<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____________ to ___________
Commission file number 1-6805
BROWNING-FERRIS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1673682
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
757 N. Eldridge
Houston, Texas 77079
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 870-8100
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
--- ---
Indicate the number of shares outstanding of the issuer's common stock, as of
May 8, 1997: 212,491,083
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- -----------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,413,731 $1,373,887 $2,908,868 $2,804,668
Cost of operations 1,054,350 1,026,916 2,165,648 2,075,021
---------- ---------- ---------- ----------
Gross profit 359,381 346,971 743,220 729,647
Selling, general and
administrative expense 206,627 212,557 426,664 421,071
---------- ---------- ---------- ----------
Income from operations 152,754 134,414 316,556 308,576
Interest, net 43,654 41,892 88,910 82,869
Equity in earnings of
unconsolidated affiliates (10,788) (12,992) (18,509) (25,102)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 119,888 105,514 246,155 250,809
Income taxes 47,955 42,205 98,462 100,323
Minority interest in
income of consolidated
subsidiaries 978 2,325 4,858 6,492
---------- ---------- ---------- ----------
Income before
extraordinary item 70,955 60,984 142,835 143,994
Extraordinary items -
Loss on redemption of debt
by unconsolidated affiliate,
net of income tax benefit
of $1,677 3,124 -- 3,124 --
Loss on redemption of debt,
net of income tax benefit
of $4,467 -- 12,159 -- 12,159
---------- ---------- ---------- ----------
Net income $ 67,831 $ 48,825 $ 139,711 $ 131,835
========== ========== ========== ==========
</TABLE>
(Continued on following page)
-2-
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- -----------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of common and common
equivalent shares used
in computing earnings
per share 203,169 200,379 202,519 200,128
========== ========== ========== ==========
Earnings per common and
common equivalent share:
Income before extra-
ordinary item $ .35 $ .30 $ .71 $ .72
Extraordinary item (.02) (.06) (.02) (.06)
------- ------- ------- -------
Net income $ .33 $ .24 $ .69 $ .66
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .34 $ .34
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 31, September 30,
1997 1996
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 75,889 $ 110,224
Short-term investments 3,628 26,394
Receivables -
Trade, net of allowances for doubtful
accounts of $41,349 and $40,622 918,758 929,316
Other 40,034 42,543
Inventories 51,523 51,536
Deferred income taxes 112,670 119,914
Prepayments and other 85,074 107,868
---------- ----------
Total current assets 1,287,576 1,387,795
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,734,379 and $2,737,788 3,783,697 3,920,721
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$156,420 and $138,636 1,598,638 1,671,461
Other intangible assets, net of
accumulated amortization of $91,960
and $110,835 98,367 110,925
Deferred income taxes 107,343 122,617
Investments in unconsolidated affiliates 281,593 287,051
Other 97,395 100,336
---------- ----------
Total other assets 2,183,336 2,292,390
---------- ----------
Total assets $7,254,609 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
March 31, September 30,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 200,986 $ 59,806
Accounts payable 407,504 507,731
Accrued liabilities -
Salaries and wages 107,350 129,203
Taxes, other than income 50,586 40,876
Other 413,838 430,187
Income taxes 15,683 35,586
Deferred revenues 195,902 195,101
---------- ----------
Total current liabilities 1,391,849 1,398,490
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 540,869 541,838
Deferred income taxes 135,905 108,041
Other 252,865 275,374
---------- ----------
Total deferred items 929,639 925,253
---------- ----------
LONG-TERM DEBT, net of current portion 2,395,837 2,766,885
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,387,697 and
213,390,458 shares issued 35,572 35,572
Additional paid-in capital 1,771,486 1,730,612
Retained earnings 1,022,749 1,031,331
Treasury stock, 1,093,793 and 1,027,278
shares, at cost (14,111) (11,926)
Stock and Employee Benefit Trust,
9,641,958 and 11,012,423 shares (278,412) (275,311)
---------- ----------
Total common stockholders' equity 2,537,284 2,510,278
---------- ----------
Total liabilities and common
stockholders' equity $7,254,609 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 139,711 $ 131,835
---------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 255,190 251,341
Goodwill 22,172 23,729
Other intangible assets 13,271 16,667
Deferred income tax expense 25,462 10,585
Amortization of deferred investment tax credit (354) (354)
Provision for losses on accounts receivable 16,623 13,117
Gains on sales of fixed assets (4,773) (3,251)
Equity in earnings of unconsolidated
affiliates, net of dividends received
and extraordinary item (9,603) (21,496)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 4,829 5,672
