site integrated hazardous
waste management services, including hazardous waste identification,
packaging, removal and recycling services, to industrial, institutional and
governmental customers. Through its wholly owned Chem-Nuclear Systems, L.L.C.
subsidiary (referred to herein, together with its subsidiaries, as "Chem-
Nuclear"), the Company also furnishes radioactive waste management services,
primarily to electric utilities and governmental entities.
The Company provides comprehensive waste management and related services
outside North America through Waste Management International plc, a subsidiary
owned approximately 56% by the Company and 12% each by the Company's Rust
International Inc. and Wheelabrator Technologies Inc. subsidiaries (referred
to herein, together with its subsidiaries, as "WM International"). WM
International provides a wide range of solid and hazardous waste management
services in seven countries in Europe, seven countries in the Asia-Pacific
region and Argentina, Brazil, and Israel.
Wheelabrator Technologies Inc., an approximately 67%-owned subsidiary of the
Company (referred to herein, together with its subsidiaries, as "WTI"), is a
leading developer of facilities for, and provider of services to, the trash-
to-energy and waste-fuel powered independent power markets. WTI develops,
arranges financing for, operates and owns facilities that dispose of trash and
other waste materials in an environmentally acceptable manner by recycling
them into electrical or steam energy. WTI is also pursuing the development,
ownership and operation of power plants for industrial customers. In addition,
WTI is involved in the treatment and management of biosolids resulting from
the treatment of wastewater by converting them into useful fertilizers and the
recycling of organic wastes into compost material useable for horticultural
and agricultural purposes. WTI also designs and installs technologically
advanced air pollution control systems and equipment. In 1996, WTI sold its
water process, manufacturing and custom engineering business and in 1997 sold
its water-contract operations, outsourcing and privatization business. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" herein.
Printed on recycled
1 paper.
LOGO
<PAGE>
In June 1997, the Company announced an offer to acquire, for $15 per share
in cash, all of the approximately 53 million outstanding shares of WTI it does
not already own. The price was increased to $16.50 per share pursuant to a
definitive merger agreement subsequently negotiated with a special committee
of independent WTI directors. The terms of the agreement have been approved by
the WTI special committee and by the Boards of Directors of the Company and
WTI, but the transaction remains subject to the approval of the holders of a
majority of WTI's outstanding shares, other than those held by the Company,
voting on it at a special meeting of WTI stockholders to be held March 30,
1998. Several lawsuits have been filed which seek, among other things, to
enjoin the proposed transaction. The Company believes that it has met the
legal standards applicable to transactions of this type and intends to
vigorously defend itself in these lawsuits.
Rust International Inc., a subsidiary owned approximately 60% by the Company
and 40% by WTI (referred to herein, together with its subsidiaries, as
"Rust"), is engaged in furnishing environmental and infrastructure consulting
and a variety of other on-site industrial and related services primarily to
clients in the public sector and petrochemical, chemical, energy, utility,
pulp and paper, environmental services and other industries. In early 1998,
Rust sold its approximately 37% interest in OHM Corporation, a publicly traded
provider of environmental remediation services ("OHM"), and received a
distribution from OHM of additional shares of NSC Corporation, a publicly
traded provider of asbestos abatement and other specialty contracting services
("NSC"). The distribution increased Rust's interest in NSC from approximately
40% to 54%.
The Company's strategic plans call for the Company to focus on the provision
of waste management services and to sell or discontinue various businesses
which do not fit within that focus. The Company has therefore reported its
continuing operations as being within a single industry segment, waste
management services. The Company's continuing consolidated revenues were
approximately $8.5 billion in 1994, $9.1 billion in 1995, $9.2 billion in 1996
and $9.2 billion in 1997. For information relating to the Company's operations
in different geographic groups, see Note 14 to the Company's Consolidated
Financial Statements set forth below in Item 8. For interim periods, the
revenues and net income of certain of the Company's operations may fluctuate
for a number of reasons, including there being for some businesses less
activity during the winter months.
On March 10, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant
to which the Company will be merged with a wholly-owned subsidiary of USA
Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's
stockholders will receive .725 shares of common stock of USA Waste for each
share of common stock of the Company. The consummation of the Merger is
subject to a number of conditions, including the expiration or termination of
the applicable merger review waiting period under the Hart-Scott-Rodino Anti-
Trust Improvements Act of 1976, approval by the stockholders of each company
and other typical closing conditions. In addition, the Merger is contingent
upon the transaction qualifying for pooling-of-interests accounting treatment.
In order to qualify for pooling-of-interests accounting treatment, the Company
intends to sell a portion of its treasury shares pursuant to a registered
public offering prior to the closing of the Merger. A lawsuit by an alleged
Company stockholder purporting to represent a class of the Company's
stockholders has been filed (although the Company has not yet been served)
against the Company and members of its Board of Directors alleging breaches of
fiduciary duty by the defendants in connection with the Merger. The lawsuit
seeks, among other things, to have the transaction enjoined and to recover
unspecified damages. The Company believes the suit to be without merit and
intends to contest it vigorously.
Regulatory or technological developments relating to the environment may
require companies engaged in waste management services and related businesses,
including the Company, to modify, supplement or replace equipment and
facilities at costs which may be substantial. Because the continuing business
in which the Company is engaged is intrinsically connected with the protection
of the environment and the potential discharge of materials into the
environment, a material portion of the Company's capital expenditures is,
directly or indirectly, related to such items. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Financial
Condition" set forth below in Item 7 for a review of property and equipment
expenditures by the Company for the last four years. The Company believes
that, in general, it tends to benefit when environmental regulation increases,
which may increase the demand for its services, and that it has the resources
and experience to manage environmental risk.
2
<PAGE>
Although the Company strives to conduct its operations in compliance with
applicable laws and regulations, the Company believes that in the existing
climate of heightened legal, political and citizen awareness and concerns,
companies in the waste management services industry, including the Company,
will be faced, in the normal course of operating their businesses, with fines
and penalties and the need to expend funds for remedial work and related
activities with respect to waste treatment, disposal and trash-to-energy
facilities. Where the Company concludes that it is probable that a liability
has been incurred, a provision is made in the Company's financial statements
for the Company's best estimate of the liability based on management's judgment
and experience, and information available from regulatory agencies. This
estimate is also based upon an analysis of the number, financial resources and
relative degree of responsibility of other potentially responsible parties who
are jointly and severally liable for remediation of a specific site, as well as
the typical allocation of costs among such parties. If a range of possible
outcomes is estimated and no amount within the range appears to be a better
estimate than any other, then the Company provides for the minimum amount
within the range, in accordance with generally accepted accounting principles.
Such estimates are subsequently revised, as necessary, as additional
information becomes available. While the Company does not anticipate that the
amount of any such revision will have a material adverse effect on the
Company's operations or financial condition, the measurement of environmental
liabilities is inherently difficult and the possibility remains that
technological, regulatory or enforcement developments, the results of
environmental studies, the existence and ability of other potentially
responsible third parties (including insurance carriers) to contribute to the
settlement of such liabilities or other factors could materially alter this
expectation at any time. Such matters could have a material adverse impact on
earnings for one or more fiscal quarters or years.
While in general the Company's business has benefited from increased
governmental regulation, the business itself is subject to extensive and
evolving regulation by federal, state, local and foreign authorities. Due to
the complexity of regulation of the industry and to public pressure,
implementation of existing and future laws, regulations or initiatives by
different levels of government may be inconsistent and difficult to foresee. In
addition, the demand for certain of the Company's services may be adversely
affected by the amendment or repeal, or reduction in enforcement of, federal,
state and foreign laws and regulations on which the Company's business is
dependent. Demand for certain of the Company's services may also be adversely
affected by delays or reductions in funding, or failure of legislative bodies
to fund, agencies or programs under such laws and regulations. Although it is
not always able to do so, the Company makes a continuing effort to anticipate
regulatory, political and legal developments that might affect its operations.
The Company cannot predict the extent to which any legislation or regulation
that may be enacted, amended, repealed or enforced, or any failure or delay in
enactment or enforcement of legislation or regulations or funding of agencies
or programs, in the future may affect its operations.
The Company was incorporated in Delaware in 1968 and subsequently succeeded
to certain businesses owned by its organizers and others. The Company's common
stock is listed on the New York Stock Exchange under the trading symbol "WMX"
and is also listed on the Frankfurt Stock Exchange, the London Stock Exchange,
the Chicago Stock Exchange and the Swiss Stock Exchanges in Basle, Zurich and
Geneva.
Unless the context indicates to the contrary, all statistical and financial
information under Item 1 and Item 2 of this report is given as of December 31,
1997. Also, unless the context indicates to the contrary, statistical and
financial data appearing under the caption "North American Solid and Hazardous
Waste Management Services" relate only to the Company's WMNA, CWM, AETS and
Chem-Nuclear groups of subsidiaries and do not include any data relating to
Rust, Rust's on-site industrial cleaning services business managed by WMNA, WTI
or WM International. For discussions of the data relating to WM International
and WTI, see "International Waste Management and Related Services" and "Trash-
to-Energy and Related Services."
NORTH AMERICAN SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES
The Company's North American solid waste management and recycling services
include residential, commercial and industrial collection, transfer and
disposal services and related services provided by WMNA.
3
<PAGE>
The Company's North American hazardous waste management services include
chemical waste treatment, storage, disposal and related services provided by
WMNA and CWM, on-site integrated hazardous waste management services provided
by AETS and low-level radioactive waste disposal services provided by Chem-
Nuclear. Many of the Company's solid and hazardous waste services are marketed
on an integrated basis to the Company's national account customers and to other
large industrial customers.
For each of the four years in the period ended December 31, 1997, the North
American solid and hazardous waste revenue amounted to 67.3%, 67.5%, 68.2% and
68.0%, respectively, of the Company's total revenues. For each of the four
years in the period ended December 31, 1997, the following table shows the
percentages of the Company's total North American solid and hazardous waste
services revenue (excluding on-site industrial cleaning services revenue)
arising from the Company's principal solid and hazardous waste services:
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YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Solid Waste and Recycling Collection
Services:
Residential................................ 19.9% 20.1% 20.4% 20.8%
Commercial................................. 26.2 25.2 25.7 25.6
Roll-off and Industrial.................... 21.0 19.8 20.4 20.5
Solid Waste Disposal, Transfer and Related
Services.................................... 21.7 25.0 24.5 24.7
Hazardous Waste Services..................... 11.2 9.9 9.0 8.4
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
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SOLID WASTE MANAGEMENT, RECYCLING AND RELATED SERVICES
At December 31, 1997, WMNA conducted solid waste management, recycling and
related services operations in 47 states, the District of Columbia, Canada and
Mexico. During 1994, 1995, 1996 and 1997, operations in California, Florida and
Pennsylvania together accounted for approximately 31%, 29%, 26% and 29%,
respectively, of North American solid waste revenue. No customer accounted for
as much as 3% of such revenue in 1994, 1995, 1996 or 1997.
COLLECTION
WMNA provides solid waste collection services to approximately 1.1 million
commercial and industrial customers. Collection services are also provided to
approximately 11.8 million homes and apartment units. These services in many
cases include collection of recyclable commodities. See "Recycling and Energy
Recovery--Recycling" for a description of recycling services.
Commercial and Industrial
Many of WMNA's commercial and industrial customers utilize containers to
store solid waste, including "roll-offs," which are large containers that are
dropped off at construction or other sites for the deposit of waste and then
hoisted when full onto a truck for transport. These containers, ranging from 1
to 45 cubic yards in size, are usually provided to the customer as part of
WMNA's services. Stationary compactors, which compact the volume of the stored
waste prior to collection, are frequently installed on the premises of large
volume customers and are usually provided to these customers in conjunction
with WMNA's collection services. Containerization enables WMNA to service most
of its commercial and industrial customers with collection vehicles operated by
a single employee. Compaction serves to decrease the frequency of collection.
Commercial and industrial collection services (which include containerized
service to apartment buildings) are generally performed under one- to three-
year service agreements. Fees are determined by such considerations as market
factors, collection frequency, type of equipment furnished, length of service
agreement, type and volume or weight of the waste collected, distance to the
disposal facility and cost of disposal.
4
<PAGE>
Residential
Most of WMNA's residential solid waste collection services are performed
under contracts with, or franchises granted by, municipalities giving WMNA
exclusive rights to service all or a portion of the homes in their respective
jurisdictions. Such contracts or franchises usually range in duration from one
to five years. The fees received by WMNA are based primarily on market factors,
frequency and type of service, the distance to processing or disposal
facilities and cost of processing or disposal. Residential collection fees are
either paid by the municipalities out of tax revenues or service charges or are
paid directly by the residents receiving the service.
TRANSFER
WMNA operates 164 solid waste transfer stations. A transfer station is a
facility where solid waste is received from collection vehicles and then
transferred to, and in some cases compacted in, large, specially constructed
trailers for transportation to disposal or resource recovery facilities. This
procedure reduces costs by improving utilization of collection personnel and
equipment and improving the efficiency of transporting waste to final disposal
facilities.
The services of these facilities are provided to municipalities or counties
and in most instances are also used by WMNA and by other collection companies.
Fees are generally based upon such considerations as competition, the type and
volume or weight of the waste transferred, the extent of processing of
recyclable materials, the transport distance involved and the cost of disposal.
RECYCLING AND ENERGY RECOVERY
Recycling
WMNA provides recycling services in the United States through its Recycle
America(R) and other programs. Recycling involves the removal of reusable
materials from the waste stream for processing and sale or other disposition
for use in various applications. Participating commercial and industrial
operations use containers to separate recyclable paper, glass, plastic and
metal wastes for collection, processing and sale by WMNA. Fees are determined
by such considerations as competition, frequency of collection, type and volume
or weight of the recyclable material, degree of processing required, distance
the recyclable material must be transported and value of the recyclable
material.
As part of its residential solid waste collection services, WMNA engages in
curbside collection of recyclable materials from residences in the United
States, also through its Recycle America(R) and other programs. Curbside
recycling services generally involve the collection of recyclable paper, glass,
plastic and metal waste materials, which may be separated by residents into
different waste containers or commingled with other recyclable materials. The
recyclable materials are then typically deposited at a local materials recovery
facility where they are sorted and processed for resale.
The prices received by the Company for recyclable materials fluctuate
substantially from quarter to quarter and year to year depending upon domestic
and foreign demand for such materials, the quality of such materials, prices
for new materials and other factors. In some instances, the Company enters into
agreements with customers or the local governments of municipalities in which
it provides recycling services whereby the customers or the governments share
in the gains and losses resulting from fluctuation in prices of recyclable
commodities. These agreements mitigate both the Company's gains and losses from
such fluctuations.
As of December 31, 1997, WMNA provided curbside recycling services to
approximately 7.9 million households in the United States. WMNA has
approximately 211,000 commercial and industrial recycling services customers.
WMNA operates 129 materials recovery facilities for the receipt and
processing of recyclable materials. Such processing consists of separating
recyclable materials according to type and baling or otherwise preparing the
separated materials for sale.
5
<PAGE>
WMNA also participates in joint ventures with Stone Container Corporation
and American National Can Corporation to engage, respectively, in the
businesses of marketing paper fibre and aluminum, steel, and glass containers
for recycling. In each case WMNA sells to the joint venture, or has the joint
venture market, the paper fibre or containers collected by WMNA to Stone
Container, American National Can or other parties who will process them for
reuse. The joint venture with American National Can also owns and operates six
glass processing facilities. During 1997, the Stone Container joint venture
marketed approximately 2.1 million tons of paper fiber and the American
National Can joint venture processed approximately 466,000 tons of other
recyclable materials. WMNA also provides tire and demolition and construction
debris recycling services.
Energy Recovery
At 38 WMNA-owned or -operated sanitary landfill facilities, WMNA is engaged
in methane gas recovery operations. These operations involve the installation
of a gas collection system into a sanitary landfill facility. Through the gas
collection system, gas generated by decomposing solid waste is collected and
transported to a gas-processing facility at the landfill site. Through
physical processes methane gas is separated from contaminants. The processed
methane gas generally is then either sold directly to industrial users or to
an affiliate of the Company which uses it as a fuel to power electricity
generators. Electricity generated by these facilities is sold, usually to
public utilities under long-term sales contracts, often under terms or
conditions which are subject to approval by regulatory authorities.
The Company also engages in other resource recovery activities through WTI's
trash-to-energy and related operations and Waste Management International's
operations. See "Trash-to-Energy and Related Services" and "International
Waste Management and Related Services."
DISPOSAL
WMNA operates 130 solid waste sanitary landfill facilities. Of this number,
101 are owned by WMNA and the remainder are leased from, or operated under
contract with, other parties. Additional facilities are in various stages of
development. WMNA also provides yard-waste composting services, bioremediation
of petroleum-contaminated soils and solidification of difficult-to-treat
liquid wastes at a number of its disposal facilities. All of the sanitary
landfill facilities are subject to governmental regulation. See "Regulation--
Waste Management Services--Solid Waste."
A sanitary landfill site must have geological and hydrological properties
and design features which limit the possibility of water pollution, directly
or by leaching. Sanitary landfill operations, which include carefully planned
excavation, continuous spreading and compacting of solid waste and covering of
the waste, are designed to maintain sanitary conditions, insure optimum
utilization of the airspace and prepare the site for ultimate use for other
purposes. Landfill site operations are required to be conducted in accordance
with the terms of permits obtained from various regulatory authorities, which
typically incorporate the requirements of Subtitle D of the Resource
Conservation and Recovery Act of 1976 ("RCRA") or applicable state
requirements, whichever are stricter. These requirements address such matters
as daily volume limitations, placement of daily, interim and final site cover
materials on waste disposed at the site, construction and operation of methane
gas and leachate management systems, periodic groundwater monitoring activity
and final closure requirements and post-closure monitoring and maintenance
activities.
Suitable sanitary landfill facilities and permission to expand existing
facilities may be difficult to obtain in some areas because of land scarcity,
local resident opposition and governmental regulation. As its existing
facilities become filled in such areas, the solid waste disposal operations of
WMNA are and will continue to be materially dependent on its ability to
purchase, lease or otherwise obtain operating rights for additional sites or
expansion of existing sites and to obtain the necessary permits from
regulatory authorities to construct and operate them. In addition, there can
be no assurance that additional sites can be obtained or that existing
facilities can continue to be expanded or operated. However, management
believes that the facilities currently available to WMNA are sufficient to
meet the needs of its operations in most areas for the foreseeable future.
6
<PAGE>
To develop a new facility, WMNA must expend significant time and capital
resources without any certainty that the necessary permits will ultimately be
issued for such facility or that the Company will be able to achieve and
maintain the desired disposal volume at such facility. If the inability to
obtain and retain necessary permits, the failure of a facility to achieve the
desired disposal volume or other factors cause WMNA to abandon development
efforts for a facility, the capitalized development expenses of the facility
are written off.
In varying degrees, WMNA utilizes its own sanitary landfill facilities to
accommodate its disposal requirements for collection and transfer operations.
In 1994, 1995, 1996 and 1997 approximately 55%, 57%, 60% and 61%,
respectively, of the solid waste collected by WMNA was disposed of in sanitary
landfill facilities operated by it. Usually these facilities are also used by
other companies and government agencies on a noncontract basis for fees
determined by such considerations as competition and the type and volume or
weight of the waste.
RELATED SERVICES
WMNA also provides or manages several types of services which are compatible
with its solid waste collection operations. Included in these operations are
on-site industrial cleaning services and portable sanitation services.
WMNA manages the business of Rust Industrial Services Inc., a subsidiary of
Rust ("RIS"), which provides on-site industrial services, including water
blasting, tank cleaning, explosives blasting, chemical cleaning, industrial
vacuuming, catalyst handling and separation technologies. RIS provides these
services primarily for clients in the petrochemical, chemical, and pulp and
paper industries, utilities and, to a lesser extent, the public sector. RIS
also assists clients in the nuclear and utility industries in solving
electrical, mechanical, engineering and related technical services problems.
Prior to selling the businesses in 1996 and early 1997, RIS also provided
scaffolding rental and erection services primarily to the chemical,
petrochemical and utilities industries and a variety of other on-site
services.
Waste Management Federal Services, Inc., a subsidiary of Rust, also provides
hazardous, radioactive and mixed waste program and facilities management
services, primarily to the United States Department of Energy and other
federal government agencies. Such services include waste treatment, storage,
characterization and disposal and privatization services.
WMNA also provides portable sanitation services to municipalities and
commercial customers. The portable sanitation services, which are marketed
under the Port-O-Let(R) trade name, are also used at numerous special events
and public gatherings.
HAZARDOUS WASTE MANAGEMENT AND RELATED SERVICES
CHEMICAL WASTE MANAGEMENT SERVICES
The Company operates chemical waste treatment, storage and disposal
facilities in 18 states and also owns a majority interest in a subsidiary
which operates a resource recovery and storage facility and a disposal
facility in Mexico. The chemical wastes handled by the Company include
industrial by-products and residues that have been identified as "hazardous"
pursuant to RCRA, as well as other materials contaminated with a wide variety
of chemical substances.
Chemical waste may be collected from customers and transported by WMNA or
CWM or contractors retained by them or delivered by customers to their
facilities. Chemical waste is transported primarily in specially constructed
tankers and semi-trailers, including stainless steel and rubber or epoxy-lined
tankers and vacuum trucks, or in containers or drums on trailers designed to
comply with applicable regulations and specifications of the U.S. Department
of Transportation ("DOT") relating to the transportation of hazardous
materials. WMNA and CWM also operate several facilities at which waste
collected from or delivered by customers may be analyzed and consolidated
prior to further shipment.
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All of the Company's seven United States secure hazardous waste land disposal
facilities have been issued permits under RCRA. See "Regulation--RCRA." In
general, the Company's secure land disposal facilities have received the
necessary permits and approvals to accept chemical wastes, although some of
such sites may accept only certain chemical wastes. Only chemical wastes in a
stable, solid form which meet applicable regulatory requirements may be buried
in the Company's secure disposal cells. These land disposal facilities are
sited, constructed and operated in a manner designed to provide long-term
containment of such waste. Chemical wastes may be treated prior to disposal.
Physical treatment methods include distillation, evaporation and separation,
all of which effectively result in the separation or removal of solid materials
from liquids. Chemical treatment methods include chemical oxidation and
reduction, chemical precipitation of heavy metals, hydrolysis and
neutralization of acid and alkaline wastes and essentially involve the
transformation of wastes into inert materials through one or more chemical
reaction processes. At two of its locations, the Company isolates treated
chemical wastes in liquid form by injection into deep wells. Deep well
technology involves drilling wells in suitable rock formations far below the
base of fresh water and separated from it by other substantial geological
confining layers.
AETS provides on-site integrated hazardous waste management services,
including hazardous waste identification, packaging, removal and recycling
services in North America. These services include on-site hazardous waste data
management, education and training, inventory control and other administrative
services, lab pack services, drum identification services, household hazardous
waste programs, less-than-full load waste pickup and consolidation services,
and related services. AETS provides these services primarily to industrial,
institutional and public sector customers, including laboratories.
In the United States, most chemical wastes generated by industrial processes
are handled "on-site" at the generators' facilities. Since the mid-1970's,
public awareness of the harmful effects of unregulated disposal of chemical
wastes on the environment and health has led to extensive and evolving federal,
state and local regulation of chemical waste management activities. The major
federal statutes regulating the management of chemical wastes include RCRA, the
Toxic Substances Control Act ("TSCA") and the Comprehensive Environmental
Response, Compensation and Liabilities Act of 1980, as amended ("CERCLA" or
"Superfund"), all primarily administered by the United States Environmental
Protection Agency ("EPA"). The hazardous waste management business is heavily
dependent upon the extent to which regulations promulgated under these or
similar state statutes and their enforcement over time effectively require
wastes to be specially handled or managed and disposed of in facilities of the
type owned and operated by the Company. See "Regulation--Waste Management
Services--Hazardous Waste," "--RCRA" and "--Superfund." The chemical waste
services industry currently has substantial excess capacity caused by a number
of factors, including a decline in environmental remediation projects
generating hazardous waste for off-site treatment and disposal, continuing
efforts by hazardous waste generators to reduce volume and to manage the wastes
on-site, and the uncertain regulatory environment regarding hazardous waste
management and remediation requirements. These factors have led to reduced
demand and increased pressure on pricing for chemical waste management
services, conditions which the Company expects to continue for the foreseeable
future.
LOW-LEVEL AND OTHER RADIOACTIVE WASTE SERVICES
Radioactive wastes with varying degrees of radioactivity are generated by
nuclear reactors and by medical, industrial, research and governmental users of
radioactive material. Radioactive wastes are generally classified as either
high-level or low-level. High-level radioactive waste, such as spent nuclear
fuel and waste generated during the reprocessing of spent fuel from nuclear
reactors, contains substantial quantities of long-lived radionuclides and is
the ultimate responsibility of the federal government. Low-level radioactive
waste, which decays more quickly than high-level waste, largely consists of dry
compressible wastes (such as contaminated gloves, paper, tools and clothing),
resins and filters which have removed radioactive contaminants from nuclear
reactor cooling water, solidified wastes from power plants which have become
contaminated with radioactive substances and irradiated hardware.
Chem-Nuclear provides comprehensive low-level radioactive waste management
services in the United States consisting of disposal, processing and various
other special services. To a lesser extent, it provides services with respect
to radioactive waste that has become mixed with regulated chemical waste.
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Chem-Nuclear's radioactive disposal operations involve primarily low-level
radioactive waste. Its Barnwell, South Carolina facility, which has been in
operation since 1971, is one of three licensed commercial low-level
radioactive waste disposal facilities in the United States. A trust has been
established and funded to pay the estimated cost of decommissioning the
Barnwell facility. A second fund, for the extended care of the facility, is
funded by a surcharge on each cubic foot of waste received. Chem-Nuclear may
be liable for additional costs if the extra charges collected to restore and
maintain the facility are insufficient to cover the cost of restoring or
maintaining the site after its closure. The Company does not expect this to
have a material adverse impact on future operating results.
Under state legislation enacted in 1995, the Barnwell site is authorized to
operate until its current permitted disposal capacity is fully utilized.
However, that legislation was attached to a state appropriations bill that
included a provision for a state tax of $235 to be imposed on every cubic foot
of waste disposed of at the Barnwell facility. As a result of decreased
disposal volume and a shortfall in anticipated tax revenue, in June 1997, the
State of South Carolina enacted new legislation requiring that Chem-Nuclear
guarantee certain portions of anticipated tax revenues from the facility. Such
reduced disposal volume and the requirement that Chem-Nuclear fund such tax
payments have caused Chem-Nuclear to review its alternatives with respect to
the Barnwell facility. If Chem-Nuclear determines to close the Barnwell site,
the Company's earnings for one or more fiscal quarters or years could be
adversely affected.
Chem-Nuclear also processes low-level radioactive waste at its customers'
plants to enable such waste to be shipped in dry rather than liquid form to
meet the requirements for receipt at disposal facilities and to reduce the
volume of waste that must be transported. Processing operations include
solidification, demineralization, dewatering and filtration. Other services
offered by Chem-Nuclear include providing electro-chemical, abrasive and
chemical removal of radioactive contamination, providing management services
for spent nuclear fuel storage pools and storing and incinerating liquid
radioactive organic wastes.
INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES
The Company is a leading provider of waste management and related services
internationally, primarily through WM International, which conducts
essentially all of the waste management operations of the Company located
outside North America. International waste management and related services
comprised approximately 20.0%, 20.5%, 20.7% and 19.5% of the Company's total
revenue in each of the four years ended December 31, 1994, 1995, 1996 and
1997. WM International's business may broadly be characterized into two areas
of activity, collection services and treatment and disposal services. The
following table shows the derivation of WM International's revenue for the
years indicated and includes revenue from construction of treatment or
disposal facilities for third parties under "Treatment and Disposal Services":
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Collection Services................................... 64% 64% 65% 63%
Treatment and Disposal Services....................... 36% 36% 35% 37%
</TABLE>
While the Company has had international operations since the mid-1970's, the
bulk of the Company's international operations and revenues are derived from
the acquisition from 1990 to 1995 of numerous companies and interests in
Europe. However, with its acquisition goals largely completed, WM
International has engaged in only a few small acquisitions since 1995 and has
begun to dispose of certain operations which do not fit within its long-term
strategy.
In accordance with its objective of maintaining a local identity, WM
International, in certain cases, operates through companies or joint ventures
in which WM International and its affiliates own less than a 100% interest.
For example, WM International is a party to a joint venture with Wessex to
provide waste management and related services in the United Kingdom.
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<PAGE>
WM International's revenue mix by country varies from year to year.
Countries in which revenue exceeded 10% of WM International's consolidated
total were: Italy (26%) and Germany (12%) in 1994; Italy (23%), Germany (14%),
the Netherlands (11%) and the United Kingdom (11%) in 1995; Italy (25%), the
United Kingdom (12%), Germany (11%) and the Netherlands (11%) in 1996; and
Italy (25%), the United Kingdom (15%) and the Netherlands (11%) in 1997.
While WM International has considerable experience in mobilizing for and
managing foreign projects, its operations continue to be subject generally to
such risks as currency fluctuations and exchange controls, the need to recruit
and retain suitable local labor forces and to control and coordinate
operations in different jurisdictions, changes in foreign laws or governmental
policies or attitudes concerning their enforcement, political changes, local
economic conditions and international tensions. In addition, price adjustment
provisions based on certain formulae or indices may not accurately reflect the
actual impact of inflation on the cost of performance.
During 1997, the Company sold all of its operations in France and Spain and
certain other businesses in Germany and Austria. In addition, in January 1998
the Company sold its waste-to-energy facility located in Hamm, Germany. See
"--Treatment and Disposal Services" below.
COLLECTION SERVICES
Collection services include collection and transportation of solid,
hazardous and medical wastes and recyclable material from residential,
commercial and industrial customers. Street, industrial premises, office and
parking lot cleaning services are also performed by WM International, along
with portable sanitation/toilet services for occasions such as outdoor
concerts and special events. The residential solid waste collection process,
as well as the commercial and industrial solid and hazardous waste collection
process, is similar to that utilized by the Company in the United States.
Business is obtained through public bids or tenders, negotiated contracts,
and, in the case of commercial and industrial customers, direct contracts.
Residential solid waste collection is typically performed by WM
International pursuant to municipal contracts. At December 31, 1997, WM
International had approximately 1,540 municipal contracts, serving more than
4.8 million residential properties. The scope, specifications, services
provided and duration of such contracts vary substantially, with some
contracts encompassing landfill disposal of collected waste, street sweeping
and other related municipal services. The largest number of municipal
contracts held by WM International is in Italy where WM International services
approximately 1.7 million residential properties. Pricing for municipal
contracts is generally based on volume of waste, number and frequency of
collection pick-ups, and disposal arrangements. Longer-term contracts
typically have formulae for periodic price increases or adjustments. WM
International also provides curbside recycling services similar to those
provided by WMNA in North America.
WM International's commercial and industrial solid and hazardous waste
collection services are generally contracted for by individual establishments.
In addition to solid waste collection customers, WM International provides
services to small quantity waste generators, as well as larger petrochemical,
pharmaceutical and other industrial customers, including collection of
hazardous, chemical or medical wastes or residues. WM International has
approximately 293,000 commercial and industrial customers. Contract terms and
prices vary substantially among jurisdictions and types of customer. WM
International also provides commercial and industrial recycling services.
TREATMENT AND DISPOSAL SERVICES
Treatment and disposal services include processing of recyclable materials,
operation of both solid and hazardous waste landfills, operation of municipal
and hazardous waste incinerators, operation of water and wastewater treatment
facilities, operation of hazardous waste treatment facilities and construction
of treatment or disposal facilities for third parties. Treatment and disposal
services are provided under contracts which may be obtained through public bid
or tender or direct negotiation, and are also provided directly to other waste
service companies.
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<PAGE>
Once collected, solid wastes may be processed in a recyclables processing
facility for sale or other disposition for use in various applications.
Unprocessed solid wastes, or the portion of the waste stream remaining after
recovery of recyclable materials, require disposal, which may be accomplished
through incineration (in connection with which the energy value may be
recovered in a trash-to-energy facility) or through disposal in a solid waste
landfill. The relative use of landfills versus incinerators differs from
country to country and will depend on many factors, including the availability
of land, geological and hydrological conditions, the availability and cost of
technology and capital, and the regulatory environment. The main determinants
of the disposal method are the disposal costs at local landfills, as
incineration is generally more expensive, community preferences and regulatory
provisions.
At present, in most countries in which WM International operates,
landfilling is the predominant disposal method employed. WM International owns
or operates solid waste landfills in Argentina, Australia, Brazil, Denmark,
Germany, Hong Kong, Italy, New Zealand, Sweden and the United Kingdom.
Landfill disposal agreements may be separate contracts or an integrated
portion of collection or treatment contracts.
Demand for solid waste incineration is affected primarily by landfill
disposal costs, government regulations and, increasingly, public perception
issues. The incineration process for non-hazardous solid waste has also been
influenced by two significant factors in recent years: (i) increasingly strict
control over air emissions from incinerators; and (ii) increasing emphasis on
trash-to-energy incinerators, which utilize heat produced by incinerators to
generate electricity and other energy. Incineration generates approximately
30% residue (by weight), which is either landfilled or, if permitted, recycled
for use as a road base or in other construction uses.
Prior to January 1998, WM International operated a waste-to-energy
incinerator in Hamm, Germany. In light of the current overcapacity in the
German waste-to-energy market and the pending renegotiation of WM
International's disposal contracts with the local communities, WM
International entered into an agreement in April 1997 to sell the facility.
The transaction was completed in January 1998. Revenues from the Hamm facility
accounted for approximately 2% of WM International's 1997 consolidated
revenue. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Results of Operations."
In 1992, WM International entered into a contract with the County of
Gutersloh, Germany to design, construct, own and operate a trash-to-energy
facility. The facility is designed to convert 268,000 metric tons per year of
municipal waste and sewage sludge into energy. During 1995, WM International's
permit application to develop and operate the Gutersloh facility was denied.
WM International appealed the denial through the German administrative court
system. Throughout 1996 and 1997, WM International and the County of Gutersloh
engaged in discussions regarding the future viability of the proposed project
as well as the County of Gutersloh's right to terminate the 25-year operating
agreement and the lease agreement covering the site on which the plant is to
be constructed. In 1997, the County exercised its right to terminate the lease
agreement for the plant site, effectively terminating the permitting process
and the pending administrative court proceedings. The County has also
informally indicated its intention to terminate WM International's operating
agreement. As a result of the termination of the lease agreement and the
threatened termination of the operating agreement, WM International reserved
the full amount of its unamortized development cost in the project as a part
of the special charge recorded in the fourth quarter of 1997. WM International
is assessing its options to seek redress against the County of Gutersloh and
against state permitting authorities, but no assurances can be given that it
will be successful in obtaining damages in respect of the project.
WM International also operates five small, conventional municipal solid and
other waste incineration facilities. WM International and WTI have also formed
a joint venture to develop trash-to-energy projects outside Germany, Italy and
North America. See "Competition" below.
WM International owns or operates hazardous waste treatment facilities in
Brazil, Brunei, Finland, Germany, Hong Kong, Indonesia, Italy, the
Netherlands, Sweden and the United Kingdom.
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<PAGE>
TRASH-TO-ENERGY AND RELATED SERVICES
WTI, through its subsidiaries, is a leading developer, operator and owner of
trash-to-energy and waste fuel powered independent power facilities in the
United States. These facilities, either owned or operated, give WTI
approximately 920 megawatts per hour of electric generating capacity. WTI's
trash-to-energy projects utilize proven boiler and grate technology and are
capable of processing up to 23,750 tons of solid waste per day. The heat from
this combustion process is converted into high-pressure steam, which typically
is used to generate electricity for sale to public utility companies under
long-term contracts.
WTI's trash-to-energy development activities have historically involved a
number of contractual arrangements with a variety of private and public
entities, including municipalities (which supply trash for combustion),
utilities or other power users (which purchase the energy produced by the
facility), lenders, public debtholders, joint venture partners and equity
investors (which provide financing for the project) and the contractors or
subcontractors responsible for building the facility. In addition, WTI's
activities have often included identifying and acquiring sites for the
facility and for the disposal of residual ash produced by the facility and
obtaining necessary permits and licenses from local, state and federal
regulatory authorities.
WTI also develops, operates and, in some cases, owns independent power
projects, which either cogenerate electricity and thermal energy or generate
electricity alone for sale to customers, including utilities and private
industry. Cogeneration is a technology which allows the simultaneous
production of two or more useful forms of energy from a single primary fuel
source, thus providing a more efficient use of a fuel's total energy content.
These power systems use waste wood, waste tires, waste coal or natural gas as
fuel, and employ state-of-the-art technology, such as fluidized-bed
combustion, to ensure the efficient burning of fuel with reduced emission
levels.
In addition, WTI develops, operates and owns projects that compost organic
wastes and treat and manage biosolids. WTI provides a range of biosolids
management services, including land application, drying, pelletizing, alkaline
stabilization and composting, to more than 275 communities, typically pursuant
to multi-year contracts under which WTI is paid by the generator to make
beneficial use of the biosolids. Land application involves the application of
non-hazardous biosolids as a natural fertilizer on farmland pursuant to
rigorous site-specific permits issued by applicable state authorities.
Biosolids are also used in land reclamation projects such as strip mines.
Regulations issued by the EPA in December 1992 under the Clean Water Act
encourage the beneficial use of municipal sewage sludge by recognizing the
resource value of biosolids as a fertilizer and soil conditioner, and
establish requirements for land application designed to protect human health
and the environment.
WTI also develops and operates facilities at which biosolids are dried and
pelletized and has three facilities currently in operation, with one other
facility undergoing start-up activity. WTI has approximately 536 dry-tons-per-
day of biosolids drying capacity in operation. Biosolids which have been dried
are generally used as fertilizer by farmers, commercial landscapers and
nurseries and as a bulking agent by fertilizer manufacturers.
WTI subsidiaries also design and install advanced air pollution control
equipment and design, construct and maintain tall concrete chimneys and
storage silos. WTI's expertise in air pollution control technologies and
chimney design and construction is used in the design and construction of
WTI's trash-to-energy facilities, which WTI believes strengthens its
competitive position.
REGULATION
GENERAL
While, in general, the Company's waste management services business has
benefited from increased governmental regulation, the industry in which the
Company operates has become subject to extensive and evolving regulation by
federal, state, local and foreign authorities. In particular, the regulatory
process requires firms in the Company's industry to obtain and retain numerous
governmental permits to conduct various aspects
12
<PAGE>
of their operations, any of which may be subject to revocation, modification
or denial. As a result of governmental policies and attitudes relating to the
industry, which are subject to reassessment and change, the Company believes
that its ability to obtain applicable permits from governmental authorities on
a timely basis, and to retain such permits, could become impaired. The Company
is not in a position at the present time to assess the extent of the impact of
such potential changes in governmental policies and attitudes on the
permitting processes, but it could be significant. In particular, adverse
decisions by governmental authorities on permit applications submitted by the
Company may result in abandonment of projects, premature closure of facilities
or restriction of operations, which could result in a loss of earnings from a
facility, a write-off of capitalized costs or both.
Federal, state, local and foreign governments have also from time to time
proposed or adopted other types of laws, regulations or initiatives with
respect to the waste management services industry. Included among them are
laws, regulations and initiatives to ban or restrict the international,
interstate or intrastate shipment of wastes, impose higher taxes on out-of-
state waste shipments than in-state shipments, reclassify certain categories
of hazardous wastes as non-hazardous and regulate disposal facilities as
public utilities. Certain state and local governments have promulgated "flow
control" regulations, which attempt to require that all waste generated within
the state or local jurisdiction must go to certain disposal sites. The United
States Congress has from time to time considered legislation that would enable
or facilitate such bans, restrictions, taxes and regulations. Due to the
complexity of regulation of the industry and to public pressure,
implementation of existing or future laws, regulations or initiatives by
different levels of government may be inconsistent and is difficult to
foresee. Many state and local governments have enacted mandatory or voluntary
recycling laws and bans on the disposal of yard-waste in landfills. An effect
of these and similar laws is to reduce the volume of wastes that would
otherwise be disposed in landfills. In addition, municipalities and other
governmental entities with whom the Company contracts to provide solid waste
collection or disposal services, or both, may require the Company as a
condition of securing the business to provide recycling services and operate
recycling and composting facilities, which may cause the Company to incur
substantial costs. The Company makes a continuing effort to anticipate
regulatory, political and legal developments that might affect its operations
but is not always able to do so. The Company cannot predict the extent to
which any legislation or regulation that may be enacted, amended, repealed or
enforced, or any failure or delay in enactment or enforcement of legislation
or regulations or funding of government agencies or programs, in the future
may affect its operations. Such matters could have a material adverse impact
on the Company's earnings for one or more fiscal quarters or years.
The demand for certain of the services provided by the Company, particularly
its hazardous waste management services, is dependent in part on the existence
and enforcement of federal, state and foreign laws and regulations which
govern the discharge of hazardous substances into the environment and on the
funding of agencies and programs under such laws and regulations. Such
businesses will be adversely affected to the extent that such laws or
regulations are amended or repealed, with the effect of reducing the
regulation of, or liability for, such activity, that the enforcement of such
laws and regulations is lessened or that funding of agencies and programs
under such laws and regulations is delayed or reduced. In particular, the EPA
continues to consider proposals under RCRA to redefine the term "hazardous
waste" for regulatory purposes. Under some such proposals, wastes containing
minimal concentrations of hazardous substances would no longer be subject to
the stringent record-keeping, handling, treatment and disposal rules applied
to hazardous wastes under RCRA. Other EPA proposals would cause certain wastes
which presently must be managed in TSCA-approved facilities to be eligible for
disposal in facilities not approved under TSCA. These proposals would, if
adopted, reduce the volume of wastes for which the Company's hazardous waste
management services are needed.
In addition to environmental laws and regulations, federal government
contractors, including the Company, are subject to extensive regulation under
the Federal Acquisition Regulation and numerous statutes which deal with the
accuracy of cost and pricing information furnished to the government, the
allowability of costs charged to the government, the conditions under which
contracts may be modified or terminated, and other similar matters. Various
aspects of the Company's operations are subject to audit by agencies of the
federal government in connection with its performance of work under such
contracts as well as its submission of bids or proposals to
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<PAGE>
the government. Failure to comply with contract provisions or other applicable
requirements may result in termination of the contract, the imposition of
civil and criminal penalties against the Company, or the suspension or
debarment of all or a part of the Company from federal government work, which
could have a material adverse impact upon the Company's financial condition or
earnings for one or more fiscal quarters or years. Among the reasons for
debarment are violations of various statutes, including those related to
employment practices, the protection of the environment, the accuracy of
records and the recording of costs. Some state and local governments have
similar suspension and debarment laws or regulations.
Because of the high level of public awareness of environmental issues,
companies in the waste management services business, including the Company,
may in the normal course of their business be expected periodically to become
subject to judicial and administrative proceedings. Governmental agencies may
seek to impose fines on the Company or revoke, deny renewal of, or modify the
Company's operating permits or licenses. The Company is also subject to
actions brought by private parties or special interest groups in connection
with the permitting or licensing of its operations, alleging violations of
such permits and licenses, or other matters. In addition, increasing
governmental scrutiny of the environmental compliance records of the Company,
CWM, WTI, Rust, WM International or their affiliates could cause a private or
public entity seeking waste management services to disqualify the Company from
competing for one or more projects, on the grounds that these records display
inadequate attention to environmental compliance.
WASTE MANAGEMENT SERVICES
SOLID WASTE
Operating permits are generally required at the state and local level for
landfills, transfer stations and collection vehicles. Operating permits need
to be renewed periodically and may be subject to revocation, modification,
denial or non-renewal for various reasons, including failure of the Company to
satisfy regulatory concerns. With respect to solid waste collection,
regulation takes such forms as licensing of collection vehicles, truck safety
requirements, vehicular weight limitations and, in certain localities,
limitations on rates, area, time and frequency of collection. With respect to
solid waste disposal, regulation covers various matters, including landfill
location and design, groundwater monitoring, gas control, liquid runoff and
rodent, pest, litter and traffic control. Zoning and land use requirements and
limitations are encountered in the solid waste collection, transfer, recycling
and energy recovery and disposal phases of the Company's business. In almost
all cases the Company is required to obtain conditional use permits or zoning
law changes in order to develop transfer station, resource recovery or
disposal facilities. In addition, the Company's disposal facilities are
subject to water and air pollution laws and regulations. Noise pollution laws
and regulations may also affect the Company's operations. Governmental
authorities have the power to enforce compliance with these various laws and
regulations and violators are subject to injunctions, fines and revocation of
permits. Private individuals may also have the right to sue to enforce
compliance. Safety standards under the Occupational Safety and Health Act
("OSHA") are also applicable to the Company's solid waste and related services
operations.
The EPA and various states acting pursuant to EPA-delegated authority have
promulgated rules pursuant to RCRA which serve as minimum requirements for
land disposal of municipal wastes. The rules establish more stringent
requirements than previously applied to the siting, construction, operations,
closure and post-closure monitoring and maintenance of all but the smallest
municipal waste landfill facilities. In certain cases, the failure of some
states to adopt the federal requirements may increase costs to meet
inconsistent federal and state laws applicable to the same facility. The
Company does not believe that continued compliance with the more stringent
minimum requirements will have a material adverse effect on the Company's
operations. See also "RCRA" and "Superfund" below for additional regulatory
information.
In March 1996, the EPA issued regulations that require large, municipal
solid waste landfills to install and monitor systems to collect and control
landfill gas. The regulations apply to landfills that are designed to
accommodate 2.5 million cubic meters or more of municipal solid waste and that
accepted waste for disposal after November 8, 1987, regardless of whether the
site is active or closed. The date by which each affected
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<PAGE>
landfill must have such a gas collection and control system depends on whether
the landfill began operation before or after May 30, 1991. Landfills
constructed, reconstructed, modified or first accepting waste after May 30,
1991 generally must have systems in place by late 1998. Older landfills
generally will be regulated by the states and will be required to have landfill
gas systems in place within approximately 30 months of EPA's approval of the
state program. Many state solid waste regulations already require collection
and control systems. Compliance with the new regulations is not expected to
have a material adverse effect on the Company.
HAZARDOUS WASTE
WMNA and CWM are required to obtain federal, state, local and foreign
governmental permits for their chemical waste treatment, storage and disposal
facilities. Such permits are difficult to obtain, and in most instances
extensive geological studies, tests and public hearings are required before
permits may be issued. WMNA's and CWM's chemical waste treatment, storage and
disposal facilities are also subject to siting, zoning and land use
restrictions, as well as to regulations (including certain requirements
pursuant to federal statutes) which may govern operating procedures and water
and air pollution, among other matters. In particular, WMNA's and CWM's
operations in the United States are subject to the Safe Drinking Water Act
(which regulates deep well injection), TSCA (pursuant to which the EPA has
promulgated regulations concerning the disposal of PCBs), the Clean Water Act
(which regulates the discharge of pollutants into surface waters and sewers by
municipal, industrial and other sources) and the Clean Air Act (which regulates
emissions into the air of certain potentially harmful substances). In their
transportation operations, WMNA and CWM are subject to the jurisdiction of the
Interstate Commerce Commission and regulated by the DOT and by regulatory
agencies in each state. Employee safety and health standards under OSHA are
also applicable.
All of WMNA's and CWM's chemical waste treatment or disposal facilities in
the United States have been issued permits under RCRA. The regulations
governing issuance of permits contain detailed standards for hazardous waste
facilities on matters such as construction, waste analysis, security,
inspections, training, preparedness and prevention, emergency procedures,
reporting and recordkeeping, closure and post-closure monitoring and
maintenance. Once issued, a final permit has a maximum fixed term of 10 years,
and such permits for land disposal facilities are required to be reviewed five
years from the date of issuance. The issuing agency (either the EPA or an
authorized state) may review or modify a permit at any time during its term.
The Company believes that WMNA and CWM maintain each of their operating
treatment, storage or disposal facilities in substantial compliance with the
applicable requirements promulgated pursuant to RCRA. It is possible, however,
that the issuance or renewal of a permit could be made conditional upon the
initiation or completion of modifications or corrective actions at facilities,
which might involve substantial additional capital expenditures on the part of
WMNA or CWM. Although the Company is informed that WMNA and CWM anticipate the
reauthorization of each permit at the end of its term if the facility's
operations are in compliance with applicable requirements, there can be no
assurance that such will be the case.
The radioactive waste services of Chem-Nuclear are also subject to extensive
governmental regulation. Due to the extensive geological and hydrological
testing and environmental data required, and the complex political environment,
it is difficult to obtain permits for radioactive waste disposal facilities.
Various phases of Chem-Nuclear's low-level radioactive waste management
services are regulated by various state agencies, the United States Nuclear
Regulatory Commission (the "NRC") and the DOT. Regulations applicable to Chem-
Nuclear's operations include those dealing with packaging, handling, labeling
and routing of radioactive materials, and prescribe detailed safety and
equipment standards and requirements for training, quality control and
insurance, among other matters. Employee safety and health standards under OSHA
are also applicable.
See also "RCRA" and "Superfund" below for additional regulatory information.
TRASH-TO-ENERGY AND RELATED SERVICES
WTI's business activities are subject to environmental regulation under
federal, state and local laws and regulations, including the Clean Air Act, the
Clean Water Act and RCRA. The Company believes that WTI's
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business is conducted in an environmentally responsible manner in material
compliance with applicable laws and regulations. The Company does not
anticipate that WTI's maintaining compliance with current requirements will
result in any material decrease in earnings. There can be no assurance,
however, that such requirements will not change so as to require significant
additional expenditures. In particular, within the next several years, the air
pollution control systems at certain trash-to-energy facilities owned or
leased by WTI most likely will be required to be modified to comply with more
stringent air pollution control standards adopted by the EPA in December 1995
for municipal waste combusters. The compliance dates will vary by facility,
but all affected facilities most likely will be required to be in compliance
with the standards by the end of the year 2000. Currently available
technologies are adequate to meet the new standards. Although the total
expenditures required for such modifications are estimated to be $180 million
to $220 million, they are not expected to have a material adverse effect on
the Company's liquidity or results of operations because provisions in the
impacted facilities' long-term waste supply agreements generally allow WTI to
recover from customers the majority of incremental capital and operating
costs. Customer shares of capital and financing costs are typically recovered
over the remaining life of the waste supply agreements, and pro rata operating
costs are recovered in the period incurred. There can be no assurance,
however, that in such event WTI would be able to recover, for each project,
all such increased costs from its customers. Moreover, it is possible that
future developments, such as increasingly strict requirements of environmental
laws, and enforcement policies thereunder, could affect the manner in which
WTI operates its projects and conducts its business, including the handling,
processing or disposal of the wastes, by-products and residues generated
thereby.
Also, in May 1994, the U.S. Supreme Court ruled that state and local
governments may not constitutionally restrict the free movement of trash in
interstate commerce through the use of flow control laws. Such laws typically
involve a local government specifying a jurisdictional disposal site for all
solid waste generated within its borders. Since the ruling, several decisions
of state or federal courts have invalidated regulatory flow control schemes in
a number of jurisdictions. Other judicial decisions have upheld non-regulatory
means by which municipalities may effectively control the flow of municipal
solid waste. In addition, federal legislation has been proposed, but not yet
enacted, to effectively grandfather existing flow control mandates. There can
be no assurance that such alternatives to regulatory flow control will in
every case be found lawful or that such legislation will be enacted into law.
WTI's Gloucester County, New Jersey facility has historically relied on a
disposal franchise for substantially all of its supply of municipal solid
waste. On May 1, 1997, the Third Circuit Court of Appeals (the "Third
Circuit") permanently enjoined the State of New Jersey from enforcing its
franchise system as a form of unconstitutional solid waste flow control, but
stayed the injunction for so long as any appeals were pending. On November 10,
1997, the United States Supreme Court announced its decision not to review the
Third Circuit decision, thereby ending the stay and, effectively, the
facility's disposal franchise. The State had continued to enforce flow control
during the stay period. In response, the Gloucester facility has lowered its
prices and solicited new customers.
Under the reimbursement agreement between the project company that owns the
Gloucester facility and the bank that provides credit support to the project,
the termination of the waste franchise constitutes an event of default. WTI
and the credit support bank are presently discussing the consequences of these
developments.
The New Jersey legislature has been considering various legislative
solutions, including a bill that provides for the payment and recovery of
bonded indebtedness incurred by counties, public authorities and certain
qualified private vendors in reliance on the state's franchise system. The
Company currently believes that, through either legislative action or a
project recapitalization, the Gloucester project can be restructured to
operate profitably, albeit at reduced levels, in the absence of regulatory
flow control.
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse effect on any of WTI's trash-to-energy operations.
Federal legislation has been proposed, but not yet enacted, to effectively
grandfather existing flow control mandates. In the event that such legislation
is not adopted, WTI believes that affected municipalities will endeavor to
implement alternative lawful means to continue controlling
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the flow of waste. In view of the uncertain state of the law at this time,
however, WTI is unable to predict whether such efforts would be successful or
what impact, if any, this matter might have on WTI's trash-to-energy
facilities.
WTI's energy facilities are also subject to the provisions of various energy-
related laws and regulations, including the Public Utility Regulatory Policies
Act of 1978 ("PURPA"). The ability of WTI's trash-to-energy and small power
production facilities to sell power to electric utilities on advantageous terms
and conditions and to avoid burdensome public utility regulation has
historically depended, in part, upon the applicability of certain provisions of
PURPA, which generally exempts WTI from state and federal regulatory control
over electricity prices charged by, and the finances of, WTI and its energy-
producing subsidiaries. As state legislatures and the United States Congress
have accelerated their consideration of the manner in which economic
efficiencies can be gained by deregulating the electric generation industry,
utilities and others have taken the position that power sales agreements
entered into pursuant to PURPA which provide for rates in excess of current
market rates should be voidable as "stranded assets." WTI's power production
facilities are qualifying facilities under PURPA and depend on the sanctity of
their power sales agreements for their economic viability. Although a repeal or
modification of PURPA is possible within the next two years, WTI believes that
federal law offers strong protection to the PURPA contracts and recent state
and federal agency and court decisions have unanimously upheld the inviolate
nature of these contracts. In addition, state legislative actions to date have
not attempted to abrogate these contracts. While there is some risk that future
utility restructurings, court decisions and/or legislative or administrative
action in this area could have an adverse effect on the business of WTI, in
light of recent developments, WTI currently believes such risk is remote. The
operations of WTI's existing trash-to-energy and other small power production
facilities business are not currently expected to be materially and adversely
affected if the various benefits of PURPA are repealed or substantially reduced
on a prospective basis.
Finally, the passage of the Energy Policy Act of 1992 created an alternative
ownership mechanism by which WTI's future independent power projects would be
able to participate in the electricity generation industry without the burdens
of traditional public utility regulation. However, WTI can give no assurances
that future utility restructurings, court decisions or legislative or
administrative action in this area will not have a material adverse impact on
WTI's financial position or results of operations.
RCRA
Pursuant to RCRA, the EPA has established and administers a comprehensive,
"cradle-to-grave" system for the management of a wide range of industrial by-
products and residues identified as "hazardous" wastes. States that have
adopted hazardous waste management programs with standards at least as
stringent as those promulgated by the EPA may be authorized by the EPA to
administer their programs in lieu of RCRA.
Under RCRA and federal transportation laws, a transporter must deliver
hazardous waste in accordance with a manifest prepared by the generator of the
waste and only to a treatment, storage or disposal facility having a RCRA
permit or interim status under RCRA. Every facility that treats or disposes of
hazardous wastes must obtain a RCRA permit from the EPA or an authorized state
and must comply with certain operating standards. The RCRA permitting process
involves applying for interim status and also for a final permit. Under RCRA
and the implementing regulations, facilities which have obtained interim status
are allowed to continue operating by complying with certain minimum standards
pending issuance of a permit.
RCRA also imposes restrictions on land disposal of certain hazardous wastes
and prescribes standards for hazardous waste land disposal facilities. Under
RCRA, land disposal of certain types of untreated hazardous wastes has been
banned except where the EPA has determined that land disposal of such wastes
and treatment residuals should be permitted. The disposal of liquids in
hazardous waste land disposal facilities is also prohibited.
The EPA from time to time considers fundamental changes to its regulations
under RCRA that could facilitate exemptions from hazardous waste management
requirements, including policies and regulations that
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could implement the following changes: redefine the criteria for determining
whether wastes are hazardous; prescribe treatment levels which, if achieved,
could render wastes non-hazardous; encourage further recycling and waste
minimization; reduce treatment requirements for certain wastes to encourage
alternatives to incineration; establish new operating standards for combustion
technologies; and indirectly encourage on-site remediation. To the extent such
changes are adopted, they can be expected to adversely affect the demand for
the Company's chemical waste management services. In this regard, the EPA has
recently proposed regulations which would have the effect of reducing the
volume of waste classified as hazardous for RCRA regulatory purposes. See
"Regulation--General--Waste Management Services--Hazardous Waste."
In addition to the foregoing provisions, RCRA regulations require the
Company to demonstrate financial responsibility for possible bodily injury and
property damage to third parties caused by both sudden and nonsudden
accidental occurrences. See "Insurance." Also, RCRA regulations require the
Company to provide financial assurance that funds will be available when
needed for closure and post-closure care at its waste treatment, storage and
disposal facilities, the costs of which could be substantial. Such regulations
allow the financial assurance requirements to be satisfied by various means,
including letters of credit, surety bonds, trust funds, a financial (net
worth) test and a guarantee by a parent corporation. Under RCRA regulations, a
company must pay the closure costs for a waste treatment, storage or disposal
facility owned by it upon the closure of the facility and thereafter pay post-
closure care costs. If such a facility is closed prior to its originally
anticipated time, it is unlikely that sufficient funds or reserves will have
been accrued over the life of the facility to provide for such costs, and the
owner of the facility could suffer a material adverse impact as a result.
Consequently, it may be difficult to close such facilities to reduce operating
costs at times when, as is currently the case in the hazardous waste services
industry, excess treatment, storage or disposal capacity exists.
SUPERFUND
Superfund provides for EPA-coordinated response and removal actions to
releases of hazardous substances into the environment, and authorizes the
federal government either to clean up facilities at which hazardous substances
have created actual or potential environmental hazards or to order persons
responsible for the situation to do so. Superfund assigns liability for these
response and other related costs to parties involved in the generation,
transfer and disposal of such hazardous substances. Superfund has been
interpreted as creating strict, joint and several liability for costs of
removal and remediation, other necessary response costs and damage to natural
resources. Liability extends to owners and operators of waste disposal
facilities (and waste transportation vehicles) from which a release occurs,
persons who owned or operated such facilities at the time the hazardous
substances were disposed, persons who arranged for disposal or treatment of a
hazardous substance at or transportation of a hazardous substance to such a
facility, and waste transporters who selected such facilities for treatment or
disposal of hazardous substances. Liability may be trebled if the responsible
party fails to perform a removal or remedial action ordered under the law. For
additional information concerning potential Superfund liability, see "Legal
Proceedings."
Superfund created a revolving fund to be used by the federal government to
pay for the cleanup efforts. For the federal government's 1997 fiscal year, a
maximum of approximately $1.4 billion of Superfund spending was authorized.
The federal government has also approved approximately the same amount of 1998
Superfund spending authorization.
The U. S. Congress is expected to consider reauthorization and revision of
the Superfund statute in 1998. In addition to possible changes in the
statute's funding mechanisms and provisions for allocating cleanup
responsibility, it is possible that Congress also will fundamentally alter the
statute's provisions governing the selection of appropriate site cleanup
remedies. For example, Congress may consider whether to continue Superfund's
current reliance on stringent technology standards issued under other statutes
(such as RCRA) to govern removal and treatment of remediation wastes or to
adopt new approaches such as national or site-specific risk based standards.
This and other potential policy changes could significantly affect the
stringency and extent of site remediation, the types of remediation techniques
that will be employed, and the degree to which permitted
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hazardous waste management facilities will be used for remediation wastes. In
addition, Congress may consider revision of the liability imposed by the
Superfund law for remediation of contamination caused prior to a party's
acquisition of a contaminated site, which could reduce the remediation
obligations of the Company and others who currently are jointly and severally
liable for remediation obligations under Superfund.
INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES
WM International's operations are subject to the general business, liability,
land-use planning and other environmental laws and regulations of the countries
where the services are performed and, in Europe, to European Union ("EU")
regulations and directives. The degree of local enforcement of applicable laws
and regulations varies substantially between, and even within, the various
countries in which WM International operates. In addition to the statutes and
regulations imposed by national, state or provincial, and municipal or other
local authorities, many of the countries in which WM International operates are
members of the EU. The EU has issued and continues to issue environmental
directives and regulations covering a broad range of environmental matters and
has created a European Environmental Agency responsible for monitoring and
collating member state environmental data. The Single European Act, passed in
1987, established three fundamental principles to guide the development of
future EU environmental law: (i) the need for preventative action; (ii) the
correction of environmental problems at the source; and (iii) the polluter's
liability for environmental damage.
The Treaty on European Union, signed in December 1991, came into force in
November 1993. Revised in Amsterdam in June 1997, the Treaty now regards
"sustainable development" as a key component of EU policy-making and requires
that environmental protection be integrated into the definition and application
of all EU laws.
The impact of current and future EU legislation will vary from country to
country according to the degree to which existing national requirements already
meet or fall short of the new EU standards and, in some jurisdictions, may
require extensive public and private sector investment and the development and
provision of the necessary technology, expertise, administrative procedures and
regulatory structures. These extensive laws and regulations are continually
evolving in response to technological advances and heightened public and
political concern.
Outside Europe, continuing industrialization, population expansion and
urbanization have caused increased levels of pollution with all of the
resultant social and economic implications. The desire to sustain economic
growth and address historical pollution problems is being accompanied by
investments in environmental infrastructure, particularly in Southeast Asia,
and the introduction of regulatory standards to further control industrial
activities.
The Company believes that WM International's business is conducted in
material compliance with applicable laws and regulations and does not
anticipate that maintaining such compliance will adversely affect the Company's
financial position. There can be no assurance, however, that such requirements
will not change so as to require significant additional expenditures or
operating costs.
COMPETITION
WMNA encounters intense competition, primarily in the pricing and rendering
of services, from various sources in all phases of its waste management and
related operations. In the solid waste collection phase, competition is
encountered, for the most part, from national, regional and local collection
companies as well as from municipalities and counties (which, through use of
tax revenues, may be able to provide such services at lower direct charges to
the customer than can WMNA) and some large commercial and industrial companies
which handle their own waste collection. In the solid waste transfer, resource
recovery and disposal phases of its operations, competition is encountered
primarily from municipalities, counties, local governmental agencies, other
national or regional waste management companies and certain large corporations
not primarily involved in
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the solid waste management services business. The Company also encounters
intense competition in pricing and rendering of services in its portable
sanitation service business, and the on-site industrial cleaning services
business of Rust managed by WMNA, from numerous large and small competitors. In
addition, Rust's program and facilities management business encounters intense
competition, primarily in pricing, quality and reliability of services, from
various sources in all aspects of its business.
In its hazardous waste management operations, the Company encounters
competition from a number of sources, including several national or regional
firms specializing primarily in chemical waste management, local waste
management concerns and, to a much greater extent, generators of chemical
wastes which seek to reduce the volume of or otherwise process and dispose of
such wastes themselves. The basis of competition is primarily technical
expertise and the price, quality and reliability of service.
WM International encounters intense competition from local companies and
governmental entities in particular countries, as well as from major
international companies. Pricing, quality of service and type of equipment
utilized are the primary methods of competition for collection services, and
proximity of suitable treatment or disposal facilities, technical expertise,
price, quality and reliability of services are the primary methods of
competition for treatment and disposal services.
WTI experiences substantial competition in all aspects of its business. It
competes with a large number of firms, both nationally and internationally,
some of which may have substantially greater financial and technical resources
than WTI. The principal competitive factors with respect to its project
development activities include technological performance, service, technical
know-how, price and performance guarantees. Competing for selection as a
project developer may require commitment of substantial resources over a long
period of time, without any certainty of being ultimately selected. Competition
for attractive development opportunities is intense, as there are a number of
competitors in the industry interested in such opportunities.
Pursuant to the First Amended and Restated International Business
Opportunities Agreement, dated January 1, 1993, by and among CWM, WTI, Waste
Management International, Inc., WM International, Rust and the Company (as
amended, the "IBOA"), each of CWM, WTI, Rust and the Company has agreed that,
until the later of July 1, 2000 or the date on which the Company ceases to
beneficially own a majority of the outstanding voting equity interests of such
subsidiary or ceases to beneficially own a majority of the outstanding voting
equity interests of WM International, and in each case no longer has an option
to obtain such ownership, such subsidiary or the Company will not engage
(except through WM International) in waste management services; design,
development, construction and operation of trash-to-energy facilities in Italy
or Germany; collection, storage, processing, treatment or disposal of hazardous
wastes (including hazardous substance remediation services); or design,
engineering and construction (where the customer is seeking third-party
operation), operation and maintenance of water, wastewater and sewage treatment
facilities (including facilities for treating hazardous waste streams whether
or not the customer is seeking third-party operation) outside North America
(i.e., the United States, its territories and possessions, Canada and Mexico)
(the "WM International Allocated Activities"), except with respect to licensing
of technology and minor interests of CWM, WTI or Rust in publicly held
entities. WTI may engage outside North America in the design, engineering,
construction, operation and maintenance of chimneys and air pollution control
facilities (the "WTI Allocated Activities"). Rust may engage outside North
America in activities relating to industrial facility and power plant
maintenance services (the "Rust Allocated Activities"). Sales by the Company of
recyclables, licensing of technology and minor investments by the Company in
publicly held entities are also permitted activities of the Company outside
North America. WM International has agreed that for the same time periods as
are applicable to CWM, WTI, Rust and the Company above in this paragraph, it
will not engage in North America in the type of activities included within the
WM International Allocated Activities outside North America and will not engage
in the WTI Allocated Activities or the Rust Allocated Activities. Businesses or
assets acquired by a party to the IBOA which are in the domain of another party
thereto (according to the allocations described above) must be offered for sale
to the other party at fair market value.
In addition, WTI and WM International have entered into an agreement whereby
WTI will have primary responsibility for the early-stage development of trash-
to-energy projects outside North America (except in Italy
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and Germany) and WM International will have the right to acquire up to 49% of
all equity of any such project available to WM International, WTI and their
affiliates, with WTI or other investors owning the balance. This arrangement
is non-cancelable by WTI or WM International without the other's consent prior
to 2000. If the arrangement is canceled, the right to develop trash-to-energy
projects reverts to being part of the WM International Allocated Activities.
By agreement among the parties, the Company is responsible for determining
business allocations among CWM, WTI, Rust, the Company and WM International
which are not controlled by the allocations set forth in the preceding two
paragraphs. In this connection CWM, WTI, Rust, the Company and WM
International have agreed that in order to minimize the potential for
conflicts of interest among various subsidiaries under the common control of
the Company and for so long as the Company shall have beneficial ownership of
a majority of the outstanding voting equity interests of such subsidiary (or
an option to obtain such ownership), the Company has the right to direct
future business opportunities to the Company or the Company-controlled
subsidiary which, in the Company's reasonable and good faith judgment, has the
most experience and expertise in that line of business, provided that the
Company may not allocate a business opportunity to a particular subsidiary if
such business opportunity would involve the subsidiary in a breach of its
agreement not to compete as described in the immediately preceding paragraphs.
Opportunities outside North America relating to the provision of future waste
management services are generally to be allocated to WM International, except
that opportunities outside North America relating to the WTI Allocated
Activities and the Rust Allocated Activities are generally to be allocated to
WTI and Rust, as the case may be. No party is liable for consequential
damages, except for lost profits, for any breach of the IBOA.
In addition, in connection with the transfer by Rust of its hazardous and
radioactive substance remediation business in 1995 and its scaffolding rental
and erection business in 1996, the Company and Rust agreed with the respective
purchasers not to engage in providing those services in North America prior to
2002 (in the case of the remediation business) and 2001 (in the case of the
scaffolding business). In connection with WTI's sale of its water process,
manufacturing and custom engineering business, the Company and WTI agreed with
the purchaser not to engage in such business in the United States or any other
country in which WTI conducted such business at the time of sale until 2001.
INSURANCE
While the Company believes it operates professionally and prudently, its
business exposes it to various risks, including, for example, the potential
for harmful substances escaping into the environment and causing damage or
injuries, the cost of which could be substantial. The Company currently
maintains liability insurance coverage for occurrences under various
environmental impairment, primary casualty and excess liability insurance
policies.
The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and
pollutants. The Company believes that the coverage terms, available limits of
liability, and costs currently offered by the insurance market do not
represent sufficient value to warrant the purchase of "non-sudden and
accidental" pollution liability insurance coverage. As such, the Company has
chosen not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage. To satisfy existing government requirements, the
Company has secured non-risk transfer pollution liability insurance coverage
in amounts believed to be in compliance with federal and state law
requirements for "non-sudden and accidental" pollution. The Company must
reimburse the insurer for losses incurred and covered by this insurance
policy. In the event the Company continues not to purchase risk transfer "non-
sudden and accidental" pollution liability insurance coverage, the Company's
net income could be adversely affected in the future if "non-sudden and
accidental" pollution losses should occur.
EMPLOYEES
The Company and its subsidiaries employ a total of approximately 58,900
persons in their worldwide continuing operations. Of this number, the Company
employs approximately 37,200 persons in its North
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American solid and hazardous waste management services operations (excluding
employees of the Rust on-site industrial cleaning services business operated
by WMNA). Of this total, approximately 27,600 persons are employed in solid
and hazardous waste collection, transfer, resource recovery and disposal
activities, and approximately 9,600 in managerial, executive, sales, clerical,
data processing and other solid waste and related activities.
As of December 31, 1997, WM International employed approximately 14,600
persons. Of this number, approximately 10,400 persons were employed in its
collection services operations, 2,300 in its treatment and disposal services
operations and 1,900 in administrative functions.
As of December 31, 1997, WTI had approximately 1,900 full-time employees in
its continuing operations.
Rust employed approximately 5,200 persons at December 31, 1997 in the on-
site industrial cleaning services business managed by WMNA and Rust's program
and facilities management services business.
ACQUISITIONS AND DISPOSITIONS
Since August 1971, the Company has acquired a number of companies, and
certain assets of other companies, engaged in various phases of the
environmental services industry. See Note 5 to the Company's Consolidated
Financial Statements set forth below in Item 8. The amounts and types of
consideration generally have been determined by direct negotiations with the
owners of the businesses acquired. In most instances, the owners of the
acquired businesses were few in number, and often certain key former owners
have continued to operate the businesses following acquisition by the Company.
During 1997, the Company continued to acquire additional operations in the
waste management services industry, purchasing 45 businesses for an aggregate
of $51.4 million in cash and notes, assumed debt of $17.6 million, and
approximately 122,000 shares of the Company's common stock.
Acquisitions have historically contributed significantly to the Company's
growth. However, in recent years the Company's acquisition activity relative
to the size of its revenue base has significantly decreased, and the Company
has disposed of significant amounts of non-waste management services
businesses and assets, as well as underperforming or poorly positioned waste
management services businesses. As it focuses on its core waste management
services business, the Company intends to continue engaging in such
dispositions. The Company's growth prospects may be affected by the decision
to engage in such dispositions and by the availability of additional business
acquisitions at reasonable prices and the Company's ability to finance such
acquisitions. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" set forth below in Item 7 for a discussion
of capital expenditures by the Company, including acquisitions. Other well-
capitalized companies also compete intensely for businesses available to be
acquired.
The acquisition of businesses entails certain inherent risks. Although the
Company reviews businesses to be acquired, because of the nature of the
liabilities involved in these businesses, there can be liabilities which will
not become known until after the transactions are consummated. The Company
seeks to minimize the impact of these liabilities and expenditures by
attempting to obtain indemnities and warranties from the seller which may be
supported by deferring payment of a portion of the purchase price. These
indemnities and warranties, if obtained, may not, however, fully cover the
liabilities due to their limited scope, amount, or duration, the financial
limitations of the indemnitor or warrantor, or other reasons. Businesses
purchased may require expenditures to make up for deferred maintenance and to
improve the quality or quantity of assets acquired. In certain cases, the
Company establishes reserves in respect of the anticipated costs of
remediation for acquired sites.
In June 1996, the Company announced plans to divest $1.0 billion of non-core
assets and non-integrated businesses by the end of 1998. In February 1997, the
Company announced plans to divest an additional $1.5 billion of such
investments by the end of 1999. As a result of these divestiture programs, the
Company and its subsidiaries have sold the following businesses and
investments: Rust sold its North American engineering and
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construction business and its industrial scaffolding businesses in 1996; WTI
sold its water process, manufacturing and custom-engineered systems businesses
in 1996; WM International entered into an agreement in 1996 to sell its
investment in Wessex Water Plc (which transaction closed in 1997); the Company
sold its approximately 20% interest in ServiceMaster L.P. ("ServiceMaster") to
ServiceMaster for approximately $626 million in 1997; WTI sold its remaining
water services business to U.S. Filter for 2.3 million registered shares of
U.S. Filter, valued at approximately $64 million, in 1997; WM International
sold substantially all of its operations in France and Spain in 1997 and
entered into an agreement to sell its Hamm, Germany waste-to-energy facility
in 1997 (which transaction closed in 1998); and the Company sold certain of
its North American solid waste operations. The Company's plans also include
the sale by Rust of its remaining domestic and international engineering and
consulting business and the sale or joint venturing of the WM International
business in Austria.
In connection with the Merger Agreement with USA Waste, the Company may be
required to dispose of certain of its waste management businesses and assets.
See also "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Financial Condition" set forth below in Item 7.
For a more detailed discussion of the Company's recent acquisitions and
dispositions, see "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Results of Operations" set forth below in
Item 7, and Note 5 to the Company's Consolidated Financial Statements which
are set forth below in Item 8.
ITEM 2. PROPERTIES.
The principal property and equipment of the Company consists of land
(primarily disposal sites), buildings and waste treatment or processing
facilities (other than disposal sites), and vehicles and equipment, which as
of December 31, 1997 represented approximately 14%, 7% and 33%, respectively,
of the Company's total consolidated assets. The Company believes that its
vehicles, equipment and operating properties are well maintained and suitable
for its current operations. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" set forth below in Item 7 for a
discussion of property and equipment expenditures by the Company for the last
four years and the capital budget for 1998. The Company's subsidiaries lease
numerous office and operating facilities throughout the world. For the year
ended December 31, 1997, aggregate annual rental payments on real estate
leased by the Company and its subsidiaries approximated $111.4 million.
The principal fixed assets of WMNA consist of vehicles and equipment (which
include, among other items, approximately 19,900 collection and transfer
vehicles, 1.5 million containers and 24,600 stationary compactors in the
United States and Canada). WMNA owns or leases real property in most states in
which it is doing business. At December 31, 1997, 101 solid waste disposal
facilities, aggregating approximately 65,440 total acres, including
approximately 16,170 permitted acres, were owned by WMNA in the United States
and Canada and 29 facilities, aggregating approximately 13,560 total acres,
including approximately 6,035 permitted acres, were leased from parties not
affiliated with WMNA under leases expiring from 1998 to 2085. At December 31,
1997, the Company owned or leased in the United States a total of seven
treatment, storage or disposal facilities. At such date, the Company's seven
United States chemical waste facilities with secure land disposal sites
aggregated approximately 7,870 acres, including approximately 1,475 permitted
acres.
The principal property and equipment of WM International consist of land
(primarily disposal sites) and vehicles and equipment, which as of December
31, 1997 represented approximately 9.3% and 20.4%, respectively, of WM
International's assets. The principal fixed assets utilized in WM
International's collection services operations at December 31, 1997, consisted
of vehicles and equipment (which included, among other items, approximately
6,700 collection, transportation, and other route vehicles and approximately
260 pieces of landfill and other heavy equipment), and approximately 310,000
containers, including approximately 3,300 stationary compactors. In addition,
WM International owns approximately 730 pieces of hazardous waste equipment,
consisting predominately of containers and collection vehicles.
WTI currently owns, operates or leases 16 trash-to-energy facilities (which
facilities are capable of processing up to 23,750 tons of solid waste per
day), eight cogeneration and small power production facilities,
23
<PAGE>
two coal handling facilities, biosolids drying, pelletizing and composting
facilities, and various other office and warehouse facilities. Facilities
leased or operated (but not owned) by WTI are under leases or agreements
having terms expiring from the years 1998 to 2020, subject to renewal options
in certain cases.
ITEM 3. LEGAL PROCEEDINGS.
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment and the potential for the
unintended or unpermitted discharge of materials into the environment. In the
ordinary course of conducting its business activities, the Company becomes
involved in judicial and administrative proceedings involving governmental
authorities at the federal, state and local level, including, in certain
instances, proceedings instituted by citizens or local governmental
authorities seeking to overturn governmental action where governmental
officials or agencies are named as defendants together with the Company or one
or more of its subsidiaries, or both. In the majority of the situations where
proceedings are commenced by governmental authorities, the matters involved
relate to alleged technical violations of licenses or permits pursuant to
which the Company operates or is seeking to operate or laws or regulations to
which its operations are subject or are the result of different
interpretations of the applicable requirements. From time to time, the Company
pays fines or penalties in environmental proceedings relating primarily to
waste treatment, storage or disposal facilities. Subject to the discussion set
forth below concerning the New Milford, Connecticut landfill, which is owned
and operated by a wholly owned subsidiary of the Company, the Company believes
that these matters will not have a material adverse effect on its results of
operations or financial condition. However, the outcome of any particular
proceeding cannot be predicted with certainty, and the possibility remains
that technological, regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter this expectation
at any time.
The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under Superfund. The majority of these proceedings are based on
allegations that certain subsidiaries of the Company (or their predecessors)
transported hazardous substances to the sites in question, often prior to
acquisition of such subsidiaries by the Company. Such proceedings arising
under Superfund typically involve numerous waste generators and other waste
transportation and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be
substantial.
As of December 31, 1997, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 89 locations
listed on the Superfund National Priority List ("NPL"). Of the 89 NPL sites at
which claims have been made against the Company, 17 are sites which the
Company has come to own over time. All of the NPL sites owned by the Company
were initially sited by others as land disposal facilities. At each of the 17
owned facilities, the Company is working in conjunction with the government to
characterize or to remediate identified site problems. In addition, at these
17 facilities the Company has either agreed with other legally liable parties
on an arrangement for sharing the costs of remediation or is pursuing
resolution of an allocation formula. The 72 NPL sites at which claims have
been made against the Company and which are not owned by the Company are at
different procedural stages under Superfund. At some of these sites, the
Company's liability is well defined as a consequence of a governmental
decision as to the appropriate remedy and an agreement among liable parties as
to the share each will pay for implementing that remedy. At others, where no
remedy has been selected or the liable parties have been unable to agree on an
appropriate allocation, the Company's future costs are uncertain.
The Company periodically reviews its role, if any, with respect to each such
site, giving consideration to the nature of the Company's alleged connection
to the location (e.g., owner, operator, transporter or generator), the extent
of the Company's alleged connection to the location (e.g., amount and nature
of waste hauled to the location, number of years of site operation by the
Company or other relevant factors), the accuracy and strength of evidence
connecting the Company to the location, the number, connection and financial
ability of other named and unnamed potentially responsible parties at the
location, and the nature and estimated cost of the likely
24
<PAGE>
remedy. Where the Company concludes that it is probable that a liability has
been incurred, a provision is made in the Company's financial statements for
the Company's best estimate of the liability based on management's judgment and
experience, information available from regulatory agencies and the number,
financial resources and relative degree of responsibility of other potentially
responsible parties who are jointly and severally liable for remediation of a
specific site, as well as the typical allocation of costs among such parties.
If a range of possible outcomes is estimated and no amount within the range
appears to be a better estimate than any other, then the Company provides for
the minimum amount within the range, in accordance with generally accepted
accounting principles. Amounts recorded are discounted where appropriate. Sites
subject to state action under state laws similar to the federal Superfund
statute are treated by the Company in the same way as NPL sites.
The Company's estimates are subsequently revised, as deemed necessary, as
additional information becomes available. While the Company does not anticipate
that the amount of any such revisions will have a material adverse effect on
the Company's operations or financial condition, the measurement of
environmental liabilities is inherently difficult and the possibility remains
that technological, regulatory or enforcement developments, the results of
environmental studies, or other factors could materially alter this expectation
at any time. Such matters could have a material adverse impact on earnings for
one or more fiscal quarters or years.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company subsidiary's having owned, operated or
transported waste to a disposal facility which is alleged to have contaminated
the environment or, in certain cases, conducted environmental remediation
activities at sites. Some of such lawsuits may seek to have the Company or its
subsidiaries pay the costs of groundwater monitoring and health care
examinations of allegedly affected persons for a substantial period of time
even where no actual damage is proven. While the Company believes it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to the difficulty of determining the cause, extent
and impact of alleged contamination (which may have occurred over a long period
of time), the potential for successive groups of complainants to emerge, the
diversity of the individual plaintiffs' circumstances, and the potential
contribution or indemnification obligations of co-defendants or other third
parties, among other factors. Accordingly, it is possible such matters could
have a material adverse impact on the Company's earnings for one or more fiscal
quarters or years.
A Company subsidiary has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). Although a lower
Court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded the
case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the subsidiary to apply for all governmental permits
needed to remove all waste above the height allowed by the zoning ordinance,
and the Connecticut Supreme Court has upheld that ruling. The Company is
complying with the order of the Superior Court while also seeking an
alternative resolution to this matter. The Company is unable to predict the
outcome of this matter at this time. Depending upon the nature of any plan
eventually approved by applicable regulatory authorities for removing the
waste, the actual volume of waste to be moved, and other currently unforseeable
factors, the subsidiary could incur costs which would have a material adverse
impact on the Company's results of operations in one or more future periods.
The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior Court in Hudson County, New
Jersey. In this action the Company is seeking a declaratory judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to recover
defense costs and other damages incurred as a result of the assertion of
environmental liabilities against the Company or its subsidiaries for events
occurring over at least the last 25 years at approximately 140 sites and the
defendant insurance carriers' denial of coverage of such liabilities. While the
Company has reached settlements with some
25
<PAGE>
of the carriers, the remaining defendants have denied liability to the Company
and have asserted various defenses, including that environmental liabilities
of the type for which the Company is seeking relief are not risks covered by
the insurance policies in question. The remaining defendants are contesting
these claims vigorously. Discovery is nearly complete as to the 12 sites in
the first phase of the case and discovery is expected to continue for several
years as to the remaining sites. Currently, trial dates have not been set. The
Company is unable at this time to predict the outcome of this proceeding. No
amounts have been recognized in the Company's financial statements for
potential recoveries.
Several purported class action lawsuits and one purported derivative lawsuit
seeking injunctive relief and unspecified money damages were filed in the
Chancery Court in and for New Castle County, Delaware against the Company,
WTI, and individual directors of WTI in connection with the June 20, 1997
proposal by the Company to acquire all of the shares of WTI common stock which
the Company does not own. The Company has agreed to a merger in which WTI's
stockholders would receive $16.50 in cash per share of WTI's common stock. See
"Business--General" above. The lawsuits allege, among other things, that the
defendants have breached fiduciary duties to WTI's minority stockholders
because the merger consideration contemplated by the proposal was inadequate
and unfair. In addition, the purported derivative lawsuit alleges that the
proposal was part of a plan to misappropriate WTI's corporate opportunity to
repurchase its own shares. The Company believes that its actions and those of
WTI and its Board of Directors in connection with the proposal have been in
accordance with Delaware law. Accordingly, the Company intends to contest
these lawsuits vigorously.
In November and December 1997, several alleged purchasers of the Company's
stock brought purported class action lawsuits against the Company and several
of its current and former officers in the United States District Court for the
Northern District of Illinois. Each of the lawsuits asserts that the
defendants violated the federal securities laws by issuing allegedly false and
misleading statements in 1996 and 1997 about the Company's financial
condition. Among other things, the plaintiffs allege that the Company employed
accounting practices that were improper and that caused its publicly filed
financial statements to be materially false and misleading. The lawsuits
demand, among other relief, unspecified monetary damages, attorneys' fees and
the costs of conducting the litigation. The Company intends to defend itself
vigorously in this litigation. In January 1998, the 14 purported class actions
were consolidated before one judge in the Northern District of Illinois.
Plaintiffs have until May 1998 to file a consolidated amended complaint. It is
not possible at this time to predict the impact this litigation may have on
the Company, although it is reasonably possible that the outcome may have a
materially adverse impact on its financial condition or results of operations
in one or more future periods.
The Company is also aware that the Securities and Exchange Commission has
commenced a formal investigation with respect to the Company's previously
filed financial statements and related accounting policies, procedures and
system of internal controls. The Company intends to cooperate with such
investigation. The Company is unable to predict the outcome or impact of this
investigation at this time.
A lawsuit by an alleged Company stockholder purporting to represent a class
of the Company's stockholders has been filed in the Chancery Court in and for
New Castle County, Delaware (although the Company has not yet been served)
against the Company and members of its Board of Directors alleging breaches of
fiduciary duty by the defendants in connection with the Merger with USA Waste.
The lawsuit seeks, among other things, to have the Merger enjoined and to
recover unspecified damages. The Company believes the suit to be without merit
and intends to contest it vigorously.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. While the outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty, the Company believes that
these matters will not have a material adverse effect on its financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's security holders during the
fourth quarter of 1997.
26
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "WMX." The following table sets forth
by quarter for the last two years the high and low sale prices of the
Company's common stock on the New York Stock Exchange Composite Tape as
reported by the Dow Jones News Retrieval Service, and the dividends declared
by the Board of Directors of the Company on its common stock.
<TABLE>
<CAPTION>
1996
QUARTERLY CASH
SUMMARY DIVIDENDS
------------ DECLARED
HIGH LOW PER SHARE
---- ---- ---------
<S> <C> <C> <C>
First......................................... $32 1/8 $27 3/4 $.15
Second........................................ 36 1/8 31 5/8 .16
Third......................................... 33 1/4 28 5/8 .16
Fourth........................................ 36 5/8 32 1/8 .16
<CAPTION>
1997
QUARTERLY CASH
SUMMARY DIVIDENDS
------------ DECLARED
HIGH LOW PER SHARE
---- ---- ---------
<S> <C> <C> <C>
First......................................... $37 1/2 $30 1/8 $.16
Second........................................ 34 1/4 28 .17
Third......................................... 35 3/8 29 1/4 .17
Fourth........................................ 35 21 15/16 .17
</TABLE>
At March 1, 1998, the Company had approximately 45,000 stockholders of
record.
Due in part to the high level of public awareness of the business in which
the Company is engaged, regulatory enforcement proceedings or other
unfavorable developments involving the Company's operations or facilities,
including those in the ordinary course of business, may be expected to
engender substantial publicity which could from time to time have an adverse
impact upon the market price for the Company's common stock.
In February 1997, the Company's Board of Directors approved a new repurchase
program to replace the program approved in December 1995. Under the new
program, the Company is authorized to purchase during 1997 and 1998 up to 50
million shares of its common stock in the open market, in privately negotiated
transactions or through issuer tender offers. The Company repurchased 30
million shares through a "Dutch auction" tender offer in the second quarter of
1997 but did not repurchase any other shares that year. The Company does not
expect to conduct any repurchases in 1998.
During 1994, 1995, 1996 and 1997, the Company sold put options on 42.3
million shares of its common stock in conjunction with the repurchase program.
The put options gave the holders the right at maturity to require the Company
to repurchase its shares at specified prices. In the event the options were
exercised, the Company could elect to pay the holder in cash the difference
between the strike price and the market price of the Company's shares, in lieu
of repurchasing the stock. For information concerning the exercise or
expiration of these put options and related information, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Financial Condition" set forth below in Item 7.
The Company's ability to pay dividends is restricted under a credit
agreement; however, so long as no event of default has occurred and is
continuing, the Company is permitted to pay regularly scheduled dividends in
amounts not to exceed $100 million in any calendar quarter. However, the
Merger Agreement with USA Waste limits the Company to current dividends of
$0.17 per share, or approximately $77.35 million per quarter.
27
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information for each of the
six years in the period ended December 31, 1997 is derived from the Company's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants, whose report is included herein. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Results of Operations and Financial Condition" set forth below
in Item 7 and the Company's Consolidated Financial Statements, and the related
Notes, and the other financial information set forth below in Item 8.
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
FOR THE SIX YEARS ENDED DECEMBER 31, 1997
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESTATED
---------------------------------------------------------------
1992 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 8,661,027 $ 7,827,280 $ 8,537,883 $ 9,100,225 $ 9,225,636 $ 9,188,582
----------- ----------- ----------- ----------- ----------- ------------
Costs and expense....... $ 7,216,101 $ 6,560,716 $ 7,090,342 $ 7,606,679 $ 7,756,225 $ 8,324,613
Asset impairment loss... 20,437 29,009 33,970 53,772 64,729 1,480,262
Special charges......... 219,900 524,767 -- 335,587 370,735 145,990
Gains from stock
transactions of
subsidiaries and
exchange of
Exchangeable LYONs..... (374,755) (15,109) -- -- -- --
Other expenses, net..... 322,542 175,729 299,423 232,540 373,480 291,390
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from
continuing operations
before income taxes.... $ 1,256,802 $ 552,168 $ 1,114,148 $ 871,647 $ 660,467 $ (1,053,673)
Provision for income
taxes.................. 455,377 283,347 512,683 451,741 436,473 215,667
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from
continuing operations.. $ 801,425 $ 268,821 $ 601,465 $ 419,906 $ 223,994 $ (1,269,340)
Income (loss) from
discontinued
operations............. -- 19,886 27,324 4,863 (263,301) 95,688
Extraordinary items..... -- -- -- -- -- (516)
Accounting changes...... (61,739) -- (1,281) (84,672) -- (1,936)
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss)....... $ 739,686 $ 288,707 $ 627,508 $ 340,097 $ (39,307) $ (1,176,104)
=========== =========== =========== =========== =========== ============
Average common shares
outstanding............ 492,534 484,885 483,748 485,346 489,171 466,601
=========== =========== =========== =========== =========== ============
Basic earnings (loss)
per share:
Continuing operations.. $ 1.62 $ 0.55 $ 1.24 $ 0.86 $ 0.46 $ (2.72)
Discontinued
operations............ -- 0.05 0.06 0.01 (0.54) 0.20
Extraordinary item..... -- -- -- -- -- --
Accounting changes..... (0.12) -- -- (0.17) -- --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss).... $ 1.50 $ 0.60 $ 1.30 $ 0.70 $ (0.08) $ (2.52)
=========== =========== =========== =========== =========== ============
Diluted earnings (loss)
per share:
Continuing operations.. $ 1.62 $ 0.55 $ 1.24 $ 0.86 $ 0.46 $ (2.72)
Discontinued
operations............ -- 0.04 0.06 0.01 (0.54) 0.20
Extraordinary item..... -- -- -- -- -- --
Accounting changes..... (0.12) -- -- (0.17) -- --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss).... $ 1.50 $ 0.59 $ 1.30 $ 0.70 $ (0.08) $ (2.52)
=========== =========== =========== =========== =========== ============
Dividends per share..... $ 0.50 $ 0.58 $ 0.60 $ 0.60 $ 0.63 $ 0.67
=========== =========== =========== =========== =========== ============
Ratio of earnings to
fixed charges.......... 4.67 to 1 2.11 to 1 3.13 to 1 2.61 to 1 2.15 to 1 N/A
=========== =========== =========== =========== =========== ============
December 31,
Property and
equipment, net........ $ 7,510,836 $ 8,180,905 $ 8,559,526 $ 8,815,839 $ 8,798,400 $ 7,254,149
=========== =========== =========== =========== =========== ============
Total assets........... $13,944,385 $15,716,369 $16,444,947 $17,457,159 $17,083,577 $ 13,589,098
=========== =========== =========== =========== =========== ============
Long-term debt......... $ 4,312,511 $ 6,143,685 $ 6,024,478 $ 6,390,041 $ 6,971,607 $ 5,078,557
=========== =========== =========== =========== =========== ============
Stockholders' equity... $ 4,014,490 $ 3,682,143 $ 3,907,150 $ 4,042,646 $ 3,741,761 $ 1,345,652
=========== =========== =========== =========== =========== ============
</TABLE>
28
<PAGE>
- --------
Notes:
(1) As a result of a comprehensive review begun in the third quarter of 1997,
the Company determined that certain items of expense were incorrectly
reported in previously issued financial statements. The Company has
accordingly restated its financial results for the years 1992 through
1996. Stockholders' equity, at December 31, 1991, was restated from
$4,133.1 million to $3,934.5 million. (See Note 2 to Consolidated
Financial Statements).
(2) The Company recorded an asset impairment loss in 1997, and restated prior
year financial statements to retroactively recognize impairment losses in
earlier years. See Note 16 to Consolidated Financial Statements.
(3) The results for 1992 include a non-taxable gain of $351.1 million (before
minority interest) resulting from the initial public offering of Waste
Management International plc ("WM International"), less $80.6 million of
related exit costs, primarily to write down international assets not
included in WM International, as well as special charges of $219.9
million (before tax and minority interest) primarily related to
writedowns of the Company's medical waste business, Chemical Waste
Management Inc. ("CWM") incinerators in Chicago, Illinois, and Tijuana,
Mexico, a former subsidiary's investment in its asbestos abatement
business, and certain costs incurred by the former subsidiary and CWM
related to the formation of Rust International Inc. ("Rust").
(4) The results for 1993 include a non-taxable gain of $15.1 million (before
minority interest), relating to the issuance of shares by Rust, as well
as a special asset revaluation and restructuring charge of $524.8 million
(before tax and minority interest) recorded by CWM related primarily to a
revaluation of its thermal treatment business, and a provision of
approximately $14 million to adjust deferred income taxes resulting from
the 1993 tax law change.
(5) The results for 1995 include a special charge of $140.6 million (before
tax) recorded by CWM, primarily to write off its investment in facilities
and technologies that it abandoned because they do not meet customer
service or performance objectives, and a special charge of $194.6 million
(before tax and minority interest) recorded by WM International relating
to actions it had decided to take to sell or otherwise dispose of non-
core businesses and investments, as well as core businesses and
investments in low potential markets, abandon certain hazardous waste
treatment and processing technologies, and streamline its country
management organization.
(6) In 1995, the Rust Board of Directors approved a plan to sell or otherwise
discontinue Rust's process engineering, construction, specialty
contracting and similar lines of business. During 1996, the sale of the
industrial process engineering and construction business, based in
Birmingham, Alabama, was completed. In 1996, Wheelabrator Technologies
Inc. ("WTI") sold its water process systems and equipment manufacturing
businesses, and Rust sold its industrial scaffolding business. WTI
entered into an agreement to sell its water and wastewater facility
operations and privatization business and Rust began implementing plans
to exit its remaining domestic and international engineering and
consulting business. These businesses were classified as discontinued
operations in the financial statements. The Rust disposition was not
completed within one year, and accordingly in 1997 this business has been
reclassified back into continuing operations, as operations held for
sale, in accordance with generally accepted accounting principles. The
unused portion ($87.0 million) of the previously recorded provision for
loss on disposal was reversed in discontinued operations, and an
impairment loss provision of $122.2 million was recognized in continuing
operations.
(7) The results for 1996 include special charges of $47.1 million (before tax
and minority interest) related to WM International's sale of its
investment in Wessex Water Plc and a charge of $169.5 million (before tax
and minority interest) to revalue its investments in France, Austria and
Spain in contemplation of exiting these markets and to write off an
investment in a hazardous waste disposal facility. Also in 1996, Waste
Management of North America, Inc. ("WMNA") and CWM recorded special
charges of $154.1 million (before tax) for reengineering their finance
and administration functions and increasing reserves for certain
litigation.
(8) In 1997, the Company recorded a special charge of $41.6 million (pretax)
for severance related to WMNA, and WM International recorded a charge of
$104.4 million (before tax and minority interest) to reflect costs of
demobilization following the loss of the contract renewal for Buenos
Aires, Argentina, divestiture or closure of underperforming businesses,
and the writeoff of projects it decided to no longer pursue.
(9) In 1992, the Company changed its accounting for income taxes and post-
retirement benefits other than pensions as a result of new standards
issued by the Financial Accounting Standards Board. In 1995, the Company
changed its accounting for capitalized interest on landfill cell
construction. See Note 3 to Consolidated Financial Statements.
(10) Earnings were inadequate to cover fixed charges in 1997. Earnings would
have to increase by $1,026.1 million to cover fixed charges and bring the
ratio of earnings to fixed charges to one-to-one.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
(TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
As more fully described in the Notes to Consolidated Financial Statements,
certain financial information in this Report has been restated to correct
previously issued financial statements.
On March 10, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant
to which the Company will be merged with a wholly-owned subsidiary of USA
Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's
stockholders will receive .725 shares of common stock of USA Waste for each
share of common stock of the Company. The consummation of the Merger is
subject to a number of conditions, including the expiration or termination of
the applicable merger review waiting period under the Hart-Scott-Rodino Anti-
Trust Improvements Act of 1976, approval by the stockholders of each company
and other typical closing conditions. In addition, the Merger is contingent
upon the transaction qualifying for pooling-of-interests accounting treatment.
In order to qualify for pooling-of-interests accounting treatment, the Company
intends to sell a portion of its treasury shares pursuant to a registered
public offering prior to the closing of the Merger. A lawsuit by an alleged
Company stockholder purporting to represent a class of the Company's
stockholders has been filed (although the Company has not yet been served)
against the Company and the members of its Board of Directors alleging
breaches of fiduciary duty by the defendants in connection with the Merger.
The lawsuit seeks, among other things, to have the transaction enjoined and to
recover unspecified damages. The Company believes the suit to be without merit
and intends to contest it vigorously.
Upon the consummation of the Merger, certain long-term debt of Waste
Management International plc ("WM International") may be accelerated and
become payable with three months notice. At December 31, 1997, this debt
totalled approximately $209 million, but by March 17, 1998 had been reduced to
$71 million. In addition, Wessex Water Plc ("Wessex") has an option to acquire
WM International's ownership in its United Kingdom business at fair market
value that may become exercisable upon the consummation of the Merger. In
1997, this business had revenues of approximately $276 million and operating
income (before minority interest) of approximately $25 million. WM
International had a net investment of approximately $315 million in the
business at December 31, 1997.
RESULTS OF OPERATIONS
CONSOLIDATED
Consolidated 1997 (loss) from continuing operations of Waste Management,
Inc. (formerly WMX Technologies, Inc.) and its subsidiaries ("Waste
Management" or the "Company") was $(1,269.3) million or $(2.72) per share
compared with income of $224.0 million or $0.46 per share in 1996, $419.9
million or $0.86 per share in 1995, and $601.5 million or $1.24 per share in
1994. Net (loss) was $(1,176.1) million or $(2.52) per share in 1997, $(39.3)
million or $(0.08) per share in 1996, with net income of $340.1 million or
$0.70 per share in 1995 and $627.5 million or $1.30 per share in 1994. Per
share amounts referred to in this paragraph and throughout Management's
Discussion and Analysis are Basic Earnings Per Share as defined by Statement
of Financial Accounting Standards ("FAS") No. 128. (See Note 11 to
Consolidated Financial Statements).
Consolidated 1997 revenue from continuing operations was $9.19 billion
compared with $9.23 billion in 1996, $9.10 billion in 1995 and $8.54 billion
in 1994.
Results for all periods were impacted by special charges, asset impairments,
other adjustments, changes in estimates, and for 1995 and 1997, by changes in
accounting principles.
The Company has undertaken a number of initiatives in response to changing
conditions in its markets and in the environmental services industry. In
January 1997, the Board of Directors approved a package of strategic
30
<PAGE>
initiatives designed to enhance stockholder value, the cornerstone of which is
a focus solely on waste management services in domestic and selected
international markets where the Company can be first or second in market
share. In support of this, the Company divested non-core and non-integrated
businesses and assets valued at approximately $1.4 billion in 1997 with an
additional $400 million targeted for disposition by the end of 1998. A
significant portion of the proceeds from the 1997 asset sales was utilized to
repurchase 30 million shares of the Company's common stock in a Dutch Auction
tender offer which was concluded in the second quarter of the year. In
November 1997, the Board of Directors approved a major organizational
restructuring and cost-control program to substantially reduce overhead in its
North American waste services operations. As a result of the restructuring,
approximately 1,200 operating manager and managerial support staff positions
were eliminated, or about 20% of that employee group. It also reduced the
number of profit centers from 250 to 31, and established a regional based
operating structure which is focused on specific customer segments, including
commercial, industrial, residential and governmental accounts. The program
additionally includes new computer systems and purchasing and fleet management
initiatives designed to further reduce the Company's operating costs over the
next three years.
As a result of the strategy to focus on waste management services, late in
1996 and early 1997, the Company sold its domestic water operations as well as
its minority interest in Wessex. The environmental and infrastructure
engineering and consulting services lines of business have been classified as
continuing operations held for sale in the accompanying financial statements.
The Company had expected to complete the sale of these businesses in 1997, and
at this time is pursuing such sales. See "Discontinued Operations and Other
Asset Dispositions" below for further discussion.
The Company has agreed to acquire all of the approximately 53 million shares
of Wheelabrator Technologies Inc. ("WTI") which it does not already own at a
price of $16.50 per share. A special meeting of stockholders of WTI is
scheduled for March 30, 1998 to vote on the proposal, and the transaction is
expected to close as soon as practicable thereafter if the transaction is
approved.
1995 OPERATIONS COMPARED WITH 1994
Revenue. Consolidated revenue growth from 1994 to 1995 is shown in the table
which follows:
<TABLE>
<CAPTION>
PERCENT
1994 1995 CHANGE
-------- -------- -------
<S> <C> <C> <C>
North America (excluding trash-to-energy).... $5,936.8 $6,311.6 6.3%
North American trash-to-energy............... 926.9 956.1 3.2
WM International............................. 1,710.9 1,865.1 9.0
Intercompany revenue......................... (36.7) (32.6)
-------- --------
Total...................................... $8,537.9 $9,100.2 6.6%
======== ======== ===
</TABLE>
The solid waste services portion of North American revenue was $5.53 billion
in 1995 compared with $5.10 billion in 1994, an increase of 8.4%. Solid waste
services revenue growth in 1995 by line of business is shown in the following
table:
<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Residential....................................................... 8.1%
Commercial........................................................ 2.8
Rolloff and industrial............................................ 0.6
Disposal, transfer and other...................................... 23.2
</TABLE>
Revenue growth due to acquisitions was 1.0%, with 7.4% growth resulting from
price and volume increases. A significant portion of this internal growth,
2.0%, was the result of higher average recyclable commodity prices in 1995 vs.
1994. Actual commodity sales were approximately $100 million higher due to
this higher average rate. Additionally, commodity volumes were higher in 1995
due to the Company's marketing efforts and the
31
<PAGE>
acquisition of additional material recovery facilities, adding an additional
$135 million of revenue, and thus accounting for approximately 2.6% of the
North American solid waste revenue growth. The remaining 2.8% was a
combination of price and volume in the other lines of business.
North American hazardous waste revenue continued to decline in 1995 as waste
minimization, recycling, over-capacity and shifting governmental regulation
and enforcement continued to adversely affect the industry. Total 1995
hazardous waste revenue was $611.4 million compared with $643.1 million in
1994. Pricing and volume were both negative, only partially offset by the 1995
acquisition of a 60% interest in Advanced Environmental Technical Services,
L.L.C. In addition, unusually high revenue in the second quarter of 1994 at
the Company's Barnwell, South Carolina, low-level radioactive waste disposal
facility adversely affected 1995 comparisons.
North American (WTI) trash-to-energy revenue was essentially flat from 1994
to 1995 as higher revenue from operating plants was largely offset by lower
construction revenue on the Lisbon, Connecticut, facility (which commenced
operations January 1, 1996). Approximately 78% of the growth in revenue from
operating plants was accounted for by the Falls Township and Ridge Generating
Station facilities, which began operations in 1994. Contractual price
escalation on long-term trash disposal and energy sales contracts, partly
offset by curtailment of electrical purchases by certain utility customers,
accounted for the balance of the operating plant revenue growth. Spot pricing
on the whole was stable, although there were increases in certain markets
offset by declines in others.
WM International revenue, in U.S. dollars, increased $154.2 million or 9.0%
in 1995 compared with 1994. Components of the revenue change are as follows:
<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Price............................................................. 1.8%
Volume (including start-ups)...................................... (3.2)
Purchased businesses.............................................. 4.5
Foreign currency translation...................................... 5.9
----
Total........................................................... 9.0%
====
</TABLE>
The major cause of the 1995 volume decline was less construction revenues as
a result of the completion of the construction phase of the SENT Landfill in
Hong Kong, which opened during the year. A new pricing mechanism introduced by
the Hong Kong government in March 1995, which required generators to absorb a
portion of the disposal cost for waste brought to WM International's Hong Kong
incinerator, resulted in volume declines in certain waste streams, but the
impact was offset with other volumes. Pricing in Europe was negatively
impacted in 1995 by relatively low inflation, highly competitive conditions in
the solid waste market in France, softness in segments of the hazardous waste
market, and a continuation of lower prices on rebids of municipal contracts in
Italy. Acquisition activity continued to be below WM International's
historical levels and focused particularly on "tuck-in" acquisitions which can
complement or expand existing operations in a given market. WM International
also increased its acquisition and construction of material recovery
facilities to take advantage of an emphasis on recycling as an alternative to
land disposal.
Operating Expenses. Operating expenses increased $487.0 million or 8.1% in
1995 over 1994. Remediation expenses, net of insurance recoveries increased
$29.5 million. The Company recorded additional loss reserves of $14.2 million
related to long-term contracts of its Chem-Nuclear subsidiary. In addition,
approximately $73.6 million of software development costs, certain landfill
development and expansion projects and other deferred costs which the Company
determined were not realizable were expensed in 1995.
Excluding the above, operating expenses were relatively constant as a
percentage of revenue for 1995 as compared to 1994 overall. North American
solid waste operating expenses declined as a percentage of revenue
32
<PAGE>
primarily as a result of higher recyclable commodity prices. In addition,
milder winter weather in many parts of North America, increased
internalization of recyclables processing, and continuing route productivity
enhancements positively impacted operating expenses. Hazardous waste operating
expenses increased, however, as a percentage of revenue in 1995 due to
continued downward pressure on prices, a lower revenue base and a shift in
revenue mix toward lower margin services offsetting the benefit of headcount
reductions. Operating expenses at WM International increased as a result of
higher labor costs in Italy and widespread strikes and industrial actions
against the government in France in the fourth quarter of 1995.
Selling and administrative expenses. Selling and administrative expenses
increased $29.4 million or 2.8% in 1995 over 1994. While there was an increase
in absolute dollars, as a percentage of revenue, selling and administrative
expenses declined from 12.4% in 1994 to 12.0% in 1995. The decline as a
percentage of revenue crossed all operating groups as productivity
enhancements were instituted throughout the Company allowing selling and
administrative costs to be spread over a larger revenue base. The increase in
absolute dollars resulted primarily from acquisitions and pay-for-performance
compensation plans.
Special Charges. In the first quarter of 1995, in response to the continuing
deterioration of the chemical waste services market, the Company's Chemical
Waste Management, Inc. ("CWM") subsidiary realigned its organization, and in
connection therewith, recorded a special charge of $140.6 million before tax
($91.4 million after tax). The charge related primarily to a write-off of the
investment in facilities and technologies that CWM abandoned because they did
not meet customer service or performance objectives, but also includes $22.0
million of future cash payments for rents under non-cancelable leases,
guaranteed bank obligations of a joint venture, and employee severance. The
majority of the cash expenditures were paid in 1995, although certain of the
non-cancellable leases extend through the year 2002.
In the fourth quarter of 1995, WM International recorded a special charge of
$194.6 million ($152.4 million after tax) primarily related to the actions it
had decided to take to sell or otherwise dispose of non-core businesses and
investments, as well as core businesses and investments in low potential
markets, abandon certain hazardous waste treatment and processing
technologies, and streamline its country management organization. The charge
reduced the Company's income by approximately $153.3 million before tax
($111.0 million after tax). The charge included $34.3 million of cash payments
for employee severance and rents under non-cancelable leases. Approximately
$11.2 million of the cash costs were paid in 1995. The majority of the balance
was paid in 1996, although certain rent payments on abandoned leased
facilities continue into the future.
1996 OPERATIONS COMPARED WITH 1995
Revenue. The following table sets forth changes in consolidated revenue from
1995 to 1996:
<TABLE>
<CAPTION>
PERCENT
1995 1996 CHANGE
-------- -------- -------
<S> <C> <C> <C>
North America (excluding trash-to-energy).... $6,311.6 $6,406.1 1.5%
North American trash-to-energy............... 956.1 952.3 (0.4)
WM International............................. 1,865.1 1,913.8 2.6
Intercompany revenue......................... (32.6) (46.6)
-------- --------
Total...................................... $9,100.2 $9,225.6 1.4%
======== ======== ====
</TABLE>
The solid waste services portion of North American revenue grew 3.5% to
$5.73 billion in 1996. Solid waste services revenue growth in 1996 by line of
business is shown in the following table:
<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Residential....................................................... 4.2%
Commercial........................................................ 4.1
Rolloff and industrial............................................ 5.7
Disposal, transfer and other...................................... 0.7
</TABLE>
33
<PAGE>
Although the Company pursued price increases in 1996, the impact on North
American solid waste services revenue growth was minimal as a year-long
decline in recyclable commodity prices largely offset the benefit of increases
in the commercial and industrial markets. Volume growth added approximately
2.0% to such revenue. Acquisitions, net of dispositions, accounted for
approximately 1.5%. Recycling revenue declined 16.0% from 1995 to 1996 due to
the substantial price decline in recyclable commodities. The Company responded
by reducing its processing of lower grades of paper, adjusting the capacity of
its recycling operations and continually striving to reduce processing costs
and improve the marketing of commodities. However, despite these efforts, it
was unable to replace the profits associated with the stronger 1995 recyclable
commodities market. North American hazardous waste revenue declined 7.7% from
1995 as the industry problems continued.