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables (32,378) 43,942
Inventories (855) (2,972)
Other assets 32,747 16,300
Other liabilities (94,865) (190,174)
---------- ----------
Total adjustments 227,466 163,106
---------- ----------
Net cash provided by operating activities 367,177 294,941
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (212,667) (467,342)
Payments for businesses acquired (3,712) (94,662)
Investments in unconsolidated affiliates (9,658) (12,262)
Proceeds from disposition of assets 20,070 35,231
Sales of short-term investments 21,973 44,772
Return of investment in unconsolidated
affiliates 21,502 15,517
---------- ----------
Net cash used in investing activities (162,492) (478,746)
---------- ---------
</TABLE>
(Continued on following page)
-6-
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 20,337 7,712
Proceeds from issuance of indebtedness 111,551 1,132,021
Repayments of indebtedness (299,516) (866,817)
Dividends paid (68,505) (67,659)
---------- ---------
Net cash provided by (used in)
financing activities (236,133) 205,257
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES (2,887) (1,154)
---------- ---------
NET INCREASE (DECREASE) IN CASH (34,335) 20,298
CASH AT BEGINNING OF PERIOD 110,224 92,808
---------- ---------
CASH AT END OF PERIOD $ 75,889 $ 113,106
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 94,010 $ 87,360
Income taxes $ 93,521 $ 110,351
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1996, as filed with the
Securities and Exchange Commission.
In October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", which was issued by the
Financial Accounting Standards Board in March 1995. The statement sets forth
standards for the recognition and measurement of impairment of long-lived
assets, including certain identifiable intangible assets and goodwill related
to those assets, to be held and used in an entity's operations or expected to
be disposed of. As the Company's prior accounting practices were substantially
in compliance with the provisions of the new standard, the adoption of SFAS No.
121 had no material effect on the Company's financial position or results of
operations.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 - "Earnings Per Share". This statement, which establishes new standards for
computing and presenting earnings per share, is effective for the Company's
quarter ending December 31, 1997 and requires restatement for all periods
presented. The Company believes that the adoption of SFAS No. 128 will not have
a material effect on its earnings per share calculations.
(2) Earnings Per Common Share -
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in computing
primary earnings per share (in thousands):
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
Common shares outstanding, end of period 212,294 212,419
Less - Shares held in the Stock and
Employee Benefit Trust (9,642) (12,645)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 202,652 199,774
Effect of using weighted average common
and common equivalent shares outstanding (777) (509)
Effect of shares issuable under stock
option plans based on the treasury
stock method 644 863
------- -------
Shares used in computing earnings
per share 202,519 200,128
======= =======
</TABLE>
Shares of common stock held in the Stock and Employee Benefit Trust (the
"Trust") are not considered to be outstanding in the computation of common
shares outstanding until shares are utilized at the Company's option for the
purposes for which the Trust was established.
The difference between shares for primary and fully diluted earnings per
share was not significant in any period. Conversion of the 6 3/4% Convertible
Subordinated Debentures due 2005, which were determined not to be common stock
equivalents, was not assumed in the computation of fully diluted earnings per
share because the debentures had an anti-dilutive effect in the periods prior
to their redemption in February 1996.
Earnings per common and common equivalent share were computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during each period. Common stock equivalents
include stock options, the Company's 6 1/4% Convertible Subordinated
Debentures due 2012 (the "6 1/4% Debentures"), which were redeemed in February
1996, and the 7.25% Automatic Common Exchange Securities. The effect of the 6
1/4% Debentures on earnings per share was not significant in the period prior
to their redemption in February 1996 and, accordingly, has not been included in
the computation. The 7.25% Automatic Common Exchange Securities had no effect
on the computations for the periods presented.
(3) Special Charges -
Special charges of $447 million ($362 million or $1.80 per share after
income taxes) were included in the Company's results of operations for the
fourth quarter of fiscal 1996. Charges of $349 million resulted principally
from management decisions to sell the Company's Italian operations, divest
certain domestic and
-9-
<PAGE> 10
international non-core business assets and operations and close certain
recycling facilities not expected to achieve desired performance objectives.