The North American trash-to-energy revenue comparison is adversely affected
by the loss of the Lisbon construction revenue in 1996. Excluding this factor,
1996 revenue grew $33.8 million, or 3.7%, to $952.3 million. The commercial
operations of the Lisbon facility, which began in January 1996, contributed
$18.4 million of the increase. WTI acquired two industrial cogeneration plants
(so-called "inside-the-fence" facilities) during the year as part of its
strategy to leverage its energy plant operating capabilities and project
finance expertise by owning and/or operating power plants for industrial
customers. Together these acquisitions contributed $7.3 million to 1996
revenue growth. Contractual price escalation at existing facilities,
additional processing at several trash-to-energy plants, and lower energy
purchase curtailment accounted for most of the remaining revenue growth.
Overall spot pricing remained stable during the year.
Expressed in U.S. dollars, WM International revenue increased $48.7 million
or 2.6% in 1996 compared with 1995. Components of the revenue change are as
follows:
<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Price............................................................. 1.4%
Volume............................................................ (0.6)
Purchased businesses.............................................. 1.2
Foreign currency translation...................................... 0.6
----
Total........................................................... 2.6%
====
</TABLE>
Although WM International was able to implement price increases on its
services despite weak economies in many of its markets, the impact of such
increases was adversely affected by recyclable commodities prices falling
substantially from their highs in 1995. Difficult economic conditions in
Germany, France and Italy, as well as the closure of a landfill in France,
resulted in a volume decline, partially offset by hazardous waste volume
growth in The Netherlands and solid waste volume growth in the United Kingdom.
In addition, the Company was awarded contracts to design, build and operate
for fifteen years two transfer stations in Hong Kong. Construction revenue on
one of these projects contributed to revenue growth in 1996. International
acquisition activity was insignificant.
Operating expenses. Operating expenses increased $145.8 million or 2.2% in
1996 over 1995. This increase was greater than the revenue increase due to
several reasons. Self-insurance expense increased $57.0 million in 1996 over
1995. This increase consisted of $31.0 million related to growth of prior
years claims, $18.0 million related to implementation of new claims reporting
processes for the Company's North American solid waste operations and $8.0
million related to higher 1996 claims and claims cost growth. In addition, the
Company accrued provisions for certain loss-making recycling contracts in 1996
totaling $12.4 million. During 1996 certain route optimization software along
with other software projects became obsolete, resulting in $7.4 million being
charged to operating expenses. Remediation expenses, net of insurance
settlement recoveries declined by $13.4 million in 1996 from 1995, primarily
as a result of additional settlements with insurance companies.
Excluding the above, operating expenses for 1996 compared to 1995 increased.
A large part of the increase was due to reduced recyclable commodity prices in
1996 as compared to 1995. Major declines in recyclable
34
<PAGE>
commodity pricing resulted in actual disposal cost being incurred in some
cases to physically dispose of certain commodities which could not be sold. In
addition, operating expenses were impacted by severe weather during the year,
particularly in comparison to a mild 1995 winter in North America, and higher
fuel costs. Operating expenses as a percentage of revenue for WM International
was impacted by lower margin Hong Kong construction revenues and volume
declines in Europe that more than offset productivity improvements from
streamlining of its operations. Operating expenses in the trash-to-energy
business declined in both real terms and as a percentage of revenue as the
result of the absence of the Lisbon construction revenue, which carried no
margin.
Selling and administrative expenses. Selling and administrative expenses
increased only $3.7 million in 1996 from 1995. As a percentage of revenue such
expenses declined from 12.0% to 11.9%. In 1996 the Company had two large
receivables totaling $10.6 million charged to bad debt expense as a result of
disputes with one customer and insolvency of another. In addition, $8.0
million was expensed primarily to write-off obsolete sales/customer oriented
software program costs. These expenses were offset by productivity
improvements in administrative processes throughout the organization.
Special Charges. In the fourth quarter of 1996, WM International recorded a
provision of $77.0 million after tax related to the sale of its investment in
Wessex and a charge of $169.5 million after tax to revalue its investments in
France, Austria and Spain in contemplation of exiting all or part of these
markets or forming joint ventures. The charge also included the write-off of
an investment in a hazardous waste disposal facility in Germany because
regulatory changes adversely affected its volumes. These charges, primarily of
a non-cash nature, reduced the Company's income by $213.6 million after tax.
Also, in the fourth quarter of 1996, Waste Management and CWM recorded
pretax charges of $154.1 million ($100.2 million after tax) for reengineering
their finance and administrative functions and increasing reserves for certain
litigation, including a dispute involving the computation of royalties on the
Emelle, Alabama, hazardous waste landfill. In December 1996, a federal court
in Memphis, Tennessee, held CWM liable for approximately $100.3 million in
damages to the former owners of the Emelle site. CWM is appealing the
decision. Any settlement of the Emelle litigation would be a cash payment, but
the timing of such payment is uncertain. The balance of the charge is
primarily non-cash, with $13.4 million of cash-related items paid largely in
1997.
1997 OPERATIONS COMPARED WITH 1996
Revenue. The following table sets forth changes in consolidated revenue from
1996 to 1997:
<TABLE>
<CAPTION>
PERCENT
1996 1997 CHANGE
-------- -------- -------
<S> <C> <C> <C>
North America (excluding trash-to-energy)... $6,406.1 $6,451.3 0.7 %
North American trash-to-energy.............. 952.3 998.5 4.9
WM International............................ 1,913.8 1,790.0 (6.5)
Intercompany revenue........................ (46.6) (51.2)
-------- --------
Total..................................... $9,225.6 $9,188.6 (0.4)%
======== ======== ====
</TABLE>
The solid waste services portion of North American revenue fell by 0.2% to
$5.72 billion in 1997, primarily due to divestiture of virtually all of the
Canadian business mid-year, as well as the sale of other various
underperforming North America locations. North American solid waste services
revenue growth by line of business is shown in the following table:
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE
----------
<S> <C>
Residential.................................................... 1.2%
Commercial..................................................... (1.2)
Rolloff and industrial......................................... (0.3)
Disposal, transfer and other................................... 0.0
</TABLE>
35
<PAGE>
Overall North American solid waste services revenue for the year decreased
0.2% primarily as a result of the effect of divestitures net of acquisitions
which accounted for a 1.5% decrease. Excluding such net divestitures, overall
revenue increased 1.3% as a result of a combination of higher prices and
increased volumes. The 1997 revenue growth started out slightly negative in
the first quarter as a result of lost customers in late 1996 following a price
increase earlier in 1996. Revenue growth generally strengthened throughout the
year, finishing with fourth quarter revenue in excess of three percent over
the prior year sales, after considering divestitures. Pricing was fairly weak
throughout the year, particularly during the first two quarters. Approximately
one-third of the internal growth for the year came from pricing and the other
two-thirds from volume. The hazardous waste segment revenue continued to
decline slightly, falling about 6.8% from 1996.
The increase in the North American trash-to-energy revenues of $46.2 million
is largely attributed to $60.2 million of construction revenue for facilities
that are being built and operated by WTI but owned by customers. Excluding
this construction activity, 1997 revenue decreased $14.2 million or 1.5% from
1996 levels. Divestiture of certain biosolids landspreading contracts and
lower air pollution control engineering revenues were primarily responsible.
Spot waste disposal pricing remained stable on an overall basis compared to
1996, with slight strengthening in New England being offset by continued
downward pressure in the South Florida markets.
Expressed in U.S. dollars, WM International revenue decreased $123.8 million
or 6.5% in 1997 compared with 1996. Components of the revenue change are as
follows:
<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Price............................................................ 4.4 %
Volume........................................................... (1.4)
Purchased businesses, net of divestitures........................ (2.5)
Foreign currency translation..................................... (7.0)
----
Total.......................................................... (6.5)%
====
</TABLE>
Increased landfill disposal taxes, which are passed through in disposal
rates, accounted for 2.5% out of the 4.4% revenue growth from price. Volume in
1997 was lower than 1996 in three key markets. In Italy, landfill volumes were
reduced as the result of permitting delays on landfill expansions and new
landfill projects. The impact of this reduced capacity is expected to continue
into 1998. Revenue declined in Latin America from abnormally high levels in
1996 from cleaning activities for Buenos Aires during the 1996 mayoral
election, and in Germany as a result of general economic and competitive
conditions. Partially offsetting these items were improved volumes in the
Netherlands. Divestitures impacting 1997 revenue include the sale of various
operations within France, Spain, Austria, and Germany. The sale of these
operations reduced 1997 revenue by approximately 3.5% or $67 million from 1996
levels. In addition, the weakness of the various currencies in which WM
International earns its revenues created a negative translation impact on
total reported revenue for the year. Foreign currency movement has had, and
can be expected to continue to have, an impact on reported revenue, expenses
and net income. See "Derivatives and Market Risks" for further detail.
Operating Expenses. Operating expenses increased $534.6 million or 8.0% in
1997 over 1996. This increase occurred despite a slight revenue decline due to
several reasons. Remediation expenses, net of insurance recoveries increased
$96.8 million in 1997 from 1996. In 1997, insurance recoveries were $33.9
million higher than in 1996, and were more than offset by remediation cost
increases of $130.7 million. The increased remediation costs reflect $49.9
million of expense resulting from implemention of SOP 96-1 (see "Accounting
Principles" below), $14.8 million of expense related to a change in the
discount rate from 7% to 6% in the fourth quarter of 1997 and the balance
primarily related to changes in remediation cost estimates at several disposal
sites. Self-insurance expenses increased $95.0 million in 1997 from 1996. This
increase included $56.0 million related to changes in estimating techniques
with the balance coming from growth of prior years' claims. The Company
incurred losses in 1997 and accrued provisions in 1997 for loss-making
contracts totaling $136.2 million. These were primarily several large
contracts with respect to which the Company determined in 1997
36
<PAGE>
that such losses would continue for the contracts' duration. A large portion
of this loss provision relates to multi-year recyclables processing contracts.
The Company also recorded $13.6 million of additional reserves related to
long-term contracts of its Chem-Nuclear subsidiary as a result of changes in
estimated contract results. Other major items affecting operating expense in
1997 were accruals of $20.3 million primarily related to excess lease
obligations, and other asset disposals or write-downs totaling $28.9 million
primarily related to hazardous waste projects, obsolete inventory, scrapped
equipment including recycling assets and obsolete/unused software.
Effective October 1, 1997, the Board of Directors approved a management
recommendation to revise the Company's North American collection fleet
management policy. Front-end loaders will be replaced after 8 years, and rear-
end loaders and rolloff trucks after 10 years. The previous policy was to not
replace front-end loaders before they were a minimum of 10 years old and other
heavy collection vehicles before they were a minimum of 12 years old. As a
result of this decision, the Company recognized an impairment writedown of
$70.9 million in the fourth quarter of 1997 for those vehicles scheduled for
replacement in the next two years under the new policy. Depreciable lives were
adjusted commencing in the fourth quarter of 1997 to reflect the new policy.
Also effective October 1, 1997, the Company reduced depreciable lives on
containers from 15 and 20 years to 12 years, and ceased assigning salvage
value in computing depreciation on North American collection vehicles and
containers. These changes in estimates increased depreciation expense by $33.7
million in the fourth quarter of 1997.
Also effective October 1, 1997, the Company changed its process for
estimating landfill lives. The Company now amortizes landfill costs over
estimated landfill capacity which includes permitted landfill airspace plus
expansions which are probable of being obtained in the next five years. The
Company's prior practice was to consider likely expansions in the amortization
calculations, whether or not the permits were expected to be obtained within
the next five years. Factors in determining probable expansions on a site-by-
site basis include secured rights to required land, status of legal,
environmental, regulatory and political issues, and the extent to which the
permit application process has proceeded. This change in estimate increased
depreciation and amortization by $12.7 million and the provision for closure
and post-closure by $3.1 million in the fourth quarter of 1997, and resulted
in estimated landfill capacity declining from 2.9 billion cubic yards to 1.8
billion cubic yards.
After considering the above, operating expenses as a percentage of revenue
for 1997 compared to 1996 increased. Hazardous waste operating expenses
increased as a percentage of revenue due to continued pressure on prices,
lower volumes and a shift in revenue mix toward lower margin services. Trash-
to-energy operating costs increased as a percentage of revenue primarily due
to the impact of increased construction revenue, which has a lower associated
margin. WM International operating expenses increased largely as a result of
lower margins for the operations in Italy.
Selling and Administrative Expenses. Selling and administrative expenses
increased $33.8 million or 3.1% in 1997 over 1996. As a percentage of revenue,
selling and administrative expenses increased from 11.9% in 1996 to 12.3% in
1997. Included in selling and administrative expenses in 1997 were $39.0
million in additional legal expense reflecting changes in estimates of
litigation-related liabilities. In addition, 1997 bad debt expense included
$8.7 million related to two large accounts receivable disputes settled in
1997, $6.7 million of accounts receivable in the New York City area that in
part were compromised as a result of agreements made with the New York City
licensing authorities, and $3.2 million for certain partner/venture
receivables. The Company also wrote off $4.0 million in various sales-related
assets which included prepaid advertising credits that were expected to expire
before their use. The Company reduced other administrative expenses as a
result of divestitures and is continuing to make productivity improvements in
many administrative areas.
Special Charges. In 1997, the Company recorded a special charge of $41.6
million (primarily in the fourth quarter) for severance. Employees terminated
were primarily field operating management and related support personnel.
Approximately $5.9 million of the severance had been paid by December 31,
1997, with the balance to be paid in 1998 and thereafter.
37
<PAGE>
WM International also recorded a special charge in 1997 ($104.4 million
before tax and minority interest) to reflect the costs of demobilization in
Argentina following loss of the contract renewal for the City of Buenos Aires,
divestiture or closure of underperforming businesses, primarily in Italy and
Germany and the writeoff of costs of projects, primarily in Germany, which it
decided to no longer pursue. The charge included $14.8 million of severance,
primarily related to operating personnel in Buenos Aires and with closed or
divested businesses in Italy and Germany. These terminations are expected to
occur and the severance paid in 1998.
OTHER ITEMS
Asset Impairment Loss. As a result of the comprehensive review of operating
assets and investments discussed in Notes 2, 3 and 16 to Consolidated
Financial Statements, the Company recorded an impairment loss of $1.48 billion
in 1997. Prior period financial statements were restated to recognize
impairment losses in earlier periods. Asset impairment loss was $34.0 million
in 1994, $53.8 million in 1995, and $64.7 million in 1996.
The 1994 impairment losses included $22.4 million related to unsuccessful or
abandoned landfill development or expansion projects. In addition, the Company
abandoned certain vehicle-related systems development projects totalling $7.3
million. Several properties identified as surplus were written down to fair
value, resulting in $4.3 million in such charges.
The 1995 impairment losses included $48.2 million for several unsuccessful
landfill development or expansion projects. This included one site with an
impairment loss of $29.9 million, which was recognized as a result of the
passage of legislation prohibiting a previously planned expansion.
The 1996 impairment losses were primarily related to recycling investments.
Of the $47.8 million impairment loss related to these investments, $35.7
million represented goodwill, primarily related to two acquisitions made in
1995. These impairment losses were the result of major price declines in the
recyclable paper market caused by an industry wide-pricing collapse in the
pulp and paper market. In addition, impairment losses of $13.4 million were
recognized with respect to landfill facilities, primarily as a result of one
landfill site having its volumes curtailed and a planned expansion becoming
remote.
In 1997 impairment losses were primarily due to revaluation of numerous
treatment and disposal facilities of the Company and associated goodwill.
Revaluation of investments in the North American hazardous waste services
business accounted for $776.2 million of the impairment loss. This impairment
was a result of continuing pricing and volume declines in the hazardous waste
services markets, which currently have excess capacity. Changes in
environmental regulations are also allowing certain hazardous waste streams to
be managed by others with less expensive treatment and disposal alternatives.
In addition, $344.8 million of the 1997 impairment losses related to solid
waste landfills. This included $163.9 million related to the Company's
abandonment of several landfill development or expansion projects. The balance
of this impairment loss was primarily the result of substantial pricing or
volume declines at certain landfills and a shortening of estimated life of 10
landfills (See Note 3 to Consolidated Financial Statements). As a result of
the Company's adoption of a new fleet replacement policy in 1997, certain
older collection vehicles became impaired and a loss was recorded totaling
$70.9 million (See Note 3 to Consolidated Financial Statements). Other 1997
impairment losses included $122.2 million related to the revaluation of Rust
International Inc. ("Rust") domestic engineering and consulting business,
discussed below under "Discontinued Operations and Other Major Asset
Dispositions". Impairment losses of $38.2 million were also recorded for
surplus real estate being held for sale. WTI recorded a 1997 impairment loss
of $57.2 million. This included $47.1 million related to revaluation of a wood
waste burning independent power production facility.
Interest. The following table sets forth the components of consolidated
interest expense, net:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Interest expense......................... $ 456.1 $507.8 $498.0 $472.9
Interest income.......................... (42.8) (34.9) (27.9) (37.6)
Capitalized interest..................... (105.9) (43.9) (35.6) (26.0)
------- ------ ------ ------
Interest expense, net.................... $ 307.4 $429.0 $434.5 $409.3
======= ====== ====== ======
</TABLE>
38
<PAGE>
Gross interest expense increased from 1994 to 1995 as a result of an earlier
management decision to increase the leverage of the Company. Debt levels
increased in 1995, primarily a result of the acquisition of the public
ownership of CWM and Rust. The large decline in capitalized interest in 1995
is due to a change in accounting methods effective January 1, 1995.
Capitalized interest declined further in 1996 and 1997 as significant capital
projects were completed and the Company reduced capital spending. See
"Financial Condition--Capital Structure" and Note 3 to Consolidated Financial
Statements. Although the Company repurchased a substantial number of its
shares in 1996 and 1997, debt levels were reduced in 1997 resulting in lower
interest expense.
Minority Interest. Minority interest declined from 1994 to 1995 as a result
of the 1995 purchases by the Company of the publicly-owned shares of CWM and
Rust and lower earnings by certain subsidiaries, as well as the minority
interest share (approximately $41.3 million) in the WM International special
charge. Minority interest declined from 1995 to 1996 as a result of higher
earnings by certain subsidiaries and the minority interest share
(approximately $63.8 million) in the WM International special charges.
Minority interest in 1997 was comparable to 1996, and was impacted by $27.9
million related to the WM International 1997 special charge and $15.9 million
by the 1997 WTI asset impairment loss.
Sundry Income, Net. Below is a summary of major components in sundry income,
net.
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gain on sale of investments/businesses...... $ 25.1 $168.9 $ 30.1 $180.3
Writedown of investments.................... -- -- -- (25.7)
Equity income............................... 60.2 77.0 61.4 (6.9)
Other....................................... 24.6 6.8 10.5 25.6
------ ------ ------ ------
Sundry income, net.......................... $109.9 $252.7 $102.0 $173.3
====== ====== ====== ======
</TABLE>
Equity income in 1994, 1995 and 1996 included income from ServiceMaster L.P.
("ServiceMaster") and Wessex investments of $60.2 million, $77.0 million and
$59.4 million, respectively. These investments were sold in the second quarter
of 1997 with no equity income recorded for Wessex or ServiceMaster. Equity
income in the second quarter of 1997 was also reduced by $10.4 million related
to a special charge recorded by OHM Corporation ("OHM"), an environmental
remediation services business approximately 37% owned by Rust. Gains/(loss) on
sale of investments/businesses are primarily related to the following items
(1) $25.1 million gain on sale of the Company's Modulaire mobile office
services business in 1994; (2) $160 million gain the fourth quarter of 1995
recorded as a result of the exchange of an interest in ServiceMaster Consumer
Services L.P. for an interest in ServiceMaster and an option to purchase 1.25
million ServiceMaster limited partnership shares; (3) $30.1 million in 1996
and $43.4 million in 1997 of gains on sales of North American solid waste
businesses, (including $32.6 million on sale of Canadian operations); and (4)
$129 million gain in the first quarter of 1997 from the sale of the Company's
investment in ServiceMaster. Writedown of investments includes $19.5 million
related to the OHM investment and $6.2 million in other investments, all of
which were recorded in the fourth quarter of 1997.
Income Taxes. The consolidated income tax rate varies between years as a
result of shifts in the source of taxable income. The inability to realize tax
benefits on a portion of the 1994, 1995, 1996 and 1997 special charges and
asset impairment loss resulted in an increased tax provision in those years,
primarily attributable to non-deductible goodwill and the writedown of
investments in subsidiaries. In addition, the Company increased deferred tax
valuation allowances and other tax reserves. See Note 4 to Consolidated
Financial Statements.
Discontinued Operations and Other Major Asset Dispositions. During the
fourth quarter of 1995, the Company announced that Rust would sell or
discontinue its process engineering, construction, specialty contracting and
similar lines of business. Further, as the Company refined its business
strategy to focus on waste management services, other business units were
identified in 1996 and 1997 as units to be either sold or discontinued.
In 1996, Rust sold its engineering and construction business as well as its
industrial scaffolding business for $295.1 million, and WTI sold its water
process, manufacturing and custom engineered systems business for
39
<PAGE>
$369.6 million in cash. In 1997, Rust disposed of certain of its international
engineering and consulting businesses and WTI sold its remaining water
services business for 2.3 million registered shares of U.S. Filter stock,
valued at approximately $64 million. The Rust engineering and scaffolding
businesses and its international engineering and consulting businesses,
together with the WTI water businesses, have all been classified as
discontinued operations in the accompanying financial statements.
Because Rust did not sell its remaining domestic engineering and consulting
businesses prior to December 31, 1997, these businesses have been reclassified
as continuing operations held for sale in the accompanying financial
statements for all periods. The original provision, established in 1996, for
loss on the sale (approximately $87 million) of these discontinued businesses
has been reversed as income in "income (loss) on disposal" in discontinued
operations, and a new provision for loss on sale (approximately $122 million)
was provided as an asset impairment loss in the Consolidated Statements of
Income, all in the fourth quarter of 1997. While the Company intends to sell
these businesses, it is unable to estimate when a buyer will be found and a
sale can be consummated.
In 1997, Waste Management sold its investment in ServiceMaster for $626
million, and sold various non-integrated waste services businesses in North
America for $288.9 million. Additionally in 1997, WM International sold
businesses in France, Spain, Austria and Germany for $128.3 million and its
approximately 20% interest in Wessex for approximately $300 million.
In early 1998, WM International sold its Hamm, Germany waste-to-energy
facility for $137 million. Also in early 1998, Rust's 37% ownership of OHM was
sold for cash totaling $111.2 million. This sale occurred in connection with
the merger of OHM with International Technology Corporation. As part of this
transaction, Rust received a distribution of shares of NSC Corporation, a
leading U.S. asbestos abatement contractor, increasing its ownership of NSC
Corporation to 54.3%.
ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Company adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." The change reduced 1994 net income by
$1.3 million.
Effective January 1, 1995, the Company changed its method of capitalizing
interest on landfill cell construction. See Note 3 to Consolidated Financial
Statements. The change reduced 1995 net income by $84.7 million.
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The effect of adoption was not material. Impairments recorded prior to
1996 followed a methodology consistent with FAS No. 121.
FAS No. 123, "Accounting for Stock-Based Compensation" also became effective
in 1996. However, FAS No. 123 permitted compensation to continue to be
accounted for under Accounting Principles Board Opinion No. 25, and the
Company elected to follow this alternative. See Note 9 to Consolidated
Financial Statements.
Effective January 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." SOP 96-1 provides that environmental
remediation liabilities should be accrued when the criteria of FAS No. 5,
"Accounting for Contingencies," are met. It also provides that the accrual for
such liabilities should include future costs for those employees expected to
devote a significant amount of time directly to the remediation effort. The
adoption of SOP 96-1 reduced 1997 pretax income from continuing operations by
$49.9 million.
In the fourth quarter of 1997, the Company began expensing process
reengineering costs (including $3.0 million previously capitalized) in
accordance with Emerging Issues Task Force consensus 97-13, reducing 1997 net
income by $1.9 million.
Also in 1997, the Company began presenting earnings per share in accordance
with FAS No. 128. See Note 11 to Consolidated Financial Statements for further
discussion.
40
<PAGE>
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income," and FAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." Both statements are effective for
fiscal years beginning after December 15, 1997, although FAS No. 131 does not
apply to the Company's interim financial statements until 1999. FAS No. 130
requires only a different format for presentation of information already
included in the Company's financial statements. FAS No. 131 modifies the basis
for determining segments and expands required disclosure, but does not affect
accounting principles and, accordingly, will not require any change to
reported financial position, results of operations or cash flows. The Company
is currently evaluating the impact of FAS No. 131 on its segment reporting.
DERIVATIVES AND MARKET RISKS
In the normal course of business, the Company is exposed to market risk,
including changes in interest rates, currency exchange rates, certain
commodity prices and certain equity prices. From time to time, the Company and
certain of its subsidiaries use derivatives to manage some portion of these
risks. The derivatives used are simple agreements which provide for payments
based on the notional amount, with no multipliers or leverage. All derivatives
are related to actual or anticipated exposures or transactions of the Company.
While the Company is exposed to credit risk in the event of non-performance by
counterparties to derivatives, in all cases such counterparties are highly
rated financial institutions and the Company does not anticipate non-
performance. The Company does not hold or issue derivative financial
instruments for trading purposes. The Company monitors its derivative
positions by regularly evaluating the positions at market and by performing
sensitivity analyses.
The Company has performed sensitivity analyses to determine how market rate
changes will affect the fair value of the Company's market risk sensitive
derivatives and related positions. Such an analysis is inherently limited in
that it represents a singular, hypothetical set of assumptions. Actual market
movements may vary significantly from the Company's assumptions. The effects
of such market movements may also directly or indirectly affect Company rights
and obligations not covered by the sensitivity analysis. Fair value
sensitivity is further not necessarily indicative of the ultimate cash flow or
earnings effect on the Company from the assumed market rate movements.
Interest Rate Exposure. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's debt obligations, which are
mainly denominated in U.S. dollars. In addition, interest rate swaps are used
to lock-in or limit the variability in the interest expense of certain
floating rate debt obligations. An instantaneous, one percentage point decline
in interest rates across all maturities and applicable yield curves would
adversely affect the fair value of the Company's combined debt and interest
rate swap position by approximately $250 million. This analysis does not
reflect the effect that declining interest rates would have on other items
such as pension liabilities, nor the favorable impact they would have on
interest expense and cash payments for interest.
Currency Rate Exposure. From time to time, the Company and certain of its
subsidiaries have used foreign currency derivatives to seek to mitigate the
impact of translation on foreign earnings and income from foreign investees.
Typically these derivatives have taken the form of purchased put options or
collars. There were no currency derivatives outstanding at December 31, 1997,
that relate to hedging the translation of foreign earnings.
The Company occasionally incurs currency risk from cross border
transactions. When such transactions are anticipated or committed to, the
Company may enter into forward contracts or purchase options to reduce or
eliminate the related foreign exchange risk. The Company also incurs exchange
rate risk from borrowings denominated in foreign currencies. An instantaneous,
10 percent adverse movement in foreign exchange rates would affect the fair
value of the Company's foreign currency borrowings and foreign exchange hedges
at December 31, 1997, by approximately $30 million. The total effect on the
Company from movements in exchange rates will also be influenced by other
factors. For example, an increase in the fair value of foreign currency
denominated debt caused by exchange rate movements may be more than offset by
an increase in the value of the Company's net investment in foreign countries.
41
<PAGE>
Commodities Price Exposure. The Company operates a large fleet of vehicles
that require the purchase of a significant amount of diesel fuel. The Company
uses crude oil collars and swaps as a proxy to seek to mitigate the risk of
fluctuations in diesel fuel prices. The Company's fuel collars consist of a
call option or "cap" and a corresponding put option at a lower price or
"floor." The cap limits the Company's potential increased operating cost from
higher fuel prices whereas the floor limits the Company's potential cost
savings from a decline in fuel prices. Under its fuel swap agreements, the
Company collects payments from the swap counterparty when fuel prices average
above a certain reference price. When prices average below said reference
prices, the Company makes payments to the counterparty. All of the Company's
fuel hedges are cash settled. Quantities hedged do not exceed committed fuel
purchases or anticipated usage in any period. An instantaneous, 10 percent
decrease in the applicable reference price for hedges in place at December 31,
1997, would cause a fair value loss to the Company of approximately $6
million. The Company expects that these losses would be offset by savings from
buying fuel at prices below December 31, 1997, market prices.
Equity Price Exposure. The Company occasionally obtains stock that it needs
to hold for a certain period of time. The Company sometimes seeks to mitigate
its market exposure to such holdings by entering into equity collars. Such a
collar consists of a "cap" that limits the Company's potential for gain from
appreciation in the stock price as well as a "floor" that limits the Company's
loss potential from a decline in the stock price. An instantaneous, 10 percent
decline in the price of the shares held by the Company at December 31, 1997,
would adversely affect the combined fair value of the stock and collar
positions by approximately $2 million.
The Company is also further subject to equity price exposure from Company
debt issues that are convertible into the Company's common stock. These debt
issues had an aggregate carrying value of $494.5 million as of December 31,
1997. An instantaneous, 10 percent increase in the Company's stock price on
December 31, 1997, would increase the fair value of the Company's convertible
debt by approximately $23 million.
See Note 7 to Consolidated Financial Statements for further discussion of
the use and accounting for derivative instruments. Also see "Financial
Condition--Capital Structure" for a discussion of the Company's sale of put
options in connection with its stock repurchase program.
ENVIRONMENTAL MATTERS
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment. As such, a significant
portion of the Company's operating costs and capital expenditures could be
characterized as costs of environmental protection. Such costs may increase in
the future as a result of legislation or regulation; however, the Company
believes that in general it tends to benefit when environmental regulation
increases, which may increase the demand for its services, and that it has the
resources and experience to manage environmental risk.
As part of its ongoing operations, the Company provides for estimated
closure and post-closure monitoring costs over the operating life of disposal
sites as air space is consumed. The Company has also established procedures to
evaluate potential remedial liabilities at closed sites which it owns or
operated or to which it transported waste, including 89 sites listed on the
Superfund National Priority List ("NPL") as of December 31, 1997. Where the
Company concludes that it is probable that a liability has been incurred,
provision is made in the financial statements. See Note 8 to Consolidated
Financial Statements for additional information regarding the Company's
environmental liabilities.
Estimates of the extent of the Company's degree of responsibility for a
particular site and the method and ultimate cost of remediation require a
number of assumptions and are inherently difficult, and the ultimate outcome
may differ from current estimates. However, the Company believes that its
extensive experience in the environmental services industry, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes
available, estimates are adjusted as necessary. While the Company does not
anticipate that such adjustments would be material to its financial
42
<PAGE>
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies, the existence
and ability of other potentially responsible third parties to contribute to
the settlements of such liabilities, or other factors could alter this
expectation and necessitate the recording of additional liabilities which
could be material.
The Company spent, net of recoveries from other potentially responsible
parties, $71.5 million, $38.5 million, $69.8 million and $14.7 million on
remedial activities at closed sites in 1994, 1995, 1996, and 1997
respectively, and anticipates such net expenditures of approximately $57.3
million in 1998.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. Carriers involved in these matters have typically denied
coverage and are defending against the Company's claims. While the Company is
vigorously pursuing such claims, it regularly considers settlement
opportunities when appropriate terms are offered. Settlements received to date
($50.1 million in 1994, $38.2 million in 1995, $60.3 million in 1996, and
$94.3 million in 1997) have been included in operating expenses as an offset
to environmental expenses.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including
purported class actions, on the basis of a Company subsidiary's having owned,
operated or transported waste to disposal facilities which are alleged to have
contaminated the environment or, in certain cases, conducted environmental
remediation activities at such sites.
YEAR 2000 ISSUES
Waste Management, like many other companies, expects to incur expenditures
to address the so-called "Year 2000" problem. The Year 2000 problem exists
because many computer systems and applications currently use two-digit data
fields to designate a year. As the century date change occurs, date-sensitive
systems will recognize the year 2000 as 1900, or not at all. This inability to
properly recognize or handle the year 2000 may cause systems to process
critical financial and operational information incorrectly, or to fail
completely.
The reengineering of the finance and administrative processes, which the
Company began in 1996, includes new computer software which will be Year 2000
compliant, and will resolve the issue for many of the financial and
administrative systems. The Company's principal customer billing and customer
service systems are currently being remediated to comply with Year 2000
issues. To varying degrees, the Company has assessed and continues to assess
the impact of the Year 2000 issue on other systems, including those used by
its customer billing and customer service functions. The Company has not
completely identified its exposure to the Year 2000 issue, or formulated its
plans for addressing and resolving this issue in other systems, but expects to
be able to do so or to effectively work around unresolved problems in a timely
manner. The Company has established a Year 2000 program management office to
coordinate the efforts of its own staff of information technology
professionals and outside consultants engaged to reprogram, replace or test
software and related assets affected by the Year 2000 issue.
The Company spent approximately $6.0 million in 1997 for Year 2000
modification of computer systems and estimates it will spend an additional $45
million in 1998 and 1999, excluding the cost of new hardware and software
which will be principally capitalized and is included in the capital budget.
The Company believes its contemplated actions will effectively address the
Year 2000 issue, but should that not be the case, a material disruption of its
business could result. Specific factors that might cause the Company not to be
able to address the Year 2000 issue effectively and that could influence the
amount and timing of future costs include, but are not limited to, the
availability and cost of personnel trained in this specialized area, the
nature and amount of programming required to upgrade and replace the affected
software, the ability to locate and correct all relevant computer codes, the
success of the Company's principal suppliers in addressing the Year 2000 issue
and similar uncertainties.
43
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital deficits of $1,047.1 million, $280.9
million, and $2,046.9 million as of December 31, 1995, 1996, and 1997
respectively. The Company operates in a capital intensive service industry
with neither significant inventory nor seasonal variation in receivables, and
generates substantial cash from operating activities. As a result, emphasis is
placed on minimizing working capital requirements. The increase in working
capital between 1995 and 1996 is a result of lower current debt maturities,
strong cash flow, including the proceeds from the sale of a portion of the WTI
water business late in 1996, and the reclassification to current of the
investment in Wessex to be sold, partially offset by increased accruals for
losses on the sale of certain investments. The increase in working capital
deficit between 1996 and 1997 results primarily from lower levels of cash and
short-term investments ($451 million), higher levels of long-term debt payable
within one year ($995 million) and higher accrued expenses ($290 million)
related to loss contract provision reserves, increased self insurance reserves
and other reserves recorded as a result of the comprehensive review performed
by management. See Note 2 to Consolidated Financial Statements.
Cash flow from operating activities, less capital expenditures (other than
acquisitions) and dividends, which the Company defines as "owners' cash flow,"
is available to meet current obligations, make acquisitions, reduce debt, or
repurchase common stock. Management has adopted a cash-driven financial
strategy including reduced capital spending and divestiture of non-core assets
and non-integrated businesses. Owners' cash flow was approximately $0.3
billion, $0.5 billion, $1.0 billion, and $1.8 billion in 1994 through 1997
respectively. The Company expects to generate approximately $400 million
during 1998 from the divestiture of certain non-core investments and non-
integrated businesses subject to constraints necessitated to meet pooling-of-
interests accounting treatment as required in the Merger with USA Waste. The
Company believes that it has adequate liquidity and resources to meet its
needs for replacement capital and finance anticipated growth. See "Capital
Structure."
In February 1998, the credit ratings on the Company's senior unsecured long-
term debt were lowered to BBB by Standard & Poor's Rating Services and Baa3 by
Moody's Investors Service. Previously, the Company's debt was rated A- and
Baa1 by Standard & Poor's and Moody's, respectively. The lower credit ratings,
which are still investment grades, are not expected to have a material effect
on the Company's availability of long-term debt funding. These ratings are
independently issued by the rating agencies and are subject to change at any
time. On December 29, 1997 the Company put in place bank credit facilities
totalling $800 million for general corporate purposes including standby
liquidity for its commercial paper program. The facilities consist of a $550
million standby trade receivables sale agreement and a $250 million revolving
credit agreement, both of which expire June 30, 1998.
The Company historically has met its short-term funding requirements through
the issuance of commercial paper in the public markets, with bank credit
facilities available as standby liquidity. In February 1998, Moody's lowered
its rating of the Company's commercial paper from Prime-2 ("P2") to Prime-3
("P3"), and there may be times when the Company is unable to issue sufficient
commercial paper to meet its needs. The market for A2/P3-rated commercial
paper is somewhat smaller than for higher-rated commercial paper. At such
times, the Company will fund its requirements using the bank credit facilities
which are in place and sufficient to meet such needs.
In connection with the planned purchase of the remaining publicly held WTI
shares, the Company has entered into a commitment with the Chase Manhattan Bank
("Chase") whereby Chase, along with other financial institutions, has committed,
subject to the satisfaction of certain conditions, to provide new credit
facilities in the amount of $1.1 billion. The new credit facilities, which will
have a termination date of December 31, 1998 (subject to earlier termination in
the event of a change-in-control, including the Merger with USA Waste), will
provide the funding needed to complete the WTI transaction and replace the
Company's existing $250 million revolving credit facility. Additionally, the
termination date of the Company's $550 million standby trade receivables sale
agreement will be extended from June 30, 1998 to December 31, 1998.
44
<PAGE>
ACQUISITIONS AND CAPITAL EXPENDITURES
Capital expenditures, including $56.8 million, $154.1 million, $91.8 million
and $19.3 million for property and equipment of purchased businesses in 1994,
1995, 1996 and 1997, respectively, are shown in the following table:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1994 1995 1996 1997
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Land (primarily disposal sites)......... $ 566.9 $ 470.5 $ 406.2 $359.9
Buildings and leasehold improvements.... 141.2 148.8 109.3 76.4
Vehicles................................ 226.0 345.8 204.9 160.9
Containers.............................. 167.9 181.2 115.8 112.1
Other equipment......................... 395.0 348.1 319.2 189.5
-------- -------- -------- ------
Total................................. $1,497.0 $1,494.4 $1,155.4 $898.8
======== ======== ======== ======
</TABLE>
In 1994, the Company and its principal subsidiaries acquired 119 businesses
for $197.2 million in cash and notes, $17.3 million of debt assumed, 73,809
shares of Company common stock and 156,124 shares of WTI common stock. During
1995, 136 businesses were acquired for $224.3 million in cash and notes, $77.7
million of debt assumed, and 2.2 million shares of the Company's common stock.
In 1996, 83 businesses were acquired for $104.8 million in cash and notes,
$39.4 million of debt assumed, and approximately 8.2 million shares of the
Company's common stock. During 1997, 45 businesses were acquired for $51.4
million in cash and notes, $17.6 million of debt assumed, and 121,551 shares
of the Company's common stock.
The Board of Directors has approved a capital expenditure budget of $1,300.0
million for 1998, excluding acquisitions, although the Merger Agreement with
USA Waste limits the Company's 1998 capital expenditures, excluding
acquisitions, to $1.2 billion. The increase in the 1998 capital expenditure
budget primarily reflects increased spending for vehicles resulting from the
adoption of a new fleet management strategy in the fourth quarter of 1997, as
well as an anticipated increase in spending for new information systems and
landfill cell construction. The Company currently expects to finance capital
expenditures through cash flow from operations and believes that it has
adequate resources to finance attractive acquisitions that become available.
CAPITAL STRUCTURE
Although the Company has placed increasing emphasis on generating owners'
cash flow during 1994-1997, a substantial portion of such cash has been
returned to stockholders through stock repurchases. Debt to total capital
ratios were adversely impacted by the issuance of the subordinated notes
discussed below which were used to repurchase the publicly held shares of CWM
in 1995 and by the substantial reduction in stockholders' equity as a result
of common stock repurchases and losses sustained in 1996 and 1997. The
following table sets forth certain of the Company's leverage ratios:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Long-term debt as a percent of total capital..... 51.5% 52.9% 58.2% 67.4%
Short-term and long-term debt as a percent of
short-term debt and total capital............... 54.9% 56.8% 60.0% 73.0%
</TABLE>
The above ratios include minority interest in subsidiaries and put options
as part of total capital.
In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of CWM that it did not already own, in return for
convertible subordinated debt. In July 1995, Waste Management acquired the
approximately 3.1 million Rust shares held by the public for $16.35 per share
in cash. In June 1997, the Company announced an offer to acquire, for $15 per
share in cash, all of the approximately 53 million
45
<PAGE>
outstanding shares of WTI it does not already own. The price was increased to
$16.50 per share pursuant to a definitive agreement subsequently negotiated
with a special committee of independent WTI directors. The terms of the
agreement have been approved by the WTI special committee and by the Boards of
Directors of the Company and WTI, but the transaction remains subject to the
approval of the holders of a majority of WTI's outstanding shares, other than
those held by the Company, voting on it at a special meeting of WTI
stockholders to be held March 30, 1998. In addition, this transaction is the
subject of several lawsuits which seek, among other things, to enjoin the
proposed transaction. The Company believes that it has met the legal standards
applicable to transactions of this type and intends to vigorously defend
itself in the lawsuits.
The Boards of Directors of Waste Management and WTI had authorized their
respective companies to repurchase shares of their own common stock. Waste
Management repurchased 30 million shares through a "Dutch auction" tender
offer in the second quarter of 1997 but did not repurchase any other shares
that year. The Company does not at this time expect to repurchase any
additional shares of its own common stock. WTI repurchased 5.1 million shares
in the first six months of 1997 but terminated its repurchase activity
following the Waste Management offer to acquire the remaining publicly held
shares.
During 1994 through 1996, in conjunction with its previously authorized
repurchase program, Waste Management sold put options on 42.3 million shares
of its common stock. The put options give the holders the right at maturity to
require the Company to repurchase its shares at specified prices. Proceeds
from the sale of put options were credited to additional paid-in capital. See
Note 10 to Consolidated Financial Statements for further information. There
were no put options outstanding at December 31, 1997, and the Company does not
at this time expect to sell additional options in the future.
In 1994, the Company formed an Employee Stock Benefit Trust and sold 12.6
million shares of treasury stock to the Trust in return for a 30-year, 7.33%
note with interest payable quarterly and principal due at maturity. The
Company has agreed to contribute to the Trust each quarter funds sufficient,
when added to dividends on the shares held by the Trust, to pay interest on
the note as well as principal outstanding at maturity. At the direction of an
administrative committee composed of Company officers, the Trust will use the
shares or proceeds from the sale of the shares to pay employee benefits, and
to the extent of such payments by the Trust, the Company will forgive
principal and interest on the note.
RISKS AND UNCERTAINTIES
During the first quarter of 1995, WM International received an assessment
from the Swedish Tax Authority of approximately 417 million Krona
(approximately $53 million) plus interest from the date of the assessment,
relating to a transaction completed in 1990. WM International believes that
all appropriate tax returns and disclosures were filed at the time of the
transaction and intends to vigorously contest the assessment.
A Company subsidiary has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). Although a lower
Court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded
the case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the subsidiary to apply for all governmental permits
needed to remove all waste above the height allowed by the zoning ordinance,
and the Connecticut Supreme Court has upheld that ruling. The Company is
complying with the order of the Superior Court while also seeking an
alternative resolution to this matter. The Company is unable to predict the
outcome of this matter at this time. Depending upon the nature of any plan
eventually approved by applicable regulatory authorities for removing the
waste, the actual volume of waste to be moved, and other currently
unforseeable factors, the subsidiary could incur costs which would have a
material adverse impact on the Company's results of operations in one or more
future periods.
In May 1994, the U.S. Supreme Court ruled that state and local governments
may not constitutionally restrict the free movement of waste in interstate
commerce through the use of regulatory flow control laws. Such
46
<PAGE>
laws typically involve a local government specifying a jurisdictional disposal
site for all solid waste generated within its borders. Since the ruling,
several decisions of state or federal courts have invalidated regulatory flow
control schemes in a number of jurisdictions. Other judicial decisions have
upheld non-regulatory means by which municipalities may effectively control
the flow of municipal solid waste. In addition, federal legislation has been
proposed, but not yet enacted, to effectively grandfather existing flow
control mandates. There can be no assurance that such alternatives to
regulatory flow control will in every case be found to be lawful or that such
legislation will be enacted into law.
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse affect on any of the Company's operations. In the
event that legislation to effectively grandfather existing flow control
mandates is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling
the flow of waste. However, given the uncertainty surrounding the matter, it
is not possible to predict what impact, if any, it may have in the future on
the Company's disposal facilities, particularly WTI's trash-to-energy
facilities.
WTI's Gloucester County, New Jersey, facility relies on a disposal franchise
for substantially all of its supply of municipal solid waste. On May 1, 1997,
the Third Circuit Court of Appeals ("Third Circuit") permanently enjoined the
State of New Jersey from enforcing its franchise system as a form of
unconstitutional solid waste flow control, but stayed the injunction for so
long as any appeals were pending. On November 10, 1997, the U.S. Supreme Court
announced its decision not to review the Third Circuit decision, thereby
ending the stay and, arguably, the facility's disposal franchise. The State
had continued to enforce flow control during the stay period. In light of the
current circumstances, the facility has lowered its prices and solicited new
customers. Under the reimbursement agreement between the project company that
owns the Gloucester facility and the bank that provides credit support to the
project, the termination of the waste franchise constitutes an event of
default. WTI and the credit support bank are presently disputing the
consequences of these developments.
The New Jersey legislature has been considering various alternative
solutions, including a bill that provides for the payment and recovery of
bonded indebtedness incurred by counties, public authorities and certain
qualified private vendors in reliance on the State's franchise system. WTI
currently believes that, through either legislative action or a project
recapitalization, the Gloucester project can be restructured to operate, in
the absence of regulatory flow control, at a level of profitability which will
not result in a material adverse impact on consolidated results.
Within the next several years, the air pollution control systems at certain
trash-to-energy facilities owned or leased by WTI will be required to be
modified to comply with more stringent air pollution control standards adopted
by the United States Environmental Protection Agency in December 1995 for
municipal waste combusters. The compliance dates will vary by facility, but
all affected facilities will be required to be in compliance with the new
rules by the end of the year 2000. Currently available technologies will be
adequate to meet the new standards. The total capital expenditures required
for such modifications are estimated to be in the $180-$220 million range. The
impacted facilities long-term waste supply agreements generally require that
customers pay, based on tonnage delivered, their proportionate share of
incremental capital, financing, and operating costs resulting from changes in
environmental regulations. Customer shares of capital and financing costs are
typically recovered over the remaining life of the waste supply agreements.
Pro rata operating costs are recovered in the period incurred. The Company
currently expects to recover approximately two-thirds of the incremental
expenditures incurred to comply with these stricter air emission standards.
As the states and the U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market power sales agreements
entered into pursuant to the Public Utilities Regulatory Policies Act of 1978
("PURPA") should be voidable as "stranded assets." WTI's power production
facilities are qualifying facilities under PURPA and depend on the sanctity of
their power sales agreements for their economic viability. WTI believes that
federal law offers strong protections to its PURPA contracts, and recent state
and federal agency and court
47
<PAGE>
decisions have unanimously upheld the inviolate nature of these contracts.
While there is a risk that future utility restructurings, court decisions or
legislative or administrative action in this area could have an adverse effect
on its business, the Company currently believes such risk is remote.
In the ordinary course of conducting its business, the Company becomes
involved in lawsuits, administrative proceedings and governmental
investigations, including antitrust and environmental matters and commercial
disputes. Some of these proceedings may result in fines, penalties or
judgments being assessed against the Company which, from time to time, may
have an impact on earnings for a particular quarter or year. The Company
believes it has adequately provided for such matters in its financial
statements and does not believe that their outcome, individually or in the
aggregate, will have a material adverse impact on its business or financial
condition.
In November and December 1997, several alleged purchasers of the Company's
stock brought purported class action lawsuits against the Company and several
of its current and former officers in the United States District Court for the
Northern District of Illinois. Each of the lawsuits asserts that the
defendants violated the federal securities laws by issuing allegedly false and
misleading statements in 1996 and 1997 about the Company's financial condition
and results of operations. Among other things, the plaintiffs allege that the
Company employed accounting practices that were improper and that caused its
publicly-filed financial statements to be materially false and misleading. The
lawsuits demand, among other relief, unspecified monetary damages, attorneys'
fees, and the costs of conducting the litigation. The Company intends to
defend itself vigorously in this litigation. In January 1998, the fourteen
purported class actions were consolidated before one judge in the Northern
District of Illinois. Plaintiffs have until May 1998 to file a consolidated
amended complaint. It is not possible at this time to predict the impact this
litigation may have on the Company, although it is reasonably possible that
the outcome may have a materially adverse impact on its financial condition or
results of operations in one or more future periods.
The Company is also aware that the Securities and Exchange Commission has
commenced a formal investigation with respect to the Company's previously
filed financial statements and related accounting policies, procedures and
system of internal controls. The Company intends to cooperate with such
investigation. The Company is unable to predict the outcome or impact of this
investigation at this time.
A lawsuit by an alleged Company stockholder purporting to represent a class
of the Company's stockholders has been filed in the Chancery Court in and for
New Castle County, Delaware (although the Company has not yet been served)
against the Company and the members of its Board of Directors alleging
breaches of fiduciary duty by the defendants in connection with the Merger.
The lawsuit seeks, among other things, to have the transaction enjoined and to
recover unspecified damages. The Company believes the suit to be without merit
and intends to contest it vigorously.
WM International operates facilities in Hong Kong which are owned by the
Hong Kong government. The Hong Kong economy has been impacted by the economic
uncertainty associated with many of the countries in the region. High and
volatile interest rates have resulted from speculation regarding its currency.
In addition to Hong Kong, WM International has operations in Indonesia and
Thailand. These countries have experienced illiquidity, volatile currency
exchange rates and interest rates, and reduced economic activity. WM
International, and therefore the Company, will be affected for the foreseeable
future by economic conditions in this region, although it is not possible to
determine the extent of such impact. At December 31, 1997, WM International
had a net investment of $107.5 million in these countries. Pretax income from
Hong Kong was $25.7 million in 1997. Income from Indonesia and Thailand has
not been significant to date.
OUTLOOK
The Company believes that its current strategy and the actions it has taken
during 1997 and and thus far in 1998 position it for long-term growth and
improved profitability in a rapidly changing waste services market. However, a
number of challenges remain. Continued moderate economic growth is expected to
result in
48
<PAGE>
relatively modest levels of solid waste volume growth and increasing
competition limits pricing opportunities somewhat. WTI has no new trash-to-
energy plants expected to come on-stream in the near future, and two of its
facilities will be negatively impacted by the renewal of existing contracts at
lower prices in 1998. The North American hazardous waste industry remains
depressed. Divestiture of discontinued and non-core businesses and
monetization of other assets must be completed, thereby allowing capital to be
redeployed.
The Company is responding to these challenges with increased management
focus on its core waste management services business, improved productivity
through improved management practices and the use of technology, and greater
emphasis on generating cash and controlling capital expenditures. Management
has also adopted economic value added ("EVA(R)") as a key performance
measurement to guide its operations management to improve returns on invested
capital.
The Company expects during 1998 that moderate revenue growth in the solid
waste business will be more than offset by divestitures, declines in hazardous
waste revenues and reduced pricing on two of WTI's long-term contracts. Cost
reduction efforts will be more than offset by increases in depreciation and
amortization expense, costs to implement key initiatives such as strategic
sourcing, fleet management and information systems, and costs associated with
the completion of the accounting review and related matters.
For 1998, the Company expects its capital expenditures, exclusive of
acquisitions to increase to $1.2 billion as it accelerates the purchasing of
new collection vehicles in connection with its new fleet management strategy
and as it invests in new information systems to improve its financial,
administrative, marketing, sales and customer service processes. While the
decision to change its fleet management strategy will increase expenditures
for new collection vehicles by approximately $150 million in 1998 and $200
million in 1999, the Company anticipates maintenance and operating savings in
1999 and beyond of $20 million to $40 million per year.
The Company will continue to seek to improve returns by leveraging its
network of assets and will also seek to enhance its position in current
markets with acquisitions that complement existing operations and resources.
At the same time, the Company will continue to dispose of non-core and non-
integrated businesses where returns are not satisfactory.
FORWARD-LOOKING INFORMATION.
Except for historical data, the information herein constitutes forward-
looking statements. Forward-looking statements are inherently uncertain and
subject to risks. Such statements should be viewed with caution. Actual
results or experience could differ materially from the forward-looking
statements as a result of many factors, including failure of the Company to
complete the Merger with USA Waste, failure to achieve timely the cost savings
anticipated by the parties as a result of the Merger, changes in the price of
recyclable commodities, severe weather conditions, slowing of the overall
economy, higher interest rates, market risk associated with derivatives,
failure of the Company's restructuring plans to produce the cost savings
anticipated, the inability to complete the divestiture of discontinued
businesses or the monetization of other assets at appropriate prices and
terms. The Company makes no commitment to disclose any revisions to forward-
looking statements, or any facts, events or circumstances after the date
hereof, that may bear upon forward-looking statements.
49
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For an analysis of the Company's market risk, see "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Results of
Operations" set forth above in Item 7.
50
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.Consolidated Financial Statements
Report of Independent Public Accountants................................ 53
Consolidated Balance Sheets as of December 31, 1995, 1996 and 1997...... 54
Consolidated Statements of Income for each of the four years ended
December 31, 1997...................................................... 56
Consolidated Statements of Cash Flows for each of the four years ended
December 31, 1997...................................................... 57
Consolidated Statements of Stockholders' Equity for each of the four
years ended December 31, 1997.......................................... 58
Notes to Consolidated Financial Statements.............................. 62
2.Schedule
</TABLE>
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts (as Restated).............. 127
</TABLE>
51
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Waste Management, Inc.:
We have audited the accompanying consolidated balance sheets of Waste
Management, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1997, 1996 and 1995, and the related consolidated statements of income, cash
flows and stockholders' equity for each of the four years in the period ended
December 31, 1997 (1996 and prior as restated--See Note 2). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waste Management, Inc. and
subsidiaries as of December 31, 1997, 1996 and 1995, and the results of their
operations and their cash flows for each of the four years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1995, the Company changed its method of accounting for capitalized
interest on landfill cell construction and effective January 1, 1997, the
Company changed its method of accounting for environmental remediation
liabilities.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II (1996 and prior as
restated) listed in the index of financial statements is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 24, 1998 (except with respect to the matters discussed in Note 19, as
to which the date is March 17, 1998).
53
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995, 1996 AND 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESTATED
------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............. $ 169,541 $ 323,288 $ 132,811
Short-term investments................ 12,156 319,338 59,296
Accounts receivable, less reserve of
$67,927 in 1995, $52,847 in 1996 and
$51,805 in 1997...................... 1,623,563 1,650,719 1,539,413
Employee receivables.................. 8,496 10,084 7,817
Parts and supplies.................... 143,527 135,417 119,039
Costs and estimated earnings in excess
of billings on uncompleted contracts. 242,675 240,531 158,610
Prepaid expenses...................... 120,344 119,273 128,520
----------- ----------- -----------
Total Current Assets................ $ 2,320,302 $ 2,798,650 $ 2,145,506
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land, primarily disposal sites........ $ 4,202,829 $ 4,583,699 $ 3,811,887
Buildings............................. 1,532,475 1,485,045 1,327,179
Vehicles and equipment................ 7,115,078 7,454,460 6,572,424
Leasehold improvements................ 84,854 85,431 77,202
----------- ----------- -----------
$12,935,236 $13,608,635 $11,788,692
Less-Accumulated depreciation and
amortization......................... (4,119,397) (4,810,235) (4,534,543)
----------- ----------- -----------
Total Property and Equipment, Net... $ 8,815,839 $ 8,798,400 $ 7,254,149
----------- ----------- -----------
OTHER ASSETS
Intangible assets relating to acquired
businesses, net...................... $ 3,892,355 $ 3,871,919 $ 3,198,374
Net assets of continuing businesses
and surplus real estate held for
sale................................. 235,354 227,351 154,384
Sundry, including other investments... 1,575,337 1,387,257 836,685
Net assets of discontinued operations. 617,972 -- --
----------- ----------- -----------
Total Other Assets.................. $ 6,321,018 $ 5,486,527 $ 4,189,443
----------- ----------- -----------
Total Assets...................... $17,457,159 $17,083,577 $13,589,098
=========== =========== ===========
</TABLE>
54
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
AS OF DECEMBER 31, 1995, 1996 AND 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESTATED
------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Portion of long-term debt payable
within one year...................... $ 1,088,033 $ 553,493 $ 1,548,465
Accounts payable...................... 999,164 951,491 758,047
Accrued expenses...................... 1,076,017 1,362,048 1,652,314
Unearned revenue...................... 204,166 212,541 233,579
----------- ----------- -----------
Total Current Liabilities........... $ 3,367,380 $ 3,079,573 $ 4,192,405
----------- ----------- -----------
DEFERRED ITEMS
Income taxes.......................... $ 549,682 $ 562,906 $ 212,869
Environmental liabilities............. 750,703 673,492 840,378
Other................................. 714,252 723,112 808,556
----------- ----------- -----------
Total Deferred Items................ $ 2,014,637 $ 1,959,510 $ 1,861,803
----------- ----------- -----------
LONG-TERM DEBT, less portion payable
within one year........................ $ 6,390,041 $ 6,971,607 $ 5,078,557
----------- ----------- -----------
NET LIABILITIES OF DISCONTINUED OPERA-
TIONS.................................. $ -- $ 57,874 $ --
----------- ----------- -----------
MINORITY INTEREST IN SUBSIDIARIES....... $ 1,380,496 $ 1,177,463 $ 1,110,681
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
PUT OPTIONS............................. $ 261,959 $ 95,789 $ --
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value
(issuable in series); 50,000,000
shares authorized; none outstanding
during the years..................... $ -- $ -- $ --
Common stock, $1 par value;
1,500,000,000 shares authorized;
498,817,093 shares issued in 1995 and
507,101,774 in 1996 and 1997......... 498,817 507,102 507,102
Additional paid-in capital............ 438,816 887,026 932,253
Cumulative translation adjustment..... (102,943) (79,213) (239,319)
Retained earnings..................... 3,582,861 3,228,346 1,735,371
----------- ----------- -----------
$ 4,417,551 $ 4,543,261 $ 2,935,407
Less-Treasury stock; 12,782,864 shares
in 1996 and 41,177,630 in 1997, at
cost................................. -- 419,871 1,271,885
1988 Employee Stock Ownership Plan.. 13,062 6,396 --
Employee Stock Benefit Trust
(11,769,788 shares in 1995 and
10,886,361 in 1996 and 1997, at
market)............................ 350,151 353,807 299,375
Minimum pension liability........... 11,692 18,885 7,393
Restricted stock unearned
compensation....................... -- 2,541 11,102
----------- ----------- -----------
Total Stockholders' Equity.......... $ 4,042,646 $ 3,741,761 $ 1,345,652
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity............. $17,457,159 $17,083,577 $13,589,098
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
55
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESTATED
----------------------------------
1994 1995 1996 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE....................... $8,537,883 $9,100,225 $9,225,636 $ 9,188,582
---------- ---------- ---------- -----------
Operating expenses.......... $6,027,979 $6,514,932 $6,660,766 $ 7,195,376
Special charges............. -- 335,587 370,735 145,990
Asset impairment loss....... 33,970 53,772 64,729 1,480,262
Selling and administrative
expenses................... 1,062,363 1,091,747 1,095,459 1,129,237
Interest expense............ 350,220 463,861 462,424 446,888
Interest income............. (42,793) (34,883) (27,904) (37,580)
Minority interest........... 126,042 81,367 41,289 45,442
(Income) loss from
continuing operations held
for sale, net of minority
interest................... (24,143) (25,110) (315) 9,930
Sundry income, net.......... (109,903) (252,695) (102,014) (173,290)
---------- ---------- ---------- -----------
Income (loss) from
continuing operations
before income taxes........ $1,114,148 $ 871,647 $ 660,467 $(1,053,673)
Provision for income taxes.. 512,683 451,741 436,473 215,667
---------- ---------- ---------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS................... $ 601,465 $ 419,906 $ 223,994 $(1,269,340)
---------- ---------- ---------- -----------
Discontinued Operations:
Income from operations, less
applicable income taxes and
minority interest of
$45,031 in 1994, $9,125 in
1995 and $17,490 in 1996... $ 27,324 $ 38,686 $ 22,620 $ --
Income (loss) on disposal or
from reserve adjustment,
net of applicable income
taxes and minority interest
of ($3,005) in 1995,
($18,640) in 1996 and
$100,842 in 1997........... -- (33,823) (285,921) 95,688
---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAOR-
DINARY ITEM AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNT-
ING PRINCIPLES............... $ 628,789 $ 424,769 $ (39,307) $(1,173,652)
---------- ---------- ---------- -----------
Extraordinary loss on
refinancing of debt, net of
tax benefit and minority
interest of $767............. $ -- $ -- $ -- $ (516)
Cumulative effect of changes
in accounting principles, net
of tax
benefit of $819 in 1994,
$48,147 in 1995 and $1,100 in
1997......................... (1,281) (84,672) -- (1,936)
---------- ---------- ---------- -----------
NET INCOME (LOSS)............. $ 627,508 $ 340,097 $ (39,307) $(1,176,104)
========== ========== ========== ===========
AVERAGE COMMON SHARES OUT-
STANDING..................... 483,748 485,346 489,171 466,601
========== ========== ========== ===========
EARNINGS (LOSS) PER SHARE:
Basic--
Continuing operations....... $ 1.24 $ 0.86 $ 0.46 $ (2.72)
Discontinued operations..... 0.06 0.01 (0.54) 0.20
Extraordinary item.......... -- -- -- --
Cumulative effect of changes
in accounting principles... -- (0.17) -- --
---------- ---------- ---------- -----------
NET INCOME (LOSS)......... $ 1.30 $ 0.70 $ (0.08) $ (2.52)
========== ========== ========== ===========
Diluted--
Continuing operations....... $ 1.24 $ 0.86 $ 0.46 $ (2.72)
Discontinued operations..... 0.06 0.01 (0.54) 0.20
Extraordinary item.......... -- -- -- --
Cumulative effect of changes
in accounting principles... -- (0.17) -- --
---------- ---------- ---------- -----------
NET INCOME (LOSS)......... $ 1.30 $ 0.70 $ (0.08) $ (2.52)
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
56
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
RESTATED
-------------------------------------
1994 1995 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) for the
year..................... $ 627,508 $ 340,097 $ (39,307) $(1,176,104)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............. 996,407 1,035,018 1,065,683 1,080,105
Provision for deferred
income taxes............. 204,400 114,000 196,500 (405,100)
Undistributed earnings of
equity investees......... (48,200) 1,500 (34,200) 8,000
Minority interest in
subsidiaries............. 148,783 81,789 42,111 44,687
Interest on Liquid Yield
Option Notes and
Subordinated Notes....... 33,551 23,021 22,343 20,682
Contribution to 1988
Employee Stock Ownership
Plan..................... 7,930 6,667 6,666 6,396
Special charges........... -- 335,587 370,735 145,990
Asset impairment loss..... 33,970 53,772 64,729 1,480,262
Extraordinary item........ -- -- -- 516
Cumulative effect of
changes in accounting
principles............... 1,281 84,672 -- 1,936
Loss (income) on disposal
of discontinued
operations or reserve
adjustments, net of tax
and minority interest.... -- 33,823 285,921 (95,688)
(Gain) on disposition of
business and assets...... (25,100) (168,875) (30,086) (180,293)
Changes in assets and
liabilities, excluding
effects of acquired or
divested companies:
Receivables, net.......... (119,785) 60,817 (1,718) 57,922
Other current assets...... (57,509) 23,412 5,747 62,602
Sundry other assets....... (43,116) (71,766) (132,311) 127,125
Accounts payable.......... 182,874 39,669 (61,268) (165,829)
Accrued expenses and
unearned revenue......... 32,363 (76,398) 11,923 529,763
Deferred items............ (298,097) 84,301 (185,532) 11,587
Other, net................ 57,163 (52,535) 52,092 48,446
----------- ----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES...... $ 1,734,423 $ 1,948,571 $ 1,640,028 $ 1,603,005
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Short-term investments.... $ 2,755 $ 17,804 $ 1,170 $ (53,569)
Capital expenditures...... (1,440,238) (1,340,261) (1,063,552) (879,545)
Proceeds from asset
monetization program..... 287,046 165,716 752,345 1,375,206
Cost of acquisitions, net
of cash acquired......... (197,201) (224,304) (104,778) (51,360)
Other investments......... (26,246) (50,119) (16,372) (8,877)
Acquisition of minority
interests................ (57,865) (170,854) (342,034) (104,165)
----------- ----------- ----------- -----------
NET CASH OBTAINED FROM
(USED FOR) INVESTING
ACTIVITIES................ $(1,431,749) $(1,602,018) $ (773,221) $ 277,690
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Cash dividends............ $ (290,266) $ (291,421) $ (308,265) $ (309,577)
Proceeds from issuance of
indebtedness............. 1,710,586 1,803,383 2,907,544 1,105,427
Repayments of
indebtedness............. (1,752,552) (1,860,451) (2,933,632) (1,967,048)
Proceeds from exercise of
stock options, net....... 7,970 14,132 65,766 41,220
Contributions from
minority interests....... 22,169 24,394 10,242 --
Other distributions to
minority stockholders by
affiliated companies..... -- -- -- (36,341)
Stock repurchases......... -- -- (473,560) (903,248)
Proceeds from sales of put
options.................. 29,965 21,622 18,845 --
Settlement of put options. -- (12,019) -- (1,605)
----------- ----------- ----------- -----------
NET CASH USED FOR FINANCING
ACTIVITIES................ $ (272,128) $ (300,360) $ (713,060) $(2,071,172)
----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents. $ 30,546 $ 46,193 $ 153,747 $ (190,477)
Cash and cash equivalents
at beginning of year...... 92,802 123,348 169,541 323,288
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of year............ $ 123,348 $ 169,541 $ 323,288 $ 132,811
=========== =========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest, net of amounts
capitalized.............. $ 307,257 $ 439,323 $ 402,321 $ 428,531
Income taxes, net of
refunds received......... 241,657 283,165 326,679 344,188
Supplemental schedule of
noncash investing and
financing activities:
LYONs converted into
common stock of the
Company.................. 1,594 2,598 2,176 659
Liabilities assumed in
acquisitions of
businesses............... 225,723 219,285 114,897 23,356
Fair market value of
Company and subsidiary
stock issued for acquired
businesses............... 4,773 66,172 236,001 2,696
Exchange of interest in
ServiceMaster Consumer
Services L.P............. -- 467,000 -- --
Subordinated Notes issued
for acquisition of CWM
minority interest........ $ -- $ 436,830 $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
57
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK CAPITAL ADJUSTMENT
-------- ---------- -----------
<S> <C> <C> <C>
Balance, January 1, 1994, as previously
reported...................................... $496,217 $668,470 $(245,587)
Cumulative effect of prior period adjustments.. -- 14,117 --
-------- -------- ---------
Balance, January 1, 1994, as restated.......... $496,217 $682,587 $(245,587)
-------- -------- ---------
Net income for the year (restated)............ $ -- $ -- $ --
Cash dividends ($.60 per share)............... -- -- --
Dividends paid to Employee Stock Benefit
Trust........................................ -- 5,617 --
Common stock issued upon exercise of stock
options...................................... -- (5,948) --
Treasury stock received in connection with
exercise of stock options.................... -- -- --
Tax benefit of non-qualified stock options
exercised.................................... -- 1,527 --
Contribution of 1988 ESOP (375,312 shares).... -- -- --
Treasury stock received as settlement for
claims....................................... -- -- --
Common stock issued upon conversion of LYONs.. 96 1,442 --
Common stock issued for acquisitions.......... 74 1,471 --
Temporary equity related to put options....... -- (252,328) --
Proceeds from sale of put options............. -- 29,965 --
Sale of shares to Employee Stock Benefit Trust
(12,601,609 shares).......................... -- (106,327) --
Adjustment of Employee Stock Benefit Trust to
market value................................. -- 16,064 --
Adjustment for minimum pension liability...... -- -- --
Transfer of equity interests among controlled
subsidiaries................................. -- (2,803) --
Cumulative translation adjustment of foreign
currency statements.......................... -- -- 94,755
-------- -------- ---------
Balance, December 31, 1994, as restated........ $496,387 $371,267 $(150,832)
-------- -------- ---------
Net income for the year (restated)............ $ -- $ -- $ --
Cash dividends ($.60 per share)............... -- -- --
Dividends paid to Employee Stock Benefit
Trust........................................ -- 7,207 --
Common stock issued upon exercise of stock
options...................................... 44 (4,405) --
Treasury stock received in connection with
exercise of stock options.................... -- -- --
Tax benefit of non-qualified stock options
exercised.................................... -- 2,049 --
Contribution of 1988 ESOP (322,508 shares).... -- -- --
Treasury stock received as settlement for
claims....................................... -- -- --
Common stock issued upon conversion of LYONs.. 150 2,448 --
Common stock issued for acquisitions.......... 2,236 15,768 --
Temporary equity related to put options....... -- (9,631) --
Proceeds from sale of put options............. -- 21,622 --
Settlement of put options..................... -- (12,019) --
Common stock purchased through nonqualified
deferred compensation plan................... -- 38 --
Adjustment of Employee Stock Benefit Trust to
market value................................. -- 43,943 --
Adjustment for minimum pension liability...... -- -- --
Transfer of equity interests among controlled
subsidiaries................................. -- 529 --
Cumulative translation adjustment of foreign
currency statements.......................... -- -- 47,889
-------- -------- ---------
Balance, December 31, 1995, as restated........ $498,817 $438,816 $(102,943)
-------- -------- ---------
</TABLE>
58
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1988 EMPLOYEE EMPLOYEE MINIMUM RESTRICTED STOCK
RETAINED TREASURY STOCK STOCK PENSION UNEARNED
EARNINGS STOCK OWNERSHIP PLAN BENEFIT TRUST LIABILITY COMPENSATION
- ---------- -------- -------------- ------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$3,693,108 $425,097 $27,659 $ -- $ -- $--
(483,341) -- -- -- 8,085 --
- ---------- -------- ------- -------- ------- ---
$3,209,767 $425,097 $27,659 $ -- $ 8,085 $--
- ---------- -------- ------- -------- ------- ---
$ 627,508 $ -- $ -- $ -- $ -- $--
(290,266) -- -- -- -- --
(5,617) -- -- -- -- --
-- (8,250) -- (5,928) -- --
-- 260 -- -- -- --
-- -- -- -- -- --
-- -- (7,930) -- -- --
-- 2,741 -- -- -- --
-- (56) -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- (419,792) -- 313,465 -- --
-- -- -- 16,064 -- --
-- -- -- -- (350) --
-- -- -- -- -- --
-- -- -- -- -- --
- ---------- -------- ------- -------- ------- ---
$3,541,392 $ -- $19,729 $323,601 $ 7,735 $--
- ---------- -------- ------- -------- ------- ---
$ 340,097 $ -- $ -- $ -- $ -- $--
(291,421) -- -- -- -- --
(7,207) -- -- -- -- --
-- (1,763) -- (17,393) -- --
-- 663 -- -- -- --
-- -- -- -- -- --
-- -- (6,667) -- -- --
-- 1,100 -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- 43,943 -- --
-- -- -- -- 3,957 --
-- -- -- -- -- --
-- -- -- -- -- --
- ---------- -------- ------- -------- ------- ---
$3,582,861 $ -- $13,062 $350,151 $11,692 $--
- ---------- -------- ------- -------- ------- ---
</TABLE>
The accompanying notes are an integral part of these statements.
59
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK CAPITAL ADJUSTMENT
-------- ---------- -----------
<S> <C> <C> <C>
Balance, January 1, 1996, as restated.......... $498,817 $438,816 $(102,943)
-------- -------- ---------
Net (loss) for the year (restated)............ $ -- $ -- $ --
Cash dividends ($.63 per share)............... -- -- --
Dividends paid to Employee Stock Benefit
Trust........................................ -- 6,943 --
Common stock repurchase (14,390,000 shares)... -- -- --
Common stock issued upon exercise of stock
options and grants of restricted stock....... 217 (10,938) --
Treasury stock received in connection with
exercise of stock options.................... -- -- --
Tax benefit of non-qualified stock options
exercised.................................... -- 6,859 --
Unearned compensation related to issuance of
restricted stock to employees................ -- -- --
Earned compensation related to restricted
stock (net of reversals on forfeited shares). -- -- --
Contribution to 1988 ESOP (307,041 shares).... -- -- --
Treasury stock received as settlement for
claims....................................... -- -- --
Common stock issued upon conversion of LYONs.. 111 1,905 --
Common stock issued for acquisitions.......... 7,957 219,867 --
Temporary equity related to put options....... -- 166,170 --
Proceeds from sale of put options............. -- 18,845 --
Common stock purchased through nonqualified
deferred compensation plan................... -- 6,281 --
Adjustment of Employee Stock Benefit Trust to
market value................................. -- 32,278 --
Adjustment for minimum pension liability...... -- -- --
Cumulative translation adjustment of foreign
currency statements.......................... -- -- 23,730
-------- -------- ---------
Balance, December 31, 1996, as restated........ $507,102 $887,026 $ (79,213)
-------- -------- ---------
Net (loss) for the year....................... $ -- $ -- $ --
Cash dividends ($.67 per share)............... -- -- --
Dividends paid to Employee Stock Benefit
Trust........................................ -- 7,294 --
Common stock repurchase (30,000,000 shares)... -- -- --
Common stock issued upon exercise of stock
options and grants of restricted stock....... -- (6,051) --
Compensation paid with stock options.......... -- 701 --
Tax benefit of non-qualified stock options
exercised.................................... -- 2,741 --
Unearned compensation related to issuance of
restricted stock to employees................ -- -- --
Earned compensation related to restricted
stock (net of reversals on forfeited shares). -- -- --
Reversal of unearned compensation upon
cancellation of restricted stock............. -- -- --
Contribution to 1988 ESOP (295,089 shares).... -- -- --
Treasury stock received as settlement for
claims....................................... -- -- --
Common stock issued upon conversion of LYONs.. -- (324) --
Common stock issued for acquisitions.......... -- (1,057) --
Temporary equity related to put options....... -- 95,789 --
Settlement of put options..................... -- (1,605) --
Common stock purchased through nonqualified
deferred compensation plan................... -- 2,171 --
Adjustment of Employee Stock Benefit Trust to
market value................................. -- (54,432) --
Adjustment for minimum pension liability...... -- -- --
Cumulative translation adjustment of foreign
currency statements.......................... -- -- (160,106)
-------- -------- ---------
Balance, December 31, 1997..................... $507,102 $932,253 $(239,319)
-------- -------- ---------
</TABLE>
60
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
FOR THE FOUR YEARS ENDED DECEMBER 31, 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1988 EMPLOYEE EMPLOYEE MINIMUM RESTRICTED STOCK
RETAINED TREASURY STOCK STOCK PENSION UNEARNED
EARNINGS STOCK OWNERSHIP PLAN BENEFIT TRUST LIABILITY COMPENSATION
- ----------- ---------- -------------- ------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$3,582,861 $ -- $13,062 $350,151 $11,692 $ --
- ----------- ---------- ------- -------- ------- -------
$ (39,307) $ -- $ -- $ -- $ -- $ --
(308,265) -- -- -- -- --
(6,943) -- -- -- -- --
-- 473,560 -- -- -- --
-- (53,323) -- (28,622) -- --
-- 5,458 -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- 2,640
-- -- -- -- -- (99)
-- -- (6,666) -- -- --
-- 2,513 -- -- -- --
-- (160) -- -- -- --
-- (8,177) -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- 32,278 -- --
-- -- -- -- 7,193 --
-- -- -- -- -- --
- ----------- ---------- ------- -------- ------- -------
$ 3,228,346 $ 419,871 $ 6,396 $353,807 $18,885 $ 2,541
- ----------- ---------- ------- -------- ------- -------
$(1,176,104) $ -- $ -- $ -- $ -- $ --
(309,577) -- -- -- -- --
(7,294) -- -- -- -- --
-- 903,248 -- -- -- --
-- (47,271) -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- 23,444
-- -- -- -- -- (2,357)
-- -- -- -- -- (12,526)
-- -- (6,396) -- -- --
-- 773 -- -- -- --
-- (983) -- -- -- --
-- (3,753) -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- (54,432) -- --
-- -- -- -- (11,492) --
-- -- -- -- -- --
- ----------- ---------- ------- -------- ------- -------
$1,735,371 $1,271,885 $ -- $299,375 $ 7,393 $11,102
- ----------- ---------- ------- -------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
61
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE NOTED)
NOTE 1. BUSINESS AND FINANCIAL STATEMENTS
Waste Management, Inc. (formerly WMX Technologies, Inc.) and its
subsidiaries ("Waste Management" or the "Company") provide waste management
and related services to governmental, residential, commercial, and industrial
customers in the United States and in select international markets. The
Company previously provided process engineering and construction, specialty
contracting and industrial scaffolding services through its Rust International
Inc. ("Rust") subsidiary, water process systems, equipment manufacturing and
water and wastewater facility operations and privatization services through
its Wheelabrator Technologies Inc. ("WTI") subsidiary. As of December 31,
1997, WTI and Rust had sold all of these businesses, and accordingly they are
classified as discontinued operations in the accompanying financial
statements. The Company now operates in only the waste management services
industry. See Note 14 for details of certain financial information by
geographic area.
The accompanying financial statements are prepared on a consolidated basis
and include the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Certain of the
Company's subsidiaries are restricted as to payment of dividends to the
Company. However, the Company has access to the net assets of such
subsidiaries through intercompany loans and advances.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Future events could alter such
estimates in the near term.
NOTE 2. RESTATEMENT AND RECLASSIFICATION
The Company has restated and reclassified its financial statements for each
of the three years ended December 31, 1996. The cumulative after-tax effect
for periods prior to January 1, 1994, has been reflected as a charge to
beginning retained earnings in the Consolidated Statements of Stockholders'
Equity. Unaudited quarterly financial data for the years 1995 and 1996 and the
first three quarters of 1997, as shown in Note 20, has also been restated and
reclassified. Except as otherwise stated herein, all information presented in
the Consolidated Financial Statements and related notes includes all such
restatements and reclassifications.
As a result of a comprehensive review begun in the third quarter of 1997,
the Company determined that certain items of expense were incorrectly reported
in previously issued financial statements. These principally relate to
vehicle, equipment and container depreciation expense, capitalized interest
and income taxes. With respect to depreciation, the Company determined that
incorrect vehicle and container salvage values had been used, and errors had
been made in the expense calculations. The Company also concluded that
capitalized interest relating to landfill construction projects had been
misstated. On January 1, 1995, the Company changed its accounting for
capitalized interest (see "Capitalized Interest"), but the cumulative "catch-
up" charge was not properly recorded in the 1995 financial statements, and
errors were made in applying the new method in subsequent years. Capitalized
interest for 1995, 1996 and the first three quarters of 1997 has accordingly
been restated.
The prior period restatements also include earlier recognition of certain
asset value impairments (primarily related to land, landfill and recycling
investments) and of environmental liabilities (primarily related to
remediation and landfill closure and post-closure expense accruals including
restatement of purchase accounting). The reduction of the special charge in
1996 is due primarily to the reversal of software impairment charges which
were recorded prematurely.
62
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the restatements by category is as follows:
<TABLE>
<CAPTION>
CUMULATIVE RESTATEMENTS
THROUGH DECEMBER 31,
1996
-----------------------
(IN MILLIONS)
<S> <C>
Vehicle, equipment and container depreciation
expense......................................... $ 509
Capitalized interest............................. 192
Environmental and closure/post-closure costs and
reserves........................................ 173
Purchase accounting related to remediation
reserves........................................ 128
Asset impairment losses.......................... 214
Software impairment charges...................... (85)
Other, including minority interest............... 301
------
Total pretax................................... $1,432
Tax effects on above items including income tax
reserve adjustments............................. (297)
------
$1,135
======
</TABLE>
In the fourth quarter of 1997, the Company reclassified the results of
certain Rust business units to continuing operations held for sale. These
businesses had previously been reported as discontinued operations. Accounting
standards require such reclassification because divestiture did not occur
within one year from the date the businesses were initially reported as
discontinued operations.
63
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also reclassified certain items of income and expense in
previously issued financial statements. The primary effect of such
reclassification is to increase various expense categories by amounts which
had been offset against gains in sundry income. Such reclassifications, which
did not change net income, affected various line items within the Consolidated
Statements of Income.
The effect of such reclassifications, and the restatements discussed above,
on the income statement line items, is shown in the following table:
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED RECLASSIFICATIONS RESTATEMENTS RESTATED
------------- ----------------- ------------ --------
<S> <C> <C> <C> <C>
1994
Revenue................. $8,482.7 $ 55.2 $ -- $8,537.9
-------- ------ ------- --------
Operating expenses...... $5,827.6 $ 42.2 $ 158.2 $6,028.0
Asset impairment loss... -- -- 34.0 34.0
Selling and administra-
tive expenses.......... 997.2 51.6 13.5 1,062.3
Interest, net........... 300.3 1.4 5.7 307.4
Minority interest....... 127.0 6.5 (7.5) 126.0
(Income) loss from con-
tinuing operations held
for sale............... -- (24.1) -- (24.1)
Sundry income, net...... (64.4) (51.0) 5.5 (109.9)
Provision for income
taxes.................. 552.6 13.9 (53.8) 512.7
(Income) loss from dis-
continued operations... (42.0) 14.7 -- (27.3)
Cumulative effect of
changes in accounting
principles............. -- -- 1.3 1.3
-------- ------ ------- --------
Net Income.......... $ 784.4 $ -- $(156.9) $ 627.5
======== ====== ======= ========
1995
Revenue................. $9,053.0 $ 47.2 $ -- $9,100.2
-------- ------ ------- --------
Operating expenses...... $6,220.9 $162.1 $ 131.9 $6,514.9
Special charge.......... 335.2 -- 0.4 335.6
Asset impairment loss... -- -- 53.8 53.8
Selling and administra-
tive expenses.......... 1,004.9 102.9 (16.1) 1,091.7
Interest, net........... 384.7 13.2 31.1 429.0
Minority interest....... 81.9 (4.3) 3.8 81.4
(Income) loss from con-
tinuing operations held
for sale............... -- (25.1) -- (25.1)
Sundry income, net...... (76.5) (172.5) (3.7) (252.7)
Provision for income
taxes.................. 483.7 8.9 (40.9) 451.7
(Income) loss from dis-
continued operations... 14.3 (38.0) 18.8 (4.9)
Cumulative effect of
changes in accounting
principles............. -- -- 84.7 84.7
-------- ------ ------- --------
Net Income.......... $ 603.9 $ -- $(263.8) $ 340.1
======== ====== ======= ========
1996
Revenue................. $9,187.0 $ 38.6 $ -- $9,225.6
-------- ------ ------- --------
Operating expenses...... $6,372.8 $ 7.8 $ 280.2 $6,660.8
Special charge.......... 471.6 -- (100.9) 370.7
Asset impairment loss... -- -- 64.7 64.7
Selling and administra-
tive expenses.......... 979.2 45.9 70.4 1,095.5
Interest, net........... 348.1 51.0 35.4 434.5
Minority interest....... 57.6 0.9 (17.2) 41.3
(Income) loss from con-
tinuing operations held
for sale............... -- (0.3) -- (0.3)
Sundry income, net...... (85.2) (56.0) 39.1 (102.1)
Provision for income
taxes.................. 565.1 (9.9) (118.7) 436.5
(Income) loss from dis-
continued operations... 285.7 (0.8) (21.6) 263.3
-------- ------ ------- --------
Net Income (loss)... $ 192.1 $ -- $(231.4) $ (39.3)
======== ====== ======= ========
</TABLE>
64
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These restatements increased (decreased) previously reported results and
earnings per share as shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations before income tax-
es................................................. $(180.8) $(230.3) $(382.4)
Provision for income taxes.......................... 39.9 32.0 128.6
------- ------- -------
Income from continuing operations................... $(140.9) $(198.3) $(253.8)
Discontinued operations............................. ( 14.7) 19.2 22.4
Cumulative effect of accounting change.............. (1.3) (84.7) --
------- ------- -------
Net income.......................................... $(156.9) $(263.8) $(231.4)
======= ======= =======
Earnings per share--
Basic--
Continuing operations............................. $ (0.29) $ (0.41) $ (0.52)
Discontinued operations........................... (0.03) 0.04 0.04
Accounting change................................. -- (0.17) --
------- ------- -------
Net income...................................... $ (0.32) $ (0.54) $ (0.48)
======= ======= =======
Diluted--
Continuing operations............................. $ (0.29) $ (0.39) $ (0.51)
Discontinued operations........................... (0.03) 0.04 0.03
Accounting change................................. -- (0.17) --
------- ------- -------
Net income...................................... $ (0.32) $ (0.52) $ (0.48)
======= ======= =======
</TABLE>
65
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SUMMARY OF ACCOUNTING POLICIES
Revenue Recognition. The Company is primarily in a service business and
recognizes revenue when services are performed. Results from long-term
contracts are recorded on the percentage-of-completion basis with losses
recognized in full when identified. Changes in project performance and
conditions, estimated profitability and final contract settlements may result
in future revisions to long-term contract costs and income.
Foreign Currency. The functional currency of the majority of the Company's
foreign subsidiaries is the local currency of the country in which the
subsidiary operates. Accordingly, such subsidiaries' assets and liabilities
are translated at the rates of exchange at the balance sheet date while income
statement accounts are translated at the average exchange rates in effect
during the period. The resulting translation difference is charged or credited
directly to stockholders' equity, as revenues, expenses and cash flows of the
subsidiaries are primarily in their local currencies. Foreign exchange
transaction losses (income) (net of related income taxes and minority
interest) of $3.3 million, $2.2 million, $ 0.3 million and ($0.9) million are
included in the Consolidated Statements of Income for 1994, 1995, 1996, and
1997, respectively.
Cash Equivalents. All highly liquid investments with maturities of three
months or less at date of purchase are considered to be cash equivalents.
Short-Term Investments. As part of its cash management program, the Company
from time-to-time maintains a portfolio of marketable investment securities
($12.2 million, $11.0 million and $3.0 million at December 31, 1995, 1996 and
1997, respectively). The securities have an investment grade of not less than
A and a term to earliest maturity generally of less than one year, and include
tax exempt securities, certificates of deposit and Euro-dollar time deposits.
These securities are carried at cost.
Short-term investments also include investments classified as "trading,"
which are carried at market price with unrealized gains and losses included in
Sundry Income. At December 31, 1996, this category included the shares of
Wessex Water Plc ("Wessex") (see Note 15). At December 31, 1997, this category
included certain other equity securities classified as "trading" as well as a
price collar related to such investment. These securities were delivered in
1998 in exchange for the cap price of the collar. See Note 7.
Environmental Liabilities. The Company provides for estimated closure and
post-closure monitoring costs over the operating life of disposal sites as
airspace is consumed. The Company has also established procedures to evaluate
potential remedial liabilities at closed sites which it owns or operated, or
to which it transported waste, including 89 sites listed on the Superfund
National Priority List ("NPL"). When the Company concludes that it is probable
that a liability has been incurred, provision is made in the financial
statements, based upon management's judgment and prior experience, for the
Company's best estimate of the liability. Such estimates are subsequently
revised as deemed necessary as additional information becomes available. See
Note 8 for additional information.
Contracts in Process. Information with respect to contracts in process
(which relate primarily to contracts involving a substantial construction
component) at December 31, 1995, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Costs and estimated earnings on uncompleted
contracts....................................... $1,176.6 $1,192.2 $1,511.7
Less: Billing on uncompleted contracts........... (952.8) (979.9) (1,374.1)
-------- -------- --------
Total contracts in process..................... $ 223.8 $ 212.3 $ 137.6
======== ======== ========
</TABLE>
66
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Contracts in process are included in the Consolidated Balance Sheets under
the following captions:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $242.7 $240.5 $158.6
Billings in excess of costs and estimated earnings on
uncompleted contracts (included in unearned revenue).. (18.9) (28.2) (21.0)
------ ------ ------
Total contracts in process........................... $223.8 $212.3 $137.6
====== ====== ======
</TABLE>
All contracts in process are expected to be billed and collected within five
years.
Accounts receivable includes retainage which has been billed, but which is
not due pursuant to contract provisions until completion. Such retainage at
December 31, 1997, is $5.3 million, including $1.1 million that is expected to
be collected after one year. Retainage was $8.0 million at December 31, 1996,
and $12.8 million at December 31, 1995.
Property and Equipment. Property and equipment (including major repairs and
improvements) are capitalized and stated at cost. Items of an ordinary
maintenance or repair nature are charged directly to operations. Disposal
sites are carried at cost and to the extent the land component exceeds end use
realizable value, such excess is amortized over the estimated life of the
disposal site. Disposal site improvement costs are capitalized and charged to
operations over the shorter of the estimated usable life of the site or the
improvement.
Preparation costs for individual secure land disposal cells are recorded as
land improvements. Cell costs are amortized as the airspace is filled.
Significant costs capitalized for such cells include excavation and grading
costs, costs relating to the design and construction of liner systems, and gas
collection and leachate collection systems.
Depreciation and Amortization. The cost, less estimated salvage value for
certain types of assets, of property and equipment had been depreciated over
the following estimated useful lives on the straight-line method: buildings,
10 - 40 years; heavy collection vehicles, 10 - 12 years; other vehicles, 3 - 6
years; rolloff containers, 20 years; other containers, 15 years; machinery and
equipment, 3 - 20 years; leasehold improvements, over the life of the
applicable lease.
Effective October 1, 1997, the Board of Directors approved a management
recommendation to revise the Company's North American collection fleet
management policy. Front-end loaders will be replaced after 8 years, and rear-
end loaders and rolloff trucks after 10 years. The previous policy was to not
replace front-end loaders before they were a minimum of 10 years old and other
heavy collection vehicles before they were a minimum of 12 years old. As a
result of this decision, the Company recognized an impairment writedown of
$70.9 million in the fourth quarter of 1997 for those vehicles scheduled for
replacement in the next two years under the new policy (see Note 16).
Depreciable lives have been adjusted commencing in the fourth quarter of 1997
to reflect the new policy. Also effective October 1, 1997, the Company reduced
depreciable lives on containers from 15 and 20 years to 12 years, and ceased
assigning salvage value in computing depreciation on North American collection
vehicles or containers. These changes in estimates increased depreciation
expense by $33.7 million in the fourth quarter of 1997.
Also effective October 1, 1997, the Company changed its process for
estimating landfill lives. The Company now amortizes landfill costs over
estimated landfill capacity which includes permitted landfill airspace plus
expansions which are probable of being obtained in the next five years. The
Company's prior practice was to consider likely future expansions in the
amortization calculations, whether or not the permits were expected to be
obtained within the next five years. Factors in determining probable
expansions on a site-by-site basis include secured rights to required land,
status of legal, environmental, regulatory and political issues, and the
extent to which the permit application process has proceeded. This change in
estimate increased depreciation and amortization by $12.7 million and the
provision for closure and post-closure by $3.1 million in the fourth quarter
of 1997, and resulted in estimated landfill capacity declining from 2.9
billion cubic yards to 1.8 billion cubic yards.
67
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets. Intangible assets relating to acquired businesses consist
primarily of the cost of purchased businesses in excess of market value of net
assets acquired ("goodwill"). Such goodwill is amortized on a straight-line
basis over a period of not more than forty years. The accumulated amortization
of intangible assets amounted to $582.9 million, $685.8 million and $670.7
million as of December 31, 1995, 1996 and 1997, respectively.
On an ongoing basis, the Company measures realizability of goodwill by the
ability of acquired businesses to generate current and expected future after-
tax operating income in excess of annual amortization. If such realizability
is in doubt, an adjustment is made to reduce the carrying value of the
goodwill.
Capitalized Interest. Interest has been capitalized on significant
landfills, trash-to-energy plants and other projects under construction.
Amounts capitalized and netted against Interest Expense in the Consolidated
Statements of Income were $105.9 million in 1994, $43.9 million in 1995, $35.6
million in 1996, and $26.0 million in 1997.
Effective January 1, 1995, the Company changed its method of capitalizing
interest on landfill cells. Previously, interest was capitalized using a
method that allocated construction costs incurred to airspace on a total
landfill basis. The new method uses as a base for interest capitalization the
discrete construction activities related to each cell and results in less
interest being capitalized. In a landfill disposal services market
characterized by substantial price competition and minimal anticipated volume
growth, the new method reduces the risk of an asset impairment in the future.
The change reduced 1995 net income from continuing operations by $20.0 million
or approximately $0.04 per share. The unaudited proforma effect of this change
to a preferable method, on 1994 and 1995 had the change been made as of
January 1, 1994, and excluding the cumulative effect of the accounting change,
is shown in the following table:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------- -------------
1994 1995 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income from continuing operations.................. $601.5 $419.9 $581.5 $419.9
Net Income......................................... 627.5 340.1 607.5 424.8
Earnings per share--
Basic
Income from continuing operations................ $ 1.24 $ 0.86 $ 1.20 $ 0.86
Net income....................................... 1.30 0.70 1.26 0.87
Diluted
Income from continuing operations................ $ 1.24 $ 0.86 $ 1.20 $ 0.86
Net Income....................................... 1.30 0.70 1.26 0.87
</TABLE>
Self-Insurance. The Company self-insures for auto, general liability and
workers' compensation claims up to $5 million per claim. Provision is made in
each accounting period for estimated losses, including losses incurred but not
reported, and related reserves are adjusted as additional claim information
becomes available. Claim reserves are discounted at 6%, 7% and 6% at December
31, 1995, 1996 and 1997, respectively, based on historical payment patterns.
The self-insurance reserve included in the accompanying balance sheet was
$151.7 million, $188.0 million and $226.7 million at December 31, 1995, 1996
and 1997, respectively.
In the fourth quarter of 1997, the Company modified its self-insurance
reserve determination technique. The revised loss projection process improves
the estimation of future growth in claims. This change in estimate resulted in
a $56 million pre-tax charge.
Derivative Financial Instruments. In the normal course of business, the
Company enters into a variety of derivative financial instruments to manage
currency, interest rate, commodity (fuel) and equity price risk. See Note 7 to
Consolidated Financial Statements for a description of these financial
instruments and the methods of accounting for them.
68
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting Principles. Effective January 1, 1994, the Company adopted FAS
No. 112, "Employers' Accounting for Postemployment Benefits." The change
reduced 1994 net income by $1.3 million.
Effective January 1, 1995, the Company changed its method of capitalizing
interest on landfill cell construction. See "Capitalized Interest." The
cumulative effect of this change reduced 1995 net income by $84.7 million.
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Impairments recorded prior to 1996 followed a methodology consistent with
FAS No. 121, and accordingly the adoption of this statement did not have a
material impact on the financial statements.
FAS No. 123, "Accounting for Stock-Based Compensation," also became
effective in 1996. However, FAS No. 123 permitted compensation to continue to
be accounted for under Accounting Principles Board Opinion No. 25, and the
Company elected to follow this alternative. See Note 9.
Effective January 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." SOP 96-1 provides that environmental
remediation liabilities should be accrued when the criteria of FAS No. 5,
"Accounting for Contingencies," are met. It also provides that the accrual for
such liabilities should include future costs for those employees expected to
devote a significant amount of time directly to the management of remediation
liabilities. The adoption of SOP 96-1 reduced 1997 pretax income by $49.9
million.
In the fourth quarter of 1997, the Company began expensing process
reengineering costs (including $3.0 million previously capitalized) in
accordance with Emerging Issues Task Force consensus 97-13, reducing 1997 net
income by $1.9 million.
Also in 1997, the Company began presenting earnings per share in accordance
with FAS No. 128. See Note 11 for further discussion.
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income," and FAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." Both statements are effective for
fiscal years beginning after December 15, 1997, although FAS No. 131 does not
apply to the Company's interim financial statements until 1999. FAS No. 130
requires only a different format for presentation of information already
included in the Company's financial statements. FAS No. 131 modifies the basis
for determining segments and expands required segment disclosure, but does not
affect accounting principles and, accordingly, will not require any change to
reported financial position, results of operations or cash flows. The Company
is currently evaluating the impact of FAS No. 131 on its segment reporting.
69
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INCOME TAXES
The following tables set forth income from continuing operations before
income taxes, showing domestic and international sources, and the income tax
provision showing the components by governmental taxing authority, for the
years 1994 through 1997.
Income (Loss) From Continuing Operations Before Income Taxes
<TABLE>
<CAPTION>
1994 1995 1996 1997
-------- ------ ------ ---------
<S> <C> <C> <C> <C>
Domestic..................................... $ 952.5 $882.1 $654.9 $(1,153.3)
International................................ 161.6 (10.5) 5.6 99.6
-------- ------ ------ ---------
$1,114.1 $871.6 $660.5 $(1,053.7)
======== ====== ====== =========
Income Tax Provision (Benefit)
Current tax expense
U.S. federal............................... $ 230.1 $248.2 $172.3 $ 476.7
State and local............................ 52.6 54.2 50.2 67.1
Foreign.................................... 25.6 35.3 17.5 77.0
-------- ------ ------ ---------
Total current............................ $ 308.3 $337.7 $240.0 $ 620.8
-------- ------ ------ ---------
Deferred tax expense
U.S. federal............................... $ 145.4 $112.6 $ 96.8 $ (371.5)
State and local............................ 16.9 19.9 23.7 (26.4)
Foreign.................................... 42.1 (18.5) 76.0 (7.2)
-------- ------ ------ ---------
Total deferred........................... $ 204.4 $114.0 $196.5 $ (405.1)
-------- ------ ------ ---------
Total provision.......................... $ 512.7 $451.7 $436.5 $ 215.7
======== ====== ====== =========
</TABLE>
The federal statutory tax rate is reconciled to the effective tax rate as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
----- ----- ----- ------
<S> <C> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate... 35.00% 35.00% 35.00% (35.00)%
U.S. state and local taxes, net of federal
benefit......................................... 4.05 5.53 7.27 2.50
Non-deductible goodwill.......................... 2.66 4.09 8.50 18.15
Writedown of investments in subsidiary........... 0.25 -- 8.98 4.04
Minority interests............................... 4.68 4.42 3.89 0.91
Deferred tax valuation and other tax reserves.... (0.40) 3.82 0.89 25.25
Gain on sale of foreign subsidiary............... -- -- 2.65 --
Other............................................ (0.22) (1.03) (1.09) 4.62
----- ----- ----- ------
46.02% 51.83% 66.09% 20.47%
===== ===== ===== ======
</TABLE>
The increased impact of non-deductible goodwill on the 1997 consolidated tax
provision is attributable to the asset impairment losses discussed in Note 16.
As a result of the 1997 comprehensive review, the Company increased deferred
tax valuation allowances and other tax reserves.
70
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes result from the recognition in different periods of
revenue and expense for tax and financial statement purposes. The primary
deferred tax (assets) liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1996 1997
--------- -------- ---------
<S> <C> <C> <C>
Deferred tax assets
Reserves not deductible until paid........... $ (651.9) $ (599.7) $ (708.2)
Deferred revenue............................. (28.5) (20.3) (14.0)
Net operating losses and tax credit
carryforwards............................... (266.9) (233.0) (193.7)
Basis difference due to land writedowns...... (24.4) (26.4) (99.1)
Other........................................ (79.9) (85.3) (113.7)
--------- -------- ---------
Subtotal..................................... $(1,051.6) $ (964.7) $(1,128.7)
--------- -------- ---------
Deferred tax liabilities
Depreciation and amortization................ $ 1,076.3 $1,036.9 $ 850.9
Other........................................ 398.9 384.6 281.9
--------- -------- ---------
Subtotal................................... $ 1,475.2 $1,421.5 $ 1,132.8
--------- -------- ---------
Valuation allowance............................ $ 126.1 $ 106.1 $ 208.8
--------- -------- ---------
Net deferred tax liabilities................... $ 549.7 $ 562.9 $ 212.9
========= ======== =========
</TABLE>
The Company's subsidiaries have approximately $13.0 million of alternative
minimum tax credit carryforwards that may be used indefinitely and capital
loss carryforwards of approximately $52.7 million with expiration dates
through 2002. Various subsidiaries have U.S. federal and foreign operating
loss carryforwards of approximately $514 million and state operating loss
carryforwards of approximately $601 million. Foreign operating losses of $481
million may be carried forward indefinitely; the remaining loss carryforwards
have expiration dates through the year 2012. Valuation allowances have been
established for uncertainties in realizing the benefits of tax loss and credit
carryforwards. While the Company expects to realize the deferred tax assets in
excess of the valuation allowances, changes in estimates of future taxable
income or in tax laws could alter this expectation. During 1995, the valuation
allowance increased, primarily for the uncertainty of realizing foreign
operating loss carryforwards. The valuation allowance decreased in 1996 by
approximately $20 million due primarily to the realization of capital loss
carryforwards and adjustments for certain operating loss carryforwards
previously estimated to be unrealizable. In 1997, the valuation allowance
increased approximately $102.7 million, composed of increases to allowances
due to the uncertainty of realizing alternative minimum tax credits, tax
benefits from certain asset impairment writedowns (primarily land), foreign
tax credits, and net operating loss carryforwards, partially offset by
reductions in allowances attributable primarily to foreign net operating loss
carryforwards.
The Company has concluded that its foreign business requires that the
undistributed earnings of its foreign subsidiaries be reinvested indefinitely
outside the United States. If the reinvested earnings were to be remitted, the
U.S. income taxes due under current tax law would not be material.
NOTE 5. BUSINESS ACQUISITIONS AND DIVESTITURES
In 1994, the Company and its principal subsidiaries acquired 119 businesses
for $197.2 million in cash and notes, $17.3 million of debt assumed, 73,809
shares of Company common stock and 156,124 shares of WTI common stock.
During 1995, 136 businesses were acquired for $224.3 million in cash and
notes, $77.7 million of debt assumed, and 2.2 million shares of the Company's
common stock.
In 1996, 83 businesses were acquired for $104.8 million in cash and notes,
$39.4 million of debt assumed, and 8.2 million shares of the Company's common
stock.
71
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, 45 businesses were acquired for $51.4 million in cash and
notes, assumed debt of $17.6 million, and 121,551 shares of the Company's
common stock.
Three of the 1995 acquisitions, which otherwise met pooling of interests
criteria, were not significant in the aggregate and, consequently, prior
period financial statements were not restated. The remaining acquisitions were
accounted for as purchases. The pro forma effect of the acquisitions made
during the four years was not material.
In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of CWM that it did not already own for $436.8 million of
convertible subordinated notes. See Note 6 for additional information. In July
1995, the Company acquired all of the approximately 3.1 million shares of Rust
held by the public, for $16.35 per share in cash.
During 1997, the Company divested 24 solid waste operations in North America
for a total price of $288.9 million. The largest of these transactions was the
sale of most of its Canadian operations. Its Waste Management International
plc ("WM International") subsidiary sold substantially all of its remaining
operations in France for approximately $112 million, and its business in Spain
for approximately $16.3 million, and entered into an agreement for the sale
(completed in January 1998) of its Hamm, Germany waste-to-energy plant for
approximately $137.0 million.
In June 1997, the Company announced an offer to acquire, for $15 per share
in cash, all of the approximately 53 million outstanding shares of WTI it does
not already own. The price was increased to $16.50 per share pursuant to a
definitive merger agreement subsequently negotiated with a special committee
of independent WTI directors. The terms of the agreement have been approved by
the WTI special committee and by the Boards of Directors of the Company and
WTI, but the transaction remains subject to the approval of the holders of a
majority of WTI's outstanding shares, other than those held by the Company,
voting on it at a special meeting of WTI stockholders to be held March 30,
1998. Several lawsuits have been filed which seek, among other things, to
enjoin the proposed transaction. The Company believes that it has met the
legal standards applicable to transactions of this type and intends to
vigorously defend itself in these lawsuits.
72
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. DEBT
The details relating to debt (including capitalized leases, which are not
material) as of December 31, 1995, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Commercial Paper weighted average interest 5.7% in
1995, 5.8% in 1996 and 6.1% in 1997................ $1,119.4 $ 645.9 $ 356.3
Tailored Rate ESOP Notes, weighted average interest
4.74% in 1995 and 4.58% in 1996.................... 20.0 20.0 --
Notes and debentures, interest 6% to 8.75%, due
1998-2026.......................................... 3,583.3 4,083.3 4,133.3
Solid waste disposal revenue bonds, interest 4.15%
to 7.15%, due 1998-2013............................ 251.1 240.0 274.6
Installment loans and notes payable, interest 5.34%
to 10.6%, due 1998-2020............................ 1,197.8 1,137.1 518.9
Project debt, interest 3.95% to 10.64%, due 1998-
2018............................................... 735.6 833.8 829.0
Other long-term borrowings.......................... 31.5 30.2 20.5
Liquid Yield Option Notes, zero coupon-subordinated,
interest 9%, due 2001 ("LYONS").................... 8.9 7.4 7.4
Liquid Yield Option Notes, zero coupon-subordinated,
interest 6%, due 2012 ("Exchangeable LYONs")....... 54.0 53.4 9.5
Liquid Yield Option Notes, zero coupon-subordinated,
interest 6%, due 2010 ("CWM LYONs")................ 36.8 29.3 27.4
Subordinated Notes, interest 5.75%, due 2005
("Subordinated Notes")............................. 439.6 444.7 450.2
-------- -------- --------
Total debt.......................................... $7,478.0 $7,525.1 $6,627.1
Less--current portion............................... 1,088.0 553.5 1,548.5
-------- -------- --------
Long-term portion................................... $6,390.0 $6,971.6 $5,078.6
======== ======== ========
</TABLE>
The long-term debt as of December 31, 1997, is due as follows:
<TABLE>
<S> <C>
Second year..................................................... $ 434.7
Third year...................................................... 743.2
Fourth year..................................................... 511.3
Fifth year...................................................... 644.4
Sixth year and thereafter....................................... 2,745.0
--------
$5,078.6
========
</TABLE>
The LYONs, Exchangeable LYONs and CWM LYONs are redeemable at the option of
the holders on each June 30 until maturity, and the Exchangeable LYONs and the
CWM LYONs at the option of the Company at any time, at the issue price plus
accrued original issue discount to the date of redemption ($764.31, $429.86
and $474.09 per security, respectively, at December 31, 1997). Each LYON is
convertible into 34.88 shares of the Company's common stock at any time. The
Exchangeable LYONs and CWM LYONs are convertible as discussed below.
In the Company's acquisition in 1995 of the outstanding CWM shares it did
not already own, the CWM public stockholders received a Subordinated Note,
with a principal amount at maturity of $1,000, for every 81.1 CWM shares held,
with cash paid in lieu of issuance of fractional notes. The notes are
subordinated to all existing and future senior indebtedness of Waste
Management. Each note bears cash interest at the rate of two percent per annum
of the $1,000 principal amount at maturity, payable semi-annually. The
difference between the principal amount at maturity of $1,000 and the $717.80
stated issue price of each note represents the stated discount. At the option
of the holder, each note will be purchased for cash by Waste Management on
March 15,
73
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1998, and March 15, 2000, at prices of $789.95 and $843.03, respectively.
Accrued unpaid interest to those dates will also be paid. The notes will be
callable by Waste Management on and after March 15, 2000, for cash, at the
stated issue price plus accrued stated discount and accrued but unpaid
interest through the date of redemption. In addition, each note is convertible
at any time prior to maturity into 26.078 shares of Waste Management common
stock, subject to adjustment upon the occurrence of certain events. Upon any
such conversion, Waste Management will have the option of paying cash equal to
the market value of the Waste Management shares which would otherwise be
issuable. As of December 31, 1997, there were 549,404 such notes outstanding
with a maturity value amounting to $549.4 million.
In connection with the Company's 1995 acquisition of the publicly held CWM
shares, CWM LYONs and Exchangeable LYONs which had been convertible into or
exchangeable for CWM shares became convertible into the number of notes
discussed in the preceding paragraph to which the holders would have been
entitled had they converted or exchanged the LYONs immediately prior to the
merger approval. As of December 31, 1997, the CWM LYONs and Exchangeable LYONs
were convertible or exchangeable into 8,332 and 4,695 Subordinated Notes,
respectively. Such Subordinated Notes in turn would be convertible into a
total of 339,718 shares of the Company's common stock.
The securities described above and certain of the Company's other debt
instruments are redeemable at the option of the holders prior to maturity and,
accordingly, those which may be redeemed in 1998 are classified as current in
the accompanying financial statements at December 31, 1997. In prior years,
such borrowings were classified as long-term because the Company had committed
credit facilities in place to refinance them.
The Company has in place committed standby trade receivables sale and
revolving credit facilities totaling $800 million with a group of six banks
led by Chase Manhattan Bank (the "Lenders") for general corporate purposes and
to support the Company's commercial paper program. The Lenders are committed
to fund up to $550 million, if requested by the Company, by purchasing
eligible receivables. Additionally, the Company has a $250 million unsecured
revolving credit agreement with the Lenders. Both facilities were put in place
in December 1997 and expire June 30, 1998. The facilities provide for
commitment fees ranging from 18.75 to 37.5 basis points per annum and interest
rates tied to prime or LIBOR plus a margin. Under the terms of the revolving
credit agreement as amended, the Company is required to maintain net worth of
$1.0 billion and consolidated debt (as defined in the agreement) not to exceed
3.5 times earnings (as defined in the agreement) before interest, taxes,
depreciation and amortization for the preceding four calendar quarters. As of
December 31, 1997, the Company was in compliance with such restrictions. The
Company had not obtained any funds under either facility as of February 24,
1998.
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, the Company and certain of its subsidiaries use
derivatives to manage interest rate, currency, commodity (fuel) and equity
price risk. The Company's policy is to use derivatives for risk management
purposes only, and it does not enter into such contracts for trading purposes.
The Company enters into derivatives only with counterparties which are
financial institutions having credit ratings of at least A- or A3, to minimize
credit risk. The amount of derivatives outstanding at any one point in time
and gains or losses from their use have not been and are not expected to be
material to the Company's financial statements.
Instruments used as hedges must be effective at managing risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must have a high degree of inverse correlation with changes in
market values or cash flows of underlying hedged items. Derivatives that meet
the hedge criteria are accounted for under the deferral or accrual method,
except for currency agreements as discussed below. If a derivative does not
meet or ceases to meet the aforementioned criteria, or if the designated
hedged item ceases to exist, then the Company subsequently uses
74
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
fair value accounting for the derivative, with gains or losses included in
sundry income. If a derivative is terminated early, any gain or loss,
including amounts previously deferred, is deferred and amortized over the
remaining life of the terminated contract or until the anticipated transaction
occurs.
Interest Rate Agreements. Certain of the Company's subsidiaries have entered
into interest rate swap agreements to balance fixed and floating rate debt in
accordance with management's criteria. The agreements are contracts to
exchange fixed and floating interest rate payments periodically over a
specified term without the exchange of the underlying notional amounts. The
agreements provide only for the exchange of interest on the notional amounts
at the stated rates, with no multipliers or leverage. Differences paid or
received are accrued in the financial statements as a part of interest expense
on the underlying debt over the life of the agreements and the swap is not
recorded on the balance sheet or marked to market. As of December 31, 1997,
interest rate agreements in notional amounts and with terms as set forth in
the following table were outstanding:
<TABLE>
<CAPTION>
NOTIONAL DURATION OF
CURRENCY AMOUNT RECEIVE PAY AGREEMENTS
-------- ----------- -------- ----- ---------------
<S> <C> <C> <C> <C>
Hong Kong Dollar..................... 100 million Floating Fixed Jan '96-Jul '98
Italian Lira......................... 98 billion Floating Fixed Mar '96-Mar '99
German Deutschemark.................. 150 million Floating Fixed Mar '96-Jan '00
Dutch Guilder........................ 115 million Floating Fixed Nov '96-Jan '00
U. S. Dollar......................... 24 million Floating Fixed Apr '97-Dec '12
</TABLE>
Currency Agreements. From time to time, the Company and certain of its
subsidiaries use foreign currency derivatives to seek to mitigate the impact
of translation on foreign earnings and income from foreign investees.
Typically these have taken the form of purchased put options or collars. The
Company receives or pays, based on the notional amount of the option, the
difference between the average exchange rate of the hedged currency against
the base currency and the average (strike price) contained in the option.
Complex instruments involving multipliers or leverage are not used. Although
the purpose for using such derivatives is to mitigate currency risk, they do
not qualify for hedge accounting under generally accepted accounting
principles and accordingly, must be adjusted to market value at the end of
each accounting period with gains or losses included in sundry income. There
were no currency derivatives of this type outstanding at December 31, 1997.
The Company sometimes also uses foreign currency forward contracts to hedge
committed transactions when the terms of such a transaction are known and
there is a high probability that the transaction will occur. At December 31,
1997, a subsidiary had sold Italian Lira forward for delivery in 1998 to hedge
foreign exchange exposure on a specific transaction. The amount was not
material to the consolidated financial statements, and any gain or loss will
be included in the measurement of the identified transaction.
Commodity Agreements. The Company utilizes derivatives to seek to mitigate
the impact of fluctuations in the price of fuel used by its vehicles.
Quantities hedged do not exceed anticipated fuel purchases in any period.
Gains or losses are recognized in operating expenses, as cost of fuel
purchases, when paid or received. The primary instruments used are collars,
swaps and swaptions. Collars consist of the purchase of call options along
with a corresponding sale of put options at a lower price, with the effect of
establishing a "cap" and a "floor" with respect to the price of specified
quantities of fuel. A swap is an agreement with a counterparty whereby the
Company pays a fixed price and receives a floating price for specified
quantities during a given period. In a swaption, the Company is paid a premium
by the counterparty for the right, but not the obligation, at the end of the
option period (usually 90 to 180 days) to enter into a swap with respect to a
specified quantity in a given period in the future. The following table
summarizes the Company's position in crude oil derivatives at December 31,
1997:
<TABLE>
<CAPTION>
CONTRACT
TYPE QUANTITY PERIOD
---- ---------------- --------
<S> <C> <C>
Collars......................................... 1.2 million bbls 1998
Collars......................................... 2.0 million bbls 1999
Collars......................................... 1.0 million bbls 2000
Swaps........................................... 0.5 million bbls 2000
Swaptions (exercisable in 1998)................. 0.5 million bbls 2000
</TABLE>
75
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Equity Investments. The Company occasionally acquires common stock that it
needs to hold for a period of time. To mitigate its exposure to fluctuations
in the market price of such investments during the holding period, the Company
sometimes enters into hedging arrangements consisting of put options or
collars. Changes in the intrinsic value of such instruments are recorded in
stockholders' equity if the underlying stock is classified as "available for
sale" and in sundry income if it is classified as "trading." The offsetting
change in the value of the derivative is included in short term investments on
the balance sheet. At December 31, 1997, the Company had outstanding a collar,
which expired in 1998, on an investment in a publicly traded equity security.
The market price of the security was in excess of the cap value of the collar
at both December 31 and upon expiration, and accordingly, the Company
delivered the shares in exchange for the cap price, with no gain or loss
recognized in 1998.
See Note 10 for a discussion of the Company's sale of put options in
connection with its authorized stock repurchase program.
NOTE 8. ENVIRONMENTAL COSTS AND LIABILITIES
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment. As such, a significant
portion of the Company's operating costs and capital expenditures could be
characterized as costs of environmental protection. Such costs may increase in
the future as a result of legislation or regulation, however, the Company
believes that in general it tends to benefit when environmental regulation
increases, which may increase the demand for its services, and that it has the
resources and experience to manage environmental risk.
As part of its ongoing operations, the Company provides for estimated
closure and post-closure monitoring costs over the estimated operating life of
disposal sites as airspace is consumed. Such costs for U.S. landfills are
estimated based on the technical requirements of the Subtitle C and D
regulations of the U.S. Environmental Protection Agency or the applicable
state requirements, whichever are stricter, and include such items as final
cap and cover on the site, methane gas and leachate management, and
groundwater monitoring. Such costs for foreign landfills are estimated based
on compliance with local laws, regulations and customs.
The Company has also established procedures to evaluate its potential
remedial liabilities at closed sites which it owns or operated, or to which it
transported waste, including 89 sites listed on the NPL. The majority of
situations involving NPL sites relate to allegations that subsidiaries of the
Company (or their predecessors) transported waste to the facilities in
question, often prior to the acquisition of such subsidiaries by the Company.
The Company routinely reviews and evaluates sites requiring remediation,
including NPL sites, giving consideration to the nature (e.g., owner,
operator, transporter, or generator), and the extent (e.g., amount and nature
of waste hauled to the location, number of years of site operation by the
Company, or other relevant factors) of the Company's alleged connection with
the site, the accuracy and strength of evidence connecting the Company to the
location, the number, connection and financial ability of other named and
unnamed potentially responsible parties ("PRPs"), and the nature and estimated
cost of the likely remedy. Cost estimates are based on management's judgment
and experience in remediating such sites for the Company as well as for
unrelated parties, information available from regulatory agencies as to costs
of remediation, and the number, financial resources and relative degree of
responsibility of other PRPs who are jointly and severally liable for
remediation of a specific site, as well as the typical allocation of costs
among PRPs. These estimates are sometimes a range of possible outcomes. In
such cases, the Company provides for the amount within the range which
constitutes its best estimate. If no amount within the range appears to be a
better estimate than any other amount, then the Company provides for the
minimum amount within the range in accordance with FAS No. 5. The Company
believes that it is "reasonably possible," as that term is defined in FAS No.
5 ("more than remote but less than likely"), that its potential liability, at
the high end of such ranges, would be approximately $201.9 million higher
76
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
on a discounted basis in the aggregate than the estimate that has been
recorded in the financial statements as of December 31, 1997.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of
remediation require a number of assumptions and are inherently difficult, and
the ultimate outcome may differ from current estimates. However, the Company
believes that its extensive experience in the environmental services business,
as well as its involvement with a large number of sites, provides a reasonable
basis for estimating its aggregate liability. As additional information
becomes available, estimates are adjusted as necessary. While the Company does
not anticipate that any such adjustment would be material to its financial
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies, the existence
and ability of other potentially responsible third parties to contribute to
the settlements of such liabilities, or other factors could necessitate the
recording of additional liabilities which could be material.
Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated at 3% until expected
time of payment and then discounted to present value at 6% (7% at December 31,
1995 and 1996). The portion of the Company's recorded environmental
liabilities that is not inflated or discounted was $440.9 million, $358.5
million and $344.7 million at December 31, 1995, 1996 and 1997, respectively.
Had the Company not discounted any portion of its liability, the amount
recorded would have been increased by approximately $368 million at December
31, 1997.
As of December 31, the Company's liabilities for closure, post-closure
monitoring and environmental remediation costs were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current portion, included in accrued expenses....... $ 140.3 $ 123.9 $ 127.2
Non-current portion................................. 750.7 673.5 840.4
-------- -------- --------
Total recorded.................................... $ 891.0 $ 797.4 $ 967.6
Amount to be provided over remaining life of active
sites, including discount of $332 million in 1995,
$305 million in 1996 and $368 million in 1997
related to recorded amounts........................ 2,817.2 2,666.4 1,919.9
-------- -------- --------
Expected aggregate undiscounted environmental
liabilities........................................ $3,708.2 $3,463.8 $2,887.5
======== ======== ========
</TABLE>
The decline between 1996 and 1997 in the expected aggregate undiscounted
amount is primarily due to a reduction in estimated airspace (see Note 3),
which correspondingly reduces closure and post-closure costs.
Anticipated payments of environmental liabilities at December 31, 1997, are
as follows:
<TABLE>
<S> <C>
1998............................................................. $ 127.2
1999............................................................. 153.5
2000............................................................. 121.7
2001............................................................. 115.0
2002............................................................. 91.3
Thereafter....................................................... 2,278.8
--------
Total.......................................................... $2,887.5
========
</TABLE>
77
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to the amounts above, at certain sites the Company has perpetual
care obligations aggregating $657,000 per year beginning in 2027.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including
purported class actions, on the basis of a Company subsidiary's having owned,
operated or transported waste to a disposal facility which is alleged to have
contaminated the environment or, in certain cases, conducted environmental
remediation activities at such sites. While the Company believes it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to a number of factors, and it is possible such
matters could have a material adverse impact on the Company's earnings for one
or more quarters or years.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. Carriers involved in these matters have typically denied
coverage and are defending against the Company's claims. While the Company is
vigorously pursuing such claims, it regularly considers settlement
opportunities when appropriate terms are offered. Settlements to date ($50.1
million in 1994, $38.2 million in 1995, $60.3 million in 1996, and $94.3
million in 1997) have been included in operating expenses as an offset to
environmental expenses.
NOTE 9. STOCK OPTIONS
The Company has two stock option plans currently in effect under which
future grants may be issued: the 1997 Waste Management, Inc. Equity Incentive
Plan (the "1997 Plan") and the 1992 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). The plans provide for accelerated vesting
upon a "change in control" of the Company as defined in the plans.
Options granted under the 1997 Plan are generally exercisable in three equal
cumulative installments beginning one year after the date of grant. Options
granted under the Directors' Plan become exercisable in five equal annual
installments beginning six months after the date of grant.
Under the 1997 Plan, non-qualified stock options may be granted at a price
not less than 100% of the market value on the date of grant, for a term of not
more than ten years. Twenty-three million shares of the Company's common stock
were initially reserved for issuance under this plan.
Pursuant to the Directors' Plan, 150,000 shares of the Company's common
stock were initially reserved. Options for a total of 15,000 shares are to be
granted, in five equal annual installments commencing with election to the
Board, to each person who is not an officer or full-time employee of the
Company or any of its subsidiaries.
As part of the acquisitions of the CWM and Rust shares not previously owned
by the Company, as discussed in Note 5, outstanding CWM stock options were
converted into options to acquire approximately 2,873,000 Company shares at a
weighted-average price of $34.90 per share and outstanding Rust stock options
were converted into options to acquire approximately 1,976,000 Company shares
at a weighted-average price of $30.26 per share.
78
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The status of the plans, including predecessor plans, replacement plans and
similar plans for employees generally (together "Prior Plans") under which
options remain outstanding, during the four years ended December 31, 1997, was
as follows (shares in thousands):
<TABLE>
<CAPTION>
1994 1995 1996 1997
---------------- ---------------- ---------------- ----------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 11,682 $33.63 13,811 $32.24 19,629 $32.04 20,170 $32.33
Granted................. 3,729 26.49 3,117 27.29 4,106 31.90 6,203 31.19
Exercised............... 462 17.77 721 20.47 2,614 25.96 1,138 26.61
Canceled:
Prior plans............ 1,138 33.54 1,427 32.76 1,466 33.63 1,176 36.88
Current plans.......... -- -- -- -- -- -- 2,061 33.01
Additional shares
available for future
grant.................. 6,000 -- -- -- 515 -- 23,000 --
Converted CWM, Rust and
other stock options.... -- -- 4,849 33.01 515 18.07 -- --
Shares no longer
available for future
grant.................. -- -- 2,914 -- -- -- -- --
Outstanding at end of
year................... 13,811 32.24 19,629 32.04 20,170 32.33 21,998 31.99
Options exercisable at
end of year............ 7,210 33.77 9,860 33.57 12,577 33.87 15,055 32.78
Options available for
future grant........... 15,290 -- 4,726 -- 1,044 -- 18,789 --
Weighted average fair
value of options
granted (disclosure not
applicable for 1994) .. -- N/A -- $ 9.60 -- $10.53 -- $10.23
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- ----------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- ------------------------ ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$15.71-$17.16.................... 78 5.2 years $16.18 75 $16.19
21.39- 29.87.................... 5,990 6.0 years 26.74 4,940 26.65
30.05- 39.27.................... 13,950 6.6 years 32.51 8,061 33.72
$40.10-$61.03.................... 1,980 3.2 years 44.90 1,979 44.89
------ ------
21,998 6.1 years $31.99 15,055 $32.78
====== ======
</TABLE>
As permitted by FAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to continue to account for its employee stock option plans
under Accounting Principles Board Opinion No. 25. Accordingly, no compensation
cost has been recognized for grants of stock options. Had compensation cost
been determined under FAS No. 123, the Company's net income and income per
share would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Net income (loss)-
As reported........................................ $340.1 $(39.3) $(1,176.1)
Proforma........................................... 336.1 (50.4) (1,194.3)
Basic income (loss) per share-
As reported........................................ $ 0.70 $(0.08) $ (2.52)
Proforma........................................... 0.69 (0.10) (2.57)
Diluted income (loss) per share-
As reported........................................ $ 0.70 $(0.08) $ (2.52)
Proforma........................................... 0.69 (0.10) (2.57)
</TABLE>
79
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Because FAS No. 123 has not been applied to options granted prior to January
1, 1995, this proforma disclosure may not be indicative of future results.
The fair value of options granted is estimated at the date of grant using an
option pricing model substantially equivalent to the Black-Scholes model with
the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate.................................... 7.19% 6.25% 6.71%
Dividend yield............................................. 2% 2% 2%
Expected volatility........................................ 25.17% 25.17% 25.17%
Expected life in years..................................... 7 7 7
</TABLE>
Commencing in 1996, the Company also made grants of restricted stock.
Compensation expense for grants of restricted shares is recognized ratably
over the vesting period (generally five to ten years) and amounted to $0.1
million and $2.4 million in 1996 and 1997, respectively. Unamortized
compensation expense related to grants of restricted stock was $11.1 million
at December 31, 1997.
NOTE 10. CAPITAL STOCK
The Board of Directors has the authority to create and issue up to 50
million shares of $1 par preferred stock at such time or times, in such series
with such designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof
as it may determine. No shares of the preferred stock have been issued.
The Boards of Directors of Waste Management and WTI have authorized their
respective companies to repurchase shares of their own common stock (up to 50
million shares in the case of Waste Management and 30 million shares in the
case WTI) in the open market, in privately negotiated transactions, or through
issuer tender offers. Both authorizations replaced prior common stock
repurchase authorizations. Waste Management repurchased 30 million shares
through a "Dutch auction" tender offer in the second quarter but has not
repurchased any other shares in 1997 and does not expect to conduct any
repurchases in 1998. WTI repurchased 5.1 million shares in the first six
months of 1997 but suspended its repurchase activity following the Waste
Management offer to acquire its remaining public shares.
During 1994 through 1996, the Company sold put options on 42.3 million
shares of its common stock. The put options gave the holders the right at
maturity to require the Company to repurchase shares of its common stock at
specified prices. Proceeds from the sale of put options were credited to
additional paid-in capital. The amount the Company would be obligated to pay
to repurchase shares of its common stock if all outstanding put options were
exercised was reclassified to a temporary equity account. In the event the
options were exercised, the Company had the right to pay the holder in cash
the difference between the strike price and the market price of the Company's
shares, in lieu of repurchasing the stock.
Options on 32.5 million shares expired unexercised, as the price of the
Company's stock was in excess of the strike price at maturity. The Company
repurchased 3.1 million shares of stock at a cost of $107.5 million, and 6.7
million options were settled for cash of $13.6 million. There were no put
options outstanding at December 31, 1997.
80
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. EARNINGS PER SHARE
In February 1997, the FASB issued FAS No. 128, "Earnings Per Share" ("EPS"),
which supersedes Accounting Principles Board Opinion No. 15. Primary EPS is
replaced by Basic EPS, which is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Fully diluted EPS is replaced by Diluted EPS
which gives effect to all dilutive potential common shares. The Company was
required to adopt FAS No. 128 in the fourth quarter of 1997. All prior periods
presented have been restated.
Basic and Diluted (1997 diluted computations not shown as all potentially
issuable common shares are antidilutive) EPS from continuing operations are
computed as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Basic EPS
Income from continuing operations as
reported.................................... $601.5 $419.9 $224.0 $(1,269.3)
Average common shares outstanding............ 483.7 485.3 489.2 466.6
------ ------ ------ ---------
Basic EPS from continuing operations......... $ 1.24 $ 0.86 $ 0.46 $ (2.72)
====== ====== ====== =========
Diluted EPS
Income from continuing operations as
reported.................................... $601.5 $419.9 $224.0
After tax interest on Subordinated Notes and
LYONs....................................... 0.6 9.1 --
------ ------ ------
Adjusted income from continuing operations... $602.1 $429.0 $224.0
------ ------ ------
Average common shares outstanding.............. 483.7 485.3 489.2
Add effect of dilutive securities-
Stock options, unvested restricted stock and
put options................................. 0.4 0.6 0.8
Subordinated Notes........................... -- 14.4 --
LYONs........................................ 0.7 -- --
------ ------ ------
Adjusted average shares.................... 484.8 500.3 490.0
------ ------ ------
Diluted EPS from continuing operations......... $ 1.24 $ 0.86 $ 0.46 $ (2.72)
====== ====== ====== =========
</TABLE>
Common shares potentially issuable upon conversion of CWM LYONs and
Exchangeable LYONs and exercise of stock options with exercise prices greater
than the average price of the Company's stock were not included in the
calculation of Diluted EPS in any year, nor were shares potentially issuable
with respect to Subordinated Notes or LYONs in 1996, because their effect is
antidilutive. In 1997 the Company had a loss from continuing operations and,
accordingly, no adjustment is made to Basic EPS because all potentially
issuable common shares would be antidilutive. At December 31, 1997, there were
37.4 million common shares potentially issuable with respect to stock options,
restricted shares and convertible debt, which could dilute Basic EPS in the
future. During 1997, the Company issued 1.2 million shares upon exercise of
stock options and conversion of debt.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company leases many of its operating and office facilities for various
terms. Rents charged to costs and expenses in the Consolidated Statements of
Income amounted to $177.2 million in 1994, $170.3 million in 1995, $164.5
million in 1996 and $159.7 million in 1997. These amounts include rents under
long-term leases, short-term cancelable leases and rents charged as a
percentage of revenue, but are exclusive of financing leases capitalized for
accounting purposes.
81
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The long-term rental obligations as of December 31, 1997, are due as
follows:
<TABLE>
<S> <C>
First year...................................................... $ 140.4
Second year..................................................... 130.1
Third year...................................................... 121.8
Fourth year..................................................... 111.3
Fifth year...................................................... 100.5
Sixth through tenth years....................................... 438.5
Eleventh year and thereafter.................................... 125.7
--------
$1,168.3
========
</TABLE>
The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and
pollutants. Management believes that the coverage terms, available limits of
liability, and costs currently offered by the insurance market do not
represent sufficient value to warrant the purchase of "non-sudden and
accidental" pollution liability insurance coverage. As such, the Company has
chosen not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage. To satisfy existing government requirements, the
Company has secured non-risk-transfer pollution liability insurance coverage
in amounts believed to be in compliance with federal and state law
requirements for "non-sudden and accidental" pollution. The Company must
reimburse the insurer for losses incurred and covered by this insurance
policy. In the event the Company continues not to purchase risk transfer "non-
sudden and accidental" pollution liability insurance coverage, net income
could be adversely affected in the future if "non-sudden and accidental"
pollution losses should occur.
The Company has issued or is a party to approximately 3,370 bank letters of
credit, performance bonds and other guarantees. Such financial instruments
(averaging approximately $669,000 each), including those provided for
affiliates and not otherwise recorded, are given in the ordinary course of
business. A substantial portion of these performance bonds are issued by a
wholly-owned insurance company subsidiary, the sole business of which is to
issue such bonds to customers of the Company and its subsidiaries.
Approximately $277.7 million (at fair market value) of Company assets have
been contributed to this subsidiary to meet regulatory minimum capital
requirements. Because virtually no claims have been made against these
financial instruments in the past, management does not expect these
instruments will have a material adverse effect on the consolidated financial
position or results of operations of the Company.
During the first quarter of 1995, WM International received an assessment
from the Swedish Tax Authority of approximately 417 million Krona
(approximately $53 million) plus interest from the date of the assessment,
relating to a transaction completed in 1990. WM International believes that
all appropriate tax returns and disclosures were properly filed at the time of
the transaction and intends to vigorously contest the assessment.
A Company subsidiary has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). Although a lower
Court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded
the case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the subsidiary to apply for all governmental permits
needed to remove all waste above the height allowed by the zoning ordinance,
and the Connecticut Supreme Court has upheld that ruling. The Company is
complying with the order of the Superior Court while also seeking an
alternative resolution to this matter. The Company is unable to predict the
outcome of this matter at this time. Depending upon the nature of any plan
eventually approved by applicable regulatory authorities for removing the
waste, the actual volume of waste to be moved, and other currently
unforseeable factors, the subsidiary could incur costs which would have a
material adverse impact on the Company's results of operations in one or more
future periods.
82
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1994, the U.S. Supreme Court ruled that state and local governments
may not constitutionally restrict the free movement of trash in interstate
commerce through the use of regulatory flow control laws. Such laws typically
involve a local government specifying a jurisdictional disposal site for all
solid waste generated within its borders. Since the ruling, several decisions
of state or federal courts have invalidated regulatory flow control schemes in
a number of jurisdictions. Other judicial decisions have upheld non-regulatory
means by which municipalities may effectively control the flow of municipal
solid waste. In addition, federal legislation has been proposed, but not yet
enacted, to effectively grandfather existing flow control mandates. There can
be no assurance that such alternatives to regulatory flow control will in
every case be found to be lawful or that such legislation will be enacted into
law.
The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse affect on any of the Company's operations. In the
event that legislation to effectively grandfather existing flow control
mandates is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling
the flow of waste. However, given the uncertainty surrounding the matter, it
is not possible to predict what impact, if any, it may have in the future on
the Company's disposal facilities, particularly WTI's trash-to-energy
facilities.
WTI's Gloucester County, New Jersey, facility has historically relied on a
disposal franchise for substantially all of its supply of municipal solid
waste. On May 1, 1997, the Third Circuit Court of Appeals ("Third Circuit")
permanently enjoined the State of New Jersey from enforcing its franchise
system as a form of unconstitutional solid waste flow control, but stayed the
injunction for so long as any appeals were pending. On November 10, 1997, the
U.S. Supreme Court announced its decision not to review the Third Circuit
decision, thereby ending the stay and, arguably, the facility's disposal
franchise. The State had continued to enforce flow control during the stay
period. In light of the current circumstances, the facility has lowered its
prices and solicited new customers. Under the reimbursement agreement between
the project company that owns the Gloucester facility and the bank that
provides credit support to the project, the termination of the waste franchise
constitutes an event of default. WTI and the credit support bank are presently
disputing the consequences of these developments.
The New Jersey legislature has been considering various alternative
solutions, including a bill that provides for the payment and recovery of
bonded indebtedness incurred by counties, public authorities and certain
qualified private vendors in reliance on the State's franchise system. WTI
currently believes that, through either legislative action or a project
recapitalization, the Gloucester project can be restructured to operate, in
the absence of regulatory flow control, at a level of profitability which will
not result in a material adverse impact on consolidated results.
Within the next several years, the air pollution control systems at certain
trash-to-energy facilities owned or leased by WTI will be required to be
modified to comply with more stringent air pollution control standards adopted
by the United States Environmental Protection Agency in December 1995 for
municipal waste combusters. The compliance dates will vary by facility, but
all affected facilities will be required to be in compliance with the new
rules by the end of the year 2000. Currently available technologies will be
adequate to meet the new standards. The total capital expenditures required
for such modifications are estimated to be in the $180-$220 million range. The
impacted facilities long-term waste supply agreements generally require that
customers pay, based on tonnage delivered, their proportionate share of
incremental capital, financing, and operating costs resulting from changes in
environmental regulations. Customer shares of capital and financing costs are
typically recovered over the remaining life of the waste supply agreements.
Pro rata operating costs are recovered in the period incurred. The Company
currently expects to recover approximately two-thirds of the incremental
expenditures incurred to comply with these stricter air emission standards.
As the states and the U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market
83
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
power sales agreements entered into pursuant to the Public Utilities
Regulatory Policies Act of 1978 ("PURPA") should be voidable as "stranded
assets." WTI's power production facilities are qualifying facilities under
PURPA and depend on the sanctity of their power sales agreements for their
economic viability. WTI believes that federal law offers strong protections to
its PURPA contracts, and recent state and federal agency and court decisions
have unanimously upheld the inviolate nature of these contracts. While there
is a risk that future utility restructurings, court decisions or legislative
or administrative action in this area could have an adverse effect on its
business, the Company currently believes such risk is remote.
In the ordinary course of conducting its business, the Company becomes
involved in lawsuits, administrative proceedings and governmental
investigations, including antitrust and environmental matters and commercial
disputes. Some of these proceedings may result in fines, penalties or
judgments being assessed against the Company which, from time to time, may
have an impact on earnings for a particular quarter or year. The Company
believes it has adequately provided for such matters in its financial
statements and does not believe that their outcome, individually or in the
aggregate, will have a material adverse impact on its financial condition or
results of operations.
Several purported class action lawsuits and one purported derivative lawsuit
seeking injunctive relief and unspecified money damages were filed in the
Chancery Court in and for New Castle County, Delaware against the Company,
WTI, and individual directors of WTI in connection with the June 20, 1997
proposal by the Company to acquire all of the shares of WTI common stock which
the Company does not own. The Company has agreed to a merger in whch WTI's
stockholders would receive $16.50 in cash per share of WTI's common stock. The
lawsuits allege, among other things, that the defendants have breached
fiduciary duties to WTI's minority stockholders because the merger
consideration contemplated by the proposal was inadequate and unfair. In
addition, the purported derivative lawsuit alleges that the proposal was part
of a plan to misappropriate WTI's corporate opportunity to repurchase its own
shares. The Company believes that its actions and those of WTI and its Board
of Directors in connection with the proposal have been in accordance with
Delaware law. Accordingly, the Company intends to contest these lawsuits
vigorously.
In November and December 1997, several alleged purchasers of the Company's
stock brought purported class action lawsuits against the Company and several
of its current and former officers in the United States District Court for the
Northern District of Illinois. Each of the lawsuits asserts that the
defendants violated the federal securities laws by issuing allegedly false and
misleading statements in 1996 and 1997 about the Company's financial condition
and results of operations. Among other things, the plaintiffs allege that the
Company employed accounting practices that were improper and that caused its
publicly-filed financial statements to be materially false and misleading. The
lawsuits demand, among other relief, unspecified monetary damages, attorneys'
fees, and the costs of conducting the litigation. The Company intends to
defend itself vigorously in this litigation. In January 1998, the fourteen
purported class actions were consolidated before one judge in the Northern
District of Illinois. Plaintiffs have until May 1998 to file a consolidated
amended complaint. It is not possible at this time to predict the impact this
litigation may have on the Company, although it is reasonably possible that
the outcome may have a materially adverse impact on its financial condition or
results of operations in one or more future periods. No provision has been
made in the Consolidated Financial Statements for future costs or liabilities,
if any, associated with this litigation.
The Company is also aware that the Securities and Exchange Commission has
commenced a formal investigation with respect to the Company's previously
filed financial statements and related accounting policies, procedures and
system of internal controls. The Company intends to cooperate with such
investigation. The Company is unable to predict the outcome or impact of this
investigation at this time.
A lawsuit by an alleged Company stockholder purporting to represent a class
of the Company's stockholders has been filed in the Chancery Court in and for
New Castle County, Delaware (although the Company has not yet been served)
against the Company and the members of its Board of Directors alleging
breaches of fiduciary duty by the defendants in connection with the Merger.
The lawsuit seeks, among other things, to have the
84
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
transaction enjoined and to recover unspecified damages. The Company believes
the suit to be without merit and intends to contest it vigorously.
NOTE 13. BENEFIT PLANS
The Company has a qualified defined benefit pension plan for all eligible
non-union domestic employees of Waste Management, CWM and Waste Management of
North America, Inc. ("WMNA"). The benefits are based on the employee's years
of service and compensation during the highest five consecutive years out of
the last ten years of employment. The Company's funding policy is to
contribute annually an amount determined in consultation with its actuaries,
approximately equal to pension expense, except as may be limited by the
requirements of the Employee Retirement Income Security Act. An actuarial
valuation report is prepared for the plan as of September 30 each year and
used, as permitted by FAS No. 87, for the year-end disclosures.
Net periodic pension expense for 1994 through 1997, based on discount rates
of 8.5%, 8.5%, 7.75% and 7.75%, respectively, included the following
components:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service cost-benefits earned during the year.... $ 11.1 $ 11.8 $ 14.0 $ 15.0
Interest cost on projected benefit obligation... 11.5 13.2 14.4 17.1
Expected return on plan assets.................. (12.3) (13.2) (13.8) (17.1)
Net amortization and deferral................... (1.3) -- 1.8 2.8
------ ------ ------ ------
Net periodic pension expense.................. $ 9.0 $ 11.8 $ 16.4 $ 17.8
====== ====== ====== ======
</TABLE>
Assumptions used to determine the plan's funded status and pension expense
for the following year were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................. 7.75% 7.75% 7.25%
Rate of increase in compensation.............................. 4.0% 3.5% 3.5%
Long-term rate of return on plan assets....................... 9.0% 9.0% 9.0%
</TABLE>
The following table sets forth the plan's funded status and the amount
recognized in the Company's Consolidated Balance Sheets at December 31, 1995,
1996 and 1997, for its pension plan:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $152.0 million, $182.5 million and
$231.0 million at December 31, 1995, 1996 and
1997, respectively............................... $(167.3) $(199.5) $(248.9)
======= ======= =======
Projected benefit obligations..................... $(191.1) $(223.7) $(284.8)
Plan assets at fair value, primarily common stocks,
bonds and real estate.............................. 149.1 193.7 264.9
------- ------- -------
Plan assets less than projected benefit obligation.. $ (42.0) $ (30.0) $ (19.9)
Unrecognized net loss............................... 47.8 52.6 55.2
Unrecognized overfunding at date of adoption
(January 1, 1985) of FAS No. 87, net of
amortization, being recognized over 15 years....... (6.4) (4.9) (3.3)
Adjustment to recognize minimum liability........... (17.6) (23.5) --
------- ------- -------
Prepaid pension cost (pension liability) included in
the Consolidated Balance Sheets.................... $ (18.2) $ (5.8) $ 32.0
======= ======= =======
</TABLE>
The Company also has a non-qualified Supplemental Executive Retirement Plan
for certain officers of Waste Management, CWM and WMNA, and an ERISA Excess
Plan for non-officer managers of those companies who's eligible compensation
exceeds the ERISA limit (collectively, the "SERP"). The SERP, which is
unfunded, provides eligible executives with defined pension benefits outside
the qualified Waste Management, Inc. Retirement Plan, based on average
earnings and years of service. The SERP is valued each year (at
85
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
September 30) by the Company's independent actuaries, using the same
assumptions as used for the qualified plan. The following table sets forth
information relating to the SERP:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested
benefits of $24.5 million, $27.7 million and $36.3
million at December 31, 1995, 1996 and 1997,
respectively........................................ $(24.5) $(33.2) $(41.0)
------ ------ ------
Projected benefit obligation......................... $(29.5) $(37.1) $(44.1)
Plan assets at fair value, primarily contributions made
after the measurement date............................ 0.1 0.1 --
------ ------ ------
Plan assets less than projected benefit obligation..... $(29.4) $(37.0) $(44.1)
Unrecognized net loss.................................. 6.5 11.2 11.8
Unrecognized underfunding at date of adoption of FAS
No. 87, net of amortization, being recognized over 15
years................................................. 2.5 1.7 1.4
Adjustment to recognize minimum liability.............. (4.0) (9.0) (10.1)
------ ------ ------
Liability recorded (in Other Deferred Items)........... $(24.4) $(33.1) $(41.0)
====== ====== ======
</TABLE>
SERP expense for 1994, 1995, 1996 and 1997 included the following
components:
<TABLE>
<CAPTION>
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost - benefits earned during the year....... $1.0 $1.1 $1.3 $1.0
Interest............................................. 1.7 2.2 2.2 2.8
Net amortization and deferral........................ 0.8 1.1 1.0 1.1
---- ---- ---- ----
Total expense...................................... $3.5 $4.4 $4.5 $4.9
==== ==== ==== ====
</TABLE>
WM International participates in both defined benefit and defined
contribution retirement plans for its employees in various countries. The
projected benefit obligation, plan assets and unfunded liability of the WM
International defined benefit plans are not material. Other subsidiaries
participate in various multi-employer pension plans covering certain employees
not covered under the Company's pension plan, pursuant to agreements with
collective bargaining units who are members of such plans. These plans are
generally defined benefit plans; however, in many cases, specific benefit
levels are not negotiated with or known by the employer-contributors.
Contributions of $16.1 million, $18.3 million, $16.5 million and $18.6 million
for subsidiaries' defined benefit plans were made and charged to income in
1994, 1995, 1996 and 1997, respectively.
Waste Management, WMNA and CWM provide postretirement health care benefits
to eligible employees, and WTI provides certain postretirement benefits other
than pensions to a limited number of former employees of a manufacturing
business it has sold. The following table analyzes the obligation for
postretirement benefits other than pensions (primarily health care costs),
measured as of December 31 of each year, which is included in other deferred
items on the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Accumulated Postretirement Benefit Obligations:
Retirees............................................. $42.4 $42.2 $43.1
Other fully eligible participants.................... 5.5 6.7 1.5
Other active participants............................ 9.8 10.1 19.9
----- ----- -----
$57.7 $59.0 $64.5
Unrecognized:
Prior service (cost) credit.......................... 0.6 0.3 (3.9)
Gain................................................. 7.9 8.5 8.7
----- ----- -----
$66.2 $67.8 $69.3
===== ===== =====
</TABLE>
86
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1998; the rate was assumed
to decrease by 0.5% per year to 6.0% in 2001 and remain at that level
thereafter. Increasing the assumed health care cost trend by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1997 by approximately $4.0 million and the
aggregate of the service and interest cost components of net postretirement
health care cost for 1997 by approximately $0.3 million. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% in 1995 and 1996 and 7.0% in 1997.
The expense for postretirement health care benefits was as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost.......................................... $1.1 $1.1 $0.7 $1.8
Interest.............................................. 3.6 4.3 3.5 4.6
---- ---- ---- ----
Total expense....................................... $4.7 $5.4 $4.2 $6.4
==== ==== ==== ====
</TABLE>
The Company had an Employee Stock Ownership Plan ("1988 ESOP") for all
eligible non-union United States and Canadian employees of Waste Management,
CWM and WMNA. The benefits are based on the employee's years of service and
compensation. The Company contributes each year an amount, if any, determined
by the Board of Directors of the Company. This plan terminated December 31,
1997.
Information concerning the 1988 ESOP is as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expense recorded (contribution)............................ $7.9 $6.7 $6.7 $6.4
==== ==== ==== ====
Interest expense on 1988 ESOP debt......................... $2.0 $1.1 $1.0 $1.0
==== ==== ==== ====
Dividends on unallocated 1998 ESOP shares used by the 1988
ESOP...................................................... $0.8 $0.6 $0.4 $0.2
==== ==== ==== ====
</TABLE>
The Company has a Profit Sharing and Savings Plan ("PSSP") available to
certain employees of Waste Management, Inc., CWM and WMNA. The terms of the
PSSP allow for annual contributions by the Company as determined by the Board
of Directors as well as a match of employee contributions up to $750 per
employee ($500 prior to January 1, 1996). Charges to operations for the PSSP
were $27.3 million in 1994, $24.9 million in 1995, $16.0 million in 1996 and
$17.9 million in 1997. Effective January 1, 1998, the plan was renamed the
"Retirement Savings Plan", the matching contribution formula was increased,
and the discretionary annual contribution was discontinued.
Rust, WTI and WM International also sponsor non-contributory and
contributory defined contribution plans covering both salaried and hourly
employees. Employer contributions are generally based upon fixed amounts of
eligible compensation and amounted to $12.1 million, $13.6 million, $12.4
million and $19.1 million during 1994, 1995, 1996 and 1997, respectively.
During 1994, the Company established an Employee Stock Benefit Trust and
sold 12.6 million shares of treasury stock to the Trust in return for a 30-
year, 7.33% note with interest payable quarterly and principal due at
maturity. The Company has agreed to contribute to the Trust each quarter funds
sufficient, when added to dividends on the shares held by the Trust, to pay
interest on the note as well as principal outstanding at maturity. At the
direction of an administrative committee comprised of Company officers, the
trustee will use the shares or proceeds from the sale of shares to pay
employee benefits, and to the extent of such payments by the Trust, the
Company will forgive principal and interest on the note. The shares of common
stock issued to the Trust are not considered to be outstanding in the
computation of earnings per share until the shares are utilized to fund
obligations for which the trust was established. Changes in the market value
of these shares are charged or credited to Additional Paid-In Capital.
87
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
As discussed in Note 1, the Company believes that all of its material
operations are part of the waste management services industry, and it
currently reports as a single industry segment. Foreign operations in 1997
were conducted in ten countries in Europe, seven countries in the Asia Pacific
region, and Canada, Mexico, Brazil, Israel and Argentina. However, during the
year, WMNA sold most of its Canadian operations, and WM International sold
substantially all of its operations in France, Spain and Austria. WM
International also learned in late September that its joint venture company's
bid to continue to provide waste collection and cleaning services to the City
of Buenos Aires, which represented a substantial portion of its business in
Argentina, was not successful.
Information relating to the Company's continuing operations is set forth in
the following table (operating income is defined as revenue less operating
expenses, special charges, asset impairment loss and selling and
administrative expenses):
<TABLE>
<CAPTION>
UNITED OTHER
STATES EUROPE FOREIGN CONSOLIDATED
--------- -------- ------- ------------
<S> <C> <C> <C> <C>
1994
Revenue............................... $ 6,654.6 $1,322.7 $560.6 $ 8,537.9
========= ======== ====== =========
Operating income...................... $ 1,166.2 $ 184.2 $ 63.2 $ 1,413.6
========= ======== ====== =========
Identifiable assets................... $11,587.0 $3,471.0 $748.3 $15,806.3
========= ======== ====== =========
1995
Revenue............................... $ 7,060.2 $1,527.3 $512.7 $ 9,100.2
========= ======== ====== =========
Operating income...................... $ 1,069.0 $ 2.4 $ 32.8 $ 1,104.2
========= ======== ====== =========
Identifiable assets................... $12,384.1 $3,682.4 $772.7 $16,839.2
========= ======== ====== =========
1996
Revenue............................... $ 7,103.1 $1,539.2 $583.3 $ 9,225.6
========= ======== ====== =========
Operating income...................... $ 972.2 $ (12.8) $ 74.5 $ 1,033.9
========= ======== ====== =========
Identifiable assets................... $12,752.4 $3,503.0 $828.2 $17,083.6
========= ======== ====== =========
1997
Revenue............................... $ 7,222.4 $1,411.8 $554.4 $ 9,188.6
========= ======== ====== =========
Operating income...................... $ (855.1) $ 27.3 $ 65.5 $ (762.3)
========= ======== ====== =========
Identifiable assets................... $10,438.0 $2,613.7 $537.4 $13,589.1
========= ======== ====== =========
</TABLE>
No single customer accounted for as much as 3% of consolidated revenue in
1994, 1995, 1996 or 1997.
WM International operates facilities in Hong Kong which are owned by the
Hong Kong government. The Hong Kong economy has been impacted by the economic
uncertainty associated with many of the countries in the region. High and
volatile interest rates have resulted from speculation regarding its currency.
In addition to Hong Kong, WM International has operations in Indonesia and
Thailand. These countries have experienced illiquidity, volatile currency
exchange rates and interest rates, and reduced economic activity. WM
International, and therefore the Company, will be affected for the foreseeable
future by economic conditions in this region, although it is not possible to
determine the extent of such impact. At December 31, 1997, WM International
had a net investment of $107.5 million in these countries (including Hong
Kong). Pretax income from Hong Kong was $25.7 million in 1997. Income from
Indonesia and Thailand has not been significant to date.
88
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. SPECIAL CHARGES
In the first quarter of 1995, in response to the continuing deterioration of
the chemical waste services market, CWM realigned its organization, and in
connection therewith, recorded a special charge of $140.6 million before tax
($91.4 million after tax). The charge related primarily to a write-off of the
investment in facilities and technologies that CWM abandoned because they did
not meet customer service or performance objectives, but also includes $22.0
million of future cash payments for rents under non-cancelable leases,
guaranteed bank obligations of a joint venture, and employee severance. The
majority of the cash expenditures were paid in 1995, although certain of the
non-cancelable leases extend through the year 2002.
In the fourth quarter of 1995, WM International recorded a special charge of
$194.6 million ($152.4 million after tax) primarily related to the actions it
had decided to take to sell or otherwise dispose of non-core businesses and
investments, as well as core businesses and investments in low potential
markets, abandon certain hazardous waste treatment and processing
technologies, and streamline its country management organization. The charge
reduced the Company's income by approximately $153.3 million before tax
($111.0 million after tax). The charge included $34.3 million of cash payments
for employee severance and rents under non-cancelable leases. Approximately
$11.2 million of the cash costs were paid in 1995. The majority of the balance
was paid in 1996, although certain rent payments on abandoned leased
facilities continue into the future.
In the fourth quarter of 1996, WM International recorded a provision of
$77.0 million after tax related to the sale of its investment in Wessex and a
charge of $169.5 million after tax to revalue its investments in France,
Austria and Spain in contemplation of exiting all or part of these markets or
forming joint ventures. The charge also included the write-off of an
investment in a hazardous waste disposal facility in Germany because
regulatory changes adversely affected its volumes. These charges, primarily of
a non-cash nature, reduced the Company's income by $213.6 million after tax.
Also, in the fourth quarter of 1996, Waste Management and CWM recorded
pretax charges of $154.1 million ($100.2 million after tax) for reengineering
their finance and administrative functions and increasing reserves for certain
litigation, including a dispute involving the computation of royalties on the
Emelle, Alabama, hazardous waste landfill. In December 1996, a federal court
in Memphis, Tennessee, held CWM liable for approximately $100.3 million in
damages to the former owners of the Emelle site. CWM is appealing the
decision. Any settlement of the Emelle litigation would be a cash payment, but
the timing is not currently estimable. The balance of the charge is primarily
non-cash, with $13.4 million of cash-related items paid mostly in 1997.
In 1997, the Company recorded a special charge of $41.6 million (primarily
in the fourth quarter) for severance. Employees terminated were primarily
field operating management and related support personnel. Approximately $5.9
million of the severance had been paid by December 31, 1997, with the balance
being paid in 1998 and thereafter.
WM International also recorded a special charge in 1997 ($104.4 million
before tax and minority interest) to reflect the costs of demobilization in
Argentina following loss of the contract renewal for the City of Buenos Aires,
divestiture or closure of underperforming businesses, primarily in Italy and
Germany and the writeoff of costs of projects, primarily in Germany, which it
decided to no longer pursue. The charge included $14.8 million of severance,
primarily related to operating personnel in Buenos Aires and with closed or
divested businesses in Italy and Germany. These terminations are expected to
occur and the severance paid in 1998.
89
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. ASSET IMPAIRMENT LOSS
As a result of the comprehensive review of operating assets and investments
discussed in Note 2, the Company recorded an impairment loss of $1,401.2
million in the fourth quarter of 1997, and restated prior financial statements
to retroactively recognize impairment losses in earlier periods. Fair values
were determined for landfills, hazardous waste facilities, recycling
investments and other facilities, primarily based on future cashflow
projections discounted back using discount rates appropriate for the risks
involved with the specific assets. For surplus real estate, market opinions
and appraisals were used. In determining fair values for abandoned projects
and vehicles to be sold, recoverable salvage values were determined using
market estimates. The losses related to the following asset categories:
<TABLE>
<CAPTION>
IMPAIRMENT
LOSS
----------
<S> <C>
1994--
Landfills, related primarily to management decisions to abandon
expansion projects due to political or competitive factors, which
will result in closure earlier than previously expected.......... $ 22.4
Abandonment of other projects, primarily vehicle on board computer
systems projects................................................. 7.3
Surplus real estate............................................... 4.3
--------
Total........................................................... $ 34.0
========
1995--
Landfills, related primarily to management decisions to abandon
expansion projects due to political or competitive factors, which
will result in closure earlier than previously expected.......... $ 48.2
Hazardous waste facility costs, resulting from continuing market
deterioration, increased competition, excess capacity and
changing regulation.............................................. 2.2
Other, primarily abandoned computer systems project costs......... 1.9
Surplus real estate............................................... 1.5
--------
Total........................................................... $ 53.8
========
1996--
Landfills, related primarily to management decisions to abandon
expansion projects due to political or competitive factors, which
will result in closure earlier than previously expected.......... $ 13.4
Recycling investments, related primarily to pricing, overcapacity
and competitive factors.......................................... 47.8
Other, primarily equipment to be scrapped......................... 2.0
Surplus real estate............................................... 1.5
--------
Total........................................................... $ 64.7
========
1997--
Landfills, related primarily to management decisions to abandon
expansions and development projects due to political or
competitive factors, which will result in closure earlier than
previously expected (includes $233.8 million for hazardous waste
sites)........................................................... $ 578.6
Hazardous waste facilities, resulting from continuing market
deterioration, increased competition, excess capacity and
changing regulation.............................................. 131.4
Goodwill, primarily related to landfills and hazardous waste
facilities impaired (includes $411 million related to hazardous
waste business).................................................. 433.4
Write-down of WTI long-lived assets, including $47.1 million
related to a wood waste burning independent power production
facility......................................................... 57.2
Recycling investments, related primarily to continued pricing,
overcapacity and competitive factors............................. 21.5
Write-down to estimated net realizable value of trucks to be sold
as a result of new fleet management policy (Note 2).............. 70.9
Write-down to estimated net sales proceeds of business to be sold
(Note 17)........................................................ 122.2
Abandoned equipment and facilities................................ 26.9
Surplus real estate............................................... 38.2
--------
Total........................................................... $1,480.3
========
</TABLE>
90
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impaired assets to be sold are primarily businesses to be sold (see Note 17)
and surplus real estate. The carrying amount of such real estate was $73.3
million at December 31, 1997. The Company is currently marketing these
properties; however, since the disposal date cannot be accurately estimated,
these assets are classified as long-term assets in the accompanying balance
sheet at December 31, 1997.
NOTE 17. DISCONTINUED OPERATIONS
In the fourth quarter of 1995, the Rust Board of Directors approved a plan
to sell or otherwise discontinue Rust's process engineering, construction,
specialty contracting and similar lines of business. During the second quarter
of 1996, the sale of the industrial process engineering and construction
businesses, based in Birmingham, Alabama, was completed.
During the fourth quarter of 1996, WTI sold its water process systems and
equipment manufacturing businesses. WTI had also entered into an agreement to
sell its water and wastewater facility operations and privatization business,
which was sold in 1997. As of September 30, 1996, Rust sold its industrial
scaffolding business and began implementing plans to exit its remaining
international engineering and consulting business. Waste Management recorded a
fourth-quarter provision for loss of $360.0 million before tax and minority
interest in connection with the planned divestiture of these businesses, and
others subsequently reclassified to continuing operations (see discussion
below).
The discontinued businesses have been segregated and the accompanying
consolidated balance sheets, statements of income and related footnote
information have been restated. Revenues from the discontinued businesses were
$1,186.5 million in 1994, $1,511.0 million in 1995, $734.5 million for 1996
and $84.8 million in 1997. The decreases in revenue during the periods
primarily reflect the sales of certain of the discontinued businesses. Results
of their operations in 1997 were not material and were included in the reserve
for loss on disposition provided previously.
The following table summarizes the assets and liabilities as of December 31,
1995 and 1996, which are reflected on the consolidated balance sheet as net
assets of discontinued operations. The Company had no operations classified as
discontinued as of December 31, 1997.
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Current assets.......................................... $ 445.1 $ 74.7
Property and equipment and other noncurrent assets...... 570.4 173.8
Current liabilities..................................... (306.7) (47.5)
Noncurrent liabilities.................................. (90.8) (258.9)
------- -------
Net assets (liabilities) of discontinued operations... $ 618.0 $ (57.9)
======= =======
</TABLE>
At December 31, 1996, management also classified as discontinued and planned
to sell Rust's domestic environmental and infrastructure engineering and
consulting business and CWM's high organic waste fuel blending services
business. In 1997, management reclassified the CWM business back into
continuing operations, and classified certain of its sites as operations held
for sale. The Rust disposition was not completed within one year, and
accordingly this business has been reclassified back into continuing
operations, as operations held for sale, at December 31, 1997, in accordance
with generally accepted accounting principles, although management is
continuing its efforts to market its investment in this business. As these
businesses were reclassified to continuing operations, the remaining provision
for loss on disposal ($95 million after tax--$87 million related to Rust and
$8 million related to CWM) was reversed in discontinued operations and an
impairment loss for Rust
91
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of $122.2 million was recorded in continuing operations. Prior year financial
statements have been restated. Information regarding the businesses
reclassified as continuing operations held for sale is as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Results of operations--
Revenue...................................... $373.0 $368.2 $361.5 $ 350.4
Income (loss) before tax after minority
interest.................................... 24.1 25.1 0.3 (9.9)
Net income (loss)............................ $ 12.1 $ 13.9 $ 0.1 $ (6.7)
------ ------ ------ -------
Condensed balance sheet--
Current assets...................................... $125.3 $147.5 $ 118.6
Property and equipment and other noncurrent assets.. 163.7 162.0 164.7
Current liabilities................................. (39.0) (44.2) (41.0)
Noncurrent liabilities.............................. (14.6) (37.9) (161.2)
------ ------ -------
Net assets........................................ $235.4 $227.4 $ 81.1
====== ====== =======
</TABLE>
The net assets are included in Net Assets of Continuing Businesses Held for
Sale in the accompanying balance sheet. At December 31, 1997, this caption
also includes $73.3 million of surplus real estate which the Company is
actively marketing.
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of FAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and commonly accepted valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company or
holders of the instruments could realize in a current market exchange. The use
of different assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The fair value estimates presented
herein are based on information available to management as of December 31,
1995, 1996, and 1997. Such amounts have not been revalued since those dates,
and current estimates of fair value may differ significantly from the amounts
presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- ------------------ ------------------
ESTIMATED ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nonderivatives--
Assets--
Cash and cash
equivalents.......... $ 169.5 $ 169.5 $ 323.3 $ 323.3 $ 132.8 $ 132.8
Receivables........... 1,632.1 1,632.1 1,660.8 1,660.8 1,547.2 1,547.2
Short-term
investments.......... 12.2 12.2 319.3 319.3 59.3 59.3
Liabilities--
Commercial paper...... 1,119.4 1,120.2 645.9 646.2 356.3 356.5
Project debt.......... 735.6 880.6 833.8 896.7 829.0 885.2
Liquid Yield Option
Notes and
Subordinated Notes... 539.3 576.0 534.8 602.7 494.5 512.1
Other borrowings...... 5,083.8 5,284.5 5,510.6 5,610.0 4,947.3 5,063.4
Derivatives relating to
debt................... -- (0.1) -- (4.8) -- (3.3)
Other derivatives--
Assets................ -- -- -- 2.8 -- --
Liabilities........... (0.1) (16.6) -- (0.1) -- (0.3)
Letters of credit,
performance bonds and
guarantees............. -- -- -- -- -- --
</TABLE>
92
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash, Receivables and Investment. The carrying amounts of these items are a
reasonable estimate of their fair value.
Liabilities. For debt issues that are publicly traded, fair values are based
on quoted market prices or dealer quotes. Due to the short-term nature of the
ESOP notes, their carrying value approximates fair value. Interest rates that
are currently available to the Company for issuance of debt with similar terms
and remaining maturities are used to estimate fair value for debt issues that
are not quoted on an exchange.
Derivatives. The fair value of derivatives generally reflects the estimated
amounts that the Company would receive or pay to terminate the contracts at
December 31, thereby taking into account unrealized gains and losses. Dealer
quotes are available for most of the Company's derivatives. Unrealized gains
and losses are shown as assets and liabilities, as offsetting such amounts
against the related nonderivative instrument is permitted only pursuant to a
right of setoff or master netting agreement.
Off-Balance-Sheet Financial Instruments. In the normal course of business,
the Company is a party to financial instruments with off-balance-sheet risk,
such as bank letters of credit, performance bonds and other guarantees, which
are not reflected in the accompanying consolidated balance sheets. Such
financial instruments are to be valued based on the amount of exposure under
the instrument and the likelihood of performance being required. In the
Company's experience, virtually no claims have been made against these
financial instruments. Management does not expect any material losses to
result from these off-balance-sheet instruments and, therefore, is of the
opinion that the fair value of these instruments is zero.
NOTE 19. SUBSEQUENT EVENTS
On March 10, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with USA Waste Services, Inc. ("USA Waste") pursuant
to which the Company will be merged with a wholly-owned subsidiary of USA
Waste (the "Merger"). Pursuant to the Merger Agreement, the Company's
stockholders will receive .725 shares of common stock of USA Waste for each
share of common stock of the Company. The consummation of the Merger is
subject to a number of conditions, including the expiration or termination of
the applicable merger review waiting period under the Hart-Scott-Rodino Anti-
Trust Improvements Act of 1976, approval by the stockholders of each company
and other closing conditions. In addition, the Merger is contingent upon the
transaction qualifying for pooling-of-interests accounting treatment. In order
to qualify for pooling-of-interests accounting treatment, the Company intends
to sell a portion of its treasury shares pursuant to a registered public
offering prior to the closing of the Merger. A lawsuit by an alleged Company
stockholder purporting to represent a class of the Company's stockholders has
been filed (although the Company has not yet been served) against the Company
and the members of its Board of Directors alleging breaches of fiduciary duty
by the defendants in connection with the Merger. The lawsuit seeks, among
other things, to have the transaction enjoined and to recover unspecified
damages. The Company believes the suit to be without merit and intends to
contest it vigorously.
Upon the consummation of the Merger, certain long-term debt of WM
International may be accelerated and become payable with three months notice.
At December 31, 1997, this debt totalled approximately $209 million, however,
by March 17, 1998 it had been reduced to $71 million. In addition, Wessex has
an option to acquire WM International's ownership in its United Kingdom
business at fair market value that may become exercisable upon the
consummation of the Merger. In 1997, this business had revenues of
approximately $276 million and operating income (before minority interest) of
approximately $25 million. WM International had a net investment of
approximately $315 million in the business at December 31, 1997.
The Company may have other "change of control" provisions in customer and
employee contracts or agreements, governmental franchises or facility permits
that may be triggered by the closing of the proposed Merger. The Company is
currently in the process of reviewing these contracts, franchises and permits,
but does not expect at this time that the effect of these provisions, in the
event they are triggered by the Merger, will have a material adverse effect on
future results of operations.
93
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On March 15, 1998, approximately $2.5 million face amount of Subordinated
Notes (see Note 6) were submitted for redemption by the holders in accordance
with their terms. The next optional redemption date is March 15, 2000, and
accordingly the remaining outstanding Subordinated Notes will be classified as
long-term as of March 31, 1998.
In connection with the planned purchase of the remaining publicly held WTI
shares, the Company has entered into a commitment with the Chase Manhattan
Bank ("Chase") whereby Chase, along with other financial institutions, has
committed, subject to the satisfaction of certain conditions, to provide new
credit facilities in the amount of $1.1 billion. The new credit facilities,
which will have a termination date of December 31, 1998 (subject to earlier
termination in the event of a change-in-control, including the Merger with USA
Waste), will provide the funding needed to complete the WTI transaction and
replace the Company's existing $250 million revolving credit facility.
Additionally, the termination date of the Company's $550 million standby trade
receivables sale agreement will be extended from June 30, 1998 to December 31,
1998.
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements
Income, as restated and reclassified (see Note 2), by quarter for 1995, 1996,
and 1997. Sum of per share amounts for the quarters does not always equal the
full year amount due to rounding and, in the case of Diluted EPS, the method
of calculation prescribed by FAS No. 128. See Note 15 for a discussion of
special charges, Note 16 for a discussion of the asset impairment losses, and
Note 17 for a discussion of operations discontinued during 1995 and 1996.
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- ------------------- ------------------- -------------------
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $2,151.8 $2,164.3 $2,326.3 $2,339.2 $2,322.3 $2,334.2 $2,252.6 $2,262.5
Operating expenses...... 1,485.3 1,542.4 1,603.4 1,671.2 1,589.9 1,645.9 1,542.3 1,655.4
Asset impairment loss... -- 33.7 -- 3.5 -- 3.8 -- 12.8
Special charges......... 140.6 141.0 -- -- -- -- 194.6 194.6
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... $ 525.9 $ 447.2 $ 722.9 $ 664.5 $ 732.4 $ 684.5 $ 515.7 $ 399.7
Selling and
administrative
expenses............... 245.2 250.5 256.3 275.1 251.8 270.6 251.6 295.6
Interest, net........... 97.7 108.5 97.4 113.7 96.2 111.3 93.4 95.5
Minority interest....... 26.1 26.0 37.0 37.0 34.7 34.7 (15.9) (16.4)
Sundry income........... (16.9) (22.1) (14.1) (29.2) (23.4) (39.0) (22.1) (187.5)
Provision for income
tax.................... 82.6 64.4 143.2 126.8 152.3 132.2 105.6 128.3
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $ 91.2 $ 19.9 $ 203.1 $ 141.1 $ 220.8 $ 174.7 $ 103.1 $ 84.2
Discontinued operations. 10.0 7.0 16.0 7.9 13.1 7.6 (53.4) (17.6)
Accounting changes...... -- (84.7) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).... $ 101.2 $ (57.8) $ 219.1 $ 149.0 $ 233.9 $ 182.3 $ 49.7 $ 66.6
======== ======== ======== ======== ======== ======== ======== ========
Basic income (loss) per
share-
Continuing operations.. $ 0.19 $ 0.04 $ 0.42 $ 0.29 $ 0.45 $ 0.36 $ 0.21 $ 0.17
Discontinued
operations............ 0.02 0.01 0.03 0.02 0.03 0.02 (0.11) (0.03)
Accounting changes..... -- (0.17) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 0.21 $ (0.12) $ 0.45 $ 0.31 $ 0.48 $ 0.38 $ 0.10 $ 0.14
======== ======== ======== ======== ======== ======== ======== ========
Diluted income (loss)
per share-
Continuing operations.. $ 0.19 $ 0.04 $ 0.41 $ 0.29 $ 0.44 $ 0.35 $ 0.21 $ 0.17
Discontinued
operations............ 0.02 0.01 0.03 0.01 0.03 0.02 (0.11) (0.03)
Accounting changes..... -- (0.17) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 0.21 $ (0.12) $ 0.44 $ 0.30 $ 0.47 $ 0.37 $ 0.10 $ 0.14
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
94
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- ------------------- ------------------- -------------------
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $2,144.5 $2,144.5 $2,331.0 $2,331.0 $2,372.7 $2,372.7 $2,338.8 $2,377.4
Operating expenses...... 1,494.8 1,532.7 1,619.3 1,701.4 1,630.5 1,716.8 1,628.2 1,709.9
Asset impairment loss... -- 0.1 -- 11.7 -- 1.7 -- 51.2
Special charges......... -- -- -- -- -- -- 471.6 370.7
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... $ 649.7 $ 611.7 $ 711.7 $ 617.9 $ 742.2 $ 654.2 $ 239.0 $ 245.6
Selling and
administrative
expenses............... 245.9 261.8 246.7 259.6 240.4 264.7 246.2 309.4
Interest, net........... 87.5 102.5 87.9 105.3 84.9 111.4 87.8 115.3
Minority interest....... 27.2 26.5 31.4 29.5 32.1 28.3 (33.1) (43.0)
Sundry income........... (17.3) (23.9) (21.4) (21.4) (23.5) (37.7) (23.0) (19.4)
Provision for income
tax.................... 126.2 111.2 149.4 130.8 168.1 132.2 121.4 62.3
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $ 180.2 $ 133.6 $ 217.7 $ 114.1 $ 240.2 $ 155.3 $ (160.3) $ (179.0)
Discontinued operations. 5.0 4.8 5.3 20.5 5.0 (72.8) (301.0) (215.8)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 185.2 $ 138.4 $ 223.0 $ 134.6 $ 245.2 $ 82.5 $ (461.3) $ (394.8)
======== ======== ======== ======== ======== ======== ======== ========
Basic income (loss) per
share-
Continuing operations.. $ 0.37 $ 0.27 $ 0.44 $ 0.23 $ 0.49 $ 0.32 $ (0.33) $ (0.37)
Discontinued
operations............ 0.01 0.01 0.01 0.04 0.01 (0.15) (0.62) (0.44)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 0.38 $ 0.28 $ 0.45 $ 0.27 $ 0.50 $ 0.17 $ (0.95) $ (0.81)
======== ======== ======== ======== ======== ======== ======== ========
Diluted income (loss)
per share-
Continuing operations.. $ 0.36 $ 0.27 $ 0.43 $ 0.23 $ 0.48 $ 0.31 $ (0.33) $ (0.37)
Discontinued
operations............ 0.01 0.01 0.01 0.04 0.01 (0.14) (0.62) (0.44)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 0.37 $ 0.28 $ 0.44 $ 0.27 $ 0.49 $ 0.17 $ (0.95) $ (0.81)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
95
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
FOURTH
FIRST QUARTER SECOND QUARTER THIRD QUARTER QUARTER
------------------- ------------------- ------------------- ---------
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $2,198.3 $2,205.0 $2,327.3 $2,333.3 $2,351.2 $2,351.2 $ 2,299.1
Operating expenses...... 1,617.8 1,697.5 1,639.2 1,715.5 1,839.2 1,819.5 1,962.9
Asset impairment loss... -- 5.9 -- 46.9 -- 26.2 1,401.2
Special charges......... -- 15.9 -- 0.9 -- 0.9 128.3
-------- -------- -------- -------- -------- -------- ---------
Gross profit........ $ 580.5 $ 485.7 $ 688.1 $ 570.0 $ 512.0 $ 504.6 $(1,193.3)
Selling and
administrative
expenses............... 261.2 249.8 253.8 257.1 266.5 292.2 330.1
Interest, net........... 95.5 102.7 93.6 101.1 92.3 99.7 105.8
Minority interest....... 27.8 27.1 27.9 27.9 30.4 29.4 (39.0)
Sundry income........... (133.9) (135.5) (32.5) (28.1) (8.1) (8.1) 8.4
Provision for income
tax.................... 151.5 127.2 170.1 127.9 67.7 61.6 (101.0)
-------- -------- -------- -------- -------- -------- ---------
Income from continuing
operations............. $ 178.4 $ 114.4 $ 175.2 $ 84.1 $ 63.2 $ 29.8 $(1,497.6)
Discontinued operations. -- 0.6 0.8 7.6 -- 0.2 87.3
Accounting changes...... -- -- -- -- -- -- (2.0)
Extraordinary item...... -- -- -- -- -- -- (0.5)
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)....... $ 178.4 $ 115.0 $ 176.0 $ 91.7 $ 63.2 $ 30.0 $(1,412.8)
======== ======== ======== ======== ======== ======== =========
Basic income (loss) per
share-
Continuing operations. $ 0.37 $ 0.24 $ 0.37 $ 0.18 $ 0.14 $ 0.07 $ (3.29)
Discontinued
operations........... -- -- -- 0.01 -- -- 0.19
Accounting changes.... -- -- -- -- -- -- --
Extraordinary item.... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)..... $ 0.37 $ 0.24 $ 0.37 $ 0.19 $ 0.14 $ 0.07 $ (3.10)
======== ======== ======== ======== ======== ======== =========
Diluted income (loss)
per share-
Continuing operations. $ 0.36 $ 0.23 $ 0.37 $ 0.18 $ 0.14 $ 0.07 $ (3.29)
Discontinued
operations........... -- -- -- 0.01 -- -- 0.19
Accounting changes.... -- -- -- -- -- -- --
Extraordinary item.... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Net income (loss)..... $ 0.36 $ 0.23 $ 0.37 $ 0.19 $ 0.14 $ 0.07 $ (3.10)
======== ======== ======== ======== ======== ======== =========
</TABLE>
96
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
97
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE REGISTRANT
Set forth below are the names and ages of each of the members of the
Company's Board of Directors, the positions they hold with the Company and
summaries of their business experience. Unless otherwise indicated, all
information is as of February 1, 1998.
H. JESSE ARNELLE, age 64, has been a director of the Company since 1992. In
October 1997, he became counsel to Womble, Carlyle, Sandridge and Rice, a law
firm in Winston-Salem, North Carolina. For more than ten years prior thereto,
Mr. Arnelle was a senior partner of Arnelle, Hastie, McGee, Willis and Greene,
a San Francisco-based law firm. From 1993 to 1998, he served as Vice Chairman
and the Chairman of the Pennsylvania State University Board of Trustees. Mr.
Arnelle is also a director of Florida Power & Light (FPL Group), Eastman
Chemical Co., Textron Corporation, Wells Fargo & Company and Wells Fargo Bank
N.A., Armstrong World Industries and Union Pacific Resources, Inc.
DR. PASTORA SAN JUAN CAFFERTY, age 57, has served as a director of the
Company since July 1994. She has been a Professor since 1985 at the University
of Chicago, where she has been a member of the faculty since 1971. Dr.
Cafferty also serves as a director of Kimberly-Clark Corporation, Harris
Bankcorp and its subsidiary, Harris Trust and Savings Bank, and People's
Energy Corporation and on the Boards of the Rush-Presbyterian-St. Luke's
Medical Center and the Lyric Opera Association, both in Chicago.
JERRY E. DEMPSEY, age 65, has served as a director of the Company since
1984. From September 1993 until July 1997, he was Chairman and Chief Executive
Officer of PPG Industries, Inc., a glass, coatings and chemicals company, and
thereafter its Chairman until he retired on November 1, 1997. From April 1984
to May 1988, Mr. Dempsey served as Vice Chairman of the Board of the Company.
From May 1988 to June 1993, Mr. Dempsey was Senior Vice President of the
Company. From September 1991 to May 1993, Mr. Dempsey served as Chairman of
the Board of CWM. Mr. Dempsey is also a director of Navistar International
Corp. and Eastman Chemical Co.
DR. JAMES B. EDWARDS, age 70, has served as a director of the Company since
1995 and has been President of the Medical University of South Carolina since
November 1982. From January 1981 to November 1982, he served as the United
States Secretary of Energy, and previously as Governor of the State of South
Carolina. Dr. Edwards is also a director of Phillips Petroleum Company, SCANA
Corporation, Imo Industries Inc. and National Data Corporation.
DONALD F. FLYNN, age 58, has served as a director of the Company since 1981
and as Chairman of the Board and President of Flynn Enterprises, Inc., a
financial advisory and venture capital firm, since February 1988. He has also
been since February 1997 the Vice Chairman of Blue Chip Casino, Inc., an owner
and operator of a riverboat gaming vessel in Michigan City, Indiana. He also
served as Chairman of the Board and Chief Executive Officer of Discovery Zone,
Inc. ("Discovery Zone"), an operator of indoor fun and fitness centers for
children, from July 1992 until February 1996 and May 1995, respectively.
Discovery Zone, which in March 1996 announced that it filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code, emerged from bankruptcy
with a Plan of Reorganization that was approved by the bankruptcy court in
July 1997. Mr. Flynn was a Senior Vice President of the Company from May 1975
to January 1991. He also served as the Company's Chief Financial Officer from
March 1972 to December 1989 and the Company's Treasurer from May 1979 to
December 1986. Mr. Flynn is also a director of Extended Stay America, Inc.,
Psychemedics Corporation, WTI and WM International.
RODERICK M. HILLS, age 67, has served as a director of the Company since
November 1997, President of Hills Enterprises, Ltd. (formerly The Manchester
Group Ltd.), a consulting firm, since 1987 and as a Partner in Hills & Hills,
a law firm, since 1994. Mr. Hills has also served as Vice Chairman of Oak
Industries, Inc., a manufacturing firm, since 1989. Mr. Hills served from
September to November 1996 as Chairman of Federal-Mogul Corporation, an
automotive parts manufacturing firm. Mr. Hills served as Chairman of the
Securities and
98
<PAGE>
Exchange Commission from 1975 to 1977 and as counsel to the President of the
United States in 1975. Mr. Hills is also a Director of Federal-Mogul
Corporation and Oak Industries, Inc.
ROBERT S. MILLER, age 56, has served as a director since May 1997. He was
elected Chairman of the Board and named Acting Chief Executive Officer of the
Company in October 1997. On March 10, 1998, Mr. Miller was named Chief
Executive Officer of the Company. Mr. Miller is also serving as Vice Chairman
of Morrison Knudsen Corporation, an engineering and construction firm. He
served as Chief Executive Officer of Federal Mogul Corporation, an automotive
parts manufacturing firm, from September until November 1996 and as Chairman
of Morrison Knudsen Corporation from April 1995 until September 1996. In
addition, since 1993 he has served as Vice President and Treasurer of Moore
Mill and Lumber, a privately-held forest products firm, and from 1992 to 1993,
he served as Senior Partner of James D. Wolfensohn, Inc., an investment
banking firm. From 1979 to 1992, Mr. Miller worked at Chrysler Corporation, an
automobile and truck manufacturing firm, rising to become Vice Chairman of the
Board after serving as the Company's Chief Financial Officer. Mr. Miller is a
director of Federal Mogul Corporation, Fluke Corporation, Morrison Knudsen
Corporation, Pope & Talbot, Inc., and Symantec Corporation.
PAUL M. MONTRONE, age 56, has served as a director of the Company since
January 1997. Mr. Montrone has been Chairman of the Board since January 1998
and President, Chief Executive Officer and a director since December 1991, of
Fisher Scientific International, Inc., a distributor of laboratory equipment
and supplies. Since May 1995, Mr. Montrone has served as Chairman of the
General Chemical Group, Inc., a manufacturer and distributor of chemicals
("General Chemical") and from prior to 1992 to May 1995 as President and a
director of General Chemical. He also served as Vice Chairman of the Board of
Abex, Inc., a designer and manufacturer of engineered components for
aerospace, defense, industrial and commercial markets, or its predecessors,
from 1992 to 1995. Mr. Montrone was a director of WTI or a predecessor thereof
from prior to 1989 until January 1997.
PEER PEDERSEN, age 73, has been a director of the Company since 1979 and
Chairman of the Board and Managing Partner of the law firm of Pedersen &
Houpt, P.C. for more than the past five years. Mr. Pedersen is also a director
of Aon Corporation, Boston Chicken, Inc., Latin American Growth Fund, Tennis
Corporation of America and Extended Stay America, Inc.
JAMES R. PETERSON, age 70, has been a director of the Company since 1980 and
was a director and President and Chief Executive Officer of The Parker Pen
Company from January 1982 to January 1985. The Parker Pen Company was
principally involved in the manufacture and distribution of writing
instruments and in providing temporary help services. Mr. Peterson is also a
director of The Dun & Bradstreet Corporation and Cognizant Corporation.
JOHN C. POPE, age 48, has served as a director of the Company since November
1997. Since January 1996, he has been Chairman of the Board of MotivePower
Industries, Inc., a manufacturer and remanufacturer of locomotives and
locomotive components. Mr. Pope served as President and Chief Operating
Officer of United Airlines and its parent corporation, UAL Corporation, from
April 1992 to July 1994. Prior thereto he served as Vice Chairman of both
companies beginning in November 1990, and as Executive Vice President,
Marketing and Finance beginning in October 1990, as Executive Vice President,
Marketing and Planning from May 1989 to September 1990 and as Chief Financial
Officer beginning in January 1988. Mr. Pope is also a director of Federal-
Mogul Corporation, Wallace Computer Services, Inc., Medaphis Corporation,
MotivePower Industries, Inc., Lamalie Associates, Inc. and Dollar Thrifty
Automotive Group, Inc.
STEVEN G. ROTHMEIER, age 51, has served as a director of the Company since
March 1997 and has been Chairman and Chief Executive Officer of Great Northern
Capital, a private investment management, consulting and merchant banking
firm, since March 1993. From November 1989 until March 1993, he was President
of IAI Capital Group, a venture capital and merchant banking firm. For more
than ten years prior thereto, he served Northwest Airlines, Inc. or its parent
corporation, NWA, Inc., in various executive capacities, including Chairman
and Chief Executive Officer from 1986 to 1989. Mr. Rothmeier is also a
director of Honeywell, Inc., Department 56, Inc., EW Blanch Holdings, Inc. and
Precision Castparts Corp.
99
<PAGE>
ALEXANDER B. TROWBRIDGE, age 68, has served as a director of the Company
since 1985 and President of Trowbridge Partners, Inc., a consulting services
firm, since January 1990. He was President of the National Association of
Manufacturers, Washington, D.C., from January 1980 to January 1990. Mr.
Trowbridge also served as U.S. Secretary of Commerce in 1967 and 1968 and as
Vice Chairman of Allied Chemical Corp. from 1976 to 1980. He also serves as a
director of New England Life Insurance Co., The Rouse Co., Harris Corp., Sun
Co. Inc., the Gillette Co., Warburg-Pincus Counsellors Funds and Icos Corp.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of the Company's executive officers
(as defined by regulations of the Securities and Exchange Commission), the
positions they hold with the Company and summaries of their business
experience. Executive officers are elected by the Board of Directors and serve
at the pleasure of the Board. All information is as of February 1, 1998.
JERRY W. CAUDLE, age 55, has been Senior Vice President of the Company since
December 1997. He served as a Group President of WMNA beginning in 1992,
having previously been Vice President--West Region since October 1990. Mr.
Caudle has been employed by the Company since 1974.
DONALD R. CHAPPEL, age 46, who was named Acting Chief Financial Officer of
the Company in October 1997, has served as its Vice President--Financial
Services since November 1996 and Vice President and Controller (North American
operations) since August 1995. From 1991 to July 1995, Mr. Chappel was Vice
President and Controller--West and Mountain Areas of WMNA, and from July to
August 1995 Vice President and Controller of CWM. Prior thereto he had served
as Vice President and Controller--WMI Urban Services, beginning in June 1987
when he joined the Company.
MICHAEL J. COLE, age 50, was elected a Senior Vice President of the Company
in December 1997. From September 1996 to November 1997, Mr. Cole served as
Group President of WMNA. Mr. Cole served as a Vice President of the Company
from May to September 1996, and as its Group President--Technology Services
from March to September 1996. He was previously President and Chief Executive
Officer of CWM from March 1995 to March 1996, and President of Chem-Nuclear
from June 1991 to March 1995. Mr. Cole has been employed by the Company since
1976.
L. MICHAEL COLLIER, age 50, was elected a Senior Vice President of the
Company in December 1997. From June 1996 until December 1997, he was a Group
President of WMNA. From November 1995 to May 1996, Mr. Collier served as
Executive Vice President of WMNA, and from September 1990 to October 1995 as
Vice President and Chief Operating Officer of WM International. Mr. Collier
has been employed by the Company since 1973.
HERBERT A. GETZ, age 42, has been a Senior Vice President of the Company
since May 1995, a Vice President of the Company since May 1990 and General
Counsel since August 1992. He has also been Secretary of the Company since
January 1988. He also served as Assistant General Counsel of the Company from
December 1985 until August 1992. Mr. Getz has also held the offices of Vice
President, General Counsel and Secretary of WMNA from April 1989 until
December 1993, and Vice President and Secretary of Rust from January 1993 to
May 1994. He has also served as Secretary of WTI from July 1995 to January
1997, a position he previously held, as well as being the General Counsel of
WTI, from November 1990 until May 1993. Mr. Getz commenced employment with the
Company in 1983. He is a director of NSC Corporation and OHM Corporation.
JOSEPH M. HOLSTEN, age 45, has been Executive Vice President and Chief
Operating Officer of the Company since February 1997. He was Chief Executive
Officer of WM International from July 1995 to March 1997. From October 1993 to
July 1995, he was Executive Vice President and Chief Financial Officer of
WMNA. Mr. Holsten was Vice President of Acquisitions and Project Development
for WM International from April 1992 to August 1993 and Vice President, Chief
Financial Officer and Treasurer of Rust from September to October 1993. Mr.
Holsten has been employed by the Company since 1981.
100
<PAGE>
ROBERT S. MILLER, age 56, has served as a director of the Company since May
1997. He was elected Chairman of the Board and named Acting Chief Executive
Officer in October 1997. For a discussion of Mr. Miller's business experience
and positions with other companies, see "Directors of the Registrant."
JAMES E. O'CONNOR, age 48, has been a Senior Vice President of the Company
since December 1997. Since 1993 he has served as Group President of WMNA. Mr.
O'Connor began his employment with the Company in 1972.
D. P. PAYNE, age 55, has been a Senior Vice President of the Company since
April 1995, a position he previously held from 1990 to 1993. He also served as
President and Chief Executive Officer and a director of CWM from September
1991 to March 1995. Mr. Payne has been employed by the Company since 1990.
MARK T. SPEARS, age 40, was appointed Vice President and Controller of the
Company in November 1997. Prior to this position, Mr. Spears served as Vice
President and Assistant Controller from July 1997. Between 1995 and 1997, he
served as Vice President and Controller of WM International. From 1993 to
1995, he was Vice President and Controller of Rust after holding increasingly
responsible financial positions with WM International between 1989 and 1993.
Mr. Spears joined the Company in 1988.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1997 Dr. Cafferty and Mr. Montrone made late filings of reports required
by Section 16(a) relating to purchases of the Company's common stock. Such
reports were due on July 10, 1997 and September 8, 1997 and were filed on July
26, 1997 and September 13, 1997, respectively.
101
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information with respect to
compensation for services in all capacities paid by the Company and its
subsidiaries for the past three years, to or on behalf of each person who
served as Chief Executive Officer during 1997, the four other most highly
compensated executive officers of the Company as of December 31, 1997, and two
additional individuals who were not serving as executive officers at December
31, 1997, but for whom disclosure is required under Securities and Exchange
Commission rules:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- -----------------------------------------------
BONUS(1) AWARDS PAYOUTS
-------------------- ----------- ---------
OTHER SECURITIES LONG- ALL OTHER
ANNUAL RESTRICTED UNDERLYING TERM INCENTIVE
NAME AND PRINCIPAL STOCK- COMPEN- STOCK OPTIONS INCENTIVE COMPEN-
POSITION(5) YEAR SALARY CASH BASED SATION(2) AWARDS(5) (SHARES)(6) PAYOUTS SATION(7)
------------------ ---- --------- ------- --------- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. Miller 1997 $ 92,308 $ 0 0 $ -- $ 12,500 78,000 0 $ 0
Acting Chairman of the
Board and Chief
Executive Officer
Dean L. Buntrock 1997 0 0 0 243,447(3) 0 283,111 0 0
Former Chairman of the 1996 1,250,000 0 0 88,516(3) 0 176,656 0 750
Board and Chief 1995 1,400,000 0 1,792,000(1) 437,980(1)(3) 0 205,505 0 10,500
Executive Officer(8)
Ronald T. LeMay 1997 450,000 0 0 -- 11,684,300 2,000,000 0 0
Former Chairman of the
Board, President and
Chief Executive
Officer(8)
Phillip B. Rooney 1997 2,500,000 0 0 57,934 0 0 0 750
Former President and 1996 1,250,000 0 435,247(1) 124,880(1) 0 476,183 0 750
Chief Executive
Officer(8) 1995 1,000,000 0 1,141,000(1) 261,280(1) 0 146,789 0 10,500
Joseph M. Holsten 1997 650,000 300,000 0 -- 1,794,375 166,556 0 750
Executive Vice 1996 440,000 252,058 0 225,280(4) 0 173,253 0 0
President and Chief 1995 400,000 246,750 0 96,957(4) 0 175,780 0 10,500
Operating Officer
James E. Koenig 1997 600,000 0 0 -- 0 79,867 0 750
Former Executive Vice 1996 600,000 355,000 0 -- 1,485,000 186,514 0 750
President(8) 1995 517,000 420,000 0 -- 0 62,615 0 10,500
Jerry W. Caudle 1997 325,000 225,223(1) 0 -- 770,775 27,038 0 750
Senior Vice 1996 310,000 97,534 97,534(1) -- 0 22,003 0 750
President 1995 300,000 0 182,400(1) -- 0 24,771 0 8,803
Herbert A. Getz 1997 450,000 0 0 -- 0 59,900 0 750
Senior Vice President, 1996 450,000 112,500 0 -- 1,155,000 146,136 0 750
General Counsel 1995 365,000 300,000 0 -- 0 44,725 0 10,500
and Secretary
William P. Hulligan 1997 475,000 0 0 -- 0 51,373 0 750
Executive Vice 1996 475,000 0 95,000(1) -- 0 48,699 0 750
President, 1995 445,000 0 365,790(1) 74,748(1) 0 36,743 0 10,500
Waste Management of
North America, Inc.
D. P. Payne 1997 420,000 0 0 -- 1,054,575 55,907 0 750
Senior Vice President 1996 420,000 0 105,000(1) -- 0 43,060 0 750
1995 400,000 0 322,250(1) 74,879(1) 0 47,706 0 750
</TABLE>
- -------
(1) All of the amounts shown under "Bonus--Stock-Based" were deferred and are
deemed to be invested in shares of the Company's common stock, and thus
fully "at risk" until after retirement or other termination of employment.
The deferring officers received a 20% Company match of the bonus deferred,
included under "Other Annual Compensation," which vests over a four-year
period and is also deemed invested and "at risk" in the same manner as the
deferred bonus. See Note 1 to the table in "Security of Ownership of
Certain Beneficial Owners and Management--Securities Ownership of
Management" set forth below in Item 12. Of the total amount of Mr.
Caudle's bonus, $31,362 was subject to mandatory "banking" under the
Company's Corporate Incentive Bonus Plan and remains "at risk" during
1998.
102
<PAGE>
(2) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10 percent
of the total annual salary and bonus reported for the named executive
officer.
(3) Includes financial planning expenses of $68,000 paid by the Company on
behalf of the named executive officer in 1995 and 1996 and $60,000 in
1997, and personal use of Company aircraft in 1997 valued at $174,749.
(4) Includes foreign service premium ($96,000 in 1996 and $40,000 in 1995) and
housing allowance ($96,000 in 1996 and $40,000 in 1995).
(5) The value shown is as of the date of issuance. Dividends are paid or
accrued on restricted stock awards at the same rate as paid to all
stockholders. For a description of the restrictions on such stock, see
"Certain Transactions." Mr. LeMay's restricted stock award was forfeited
upon his resignation.
(6) The numbers shown in the table above represent options for the purchase of
shares of the Company's common stock granted to the named persons under
the Employee Plans. For Mr. Holsten, such numbers include the following
numbers of shares underlying options to acquire common stock of WM
International: 160,000 in 1996 and 140,000 in 1995. Mr. LeMay's options
terminated upon his resignation.
(7) Amounts of All Other Compensation are amounts contributed by the Company
for fiscal years 1995, 1996 and 1997 under the Company's Profit Sharing
and Savings Plan and for fiscal year 1995 under the Company's Profit
Sharing and Savings Plus Plan for the persons named above.
(8) Robert S. Miller served in such capacity from October 29, 1997. Dean L.
Buntrock served in such capacity from February 17, 1997 until July 13,
1997. Ronald T. LeMay served in such capacity from July 13, 1997 until
October 29, 1997. Phillip B. Rooney served in such capacity from January
1, 1997 to February 17, 1997. James E. Koenig served in such capacity
until October 31, 1997. William P. Hulligan served in such capacity until
November 30, 1997.
103
<PAGE>
STOCK OPTIONS
The following tables set forth certain information with respect to stock
options granted to the persons named in the Summary Compensation Table during
the year ended December 31, 1997. No options were granted to the persons named
in the Summary Compensation Table during the year ended December 31, 1997 by
WTI or WM International.
COMPANY OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
OF COMPANY ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(8)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------------
NAME GRANTED(1) IN 1997 (PER SHARE) DATE(7) 0% 5% 10%
- ---- ---------- ---------- ----------- ---------- --- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. Miller........ 3,000(2) .05 $30.05 5/09/07 $ 0 $ 56,695 $ 143,676
75,000(3) 1.21 23.375 11/04/07 0 1,102,531 2,794,030
Dean L. Buntrock........ 150,000(4) 2.42 33.00 3/04/07 0 3,113,028 7,889,025
133,111(5) 2.15 30.05 5/09/07 0 2,515,569 6,374,947
Ronald T. LeMay......... 2,000,000 32.24 33.10 7/13/07 0 41,632,824 105,505,751
Phillip B. Rooney....... -- -- -- -- -- -- --
Jerry W. Caudle......... 27,038(5) .44 30.05 5/09/07 0 510,972 1,294,903
Herbert A. Getz......... 59,900(5) .97 30.05 5/09/07 0 1,132,007 2,868,728
James E. Koenig......... 79,867(5) 1.29 30.05 5/09/07 0 1,509,349 3,824,987
William P. Hulligan..... 51,373(5) .83 30.05 5/09/07 0 970,862 2,460,354
Joseph M. Holsten....... 66,556(5) 1.07 30.05 5/09/07 0 1,257,794 3,187,497
100,000(6) 1.61 33.85 6/20/07 0 2,128,808 5,394,818
D. P. Payne............. 55,907(5) .90 30.05 5/09/07 0 1,056,546 2,677,496
All stockholders as a
group(9)............... -- -- $30.05 5/09/07 $ 0 $8,585,108,686 $21,756,350,814
</TABLE>
- --------
(1) The option holder has the right to pay the exercise price by delivering
previously acquired shares of the Company's common stock, and to have
shares withheld to satisfy tax withholding requirements in connection with
the exercise of options. Such options become immediately exercisable upon
a Change in Control of the Company, as defined in the option plan. Options
are non-transferable other than by will or the laws of descent and
distribution.
(2) Options become exercisable May 9, 1998.
(3) Options become exercisable upon termination of service.
(4) Options become exercisable in three equal cumulative annual installments
commencing March 4, 1998.
(5) Options become exercisable in three equal cumulative annual installments
commencing May 9, 1998.
(6) Options become exercisable in three equal cumulative installments
commencing June 20, 1998.
(7) Options have a term of ten years, subject to earlier termination in
certain events related to termination of employment. Mr. LeMay's options
terminated upon his resignation. Mr. Koenig's options terminate on October
31, 2000.
(8) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's stock. Such amounts are based on the
assumption that the named persons hold the options granted for their full
term. The actual value of the options will vary
104
<PAGE>
in accordance with the market price of the Company's common stock. The
column headed "0%" is included to demonstrate that the options were granted
at fair market value and optionees will not recognize any gain without an
increase in the stock price, which increase benefits all stockholders
commensurately.
(9) Based upon the price of the Company's stock and the total shares
outstanding as of the date of grant, if the price of the Company's common
stock increased at the 5% or 10% rates shown in the table above,
stockholders as a group would realize aggregate gains (excluding
dividends) in the amounts shown above during the period from grant date to
the May 9, 2007 option expiration date.
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1997 by the persons named in
the Summary Compensation Table and the fiscal year-end value of unexercised
options:
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED IN-
LYING UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
SHARES AT DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED VALUE ------------------------------ -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Miller
Company Options........ 0 $ 0 0 78,000 $ 0 $309,375
Dean L. Buntrock
Company Options........ 0 0 1,217,704 0 88,451 0
WM International
Options............... 0 0 200,000 0 0 0
Ronald T. LeMay
Company Options........ 0 0 0 0 0 0
Phillip B. Rooney
Company Options........ 0 0 1,323,408 0 152,844 0
WM International
Options............... 0 0 200,000 0 0 0
Jerry W. Caudle
Company Options........ 0 0 112,957 49,963 29,391 2,064
Herbert A. Getz
Company Options........ 0 0 167,383 172,231 32,280 3,727
WTI Options............ 240,000 1,515,744 0 0 0 0
WM International
Options............... 0 0 40,000 0 0 0
James E. Koenig
Company Options........ 0 0 455,318 0 59,209 0
WTI Options............ 120,000 757,872 0 0 0 0
WM International
Options............... 0 0 200,000 0 0 0
William P. Hulligan
Company Options........ 0 0 202,376 96,086 43,145 3,061
Joseph M. Holsten
Company Options........ 0 0 63,506 187,317 18,158 2,981
WM International
Options............... 0 0 306,666 153,334 0 0
D. P. Payne
Company Options........ 0 0 284,814 100,515 285,228 3,975
</TABLE>
- --------
(1) Market value less exercise price, before payment of applicable income
taxes.
105
<PAGE>
LONG TERM INCENTIVE PLAN AWARDS
The following table sets forth certain information as to awards under the
Company's Long Term Incentive Plan (the "LTIP") with respect to the year ended
December 31, 1997 to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS
SHARES, OR OTHER UNDER NON-STOCK
UNITS OR PERIOD UNTIL PRICE BASED PLANS(3)
OTHER MATURATION -----------------------------
NAME RIGHTS(1) OR PAYOUT(2) THRESHOLD TARGET MAXIMUM
- ---- --------- ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Robert S. Miller........... -- -- -- -- --
Dean L. Buntrock........... -- -- -- -- --
Ronald T. LeMay............ -- -- -- -- --
Phillip B. Rooney.......... -- -- -- -- --
Jerry W. Caudle............ -- 3 years $130,000 $130,000 $ 812,500
Herbert A. Getz............ -- 3 years 180,000 180,000 1,125,000
James E. Koenig............ -- 3 years 240,000 240,000 1,500,000
Joseph M. Holsten.......... -- 3 years 260,000 260,000 1,625,000
William P. Hulligan........ -- -- -- -- --
D. P. Payne................ -- 3 years 168,000 168,000 1,050,000
</TABLE>
- --------
(1) Awards consist of the designation of target percentages of annual salary
at the end of the performance period to be paid if the Company achieves
certain performance objectives. No payout occurs unless the Company
achieves certain threshold performance objectives. Above the threshold,
payouts may be greater than the target percentage to the extent that the
Company's performance exceeds or fails to meet the target objectives
specified in the plan. Payouts under the LTIP are based on the rank of the
Company's total stockholder return (stock price appreciation plus
reinvested dividends) among the total stockholder returns of the companies
that comprise the Dow Jones Industrial Average over the performance
period.
(2) The performance period includes calendar years 1997, 1998 and 1999.
(3) Provided that the participant is an officer of the Company or one of its
subsidiaries at the end of the performance period, an amount equal to 50%
of the performance award, if any, is to be paid in cash, and the remaining
50% is to be deemed to be invested in common stock of the Company. The
participant is entitled to receive the value of such deemed investment on
the date three years after the end of the performance period. Estimated
future payouts were calculated using 1997 salaries, assume that a
performance award will be earned at the levels shown, and do not reflect
any possible subsequent increase or decrease in the value of the portion
of the award which would be required to be deferred under the terms of the
plan.
106
<PAGE>
PENSION AND RETIREMENT PLANS
The following table sets forth estimated annual benefits payable upon
retirement under the Company's Pension Plan and its Supplemental Executive
Retirement Plan ("SERP") to employees of the Company in specified remuneration
and years of service classifications. For purposes of the following table, it
is assumed that the five executive officers named in the cash compensation
table are eligible for the SERP benefits and that each such officer's
annualized Final Average Compensation (as defined below) will be equal to his
average annual compensation for the three years ended December 31, 1997.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)(3)
---------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40
- --------------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000........... $ 90,000 $120,000 $150,000 $180,000 $ 210,000 $ 240,000
500,000........... 112,500 150,000 187,500 225,000 262,500 300,000
600,000........... 135,000 180,000 225,000 270,000 315,000 360,000
700,000........... 157,500 210,000 262,500 315,000 367,500 420,000
800,000........... 180,000 240,000 300,000 360,000 420,000 480,000
900,000........... 202,500 270,000 337,500 405,000 472,500 540,000
1,000,000........... 225,000 300,000 375,000 450,000 525,000 600,000
1,100,000........... 247,500 330,000 412,500 495,000 577,500 660,000
1,200,000........... 270,000 360,000 450,000 540,000 630,000 720,000
1,300,000........... 292,500 390,000 487,500 585,000 682,500 780,000
1,400,000........... 315,000 420,000 525,000 630,000 735,000 840,000
1,500,000........... 337,500 450,000 562,500 675,000 787,500 900,000
1,600,000........... 360,000 480,000 600,000 720,000 840,000 960,000
1,700,000........... 382,500 510,000 637,500 765,000 892,500 1,020,000
1,800,000........... 405,000 540,000 675,000 810,000 945,000 1,080,000
1,900,000........... 427,500 570,000 712,500 855,000 997,500 1,140,000
2,000,000........... 450,000 600,000 750,000 900,000 1,050,000 1,200,000
</TABLE>
- --------
(1) Upon normal retirement at age 65 or after completing five years of
participation in the Company's Pension Plan, whichever is later, a
participant is entitled to a pension based on the average of the
participant's eligible compensation for the highest five consecutive years
out of his or her last 10 years of service. For this purpose, a
participant's eligible compensation generally includes all of his or her
cash compensation, subject, in 1997, to the statutory maximum of $160,000.
The annual lifetime benefit is equal to (i) 1% of average eligible
compensation, multiplied by (ii) the number of his or her years of
service, and, for a participant retiring at age 65 with 10 years of
service, may not be less than $100 per month. Under the SERP, eligible
participants who retire following age 60, or retire with at least 30 years
of service, are entitled to a monthly benefit equal to (i) 1.5% of the
participant's Final Average Compensation per year of service (Final
Average Compensation is the monthly average compensation of such
participant for the highest three consecutive calendar years out of his or
her last 10 calendar years of service), reduced by (ii) the amount of such
participant's monthly benefit under the Pension Plan. Compensation used
for calculating benefits under the SERP includes only the participant's
salary and annual incentive bonus. Eligible participants are those
officers who have served in such capacities for at least 10 years at the
time of retirement. Payment of benefits under the SERP is made on the same
basis as payments under the Pension Plan, and both plans provide for
reduced payouts in the event of early retirement.
(2) At December 31, 1997, the credited years of service for current and former
executive officers were as follows: Mr. Miller--0; Mr. Buntrock--41; Mr.
LeMay--0; Mr. Rooney--28; Mr. Caudle--22; Mr. Getz--14; Mr. Koenig--20;
Mr. Hulligan--19; Mr. Holsten--15; Mr. Payne--7.
107
<PAGE>
(3) Benefits shown are computed on a straight-life annuity basis at normal
retirement age. Provision is made for payment of pensions in joint and
survivor form and in various other forms and at other times, on an
actuarially equivalent basis. Benefits are not subject to reduction for
social security benefits.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors of the Company who is not an employee
of the Company is paid an annual retainer of $50,000, 50% of which is paid in
shares of restricted common stock of the Company. Such directors also receive
$1,000 for each day on which they perform substantial work on behalf of a
Committee of the Board, which includes attendance at meetings of Committees of
which such directors are members. Each director is expected to accumulate,
over a five year period, an equity interest in the Company equivalent to 300%
of the annual retainer for Board service. Directors may elect to receive 100%
of their retainer in the form of restricted common stock of the Company.
Directors who have met or exceeded the Board's minimum stock ownership goal
may elect to receive up to 100% of their annual retainer in cash. The Company
maintains a major medical expense insurance policy which is available to all
directors of the Company. The policy covers the medical and dental expenses of
the directors in excess of the coverage provided by the director's primary
health insurance program.
OUTSIDE DIRECTORS' PLANS
The Company has two unfunded deferred compensation plans for non-employee
members of its Board of Directors. Under the Deferred Directors' Fee Plan, as
amended, such directors may make an irrevocable election annually to defer
receipt of all or a portion of the directors' fees payable to them until
termination of their membership on the Board of Directors. Such amounts
deferred prior to January 1, 1998 are deemed to be invested in the Company's
common stock or, at the election of the director, in the common stock of any
of the Company's majority-owned public subsidiaries, and during the period of
deferral, such deferred amounts are credited with the dividends or stock
splits that would be received had such investment actually been made. Upon
termination of the director's service, the common stock deemed reflected by
his or her deferred account is deemed to be sold, and the deemed proceeds of
such sale (or an amount equal to the amount originally deferred, if greater)
will be distributed to the director in cash, in a lump sum or installments.
Accounts deferred after December 31, 1997 will be credited with interest from
time to time at a rate equal to the weekly average rate on the ten year U.S.
Treasury Note. Upon termination of the director's service, the value of the
account on the books of the Company will be distributed to the director in
cash, in a lump sum or installments.
Under the Directors' Phantom Stock Plan, certain non-employee directors
received a one-time grant of 5,000 Phantom Shares at the time of adoption of
such plan or at the time they first became directors. Each of such Phantom
Shares was initially deemed to be equal in value to one share of the Company's
common stock at the time of award. Phantom Shares are credited to a
bookkeeping account which is adjusted to reflect stock (but not cash)
dividends or stock splits which would be received with respect to an
equivalent number of shares of the Company's common stock. Upon termination of
the director's service, the director is paid an amount in cash, in a lump sum
or installments, for each Phantom Share then credited to his or her account,
equal to the then difference between the market price of the Company's common
stock at the time of award and the average closing prices of one share of the
Company's common stock on the New York Stock Exchange Composite Tape for the
most recent 10 consecutive trading days immediately preceding such
termination. In 1991, the Company's Board of Directors terminated its
authority to make additional grants under the Directors' Phantom Stock Plan.
STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS
The 1992 Stock Option Plan for Non-Employee Directors (the "Directors Plan")
of the Company provides for the awards of options covering an aggregate of
150,000 shares of the Company's common stock. Each director of the Company
first elected in 1997 or thereafter who is neither an officer nor full-time
employee of the Company or any of its subsidiaries, upon election or
appointment to the Board of Directors, is granted an option to purchase 3,000
shares of the Company's common stock on the date of election and on the next
four
108
<PAGE>
anniversaries if re-elected. Each such director elected before 1997 received
an option to purchase a total of 15,000 shares of the Company's common stock
on the date of his or her election. All options under the Directors Plan are
granted at the fair market value of the stock at the time of grant and are for
a term of 10 years from the date of grant. Options granted in 1997 or
thereafter become exercisable after one year following the grant date. Options
granted prior to 1997 become exercisable with respect to 20% of the total
number of shares subject to the option six months after the date of grant and
with respect to an additional 20% at the end of each 12-month period
thereafter on a cumulative basis during the succeeding four years.
Under the Directors Plan, in the event that the Company's shares of common
stock are changed by a stock dividend, split or combination of shares, or a
merger, consolidation or reorganization with another company in which holders
of the Company's common stock receive other securities, or any other relevant
change in the capitalization of the Company, a proportionate or equitable
adjustment will be made in the number or kind of shares subject to unexercised
options or available for options and in the purchase price for shares. If an
option expires or is terminated or cancelled unexercised as to any shares,
such released shares may again be optioned (including a grant in substitution
for a cancelled option). Shares subject to options may be made available from
unissued or reacquired shares of common stock.
Options are not transferable by the optionee otherwise than by will or the
laws of descent and distribution, provided that the Board of Directors may
grant options that are transferable, without payment of consideration, to
immediate family members of the optionee or to trusts or partnerships for such
family members or to charitable organizations (each an "Option Transferee"),
subject to the Company's procedures for administration, and may amend
outstanding options to provide for such transferability. Options terminate if
the optionee ceases to be a director of the Company for any reason other than
death, permanent disability, resignation or retirement. If the optionee ceases
to be a director because of death or permanent disability, the optionee or the
optionee's heirs, legatees, legal representative or the Option Transferee may
exercise the option in full at any time during its term within three months
after the date of termination. In the event of resignation or retirement, an
option may be exercised by the optionee (or if the optionee dies within three
months after such termination, by the optionee's heirs, legatees or legal
representative) or the Option Transferee at any time during its specified term
prior to three months after the date of such resignation or retirement, but
only to the extent it was exercisable at the date of such resignation or
retirement.
Prior to January 1, 1992, upon election to the Board of Directors non-
employee directors received options for 10,000 shares under the Company's 1981
Stock Option Plan for Non-Employee Directors (the "1981 Plan"), the terms of
which are substantially similar to the Directors Plan. No person who is the
holder of an option granted under the 1981 Plan or the Employee Plans or who
has purchased shares upon the exercise of such an option is eligible for a
grant of options under the Directors Plan.
DIRECTORS' CHARITABLE ENDOWMENT PROGRAM
The Company maintains a Directors' Charitable Endowment Program pursuant to
which the Company has purchased life insurance policies on members of the
Board of Directors. Under the program, death benefits will be paid to the
Company, and the Company in turn will donate such death benefits (up to
$100,000 for each year of service on the Company's Board of Directors, subject
to a $1,000,000 limit) to one or more charitable organizations recommended by
the director. Directors derive no financial benefit from this program because
all charitable deductions accrue solely to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee of the Company's Board of
Directors consisted during 1997 of Messrs. Pedersen (Chairman), Arnelle,
Edwards, Montrone and Peterson and Dr. Cafferty. There are no interlocks
requiring disclosure or insider members of this committee.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth certain information as of February 1, 1998 as
to the beneficial ownership of common stock of the Company by the directors
and, each person who served as Chief Executive Officer during 1997, the four
other most highly compensated executive officers of the Company as of December
31, 1997, two additional individuals who were not serving as executive
officers at December 31, 1997, but for whom disclosure is required pursuant to
the rules of the Securities and Exchange Commission (the "SEC"), and all
directors and persons serving as executive officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
SHARES OF COMMON STOCK COMMON
OTHER THAN OF THE COMPANY STOCK
EXERCISABLE EXERCISABLE BENEFICIALLY OF THE
OPTIONS OPTIONS OWNED(2) COMPANY
----------- ----------- ---------------- ----------
<S> <C> <C> <C> <C>
Directors
(Other than Executive
Officers)
H. Jesse Arnelle......... 1,338 15,000 16,338(3) *
Pastora San Juan
Cafferty................ 5,000 12,000 17,000 *
Jerry E. Dempsey......... 395,020 0 395,020 *
James B. Edwards......... 2,277 9,000 11,277 *
Donald F. Flynn.......... 508,234 0 508,234 *
Roderick M. Hills........ 1,021 0 1,021 *
Paul M. Montrone......... 4,500 3,000 7,500 *
Peer Pedersen............ 232,258 0 232,258(3) *
James R. Peterson........ 84,068 0 84,068(3) *
John C. Pope............. 4,621 0 4,621 *
Steven G. Rothmeier...... 1,511 3,000 4,511 *
Alexander B. Trowbridge.. 2,400 0 2,400(3) *
Current and Former
Executive Officers(1)
Robert S. Miller......... 1,511 0 1,511(3)
Dean L. Buntrock......... 2,133,305 1,172,645 3,305,950 *
Jerry W. Caudle.......... 44,387 120,291 164,678 *
Herbert A. Getz.......... 82,564 182,762 265,326 *
Joseph M. Holsten........ 63,193 67,924 131,117 *
William P. Hulligan...... 42,634 218,609 261,243 *
James E. Koenig.......... 100,883 450,894 551,777 *
Ronald T. LeMay.......... 0 0 0 *
D. P. Payne.............. 51,543 299,167 350,710 *
Phillip B. Rooney........ 73,951 1,258,537 1,332,488 *
All directors and executive
officers as a group
including persons named
above (27 persons)........ 3,948,118 4,070,494 8,018,612 1.8%
</TABLE>
- --------
*Less than 1 percent.
(1) Pursuant to the Company's Non-Qualified Profit Sharing and Savings Plus
Plan, Messrs. Buntrock, Caudle, Getz, Holsten, Hulligan, Payne, Rooney and
all executive officers as a group acquired beneficial ownership of the
equivalent of an additional 77,943, 11,791, 368, 311, 25,737, 17,937,
66,086 and 209,868 shares, respectively, of common stock of the Company in
connection with their voluntary deferral of incentive awards pursuant to
the terms of the Company's Corporate Incentive Bonus Plan.
(2) Directors and executive officers included in the group have sole voting
power and sole investment power over shares listed, except (i) shares
covered by options granted under the Company's stock option plans which
were exercisable within 60 days of February 1, 1998; (ii) shares held
pursuant to the Company's
110
<PAGE>
Profit Sharing and Savings Plan; (iii) Messrs. Edwards, Pedersen and
Peterson, whose shares listed above include 312, 12,856 and 1,668 shares
issuable upon conversion of the convertible subordinated notes due 2005 of
the Company ("Company Notes"), respectively; and (iv) Messrs. Buntrock,
Dempsey, Getz, Koenig, Miller and Pedersen, and all executive officers and
directors as a group (including such individuals), who have shared voting
and investment power over 146,833, 394,020, 42,032, 52,631, 1,000, 19,402
and 657,918 shares, respectively. Such shares shown for Messrs. Buntrock,
Dempsey, and Pedersen are held in trusts or foundations over which such
individuals share voting and investment power with other co-trustees or
directors of such trusts and foundations. Such shares shown for Messrs.
Getz, Koenig and Miller are held jointly with their spouses. Ownership of
shares shown for Messrs. Buntrock, Dempsey, Edwards, Getz, Koenig and Pope,
and for all executive officers and directors as a group, includes shares of
common stock of the Company not held directly by them but held by or for the
benefit of (i) their spouses or (ii) their minor children and other children
residing with them, as to which they have neither investment power nor
voting power. Shares were held by or for the benefit of such spouses or
children of the following persons and the executive officers and directors
as a group at February 1, 1998, in the amounts indicated: Mr. Buntrock--
41,373 (held by spouse); Mr. Dempsey--1,000 (held by spouse); Dr. Edwards--
254 (held by spouse with 104 such shares issuable upon conversion of Company
Notes), Mr. Getz--240 (held by spouse), Mr. Koenig--30 (held by spouse), Mr.
Pope--600 (held in trust for children); and all executive officers and
directors as a group (including such individuals)--43,604. Additionally,
ownership of shares shown for Mr. Koenig includes 1,200 shares held by him
as trustee of a family trust in which Mr. Koenig has no pecuniary interest.
Each of the above named persons and the members of such group disclaim any
beneficial ownership of such shares.
(3) Pursuant to the Company's Deferred Directors' Fee Plan, described below
under "Outside Directors' Plans," Messrs. Arnelle, Miller, Pedersen, and
Peterson have also acquired beneficial ownership of the equivalent of
1,239, 1,158, 30,541 and 4,950 shares, respectively, of the Company's
common stock through their voluntary deferral of all or a portion of their
directors' fees. Pursuant to the Company's Directors' Phantom Stock Plan,
described below under "Outside Directors' Plans," Messrs. Pedersen,
Peterson and Trowbridge each have also acquired beneficial ownership of the
equivalent of 40,000 shares of the Company's common stock.
111
<PAGE>
OWNERSHIP OF WTI COMMON STOCK
The following table sets forth certain information as of February 1, 1998 as
to the beneficial ownership of WTI common stock by the directors, each person
who served as Chief Executive Officer during 1997, the four other most highly
compensated executive officers of the Company as of December 31, 1997, two
additional individuals who were not serving as executive officers at December
31, 1997, but for whom disclosure is required under SEC rules, and all
directors and persons serving as executive officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF WTI
COMMON STOCK PERCENT OF
BENEFICIALLY WTI COMMON
NAME OWNED(1)(2)(3) STOCK(2)(3)
- ---- -------------- -----------
<S> <C> <C>
Directors (Other than Executive Officers)
H. Jesse Arnelle.................................. 0 *
Pastora San Juan Cafferty......................... 0 *
Jerry E. Dempsey.................................. 34,336 *
James B. Edwards.................................. 0 *
Donald F. Flynn................................... 45,245 *
Roderick M. Hills................................. 0 *
Paul M. Montrone.................................. 256,000 *
Peer Pedersen..................................... 0 *
James R. Peterson................................. 0 *
John C. Pope...................................... 0 *
Steven G. Rothmeier............................... 0 *
Alexander B. Trowbridge........................... 0 *
Executive Officers
Robert S. Miller................................. 0 *
Dean L. Buntrock.................................. 116,377 *
Jerry W. Caudle................................... 0 *
Herbert A. Getz................................... 73,414 *
Joseph M. Holsten................................. 0 *
William P. Hulligan............................... 0 *
James E. Koenig................................... 1,500 *
Ronald T. LeMay................................... 0 *
D. P. Payne....................................... 0 *
Phillip B. Rooney................................. 10,000 *
All directors and executive officers as a group
including persons named above
(27 persons)....................................... 536,872 *
</TABLE>
- --------
*Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over WTI shares listed, except (i) WTI
shares covered by options exercisable within 60 days of February 1, 1998;
(ii) 10,000 WTI shares deemed to be beneficially owned by each of Messrs.