The remainder of the special charges related to the writedown of the Company's
investment in the Azusa, California landfill to fair value, which was
determined based upon the present value of the estimated future cash flows
using a discount rate commensurate with the risks involved. This writedown was
a result of the changing competitive nature of waste disposal in the Los
Angeles market area and the continuing negative legal climate, including
adverse decisions by California judicial and regulatory authorities in fiscal
1996 and early fiscal 1997, bearing on the site's ability to accept municipal
solid waste.
The Company expects to complete the sale of its Italian operations in
1997. An investment banking firm has been engaged to assist in the marketing
and sale of these operations. The Company's investment in its Italian
operations, before considering special charges, was $206 million as of
September 30, 1996. At the time that the sale of all or substantially all of
the Italian operations occurs, losses accumulated in the foreign currency
translation component of common stockholders' equity ($52.7 million as of March
31, 1997) must be reported as an additional loss on the sale of these
operations. Summary financial information related to the Company's Italian
operations is as follows (in thousands):
<TABLE>
<CAPTION>
For the Six Months
Ended
March 31,
--------------------- For the Year Ended
1997 1996 September 30, 1996
------- ------- ------------------
<S> <C> <C> <C>
Revenues $54,426 $56,453 $ 122,782
Losses from
operations and
equity in earnings
of unconsolidated
affiliates $(3,437) $ (121) $(182,584)
</TABLE>
The Company also expects to divest certain domestic and international
non-core business assets and operations and close certain recycling facilities
during 1997. Assets of these operations, prior to the special charges, were
approximately $177 million as of September 30, 1996. The results of operations
for these non-core business assets and operations and recycling facilities were
not material to the Company's consolidated results of operations for fiscal
1996 as the aggregated revenues and income (loss) from operations of these
assets and operations represented less than 4% of the Company's corresponding
consolidated totals, on a pre-special charge basis. During the first six months
of the current fiscal year, the Company closed or sold 32 recycling facilities.
-10-
<PAGE> 11
(4) Business Combinations -
During the current fiscal year, the Company paid approximately $3.9
million (including additional amounts payable, principally to former owners, of
$181,000) to acquire eleven solid waste businesses, which were accounted for as
purchases. The results of these business combinations are not material to the
Company's consolidated results of operations or financial position.
During the prior fiscal year, the Company paid approximately $243.4
million (including additional amounts payable, principally to former owners, of
$23.3 million and the issuance of 974,085 shares of the Company's common stock
valued at $28.3 million) to acquire 102 solid waste businesses, which were
accounted for as purchases, including the acquisition of the remaining 50%
ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously
owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In
connection with these acquisitions, the Company recorded additional
interest-bearing indebtedness of $69.3 million (including $55.0 million related
to P&R) and other liabilities of $37.4 million. The results of these business
combinations were not material to the Company's consolidated results of
operations or financial position.
The results of all businesses acquired in fiscal years 1997 and 1996 have
been included in the consolidated financial statements from the dates of
acquisition. In allocating purchase price, the assets acquired and liabilities
assumed in connection with the Company's acquisitions have been initially
assigned and recorded based on preliminary estimates of fair value and may be
revised as additional information concerning the valuation of such assets and
liabilities becomes available. As a result, the financial information included
in the Company's consolidated financial statements is subject to adjustment
prospectively as subsequent revisions in estimates of fair value, if any, are
necessary.
(5) Long-Term Debt -
Long-term debt at March 31, 1997, and September 30, 1996, was as follows
(in thousands):
-11-
<PAGE> 12
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,691
and $1,838 $ 198,309 $ 198,162
6.375% Senior Notes, net of
unamortized discount of $1,960
and $2,051 198,040 197,949
7 7/8% Senior Notes, net of
unamortized discount of $737
and $783 299,263 299,217
7.40% Debentures, net of
unamortized discount of
$2,055 and $2,082 397,945 397,918
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 171,709 149,127
Other notes payable 714,541 804,721
---------- ----------
2,079,807 2,147,094
Commercial paper and short-term
facilities to be refinanced 517,016 679,597
---------- ----------
Total long-term debt 2,596,823 2,826,691
Less current portion 200,986 59,806
---------- ----------
Long-term debt, net of current
portion $2,395,837 $2,766,885
========== ==========
</TABLE>
During December 1996, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement which was originally
established to fund the Company's acquisition of Attwoods plc in December 1994.
Under the terms of the amended agreement, the facility has a 364-day term with
a one-year term-out option available to the Company at any time prior to its
maturity date in December 1997. The agreement contains a net worth requirement
consistent with the Company's $1 billion revolving credit agreement.
It is the Company's intention to refinance certain commercial paper
balances and other outstanding borrowings classified as long-term debt through
the use of existing committed long-term bank credit agreements in the event
that alternative long-term refinancing is not arranged. A summary by country
of such commercial paper balances and other outstanding borrowings classified
as long-term debt as of March 31, 1997 and September 30, 1996 is as follows
(amounts in thousands):
-12-
<PAGE> 13
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------ -------------
<S> <C> <C>
United States -
Commercial paper $251,551 $438,296
Germany 265,465 241,301
-------- --------
$517,016 $679,597
======== ========
</TABLE>
As of March 31, 1997, distributions from retained earnings could not
exceed $1.1 billion under the most restrictive of the Company's net worth
maintenance requirements.
(6) Extraordinary Item -
During the second quarter of fiscal 1997, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a
pre-tax charge to expense of $9.6 million associated with the redemption of
approximately $250 million principal amount of Series 1985 Bonds, which were
refinanced. As a result, the Company has reflected an extraordinary charge,
after tax, of $3.1 million (or approximately $.02 per share) in its
consolidated statement of income for the quarter ended March 31, 1997, related
to its 50% ownership interest in this affiliate. Interest was payable on the
Series 1985 Bonds due 2010 at a weighted average interest rate of approximately
7.3%, compared with the weighted average interest rate of approximately 5% for
the new bonds, which are also due in 2010.
(7) Commitments and Contingencies -
Legal Proceedings.
The Company and certain subsidiaries are involved in various
administrative matters or litigation, including personal injury and other civil
actions, as well as other claims and disputes that could result in additional
litigation or other adversary proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular quarterly or annual
reporting period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the consolidated
financial position of the Company.
Environmental Proceedings.
The Company and certain subsidiaries are involved in various environmental
matters or proceedings, including original or renewal permit application
proceedings in connection with the establishment, operation, expansion, closure
and post-closure activities of certain landfill disposal facilities, and
proceedings relating to governmental actions resulting from the involvement of
various subsidiaries of the Company with certain waste sites
-13-
<PAGE> 14
(including Superfund sites), as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular quarterly or annual
reporting period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the consolidated
financial position of the Company.
(8) Automatic Common Exchange Securities -
In July 1995, the Company issued to the public 11,499,200 7.25% Automatic
Common Exchange Securities with a stated amount of $35.625 per security ($409.7
million in total). Each security consists of (1) a purchase contract under
which (a) the holder will purchase from the Company on June 30, 1998 (earlier
under certain circumstances), for an amount in cash equal to the stated amount
of $35.625, between .8333 of a share (in total approximately 9.6 million
shares) and one share (a maximum of 11,499,200 shares) of the Company's common
stock (depending on the then market value of the common stock) and (b) the
Company will pay the holder contract fees at the rate of 2.125% per annum on
the security, and (2) 5.125% United States Treasury Notes having a principal
amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes
underlying these securities are pledged as collateral to secure the holder's
obligation to purchase the Company's common stock under the purchase contract.
The principal of the Treasury Notes underlying such securities, when paid at
maturity, will automatically be applied to satisfy in full the holder's
obligation to purchase the Company's common stock. These securities are not
included on the Company's balance sheet; an increase in common stockholders'
equity will be reflected when cash proceeds are received by the Company.
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's operations,
financial performance and results includes statements that are not historical
facts. Such statements are forward-looking statements based on the Company's
expectations and as such, these statements are subject to uncertainty and risk.
These statements should be read in conjunction with the "Regulation",
"Competition" and "Waste Disposal Risk Factors" sections of the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 ("the Form 10-K"),
which describes many of the external factors that could cause the Company's
actual results to differ materially from the Company's expectations. The
Company's Form 10-K is on file with the U.S. Securities and Exchange
Commission, a copy of which is available without charge upon written request
to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253,
Attention: Secretary.