Buntrock, Flynn and Rooney as a result of restricted units granted
pursuant to WTI's Restricted Unit Plan for Non-Employee Directors, (iii)
1,000 shares held by Mr. Dempsey's spouse and (iv) Messrs. Getz and
Koenig, and all executive officers and directors as a group, who have
shared voting and investment power over 73,414, 1,500 and 74,914 WTI
shares, respectively. Such shares shown for Messrs. Getz and Koenig are
held jointly with their spouses. Such persons disclaim any beneficial
ownership of the WTI shares subject to such restricted units.
(2) Excludes an aggregate of 104,621,810 WTI shares beneficially owned by the
Company that may be deemed beneficially owned by Mr. Miller because he may
be deemed to be an affiliate of the Company. Mr. Miller disclaims any
beneficial ownership of such WTI shares.
112
<PAGE>
(3) The numbers and percentages of WTI shares shown in the table above are
based on the assumption that currently outstanding stock options covering
WTI shares which were exercisable within 60 days of February 1, 1998 had
been exercised as follows: Mr. Montrone--256,000; and all executive
officers and directors as a group (including such individuals)--256,000.
Such persons and the members of such group disclaim any beneficial
ownership of the shares subject to such options.
OWNERSHIP OF WM INTERNATIONAL ORDINARY SHARES
The following table sets forth certain information as of February 1, 1998 as
to the beneficial ownership of WM International ordinary shares (including
ordinary shares represented by American Depositary Shares) by the directors,
each person who served as Chief Executive Officer during 1997, the four other
most highly compensated executive officers of the Company as of December 31,
1997, two additional individuals who were not serving as executive officers at
December 31, 1997 but for whom disclosure is required under SEC rules, and all
directors and persons serving as executive officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF WM
INTERNATIONAL
ORDINARY PERCENT OF WM
SHARES INTERNATIONAL
BENEFICIALLY ORDINARY
NAME OWNED(1)(2)(3) SHARES(2)(3)
- ---- -------------- -------------
<S> <C> <C>
Directors (Other than Executive Officers)
H. Jesse Arnelle................................ 0 *
Pastora San Juan Cafferty....................... 0 *
Jerry E. Dempsey................................ 5,000 *
James B. Edwards................................ 2,000 *
Donald F. Flynn................................. 250,000 *
Roderick M. Hills............................... 0 *
Peer Pedersen................................... 5,000 *
James R. Peterson............................... 0 *
John C. Pope.................................... 0 *
Steven G. Rothmeier............................. 0 *
Alexander B. Trowbridge......................... 300 *
Current and Former Executive Officers
Robert S. Miller................................ 0 *
Dean L. Buntrock................................ 211,600 *
Jerry W. Caudle................................. 0 *
Herbert A. Getz................................. 40,000 *
Joseph M. Holsten............................... 307,666 *
William P. Hulligan............................. 50,000 *
James E. Koenig................................. 202,500 *
Ronald T. LeMay................................. 0 *
D. P. Payne..................................... 200 *
Phillip B. Rooney............................... 210,000 *
All directors and executive officers as agroup
including persons named above (27 persons)...... 1,708,099 *
</TABLE>
- --------
*Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over WM International shares listed,
except (i) WM International shares covered by options exercisable within
60 days of February 1, 1998; and (ii) Messrs. Koenig, Payne, and
Trowbridge, and all executive officers and directors as a group (including
such individuals), who have shared voting and investment power
113
<PAGE>
over 2,500, 200, 300 and 3,000 WM International shares, respectively. Such
WM International shares shown for Messrs. Koenig, Payne and Trowbridge are
held jointly with their respective spouses. Ownership of shares shown for
Messrs. Buntrock and Dempsey includes WM International shares not held
directly by them but held by or for the benefit of their spouses as to
which they have neither investment power nor voting power. WM International
shares were held by or for the benefit of such spouses of the following
persons at February 1, 1998 in the amounts indicated: Mr. Buntrock--1,500;
Mr. Dempsey--5,000. Each of the above named persons disclaims any
beneficial ownership of such shares.
(2) Excludes an aggregate of 300,000,000 WM International shares beneficially
owned by the Company that may be deemed beneficially owned by Messrs.
Miller and Holsten because each such person may be deemed to be an
affiliate of the Company. Excludes an aggregate of 45,000,000 WM
International shares beneficially owned by WTI that may be deemed
beneficially owned by Mr. Miller because he may be deemed to be an
affiliate of WTI. Each such person disclaims any beneficial ownership of
such WM International shares.
(3) The numbers and percentages of WM International shares shown in the table
above are based on the assumption that currently outstanding stock options
covering WM International shares which were exercisable within 60 days of
February 1, 1998 had been exercised as follows: Messrs. Buntrock, Flynn,
Getz, Koenig, Holsten and Rooney 200,000, 200,000, 40,000, 200,000,
306,666 and 200,000, respectively; and all executive officers and
directors as a group (including such individuals)--1,569,999. Such persons
and members of such group disclaim any beneficial ownership of the shares
subject to such options.
114
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company does not know of any person who, as of February 1, 1998,
directly owned more than five percent of the Company's outstanding common
stock. The Company, however, received a copy of a Schedule 13D filed by a
group consisting of George Soros, Soros Fund Management LLC, Quantum
Industrial Partners LDC, QIH Management Investor, L.P., QIH Management, Inc.,
Stanley F. Druckenmiller, and Duquesne Capital Management, L.L.C. The Schedule
13D filed by such persons indicate that such persons may be deemed to be a
group within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended. The Company also received a Schedule 13G for the year ended
December 31, 1997 from Barrow, Hanley, Mewhinney & Strauss, Inc. ("BHMS").
Pursuant to the aggregation and attribution rules relating to the beneficial
ownership of securities promulgated under the Securities Exchange Act of 1934,
as amended, BHMS is deemed to be the beneficial owner of such shares shown
because BHMS is an investment management company which exercises discretionary
investment management over accounts holding such shares. No managed account
alone owns five percent or more of the Company's common stock. The information
presented in the following table is taken from the above-referenced Schedules
13D and 13G:
<TABLE>
<CAPTION>
TITLE AMOUNT AND NATURE
OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
------ ----------------------------------------- ----------------- ----------
<S> <C> <C> <C>
Common Barrow, Hanley, Mewhinney & Strauss, Inc. 22,684,500 5.0
Stock One McKinney Plaza
3232 McKinney Avenue
Dallas, Texas 75204-2429
Common George Soros 25,225,600 5.5
Stock Soros Fund Management LLC
QIH Management Investor, L.P.
QIH Management, Inc.
Stanley F. Druckenmiller
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Quantum Industrial Partners LDC
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Duquesne Capital Management, LLC
2579 Washington Road, Suite 322
Pittsburgh, Pennsylvania 15241-2591
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors has designated several committees of the Board,
including a Compensation and Stock Option Committee, an Audit Committee and a
Nominating and Governance Committee. The Board of Directors held an aggregate
of 17 regular and special meetings in 1997.
The Compensation and Stock Option Committee is responsible for making
recommendations to the Board of Directors regarding salaries and incentive
awards to be paid to executive officers of the Company, and for the
administration of and the grant of equity-based incentives under the Company's
1997 Equity Incentive Plan (the "1997 Company Plan"), and the administration
of the Company's 1982 Stock Option Plan, as amended (the "1982 Company Plan")
and 1992 Stock Option Plan (the "1992 Company Plan" and together with the 1982
Company Plan and the 1997 Company Plan, the "Employee Plans"). The Audit
Committee's functions include making recommendations to the Board of Directors
on the selection of the Company's independent auditors, reviewing the
arrangements for and scope of the independent auditors' examination, reviewing
the results of the annual audit, meeting with the independent auditors, the
Board of Directors and certain officers of the Company
115
<PAGE>
to review the adequacy of internal controls and reporting, reviewing
compliance with the Company's policies on business ethics and environmental,
health and safety compliance and performing any other duties or functions
deemed appropriate by the Board. The Nominating and Governance Committee's
principal function is to identify and propose to the full Board qualified
nominees to fill vacancies on the Board as they occur, and to review and
report to the Board on director compensation, monitor and make recommendations
to the Board as to corporate governance matters and review and make
recommendations to the Board concerning the organization and functioning of
the Board and its committees.
The Compensation and Stock Option Committee currently consists of Messrs.
Pedersen (Chairman), Arnelle, Edwards, Montrone, Peterson and Dr. Cafferty;
the Audit Committee currently consists of Messrs. Hills (Chairman), Pope and
Rothmeier; and the Nominating and Governance Committee currently consists of
Messrs. Trowbridge (Chairman), Arnelle, Miller and Montrone.
During 1997, the Compensation and Stock Option Committee met eleven times,
the Audit Committee met eight times and the Nominating and Governance
Committee met five times. In 1997, during the time each director served in
such capacity, nine directors attended 100% of the aggregate of the regular
and special meetings of the Board of Directors and applicable committee
meetings, six other directors attended at least 85% of the aggregate of all
meetings of the Board of Directors and applicable committee meetings, and Dr.
Edwards attended 70% of the aggregate of all meetings of the Board of
Directors and applicable committee meetings.
116
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
When an option is exercised by an optionee under the Employee Plans or WTI's
stock option plans at a time when the fair market value of the underlying
stock exceeds the option exercise price, the difference is treated as ordinary
income to the optionee for income tax purposes and the company which issued
the options is entitled to a deduction equal to such amount. To facilitate an
optionee's purchase of stock upon exercise of such options, the Company and
WTI each had a policy prior to April 1998 of making available interest-free
loans, in an amount up to the equivalent of all applicable tax withholding
requirements, to optionees whose exercise of options results in ordinary
income to them in excess of $10,000. All such loans normally are required to
be repaid not later than April 15 in the year following the year in which such
loans were made, unless otherwise extended. There were no such loans from the
Company and WTI in excess of $60,000 made pursuant to such policy in 1997.
The Company and WTI also each makes available to optionees interest-free
loans for a period not to exceed 15 days to facilitate the exercise of options
and the sale of the underlying stock. The largest aggregate amounts of such
loans from the Company and WTI in excess of $60,000 which were outstanding to
the directors and executive officers of the Company since January 1, 1997 were
as follows: Mr. Koenig--$1,416,800. Such loan was repaid within the 15-day
period. The Company also extended Mr. Getz a loan in the amount of $2,136,744
to facilitate the exercise of WTI options during an 18-day period in which he
was precluded by Company policy from selling the underlying shares. Such loan
was repaid at the end of such period and did not remain outstanding at March
15, 1998. Mr. Getz was indemnified by the Company against approximately $5,800
of interest on such loan and the income tax consequences of such
indemnification.
In connection with his transfer in 1995 from CWM, where he was President, to
the Company, the Company entered into an employment agreement with D. P. Payne
under which Mr. Payne will be paid a minimum annual salary of $400,000. Mr.
Payne also is eligible to receive annual bonuses and all benefits generally
available to executives of the Company. The term of Mr. Payne's employment
under the agreement continues through December 31, 1999. Upon the death or
permanent disability of Mr. Payne, the Company will pay his then current
salary (including bonuses accrued as of the date of termination) for the
balance of the calendar year in which such death or disability occurs but in
no event for less than 180 days. If the Company terminates Mr. Payne's
employment, it will continue to pay him an amount equal to his base salary
until the end of the term of the agreement plus any unpaid but fully accrued
annual bonus for the prior calendar year payable under the Annual Plan, unless
the termination was for cause, in which case its obligations under the
agreement cease. During the term of the agreement and for two years after the
termination of the agreement, Mr. Payne has agreed not to compete with the
Company or its subsidiaries. In March 1997, the Compensation Committee
approved granting to Mr. Payne 34,500 restricted shares of common stock under
the Company's 1997 Equity Incentive Plan (the "1997 Equity Plan"). In June
1997, Mr. Payne's employment agreement was amended to provide that in the
event he should be terminated without cause during the term of the agreement
or at any time thereafter, he would be provided with a minimum of ten years'
service credit under the SERP. In February 1998, Mr. Payne entered into a new
employment security agreement with the Company which superseded his prior
agreement and which contains terms that are substantially similar to the
agreements discussed below that were extended to certain other senior officers
in March 1997. The terms of Mr. Payne's March 1997 restricted stock award
agreement are also substantially similar to those awarded to such other
officers at such time (see discussion below).
In June 1996, in connection with his election as the Company's Chief
Executive Officer, the Company entered into an amended and restated employment
agreement with Phillip B. Rooney. The agreement replaced an agreement
originally entered into between the Company and Mr. Rooney in 1986. Under the
agreement Mr. Rooney would be paid a minimum annual salary of $1,250,000 as
President and Chief Executive Officer of the Company. Mr. Rooney also was
eligible to receive annual bonuses and all benefits generally available to
executives of the Company. The Company also agreed to provide Mr. Rooney with
a split-dollar life insurance arrangement with a death benefit of
approximately $10 million. The term of Mr. Rooney's employment under the
agreement was to continue through June 6, 2001 and would have been
automatically extended on each anniversary date for a period of five years
from such anniversary date unless either party gave written notice of
termination prior to the anniversary date. Upon the death or permanent
disability of Mr. Rooney, the Company
117
<PAGE>
would have paid annually $2,500,000 for the balance of the term of the
agreement. If the Company breached or terminated the agreement or reduced the
nature and scope of Mr. Rooney's authority and duties, it would have continued
to pay him for five years unless the termination was for cause, in which case
its obligations under the agreement would have ceased. In the event of a
change in control of the Company, Mr. Rooney was entitled to elect to
terminate the agreement and receive a lump sum payment of three times his
average annual compensation (including bonuses) over the immediately preceding
five years, which amount would be increased should an excise tax be imposed on
him because of the payment. Were a change in control of the Company to have
occurred on December 31, 1997 and if Mr. Rooney's employment with the Company
were terminated as provided in the employment agreement, it is estimated that
Mr. Rooney would have been eligible to receive approximately $5,457,620
(assuming no increase for any excise tax). During the term of the agreement
and for a period of three years thereafter, Mr. Rooney agreed not to compete
with the Company or its subsidiaries. In connection with Mr. Rooney's
resignation as President and Chief Executive Officer on February 17, 1997, the
Company gave notice of its decision to terminate such agreement. As a result
of such notice, the agreement will terminate on February 17, 2002, unless
earlier terminated pursuant to the agreement. During 1997, Mr. Rooney began to
receive cash compensation under the agreement at an annual rate of $2,500,000
in lieu of all salary, bonuses, incentive or other performance-based
compensation and the Compensation Committee accelerated the vesting of all
unvested stock options held by Mr. Rooney.
In August 1996, the Company entered into employment agreements with James E.
Koenig, former Executive Vice President of the Company, and Herbert A. Getz,
Senior Vice President and General Counsel of the Company (the "Executives").
The agreements provide that Mr. Koenig would be paid a minimum annual salary
of $600,000 and Mr. Getz would be paid a minimum annual salary of $450,000.
Each of the Executives also would be eligible to receive annual bonuses and
all benefits generally available to executives of the Company. The term of the
Executive's employment under each of the agreements continues until August 14,
1999 and is automatically extended on each anniversary date for a period of
three years from such anniversary date unless the Company gives notice of
termination, in which case the term is automatically extended and expires
three years from the date of such notice. Upon the death or permanent
disability of the Executive, the Company will pay annually the Executive's
then current base salary for thirty-six months. If the Company terminates the
agreement or reduces the nature and scope of the Executive's duties or
relocates the primary employment location of the Executive, it will continue
to pay him his then current base salary and his prorated annual bonus and long
term bonus for three years unless the termination was for cause, in which case
its obligations under the agreement cease. In the event of a change of control
of the Company, the Executive may elect to terminate the agreement and receive
a lump sum payment of three times his average annual compensation (including
bonuses) over the immediately preceding five years, which amount will be
increased should an excise tax be imposed on him because of the payment. Were
a change in control to have occurred on December 31, 1997 and if each
Executive's employment with the Company were terminated as provided in the
employment agreements, it is estimated that Messrs. Koenig and Getz would have
been eligible to receive approximately $2,113,081 and $1,479,101, respectively
(assuming no increase for any excise tax). During the term of the agreements,
and for a period of one year thereafter, each Executive has agreed not to
compete with the Company or its subsidiaries. Concurrently with the execution
of the employment agreements, the Company granted to Mr. Koenig 45,000 shares
of its common stock and to Mr. Getz 35,000 shares of its common stock, subject
in each case to a restricted stock agreement. Under the terms of the
restricted stock agreements, the Executive cannot sell, assign, pledge or
otherwise transfer such shares until the expiration of the period of the
covenant not to compete contained in the employment agreement or his death or
permanent disability. Except as provided below, if the Executive voluntarily
terminates his employment prior to the tenth anniversary of the grant of such
shares, all shares shall be forfeited. If such termination occurs after such
tenth anniversary, such shares shall be vested, but remain subject to such
restrictions. Vesting accelerates upon termination by the Company of the
Executive's employment other than for cause, upon his retirement on or after
reaching age 60, if the Company reduces the nature or scope of his authority
and duties or his compensation or changes the location of his employment, or
upon his death or permanent disability. Dividends upon such shares are deemed
to be reinvested in additional shares and subject to the same restrictions. In
connection with Mr. Koenig's resignation as Executive Vice President on
October 31, 1997, the Company gave notice of its decision to terminate Mr.
Koenig's employment
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agreement. As a result of such notice, the agreement will terminate on October
31, 2000, unless earlier terminated pursuant to the agreement. During 1997,
Mr. Koenig began to receive cash compensation at an annual rate of $600,000.
On March 10, 1998, the Company's Board of Directors approved an amendment to
Mr. Getz's employment agreement to fix the amounts payable thereunder in the
event the Company terminates Mr. Getz's employment without cause or he is
constructively discharged at $900,000 per year. This amount represents his
current base salary plus his target annual and long-term incentive levels. In
consideration thereof, the Company obtained a commitment from Mr. Getz to
remain with the Company through the Merger with USA Waste and for a reasonable
transition time thereafter, which will be until at least June 30, 1999 unless
terminated earlier by the Company.
In March 1997, the Company's Board of Directors approved an employment
security agreement with John D. Sanford, the Company's Senior Vice President
and Chief Financial Officer. Mr. Sanford voluntarily resigned on October 29,
1997. The term of the agreement was to continue until March 11, 1999, and was
to be automatically extended on each anniversary date for a period of two
years from such anniversary date unless a party were to give 30 days' prior
written notice of termination. If the Company were to have terminated Mr.
Sanford's employment, or reduced the nature and scope of Mr. Sanford's duties
or relocated his primary employment location, it would have continued to pay
him his then current base salary for two years and his prorated annual bonus
for the year of such termination, reduction or relocation, unless the
termination was for cause, in which case its obligations under the agreement
would cease. In addition, the Company was required to request the Compensation
Committee to accelerate all of Mr. Sanford's unvested stock options. During
the term of the agreement and for a period of one year thereafter, Mr. Sanford
agreed not to compete with the Company or its subsidiaries. The Compensation
Committee also granted to Mr. Sanford 28,800 restricted shares of its common
stock under the 1997 Equity Plan. Upon Mr. Sanford's voluntary termination of
his employment, all shares were forfeited.
In March 1997, the Company's Board of Directors approved employment security
agreements with Jerry W. Caudle, James E. O'Connor, Michael J. Cole and L.
Michael Collier, each a Senior Vice President of the Company, and Donald R.
Chappel, Vice President and Acting Chief Financial Officer of the Company, the
terms of which are substantially similar to Mr. Sanford's employment security
agreement. The Compensation Committee also granted shares of restricted common
stock under the Company's 1997 Equity Plan to such officers in the following
amounts: Mr. Caudle--23,900; Mr. O'Connor--23,600; Mr. Cole--23,200; Mr.
Collier--23,900; and Mr. Chappel--17,700. Under the terms of the restricted
stock award agreement entered into in connection with this grant, and except
as provided below, the officer will not be able to sell, assign, pledge or
otherwise transfer such shares prior to ten years from the date of the grant.
If the officer voluntarily terminates his employment before the tenth
anniversary of the date of the grant, or if he should be terminated by the
Company for cause, all shares will be forfeited. Vesting of all such shares
will accelerate upon a change in control of the Company, the officer's
retirement after age 62, or his death or disability. If the officer's
employment is terminated without cause, the vesting of such shares will be
accelerated at 2.5% of the grant for every three months of completed service
after the date of the grant. Release of vested shares will occur upon
satisfaction of the obligation not to compete under the officer's employment
security agreement. Dividends upon such shares will be deemed to be reinvested
in additional shares and subject to the same restrictions. The Company also
entered into a similar agreement with Mark T. Spears, Vice President and
Controller of the Company, in July 1997, but without making a grant of
restricted shares.
In June 1997, the Company's Board of Directors approved an employment
security agreement with Joseph M. Holsten, the Company's Executive Vice
President and Chief Operating Officer. The term of the agreement continues
until June 20, 2000, provided that unless a party gives 30 days' prior written
notice on June 20, 1998 and on each successive June 20, the term of the
agreement shall be renewed for a period ending on the earlier of the date
three years from such June 20 or the date of his sixty-second birthday unless
earlier terminated pursuant to the terms of the agreement. The agreement
provides for Mr. Holsten's salary to be increased to $650,000 as of June 20,
1997, and for him to be paid a cash bonus of $300,000 for 1997. If the Company
terminates Mr. Holsten's employment, or reduces the nature and scope of Mr.
Holsten's duties or relocates his primary employment location, it will
continue to pay him his then current base salary for three years and his
prorated
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annual and long term incentive plan compensation with respect to any
participation rights in the Company's annual or long term incentive plans
which have been awarded prior to the date of the notice of termination, unless
the termination was for cause, in which case all of the Company's obligations
under the agreement will cease. In addition, under such circumstances the
Company will request the Compensation Committee to accelerate all of Mr.
Holsten's unvested stock options. During the term of the agreement and for a
period of one year thereafter or during the three-year period after
termination, if longer, Mr. Holsten has agreed not to compete with the Company
or its subsidiaries. The Compensation Committee also granted to Mr. Holsten
55,000 shares of restricted common stock under the 1997 Equity Plan. The terms
of Mr. Holsten's restricted stock award agreement are substantially similar to
those extended to certain other senior officers in March 1997. The
Compensation Committee also approved granting to Mr. Holsten options to
acquire 100,000 shares of the Company's common stock under the 1997 Equity
Plan. In connection with the agreement, the Company has agreed to loan Mr.
Holsten $1,000,000 to purchase shares of the Company's common stock at an
annual rate equal to the three month London Interbank Offered Rate for the
first London business day of each quarter that the loan is outstanding.
In June 1997, the Company entered into a Supplemental Retirement Benefit
Agreement with Thomas C. Hau, then the Company's Vice President, Controller
and Principal Accounting Officer, which provides that, if Mr. Hau remains
employed by the Company until at least April 1, 1998, or such earlier date as
his employment is terminated as a result of death, disability or involuntary
termination other than for cause, the monthly SERP benefit payable to Mr. Hau
shall be equal to three percent of Mr. Hau's Final Average Compensation per
year of service, and that Mr. Hau's benefits under the Company's Non-Qualified
Profit Sharing and Savings Plus Plan will be vested.
Effective July 13, 1997, the Company entered into an employment agreement
with Ronald T. LeMay, in connection with his election as Chairman of the
Board, President and Chief Executive Officer of the Company. Mr. LeMay
voluntarily resigned on October 29, 1997. The term of Mr. LeMay's employment
under the agreement was to continue until July 13, 2002, and was to be
automatically extended for additional one-year periods after such date unless
either party were to give at least 12 months prior written notice electing not
to extend the term of employment. The employment agreement provided that Mr.
LeMay would be paid an annual base salary of $1,500,000, subject to increase
in the discretion of the Board of Directors, and would participate in the
Company's Corporate Incentive Bonus Plan with a target bonus opportunity equal
to 80% of his base salary and with his 1997 incentive award to be not less
than $1 million. The agreement also provided that Mr. LeMay would participate
in the LTIP, with guaranteed minimum payouts of $350,000 and $250,000 for the
performance periods ending in 1998 and 1999, respectively. The agreement
further provided that Mr. LeMay would be awarded options to acquire 500,000
shares of the Company's common stock in each of four years beginning in April
1998 at an exercise price not less than the closing sale price of the common
stock on the date of grant. Each such future option grant would have vested
nine and one-half years after the date of grant, provided that if the price of
a share of the Company's common stock were at least 1.6105 times the exercise
price for at least 30 trading days within a consecutive period of 45 trading
days between the fourth and fifth anniversaries of the date of grant, that
grant would become exercisable on the fifth anniversary of the date of the
grant.
Pursuant to the employment agreement, Mr. LeMay was granted under the 1997
Equity Plan (a) 353,000 restricted shares of the Company's common stock with
terms substantially similar to those of Mr. Caudle's restricted stock award
described above, except that the restrictions were to lapse with respect to
20% of the restricted shares on each of the first five anniversaries of the
award date, and (b) options to purchase a total of two million shares of the
Company's common stock at an exercise price of $33.10 per share. Under the
employment agreement, Mr. LeMay was also granted stock appreciation rights
with respect to 500,000 shares of Sprint Corporation common stock at an
exercise price of $47.9375 per share, which were to become exercisable on June
9, 2002 and expire on June 8, 2007. Mr. LeMay was granted stock appreciation
rights with respect to an additional 500,000 shares of Sprint Corporation
common stock at the same exercise price, which were to become exercisable on
the fifth anniversary of the grant date only if the fair market value of
Sprint Corporation common stock were at least $95.875 per share on any 30
trading days within a consecutive period of 45 trading days between the fourth
and fifth anniversaries of the grant date, or alternatively, if such condition
were not met, on
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the last day of such a 45-day period between the fourth and sixth
anniversaries of the grant date but only if the fair market value of Sprint
Corporation common stock were at least $95.875 on any 30 trading days during
such period. Under the employment agreement, Mr. LeMay also received credit
for 12 years of benefit and eligibility service under the SERP upon
commencement of employment (with his SERP benefits to vest at the rate of 20%
on each of the first five anniversaries of the effective date of the
employment agreement and to be offset by any other pension benefit he may have
received from the Company or Sprint Corporation), and was also entitled to a
survivor benefit in the form of 10 annual payments each equal to 25% of his
highest annual salary during the five-year period immediately preceding his
death if he were to die before retirement (or if he were to die after retiring
or becoming permanently disabled, a benefit equal to 300% of his highest
annual salary during the five-year period immediately prior to the time of his
retirement or disability, payable either in a lump sum or in installments). At
least 13 months before retirement, Mr. LeMay was permitted to elect a
supplemental retirement benefit in lieu of all or a portion of such survivor
benefit.
In the event Mr. LeMay's employment were terminated due to his death, the
Company would have been required to pay his base salary through the end of the
month in which the death occured, he would have received pro rata payouts of
any annual incentive and LTIP awards, his outstanding stock options would have
been exercisable until the earlier of the first anniversary of the date of
death or the tenth anniversary of the date of grant, the restrictions on his
restricted stock would have lapsed, and the Sprint Corporation stock
appreciation rights would have been exercisable in accordance with their
terms. In the event of his termination due to disability, Mr. LeMay would have
been entitled to receive substantially the same benefits. In the event Mr.
LeMay's employment were terminated without cause or constructively terminated
without cause, the Company would have been obligated to pay his base incentive
and LTIP awards plus an annual incentive award based on his target bonus
opportunity for 24 months following the date of termination, his outstanding
stock options would have been exercisable until the earlier of the third
anniversary of the date of termination or the tenth anniversary of the date of
grant, the restrictions on his restricted stock would have lapsed, and the
Sprint Corporation stock appreciation rights would have been exercisable in
accordance with their terms. In the event of termination without cause or
constructive termination without cause after a change in control of the
Company, Mr. LeMay would have received the same benefits, except that in lieu
of the salary and annual incentive benefits described above, Mr. LeMay would
have received his base salary and annual incentive awards for 36 months
following termination, which amount would have been increased should an excise
tax be imposed on him because of the payments. During the term of his
employment and for a period of three years thereafter, Mr. LeMay agreed not to
compete with the Company or its subsidiaries. As a result of his voluntary
resignation on October 29, 1997, Mr. LeMay forfeited all benefits under his
employment agreement other than salary through the date of resignation.
Effective October 29, 1997, the Company entered into an employment agreement
with Robert S. Miller, Acting Chairman of the Board and Chief Executive
Officer of the Company. The term of Mr. Miller's employment under the
agreement continues until the earlier of (a) approval by the Board of
Directors of the Company of the hiring of a successor as Chairman of the Board
and Chief Executive Officer, (b) Mr. Miller's death or disability, or (c)
termination of his service upon written notice given either by Mr. Miller or
the Board at least seven days prior to the effective date of such termination.
The agreement provides that Mr. Miller will be paid a salary at the annual
rate of $600,000 for so long as he serves as Acting Chairman of the Board and
Chief Executive Officer. Pursuant to the agreement, Mr. Miller was granted an
option under the 1997 Company Plan to purchase 75,000 shares of common stock
at an exercise price of $23.375, exercisable upon the earlier of (a) the
Board's approval of the hiring of Mr. Miller's successor as Chairman of the
Board and Chief Executive Officer, (b) Mr. Miller's death or disability, or
(c) the termination of Mr. Miller's employment by the Board. Upon becoming
exercisable, the option will remain exercisable through the earlier of
November 3, 2007 or the ninetieth day after Mr. Miller ceases to serve as a
member of the Board. The salary and option described above were Mr. Miller's
exclusive compensation for his service as Acting Chairman of the Board and
Chief Executive Officer of the Company. On March 10, 1998, the Board appointed
Robert S. Miller as Chief Executive Officer, approved an increase in his
annual salary to $900,000, named him as a participant in the Annual Plan and
established his 1998 annual incentive target level at 80% of his salary, and
granted him an option for 235,000
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shares of the Company's common stock at an exercise price of $24.3875 on the
same terms as his November 4, 1997 stock option grant. The options expire ten
years after their grant or, if earlier, 90 days following Mr. Miller's
retirement from the Board.
On February 5, 1998, the Company sold an aircraft with a net book value of
$11,491,835 to Dean L. Buntrock, former Chairman of the Board and Chief
Executive Officer of the Company, for $14,058,886 in cash. The price was
determined after the Company obtained four independent appraisals ranging from
$13,772,998 to $14,500,000, with an average of $14,165,124, which was then
reduced by half of the estimated amount of an avoided broker's commission. The
Company also entered into an agreement pursuant to which the Company may lease
the aircraft on a non-exclusive basis. The lease has a one year term, subject
to termination by either party at any time upon thirty days' notice. The
Company also entered into a sublease of hangar space for the aircraft for a
term of one year, renewing annually thereafter, pursuant to which the Company
will recoup approximately 25% of the Company's charges for rent, taxes,
utilities, common area maintenance and other support costs at the Company's
hangar. The Company also entered into a management services agreement pursuant
to which the Company will provide flight crews, maintenance, recordkeeping and
scheduling services for the aircraft. The Company is to be paid a management
fee of $60,000 per year, two pilots' salaries and benefits, one mechanic's
salary and benefits, and 100% of the necessary recurring training costs for
two pilots and one mechanic. In addition, Mr. Buntrock will pay separately all
direct expenses connected with the operation and maintenance of the aircraft.
The Management Services Agreement will have a term of one year. If this
agreement is terminated, the hangar sublease will terminate as well. The terms
of these agreements with Mr. Buntrock were reviewed and approved by the Audit
Committee and the Board of Directors as being fair to the Company and in its
best interests.
On March 10, 1998, the Board approved an employment security agreement with
Paul G. George as the Company's new Senior Vice President--Human Resources.
The term of the agreement continues until March 10, 1999 and automatically
extends on each March 10 for a period of two years from such anniversary date
unless a party were to give 30 days' prior written notice of termination. If
the Company were to terminate Mr. George's employment, or reduce his salary,
benefits or the nature and scope of Mr. George's duties or relocate his
primary employment location, it would continue to pay him his then current
base salary for two years, his prorated annual bonus for the year of such
termination, reduction or relocation and all of Mr. George's unvested stock
options will automatically accelerate, unless the termination was for cause,
in which case its obligations under the agreement would cease. The agreement
also gives Mr. George protection in the form of a tax gross-up payment in the
event an excise tax under Internal Revenue Code Section 4999 is triggered as a
result of the payments under the agreement. During the term of the agreement
and for a period of one year thereafter, Mr. George has agreed not to compete
with the Company or its subsidiaries.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements included in Item 8.
(i) Consolidated Statements of Income for the four years ended December
31, 1997;
(ii) Consolidated Balance Sheets--December 31, 1995, 1996 and 1997;
(iii) Consolidated Statements of Stockholders' Equity for the four years
ended December 31, 1997;
(iv) Consolidated Statements of Cash Flows for the four years ended
December 31, 1997;
(v) Notes to Consolidated Financial Statements; and
(vi) Report of Independent Public Accountants.
(b) Schedule.
Schedule II--Valuation and Qualifying Accounts.
All other schedules have been omitted because the required information is
not significant or is included in the financial statements or the notes
thereto, or is not applicable.
(c) Exhibits.
The exhibits to this report are listed in the Exhibit Index elsewhere
herein. Included in the exhibits listed therein are the following exhibits
which constitute management contracts or compensatory plans or arrangements:
(i) Waste Management, Inc. 1982 Stock Option Plan, as amended to March
11, 1988 (Exhibit 10.3 to registrant's 1988 annual report on Form 10-K);
(ii) Deferred Director's Fee Plan, as amended (Exhibit 10.3 to
registrant's 1990 annual report on Form 10-K);
(iii) Director's Phantom Stock Plan (Exhibit 10.9 to registrant's 1984
annual report on Form 10-K);
(iv) Amended and Restated Employment Agreement, dated as of June 17,
1996, by and between the registrant and Phillip B. Rooney (Exhibit 10.1 to
registrant's report on Form 10-Q for the quarter ended September 30, 1996);
(v) Waste Management, Inc. Corporate Incentive Bonus Plan (Exhibit B to
registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders);
(vi) Waste Management, Inc. Supplemental Executive Retirement Plan, as
amended and restated as of November 11, 1997 (filed with this report);
(vii) Chemical Waste Management, Inc. 1992 Stock Option Plan (Exhibit
10.19 to Chemical Waste Management, Inc.'s 1991 annual report on Form 10-
K);
(viii) Employment Security Agreement dated July 28, 1997 between the
registrant and Mark T. Spears (filed with this report);
(ix) Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended
(Exhibit 10.1 to Chemical Waste Management, Inc.'s 1989 annual report on
Form 10-K);
(x) Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus
Plan (Exhibit 10.11 to registrant's 1995 annual report on Form 10-K);
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(xi) Amendment No. 1 to Waste Management, Inc. Non-Qualified Profit
Sharing and Savings Plus Plan (Exhibit 10.12 to registrant's 1996 annual
report on Form 10-K);
(xii) Amendment No. 2 to Waste Management, Inc. Non-Qualified Profit
Sharing and Savings Plan (filed with this report);
(xiii) Waste Management, Inc. Director's Charitable Endowment Plan
(Exhibit 10.20 to registrant's 1989 annual report on Form 10-K);
(xiv) Supplemental Retirement Benefit Agreement dated as of January 1,
1991 by and between registrant and Donald F. Flynn (Exhibit 10.17 to
registrant's 1990 annual report on Form 10-K);
(xv) Restricted Unit Plan for Non-Employee Directors of Wheelabrator
Technologies Inc. as amended through June 10, 1991 (Exhibit 19.03 to the
report on Form 10-Q of Wheelabrator Technologies Inc. for the quarter ended
June 30, 1991);
(xvi) 1988 Stock Plan for Executive Employees of Wheelabrator
Technologies Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (Exhibit
28.1 to Amendment No. 1 to the registration statement of Wheelabrator
Technologies Inc. on Form S-8, Registration No. 33-31523);
(xvii) Amendments dated as of September 7, 1990 to the WTI 1988 Stock
Plan (Exhibit 19.02 to the 1990 annual report on Form 10-K of Wheelabrator
Technologies Inc.);
(xviii) Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan
(Exhibit 19.04 to the 1990 annual report on Form 10-K of Wheelabrator
Technologies Inc.);
(xix) 1986 Stock Plan for Executive Employees of Wheelabrator
Technologies Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (Exhibit
28.2 to Amendment No. 1 to the registration statement of Wheelabrator
Technologies Inc. on Form S-8, Registration No. 33-31523);
(xx) Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan
(Exhibit 19.03 to the 1990 annual report on Form 10-K of Wheelabrator
Technologies Inc.);
(xxi) Amended and Restated Employment Agreement dated as of June 20, 1997
between the registrant and D. P. Payne (Exhibit 10.21 to Post-Effective
Amendment No. 2 to registrant's registration statement on Form S-1,
Registration No. 333-01327);
(xxii) Waste Management, Inc. 1992 Stock Option Plan (Exhibit 10.31 to
registrant's registration statement on Form S-1, Registration No. 33-
44849);
(xxiii) Waste Management, Inc. Amended and Restated 1992 Stock Option
Plan for Non-Employee Directors (Exhibit 10.23 to registrant's 1996 annual
report on Form 10-K);
(xxiv) Deferred Director's Fee Plan of Wheelabrator Technologies Inc.
adopted June 10, 1991 (Exhibit 19.02 to the quarterly report on Form 10-Q
of Wheelabrator Technologies Inc. for the quarter ended June 30, 1991);
(xxv) Waste Management International plc Share Option Plan (Exhibit 10.1
to the registration statement on Form F-1 of Waste Management International
plc, Registration No. 33-46511);
(xxvi) Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan
(Exhibit 19.01 to the 1991 annual report on Form 10-K of Wheelabrator
Technologies Inc.);
(xxvii) Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan
(Exhibit 19.02 to the 1991 annual report on Form 10-K of Wheelabrator
Technologies Inc.);
(xxviii) Amendment dated as of December 6, 1991 to the Restricted Unit
Plan for Non-Employee Directors of Wheelabrator Technologies Inc. (Exhibit
19.05 to the 1991 annual report on Form 10-K of Wheelabrator Technologies
Inc.);
(xxix) Waste Management, Inc. Long Term Incentive Plan (as amended and
restated as of January 27, 1994) (Exhibit A to registrant's Proxy Statement
for its 1995 Annual Meeting of Stockholders);
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(xxx) Employment Agreement dated as of August 15, 1996 between the
registrant and James E. Koenig (Exhibit 10.2 to registrant's report on Form
10-Q for the quarter ended September 30, 1996);
(xxxi) Employment Agreement dated as of August 15, 1996 between the
registrant and Herbert A. Getz (Exhibit 10.3 to registrant's report on Form
10-Q for the quarter ended September 30, 1996);
(xxxii) Restricted Stock Agreement dated as of August 15, 1996 between
the registrant and James E. Koenig (Exhibit 10.4 to registrant's report on
Form 10-Q for the quarter ended September 30, 1996);
(xxxiii) Restricted Stock Agreement dated as of August 15, 1996 between
the registrant and Herbert A. Getz (Exhibit 10.5 to registrant's report on
Form 10-Q for the quarter ended September 30, 1996);
(xxxiv) Letter Agreement dated as of February 17, 1997 between the
registrant and Phillip B. Rooney (Exhibit 10.38 to registrant's 1996 annual
report on Form 10-K);
(xxxv) Waste Management, Inc. 1997 Equity Incentive Plan (Exhibit A to
registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders);
(xxxvi) Employment Security Agreement dated as of March 11, 1997 between
the registrant and Jerry W. Caudle (filed with this report);
(xxxvii) Employment Security Agreement dated as of June 20, 1997 between
the registrant and Joseph M. Holsten (incorporated by reference to Exhibit
10.40 to Post-Effective Amendment No. 2 to registrant's registration
statement on Form S-1, Registration No. 333-01327);
(xxxviii) Employment Agreement dated as of July 13, 1997 between the
registrant and Ronald T. LeMay (Exhibit 10.1 to registrant's report on Form
8-K dated August 8, 1997);
(xxxix) Letter Agreement dated as of November 4, 1997 between the
registrant and Robert S. Miller (filed with this report);
(xl) Form of restricted stock agreement between registrant and certain
Directors of the registrant (filed with this report);
(xli) Amendment to Employment Agreement dated as of March 10, 1998
between the registrant and Herbert A. Getz (filed with this report);
(xlii) Loan and Indemnification Agreement dated as of November 25, 1997
between the registrant and Herbert A. Getz (filed with this report);
(xliii) Employment Security Agreement dated as of February 9, 1998
between the registrant and Paul G. George (filed with this report);
(xliv) Employment Security Agreement dated as of March 11, 1997 between
the registrant and James E. O'Connor (filed with this report);
(xlv) Employment Security Agreement dated as of March 11, 1997 between
the registrant and Luther Michael Collier (filed with this report);
(xlvi) Employment Security Agreement dated as of March 11, 1997 between
the registrant and Michael J. Cole (filed with this report);
(xlvii) Employment Security Agreement dated as of March 11, 1997 between
the registrant and Donald R. Chappel (filed with this report);
(xlviii) Form of Restricted Stock Award Agreement under the Waste
Management, Inc. 1997 Equity Incentive Plan (Exhibit 10.40 to Post-
Effective Amendment No. 2 to registrant's registration statement on Form S-
1, Registration No. 333-01327); and
(xlix) Restricted Stock Award Certificate dated as of June 20, 1997
between the registrant and Joseph M. Holsten (Exhibit 10.40 to Post-
Effective Amendment No. 2 to registrant's registration statement on Form S-
1 Registration No. 333-01327).
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(d) Reports on Form 8-K.
During the fourth quarter of 1997, the Company filed reports on Form 8-K as
follows:
(i) a report dated October 10, 1997 reporting under Item 5 that on
October 10, 1997 the registrant issued a new release announcing its results
from continuing operations for the quarter ended September 30, 1997 would
be below analysts' expectations and announcing the registrant might record
a charge to income that could be material to its results of operations for
the year.
(ii) a report dated October 29, 1997 reporting under Item 5 that the
registrant's Board of Directors had received and accepted the resignation
of the registrant's Chairman and Chief Executive Officer, Ronald T. LeMay,
and that the Board had named Robert S. Miller, a director of the
registrant, as the Chairman of the Board and Acting Chief Executive
Officer. The report also reported under Item 5 that Senior Vice President
and Chief Financial Officer, John D. Sanford, had resigned from the
registrant, and Donald R. Chappel would serve as the registrant's acting
Chief Financial Officer. The report also announced that former Executive
Vice President, James E. Koenig, had resigned.
(iii) a report dated November 4, 1997 reporting under Item 5 that the
registrant's Board of Directors had elected two new directors, Roderick M.
Hills and John C. Pope, and that the Board had been expanded by one member
with the elections. In addition, the report announced the formation of a
Search Committee to seek a new Chief Executive Officer and certain changes
affecting three Board committees. The report also announced that the Board
had elected Mark T. Spears as Controller of the registrant, succeeding
Thomas C. Hau.
(iv) a report dated December 8, 1997 reporting under Item 5 that the
registrant had announced it had signed a definitive merger agreement with
its approximately 67% owned subsidiary, Wheelabrator Technologies Inc.,
under which the registrant will acquire approximately 53 million shares of
the subsidiary at a cash purchase price of $16.50 per share.
126
<PAGE>
WASTE MANAGEMENT, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
($000'S OMITTED)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (AS RESTATED)
<TABLE>
<CAPTION>
EFFECT OF
BALANCE CHARGED ACCOUNTS FOREIGN BALANCE
BEGINNING TO WRITTEN CURRENCY END OF
OF YEAR INCOME OFF OTHER(A) TRANSLATION YEAR
--------- ------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1994--Reserve for doubt-
ful accounts (B)(C).... $57,279 $35,720 $(38,621) $5,072 $ 1,760 $61,210
1995--Reserve for doubt-
ful accounts (C)....... $61,210 $48,914 $(45,224) $1,814 $ 1,213 $67,927
1996--Reserve for doubt-
ful accounts (B)(C).... $67,927 $52,766 $(69,799) $4,374 $ (245) $55,023
1997--Reserve for doubt-
ful accounts (B) (C)... $55,023 $51,691 $(51,406) $ 641 $(2,605) $53,344
======= ======= ======== ====== ======= =======
</TABLE>
- --------
(A) Reserves of companies accounted for as purchases.
(B) Includes reserves for doubtful long-term notes receivable.
(C) Excludes discontinued operations.
127
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN OAK BROOK,
ILLINOIS ON THE 30TH DAY OF MARCH 1998.
Waste Management, Inc.
/s/ Robert S. Miller
By___________________________________
Robert S. Miller
Chairman of the Board
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert S. Miller Director, Chairman of the
____________________________________ Board and Chief Executive
Robert S. Miller Officer
/s/ Jerry E. Dempsey Director
____________________________________
Jerry E. Dempsey
/s/ Donald F. Flynn Director
____________________________________
Donald F. Flynn
/s/ Peer Pedersen Director
____________________________________
Peer Pedersen
/s/ James R. Peterson Director
____________________________________
James R. Peterson
/s/ John C. Pope Director
____________________________________
John C. Pope
/s/ Alexander B. Trowbridge Director
____________________________________
Alexander B. Trowbridge
/s/ H. Jesse Arnelle Director March 30, 1998
____________________________________
H. Jesse Arnelle
/s/ Pastora San Juan Cafferty Director
____________________________________
Pastora San Juan Cafferty
/s/ James B. Edwards Director
____________________________________
James B. Edwards
/s/ Paul M. Montrone Director
____________________________________
Paul M. Montrone
/s/ Steven G. Rothmeier Director
____________________________________
Steven G. Rothmeier
/s/ Roderick M. Hills Director
____________________________________
Roderick M. Hills
/s/ Mark T. Spears Vice President, Controller
____________________________________ and Principal Accounting
Mark T. Spears Officer
/s/ Donald R. Chappel Vice President, Acting Chief
____________________________________ Financial Officer, Treasurer
Donald R. Chappel and Principal Financial
Officer
</TABLE>
128
<PAGE>
WASTE MANAGEMENT, INC.
EXHIBIT INDEX
NUMBER AND DESCRIPTION OF EXHIBIT*
<TABLE>
<C> <S>
1. Inapplicable
2. Inapplicable
3.1(a) Restated Certificate of Incorporation of registrant, as amended as of
May 24, 1985 (incorporated by reference to Exhibit 4.1 to registrant's
report on Form 10-Q for the quarter ended June 30, 1985)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 23, 1986 (incorporated by reference to Exhibit
4(c) to registrant's registration statement on Form S-8, Registration
No. 33-6265)
3.1(c) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 15, 1987 (incorporated by reference to Exhibit
4.5(d) to registrant's registration statement on Form S-4, Registration
No. 33-15518)
3.1(d) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 19, 1989 (incorporated by reference to Exhibit
3(e) to registrant's registration statement on Form S-3, Registration
No. 33-30190)
3.1(e) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 18, 1990 (incorporated by reference to Exhibit
4(h) to registrant's registration statement on Form S-8, Registration
No. 33-35936)
3.1(f) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 14, 1993 (incorporated by reference to Exhibit
4(a) to registrant's report on Form 8-K dated May 14, 1993)
3.1(g) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 9, 1997 (incorporated by reference to Exhibit
3(a) to registrant's report on Form 8-K dated May 9, 1997)
3.1(h) Conformed copy of Restated Certificate of Incorporation of registrant,
as amended (incorporated by reference to Exhibit 3(b) to registrant's
report on Form 8-K dated May 9, 1997)
3.2 By-laws of registrant, as amended and restated as of November 4, 1997
(incorporated by reference to Exhibit 3 to registrant's report on Form
10-Q for the quarter ended September 30, 1997)
4.1(a) Trust Indenture dated as of August 1, 1989 (incorporated by reference
to Exhibit 4.3(a) to registrant's 1990 annual report on Form 10-K)
4.1(b) First Supplemental Indenture dated as of December 1, 1990 (incorporated
by reference to Exhibit 4.3(b) to registrant's 1990 annual report on
Form 10-K)
4.2 Trust Indenture dated as of June 1, 1993 (incorporated by reference to
Exhibit 4 to the registrant's current report on Form 8-K dated July 15,
1993)
4.3 Credit Agreement (as amended and restated), dated as of December 29,
1997, among Waste Management, Inc., The Chase Manhattan Bank, as
administrative agent, and the lenders named therein, as amended
5. Inapplicable
6. Inapplicable
7. Inapplicable
</TABLE>
- --------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-1
<PAGE>
NUMBER AND DESCRIPTION OF EXHIBIT*
<TABLE>
<C> <S>
8. Inapplicable
9. None
10.1 Waste Management, Inc. 1982 Stock Option Plan, as amended to March 11,
1988 (incorporated by reference to Exhibit 10.3 to registrant's 1988
annual report on Form 10-K)
10.2 Deferred Director's Fee Plan, as amended (incorporated by reference to
Exhibit 10.3 to registrant's 1990 annual report on Form 10-K)
10.3 Director's Phantom Stock Plan (incorporated by reference to Exhibit 10.9
to registrant's 1984 annual report on Form 10-K)
10.4 Amended and Restated Employment Agreement, dated as of June 17, 1996, by
and between the registrant and Phillip B. Rooney (incorporated by
reference to Exhibit 10.1 to registrant's report on Form 10-Q for the
quarter ended September 30, 1996)
10.5 Waste Management, Inc. Corporate Incentive Bonus Plan (incorporated by
reference to Exhibit B to the registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders)
10.6 Waste Management, Inc. Supplemental Executive Retirement Plan, as
amended and restated as of November 11, 1997
10.7 Waste Management, Inc. Long Term Incentive Plan, as amended and restated
as of January 27, 1994 (incorporated by reference to Exhibit A to the
registrant's Proxy Statement for its 1995 Annual Meeting of
Stockholders)
10.8 Employment Security Agreement dated as of July 28, 1997 between the
registrant and Mark T. Spears
10.9 Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to Chemical Waste Management,
Inc.'s 1989 annual report on Form 10-K)
10.10 Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus
Plan (incorporated by reference to Exhibit 10.11 to registrant's 1995
Annual Report on Form 10-K)
10.11 Amendment No. 2 to Waste Management, Inc. Non-Qualified Profit Sharing
and Savings Plus Plan
10.12 Amendment No. 1 to the Waste Management, Inc. Non-Qualified Profit
Sharing and Savings Plus Plan (incorporated by reference to Exhibit
10.12 to registrant's 1996 annual report on Form 10-K)
10.13 Waste Management, Inc. Director's Charitable Endowment Plan
(incorporated by reference to Exhibit 10.20 to registrant's 1989 annual
report on Form 10-K)
10.14 Supplemental Retirement Benefit Agreement dated as of January 1, 1991 by
and between registrant and Donald F. Flynn (incorporated by reference to
Exhibit 10.17 to registrant's 1990 annual report on Form 10-K)
10.15 Restricted Unit Plan for Non-Employee Directors of Wheelabrator
Technologies Inc. as amended through June 10, 1991 (incorporated by
reference to Exhibit 19.03 to the report on Form 10-Q of Wheelabrator
Technologies Inc. for the quarter ended June 30, 1991)
10.16 1988 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (incorporated by
reference to Exhibit 28.1 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8, Registration
No. 33-31523)
10.17 Amendments dated as of September 7, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1990 annual report on
Form 10-K of Wheelabrator Technologies Inc.)
</TABLE>
- --------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-2
<PAGE>
NUMBER AND DESCRIPTION OF EXHIBIT*
<TABLE>
<C> <S>
10.18 Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.04 to the 1990 annual report on
Form 10-K of Wheelabrator Technologies Inc.)
10.19 1986 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (incorporated by
reference to Exhibit 28.2 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8, Registration
No. 33-31523)
10.20 Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.03 to the 1990 annual report on
Form 10-K of Wheelabrator Technologies Inc.)
10.21 Amended and Restated Employment Agreement dated as of June 20, 1997
between the registrant and D. P. Payne (incorporated by reference to
Exhibit 10.21 to Post-Effective Amendment No. 2 to registrant's
registration statement on Form S-1, Registration No. 333-01327)
10.22 Waste Management, Inc. 1992 Stock Option Plan (incorporated by reference
to Exhibit 10.31 to registrant's registration statement on Form S-1,
Registration No. 33-44849)
10.23 Waste Management, Inc. Amended and Restated 1992 Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit 10.23 to
registrant's 1996 annual report on Form 10-K)
10.24 Deferred Director's Fee Plan of Wheelabrator Technologies Inc. adopted
June 10, 1991 (incorporated by reference to Exhibit 19.02 to the
quarterly report on Form 10-Q of Wheelabrator Technologies Inc. for the
quarter ended June 30, 1991)
10.25 Waste Management International plc Share Option Plan (incorporated by
reference to Exhibit 10.1 to the registration statement on Form F-1 of
Waste Management International plc, Registration No. 33-46511)
10.26 Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.01 to the 1991 annual report on
Form 10-K of Wheelabrator Technologies Inc.)
10.27 Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1991 annual report on
Form 10-K of Wheelabrator Technologies Inc.)
10.28 Amendment dated as of December 6, 1991 to the Restricted Unit Plan for
Non-Employee Directors of Wheelabrator Technologies Inc. (incorporated
by reference to Exhibit 19.05 to the 1991 annual report on Form 10-K of
Wheelabrator Technologies Inc.)
10.29 First Amended and Restated International Business Opportunities
Agreement by and among registrant, Chemical Waste Management, Inc.,
Wheelabrator Technologies Inc., Waste Management International, Inc.,
Waste Management International plc and Rust International Inc., dated as
of January 1, 1993 (incorporated by reference to Exhibit 28 to the
registration statement on Form S-3 of Wheelabrator Technologies Inc.,
Registration No. 33-59606)
10.30 Amendment dated as of January 28, 1994 relating to the International
Business Opportunities Agreement (incorporated by reference to Exhibit
10.19 to the 1993 annual report on Form 10-K of Chemical Waste
Management, Inc.)
10.31 Chemical Waste Management, Inc. 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.19 to the 1991 annual report on Form 10-K of
Chemical Waste Management, Inc.)
10.32 Amendment dated as of July 10, 1995 to the International Business
Opportunities Agreement (incorporated by reference to Exhibit 10 to the
quarterly report on Form 10-Q of Wheelabrator Technologies Inc. for the
quarter ended September 30, 1995)
10.33 Employment Agreement dated as of August 15, 1996 between the registrant
and James E. Koenig (incorporated by reference to Exhibit 10.2 to
registrant's report on Form 10-Q for the quarter ended September 30,
1996)
</TABLE>
- --------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.
EX-3
<PAGE>
NUMBER AND DESCRIPTION OF EXHIBIT*
<TABLE>
<C> <S>
10.34 Employment Agreement dated as of August 15, 1996 between the registrant
and Herbert A. Getz (incorporated by reference to Exhibit 10.3 to
registrant's report on Form 10-Q for the quarter ended September 30,
1996)
10.35 Restricted Stock Agreement dated as of August 15, 1996 between the
registrant and James E. Koenig (incorporated by reference to Exhibit
10.4 to registrant's report on Form 10-Q for the quarter ended September
30, 1996)
10.36 Restricted Stock Agreement dated as of August 15, 1996 between the
registrant and Herbert A. Getz (incorporated by reference to Exhibit
10.5 to registrant's report on Form 10-Q for the quarter ended September
30, 1996)
10.37 Letter Agreement dated as of February 17, 1997 between the registrant
and Phillip B. Rooney (incorporated by reference to Exhibit 10.38 to
registrant's 1996 Annual Report on Form 10-K)
10.38 Waste Management, Inc. 1997 Equity Incentive Plan (incorporated by
reference to Exhibit A to the registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders)
10.39 Form of Restricted Stock Award Agreement under the Waste Management,
Inc. 1997 Equity Incentive Plan (incorporated by reference to Exhibit
10.40 to Post-Effective Amendment No. 2 to registrant's registration
statement on Form S-1, Registration No. 333-01327)
10.40 Employment Security Agreement dated as of June 20, 1997 between the
registrant and Joseph M. Holsten (incorporated by reference to Exhibit
10.40 to Post-Effective Amendment No. 2 to registrant's registration
statement on Form S-1, Registration No. 333-01327)
10.41 Restricted Stock Award Certificate dated as of June 20, 1997 between the
registrant and Joseph M. Holsten (incorporated by reference to Exhibit
10.40 to Post-Effective Amendment No. 2 to registrant's registration
statement on Form S-1, Registration No. 333-01327)
10.42 Employment Security Agreement dated as of March 11, 1997 between the
registrant and Jerry W. Caudle
10.43 Agreement and Plan of Merger dated as of March 10, 1998 among USA Waste
Services, Inc. ("USA Waste") Dome Merger Sub, Inc., and the registrant
(incorporated by reference to Exhibit 99.1 to the current report on Form
8-K dated March 10, 1998 of USA Waste)
10.44 Employment Security Agreement dated as of July 13, 1997 between the
registrant and Ronald T. LeMay (incorporated by reference to Exhibit
10.1 to registrant's report on Form 8-K dated August 8, 1997)
10.45 Letter Agreement dated as of November 4, 1997 between the registrant and
Robert S. Miller
10.46 Form of restricted stock agreement between the registrant and certain
directors of the registrant
10.47 Receivables Sale Agreement, dated as of December 29, 1997, among Waste
Management, Inc., Waste Management Financing Corporation, and the
Sellers named therein
10.48 Receivables Transfer and Servicing Agreement, dated as of December 29,
1997, among Waste Management, Inc., Waste Management Financing
Corporation, The Chase Manhattan Bank, as administrative agent, and the
participants named therein
10.49 Amendment to Employment Agreement dated as of March 10, 1998 between the
registrant and Herbert A. Getz.
10.50 Loan and Indemnification Agreement dated as of November 25, 1997 between
the registrant and Herbert A. Getz.
</TABLE>
- --------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253, Wheelabrator Technologies Inc.'s file number under that Act is
0-14246, and USA Waste Services, Inc.'s file number is 1-12154.
EX-4
<PAGE>
NUMBER AND DESCRIPTION OF EXHIBIT*
<TABLE>
<C> <S>
10.51 Employment Security Agreement dated as of February 9, 1998 between the
registrant and Paul G. George.
10.52 Agreement and Plan of Merger dated as of December 8, 1997 by and among
the registrant, WMI Merger Sub, Inc., and WTI (incorporated by reference
to Appendix A to WTI's proxy statement for the special meeting of
stockholders to be held on March 30, 1998)
10.53 Employment Security Agreement dated as of March 11, 1997 between the
registrant and James E. O'Connor
10.54 Employment Security Agreement dated as of March 11, 1997 between the
registrant and Luther Michael Collier
10.55 Employment Security Agreement dated as of March 11, 1997 between the
registrant and Michael J. Cole
10.56 Employment Security Agreement dated as of March 11, 1997 between the
registrant and Donald R. Chappel
11. None
12. Computation of ratio of earnings to fixed charges
13. None
14. Inapplicable
15. Inapplicable
16. None
17. Inapplicable
18. None
19. Inapplicable
20. Inapplicable
21. List of subsidiaries of registrant
22. Inapplicable
23. Consent of Independent Public Accountants
24. None
25. Inapplicable
26. Inapplicable
27. Financial Data Schedule
28. None
</TABLE>
- --------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, Wheelabrator Technologies, Inc.'s file
number under that Act is 0-14246.
EX-5
<PAGE>
EXHIBIT 4.3
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
(as amended and restated)
dated as of
December 29, 1997
among
WASTE MANAGEMENT, INC.,
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$250,000,000 REVOLVING CREDIT FACILITY
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions............................... 1
-----------
SECTION 1.01. Defined Terms........................................... 1
SECTION 1.02. Terms Generally......................................... 11
SECTION 1.03. Accounting Terms; GAAP.................................. 12
ARTICLE II
The Credits............................... 12
-----------
SECTION 2.01. Commitments............................................. 12
SECTION 2.02. Loans and Borrowings.................................... 12
SECTION 2.03. Requests for Borrowings................................. 12
SECTION 2.04. Funding of Borrowings................................... 13
SECTION 2.05. Interest Elections...................................... 13
SECTION 2.06. Termination and Reduction of Commitments................ 15
SECTION 2.07. Repayment of Loans; Evidence of Debt.................... 15
SECTION 2.08. Prepayment of Loans..................................... 16
SECTION 2.09. Commitment Fees......................................... 16
SECTION 2.10. Interest................................................ 16
SECTION 2.11. Alternate Rate of Interest.............................. 17
SECTION 2.12. Increased Costs......................................... 17
SECTION 2.13. Break Funding Payments.................................. 18
SECTION 2.14. Taxes................................................... 19
SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs................................................ 20
SECTION 2.16. Mitigation Obligations; Replacement of Lenders.......... 21
ARTICLE III
Representations and Warranties...................... 22
------------------------------
SECTION 3.01. Corporate Existence..................................... 22
SECTION 3.02. Corporate Power and Authority; Enforceability........... 22
SECTION 3.03. No Conflicts; No Burdensome Restrictions................ 22
SECTION 3.04. Financial Statements; Liabilities; Disclosure; No
Material Adverse Change.................................
SECTION 3.05. Litigation.............................................. 23
SECTION 3.06. Property Matters........................................ 24
SECTION 3.07. Compliance; No Default.................................. 24
SECTION 3.08. Investment and Holding Company Status................... 24
SECTION 3.09. Taxes................................................... 24
SECTION 3.10. Labor Matters........................................... 24
-i-
<PAGE>
SECTION 3.11. ERISA................................................... 25
ARTICLE IV
Conditions................................ 25
----------
SECTION 4.01. Effective Date.......................................... 25
SECTION 4.02. Each Credit Event....................................... 26
ARTICLE V
Affirmative Covenants.......................... 26
---------------------
SECTION 5.01. Financial Statements and Other Information.............. 26
SECTION 5.02. Notices of Material Events.............................. 27
SECTION 5.03. Existence; Conduct of Business.......................... 28
SECTION 5.04. Payment of Obligations.................................. 28
SECTION 5.05. Maintenance of Properties; Insurance.................... 28
SECTION 5.06. Books and Records; Inspection Rights.................... 28
SECTION 5.07. Compliance with Laws and Contractual Obligations........ 28
SECTION 5.08. Use of Proceeds......................................... 28
SECTION 5.09. New Subsidiary Guarantors............................... 28
ARTICLE VI
Negative Covenants............................ 29
------------------
SECTION 6.01. Financial Covenants..................................... 29
SECTION 6.02. Subsidiary Indebtedness; Guarantee Obligations.......... 29
SECTION 6.03. Liens; Sale/Leaseback Transactions...................... 30
SECTION 6.04. Fundamental Changes..................................... 32
SECTION 6.05. Restricted Payments..................................... 32
SECTION 6.06. Transactions with Affiliates............................ 32
SECTION 6.07. Limitation on Optional Payments and Modifications
of Debt Instruments..................................... 33
SECTION 6.08. Limitation on Changes in Fiscal Periods................. 33
SECTION 6.09. Restrictive Agreements.................................. 33
ARTICLE VII
Events of Default............................ 34
-----------------
ARTICLE VIII
The Administrative Agent......................... 36
------------------------
ARTICLE IX
Miscellaneous.............................. 37
-------------
SECTION 9.01. Notices................................................. 37
SECTION 9.02. Waivers; Amendments..................................... 38
-ii-
<PAGE>
SECTION 9.03. Expenses; Indemnity; Damage Waiver...................... 39
SECTION 9.04. Successors and Assigns.................................. 40
SECTION 9.05. Survival................................................ 42
SECTION 9.06. Counterparts; Integration; Effectiveness................ 42
SECTION 9.07. Severability............................................ 42
SECTION 9.08. Right of Setoff......................................... 42
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process................................................. 43
SECTION 9.10. WAIVER OF JURY TRIAL.................................... 43
SECTION 9.11. Headings................................................ 43
SECTION 9.12. Confidentiality......................................... 43
SCHEDULES:
- ---------
Schedule 1.01 -- Disclosed Matters
Schedule 1.02 -- Subsidiary Guarantors on Effective Date
Schedule 2.01 -- Commitments
Schedule 6.02 -- Existing Indebtedness and Investment Commitments
Schedule 6.03 -- Existing Liens
Schedule 6.09 -- Existing Restrictions
EXHIBITS:
- --------
Exhibit A -- Form of Addendum
Exhibit B -- Form of Assignment and Acceptance
Exhibit C -- Form of Borrowing Request
Exhibit D -- Form of Opinion of Counsel
Exhibit E -- Form of Subsidiary Guarantee
-iii-
<PAGE>
CREDIT AGREEMENT, dated as of December 29, 1997, among WASTE
MANAGEMENT, INC., a Delaware corporation (the "Borrower"), the Lenders party
hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
I. ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Addendum" means an instrument, substantially in the form of Exhibit
A, by which a Lender becomes a party to this Agreement, effective on the
Effective Date.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
<PAGE>
2
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit B or any other form approved by the Administrative Agent.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction,
as at the time of determination, the present value (discounted at the interest
rate assumed in making calculations in accordance with FAS 13) of the total
obligations of the Borrower or the relevant Subsidiary, as lessee, for rental
payments during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Availability Period" means the period from and including January 1,
1998 (or, if later, the Effective Date) to but excluding the earlier of the
Maturity Date and the date of termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrowing" means Loans of the same Type, made, converted or continued
on the same date and, in the case of Eurodollar Loans, as to which a single
Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03, substantially in the form of Exhibit C.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City, Pittsburgh, Pennsylvania,
Charlotte, North Carolina or Chicago, Illinois are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any "person" or "group" (within the
meaning of the Securities Exchange Act of 1934, as amended, and the rules of the
SEC thereunder as in effect on the date hereof), of shares representing more
than 20% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower; (b) occupation of a majority of the
seats (other than vacant seats) on the board of directors of the Borrower by
Persons who were neither (i) nominated by the board of directors of the Borrower
nor (ii) appointed by directors so nominated; or (c) the failure of WMNA to
remain a Wholly Owned Subsidiary of the Borrower.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.12(b), by any lending office of such
<PAGE>
3
Lender or by such Lender's holding company, if any) with any request, guideline
or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Lender, the commitment of
such Lender to make Loans hereunder in an aggregate principal amount not to
exceed the amount of such commitment, as such commitment may be (a) reduced from
time to time pursuant to Section 2.06 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any non-cash extraordinary,
unusual or non-recurring expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, losses on sales of assets outside of the ordinary course of
business) and (f) any other non-cash charges, and minus, without duplication and
to the extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any non-cash extraordinary, unusual
or non-recurring income or gains (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, gains on the sales of assets outside of the ordinary course of business)
and (c) any other non-cash income, all as determined on a consolidated basis.
"Consolidated Leverage Ratio" means, at any date, the ratio of (a)
Consolidated Total Debt on such date to (b) Consolidated EBITDA for the period
of four consecutive fiscal quarters ending with the most recent fiscal quarter
for which the relevant financial information is available.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person
(other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Net Worth" means the total stockholders' equity of the
Borrower and its consolidated Subsidiaries determined in accordance with GAAP.
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4
"Consolidated Total Debt" means, at any date, the aggregate principal
amount of all long-term debt (whether or not classified as a current liability)
and short-term debt required to be classified and accounted for as such on a
balance sheet of the Borrower and its Subsidiaries at such date, determined on a
consolidated basis in accordance with GAAP and consistent with the most recent
balance sheet referred to in Section 3.04.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Credit Parties" means the collective reference to the Borrower and
the Subsidiary Guarantors.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the collective reference to (a) actions,
suits and proceedings and the environmental matters disclosed in Schedule 1.01
and (b) matters disclosed pursuant to filings made by the Borrower with the SEC
that were publicly available prior to the Effective Date.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02), which
date is December 29, 1997.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any of its Subsidiaries directly
or indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
<PAGE>
5
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any of its ERISA Affiliates from the PBGC or
a plan administrator of any notice relating to an intention to terminate any
Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence
by the Borrower or any of its ERISA Affiliates of any liability with respect to
the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g)
the receipt by the Borrower or any of its ERISA Affiliates of any notice, or the
receipt by any Multiemployer Plan from the Borrower or any of its ERISA
Affiliates of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.16(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
or is attributable to such Foreign Lender's failure or inability to comply with
Section 2.14(e), except to the extent that such Foreign Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such withholding tax pursuant to Section 2.14(a).
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
<PAGE>
6
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer, assistant treasurer or controller of the
Borrower.
"Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed,
<PAGE>
7
(g) all Guarantees by such Person of Indebtedness of others, (h) all Capital
Lease Obligations of such Person, (i) all obligations, contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty and (j) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnitees" has the meaning set forth in Section 9.03(b).
"Interest Election Request" means a request by the Borrower to convert
or continue a Borrowing in accordance with Section 2.05.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two or three months
thereafter, as the Borrower may elect; provided, that (i) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and, in
the case of a Borrowing, thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
"Investments" has the meaning set forth in Section 6.02(c).
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the
<PAGE>
8
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means the collective reference to this Agreement and
the Subsidiary Guarantee.
"Loan Repayment Obligations" has the meaning set forth in
Section 6.02(c).
"Loans" means the loans made by the Lenders to the Borrower pursuant
to this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (b) the ability of the
Credit Parties taken as a whole to perform their respective obligations under
this Agreement and the other Loan Documents or (c) the rights of or benefits
available to the Lenders under this Agreement and the other Loan Documents.
"Material Indebtedness" means Indebtedness of, commitments providing
for the incurrence of Indebtedness by, or obligations in respect of one or more
Hedging Agreements of, any one or more of the Borrower and its Subsidiaries in a
principal amount exceeding, individually or in the aggregate, $100,000,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of the Borrower or any Subsidiary in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that the Borrower or such Subsidiary would be required
to pay if such Hedging Agreement were terminated at such time. Material
Indebtedness shall not include the Loans or the Commitments.
"Maturity Date" means June 30, 1998.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"Participant" has the meaning set forth in Section 9.04(e).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
<PAGE>
9
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
statutory landlord's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue
by more than 30 days or are being contested in compliance with Section
5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any of its ERISA Affiliates is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04(e).
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Loans and unused
Commitments representing at least 51% of the sum of the total Loans and unused
Commitments outstanding at such time.
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10
"Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Restricted Payment" means, with respect to the Borrower and its
Subsidiaries, any dividend or other distribution (whether in cash, securities or
other property) made by the Borrower or such Subsidiary with respect to any
shares of any class its capital stock, or any payment (whether in cash,
securities or other property) by the Borrower or such Subsidiary, including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of its capital stock or any option, warrant or other right to acquire any shares
of any class of its capital stock.
"Sale/Leaseback Transaction" has the meaning set forth in
Section 6.03(b).
"SEC" means the Securities and Exchange Commission.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "owner") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the owner
in the owner's consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the owner or one or more subsidiaries of the owner or by the
owner and one or more subsidiaries of the owner.
"Subsidiary" means any subsidiary of the Borrower, other than WMFC.
"Subsidiary Guarantee" means the Subsidiary Guarantee, substantially
in the form of Exhibit E, executed and delivered by each of the Subsidiary
Guarantors.
"Subsidiary Guarantors" means the collective reference to each
domestic Wholly Owned Subsidiary of the Borrower listed on Schedule 1.02 and
each other domestic Wholly Owned Subsidiary of the Borrower that becomes a
Subsidiary Guarantor after the Effective Date pursuant to Section 5.09.
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11
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Trade Receivables Facility" has the meaning set forth in
Section 4.01.
"Transactions" means the execution, delivery and performance by each
Credit Party of the Loan Documents to which it is a party, the borrowing of
Loans and the use of the proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Wholly Owned Subsidiary" means, as to any Person, any other Person
all of the capital stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other Wholly
Owned Subsidiaries.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"WMFC" means Waste Management Financing Corporation.
"WMNA" means Waste Management of North America, Inc.
"WME" means Waste Management International P.L.C.
"WTI" means Wheelabrator Technologies, Inc.
SECTION 1.02. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time.
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12
II. ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Loans to the Borrower from time to time
during the Availability Period in an aggregate principal amount not to exceed
such Lender's Commitment. Within the foregoing limits and subject to the terms
and conditions set forth herein, the Borrower may borrow, prepay and reborrow
Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as
part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective Commitments. The failure of any Lender to make
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments of the Lenders are several
and no Lender shall be responsible for any other Lender's failure to make Loans
as required.
(b) Subject to Section 2.11, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. Notwithstanding
anything to the contrary herein, there shall not at any time be more than a
total of ten Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a Borrowing, the
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 12:00 noon, New York City time, on
the Business Day of the proposed Borrowing. Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Borrowing Request signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a
Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or
a Eurodollar Borrowing;
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13
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 1:00 p.m., New York City time, to the
account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received (on the
date of receipt so long as the 1:00 p.m. deadline specified above is satisfied),
in like funds, to an account of the Borrower maintained with the Administrative
Agent in New York City and designated by the Borrower in the applicable
Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the
case of the Borrower, the interest rate applicable to ABR Loans. If such Lender
pays such amount to the Administrative Agent, then such amount shall constitute
such Lender's Loan included in such Borrowing.
SECTION 2.05. Interest Elections. (a) Each Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower may elect different options with respect
to different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such telephonic Interest
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14
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.06. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $10,000,000 and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.08, the aggregate outstanding principal amount of the
Loans would exceed the total Commitments.
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15
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied.
(d) Any termination or reduction of the Commitments shall be
permanent. Each reduction of the Commitments shall be made ratably among the
Lenders in accordance with their respective Commitments.
SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Administrative Agent for
the account of each Lender the then unpaid principal amount of each Loan on the
Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.08. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to prior notice in accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of
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16
prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and
the principal amount of each Borrowing or portion thereof to be prepaid;
provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.06, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.06. Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent
shall advise the Lenders of the contents thereof. Each partial prepayment of any
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.10.
SECTION 2.09. Commitment Fees. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at an annual rate of 0.375% on the average daily unutilized amount
of the Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which such Commitment terminates.
Accrued commitment fees shall be payable in arrears, based on invoices submitted
by the Administrative Agent to the Borrower, on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on March 31, 1998, and shall be paid in immediately
available funds to the Administrative Agent for distribution to the Lenders.
Commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day). Commitment fees paid shall not be refundable under any
circumstances.
SECTION 2.10. Interest. (a) The Loans comprising each ABR Borrowing
shall bear interest at a rate per annum equal to the Alternate Base Rate plus
0.25%.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus 1.25%.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided above or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Loans as provided above.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; provided that (i) interest accrued pursuant
to paragraph (c) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a prepayment of an ABR
Loan prior to the end of the Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any Eurodollar
Loan prior to the end of the current Interest Period therefor, accrued interest
on such Loan shall be payable on the effective date of such conversion and (iv)
all accrued interest shall be payable upon termination of the Commitments.
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17
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.11. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders of making or maintaining their
Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.12. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount
<PAGE>
18
or amounts as will compensate such Lender or such Lender's holding company for
any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 30 days after
receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrower shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than six months prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided, further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the six-month period referred to above shall
be extended to include the period of retroactive effect thereof.
(e) Notwithstanding any other provision of this Section 2.12, no
Lender shall demand compensation for any increased cost or reduction or other
amount referred to above if it shall not at the time be the general policy or
practice of such Lender to demand such compensation in similar circumstances
under comparable provisions of other credit agreements.
SECTION 2.13. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice is permitted to be revocable
under Section 2.08(b) and is revoked in accordance herewith), or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.16, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, the loss to any Lender attributable to any such event shall be
deemed to include an amount determined by such Lender to be equal to the excess,
if any, of (i) the amount of interest that such Lender would pay for a deposit
equal to the principal amount of such Loan for the period from the date of such
payment, conversion, failure or assignment to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, convert
or continue, the duration of the Interest Period that would have resulted from
such borrowing, conversion or continuation) if the interest rate payable on such
deposit were equal to the Adjusted LIBO Rate for such Interest Period, over (ii)
the amount of interest that such Lender would earn on such principal amount for
such period if such Lender were to invest such principal amount for such period
at the interest rate that would be bid by such Lender (or an affiliate of such
Lender) for dollar deposits from other banks in the eurodollar market at the
commencement of such period. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
SECTION 2.14. Taxes. (a) Any and all payments by or an account of
any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for
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19
any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or the relevant Lender receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each
Lender, within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by the Administrative Agent or such Lender, as the case may be, and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender, or by the Administrative Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Each Foreign Lender shall deliver to the Borrower and the
Administrative Agent two copies of either U.S. Internal Revenue Service Form
1001 or Form 4224, or, in the case of a Foreign Lender claiming exemption from
U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with
respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Foreign Lender delivers a
Form W-8, an annual certificate representing that such Foreign Lender is not a
"bank" for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Lender claiming complete exemption from U.S.
federal withholding tax on all payments by the Borrower under this Agreement and
the other Loan Documents. Such forms shall be delivered by each Foreign Lender
on or before the date it becomes a party to this Agreement. In addition, each
Foreign Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Foreign Lender. Each
Foreign Lender shall promptly notify the Borrower at any time it determines that
it is no longer in a position to provide any previously delivered certificate to
the Borrower (or any other form of certification adopted by the U.S. taxing
authorities for such purpose). Notwithstanding any other provision of this
Section 2.14(e), a Foreign Lender shall not be required to deliver any form
pursuant to this Section 2.14(e) that such Foreign Lender is not legally able to
deliver.
SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or under Section 2.12, 2.13
or 2.14, or otherwise) prior to 1:00 p.m.,
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20
New York City time, on the date when due, in immediately available funds,
without set-off or counterclaim. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except that payments
pursuant to Sections 2.12, 2.13 and 2.14 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, to pay interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal then due to such
parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the Federal Funds Effective Rate.
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(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(b), then the Administrative Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Lender
to satisfy such Lender's obligations under such Section until all such
unsatisfied obligations are fully paid.
SECTION 2.16. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.12, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.14, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.12, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.14,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section 2.12 or payments required to be made pursuant to Section 2.14, such
assignment will result in a reduction in such compensation or payments. A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.
III. ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Existence. Each of the Borrower and its Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to carry
on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
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22
SECTION 3.02. Power and Authority; Enforceability. The Transactions
are within the corporate or other organizational powers of each Credit Party and
have been duly authorized by all necessary corporate or other organizational
and, if required, stockholder action. Each Loan Document has been duly executed
and delivered by each Credit Party party thereto and constitutes a legal, valid
and binding obligation of each such Credit Party, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03. No Conflicts; No Burdensome Restrictions. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any order
of any Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries. No Requirement of Law or Contractual
Obligation applicable to the Borrower or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.04. Financial Statements; Liabilities; Disclosure; No
Material Adverse Change. (a) The Borrower has heretofore furnished to the
Lenders its consolidated balance sheet and statements of income, stockholders
equity and cash flows (i) as of and for the fiscal year ended December 31, 1996,
reported on by Arthur Andersen LLP, independent public accountants, and (ii) as
of and for the fiscal quarter and the portion of the fiscal year ended September
30, 1997, signed by its chief financial officer. Such financial statements
present fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above. As of the Effective Date, the Borrower and
its Subsidiaries do not have any material Guarantee obligations, contingent
liabilities and liabilities for taxes, or any long-term leases or unusual
forward or long-term commitments, including, without limitation, any material
interest rate or foreign currency swap or exchange transaction or other
obligation in respect of derivatives, that have materially changed from those
reflected, individually or in the aggregate, in either (i) the most recent
financial statements referred to in this paragraph or (ii) filings made by the
Borrower with the SEC that were publicly available prior to the Effective Date.
During the period from December 31, 1996 to and including the date hereof there
has been no disposition by the Borrower or any of its Subsidiaries of any
material part of their business or property (determined on a consolidated basis
with respect to the Borrower and its Subsidiaries), other than dispositions
disclosed in filings made by the Borrower with the SEC that were publicly
available prior to the Effective Date. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to which
it or any of its Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect.
(b) None of the reports, financial statements, certificates or other
information furnished by or on behalf of the Borrower to the Administrative
Agent or any Lender on or prior to the Effective Date in connection with the
negotiation of this Agreement or delivered hereunder, taken as a whole, contains
any material misstatement of fact or omits to state any material fact
<PAGE>
23
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.
(c) During the period from December 31, 1996 through the Effective
Date, there has been no material adverse change in the business, assets,
operations, prospects or condition, financial or otherwise, of the Borrower and
its Subsidiaries, taken as a whole.
(d) In connection with the representations and warranties made by the
Borrower in this Section 3.04, the Lenders agree that the Borrower shall not be
deemed in breach of any representation or warranty in this Section 3.04 on
account of the Borrower's completing the matters or taking the actions described
in the Borrower's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, as filed with the SEC, under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Outlook", or, in
respect of any such matter or action or other matters emerging from comments
received by the Borrower from the SEC or the Borrower's ongoing review of its
accounting policies, practices or procedures, incurring charges, increasing
reserves or writing down asset values or adjusting, revising or restating
financial statements or footnotes for one or more quarters or years, so long as
the nature and amount of any such charge, reserve, write-down, adjustment,
revision or restatement are substantially within the parameters disclosed to the
Lenders prior to the Effective Date.
SECTION 3.05. Litigation. Except for the Disclosed Matters, as of
the Effective Date, there are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (a) could reasonably be expected, individually or in the aggregate,
to result in a Material Adverse Effect (other than the Disclosed Matters) or (b)
that involve this Agreement or the Transactions.
SECTION 3.06. Property Matters. (a) Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, except for defects in title that
do not materially interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes,
and none of such property is subject to any Lien except as permitted by Section
6.03.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
<PAGE>
24
(d) The Subsidiaries listed on Schedule 1.01 under the heading
"Material Receivables-Generating Subsidiaries" constitute each of the
Subsidiaries that, as of November 30, 1997, had aggregate outstanding accounts
receivable owing to it in excess of $20,000,000.
SECTION 3.07. Compliance; No Default. Each of the Borrower and its
Subsidiaries is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. Labor Matters. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, (a) there are no
strikes or other labor disputes against the Borrower or any of its Subsidiaries
pending or, to the knowledge of the Borrower, threatened, (b) hours worked by
and payment made to employees of the Borrower and its Subsidiaries have not been
in violation of the Fair Labor Standards Act or any other applicable Requirement
of Law dealing with such matters and (c) all payments due from the Borrower or
any of its Subsidiaries on account of employee health and welfare insurance have
been paid or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
SECTION 3.11. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations of all underfunded Plans (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the date of the most recent financial statements reflecting such amounts, exceed
by more than $40,000,000 the fair market value of the assets of all such
underfunded Plans.
IV. ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived by each Lender):
(a) The Administrative Agent shall have received (i) from each
relevant Credit Party, a counterpart of each Loan Document (or a copy
thereof by facsimile transmission)
<PAGE>
25
signed on behalf of each Credit Party party thereto and (ii) from each
Lender listed on Schedule 2.01, an executed Addendum (or a copy thereof by
facsimile transmission).
(b) The Borrower, certain of its Subsidiaries and WMFC shall have
entered into receivables-based financing arrangements (the "Trade
Receivables Facility") providing for at least $550,000,000 of financing.
(c) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Winston & Strawn, counsel for the Borrower,
substantially in the form of Exhibit D, and covering such other matters
relating to the Borrower and its Subsidiaries, the Loan Documents or the
Transactions as the Required Lenders shall reasonably request. The Borrower
hereby requests such counsel to deliver such opinion.
(d) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent may reasonably request relating to
the organization, existence and good standing of the Credit Parties,
incumbency of officers thereof, the authorization of the Transactions, any
necessary corporate, organizational, governmental and third party approvals
and any other legal matters relating to the Credit Parties, the Loan
Documents or the Transactions, all in form and substance satisfactory to
the Administrative Agent.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Credit Parties set forth
in this Agreement (other than Sections 3.04(c) and 3.05) and the other Loan
Documents shall be true and correct on and as of the date of such
Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
(c) At the time of such Borrowing, the aggregate Net Investment of all
Participants shall equal or exceed the Maximum Transfer Amount (as each
such term is defined in the Trade Receivables Facility).
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a),
(b) and (c) of this Section.
V. ARTICLE V
Affirmative Covenants
---------------------
<PAGE>
26
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 105 days after the end of each fiscal year of the Borrower,
to the extent prepared to comply with SEC requirements, a copy of Form 10-
Ks filed with the SEC for such fiscal year or, if no such Form 10-K was so
filed by Borrower for such fiscal year, its audited consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, in each case
reported on by Arthur Andersen LLP or other independent public accountants
of recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as to
the scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, to the extent prepared to
comply with SEC requirements, a copy of Form 10-Qs filed with the SEC for
such fiscal quarter or, if no such Form 10-Q was so filed by Borrower for
such fiscal quarter, its consolidated balance sheet and related statements
of operations, stockholders' equity and cash flows as of the end of and for
such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, in each case certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.01 and, with
respect to any items exceeding $10,000,000, Sections 6.02(a)(viii) and
6.03(a)(vii) and (iii) stating whether any change in GAAP has had a
material effect on the financial statements accompanying such certificate
and specifying the nature of any such change;
(d) promptly after the same become available, copies of all reports on
Form 10-K, 10-Q or 8-K and all proxy statements filed by the Borrower or
WTI with the SEC and any materials distributed by the Borrower or WTI to
its shareholders generally; and
(e) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidi ary, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably
request.
<PAGE>
27
SECTION 5.02. Notices of Material Events. The Borrower will furnish
to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that could reasonably be expected to
result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected to
result in a Material Adverse Effect; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
any merger, consolidation, sale of assets, liquidation or dissolution permitted
under Section 6.04.
SECTION 5.04. Payment of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Borrower
will, and will cause each of its Subsidiaries to, (a) keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will,
will cause each of its Wholly Owned Subsidiaries to and, to the extent
practicable, will cause each of its other Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
<PAGE>
28
SECTION 5.07. Compliance with Laws and Contractual Obligations. The
Borrower will, and will cause each of its Subsidiaries to, comply with all
Requirements of Law (including, without limitation, Environmental Laws) and all
Contractual Obligations applicable to it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans and of the
Trade Receivables Facility will be used only to finance the working capital
needs of the Borrower and its Subsidiaries in the ordinary course of business
and to refinance indebtedness of the Borrower outstanding on the Effective Date
and maturing prior to the Maturity Date and to refinance commercial paper of the
Borrower maturing prior to the Maturity Date. No part of the proceeds of any
Loan will be used, whether directly or indirectly, for any purpose that entails
a violation of any of the Regulations of the Board, including Regulations G, U
and X.
SECTION 5.09. New Subsidiary Guarantors. With respect to (a) any new
domestic Wholly Owned Subsidiary (other than captive insurance companies)
created (including any such Subsidiary surviving a merger transaction) or
acquired after the Effective Date by the Borrower that, as of the most recent
date prior to such acquisition for which the relevant information is available
had aggregate outstanding accounts receivable owing to it in excess of
$20,000,000 and (b) WTI in the event that it becomes a Wholly Owned Subsidiary
after the Effective Date, the Borrower will promptly (i) cause such Subsidiary
to become a party to the Subsidiary Guarantee and (ii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to such Subsidiary, which opinions shall be substantially comparable to
those delivered in respect of the Subsidiary Guarantors on the Effective Date.
VI. ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Financial Covenants. (a) The Borrower will not permit
the Consolidated Leverage Ratio at any time to exceed 3.50 to 1.
(b) The Borrower will not permit Consolidated Net Worth at any time
to be less than $1,000,000,000.
SECTION 6.02. Subsidiary Indebtedness; Guarantee Obligations. (a)
The Borrower will not permit any of its Wholly Owned Subsidiaries to create,
incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness created hereunder, under the Subsidiary Guarantee or
under the Trade Receivables Facility;
(ii) Indebtedness existing on the date hereof and, in the case of any
item of Indebtedness exceeding $25,000,000, described on Schedule 6.02, and
extensions,
<PAGE>
29
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof;
(iii) Indebtedness of any Subsidiary to the Borrower or any other
Subsidiary and, in the case of any item of Indebtedness exceeding
$25,000,000 outstanding on the date hereof and owing to any non-Wholly
Owned Subsidiary, described on Schedule 6.02, so long as such Indebtedness
results from the operation of the Borrower's cash management system in the
ordinary course of business consistent with past practices;
(iv) Indebtedness of any Subsidiary incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations, provided that such Indebtedness is
incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement; and extensions, renewals
and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof;
(v) Indebtedness of any Person that becomes a Subsidiary after the
date hereof and any Indebtedness assumed in connection with the acquisition
of any assets or secured by a Lien on any assets prior to the acquisition
thereof, and extensions, renewals and replacements of any such Indebtedness
that do not increase the outstanding principal amount thereof; provided
that such Indebtedness exists at the time such Person becomes a Subsidiary
or at the time such acquisition is consummated and is not created in
contemplation of or in connection with such Person becoming a Subsidiary or
the consummation of such acquisition;
(vi) Indebtedness in respect of performance bonds, bid bonds, appeal
bonds, bankers acceptances, letters of credit, surety bonds or other
similar obligations arising in the ordinary course of business consistent
with past practices, and extensions, renewals and replacements thereof;
(vii) Indebtedness of any foreign Subsidiary of the Borrower to the
Borrower or any other Subsidiary, provided that the Investment resulting
from the incurrence of such Indebtedness is permitted by Section 6.02(c);
and
(viii) other Indebtedness for all Wholly Owned Subsidiaries in an
aggregate principal amount not exceeding $100,000,000 at any one time
outstanding.
(b) The Borrower will not, and will not permit any of its Wholly
Owned Subsidiaries to, Guarantee any obligations of any other Person, except (i)
Guarantees by the Borrower or any Subsidiary Guarantor of obligations of any
Subsidiary not prohibited hereunder, provided that any Investment resulting from
the making of such Guarantee is permitted by Section 6.02(c) and (ii) Guarantees
by the Borrower or WMNA of obligations of third parties made in the ordinary
course of business consistent with past practices, provided that after the
Effective Date, no more than $25,000,000 of additional Guarantees of
Indebtedness for borrowed money shall be made pursuant to this clause (ii).
(c) The Borrower will not, and will not permit any of its Wholly
Owned Subsidiaries to, after the Effective Date, make any investment, loan or
advance in or to, or Guarantee any obligations of (collectively, "Investments"),
any Person (other than a Wholly Owned Subsidiary or WMFC), except:
<PAGE>
30
(i) Investments funded prior to the Effective Date;
(ii) Investments made pursuant to binding commitments, Loan Repayment
Obligations (as defined below) or Guarantees in effect on the Effective
Date and, in the case of any commitment, Loan Repayment Obligation or
Guarantee exceeding $25,000,000, as described on Schedule 6.02, so long as
such Investments are not funded until the Borrower or the relevant
Subsidiary is required by the terms thereof to do so; and
(iii) other Investments for the Borrower and its Wholly Owned
Subsidiaries, taken together, not exceeding $100,000,000 in the aggregate
at any one time outstanding.
The repayment of Indebtedness owing by the Borrower or any Wholly Owned
Subsidiary to any non-Wholly Owned Subsidiary ("Loan Repayment Obligations")
shall be deemed to be an Investment for the purposes of this paragraph (c).
SECTION 6.03. Liens; Sale/Leaseback Transactions. (a) The Borrower
will not, and will not permit any Subsidiary (other than WME and its
subsidiaries) to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(i) Permitted Encumbrances;
(ii) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof, or incurred pursuant to binding
commitments in effect on the date hereof, and, in the case of Liens
securing obligations (or commitments in respect thereof) in excess of
$25,000,000, described on Schedule 6.03; provided that (A) such Lien shall
not apply to any other property or asset of the Borrower or any Subsidiary
and (B) such Lien shall secure only those obligations which it secures on
the date hereof and extensions, renewals and replacements thereof that do
not increase the outstanding principal amount thereof;
(iii) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
(A) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (B)
such Lien shall not apply to any other property or assets of the Borrower
or any Subsidiary and (C) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person
becomes a Subsidiary, as the case may be, and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof; together with extensions, renewals and replacements of any such
Liens that satisfy the requirements specified in clauses (B) and (C) above;
(iv) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (A) such security
interests secure Indebtedness permitted by clause (iv) of Section 6.02(a),
(B) such security interests and the Indebtedness secured thereby are
incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement, (C) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring, constructing
or improving such fixed or capital assets and (D) such security interests
shall not apply to any other property
<PAGE>
31
or assets of the Borrower or any Subsidiary; together with extensions,
renewals and replacements of any such Liens that satisfy the requirements
specified in clauses (A), (C) and (D) above;
(v) any Lien that may be deemed to be created by the Trade Receivables
Facility;
(vi) judgment Liens created by or resulting from any litigation or
legal proceeding if released or bonded within 30 days of the date of
creation thereof, unless such litigation or legal proceedings could
reasonably be expected to have a Material Adverse Effect; and
(vii) other Liens not otherwise permitted by the foregoing clauses (i)
through (vi) securing any Indebtedness of any Subsidiary; provided, that
the aggregate outstanding principal amount of obligations secured by Liens
permitted by this clause (vii), when added to the then outstanding amount
of Attributable Debt, shall not exceed $50,000,000.
(b) The Borrower will not, and will not permit any Subsidiary to,
enter into any arrangement with any Person providing for the leasing by the
Borrower or any Subsidiary of real or personal property which has been or is to
be sold or transferred by the Borrower or such Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the Borrower or such
Subsidiary (each, a "Sale/Leaseback Transaction"), unless the aggregate
outstanding principal amount of Attributable Debt resulting from all such
transactions, when added to the then outstanding amount of obligations secured
by Liens permitted by Section 6.03(a)(vii), does not exceed $50,000,000.
(c) The applicability of the covenants contained in this Section 6.03
to non-Wholly Owned Subsidiaries is subject to the provisions of Section
9.02(c).
SECTION 6.04. Fundamental Changes. The Borrower will not, and will
not permit any Subsidiary to, merge into or consolidate with any other Person,
or permit any other Person to merge into or consolidate with it, or sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) any substantial part of its assets (determined on a consolidated
basis with respect to the Borrower and its Subsidiaries), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing (a) any Person
(other than WMNA) may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation, (b) any Person (other than the Borrower)
may merge into WMNA in a transaction in which WMNA is the surviving corporation,
(c) any Person (other than the Borrower or WMNA) may merge into any Subsidiary
in a transaction in which the surviving entity is or becomes a Subsidiary
(provided that, if the non- surviving Person is a Subsidiary Guarantor, the
surviving Person shall be or become a Subsidiary Guarantor), (c) any Subsidiary
(other than WMNA) may sell, transfer, lease or otherwise dispose of its assets
to another Subsidiary (provided that, if the transferor is a Subsidiary
Guarantor, the transferee shall be or become a Subsidiary Guarantor) and (d) any
Subsidiary may liquidate or dissolve if the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders.
SECTION 6.05. Restricted Payments. The Borrower will not, and will
not permit any of its Subsidiaries (other than WME and its subsidiaries) to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, except (a) the Borrower may declare and pay dividends with respect to
its capital stock payable solely in additional shares of its
<PAGE>
32
capital stock or rights thereto, (b) the Borrower and its Subsidiaries may make
Restricted Payments pursuant to and in accordance with stock option plans or
other benefit plans for management or employees of the Borrower and its
Subsidiaries, (c) any Subsidiary may declare and pay dividends on a pro rata
basis to the holders of its capital stock, (d) so long as no Event of Default
shall have occurred and be continuing, the Borrower may pay regularly scheduled
dividends in an aggregate amount not to exceed $100,000,000 in any calendar
quarter and (e) so long as no Event of Default shall have occurred and be
continuing, the Borrower and each Subsidiary may repurchase its capital stock so
long as the aggregate amount expended in connection with all such repurchases
does not exceed $50,000,000 during the term of this Agreement. The applicability
of the covenants contained in this Section 6.05 (to the extent relating to
repurchases of capital stock) to non-Wholly Owned Subsidiaries is subject to the
provisions of Section 9.02(c).
SECTION 6.06. Transactions with Affiliates. The Borrower will not,
and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) in the ordinary course of business at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's- length basis from unrelated third parties,
(b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
Section 6.05.
SECTION 6.07. Limitation on Optional Payments and Modifications of
Debt Instruments. The Borrower will not, and will not permit any of its
Subsidiaries (other than WME and its subsidiaries) to, (a) optionally make or
offer to make any payment, prepayment, repurchase or redemption of or otherwise
defease or segregate funds with respect to any item of its Indebtedness having a
principal amount in excess of $100,000,000 (other than in connection with any
refinancing of any such item of Indebtedness in full through the incurrence of
Indebtedness permitted hereby and other than in connection with payment of
Indebtedness under existing revolving credit facilities) or (b) amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of any item of its Indebtedness
having a principal amount in excess of $100,000,000 (other than any such
amendment, modification, waiver or other change which (i) would extend the
maturity or reduce the amount of any payment of principal thereof or which would
reduce the rate or extend the date for payment of interest thereon, (ii) does
not involve the payment of a consent fee, (iii) does not adversely affect the
interests of the Administrative Agent or any Lender under any Loan Document or
(iv) is of a technical or clarifying nature). The applicability of the
covenants contained in this Section 6.07 to non-Wholly Owned Subsidiaries is
subject to the provisions of Section 9.02(c).
SECTION 6.08. Limitation on Changes in Fiscal Periods. The Borrower
will not change its method of determining fiscal quarters or fiscal years.
SECTION 6.09. Restrictive Agreements. The Borrower will not, and
will not permit any of its Subsidiaries (other than WME and its subsidiaries)
to, directly or indirectly, enter into, incur or permit to exist any agreement
or other arrangement that prohibits, restricts or imposes any condition upon (a)
the ability of the Borrower or any Subsidiary to create, incur or permit to
exist any Lien upon any of its property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares of
its capital stock, to make or repay loans or advances to the Borrower or any
other Subsidiary, to transfer assets to the Borrower or any other Subsidiary or
to Guarantee Indebtedness of the Borrower or any other Subsidiary;
<PAGE>
33
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions contained in documentation governing Indebtedness of
(or commitments providing for the incurrence of Indebtedness by) the Borrower or
any of its Subsidiaries which are in effect on the date hereof and identified on
Schedule 6.09, together with any restrictions and conditions contained in
documentation governing any Indebtedness incurred (or commitments received)
after the Effective Date so long as any such restrictions or conditions are no
more onerous than those applicable to the corresponding type of Indebtedness (or
commitment) referred to on said Schedule, (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) above shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement if such restrictions or conditions apply only to the property
or assets securing such Indebtedness and (v) clause (a) above shall not apply to
customary provisions in leases restricting the assignment thereof.
VII. ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become
due and payable, and such failure shall continue unremedied for a period of
five days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with this Agreement
or any amendment or modification hereof, or in any report, certificate,
financial statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof,
shall prove to have been incorrect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to the
existence of the Borrower or WMNA) or 5.08 or in Article VI;
(e) any Credit Party shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement or the other Loan
Documents (other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of 30
days after notice thereof from the Administrative Agent (given at the
request of the Required Lenders) to the Borrower;
(f) the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness,
<PAGE>
34
when and as the same shall become due and payable (subject, in the case of
interest, to the expiration of any stated grace period);
(g) (i) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, but subject to the
expiration of any stated grace period) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, to require the prepayment,
repurchase, redemption or defeasance thereof, or to terminate any
commitment associated therewith, prior to its scheduled maturity or
termination date or (ii) a Termination Event occurs under and as defined in
the Trade Receivables Facility;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of its assets, and, in any such case,
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $100,000,000 shall be rendered against the Borrower,
any Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse
Effect; or
(m) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the
<PAGE>
35
Administrative Agent may, with the consent of the Required Lenders, and shall,
at the request of the Required Lenders, by notice to the Borrower, take either
or both of the following actions, at the same or different times: (i) terminate
the Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then out standing to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall become due and payable immediately, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower; and
in case of any event with respect to the Borrower described in clause (h) or (i)
of this Article, the Commitments shall automatically terminate and the principal
of the Loans then outstanding, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
VIII. ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders hereby irrevocably appoints the Administrative
Agent as its agent and authorizes the Administrative Agent to take such actions
on its behalf and to exercise such powers as are delegated to the Administrative
Agent by the terms hereof, together with such actions and powers as are
reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall not be liable for any action taken
or not taken by it with the consent or at the request of the Required Lenders or
in the absence of its own gross negligence or willful misconduct. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Borrower or a Lender, and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or in any other Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement, any other Loan Document
<PAGE>
36
or any other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
<PAGE>
37
IX. ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 3003 Butterfield Road, Oak Brook,
Illinois 60523, Attention of Vice President - Finance (Telecopy No.
630-572-1340);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Agent
Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10081,
Attention of Janet Beldon (Telecopy No. (212) 552-5662), with a copy to The
Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention
of Joe Lillis (Telecopy No. (212) 270-1063); and
(c) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement, any other Loan Document nor any provision
hereof or thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by each Credit Party party
thereto and the Required Lenders or by each Credit Party party thereto and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender directly affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender directly affected
thereby, (iv) release all or
<PAGE>
38
substantially all of the Subsidiary Guarantors from their obligations under the
Subsidiary Guarantee, without the written consent of each Lender, or (v) change
any of the provisions of this Section or the definition of "Required Lenders" or
any other provision hereof specifying the number or percentage of Lenders
required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender; provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
(c) Each Lender agrees that, in the event that any transaction that
would be prohibited by Section 6.03, Section 6.05 (in the case of repurchases of
capital stock) or Section 6.07 is consummated or proposed to be consummated by a
non-Wholly Owned Subsidiary as a result of recommendations by management or the
independent members of the board of directors of such Subsidiary, such Lender
will not unreasonably withhold its consent to any request by the Borrower to
effectuate appropriate modifications to this Agreement permitting such
transaction, subject to satisfaction of any conditions such Lender reasonably
deems appropriate in connection therewith.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
agrees to pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of this Agreement or any amendments, modifications or waivers
of the provisions of this Agreement or any other Loan Document (whether or not
the transactions contemplated hereby or thereby shall be consummated) and (ii)
all out-of-pocket expenses incurred by the Administrative Agent or any Lender,
including the fees, charges and disbursements of any counsel (including the
reasonably documented and allocated cost of internal counsel) for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement or any other Loan
Document, including its rights under this Section, or in connection with the
Loans made hereunder, including in connection with any workout, restructuring or
negotiations in respect thereof.
(b) The Borrower agrees to indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement, any
other Loan Document or any agreement or instrument contemplated hereby or
thereby, the performance by the parties hereto or thereto of their respective
obligations hereunder or thereunder or the consummation of the Transactions or
any other transactions contemplated hereby or thereby, (ii) any Loan or the use
of the proceeds therefrom, (iii) any actual or alleged presence or release of
Hazardous Materials on or from any property owned or operated by the Borrower or
any of its Subsidiaries, or any Environmental Liability related in any way to
the Borrower or any of its Subsidiaries, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
<PAGE>
39
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable not later
than 10 days after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment or Loans, the amount of the Commitment of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent, (iii) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (iv)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; provided further that any consent of the
Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Upon acceptance and recording pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.12,
2.13, 2.14 and 9.03). Any assignment or transfer by
<PAGE>
40
a Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent and the Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject to paragraph (f) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.12 or 2.14 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.14 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.14(e) as though it were a Lender.
(g) Prior to disclosing information relating to the Borrower and its
Subsidiaries to any proposed assignee or Participant, each Lender shall cause
such proposed assignee or Participant to enter into a confidentiality agreement
substantially in the form previously executed and delivered by such Lender or
otherwise acceptable to the Borrower.
<PAGE>
41
(h) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any such pledge or assignment to a Federal Reserve
Bank, and this Section shall not apply to any such pledge or assignment of a
security interest; provided that no such pledge or assignment of a security
interest shall release a Lender from any of its obligations hereunder or
substitute any such assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
and warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement
and any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
<PAGE>
42
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Administrative Agent or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement against the
Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court referred to
in paragraph (b) of this Section. The Borrower hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) The Borrower irrevocably consents to service of process in the
manner provided for notices in Section 9.01. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each Lender agrees to maintain the
confidentiality of information furnished to it by or on behalf of the Borrower
in connection with the Transactions as provided in any separate confidentiality
agreement entered into between the Borrower and such Lender.
<PAGE>
43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
WASTE MANAGEMENT, INC.
By: /s/ William Keightley
---------------------
Title: Assistant Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent
By: /s/ B. Joseph Lillis
--------------------
Title: Managing Director
<PAGE>
EXHIBIT 10.6
WASTE MANAGEMENT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(As Amended and Restated as of November 11, 1997)
Waste Management, Inc. (formerly "WMX Technologies, Inc."), a Delaware
corporation, established this Supplemental Executive Retirement Plan effective
as of January 1, 1988, amended and restated the Plan effective as of May 14,
1993 and again effective January 24, 1995. The Plan was further amended and
restated to make other necessary and desirable changes effective November 11,
1997, all as set forth below.
1. Definitions. Wherever used in this Plan, the following terms shall
-----------
have the following meanings, unless a different meaning is clearly required by
the context:
(a) Code: The Internal Revenue Code of 1986, as amended from time to
----
time. Reference to a section of the Code shall include that section and any
corresponding provisions of any future legislation that amends, supplements or
supersedes that section.
(b) Committee: With respect to participation in the Plan by
---------
individuals who are executive officers of the Company whose compensation is
administered by the Compensation and Stock Option Committee of the Company's
Board of Directors, the term "Committee" shall mean the Compensation and Stock
Option Committee of the Company's Board of Directors. With respect to
participation in the Plan by all other individuals, the term "Committee" shall
mean the Executive Committee of the Company (or one or more persons designated
by it).
(c) Company: Waste Management, Inc., a Delaware corporation.
-------
(d) Compensation: A Participant's "compensation" for any year is such
------------
Participant's total salary and bonus as accrued in the consolidated financial
records of the Company and its subsidiaries for that year (without regard to any
reduction thereto under any salary reduction agreement entered into under
section 125 or 401(k) of the Code), but excluding any other form of compensation
such as bonuses under the Company's or any subsidiary's long-term incentive
bonus program, income attributable to stock options or Company contributions
under pension, profit sharing or other plans.
(e) Disability: A physical or mental disability as defined for
----------
purposes of the Pension Plan.
(f) Final Average Compensation: The monthly average of a
--------------------------
Participant's Compensation with the Company or a Participating Subsidiary for
the three consecutive calendar years in which such Participant's aggregate
Compensation was the highest out of the last ten
<PAGE>
calendar years ending on or before such Participant's date of retirement or
other termination of employment.
2
<PAGE>
(g) Inactive Participant: An individual who became a Participant
--------------------
hereunder and thereafter ceased to be in the class of employees eligible to
participate in the Plan as a result of the classification of exempt employees
pursuant to the total compensation review conducted in 1997 or who is designated
by the Committee as an Inactive Participant. An Inactive Participant shall
continue to be a Participant for purposes of continuing to accrue Eligibility
Service hereunder, but not Benefit Service. The benefits of an Inactive
Participant shall be determined in accordance with Section 5(c), unless provided
for separately in an agreement with the Company in which case the terms of that
agreement shall prevail.
(h) Normal Retirement Date: The first day of the month coinciding
----------------------
with or next following the Participant's 60th birthday.
(i) Participant: Any person who is eligible to participate in this
-----------
Plan as provided in Section 3 and who is designated as a Participant by the
Committee. A Participant shall remain a Participant for such period of time as
such person is designated as a Participant by the Committee. Except where the
context requires otherwise, the term "Participant" shall also mean an Inactive
Participant or a retired or terminated Participant who continues to be entitled
to receive retirement benefits under this Plan after retirement or other
termination of employment.
(j) Participating Subsidiary: Waste Management of North America,
------------------------
Inc., Chemical Waste Management, Inc., any majority-owned subsidiary of either
or any other subsidiary of the Company designated by the Committee from time to
time.
(k) Pension Plan: The Waste Management, Inc. Pension Plan, as amended
------------
from time to time.
(l) Plan: This Waste Management, Inc. Supplemental Executive
----
Retirement Plan, as amended from time to time (commonly referred to as the
"SERP").
(m) Service: A Participant's service for purposes of eligibility for
-------
benefits and amount of benefits, determined as follows:
(i) Benefit Service: A Participant's benefit service as
---------------
determined for purposes of the Pension Plan; provided, however, that the Benefit
Service of an Inactive Participant shall be determined on the date immediately
preceding the date the Participant became an Inactive Participant.
(ii) Eligibility Service: A Participant's period of service from
-------------------
the date the Participant commenced or recommenced participation in the Plan or
such earlier date as is approved by the Committee at the time the Participant is
designated as such, and ending on the later of the date the Participant ceases
to be a Participant hereunder by reason of retirement, death or termination of
employment or the date the Participant ceases to be a Transferred Participant or
an Inactive Participant. Notwithstanding the foregoing, a Participant's period
of participation in the Chemical Waste Management, Inc. Supplemental Executive
Retirement Plan
3
<PAGE>
prior to its merger into the Plan shall be counted as Eligibility Service
hereunder.
Notwithstanding any provision contained herein to the contrary, but subject
to the break in service rules of the Pension Plan with respect to the
determination of Benefit Service, all periods of service shall be aggregated.
All other terms used in both this Plan and in the Pension Plan shall have the
same meaning as in the Pension Plan, and all actuarial calculations under this
Plan shall be made on the same basis as for the similar purpose under the
Pension Plan.
2. Purpose. The purpose of this Plan is to provide a retirement income
-------
to eligible executives of the Company and its subsidiaries to supplement the
pensions payable under the Company's Pension Plan.
3. Eligibility. Effective July 1, 1997, any person who is designated as
-----------
Level F or above under the Company's compensation administration system and who
is a participant in the Pension Plan shall be eligible to be a Participant in
this Plan, unless the Committee shall affirmatively act to exclude the
individual. In addition, the Committee may in its discretion from time to time
designate other key employees of the Company or any Participating Subsidiary as
eligible to participate, or to continue participating, in the Plan.
4. Eligibility for Benefits. Benefits under this Plan shall be payable
------------------------
in respect of a Participant only if the Participant's termination of employment
(for reasons other than death or Disability) occurs on or after the date such
Participant has completed ten years of Eligibility Service, either as a
Participant or an Inactive Participant, as evidenced in the records of the
Committee. In the event of the Participant's termination of employment for
reason of death or Disability, such Participant shall be entitled to receive his
or her accrued benefit under the Plan in such manner and at such time as
provided in Section 7 of the Plan.
5. Amount of Benefits.
------------------
(a) Normal Retirement. If a Participant retires after having become
-----------------
eligible for benefits hereunder and on or after such Participant's Normal
Retirement Date, the monthly amount of such Participant's benefits under the
Plan, commencing on or after Normal Retirement Date, shall be (i) 1-1/2% of
Final Average Compensation per year of Benefit Service, reduced by (ii) the
amount of such Participant's monthly benefit under the Pension Plan (determined
without regard to any qualified domestic relations order to which such
Participant's benefit under the Pension Plan is or was subject).
(b) Early Retirement. If a Participant retires or terminates
----------------
employment after having become eligible for benefits hereunder, but before his
or her Normal Retirement Date, the monthly amount of such Participant's benefits
shall be determined in accordance with Section 5(a), except that if the
Participant has completed less than 30 years of Benefit Service such amount
shall be reduced at the rate of 2/10 of 1% for each of the first 60 months by
which the benefit commencement date precedes the Participant's Normal Retirement
Date, and for each
4
<PAGE>
additional month at such rate as is determined by the Committee in its
discretion. Notwithstanding the foregoing sentence, the
5
<PAGE>
Committee in its discretion may determine with respect to any particular
Participant that any such reduction shall be at a lower rate or that no such
reduction shall apply.
(c) Inactive Participants. Effective July 1, 1997, notwithstanding
---------------------
any other provision of this Section 5 to the contrary, the benefit of a
Participant who is an Inactive Participant at the time of retirement or
termination of service with the Company or an affiliated entity shall be
determined as follows: (i) if the individual became an Inactive Participant
after having completed ten years of Eligibility Service, the monthly amount of
benefits under the Plan shall be based on the provisions of Subsections 5(a) and
(b) as of the date immediately preceding the date the Participant became an
Inactive Participant, based on Benefit Service, Final Average Compensation and
the Participant's accrued benefit under the Pension Plan as of such date; and
(ii) if the individual became an Inactive Participant before having completed
ten years of Eligibility Service, the monthly amount of benefits under the Plan
commencing on or after Normal Retirement Age shall be 0.5% of Final Average
Compensation per year of Eligibility Service completed prior to his designation
as an Inactive Participant, with no offset for the pension received under the
Pension Plan; provided, however, that the Inactive Participant completes ten
years of Eligibility Service prior to his retirement or termination of service.
6. Disability. If a Participant's employment is terminated because of
----------
Disability after having become eligible for benefits hereunder, but before
Normal Retirement Date, such Participant shall be eligible to receive a benefit
under the Plan beginning on his Normal Retirement Date. The amount of benefit
under this Plan to such a Participant shall be determined in accordance with
Section 5, but shall be reduced for any year by any benefits payable to the
Participant for that year under any long-term disability program maintained or
contributed to by the Company or a Participating Subsidiary. In computing the
Benefit Service of such a Participant, his Service shall include the period of
Disability determined in the same manner as for purposes of the Pension Plan.
7. Payment of Benefits. Payment of a Participant's benefits under this
-------------------
Plan shall begin as of the same date as such Participant's pension commencement
date under the Pension Plan, unless an earlier commencement date is specifically
approved by the Committee, in which case the Committee shall provide for such
adjustment in the amount of benefits as it determines in its discretion to be
appropriate. Payment of such benefits shall be in the form of a straight life
annuity and shall continue thereafter monthly for the Participant's life.
However, if payment of a Participant's pension under the Pension Plan is to be
made in the form of a qualified joint and survivor annuity or in any other
optional form, the benefits under this Plan shall be paid in that same form, in
an amount actuarially equivalent to the straight life annuity otherwise payable
hereunder, and with the same contingent annuitant or contingent beneficiary as
under the Pension Plan.
8. Surviving Spouse Benefit.
------------------------
(a) If a Participant dies (i) after having become eligible for
benefits hereunder
6
<PAGE>
and (ii) either (A) before termination of employment or (B) after termination of
employment and before the commencement of benefits under the Plan, provided in
case (B), the Participant and his or her spouse had not effectively waived the
qualified joint and survivor annuity under the Pension Plan, the Participant's
surviving spouse shall be eligible to receive a monthly benefit for life.
(b) Such surviving spouse benefit shall be in the monthly amount that
would have been payable under this Plan to the Participant's surviving spouse
under the qualified joint and survivor annuity described in Section 7 if:
(i) in the case of a Participant who dies after attaining the
"earliest benefit commencement date" (as defined below), the Participant had
retired on the day before his or her death and elected to commence receiving
benefits under this Plan as of such date, or
(ii) in the case of a Participant who dies on or before the
earliest benefit commencement date, the Participant had lived and begun to
receive benefits under this Plan on the earlier benefit commencement date and
had died on the day after that date,
calculated in either case on the basis of the Participant's Final Average
Compensation and Benefit Service as of the date of death or termination of
employment, whichever is earlier, or the date the Participant became an Inactive
Participant, if applicable. For purposes of this Section 8(b), a Participant's
"earliest benefit commencement date" is the first day of the month coinciding
with or next following the later of (A) such Participant's 55th birthday or (B)
completion of ten years of participation hereunder.
(c) Payment of the surviving spouse benefit hereunder shall begin as
of the same date as the spouse's benefit payable to the surviving spouse under
the Pension Plan, unless an earlier commencement date is specifically approved
by the Committee, in which case the Committee shall provide for such adjustment
in the amount of benefit as it determines in its discretion to be appropriate.
Payment of such surviving spouse benefit shall continue thereafter monthly for
the spouse's life. However, if the payment of the surviving spouse's benefit
under the Pension Plan is to be made in some other form, the benefits under this
Plan shall be paid in that same form, in an amount actuarially equivalent to the
annuity otherwise payable hereunder, as under the Pension Plan.
9. Conditions on Benefits. If a Participant engages in competition with
----------------------
the Company or any affiliated entity (without prior authorization in writing) or
is discharged for cause, or performs acts of willful malfeasance or gross
negligence in a matter of material importance to the Company or any affiliated
entity, benefits payable thereafter to the Participant or such Participant's
surviving spouse shall be forfeited at the discretion of the Company's Board of
Directors and the Company shall have no further obligation to the Participant or
spouse under the Plan.
10. Re-employment. If a retired Participant is re-employed by the Company
-------------
or a Participating Subsidiary, no benefits shall be payable during the period of
re-employment, and
7
<PAGE>
the benefits payable following subsequent retirement shall be calculated so as
to take into account such Participant's additional period of service and Final
Average Compensation, with appropriate actuarial adjustment for any benefits
paid under the Plan following such Participant's earlier retirement; provided,
however, that the amount of such benefit as recalculated, before taking into
account any such actuarial adjustment, shall not be less than such Participant's
benefit immediately following such Participant's earlier retirement.
11. Administration and Interpretation. The Committee shall be the Plan
---------------------------------
administrator. The Committee shall have the authority to control and manage the
operation and administration of the Plan, to adopt rules and regulations
regarding the administration of the Plan, to interpret the Plan, to determine
the conditions subject to which any benefits may be payable, and to make any
other determinations which the Committee believes are necessary or advisable for
the administration of the Plan. The Committee shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Committee with respect to the Plan. Determinations
by the Committee shall be final and binding on all parties with respect to all
matters relating to the Plan. The Committee may delegate all or any part of its
authority to any officer of the Company.
12. Claims Procedure.
----------------
(a) If a Participant or other person believes that such person is
entitled to benefits under the Plan, such person may file a claim for benefits
in writing with the Committee. If a claim for benefits is wholly or partially
denied, the Committee shall give the claimant written notice of the denial
within a reasonable period of time after receipt of the claim by the Committee.
Such notice shall set forth:
(i) the specific reason or reasons for the denial,
(ii) specific reference to pertinent provisions of the Plan on
which the denial is based,
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary, and
(iv) an explanation of the claim review procedure.
(b) A claimant whose claim is denied, or such claimant's duly
authorized representative, may submit a written request for review to the
Committee within 60 days after receiving notice of the denial. In connection
with such request, the claimant or his authorized representatives may review
pertinent documents and may submit issues and comments in writing. If such a
request is made, the Committee shall make a full and fair review of the denial
of the
8
<PAGE>
claim and shall make a decision not later than 60 days after receipt of the
request, unless special circumstances (such as the need to hold a hearing)
require an extension of time for processing, in which case a decision shall be
rendered as soon as possible, but not later than 120 days after receipt of the
request. The decision on review shall be in writing and shall include specific
reasons for the decision and specific references to the pertinent provisions of
the Plan on which the decision is based.
13. Amendment and Termination. The Plan may be amended or terminated at
-------------------------
any time by action of the Company's Board of Directors or the Compensation and
Stock Option Committee thereof. However, no such action shall, without the
consent of the Participant, reduce or impair the benefits then currently payable
to a Participant or surviving spouse, nor divest a Participant of any benefits
such Participant would have been entitled to receive had such Participant
resigned from the Company's employ immediately before the effective date of the
amendment or termination.
14. Miscellaneous.
-------------
(a) Spendthrift provision. No interest of any person or entity in, or
---------------------
right to receive a benefit under the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind; nor may such interest or right to receive a benefit
be taken, either voluntarily or involuntarily, for the satisfaction of the debts
of, or other obligations or claims against, such person or entity, including
claims for alimony, support, separate maintenance and claims in bankruptcy
proceedings.
(b) No Guarantee of Employment. Nothing in the Plan shall be
--------------------------
construed as a contract of employment or be deemed to confer upon any
Participant the right to be retained in the service of the Company or any
affiliated entity, nor shall it interfere with the right of the Company or any
affiliated entity to discharge or otherwise deal with any Participant without
regard to the existence of this Plan.
(c) No Funding. The Plan shall at all times be entirely unfunded and
----------
no provision shall at any time be made with regard to segregating any assets of
the Company for payment of any benefits hereunder. All benefits under the Plan
are payable, as and when they come due, solely from the general assets of the
Company. No Participant, surviving spouse or other person shall have any
interest in any particular assets of the Company by reason of the right to
receive a benefit under the Plan and any such Participant, surviving spouse or
other person shall have only the rights of a general unsecured creditor of the
Company with respect to any rights under the Plan. Nothing contained in the
Plan shall constitute a guaranty by the Company or any other entity or person
that the assets of the Company will be sufficient to pay any benefit hereunder.
(d) Facility of Payment. When, in the Committee's opinion, a
-------------------
Participant or surviving spouse is under a legal disability or is incapacitated
in any way so as to be unable to
9
<PAGE>
manage his or her affairs, the benefits hereunder may be paid to the Participant
or spouse, or to a duly appointed guardian or conservator, custodian, adult
relative, or directly for the benefit, of the Participant or surviving spouse,
as the Committee shall in its discretion determine. Any such payments shall
constitute a complete discharge therefor with respect to the Plan, the Committee
and the Company.
(e) Withholding for Taxes. Notwithstanding any other provisions of
---------------------
this Plan, all payments hereunder shall be subject to any applicable withholding
for all federal, state and local taxes.
(f) Corporate successors. The Plan shall not be automatically
--------------------
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other entity,
but the Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate.
(g) Unclaimed benefit. Each Participant shall keep the Company
-----------------
informed of his current address and the current address of his spouse. The
Committee shall not be obligated to search for the whereabouts of any person.
If the location of a Participant is not made known to the Company within three
years after the date on which payment of the Participant's benefit may first be
made, payment may be made as though the Participant had died at the end of the
three-year period. If, within one additional year after such three-year period
has elapsed, or, within three years after the actual death of a Participant, the
Committee is unable to locate any surviving spouse of the Participant, then the
Company shall have no further obligation to pay any benefit hereunder to such
Participant or surviving spouse or any other person and such benefit shall be
irrevocably forfeited.
(h) Limitations on liability. Notwithstanding any of the preceding
------------------------
provisions of the Plan, neither the Company nor any individual acting as an
employee or agent of the Company shall be liable to any Participant, former
Participant, surviving spouse or any other person for any claim, loss, liability
or expense incurred in connection with the Plan.
(i) Governing Law. The Plan shall be construed and administered
-------------
according to the laws of the State of Illinois to the extent that such laws are
not preempted by the laws of the United States of America.
(j) Gender and Number. In the Plan, wherever the context admits,
-----------------
words in the singular include the plural and words in the plural include the
singular, and masculine terms shall be deemed to include the feminine.
(k) Headings. The headings of sections are included solely for
--------
convenience of reference, and if there is any conflict between such headings and
the text of the Plan, the text shall control.
10
<PAGE>
* * *
The foregoing is the true and complete text of the Waste Management, Inc.
Supplemental Executive Retirement Plan as amended and restated by the
Compensation and Stock Option Committee of the Board of Directors of Waste
Management, Inc. as of November 11, 1997.
/s/ Herbert A. Getz
_____________________________
Herbert A. Getz
Senior Vice President and Secretary
11
<PAGE>
EXHIBIT 10.8
WASTE MANAGEMENT, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 28th
day of July, 1997, between WASTE MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Mark T. Spears (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Vice
President and Assistant Controller of the Company; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Vice President and Assistant Controller; and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company's applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive upon the terms and conditions
hereinafter set forth. The Executive shall perform such duties and
responsibilities for the Employer which are commensurate with his position as
may be assigned him by the Company's Vice President and Controller. The
Executive shall report to the Vice President and Controller of the Company.
Incident to the performance of such duties, the Executive shall be provided by
the Employer with office space, facilities and secretarial assistance
commensurate with that currently being provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7, the
term of this Agreement (herein the "Term") shall be for a period beginning on
the date hereof and ending on April 30, 2000 or, if earlier, on the Executive's
62nd birthday on which birthday this Agreement shall terminate unless earlier
terminated in accordance with the terms hereof.
<PAGE>
3. COMPENSATION. During the Term, the Executive's salary shall be payable
at intervals not less often than semi-monthly. The Executive's salary shall be
established be either the Executive Committee of the Company, or in the event
the Executive is among the Company officers whose compensation is subject to
review by the Compensation and Stock Option Committee of the Board of Directors
of the Company, by such Committee (the applicable committee being referred to
herein as the "Committee") and all adjustments thereto and all aspects of the
Executive's incentive or performance compensation shall be established by the
Committee in its sole discretion. In the event there is no Committee in
existence at any time, the term Committee shall be deemed to mean the Chief
Executive Officer of the Company. During the Term, the Executive shall also
receive such benefits and perquisites (the "Benefits") which are made available
to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full
time, attention, and energy to the business of the Employer and the Executive
shall not be engaged in any other business activity pursued for gain, profit, or
other pecuniary advantage which activity interferes with the Executive's duties
and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
------------------------------------
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or businesses which
directly or indirectly control or are controlled by or under common control with
the Company ("Affiliates") to patronize any business similar to that of the
Company, (ii) canvass, solicit or accept any similar business from any customer
of the Company or any Affiliates, (iii)
2
<PAGE>
directly or indirectly request or advise any customer of the Company or
Affiliates to withdraw, curtail or cancel such customer's business with the
Company or Affiliates, (iv) directly or indirectly disclose to any other person,
firm or corporation the names or addresses of any of the customers of the
Company or Affiliates, or (v) compete with the Company or Affiliates in
acquiring or merging with any other business or acquiring the assets of such
other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which [he/she] engages directly or indirectly will (i) hire or
attempt to hire any employee of the Company or its Affiliates nor (ii) directly
or indirectly encourage any employee of the Company or its Affiliates to
terminate employment with the Company or its Affiliates. Notwithstanding the
foregoing, it shall not be deemed a violation of this subsection if a business
which employs Executive hires or attempts to hire an employee of the Company or
its Affiliates and Executive has no knowledge of, control over or involvement
with such solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
-----------
(a) Death or Disability. If the Executive should become physically or
mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the
3
<PAGE>
Company, the Employer and/or their Affiliates by the Executive; (iii) the
intentional wrongful disclosure by the Executive of any secret process or
confidential information of the Company, the Employer and/or their Affiliates;
or (iv) the violation of the Executive's non-disclosure, non-solicitation and
non-competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall elect
to terminate Executive's employment for any reason other than those specified in
Subsection 7(a) or 7(b), it shall provide written notice of such termination to
Executive. In the event that there occurs without the written consent of the
Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of which
results in or reflects a diminution of the scope or importance of
the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary affecting
the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally); or
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location
then Executive may deliver written notice of termination to the Company within
three months of such event (which shall be effective even if such three months
expire after the end of the Term). In either case and subject to the execution
and delivery by Executive to the Company of the release described in Section 9
hereof, the Company shall provide Executive with severance compensation and
benefits as follows:
(u) Executive shall receive an amount equal to one month's current base
salary for each full year of service with the Company, the Employer or
their Affiliates, but in no event less than one year's nor more than two
years' continued base salary, payable at intervals not less frequently than
monthly over a period of months equal to the number of months of severance
pay provided for by this subsection (u), (such period of payment to be
referred to as the "Severance Period");
4
<PAGE>
(v) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(w) with respect to the Executive's stock options, the Company will
recommend to the Compensation and Stock Option Committee of the Board of
Directors of the Company that the exercisability of the Executive's
outstanding stock options be accelerated, such options shall remain
exercisable during the Severance Period (unless they shall expire earlier
by their terms) and such options shall otherwise be treated in accordance
with the terms of their respective grants;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer; and
continuation coverage under COBRA shall commence at the end of the
Severance Period;
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
termination, (ii) pay all incentive compensation earned by the Executive for
performance periods which are completed prior to the date of termination, at
such times and on the same basis amounts as such incentive compensation becomes
payable to other executives of the Employer and (iii) pay or make available to
the Executive all Benefits which by their terms or under applicable law survive
the voluntary termination of the Executive's employment; and the Executive shall
remain bound by his non-disclosure, non-solicitation and non-competition
covenants set forth in Sections 5 and 6 hereof. The exercisability of the
Executive's outstanding stock options shall be treated in accordance with the
terms of their
5
<PAGE>
respective grants or awards, except that in the case of retirement on or after
age 62, the Company will recommend to the Compensation and Stock Option
Committee of the Board of Directors of the Company that the exercisability of
Executive's outstanding stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WASTE MANAGEMENT, INC., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WASTE MANAGEMENT, INC., at
the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The
rights of the Executive and the rights and obligations of the Company hereunder
shall inure to the benefit of and shall be binding upon their respective heirs,
personal representatives, successors and assigns.
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions hereof
shall not be deemed a waiver of such provisions or any other provision hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
6
<PAGE>
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WASTE MANAGEMENT, INC.
/s/ John D. Sanford
By______________________________
John D. Sanford
Senior Vice President
/s/ Mark T. Spears
________________________________
Mark T. Spears
Address: 66 Sterling Circle
Apt. 101
Wheaton, IL 60187
7
<PAGE>
EXHIBIT 10.11
AMENDMENT NO. 2
TO THE
WASTE MANAGEMENT
NON-QUALIFIED
RETIREMENT SAVINGS PLUS PLAN
WHEREAS, Waste Management, Inc., a Delaware corporation (the
"Corporation"), has maintained the Non-Qualified Retirement Savings Plus Plan,
previously known as the Non-Qualified Profit Sharing and Savings Plus Plan, (the
"Plus Plan") since January 1, 1994, and subsequently amended and restated the
Plus Plan as of January 1,1996 and amended the Plus Plan January 1, 1997; and
WHEREAS, pursuant to Subsection 5.3 of Section V of the Plus Plan, the
Corporation reserves the right to amend the Plus Plan at any time; and
WHEREAS, the Corporation now desires to amend the Plus Plan to broaden the
scope of those eligible to participate, to allow for a supplemental allocation
to the extent qualified matching contributions are limited, to limit the level
of voluntary deferrals and to make other desirable changes;
NOW, THEREFORE, the Plus Plan is hereby amended as follows:
I.
Effective January 1, 1998, the name of the Plus Plan be changed to the
Waste Management Non-Qualified Retirement Savings Plus Plan.
II.
Effective January 1, 1998, Section 1.1 is amended to read as follows:
Account. The record of a Participant's interest under the Plan. Accounts
are kept solely for record keeping purposes and shall not require
segregation of any Company assets. Accounts are subdivided into the (i)
Profit Sharing Plus Account; (ii) Voluntary Deferral Account; (iii)
Matching Supplement Account; and the (iv) Matching Plus Account.
III.
Effective January 1, 1998, a new Section 1.8.A is added to read as follows:
<PAGE>
Matching Account. The record under the Savings Plan of the basic matching
contributions allocated to a Participant thereunder, plus any earnings and
minus any losses.
IV.
Effective January 1, 1998, all references to "Profit Sharing Plan" shall be
deemed to mean "Savings Plan", unless the context otherwise requires, and
Section 1.13 is amended to read as follows:
Savings Plan. The Waste Management Retirement Savings Plan.
V.
Effective July 1, 1997, Section 3.1 is amended to read as follows:
3.1 Participation. For any given Plan Year, any employee of the
Company or any of its majority-owned subsidiaries will be eligible to
participate in the Plan if he or she (i) is (a) an active Participant in
the Profit Sharing Plan (or, after December 31, 1997, the Savings Plan), or
(b) if in the six-month waiting period of the Savings Plan, classified as
job level C or above under the Company's compensation brackets, and (ii) is
classified as job level G or above under the Company's compensation
brackets.
VI.
Effective July 1, 1997, Section 4.3 is amended to read as follows:
4.3 Voluntary Deferral Elections. Prior to the beginning of each
Plan Year, a Participant may elect, on a form provided by the Committee, to
have his Compensation reduced in increments of 1% up to a maximum of (i) in
the case of base salary, (A) 100% for Participants who are classified as
job level C or above under the Company's compensation brackets, or (B) 20%
for all other Participants, and (ii) in the case of annual bonus, 100% of
the amount payable, or such other percentage as specified from time to time
by the Committee in accordance with such rules and other limitations as the
Committee may from time to time specify.
VII.
Effective January 1, 1998, a new Section 4.3A shall be added to read as
follows:
4.3A Allocation to Matching Supplement Account. If during a Plan
Year, (i) a Participant has made the maximum 401(k) election allowable
under the
2
<PAGE>
Savings Plan and has not received the full basic match in the Savings Plan
otherwise available but for the restrictions of Code Sections 401(a)(17),
401(k), 401(m) and 415, and (ii) the Participant makes Savings Supplement
deferrals, such Participant's Matching Supplement Account shall be credited
as of the end of each calendar year with an amount equal to:
(a) $1 for each $1 of the first $750 of Savings Supplement elected
in the calendar year plus $.50 for each $1 of Savings Supplement elected in
the calendar year above $750 up to 6% of Compensation up to $500,000, minus
(b) the basic matching contribution that was actually allocated to
the Participant's Matching Account for the calendar year.
VIII.
Effective January 1, 1997, Section 4.6(b) is amended to read as follows:
(b) With respect to the payment of benefits hereunder, (A) the
payment of any (i) amounts of any deferred bonus deemed to be invested in
Company stock and the deemed earnings thereon and (ii) Matching Plus
Account balances, shall be made in Company common stock, and (B) the
payment of any amounts not described in (A) shall be made in cash. In the
case of payment in Company common stock, the stock shall be valued at its
fair market value as of the applicable date (i.e., Termination of
Employment or the one year anniversary of Termination of Employment) which
shall, unless the Committee otherwise determines, be the average of the
closing sale prices per share of the Company's common stock on the New York
Stock Exchange Composite Tape (as reported in The Wall Street Journal,
Midwest Edition) (or if the Company's common stock is not then trade don
the New York Stock Exchange, reported on the principal market where such
common stock is actively traded) on each of the ten trading days
immediately preceding the applicable date.
IX.
Except as set forth herein, the provisions of the Plus Plan shall remain in
effect.
IN WITNESS WHEREOF, this Amendment No. 2 has been executed on this 30th day
of December 1997, by a duly authorized officer of the Corporation.
/s/ Herbert A. Getz
----------------------------------------
Herbert A. Getz
Senior Vice President and Secretary
3
<PAGE>
EXHIBIT 10.42
WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Jerry W. Caudle (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Area
President (Southwest) of the Company, employed by Waste Management of Texas,
Inc.; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Area President (Southwest); and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform
such duties and responsibilities for the Employer which are commensurate with
his position as may be assigned him by the Company's Executive Vice President
and Chief Operating Officer and shall serve as a member of the Management
Committee of the Company. The Executive shall report to the Executive Vice
President and Chief Operating Officer of the Company. Incident to the
performance of such duties, the Executive shall be provided by the Employer with
office space, facilities and secretarial assistance commensurate with that
currently being provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days' prior written notice to the
other, on March 10, 1998 and on each successive March 10, the Term of this
Agreement shall be renewed for a period ending on the earlier of (i) the date
two (2)
<PAGE>
years from such March 10, or (ii) the date of the Executive's 62nd birthday on
which birthday this Agreement shall terminate unless earlier terminated in
accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be
payable at intervals not less often than semi-monthly. The Executive's salary
shall be established by either the Compensation and Stock Option Committee of
the Board of Directors of the Company (subject to approval by the full Board)
or, in the event Executive is not among the Company officers whose compensation
is subject to review by the Compensation and Stock Option Committee of the
Board, by the Executive Committee of the Company (the applicable committee being
referred to herein as the "Committee") and all adjustments thereto and all
aspects of the Executive's incentive or performance compensation shall be
established by the Committee in its sole discretion. In the event there is no
Committee in existence at any time, the term Committee shall be deemed to refer
to the Chief Executive Officer of the Company. During the Term, the Executive
shall also receive such benefits and perquisites (the "Benefits") which are made
available to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his
full time, attention and energy to the business of the Employer and the
Executive shall not be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage which activity interferes with the
Executive's duties and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or
2
<PAGE>
businesses which directly or indirectly control or are controlled by or under
common control with the Company ("Affiliates") to patronize any business similar
to that of the Company, (ii) canvass, solicit or accept any similar business
from any customer of the Company or any Affiliates, (iii) directly or indirectly
request or advise any customer of the Company or Affiliates to withdraw, curtail
or cancel such customer's business with the Company or Affiliates, (iv) directly
or indirectly disclose to any other person, firm or corporation the names or
addresses of any of the customers of the Company or Affiliates, or (v) compete
with the Company or Affiliates in acquiring or merging with any other business
or acquiring the assets of such other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.
3
<PAGE>
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by Executive to the Company of the release
described in Section 9 hereof, the Company shall provide Executive with
severance compensation and benefits as follows:
4
<PAGE>
(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");
(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;
(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the
5
<PAGE>
Executive's base salary to the date of voluntary termination, (ii) pay all
incentive compensation earned by the Executive for performance periods which are
completed prior to the date of voluntary termination, at such times and on the
same basis amounts as such incentive compensation becomes payable to other
executives of the Employer and (iii) pay or make available to the Executive all
Benefits which by their terms or under applicable law survive the voluntary
termination of the Executive's employment; and the Executive shall remain bound
by his non-disclosure, non-solicitation and non-competition covenants set forth
in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding
stock options and the vesting of the Executive's restricted stock shall be
treated in accordance with the terms of their respective grants or awards,
except that in the case of retirement on or after age 62, the Company will
recommend to the Compensation and Stock Option Committee of the Board of
Directors of the Company that the exercisability of Executive's outstanding
stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at
the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder.
The rights of the Executive and the rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon their
respective heirs, personal representatives, successors and assigns.
12. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
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<PAGE>
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WMX TECHNOLOGIES, INC.
By /s/ Dean L. Buntrock
-------------------------------------
Dean L. Buntrock,
Chairman of the Board
By /s/ Jerry W. Caudle
-------------------------------------
Jerry W. Caudle
Address: 1320 Greenway
Suite 1000
Irving, TX 75038
7
<PAGE>
EXHIBIT 10.45
[LETTERHEAD OF WASTE MANAGEMENT]
November 4, 1997
Mr. Robert S. Miller
20 Maury Mountain Lane
Sun River, Oregon 97707
Dear Steve:
This is to confirm the agreement which we have reached regarding your
service as Acting Chairman of the Board and Chief Executive Officer of Waste
Management, Inc. (the "Company").
1. The term of your service commenced on October 29, 1997 and will
continue until the earliest of (a) approval by the Board of Directors of the
Company (the "Board") of the hiring of your successor as Chairman of the Board
and Chief Executive Officer of the Company, (b) your death or disability, or (c)
termination of your service by written notice given either by you or the Board
at least seven (7) days prior to the effective date of such termination.
2. As Acting Chairman of the Board and Chief Executive Officer of the
Company, you will have general responsibility for the direction and supervision
of the Company, with all powers and duties consistent with such positions,
subject to the reasonable direction of the Board. You will report directly to
the Board and will devote to your duties such time as you and the Board
determine to be necessary for the proper conduct of the business of the Company.
3. As your compensation for serving as Acting Chairman of the Board and
Chief Executive Officer, you will receive a salary at the annual rate of
$600,000, paid in accordance with the normal payroll practices of the Company,
and you are also receiving an option to purchase 75,000 shares of common stock
of the Company pursuant to the Company's 1997 Equity Incentive Plan. The
exercise price for the shares will be $23.375 per share. That option will become
exercisable as to all of the option shares upon the termination of your service
pursuant to part (a) or (b) of Paragraph 1, above, or upon earlier termination
by the Board giving notice pursuant to part (c) of Paragraph 1 above. Upon
becoming exercisable, the option will remain exercisable through the earlier of
November 3, 2007 or the 90th day after you cease to serve as a member of the
Board.
4. The salary and option described in Paragraph 3, above, will be your
exclusive compensation for your service as Acting Chairman of the Board and
Chief Executive Officer of the Company. Accordingly, you hereby waive, to the
full extent permitted by law, participation in all other compensation and
employee benefit plans, programs and practices of the Company, including (but
not by way of limitation) annual or long-term incentive compensation plans,
retirement plans (including the Supplemental Executive Retirement Plan) and
severance pay plans (including the severance program for senior officers).
<PAGE>
5. During the term of your service, you will be entitled to be reimbursed,
pursuant to the Company's applicable expense reimbursement policies, for travel
and other expenses incurred by you in connection with your services rendered
pursuant to this letter agreement.
6. To the fullest extent permitted by law, the Company will, during and
after the term of your service as Acting Chairman of the Board and Chief
Executive Officer, indemnify you (including the advancement of expenses) for any
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, incurred by you in connection with the defense of any lawsuit
or other claim to which you are made or threatened to be made a party by reason
of being or having been an officer, director or employee of the Company.
7. The Company will provide for the withholding of any taxes required to
be withheld by federal, state or local law with respect to any payment in cash,
shares of stock and/or other property made by or on behalf of the Company to you
or for your benefit in connection with your service as Acting Chairman of the
Board and Chief Executive Officer. The Company may, at its option, (a) withhold
such taxes from any cash payments to which you become entitled, (b) require you
to pay to the Company in cash such amounts as may be required to satisfy such
withholding obligations and/or (c) make other satisfactory arrangements with you
to satisfy such withholding obligations.
If the foregoing is consistent with your understanding, please countersign
the enclosed copy of this letter and return it to me.
Sincerely,
WASTE MANAGEMENT, INC.
By: /s/ Peer Pedersen
-----------------------------------
Peer Pedersen
Chairman of the Compensation and
Stock Option Committee
Accepted and agreed to
this 25 day of November 1997
/s/ Robert S. Miller
- --------------------------------
Robert S. Miller
<PAGE>
Exhibit 10.46
WMI WASTE MANAGEMENT, INC.
RESTRICTED STOCK AGREEMENT
--------------------------
This Restricted Stock Agreement (the "Agreement"), made this ___ of
___________, _______, by and between WASTE MANAGEMENT, INC., a Delaware
corporation (hereinafter called the "Corporation"), and _____________, a
director of the Corporation (hereinafter called the "Director");
WITNESSETH:
WHEREAS, the Board of Directors of the Corporation has determined it to be
in the best interests of the Corporation to grant restricted stock awards to its
directors in order to provide such directors with an additional stake in the
results of the Corporation, to more closely align their interests with those of
the Corporation's stockholders and to encourage them to continue serving the
Corporation; and
WHEREAS, the Board of Directors has made such an award to the Director and
the Director has agreed to the terms and conditions thereof as set forth in this
Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements of the parties hereto, it is agreed as follows:
1. Grant. Pursuant to this Agreement, the Corporation will from time to
time grant to the Director and the Director will accept certain shares (the
"Restricted Shares") of common stock, $1.00 par value, of the Corporation (the
"Common Stock"), subject to the restrictions, terms and conditions set forth in
this Agreement.
2. Restrictions. During the Restricted Period described in Paragraph 4
below, the Director may not, directly or indirectly, by operation of law or
otherwise, voluntarily or involuntarily, anticipate, alienate, attach, sell,
assign, pledge, encumber, charge or otherwise transfer any of the Restricted
Shares (the "Restrictions"). Upon the expiration of the Restricted Period, all
Restrictions shall lapse.
3. Award Date. The effective date of a grant of the Restricted Shares to
the Director (the "Award Date") shall be set forth in an Award Certificate
delivered to the Director at the time of the Grant.
4. Restricted Period. The Restricted Period shall commence on the Award
Date and shall expire on the last day of the calendar month during which the
Director's service as a director of the Corporation terminates or, if earlier,
the first to occur of the following dates:
(a) the Director's death; or
(b) the Director's total disability, which shall mean a physical or
mental condition such that the Director is unable to perform the functions
required by his or her
<PAGE>
membership on the Board of Directors as determined by a physician
acceptable to the Corporation.
5. (a) Effect of Termination of Service and Other Events. Subject to
the provisions of Section 5(b) hereof, in the event of the termination of the
Director's membership on the Board of Directors of the Corporation, and all
other corporations, partnerships, joint ventures, affiliates, or other entities
in which the Corporation is the direct or indirect beneficial owner of not less
than 20% of all issued and outstanding equity interests, prior to the Vesting
Date (as defined below), 100% of the Restricted Shares granted in such grant
shall be forfeited. In the event of the termination of the Director's membership
on the Board of Directors of the Corporation after the Vesting Date of such
grant, 100% of the Restricted Shares granted in such grant shall be "Vested
Restricted Shares"; provided, however, that Vested Restricted Shares shall
continue to be subject to the Restrictions until the expiration of the
Restricted Period pursuant to Paragraph 4 above. However, and notwithstanding
the foregoing, to the extent provided in Paragraph 5(b) all Restricted Shares
shall be considered Vested Restricted Shares. The Vesting Date shall be the
first to occur of (i) the six month anniversary of the Award Date, or (ii) the
date of the Corporation's annual meeting of stockholders next following the
Award Date.
(b) Accelerated Vesting. Upon the occurrence of any event described
in this Paragraph 5(b), the forfeited percentage shall be zero and 100% of
the Restricted Shares shall become Vested Restricted Shares:
(i) the date of a Change in Control of the Corporation; or
(ii) the date of any event described in Paragraph 4(a) or (b).
(c) Change in Control. For purposes of this Agreement, "Change in
Control" shall mean:
(i) The Corporation is merged or consolidated or reorganized into
or with another corporation or other legal person (an "Acquiror") and
as a result of such merger, consolidation or reorganization less than
75% of the outstanding voting securities or other capital interests of
the surviving, resulting or acquiring corporation or other legal
person are owned in the aggregate by the stockholders of the
Corporation, directly or indirectly, immediately prior to such merger,
consolidation or reorganization, other than by the Acquiror or any
corporation or other legal person controlling, controlled by or under
common control with the Acquiror;
(ii) The Corporation sells all or substantially all of its
business and/or assets to an Acquiror, of which less than 75% of the
outstanding voting securities or other capital interests are owned in
the aggregate by the stockholders of the Corporation, directly or
indirectly, immediately prior to such sale, other than by any
corporation or other legal person controlling, controlled by or under
common control with the Acquiror;
2
<PAGE>
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person or group (as
the terms "person" and "group" are used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act and the rules and regulations promulgated
thereunder) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 20% or more of the issued and
outstanding shares of voting securities of Corporation; or
(iv) During any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors of the
Corporation cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Corporation's stockholders, of each new director of the Corporation
was approved by a vote of at least two-thirds of such directors of the
Corporation then still in office who were directors of the Corporation
at the beginning of any such period.
6. Custody of Restricted Shares; Tax Withholding; Voting; Dividends.
-----------------------------------------------------------------
(a) Certificates Representing Restricted Shares. The Restricted
Shares will be registered in the name of the Director and the certificates,
if any, evidencing such shares shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to the Restricted
Shares. Shares may be issued without certificates, in the Corporation's
discretion, to the extent permitted from time to time by Corporation
procedures. All certificates representing Restricted Shares shall be
retained by the Corporation, together with a stock power executed by the
Director in proper form for transfer into the Corporation's name of all
certificates representing Restricted Shares which are forfeited to the
Corporation in accordance with Paragraph 5.
(b) Delivery to the Director; Tax Withholding. Certificates
representing Restricted Shares with respect to which all Restrictions have
lapsed shall be delivered by the Corporation to the Director (or in the
event of the Director's death, to the Director's designated beneficiary or,
if no beneficiary has been designated, to the Director's estate) promptly
after the expiration of the Restricted Period.
(c) Voting Rights. The Director will have all rights of a stockholder
with respect to voting of the Restricted Shares.
(d) Dividends and Other Distributions. Directors to whom Restricted
Shares have been granted hereunder shall be entitled to all dividends and
other distributions paid with respect thereto during the Restricted Period,
provided that if such dividend or other distribution is in the form of
additional shares of Common Stock, such additional shares shall be deemed
to be part of the Restricted Shares (and, as such, shall be held subject to
the Restrictions hereunder), subject to a vesting period equal to the
remaining vesting period, if any, of the Restricted Shares with respect to
which they were distributed. At the Director's irrevocable election, (i)
cash dividends paid with respect to the Restricted Shares shall be, or
3
<PAGE>
shall be deemed to be, reinvested in additional Common Stock and (ii) other
distributions in respect of Restricted Shares shall be held by the Company
on behalf of such Director, and shall be deemed to be part of the
Restricted Shares to which such dividends and other distributions relate
and, as such, shall be held subject to the Restrictions hereunder. The
Director may revoke such election only with respect to dividends and other
distributions not yet declared.
7. Source of Common Stock. All Restricted Shares granted under this
Agreement will be issued from treasury shares held by the Corporation.
8. Entire Understanding. This Agreement constitutes the entire
understanding between the parties relating to the matters described herein and
supersedes and cancels all prior written and oral understandings and agreements
with respect to such matters.
9. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Director's executors, administrators, legal representatives,
heirs and legatees and the successors and assigns of the Corporation.
10. Partial Invalidity. The various provisions of this Agreement are
intended to be severable and to constitute independent and distinct binding
obligations. Should any provision of this Agreement be determined to be void
and unenforceable, in whole or in part, it shall not be deemed to affect or
impair the validity of any other provision or part thereof, and such provision
or part thereof shall be deemed modified to the extent required to permit
enforcement. Without limiting the generality of the foregoing, if the scope of
any provision contained in this Agreement is too broad to permit enforcement to
its full extent, but may be made enforceable by limitations thereon, such
provision shall be enforced to the maximum extent permitted by law, and the
Director hereby agrees that such scope may be judicially modified accordingly.
11. Waiver. The waiver of any party hereto of a breach of any provision
of this Agreement by any other party shall not operate or be construed as a
waiver of any subsequent breach.
12. Governing Law. This Agreement shall be governed by, and interpreted,
construed and enforced in accordance with, the laws of the State of Illinois.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restricted Stock
Agreement to be signed and the Director has executed the same the day and year
first above written.
WASTE MANAGEMENT, INC.
By:_________________________________
Chairman of the Board
DIRECTOR
____________________________________
5
<PAGE>
WASTE MANAGEMENT, INC.
RESTRICTED STOCK AWARD CERTIFICATE
----------------------------------
================================================================================
Director:__________________________________ SSN:___________________________
Number of Shares of Restricted Stock:______ Award Date:____________________
Vesting Schedule: 100% vested on the six month anniversary of the Award Date
Restricted Period: From Award Date through last day of the month of Director's
service on the Board
================================================================================
The Restricted Stock Award represented by this Certificate is made pursuant
to the Restricted Stock Agreement with Waste Management, Inc. dated_____, 199_,
the terms of which are incorporated herein by reference. Except to the extent
expressly provided herein, capitalized terms used in this Certificate shall have
the same meaning ascribed thereto in the Agreement, a copy which has been
delivered to the Director.
The Restricted Stock subject to this Certificate is subject to the
restrictions set forth in Article 2 of the Agreement, which include, but are not
limited to, prohibitions on the sale, transfer, assignment, pledge or
encumbrance of the Restricted Stock during the Restricted Period set forth on
this Certificate. The Restricted Stock shall be forfeited if the Director
terminates service as a director before the vesting date set forth above.
Notwithstanding the foregoing, if the Director's employment is terminated due to
death or Disability, or a Change in Control occurs, the Restricted Stock shall
be fully vested on the date of termination and all restrictions shall lapse.
All dividends and other distributions payable with respect to such
Restricted Stock shall be credited to the Director. However, the Director may
execute a Dividend and Distribution Election Form which shall provide that cash
dividends with respect to the Restricted Stock are to be reinvested in
additional Common Stock and other distributions are to be held by the Company,
in which case such dividends and distributions shall be subject to the same
restrictions and vesting period as the Restricted Stock.
The Director's acceptance of the Restricted Stock will be deemed his or her
acceptance of the terms under which such Restricted Stock is granted. The
certificate representing the Restricted Stock subject to this Certificate has
been registered in the name of the Director and deposited with the Company. Each
certificate bears an appropriate legend referring to the provisions of the
Agreement and this Certificate. The Director shall have executed an Irrevocable
Stock Power and delivered it to the Company.
The Restricted Stock Award represented by this Certificate shall inure to
the benefit of and be binding upon the Director and the Company and their
respective heirs, executors, administrators, successors, and assigns. The
Director shall execute the attached Beneficiary Designation Form with respect to
the Restricted Stock.
IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award
Certificate to be executed as of the day and year set forth above.
WASTE MANAGEMENT, INC.
By:________________________________
Its: Chairman of the Board
<PAGE>
IRREVOCABLE STOCK POWER
-----------------------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to
WASTE MANAGEMENT, INC., _____ shares of the common stock, $1 par value, of WASTE
MANAGEMENT, INC. represented by Certificate(s) No. ______, inclusive, standing
in the name of the undersigned on the books of said Company and ____________
shares of such common stock purchased pursuant to said Company's Dividend
Reinvestment Plan in acct. no. ________________ at the transfer agent for such
common stock. The undersigned does hereby irrevocably constitute and appoint
________________ attorney to transfer the said stock on the books of said
Company, with full power of substitution in the premises.
Dated: ______________________
_________________________________
Signature
<PAGE>
BENEFICIARY DESIGNATION FORM
----------------------------
Pursuant to the Restricted Stock Agreement dated ____________________,
199_, the undersigned hereby designates
Name: ____________________________________
Relationship: ____________________________________
SSN: ____________________________________
Address: ____________________________________
____________________________________
as my beneficiary with respect to the payment of my Restricted Stock and any
associated dividend, distribution or other rights.
This designation shall remain in effect until revoked in a subsequent
writing delivered to the Company designating a new beneficiary.
Dated:_________________________
____________________________________
Signature
<PAGE>
Exhibit 10.47
Conformed Copy
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WASTE MANAGEMENT FINANCING CORPORATION
WASTE MANAGEMENT, INC.
AND
THE SELLERS NAMED HEREIN
_____________
RECEIVABLES SALE AGREEMENT
_____________
Dated as of December 29, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
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1.1 Defined Terms.......................................................... 1
1.2 Terms Generally........................................................ 1
1.3 Accounting Terms; GAAP................................................. 2
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1 Purchase and Sale of Receivables....................................... 2
2.2 Purchase Price......................................................... 5
2.3 Payment of Purchase Price.............................................. 5
2.4 No Repurchase.......................................................... 6
2.5 Rebates, Adjustments, Returns and Reductions; Modifications............ 6
2.6 Limited Repurchase Obligation.......................................... 7
2.7 Obligations Unaffected................................................. 8
2.8 Certain Charges........................................................ 8
2.9 Certain Allocations.................................................... 8
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
3.1 Conditions Precedent to the Company's Initial Purchase of Receivables.. 8
3.2 Conditions Precedent to All the Company's Purchases of Receivables..... 10
3.3 Conditions Precedent to Sellers' Obligations........................... 11
3.4 Conditions Precedent to the Addition of a Seller....................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Sellers Relating to the Sellers.. 12
(a) Organization, Corporate Powers.................................. 12
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(b) Authorization.................................................... 13
(c) Enforceability................................................... 13
(d) Governmental Approvals; No Conflicts............................. 13
(e) Capitalization................................................... 13
(f) Litigation; Compliance with Laws................................. 13
(g) Compliance with Laws and Agreements.............................. 14
(h) Taxes............................................................ 14
(i) Accuracy and Completeness of Information......................... 14
(j) Employee Benefit Plans........................................... 14
(k) Solvency......................................................... 14
(k) Absence of Certain Restrictions.................................. 15
(l) Indebtedness to Company.......................................... 15
(m) Designated Accounts.............................................. 15
(n) Filings.......................................................... 15
(o) Offices.......................................................... 15
(p) Receivables Documents............................................ 16
(q) Investment Company Act........................................... 16
(r) Bulk Sales Act................................................... 16
(s) Names............................................................ 16
(t) No Purchase Termination Event.................................... 16
(u) No Fraudulent Transfer........................................... 16
(v) Collection Procedures............................................ 16
4.2 Representations and Warranties of the Sellers Relating to the
Agreement and the Receivables......................................... 16
4.3 Representations and Warranties of the Company................................ 17
(a) Organization, Corporate Powers................................... 17
(b) Authorization.................................................... 17
(c) Enforceability................................................... 17
(d) Accounting Treatment............................................. 17
ARTICLE V
AFFIRMATIVE COVENANTS................................. 18
5.1 Certificates; Other Information......................................... 18
5.2 Compliance with Laws, etc............................................... 18
5.3 Preservation of Corporate Existence..................................... 18
5.4 Preservation of Separate Existence...................................... 18
5.5 Visitation Rights....................................................... 19
5.6 Keeping of Records and Books of Account................................. 20
5.7 Location of Records..................................................... 20
5.8 Computer Files.......................................................... 20
5.9 Payment of and Compliance with Obligations.............................. 20
5.10 Policies............................................................... 21
5.11 Taxes; ERISA........................................................... 21
5.12 Collections............................................................ 21
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5.13 Furnishing Copies, etc................................................ 22
5.14 Obligations with Respect to Obligors and Receivables.................. 22
5.15 Responsibilities of the Sellers....................................... 23
5.16 Further Action........................................................ 23
5.17 Sale of Receivables................................................... 23
ARTICLE VI
NEGATIVE COVENANTS
6.1 Liens.................................................................. 24
6.2 Extension or Amendment of Receivables.................................. 24
6.3 Ineligible Receivables................................................. 24
6.4 Change in Payment Instructions to Obligors............................. 24
6.5 Change in Name......................................................... 24
6.6 Policies............................................................... 24
6.7 Modification of Ledger................................................. 24
6.8 Business of the Sellers................................................ 24
6.9 Accounting of Purchases................................................ 25
6.10 Instruments........................................................... 25
ARTICLE VII
PURCHASE TERMINATION EVENTS.............................. 25
ARTICLE VIII
THE SUBORDINATED NOTE
8.1 Subordinated Note...................................................... 28
8.2 Restrictions on Transfer of Subordinated Note.......................... 28
ARTICLE IX
MISCELLANEOUS
9.1 Further Assurances..................................................... 28
9.2 Payments............................................................... 29
9.3 Costs and Expenses..................................................... 29
9.4 Successors and Assigns................................................. 30
9.5 GOVERNING LAW.......................................................... 30
9.6 No Waiver; Cumulative Remedies......................................... 30
9.7 Amendments and Waivers................................................. 31
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9.8 Severability........................................................... 31
9.9 Notices................................................................ 31
9.10 Counterparts.......................................................... 31
9.11 Construction of Agreement as Security Agreement....................... 32
9.12 WAIVERS OF JURY TRIAL................................................. 32
9.13 Jurisdiction; Consent to Service of Process........................... 32
9.14 Addition of Sellers................................................... 33
9.15 Termination of Sellers................................................ 33
9.16 No Bankruptcy Petition................................................ 33
9.17 Termination........................................................... 33
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ANNEX X Definitions
SCHEDULES
1 Names; Balance of Receivables; Locations of Chief Executive Offices;
Locations of Receivables Records; Jurisdiction of Incorporation;
Jurisdictions in which Qualified to do Business; Effective Date;
Seller Category
2 Designated Accounts (To be delivered on the Commencement Date and
shall become a part hereof for all purposes.)
3 Discounted Percentage
EXHIBITS
A Form of Subordinated Note
BB Form of Additional Seller Supplement
C Form of Designation of Effective Date
-iv-
<PAGE>
RECEIVABLES SALE AGREEMENT, dated as of December 29, 1997, among Waste
Management, Inc., a Delaware corporation ("WMI"), as master servicer (in such
capacity, the "Master Servicer"), the Subsidiaries of WMI from time to time
parties hereto, in their capacities as sellers of Receivables (each a "Seller"
and collectively, the "Sellers") and Waste Management Financing Corporation, a
Delaware corporation (the "Company" or the "Purchaser").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, in the ordinary course of business, each Seller generates
Receivables (as defined herein); and
WHEREAS, each Seller desires to sell to the Company, and the Company
is willing to purchase from such Seller, all of such Seller's right, title and
interest in, to and under the Receivables (as defined herein) now existing or
hereafter created and the rights of such Seller in, to and under all Receivable
Assets (as so defined) related thereto;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized terms used in this Agreement shall
-------------
have the respective meanings assigned to such terms in Annex X hereto unless
otherwise defined herein.
1.2 Terms Generally. The definitions of terms herein shall apply
---------------
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The word "will"
shall be construed to have the same meaning and effect as the word "shall."
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder," and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
subsections, Exhibits
<PAGE>
2
and Schedules shall be construed to refer to Articles and subsections of, and
Exhibits and Schedules to, this Agreement and (e) the words "asset" and
"property" shall be construed to have the same meaning and effect and to refer
to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights.
1.3 Accounting Terms; GAAP. Except as otherwise expressly provided
----------------------
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1 Purchase and Sale of Receivables. (a) Each of the Sellers
--------------------------------
hereby sells, transfers, assigns and conveys, without recourse (except as
expressly provided herein), to the Purchaser, all its present and future right,
title and interest in, to and under:
(i) all Receivables existing at the opening of business on the
Effective Date with respect to such Seller and all such Receivables
thereafter arising from time to time until but not including the date an
Early Termination occurs with respect to such Seller;
(ii) the Related Property in respect of such Receivables;
(iii) all Collections in respect of such Receivables;
(iv) all rights (including rescission, replevin or reclamation,
but none of the obligations) relating to such Receivables or arising
therefrom;
(v) all proceeds of or payments in respect of any and all of
the foregoing clauses (i) through (iv).
Such property described in the foregoing clauses (i) through (v) shall be
referred to herein as the "Receivable Assets." Subject to the terms and
conditions set forth herein, the Purchaser hereby agrees to purchase the
Receivable Assets of each Seller.
The term "Effective Date" when used with respect to any Seller shall
mean the date specified as the "Effective Date" for such Seller on Schedule 1
hereto or in the notice delivered by WMI pursuant to the following sentence.
WMI may at any time, and from time to time after the Commencement Date, by
delivery to the Purchaser (with a copy to the Administrative Agent) of written
notice
<PAGE>
3
substantially in the form of Exhibit C irrevocably designate with respect to any
Seller the date that shall be the "Effective Date" with respect to such Seller.
(b) On the Effective Date with respect to a Seller and on the date of
creation of each newly created Receivable (but only so long as no Early
Termination shall have occurred and be continuing with respect to such Seller),
all of such Seller's right, title and interest in and to (i) in the case of the
Effective Date, all then existing Receivables and all other Receivable Assets in
respect of such Receivables and (ii) in the case of each such date of creation,
all such newly created Receivables and all other Receivable Assets in respect of
such Receivables shall be considered to be part of the assets that have been
sold, transferred, assigned, set over and otherwise conveyed to the Purchaser
pursuant to paragraph (a) above without any further action by any Seller or any
other Person. Anything herein to the contrary notwithstanding, to the extent any
Seller shall not have received payment from the Purchaser of the Purchase Price
for any Receivable and other related Receivable Assets in accordance with the
terms of subsection 2.3, such Receivable and Receivable Assets shall, upon
receipt by the Purchaser and the Administrative Agent of notice from such Seller
of such failure to receive payment, immediately and automatically be sold,
assigned, transferred and reconveyed by the Purchaser to such Seller without any
further action by the Purchaser or any other Person.
(c) The parties to this Agreement intend that, for accounting and
commercial purposes, the transactions contemplated by this subsection 2.1 hereby
shall be, and shall be treated as, a purchase by the Purchaser and a sale by
each Seller of the Purchased Receivables and other Receivable Assets and not a
lending transaction. All sales of Receivables and other Receivable Assets by
each Seller hereunder shall be without recourse to, or representation or
warranty of any kind (express or implied) by, such Seller, except as otherwise
specifically provided herein. The foregoing sale, assignment, transfer and
conveyance does not constitute and is not intended to result in the creation or
assumption by the Purchaser of any obligation of any Seller or any other Person
in connection with the Receivables, the other Receivable Assets or any agreement
or instrument relating thereto, including any obligation to any Obligor.
(d) In connection with the foregoing conveyances, each Seller agrees
to record and file, or cause to be recorded and filed, at its own expense,
financing statements (and continuation statements with respect to such financing
statements when applicable) with respect to the Receivables and the Receivable
Assets now existing and hereafter acquired pursuant to this Agreement by the
Purchaser from each Seller and in each case meeting the requirements of
applicable law in such manner and in such jurisdictions as are necessary to
perfect and maintain perfection of the Purchaser's purchase of such Receivables
and any other Receivable Assets and to deliver to the Administrative Agent no
later than 10 days after the Commencement Date (i) where available, a file-
stamped copy or certified statement of such financing statement or other
evidence of such filing and (ii) otherwise, a photocopy, certified by a
Responsible Officer to be a true and correct
<PAGE>
4
copy, of each such financing statement or other filing made no later than 10
days after the Commencement Date.
(e) In connection with the foregoing sales, transfers, assignments
and conveyances, each Seller agrees at its own expense, no later than 30 days
after the Effective Date with respect to such Seller that it will, as agent of
the Purchaser indicate or cause to be indicated on the computer files (but not
on individual invoices or individual collection files) relating to the
Receivables of such Seller (by means of a general legend that will automatically
appear at or near the beginning of any screen, list or print-out of such
Receivables) that, unless otherwise specifically identified on such screen, list
or print-out as a receivable not so sold, transferred, assigned and conveyed,
all Receivables included in such screen, list or print-out and all other
Receivable Assets (and any other similar related property) have been sold,
transferred, assigned and conveyed to the Purchaser in accordance with this
Agreement.
(f) As further confirmation of the sale of the Receivables, it is
understood and agreed that the Purchaser shall have the following rights:
(i) the Purchaser shall have the right at any time to notify,
or require that any Seller at its own expense notify, the respective
Obligors of the Purchaser's ownership of the Purchased Receivables and
other Receivable Assets and may direct that payment of all amounts due or
to become due under the Purchased Receivables be made directly to the
Purchaser or its designee;
(ii) the Purchaser shall have the right to (A) sue for
collection on any Purchased Receivables or (B) sell any Purchased
Receivables to any Person for a price that is acceptable to the Purchaser;
(iii) each Seller shall, upon the Purchaser's written request
and at such Seller's expense, (A) assemble all of such Seller's documents,
instruments and other records (including credit files and computer tapes or
disks) that (1) evidence or will evidence or record Receivables sold by
such Seller and (2) are otherwise necessary or desirable to effect
Collections of such Purchased Receivables (collectively, the "Documents")
and (B) deliver the Documents to the Purchaser or its designee at a place
designated by the Purchaser. In recognition of such Seller's need to have
access to any Documents which may be transferred to the Purchaser
hereunder, whether as a result of its continuing business relationship with
any Obligor for Receivables purchased hereunder, the Purchaser hereby
grants to each Seller an irrevocable license to access the Documents
transferred by such Seller to the Purchaser and to access any such
transferred computer software in connection with any activity arising in
the ordinary course of such Seller's business; provided, that such Seller
--------
shall not disrupt or otherwise interfere with the Purchaser's use of and
access to the Documents and its computer software during such license
period;
<PAGE>
5
(iv) each Seller hereby grants to the Purchaser and the
Administrative Agent an irrevocable power of attorney (coupled with an
interest) to take any and all steps in such Seller's name necessary or
desirable, in the reasonable opinion of the Purchaser, to collect all
amounts due under the Purchased Receivables, including, without limitation,
enforcing the Purchased Receivables and exercising all rights and remedies
in respect thereof and endorsing such Seller's name on checks and other
instruments representing Collections; and
(v) promptly upon written request of the Purchaser, after the
occurrence of a Servicer Event of Default, each Seller will (A) deliver to
the Purchaser all licenses, rights, computer programs, related material,
computer tapes, disks, cassettes and data necessary for the immediate
collection of the Purchased Receivables by the Purchaser, with or without
the participation of such Seller (excluding software licenses which by
their terms are not permitted to be so delivered; provided, that such
--------
Seller shall use reasonable efforts to obtain the consent of the relevant
licensor to such delivery) and (B) make such arrangements with respect to
the collection of the Purchased Receivables as may be reasonably required
by the Purchaser.
2.2 Purchase Price. The amount payable by the Company to a Seller
--------------
(the "Purchase Price") for Receivables and Receivable Assets existing on the
Effective Date with respect to such Seller and for newly created Receivables and
Receivable Assets on any Payment Date under this Agreement shall be equal to the
product of (a) the aggregate outstanding Principal Amount of such Receivables as
set forth in the applicable Daily Report and (b) the Discounted Percentage for
such Payment Date.
2.3 Payment of Purchase Price. (a) Upon fulfillment of the
-------------------------
conditions set forth in Article III, the Purchase Price for Receivables and
other Receivable Assets shall be paid or provided for in the manner provided
below on each day for which a Daily Report is prepared and delivered to the
Company (each such day, a "Payment Date"). Each Seller hereby appoints the
Master Servicer as its agent to receive payment of the Purchase Price for
Receivables sold by it to the Company and hereby authorizes the Company to make
all payments due to such Seller directly to, or as directed by, the Master
Servicer. The Master Servicer hereby accepts and agrees to such appointment and
to the provisions of subsection 2.3(d).
(b) The Purchase Price for Receivables and Receivable Assets with
respect thereto purchased by the Company on any Payment Date shall be paid by
the Company on such Payment Date as follows:
(i) by netting the amount of any Seller Adjustment Payments or
Seller Repurchase Payments pursuant to subsection 2.5 or 2.6 against such
Purchase Price;
<PAGE>
6
(ii) to the extent available for such purpose, in cash from
Collections;
(iii) to the extent available for such purpose, in cash from
the net proceeds of the sale of an interest in such Purchased Receivables
by the Company to other Persons;
(iv) at the option of the Company, by means of an addition to
the principal amount of the Subordinated Note, as appropriate in accordance
with this subsection, in an aggregate amount equal to the remaining portion
of the Purchase Price; provided, that on the Commencement Date, amounts
--------
available pursuant to clause (v) shall be used prior to making any payment
of the Purchase Price by means of an addition to the Subordinated Note;
provided, however, that the Company may pay by means of additions to the
-------- -------
principal amount of the Subordinated Note only if, at the time of such
payment and after giving effect thereto, the fair market value of its
assets, after giving effect for this purpose to any Adjustments with
respect to the Purchased Receivables or any participation interest therein
sold to the Participants under the Receivables Transfer Agreement, is
greater than the sum of (i) the amount of its liabilities, including its
liabilities on the Subordinated Note and all fees payable under the
Receivables Transfer Agreement, and (ii) the Minimum Equity Amount. Any
such addition to the principal amount of the Subordinated Note shall be
allocated among the Sellers by the Master Servicer. The Master Servicer may
evidence such payments by means of additions to the principal amount of the
Subordinated Note by recording the date and amount thereof on the books and
records of the Master Servicer or the Sellers or on the grid attached to
the Subordinated Note; provided, that the failure to make any such
--------
recordation or any error in such grid shall not adversely affect any
Seller's rights; and
(v) in cash from the proceeds of capital contributed by WMI to
the Company in respect of its equity interest in the Company.
(c) The Master Servicer may allocate among the Sellers the payment of
the Purchase Price for Receivables and any amounts netted therefrom pursuant to
subsection 2.3(b)(i). The Company shall be entitled to pay all amounts in
respect of the Purchase Price of Receivables to an account of the Master
Servicer without regard to whether or how such payments are allocated by the
Master Servicer to the Sellers. Each Seller agrees that payment to the Master
Servicer of the Purchase Price shall constitute payment to such Seller. All
payments under this Agreement (i) shall be made on the date specified therefor
in Dollars in same day funds or by check, as the Master Servicer shall elect,
(ii) shall be made not later than 3:00 p.m (New York City time) on the date
specified therefor and (iii) shall be made (x) if to any Seller, to the bank
account for such Seller designated in writing by the Master Servicer to the
Company and (y) if to the Master Servicer, to the bank account designated in
writing by the Master Servicer to the Company.
<PAGE>
7
(d) Whenever any payment to be made under this Agreement shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day. Amounts not paid when due in accordance
with the terms of this Agreement shall bear interest at a rate equal at all
times to the ABR plus 2%, payable on demand.
----
2.4 No Repurchase. Except to the extent expressly set forth herein,
-------------
no Seller shall have any right or obligation under this Agreement, by
implication or otherwise, to repurchase from the Company any Purchased
Receivables or other Receivable Assets or to rescind or otherwise retroactively
effect any purchase of any Purchased Receivables or Receivable Assets after the
Payment Date relating thereto.
2.5 Rebates, Adjustments, Returns and Reductions; Modifications.
-----------------------------------------------------------
From time to time a Seller may make Adjustments to Receivables in accordance
with this subsection 2.5 and subsection 6.2. Each Seller (with respect to which
its Effective Date has occurred), jointly and severally, agrees to pay to the
Company (regardless of which Seller shall have granted such Adjustment), the
amount of any such Adjustment (a "Seller Adjustment Payment") as follows: (i)
prior to an Early Termination with respect to all Sellers, the amount of any
such Seller Adjustment Payment shall be paid by (x) effectively netting the
product of such Adjustment and the Discount Percentage then in effect against
the Purchase Price of Receivables created after the grant of such Adjustment in
accordance with subsection 2.3(b)(i) and paying the remainder of such Seller
Adjustment Payment in cash on the first Settlement Date to occur after the grant
of such Adjustment and (y) after an Early Termination with respect to all
Sellers, the amount of any such Seller Adjustment Payment shall be paid in cash
no later than five Business Days after the grant of such Adjustment. An
"Adjustment" shall mean any rebate, administrative fee, discount, credit memo,
refund, non-cash payment or adjustment (including, without limitation, as a
result of the application of any special or other discounts or any
reconciliations) in respect of any Receivable, the amount owing for any returns
or cancellations and the amount of any other reduction of any payment under any
Receivable in each case granted or made by the applicable Seller to the related
Obligor; provided, that an "Adjustment" does not include any Defaulted
--------
Receivables. The amount of any Adjustment shall be set forth on the first Daily
Report prepared after the date the Adjustment is first recorded on the computer
records of the Master Servicer or any of its Subsidiaries, which for purposes of
this subsection 2.5 shall constitute the date of "grant" thereof. Each Seller
agrees to promptly record Adjustments in accordance with its historical
practices.
2.6 Limited Repurchase Obligation. In the event that any of the
-----------------------------
representations or warranties contained in subsection 4.2 in respect of any
Receivable shall be or have been incorrect in any material respect as of the
date made or deemed made, or any Receivable shall become subject to any MDN
defense, dispute, offset or counterclaim of any kind (other than as expressly
permitted by this Agreement) or any Seller shall breach any covenant contained
in subsection
<PAGE>
8
5.2, 5.10, 5.14 5.15 or Article VI with respect to any Receivable (each of the
foregoing events or circumstances, a "Repurchase Event"), such Receivable shall
cease to be an Eligible Receivable on the date on which such Repurchase Event
occurs. In addition, if any Repurchase Event shall occur with respect to any
Receivable, then each Seller (with respect to which its Effective Date has
occurred), jointly and severally, agrees to pay to the Company an amount (the
"Repurchase Amount") in cash equal to the Purchase Price of such Receivable
(whether the Company paid such Purchase Price in cash or otherwise) less
Collections received by the Company in respect of such Receivable, regardless of
which Seller shall have been responsible for such Repurchase Event, such payment
to occur no later than the 30th day after the day such Repurchase Event becomes
known (or should have become known with due diligence) to any Seller (except
that if such day is not a Business Day, such payment shall be made on the
Business Day immediately succeeding such day) unless such Repurchase Event shall
have been cured on or before such day; provided, that, prior to the occurrence
--------
of an Early Termination with respect to all Sellers, any such payments to the
Company shall be netted against the Purchase Price of newly created Receivables
in accordance with subsection 2.3(b)(i) to the extent of such Purchase Price and
the remaining amount of such Seller Repurchase Payment due to the Company after
such netting, if any, shall be paid to the Company on such date in cash. Any
payment by any Seller pursuant to this subsection 2.6 is referred to as a
"Seller Repurchase Payment." If, on or prior to such 30th day (or the Business
Day immediately succeeding such 30th day, as applicable), any Seller shall so
reacquire any such Receivable, then the Company shall have no further remedy
against the Sellers in respect of the Repurchase Event with respect to such
reacquired Receivable. Upon a Seller Repurchase Payment, the Company shall
automatically and without further action be deemed to sell, transfer, assign,
set over and otherwise convey to the applicable Seller, without recourse,
representation or warranty, all the right, title and interest of the Company in,
to and under such Receivable and the other Receivable Assets with respect
thereto. The Company shall execute such documents and instruments of transfer or
assignment and take such other actions as shall reasonably be requested by such
Seller to effect the conveyance of such Receivable pursuant to this subsection
2.6.
2.7 Obligations Unaffected. The obligations of the Sellers to the
----------------------
Company under this Agreement shall not be affected by reason of any invalidity,
illegality or irregularity of any Receivable or any sale of a Receivable.
2.8 Certain Charges. Each of the Sellers and the Company agrees that
---------------
late charge revenue, reversals of discounts, other fees and charges and other
similar items, whenever created, accrued in respect of Purchased Receivables
shall be the property of the Company notwithstanding the occurrence of an Early
Termination, and all Collections with respect thereto shall continue to be
allocated and treated as Collections in respect of Purchased Receivables.
2.9 Certain Allocations. Each of the Sellers hereby agrees that,
-------------------
following the occurrence of an Early Termination in respect of any Seller, all
<PAGE>
9
Collections and other proceeds received in respect of Receivables generated by
such Seller shall be applied first, to pay the outstanding Principal Amount of
-----
Purchased Receivables (as of the date of such Early Termination) of the Obligor
to whom such Collections are attributable until such Purchased Receivables are
paid in full and second, to such Seller to pay Receivables of such Obligor not
------
sold to the Company; provided, however, that notwithstanding the foregoing, if
-------- -------
any such Seller can attribute a Collection to a specific Obligor and a specific
Receivable, then such Collection shall be applied to pay such Receivable of such
Obligor.
ARTICLE III
CONDITIONS TO PURCHASE AND SALE
3.1 Conditions Precedent to the Company's Initial Purchase of
---------------------------------------------------------
Receivables. The obligation of the Company to purchase the Receivables and the
- -----------
other Receivable Assets hereunder on the Commencement Date from any Seller is
subject to the conditions precedent, which may be waived by the Company, that
(a) each of the Transaction Documents shall be in full force and effect and (b)
the conditions set forth below shall have been satisfied on or before the
Commencement Date:
(i) the Company shall have received copies of duly adopted
resolutions of the board of directors of each Seller as in effect on the
Commencement Date and in form and substance reasonably satisfactory to the
Company, authorizing this Agreement, the documents to be delivered by such
Seller hereunder and the transactions contemplated hereby, certified by the
Secretary or Authorized Signatory of such Seller;
(ii) the Company shall have received duly executed certificates
of the Secretary or an Authorized Signatory of each Seller, dated the
Commencement Date and in form and substance reasonably satisfactory to the
Company, certifying the names and true signatures of the officers (or such
other person) authorized on behalf of such Seller to sign this Agreement
and any instruments or documents in connection with this Agreement (on
which certificates the Company may conclusively rely until such time as the
Company shall receive from such Seller a revised certificate with respect
to such Seller meeting the requirements of this subsection (ii));
(iii) with respect to the Category A Sellers, to the extent
available, the Company shall have received the certificate or articles of
incorporation and by-laws of such Seller, duly certified by the Secretary
or an Authorized Signatory of such Seller;
(iv) the Company shall have received a "short-form" good
standing certificate with respect to each Seller;
<PAGE>
10
(v) each Seller shall have made available for filing and
recordation, at its own expense, UCC-1 financing statements (and other
similar instruments) with respect to the Receivables and the other
Receivable Assets in such manner and in such jurisdictions as are necessary
or desirable to perfect the Company's ownership interest thereof under the
Uniform Commercial Code (or any other similar law), and all other action
necessary, in the reasonable judgment of the Company, to perfect the
Company's ownership of the Receivables and the other Receivable Assets
shall have been duly taken;
(vi) the Company shall have received (A) with respect to each
Seller, a written search report listing all effective financing statements
that name the applicable Seller as debtor or assignor and that are filed in
the jurisdictions that the Company determines are necessary or appropriate,
together with copies of such financing statements, and (B) with respect to
each Category A Seller, tax and judgment lien searches in DuPage County and
Cook County, Illinois;
(vii) the Company shall be satisfied that the Sellers'
systems, procedures and record keeping relating to the Purchased
Receivables are in all material respects sufficient and satisfactory in
order to permit the purchase and administration of the Purchased
Receivables in accordance with the terms and intent of this Agreement; and
(viii) the Company and the Administrative Agent shall have
received a certificate from each Seller, dated the Commencement Date and
signed by one of its Responsible Officers, in form satisfactory to the
Company and the Administrative Agent, confirming compliance with the
conditions precedent set forth in this subsection 3.1.
3.2 Conditions Precedent to All the Company's Purchases of
------------------------------------------------------
Receivables. The obligation of the Company to pay a Seller for any Receivable
- -----------
and other Receivable Assets with respect thereto on each Payment Date (including
any Effective Date) shall be subject to the further conditions precedent, which
may be waived by the Company, that on such Payment Date:
(a) the following statements shall be true (and the acceptance by
such Seller of the Purchase Price for any Receivables on any Payment Date
shall constitute a representation and warranty by such Seller that on such
Payment Date the statements in clauses (i) and (ii) below are true):
(i) the representations and warranties of such Seller
contained in subsections 4.1 (other than subsection 4.1(f)(1)) and 4.2
shall be true and correct in all material respects on and as of such
Payment Date as though made on and as of such date, except insofar as
such representations and warranties are expressly made only as of
<PAGE>
11
another date (in which case they shall be true and correct in all
material respects as of such other date); and
(ii) after giving effect to such purchase, no Purchase
Termination Event of the type specified in paragraph (e), (h), (i) or
(j) of Article VII with respect to such Seller (or Incipient Purchase
Termination Event with respect thereto) shall have occurred and be
continuing; and
(iii) there has been no material adverse change since the
date of this Agreement in the collectibility of the Receivables of
such Seller (other than due to a change in the creditworthiness of the
Obligors);
(b) the Company shall have received payment in full of all amounts
for which payment is due from such Seller pursuant to subsection 2.5, 2.6
or 9.3;
(c) the Company shall have received such other approvals, opinions or
documents as the Company may reasonably request; and
(d) such Seller shall have complied with all of its covenants in all
material respects and satisfied all of its obligations in all material
respects under this Agreement required to be complied with or satisfied as
of such date;
provided, however, that the failure of any Seller to satisfy any of the
- -------- -------
foregoing conditions shall not prevent such Seller from subsequently selling
Receivables upon satisfaction of all such conditions or exercising its rights
under subsection 2.1(b).
The acceptance of the Purchase Price for any Receivable and other Receivable
Assets on each Payment Date by each Seller shall constitute a representation and
warranty by such Seller that the conditions to the sale thereof on such Payment
Date shall have been satisfied.
3.3 Conditions Precedent to Sellers' Obligations. (a) The
--------------------------------------------
obligations of each Seller on the Commencement Date shall be subject to the
conditions precedent that such Seller shall have received on or before the
Commencement Date the following, each dated the Commencement Date and in form
and substance satisfactory to such Seller:
(i) a copy of duly adopted resolutions of the board of
directors of the Company authorizing this Agreement, the documents to be
delivered by the Company hereunder and the transactions contemplated
hereby, certified by the Secretary or Assistant Secretary of the Company;
and
<PAGE>
12
(ii) a duly executed certificate of the Secretary or Assistant
Secretary of the Company certifying the names and true signatures of the
officers authorized on its behalf to sign this Agreement and the other
documents to be delivered by it hereunder.
(b) The obligations of each Seller on each Payment Date shall be
subject to the condition precedent that after giving effect to such purchase, no
Termination Event set forth in paragraph (f) (other than clause (iii) thereof)
of Article IX of the Receivables Transfer Agreement shall have occurred and be
continuing.
3.4 Conditions Precedent to the Addition of a Seller. No Subsidiary
------------------------------------------------
of WMI approved by the Company as an additional Seller pursuant to subsection
9.14 shall be added as a Seller hereunder unless the conditions set forth below
shall have been satisfied on or before the date designated for the addition of
such Seller (the "Seller Addition Date"):
(i) the Company shall have received an Additional Seller
Supplement substantially in the form of Exhibit B hereto, duly executed and
delivered by such Seller;
(ii) the Company shall have received copies of duly adopted
resolutions of the board of directors of such Seller as in effect on the
related Seller Addition Date and in form and substance reasonably
satisfactory to the Company, authorizing this Agreement, the documents to
be delivered by such Seller hereunder and the transactions contemplated
hereby, certified by the Secretary or an Authorized Signatory of such
Seller;
(iii) the Company shall have received the certificate or articles
of incorporation and by-laws of such Seller, duly certified by the
Secretary or an Authorized Signatory of such Seller;
(iv) the Company shall have received a "short-form" good
standing certificate with respect to each Seller;
(v) the Company shall have received duly executed certificates
of the Secretary or an Authorized Signatory of such Seller dated the
related Seller Addition Date and in form and substance reasonably
satisfactory to the Company, certifying the names and true signatures of
the officers authorized on behalf of such Seller to sign the Additional
Seller Supplement or any instruments or documents in connection with this
Agreement (on which certificates the Company may conclusively rely until
such time as the Company shall receive from such Seller a revised
certificate with respect to such Seller meeting the requirements of this
subsection (v));
<PAGE>
13
(vi) such Seller shall have made available for filing and
recordation, at its own expense, UCC-1 financing statements (and other
similar instruments) with respect to the Receivables and the other
Receivable Assets in such manner and in such jurisdictions as are necessary
or desirable to perfect the Company's ownership interest thereof under the
Uniform Commercial Code (or any other similar law), and all other
action necessary, in the opinion of the Company, to perfect the Company's
ownership of the Receivables and the other Receivable Assets shall have
been duly taken;
(vii) the Company shall have received (i) with respect to each
Seller, a written search report listing all effective financing statements
that name the applicable Seller as debtor or assignor and that are filed in
the jurisdictions that the Company determines are necessary or appropriate,
together with copies of such financing statements (none of which shall
cover any Receivables or Receivable Assets), and (ii) with respect to each
Seller, tax and judgment lien searches showing no such Liens that are not
permitted by the Transaction Documents; and
(viii) the Company and the Administrative Agent shall have
received a certificate from each Seller, dated the Seller Addition Date and
signed by one of its Responsible Officers, in form satisfactory to the
Company and the Administrative Agent, confirming compliance with the
conditions precedent set forth in this subsection 3.4.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Sellers Relating to the
-------------------------------------------------------------
Sellers. Each Seller hereby represents and warrants to the Company on the
- -------
Commencement Date, its Effective Date and on each Payment Date that:
(a) Organization, Corporate Powers. It is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite corporate power and authority to carry on
its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is
in good standing in, every jurisdiction where such qualification is
required and has the corporate power and authority to execute, deliver and
perform each of the Transaction Documents and each agreement or instrument
contemplated hereby or thereby to which it is or will be a party.
<PAGE>
14
(b) Authorization. The Sale Transactions are within its corporate
powers and have been duly authorized by all requisite corporate and, if
required, stockholder action.
(c) Enforceability. Each of this Agreement and the other Transaction
Documents to which it is a party has been duly executed and delivered by it
and constitutes a legal, valid and binding obligation of it enforceable
against it in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and except as
enforceability may be limited by general principles of equity, regardless
of whether such enforceability is considered in a proceeding in equity or
at law.
(d) Governmental Approvals; No Conflicts. The execution, delivery and
performance by it of this Agreement and each of the other Transaction
Documents to which it is a party, the sale of Receivables by it hereunder
and the consummation of the other transactions contemplated by any of the
foregoing (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except
such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws
or other organizational documents of it or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon such Seller or its assets, or
give rise to a right thereunder to require any payment to be made by such
Seller, and (d) will not result in the creation or imposition of any Lien
on any asset of such Seller.
(e) Capitalization. All of its Capital Stock is owned directly or
indirectly by WMI.
(f) Litigation; Compliance with Laws. (1) Except for the Disclosed
Matters, as of the Commencement Date, there are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to its knowledge, threatened against or affecting such Seller
(a) could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect (other than the Disclosed Matters) or
(b) that involve this Agreement or the Sale Transactions.
(2) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect, such Seller (i) has not
failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law, (ii) has not become subject to any Environmental
Liability, (iii) has
<PAGE>
15
not received notice of any claim with respect to any Environmental
Liability or (iv) does not know of any basis for any Environmental
Liability.
(3) Since the date of this Agreement, there has been no change
in the status of the Disclosed Matters that, individually or in the
aggregate, has resulted in, or materially increased the likelihood of, a
Material Adverse Effect.
(g) Compliance with Laws and Agreements. It is in compliance with
all laws, regulations and orders of any Governmental Authority applicable
to it or its property and all indentures, agreements and other instruments
binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
(h) Taxes. It has timely filed or caused to be filed all Tax returns
which are required to have been filed and has paid or caused to be paid all
Taxes required to have been paid by it, except (i) Taxes that are being
contested in good faith by appropriate proceedings and for which it has set
aside on its books adequate reserves or (ii) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect.
(i) Accuracy and Completeness of Information. It has disclosed to
the Company all agreements, instruments and corporate or other restrictions
to which it is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in
a Material Adverse Effect.
(j) Employee Benefit Plans. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect. The present
value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than
$40,000,000 the fair market value of the assets of all such underfunded
Plans.
(k) Solvency. The sale of the Receivables by it to the Company has
not been made in contemplation of the occurrence of any Insolvency Event.
Both prior to and after giving effect to the transactions occurring on the
Effective Date or such Closing Date, (i) the fair value of the assets of
such Seller at a fair valuation will exceed the debts and liabilities,
subordinated, contingent or otherwise, of such Seller; (ii) the present
fair salable value of the property of such Seller will be greater than the
<PAGE>
16
amount that will be required to pay the probable liability of such Seller
on its debts and other liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; (iii) such
Seller will be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (iv) such Seller will not have unreasonably small capital with
which to conduct the business in which it is engaged as such business is
now conducted and is proposed to be conducted. For all purposes of clauses
(i) through (iv) above, the amount of contingent liabilities at any time
shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability. Such
Seller does not intend to, nor does it believe that it will, incur debts
beyond its ability to pay such debts as they mature, taking into account
the timing of and amounts of cash to be received by it and the timing of
and amounts of cash to be payable in respect of its debt.
(k) Absence of Certain Restrictions. No indenture, certificate of
designation for preferred stock, agreement or other instrument to which it
or any of its Subsidiaries is a party will prohibit or materially restrain,
or have the effect of prohibiting or materially restraining, or imposing
materially adverse conditions upon, the sale and assignment of Receivable
Assets.
(l) Indebtedness to Company. Immediately prior to consummation of
the transactions contemplated hereby on the Commencement Date, it had no
outstanding Indebtedness to the Company other than amounts permitted by
this Agreement.
(m) Designated Accounts. Set forth in Schedule 2 is a complete and
accurate description as of the Effective Date of each Designated Account
currently maintained by such Seller. Such Designated Account will only be
used for the collection of Receivables and the Designated Bank has received
standing instructions to transfer at least as often as once each day
(unless the amount on deposit on such day is less than $5,000) that is a
Business Day for such Designated Bank and in any event by 1:00 p.m. (New
York City time) on the Business Day following each such day of deposit, by
wire transfer of immediately available funds all available funds on deposit
in such Designated Account to the Concentration Account (either directly or
indirectly through another Designated Account) along with any remittance
advisements or payment invoices on deposit therein.
(n) Filings. Upon the making of the filings and the performance of
the acts described in clause (v) of subsection 3.1 or clause (vi) of
subsection 3.4, as the case may be, all filings and other acts (including
but not limited to all filings and other acts necessary or advisable under
the Uniform Commercial Code of each relevant jurisdiction) shall have been
made
<PAGE>
17
or performed such that the Company has a first priority perfected ownership
interest in respect of all Receivables.
(o) Offices. The offices at which each Seller keeps its records
concerning the Receivables are located at the addresses previously
disclosed to the Company or have been reported to the Company and the
Administrative Agent in accordance with the provisions of subsection 5.7 of
this Agreement. The chief executive office of such Seller is located at
the address set forth on Schedule 1 (as such location may be changed from
time to time in accordance with subsection 5.7 of this Agreement) and is
the place where the Company is "located" for the purposes of Section 9-
103(3)(d) of the UCC as in effect in the State of New York. The state and
county where the chief executive office of such Seller is "located" for the
purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New
York has not changed in the past four months. The Seller is duly qualified
to do business in each state set forth opposite its name on Schedule 1
hereto and is not qualified to do business in any other state.
(p) Receivables Documents. Upon the delivery, if any, by it to the
Company of licenses, rights, computer programs, related materials, computer
tapes, disks, cassettes and data relating to the administration of the
Purchased Receivables pursuant to subsection 2.1(f)(v), the Company shall
have been furnished with all materials and data necessary to permit
immediate collection of the Purchased Receivables without the participation
of any Seller in such collection.
(q) Investment Company Act. It is not an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of
1940, as amended.
(r) Bulk Sales Act. No transaction contemplated hereby with respect
to any Seller requires compliance with, or will be subject to avoidance
under, any bulk sales act or similar law.
(s) Names. The legal name of each Seller is as set forth on Schedule
1 to this Agreement. It has no trade names, fictitious names, assumed
names or "doing business as" names, which do not include either the words
"Waste Management" or "Chemical Waste Management".
(t) No Purchase Termination Event. As of the Commencement Date and
its Effective Date, no Purchase Termination Event or Incipient Purchase
Termination Event with respect to such Seller has occurred and is
continuing.
(u) No Fraudulent Transfer. Such Seller is not entering into this
Agreement with the intent (whether actual or constructive) to hinder,
delay, or defraud its present or future creditors and is receiving
<PAGE>
18
reasonably equivalent value and fair consideration for the Receivables
originated by it being transferred hereunder.
(v) Collection Procedures. It has in place procedures pursuant to
the Transaction Documents which are either necessary or advisable to ensure
the timely collection of Receivables originated by it.
4.2 Representations and Warranties of the Sellers Relating to the
-------------------------------------------------------------
Agreement and the Receivables. Each Seller hereby represents and warrants to
- -----------------------------
the Company on the Effective Date and on each Payment Date that with respect to
the Receivables being paid for as of such date:
(a) Eligible Receivable. Other than with respect to Receivables
which such Seller states in writing (in the applicable Daily Report) are
not Eligible Receivables on such date, each Receivable is, as of its
Payment Date, an Eligible Receivable. The aggregate outstanding Principal
Amount of Receivables sold by it on any Payment Date is correctly set forth
on the Daily Report.
(b) Title; No Liens. Such Seller is the sole legal and beneficial
owner of such Receivables, and upon the sale of each Receivable of such
Seller, the Company will become the sole legal and beneficial owner of such
Receivable, free and clear of any Liens (except for Permitted Liens) and no
effective financing statement or other instrument similar in effect
covering all or any part of such Purchased Receivable, Related Property or
Collections with respect thereto will at such time be on file against such
Seller in any filing or recording office except such as have been filed in
favor of the Company in accordance with this Agreement.
4.3 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to itself as follows:
(a) Organization, Corporate Powers. It is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite corporate power and authority to carry on
its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is
in good standing in, every jurisdiction where such qualification is
required and has the corporate power and authority to execute, deliver and
perform each of the Transaction Documents and each other agreement or
instrument contemplated hereby or thereby to which it is or will be a
party.
(b) Authorization. The Transactions are within the corporate powers
of the Company and have been duly authorized by all requisite corporate
and, if required, stockholder action.
<PAGE>
19
(c) Enforceability. Each of this Agreement and each of the other
Transaction Documents to which it is a party has been duly executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors'
rights generally and except as enforceability may be limited by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(d) Accounting Treatment. The Company will not prepare any financial
statements that shall account for the transactions contemplated hereby, nor
will it in any other respect (other than for tax purposes) account for the
transactions contemplated hereby, in a manner that is inconsistent with the
Company's ownership interest in the Receivables.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Seller hereby agrees that, so long as there are any amounts
outstanding with respect to Purchased Receivables previously sold by such Seller
to the Company or until an Early Termination with respect to such Seller,
whichever is later, such Seller or the Master Servicer on behalf of such Seller
shall:
5.1 Certificates; Other Information. Furnish to the Company:
-------------------------------
(a) not later than 90 days after the end of each fiscal year and not
later than 45 days after the end of each of the first three fiscal quarters
of each fiscal year, a certificate of a Responsible Officer of the Master
Servicer stating that, to such officer's knowledge (after due inquiry),
such Seller during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition, contained in
the Transaction Documents to which it is a party to be observed, performed
or satisfied by it, and that such officer has obtained no knowledge of any
Purchase Termination Event or Incipient Purchase Termination Event except
as specified in such certificate; and
(b) promptly, such additional financial and other information as the
Company may from time to time reasonably request.
5.2 Compliance with Laws, etc. Comply in all material respects with
--------------------------
its certificate of incorporation and by-laws and all laws, rules, regulations
and orders of any Governmental Authority, whether now in effect or hereafter
enacted, applicable to the Purchased Receivables, except to the extent that
failure to comply therewith could not have a Material Adverse Effect. Each
Seller will
<PAGE>
20
comply, in all material respects, with its obligations under contracts with
Obligors relating to the Purchased Receivables, except to the extent such
compliance would result in a violation of the laws, rules, regulations or orders
of any Governmental Authority.
5.3 Preservation of Corporate Existence. (i) Preserve and maintain
-----------------------------------
its corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation and (ii) qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the nature of its business so
requires, except where the failure so to qualify would not, individually or in
the aggregate with other such failures, have a Material Adverse Effect shall be
given; provided, that notwithstanding the foregoing, any Seller may be
--------
consolidated or merged with or into or dissolved into any other Seller so long
as written notice of such consolidation or merger shall be given to the Company
and the Administrative Agent at least one day prior to the date thereof.
5.4 Preservation of Separate Existence. (i) Maintain its deposit
----------------------------------
account or accounts separate from those of the Company and ensure that its funds
will not be diverted to the Company, nor will such funds be commingled with the
funds of the Company; provided, that notwithstanding the foregoing, such Seller
--------
may have Collections on its Receivables, whether or not sold to the Company,
deposited into the Designated Accounts or the Concentration Account;
(ii) To the extent that it shares any officers or other
employees with the Company, the salaries of and the expenses related to
providing benefits to such officers and other employees shall be fairly
allocated among it and the Company, and it and the Company shall bear their
fair shares of the salary and benefit costs associated with all such common
officers and employees;
(iii) To the extent that it jointly contracts with the Company
to do business with vendors or service providers or to share overhead
expenses, the costs incurred in so doing shall be allocated fairly between
it and the Company, and it and the Company shall bear their fair shares of
such costs. To the extent that it contracts or does business with vendors
or service providers where the goods and services provided are partially
for the benefit of the Company, the costs incurred in so doing shall be
fairly allocated between it and the Company in proportion to the benefit of
the goods or services each is provided, and it and the Company shall bear
their fair shares of such costs. All material transactions between it and
the Company, whether currently existing or hereafter entered into, shall be
only on an arm's length basis, it being understood and agreed that the
transactions contemplated in the Transaction Documents meet the
requirements of this clause (iii);
(iv) Maintain office space separate from the office space of the
Company (but which may be located at the same address as the Company). To
<PAGE>
21
the extent that it and the Company have offices in the same location, there
shall be a fair and appropriate allocation of overhead costs between them,
and each shall bear its fair share of such expenses;
(v) Not assume or guarantee any of the liabilities of the
Company; and
(vi) Take, or refrain from taking, as the case may be, all other
actions that are necessary to be taken or not to be taken in order (x) to
ensure that the assumptions and factual recitations set forth in the
Specified Bankruptcy Opinion Provisions remain true and correct in all
material respects with respect to it (and, to the extent within its
control, to ensure that the assumptions and factual recitations set forth
in the Specified Bankruptcy Opinion Provisions remain true and correct with
respect to the Company) and (y) to comply in all material respects with
those procedures described in such provisions that are applicable to it.
5.5 Visitation Rights. At any reasonable time during normal business
-----------------
hours and from time to time, in each case upon reasonable notice to such Seller
and the Master Servicer, permit (i) the Company and the Administrative Agent, or
any of their respective agents or representatives, (A) to examine and make
copies of and abstracts from the records, books of account and documents
(including computer tapes and disks) of each Seller relating to the Purchased
Receivables hereunder and (B) following the termination of the appointment of
WMI as Master Servicer with respect to the Purchased Receivables, to be present
at the offices and properties of such Seller to administer and control the
collection of amounts owing on the Purchased Receivables and (ii) the Company
and the Administrative Agent, or any of their respective agents or
representatives, to visit the properties of such Seller for the purpose of
examining such records, books of account and documents, and to discuss the
affairs, finances and accounts of such Seller relating to the Purchased
Receivables or such Seller's performance hereunder with any of its officers or
directors and with its independent certified public accountants (subject to any
requirements of confidentiality imposed by law or contract).
5.6 Keeping of Records and Books of Account. Maintain and implement,
---------------------------------------
or cause to be maintained or implemented, administrative and operating
procedures reasonably necessary or advisable for the collection of amounts owing
on all Purchased Receivables, and, until any delivery to the Company, keep and
maintain, or cause to be kept and maintained, all documents, books, records and
other information reasonably necessary or advisable for the collection of
amounts owing on all such Purchased Receivables and other Receivable Assets with
respect thereto.
5.7 Location of Records. Keep its chief place of business and chief
-------------------
executive office at the locations referred to for it on Schedule 1 hereto or,
upon 30 days prior written
notice to the Company and the Administrative Agent, at such other locations in a
jurisdiction where all action required by subsection 5.16(a)
<PAGE>
22
shall have been taken and completed and be in full force and effect. Keep the
offices where it keeps the records concerning the Purchased Receivables (and all
original documents relating thereto) at the locations referred to in subsection
4.1(o).
5.8 Computer Files. At its own cost and expense, retain the ledger
--------------
used by such Seller as a master record of the Obligors and retain copies of all
documents relating to each Obligor as custodian and agent for the Company and
other Persons with interests in the Purchased Receivables and mark the computer
tape or other physical records of the Purchased Receivables to the effect that
interests in the Purchased Receivables existing with respect to the Obligors
listed thereon have been sold to the Company.
5.9 Payment of and Compliance with Obligations. Pay, discharge or
------------------------------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on its books or except where the failure to so pay, discharge or
otherwise satisfy such obligations would not have a Material Adverse Effect in
respect of such Seller. Such Seller shall defend the right, title and interest
of the Company in, to and under the Receivables originated by it and the other
Receivable Assets, whether now existing or hereafter created, against all claims
of third parties claiming through such Seller. Such Seller will duly fulfill
all obligations on its part to be fulfilled under or in connection with each
Receivable originated by it and will do nothing to impair the rights of the
Company in such Receivable.
5.10 Policies. Perform its obligations in accordance with and comply
--------
in all material respects with the Policies and the Company Policies as amended
from time to time in accordance with the Transaction Documents, in regard to the
Receivables originated by it and the other Receivable Assets.
5.11 Taxes; ERISA. (a) Pay and discharge promptly all Taxes,
------------
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property, before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might give rise to a Lien upon such
properties or any part thereof; provided, however, that such payment and
-------- -------
discharge shall not be required with respect to any such Tax, assessment,
charge, levy or claim so long as (i) the validity or amount thereof shall be
contested in good faith by appropriate proceedings and such Seller shall set
aside on its books adequate reserves as required by GAAP with respect thereto,
(ii) such Tax, assessment, charge, levy or claim is in respect of property Taxes
for property that such Seller has determined to abandon and the sole recourse
for such Tax, assessment, charge, levy or claim is to such property and (iii)
the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
<PAGE>
23
(b) (i) Comply in all material respects with the applicable
provisions of ERISA and (ii) furnish to the Company (w) as soon as possible, and
in any event within 30 days after any Responsible Officer of such Seller or any
ERISA Affiliate of such Seller knows or has reason to know that any Reportable
Event has occurred that alone or together with any other Reportable Event could
reasonably be expected to result in liability of the Master Servicer, such
Seller or any of their ERISA Affiliates to the PBGC in an aggregate amount
exceeding $40,000,000 a statement of a Financial Officer setting forth details
as to such Reportable Event and the action proposed to be taken with respect
thereto, together with a copy of the notice, if any, of such Reportable Event
given to the PBGC, (x) promptly after any Responsible Officer learns of receipt
thereof, a copy of any notice such Seller or any of its ERISA Affiliates may
receive from the PBGC relating to the intention of the PBGC to terminate any
Plan or Plans (other than a Plan maintained by any of their ERISA Affiliates
which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) or to appoint a trustee to administer any Plan or
Plans, (y) within 20 days after the due date for filing with the PBGC pursuant
to Section 412(n) of the Code a notice of failure to make a required installment
or other payment with respect to a Plan, a statement of a Financial Officer
setting forth details as to such failure and the action proposed to be taken
with respect thereto, together with a copy of such notice given to the PBGC and
(z) promptly after any Responsible Officer learns thereof and in any event
within 30 days after receipt thereof by such Seller or any ERISA Affiliate from
the sponsor of a Multiemployer Plan, a copy of each notice received by such
Seller or such ERISA Affiliate concerning (I) the imposition of Withdrawal
Liability exceeding $10,000,000 or (II) a determination that a Multiemployer
Plan is, or is expected to be, terminated or in reorganization, in each case
within the meaning of Title IV of ERISA.
5.12 Collections. Instruct each Obligor to make payments in respect
-----------
of its Receivables in accordance with its current practices with respect to such
Obligor to a Designated Account or to the Concentration Account and to comply in
all material respects with procedures with respect to Collections reasonably
specified from time to time by the Company. With respect to payments in respect
of any Receivables that are made directly to such Seller (including, without
limitation, any employees thereof or independent contractors employed thereby),
such Seller shall, within one Business Day of receipt thereof, deliver (which
may be via regular mail) or deposit such amount to a Designated Account or to
the Concentration Account and, prior to forwarding such amounts, such Seller
shall hold such payments in trust as custodian for the Company and the
Participants.
5.13 Furnishing Copies, etc. Furnish to the Company:
-----------------------
(a) within five Business Days of the Company's request, a
certificate of the Financial Officer of such Seller or of the Master
Servicer on behalf of such Seller certifying, as of the date thereof, to
the knowledge of such officer, that no Purchase Termination Event has
occurred and is continuing, and setting forth the computations used by the
Financial
<PAGE>
24
Officer of such Seller in making such determination or if one has so
occurred specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto;
(b) promptly upon obtaining knowledge of the occurrence of any
Purchase Termination Event or Incipient Purchase Termination Event, written
notice thereof specifying the nature and extent thereof and the corrective
action (if any) proposed to be taken with respect thereto;
(c) promptly following request therefor, such other
information, documents, records or reports regarding or with respect to the
Purchased Receivables of the applicable Seller, as the Company may from
time to time reasonably request;
(d) promptly upon obtaining knowledge of the occurrence
thereof, written notice of any event of default or default under any other
Transaction Document;
(e) promptly upon obtaining knowledge of the occurrence
thereof, written notice of any development that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect; and
(f) promptly upon determining that any Purchased Receivable
designated as an Eligible Receivable on the applicable Daily Report or
Settlement Statement was not an Eligible Receivable as of the date provided
therefor, written notice of such determination.
5.14 Obligations with Respect to Obligors and Receivables. (i) Take
----------------------------------------------------
all actions on its part reasonably necessary to maintain in full force and
effect its material rights under all contracts relating to each Purchased
Receivable originated by it, and (ii) perform all services relating to, or which
give rise to, each Purchased Receivable originated by it.
5.15 Responsibilities of the Sellers. Notwithstanding anything
-------------------------------
herein to the contrary, (i) each Seller shall perform or cause to be performed
all its obligations under the Policies and the Company Policies related to the
Purchased Receivables to the same extent as if such Purchased Receivables had
not been transferred to the Company hereunder, (ii) the exercise by the Company
of any of its rights hereunder shall not relieve any Seller of its obligations
with respect to such Purchased Receivables and (iii) except as provided by law,
the Company shall not have any obligation or liability with respect to any
Purchased Receivables, nor shall the Company be obligated to perform any of the
obligations or duties of any Seller thereunder.
<PAGE>
25
5.16 Further Action. In addition to the foregoing:
--------------
(a) Each Seller agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable in such
Seller's reasonable judgment or that the Company may reasonably request, in
order to more fully effect the purposes of this Agreement and the transfer
of the Receivables hereunder, to protect or more fully evidence the
Company's right, title and interest in the Purchased Receivables, or to
enable the Company to exercise or enforce any of its rights in respect
thereof.
(b) Each Seller hereby irrevocably authorizes the Company to
file one or more financing or continuation statements (and other similar
instruments), and amendments thereto, relative to all or any part of the
Purchased Receivables and the other Receivable Assets sold or to be sold by
such Seller without the signature of such Seller to the extent permitted by
applicable law.
(c) If any Seller fails to perform any of its agreements or
obligations under this Agreement, the Company may (but shall not be
required to) perform, or cause performance of, such agreements or
obligations, and the expenses of the Company incurred in connection
therewith shall be payable by such Seller as provided in subsection 9.3.
The Company agrees promptly to notify such Seller after any such
performance; provided, however, that the failure to give such notice shall
-------- -------
not affect the validity of any such performance.
5.17 Sale of Receivables. Sell Receivables solely in accordance with
-------------------
the terms of this Agreement.
ARTICLE VI
NEGATIVE COVENANTS
Each Seller hereby agrees that, so long as there are any amounts
outstanding with respect to Purchased Receivables previously sold by such Seller
to the Company or until an Early Termination with respect to such Seller,
whichever is later, such Seller shall not, directly or indirectly:
6.1 Liens. Except as otherwise expressly herein provided, sell,
-----
assign (by operation of law or otherwise), transfer or otherwise dispose of, or
create or suffer to exist any Lien upon or with respect to, any Receivables or
other Receivable Assets, or assign any right to receive proceeds in respect
thereof except for Permitted Liens.
------
<PAGE>
26
6.2 Extension or Amendment of Receivables. Extend, make any
-------------------------------------
Adjustment to, rescind, cancel, amend or otherwise modify, or attempt or purport
to extend, amend or otherwise modify, the terms of any Purchased Receivables,
except (i) in accordance with the terms of the Policies and the Company
Policies, (ii) as required by any Requirement of Law, or (iii) in the case of
Adjustments (whether or not permitted by any other clause of this sentence),
compliance with provisions of subsection 2.5.
6.3 Ineligible Receivables. Take any action to cause, or which would
----------------------
permit, an Eligible Receivable to cease to be an Eligible Receivable, except as
otherwise expressly provided by this Agreement; provided, that in no event shall
--------
an Eligible Receivable becoming a Defaulted Receivable constitute a breach of
this subsection 6.3.
6.4 Change in Payment Instructions to Obligors. Instruct any Obligor
------------------------------------------
of any Purchased Receivables to make any payments with respect to any
Receivables other than in accordance with its current practices with respect to
such Obligor or to a Designated Account or the Concentration Account.
6.5 Change in Name. Change its name, use an additional name or
--------------
change its identity or corporate structure in any manner which would or might
make any financing statement or continuation statement (or other similar
instrument) relating to this Agreement seriously misleading within the meaning
of Section 9-402(7) of the Uniform Commercial Code (or any other similar law) or
impair the perfection of the Company's interest in any Receivable under any
similar law, without 30 days prior written notice to the Company; provided, that
--------
notwithstanding the foregoing, any Seller may be consolidated or merged with or
into or dissolved into any other Seller so long as written notice of such
consolidation or merger shall be given to the Company and the Administrative
Agent at least one day prior to the date thereof.
6.6 Policies. Make any change or modification (or permit any change
--------
or modification to be made) to the Policies or the Company Policies, except (i)
if such changes or modifications are necessary under any Requirement of Law or
(ii) if such changes or modifications would not reasonably be likely to have a
Material Adverse Effect.
6.7 Modification of Ledger. Delete or otherwise modify the marking
----------------------
on the ledger referred to in subsection 5.8.
6.8 Business of the Sellers. (a) Engage at any time in any business
-----------------------
or business activity other than the business currently conducted by it and
business activities reasonably incidental thereto or (b) fail to maintain and
operate such business in substantially the manner in which it is presently
conducted and operated if such failure would result in a Material Adverse
Effect.
<PAGE>
27
6.9 Accounting of Purchases. Prepare any financial statements which
-----------------------
shall account for the transactions contemplated hereby in any manner other than
as sales of the Purchased Receivables by such Seller to the Company or in any
other respect account for or treat the transactions contemplated hereby
(including for accounting purposes, except as required by law) in any manner
other than as sales of the Purchased Receivables by such Seller to the Company;
provided, however, that this subsection shall not apply for any tax or tax
- -------- -------
accounting purposes.
6.10 Instruments. Take any action to cause any Receivable to be
-----------
evidenced by any instrument (as defined in the Uniform Commercial Code as in
effect in the State of New York) except in connection with the enforcement or
collection of a Receivable.
ARTICLE VII
PURCHASE TERMINATION EVENTS
If any of the following events (herein called "Purchase Termination
Events") shall have occurred and be continuing:
(a) any Seller shall fail (i) to pay any amount due pursuant to
subsection 2.5 or 2.6 in accordance with the provisions thereof and such
failure shall continue unremedied for a period of five days from the
earlier of (A) the date any officer of such Seller or the Master Servicer
obtains knowledge of such default and (B) the date such Seller receives
notice of such default from the Company or the Administrative Agent or (ii)
to pay any other amount required to be paid by such Seller hereunder within
two Business Days of the date when due; or
(b) any Seller shall fail to observe or perform any covenant or
agreement applicable to it contained in subsection 5.2. 5.7, 5.8, 5.13(b),
5.14 or 5.16(a) or Article VI; provided, that a Purchase Termination Event
--------
shall not be deemed to have occurred under this paragraph (b) based upon a
failure to observe a covenant giving rise to a Repurchase Event if the
Seller shall have complied with the provisions of subsection 2.6 in respect
thereof; or
(c) any Seller shall fail to observe or perform any covenant or
agreement applicable to it contained herein (other than as specified in
paragraph (a) or (b) of this Article VII); provided, that no such failure
--------
shall constitute a Purchase Termination Event under this paragraph (c)
unless such default shall continue unremedied for a period of 30
consecutive days from the earlier of (A) the date any Responsible Officer
of such Seller or the Master Servicer obtains knowledge of such default and
(B) the date such Seller receives notice of such default from the Company
or the Administrative Agent; or
<PAGE>
28
(d) any representation, warranty, certification or statement made or
deemed made by any Seller to this Agreement or in any statement, record,
certificate, financial statement or other document delivered pursuant to
this Agreement shall prove to have been false or misleading in any material
respect on or as of the date made or deemed made; provided, that a Purchase
--------
Termination Event shall not be deemed to have occurred under this paragraph
(d) based upon a breach of any representation or warranty set forth in
subsection 4.2 if the Sellers shall have complied with the provisions of
subsection 2.6 in respect thereof; or
(e) (i) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (x) relief in respect of any Seller or Seller Guarantor or of a
substantial part of the property or assets of any Seller or Seller
Guarantor under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, State or foreign bankruptcy,
insolvency, receivership or similar law, (y) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Seller or Seller Guarantor or for a substantial part of the property or
assets of any Seller or Seller Guarantor or (z) the winding-up or
liquidation of any Seller or Seller Guarantor; and such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered; or (ii) any
Seller or Seller Guarantor shall (t) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal, State or
foreign bankruptcy, insolvency, receivership or similar law, (u) consent to
the institution of, or fail to contest in a timely and appropriate manner,
to any proceeding or the filing of any petition described in clause (e)(i)
above, (v) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for such Seller or
Seller Guarantor or for a substantial part of the property or assets of
such Seller or Seller Guarantor, (w) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (x) make
a general assignment for the benefit of creditors, (y) become unable, admit
in writing its inability or fail generally to pay its debts as they become
due or (z) take any action for the purpose of effecting any of the
foregoing; or
(f) (i) there shall have occurred a Termination Event under the
Receivables Transfer Agreement or (ii) the Amortization Period shall have
commenced; or
(g) any Seller ceases to be a, direct or indirect, wholly owned
Subsidiary of WMI; or
(h) a notice of Lien shall have been filed by the PBGC against any
Seller under Section 412(n) of the Code or Section 302(f) of ERISA for a
<PAGE>
29
failure to make a required installment or other payment to a plan to which
Section 412(n) of the Code or Section 302(f) of ERISA applies unless there
shall have been delivered to the Administrative Agent proof of release of
such Lien; or
(i) any Lien in an amount equal to or greater than $1,000,000 has
been asserted against or imposed on the Receivables pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. (S) 9607(1), or any equivalent or comparable state law, relating to
or arising from the costs of, response to, or investigation, remediation or
monitoring of, any environmental contamination resulting from the current
or past operations of any Seller, unless such Lien is being contested in
good faith and for which such Seller has set aside on its books adequate
reserves; or
(j) a Federal tax notice of Lien, in an amount equal to or greater
than $1,000,000, shall have been filed against any Seller unless there
shall have been delivered to the Administrative Agent proof of release of
such Lien;
then, (aa) in the case of any Purchase Termination Event described in paragraph
(e) (other than clause (ii)(y) thereof) above with respect to any Seller,
automatically the obligation of the Company to purchase Receivables from such
Seller shall thereupon automatically terminate without notice of any kind, which
is hereby waived by the Sellers; (bb) in the case of any Purchase Termination
Event described in paragraph (e) (other than clause (ii)(y) thereof) above with
respect to any Seller Guarantor, or any Purchase Termination Event described in
paragraph (f)(ii), automatically the obligation of the Company to purchase
Receivables from all Sellers shall thereupon automatically terminate without
notice of any kind which is hereby waived by the Sellers; (cc) in the case of
any Purchase Termination Event relating to any Seller, so long as such Purchase
Termination Event shall be continuing, the Company may (subject to subsection
9.4) terminate its obligation to purchase Receivables from such Seller by
written notice to such Seller and (dd) in the case of the occurrence of one or
more Purchase Termination Events relating to Sellers that generated more than
10% of the aggregate sales of all Sellers during the most recently ended
calendar month, so long as such Purchase Termination Events shall be continuing,
the Company may (subject to subsection 9.4) terminate its obligation to purchase
Receivables from all Sellers by written notice to the Sellers (any termination
pursuant to clause (aa), (bb), (cc) or (dd) of this Article VII which affects a
Seller is herein called an "Early Termination" with respect to such Seller);
provided, however, that in the event of an involuntary petition or proceeding
- -------- -------
as described in paragraphs (e)(i) above, the Company shall not purchase
Receivables from such Seller until such time, if any, as such involuntary
petition or proceeding has been dismissed; provided, that such dismissal shall
--------
have occurred within 60 days of the filing of such petition or the commencement
of such proceeding.
<PAGE>
30
ARTICLE VIII
THE SUBORDINATED NOTE
8.1 Subordinated Note. On the Effective Date, the Company shall
-----------------
issue to WMI as agent for the Sellers, a subordinated note substantially in the
form of Exhibit A (the "Subordinated Note"). The aggregate principal amount of
the Subordinated Note at any time shall be equal to the difference between (a)
the aggregate principal amount of the issuance thereof and each addition to the
principal amount of the Subordinated Note with respect to each Seller pursuant
to the terms of subsection 2.3 minus (b) the aggregate amount of all payments
-----
made in respect of the principal of the Subordinated Note. All payments made in
respect of the Subordinated Note shall be allocated among the Sellers by the
Master Servicer. Each Seller's interest in the Subordinated Note shall equal
the sum of each addition thereto allocated to such Seller pursuant to subsection
2.3(c) less the sum of each repayment thereof allocated to such Seller. All
payments made in respect of the Subordinated Note shall be allocated, first, to
-----
pay accrued and unpaid interest thereon, and second, to pay the outstanding
------
principal amount thereof. Interest on the outstanding principal amount of the
Subordinated Note (as such principal amount may have been increased pursuant to
the following proviso) shall accrue at the ABR in effect from time to time from
and including the Commencement Date and shall be paid on each Settlement Date
with respect to amounts accrued and not paid as of the last day of the preceding
Settlement Period and/or the maturity date thereof; provided, however, that
-------- -------
accrued interest on the Subordinated Note which is not so paid may be added to
the principal amount of the Subordinated Note. Principal not prepaid pursuant
to the terms hereof and of the other Transaction Documents shall be payable on
the maturity date thereof. Default in the payment of principal or interest
under the Subordinated Note shall not constitute a default or event of default
or a Purchase Termination Event hereunder or a Termination Event under the
Receivables Transfer Agreement.