RESULTS OF OPERATIONS
- ---------------------
Net income, before extraordinary charge, for the first six months of
fiscal 1997 was $142.8 million, or $.71 per share. Year-to-date net income
includes an after-tax extraordinary charge of $3.1 million ($.02 per share)
associated with the redemption and refinancing of approximately $250 million
principal amount of debt by one of the Company's unconsolidated affiliates,
American Ref-Fuel Company of Hempstead. After the extraordinary charge, net
income for the six-month period was $139.7 million. These results compare with
net income before an extraordinary charge for the same period of fiscal 1996 of
$144.0 million, or $.72 per share. The fiscal 1996 extraordinary charge of
$12.2 million, after tax, ($.06 per share) was associated with the redemption
of $745 million of convertible subordinated debentures. After this
extraordinary charge, net income for the first six months of fiscal 1996 was
$131.8 million. Fiscal 1997 year-to-date results were favorably affected by
improved operating profit in the Company's North American operations, despite
the negative effect of the decline in the weighted average value of recycling
commodities compared with the first six months of the prior fiscal year. The
improvements noted in the North American operations between these two periods,
however, were largely offset by lower operating profitability in the Company's
international operations, attributable in part to the impact on foreign
currency exchange of the strengthening U.S. dollar against the German, Dutch,
Spanish and Italian currencies. Fiscal year-to-date results were also affected
negatively by increased operating costs, including severance and reorganization
expenses associated with both the reorganization of North American operations
in June 1996 and the recent reductions worldwide in employee staffing levels to
effect improvements in operating and administrative efficiency, as well as
increased interest expense and lower earnings of unconsolidated affiliates.
Additionally, an increase in the Company's income from operations of $12.0
million, principally due to lower depreciation and amortization expense, was
reflected in the current year-to-date earnings as a result of the
-15-
<PAGE> 16
special charges of $447 million taken in the fourth quarter of fiscal 1996 (see
Note (3) of Notes to Consolidated Financial Statements).
During the first six months of fiscal 1997, the Company's actions
reflected its previously announced strategic shift in focus away from an
emphasis on external growth to an emphasis on internal growth and on increasing
return on assets. The redeployment and retraining of the sales force that has
been completed in the current fiscal year should enable sales personnel to
better focus on the Company's customers. In addition, the plan to reduce
selling, general and administrative expenses ("SG&A"), commenced during the
first quarter of fiscal 1997, has resulted in the reduction of approximately
1,100 employees worldwide since the Company announced its reorganization in
June 1996 and the consolidation of certain business and administrative
activities. SG&A as a percent of revenues was 14.7% for the first six months of
fiscal 1997, lower than the same period of the prior year (15.0%). The
Company's SG&A milestone for fiscal 1997 is to reduce SG&A as a percent of
revenues to 14.6% for the fiscal year.
During the first quarter of fiscal 1997, the Company completed its initial
marketplace and business line strategic reviews and identified core and
non-core business operations (including those considered in the special charges
incurred in the fourth quarter of fiscal 1996) to be marketed and sold with
aggregate annual revenues of approximately $270 million in the U.S. and $130
million outside of the U.S. The Company continued its strategic reviews of
underperforming marketplaces during the second quarter. The goal of these
reviews is to identify the key drivers of performance or underperformance in
each marketplace and identify actions to improve the business operations.
However, in some cases, these reviews have resulted in a conclusion to divest
the operations as it is evident that the Company will be unable to achieve its
desired returns even with identified areas for improvement. As a result of
these reviews, the Company has identified additional business operations with
annual revenues of $130 million in North America and $155 million (a portion of
which is not consolidated for financial reporting purposes) in Europe that are
eligible for divestiture. Through April 1997, the Company has sold business
operations with annual revenues of $90 million, with most of these sales
concluded subsequent to March 31, 1997. The Company has also identified real
estate assets of $50 million that are actively being marketed.
In March 1997, the Company initiated an effort to reduce operating
expenses by $100 million on an annualized basis by the beginning of the fourth
quarter of fiscal 1997. Through April 30, the Company had reduced operating
headcount by approximately 600 employees through the re-routing of trucks,
consolidations and closures of operating facilities and, where appropriate,
after careful review, a reduction in supervisory personnel. The ability to
reduce operating expenses in recycling business operations will significantly
affect the Company's ability to achieve this operating expense reduction goal.
The focus in the recycling business is on (1) cleaning up the volumes received
to reduce
-16-
<PAGE> 17
sorting costs and increase the quality or value of the material to be sold and
(2) closing or selling the higher cost, lower efficiency facilities. During the
first six months of fiscal 1997, the Company closed or sold 32 recycleries. The
Company's focus on asset management continued during the second quarter.
Reduced capital spending will lead to lower fixed costs, which is another
contributor to the Company's effort to reduce operating costs. Capital
expenditures, including acquisitions, for the first six months of fiscal 1997
were limited to $216 million.