8.2 Restrictions on Transfer of Subordinated Note. Neither the
---------------------------------------------
Subordinated Note, nor any right of any Seller to receive payments thereunder,
shall be assigned, transferred, exchanged, pledged, hypothecated, participated
or otherwise conveyed.
ARTICLE IX
MISCELLANEOUS
9.1 Further Assurances. (a) Each Seller agrees, from time to time,
------------------
to do and perform any and all acts and to execute any and all further
instruments reasonably required or requested by the Company more fully to effect
the purposes of this Agreement and the sales of the Receivables hereunder,
including, without limitation, the execution of any financing statements or
continuation statements (and other similar instruments) relating to the
Receivables for filing under the
<PAGE>
31
provisions of the Uniform Commercial Code, or any similar law, of any applicable
jurisdiction.
(b) From time to time at the request of a Seller, the Company shall
deliver to such Seller such documents, assignments, releases and instruments of
termination as such Seller may reasonably request to evidence the reconveyance
by the Company to such Seller of a Receivable pursuant to the terms of
subsection 2.1(b) or 2.6; provided, that the Company shall have been paid all
--------
amounts due thereunder; and the Company and the Master Servicer shall take such
action as such Seller may reasonably request, at the expense of such Seller, to
assure that any such Receivable, the other Receivables Assets with respect
thereto and the proceeds thereof do not remain commingled with Collections
hereunder.
9.2 Payments. Each cash payment to be made by any of the Company or
--------
the Sellers hereunder shall be made on the required Payment Date and in
immediately available funds at the office of the payee set forth below its
signature hereto or to such other office as may be specified by either party in
a notice to the other party hereto in Dollars.
9.3 Costs and Expenses. The Sellers, jointly and severally, agree
------------------
(a) to pay or reimburse the Company for all its out-of-pocket costs and expenses
incurred in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Agreement, the other Transaction Documents
and any other documents prepared in connection herewith and therewith, the
consummation and administration of the transactions contemplated hereby and
thereby, including, without limitation, all reasonable and documented fees and
disbursements of counsel, (b) to pay or reimburse the Company for all its costs
and expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement and any of the other Transaction Documents,
including, without limitation, the reasonable fees and disbursements of counsel
to the Company, (c) to pay, indemnify and hold the Company harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement and any such
other documents and (d) to pay, indemnify and hold the Company harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (i) which may at any time be imposed on, incurred by or
asserted against the Company in any way relating to or arising out of this
Agreement or the Transaction Documents or the transactions contemplated hereby
and thereby or in connection herewith or any action taken or omitted by the
Company under or in connection with any of the foregoing (all such other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements being herein called "Indemnified Liabilities")
or (ii) which would not have been imposed on, incurred
<PAGE>
32
by or asserted against the Company but for its having purchased the Receivables
hereunder; provided, that such indemnity shall not be available to the extent
--------
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of the
Company; and provided, further, that the Sellers shall have no obligation under
-------- -------
this subsection 9.3 to the Company with respect to Indemnified Liabilities
arising from (i) any action taken, or omitted to be taken, by a Servicer which
is not an Affiliate of the Sellers, (ii) any action taken by the Participants or
the Company at the direction of the Administrative Agent in collecting from an
Obligor or (iii) a delay in payment, or a default, by an Obligor with respect to
any Purchased Receivable (other than arising out of (x) any discharge, claim,
offset or defense (other than discharge in bankruptcy of the Obligor) of the
Obligor to the payment of any Purchased Receivable (including, without
limitation, a defense based on such Purchased Receivable not being a legal,
valid and binding obligation of such Obligor enforceable against it in
accordance with its terms) or any other claim resulting from the sale of the
merchandise or services related to any such Purchased Receivable or the
furnishing or failure to furnish such merchandise or services, (y) a failure by
any Seller to perform its duties or obligations under this Agreement or (z) the
sale of any Purchased Receivable that is designated on the applicable Daily
Report to be an Eligible Receivable and is determined to have been at the date
of such sale not an Eligible Receivable). The agreements in this subsection
shall survive the collection of all Receivables, the termination of this
Agreement and the payment of all amounts payable hereunder.
9.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Sellers and the Company and their respective
successors (whether by merger, consolidation or otherwise) and assigns. Each
Seller agrees that it will not assign or transfer all or any portion of its
rights or obligations hereunder without the prior written consent of the
Company. The Sellers acknowledge that the Company shall assign all of its
rights hereunder to the Participants. Each Seller consents to such assignment
and agrees that the Administrative Agent and, to the extent provided in the
Receivables Transfer Agreement, the Participants shall be entitled to enforce
the terms of this Agreement and the rights (including, without limitation, the
right to grant or withhold any consent or waiver or give any notice) of the
Company directly against such Seller, whether or not a Purchase Termination
Event or a Termination Event has occurred and that no consent, waiver or notice
given hereunder by the Company shall be effective unless the Administrative
Agent has given its written consent thereto. Each Seller further agrees that,
in respect of its obligations hereunder, it will act at the direction of and in
accordance with all requests and instructions from the Administrative Agent
(including, without limitation, pursuant to subsection 2.1(f)) until the Net
Investment of the Participants are paid in full. Each of the Administrative
Agent and the Participants shall have the rights of third-party beneficiaries
under this Agreement.
<PAGE>
33
9.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.6 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Company, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
9.7 Amendments and Waivers. Neither this Agreement nor any terms
----------------------
hereof may be amended, supplemented or modified except in a writing signed by
the Company and any affected Seller and consented to by the Administrative
Agent.
9.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction, shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.9 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Company and WMI, and in care
of WMI in the case of the Sellers, or to such other address as may be hereafter
notified by the respective parties hereto:
The Company: Waste Management Financing Corporation
3003 Butterfield Road
Oak Brook, Illinois 60523
Attention: Treasurer
Telephone: 630-572-3018
Telecopy: 630-572-1340
With a copy to the
Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Loan and Agency Services
<PAGE>
34
Telecopy: (212) 552-5662
WMI: Waste Management, Inc.
3003 Butterfield Road
Oak Brook, Illinois 60523
Attention: Vice President-Finance
Telecopy: 630-572-1340
9.10 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company.
9.11 Construction of Agreement as Security Agreement. This Agreement
-----------------------------------------------
shall constitute a security agreement under applicable law.
9.12 WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
---------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS,
AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SUBSECTION 9.12.
9.13 Jurisdiction; Consent to Service of Process. (a) Each party
-------------------------------------------
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Transaction Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Company may otherwise have to bring any action or proceeding
relating to this Agreement or the other
<PAGE>
35
Transaction Documents against any Seller or its properties in the courts of any
jurisdiction.
(b) Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent they may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Transaction
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in subsection 9.9. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
9.14 Addition of Sellers. Subject to subsection 3.4 hereof,
-------------------
subsection 8.23 of the Receivables Transfer Agreement and the terms and
conditions of this subsection 9.14, from time to time one or more additional,
direct or indirect, wholly owned Subsidiaries of WMI may become Sellers
hereunder and parties hereto. If any such Subsidiary wishes to become an
additional Seller, it shall submit a request to such effect in writing to the
Company. The Company, in its sole and absolute discretion, may agree to or deny
any such request; provided, that if the Company shall have failed to respond to
--------
any such request within 30 days after receipt thereof, such request shall be
deemed to have been denied. If the Company shall have agreed to any such
request, such Subsidiary shall become an additional Seller hereunder and a party
hereto on the related Seller Addition Date upon satisfaction of the conditions
set forth in subsection 3.4.
9.15 Termination of Sellers. (a) From and after the date that any
----------------------
Seller notifies the Company and the Administrative Agent that such Seller has
ceased to be a direct or indirect wholly owned Subsidiary of WMI, the Company
shall cease buying Receivables and other Receivable Assets from such Seller.
Each such Seller shall be released as a Seller party hereto for all purposes and
shall cease to be a party hereto on the date on which there are no amounts
outstanding with respect to Purchased Receivables previously sold by such Seller
to the Company, whether such amounts have been repurchased, collected or written
off in accordance with the Policies and the Company Policies. Prior to such
date, such Seller shall be obligated to perform its servicing and other
obligations hereunder and under the Transaction Documents to which it is a party
with respect to Purchased Receivables previously sold by such Seller to the
Company, including, without limitation, its obligation to deposit Collections
into the appropriate Designated Accounts.
(b) A terminated Seller shall have no obligation to repurchase any
Receivables other than Receivables sold by any Seller to the Company prior to
such Seller's termination which are subject to a Repurchase Event.
<PAGE>
36
9.16 No Bankruptcy Petition. Each Seller and WMI, by entering into
----------------------
this Agreement, and any present or future holder of the Subordinated Note, by
its acceptance thereof, covenants and agrees that, prior to the date which is
one year and one day after the date of termination of this Agreement pursuant to
subsection 9.17, it will not institute against, or join any other Person in
instituting against, the Company any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law.
9.17 Termination. This Agreement will terminate at such time as (a)
-----------
the commitment of the Company to purchase Receivables from all Sellers hereunder
shall have terminated and (b) all Receivables purchased hereunder have been
collected, and the proceeds thereof turned over to the Company, and all other
amounts owing to the Company hereunder shall have been paid in full or, if
Receivables sold hereunder have not been collected such Receivables have become
Defaulted Receivables and the Company shall have completed its collection
efforts in respect thereto; provided, however, that the indemnities of the
-------- -------
Sellers to the Company set forth in this Agreement shall survive such
termination; and provided, further, that, to the extent any amounts remain due
-------- -------
and owing to the Company hereunder, the Company shall remain entitled to receive
any collections on Receivables sold hereunder which have become Defaulted
Receivables after it shall have completed its collection efforts in respect
thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed all as of the day and year first above written.
WASTE MANAGEMENT, INC.,
as Master Servicer
By: /s/ William C. Keightley
------------------------------
Name: William C. Keightley
Title: Treasurer
WASTE MANAGEMENT FINANCING CORPORATION
By: /s/ Daniel Shoener
-----------------------------
Name: Daniel Shoener
Title: Auithorized Signatory
<PAGE>
The Sellers:
-----------
ADVANCED ENVIRONMENTAL TECHNICAL SERVICES, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
AMERICAN REFUSE SYSTEMS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CALIFORNIA ACQUISITION SUB, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CEDAR HAMMOCK REFUSE DISPOSAL CORPORATION
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CHARLOTTE LANDSCAPING & SANITATION SERVICE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CHEM NUCLEAR SYSTEMS, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CHEMICAL WASTE MANAGEMENT, INC.
<PAGE>
39
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CHEMICAL WASTE MANAGEMENT OF INDIANA, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CHEMICAL WASTE MANAGEMENT OF THE NORTHWEST, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
COMMUNITY REFUSE, LIMITED
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CWM CHEMICAL SERVICES, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CWM HOLDINGS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CWM RESOURCE MANAGEMENT, INC.
<PAGE>
40
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
CWM RESOURCE RECOVERY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
DEBRIS PROCESSORS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
DIVERSIFIED SCIENTIFIC SERVICES, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
GEOLOGICAL RECLAMATION OPERATIONS AND WASTE SYSTEMS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
GEORGIA WASTE SYSTEMS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
41
GULF DISPOSAL, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
HARRIS SANITATION, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
KEENE ROAD LANDFILL, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
MODERN TRASH REMOVAL OF NEW YORK, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
NEW ENGLAND CR, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
NICHOLS SANITATION, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
42
OCMULGEE DISPOSAL, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
OIL AND SOLVENT PROCESS COMPANY
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
REFUSE SERVICES, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
REUTER RECYCLING OF FLORIDA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
SALEM WASTE DISPOSAL CENTER, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
SC HOLDINGS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
43
TOWN & COUNTRY REFUSE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
TRAIL RIDGE LANDFILL, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WARNER COMPANY
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASHINGTON WASTE HAULING & RECYCLING, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASHINGTON WASTE SYSTEMS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE AWAY GROUP, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
44
WASTE MANAGEMENT COLLECTION AND RECYCLING, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF ARIZONA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF COLORADO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF MAINE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF MARYLAND, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF OREGON, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
45
WASTE MANAGEMENT DISPOSAL SERVICES OF PENNSYLVANIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF VIRGINIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT DISPOSAL SERVICES OF WASHINGTON, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Treasurer
WASTE MANAGEMENT OF ALABAMA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF ALAMEDA COUNTY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
<PAGE>
46
Title: Assistant Treasurer
WASTE MANAGEMENT OF ARIZONA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF ARKANSAS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CALIFORNIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CAMBRIDGE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CAROLINAS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CENTRAL FLORIDA, INC.
By: /s/ William C. Keightley
--------------------------------
<PAGE>
47
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CENTRAL JERSEY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF COLORADO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF CONNECTICUT, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF DELAWARE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT INC. OF FLORIDA
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF GEORGIA, INC.
<PAGE>
48
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF GRASS VALLEY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF GREATER WASHINGTON, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF HAWAII, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF IDAHO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF ILLINOIS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
49
WASTE MANAGEMENT OF INDIANA, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF IOWA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF KANSAS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF KENTUCKY HOLDINGS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF KENTUCKY, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF LAGRANGE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
50
WASTE MANAGEMENT OF LEON COUNTY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF LOUISIANA, L.L.C.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MAINE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MARYLAND, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MASSACHUSETTS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MICHIGAN, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
51
WASTE MANAGEMENT OF MINNESOTA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MISSISSIPPI, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MISSOURI, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF MONTANA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NEBRASKA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NEW HAMPSHIRE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
52
WASTE MANAGEMENT OF NEW MEXICO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NEW YORK, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NEW YORK CITY, L.P.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NORTH AMERICA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF NORTH JERSEY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF OHIO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
53
WASTE MANAGEMENT OF OKLAHOMA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF ORANGE COUNTY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF OREGON, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF ORLANDO, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF PENNSYLVANIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF RHODE ISLAND, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
54
WASTE MANAGEMENT OF SOUTH CAROLINA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF SOUTH DAKOTA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF SOUTH JERSEY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT INC. OF TENNESSEE
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF TEXAS, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF TRI-CITIES, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
55
WASTE MANAGEMENT OF TROUTDALE, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF UTAH, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF VIRGINIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF WEST VIRGINIA, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF WISCONSIN, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WASTE MANAGEMENT OF WYOMING, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
56
WASTE RESOURCES OF TAMPA BAY, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
WESTERN COMPLIANCE SERVICES, INC.
By: /s/ William C. Keightley
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Name: William C. Keightley
Title: Assistant Treasurer
WM OF NEW YORK, INC.
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Assistant Treasurer
<PAGE>
EXHIBIT 10.48
Conformed Copy
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WASTE MANAGEMENT FINANCING CORPORATION
WASTE MANAGEMENT, INC.
as Master Servicer
THE OTHER SERVICERS NAMED HEREIN
THE PARTICIPANTS NAMED HEREIN
RECEIVABLES TRANSFER AND SERVICING AGREEMENT
__________________
Dated as of December 29, 1997
THE CHASE MANHATTAN BANK
as Administrative Agent
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TABLE OF CONTENTS
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ARTICLE I
Definitions..................................... 1
1.1 Defined Terms.............................................................. 1
1.2 Terms Generally............................................................ 1
1.3 Accounting Terms; GAAP..................................................... 2
ARTICLE II
Acquisition and Transfer of Participating Interest....................... 2
2.1 Acquisition and Transfer of Participating Interest......................... 2
2.2 Participating Interest..................................................... 5
2.3 Payment for Initial Transfer of a Participating Interest and any Increase
in Net Investment; Acquisition and Transfer Procedure.................. 5
2.4 Commitment Fees............................................................ 6
2.5 Fee and Purchase Discount Amount Calculations.............................. 7
2.6 Interest on Overdue Payments............................................... 7
2.7 Establishment of Accounts; Allocation of Collections; Reinvestment of
Principal Collections.................................................. 8
2.8 Payments; Pro Rata Treatment............................................... 11
2.9 Netting of Payments........................................................ 12
2.10 Termination or Reduction of Commitment..................................... 12
2.11 Optional Retransfer; Reduction of Net Investment........................... 12
2.12 Mandatory Reductions in Net Investment..................................... 13
ARTICLE III
Increased Costs................................. 14
3.1 Alternate Determination of Purchase Discount Amounts....................... 14
3.2 Increased Costs............................................................ 15
3.3 Indemnity.................................................................. 16
3.4 Taxes...................................................................... 16
3.5 Mitigation Obligations; Replacement of Participants........................ 18
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ARTICLE IV
Termination.................................. 18
4.1 Termination............................................................... 18
ARTICLE V
Covenants, Representations and Warranties..................... 18
5.1 Representations and Warranties of the Company Relating to the Company..... 18
(a) Organization; Corporate Powers................................... 19
(b) Authorization.................................................... 19
(c) Enforceability................................................... 19
(d) Governmental Approvals; No Conflicts............................. 19
(e) Litigation, etc.................................................. 19
(f) Compliance with Laws and Agreements.............................. 20
(g) Ownership of Property; Liens..................................... 20
(h) Investment Company Act; Other Regulations........................ 20
(i) Taxes............................................................ 20
(j) Ownership; Subsidiaries.......................................... 20
(k) Pro Forma Balance Sheet.......................................... 20
(l) No Material Adverse Change....................................... 21
(m) Solvency......................................................... 21
(n) Employee Benefit Plans........................................... 21
5.2 Representations and Warranties of the Company Relating to this Agreement
and the Receivables................................................... 22
5.3 Retransfer Obligation..................................................... 23
5.4 Obligations Unaffected.................................................... 24
ARTICLE VI
Conditions to Effectiveness/Transfers/Reinvestments................ 24
6.1 Commencement Date......................................................... 24
6.2 Condition to each Increase in Net Investment.............................. 26
ARTICLE VII
Affirmative Covenants............................... 27
7.1 Financial Statements...................................................... 28
7.2 Certificates; Other Information........................................... 28
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7.3 Existence; Businesses and Properties; Insurance; Receivables.............. 29
7.4 Payment of Obligations.................................................... 29
7.5 Inspection of Property; Books and Records; Discussions.................... 30
7.6 Notices................................................................... 30
7.7 Net Worth................................................................. 30
7.8 Use of Proceeds........................................................... 30
7.9 Separate Corporate Existence.............................................. 31
7.10 Facility Rating........................................................... 32
7.11 Purchase of Receivables................................................... 32
7.12 Delivery of Collections................................................... 32
ARTICLE VIII
Negative Covenants................................. 32
8.1 Accounting of Transfers................................................... 32
8.2 Limitation on Indebtedness................................................ 32
8.3 Limitation on Liens....................................................... 33
8.4 Limitation on Guarantees.................................................. 33
8.5 Limitation on Fundamental Changes......................................... 33
8.6 Limitation on Sale of Assets.............................................. 33
8.7 Limitation on Dividends and Payments on Subordinated Note................. 33
8.8 Business of the Company................................................... 34
8.9 Limitation on Investments, Loans and Advances............................. 34
8.10 Limitation on Sales and Leasebacks........................................ 34
8.11 Transactions with Affiliates.............................................. 34
8.12 Capital Stock............................................................. 34
8.13 Amendments................................................................ 34
8.14 Receivables Sale Agreement, etc........................................... 34
8.15 Policies.................................................................. 34
8.16 No Powers of Attorney..................................................... 35
8.17 Receivables Not to Be Evidenced by Promissory Notes....................... 35
8.18 Ownership of Assets and Property.......................................... 35
8.19 Rescission or Cancellation................................................ 35
8.20 Ineligible Receivables.................................................... 35
8.21 Offices................................................................... 35
8.22 Change in Name............................................................ 36
8.23 Addition of Sellers....................................................... 36
8.24 Operating Expenses........................................................ 36
ARTICLE IX
Events of Termination............................... 36
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ARTICLE X
The Administrative Agent............................ 39
10.1 Appointment............................................................ 39
10.2 Delegation of Duties................................................... 40
10.3 Exculpatory Provisions................................................. 40
10.4 Reliance By the Administrative Agent................................... 40
10.5 Notice of Default or Termination Event................................. 41
10.6 Non-Reliance on the Administrative Agent and Other Participants........ 41
10.7 Indemnification........................................................ 42
10.8 The Administrative Agent in Its Individual Capacity.................... 42
10.9 Successor Administrative Agent......................................... 42
ARTICLE XI
Miscellaneous................................. 43
11.1 Further Assurances..................................................... 43
11.2 Payments............................................................... 43
11.3 Costs and Expenses..................................................... 43
11.4 Successors and Assigns; Assignments; Participations.................... 44
11.5 GOVERNING LAW.......................................................... 46
11.6 No Waiver; Cumulative Remedies......................................... 46
11.7 Amendments and Waivers................................................. 47
11.8 Severability........................................................... 47
11.9 Notices................................................................ 47
11.10 Counterparts........................................................... 48
11.11 Construction of Agreement as Security Agreement........................ 48
11.12 Adjustments; Set-off................................................... 48
11.13 Jurisdiction; Consent to Service of Process............................ 49
11.14 Acknowledgements....................................................... 50
11.15 WAIVER OF JURY TRIAL................................................... 50
11.16 Confidentiality........................................................ 50
11.17 No Bankruptcy Petition, etc............................................ 51
11.18 Tax Treatment.......................................................... 51
ARTICLE XII
Servicing................................... 51
12.1 Servicing; Accounts; Collections........................................ 51
12.2 Collections by the Servicers; Indemnity................................. 55
12.3 Maintenance of Records.................................................. 58
12.4 Rebates, Adjustments, Returns and Reductions; Modifications............. 59
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12.5 Daily Reports; Settlement Statements...................................... 59
12.6 Representations, Warranties and Covenants of the Servicers................ 60
12.7 Acquisition Obligation.................................................... 66
12.8 Obligations Unaffected.................................................... 67
12.9 Addition of Servicers..................................................... 68
12.10 Interest on Overdue Payments.............................................. 68
12.11 Servicer Events of Defaults............................................... 68
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ANNEX X Definitions
SCHEDULES
1 Names, Addresses and Commitments of Participants
2 Names; Balance of Receivables; Location of Chief Executive Offices;
Location of Receivables Records; Jurisdictions of Incorporation;
Jurisdiction in which Qualified to do Business; Effective Date; Seller
Category
3 Designated Accounts (To be delivered on the Commencement Date and shall
become a part hereof for all purposes.)
EXHIBITS
A Form of Request for Transfer and Assignment
B Reserve Events
C Form of Settlement Statement
D Form of Additional Servicer Supplement
E Form of Responsible Officer's Certificate as to Solvency, etc.
F Form of Daily Report
G Form of Assignment and Acceptance
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<PAGE>
RECEIVABLES TRANSFER AND SERVICING AGREEMENT, dated as of December 29,
1997, among WASTE MANAGEMENT FINANCING CORPORATION, a Delaware corporation (the
"Company"), WASTE MANAGEMENT, INC., a Delaware corporation ("WMI"), as master
servicer (in such capacity, the "Master Servicer"), each of the Subsidiaries of
WMI from time to time parties hereto, in their capacities as servicers of
receivables (in such capacities, the "Servicers"), the several financial
institutions from time to time parties to this Agreement (the "Participants")
and THE CHASE MANHATTAN BANK, a New York corporation, as administrative agent
for the Participants (the "Administrative Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company desires to sell, assign, transfer and convey to
the Participants, and the Participants desire to acquire a Participating
Interest (as hereinafter defined) in, all the Company's right, title and
interest in, to and under the Receivables (as hereinafter defined) now existing
or hereafter created and in the rights of the Company in, to and under all other
Related Property (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
1.1 Defined Terms. Capitalized terms used in this Agreement shall
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have the respective meanings assigned to such terms in Annex X hereto unless
otherwise defined herein.
1.2 Terms Generally. The definitions of terms herein shall apply
---------------
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The word "will"
shall be construed to have the same meaning and effect as the word "shall."
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
subsections, Exhibits and Schedules shall be construed to refer to Articles and
subsections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have
<PAGE>
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
1.3 Accounting Terms; GAAP. Except as otherwise expressly provided
----------------------
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time.
ARTICLE II
Acquisition and Transfer of Participating Interest
2.1 Acquisition and Transfer of Participating Interest. (a) By
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execution of this Agreement and subject to the terms and conditions contained
herein, the Company does hereby sell, transfer, assign, set over and otherwise
convey, without recourse (except as expressly provided herein), to the
Participants and to the Administrative Agent, for the benefit of the
Participants, and each Participant hereby severally agrees to purchase and
acquire from the Company, a senior undivided participating interest from time to
time (in an amount specified in subsection 2.2 and subject to the limitations
specified in subsections 2.2 and 2.3(c)) in all right, title and interest of the
Company in, to and under the following, whether now owned or hereafter acquired
(collectively, the "Receivables Property," and together with the property
described in subsections 2.1(b) and 2.1(c), the "Pooled Property"):
(i) all Receivables;
(ii) all Collections;
(iii) all Related Property;
(iv) all rights (including rescission, replevin or reclamation,
but none of the obligations) relating to any Receivable or arising
therefrom;
(v) all proceeds of, or payments in respect of, the foregoing,
including, without limitation, whatever is received upon the sale,
exchange, collection or other disposition of the foregoing or proceeds
(including, without limitation, whatever is received upon the sale,
exchange, collection or other disposition of the foregoing and all
"proceeds" as defined in Section 9-306 of the UCC as in effect in the State
of New York) thereof, including all Recoveries relating thereto.
(b) In addition, to secure the obligation of the Company hereunder,
including, without limitation the obligations set forth in subsection 2.7, the
Company hereby assigns to the Administrative Agent, for the benefit of the
Participants, and grants to the Administrative Agent, for the benefit of the
Participants, a security interest in all its right, title and interest in, to
and under the Receivables Sale Agreement and the Receivables Sale Agreement
Guarantee,
<PAGE>
including (i) all property assigned thereunder and all rights of the Company to
receive moneys due and to become due under or pursuant to such agreement,
whether payable as fees, expenses, costs or otherwise, (ii) all rights of the
Company to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to such agreement, (iii) claims of the Company for damages arising
out of or for breach of or default under such agreement, (iv) the right of the
Company to amend, waive or terminate such agreement, to perform thereunder and
to compel performance and otherwise exercise all remedies thereunder, (v) all
other rights, remedies, powers, privileges and claims of the Company under or in
connection with such agreement (whether arising pursuant to such agreement or
otherwise available to the Company at law or in equity), including the rights of
the Company to enforce such agreement and to give or withhold any and all
consents, requests, notices, directions, approvals, extensions or waivers under
or in connection therewith whether or not a Termination Event has occurred and
is continuing and (vi) all monies due or to become due and all amounts received
with respect to the items listed in clauses (i) through (v) and all proceeds
(including, without limitation, whatever is received upon the sale, exchange,
collection or other disposition of the foregoing and all "proceeds" as defined
in Section 9-306 of the UCC as in effect in the State of New York) thereof,
including all Recoveries relating thereto (the Pooled Property described in this
sentence being referred to herein as the "Transferred Agreements").
(c) In addition, to secure the obligations of the Company hereunder,
including, without limitation, the obligations set forth in subsection 2.7, the
Company hereby grants to the Administrative Agent, for the benefit of the
Participants, a security interest in all right, title and interest of the
Company in, to and under the following, whether now owned or hereafter acquired:
(i) all equipment in all its forms, wherever located, now or
hereafter existing (including all software, data bases, materials, books,
records, magnetic tapes, disks and cassettes relating to the Receivables
and all other equipment in which information concerning the Receivables is
stored), and all parts thereof and accessions thereto (any and all such
equipment, parts and accessions being the "Equipment");
(ii) all the following (the "Accounts"):
(A) the Collection Account and the SPC Collection Account
and, to the extent provided further herein, any interest in the
Designated Accounts or the Concentration Account, all funds and other
evidences of payment held therein and all certificates and
instruments, if any, from time to time representing or evidencing such
Account or any funds and other evidences of payment held therein;
(B) any operating account or other accounts of the Company,
all funds held therein and all certificates and instruments, if any,
from time to time representing or evidencing any such operating
account or any funds held therein;
<PAGE>
(C) all Cash Equivalents and all certificates and instruments
from time to time representing or evidencing the Cash Equivalents;
(D) all notes, certificates of deposit and other instruments
from time to time hereafter delivered or transferred to, or otherwise
possessed by, the Administrative Agent for and on behalf of the
Company in substitution for or in addition to any of the then-existing
Accounts; and
(E) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any and all of the then-
existing Accounts; and
(iii) all proceeds of or payments in respect of any and all of the
foregoing (including proceeds that constitute property of the types
described in clauses (i) and (ii) above and including Collections) and, to
the extent not otherwise included, all payments under insurance (whether or
not the Administrative Agent is the loss payee in respect thereof), or any
indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to any of the Pooled Property.
(d) In connection with the assignment, set over and conveyance to
the Participants pursuant to subsection 2.1(a), the Company, the Master Servicer
and the Participants agree that the Administrative Agent shall constitute a
"secured party" as defined in Section 9-105(m) of the UCC. Each reference in
this Agreement, unless the context otherwise requires, to the sale, assignment,
transfer, set over or conveyance of a Receivable or other Receivables Property
shall be construed as a reference to the sale, assignment, transfer, set over or
conveyance of the senior undivided participating interest in the Receivable and
the other Receivables Property to the Participants hereunder. In connection with
the foregoing assignment, the Company and the Master Servicer agree to deliver
to the Administrative Agent each item evidencing a Receivable or other
Receivables Property (including any original documents or instruments as are
necessary to effect such assignment) in which the transfer of an interest is
perfected under the UCC or otherwise solely by possession and not by filing a
financing statement or similar document.
Notwithstanding the assignment of the Transferred Agreements set forth
in subsection 2.1(b), the Company does not hereby assign or delegate any of its
duties or obligations under the Transferred Agreements to the Administrative
Agent or the Participants and neither the Administrative Agent nor any
Participant accepts such duties or obligations, and the Company shall continue
to have the right and the obligation to purchase Receivables from the Sellers
thereunder from time to time. The foregoing assignment, set-over and conveyance
does not constitute and is not intended to result in a creation or an assumption
by the Administrative Agent or the Participant, of any obligation of the Master
Servicer, the Company, any Seller or any
<PAGE>
other Person in connection with the Receivables or under any agreement or
instrument relating thereto, including, without limitation, any obligation to
any Obligor.
In connection with such assignments, the Company agrees to record and
file, at its own expense, any financing statements (and continuation statements
with respect to such financing statements when applicable) or, where applicable,
registrations in the appropriate records, (i) with respect to the Receivables
now existing and hereafter created and (ii) with respect to any other Pooled
Property a security interest in which may be perfected under the relevant UCC,
legislation or similar statute by such filing or registration, as the case may
be, in each case meeting the requirements of applicable law in such manner and
in such jurisdictions as are necessary to perfect and maintain perfection of the
assignment of the Receivables and such other Pooled Property (excluding returned
merchandise) to the Participants and the Administrative Agent, and to deliver a
file-stamped copy or certified statement of such financing statement or
registration or other evidence of such filing or registration to the
Administrative Agent not later than the 10th day after the Commencement Date.
The Administrative Agent shall be under no obligation whatsoever to file such
financing statement, or a continuation statement to such financing statement, or
to make any other filing or other registration under the UCC, other relevant
legislation or similar statute in connection with such transfer. The
Administrative Agent shall be entitled to conclusively rely on the filings or
registrations made by or on behalf of the Company without any independent
investigation and the Company's obligation to make such filings as evidence that
such filings have been made.
In connection with such assignments, the Company and the Master
Servicer further agree, at their own expense, on or prior to the Commencement
Date, to indicate, or to cause to be indicated, in their respective computer
files containing a master database of Receivables and to cause each Seller to
indicate in its records containing a master database of Receivables that the
Receivables have been conveyed to the Company or the Participants, as the case
may be, pursuant to the Receivables Sale Agreement or this Agreement,
respectively, for the benefit of the Participants.
2.2 Participating Interest. Subject to the terms and conditions set
----------------------
forth herein (including, without limitation, subsections 2.3(c) and 6.2), each
Participant agrees during the Commitment Period to ratably purchase a
Participating Interest and ratably increase its Net Investment in an aggregate
amount that will not result in such Participant's Net Investment exceeding such
Participant's Commitment and the Net Investment of all Participants exceeding
the aggregate Commitments then in effect. The senior undivided participating
interest of the Participants in the Receivables and the Receivables Property
(the "Participating Interest"; a Participant's Commitment Percentage of such
Participating Interest shall equal such Participant's "Participating Interest")
shall equal, at any date of determination thereof, the Net Investment at such
date and the Participating Interest of any Participant shall equal, at any date
of determination thereof, the Net Investment of such Participant at such date.
The Participating Interest shall, among other things, entitle the Participants
to receive the amounts distributable to the Participants pursuant to subsection
2.7, including, without limitation, Purchase
<PAGE>
Discount Amounts which shall accrue thereon in accordance with this Agreement
and the payment of the Net Investment. The Company agrees to provide any
Participant upon its request with a certificate evidencing such Participant's
Participating Interest.
2.3 Payment for Initial Transfer of a Participating Interest and any
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Increase in Net Investment; Acquisition and Transfer Procedure. (a) The
- --------------------------------------------------------------
Company shall notify the Administrative Agent of the amount of the initial
transfer and assignment of a Participating Interest or any request for an
Increase in Net Investment pursuant to this subsection 2.3. The amount which
the Participants shall pay for such initial transfer and assignment or Increase
in Net Investment shall equal the amount of such initial transfer and assignment
or Increase in Net Investment, as the case may be. Amounts payable to the
Company in respect of the initial transfer and assignment of a Participating
Interest or any Increase in Net Investment on such Closing Date shall be
obtained by the Administrative Agent from the Participants and paid by the
Administrative Agent to the Company in accordance with the provisions of
subsection 2.8(a).
(b) Subject to subsections 2.3(c) and 6.2, the initial transfer and
assignment of a Participating Interest or an Increase in Net Investment of the
Participants shall occur, upon notice from the Company, on any Business Day
during the Commitment Period (each date on which the initial transfer and
assignment of a Participating Interest in the Receivables or an Increase in Net
Investment of the Participants occurs hereunder being herein referred to as the
"Closing Date" applicable to such transfer and assignment or such increase, as
the case may be); provided, that the Company shall have given the Administrative
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Agent irrevocable notice (effective upon receipt) of such request substantially
in the form of Exhibit A hereto (the "Request for Transfer and Assignment") no
later than (i) if the initial transfer and assignment of a Participating
Interest or the Increase in Net Investment on such date is to be priced solely
with reference to ABR, 12:00 Noon (New York City time) on such Closing Date or
(ii) if all or a portion of the initial transfer and assignment of a
Participating Interest or the Increase in Net Investment is to be allocated to a
Fixed Tranche, 11:00 a.m. (New York City time) three Business Days prior to such
Closing Date; provided, further, that the provisions of this subsection 2.3(b)
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shall not restrict the allocations of Collections pursuant to subsection 2.7.
Such notice shall state (i) the Closing Date, (ii) the amount of the initial
transfer and assignment of a Participating Interest or the Increase in Net
Investment, as the case may be, for the proposed transaction, (iii) what portion
thereof will be allocated to a Fixed Tranche and/or the Floating Tranche and
(iv) if any portion thereof is to be allocated to a Fixed Tranche, the length of
the Transfer Period therefor. After receipt by the Administrative Agent of the
Request for Transfer and Assignment from the Company, the Administrative Agent
shall promptly provide notice (which may be telephonic but shall be confirmed in
writing) to each Participant of the Closing Date and of the portion of the
Participating Interest or the Increase in Net Investment allocable to such
Participant on such Closing Date.
<PAGE>
(c) Each Participant shall have no obligation to acquire a
Participating Interest or to increase its Net Investment on any Closing Date
hereunder:
(1) unless, in the case of an Increase in Net Investment, the
Increase in Net Investment for all Participants on such Closing Date is
equal to at least $10,000,000 or an integral multiple of $1,000,000 in
excess thereof;
(2) to the extent that, after giving effect to (A) in the case of the
initial transfer and assignment of a Participating Interest, such transfer,
and (B) in the case of an Increase in Net Investment, such Increase in Net
Investment on such date, the Net Investment for all Participants would
exceed the Maximum Transfer Amount; or
(3) if the Commitments of the Participants have terminated pursuant
to Article IX.
The initial transfer and assignment of the Participating Interest or an Increase
in Net Investment allocable to the Participants as a group shall be allocated to
each Participant according to the Commitment Percentage of such Participant.
2.4 Commitment Fees. The Company agrees to pay to the Administrative
---------------
Agent, for the account of the Participants, a commitment fee (the "Commitment
Fee") for the Commitment Period, computed at the rate of 0.1875 of 1% per annum
on the average daily excess of the Maximum Commitment over the Net Investment
for each day during the period for which such Commitment Fee is payable.
Accrued Commitment Fees shall be payable in arrears, based on invoices submitted
by the Administrative Agent to the Company, on the Settlement Date occurring in
March, June, September and December and on the date of the termination of the
Commitment, commencing on March 20, 1998 and shall be paid in immediately
available funds to the Administrative Agent for distribution to the
Participants.
2.5 Fee and Purchase Discount Amount Calculations. (a) Calculations
---------------------------------------------
of per annum rates under this Agreement shall be made on the basis of a 360-day
year for actual days elapsed, except that Commitment Fees and Purchase Discount
Amounts on the Floating Tranche determined by reference to the Prime Rate shall
be calculated on the basis of a 365- (or 366-, as the case may be) day year.
Each determination of the Adjusted LIBO Rate hereunder by the Administrative
Agent shall be conclusive and binding upon each of the parties hereto in the
absence of manifest error. Any change in the Purchase Discount Amount resulting
from a change in ABR or the Statutory Reserve Rate shall become effective as of
the opening of business on the day on which such change is announced.
(b) On any Business Day, the Company may, subject to paragraph (c)
below, elect to allocate all or any portion of the Net Investment not allocated
to a Fixed Tranche to one or more Fixed Tranches with Transfer Periods
commencing on such Business Day by giving the Administrative Agent irrevocable
written or telephonic (confirmed in writing) notice thereof, which notice must
be received by the
<PAGE>
Administrative Agent prior to 1:00 p.m., New York City time, three Business Days
prior to such Business Day. Such notice shall specify (i) the applicable
Business Day, (ii) the Transfer Period for each Fixed Tranche to which a portion
of the Net Investment is to be allocated and (iii) the portion of the Net
Investment being allocated to each such Fixed Tranche. Promptly upon receipt of
each such notice, the Administrative Agent shall notify each Participant of the
contents thereof. If the Administrative Agent shall not have received timely
notice as aforesaid with respect to all or any portion of the Net Investment,
the Purchase Discount Amount on such amount shall be calculated by reference to
the ABR.
(c) Anything contained in this Agreement to the contrary
notwithstanding, (i) the portion of the Net Investment allocable to any Fixed
Tranche must be an amount equal to $10,000,000 or an integral multiple of
$1,000,000 in excess thereof, (ii) no more than ten Fixed Tranches shall be
outstanding at any one time and (iii) after the occurrence and during the
continuance of any Termination Event, at the end of the related Transfer Period
all of the Net Investment allocated to any Fixed Tranche shall be reallocated to
the Floating Tranche.
2.6 Interest on Overdue Payments. If any amount payable by the
----------------------------
Company to the Participants or the Administrative Agent hereunder, whether on
account of fees or expenses or on account of amounts collected by the Company or
amounts payable by the Company pursuant to Article III or subsection 5.3, or
otherwise, is not paid by the Company or otherwise on the relevant Settlement
Date or other relevant date, such amount shall be payable together with
interest, payable on demand, for each day from such Settlement Date or other
relevant date, as the case may be, until such amount is paid in full at a rate
per annum equal to the ABR plus 2%.
----
2.7 Establishment of Accounts; Allocation of Collections;
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Reinvestment of Principal Collections.
- -------------------------------------
(a) (i) The Administrative Agent shall establish and maintain in
the name of the Administrative Agent a trust account (the "Collection Account").
Collections deposited into the SPC Collection Account will be transferred to the
Collection Account as set forth in Article XII. All Collections otherwise
received by any Servicer, the Master Servicer or the Company shall be deposited
by it either to a Designated Account or into the Concentration Account as set
forth in Article XII. The Administrative Agent shall have sole and exclusive
dominion over and control of the Collection Account, and the Company, the
Sellers and the Master Servicer shall not have any dominion over or control of
any such account.
(ii) Amounts deposited in the Collection Account shall be
invested by the Administrative Agent as directed by the Master Servicer in Cash
Equivalents maturing not later than the next Business Day.
(iii) Any earnings (net of losses and investment expenses) on
such invested funds in any Collection Account ("Investment Earnings") will be
treated as Collections and retained therein.
<PAGE>
(iv) Neither the Company nor the Master Servicer nor any Servicer
nor any Person claiming by, through or under the Company, any Servicer or the
Master Servicer shall have any right, title or interest in, or any control over
the use of, or any right to withdraw moneys from, the Collection Account, except
(A) the right to give directions for investments of amounts on deposit therein
as expressly provided for in paragraph (ii) above and (B) pursuant to the
authority granted to the Master Servicer in subsection 12.2, the Master Servicer
shall have the power, revocable by the Administrative Agent, to instruct the
Administrative Agent to make withdrawals from the Collection Account for the
purpose of carrying out the Administrative Agent's duties hereunder. Delivery
of a Daily Report by the Master Servicer or a Servicer instructing the
Administrative Agent to make withdrawals from the Collection Account shall be
deemed to constitute a representation and warranty that such withdrawal is
authorized pursuant to the terms hereof and all conditions to such withdrawal
have been satisfied. In the event that the Master Servicer or a Servicer fails
to deliver a Daily Report, the Administrative Agent may (but shall not be
obligated to) apply Receivable Proceeds in accordance with this subsection 2.7
to the payment of amounts to be paid to the Participants and the Administrative
Agent. The Company agrees that all Receivable Proceeds shall be applied and
paid in accordance with this subsection 2.7. Any Receivable Proceeds not
applied on any Business Day in accordance with this subsection 2.7 shall be
retained in the Collection Account until applied in accordance with this
subsection 2.7.
(b) Prior to the commencement of an Amortization Period, the
Collections, Retransfer Payments, Adjustment Payments and the other proceeds of
the Pooled Property deposited in the Collection Account (collectively,
"Receivable Proceeds") shall be applied by the Administrative Agent on each
Business Day (in accordance with the Daily Report provided by the Master
Servicer or a Servicer, upon which the Administrative Agent may conclusively
rely on), as follows:
(i) first, if such Business Day is a Settlement Date, to the
payment of the Monthly Servicing Fee to the Master Servicer for the benefit
of the Master Servicer and any Servicer or to a Substitute Servicer;
(ii) second, on each Purchase Discount Amount Payment Date to
the payment in arrears of accrued Purchase Discount Amounts on such
Purchase Discount Amount Payment Date to the Participants in respect of the
Participating Interest;
(iii) third, to the payment of (x) the Commitment Fees and (y)
any other amounts, if any, accrued and payable on such Business Day to the
Administrative Agent and the Participants in respect of the Participating
Interest or hereunder (including, without limitation, amounts payable under
Article III);
(iv) fourth, to retain in the Collection Account the Reserve
Amount for such Business Day;
(v) fifth, to the payments, if any, required by subsection
2.12 on such Business Day;
<PAGE>
(vi) sixth, to the payment of the Company's indemnity
obligations hereunder and, then, to the Company's operating account for the
payment of the operating expenses of the Company incurred or reserved for
on such Business Day; provided, that the aggregate amounts paid to the
--------
Company's operating account pursuant to this clause (v) shall not exceed,
for any fiscal year of the Company, $250,000;
(vii) seventh, to the Company to pay for Receivables acquired
from the Sellers pursuant to the Receivables Sale Agreement in the
aggregate amount specified in the applicable Daily Report; provided, that
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the Company may elect to (A) retain all or any portion of such amounts in
the Collection Account and (B) on the next Reduction Date, if the Company
shall have given the Administrative Agent irrevocable notice in accordance
with subsection 2.11(b), have all or any portion of such amounts remitted
to the Participants on such Reduction Date and have the Net Investment
reduced accordingly (subject to the payment by the Company of any amounts
required pursuant to subsection 3.3);
(viii) eighth, to the extent such expenses are not paid
pursuant to clause (vi) above, to the Company's operating account for the
payment of the operating expenses of the Company incurred or reserved for
such Business Day;
(ix) ninth, at the Company's option and subject to the terms of
this Agreement and the Subordinated Note, to make payments on account of
the Subordinated Note, in the aggregate amount specified in the applicable
Daily Report; and
(x) tenth, at the Company's option and subject to the terms of
this Agreement, to the Company to enable the Company to make payments on
account of Restricted Payments in the aggregate amount specified in the
applicable Daily Report, so long as the outstanding principal amount of the
Subordinated Note shall be zero at the time of such payment and all accrued
interest thereon shall have been paid in full;
provided, that
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(A) in no event shall any Receivable Proceeds be
distributed from the Collection Account with respect to
clauses (v)-(x) above to the extent such distribution
would necessitate a payment under subsection 2.12;
(B) in no event shall any Receivable Proceeds be
distributed from the Collection Account with respect to
clauses (ix) and (x) above if any Seller Repurchase
Payments or Seller Adjustment Payments are owing (whether
or not then due) to the Company and are unpaid;
<PAGE>
(C) in no event shall any Receivable Proceeds be
distributed from the Collection Account with respect to clauses
(vii) and (viii) above (other than a distribution in accordance
with the proviso in clause (vii)), if a Termination Event of a
type set forth in subsection (f), (h)(ii), (i), (m) or (n) of
Article IX (or a Potential Termination Event in respect thereof)
has occurred and is continuing or would as a result of such
payment; and
(E) in no event shall any Receivable Proceeds be
distributed from the Collection Account with respect to clauses
(ix) and (x) above if any Termination Event or a Potential
Termination Event with respect to a Termination Event of a type
set forth in subsection (f), (g), (h)(ii), (i), (m) or (n) of
Article IX shall have occurred and be continuing or would occur
as a result of such payment.
(c) During any Amortization Period, all Receivable Proceeds shall be
applied by the Administrative Agent on each Business Day (in accordance with the
Daily Report provided by the Master Servicer or a Servicer, upon which the
Administrative Agent may conclusively rely) as follows:
(i) first, (x) to the payment of Monthly Servicing Fees of the
Master Servicer or any Substitute Servicer and (y) to the payment of the
reasonable operating expenses of the Company (subject to the limitations
set forth in subsection 2.7(b)(vi));
(ii) second, to the payment on the last Business Day of each
week to the Participants in respect of the Participating Interest first to
the payment in arrears of accrued Purchase Discount Amounts and then to the
payment of the Net Investment until such time as the Net Investment and
Purchase Discount Amounts thereon shall have been paid in full;
(iii) third, after such time as the Net Investment and
Purchase Discount Amounts have been paid in full to the payment to the
Participants and the Administrative Agent of all other amounts (including,
without limitation, amounts payable under Article III) that are payable to
the Administrative Agent and its Affiliates and the Participants hereunder,
until such amounts shall have been paid in full; and
(iv) fourth, after such time as the Net Investment and Purchase
Discount Amounts thereon and all other amounts that are due and payable to
the Administrative Agent and the Participants shall have been paid in full,
the remainder to the Company.
(d) The Master Servicer shall as soon as possible but no later than
one Business Day after receipt of any Collections and other proceeds determine
whether or not they are with respect to Purchased Receivables and shall as soon
as possible
<PAGE>
notify the Administrative Agent of such determination. The Administrative Agent
shall as soon as possible thereafter transfer any Collections that are not with
respect to Purchased Receivables from the Collection Account to the Master
Servicer for payment to the applicable Person; provided, that with respect to
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any Collections for which the Administrative Agent has not been provided such a
determination by the Master Servicer by the end of the fifth Business Day from
the date of receipt thereof, such Collections shall be deemed to be Collections
with respect to Purchased Receivables and no other Person shall have any rights
therein except to the extent provided in applicable state laws governing the
laws of restitution and mistake. Notwithstanding the foregoing, during any
Amortization Period, all cash collections and other proceeds received in respect
of an Obligor with respect to all Receivables of such Obligor shall be applied
first, to pay the outstanding principal balance of Purchased Receivables of
- -----
such Obligor until Purchased Receivables with respect to such Obligor are paid
in full and second, amounts in excess thereof shall be paid to the Master
------
Servicer for payment to the Person legally entitled thereto to pay the
outstanding principal balance of all remaining Receivables with respect to such
Obligor. The Master Servicer agrees that in making each such determination with
respect to Collections and other proceeds, the Master Servicer represents and
warrants at such time, to the best of the Master Servicer's knowledge, that such
determination is true and correct.
2.8 Payments; Pro Rata Treatment. (a) Subject to the terms and
----------------------------
conditions hereof, not later than 1:00 p.m. (New York City time) on each date on
which the Participants are notified to remit payments to the Administrative
Agent or as the Administrative Agent shall direct on account of any Increase in
Net Investment, each Participant shall make available to the Administrative
Agent or as the Administrative Agent shall direct an amount in immediately
available funds equal to the amount of such remittance calculated as provided
herein. The Administrative Agent shall credit the proceeds of such payments (on
the date of receipt so long as the 1:00 p.m. deadline specified above is
satisfied) in a timely manner in accordance with the instructions of the
Company.
(b) Unless the Administrative Agent shall have been notified in
writing by any Participant prior to a Closing Date that such Participant will
not make the amount which would constitute its portion of the Participating
Interest or Increase in Net Investment on such date available to the
Administrative Agent, the Administrative Agent may assume that such Participant
has made such amount available to the Administrative Agent on such Closing Date,
and the Administrative Agent may, in reliance upon such assumption, make
available to the Company, a corresponding amount. If such amount is made
available to the Administrative Agent on a date after such Closing Date, such
Participant shall pay to the Administrative Agent on demand an amount equal to
the product of (i) the daily average Federal Funds Effective Rate during such
period, (ii) the amount of such Participant's portion of the Participating
Interest or Increase in Net Investment and (iii) a fraction the numerator of
which is the number of days that elapse from and including such Closing Date to
the date on which such Participant's funds shall have become immediately
available to the Administrative Agent and the denominator of which is 360. A
certificate of the Administrative Agent submitted to any Participant with
respect to
<PAGE>
any amounts owing under this subsection 2.8(b) shall be conclusive, absent
manifest error. If such Participant's portion of the Participating Interest or
Increase in Net Investment is not in fact made available to the Administrative
Agent by such Participant within three Business Days of such Closing Date, the
Administrative Agent shall be entitled to recover such amount with interest
thereon at a per annum rate equal to the ABR, on demand, from the Company. No
provision contained in this subsection 2.8(b) shall prejudice any rights of the
Company against any Participant.
(c) Except where an amount is payable to a particular Participant,
all amounts payable to the Participants shall be paid to each Participant in an
amount equal to such Participant's Commitment Percentage of the aggregate amount
thereof payable to the Participants.
2.9 Netting of Payments. Anything contained in this Agreement to the
-------------------
contrary notwithstanding, the Administrative Agent may, in its sole discretion,
net any amounts the Administrative Agent is required to make available to the
Company on any day pursuant to subsection 2.7(b) or any other subsection of this
Agreement against any amounts the Administrative Agent is required to make
available to the Participants on such day pursuant to subsection 2.7(b) or any
other provision of this Agreement. At the request of any Participant, the
Administrative Agent will provide an accounting of any amounts netted pursuant
to the preceding sentence.
2.10 Termination or Reduction of Commitment. The Company may on any
--------------------------------------
Settlement Date, upon three Business Days prior written notice to the
Administrative Agent (effective upon receipt), (i) terminate the Participants'
Commitments hereunder or (ii) reduce the Maximum Commitment hereunder in an
amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof;
provided, that the Maximum Commitment may not be reduced below the Net
- --------
Investment. After receipt by the Administrative Agent of any such notice from
the Company, the Administrative Agent shall promptly provide a copy of such
notice to each Participant. Upon any such reduction, the Commitment of each
Participant shall be reduced pro rata according to the Commitment Percentage of
--- ----
such Participant. Upon any such termination or reduction as aforesaid, the
Maximum Commitment of the Participants shall terminate or be reduced, as the
case may be. Any such termination shall not in any way affect the Company's
obligations under Article III hereof. Once terminated or reduced, the
Commitments of the Participants cannot be reinstated unless otherwise agreed in
writing by all of the Participants.
2.11 Optional Retransfer; Reduction of Net Investment. (a) On any
------------------------------------------------
Settlement Date during the Amortization Period on which the Net Investment
equals 10% or less of the Net Investment as of the first day of the Amortization
Period, the Company shall have the option, exercisable upon one Business Day
prior notice to the Administrative Agent (effective upon receipt), to acquire
the Participants' total Participating Interest at a transfer price equal to the
Net Investment plus all Purchase Discount Amounts and all accrued and unpaid
fees to the date of such transfer plus any amounts payable pursuant to Article
III. After receipt by the Administrative Agent of any such notice from the
Company, the Administrative Agent shall promptly provide a copy of such notice
to each Participant.
<PAGE>
(b) The Company may, in accordance with subsection 2.7(b)(vii),
reduce the Net Investment on any date (a "Reduction Date") which is a Business
Day, without premium or penalty (other than amounts payable pursuant to
subsection 3.3), upon at least three Business Days irrevocable notice to the
Administrative Agent, in the case of reductions in the Net Investment that are
part of any Fixed Tranche, and one Business Day irrevocable notice to the
Administrative Agent, in the case of reductions in the Net Investment that are
part of the Floating Tranche, specifying (a) the Tranches to be reduced, (b) the
date and amount of such reduction and (c) if such reduction is of a combination
of Fixed Tranche amounts and Floating Tranche amounts, the amount of reduction
allocable to each (and, with respect to such Fixed Tranche, each Tranche
thereof). Upon receipt of any such notice, the Administrative Agent will
promptly notify each Participant thereof. If any such notice is given, amounts
on deposit in the Collection Account shall be applied pursuant to subsection
2.7(b)(vi) on the date specified therein. Each reduction of the Net Investment
pursuant to this subsection 2.11(b) shall be in an amount equal to the lesser of
(x) a whole multiple of $1,000,000 and (y) the Net Investment then outstanding.
2.12 Mandatory Reductions in Net Investment. (a) On any Business
--------------------------------------
Day during the Commitment Period on which the Net Investment exceeds the Maximum
Transfer Amount (except to the extent Excess Application Amounts in respect of
such excess are being held in a cash collateral account pursuant to subsection
2.12(c)), all Receivable Proceeds (after the payment of amounts pursuant to
clauses (i), (ii) and (iii) of subsection 2.7(b) on such Business Day) shall be
applied on such Business Day to reduce the Net Investment (and the Purchase
Discount Amounts accrued on the portion thereof so repaid) in such amount as
shall be necessary so that after giving effect to such payment there shall be no
such excess and, to the extent such Receivable Proceeds are not sufficient to
pay such excess (and the Purchase Discount Amount accrued thereon) on such
Business Day, all subsequent Receivable Proceeds (after the payment of amounts
pursuant to clauses (i), (ii) and (iii) of subsection 2.7(b) on such Business
Day) shall be applied to pay such excess (and the Purchase Discount Amounts
accrued thereon) until so paid.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, any mandatory reduction hereunder shall be applied, unless the
Administrative Agent receives instructions from the Company otherwise, (i)
first, to the Floating Tranche, (ii) second, to any Fixed Tranche the then-
applicable Transfer Period with respect to which ends on the date of the
relevant payment and (iii) third, unless otherwise directed by the Company
pursuant to subsection 2.12(c), to the other Fixed Tranches as selected by the
Administrative Agent in its sole discretion; provided, that, in any event, the
--------
Company shall pay such amounts, if any, required by subsection 3.3.
(c) In the event the amount of any mandatory reduction required to be
made on any date pursuant to this subsection 2.12 shall exceed the aggregate of
the amounts described in clauses (i) and (ii) of paragraph (b) above with
respect to such date (the amount of any such excess being called the "Excess
Application Amount"), the Company shall have the right to direct the
Administrative Agent to, in lieu of making such reduction in full, first apply
such reduction in the manner contemplated
<PAGE>
by said clauses (i) and (ii) and deposit an amount equal to the Excess
Application Amount with the Administrative Agent in a cash collateral account
maintained (pursuant to documentation satisfactory to the Administrative Agent)
by and in the sole dominion and control of the Administrative Agent. Any amounts
so deposited shall be held by the Administrative Agent and applied to the
reduction of the applicable Fixed Tranches at the end of the current Transfer
Period applicable thereto. On any Business Day on which (x) collected amounts
remain on deposit in or to the credit of such cash collateral account after
giving effect to the payments made on such day pursuant to this paragraph (c)
and (y) the Company shall have delivered to the Administrative Agent a written
request or a telephonic request (which shall be promptly confirmed in writing)
that such remaining collected amounts be invested in the Cash Equivalents
specified in such request, the Administrative Agent shall use its reasonable
efforts to invest such remaining collected amounts in such Cash Equivalents;
provided, that the Administrative Agent shall have continuous dominion and
- --------
full control over any such investments (and over any interest that accrues
thereon) to the same extent that it has dominion and control over such cash
collateral account and no Cash Equivalent shall mature after the end of the
Transfer Period for which it is to be applied. Unless a Termination Event or
Potential Termination Event then exists or would result, the Company shall have
the right to direct the Administrative Agent to withdraw any amount from such
cash collateral account if (i) the applicable Fixed Tranches have been reduced
to zero and the accrued Purchase Discount Amount thereon has been paid in full
or (ii) the Net Investment has otherwise ceased to exceed the Maximum Transfer
Amount.
(d) All payments under this subsection 2.12 shall be subject to
subsection 3.3 but otherwise without premium or penalty. All payments in
reduction of the Net Investment under this subsection 2.12 shall be accompanied
by the Purchase Discount Amounts on the amount being paid accrued to the date of
payment.
ARTICLE III
Increased Costs
3.1 Alternate Determination of Purchase Discount Amounts. If prior
----------------------------------------------------
to the commencement of any Transfer Period for a Fixed Tranche:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Transfer Period; or
(b) the Administrative Agent is advised by the Required Participants
that the Adjusted LIBO Rate for such Transfer Period will not adequately
and fairly reflect the cost to such Participants (or Participant) of making
or maintaining their Eurodollar Participating Interests (or its Eurodollar
Participating Interest) included in such Fixed Tranche for such Transfer
Period;
<PAGE>
then the Administrative Agent shall give notice thereof to the Company and the
Participants by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company and the Participants that
the circumstances giving rise to such notice no longer exist, (i) any request
under subsection 2.5(b) that requests the conversion of any Participating
Interest to, or continuation of any Participating Interest as, a Fixed Tranche
shall be ineffective and (ii) if any Request for Transfer and Assignment
requests a Fixed Tranche, such Participating Interest shall be made as a
Floating Tranche.
3.2 Increased Costs. (a) If any Change in Law shall:
---------------
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Participant (except any such reserve
requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Participant or the London interbank market any
other condition affecting this Agreement or Eurodollar Participating
Interests of any such Participant;
and the result of any of the foregoing shall be to increase the cost to such
Participant of purchasing or maintaining any Eurodollar Participating Interests
(or of maintaining its obligation to purchase any such Participating Interest)
or to reduce the amount of any sum received or receivable by such Participant
(whether of Net Investment, payment of Purchase Discount Amount or otherwise),
then the Company will pay to such Participant such additional amount or amounts
as will compensate such Participant for such additional costs incurred or
reduction suffered.
(b) If any Participant determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Participant's capital or on the capital of such Participant's holding
company, if any, as a consequence of this Agreement or its obligations pursuant
hereto to a level below that which such Participant or such Participant's
holding company could have achieved but for such Change in Law (taking into
consideration such Participant's policies and the policies of such Participant's
holding company with respect to capital adequacy), then from time to time the
Company will pay to such Participant such additional amount or amounts as will
compensate such Participant or such Participant's holding company for any such
reduction suffered.
(c) A certificate of a Participant setting forth the amount or
amounts necessary to compensate such Participant or its holding company as
specified in paragraph (a) or (b) of this subsection 3.2 shall be delivered to
the Company and shall be conclusive absent manifest error. The Company shall
pay such Participant the amount shown as due on any such certificate within 30
days after receipt thereof.
(d) Failure or delay on the part of any Participant to demand
compensation pursuant to this subsection 3.2 shall not constitute a waiver of
such Participant's right to demand such compensation; provided, that the Company
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shall
<PAGE>
not be required to compensate a Participant pursuant to this subsection 3.2 for
any increased costs or reductions incurred more than six months prior to the
date that such Participant notifies the Company of the Change in Law giving rise
to such increased costs or reductions and of such Participant's intention to
claim compensation therefor; provided, further, that, if the Change in Law
-------- -------
giving rise to such increased costs or reductions is retroactive, then the six-
month period referred to above shall be extended to include the period of
retroactive effect thereof.
(e) Notwithstanding any other provision of this subsection 3.2, no
Participant shall demand compensation for any increased cost or reduction or
other amount referred to above if it shall not at the time be the general policy
or practice of such Participant to demand such compensation in similar
circumstances under comparable provisions of other agreements.
3.3 Indemnity. In the event of (a) the payment of any Net Investment
---------
in respect of any Eurodollar Participating Interest other than on the last day
of a Transfer Period applicable thereto (including as a result of a Termination
Event), (b) the conversion of any Eurodollar Participating Interest other than
on the last day of the Transfer Period applicable thereto, (c) the failure to
transfer, convert, continue or reduce any Participating Interest on the date
specified in any notice delivered pursuant hereto or pursuant to subsection 2.12
or (d) the assignment of any Eurodollar Participating Interest other than on the
last day of the Transfer Period applicable thereto as a result of a request by
the Company pursuant to subsection 3.5, then, in any such event, the Company
shall compensate each Participant for the loss, cost and expense attributable to
such event. In the case of a Eurodollar Participating Interest, the loss to any
Participant attributable to any such event shall be deemed to include an amount
determined by such Participant to be equal to the excess, if any, of (i) the
amount of interest that such Participant would pay for a deposit equal to the
Participating Interest for the period from the date of such payment, conversion,
failure or assignment to the last day of the then-current Transfer Period for
such Participating Interest (or, in the case of a failure to transfer, convert
or continue, the duration of the Transfer Period that would have resulted from
such transfer, conversion or continuation) if the interest rate payable on such
deposit were equal to the Adjusted LIBO Rate for such Transfer Period, over (ii)
----
the amount of interest that such Participant would earn on such amount for such
period if such Participant were to invest such amount for such period at the
interest rate that would be bid by such Participant (or an affiliate of such
Participant) for Dollar deposits from other banks in the eurodollar market at
the commencement of such period. A certificate of any Participant setting forth
any amount or amounts that such Participant is entitled to receive pursuant to
this subsection shall be delivered to the Company and shall be conclusive absent
manifest error. The Company shall pay such Participant the amount shown as due
on any such certificate within 10 days after receipt thereof.
3.4 Taxes. (a) Any and all payments by or an account of any
-----
obligation of the Company, any Servicer or the Master Servicer (each, a "Tax
Indemnifying Party") hereunder shall be made free and clear of and without
deduction for any
<PAGE>
Indemnified Taxes or Other Taxes; provided, that if any Tax Indemnifying Party
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or the Administrative Agent shall be required to deduct any Indemnified Taxes or
Other Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this subsection) the Administrative
Agent or the relevant Participant receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Indemnifying Party
shall make such deductions and (iii) the Indemnifying Party or the
Administrative Agent, as the case may be, shall pay the full amount deducted to
the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Company shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Company shall indemnify the Administrative Agent and each
Participant, within 10 days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
subsection) paid by the Administrative Agent or such Participant, as the case
may be, and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to the
Company by a Participant or by the Administrative Agent on its own behalf or on
behalf of a Participant shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by any Tax Indemnifying Party to a Governmental Authority, such Tax
Indemnifying Party shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.
(e) Each Foreign Participant shall deliver to the Company and the
Administrative Agent two copies of either U.S. Internal Revenue Service Form
1001 or Form 4224, or, in the case of a Foreign Participant claiming exemption
from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Foreign Participant
delivers a Form W-8, an annual certificate representing that such Foreign
Participant is not a "bank" for purposes of Section 881(c) of the Code, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Company and is not a controlled foreign corporation related to the
Company (within the meaning of Section 864(d)(4) of the Code)), properly
completed and duly executed by such Foreign Participant claiming that it is
entitled to a complete exemption from U.S. federal income withholding tax on all
payments by the Company under this Agreement. Such forms shall be delivered by
each Foreign Participant on or before the date it becomes a party to this
Agreement, assuming its Participating Interest is properly classified as
indebtedness for
<PAGE>
United States federal income tax purposes. In addition, each Foreign Participant
shall deliver such forms promptly upon the obsolescence or invalidity of any
form previously delivered by such Foreign Participant. Each Foreign Participant
shall promptly notify the Company at any time it determines that it is no longer
in a position to provide any previously delivered certificate to the Company (or
any other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of this subsection 3.4,(e), a
Foreign Participant shall not be required to deliver any form pursuant to this
subsection 3.4(e) (i) that such Foreign Participant is not legally able to
deliver or (ii) if the Participating Interests have been characterized as
anything other than indebtedness for United States income tax purposes.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this subsection
3.4 shall survive the termination of this Agreement.
3.5 Mitigation Obligations; Replacement of Participants. If any
---------------------------------------------------
Participant requests compensation under subsection 3.2, or if the Company is
required to pay any additional amount to any Participant or any Governmental
Authority for the account of any Participant pursuant to subsection 3.4, then
such Participant shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by the
relevant Tax Indemnifying Party or to designate a different lending office for
funding or booking its Participating Interest hereunder or to assign its rights
and obligations hereunder to another of its offices, branches or affiliates, if,
in the judgment of such Participant, such filing, designation or assignment (i)
would eliminate or reduce amounts payable pursuant to subsection 3.2 or 3.4, as
the case may be, in the future and (ii) would not subject such Participant to
any unreimbursed cost or expense and would not otherwise be disadvantageous to
such Participant. The Company hereby agrees to pay all reasonable costs and
expenses incurred by any Participant in connection with any such designation or
assignment.
ARTICLE IV
Termination
4.1 Termination. This Agreement will terminate at such time after
-----------
the expiration of the Commitment Period when the Net Investment has been reduced
to zero, all Purchase Discount Amounts accrued thereon have been paid in full
and all other amounts owing to the Participants and the Administrative Agent
hereunder shall have been paid in full; provided, however, that the indemnities
-------- -------
of the Company, the Servicers and the Master Servicer to the Participants and
the Administrative Agent set forth in this Agreement (including those set forth
in Article III) shall survive such termination. Upon (i) the expiration of the
Commitment Period and (ii) the reduction of the Net Investment to zero and the
payment in full of all Purchase Discount Amounts and all other amounts owing to
the Participants and the Administrative Agent hereunder, the Administrative
Agent shall, at the expense of
<PAGE>
the Company, execute such Uniform Commercial Code termination statements and
such other documents, and take such other actions, as the Company may reasonably
request to evidence the termination of the ownership interest of the
Participants in the Receivables and the payment of all amounts owing pursuant to
and in connection with this Agreement.
ARTICLE V
Covenants, Representations and Warranties
5.1 Representations and Warranties of the Company Relating to the
-------------------------------------------------------------
Company. The Company hereby represents and warrants to the Administrative Agent
- -------
and the Participants, (x) as of the Commencement Date, and (y) with respect to
an Increase in Net Investment, as of the related Closing Date, unless, such
representation or warranty expressly relates only to a prior date, that:
(a) Organization; Corporate Powers. The Company is duly organized,
------------------------------
validly existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite corporate power and authority to carry on its
business as now conducted and, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect, is qualified to do business in, and is in good standing in,
every jurisdiction where such qualification is required and has the corporate
power and authority to execute, deliver and perform each of the Transaction
Documents and each agreement or instrument contemplated hereby or thereby to
which it is or will be a party.
(b) Authorization. The Transactions are within the corporate powers
-------------
of the Company and have been duly authorized by all necessary corporate and, if
required, stockholder action.
(c) Enforceability. This Agreement has been duly executed and
--------------
delivered by the Company and constitutes, and each other Transaction Document if
and when executed and delivered by the Company will constitute, a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(d) Governmental Approvals; No Conflicts. The Transactions (a) do
------------------------------------
not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (b) will not violate any applicable
law or regulation or the charter, by-laws or other organizational
documents of the Company or any order of any Governmental Authority, (c) will
not violate or result in a default under any
<PAGE>
21
indenture, agreement or other instrument binding upon the Company or its assets,
or give rise to a right thereunder to require any payment to be made by the
Company and (d) will not result in the creation or imposition of any Lien on any
asset of the Company.
(e) Litigation, etc. (i) There are no actions, suits or
---------------
proceedings by or before any arbitrator or Governmental Authority pending or, to
the knowledge of the Company, threatened against, the Company which (a) could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect or (b) that involve this Agreement or the Transactions.
(ii) Except with respect to matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, the Company (a) has not failed to comply with any Environmental Law or
to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (b) has not become subject to any
Environmental Liability, (c) has not received notice of any claim with respect
to any Environmental Liability or (d) does not know of any basis for any
Environmental Liability.
(f) Compliance with Laws and Agreements. The Company is in
-----------------------------------
compliance with all laws, regulations and orders of any Governmental Authority
applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Termination Event or Potential Termination Event
has occurred and is continuing.
(g) Ownership of Property; Liens. (i) The Company has good title
----------------------------
to, or valid leasehold interests in, all its real and personal property material
to its business, except for minor defects in title that do not interfere with
its ability to conduct its business as currently conducted or to utilize such
properties and assets for their intended purposes.
(ii) The Company owns, or is licensed to use, all trademarks,
tradenames, copyrights, patents and other intellectual property material to its
business, and the use thereof by the Company does not infringe upon the rights
of any other Person, except for any such infringements that, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
(h) Investment Company Act; Other Regulations. (i) The Company is
-----------------------------------------
not an "investment company," as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended.
(ii) The Company is not a "holding company," as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935, as
amended.
(iii) The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
<PAGE>
22
(iv) The assignment and transfer of the Participating Interests
hereunder and the use of the proceeds thereof and the other Transactions will
not violate or be inconsistent with the provisions of the Regulations of the
Board, including Regulations G, T, U and X.
(i) Taxes. The Company has timely filed or caused to be filed all
-----
Tax returns which are required to have been filed and has paid or caused to be
paid all Taxes required to have been paid by it.
(j) Ownership; Subsidiaries. All the issued and outstanding capital
-----------------------
stock of the Company is owned, legally and beneficially, directly or indirectly,
by WMI. The Company has no Subsidiaries.
(k) Pro Forma Balance Sheet. The Company has heretofore furnished to
-----------------------
the Administrative Agent and each of the Participants its pro forma balance
sheet after giving effect to the transactions to take place on the Commencement
Date. Such balance sheet (i) was prepared in good faith on the basis of
reasonable assumptions and (ii) discloses all material liabilities, direct or
contingent, of the Company as of the date thereof.
(l) No Material Adverse Change. As of the Commencement Date, there
--------------------------
has been no material adverse change in the business, properties, assets,
operations or financial condition of the Company (after giving effect to the
Transactions contemplated to occur on or prior to the Commencement Date pursuant
to the Transaction Documents) since the date of the pro forma balance sheet
referred to in paragraph (k) above.
(m) Solvency. Both prior to and after giving effect to the
--------
transactions occurring on the Commencement Date or each Closing Date, (i) the
fair value of the assets of the Company at a fair valuation will exceed the
debts and liabilities, subordinated, contingent or otherwise, of the Company;
(ii) the present fair salable value of the property of the Company will be
greater than the amount that will be required to pay the probable liability of
the Company on its debts and other liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; (iii) the
Company will be able to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and
(iv) the Company will not have unreasonably small capital with which to conduct
the business in which it is engaged as such business is now conducted and is
proposed to be conducted. For all purposes of clauses (i) through (iv) above,
the amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability. The Company does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay such debts as they mature, taking
into account the timing of and amounts of cash to be received by it and the
timing of and amounts of cash to be payable in respect of its debt.
<PAGE>
23
(n) Employee Benefit Plans. No ERISA Event has occurred or is
----------------------
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No.
87) did not, as of the date of the most recent financial statements reflecting
such amounts, exceed by more than $40,000,000 the fair market value of the
assets of all such underfunded Plans.
(o) Names. The legal name of the Company is as set forth in this
-----
Agreement. The Company has not had, nor has, any trade names, fictitious names,
assumed names or "doing business as" names.
(p) Liabilities. Other than, (i) the liabilities, commitments or
-----------
obligations (whether absolute, accrued, contingent or otherwise) arising under
or in respect of the Transaction Documents and (ii) immaterial amounts due and
payable in the ordinary course of business of a special-purpose company, the
Company does not have any liabilities, commitments or obligations (whether
absolute, accrued, contingent or otherwise), whether due or to become due.
(q) Collection Procedures. The Company and each Seller have in place
---------------------
procedures pursuant to the Policies which are either necessary or advisable to
ensure the timely collection of Receivables in accordance with the Transaction
Documents.
(r) Designated Accounts. The Designated Banks are the only
-------------------
institutions holding any Designated Accounts for the receipt of payments from
Obligors in respect of Receivables and the Obligors have been instructed to make
payments to Designated Accounts. Each Designated Account set forth in Schedule
3 to this Agreement is free and clear of any Lien other than a Lien created
pursuant to this Agreement.
(s) Bulk Sales. The execution, delivery and performance of this
----------
Agreement do not require compliance with any "bulk sales" law by the Company.
The representations and warranties set forth in this subsection 5.1
shall survive the initial transfer of a Participating Interest and any Increase
in the Net Investment. Upon discovery by the Company, any Participant or the
Administrative Agent of a breach of any of the foregoing representations and
warranties, the Person discovering such breach shall give prompt written notice
to such other Persons.
5.2 Representations and Warranties of the Company Relating to this
--------------------------------------------------------------
Agreement and the Receivables. The Company hereby represents and warrants to
- -----------------------------
the Administrative Agent and the Participants, (x) as of the Commencement Date,
and (y) with respect to an Increase in Net Investment, as of the related Closing
Date, unless such representation or warranty expressly relates only to a prior
date, that:
<PAGE>
24
(a) The Company is the sole legal and beneficial owner of such
Receivables, and upon the sale of each Receivable, the Participants will
become the sole legal and beneficial owner of such Receivable, free and
clear of any Liens except for Permitted Liens. The Company has not sold,
assigned or transferred, or granted any existing Lien on, the Receivables
or any of the other Pooled Property, or any interest therein, to any
Person, except the Participants hereunder.
(b) This Agreement effects a valid transfer and assignment to the
Participants of an undivided, participating ownership interest in all
right, title and interest of the Company in the Receivables and the Related
Property or, if this Agreement does not effect a transfer and assignment of
such an ownership interest, it effects a grant of a "security interest" (as
defined in the Uniform Commercial Code as in effect in the State of New
York) in such property to the Participants, which, in the case of existing
Receivables and the Related Property is enforceable upon execution and
delivery of this Agreement, and which will be enforceable with respect to
such Receivables and the Related Property hereafter created and the
proceeds thereof upon such creation. On or prior to the initial Closing
Date, all filings and other acts necessary or advisable (including but not
limited to all filings and other acts necessary or advisable under the
Uniform Commercial Code of each relevant jurisdiction) have been made or
performed in order to grant the Participants a first priority perfected
ownership interest in respect of all Receivables acquired by the Company
and Related Property. On the Commencement Date and, in the case of the
Receivables hereafter created and the proceeds thereof, upon the creation
thereof, the Participants shall have a first priority perfected ownership
or security interest in such property.
(c) The offices at which the Company keeps its records concerning the
Receivables either (x) are located at the addresses set forth on Schedule 2
or (y) have been reported to the Administrative Agent in accordance with
the provisions of subsection 8.21 of this Agreement. The chief executive
office of the Company is located at the address set forth on Schedule 2 (as
such location may be changed from time to time in accordance with
subsection 8.21 of this Agreement) and is the place where the Company is
"located" for the purposes of Section 9-103(3)(d) of the UCC as in effect
in the State of New York. The State and county where the chief executive
office of the Company is "located" for the purposes of Section 9-103(3)(d)
of the UCC as in effect in the State of New York has not changed in the
past four months.
(d) On the date each Receivable transferred to the Participants is so
transferred, each such Receivable that is included in the calculation of
the amount of Eligible Receivables on such date is an Eligible Receivable.
Each Receivable that is classified by the Company as an Eligible Receivable
in any document or report (including, without limitation, any Daily Report)
delivered hereunder shall be a Receivable with respect to which all of the
criteria contained in the definition of "Eligible Receivable" hereunder are
satisfied.
<PAGE>
25
The representations and warranties set forth in this subsection 5.2
shall survive the initial transfer of a Participating Interest and any Increase
in Net Investment. Upon discovery by the Company, any Participant or the
Administrative Agent of a breach of any of the foregoing representations and
warranties, the Person discovering such breach shall give prompt written notice
to such other Persons.
5.3 Retransfer Obligation. (a) In the event of any breach of any of
---------------------
the representations or warranties of the Company contained in subsection 5.2 in
any material respects or the Company shall breach any covenant contained in
Article VIII then upon the earlier to occur of the discovery of such event by
the Company, or receipt by the Company of written notice of such event given by
the Administrative Agent, the outstanding Principal Amount of Eligible
Receivables used to calculate the amount of Aggregate Eligible Receivables shall
be reduced by the Principal Amount of Receivables as to which such
representations and warranties were breached; provided, however, that (i) prior
-------- -------
to the Amortization Period, to the extent that such a reduction would cause the
Invested Percentage to be more than the Maximum Invested Percentage, the Company
agrees to acquire such Receivables and any Related Property with respect thereto
on the terms and conditions set forth in paragraph (b) below and (ii) during the
Amortization Period, the Company agrees to acquire such Receivables and any
Related Property with respect thereto on the terms and conditions set forth in
paragraph (b) below.
(b) If any breach of a representation or warranty or other event
which necessitates the Company's reacquisition of a Receivable pursuant to
paragraph (a) above remains uncured, the Company shall acquire such Receivable
and any Related Property with respect thereto by depositing into the Collection
Account in immediately available funds no later than the fifth Business Day
after discovery or notice of such breach, an amount equal to (i) prior to an
Amortization Period, the lesser of (A) the amount necessary to cause the
Invested Percentage to equal the Maximum Invested Percentage and (B) the
Principal Amount of such Receivable or (ii) during an Amortization Period, the
Principal Amount of such Receivables (a payment pursuant to clause (ii), a
"Retransfer Payment"). Upon deposit of the Retransfer Payment and written
notice from the Company to the Administrative Agent that such Retransfer Payment
has been made, the Participants shall automatically and without further action
be deemed to transfer, assign, set-over and otherwise convey to the Company,
free and clear of any Lien created by the Participants but otherwise without
recourse, representation or warranty, all the right, title and interest of the
Participants in and to such Receivable, all Related Property with respect
thereto, all monies due or to become due with respect thereto and all proceeds
thereof and such reacquired Receivable shall be treated by the Participants as
collected in full as of the date on which it was transferred. The
Administrative Agent shall execute such documents and instruments of transfer or
assignment and take such other actions as shall reasonably be requested by the
Company to effect the conveyance of such Receivables pursuant to this subsection
5.3 and Collections relating thereto.
5.4 Obligations Unaffected. The obligations of the Company to the
----------------------
Administrative Agent and the Participants under this Agreement shall not be
affected
<PAGE>
26
by reason of any invalidity, illegality or irregularity of any Receivable or any
transfer and assignment of a Receivable.
ARTICLE VI
Conditions to Effectiveness/Transfers/Reinvestments
6.1 Commencement Date. This Agreement shall become effective on the
-----------------
date (the "Commencement Date") on which each of the following conditions
precedent are either (x) satisfied or (y) waived by the Required Participants:
(a) The Company, each Servicer and the Master Servicer shall have
delivered to the Administrative Agent, with a copy for each Participant,
(i) a copy of the certificate or articles of incorporation, including all
amendments thereto, of such Person, certified as of a recent date by the
Secretary of State of the state of incorporation thereof, and such
certificate or articles shall be in form and substance satisfactory to the
Administrative Agent, and a certificate as to the good standing of such
Person as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary or other authorized
person of such Person dated the Commencement Date and certifying (A) that
attached thereto is a true and complete copy of the Bylaws of such Person
as in effect on the Commencement Date and at all times since a date prior
to the date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions in form and
substance satisfactory to the Administrative Agent and duly adopted by the
Board of Directors of such Person authorizing the execution, delivery and
performance of the Transaction Documents to which such Person is a party
and the transactions contemplated thereby, and that such resolutions have
not been modified, rescinded or amended and are in full force and effect,
(C) that the certificate or articles of incorporation of such Person has
not been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to clause (i) above and (D)
as to the incumbency and specimen signature of each officer executing any
Transaction Document or any other document delivered in connection herewith
or therewith on behalf of such Person; and (iii) a certificate of another
officer as to the incumbency and specimen signature of the Secretary or
Assistant Secretary or other authorized person executing the certificate
pursuant to clause (ii) above.
(b) There shall have been delivered to the Administrative Agent, with
a copy for each Participant, the written opinions of (i) Winston & Strawn,
special counsel for the Company, the Servicers and the Master Servicer, in
form and substance satisfactory to the Administrative Agent with respect to
the treatment of the sales under the Receivables Sale Agreement as a "true
sale", the non-substantive consolidation of the Master Servicer and its
Affiliates and the Company, certain other corporate matters, the
enforceability of this Agreement and the other Transaction Documents and
the creation, perfection and priority of "security interests" in
Receivables under New York and Illinois
<PAGE>
27
law and (ii) Herbert A. Getz, Esq., general counsel of Waste Management,
Inc., in form and substance satisfactory to the Administrative Agent with
respect to certain corporate matters, in each case addressed to the
Administrative Agent and the Participants, dated the Commencement Date, and
such additional opinions, if any, as may be reasonably requested by the
Administrative Agent.
(c) Any documents (including, without limitation, financing
statements) required to be filed in order to create, in favor of the
Administrative Agent, a perfected ownership/security interest in the Pooled
Property with respect to which an ownership/security interest may be
perfected by a filing under the UCC or other comparable statute, shall, in
each case, have been properly prepared and executed for immediate filing in
each office in each jurisdiction in which the Company maintains its
principal executive office and such filings are the only filings required
in order to perfect the transfer of the Receivables to the Participants.
(d) The Administrative Agent shall have received a certificate from
the Company, dated the Commencement Date and signed by one of its
Responsible Officers, in form and substance satisfactory to the
Administrative Agent, confirming compliance with the conditions precedent
set forth in this subsection 6.1.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Commencement Date.
(f) The Administrative Agent shall have received (i) a copy of the
Receivables Sale Agreement, duly executed on behalf of WMI, each of the
Sellers and the Company, (ii) a copy of the Receivables Sale Agreement
Guarantee, duly executed by the Seller Guarantors, and (iii) a copy of the
Subordinated Note, duly executed by the Company for the benefit of WMI as
agent for each of the Sellers.
(g) A Responsible Officer of the Company shall have certified that
all conditions to the obligations of the Company and each of the Sellers
under the Receivables Sale Agreement shall have been satisfied in all
respects (or waived by the Administrative Agent) and a copy of all
documents delivered thereunder shall be delivered to the Administrative
Agent.
(h) The Administrative Agent shall have received, as certified by a
Responsible Officer of the Company, copies of (i) the written Policies, or,
to the extent that the credit and collection policies of the Sellers are
not in written form at the Commencement Date, a written description of the
historical credit and collection practices of the Sellers and proposed
practices for the Company, in each case in form and substance acceptable to
the Administrative Agent and (ii) the Company Policies and such policies
shall be acceptable to the Administrative Agent.
<PAGE>
28
(i) The Administrative Agent shall have reviewed the computer
programs, material tapes, data and back-up plans of the Sellers required
for the collection of Receivables and shall be satisfied that the
foregoing, including the procedures of the Sellers for the preparation,
storage and retrieval thereof, are sufficient upon the termination of the
Master Servicer or any Servicer that is an Affiliate of the Company to
permit (i) the Company or the Administrative Agent to collect the
Receivables with or without the participation of the Sellers or any
servicer and (ii) a third-party servicer to collect the Receivables with or
without the participation of the Sellers or the Company.
(j) The composition of the Company's Board of Directors (including
the independent director) shall be reasonably acceptable to the
Administrative Agent.
(k) The Administrative Agent shall have received (i) the pro forma
opening balance sheet for the Company referred to in subsection 5.1(l) and
(ii) the consolidated financial statements of the Master Servicer referred
to in subsection 12.6(s).
(l) The Administrative Agent shall have received a certificate dated
the Commencement Date and signed by a Responsible Officer of the Company,
substantially in the form of Exhibit E, to the effect that the Company will
be solvent after giving effect to the transactions occurring on the
Commencement Date.
(m) The Administrative Agent (i) shall have received evidence
reasonably satisfactory to it that the Designated Accounts, the
Concentration Account, the SPC Collection Account and the Collection
Account shall have been established in accordance with the terms and
provisions hereof, and (ii) shall otherwise be satisfied with the
arrangements for collection of the Receivables pursuant hereto, including
the establishment of standing instructions regarding the transfer of funds
to the Concentration Account.
(n) The Initial Sellers shall have commenced selling Receivables to
the Company.
Upon request, Participants may receive copies of the items delivered to the
Administrative Agent in accordance with Subsection 6.1.
6.2 Condition to each Increase in Net Investment. The obligations of
--------------------------------------------
the Participants to acquire the Participating Interest or increase the Net
Investment on any Closing Date are subject to the conditions that:
(a) no Termination Event or Potential Termination Event shall have
occurred and then be continuing, and no such Termination Event or Potential
Termination Event shall occur as a result of the proposed acquisition or
Increase in Net Investment on such Closing Date;
<PAGE>
29
(b) the representations and warranties of the Company set forth in
Article V shall be true and correct in all material respects on and as of
such Closing Date as though made on and as of such date, except insofar as
such representations and warranties are expressly made only as of another
date (in which case they shall be true and correct in all material respects
as of such other date);
(c) the representations and warranties of the Sellers set forth in
subsection 4.1 (other than subsection 4.1(f)(1)) in the Receivables Sale
Agreement, as though made on and as of such date, except insofar as such
representations and warranties are expressly made only as of another date
(in which case they shall be true and correct in all material respects as
of such other date);
(d) the representations and warranties of the Servicers and the
Master Servicer set forth in Article XII (other than subsection 12.6(d)(i)
and 12.6(r)(iii) shall be true and correct in all material respects on and
as of such Closing Date as though made on and as of such date, except
insofar as such representations and warranties are expressly made only as
of another date (in which case they shall be true and correct in all
material respects as of such other date);
(e) the Company or the Master Servicer shall have delivered a Daily
Report on such date and such Daily Report shall demonstrate that after
giving effect to such acquisition or increase the Net Investment of the
Participants shall not exceed the Maximum Transfer Amount on such date; and
(f) the Administrative Agent shall have timely received all notices,
statements and certificates relating to such Closing Date required by
subsections 2.3 and 12.5.
Each acquisition or Increase in Net Investment on any Closing Date shall
constitute a representation and warranty by the Company that the conditions to
the transfer thereof on such Closing Date, as the case may be, have been
satisfied.
ARTICLE VII
Affirmative Covenants
The Company hereby agrees that, unless and until this Agreement is
terminated pursuant to subsection 4.1, the Company shall:
7.1 Financial Statements. Furnish to each Participant as soon as
--------------------
available, but in any event not later than 60 days after the end of
each of the first three quarterly periods of each fiscal year of the
Company, the unaudited balance sheet of the Company as at the end of
such quarter and the related unaudited statements of income and
retained earnings and
<PAGE>
30
cash flows of the Company for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case, with respect to any such financial statements covering any
fiscal quarter commencing after the first anniversary of the
Commencement Date, in comparative form the figures for the
corresponding quarter and portion of the previous year, certified by a
Responsible Officer of the Company as being fairly stated in all
material respects (subject to normal year-end audit adjustments) all
such financial statements shall be complete and correct in all
material respects and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein and with prior periods (except as approved by such
accountants or Responsible Officer, as the case may be, and disclosed
therein).
7.2 Certificates; Other Information. Furnish to each Participant, or
-------------------------------
in the case of paragraph (d), the Administrative Agent:
(a) Concurrently with the delivery of the financial statements
referred to in subsection 7.1, a certificate of a Responsible Officer of
the Company stating that, to the best of such Responsible Officer's
knowledge, the Company during such period has observed or performed all of
its covenants and other agreements, and satisfied every condition,
contained in the Transaction Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Termination Event or Potential Termination
Event, except as specified in such certificate; and
(b) Promptly, such additional financial and other information as any
Participant may from time to time reasonably request by written notice to
the Company (through the Administrative Agent).
(c) Promptly upon receipt, but in no event later than 30 days after
the Commencement Date, evidence reasonably satisfactory to the
Administrative Agent of each filing, registration or recordation required
under subsection 6.1(c) of this Agreement and subsection 3.1(b)(v) of the
Receivables Sale Agreement and evidence reasonably satisfactory to the
Administrative Agent of the payment of any necessary fee, tax or expense
relating thereto.
(d) Not later than 30 days after the Commencement Date, written
opinions of local counsel reasonably acceptable to the Administrative Agent
in states (other than Illinois and New York) in which any Category A Seller
conducts the majority of its business and any other state in which more
than 10% of the revenue of all Sellers during the first eleven months of
1997 arose, covering the perfection and priority of "security interests" in
Receivables, in each case addressed to the Administrative Agent and the
Participants and in form and substance satisfactory to the Administrative
Agent.
<PAGE>
31
(e) Not later than 10 days after the merger or consolidation of any
Category A Seller with and into another Seller which is not a Category A
Seller, or any merger or consolidation of Sellers which create a Seller
similar in size to the original Category A Sellers, and without duplication
of opinions delivered pursuant to paragraph (d) above, written opinions of
local counsel reasonably acceptable to the Administrative Agent in states
in which any such surviving corporation conducts the majority of its
business covering the perfection and priority of "security interests" in
Receivables, in each case addressed to the Administrative Agent and the
Participants and in form and substance satisfactory to the Administrative
Agent.
(f) Not later than 60 days after the Commencement Date, with respect
to each Category A Seller and Category B Seller, tax and judgment lien
searches in jurisdictions reasonably requested by the Administrative Agent.
7.3 Existence; Businesses and Properties; Insurance; Receivables.
------------------------------------------------------------
(a) Do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its legal existence.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply in all material respects with
all applicable laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted; and at all times maintain
and preserve all property material to the conduct of such business and keep such
property in good repair, working order and condition and from time to time make,
or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith, if any, may be properly conducted at all
times.
(c) Keep its insurable properties insured (including through self-
insurance) at all times by financially sound and reputable insurers in such
amounts as shall be customary for similar businesses and maintain such other
insurance, of such types, to such extent and against such risks, as is customary
with companies in the same or similar businesses; and maintain such other
insurance as may be required by law.
(d) Defend the right, title and interest of the Participants in, to
and under the Receivables and the other Pooled Property, whether now existing or
hereafter created, against all claims of third parties claiming through or under
the Company, the Sellers, the Master Servicer or the Servicers.
(e) Duly fulfill all material obligations on its part to be fulfilled
under or in connection with each Receivable and do nothing that could reasonably
be expected to impair the rights of the Participants in any Receivable.
<PAGE>
32
7.4 Payment of Obligations. Pay its obligations including Tax
----------------------
Liabilities, that if not paid could result in a Material Adverse Effect before
the same shall become delinquent or in default except where (a) the validity or
amount thereof shall be contested in good faith by appropriate proceedings, (b)
the Company shall set aside on its books adequate reserves as required in
accordance with GAAP and (c) the failure to make payment pending such contest
could not reasonably be expected to result in a Material Adverse Effect.
7.5 Inspection of Property; Books and Records; Discussions. Maintain
------------------------------------------------------
all financial records in accordance with GAAP and permit any Persons designated
by the Administrative Agent (or, during the continuance of any Termination
Event, any Participant) to visit and inspect the financial records and the
properties of the Company at reasonable times, upon reasonable notice and as
often as reasonably requested and to make extracts from and copies of such
financial records, and permit any Persons designated by the Administrative Agent
(or, during the continuance of any Termination Event, any Participant) to
discuss the affairs, finances and condition of the Company with the officers
thereof and independent accountants therefor (subject to reasonable requirements
of confidentiality, including requirements imposed by law or by contract).
7.6 Notices. Promptly give notice to the Administrative Agent and
-------
each Participant of:
(a) the occurrence of any Termination Event, Potential Termination
Event, Servicer Default or Servicer Event of Default, specifying the nature
and extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) any Lien not permitted by subsection 8.3 on any Receivable or any
other Pooled Property other than the conveyances and Liens hereunder and
under the Receivables Sale Agreement;
(c) the filing or commencement of any action, suit or proceeding,
whether at law or in equity or by or before any Governmental Authority,
against the Company in respect of which there is a reasonable possibility
of an adverse determination and which, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect; and
(d) any development known to a Responsible Officer of the Company
that has resulted in, or could reasonably be anticipated to result in, a
Material Adverse Effect.
7.7 Net Worth. Maintain at all times a consolidated net worth, as
---------
determined in accordance with GAAP, of at least the Minimum Equity Amount.
7.8 Use of Proceeds. The Company shall use the proceeds of the
---------------
initial transfer and assignment of the Participating Interest and of any
Increases in Net Investment (a) to acquire Receivables from the Sellers pursuant
to the Receivables
<PAGE>
33
Sale Agreement in an amount not to exceed the aggregate amount specified in the
applicable Daily Report, (b) to pay operating expenses of the Company, (c) to
make payments on account of the Subordinated Note in the aggregate amount
specified in the applicable Daily Report, and (d) to make payments on account of
Restricted Payments in the aggregate amount specified in the applicable Daily
Report in each case subject to the priority, restrictions and limitations set
forth in subsection 2.7(b) as if such proceeds constituted Receivable Proceeds.
7.9 Separate Corporate Existence. The Company shall:
----------------------------
(a) maintain its own deposit account or accounts, separate from those
of any Affiliate, with commercial banking institutions and ensure that the
funds of the Company will not be diverted to any other Person or for other
than corporate uses of the Company, nor will such funds be commingled with
the funds of any Seller or any other Subsidiary or Affiliate of any Seller;
provided, that notwithstanding the foregoing, Collections in respect of
--------
Purchased Receivables and Receivables may be deposited into the Designated
Accounts and the Concentration Account;
(b) to the extent that it shares the same officers or other employees
as any of its stockholders or Affiliates, the salaries of and the expenses
related to providing benefits to such officers and other employees shall be
fairly allocated among such entities, and each such entity shall bear its
fair share of the salary and benefit costs associated with all such common
officers and employees;
(c) to the extent that it jointly contracts with any of its
stockholders or Affiliates to do business with vendors or service providers
or to share overhead expenses, the costs incurred in so doing shall be
allocated fairly among such entities, and each such entity shall bear its
fair share of such costs. To the extent that the Company contracts or does
business with vendors or service providers where the goods and services
provided are partially for the benefit of any other Person, the costs
incurred in so doing shall be fairly allocated to or among such entities
for whose benefit the goods or services are provided, and each such entity
shall bear its fair share of such costs. All material transactions between
the Company and any of its Affiliates, whether currently existing or
hereafter entered into, shall be only on an arm's length basis, it being
understood and agreed that the transactions contemplated in the Transaction
Documents meet the requirements of this clause (c);
(d) maintain a principal executive office at a separate address from
the address of WMI and its Affiliates; provided, that segregated offices in
--------
the same building shall constitute separate addresses for purposes of this
clause (d). To the extent that the Company and any of its stockholders or
Affiliates have offices in the same location, there
<PAGE>
34
shall be a fair and appropriate allocation of overhead costs among them,
and each such entity shall bear its fair share of such expenses;
(e) issue separate financial statements prepared not less frequently
than quarterly and prepared in accordance with GAAP;
(f) conduct its affairs in its own name and strictly in accordance
with its articles of incorporation and observe all necessary, appropriate
and customary corporate formalities, including, but not limited to, holding
all regular and special stockholders' and directors' meetings appropriate
to authorize all corporate action, keeping separate and accurate minutes of
its meetings, passing all resolutions or consents necessary to authorize
actions taken or to be taken, and maintaining accurate and separate books,
records and accounts, including, but not limited to, payroll and
intercompany transaction accounts;
(g) not assume or guarantee any of the liabilities of any Seller,
any Servicer or any Affiliate of any thereof; and
(h) take, or refrain from taking, as the case may be, all other
actions that are necessary to be taken or not to be taken in order to (x)
ensure that the assumptions and factual recitations set forth in the
Specified Bankruptcy Opinion Provisions remain true and correct in all
material respects with respect to the Company and (y) comply with those
procedures described in such provisions which are applicable to the
Company.
7.10 Facility Rating. Promptly upon request of the Administrative
---------------
Agent, at the expense of the Company, cause the receivables purchase facility
created by this Agreement to be rated by S&P or another nationally recognized
rating agency designated by the Administrative Agent.
7.11 Purchase of Receivables. Purchase Receivables solely pursuant
-----------------------
to (i) the Receivables Sale Agreement or (ii) this Agreement.
7.12 Delivery of Collections. In the event that the Company receives
-----------------------
Collections directly from Obligors, deposit such Collections into the
Concentration Account or the Collection Account within one Business Day after
receipt thereof by the Company.
ARTICLE VIII
Negative Covenants
The Company hereby agrees that, unless and until this Agreement is
terminated pursuant to subsection 4.1, the Company shall not directly or
indirectly:
<PAGE>
35
8.1 Accounting of Transfers. Prepare any financial statements which
-----------------------
shall account for the transactions contemplated hereby (other than capital
contributions contemplated hereby) in any manner other than as sales of
participating interests in the Purchased Receivables by the Company to the
Participants or in any other respect account for or treat the transactions
contemplated hereby (including for financial accounting purposes, except as
required by law) (other than capital contributions and loans from Affiliates
contemplated hereby) in any manner other than as assignments and transfers of
participating interests in the Purchased Receivables by the Company to the
Participants; provided, however, that this subsection 8.1 shall not apply for
-------- -------
any tax or tax accounting purposes.
8.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist any Indebtedness, except: (a) Indebtedness evidenced by the Subordinated
Note; (b) Indebtedness representing fees, expenses and indemnities payable
pursuant to and in accordance with the Transaction Documents; and (c)
Indebtedness for services supplied or furnished to the Company in an amount not
to exceed $100,000 at any time outstanding; provided, that any Indebtedness
--------
permitted hereunder and described in clauses (a) and (c) shall be payable by the
Company solely from funds available to the Company which are not otherwise
needed to be applied to the payment of any amounts by the Company hereunder and
shall be non-recourse other than with respect to proceeds in excess of the
proceeds needed to be so applied.
8.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for Permitted Liens.
8.4 Limitation on Guarantees. Become or remain liable, directly or
------------------------
contingently, in connection with any Indebtedness or other liability of any
other Person, whether by guarantee, endorsement (other than endorsements of
negotiable instruments for deposit or collection in the ordinary course of
business), agreement to purchase or repurchase, agreement to supply or advance
funds, or otherwise, except in connection with indemnification obligations of
the Company to the limited extent provided in the Company's articles of
incorporation and by-laws; provided, that any such indemnification shall be paid
--------
solely from funds available to the Company which are not otherwise needed to be
applied to the payment of any amounts hereunder, shall be non-recourse other
than with respect to proceeds in excess of the proceeds necessary to make such
payment, and shall not constitute a claim against the Company to the extent that
insufficient proceeds exist to make such payment.
8.5 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or make any material change in its
present method of conducting business or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, other than the assignments and transfers to the Participants
contemplated hereby.
<PAGE>
36
8.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, other than (a) the assignments and transfers
contemplated hereby and (b) sales or other dispositions of property with an
aggregate book value not exceeding $10,000 in any period of twelve consecutive
fiscal months.
8.7 Limitation on Dividends and Payments on Subordinated Note.
---------------------------------------------------------
Declare or pay any dividend on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any shares of any class of
Capital Stock of the Company, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Company (such declarations, payments,
setting apart, purchases, redemptions, defeasances, retirements, acquisitions
and distributions being herein called "Restricted Payments"), or make, directly
or indirectly, payments in any form in respect of the Subordinated Note except
that, so long as no breach of subsection 7.7, no Termination Event or Potential
Termination Event with respect to a Termination Event set forth in subsection
(f), (g), (h)(ii), (i), (m) or (n) of Article IX shall have occurred and be
continuing or would result therefrom and the Amortization Period has not
commenced, the Company may (a) make payments on the Subordinated Note and (b)
make Restricted Payments, each pursuant to subsection 2.7; provided, however,
-------- -------
such Restricted Payment are made no more frequently than on a weekly basis and
is effected in accordance with all corporate and legal formalities applicable to
the Company, all such payments made on any date shall be paid solely from funds
available to the Company which are not otherwise needed to be applied to the
payment of any amounts hereunder.
8.8 Business of the Company. Engage at any time in any business or
-----------------------
business activity other than the acquisition of Receivables pursuant to the
Receivables Sale Agreement, the assignments and transfers hereunder and the
other transactions contemplated by the Transaction Documents, and any activity
incidental to the foregoing and necessary or convenient to accomplish the
foregoing, or enter into or be a party to any agreement or instrument other than
in connection with the foregoing.
8.9 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except for the
Receivables and the other Pooled Property.
8.10 Limitation on Sales and Leasebacks. Enter into any arrangement
----------------------------------
with any Person providing for the leasing by the Company of real or personal
property which has been or is to be sold or transferred by the Company to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such property or rental obligations of the
Company.
<PAGE>
37
8.11 Transactions with Affiliates. Sell or transfer any property or
----------------------------
assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates except as expressly
contemplated by the Transaction Documents.
8.12 Capital Stock. Issue any Capital Stock to any Person or permit
-------------
any of its Capital Stock to be transferred to any Person.
8.13 Amendments. Amend (or permit to be amended) its Certificate of
----------
Incorporation.
8.14 Receivables Sale Agreement, etc. Amend, supplement or otherwise
--------------------------------
modify (or permit to be amended, supplemented or otherwise modified) any
material provision of the Receivables Sale Agreement or any of the other
Transaction Documents or give any consent, waiver or notice to any Seller
thereunder or other party or parties thereto without the consent of the
Administrative Agent and the Required Participants.
8.15 Policies. Amend, supplement or otherwise modify in any material
--------
respect (or permit to be amended, supplemented or otherwise modified in any
material respect) the Policies or the Company Policies or vary the
implementation of the Policies or the Company Policies other than (a) with the
consent of the Required Participants and (b) changes that are required by
applicable law; provided, that material changes to the Policies and the Company
--------
Policies shall include, without limitation, changes to the timing of Defaulted
Receivables and changes to the creditworthiness criteria used in determining
whether to extend credit to a Person and in determining the amount of such
credit to extend.
8.16 No Powers of Attorney. Grant any powers of attorney to any
---------------------
Person for any purposes except (a) for the purpose of permitting any Person to
perform any ministerial functions on behalf of the Company that are not
prohibited by or inconsistent with the terms of the Transaction Documents; (b)
to the Administrative Agent in connection herewith; or (c) as expressly
permitted by the Transaction Documents.
8.17 Receivables Not to Be Evidenced by Promissory Notes. Take any
---------------------------------------------------
action to cause any Receivable to be evidenced by any "instrument" (as defined
in the UCC as in effect in any state in which the Company's or the applicable
Seller's chief executive office or books and records relating to such Receivable
are located), except in connection with its enforcement or collection of an Aged
Receivable.
8.18 Ownership of Assets and Property. Own or lease any material
--------------------------------
tangible assets other than as expressly contemplated pursuant to the terms of
this Agreement and the other Transaction Documents, or own or lease any
facilities or incur, create, assume or permit to exist any lease obligations
other leases of office space, equipment or other facilities for use by the
Company in its ordinary course of business, employment agreements, service
agreements, agreements relating to shared employees and the other Transaction
Documents and agreements necessary to perform its obligations under the
Transaction Documents.
<PAGE>
38
employees and the other Transaction Documents and agreements necessary to
perform its obligations under the Transaction Documents.
8.19 Rescission or Cancellation. Rescind or cancel any Receivable or
--------------------------
modify or extend any term or provision of any thereof without the prior written
consent of the Required Participants, except (a) in the ordinary course of its
business and consistent with the Policies and the Company Policies or (b) as
required by any Requirement of Law; provided, that the Company may cause
--------
Receivables to become Defaulted Receivables and may allow Sellers to make
Adjustments in accordance with subsection 2.5 of the Receivables Sale Agreement.
8.20 Ineligible Receivables. Without the prior written approval of
----------------------
the Required Participants, take any action to cause, or which would permit, an
Eligible Receivable to cease to be an Eligible Receivable, except as otherwise
expressly provided for in this Agreement.
8.21 Offices. (a) Move outside the state where such office is now
-------
located the location of its chief executive office or of any of the offices
where it keeps its records with respect to the Receivables without (i) 30 days'
prior written notice to the Administrative Agent and (ii) taking all actions
reasonably requested by the Administrative Agent (including but not limited to
all filings and other acts necessary or advisable under the Uniform Commercial
Code of each relevant jurisdiction) in order to continue the Participants' first
priority perfected ownership interest in all Receivables now owned or hereafter
created or (b) fail to give the Administrative Agent prompt notice of a change
within the state where such office is now located of the location of its chief
executive office or any office where it keeps its records with respect to the
Receivables; provided, however, that the Company shall not change the location
-------- -------
of its chief executive office to outside of the United States, or to a state
which is within the Tenth Circuit unless it delivers an Opinion of Counsel
reasonably acceptable to the Administrative Agent to the effect that Octagon Gas
-----------
Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) is no longer controlling
- -----------------------
precedent in the Tenth Circuit.
8.22 Change in Name. Change its name, identity or corporate
--------------
structure in any manner which would or might make any financing statement or
continuation statement (or other similar instrument) filed in accordance
herewith seriously misleading within the meaning of Section 9-402(7) of the UCC
as in effect in any applicable jurisdiction in which UCC filings have been made
without 30 days' prior written notice to the Administrative Agent.
8.23 Addition of Sellers. Agree to the addition of any Subsidiary as
-------------------
an additional Seller pursuant to subsection 9.14 of the Receivables Sale
Agreement unless the Administrative Agent and the Required Participants have
approved such addition in writing.
8.24 Operating Expenses. Incur or otherwise become liable for
------------------
operating expenses other than expenses for office space, equipment, personnel,
<PAGE>
39
office supplies, computer time, services of third party professionals and other
reasonable overhead expenses.
ARTICLE IX
Events of Termination
If any of the following events (herein called "Termination Events")
shall have occurred and be continuing:
(a) the Company shall fail to deliver any Daily Report or any
Settlement Statement conforming in all material respects to the
requirements of subsection 12.5 and such failure shall continue for two
consecutive Business Days; provided, that if a Force Majeure Delay shall
--------
have occurred with respect to any Servicer or the Master Servicer, the
failure of the Company to deliver any Daily Report or Settlement Statement,
shall not, in either case, constitute a Termination Event unless such
failure continues for longer than the lesser of (x) ten consecutive
Business Days and (y) the length of such Force Majeure Delay;
(b) the Company shall fail to pay, or the Participants or the
Administrative Agent shall not be paid, any amount (i) required to be paid
hereunder in respect of reduction of the Net Investment when required to be
paid or (ii) required to be paid in respect of Purchase Discount Amounts,
any other amounts payable to the Participants or Administrative Agent or
any payment reflected in any Daily Report or Settlement Statement as being
required to be made by the Company, in any case, with respect to this
clause (ii), within five Business Days after the date when required to be
paid;
(c) default shall be made in the due observance or performance by the
Company of any covenant, condition or agreement contained in subsection 7.7
or Article VIII;
(d) the Company shall fail to observe or perform any covenant or
agreement applicable to it contained herein (other than as specified in
paragraph (a), (b) or (c) of this Article IX); provided, that no such
--------
failure shall constitute a Termination Event under this paragraph (d)
unless such failure shall continue unremedied for a period of 30
consecutive days after notice thereof from the Administrative Agent or the
Required Participants to the Company;
(e) any representation, warranty, certification or statement made or
deemed made by the Company in this Agreement or in any Settlement Statement
or other certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been false or misleading in
any material respect on or as of the date made or deemed made; provided,
--------
that a Termination Event shall not be deemed to have occurred under this
paragraph (e) based upon a
<PAGE>
40
breach of a representation or warranty contained in subsection 5.2 if the
Company shall have complied with the provisions of subsection 5.3(b) in
respect thereof;
(f) (i) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (A) liquidation, reorganization
or other relief in respect of the Company or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (B)
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or for a substantial part
of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; (ii) the Company shall (A)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (B) consent to the institution of, or fail to contest
in a timely and appropriate manner, any proceeding or petition described in
clause (f)(i) of this subsection, (C) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or for a substantial part of its assets,
(D) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (E) make a general assignment for the
benefit of creditors or (F) take any action for the purpose of effecting
any of the fore going; or (iii) the Company shall become unable, admit in
writing or fail generally to pay its debts as they become due;
(g) any event or condition occurs that results in any Material
Indebtedness of WMI or any Subsidiary of WMI or the Credit Facility
becoming due prior to its scheduled maturity or that enables or permits
(with or without the giving of notice, but subject to the expiration of any
stated grace period) the holder or holders of any Material Indebtedness or
the Credit Facility or any trustee or agent on its or their behalf to cause
any Material Indebtedness or the Credit Facility to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, or to
terminate any commitment associated therewith, prior to its scheduled
maturity or termination date; provided, that this clause (g) shall not
--------
apply to secured Indebtedness that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such Indebtedness;
(h) (i) an ERISA Event shall have occurred that, in the opinion of
the Required Participants, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in a Material
Adverse Effect; or (ii) a notice of Lien shall have been filed by the PBGC
against the Company under Section 412(n) of the Code or Section 302(f) of
ERISA for a failure to make a required installment or other payment to a
plan to which Section 412(n) of the Code or Section 302(f) of ERISA applies
unless there
<PAGE>
41
shall have been delivered to the Administrative Agent proof of release of
such Lien;
(i) a Federal tax notice of Lien, in an amount equal to or greater
than $1,000,000, shall have been filed against the Company unless the
Company shall have delivered to the Administrative Agent proof of release
of such Lien or against the Master Servicer unless the Master Servicer
shall have set aside on its books adequate reserves or there shall have
been delivered to the Administrative Agent proof of release of such Lien;
(j) there shall have occurred a Change in Control;
(k) (i) one or more judgments for the payment of money in an
aggregate amount in excess of $100,000 shall be rendered against the
Company and the same shall remain undischarged for a period of 30
consecutive days during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of the Company to enforce any such judgment; or (ii) one or
more judgments for the payment of money in an aggregate amount in excess of
$100,000,000 shall be rendered against WMI or any Subsidiary of WMI or any
combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively stayed,
or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of WMI or any Subsidiary of WMI to enforce any such
judgment; or
(l) any material provision of the Transaction Documents shall not be
in full force and effect, enforceable in accordance with its terms, or the
Company, a Seller or the Master Servicer, or any Affiliate of any of the
foregoing, shall so assert in writing;
(m) the Participating Interest shall for any reason cease to be a
valid and perfected first priority undivided ownership interest in the
Receivables;
(n) the Company shall have become an "investment company" under the
Investment Company Act of 1940;
(o) one or more Purchase Termination Events shall have occurred and
be continuing or an Early Termination shall have occurred, in each case
with respect to Sellers which in the aggregate generated more than 10% of
the aggregate revenues of all Sellers during the immediately preceding
Settlement Period;
(p) the Company shall fail to pay the Purchase Price for any newly
created Receivable when due pursuant to subsection 2.3 of the Receivables
Sale Agreement (including, without limitation, by application of any
restrictions in such subsection); provided that no such failure shall
--------
constitute a Termination Event under this paragraph (p) unless such failure
shall continue for five consecutive Business Days;
<PAGE>
42
(q) a Servicer Event of Default shall have occurred and be
continuing; or
(r) the Net Investment exceeds the Maximum Transfer Amount on the
second Business Day following any Settlement Date, after giving effect to
the calculation of the Maximum Invested Percentage on such Settlement Date,
and after application of Collections and all other payments and amounts to
reduce the Net Investment to and including such second Business Day (except
to the extent Excess Application Amounts in respect of such excess are
being held in a cash collateral account pursuant to subsection 2.12(c));
then, (x) if such event is (I) a Termination Event described in paragraph (f)
(other than clause (iii) thereof) above or (II) a Termination Event described in
paragraph (q) above resulting from a Purchase Termination Event described in
paragraph (e) of subsection 12.11, automatically the Commitments and the
Commitment Period shall thereupon terminate without notice of any kind, which is
hereby waived by the Company and (y) if such event is any other Termination
Event, so long as such Termination Event shall be continuing, the Administrative
Agent may, with the consent of the Required Participants, and shall, upon the
request of the Required Participants, by notice to the Company terminate the
Commitments and the Commitment Period.
In addition, in the event of (i) the occurrence of a Termination Event
described in paragraph (f) above or (ii) the Net Investment has not been reduced
to zero within six months after the termination of the Commitments and the
Commitment Period, the Administrative Agent shall proceed to sell, dispose of,
or otherwise liquidate the Receivable and the Related Property in a commercially
reasonable manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids and Administrative Agent shall proceed to
consummate the sale, liquidation or disposition of the Receivables and the
Related Property as provided above with the highest bidder for the Receivables
and the Related Property. The Company or any of its Affiliates shall be
permitted to bid for the Receivables and the Related Property. In addition, the
Company or any of its Affiliates shall have the right to match any bid by a
third person and be granted the right to purchase the Receivables and Related
Property at such matched bid price. All reasonable costs and expenses incurred
by the Administrative Agent in such sale shall be reimburse to the
Administrative Agent as provided herein. The proceeds from the sale,
disposition or liquidation of the Receivables shall be treated as Collections on
the Receivables and such proceeds shall be applied in accordance with subsection
2.7.
ARTICLE X
The Administrative Agent
10.1 Appointment. Each Participant hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Participant under this
Agreement and each Participant irrevocably authorizes the Administrative Agent,
as the agent for such Participant, to take such action on its behalf under the
<PAGE>
43
provisions of this Agreement and to exercise such powers and perform such duties
as are expressly delegated to the Administrative Agent by the terms of this
Agreement, together with such other powers as are reasonably incidental thereto,
including, but not limited to, the signing by the Administrative Agent, as agent
for the Participants, of any financing statements related to the Receivables.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Participant,
the Company, any Servicer or the Master Servicer, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Administrative Agent.
10.2 Delegation of Duties. The Administrative Agent may perform any
--------------------
and all its duties and exercise its rights and powers by or through any one or
more sub-agents appointed by the Administrative Agent. The Administrative Agent
and any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Affiliates. The exculpatory
provisions of the succeeding paragraphs shall apply to any such sub-agent and to
the Affiliates of the Administrative Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the
Participating Interests provided for herein as well as activities as
Administrative Agent.
10.3 Exculpatory Provisions. Neither the Administrative Agent nor
----------------------
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action (including, without limitation,
any action under subsection 2.7 hereof) lawfully taken or omitted to be taken by
it or such Person under or in connection with this Agreement or the transactions
contemplated hereby or thereby (except for its or such Person's own gross
negligence or willful misconduct), (ii) responsible in any manner to any party
hereto for any recitals, statements, representations or warranties made by the
Company, any Servicer, the Master Servicer or any of the Participants or any
officer thereof contained in this Agreement, or in any certificate, report,
statement or other document (including, without limitation, any Daily Report or
Settlement Statement) referred to or provided for in, or received by the
Administrative Agent under or in connection with this Agreement or the
transactions contemplated hereby or thereby or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
(iii) for any failure of the Company, any Servicer, the Master Servicer, or any
of the Participants to perform their respective obligations hereunder. The
Administrative Agent shall not be under any obligation to any party hereto to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or to inspect the
properties, books or records of the Company, any Servicer, the Master Servicer
or any of the Participants.
10.4 Reliance By the Administrative Agent. The Administrative Agent
------------------------------------
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, (including, without limitation, any Daily Report or Settlement
Statement) resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it
<PAGE>
44
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to any of the Participants and counsel to the
Company, any Servicer or the Master Servicer), independent accountants and other
experts selected by the Administrative Agent, as the case may be. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement unless it shall first receive such advice or
concurrence of the Participants as it deems appropriate or it shall first be
indemnified to its satisfaction by the Participants against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
in accordance with a request of the Participants entitled to give such a request
hereunder, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Participants.
10.5 Notice of Default or Termination Event. The Administrative
--------------------------------------
Agent shall not be deemed to have knowledge or notice of the occurrence of any
default or Termination Event hereunder unless the Administrative Agent has
received notice from a Participant, the Company, any Servicer or the Master
Servicer referring to this Agreement, describing such default or Termination
Event and stating that such notice is a "notice of default" or a "notice of
Termination Event", as the case may be. In the event that the Administrative
Agent receives such a notice, the Administrative Agent shall give promptly
notice thereof to the Participants and to the Company. The Administrative Agent
shall take such action with respect to such default or Termination Event as
shall be reasonably directed by the Required Participants; provided, that unless
--------
and until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to), subject to the terms
hereof, take such action, or refrain from taking such action, with respect to
such default or Termination Event as it shall deem advisable in the best
interests of the Participants.
10.6 Non-Reliance on the Administrative Agent and Other Participants.
---------------------------------------------------------------
Each Participant hereby expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of the Company, any Servicer or the Master Servicer, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Participant. Each Participant hereby represents to the Administrative Agent
that it has, independently and without reliance upon the Administrative Agent or
any other Participant, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property and financial and other condition and
creditworthiness of the Company, the Servicers and the Master Servicer and made
its own decision to acquire a Participating Interest hereunder and enter into
this Agreement. Each Participant hereby also represents that it will,
independently and without reliance upon the Administrative Agent or any other
Participant, and based on such documents and
<PAGE>
45
information as it shall deem appropriate at the time, continue to make its own
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property and financial and other condition and
creditworthiness of the Company, the Servicers and the Master Servicer. Except
for notices, reports and other documents expressly required to be furnished to
the Participants by the Administrative Agent hereunder, the Administrative Agent
shall not have any duty or responsibility to provide any Participant with any
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Company, any Servicer or the
Master Servicer which may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
10.7 Indemnification. Each Participant hereby agrees to indemnify
---------------
the Administrative Agent in its capacity as such (to the extent not reimbursed
by the Company or the Master Servicer and without limiting the obligation of the
Company and the Master Servicer to do so), ratably according to their respective
Commitment Percentages in effect on the date on which indemnification is sought
under this subsection 10.7, from and against any and all subsection 11.3(b)(i)
Indemnified Liabilities which may at any time (including without limitation at
any time following the termination of the commitment of the Participants to
increase their Participating Interest hereunder) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising out
of this Agreement, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided,
--------
that no Participant shall be liable for the payment of any portion of such
Indemnified Liabilities resulting from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this subsection 10.7 shall
survive the termination of the commitments of the Participants to acquire a
Participating Interest hereunder, the collection of all Receivables, the
termination of this Agreement and the payment of all amounts payable hereunder.
10.8 The Administrative Agent in Its Individual Capacity. The
---------------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company, the Servicers,
the Master Servicer or any of their affiliates as though the Administrative
Agent were not the Administrative Agent. With respect to any Participating
Interests purchased or maintained by it under this Agreement, the Administrative
Agent shall have the same rights and powers hereunder as any Participant and may
exercise the same as though it were not the Administrative Agent, and the term
"Participant" shall include the Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. Subject to the appointment and
------------------------------
acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by notifying the Participants and
the Company. Upon any such resignation, the Required Participants shall have
the right to appoint a successor in consultation with the Company. If no
successor shall have
<PAGE>
46
been so appointed by the Required Participants and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Participants, appoint a successor Administrative Agent, with the consent of the
Company (not to be unreasonably withheld), which shall be a bank with an office
in New York, New York, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank which is also a bank. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
bank, such successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Administrative Agent and the
retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After the Administrative Agent's resignation hereunder,
the provisions of this Article X and of subsection 11.3 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Administrative Agent.
ARTICLE XI
Miscellaneous
11.1 Further Assurances. Each of the Company, the Servicers and the
------------------
Master Servicer agrees, from time to time, to do and perform any and all acts
and to execute any and all further instruments reasonably required or requested
by the Administrative Agent at the request of any Participant more fully to
effect the purposes of this Agreement and the assignments and transfers of the
Participating Interest hereunder, including, without limitation, the execution
of any financing statements or continuation statements relating to the
Receivables for filing under the provisions of the Uniform Commercial Code, or
any similar law, of any applicable jurisdiction.
11.2 Payments. Each payment to be made by any of the Participants,
--------
the Company, any of the Servicers or the Master Servicer hereunder shall be made
on the required payment date in Dollars and in immediately available funds at
the office of the Administrative Agent located at 270 Park Avenue, New York, New
York 10017 or to such other office as may be specified by the Administrative
Agent in a notice to the Company, the Servicers, the Master Servicer and the
Participants.
11.3 Costs and Expenses. (a) The Company agrees to pay all
------------------
reasonable out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates in connection with the preparation of this Agreement and the other
Transaction Documents, or by the Administrative Agent and its Affiliates in
connection with the syndication of the Commitments or the administration of this
Agreement, or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Administrative Agent or
any Participant in connection with the enforcement or protection of their rights
in connection with this Agreement and the other Transaction Documents, including
its rights under this subsection, or in connection with the purchases made
hereunder, including in connection with any
<PAGE>
47
workout, restructuring or negotiations in respect thereof, including the
reasonable fees, charges and disbursements of Simpson Thacher & Bartlett,
counsel for the Administrative Agent, and, the reasonable fees, charges and
disbursements of any other counsel (including the reasonable allocated costs of
internal counsel if a Participant elects to use internal counsel in lieu of
outside counsel) for the Administrative Agent or any Participant (but no more
than one such counsel for any Participant).
(b) The Company agrees to indemnify the Administrative Agent, each
Participant and each of their respective directors, officers, employees and
agents (each such Person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, charges and disbursements,
incurred by or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Transaction Document or any agreement or instrument
contemplated thereby, the performance by the parties thereto of their respective
obligations thereunder or the consummation of the Transactions and the other
transactions contemplated thereby, (the "subsection 11.3(b)(i) Indemnified
Liabilities") (ii) the use of the proceeds of the initial transfer and
assignment of the Participating Interest and of any Increases in Net Investment,
(iii) any Environmental Liability related in any way to the Company, or (iv) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided, that such indemnity
--------
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses (A) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or wilful misconduct of such Indemnitee (treating, for
this purpose only, any Participant and its directors, officers, employees and
agents as a single Indemnitee) or (B) arise from (x) any Receivable which
becomes a Charge-Off as a result of non-payment by the Obligor with respect
thereto, (y) any action taken, or omitted to be taken, by any Servicer which is
not an Affiliate of WMI, or (z) any action taken by the Participants in
collecting from an Obligor.
(d) The provisions of this subsection 11.3 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of all or any portion of the Net Investment, the invalidity or
unenforceability of any term or provision of this Agreement or any other
Transaction Document, or any investigation made by or on behalf of the
Administrative Agent or any Participant. All amounts due under this subsection
11.3 shall be payable on written demand therefor.
11.4 Successors and Assigns; Assignments; Participations. (a) The
---------------------------------------------------
provisions of this Agreement shall be binding upon and inure to the benefit of
the Company, the Participants, the Master Servicer, the Servicers, the
Administrative Agent and their respective successors and assigns, except that
the Company, the Servicers and the Master Servicer may not assign or transfer
any of its or their rights or obligations under this Agreement without the prior
written consent of each Participant (and any attempted assignment or transfer by
the Company without such
<PAGE>
48
consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby, the Affiliates of each of the
Administrative Agent and the Participants) any legal or equitable right, remedy
or claim under or by reason of this Agreement.
(b) Any Participant may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Participating Interest and any Commitment of such Participant);
provided, that (i) except in the case of an assignment to a Participant or an
- --------
Affiliate of a Participant, each of the Company and the Administrative Agent
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld and the parties hereto agree that the potential
payment of amounts under subsections 3.2, 3.3 or 3.4 to such assignee does not
constitute a basis upon which to withhold such consent), (ii) except in the case
of an assignment to a Participant or an Affiliate of a Participant or an
assignment of the entire remaining amount of the assigning Participant's
Commitment, the amount of the Commitment of the assigning Participant subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 unless each of the Company and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Participant's rights and
obligations under this Agreement, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500, and (v) the assignee,
if it shall not be a Participant, shall deliver to the Administrative Agent an
Administrative Questionnaire; provided, further, that any consent of the Company
-------- -------
otherwise required under this paragraph shall not be required if a Termination
Event under clause (f) of Article IX has occurred and is continuing. Upon
acceptance and recording pursuant to paragraph (d) of this subsection, from and
after the effective date specified in each Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Participant under this Agreement, and the assigning Participant thereunder
shall, to the extent of the interest assigned by such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the assigning Participant's rights and
obligations under this Agreement, such Participant shall cease to be a party
hereto but shall continue to be entitled to the benefits of subsections 3.2,
3.3, 3.4 and 11.3). Any assignment or transfer by a Participant of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Participant of a
participation in such rights and obligations in accordance with paragraph (e) of
this subsection.
(c) The Administrative Agent, acting for this purpose as an agent of
the Company, shall maintain at one of its offices in The City of New York a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the
<PAGE>
49
names and addresses of the Participants, and the Commitment of, and the Net
Investment of, each Participant pursuant to the terms hereof from time to time
(the "Register"). The entries in the Register shall be conclusive, and the
Company, the Administrative Agent and the Participants may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a
Participant hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Participant and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Participant
hereunder), the processing and recordation fee referred to in paragraph (b) of
this subsection and any written consent to such assignment required by paragraph
(b) of this subsection, the Administrative Agent shall accept such Assignment
and Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Participant may, without the consent of the Company or the
Administrative Agent, sell participations to one or more banks or other entities
(an "Additional Participant") in all or a portion of such Participant's rights
and obligations under this Agreement (including all or a portion of its
Participating Interest and any Commitment of any Participant); provided, that
--------
(i) such Participant's obligations under this Agreement shall remain unchanged,
(ii) such Participant shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Company, the
Administrative Agent and the other Participants shall continue to deal solely
and directly with such Participant in connection with such Participant's rights
and obligations under this Agreement. Any agreement or instrument pursuant to
which a Participant sells such a participation shall provide that such
Participant shall retain the sole right to enforce this Agreement and to approve
any amendment, modification or waiver of any provision of this Agreement;
provided, that such agreement or instrument may provide that such Participant
- --------
will not, without the consent of the Additional Participant, agree to any
amendment, modification or waiver described in the first proviso to subsection
11.7(b) that affects such Additional Participant. Subject to paragraph (f) of
this subsection, the Company agrees that each Additional Participant shall be
entitled to the benefits of subsections 3.2, 3.3 and 3.4 to the same extent as
if it were a Participant and had acquired its interest by assignment pursuant to
paragraph (b) of this subsection.
(f) An Additional Participant shall not be entitled to receive any
greater payment under subsection 3.2 or 3.4 than the applicable Participant
would have been entitled to receive with respect to the participation sold to
such Additional Participant, unless the sale of the participation to such
Additional Participant is made with the Company's prior written consent. An
Additional Participant that would be a Foreign Participant if it were a
Participant shall not be entitled to the benefits of subsection 3.4 unless the
Company is notified of the participation sold to such Additional Participant and
such Additional Participant
<PAGE>
50
agrees, for the benefit of the Company, to comply with subsection 3.4(e) as
though it were a Participant.
(g) Any Participant may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Participant, including any such pledge or assignment to a
Federal Reserve Bank, and this subsection shall not apply to any such pledge or
assignment of a security interest; provided, that no such pledge or assignment
--------
of a security interest shall release a Participant from any of its obligations
hereunder or substitute any such assignee for such Participant as a party
hereto.
(h) Each Participant that is a special-purpose securitization conduit
and has a Conduit Party that provides liquidity and/or credit facilities in
connection with such conduit's pro rata share of the Participating Interest
shall be entitled to receive payments pursuant to Article III as though such
Conduit Party were a Participant hereunder but no such payment shall exceed the
amount such conduit shall be obligated to pay to such Conduit Party pursuant to
similar sections of the liquidity and/or credit facilities agreement between
such conduit and such Conduit Party. No conduit shall be entitled to receive
any payment contemplated by subsection 3.4 if the Conduit Party with respect to
which such payment is being claimed could not have satisfied the requirements of
subsection 3.4(e) (if such Conduit Party were a Participant).
11.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
11.6 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or the
Participants, any right, remedy, power or privilege hereunder, shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privileges provided by law.
11.7 Amendments and Waivers. Neither this Agreement nor any terms
----------------------
hereof may be amended, supplemented, modified or waived except in accordance
with the provisions of this subsection 11.7. The Required Participants may, or,
with the written consent of the Required Participants, the Administrative Agent
may, from time to time, (a) enter into with the Company, the Master Servicer and
the Servicers written amendments, supplements or modifications hereto for the
purpose of adding any provisions to this Agreement or changing in any manner the
rights of the Participants, the Company, the Servicers or the Master Servicer
hereunder or (b) waive in a written instrument, on such terms and conditions as
the Required Participants or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or any
default or Termination Event and its consequences; provided, however, that no
-------- -------
such waiver and no such
<PAGE>
51
amendment, supplement or modification shall (i) extend the Scheduled Termination
Date; or reduce the rate or extend the time of payment of any Purchase Discount
Amount or Commitment Fee; or extend the time of payment of any mandatory
reduction of the Net Investment; or modify subsection 2.12 so that the fact that
the Net Investment exceeds the Maximum Transfer Amount does not necessitate a
mandatory reduction in the Net Investment; or change the definition of "Maximum
Invested Percentage" or consent to any amendment to subsection 2.6 of the
Receivables sale Agreement; or increase the amount of any Participant's
Commitment; or amend, modify or waive any provision of this subsection 11.7; or
reduce the percentage specified in the definition of Required Participants; or
consent to the assignment or transfer by the Company, any Servicer or the Master
Servicer of any of their respective rights and obligations under this Agreement
(except in accordance with Article XII); or release any substantial portion of
the Pooled Property (other than pursuant to subsection 5.3 or 12.7); in each
case without the written consent of each Participant directly affected thereby
or (ii) amend, modify or waive any provision of Article X without the written
consent of the Administrative Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Participants and
shall be binding upon the Company, the Servicers, the Master Servicer, the
Participants, the Administrative Agent and all future holders of a Participating
Interest. In the case of any waiver, the Company, the Servicers, the Master
Servicer, the Participants and the Administrative Agent shall be restored to
their former position and rights hereunder, any default or Termination Event
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other default or Termination Event, or impair any
right consequent thereon.
11.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.9 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Company and the Administrative
Agent, as set forth under their signatures on the signature pages hereof (in the
case of the Master Servicer and the Servicers) and as set forth on Schedule 1
hereto (in the case of the Participants), or to such other address as may be
hereafter notified by the respective parties hereto:
<PAGE>
52
The Company: Waste Management Financing Corporation
3003 Butterfield Road
Oak Brook, Illinois 60523
Attention: Treasurer
Telephone: (630) 572-3018
Telecopy: (630) 572-1340
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Loan and Agency Services
Telecopy: (212) 552-5662
provided, that any notice, request or demand to or upon the Administrative Agent
- --------
or the Participants pursuant to subsections 2.3, 2.7, 2.8, 2.10, 2.11 and 2.12
shall not be effective until received.
11.10 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company and the
Administrative Agent.
11.11 Construction of Agreement as Security Agreement. (a) Subject
-----------------------------------------------
to subsection 11.18, although it is the intent of the parties to this Agreement
that the conveyance of the Company's right, title and interest in, to and under
the Receivables and the Related Property pursuant to this Agreement shall
constitute a purchase and sale and not a loan, in the event that such conveyance
is deemed to create a loan, the Company hereby grants to the Administrative
Agent, for the benefit of the Participants, a perfected first priority security
interest in all of the Company's present and future right, title and interest
in, to and under the Receivables and the Related Property to secure the payment
of the applicable Net Investment interest thereon and the other fees and
expenses payable to the Participants, and that this Agreement shall constitute a
security agreement under applicable law in favor of the Administrative Agent,
for the benefit of the Participants.
(b) Each Servicer hereby grants to the Administrative Agent on behalf
of the Participants a first priority security interest in all of the Servicer's
right, title and interest in, to and under its records relating to the
Receivables and Related Property serviced by it to secure all of the Company's
obligations hereunder.
(c) This Agreement shall constitute a security agreement under
applicable law.
<PAGE>
53
11.12 Adjustments; Set-off. (a) If any Participant (a "benefitted
--------------------
Participant") shall at any time receive any payment of all or part of its
Participating Interest of the Net Investment, or any Purchase Discount Amount in
respect thereof, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in paragraph (f) of Article IX, or otherwise) in a
greater proportion than any such payment to and collateral received by any other
Participant, if any, in respect of such other Participant's Participating
Interest of the Net Investment, or any Purchase Discount Amount in respect
thereof, such benefitted Participant shall acquire for cash from the other
Participants such portion of each such other Participant's Participating
Interest of the Net Investment, or shall provide such other Participants with
the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Participant to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Participants;
provided, however, that if all or any portion of such excess payment or
- -------- -------
benefits is thereafter recovered from such benefitted Participant, such
acquisition shall be rescinded, and the transfer price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Participants
provided by law, each Participant shall have the right, without prior notice to
the Company, any such notice being expressly waived by the Company to the extent
permitted by applicable law, upon any amount, other than amounts in respect of
Net Investment and the Purchase Discount Amounts with respect thereto, becoming
payable by the Company hereunder to set off and appropriate and apply against
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Participant
or any branch or agency thereof to or for the credit or the account of the
Company. Each Participant agrees promptly to notify the Company and the
Administrative Agent after any such set-off and application made by such
Participant; provided, that the failure to give such notice shall not affect the
--------
validity of such set-off and application.
11.13 Jurisdiction; Consent to Service of Process. (a) Each of the
-------------------------------------------
Company, the Master Servicer and each Servicer hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
other Transaction Documents, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall
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54
affect any right that the Administrative Agent or any Participant may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Transaction Documents against the Company, the Master Servicer or any Servicer
or their properties in the courts of any jurisdiction.
(b) Each of the Company, the Master Servicer and each Servicer hereby
irrevocably and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or the other Transaction Documents in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in subsection 11.9. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
11.14 Acknowledgements. Each of the Company, the Master Servicer and
----------------
each Servicer hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Transaction Documents to which it
is a party;
(b) neither the Administrative Agent nor any Participant has any
fiduciary relationship with or duty to the Company, the Master Servicer or
any Servicer arising out of or in connection with this Agreement or any of
the other Transaction Documents, and the relationship between the
Administrative Agent and the Participants, on one hand, and the Company, on
the other hand, in connection herewith or therewith is solely that of
purchaser/creditor and seller/debtor; and
(c) no joint venture is created hereby or by the other Transaction
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Participants or among the Company, the Master Servicer or
any Servicer and the Participants.
11.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED
<PAGE>
55
TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SUBSECTION
11.15.
11.16 Confidentiality. Each Participant agrees to maintain the
---------------
confidentiality of information furnished to it by or on behalf of the Company or
the Master Servicer in connection with the Transactions as provided in any
separate confidentiality agreement entered into between the Company and/or the
Master Servicer and such Participant.
11.17 No Bankruptcy Petition, etc. Each Servicer, the Master
---------------------------
Servicer, each Participant and the Administrative Agent covenants and agrees
that, prior to the date which is one year and one day after the date of
termination of this Agreement pursuant to subsection 4.1, it will not institute
against, or join any other Person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy or similar law. The
Company, the Master Servicer, the Servicers, and the Participants each agree
that it will not institute against, or join any other Person in instituting
against any Participant that is a special-purpose securitization conduit, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or
other similar proceeding under the laws of the United States or any state of the
United States.
The obligations of any Participant under this Agreement are solely the
corporate obligations of such Participant. No recourse shall be had for the
payment of any amount owing in respect to this Agreement or for the payment of
any fee hereunder or for any other obligation or claim arising out of or based
upon this Agreement against any direct or indirect stockholder or other owner,
employee, officer, director or incorporator of any Participant.
11.18 Tax Treatment. It is the intent of the Company and the
-------------
Participants that, for federal, state and local income and franchise tax
purposes, the Participating Interest will be indebtedness of the Company secured
by the Pooled Property. The Company and the Participants agree to treat the
Company as the owner of the Pooled Property and the Participating Interest as
indebtedness of the Company secured by the Pooled Property and the Purchase
Discount Amount as interest for United States tax purposes (including for
reporting purposes), except as otherwise required by law or any tax authorities.
This subsection 11.18 shall survive the termination of this Agreement and shall
be binding on all transferees. In addition, each of the parties hereto
represents and warrants that it is entering into this Agreement for its own
account and on its own behalf and that it does not intend this Agreement (or the
transactions contemplated thereby) to create a partnership, joint venture or
other similar arrangement between, or among, the parties hereto. The powers
granted and obligations undertaken in this Agreement shall be construed so as to
further such intent.
<PAGE>
56
ARTICLE XII
Servicing
12.1 Servicing; Accounts; Collections. (a) Appointment of
-------------------------------- --------------
Servicers. The Participants and the Company hereby appoint (i) the Master
- ---------
Servicer and the Servicers as their agents to service and administer the
Receivables originated by the Sellers and (ii) the Master Servicer as their
agent to coordinate the servicing of the Receivables by the Servicers. Each of
the Servicers and the Master Servicer hereby consents to such appointment and
agrees to service and administer the Receivables in accordance with the terms
and conditions contained herein. The Company hereby appoints the Master
Servicer, and the Master Servicer hereby consents to such appointment, to take
any actions on behalf of the Company which by the terms hereof have been
delegated to the Master Servicer and any further actions incidental thereto.
The Company and the Master Servicer may agree, in accordance with subsection
8.11, that the Master Servicer may perform on behalf of the Company certain of
the Company's obligations under the Transaction Documents. Prior to the
occurrence of a Complete Servicing Transfer, on each Settlement Date, the
Servicers and the Master Servicer shall receive the Monthly Servicing Fee for
performing their functions as Servicers and Master Servicer hereunder as
provided in subsection 2.7.
(b) Establishment of Accounts. (i) The Master Servicer and the
-------------------------
Servicers shall establish and maintain (A) one or more bank accounts which may
be in the name of the Master Servicer or any Servicer (each, an "Initial Deposit
Account") for the deposit of Collections on Purchased Receivables ("Purchased
Receivables Collections") and Collections on Receivables of any Subsidiary of
WMI which are not Purchased Receivables ("WMI Collections") and (B) one or more
bank accounts which shall be in the name of the Master Servicer or any Servicer
(each, a "Subsequent Deposit Account") for the deposit of Purchased Receivables
Collections and WMI Collections on deposit in any Initial Deposit Account or for
the direct deposit of Purchased Receivables Collections or WMI Collections. The
Initial Deposit Accounts and the Subsequent Deposit Accounts are collectively
referred to herein as the "Designated Accounts." Each of the Master Servicer and
the Servicers represents, warrants, covenants and agrees that (X) the Designated
Accounts shall only be used for the deposit of Purchased Receivables Collections
and WMI Collections and (Y) the Designated Banks shall have received standing
instructions from the Master Servicer or the Servicer, as applicable, directing
that all available funds on deposit in any Designated Account on such day be
transferred at least as often as once each day (unless the amount on deposit on
such day is less than $5,000) that is a business day for such Designated Bank
and in any event by 1:00 p.m. (New York City time) on the business day following
each such day of deposit, by a wire transfer in immediately available funds to
the Concentration Account (either directly or through the Subsequent Deposit
Account).
(ii) The Master Servicer shall establish and maintain an account (the
"Concentration Account") which shall initially be held in the name of the Master
<PAGE>
57
Servicer or any Servicer for the central collection of Purchased Receivables
Collections and WMI Collections. The Master Servicer agrees that at any time
after the initial acquisition of the Participating Interest (the "Initial
Acquisition Date"), it shall upon five days prior written notice from the
Administrative Agent, transfer the Concentration Account and/or the Initial
Deposit Account held at The First National Bank of Chicago (Account No. 5758807)
to the name of the Administrative Agent, which shall hold such account as agent
for the benefit of (1) with respect to Purchased Receivables Collections, the
Participants and the Company and (2) with respect to WMI Collections, the Master
Servicer pursuant to an agreement to be entered into in form and substance
reasonably satisfactory to the Master Servicer and the Administrative Agent. The
Master Servicer represents, warrants, covenants and agrees that (A) the
Concentration Account shall only be used for the deposit of Purchased
Receivables Collections and WMI Collections and (B) the Designated Bank at which
the Concentration Account is held shall have received standing instructions from
the Master Servicer directing that available funds on deposit in the
Concentration Account on such day shall be transferred in accordance with the
instructions provided by the Master Servicer at least as often as once each day
that is a business day for such Designated Bank and in any event by 1:00 p.m.
(New York City time) on the business day following each such day of deposit, by
a wire transfer of immediately available funds, to the SPC Collection Account
and such other account designated by the Master Servicer.
(iii) The Company shall establish and maintain an account (the "SPC
Collection Account") which shall initially be held in the name of the Company
for the deposit of Purchased Receivables Collections. The Company agrees that at
any time after the Initial Acquisition Date, it shall upon five days prior
written notice from the Administrative Agent transfer the SPC Collection Account
to the name of the Administrative Agent which shall hold such account for the
benefit of the Participants. The Company represents, warrants, covenants and
agrees that (A) the SPC Collection Account shall only be used for the deposit of
Purchased Receivables Collections and (B) the Designated Bank at which the SPC
Collection Account is held shall have received standing instructions from the
Company directing that all available funds on deposit in the SPC Collection
Account on such day be transferred at least as often as once each day that is a
business day for such bank and in any event by 1:00 p.m. (New York City time) on
the business day following each such day of deposit, by a wire transfer of
immediately available funds, (1) during any time when any Net Investment is
outstanding, to the Collection Account and (2) otherwise, to an account
designated in writing by the Master Servicer to make payments as provided in
subsection 12.1(c)(ii).
(iv) In the event a Termination Event shall occur and be continuing,
the Master Servicer and the Servicers, at the request of the Administrative
Agent, agree to notify (and, if such Servicer fails to so notify, the Company
irrevocably grants the Administrative Agent the authority to notify) all
Obligors on Purchased Receivables to make all future payments directly to the
Collection Account or any other account designated by the Administrative Agent.
Upon the termination of the Commitment Period as a result of the occurrence of a
Termination Event, the Master Servicer agrees it shall, upon five days prior
written notice from the
<PAGE>
58
Administrative Agent, transfer the Designated Accounts to the name of the
Administrative Agent, which shall hold such account as agent for the benefit of
(1) with respect to Purchased Receivables Collections, the Participants and the
Company and (2) with respect to WMI Collections, the Master Servicer pursuant to
an agreement to be entered into in form and substance reasonably satisfactory to
the Master Servicer and the Administrative Agent.
(v) Upon the transfer to the name of the Administrative Agent of the
SPC Collection Account, the Administrative Agent shall have sole and exclusive
dominion over and control of the SPC Collection Account and the Company, the
Master Servicer and any Servicer shall not have any right to make withdrawals
from the SPC Collection Account other than the right to authorize transfers to
the Collection Account as set forth herein and pursuant to the terms hereof.
(vi) The Administrative Agent shall treat all collections received by
it or deposited in the Collection Account as "Collections" for purposes of this
Agreement as of the Business Day Received (as defined in the immediately
succeeding sentence). As used herein, the term "Business Day Received" shall
mean (i) if funds are otherwise deposited in the Collection Account by 1:00 p.m.
(New York City time), such day of deposit and (ii) if funds are deposited in the
Collection Account after 1:00 p.m. (New York City time), the Business Day next
following such day of deposit.
(c) Collection Procedures. (i) All Collections received by any
---------------------
Servicer, the Master Servicer or the Company shall be deposited by it to a
Designated Account as soon as possible after receipt thereof, such deposit to
occur in no event later than the Business Day after such receipt. Each
Collection shall be deposited into a Designated Account by delivery of a check
of an Obligor, by wire transfer from an account of such Obligor to such
Designated Account or by means of by a wire transfer in immediately available
funds and shall be transferred from such Designated Account (either directly or
through another Designated Account) to the Concentration Account at least as
often as once each day that is a business day for the applicable Designated
Bank, such transfer from such Designated Account to be commenced in any event by
1:00 p.m. (New York City time) on the Business Day following such day of
deposit; provided, that Collections may, at the option of the applicable
--------
Obligor, be deposited directly into the Concentration Account.
(ii) All Collections deposited in the Concentration Account shall be
transferred to the SPC Collection Account on the same day that they are
deposited in the Concentration Account. The Master Servicer, the Servicers and
the Company agree that no amounts may be withdrawn from the Concentration
Account on any day until the amount of Purchased Receivables Collections
deposited therein on such day have been transferred to the SPC Collection
Account. If within five days after an amount has been deposited in the
Concentration Account, the Master Servicer or the Servicers are not able to
determine whether or not such amount is a Purchased Receivables Collection or a
WMI Collection, such amount shall be deemed to be a Purchased Receivables
Collection and shall immediately be transferred to the SPC
<PAGE>
59
Collection Account. On any Business Day when the Net Investment is zero, subject
to the terms and conditions hereof, amounts deposited in the SPC Collection
Account shall be paid to an account designated by the Master Servicer to pay for
Receivables acquired from the Seller pursuant to the Receivables Sale Agreement,
make payments on the Subordinated Note or make Restricted Payments. On any
Business Day when any Net Investment is outstanding, all amounts deposited in
the SPC Collection Account on such day shall be transferred to the Collection
Account on such day.
(iii) Each of the Company, the Master Servicer and each Servicer
represents, warrants, covenants and agrees that all Collections shall be
collected, processed and deposited pursuant to, and in accordance with, the
terms of this Agreement and that it shall take all actions necessary to permit
the transfer of funds as described in this subsection 12.1 on a timely basis.
(iv) The Company represents, warrants, covenants and agrees that it
shall not make or maintain any deposits in any bank account, deposit account or
trust account with any financial institution other than the Designated Accounts,
the Concentration Account, the SPC Collection Account and the Collection Account
as provided for by this Agreement and other than one operating account funded
solely with amounts disbursed as operating expenses pursuant to subsection 2.7.
The Company shall provide the Administrative Agent with the account number and
location of such account, and any other information as the Administrative Agent
may reasonably request with respect thereto. The Company represents, warrants,
covenants and agrees that it shall have no bank accounts or interest in bank
accounts other than the Designated Accounts, the Concentration Account, the SPC
Collection Account and the Collection Account and such operating account. The
Company represents, warrants, covenants and agrees that no new bank accounts or
deposit accounts will be established unless and until the Company has received
the prior written consent of the Administrative Agent.
(v) Each of the Company, the Master Servicer and each Servicer
represents, warrants, covenants and agrees that no location other than the
Designated Accounts and the Concentration Account has been established for the
deposit of Collections. Each of the Company, the Master Servicer and each
Servicer represents, warrants, covenants and agrees that no new location for the
deposit of Collections will be established unless and until the Company has
received the prior written consent of the Administrative Agent.
(vi) The Company agrees to pay all fees for the services of the
Designated Banks in respect of the SPC Collection Account, and the Master
Servicer agrees to pay or cause to be paid all fees for the services of the
Designated Banks in respect of the Designated Accounts and the Concentration
Account.
12.2 Collections by the Servicers; Indemnity. (a) The Master
---------------------------------------
Servicer and each Servicer shall manage the servicing and administration of the
Receivables, the collection of payments due under the Receivables and the
charging off of any Receivables as uncollectible, all in accordance with the
Policies, the
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60
Company Policies and all the terms and provisions of this Agreement. The Master
Servicer and each Servicer shall have full power and authority, acting alone or
through any party properly designated by it hereunder, to do any and all things
in connection with such servicing and administration which it may deem necessary
or desirable, but at all times subject to the terms of this Agreement. Without
limiting the generality of the foregoing and subject to subsection 12.7, the
Master Servicer and each Servicer agree to cause each Subsidiary of the Master
Servicer to continue to perform such servicing functions with respect to the
Receivables originated by such Subsidiary that such Subsidiary has historically
performed; provided that the Master Servicer and each Servicer shall remain
liable for the failure of any such Subsidiary to perform such functions and each
Servicer or its designee is hereby authorized and empowered to give direction to
the Administrative Agent with respect to withdrawals from, and payments to, the
Collection Account in accordance with the Daily Report and as otherwise
specified in this Agreement. The Master Servicer and each Servicer will, at its
cost and expense and as agent for the Participants and the Company, use its best
efforts to collect, consistent with its past practices, as and when the same
becomes due, the amount owing on each Receivable for which it is the Servicer.
No Servicer will make any material changes that deviate from the Policies or the
Company Policies in its administrative, servicing and collection systems without
the prior written approval of the Required Participants. In the event of default
under any Receivable, the responsible Servicer shall have the power and
authority, on behalf of the Participants and the Company, to take such action in
respect of such Receivable as such Servicer may reasonably deem advisable. In
the enforcement or collection of any Receivable, each Servicer shall be entitled
to sue thereon in (i) its own name, (ii) if, but only if, the Administrative
Agent consents in writing, as agent of the Participants, or (iii) if, but only
if, the Company consents in writing, as agent for the Company. In no event shall
any Servicer or the Master Servicer be entitled to take any action which would
make the Administrative Agent or any of the Participants or the Company a party
to any litigation without the express prior written consent of the
Administrative Agent or each such Participant or the Company, as the case may
be.
(b) The Master Servicer and the Servicers which are Affiliates of
Company hereby agree, jointly and severally, to indemnify and hold harmless each
Indemnitee (as defined in subsection 11.3(b)), from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any
acts, omissions or alleged acts or omissions arising out of, or relating to,
activities of the Master Servicer and the Servicers which are Affiliates of the
Company pursuant to the Transactions, including but not limited to any judgment,
award, settlement, reasonable attorneys' fees and other reasonable costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, that the Master Servicer and the
--------
Servicers which are Affiliates of the Company shall not so indemnify any
Indemnitee for any loss, liability, damage, injury, cost or expense of such
Indemnitee (i) arising solely from a default by an Obligor with respect to any
Receivable (other than arising out of (A) any discharge, claim, offset or
defense (other than discharge in bankruptcy of the Obligor) of the Obligor to
the payment of any Purchased Receivable arising
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61
from the actions of the Master Servicer or Servicer which is an Affiliate of the
Company (including, without limitation, a defense based on such Purchased
Receivable's not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or (B) a failure by the
Master Servicer or Servicer which is an Affiliate of the Company to perform its
duties or obligations under this Agreement), or (ii) to the extent that such
liability, cost or expense arises from the gross negligence, bad faith or wilful
misconduct of such Indemnitee or any other Indemnitee. The provisions of this
indemnity shall run directly to, and be enforceable by, an injured party and
shall survive the termination of this Agreement and the resignation of the
Master Servicer or any Servicer which is an Affiliate of the Company.
(c) The Servicers, the Master Servicer and the Company each hereby
irrevocably grant to the Administrative Agent an irrevocable power of attorney,
with full power of substitution, coupled with an interest, to take in the name
of the Master Servicer, such Servicer or the Company or in its own name at any
time after the occurrence of a Complete Servicing Transfer all steps necessary
or advisable to endorse, negotiate or otherwise realize on any writing or other
right of any kind held or owned by the Master Servicer, such Servicer or the
Company or transmitted to or received by the Administrative Agent as payment on
account or otherwise in respect of any Receivable.
(d) Upon the occurrence and during the continuance of any Servicer
Event of Default, the Administrative Agent shall, at the request of the Required
Participants, by giving two Business Days' notice in writing to the Master
Servicer (a "Transfer Notice"), terminate any or all Servicer or Master Servicer
administrative, servicing and collection functions provided for herein as to any
or all of the Servicers and the Master Servicer (the termination of all such
functions with respect to all Servicers and the Master Servicer being referred
to as a "Complete Servicing Transfer" and any other such termination being
referred to as a "Partial Servicing Transfer"). Upon the occurrence of either a
Partial Servicing Transfer or a Complete Servicing Transfer, without limitation,
(i) a designee of the Required Participants (for purposes of paragraphs (d)
through (e) of this subsection 12.2, the term "Substitute Servicer" means such
designee, as appropriate) shall administer the administrative, servicing and
collection functions of each terminated Servicer and/or the Master Servicer, as
the case may be (each, a "Transferring Servicer") (in the case of a Partial
Servicing Transfer) or all Servicers and the Master Servicer (in the case of a
Complete Servicing Transfer) in any manner it deems fit (which may include
notifying any Obligor of the assignment to the Participants of the interest in
the affected Receivables and/or directing any Obligor to make all payments in
respect of the affected Receivables in the name of the Substitute Servicer);
provided, that the Substitute Servicer shall furnish or cause to be furnished to
- --------
the Company such information as such Company needs to perform its obligations
under this Agreement, and the Company may, without independent investigation,
rely on such information for all purposes of this Agreement and (ii) the
Company, each Transferring Servicer (in the case of a Partial Servicing
Transfer) or each Servicer and the Master Servicer (in the case of a Complete
Servicing Transfer) shall, at its own expense, (x) if so
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62
requested by the Substitute Servicer, endorse each instrument, if any,
evidencing any Receivable to the Substitute Servicer in such manner as the
Substitute Servicer shall reasonably direct and (y) perform, or cause to be
performed by any Person involved in administrative, servicing or collection
functions on behalf of or under the direction of each Transferring Servicer (in
the case of a Partial Servicing Transfer) or each Servicer and the Master
Servicer (in the case of a Complete Servicing Transfer) or the Company, any and
all acts, any and all documents as, in each case, may be reasonably requested by
the Substitute Servicer in order to effect the purposes of this Agreement and
the transfer and assignment of the Participating Interest and to perfect and
protect the ownership interest of the Participants in the Receivables and the
Related Property. Each Servicer agrees to serve as a Substitute Servicer if so
designated by the Required Participants at any time and from time to time. Upon
the occurrence of a Partial Servicing Transfer or a Complete Servicing Transfer,
each Transferring Servicer (in the case of a Partial Servicing Transfer) or each
Servicer and the Master Servicer (in the case of a Complete Servicing Transfer)
shall promptly transfer its electronic records relating to its Receivables to
the Substitute Servicer in such electronic form as the Substitute Servicer may
reasonably request and shall promptly transfer to the Substitute Servicer all
other records, correspondence and documents necessary for the continued
servicing of such Receivables in the manner and at such times as the Substitute
Servicer shall reasonably request; provided, that to the extent that such
--------
Transferring Servicer or such Servicer and the Master Servicer, as the case may
be, is required to have, as a result of a continuing relationship with the
related Obligors, access to any such records in respect of its Receivables, the
Substitute Servicer shall allow such Transferring Servicer or such Servicer and
the Master Servicer, as the case may be, to have reasonable access to such
records upon reasonable advance notice and so long as such access shall not
disrupt or otherwise interfere with the Substitute Servicer's use of such
records in performing its duties hereunder. Upon the occurrence of a Partial
Servicing Transfer or a Complete Servicing Transfer, each Transferring Servicer
(in the case of a Partial Servicing Transfer) or each Servicer and the Master
Servicer (in the case of a Complete Servicing Transfer) shall promptly transfer
to the Administrative Agent non-exclusive licenses to use any computer programs,
material tapes, disks, cassettes and data necessary or advisable to permit the
collection of Receivables by a Servicer without the participation of any Seller
or the Company or, to the extent that such transfer would violate legal
restrictions applicable thereto, shall establish other arrangements to use any
computer programs, material tapes, disks, cassettes and data necessary or
advisable to permit the collection of Receivables by a Servicer without the
participation of any Seller or the Company.
(e) Each Transferring Servicer (in the case of a Partial Servicing
Transfer) or each Servicer and the Master Servicer (in the case of a Complete
Servicing Transfer) and the Company shall each execute and deliver such
additional documents and shall take such further action as the Substitute
Servicer may reasonably request to effect or evidence the transfer of servicing
and shall execute and deliver to the Substitute Servicer such powers-of-attorney
(in addition to the power of attorney provided for in subsection 12.2(c)) as may
be
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63
necessary or appropriate to enable the Substitute Servicer, on behalf of the
Participants, to endorse for payment any check, draft or other instrument
delivered in payment of any amount under or in respect of an affected
Receivable. If any Servicer, the Master Servicer or the Company receives any
cash or checks, drafts or other instruments for the payment of money on account
or otherwise in respect of the Purchased Receivables, such Servicer, the Master
Servicer or the Company shall segregate such cash and other items, hold such
cash and other items in trust for the benefit of the Participants and cause such
cash and other items (properly endorsed, where required, so that such items may
be collected by the Substitute Servicer) to be transmitted or delivered to the
Substitute Servicer for deposit in the Concentration Account within one Business
Day after the date any such cash or other item shall have been identified and
segregated by such Servicer, the Master Servicer or the Company as being on
account of a Purchased Receivable.
12.3 Maintenance of Records. Each Servicer and the Master Servicer
----------------------
will hold in trust for the Participants at the office of such Servicer or Master
Servicer set forth in Schedule 2 such books of account and other records as it
currently maintains for its own purposes in the ordinary course of its business,
which books of account and other records shall be in a form reasonably
satisfactory to the Administrative Agent to determine at any time the status of
the Receivables and all collections and payments in respect thereof (including,
without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof). The Administrative Agent
may at any time and from time to time upon reasonable prior notice during the
regular business hours of any Servicer or the Master Servicer inspect, audit,
check and make abstracts from the books, accounts, records, or other papers of
such Servicer or the Master Servicer pertaining to the Receivables. From time
to time upon the written request of the Administrative Agent, which request
shall be promptly made upon a request therefor to the Administrative Agent by
any Participant, each Servicer or the Master Servicer, at its own expense, will
as promptly as is practicable deliver to the Administrative Agent a schedule of
the Receivables indicating as to each Receivables information as to the Obligor
thereon, the unpaid balance thereof, the amount and delinquency of any
Receivable that is past due and such other information as the Administrative
Agent may reasonably request. Upon the written request of the Administrative
Agent, which request may only be made at any time after a Partial Servicing
Transfer or a Complete Servicing Transfer, each terminated Servicer and the
Master Servicer, at its own expense, will deliver to the Administrative Agent,
or to any agent selected by the Administrative Agent, any records pertaining
thereto and evidence thereof as the Administrative Agent may deem necessary to
enable it to enforce the Participants' rights thereunder; provided, that to the
--------
extent that such terminated Servicer or the Master Servicer is required to have,
as a result of a continuing relationship with the related Obligors, access to
any such records in respect of its Receivables, the Administrative Agent (or the
agent selected by it) shall allow such terminated Servicer or the Master
Servicer to have reasonable access to such records upon reasonable advance
notice and so long as such access shall not disrupt or otherwise interfere with
the Administrative Agent's (or its agent's) use of such records in performing
its duties hereunder. Upon the expiration of the
<PAGE>
64
Commitment Period, the reduction of the Net Investment to zero and the payment
in full of all amounts owing to the Participants and the Administrative Agent
hereunder, the Administrative Agent will promptly return to the Servicers and
the Master Servicer any such records delivered to the Administrative Agent or
its agent.
12.4 Rebates, Adjustments, Returns and Reductions; Modifications.
-----------------------------------------------------------
From time to time the Master Servicer or a Servicer may make Adjustments to
Receivables in accordance with subsection 12.6(o). If the Master Servicer or
any Servicer makes any Adjustment, then, in any such case, the amount of
Receivables will be automatically reduced by the principal amount of such
Adjustment. Any Adjustment shall be made on the Business Day on which such
adjustment obligation arises or is identified. In addition, (and without
limiting the obligations of the Sellers under the Receivables Sale Agreement to
make Seller Adjustment Payment in respect thereof) if, after giving effect to
any such Adjustment, the Invested Percentage would exceed the Maximum Invested
Percentage, the Company shall pay to the Administrative Agent, for the account
of the Participants, an amount equal to the lesser of (i) the dollar amount of
such Adjustment and (ii) the amount necessary to cause the Invested Percentage
to equal the Maximum Invested Percentage (the amount of each such payment is
referred to herein as an "Adjustment Payment"). Such Adjustment Payment shall be
treated as a Collection and shall be distributed in accordance with the
applicable provisions of subsection 2.7.
12.5 Daily Reports; Settlement Statements. (a) On each Business Day
------------------------------------
the Company and Master Servicer, jointly and severally, agree to prepare a
written report (the "Daily Report") in the form of Exhibit F, with such changes
as may be agreed upon by the Administrative Agent, the Company and the Master
Servicer, setting forth for the preceding Business Day (the "Reporting Day")
total Collections, the amount of Receivables created and the Aggregate Eligible
Receivables, and such other information as the Administrative Agent may request,
which report shall show such information for all Sellers as well as only with
respect to Sellers whose Effective Date has occurred. The Master Servicer shall
complete such Daily Report and deliver it to the Administrative Agent prior to
12:00 Noon (New York City time) on the second Business Day following the
Reporting Day. Each Daily Report shall be transmitted by telecopy to the
Administrative Agent at the telecopy number specified in subsection 11.9.
(b) Not later than five Business Days prior to each Settlement Date
until the Participating Interest of the Participants in the Receivables has been
reduced to zero and the Commitments of the Participants hereunder have been
terminated, the Company and the Master Servicer, jointly and severally, agree to
submit to the Administrative Agent a statement (hereinafter, a "Settlement
Statement"), substantially in the form attached hereto as Exhibit C or such
other form as may be acceptable to the Administrative Agent, which statement
shall show such information for all Sellers as well as only with respect to
Sellers whose Effective Date has occurred. Promptly upon receipt thereof, the
Administrative Agent shall forward a copy of each Settlement Statement to each
Participant.
<PAGE>
65
(c) (i) Within 45 days after the end of each fiscal quarter of WMI,
the Master Servicer will deliver to the Administrative Agent and each
Participant a certificate of a Responsible Officer of the Master Servicer
stating that (a) a review of the activities of the Master Servicer and each
Servicer and its performance hereunder during such fiscal quarter was made under
the supervision of such Responsible Officer, (b) to the best knowledge of such
Responsible Officer, based on such review, the Master Servicer and each Servicer
has accurately and correctly performed its obligations hereunder in all material
respects throughout such quarter, or, if there has been a material default in
the performance of any such obligation, specifying the nature and status of each
such default and (c) to the best knowledge of such Responsible Officer, based on
such review, each Daily Report and Settlement Statement was accurate and correct
in all material respects, except as specified in such certificate.
12.6 Representations, Warranties and Covenants of the Servicers.
----------------------------------------------------------
Each Servicer and the Master Servicer hereby makes the following
representations, warranties and covenants to the Participants and the
Administrative Agent:
(a) Organization; Powers. Such Person is duly organized, validly
--------------------
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its
business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is
in good standing in, every jurisdiction where such qualification is
required.
(b) Authorization; Enforceability. The Servicing Transactions are
-----------------------------
within the corporate powers of such Person and have been duly authorized by
all necessary corporate and, if required, stockholder action. Each
Transaction Document has been duly executed and delivered by such Person
and constitutes a legal, valid and binding obligation of each such Person,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
(c) Governmental Approvals; No Conflicts. The Servicing
------------------------------------
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except
such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws
or other organizational documents of such Person or any order of any
Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon such Person or
its assets, or give rise to a right thereunder to require any payment to be
made by such Person, and (d) will not result in the creation or imposition
of any Lien on any asset of such Person.
<PAGE>
66
(d) Litigation and Environmental Matters. (i) Except for the
------------------------------------
Disclosed Matters, as of the Commencement Date, there are no actions, suits
or proceedings by or before any arbitrator or Governmental Authority
pending against or, to the knowledge of such Person, threatened against or
affecting such Person (A) could reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect (other than the
Disclosed Matters) or (B) that involve this Agreement or the Transactions.
(ii) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect, such Person (i) has not
failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law, (ii) has not become subject to any Environmental
Liability, (iii) has not received notice of any claim with respect to any
Environmental Liability or (iv) does not know of any basis for any
Environmental Liability.
(e) Compliance with Laws and Agreements. Such Person is in compliance
-----------------------------------
with all laws, regulations and orders of any Governmental Authority
applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. No Servicer Event of Default has
occurred and is continuing.
(f) Taxes. Such Person has timely filed or caused to be filed all Tax
-----
returns and reports required to have been filed and has paid or caused to
be paid all Taxes required to have been paid by it, except (a) Taxes that
are being contested in good faith by appropriate proceedings and for which
such Person has set aside on its books adequate reserves or (b) to the
extent that the failure to do so could not reasonably be expected to result
in a Material Adverse Effect.
(g) Agreement to Cooperate. The Master Servicer shall from time to
----------------------
time and at any time provide, and shall cause its Subsidiaries to provide,
information with respect to the business, operations, properties and
financial matters of the Master Servicer and such Subsidiaries to the
Company, its officers, employees, agents and professional advisers in
connection with the replacement or refinancing, in whole or in part, of
this Agreement and the other Transaction Documents with a new receivables
financing facility in which ownership interests in, or notes, commercial
paper, certificates or other debt instruments secured by, the Receivables
shall be sold in one or more public offerings, private placements or
otherwise (such facility, the "Replacement Facility"), and the Master
Servicer shall otherwise cooperate with, and cause its Subsidiaries to
cooperate with, the Company and such officers, employees, agents and
professional advisers in the negotiation, development, preparation and
execution of, such Replacement Facility.
<PAGE>
67
(h) Protection of Participants' Rights. Such Person shall take no
----------------------------------
action, nor omit to take any action, which act or omission would
substantially impair the rights of Participants in the Receivables, nor
shall it reschedule, revise or defer payments due on any Receivable except
in accordance with the Policies and the Company Policies or except as
otherwise expressly permitted by this Agreement; provided, that such Person
--------
shall have no obligation to the Participants or the Administrative Agent
under this paragraph (h) in respect of Receivables which become Defaulted
Receivables as a result of non-payment by the Obligor with respect thereto.
(i) Security Interest. Except for the conveyance hereunder and under
-----------------
the Receivables Sale Agreement, such Person will not sell, pledge, assign
or transfer to any other Person, or grant, create, incur, assume or suffer
to exist any Lien on any Receivable or other Pooled Property transferred
and assigned to the Participants, whether now existing or hereafter
created, or any interest therein, and such Person shall defend the right,
title and interest of the Participants in, to and under any Receivable or
other Pooled Property transferred and assigned to the Participants, whether
now existing or hereafter created, against all claims of third parties
claiming through or under such Person, the Master Servicer or any Seller.
(j) Location of Offices. The chief executive office of each Servicer
-------------------
and the Master Servicer is listed on Schedule 2, which office is the place
where such Person is "located" for the purposes of Section 9-103(3)(d) of
the Uniform Commercial Code of the State of New York, and the offices of
each Servicer and the Master Servicer where such Servicer and the Master
Servicer keeps its records concerning the Receivables are also listed in
said Schedule. Such Person (i) will not move outside the State listed on
Schedule 2 under the heading "Chief Executive Office" the location of its
chief executive office or outside of the State listed on Schedule 2 under
the heading "Offices Where Records Kept" the location of any of the offices
where it keeps its records with respect to the Receivables without 30 days'
prior written notice to the Administrative Agent and (ii) will promptly
take all actions reasonably required (including but not limited to all
filings and other acts necessary or advisable under the Uniform Commercial
Code of each jurisdiction) in order to continue the first priority
perfected ownership interest of the Participants in all Receivables and
other Pooled Property now owned or hereafter created. Such Person will give
the Administrative Agent prompt notice of a change within the State listed
on Schedule 2 of the location of its chief executive office or of a change
within the State listed on Schedule 2 of the location of any office where
it keeps its records with respect to the Receivables and the other Pooled
Property.
(k) No Adverse Change. There has not been since the date of this
-----------------
Agreement any material adverse change in the ability of such Person to
perform its obligations under Article XII of this Agreement.
<PAGE>
68
(l) Designated Accounts and other Payment Methods. Listed on
---------------------------------------------
Schedule 3 is each Designated Account to which, as of the initial Closing
Date, the Obligors have been directed to remit payments on account of the
Receivables, except to the extent that any of the Servicers, in the normal
course of their business and consistent with past practices, have directed
such Obligors to remit payments by (i) delivering cash, a check or other
instrument to or in care of the Person delivering goods to such Obligor,
(ii) a wire transfer of such funds directly to the Concentration Account or
(iii) delivering a check to the business offices, agents or officers of
such Servicer. Neither the Master Servicer nor any Servicer shall (i) add
or terminate any bank as a bank at which a Designated Account is
maintained, (ii) add or terminate any such Designated Account at any such
bank, (iii) make any change in its instructions to any Obligor regarding
payments to be made to any such bank or Designated Account or (iv) revoke
any standing instructions directing such Designated Bank to transfer
amounts on deposit therein to the Concentration Account as provided in
subsection 12.1; provided, that a Servicer may at any time change its
--------
instructions to Obligors so as to require such Obligors to make payments to
a different Designated Account, so long as such Servicer has previously
delivered to the Administrative Agent evidence that standing instructions
in form and substance reasonably satisfactory to the Administrative Agent
regarding such Designated Account will be delivered to the applicable
Designated Bank.
(m) Reports. The information with respect to the Receivables
-------
serviced by such Person contained in each Settlement Statement will be true
and correct in all material respects as of the date of such Settlement
Statement.
(n) Instruments. Such Person will not take any action to cause any
-----------
Receivable to be evidenced by any "instrument" (as defined in the Uniform
Commercial Code as in effect in the State of New York) except in connection
with the enforcement or collection of a Receivable.
(o) Extension of Receivables; Amendment of Policies. Extend, make
-----------------------------------------------
any Adjustment to, rescind, cancel, amend or otherwise modify, or attempt
or purport to extend, amend or otherwise modify, the terms of any Purchased
Receivables, except (i) in accordance with the terms of the Policies and
the Company Policies, (ii) as required by any Requirement of Law, (iii) in
the case of Adjustments, upon making an Adjustment Payment pursuant to
subsection 12.4 or (iv) with the consent of the Required Participants,
provided the Servicers may cause Receivables to become Defaulted
Receivables. Neither the Servicers nor the Master Servicer shall amend or
otherwise modify or waive any term or condition of the Policies or the
Company Policies except in accordance with subsection 5.10 of the
Receivables Sale Agreement.
<PAGE>
69
(p) Ineligible Receivables. Without the prior written approval of
----------------------
the Required Participants, such Person shall not take any action to cause,
or which would permit, an Eligible Receivable to cease to be an Eligible
Receivable, except as expressly permitted in this Agreement.
(q) Notices. Such Person will give written notice to the
-------
Administrative Agent and each Participant promptly upon obtaining knowledge
of the occurrence of any Termination Event, Potential Termination Event,
Servicer Default or Servicer Event of Default (which notice shall specify
what, if any, action will be taken with respect thereto).
(r) Financial Statements; Liabilities; Disclosure; No Material
----------------------------------------------------------
Adverse Change. (i) The Master Servicer has heretofore furnished to the
--------------
Participants its consolidated balance sheet and statements of income,
stockholders equity and cash flows (A) as of and for the fiscal year ended
December 31, 1996, reported on by Arthur Andersen LLP, independent public
accountants, and (B) as of and for the fiscal quarter and the portion of
the fiscal year ended September 30, 1997, signed by its chief financial
officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows
of the Master Servicer and its consolidated Subsidiaries as of such dates
and for such periods in accordance with GAAP, subject to year-end audit
adjustments and the absence of footnotes in the case of the statements
referred to in clause (B) above. As of the Commencement Date, the Master
Servicer and its Subsidiaries do not have any material Guarantee
obligations, contingent liabilities and liabilities for taxes, or any long-
term leases or unusual forward or long-term commitments, including, without
limitation, any material interest rate or foreign currency swap or exchange
transaction or other obligation in respect of derivatives, that have
materially changes from those reflected, individually or in the aggregate,
in either (i) the most recent financial statements referred to in this
paragraph or (ii) filings made by the Master Servicer with the SEC that
were publicly available prior to the Commencement Date. During the period
from December 31, 1996 to and including the date hereof there has been no
disposition by the Master Servicer or any of its Subsidiaries of any
material part of their business or property (determined on a consolidated
basis with respect to the Master Servicer and its Subsidiaries), other than
dispositions disclosed in filings made with the SEC that were publicly
available prior to the Commencement Date. The Master Servicer has
disclosed to the Participants all agreements, instruments and corporate or
other restrictions to which it or any of its Subsidiaries is subject, and
all other matters known to it, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.
(ii) None of the reports, financial statements, certificates or other
information furnished by or on behalf of the Master Servicer to the
Administrative Agent or any Participant on or prior to the Commencement
Date in connection with the negotiation of this Agreement or delivered
<PAGE>
70
hereunder, taken as a whole, contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, that, with respect to projected financial
--------
information, the Master Servicer represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at
the time.
(iii) During the period from December 31, 1996 through the
Commencement Date, there has been no material adverse change in the
business, assets, operations, prospects or condition, financial or
otherwise, of the Master Servicer and its Subsidiaries, taken as a whole.
(iv) In connection with the representations and warranties made by
the Master Servicer in this subsection 12.6(r), the Participants agree that
the Master Servicer shall not be deemed in breach of any representation or
warranty in this paragraph on account of the Master Servicer's completing
the matters or taking the actions described in the Master Servicer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as
filed with the SEC, under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Outlook", or, in respect
of any such matter or action or other matters emerging from comments
received by the Master Servicer from the SEC or the Master Servicer's
ongoing review of its accounting policies, practices or procedures,
incurring charges, increasing reserves or writing down asset values or
adjusting, revising or restating financial statements or footnotes for one
or more quarters or years, so long as the nature and amount of any such
charge, reserve, write-down, adjustment, revision or restatement are
substantially within the parameters disclosed to the Participants prior to
the Commencement Date.
(s) Financial Statements. The Master Servicer shall furnish to each
--------------------
Participant:
(i) as soon as available, but in any event within 105 days
after the end of each fiscal year of the Master Servicer, to the
extent prepared to comply with SEC requirements, a copy of the Form
10-K filed with the SEC for such fiscal year or, if no such Form 10-K
was so filed by the Master Servicer for such fiscal year, a copy of
the consolidated balance sheet of the Master Servicer and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statements of income, shareholders' equity and retained
earnings and cash flows for such year, setting forth the comparative
amounts for the previous year and in each case certified without a
"going concern" or like qualification or exception, or scope
limitation, by Arthur Andersen & Co. or other independent certified
public accountants of recognized standing reasonably acceptable to the
Administrative Agent; and
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71
(ii) as soon as available, but in any event not later than 60
days after the end of each of the first three quarterly periods of
each fiscal year of the Master Servicer, to the extent prepared to
comply with SEC requirements, a copy of Form 10-Qs filed with the SEC
for such fiscal quarter or, if no such Form 10-Q was so filed by the
Master Servicer for such fiscal quarter, the unaudited consolidated
balance sheet of the Master Servicer and its consolidated Subsidiaries
as at the end of such quarter and the related unaudited consolidated
statements of income, shareholders' equity and retained earnings and
cash flows of the Master Servicer and its consolidated Subsidiaries
for such quarter and the portion of the fiscal year through the end of
such quarter, setting forth the comparative amounts for the
corresponding quarter and portion of the previous year, in each case
certified by a Responsible Officer of the Master Servicer as being
fairly stated in all material respects (subject to normal year-end
audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or Responsible
Officer, as the case may be, and disclosed therein) except that the monthly
financial statements provided pursuant to clause (iii) shall only be
consistent with GAAP in all material respects and that the monthly
financial statements provided pursuant to clause (iii) shall not be
required to include footnotes.
(t) Certificates; Other Information. The Master Servicer shall
-------------------------------
furnish to each Participant concurrently with the delivery of the financial
statements referred to in clause (s)(i) and (ii), a certificate of a
Responsible Officer of the Master Servicer stating that, to the best of
such Responsible Officer's knowledge, each Transaction Party during such
period has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in the Transaction Documents to
which it is a party to be observed, performed or satisfied by it, and that
such Responsible Officer has obtained no knowledge of any Servicer Default
or Servicer Event of Default except as specified in such certificate.
(u) Separate Corporate Existence of the Company. The Master Servicer
-------------------------------------------
shall cause the Company to comply with the provisions of subsection 7.9.
Neither the Master Servicer nor any Servicer shall take any action, or omit
to take any action, which is inconsistent with the provisions thereof.
(v) Accuracy of Schedule 2. Schedule 2 is a true and complete
----------------------
listing of (i) all Subsidiaries of the Master Servicer that generate
Receivables and (ii) the jurisdiction of incorporation of each such
Subsidiary and all states in which each such Subsidiary is qualified to do
business the amount of Receivables set forth opposite each Subsidiaries'
name is the true and
<PAGE>
72
correct balance of Receivables owned by such Subsidiary as of the date
indicated on Schedule 2.
Each of the Master Servicer and each Servicer agrees and acknowledges that each
of the representations and warranties contained in this subsection 12.6 shall be
deemed to have been made by the Master Servicer or such Servicer, as the case
may be, (x) as of the Commencement Date, and (y) with respect to an Increase in
Net Investment, as of the related Closing Date, unless, in either case, such
representation or warranty expressly relates only to a prior date.
12.7 Acquisition Obligation. (a) In the event of any breach of any
----------------------
of the representations, warranties or covenants of the Master Servicer or any
Servicer which is an Affiliate of the Company contained in subsection 12.6(e),
(h), (i), (j), (o), or (p), then upon the earlier to occur of the discovery of
such event by a Responsible Officer of such Person, or receipt by such Person of
written notice of such event given by the Administrative Agent, the outstanding
Principal Amount of Receivables shall be reduced by the Principal Amount of such
Receivables in respect of which such representation or warranty was incorrect or
such covenant was breached; provided, however, that (i) prior to the
-------- -------
Amortization Period, to the extent that such a reduction would cause the
Invested Percentage to be more than the Maximum Invested Percentage, the Master
Servicer and the Servicers which are Affiliates of the Company, jointly and
severally, agree to acquire such Receivable and any Related Property with
respect thereto on the terms and conditions set forth in paragraph (b) below and
(ii) during the Amortization Period, the Master Servicer and the Servicers which
are Affiliates of the Company, jointly and severally, agree (regardless of which
such Servicer or Master Servicer shall have been responsible for such breach) to
acquire such Receivable and any Related Property with respect thereto on the
terms and conditions set forth in paragraph (b) below. In the event of any
breach of any of the representations, warranties or covenants of the Master
Servicer or any Servicer which is not an Affiliate of the Company contained in
subsection 12.6(e), (h), (i), (j), (o) or (p), then upon the earlier to occur of
the discovery of such event by such Person, or receipt by such Person of written
notice of such event given by the Administrative Agent, the outstanding
Principal Amount of Receivables shall be reduced by the Principal Amount of such
Receivables in respect of which such representation or warranty was incorrect or
such covenant was breached upon the deposit by the Master Servicer or such
Servicer (which deposit the Master Servicer or such Servicer hereby agrees to
make) into the Collection Account in immediately available funds an amount equal
to the Principal Amount of such Receivable (together with payments pursuant to
paragraph (b), "Servicer Transfer Payments").
(b) If any breach of a representation, warranty or covenant by a
Servicer or the Master Servicer which is an Affiliate of the Company which
necessitates the acquisition of a Receivable by the Master Servicer and the
Servicers pursuant to paragraph (a) remains uncured on the day which is 5 days
after discovery or notice of such breach, the Master Servicer and such Servicers
shall acquire such Receivable and any Related Property with respect thereto by
depositing into the Collection Account in immediately available funds on such
5th
<PAGE>
73
day (or, if such day is not a Business Day, the immediately succeeding Business
Day), an amount equal to (i) prior to an Amortization Period, the lesser of (A)
the amount necessary to cause the Invested Percentage to equal the Maximum
Invested Percentage and (B) the Principal Amount of such Receivable or (ii)
during an Amortization Period, the Principal Amount of such Receivable (also, a
"Servicer Transfer Payment"). Upon deposit of the Servicer Transfer Payment, the
Participants shall automatically and without further action be deemed to sell,
transfer, assign, set-over and otherwise convey to such Person, free and clear
of any Lien created by the Participants but otherwise without recourse,
representation or warranty, all the right, title and interest of the
Participants in and to such Receivable, and all Related Property with respect
thereto; and such retransferred Receivable shall be treated by the Participants
as collected in full as of the date on which it was transferred. The
Administrative Agent shall execute such documents and instruments of transfer or
assignment and take such other actions as shall reasonably be requested by the
Master Servicer to effect the conveyance of such Receivables pursuant to this
subsection 12.7.
12.8 Obligations Unaffected. The obligations of the Master Servicer,
----------------------
each Servicer and the Company to the Administrative Agent and the Participants
under this Agreement shall not be affected by reason of any invalidity,
illegality or irregularity of any Receivable or any transfer and assignment of a
Receivable.
12.9 Addition of Servicers. Subject to the terms and conditions
---------------------
hereof, from time to time one or more Subsidiaries of WMI which the
Administrative Agent has approved may become additional Servicers parties hereto
upon execution by each such Subsidiary of an Additional Servicer Supplement.
12.10 Interest on Overdue Payments. If any amount payable by the
----------------------------
Servicers or the Master Servicer to the Participants or the Administrative Agent
hereunder, whether on account of fees or expenses or on account of amounts
collected by the Servicers or the Master Servicer or amounts payable pursuant to
subsection 12.4 or 12.7, or otherwise, is not paid by such Servicer or the
Master Servicer, as the case may be, on the relevant Settlement Date or other
relevant date, such amount shall be payable together with interest for each day
from such Settlement Date or other relevant date, as the case may be, until such
amount is paid in full at a rate per annum equal to ABR plus 2%.
----
12.11 Servicer Events of Defaults. If any of the following events
---------------------------
(herein called "Servicer Events Of Default") shall have occurred and be
continuing:
(a) any Servicer or the Master Servicer, as the case may be, (1)
shall fail to deliver any Daily Report or any Settlement Statement
conforming in all material respects to the requirements of subsection 12.5
and such failure shall continue unremedied for two consecutive Business
Days after the Administrative Agent shall have delivered notice thereof to
such Servicer or the Master Servicer, as the case may be; provided, that if
--------
a
<PAGE>
74
Force Majeure Delay shall have occurred with respect to the Servicers or
the Master Servicer, the failure to deliver any Daily Report or Settlement
Statement, shall not constitute, in either case, a Servicer Event of
Default unless such failure continues for longer than the lesser of (x) ten
consecutive Business Days and (y) the length of such Force Majeure Delay
(or, if greater, two Business Days) after the Administrative Agent shall
have delivered notice of such failure to the Company, or (2) shall fail to
make any payment reflected in such Daily Report or Settlement Statement as
being required to be made by it thereunder on the date such report or
statement is delivered;
(b) any Servicer or the Master Servicer, as the case may be, shall
fail to pay any amount required to be paid by it hereunder (other than
those specified in paragraph (a) of this subsection 12.11) within five
Business Days after the date when due;
(c) any Servicer or the Master Servicer, as the case may be, shall
fail to observe or perform any covenant or agreement applicable to it
contained herein (other than as specified in subsections (a) and (b) of
this subsection 12.11); provided, that, except in the case of any failure
--------
to observe or perform any covenant contained in subsection 12.6(q), no such
failure shall constitute a Servicer Event of Default under this paragraph
(c) unless such failure shall continue unremedied for a period of 30
consecutive days after notice thereof from the Administrative Agent, the
Required Participants or the Company; provided, that a Servicer Event of
--------
Default shall not be deemed to have occurred under this paragraph (c) based
upon a breach of a representation, warranty or covenant contained in
subsection 12.6(e), (h), (i), (j), (o) or (p) if the Servicers and Master
Servicer shall have complied with the provisions of subsection 12.7 with
respect thereto;
(d) any representation, warranty, certification or statement made or
deemed made by any Servicer or the Master Servicer, as the case may be, in
this Agreement or in any Settlement Statement or other certificate,
financial statement or other document delivered pursuant to this Agreement
shall prove to have been false or misleading in any material respect on or
as of the date made or deemed made; provided, that a Servicer Event of
--------
Default shall not be deemed to have occurred under this paragraph (d) based
upon a breach of a representation, warranty or covenant contained in
subsection 12.6(e), (h), (i), (j), (o) or (p) if the Servicers and Master
Servicer shall have complied with the provisions of subsection 12.7 with
respect thereto;
(e) (i) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization
or other relief in respect of any Servicer or the Master Servicer, as the
case may be, or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the
<PAGE>
75
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for any Servicer or Master Servicer, as the case may be,
or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for 60 days or an order
or decree approving or ordering any of the foregoing shall be entered; (ii)
any Servicer or the Master Servicer shall (A) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (B) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (i) of this subsection, (C)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any Servicer or the
Master Servicer or for a substantial part of its assets, (D) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (E) make a general assignment for the benefit of creditors
or (F) take any action for the purpose of effecting any of the foregoing;
or (iii) any Servicer or the Master Servicer shall become unable, admit in
writing or fail generally to pay its debts as they become due;
(f) a Purchase Termination Event shall have occurred and be
continuing under the Receivables Sale Agreement with respect to Sellers
which in the aggregate generated more than 10% of the aggregate revenues of
all Sellers during the immediately preceding Settlement Period;
then, in any such event, so long as such Servicer Event of Default shall be
continuing, with the consent of the Required Participants the Administrative
Agent or the Company may, or upon the request of the Required Participants the
Administrative Agent or the Company shall, terminate the rights of any or all of
the Servicers and the Master Servicer in accordance with subsection 12.2(d) by
notice to each such Servicer and/or the Master Servicer, as the case may be.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
WASTE MANAGEMENT FINANCING
CORPORATION
By: /s/ Dan Shoener
--------------------------------
Name: Dan Shoener
Title: Authorized Signatory
WASTE MANAGEMENT, INC.,
as Master Servicer
By: /s/ William C. Keightley
--------------------------------
Name: William C. Keightley
Title: Treasurer
Address for Notices:
3003 Butterfield Road
Oak Brook, Illinois 60523
Attention: Vice President-Finance
Telecopy: (603) 572-1340
<PAGE>
The Servicers:
-------------
WASTE MANAGEMENT OF NORTH AMERICA, INC.
By: /s/ William C. Keightley
------------------------------------
Name: William C. Keightley
Title: Authorized Signatory
Address for Notices for all Servicers:
3003 Butterfield Road
Oak Brook, Illinois 60523
Attention: Vice President - Finance
Telecopy: (630) 572-1340
<PAGE>
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a
Participant
By: /s/ B. Joseph Lillis
---------------------------------
Name: B. Joseph Lillis
Title: Managing Director
<PAGE>
Participants:
------------
Bank of America National Trust and
----------------------------------
Savings Association
-------------------
(Name of Participant)
By: /s/ Mark A. Wegener
---------------------
Name: Mark A. Wegener
Title: Attorney-in-Fact
Address for Notices:
231 S. LaSalle St.
Suite 1602
Chicago, IL 606097
Attention: Willem van Beek
Telecopy: (312) 923-0273
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Konstantina Kourmpetis
----------------------------------
Name: Konstantina Kourmpetis
Title: Vice President
Address for Notices:
1301 Avenue of the Americas
New York, NY 10019
Attention: Tina Kourmpetis
Telecopy: (212) 459-3258
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Jerry J. Kane
------------------------------
Name: Jerry J. Kane
Title: Senior Vice President
Address for Notices:
One First National Plaza, Suite 0954
Chicago, IL 60670
Attention: Susan Cassa
Telecopy: (312) 732-4487
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Edward H. Ross
------------------------------
Name: Edward H. Ross
Title: Vice President
Address for Notices:
One First Union Center, DC5
Charlotte, NC 28288
Attention: Douglas Sleeper
Telecopy: (704) 374-2802
<PAGE>
THREE RIVERS FUNDING CORPORATION
--------------------------------------
(Name of Participant)
By: /s/ Stewart Cutler
-----------------------------
Name: Stewart Cutler
Title: Vice President
Address for Notices:
Mellon Financial Markets, Inc.
One Mellon Bank Center, Room 400
Pittsburgh, PA 15258
Attention: Jonathan F. Widich
Telecopy: (412) 234-5434
<PAGE>
SCHEDULE 1
----------
NAMES, ADDRESSES AND COMMITMENTS OF PARTICIPANTS
------------------------------------------------
<TABLE>
<CAPTION>
Commitment
----------
<S> <C>
THE CHASE MANHATTAN BANK.......................................... $103,125,000
270 Park Avenue
New York, New York 10017
Attention: Loan and Agency Services
Telecopy: (212) 552-5662
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION.............. 89,375,000
231 South LaSalle Street
Chicago, IL 60697
Attention: Willem Van Beek
Telecopy: (312) 923-0273
CREDIT LYONNAIS NEW YORK BRANCH................................... 89,375,000
1301 Avenue of the Americas
New York, NY 10019
Attention: Tina Kourmpetis
Telecopy: (212) 459-3258
THE FIRST NATIONAL BANK OF CHICAGO................................ 89,375,000
1 First National Plaza, Suite 0954
Chicago, IL 60670
Attention: Susan Cassa
Telecopy: (312) 732-4487
FIRST UNION NATIONAL BANK......................................... 89,375,000
One First Union Center, DC5
Charlotte, NC 28288
Attention: Douglas Sleeper
Telecopy: (704) 374-2802
THREE RIVERS FUNDING CORPORATION.................................. 89,375,000
c/o Mellon Financial Markets, Inc.
One Mellon Bank Center
Room 400
Pittsburgh, PA 15258
Attention: Jonathan F. Widich
Telecopy: (412) 234-5434
</TABLE>
<PAGE>
ANNEX X
"ABR": for any day, a rate per annum equal to the greater of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.
"Accounts": as defined in subsection 2.1(c)(ii) of the Receivables
Transfer Agreement.
"Additional Participant": as defined in subsection 11.4(e) of the
Receivables Transfer Agreement.
"Additional Seller Supplement": an instrument substantially in the
form of Exhibit B to the Receivables Sale Agreement by which a Subsidiary
of WMI becomes a Seller party to the Receivables Sale Agreement.
"Additional Servicer Supplement": an instrument substantially in the
form of Exhibit D to the Receivables Transfer Agreement by which a
Subsidiary of WMI becomes a Servicer party to the Receivables Transfer
Agreement.
"Adjusted LIBO Rate": with respect to a Fixed Tranche for any
Transfer Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate in effect for such
Transfer Period multiplied by (b) the Statutory Reserves Rate.
"Adjustment": as defined in subsection 2.5 of the Receivables Sale
Agreement.
"Adjustment Payment": as defined in subsection 12.4 of the
Receivables Transfer Agreement.
"Administrative Agent": The Chase Manhattan Bank, in its capacity as
administrative agent for the Participants under the Receivables Transfer
Agreement.
"Administrative Questionnaire": an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Affiliate": with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
<PAGE>
2
"Aged Receivable": as of any date of determination, any Receivable
(a) which is unpaid in whole or in part for more than 91 days after its
original invoice date or (b) which is, as of such date of determination, a
Defaulted Receivable.
"Aged Receivable Amount": as of any date, the aggregate amount of
Aged Receivables which would otherwise have been Eligible Receivables as of
the most recent Settlement Period End Date, but for the fact that such
Receivables were Aged Receivables as of such day.
"Aggregate Eligible Receivables": as of any date of determination (a)
the aggregate outstanding Principal Amount of all Eligible Receivables on
such date (provided that for purposes of this clause (a) the criteria set
forth in clause (b) of the definition of Eligible Receivables shall not be
applicable) minus (b) the Aged Receivable Amount as of such date minus (c)
----- -----
the aggregate Excess Amounts with respect to all Obligors on such date;
provided, that all calculations required in determining Aggregate Eligible
--------
Receivables (a) shall include, and shall only include, Eligible Receivables
of Sellers as to which their Effective Date has occurred and (b) shall not
include Receivables of a Seller from which the Company has ceased
purchasing Receivables pursuant to subsection 9.15 of the Receivables Sale
Agreement or a Seller with respect to which the Company has terminated its
obligation to acquire Receivables pursuant to Article VII of the
Receivables Sale Agreement.
"Agreement": the agreement wherein such term is used, as the same may
be amended, supplemented or otherwise modified from time to time.
"Amortization Period": the period commencing on the date the
Commitment Period ends and ending with the termination of the Receivables
Transfer Agreement pursuant to subsection 4.1 thereof.
"Applicable Eurodollar Margin": .675% per annum; provided, that for
--------
any day on which the Net Investment exceeds 50% of the Maximum Commitment,
the Applicable Eurodollar Margin for such day shall be .75% per annum.
"Applicable Obligor Percentage": with respect to any Obligor, 4.0%.
"Assessment Rate": for any day, the annual assessment rate in effect
on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R.
Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in
dollars at the offices of such member in the United States; provided, that
--------
if, as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall
<PAGE>
3
be such annual rate as shall be determined by the Administrative Agent to
be representative of the cost of such insurance to the Participants.
"Assignment and Acceptance": an assignment and acceptance entered into
by a Participant and an assignee (with the consent of any party whose
consent is required by subsection 11.4 of the Receivables Transfer
Agreement), and accepted by the Administrative Agent, substantially in the
form of Exhibit G to the Receivables Transfer Agreement.
"Authorized Signatory": any Person designated as such or as
"Authorized Representative" in the resolutions delivered to the Company
pursuant to subsection 3.1(b)(i) of the Receivables Sale Agreement.
"benefitted Participant": as defined in subsection 11.12 of the
Receivables Transfer Agreement.
"Board": the Board of Governors of the Federal Reserve System of the
United States of America.
"Business Day": any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City, Pittsburgh, Pennsylvania,
Charlotte, North Carolina or Chicago, Illinois are authorized or required
by law to remain closed; provided, however, that, when used in connection
-------- -------
with the determination of any Adjusted LIBO Rate, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London interbank market.
"Business Day Received": as defined in subsection 12.1(b)(vi) of the
Receivables Transfer Agreement.
"Capital Lease Obligations": of any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP and the amount of which at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": deposit accounts, book-entry securities,
negotiable instruments or securities represented by instruments in bearer
or registered form which evidence:
<PAGE>
4
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America;
(b) federal funds, demand deposits, time deposits or certificates of
deposit of any depositary institution or trust company incorporated under
the laws of the United States of America or any State thereof (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or State banking or depositary institution
authorities; provided, that at the time of the investment or contractual
--------
commitment to invest therein, the commercial paper or other short-term
unsecured and uncollateralized debt obligations (other than such
obligations the rating of which is based upon the credit of a Person other
than such depository institution or trust company) thereof shall have a
credit rating from each of the Rating Agencies in one of the two highest
investment categories granted thereby;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating in one of the two
highest rating categories by each of the Rating Agencies rating such
commercial paper;
(d) investments in money market funds (including funds for which the
Administrative Agent or any of its Affiliates is investment manager or
adviser) having a rating from each of the Rating Agencies rating such money
market fund in one of the two highest investment categories granted
thereby;
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above; or
(f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depositary institution or trust company
(acting as principal) described in clause (b) above.
"Category A Seller": any Seller designated as a "Category A Seller"
on Schedule 1 to the Receivables Sale Agreement.
"Category B Seller": any Seller designated as a "Category B Seller"
on Schedule 1 to the Receivables Sale Agreement.
"Category C Seller": any Seller designated as a "Category C Seller"
on Schedule 1 to the Receivables Sale Agreement.
"Change in Control": (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any "person" or
<PAGE>
5
"group" (within the meaning of the Securities Exchange Act of 1934, as
amended, and the rules of the SEC thereunder as in effect on the date
hereof), of shares representing more than 20% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of
WMI; (b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of WMI by Persons who were neither (i) nominated by
the board of directors of WMI nor (ii) appointed by directors so nominated;
or (c) the failure of WMNA at any time to be wholly owned, either directly
or indirectly, by WMI.
"Change in Law": (a) the adoption of any law, rule or regulation after
the date of the Receivables Transfer Agreement, (b) any change in any law,
rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of the Receivables Transfer Agreement
or (c) compliance by any Participant (or, for purposes of subsection 3.2(b)
of the Receivables Transfer Agreement, by any lending office of such
Participant or by such Participant's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of
any Governmental Authority made or issued after the date of the Receivables
Transfer Agreement.
"CWM": Chemical Waste Management, Inc., a Delaware corporation.
"CIMS System": the Customer Information Management System maintained
by WMNA in Oak Brook, Illinois.
"Closing Date": as defined in subsection 2.3(b) of the Receivables
Transfer Agreement.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collection Account": as defined in subsection 2.7(a)(i) of the
Receivables Transfer Agreement.
"Collections": all collections and all amounts received in respect of
the Receivables, including Recoveries, Seller Repurchase Payments, Seller
Adjustment Payments and Servicer Transfer Payments and, together with all
collections and amounts received in respect of the Related Property in the
form of cash, checks, wire transfers or any other form of cash payment, and
all proceeds of Receivables and collections thereof (including, without
limitation, collections constituting an account or general intangible or
evidenced by a note, instrument, security, contract, security agreement,
chattel paper or other evidence of indebtedness or security, whatever is
received upon the sale, exchange, collection or other disposition of, or
any indemnity, warranty or guaranty payable in respect of, the foregoing
and all "proceeds," as defined in Section 9-306 of the UCC
<PAGE>
6
as in effect in the State of New York, of the foregoing) and any Investment
Earnings.
"Commencement Date": as defined in subsection 6.1 of the Receivables
Transfer Agreement.
"Commitment": of each Participant, the amount set forth opposite the
name of such Participant on Schedule 1 to the Receivables Transfer
Agreement, as such amount may be changed pursuant to subsection 2.10 or
11.4 of the Receivables Transfer Agreement.
"Commitment Fee": as defined in subsection 2.4 of the Receivables
Transfer Agreement.
"Commitment Percentage": as to any Participant, (a) on or prior to the
termination of the Commitments, the percentage equivalent of a fraction the
numerator of which is the Commitment of such Participant and the
denominator of which is the Maximum Commitment and (b) thereafter, the
percentage equivalent of a fraction the numerator of which is the
Commitment of such Participant immediately prior to such termination and
the denominator of which is the Maximum Commitment immediately prior to
such termination.
"Commitment Period": the period from and including the Commencement
Date, up to but not including the first to occur of (a) the Scheduled
Termination Date, (b) any termination of the Commitments pursuant to
Article IX of the Receivables Transfer Agreement and (c) termination (but
not reduction) of the Commitments pursuant to subsection 2.10 of the
Receivables Transfer Agreement.
"Company": Waste Management Financing Corporation, a Delaware
corporation.
"Company Policies": the written policies of the Company with respect
to Defaulted Receivables.
"Complete Servicing Transfer": as defined in subsection 12.2(d) of
the Receivables Transfer Agreement.
"Concentration Account": as defined in subsection 12.1(b)(ii) of the
Receivables Transfer Agreement.
"Conduit Party": in the case of any Participant which is a special-
purpose securitization conduit or similar entity, each bank or financial
institution which from time to time provides liquidity and/or credit
facilities to or for the account of such Participant to fund such
Participant's obligations under the Receivables Transfer Agreement or to
<PAGE>
7
support the securities (if any) issued by such Participant to fund such
obligations.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control": the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or
otherwise; "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Credit Facility": the $250,000,000 Revolving Credit Facility under
the Credit Agreement dated December 29, 1997 among WMI, the Lenders party
thereto and the Chase Manhattan Bank, as Administrative Agent as amended,
supplemented or otherwise modified from time to time.
"Daily Report": as defined in subsection 12.5(a) of the Receivables
Transfer Agreement.
"Defaulted Receivable": all Receivables (or portions thereof) which,
in accordance with the Policies and Company Policies, have or should have
been written off as uncollectible, including without limitation the
Receivables of any Obligor which becomes the subject of any voluntary or
involuntary bankruptcy proceeding.
"Designated Account": as defined in subsection 12.1(b)(i) of the
Receivables Transfer Agreement.
"Designated Bank": each bank identified on the Commencement Date at
which any Designated Account, the Concentration Account and the SPC
Collection Account is held, and any replacements therefor or additions
thereto agreed to in writing by the Administrative Agent.
"Disclosed Matters": with respect to the Master Servicer, any
Servicer and any Seller, the matters described in the Master Servicer's
Annual Report on Form 10-K for the year ended December 31, 1997, and
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1997.
"Discounted Percentage": as defined in Schedule 3 to the Receivables
Sale Agreement.
"Documents": as defined in subsection 2.1(f)(iii) of the Receivables
Sale Agreement.
<PAGE>
8
"Dollars," "U.S. Dollars" and "$": dollars in lawful currency of the
United States of America.
"Early Termination": as defined in Article VII of the Receivables
Sale Agreement.
"Effective Date": as defined in subsection 2.1(a) of the Receivables
Sale Agreement.
"Eligible Obligor": as of any date of determination, each Obligor in
respect of a Receivable that satisfies the following eligibility criteria:
(a) it is a resident of the United States, its territories or
possessions;
(b) it is not a Seller or an Affiliate of a Seller; and
(c) it is not the subject of any voluntary or involuntary
bankruptcy proceeding;
"Eligible Receivable": as of any date of determination, each
Receivable owing by an Eligible Obligor in existence as of such date that
is not subject to a Repurchase Event and that as of such date satisfies
each of the following eligibility criteria:
(a) it constitutes either (i) an account within the meaning of
Section 9-106 of the UCC of the State the law of which governs the
perfection of the interest granted in it, or (ii) a general intangible
(to the extent that such Receivable includes interest, finance
charges, returned check or late charges on sales or similar taxes)
within the meaning of Section 9-106 of such UCC;
(b) it is not an Aged Receivable;
(c)(i) the goods related to it shall have been shipped or the
services related to it shall have been performed or (ii) it shall have
been billed to the Obligor and it is a Receivables arising from waste
disposal services for single family dwellings and relates to services
to be performed no later than 105 days after the invoice date of such
Receivable or a Receivables arising from scheduled, periodic, fixed
waste disposal services for commercial customers and multi-unit
residential dwellings and relates to services to be performed no later
than 45 days after the invoice date of such Receivable;
(d) it shall have been recorded in the CIMS System or other
computer information management systems maintained by WMI, WMNA, CWM,
or any other Seller;
<PAGE>
9
(e) it is denominated and payable only in U.S. Dollars in the
United States;
(f) it arose in the ordinary course of business from the sale of
goods, products or services of the relevant Seller and in accordance
with the Policies of such Seller and, at such date of determination,
no Early Termination has occurred with respect to such Seller;
(g) (i) it does not contravene any applicable law, rule or
regulation and the applicable Seller is not in violation of any law,
rule or regulation in connection with it, in each case which would in
any way render such Receivable unenforceable or would otherwise impair
in any material respect the collectibility of such Receivable and (ii)
it is not subject to any investigation or proceeding known by such
Seller that would reasonably be expected to adversely affect its
payment or enforceability;
(h) it is an account receivable representing all or part of the
sales price of merchandise, insurance or services within the meaning
of Section 3(c)(5) of the Investment Company Act of 1940, as amended;
(i) it is not a Receivable for which the applicable Seller has
established an offsetting specific reserve; provided, that a
--------
Receivable subject only in part to the foregoing shall be an Eligible
Receivable to the extent not so subject;
(j) it is not a Receivable with original payment terms in excess
of 60 days from its original invoice date, or in respect of which the
applicable Seller has (i) altered the basis of the aging from the
initial due date for payment such that the final due date extends to a
date more than 60 days from its original invoice date or (ii)
otherwise made any modification except in the ordinary course of
business and consistent with the Policies of such Seller;
(k) all required consents, approvals or authorizations necessary
for the creation and enforceability of it and the effective assignment
and sale thereof by the applicable Seller to the Company and by the
Company to the Participants shall have been obtained with respect to
such Receivable; provided, that with respect to Receivables owing by
--------
Government Obligors, such Receivables shall constitute Eligible
Receivables notwithstanding the failure of such Receivables to satisfy
this clause (k) except to the extent such failure adversely affects
the collectibility of such Receivables by the Company or the
Participants;
<PAGE>
10
(l) the applicable Seller is not in default in any material
respect under the terms of the contract, if any, from which such
Receivable arose;
(m) all right, title and interest in it has been validly sold to
the Company by the applicable Seller pursuant to the Receivables Sale
Agreement;
(n) the Company or the Participants will have legal and
beneficial ownership therein free and clear of all Liens other than
Permitted Liens and such Receivable has been the subject of either a
valid transfer from the Company to the Participants or, alternatively,
the grant of a first priority perfected security interest therein to
the Participants free and clear of all Liens other than Permitted
Liens;
(o) it is not subject to any dispute in whole or in part or to
any offset, counterclaim, defense, rescission, recoupment or
subordination; provided, that a Receivable subject only in part to any
--------
of the foregoing shall be an Eligible Receivable to the extent not so
subject;
(p) it is at all times the legal, valid and binding obligation
of the Obligor thereon, enforceable against such Obligor to pay the
full Principal Amount thereof in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or law);
(q) as of the related Payment Date, neither the Company nor the
applicable Seller has (i) taken any action that would impair the
rights of the Administrative Agent or the Participants or (ii) failed
to take any action that was necessary to avoid impairing the rights
therein of the Administrative Agent or the Participants;
(r) each of the representations and warranties made in the
Receivables Sale Agreement by the applicable Seller with respect to
such Receivable is true and correct in all material respects; and
(s) at the time such Receivable was sold by the applicable
Seller to the Company under the Receivables Sale Agreement, no event
described in paragraph (e) of Article VII of the Receivables Sale
Agreement (without giving effect to any requirement as to the passage
of time) had occurred with respect to such Seller.
<PAGE>
11
"Environmental Laws": all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened
release of any Hazardous Material or to health and safety matters.
"Environmental Liability": of any Person, any liability, contingent
or otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of such Person or any
Subsidiary thereof directly or indirectly resulting from or based upon (a)
violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials,
(c) exposure to any Hazardous Materials, (d) the release or threatened
release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which
liability is assumed or imposed with respect to any of the foregoing.
"Equipment": as defined in subsection 2.1(c)(i) of the Receivables
Transfer Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.
"ERISA Affiliate": with respect to any Person, any trade or business
(whether or not incorporated) that is a member of a group of which such
Person is a member and which is treated as a single employer under Section
414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA
and Section 412 of the Code, is treated as a single employer under Section
414 of the Code.
"ERISA Event": for any Person, (a) any "reportable event," as defined
in Section 4043 of ERISA or the regulations issued thereunder with respect
to a Plan (other than an event for which the 30-day notice period is
waived); (b) the existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302
of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence
by such Person or any of its ERISA Affiliates of any liability under Title
IV of ERISA with respect to the termination of any Plan; (e) the receipt by
such Person or any ERISA Affiliate from the PBGC or a plan administrator of
any notice relating to an intention to terminate any Plan or Plans or to
appoint a trustee to administer any Plan; (f) the incurrence by such Person
or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or
(g) the receipt by such Person or any ERISA Affiliate of any notice, or the
receipt by any
<PAGE>
12
Multiemployer Plan from such Person or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
"Eurodollar Participating Interest": with respect to any Participant,
that portion of its Participating Interest in the Receivables with respect
to which the Purchase Discount Amount is determined by reference to the
Adjusted LIBO Rate.
"Excess Amount": at any time, with respect to any Obligor, the excess
(if any) of (a) the aggregate outstanding Principal Amount of the Eligible
Receivables owing by such Obligor as of the most recent Settlement Period
End Date over (b) the Applicable Obligor Percentage of the aggregate
----
outstanding Principal Amount as of such Settlement Period End Date of all
Eligible Receivables, in each case originated by Sellers as to which the
Effective Date has occurred, which amount shall be recalculated, as of such
Settlement Period End Date, in the event the Effective Date occurs with
respect to any Seller after such date and prior to the next Settlement
Period End Date.
"Excess Application Amount": as defined in subsection 2.12(c) of the
Receivables Transfer Agreement.
"Excluded Taxes": with respect to the Administrative Agent and any
Participant or any other recipient of any payment to be made by or on
account of any obligation of the Company, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America,
or by the jurisdiction under the laws of which such recipient is organized
or in which its principal office is located or, in the case of any
Participant, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America and (c) in the
case of a Foreign Participant (other than an assignee pursuant to a request
by the Company under subsection 3.5 of the Receivables Transfer Agreement),
any withholding tax that is imposed on amounts payable to such Foreign
Participant at the time such Foreign Participant becomes a party to the
Receivables Transfer Agreement or is attributable to such Foreign
Participant's failure or inability to comply with subsection 3.4(e) of the
Receivables Transfer Agreement), except (i) to the extent that such Foreign
Participant's assignor (if any) was entitled, at the time of assignment, to
receive additional amounts from the Company with respect to such
withholding tax pursuant to subsection 3.4(a) of the Receivables Transfer
Agreement or (ii) such withholding taxes are imposed as a result of the
Participating Interests being characterized as anything other than
indebtedness for United States federal income tax purposes.
<PAGE>
13
"Federal Funds Effective Rate": for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
quotations for the day of such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by
it.
"Financial Officer": of any corporation, the chief financial officer,
principal accounting officer, treasurer, assistant treasurer or controller
of such corporation.
"Fixed Tranche": a portion of the Net Investment on which the rate at
which the Purchase Discount Amount accrues is based upon the Adjusted LIBO
Rate.
"Floating Tranche": that portion of the Net Investment not allocated
to a Fixed Tranche and the Purchase Discount Amount in respect of which is
based upon the ABR.
"Force Majeure Delay": with respect to any Servicer or the Master
Servicer, any cause or event which is beyond the control and not due to the
negligence of such Servicer or the Master Servicer, as the case may be,
which delays, prevents or prohibits such Person's delivery of Daily Reports
and/or Settlement Statements, as the case may be, including, without
limitation, computer, electrical and mechanical failures, acts of God or
the elements and fire; provided, that no such cause or event shall be
--------
deemed to be a Force Majeure Delay unless the affected Servicer or Master
Servicer shall have given the Company and the Administrative Agent written
notice thereof as soon as possible after the beginning of such delay.
"Foreign Participant": any Participant or Administrative Agent that
is organized under the laws of a jurisdiction other than that in which the
Company is located. For purposes of this definition, the United States of
America, each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
"GAAP": generally accepted accounting principles in the United States
of America.
"Governmental Authority": the government of the United States of
America, any other nation or any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive,
<PAGE>
14
legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Government Obligor": the United States government or any state or
local government or any subdivision thereof, or any agency, department or
instrumentality thereof.
"Guarantee": of or by any Person (the "guarantor") any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to
purchase (or to advance or supply funds for the purchase of) any security
for the payment thereof, (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness or
other obligation of the payment thereof, (c) to maintain working capital,
equity capital or any other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of
any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term "Guarantee" shall not
--------
include endorsements for collection or deposit in the ordinary course of
business.
"Hazardous Materials": all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos-
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement": any interest rate protection agreement, foreign-
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Incipient Purchase Termination Event": any condition or act
specified in Article VII of the Receivables Sale Agreement that, with the
giving of notice or the lapse of time or both, would become a Purchase
Termination Event.
"Increase in Net Investment": for any applicable Closing Date, the
Dollar amount by which the Net Investment of the Participants is being
increased on such Closing Date.
<PAGE>
15
"Indebtedness": of any Person, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned or acquired by
such Person, whether or not the Indebtedness secured thereby has been
assumed, (g) all Guarantees by such Person of Indebtedness of others, (h)
all Capital Lease Obligations of such Person, (i) all obligations,
contingent or otherwise, of such Person as an account party in respect of
letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances.
The Indebtedness of any Person shall include the Indebtedness of any other
entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Liabilities": as defined in subsection 9.3 of the
Receivables Sale Agreement.
"Indemnified Taxes": Taxes other than Excluded Taxes.
"Indemnitee": as defined in subsection 11.3(b) of the Receivables
Transfer Agreement.
"Initial Acquisition Date": as defined in subsection 12.1(b)(ii) of
the Receivables Transfer Agreement.
"Initial Deposit Account": as defined in subsection 12.1(b)(i) of the
Receivables Transfer Agreement.
"Initial Sellers": the Sellers with an applicable Effective Date of
the Commencement Date.
"Insolvency Event": the occurrence of any event of the type described
in paragraph (e) of Article VII of the Receivables Sale Agreement.
"Invested Percentage": a fraction the numerator of which is Net
Investment and the denominator of which is Aggregate Eligible Receivables.
<PAGE>
16
"Investment Earnings": as defined in subsection 2.7(a)(iii) of the
Receivables Transfer Agreement.
"LIBO Rate": with respect to a Fixed Tranche for any Transfer Period,
the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations
of interest rates applicable to Dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Transfer Period, at the rate for Dollar
deposits with a maturity comparable to such Transfer Period. In the event
that such rate is not available at such time for any reason, then the "LIBO
----
Rate" with respect to a Fixed Tranche for any Transfer Period shall be the
----
rate at which Dollar deposits of $5,000,000, and for a period comparable to
the applicable Transfer Period are offered by the principal London office
of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Transfer Period.
"Lien": with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset and (c) in the case of securities,
any purchase option, call or similar right of a third party with respect to
such securities.
"Margin Stock": as defined in Regulation U.
"Master Servicer": WMI, in its capacity as master servicer under the
Receivables Transfer Agreement.
"Material Adverse Effect": (i) a materially adverse effect on the
business, operations, property or condition (financial or otherwise) of WMI
and its Subsidiaries taken as a whole or on the Company, (ii) a material
impairment of the ability of the Company, the Master Servicer, any
Servicer, or the Sellers, taken as a whole, to perform their obligations
under the Transaction Documents, (iii) a material impairment of the
validity or enforceability of any of the Transaction Documents against any
such Person, (iv) a material impairment of the collectibility of the
Receivables taken as a whole or (v) a material impairment of the interests,
rights or remedies of the Administrative Agent or the Participants under or
with respect to the Receivables or the Transaction Documents.
<PAGE>
17
"Material Indebtedness": for any Person, Indebtedness of, commitments
providing for the incurrence of Indebtedness by, or obligations in respect
of one or more Hedging Agreements, of any one or more of such Person and
its Subsidiaries in a principal amount exceeding, individually or in the
aggregate, $100,000,000; for purposes of determining Material Indebtedness,
the "principal amount" of the obligations of such Person or any Subsidiary
in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that such Person
or such Subsidiary would be required to pay if such Hedging Agreement were
terminated at such time.
"Maximum Commitment": $550,000,000, as such amount may be reduced
pursuant to subsection 2.10 of the Receivables Transfer Agreement.
"Maximum Invested Percentage": at a particular date, 100% minus the
-----
sum of (a) 18% and (b) following the occurrence of each Reserve Event, an
additional 1% for each Reserve Event.
"Maximum Transfer Amount": at a particular date, the lesser of (a)
the Maximum Commitment at such date and (b) the product of (i) the Maximum
Invested Percentage at such date and (ii) Aggregate Eligible Receivables as
of the close of business on the Business Day preceding such date.
"Minimum Equity Amount": $150,000,000.
"Monthly Servicing Fee": for each Settlement Period, the product of
(a) the number of days in such period, (b) 1% and (c) the average daily
principal balance of Purchased Receivables during such period divided by
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365.
"Moody's": Moody's Investors Service, Inc. and its successors.
"Multiemployer Plan": with respect to any Person, a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Investment": at any time, (i) when used with respect to all
Participants, the excess, if any, of (a) the aggregate of the amounts paid
by the Participants pursuant to subsection 2.3 of the Receivables Transfer
Agreement over (b) the aggregate amount of Receivable Proceeds distributed
----
to the Participants in payment of the Net Investment pursuant to the
Receivables Transfer Agreement and (ii) when used with respect to a
Participant, the excess, if any, of (a) the aggregate of the amounts paid
by such Participant pursuant to subsection 2.3 of the Receivables Transfer
Agreement over (b) the aggregate amount of Receivable Proceeds distributed
----
to such Participant in payment of the Net Investment pursuant to the
Receivables Transfer Agreement.
<PAGE>
18
"Obligor": with respect to any Receivable, the Person or Persons
obligated to make payments with respect to such Receivable, including any
guarantor thereof.
"Other Taxes": (i) any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made under the Receivables Transfer Agreement or
from the execution, delivery or enforcement of, or otherwise with respect
to, the Transaction Documents or (ii) any and all Taxes imposed directly or
indirectly on any Participant as a result of the Participating Interests
being characterized as anything other than indebtedness for United States
federal income tax purposes (including, without limitation, any taxes on
any entity deemed to have been created pursuant to the Receivables Transfer
Agreement).
"Partial Servicing Transfer": as defined in subsection 12.2(d) of the
Receivables Transfer Agreement.
"Participant": the Persons listed on Schedule 1 to the Receivables
Transfer Agreement and any other Person that shall have become a party to
the Receivables Transfer Agreement pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party thereto
pursuant to an Assignment and Acceptance.
"Participating Interest": as defined in subsection 2.2 of the
Receivables Transfer Agreement.
"Payment Date": as defined in subsection 2.3(a) of the Receivables
Sale Agreement.
"PBGC": the Pension Benefit Guaranty Corporation, referred to and
defined in ERISA, and any successor entity performing similar functions.
"Permitted Liens": Liens created pursuant to the Receivables Transfer
Agreement or the Receivables Sale Agreement and any other Liens securing
obligations not in excess of $100,000 in the aggregate (with respect to all
Receivables) at any time outstanding.
"Person": any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan": with respect to any Person, any employee pension benefit plan
(other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of
which the Person or any ERISA Affiliate is (or, if such plan were
terminated,
<PAGE>
19
would under Section 4069 of ERISA be deemed to be) an "employer" as defined
in Section 3(5) of ERISA.
"Policies": with respect to any Seller which has set forth its credit
and collection policies in writing, such written credit and collection
policies as they have been applied by such Seller in the ordinary course of
its business prior to the Commencement Date and, with respect to any Seller
which has not set forth its credit and collection policies in writing, its
credit and collection policies as in effect and applied by such Seller in
the ordinary course of its business prior to the Commencement Date, in each
case as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the Receivables Transfer Agreement and the
Receivables Sale Agreement.
"Pooled Property": as defined in subsection 2.1(a) of the Receivables
Transfer Agreement.
"Potential Termination Event": any Termination Event and any event or
condition that upon notice, lapse of time or both would constitute a
Termination Event.
"Prime Rate": the rate of interest per annum publicly announced from
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.
"Principal Amount": with respect to any Receivable, the amount due
thereunder (expressed in Dollars), net of any available prompt payment
discount, volume discount or other promotional discount or rebate.
"Purchase Discount Amount": a purchase discount which (a) accrues to
the Participants in respect of the Participating Interest on the
outstanding amount of the Net Investment; (b) is payable in arrears on each
Purchase Discount Amount Payment Date (both prior to and after the
commencement of the Amortization Period) occurring during the period
commencing on the date of the first transfer and assignment of the
Participating Interest in Receivables and Related Property pursuant to
subsection 2.3(a) of the Receivables Transfer Agreement and ending on the
date on which the Net Investment is equal to zero and the Commitments of
the Participants have terminated; and (c) is calculated at a rate per annum
equal to: (i) in respect of that portion of the Net Investment allocated
to any Fixed Tranche, the sum of the Adjusted LIBO Rate with respect
thereto plus the Applicable Eurodollar Margin and (ii) in respect of that
----
portion of the Net Investment not allocated to any Fixed Tranche, ABR in
effect from time to time during the period for which payment is made.
<PAGE>
20
"Purchase Discount Amount Payment Date": (a) as to the Floating
Tranche, each Settlement Date, (b) as to any Fixed Tranche having a
Transfer Period of one, two or three months, the last day of such Transfer
Period and (c) as to any Tranche, any date on which the principal portion
of the Net Investment represented thereby is paid, prepaid or is otherwise
due (by mandatory prepayment, acceleration or otherwise).
"Purchased Receivables Collections": as defined in subsection
12.1(b)(i) of the Receivables Transfer Agreement.
"Purchase Price": as defined in subsection 2.2 of the Receivables
Sale Agreement.
"Purchase Termination Event": as defined in Article VII of the
Receivables Sale Agreement.
"Purchased Receivable": any Receivable sold transferred, assigned or
conveyed or purported to be sold, transferred, assigned or conveyed to the
Company by any Seller pursuant to, and in accordance with the terms of, the
Receivables Sale Agreement and not resold to such Seller pursuant to
subsection 2.1(b) or 2.6 thereof.
"Rating Agencies": Moody's and S&P.
"Receivables": the indebtedness and payment obligations of any Person
to a Seller (including, without limitation, obligations constituting an
account or general intangible or evidenced by a note, instrument, contract,
security agreement, chattel paper or other evidence of indebtedness or
security) arising from a sale of merchandise or the provision of services
by a Seller, including, without limitation, any right to payment for goods
sold or for services rendered, whether or not it has been earned by
performance, and including the right to payment of any interest, sales
taxes, finance charges, returned check or late charges and other
obligations of such Person with respect thereto.
"Receivable Assets": as defined in subsection 2.1(a) of the
Receivables Sale Agreement.
"Receivable Proceeds": as defined in subsection 2.7(b) of the
Receivables Transfer Agreement.
"Receivables Property": as defined in subsection 2.1(a) of the
Receivables Transfer Agreement.
"Receivables Sale Agreement": the Receivables Sale Agreement, dated
as of December 29, 1997, among the Sellers, the Master Servicer and the
<PAGE>
21
Company, as buyer, as amended, supplemented or otherwise modified from time
to time.
"Receivables Sale Agreement Guarantee": the Seller Guarantee, dated
as of December 29, 1997, executed by the Seller Guarantors party thereto in
favor of the Company, as amended, supplemented or otherwise modified from
time to time.
"Receivables Transfer Agreement": the Receivables Transfer and
Servicing Agreement, dated as of December 29, 1997, among the Company, as
seller, the Master Servicer, the Servicers, the Participants and the
Administrative Agent, as amended, supplemented or otherwise modified from
time to time.
"Recoveries": amounts collected (net of out-of-pocket costs of
collection) in respect of Defaulted Receivables.
"Reduction Date": as defined in subsection 2.11(b) of the Receivables
Transfer Agreement.
"Register": as defined in subsection 11.4(c) of the Receivables
Transfer Agreement.
"Regulation G, T, U or X": Regulation G, T, U or X, respectively, of
the Board as from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Related Property":
(A) all goods (including returned goods), if any, relating to
the sale which gave rise to any Receivable;
(B) all other security interests or Liens and property subject
thereto from time to time purporting to secure payment of any
Receivable, whether pursuant to the contract related to such
Receivable or otherwise or pursuant to any obligations evidenced by a
note, instrument, contract, security agreement, chattel paper or other
evidence of indebtedness or security and the proceeds thereof,
together with all financing statements or similar instruments signed
by an Obligor describing any collateral securing such Receivable; and
(C) all guarantees, insurance and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of any Receivable whether pursuant to the contract
related to such Receivable or otherwise or pursuant to any obligations
evidenced by a note, instrument, contract, security
<PAGE>
22
agreement, chattel paper or other evidence of indebtedness or security
and the proceeds thereof.
"Replacement Facility": as defined in subsection 12.6(g) of the
Receivables Transfer Agreement.
"Reportable Event": any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code).
"Reporting Day": as defined in subsection 12.5(a) of the Receivables
Transfer Agreement.
"Repurchase Amount": as defined in subsection 2.6 of the Receivables
Sale Agreement.
"Repurchase Event": as defined in subsection 2.6 of the Receivables
Sale Agreement.
"Request for Transfer and Assignment": as defined in subsection
2.3(b) of the Receivables Transfer Agreement.
"Required Participants": Participants having Commitment Percentages
the sum of which, in the aggregate, equals at least 51%.
"Requirement of Law": as to any Person, for any Person, the
certificate or articles of incorporation and by-laws or other
organizational or governing documents of such Person, and any law, treaty,
rule or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Reserve Amount": for any Business Day in any Settlement Period which
occurs prior to the Settlement Date occurring in such Settlement Period,
the product of (x) the lesser of (i) the number of Business Days (including
such Business Day) which have occurred in such Settlement Period and (ii)
10 and (y) one-tenth of the sum of the amount payable pursuant to clause
(i), (ii) and (iii)(x) of subsection 2.7(b) of the Receivables Transfer
Agreement on the Settlement Date and/or Purchase Discount Payment Dates
occurring during such Settlement Period (which amount shall be adjusted for
any increases and decreases in the Net Investment, including any such
increases and decreases which occur after the tenth Business Day of such
Settlement Period).
<PAGE>
23
"Reserve Event": any event specified on Exhibit B to the Receivables
Transfer Agreement.
"Responsible Officer": with respect to any Person, the Chairman or
Vice Chairman of the Board, President, Chief Financial Officer, any
Controller, Principal Accounting Officer, Treasurer, Assistant Treasurer,
Secretary or Authorized Signatory of such Person.
"Restricted Payments": as defined in subsection 8.7 of the
Receivables Transfer Agreement.
"Retransfer Payment": as defined in subsection 5.3(b) of the
Receivables Transfer Agreement.
"S&P": Standard & Poor's Ratings Services and its successors.
"Sale Transactions": the execution, delivery and performance by each
of the Sellers of the Receivables Sale Agreement and each of the other
Transaction Documents to which it is a party, the sale of Receivables by
each Seller thereunder and the consummation of the other transactions
contemplated by any of the foregoing.
"Scheduled Termination Date": June 30, 1998.
"SEC": means the Securities and Exchange Commission.
"Seller Addition Date": as defined in subsection 3.4 of the
Receivables Sale Agreement.
"Seller Adjustment Payment": as defined in subsection 2.5 of the
Receivables Sale Agreement.
"Seller Guarantors": WMI and WMNA.
"Seller Repurchase Payment": as defined in subsection 2.6 of the
Receivables Sale Agreement.
"Sellers": the collective reference to WMI, in its capacity as a
Seller under the Receivables Sale Agreement, the Subsidiaries of WMI listed
as Sellers on Schedule 1 to the Receivables Sale Agreement and any
Subsidiaries of WMI which have been added as Sellers in accordance with the
provisions of the Receivables Sale Agreement and the other Transaction
Documents, all of the foregoing in their capacities as Sellers under the
Receivables Sale Agreement; each, individually, a "Seller".
<PAGE>
24
"Servicer Default": any Servicer Event of Default and any event or
condition that upon notice, lapse of time or both would constitute a
Servicer Event of Default.
"Servicer Event of Default": as defined in subsection 12.11 of the
Receivables Transfer Agreement.
"Servicer Transfer Payment": as defined in subsection 12.7(b) of the
Receivables Transfer Agreement.
"Servicers": initially each of WMI and WMNA in its capacity as a
servicer together with any other Person which has been added as a Servicer
in accordance with the provisions of the Receivables Transfer Agreement, in
their capacities as servicers under the Receivables Transfer Agreement.
"Servicing Transactions": the execution, delivery and performance by
the Master Servicer or any Servicer of each of the Transaction Documents to
which the Master Servicer or any Servicer is a party and the servicing and
collection of the Receivables under the Receivables Transfer Agreement and
the consummation of the other transactions contemplated by any of the
foregoing.
"Settlement Date": with respect to any calendar month, the day that
is 20 calendar days following the last day of such calendar month (or, if
such 20th calendar day is not a Business Day, the next succeeding Business
Day).
"Settlement Period": each fiscal month of the Master Servicer
(including fiscal months occurring prior to the Commencement Date).
"Settlement Period End Date": at any time, the last day of the most
recent Settlement Period for which a Settlement Statement has been
delivered (or until the first Settlement Statement is delivered, as of the
last day of November).
"Settlement Statement": as defined in subsection 12.5(b) of the
Receivables Transfer Agreement.
"Settlement Statement Date": with respect to any calendar month for
which a Settlement Statement is required to be prepared, the day that is 15
calendar days following the last day of such calendar month (or, if such
15th calendar day is not a Business Day, the next succeeding Business Day).
"SPC Collection Account": as defined in subsection 12.1(b)(iii) of
the Receivables Transfer Agreement.
<PAGE>
25
"Specified Bankruptcy Opinion Provisions": the provisions contained
in the legal opinion delivered pursuant to subsection 6.1(b)(i) of the
Receivables Transfer Agreement relating to the non-substantive
consolidation of the Master Servicer and its Affiliates and the Company
under the heading "Assumptions of Fact".
"Statutory Reserve Rate": a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages
-----
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative
Agent is subject for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Fixed Tranches shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets which may be available from time to time
to any Participant under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Subordinated Note": as defined in subsection 8.1 of the Receivables
Sale Agreement.
"subsection 11.3(b)(1) Indemnified Liabilities": as defined in
subsection 11.3(b)(i) of the Receivables Transfer Agreement.
"Subsequent Deposit Account": as defined in subsection 12.1(b)(i) of
the Receivables Transfer Agreement.
"Subsidiary": with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well
as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of
the general partnership interests are, as of such date, owned, controlled
or held, or (b) that is, as of such date, otherwise Controlled, by the
parent or one or more subsidiaries of the parent.
"Substitute Servicer": as defined in subsection 12.2(d) of the
Receivables Transfer Agreement.
<PAGE>
26
"Tax Indemnifying Party": as defined in subsection 3.4(a) of the
Receivables Transfer Agreement.
"Taxes": any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Termination Event": as defined in Article IX of the Receivables
Transfer Agreement.
"Tranches": the collective reference to the Floating Tranche and the
Fixed Tranches.
"Transaction Documents": the Receivables Transfer Agreement, the
Receivables Sale Agreement, the Receivables Sale Agreement Guarantee and
the Subordinated Note.
"Transaction Parties": the Company, the Master Servicer, the Sellers,
the Seller Guarantors and the Servicers.
"Transactions": the execution, delivery and performance by the
Company of each of the Transaction Documents to which the Company is a
party, the assignment transfer of the Participating Interests thereunder
and the consummation of the other transactions contemplated by any of the
foregoing.
"Transfer Notice": as defined in subsection 12.2(d) of the
Receivables Transfer Agreement.
"Transfer Period": with respect to any portion of the Net Investment
allocated to a Fixed Tranche:
(a) initially, the period commencing on the Closing Date or
conversion date, as the case may be, with respect to such Fixed
Tranche and ending one, two or three months thereafter (or such
shorter period which is less than one month as the Administrative
Agent in its sole discretion may agree), as selected by the Company in
its notice of Closing Date or notice of conversion, as the case may
be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Transfer Period applicable to such Fixed Tranche and
ending one, two or three months thereafter (or such shorter period
which is less than one month as the Administrative Agent in its sole
discretion may agree), as selected by the Company by irrevocable
notice to the Administrative Agent not less than three Business Days
<PAGE>
27
prior to the last day of the then current Transfer Period with respect
thereto;
provided, that all of the foregoing provisions relating to Transfer Periods
--------
are subject to the following:
(1) if any Transfer Period would otherwise end on a day that is
not a Business Day, such Transfer Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Transfer Period into another calendar month, in which
event such Transfer Period shall end on the next preceding Business
Day;
(2) any Transfer Period that would otherwise extend beyond the
Scheduled Termination Date shall end on the Scheduled Termination
Date; and
(3) any Transfer Period that commences on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Transfer
Period) shall end on the last Business Day of the calendar month of
such Transfer Period.
"Transferred Agreements": as defined in subsection 2.1(b) of the
Receivables Transfer Agreement.
"Transferring Servicer": as defined in subsection 12.2(d) of the
Receivables Transfer Agreement.
"Withdrawal Liability": liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"WMI": Waste Management, Inc., a Delaware corporation.
"WMI Collections": as defined in subsection 12.1(b)(i) of the
Receivables Transfer Agreement.
"WMNA": Waste Management of North America, Inc., an Illinois
corporation.
<PAGE>
EXHIBIT 10.49
WASTE MANAGEMENT, INC.
AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
This amendment dated as of March 10, 1998, to the Employment Agreement
("Agreement") dated as of August 15, 1996, between Waste Management, Inc.
(formerly known as "WMX Technologies, Inc."), a Delaware corporation
("Company"), and Herbert A. Getz ("Executive"):
WITNESSETH
----------
WHEREAS, the Executive is employed with the Company pursuant to the
Agreement;
WHEREAS, the Company and the Executive desire to amend the Agreement as
set forth herein;
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained in this Amendment and in the Agreement, and other
consideration, the parties agree to amend Section 6(c) of the Agreement as
follows:
1. A new second paragraph shall be added to Section 6(c) to read:
"Notwithstanding the foregoing and the fact that circumstances
described in clause (i) above have occurred, and additional changes
described in such clause (i) are likely to occur at or after the
Effective Time (as defined in that Agreement and Plan of Merger among
USA Waste Services, Inc., a wholly-owned subsidiary thereof and the
Company, dated as of March 10, 1998 (the "Merger Agreement")),
Executive agrees that he will not deliver a written notice of
termination to the Company with respect to any action described in (i)
above prior to the earlier of: (A) the date of termination of the
Merger Agreement or abandonment of the merger contemplated thereby, or
(B) June 30, 1999. Nothing in the foregoing sentence shall (I)
constitute Executive's written consent to any actions described in
clause (i), regardless of when such actions occurred or occur, or (II)
alter in any manner whatsoever Executive's ability to deliver a written
notice of termination at any time after the occurrence of any event
described in clauses (ii), (iii) or (iv) above, or to deliver a written
notice at any time after the date described in clause (A) or (B) above
with respect to any event described in clause (i) above, regardless of
when such event occurred or occurs."
<PAGE>
2. The final paragraph of Section 6(c) is hereby amended in its
entirety to read:
"During the remainder of the Term, the Executive (or in the event of
his death, the Executive's beneficiary) shall be entitled to receive
annual payments equal to $900,000 which annual amount shall be payable
ratably at intervals not less frequently than monthly. Such amounts
shall be in lieu of all salary, bonuses or long-term incentive or
performance based compensation for the remainder of the Term, other
than any annual or long-term incentives which may become payable under
the terms thereof with respect to any performance period which is
on-going at the time written notice of termination is given under this
Section 6(c) taking into account Executive's employment for the
remainder of the Term. In addition, the Executive's outstanding stock
options shall be accelerated and shall be 100% vested and the Executive
shall be treated as having retired on the last day of the Term for the
purposes of the Company's stock option plans applicable to such stock
options. Further, for the remainder of the Term the Executive and his
family shall continue to participate in all employee welfare benefit
plans generally available to employees and executives of the Company in
accordance with the terms of such welfare benefit plans, and all
service earned by such Executive during the remainder of the Term shall
be credited for participation, vesting and benefit accrual under all
employee pension benefit plans maintained by the Company to which the
Executive is entitled to participate in accordance with their terms,
including without limitation the SERP."
3. Section 6(d)(ii) is hereby amended in its entirety to read:
In the event of a Change of Control, (other than a Change in Control
resulting from the merger contemplated by the Merger Agreement (as
defined in Subsection 6(c)), the Executive may elect at any time during
the Term to terminate this Agreement and receive, in lieu of base
compensation a lump sum payment equal to three (3) times the average of
the Executive's annual compensation (including annual and long term
bonuses) from the Company for the five (5) calendar years ending prior
to the date of the Change of Control. Such amount shall be paid to the
Executive within thirty (30) days after the date the Executive notifies
the Company in
2
<PAGE>
writing of his election to terminate this Agreement pursuant to this
Subsection 6(d). In the event that the Executive does not elect to
terminate this Agreement and elect the lump sum payment provided
herein, the provisions of Subsection 6(c) shall remain in effect.
4. Except to the extent expressly amended hereby, the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Employment Agreement, as of the day and year first written above.
WASTE MANAGEMENT, INC.
By: /s/ Robert S. Miller /s/ Herbert A. Getz
----------------------------- -----------------------------
Chairman of the Board Herbert A. Getz
3
<PAGE>
Exhibit 10.50
November 25, 1997
Mr. Herbert A. Getz
3003 Butterfield Road
Oak Brook, Illinois 60523
Re: Loan and Indemnification Agreement
Dear Herb:
You currently hold options to acquire 240,000 shares of the common stock of
Wheelabrator Technologies Inc. ("WTI") at an option exercise price of $8.9031
per share, under the 1986 Stock Plan for Executive Employees of Wheelabrator
Technologies Inc. and its Subsidiaries (the "WTI 1986 Plan"). These grants of
stock options expire on November 30, 1997. Ordinarily, you could exercise these
options and sell the shares of common stock of WTI that you would receive (the
"WTI Option Shares") and benefit from the increase in the price of WTI's common
stock that has resulted from, among other things, the pending offer by Waste
Management, Inc. (the "Company") to acquire all of the publicly held shares of
common stock of WTI (the "WTI Offer"). However, under the Company's securities
trading policy, you have been denied the ability to sell the WTI Option Shares
while the negotiation of the WTI Offer is pending. As a result of this
unforeseeable conjunction of the impending expiration of the WTI options, the
Company's pending negotiations with WTI, and the Company's securities trading
policy, the Board of Directors of the Company has determined that it would be
appropriate to preserve for you the ability to benefit from the value of your
WTI options and to hold you harmless from the adverse consequences of the
Company's requirement that you comply with the Company's securities trading
policy. Accordingly, the Board of Directors has authorized me, on behalf of the
Company, to enter into an agreement with you upon the following terms and
conditions.
Upon the terms of the Promissory Note and Security Agreement attached
hereto as Exhibit 1 (the "Note"), the Company will loan you $2,136,744, the
aggregate exercise price of your WTI options, to be used solely for payment of
the aggregate exercise price of your WTI options. This loan will be fully
collaterized by a security interest in such number of WTI Option Shares that,
valued at $15.375, yesterday's closing price, shall be equal to the principal
amount of the loan. You will also surrender a sufficient number of shares of WTI
common stock to WTI to satisfy applicable federal and state income tax
withholding requirements, pursuant to the terms of the WTI 1986 Plan. To hold
you harmless from the risk that the Company's securities trading policy would
deny you the ability to sell the WTI Option Shares for at least the amount of
the Company's lowest publicly-disclosed offer price in the WTI Offer (the
"Lowest Offer Price"), the Company hereby agrees to indemnify you to the extent
that the market price for WTI common stock on the date that you receive
clearance to sell the WTI Option Shares is below the Lowest Offer Price (the
"Sale Price Indemnification"). The Company will also indemnify you for the
interest due on the Note, and any consequence resulting from the federal and
state income and
<PAGE>
payroll taxation on the imputation of interest income and income from the Sale
Price Indemnification, if any. These income items will be grossed-up for federal
and state income and payroll tax purposes and added to your Form W-2.
If you agree with the terms of this agreement, please indicate your
acceptance of the agreement by signing below, and by executing and delivering
the attached Promissory Note and Security Agreement, UCC-1 forms, and option
exercise forms on or before November 28, 1997.
Very truly yours,
WASTE MANAGEMENT, INC.
By: /s/ Peer Pedersen
------------------------
Peer Pedersen
Chairman, Compensation and Stock Option Committee
AGREED AND ACCEPTED:
/s/ Herbert A. Getz
- -------------------------
Herbert A. Getz
<PAGE>
EXHIBIT 10.51
WASTE MANAGEMENT, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 9th
day of February, 1998, between WASTE MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Paul G. George (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive is serving as Senior Vice President-Human Resources
of Waste Management, Inc.; and
WHEREAS, the Executive has extensive experience with respect to the field
of human resources and related fields which the Company considers extremely
valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will have the Executive
available to perform for the Company and its subsidiaries duties as Senior Vice
President-Human Resources; and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company (hereinafter the "Employer") shall employ the
Executive as an employee at will upon the terms and conditions hereinafter set
forth. The Executive shall perform such duties and responsibilities for the
Employer which are commensurate with his position as may be assigned him by the
Company's Chief Executive Officer and shall serve as a member of the Executive
Committee of the Company. The Executive shall report to the Chief Executive
Officer of the Company. Incident to the performance of such duties, the
Executive shall be provided by the Employer with office space, facilities and
secretarial assistance commensurate with that currently being provided to the
Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days' prior written notice to the
other, on March 10, 1998 and on each successive March 10, the Term of this
Agreement shall be renewed for a period ending on the earlier of (i) the date
two (2)
<PAGE>
years from such March 10, or (ii) the date of the Executive's 62nd
birthday on which birthday this Agreement shall terminate unless earlier
terminated in accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be payable
at intervals not less often than semi-monthly. The Executive's salary shall
initially be $350,000 per annum and thereafter be established by either the
Compensation and Stock Option Committee of the Board of Directors of the Company
(subject to approval by the full Board) or, in the event Executive is not among
the Company officers whose compensation is subject to review by the Compensation
and Stock Option Committee of the Board, by the Executive Committee of the
Company (the applicable committee being referred to herein as the "Committee")
and all adjustments thereto and all aspects of the Executive's incentive or
performance compensation shall be established by the Committee in its sole
discretion. In the event there is no Committee in existence at any time, the
term Committee shall be deemed to refer to the Chief Executive Officer of the
Company. During the Term, the Executive shall also receive such benefits and
perquisites (the "Benefits") which are made available to similarly positioned
executives of the Employer including, without limitation, incentive
compensation, loans, awards, insurance, stock options, stock purchase plans,
benefits from qualified plans or non-qualified plans or other benefit plans now
or hereafter existing which are adopted by the Employer for the benefit of its
employees generally and for the benefit of the Employer's officers, all such
Benefits to be provided in such amounts as may be determined from time to time
by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his
full time, attention and energy to the business of the Employer and the
Executive shall not be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage which activity interferes with the
Executive's duties and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
------------------------------------
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chief Executive Officer) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the Term
conducted by the Company or any of its subsidiaries or Affiliates as defined
below. Notwithstanding the foregoing, Executive shall be entitled to own
securities of any corporation conducting a business competitive with the
business of the Company or any of its subsidiaries or Affiliates so long as the
securities of such corporation are listed on a national securities exchange and
the securities owned directly or indirectly by Executive do not represent more
than two percent (2%) of any class of the outstanding securities of such
company.
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or
2
<PAGE>
indirectly will (i) directly or indirectly induce any customers of the Company
or of corporations or businesses which directly or indirectly control or are
controlled by or under common control with the Company ("Affiliates") to
patronize any business similar to that of the Company, (ii) canvass, solicit or
accept any similar business from any customer of the Company or any Affiliates,
(iii) directly or indirectly request or advise any customer of the Company or
Affiliates to withdraw, curtail or cancel such customer's business with the
Company or Affiliates, (iv) directly or indirectly disclose to any other person,
firm or corporation the names or addresses of any of the customers of the
Company or Affiliates, or (v) compete with the Company or Affiliates in
acquiring or merging with any other business or acquiring the assets of such
other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
-----------
(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.
3
<PAGE>
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:
(i) a change in the Executive's duties, title or responsibilities,
or a change in the Executive's reporting relationships, either
of which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment
to the Company within three months of such event (which notice shall be
effective even if such three months expire after the end of the Term). In
the event of notice being given by the Employer or Executive under this
Subsection 7(c) within one year of Executive's initial employment with the
Employer, and subject to the execution and delivery by Executive to the
Company of the release described in Section 10 hereof, the Company shall
provide
4
<PAGE>
Executive with the severance compensation and benefits set forth in
(u), (w), (x), (y), and (z) below. In the event of notice being given by
the Employer or Executive under this Subsection 7(c) after one year of
Executive's initial employment with the Employer, subject to the execution
and delivery by Executive to the Company of the release described in
Section 10 hereof, the Company shall provide Executive with severance
compensation and benefits set forth in (u)-(z) below:
(u) Executive shall receive an amount equal to his then current base
salary for two years, payable at intervals not less frequently than
monthly over a period of two years following the end of the Term (such
period of payment to be referred to herein as the "Severance Period");
(v) with respect to any participation rights in the Company's annual
or long-term incentive plans which have been awarded to Executive
prior to the end of the Term, Executive shall be entitled to receive a
prorated award under any such plan, payable if and when awards are
paid to other similarly positioned officers of the Employer, such
proration to be determined by dividing the number of whole or partial
months the Executive is employed during the incentive compensation
performance period by the total number of months in the incentive
compensation performance period;
(w) with respect to Executive's stock options, the exercisability of
Executive's outstanding stock options shall be accelerated, and such
options shall remain exercisable during the Severance Period (unless
they shall otherwise expire earlier by their terms) and such options
shall otherwise be treated in accordance with the terms of their
respective grants;
(x) the Executive's medical, dental and vision Benefits shall be
continued on the same basis as offered to active salaried employees
for the Severance Period or until such earlier time as the Executive
becomes employed and eligible for such benefits under a plan of the
new employer, and continuation coverage under COBRA shall commence at
the end of the Severance Period; and
(y) credit for vesting and benefit service under the Company's
Supplemental Executive Retirement Plan shall be provided to Executive
for the Severance Period; and
(z) all other Benefits shall be paid or continued only to the extent
the terms thereof provide for payment or continuation following the
termination of employment.
5
<PAGE>
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
voluntary termination, (ii) pay all incentive compensation earned by the
Executive for performance periods which are completed prior to the date of
voluntary termination, at such times and on the same basis amounts as such
incentive compensation becomes payable to other executives of the Employer and
(iii) pay or make available to the Executive all Benefits which by their terms
or under applicable law survive the voluntary termination of the Executive's
employment; and the Executive shall remain bound by his non-disclosure, non-
solicitation and non-competition covenants set forth in Sections 5 and 6 hereof.
The exercisability of the Executive's outstanding stock options shall be treated
in accordance with the terms of their respective grants or awards, except that
in the case of retirement on or after age 62, the Company will recommend to the
Compensation and Stock Option Committee of the Board of Directors of the Company
that the exercisability of Executive's outstanding stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. EXCISE TAX. In the event that an excise tax ("Excise Tax") is imposed
on Executive under Section 4999 of the Internal Revenue Code (or any successor
provision of like import) on the payments due under Subsection 7(c)
(collectively, the "Payments"), Executive shall be paid an additional amount
("Gross Up") no later than 30 days prior to the date such Excise Tax is due,
such that the net amount retained by Executive after deduction of the Excise Tax
on the Payments and any federal and state income taxes on the Payments and the
Gross Up shall be equal to the Payments. For purposes of determining the Gross
Up, Executive shall be deemed to pay federal and state income taxes at the
highest marginal rate of taxation in the calendar year in which the Payments or
Gross Up is to be made. The opinion of whether such Excise Tax is payable and
the amount thereof shall be based upon a "substantial authority opinion" of tax
counsel selected by the Company and reasonably acceptable to Executive. If such
opinion is not finally accepted by the IRS upon audit, then appropriate
adjustments shall be computed (with Gross Up) by tax counsel based upon the
final amount of Excise Tax so
6
<PAGE>
determined. The amount shall be paid by the appropriate party in one lump cash
sum within 30 days of such computation.
10. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) or Section 9 to the contrary and in consideration therefor,
severance benefits and the Gross Up thereunder shall only become payable by the
Company if the Executive executes and delivers to the Company a General Release
and Cooperation Agreement on or after the date of written notice of termination
of Executive's employment or prior to the date the Gross Up is paid, as
applicable, and in substantially the form attached as Exhibit A hereto.
11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below or such other address as
Executive may direct, and if to the Company, c/o Chief Executive Officer, Waste
Management, Inc., 3003 Butterfield Road, Oak Brook, Illinois 60523, with a copy
to the General Counsel, Waste Management, Inc., at the same address.
12. ASSIGNMENT. The Executive may not assign his obligations hereunder.
The rights of the Executive and the rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon their
respective heirs, personal representatives, successors and assigns.
13. MISCELLANEOUS.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
WASTE MANAGEMENT, INC.
By /s/ Robert S. Miller
------------------------------
Robert S. Miller,
Acting Chairman of the Board
/s/ Paul G. George
--------------------------------
Paul G. George
Address: 1101 First Street, Unit 207
Coronado, CA 92118
8
<PAGE>
Exhibit 10.53
WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and James E. O'Connor (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Area
President (Florida) of the Company, employed by Waste Management Inc. of
Florida; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Area President (Florida); and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform such
duties and responsibilities for the Employer which are commensurate with his
position as may be assigned him by the Company's Executive Vice President and
Chief Operating Officer and shall serve as a member of the Management Committee
of the Company. The Executive shall report to the Executive Vice President and
Chief Operating Officer of the Company. Incident to the performance of such
duties, the Executive shall be provided by the Employer with office space,
facilities and secretarial assistance commensurate with that currently being
provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7, the
term of this Agreement (herein the "Term") shall be for a period beginning on
the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days' prior written notice to the
other, on March 10, 1998 and on each successive March 10, the
<PAGE>
Term of this Agreement shall be renewed for a period ending on the earlier of
(i) the date two (2) years from such March 10, or (ii) the date of the
Executive's 62nd birthday on which birthday this Agreement shall terminate
unless earlier terminated in accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be payable
at intervals not less often than semi-monthly. The Executive's salary shall be
established by either the Compensation and Stock Option Committee of the Board
of Directors of the Company (subject to approval by the full Board) or, in the
event Executive is not among the Company officers whose compensation is subject
to review by the Compensation and Stock Option Committee of the Board, by the
Executive Committee of the Company (the applicable committee being referred to
herein as the "Committee") and all adjustments thereto and all aspects of the
Executive's incentive or performance compensation shall be established by the
Committee in its sole discretion. In the event there is no Committee in
existence at any time, the term Committee shall be deemed to refer to the Chief
Executive Officer of the Company. During the Term, the Executive shall also
receive such benefits and perquisites (the "Benefits") which are made available
to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
Notwithstanding the foregoing, Executive shall receive vesting and benefit
service credit under the Company's Supplemental Executive Retirement Plan
("SERP") for the period of his absence from the Company from May 1979 through
December 1981 if (i) he remains employed with the Company or its affiliates
through his 55th birthday, or (ii) prior to his 55th birthday, his employment
with the Company and its affiliates terminates for reasons other than his
resignation or his termination by the Company or an affiliate for cause.
Further, Executive will become vested in his benefit accrued under the SERP in
the event of (i) his death, (ii) disability, (iii) the occurrence of any event
described in subparagraphs 7(c)(i) and 7(c)(ii), or (iv) the elimination of the
SERP by the Company.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full
time, attention and energy to the business of the Employer and the Executive
shall not be engaged in any other business activity pursued for gain, profit or
other pecuniary advantage which activity interferes with the Executive's duties
and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
------------------------------------
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of
<PAGE>
personal services or acts of management, operation or control) which is directly
competitive with the business at any time during the Restricted Period conducted
by the Company or any of its subsidiaries or Affiliates as defined below.
Notwithstanding the foregoing, Executive shall be entitled to own securities of
any corporation conducting a business competitive with the business of the
Company or any of its subsidiaries or Affiliates so long as the securities of
such corporation are listed on a national securities exchange and the securities
owned directly or indirectly by Executive do not represent more than two percent
(2%) of any class of the outstanding securities of such company.
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or businesses which
directly or indirectly control or are controlled by or under common control with
the Company ("Affiliates") to patronize any business similar to that of the
Company, (ii) canvass, solicit or accept any similar business from any customer
of the Company or any Affiliates, (iii) directly or indirectly request or advise
any customer of the Company or Affiliates to withdraw, curtail or cancel such
customer's business with the Company or Affiliates, (iv) directly or indirectly
disclose to any other person, firm or corporation the names or addresses of any
of the customers of the Company or Affiliates, or (v) compete with the Company
or Affiliates in acquiring or merging with any other business or acquiring the
assets of such other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing, it
shall not be deemed a violation of this subsection if a business which employs
Executive hires or attempts to hire an employee of the Affiliates and Executive
has no knowledge of, control over or involvement with such solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not
<PAGE>
copy, reproduce or take with him the original or any copies of said confidential
information and will not disclose any of said confidential information to
anyone.
7. TERMINATION.
-----------
(a) Death or Disability. If the Executive should become physically or
mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall elect
to terminate Executive's employment for any reason other than those specified in
Subsection 7(a) or 7(b), it shall provide written notice of such termination to
Executive. In the event that there occurs without the written consent of the
Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary affecting
the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
<PAGE>
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by Executive to the Company of the release
described in Section 9 hereof, the Company shall provide Executive with
severance compensation and benefits as follows:
(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");
(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;
(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
<PAGE>
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
voluntary termination, (ii) pay all incentive compensation earned by the
Executive for performance periods which are completed prior to the date of
voluntary termination, at such times and on the same basis amounts as such
incentive compensation becomes payable to other executives of the Employer and
(iii) pay or make available to the Executive all Benefits which by their terms
or under applicable law survive the voluntary termination of the Executive's
employment; and the Executive shall remain bound by his non-disclosure, non-
solicitation and non-competition covenants set forth in Sections 5 and 6 hereof.
The exercisability of the Executive's outstanding stock options and the vesting
of the Executive's restricted stock shall be treated in accordance with the
terms of their respective grants or awards, except that in the case of
retirement on or after age 62, the Company will recommend to the Compensation
and Stock Option Committee of the Board of Directors of the Company that the
exercisability of Executive's outstanding stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003
<PAGE>
Butterfield Road, Oak Brook, Illinois 60521, with a copy to the General Counsel,
WMX Technologies, Inc., at the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The
rights of the Executive and the rights and obligations of the Company hereunder
shall inure to the benefit of and shall be binding upon their respective heirs,
personal representatives, successors and assigns.
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions hereof
shall not be deemed a waiver of such provisions or any other provision hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WMX TECHNOLOGIES, INC.
By /s/ Dean L. Buntrock
------------------------------
Dean L. Buntrock,
Chairman of the Board
/s/ James E. O'Connor
--------------------------------
James E. O'Connor
Address: 8190 N.W. 47th Drive
Coral Springs, FL 33067
<PAGE>
EXHIBIT 10.54
WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Luther Michael Collier
(hereinafter referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Area
President (Mid Atlantic) of the Company, employed by Waste Management of
Pennsylvania, Inc.; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Area President (Mid Atlantic); and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform
such duties and responsibilities for the Employer which are commensurate with
his position as may be assigned him by the Company's Executive Vice President
and Chief Operating Officer and shall serve as a member of the Management
Committee of the Company. The Executive shall report to the Executive Vice
President and Chief Operating Officer of the Company. Incident to the
performance of such duties, the Executive shall be provided by the Employer with
office space, facilities and secretarial assistance commensurate with that
currently being provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days' prior written notice to the
other, on March 10, 1998 and on each successive March 10, the Term of this
Agreement shall be renewed for a period ending on the earlier of (i) the date
two (2)
<PAGE>
years from such March 10, or (ii) the date of the Executive's 62nd birthday on
which birthday this Agreement shall terminate unless earlier terminated in
accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be
payable at intervals not less often than semi-monthly. The Executive's salary
shall be established by either the Compensation and Stock Option Committee of
the Board of Directors of the Company (subject to approval by the full Board)
or, in the event Executive is not among the Company officers whose compensation
is subject to review by the Compensation and Stock Option Committee of the
Board, by the Executive Committee of the Company (the applicable committee being
referred to herein as the "Committee") and all adjustments thereto and all
aspects of the Executive's incentive or performance compensation shall be
established by the Committee in its sole discretion. In the event there is no
Committee in existence at any time, the term Committee shall be deemed to refer
to the Chief Executive Officer of the Company. During the Term, the Executive
shall also receive such benefits and perquisites (the "Benefits") which are made
available to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his
full time, attention and energy to the business of the Employer and the
Executive shall not be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage which activity interferes with the
Executive's duties and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or
2
<PAGE>
businesses which directly or indirectly control or are controlled by or under
common control with the Company ("Affiliates") to patronize any business similar
to that of the Company, (ii) canvass, solicit or accept any similar business
from any customer of the Company or any Affiliates, (iii) directly or indirectly
request or advise any customer of the Company or Affiliates to withdraw, curtail
or cancel such customer's business with the Company or Affiliates, (iv) directly
or indirectly disclose to any other person, firm or corporation the names or
addresses of any of the customers of the Company or Affiliates, or (v) compete
with the Company or Affiliates in acquiring or merging with any other business
or acquiring the assets of such other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.
3
<PAGE>
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by Executive to the Company of the release
described in Section 9 hereof, the Company shall provide Executive with
severance compensation and benefits as follows:
4
<PAGE>
(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");
(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;
(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the
5
<PAGE>
Executive's base salary to the date of voluntary termination, (ii) pay all
incentive compensation earned by the Executive for performance periods which are
completed prior to the date of voluntary termination, at such times and on the
same basis amounts as such incentive compensation becomes payable to other
executives of the Employer and (iii) pay or make available to the Executive all
Benefits which by their terms or under applicable law survive the voluntary
termination of the Executive's employment; and the Executive shall remain bound
by his non-disclosure, non-solicitation and non-competition covenants set forth
in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding
stock options and the vesting of the Executive's restricted stock shall be
treated in accordance with the terms of their respective grants or awards,
except that in the case of retirement on or after age 62, the Company will
recommend to the Compensation and Stock Option Committee of the Board of
Directors of the Company that the exercisability of Executive's outstanding
stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything
in Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at
the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder.
The rights of the Executive and the rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon their
respective heirs, personal representatives, successors and assigns.
6
<PAGE>
12. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WMX TECHNOLOGIES, INC.
By /s/ Dean L. Buntrock
-------------------------------------
Dean L. Buntrock,
Chairman of the Board
/s/ Luther Michael Collier
----------------------------------------
Luther Michael Collier
Address: 5 Lakeview Drive
Newton, PA 18940
7
<PAGE>
EXHIBIT 10.55
WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Michael J. Cole (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Area
President (Midwest) of the Company, employed by Waste Management of Illinois,
Inc.; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Area President (Midwest); and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform such
duties and responsibilities for the Employer which are commensurate with his
position as may be assigned him by the Company's Executive Vice President and
Chief Operating Officer and shall serve as a member of the Management Committee
of the Company. The Executive shall report to the Executive Vice President and
Chief Operating Officer of the Company. Incident to the performance of such
duties, the Executive shall be provided by the Employer with office space,
facilities and secretarial assistance commensurate with that currently being
provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7, the
term of this Agreement (herein the "Term") shall be for a period beginning on
the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30
<PAGE>
days' prior written notice to the other, on March 10, 1998 and on each
successive March 10, the Term of this Agreement shall be renewed for a period
ending on the earlier of (i) the date two (2) years from such March 10, or (ii)
the date of the Executive's 62nd birthday on which birthday this Agreement shall
terminate unless earlier terminated in accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be payable
at intervals not less often than semi-monthly. The Executive's salary shall be
established by either the Compensation and Stock Option Committee of the Board
of Directors of the Company (subject to approval by the full Board) or, in the
event Executive is not among the Company officers whose compensation is subject
to review by the Compensation and Stock Option Committee of the Board, by the
Executive Committee of the Company (the applicable committee being referred to
herein as the "Committee") and all adjustments thereto and all aspects of the
Executive's incentive or performance compensation shall be established by the
Committee in its sole discretion. In the event there is no Committee in
existence at any time, the term Committee shall be deemed to refer to the Chief
Executive Officer of the Company. During the Term, the Executive shall also
receive such benefits and perquisites (the "Benefits") which are made available
to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his full
time, attention and energy to the business of the Employer and the Executive
shall not be engaged in any other business activity pursued for gain, profit or
other pecuniary advantage which activity interferes with the Executive's duties
and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
------------------------------------
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.
2
<PAGE>
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or businesses which
directly or indirectly control or are controlled by or under common control with
the Company ("Affiliates") to patronize any business similar to that of the
Company, (ii) canvass, solicit or accept any similar business from any customer
of the Company or any Affiliates, (iii) directly or indirectly request or advise
any customer of the Company or Affiliates to withdraw, curtail or cancel such
customer's business with the Company or Affiliates, (iv) directly or indirectly
disclose to any other person, firm or corporation the names or addresses of any
of the customers of the Company or Affiliates, or (v) compete with the Company
or Affiliates in acquiring or merging with any other business or acquiring the
assets of such other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
-----------
(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die
3
<PAGE>
while an employee of the Employer, this Agreement and Executive's employment
with the Employer shall immediately terminate.
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by
4
<PAGE>
Executive to the Company of the release described in Section 9 hereof, the
Company shall provide Executive with severance compensation and benefits as
follows:
(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");
(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;
(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
5
<PAGE>
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
voluntary termination, (ii) pay all incentive compensation earned by the
Executive for performance periods which are completed prior to the date of
voluntary termination, at such times and on the same basis amounts as such
incentive compensation becomes payable to other executives of the Employer and
(iii) pay or make available to the Executive all Benefits which by their terms
or under applicable law survive the voluntary termination of the Executive's
employment; and the Executive shall remain bound by his non-disclosure, non-
solicitation and non-competition covenants set forth in Sections 5 and 6 hereof.
The exercisability of the Executive's outstanding stock options and the vesting
of the Executive's restricted stock shall be treated in accordance with the
terms of their respective grants or awards, except that in the case of
retirement on or after age 62, the Company will recommend to the Compensation
and Stock Option Committee of the Board of Directors of the Company that the
exercisability of Executive's outstanding stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at
the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder. The
rights of the Executive and the rights and obligations of the Company hereunder
shall inure to the benefit of and shall be binding upon their respective heirs,
personal representatives, successors and assigns.
6
<PAGE>
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WMX TECHNOLOGIES, INC.
By /s/ Dean L. Buntrock
---------------------------
Dean L. Buntrock,
Chairman of the Board
/s/ Michael J. Cole
-----------------------------
Michael J. Cole
Address: 2276 Regency Woods Drive
Lisle, IL 60532
7
<PAGE>
EXHIBIT 10.56
WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Donald R. Chappel (hereinafter
referred to as the "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has previously served and is serving as Vice
President and Controller (North American Operations) of the Company; and
WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and
WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Vice President & Controller (North American Operations); and
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform
such duties and responsibilities for the Employer which are commensurate with
his position as may be assigned him by the Company's Senior Vice President and
Chief Financial Officer and shall serve as a member of the Management Committee
of the Company. The Executive shall report to the Senior Vice President and
Chief Financial Officer of the Company. Incident to the performance of such
duties, the Executive shall be provided by the Employer with office space,
facilities and secretarial assistance commensurate with that currently being
provided to the Executive.
2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30
<PAGE>
days' prior written notice to the other, on March 10, 1998 and on each
successive March 10, the Term of this Agreement shall be renewed for a period
ending on the earlier of (i) the date two (2) years from such March 10, or (ii)
the date of the Executive's 62nd birthday on which birthday this Agreement shall
terminate unless earlier terminated in accordance with the terms hereof.
3. COMPENSATION. During the Term, the Executive's salary shall be payable
at intervals not less often than semi-monthly. The Executive's salary shall be
established by either the Compensation and Stock Option Committee of the Board
of Directors of the Company (subject to approval by the full Board) or, in the
event Executive is not among the Company officers whose compensation is subject
to review by the Compensation and Stock Option Committee of the Board, by the
Executive Committee of the Company (the applicable committee being referred to
herein as the "Committee") and all adjustments thereto and all aspects of the
Executive's incentive or performance compensation shall be established by the
Committee in its sole discretion. In the event there is no Committee in
existence at any time, the term Committee shall be deemed to refer to the Chief
Executive Officer of the Company. During the Term, the Executive shall also
receive such benefits and perquisites (the "Benefits") which are made available
to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.
4. EXTENT OF SERVICE. During the Term, the Executive shall devote his
full time, attention and energy to the business of the Employer and the
Executive shall not be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage which activity interferes with the
Executive's duties and responsibilities provided for herein.
5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:
------------------------------------
(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.
2
<PAGE>
(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or businesses which
directly or indirectly control or are controlled by or under common control with
the Company ("Affiliates") to patronize any business similar to that of the
Company, (ii) canvass, solicit or accept any similar business from any customer
of the Company or any Affiliates, (iii) directly or indirectly request or advise
any customer of the Company or Affiliates to withdraw, curtail or cancel such
customer's business with the Company or Affiliates, (iv) directly or indirectly
disclose to any other person, firm or corporation the names or addresses of any
of the customers of the Company or Affiliates, or (v) compete with the Company
or Affiliates in acquiring or merging with any other business or acquiring the
assets of such other business.
(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.
(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.
7. TERMINATION.
-----------
(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die
3
<PAGE>
while an employee of the Employer, this Agreement and Executive's employment
with the Employer shall immediately terminate.
(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.
(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:
(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;
(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);
(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);
(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or
(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof
then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by
4
<PAGE>
Executive to the Company of the release described in Section 9 hereof, the
Company shall provide Executive with severance compensation and benefits as
follows:
(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");
(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;
(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;
(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;
(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and
(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and
(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.
The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.
5
<PAGE>
(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
voluntary termination, (ii) pay all incentive compensation earned by the
Executive for performance periods which are completed prior to the date of
voluntary termination, at such times and on the same basis amounts as such
incentive compensation becomes payable to other executives of the Employer and
(iii) pay or make available to the Executive all Benefits which by their terms
or under applicable law survive the voluntary termination of the Executive's
employment; and the Executive shall remain bound by his non-disclosure, non-
solicitation and non-competition covenants set forth in Sections 5 and 6 hereof.
The exercisability of the Executive's outstanding stock options and the vesting
of the Executive's restricted stock shall be treated in accordance with the
terms of their respective grants or awards, except that in the case of
retirement on or after age 62, the Company will recommend to the Compensation
and Stock Option Committee of the Board of Directors of the Company that the
exercisability of Executive's outstanding stock options be accelerated.
8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.
9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything in
Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at
the same address.
11. ASSIGNMENT. The Executive may not assign his obligations hereunder.
The rights of the Executive and the rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon their
respective heirs, personal representatives, successors and assigns.
6
<PAGE>
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.
(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WMX TECHNOLOGIES, INC.
By /s/ Dean L. Buntrock
---------------------------------
Dean L. Buntrock,
Chairman of the Board
/s/ Donald R. Chappel
-----------------------------------
Donald R. Chappel
Address: 8120 Scenic Drive
Willow Springs, IL 60480
7
<PAGE>
Exhibit 12
WASTE MANAGEMENT, INC.
Ratio of Earnings to Fixed Charges
For the six years ended December 31, 1997
(Unaudited)
(millions of dollars, except ratio)
<TABLE>
<CAPTION>
Restated/(1)/
------------------------------------------------------------------
1992/(2)/ 1993/(3)/ 1994 1995/(4)(5)/ 1996/(6)/ 1997/(7)/
--------- --------- ------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) From Continuing Operations
Before Income Taxes,
Undistributed Earnings from
Affiliated Companies, Minority
Interest, and Cumulative Effect of
Accounting Changes................. $1,409.8 $ 587.1 $ 1,192.0 $ 954.5 $ 667.6 $ (1,000.2)
Interest Expense....................... 315.8 388.3 456.1 507.8 498.0 472.9
Capitalized Interest................... (86.5) (100.6) (105.9) (43.9) (35.6) (26.0)
One-Third of Rents Payable
in the Next Year................... 44.7 48.5 53.9 56.8 51.4 46.8
-------- --------- --------- --------- --------- ----------
Income (Loss) From Continuing Operations
Before Income Taxes,
Undistributed Earnings from
Affiliated Companies, Minority
Interest, and Cumulative Effect of
Accounting Changes, Plus Interest and
One-Third of Rents.................. $1,683.8 $ 923.3 $ 1,596.1 $ 1,475.2 $ 1,181.4 $ (506.5)
-------- --------- --------- --------- --------- ----------
Interest Expense........................ $ 315.8 $ 388.3 $ 456.1 $ 507.8 $ 498.0 $ 472.8
One-Third of Rents Payable in the
Next Year........................... 44.7 48.5 53.9 56.8 51.4 46.8
-------- --------- --------- --------- --------- ----------
Interest Expenses plus One-Third
of Rents............................ $ 360.5 $ 436.8 $ 510.0 $ 564.6 $ 549.4 $ 519.6
-------- --------- --------- --------- --------- ----------
Ratio of Earnings to
Fixed Charges....................... 4.67 to 1 2.11 to 1 3.13 to 1 2.61 to 1 2.15 to 1 N/A
Coverage Deficiency(8).................. - - - - - $ 1,026.1
</TABLE>
- ------------
Notes:
(1) As a result of a comprehensive review, begun in the third quarter of 1997
the Company determined that certain items of expense were incorrectly
reported in previously issued financial statements. The Company has
accordingly restated its financial results for the years 1992 through 1996.
Stockholders' equity, at December 31, 1991, was restated from $4,133.1
million to 3,934.5 million. (See Note 2 to Consolidated Financial
Statements).
(2) The results for 1992 include a non-taxable gain of $351.1 million (before
minority interest) resulting from the initial public offering of WM
International, less $80.6 million of related exit costs, primarily to write
down international assets not included in WM International, as well as
special charges of $219.9 million (before tax and minority interest)
primarily related to writedowns of the Company's medical waste business,
CWM incinerators in Chicago, Illinois, and Tijuana, Mexico, a former
subsidiary's investment in its asbestos abatement business, and certain
costs incurred by the former subsidiary and CWM related to the formation of
Rust.
(3) The results for 1993 include a non-taxable gain of $15.1 million (before
minority interest), relating to the issuance of shares by Rust, as well as
a special asset revaluation and restructuring charge of $524.8 million
(before tax and minority interest) recorded by CWM related primarily to a
revaluation of its thermal treatment business, and a provision of
approximately $14 million to adjust deferred income taxes resulting from
the 1993 tax law change.
(4) The results for 1995 include a special charge of $140.6 million (before
tax) recorded by CWM, primarily to write off its investment in facilities
and technologies that it abandoned because they do not meet customer
service or performance objectives, and a special charge of $194.6 million
(before tax and minority interest) recorded by WM International relating to
actions it had decided to take to sell or otherwise dispose of non-core
businesses and investments, as well as core businesses and investments in
low potential markets, abandon certain hazardous waste treatment and
processing technologies, and streamline its country management
organization.
(5) In 1995, the Rust Board of Directors approved a plan to sell or otherwise
discontinue Rust's process engineering, construction, specialty contracting
and similar lines of business. During 1996, the sale of the industrial
process engineering and construction business, based in Birmingham,
Alabama, was completed. In 1996, WTI sold its water process systems and
equipment manufacturing businesses, and Rust sold its industrial
scaffolding business. WTI entered into an agreement to sell its water and
wastewater facility operations and privatization business and Rust began
implementing plans to exit its remaining domestic and international
engineering and consulting business. These businesses were classified as
discontinued operations in the financial statements. The Rust disposition
was not completed within one year, and accordingly in 1997 this business
has been reclassified back into continuing operations, as operations held
for sale, in accordance with generally accepted accounting principles. The
unused portion ($87.0 million) of the previously recorded provision for
loss on disposal was reversed in discontinued operations, and an impairment
loss provision of $122.2 million was recognized in continuing operations.
(6) The results for 1996 include special charges of $47.1 million (before tax
and minority interest) related to WM International's sale of its investment
in Wessex and a charge of $169.5 million (before tax and minority interest)
to revalue its investments in France, Austria and Spain in contemplation of
exiting these markets and to write off an investment in a hazardous waste
disposal facility. Also in 1996, WMNA and CWM recorded special charges of
$154.1 million (before tax) for reengineering their finance and
administration functions and increasing reserves for certain litigation.
(7) In 1997, the Company recorded a special charge of $41.6 million (pretax)
for severance related to WMNA and WM International recorded a charge of
$104.4 million (before tax and minority interest) to reflect costs of
demobilization following the loss of the contract renewal for Buenos Aires,
Argentina, divestiture or closure of underperforming businesses, and the
writeoff of projects it decided to no longer pursue. Also in 1997, the
Company recorded an asset impairment loss and restated prior year financial
statements to retroactively recognize impairment losses in earlier years.
See Note 16 to Consolidated Financial Statements.
(8) Earnings are inadequate to cover fixed charges in 1997. Coverage deficiency
represents the amount that earnings would have to increase ($1,026.1
million) to cover fixed charges and bring the ratio of earnings to fixed
charges to one-to-one.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF WASTE MANAGEMENT, INC.
--------------------------------------
The following is a list of all direct and indirect subsidiaries of the
registrant as of March __, 1998. The state or other jurisdiction of
incorporation or organization is indicated in parentheses following each
subsidiary's name. The names of the divisions or other business units of each
subsidiary are indented and listed below the relevant subsidiary's name.
A & B Builders, Inc. (Texas)
AB Gosta M. Skoglund (Sweden)
Advanced Environmental Technical Services, L.L.C. (Delaware)
Aero-Metric, Inc. (Wisconsin)
Afvalstoffen Terminal Mocrdijk B.V. (Netherlands)
Am.Eco S.r.l. (Italy)
American Refuse Systems, Inc. (North Carolina)
ARS - Waste Management of Central North Carolina
ARS - Waste Management of Eastern North Carolina
ARS - Waste Management of South Carolina
Arabian Cleaning Enterprise, Ltd. (Saudi Arabia)
Arkansas Valley Waste Limited Partnership (Illinois)
Ark BV (Netherlands)
Aseo S.A. (Argentina)
Aspica s.r.l. (Italy)
Auxiwaste SA (France)
Avica S.r.l. (Italy)
Baltimore Refuse Energy Systems Company, Limited Partnership
Belpar Chemical Services, Inc. (West Virginia)
B. Holmes (Graded Paper) Ltd. (United Kingdom)
Bio-Energy Partners (Illinois)
Brand Construction Services, Inc. (Delaware)
Brand Marine Services, Inc. (Delaware)
Bridgeport Resco Company, L.P.
BRINI of North America, Inc. (Connecticut)
Burton, Adams, Kemp & King, Inc. (North Carolina)
California Acquisition Sub, Inc. (Delaware)
Canada Crinc, Ltd. (New Brunswick)
C. A. van Vliet Containertransport (Netherlands)
C. A. van Vliet Techneik B.V. (Netherlands)
Cedar Hammock Refuse Disposal Corporation (Florida)
Waste Management of Manatee County
Waste Management of Sarasota County
Cemtech L.P. (Delaware)
Cemtech Management, Inc. (Delaware)
<PAGE>
Ceriani Cave (Italy)
Chamberlain Resources, Inc. (Arizona)
Charlotte Landscaping and Sanitation Services, Inc. (Florida)
Chemical Waste Management, Inc. (Delaware)
Trade Waste Incineration
Chemical Waste Management de Mexico, S.A. de C.V. (Mexico)
Chemical Waste Management of Indiana, L.L.C. (Delaware)
Chemical Waste Management of New Jersey, Inc. (New Jersey)
Chemical Waste Management of Pennsylvania, Inc. (Delaware)
Chemical Waste Management of the Northwest, Inc. (Washington)
Chem-Nuclear Systems, L.L.C. (Delaware)
CID MRRF, Inc. (Delaware)
CNS Holdings, Inc. (Delaware)
CNSI Sub, Inc. (Delaware)
Commercial Sanitation Waste Partners, L.P.
Compania Schreiber de Servicios (Spain)
Container Recycling Alliance, L.P. (Delaware)
Cord Industrienster Spykerisse BV (Netherlands)
Cote D'Azur Assainissement (France)
Cote D'Azur Entretien (France)
CWM Cement, Inc. (Delaware)
CWM Chemical Services, L.L.C. (Delaware)
CWM Resource Recovery, Inc. (Ohio)
Dan-Clean DK A/S (Denmark)
Dankompost APS (Denmark)
Dansk Miljotoilet A/S (Denmark)
Darmstadt-Dieburg mbH Uwertstofferfassungs - Gesellschaft (Germany)
Davies Bros (Waste) Ltd & Greenwood (DB) Containers Ltd. (England)
Decker Disposal, Inc. (Florida)
Deconditionnement, Maintenance Et Securite SA ("DMS")
Demart Sarl (France)
Deponie Bentheim Entsorgung Verwaltungsgeskellschaft mbH (Germany)
Derichebourg Est (France)
Derichebourg Hygiene (France)
Derichebourg Ile De France (France)
Derichebourg Midi Pyrenees (France)
Derichebourg Nord (France)
Derichebourg Quest (France)
Derichebourg Sap Sarl (France)
Derichebourg Sas SA (France)
Derichebourg Services Sarl (France)
Derichebourg Seta SA (France)
Derichebourg Sud Quest Sarl (France)
Derichebourg Var Sarl (France)
2
<PAGE>
Diversified Scientific Services, Inc. (Tennessee)
Downfield Services Ltd (United Kingdom)
Drakesmore Development Ltd (United Kingdom)
Durachem Limited Partnership (Maryland)
Ecocentro s.p.a. (Italy)
Eco-Consult s.r.l. (Italy)
Ecol Italiana S.p.A. (Italy)
Ecol S.A. (Argentina)
Ecopi Srl (Italy)
Ecoserve Limtied (Hong Kong)
Ecoservizi S.p.A. (Italy)
Edward Bros (Waste Paper) Ltd (United Kingdom)
Elme Transport AB (Sweden)
Eksjo Renhallning AB (Sweden)
EMICA S.r.l. (Italy)
Enviroland, Incorporated (Michigan)
Environmental Waste Concepts, Ltd. (Illinois)
Enviropace Limited (Hong Kong)
ESG Entsorgungswirtschaft Soest GmbH (Germany)
Esposito Srl (Italy)
Eureco s.r.l. (Italy)
EUV Entsorgungs-u. Verwertungs-GmbH (Germany)
Fempack Limited (United Kingdom)
Fineco Italiana S.r.l. (Italy)
FJBCC Sarl (France)
France Metal Recyclage (France)
Franchi E Caserio S.r.l. (Italy)
Fratelli Visconti S.r.l. (Italy)
Gebr. Van Vliet B.V. (Netherlands)
General Nuclear Systems, Inc. (Delaware)
General Sanitation Corporation (Florida)
Geopol S.A.R.L. (France)
Georgia Waste Systems, Inc. (Georgia)
B. J. Recycling and Disposal Facility
Chapman Waste Disposal
Rolling Hills Recycling and Disposal Facility
Waste Management of Augusta - Aiken
Waste Management of Atlanta
Waste Management of Macon
Gesam Gestione Servizi Ambientali S.p.A. (Italy)
GES Gesellschaft zur Entsorgung von Sekundaerrohstoffen mbH (Germany)
Gestion Des Rebuts D.M.P. Inc. (Quebec)
WMI Mauricie Bois - Franc
WMI Parc Hirondelles
3
<PAGE>
Gestioni Ambientali (Italy)
Glegg Industries, Inc. (Ontario)
Grand Disposal Partners, L.P. (Illinois)
Greenfield WMI Transfer Limited (Hong Kong)
Greenhills Landfill Restoration Limited (Hong Kong)
Green Valley Landfill Limited (Hong Kong)
Gruning GmbH Wertstoffaufbereitung und Containerdienst (Germany)
G.T.I. - Generale Trasporti Immondizie s.r.l. (Italy)
Guam Resource Recovery Partners, L.P.
Gulf Disposal, Inc. (Florida)
Hall-ing Refuse Partners, L.P. (Illinois)
Harris Disposal Service, Inc. (Florida)
Harris Sanitation, Inc. (Florida)
Hedco Landfill Limited (United Kingdom)
Hollander Industriediensten Amsterdam BV (Netherlands)
Ib Jorgensen Handelaktiesglskab (Denmark)
Ichochema B.V. (Netherlands)
Icopower B.V. (Netherlands)
Icotech (Netherlands)
Icova B.V. (Netherlands)
Icova/Maltha Glascollecting B.V. (Netherlands)
IGM S.p.A. (Italy)
Infectious Waste Management Limited Partnership (Illinois)
Ingenieria Urbana S.A. (Spain)
Interport Paper Company Limited (United Kingdom)
IPS Rochester Inc. (Delaware)
IRA S.r.l. (Italy)
Jaartsveld Groen En Milieu B.V. (Netherlands)
JABB II, LLC
Jydsk Miljoservice A/S (Denmark)
Kahle Landfill, Inc. (Missouri)
Keene Road Landfill, Inc. (Florida)
Kennedy & Donkin Africa (Botswana) Partnership (Botswana)
Kennedy & Donkin Africa (Malawi) Partnership (Malawi)
Kennedy & Donkin Building Services Limited (United Kingdom)
Kennedy & Donkin Generation & Industrial Limited (United Kingdom)
Kennedy & Donkin Information Systems Ltd. (United Kingdom)
Kennedy & Donkin International Ltd. (Hong Kong)
Kennedy & Donkin Ltd. (United Kingdom)
Kennedy & Donkin Malaysia Ltd. (Delaware)
Kennedy & Donkin (Middle East) Limited (Cyprus)
Kennedy & Donkin Overseas Ltd. (United Kingdom)
4
<PAGE>
Kennedy & Donkin Power Ltd. (United Kingdom)
Kennedy & Donkin Quality Engineering Limited (United Kingdom)
Kennedy & Donkin Quality Inc. (Delaware)
Kennedy & Donkin Systems Control Ltd. (United Kingdom)
Kennedy & Donkin Transportation Ltd. (United Kingdom)
Klok Containers BV (Netherlands)
KNAB GmbH (Germany)
KNAB Zwischenlager Verwaltungs- ung Betriebsgesellschaft mbH (Germany)
Landskrona-Svalovs Renhallnigs AB (Sweden)
LFG Production, L.P.
LJA Land Development Engineering & Surveying Inc. (Delaware)
Ljungby Renhallning & Transport AB (Sweden)
Ljusne Renhallnings AB (Sweden)
Loristan Services Limited (United Kingdom)
LSS & Associates, Inc. (Arizona)
Malardalens Tankservice AB (Sweden)
M & O Waste Management Limited Partnership (Illinois)
Mashor Reym Sdn Bhd (Malaysia)
Mashr & Reym Charters Sdn Bhd (Brunei)
Massachusetts Refusetech, Inc. (Delaware)
Matrix Construction, Incorporated (Texas)
Matrix Engineering, Inc. (Texas)
Megastock Ltd. (United Kingdom)
Meurthe Et Moselle Service Sarl (France)
Middlemass Holdings Pty Limited (Australia)
Middlemass Industrial Services Pty Limited (Australia)
Midwest Transport, Inc. (Wisconsin)
Milieu Express B.V. (Netherlands)
Missouri Disposal Partners, L.P. (Illinois)
Missouri Waste Management Partners L.P.
Mountain Indemnity Insurance Company (Vermont)
M.P.S. Mdical Package Service srl (Italy)
M.S.T.S. Lizenz GmbH (Germany)
M.S.T.S., Inc. (Delaware)
Mull Entsorgung West GmbH & Co. KG (Germany)
Mull Entsorgung West Verwaltungs GmbH (Germany)
Nassjo Renhallining AB (Sweden)
National Guaranty Insurance Company (Vermont)
National Seal Company (Illinois)
National Service Cleaning Corp. (Connecticut)
National Surface Cleaning, Inc. (New Hampshire)
New England CR Inc. (Massachusetts)
New York Organic Fertilizer Company
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NH/VT Energy Recovery Corporation (New Hampshire)
Nice Nettooyage Sarl (France)
Nichols Sanitation, Inc. (Florida)
Lake Placid Sanitation
North Broward County Resource Recovery Project, Inc. (Florida)
North Broward Holdings Inc. (Delaware)
Norwaste Limited (United Kingdom)
NSC Corporation (Massachusetts)
NSC Energy Services, Inc. (Delaware)
NSC Sales Corp. (Virgin Islands)
NSC Specialty Coatings, Inc. (Delaware)
NYOFCO Holdings Inc. (Delaware)
Ocean Combustion Service, B.V. (Netherlands)
Oil & Solvent Process Company (California)
Olshan Demolishing Company, Inc. (Texas)
Olshan Demolishing Management, Inc. (Delaware)
O.V.E.R. s.r.l. (Italy)
Pacific Waste Management Holdings Pty. Limited. (Australia)
Pacific Waste Management Pte. Ltd. (Singapore)
Pacific Waste Management Pty Limited (Australia)
Pacific Waste Management Limited (Hong Kong)
Pacific Waste Management Ltd. (New Zealand)
Park Services, Inc. (Delaware)
Penn-Warner Club, Inc. (Delaware)
Pearl Delta WMI Limited (Hong Kong)
Photodigit Ltd. (United Kingdom)
Pilmuir Waste Disposal Limited (United Kingdom)
P.I.T.E.F. S.r.l. (Italy)
Plant Control Services, Inc. (Texas)
PPK Limited (Australia)
Practical Recycling Systems Ltd. (United Kingdom)
PT Prtasada Painunah Limbah Industrie (Indonesia)
PT Waste Management Indonesia (Indonesia)
Pullman Chimney of Canada Ltd. (Canada)
Pullman-Hoffman, Inc. (Ohio)
Pullman Power Products Corporation (Delaware)
Pullman Power Products International Corporation (Delaware)
Pullman Power Products of Canada Limited (Canada)
Pullman Power Products of Ohio, Inc. (Ohio)
Pullman Torkelson Utility Fuels Company (Delaware)
PWM Affiliates Superannuation Fund Pty Limited (Australia)
Questquill Limited (United Kingdom)
R A Johnson (Haulage) Ltd. (England)
Rancho Estates Properties, Inc. (Delaware)
RCC Fiber Company, Inc. (Delaware)
Recupieri Piemontesi srl (Italy)
Refuse Energy Systems Company, J.V.
Refuse Services, Inc. (Florida)
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Clay County Recycling and Disposal Facility
Jacksonville Waste Control
Lake City Waste Control
Sunbeam Recycling and Disposal Facility
Trinity Recycling and Disposal Facility
Waste Management of Clay County
Waste Management of Jacksonville
Waste Management of Putnam County
Regin B.V. (Netherlands)
REI Holdings, Inc. (Delaware)
Renovadan Miljoservice A/S (Denmark)
Rent-a-Weld (Wirral) Ltd. (United Kingdom)
Resco Holdings Inc. (Delaware)
Residuos Industriales Multiquim, S.A. de C.V. (Mexico)
Reuter Recycling of Florida, Inc. (Florida)
Reym B.V. (Netherlands)
Reym GmbH (Netherlands)
RGH Recycling GmbH (Germany)
Ri-Eco S.r.l. (Italy)
Ridge Generating Station Limited Partnership
RIH Inc. (Delaware)
Riley Energy Systems of Lisbon Corporation (Delaware)
Riley Energy Systems of Lisbon Connecticut Corp. (Connecticut)
RIS Risk Management Inc. (Delaware)
RRT Design & Construction Corp. (Delaware)
RRT Empire of Mid-Connecticut, Inc. (Connecticut)
RRT Empire of Monroe County, Inc. (New York)
RRT Empire Returns Corporation (New York)
RRT Land Corp. (New York)
RRT of New Jersey, Inc. (New Jersey)
RRT of Pennsylvania, Inc. (Pennsylvania)
RRT of Philadelphia, Inc. (Delaware)
RRT of Springfield, Massachusetts, Inc. (Massachusetts)
RRT Plastics Corp. (Delaware)
RRT Plastics of N.J., Inc. (New Jersey)
RRT-Recycle America, Inc. (Delaware)
Rudolf Beck & Sohne Aktiengesellschaft (Austria)
Rust Architecture Inc. (Wisconsin)
Rust Architecture & Geology of North Carolina, P.C. (North Carolina)
Rust Associates Ltd. (Canada)
Rust Capital Corporation (Delaware)
Rust China Ltd. (Delaware)
Rust Engineering & Construction Inc. (Delaware)
Rust Engineering do Brasil Construcoes Ltda. (Brasil)
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Rust Environment & Infrastructure Inc. (Wisconsin)
Rust Environment & Infrastructure of Canada Inc. (Alberta)
Rust Environment & Infrastructure of Michigan Inc. (Michigan)
Rust Environment & Infrastructure of New York Inc. (New York)
Rust Environment & Infrastructure of North Carolina Inc. (North Carolina)
Rust Environment & Infrastructure of Ohio Inc. (Ohio)
Rust Environment & Infrastructure, P.E., ARCH. L.S., P.C. (New York)
Rust Federal Environmental Services Inc. (Delaware)
Rust Germany GmbH (Germany)
Rust Industrial Cleaning Inc. (Delaware)
Rust Industrial Services Inc. (Delaware)
Rust International Holdings Inc. (Delaware)
Rust International Inc. (Delaware)
Rust International of North Carolina, P.C. (North Carolina)
Rust JRP Ltd (Hong Kong)
Rust JRP Pte Ltd (Singapore)
Rust Limited (United Kingdom)
Rust MRM Limited (United Kingdom)
Rust North America Holdings Inc. (Delaware)
Rust Overseas B.V. (Netherlands)
Rust PPK Pty Ltd. (New South Wales, Australia)
Rust Remedial Services Holding Company Inc. (Delaware)
Rust Servicios Ambientales e Infraestructura, S.A. de C.V. (Mexico)
Rust Sweden Holdings A B (Sweden)
Rust Utility Services Inc. (Delaware)
Rust VA Projekt AB (Sweden)
S & B Waste Management Partners, Ltd.
Sacagica s.r.l. (Italy)
Saframa S.A. (Argentina)
Sakab Batteri B (Sweden)
Salutec, S.A. (Argentina)
Saneanientos Sellberg S.A. (Spain)
S.A.P. s.p.a. (Italy)
S.A.R.I. S.p.A. (Italy)
S.A.S.P.I S.p.A. (Italy)
SCA Services, Inc. (Delaware)
Mohawk Valley Sanitary Landfill
S.C.E.A. Du Bosnier (France)
SC Holdings, Inc. (Pennsylvania)
L & D Landfill
Sanitary Landfill
Sengelose Kompost A/S (Denmark)
SERPOL (France)
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Service de Rehabilitation des Dechets (S.R.D.) (France)
Servicios Especiales de Recoleccion de Basura, S.A. de C.V. (Mexico)
Servicios Integrales de Protection Ambiental, S.A. de C.V. (Mexico)
Servizi Piemonte S.r.l. (Italy)
SES Bridgeport, L.L.C.
SES Connecticut Inc. (Delaware)
SES Seattle Inc. (Delaware)
Shereg Schleswig Holsteinische Entsorgung u. Recycling GmbH (Germany)
Skaraborgs Engergi - Och Mijo AB (Sweden)
Sidel (France)
Signal Capital Sherman Station Inc. (Delaware)
Signal Own-And-Operate Inc. (Delaware)
Signal RESCO, Inc. (Delaware)
S.I.R.T.I.S. s.r.l. (Italy)
Sir-Mas (Italy)
Sistemas Para Control de Desechos Solidos, S.A. de C.V. (Mexico)
SMC Smaltimenti Controllati S.p.a. (Italy)
SNC Rust Canada Limited (Canada)
S.N.U. Di Esposito Carlo & C. (Italy)
Soaring Vista Properties, Inc.
Soaring Vista Properties, Inc. (Maryland)
Societ A. Grenet SARL (France)
Societe Civile Immobiliere Les Amandiers (France)
Societe D'Amenagement Et D'Exploitation De Terrains Agricoles (France)
Societe D'Economie Mixte De Cabourg Et De Sa Region (SEMCAR)(France)
Societe D'Etudes et de realisation D'Amenagements De Terrains (France)
Societe Europeenne de Ferrailles et de Machefers (France)
Societe Parisienne D'Amenagement De Terrains (SPAT) (France)
Sogea S.r.l. (Italy)
South Broward County Resource Recovery Project, Inc. (Florida)
South Broward Holdings Inc. (Delaware)
South China WMI Transfer Limited (Hong Kong)
S.P.E.M. S.p.A. (Italy)
Suburban Sanitation, Ltd.
Svensk Avfallskonvertering AB (Sweden)
S. V. Farming Corp. (New Jersey)
Swindell-Dressler Energy Supply Company (Delaware)
Swindell-Dressler Leasing Company (Delaware)
Sylvans Kemiteknik AB (Sweden)
Sylvan & Qvibelius AB (Sweden)
Techim S.r.l. (Italy)
Terra Quest - Mohave, Inc. (Arizona)
The Rust Engineering Company Limited (Canada)
The Rust Engineering Company of Michigan (Michigan)
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The Woodlands of Van Buren, Inc. (Delaware)
Tijuana Equilibrio Ecologico, S.A. de C.V. (Mexico)
TLS Waste Services, L.P.
Tomoka Refuse, L.P.
Town and Country Refuse, Inc. (Florida)
Port-O-Let
Trail Ridge Landfill, Inc. (Delaware)
Transportbedrijf Van Bliet B.V. (Nederlands)
Tra.S.E. s.p.a. (Italy)
TVG Transport u. Verwertungsgesellschaft (Germany)
Tyneside Waste Paper Co Ltd. (United Kingdom)
UK Waste Management Holdings (United Kingdom)
UK Waste Management Limited (United Kingdom)
United Waste Partners, L.P. (Illinois)
Vanerborgs Stadbudsbyra AB (Sweden)
Van Vliet Recycling B.V. (Netherlands)
Van Vliet Speciaal Afval B.V. (Netherlands)
VAP Project AB (Sweden)
VE-Part S.r.l. (Italy)
Vliko B.V. (Netherlands)
Warner Company (Delaware)
Warner East
Warner West
Washington Waste Hauling & Recycling, Inc. (Delaware)
Mountain Group - Northwest Office
Port-O-Let
Recycle America
Valley Topsoil
Waste Management - Northwest
Waste Management of Ellensburg
Waste Management of Greater Wenatchee
Waste Management of Kennewick
Waste Management of Seattle
Waste Management of Spokane
Waste Management of Yakima
Waste Management - SnoKing
Waste Management - Rainier
WMI Services
Washington Waste Systems, Inc. (Washington)
Wass Entreprenad AB (Sweden)
Waste Away Group, Inc. (Alabama)
Environmental Waste Systems
LaGrange Transfer Station
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Montgomery Transfer Station
Phenix City Transfer
Springhill Landfill
Waste Management of Alabama - Central
Waste Management of Alabama - East
Waste Management of Alabama - North
Waste Management of Alabama - South
Waste Clearance (Holdings) Limited (United Kingdom)
Waste Handling Company (W.H.C.) B.V. (Holland)
Waste Management Asia B.V. (Netherlands)
Waste Management Czechoslovakia s.r.o. (Czechoslovakia)
Waste Management Collection and Recycling, Inc. (California)
American Waste Systems
Empire Waste Management
Great Western Reclamation
Recycle America
SAWDCO Collection
Sunset Environmental
Valley Waste Management
Waste Management of Inland Valley
Waste Management of Sacramento
Waste Management of San Gabriel/Pomona Valley
Waste Management of Santa Cruz County
Waste Management of the Central Valley
Waste Management of Woodland
Waste Management de Mexico, S.A. de C.V. (Mexico)
Waste Management Development B.V. (Netherlands)
Waste Management Disposal Services of Arizona, Inc. (Delaware)
Waste Management Disposal Services of Colorado, Inc. (Colorado)
Central Weld Sanitary Landfill
Colorado Springs Recycling and Disposal Facility
County Line Recylcing and Disposal Facility
Denver/Arapahoe Disposal Site
East Weld Sanitary Landfill
North Weld Sanitary Landfill
Waste Management of Colorado - Landfill Division
Waste Management Disposal Services of Maine, Inc. (Maine)
Waste Management Disposal Services of Maine - Crossroads
Waste Management Disposal Services of Maryland, Inc. (Maryland)
Sandy Hill
Waste Management Disposal Services of Massachusetts, Inc. (Massachusetts)
Waste Management Disposal Services of Oregon, Inc. (Delaware)
Columbia Ridge Landfill and Recycling Center
11
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Oregon Waste Systems
Waste Management Disposal Services of Pennsylvania, Inc. (Pennsylvania)
Burlington County Resource Recovery Facilities Complex
G.R.O.W.S. Landfill
Meadowlands Baler Facility
Meadowland Recycling and Disposal Facility
Northwest Sanitary Landfill
Pottstown Landfill and Recycling Center
Waste Management Disposal Services of Virginia, Inc. (Delaware)
Middle Peninsula Landfill and Recycling Facility
Waste Management Disposal Services of Washington, Inc. (Delaware)
Greater Wenatchee Regional Landfill and Recycling Center
Waste Management of Washington
Waste Management Do Brasil, Ltda Empreendimentos Ambientals (Brazil)
Waste Management Environmental Services B.V. (Netherlands)
Waste Management Espana S.A. (Spain)
Waste Management Federal Services, Inc. (Delaware)
Waste Management Federal Services of Colorado, Inc. (Delaware)
Waste Management Federal Services of Hanford, Inc. (Delaware)
Waste Management Federal Services of Idaho, Inc. (Delaware)
Waste Management France (Holdings) (France)
Waste Management France S.A. (France)
Waste Management France S.A.R.L. (France)
Waste Management Geotech, Inc. (Delaware)
Waste Management Greece Anonymous Commercial Company (Greece)
Waste Management Hausmullentsorgung GmbH (Austria)
Waste Management Holding Gesellschaft mbH (Austria)
Waste Management, Inc. (Illinois)
Waste Management Inc. of Florida (Florida)
Atlantic Waste Management
Broward Disposal
Central Disposal
Environmental Waste Systems
Florida Environmental Waste
Florida Disposal
Florida Resource Management
Gulf Coast Recycling and Disposal Facility
Hillsborough Heights Recycling and Disposal Facility
Medley Landfill & Recycling Center
Rubbish Gobbler
Southeast Recycling and Disposal Facility
Southern Sanitation Service
South Florida Service Center
United Sanitation Recycling and Disposal Facility
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Waste Management of Bay County
Waste Management of Collier County
Waste Management of Dade County
Waste Management of Monroe County
Waste Management of Pasco County
Waste Management of Tampa
Waste Management, Inc. of Tennessee (Tennessee)
Chestnut Ridge Landfill and Recycling Center
Waste Management of Tennessee - Clarksville
Waste Management of Tennessee - Jackson
Waste Management of Tennessee - Knoxville
Waste Management of Tennessee - Memphis
Waste Management of Tennessee - Nashville
West Camden Sanitary Landfill
Waste Management Industrial Services, Inc. (Delaware)
Waste Management International, Inc. (Delaware)
Waste Management International, Ltd. (Bermuda)
Waste Management International plc (United Kingdom)
Waste Management International Services Limited (United Kingdom)
Waste Management International Y CIA (Chile)
Waste Management Italia S.r.l. (Italy)
Waste Management (Land) Limited (United Kingdom)
Waste Management Limited (United Kingdom)
Waste Management Mexico Services, S.A. de C.V. (Mexico)
Waste Management Nederland B.V. (Netherlands)
Waste Management N.Z. Ltd. (New Zealand)
Waste Management of Alabama, Inc. (Alabama)
Recycle America - Birmingham
Valley View Sanitary Landfill
Waste Management of Alabama - Central
Waste Management of Alabama - East
Waste Management of Alabama - Mobile
Waste Management of Alabama - North
Waste Management of Alabama - Northwest
Waste Management of Alabama - South
Waste Management of Alameda County, Inc. (California)
Altamont Landfill and Resource Recovery Facility
Central Division
Davis Street Station for Material Recovery and Transfer
East Bay Disposal Co.
Livermore Dublin Disposal
Northern Division
Recycle America of Northern California
Southern Division
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Sunnyvale Recycling and Disposal Facility
Tri-Cities Recycling and Disposal Facility
Waste Management of Arizona, Inc. (California)
Asset Recovery Group
Butterfield Station Recycling and Disposal Facility
Industrial Services Division
Sky Harbor Regional Transfer & Recycling Center
27th Avenue Recycling and Disposal Facility
Waste Management of Northern Arizona
Waste Management of Phoenix - North
Waste Management of Phoenix - Recycle America
Waste Management of Phoenix - South
Waste Management of Tucson
Waste Management of Tucson - Recycle America
Waste Management of Verde Valley
WMI Services - Phoenix
Waste Management of Arkansas, Inc. (Delaware)
Brushy Island Recycling and Disposal Facility
Jefferson County Recylcing and Disposal Facility
Shannon Road Recycling and Disposal Facility
Union County Recycling and Disposal Facility
Waste Management of Arkansas North
Waste Management of Arkansas South
Waste Management of California, Inc. (California)
Kirby Canyon Recycling and Disposal Facility
Lancaster Recycling and Disposal Facility
Simi Valley Recycling and Disposal Facility
Universal Refuse Removal of El Cajon
Waste Management of Fresno County
Waste Management of Lancaster
Waste Management of Los Angeles
Waste Management of Los Angeles - South
Waste Management of North County
Waste Management of San Diego
Waste Management of San Fernando Valley
Waste Management of Santa Clara County
Waste Management of the Desert
WMI Services
Waste Management of Carolinas, Inc. (North Carolina)
Piedmont Landfill and Recycling Center
Waste Management of Asheville
Waste Management of Carolinas
Waste Management of Central Carolina
Waste Management of Eastern Carolina
14
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Waste Management of the Piedmont
Waste Management of Raleigh/Durham
Waste Management of Wilmington
Waste Management of the Triad
Waste Management of Central Florida, Inc. (Florida)
Alachua Waste Management
Waste Management of Colorado, Inc. (Colorado)
Canon City Disposal and Recycling
Colorado Springs Transfer Station
Englewood Transfer Station
Port-O-Let
Waste Management of Aurora
Waste Management of Colorado - Aurora Facility
Waste Management of Colorado - North Facility
Waste Management of Colorado - Recycle Facility
Waste Management of Colorado - South Facility
Waste Management of Colorado Springs - Recycle America Facility
Waste Management of Denver
Waste Management of Denver - Recycle America Processing Facility
Waste Management of Northern Colorado
Waste Management of Pueblo
Waste Management of the Rockies
WMI Medical Services
Waste Management of Connecticut, Inc. (Connecticut)
New Milford Recycling and Disposal Facility
Waste Management of Connecticut - New Milford
Waste Management of Connecticut - Norwalk
Waste Management of Connecticut - Wallingford
Waste Management of Delaware, Inc. (Delaware)
Waste Management of Delaware - Wilmington
Waste Management of Delmarva
Waste Management of Five Oaks Recycling and Disposal Facility, Inc. (Delaware)
Waste Management of Florida Holding Company, Inc. (Delaware)
Waste Management of Florida, Inc. (Delaware)
Waste Management of Georgia, Inc. (Georgia)
Live Oak Landfill
Superior Sanitation Landfill
Waste Management of Savannah
Waste Management of the Tennessee Valley
Waste Management of Grass Valley, Inc. (Delaware)
Waste Management of Hawaii, Inc. (Hawaii)
Waimanalo Gulch Recycling and Disposal Facility
West Hawaii Landfill
Waste Management of Idaho, Inc. (Idaho)
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Waste Management of Illinois, Inc. (Delaware)
Banner/Western Disposal Service
Chain of Rocks Recycling and Disposal Facility
CID
DeKalb County Recycling and Disposal Facility
Durbin Paper Stock Company
Five Oaks Recycling and Disposal Facility
Greene Valley Recycling and Disposal Facility
Kankakee Recycling and Disposal Facility
Laraway Recycling and Disposal Facility
McLean County Disposal and Recycling Services
Milam Recycling and Disposal Facility
Prairie Hill Recycling and Disposal Facility
Settler's Hill Recycling and Disposal Facility
Tazewell Recycling and Disposal Facility
TCD Services
United Waste Systems
Waste Management - Metro
Waste Management - North
Waste Management - Northwest
Waste Management - West
Waste Management of Metro East
Waste Management of Peoria
Waste Management of the South Suburbs
Wheatland Prairie Recycling and Disposal Facility
Woodland Recycling and Disposal Facility
Waste Management of Indiana Holdings One, Inc. (Delaware)
Waste Management of Indiana Holdings Two, Inc. (Delaware)
Waste Management of Indiana, L.L.C. (Delaware)
Deercroft Recycling and Disposal Facility
Glenwood Ridge Recycling and Disposal Facility
Oak Ridge Recycling and Disposal Facility
Prairie View Recycling and Disposal Facility
Superior Waste Systems
Twin Bridges Recycling and Disposal Facility
Waste Management of Central Indiana
Waste Management of Evansville
Waste Management of Fort Wayne
Waste Management of Indianapolis
Waste Management of Indianapolis - Hamilton County Transfer
Waste Management of Lafayette
Waste Management of Muncie
Waste Management of Northwest Indiana
Waste Management of Warsaw
16
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Wheeler Recycling and Disposal Facility
Waste Management of Iowa, Inc. (Iowa)
Solid Waste Systems
Waste Management of Kansas, Inc. (Kansas)
Forest View Recycling and Disposal Facility
Rolling Meadows Recycling & Disposal Facility
Solid Waste Systems
Topeka Waste Systems
Waste Management of Wichita
Waste Management - Refuse Control
Waste Management of Kentucky Holdings, Inc. (Delaware)
Waste Management of Kentucky, L.L.C. (Delaware)
Blue Ridge Recycling and Disposal Facility
Kramer Lane Recycling and Disposal Facility
Lexington Recycling and Disposal Facility
Outer Loop Recycling and Disposal Facility
Waste Management of Kentucky - Gray Disposal
Waste Management of Kentucky - Lexington
Waste Management of Kentucky - Louisville
Waste Management of Kentucky - Madison Disposal
Waste Management of Kentucky - Stevens Dispos-All Service
Waste Management of Leon County, Inc. (Florida)
Springhill Regional Sanitary Landfill
Waste Management of Louisiana Holdings One, Inc. (Delaware)
Waste Management of Louisiana Holdings Two, Inc. (Delaware)
Waste Management of Louisiana, L.L.C. (Delaware)
Acadiana Recycling and Disposal Facility
Acadia Parish Sanitary Landfill
Alexandria Recycling and Disposal Facility
American Waste and Pollution Control-Algiers Residential
American Waste and Pollution Control-Eastern New Orleans Residential
American Waste and Pollution Control-Kelvin Recycling and Disposal Facility
American Waste and Pollution Control-St. Bernard Parish Residential
American Waste and Pollution Control-Slidell
American Waste and Pollution Control-West Jefferson Residential
Jefferson Davis Recycling and Disposal Facility
Kelvin Recycling and Disposal Facility
Magnolia Recycling and Disposal Facility
Pelican Recycling and Disposal Facility
Pelican State Environmental Services
Waste Management of Acadiana
Waste Management of Baton Rouge
Waste Management of the Bayous
Waste Management of Central Louisiana
17
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Waste Management of Lake Charles
Waste Management of New Orleans
Waste Management of Northeast Louisiana
Waste Management of Northwest Louisiana
Waste Management of the Pines
Waste Management of St. Landry
Waste Management of St. Tammany
Waste Management of South Louisiana
Waste Management Services of Louisiana
Woodside Recycling and Disposal Facility
Waste Management of Maine, Inc. (Maine)
Waste Management of Maine - Portland
Waste Management of Maryland, Inc. (Maryland)
Mobile Offices of Maryland
Waste Management of Cambridge
Waste Management of Greater Washington
Waste Management of Maryland - Baltimore
Waste Management of Southern Maryland
WMI Medical Services
WMI Services of Maryland
Waste Management of Massachusetts, Inc. (Massachusetts)
Somerville Transfer Station
Waste Management - Container Services
Waste Management of Boston - North
Waste Management of Central Massachusetts
Waste Management of Massachusetts - Gloucester
Waste Management of Massachusetts - South Shore
Waste Management of Michigan, Inc. (Michigan)
Autumn Hills Recycling and Disposal Facility
Cedar Ridge Recycling and Disposal Facility
Eagle Valley Recycling and Disposal Facility
Efficient Sanitation
Northern Oaks Recycling and Disposal Facility
Recycle America - Metro Detroit
Tri-City Recycling and Disposal Facility
Valley Rubbish
Venice Park Recycling and Disposal Facility
Waste Management of Detroit - Residential
Waste Management - Metro Detroit
Waste Management of Michigan - Alma Transfer and Recycling Facility
Waste Management of Michigan - Area Disposal
Waste Management of Michigan - Burr Oak
Waste Management of Michigan - Central
Waste Management of Michigan - Detroit East Recycling Transfer Facility
18
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Waste Management of Michigan - Detroit Transfer and Recycling Facility
Waste Management of Michigan - Detroit MRF/Transfer
Waste Management of Michigan - Dowagiac Transfer and Recycling Facility
Waste Management of Michigan - Holland
Waste Management of Michigan - Holland Transfer and Recycling Facility
Waste Management of Michigan - Mideast
Waste Management of Michigan - Mideast/Port Huron
Waste Management of Michigan - Midwest
Waste Management of Michigan - Northern
Waste Management of Michigan - Recycle America/Grand Rapids
Waste Management of Michigan - Southwest
Waste Management of Michigan - Western
Westside Recycling and Disposal Facility
WMI Services - Eastern Michigan/Northwest Ohio
Woodland Meadows Recycling and Disposal Facility
Waste Management of Minnesota, Inc. (Minnesota)
Anoka Recycling and Disposal Facility
Dietman Sanitation & Recycling
Northern Waste Systems
Recycle America of Minnesota
Sun Prairie Recycling and Disposal Facility
Waste Management - Blaine
Waste Management - LeSueur
Waste Management - Rochester
Waste Management - Savage
Waste Management - St. Cloud
Waste Management of Hastings
WMI Services of Minnesota
Waste Management of Mississippi, Inc. (Mississippi)
Pecan Grove Landfill
Pine Ridge Landfill
Plantation Oaks Landfill
Prairie Bluff Landfill
Waste Management of Central Mississippi - Jackson
Waste Management of Central Mississippi - Kosciusko
Waste Management of Central Mississippi - Meridian
Waste Management of Central Mississippi - Vicksburg
Waste Management of North Mississippi - Clarksdale
Waste Management of North Mississippi - Columbus
Waste Management of North Mississippi - Corinth
Waste Management of North Mississippi - Greenville
Waste Management of North Mississippi - Grenada
Waste Management of North Mississippi - Tupelo
Waste Management of South Mississippi - Gulfport
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Waste Management of South Mississippi - McComb
Waste Management of South Mississippi - Natchez
Waste Management of South Mississippi - Pine Belt
Waste Management of Missouri, Inc. (Delaware)
Black Oak Recycling and Disposal Facility
Environmental Industries
Kahle Recycling and Disposal Facility
Meramec Hauling
Pezold Hauling
Rumble Recycling and Disposal Facility
Waste Management of Kansas City
Waste Management of Springfield
Waste Management of St. Louis
Waste Management of the Ozarks
Waste Management of Montana, Inc. (Delaware)
Waste Management of Great Falls
Waste Management of Nebraska, Inc. (Delaware)
Douglas County Recycling and Disposal Facility
Waste Management of New Hampshire, Inc. (Connecticut)
Turnkey Recycling and Environmental Enterprises
Waste Management of New Hampshire - Londonderry
Waste Management of New Hampshire - New Hampton
Waste Management of New Hampshire - Rochester
Waste Management of New Hampshire - Peterborough
Waste Management of New Jersey, Inc. (Delaware)
Avenue A Transfer & Recycling Center
Middle Martee Landfill
Recycle America
Waste Management of Camden
Waste Management of New Mexico, Inc. (New Mexico)
Hobbs Recycling and Disposal Facility
Rio Rancho Recycling and Disposal Facility
San Juan County Recycling and Disposal Facility
Waste Management of Albuquerque - Recycle America Processing Facility
Waste Management of Four Corners
Waste Management of Southeast New Mexico
Waste Management of the Southwest
Waste Management of New York, L.L.C.
High Acres Landfill and Recycling Facility
Waste Management of Eastern New York
Waste Management of Hudson Valley
Waste Management of New York - Albion
Waste Management of New York - Buffalo
Waste Management of New York - Rochester
20
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Waste Management of New York - Syracuse
Waste Management of New York - Utica
Waste Management of Southwestern New York
WMI Services of New York
Waste Management of North Dakota, Inc. (Delaware)
Northern Waste Systems
Waste Management of Ohio, Inc. (Delaware)
Countywide Recycling and Disposal Facility
ELDA Recycling and Disposal Facility
Evergreen Recycling and Disposal Facility
Herrick Valley Recycling and Disposal Facility
Lake County Recycling and Disposal Facility
Pinnacle Road Recycling and Disposal Facility
Seneca East Recycling and Disposal Facility
Stony Hollow Recycling and Disposal Facility
Suburban Recycling and Disposal Facility
Waste Management of Ohio - Akron
Waste Management of Ohio - Blaylock
Waste Management of Ohio - Cleveland Transfer and Recycling Facility
Waste Management of Ohio - Cleveland West
Waste Management of Ohio - Columbus
Waste Management of Ohio - Columbus Transfer and Recycling Facility
Waste Management of Ohio - Findlay
Waste Management of Ohio - IWD
Waste Management of Ohio - Koogler
Waste Management of Ohio - Lima
Waste Management of Ohio - Lima Transfer and Recycling Facility
Waste Management of Ohio - M & M Sanitation
Waste Management of Ohio - Newark
Waste Management of Ohio - Northwest
Waste Management of Ohio - Recycle America/Toledo
Waste Management of Ohio - S.E.M.
Waste Management of Ohio - Shelby County Transfer
Waste Management of Ohio - Suburban Sanitation Service
Waste Management of Ohio - Western Reserve
Waste Management of Ohio - Youngstown
WMI Services - Ohio
Waste Management of Oklahoma, Inc. (Oklahoma)
East Oak Recycling and Disposal Facility
Muskogee Recycling and Disposal Facility
Quarry Recycling and Disposal Facility
Waste Management of Oklahoma City
Waste Management of Tulsa
Waste Management of Oregon, Inc. (Oregon)
21
<PAGE>
Metro South Transfer Station
Port-O-Let
Waste Management of Vancouver U.S.A.
Zero Garbage
Waste Management of Orlando, Inc. (Florida)
Waste Management of Pennsylvania, Inc. (Pennsylvania)
Alderfer & Frank
Lake View Landfill (Northern)
Mid-Atlantic Recycling and Distribution Center
Milton Grove Demolition and Tire Recycling
Philadelphia Transfer and Recycling Station
Pottsville Transfer Station
Recycle America
River Road Landfill
Steel Valley Transfer Station
The Forge Recycling and Resource Recovery Center
Tully Town Resource Recovery Facility
Waste Automation
Waste Management - Allentown
Waste Management - Dixon Recycling
Waste Management of Camp Hill
Waste Management of Delaware Valley - North
Waste Management of Delaware Valley - South
Waste Management of Erie
Waste Management of Greater Lancaster
Waste Management of Greencastle
Waste Management of Greenville
Waste Management of Indian Valley
Waste Management of Laurel Valley
Waste Management of Northeast Pennsylvania
Waste Management of Pennsylvania - Hauling
Waste Management of Pittsburgh
Waste Management of Pottstown
Waste Management of Wilkinsburg
WMI Medical Services of New Jersey
WMI Medical Services of New York
WMI Medical Services of Pennsylvania
WMI Medical Services of West Virginia
Waste Management of Pinellas County, Inc. (Florida)
Suncoast Recycle America Center
Waste Management of Rhode Island, Inc. (Delaware)
Waste Management of Rhode Island - Newport
Waste Management of South Carolina, Inc. (South Carolina)
Charleston Landfill
22
<PAGE>
Hickory Hill Sanitary Landfill
Palmetto Landfill
Sandy Pines Landfill
Waste Management of South Carolina
Waste Management of the Low Country
Waste Management of South Dakota, Inc. (South Dakota)
Waste Management of Sioux Falls
Waste Management of the Black Hills
Waste Management of Texas, Inc. (Texas)
All Waste Paper Recycling
Atascocita Recycling and Disposal Facility
Austin Community Disposal Co.
Bluebonnet Recycling and Disposal Facility
Centex Waste Management
Coastal Plains Recycling and Disposal Facility
Comal County Recycling and Disposal Facility
Covell Gardens Landfill
DFW Recycling and Disposal Facility
Eastside Recycling and Disposal Facility
Fogle Garbage Service
Garbage Gobbler
Hillside Recycling and Disposal Facility
Kingwood Garbage Service
Lacy Lakeview Recycling and Disposal Facility
Longhorn Disposal
Northwest Transfer Station
Oak Hill Recycling and Disposal Facility
Pecan Prairie Recycling and Disposal Facility
Recycle America - Dallas Bulk Grade Division
Recycle America - Dallas High Grade Division
S & B Trucking & Sanitation
Security Landfill
Skyline Recycling and Disposal Facility
Texas Waste Management
Waste Management of Fort Worth Recycling and Disposal Facility
Waste Management - Golden Triangle
Waste Management of Dallas - East
Waste Management of Dallas Recycle America Processing Facility
Waste Management of Dallas - West
Waste Management of East Texas
Waste Management of Fort Worth
Waste Management of Fort Worth Recylcing and Disposal Facility
Waste Management of Houston
Waste Management of Northeast Texas
23
<PAGE>
Waste Management of Southeast Texas
Waste Management of Southeast Texas - Angleton
Waste Management of Southeast Texas - Dickinson
Waste Management of South Texas
Waste Management of West Texas
Westside Recycling and Disposal Facility
Williamson County Recycling and Disposal Facility
WMI Services of Dallas
WMI Services of North Texas
WMI Services of Texas
Waste Management of Utah, Inc. (Utah)
Waste Management of Northern Utah
Reliable Waste Systems
Waste Management of Salt Lake
Waste Management of Virginia, Inc. (Virginia)
Manassas Transfer Station
Waste Management of Hampton Roads
Waste Management of Northern Virginia
Waste Management of Northern Virginia - Crown Disposal
Waste Management of the Outer Banks
Waste Management of Richmond/Fiber Fuels
Waste Management of Richmond Port-O-let
Waste Management of Richmond Recycle America
Waste Management of Virginia - Blue Ridge
WMI Services of Hampton Roads
WMI Services of Virginia
Waste Management of West Virginia, Inc. (Delaware)
Waste Management of Shenandoah Valley
Waste Management of Wisconsin, Inc. (Wisconsin)
Best Disposal
Mallard Ridge Recycling and Disposal Facility
Metro/Stone Ridge Recycling and Disposal Facility
Orchard Ridge Recycling and Disposal Facility
Parkview Recycling and Disposal Facility
Pheasant Run Recycling and Disposal Facility
Ridgeview Recycling and Disposal Facility
Timberline Trail Recycling and Disposal Facility
UWS Transportation
Valley Trail Recycling and Disposal Facility
Waste Management - Northeast Wisconsin
Waste Management of Fox Valley
Waste Management of La Crosse
Waste Management of Madison
Waste Management of Milwaukee
24
<PAGE>
Waste Management of Muskego
Waste Management of Rockford
Waste Management of Wisconsin - East
Waste Management Southwest
Waste Management of St. Croix Valley
Waste Management - Tri County
WMI Services of Wisconsin
Waste Management of Wyoming, Inc. (Delaware)
Waste Management Paper Stock Company, Inc. (Delaware)
Southern Sanitation Southeast - Recycle America
Waste Management of Florida - Recycle America
Waste Management of Sarasota - Recycle America
Waste Management of Tampa - Recycle America
Waste Management Pepierentsorgung Gesellschaft mbH (Austria)
Waste Management Partners, Inc. (Delaware)
American Refuse Systems, Inc.
Ocmulgee Disposal, Inc.
Waste Management Partners of Bozeman, Ltd. (Illinois)
Waste Management Partners of Grand County, L.P.
Waste Management Partners of Midland/Odessa (Illinois)
Waste Management Partners of Paris, Ltd. (Illinois)
Waste Management Partners of Southeast North Dakota, L.P. (Illinois)
Waste Management Plastic Products, Inc. (Delaware)
Waste Management Precision Services, Inc. (Delaware)
Waste Management Project Services B.V. (Netherlands)
Waste Management Queensland Pty. Limited (Queensland)
Waste Management Recycling and Disposal Services of California, Inc.
(California)
Bradley Landfill and Recycling Center
Waste Management of Northern California
Waste Management of Southern California
Waste Management Recycling & Services Ltd (Hong Kong)
Waste Management Remediation Services B.V. (Netherlands)
Waste Management Republic of China (China)
Waste Management (Rock Common) Limited (United Kingdom)
Waste Management (Roxby) Limited (United Kingdom)
Waste Management Services, C.A. (Venezuela)
Waste Management Services S A (Switzerland)
Waste Management South America B.V. (Netherlands)
Waste Management Stendahl GmbH (Germany
Waste Management Technology Center, Inc. (Delaware)
Waste Management Thailand B.V. (Netherlands)
Waste Management (W.M.) Israel Limited (Israel)
Waste Resources of Tampa Bay, Inc. (Florida)
Waste Resources of Tennessee, Inc. (Tennessee)
25
<PAGE>
Waste Services Company Partnership (Colorado)
Waterblast Ltd. (United Kingdom)
Wessex Waste Management Limited (United Kingdom)
WESI Baltimore Inc. (Delaware)
WESI Capital Inc. (Delaware)
WESI Peekskill Inc. (Delaware)
WESI Westchester Inc. (Delaware)
Westchester Resco Company, L.P.
Western Compliance Services, Inc. (Oregon)
Western Waste Partners, L.P.
Westley Trading Ltd (United Kingdom)
Westmore-United Waste, Ltd.
Wheelabrator Air Pollution Control Inc. (Delaware)
Wheelabrator Baltimore L.L.C.
Wheelabrator-Berger (Maschinenfabriken) GmbH (West Germany)
Wheelabrator-Berger Stiftung GmbH (West Germany)
Wheelabrator Canada Inc. (Ontario)
Wheelabrator Carteret Inc. (Delaware)
Wheelabrator Cedar Creek Inc. (Delaware)
Wheelabrator Claremont Company, L.P.
Wheelabrator Clean Water New Jersey Inc. (Delaware)
Wheelabrator Coal Services Company (Delaware)
Wheelabrator Concord Company, L.P.
Wheelabrator Concord Inc. (Delaware)
Wheelabrator Connecticut Inc. (Delaware)
Wheelabrator Culm Services Inc. (Delaware)
Wheelabrator Energy Leasing Company (Delaware)
Wheelabrator Energy Systems Inc. (Delaware)
Wheelabrator Environmental Systems Inc. (Delaware)
Wheelabrator Falls Inc. (Delaware)
Wheelabrator Frackville Energy Company Inc. (Delaware)
Wheelabrator Frackville Properties Inc. (Delaware)
Wheelabrator Fuel Services Inc. (Delaware)
Wheelabrator Fuels Service Corporation (Delaware)
Wheelabrator Gloucester Company, L.P.
Wheelabrator Gloucester Inc. (Delaware)
Wheelabrator Guam Inc. (Delaware)
Wheelabrator Hudson Energy Company Inc. (Delaware)
Wheelabrator Land Resources Inc. (Delaware)
Wheelabrator Lassen Inc. (Delaware)
Wheelabrator Martell Inc.
Wheelabrator McKay Bay Inc. (Florida)
Wheelabrator Mecklenburg Inc. (Delaware)
Wheelabrator Millbury Inc. (Delaware)
26
<PAGE>
Wheelabrator New Hampshire Inc. (Delaware)
Wheelabrator New Jersey Inc. (Delaware)
Wheelabrator NHC Inc. (Delaware)
Wheelabrator North Broward Inc. (Delaware)
Wheelabrator North Shore Inc. (Delaware)
Wheelabrator Norwalk Energy Company Inc. (Delaware)
Wheelabrator Peekskill Inc. (Delaware)
Wheelabrator Penacook Inc. (Delaware)
Wheelabrator Pinellas Inc. (Delaware)
Wheelabrator Plant Services Inc. (Delaware)
Wheelabrator Polk Inc. (Delaware)
Wheelabrator Power Marketing Inc. (Delaware)
Wheelabrator Putnam Inc. (Delaware)
Wheelabrator Ridge Energy Inc. (Delaware)
Wheelabrator San Diego Inc. (Delaware)
Wheelabrator Saugus Inc. (Delaware)
Wheelabrator Shasta Energy Company Inc. (Delaware)
Wheelabrator Sherman Energy Company, G.P.
Wheelabrator Sherman Station One Inc. (Delaware)
Wheelabrator Sherman Station Two Inc. (Delaware
Wheelabrator Shrewsbury Inc. (Delaware)
Wheelabrator South Broward Inc. (Delaware)
Wheelabrator Spokane Inc. (Delaware)
Wheelabrator Technologies Inc. (Delaware)
Wheelabrator Tidewater Inc. (Delaware)
Wheelabrator Utility Services Inc. (Delaware)
Wheelabrator Water Technologies Baltimore L.L.C.
Wheelabrator Water Technologies Canada Inc. (Ontario)
Wheelabrator Water Technologies Inc. (Maryland)
Williams Disposal Service, Inc. (Florida)
Winnipeg Waste Disposal Limited Partnership (Manitoba)
WMD Boeckmann Ohlig (Germany)
WMD Fuchs GmbH (Germany)
WMD Just Entsorgung GmbH (Germany)
WMD Knoess & Anthes GmbH (Germany)
WMD Milojoservice A/S (Denmark)
WMD Schrieber Entsorgung Kiel GmbH (Germany)
WMD Schreiber GmbH (Germany)
WMD Waste Management Deutschland Holding GmbH (Germany)
WMI Canada Divesture Sub, Inc. (Canada)
WMI Medical Services of Arizona, Inc. (Delaware)
WMI Medical Services of Indiana, Inc. (Indiana)
WMI Medical Services of Ohio, Inc. (Ohio)
WMI Medical Services - Dayton
27
<PAGE>
WMI Medical Services - Toledo
WMI Medical Services - Youngstown
WMI Merger Sub, Inc. (Delaware)
WMI Mexico Holdings, Inc. (Delaware)
WMI Quebec Inc. (Quebec)
WMI Sellbergs AB (Sweden)
WMI Sverige AB (Sweden)
WMI Services of Nevada, Inc. (Nevada)
WMI Urban Services, Inc. (Delaware)
WMI Waste Management of Canada Inc. (Canada)
TCL Waste Systems
Waste Management Big Bear Services
Waste Management Fraser Valley
Waste Management Halton/Hamilton
Waste Management Materials Processing - Recycle Canada
Waste Management Materials Processing - Toronto Transfer
Waste Management McLellan Disposal
Waste Management of Oxford/Perth
Waste Management of Calgary
Waste Management of Edmonton
Waste Management of Greater Toronto
Waste Management of Greater Vancouver
Waste Management of Southwestern Ontario
Waste Management of the Okanagan
Waste Management York/Simcoe
West Edmonton Recycling and Disposal Facility
WMI du Quebec
WMI - Hull/Ottawa
WMI Recyclage Quebec
WMI Rive - Sud
WMI Waste Management DuCanada
WMNA Container Recycling, Inc. (Delaware)
WMNA Rail-Cycle Sub, Inc. (Delaware)
WM Paper Recycling, Inc. (Delaware)
WM Partnership Holdings, Inc. (Delaware)
WM Portugal (Gestao De Residuos) LDA (Portugal)
WM Umwelttechnik Gmbh (Germany)
WM Ymparistopalvelut OY (Finland)
W R Pollard and Son Limited (United Kingdom)
WTI China I Limited Partnership
WTI China One Inc. (Delaware)
WTI China Two Inc. (Delaware)
WTI China Holdings I Inc. (Cayman Islands)
WTI China Holdings II Inc.
28
<PAGE>
WTI International Energy Inc. (Delaware)
WTI International Holdings Inc. (Delaware)
WTI Qicheng LLC (Cayman Islands)
WTI Rust Holdings Inc. (Delaware)
WTI Taicang LLC (Cayman Islands)
WTI Yingkou LLC (Cayman Islands)
29
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (registration
nos. 33-7201, 33-17447, 33-26733, 33-35936, 33-63702, 33-64266, 33-62285,
33-64427, 33-64431 and 333-01325), previously filed Registration Statement on
Form S-3 (registration no. 333-25291) and previously filed Registration
Statement on Form S-4 (registration no. 33-56891).
Arthur Anderson LLP
/s/ Arthur Anderson LLP
Chicago, Illinois
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the December 31, 1996 consolidated balance sheet and the consolidated statement
of income for the twelve-month period ended December 31, 1996 and is qualified
in its entirety by reference to such financial statements and the footnotes
thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 323,288
<SECURITIES> 319,338
<RECEIVABLES> 1,703,566
<ALLOWANCES> 52,847
<INVENTORY> 0
<CURRENT-ASSETS> 2,798,650
<PP&E> 13,608,635
<DEPRECIATION> 4,810,235
<TOTAL-ASSETS> 17,083,577
<CURRENT-LIABILITIES> 3,079,573
<BONDS> 6,971,607
0
0
<COMMON> 507,102
<OTHER-SE> 3,234,659
<TOTAL-LIABILITY-AND-EQUITY> 17,083,577
<SALES> 0
<TOTAL-REVENUES> 9,225,636
<CGS> 0
<TOTAL-COSTS> 7,096,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,766
<INTEREST-EXPENSE> 462,424
<INCOME-PRETAX> 660,467
<INCOME-TAX> 436,473
<INCOME-CONTINUING> 223,994
<DISCONTINUED> (263,301)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,307)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the December 31, 1997 consolidated balance sheet and the consolidated statement
of income for the twelve-month period ended December 31, 1997 and is qualified
in its entirety by reference to such financial statements and the footnotes
thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 132,811
<SECURITIES> 59,296
<RECEIVABLES> 1,591,218
<ALLOWANCES> 51,805
<INVENTORY> 0
<CURRENT-ASSETS> 2,145,506
<PP&E> 11,788,692
<DEPRECIATION> 4,534,543
<TOTAL-ASSETS> 13,589,098
<CURRENT-LIABILITIES> 4,192,405
<BONDS> 5,078,557
0
0
<COMMON> 507,102
<OTHER-SE> 838,550
<TOTAL-LIABILITY-AND-EQUITY> 13,589,098
<SALES> 0
<TOTAL-REVENUES> 9,188,582
<CGS> 0
<TOTAL-COSTS> 8,821,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 51,691
<INTEREST-EXPENSE> 446,888
<INCOME-PRETAX> (1,053,673)
<INCOME-TAX> 215,667
<INCOME-CONTINUING> (1,269,340)
<DISCONTINUED> 95,688
<EXTRAORDINARY> (516)
<CHANGES> (1,936)
<NET-INCOME> (1,176,104)
<EPS-PRIMARY> (2.52)
<EPS-DILUTED> (2.52)
</TABLE>