The following profitability ratios (shown as a percent of revenues)
reflect certain profitability trends for the Company's operations. The Company
has established an operating profit milestone for fiscal 1997 to increase
income from operations as a percent of revenues to 12%. Also presented below
are return on asset information and ratios of earnings to fixed charges.
<TABLE>
<CAPTION>
Six Months Ended
-------------------- Year Ended
3/31/97 3/31/96 9/30/96
--------- --------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit 25.6% 26.0% 25.3%
Income from operations before
special charges 10.9% 11.0% 10.2%
Income from operations 10.9% 11.0% 2.5%
Income before income taxes,
minority interest and
extraordinary item 8.5% 8.9% 0.5%
Net income before special
charges and extraordinary
item (1) 4.9% 5.1% 4.7%
Net income (loss)(1) 4.8% 4.7% (1.8%)
Other Financial Information:
Return on Gross Assets 5.48% 5.81% 11.4%
Ratio of earnings to fixed
charges (1) 2.78 2.93 1.02 (2)
</TABLE>
- ----------
(1) Does not reflect the pro forma effect of the use of cash
proceeds of $409.7 million to be received in the future
under the provisions of the 7.25% Automatic Common
Exchange Securities. (See Note (8) of Notes to
Consolidated Financial Statements.)
(2) Excluding the effects of the fiscal 1996 special charges of $447
million, the ratio of earnings to fixed charges for fiscal 1996 was
2.77.
Declines were reflected in all of the profitability margins, before
considering extraordinary items, presented above for the six months ended March
31, 1997 compared with the same period of the prior year. Although these
profitability margins continued to be affected negatively in domestic
operations by the significant decline in the weighted average value of
recycling commodities in the current fiscal year as compared with the first six
months of
-17-
<PAGE> 18
the prior year, the North American income from operations margin reflected
improvement as a result of improved profitability in solid waste collection,
transfer and disposal and recycling operations and as a result of reduced SG&A
expenses as a percentage of revenues. The weighted average market prices for
recycling commodities in North America, principally corrugated, office paper
and newspaper, declined by 16%, to approximately $61 per ton in the first half
of the current year from approximately $73 per ton in the comparable period
last year. Current year profitability margins were also affected negatively by
the increased operating and SG&A costs associated with current year employee
severance and reorganization expenses of $15.6 million, offset partially by the
increase in income from operations of $12.0 million associated principally with
the reduced depreciation and amortization expense resulting from the special
charges taken in the fourth quarter of fiscal 1996. In the Company's
international operations, gross profit and income from operations margins
declined in the current year compared with the same period of the prior year.
International results were adversely impacted by severance costs, foreign
exchange losses and lower profitability from the German and Italian operations.
As stated above, management's focus has shifted from external growth to an
emphasis on internal growth with success measured by cash flow and return on
gross assets. Return on gross assets ("ROGA"), although not a measure of
financial performance under generally accepted accounting principles, is a new
measurement for the Company representing the quotient of operating cash flow
divided by average gross assets, where operating cash flow and gross assets are
defined generally as follows:
Operating cash flow - the sum of (i) net income before extraordinary item,
(ii) minority interest, (iii) interest expense, net of related income tax
benefit, (iv) depreciation and amortization expense and (v) asset
impairment writedowns (e.g. special charges in fiscal 1996).
Gross assets - the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets are sold
or otherwise disposed of -- approximately $352 million at March 31, 1997
and $382 million at September 30, 1996) less the sum of (i) current
liabilities, net of interest-bearing indebtedness included therein, (ii)
accrued environmental and landfill costs associated with the continuing
operations of the Company (approximately $473 million at March 31,
1997)and (iii) deferred income tax liabilities.
Gross assets in the ROGA computations for the first six months of a fiscal year
is the average of the applicable beginning of year and end of first and second
quarter amounts; gross assets for a fiscal year is the average of the
applicable five quarter-end amounts in the period. The Company established a
ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from fiscal 1996 to
11.9%.
-18-
<PAGE> 19
Total assets decreased from $7.6 billion at September 30, 1996 to $7.3
billion at March 31, 1997. The decrease was principally attributable to the
decrease in assets related to foreign currency exchange, a result of the
strengthening U.S. dollar against the German, Dutch, Spanish and Italian
currencies, and to the excess of depreciation and amortization expense over
capital expenditures during the first six months of fiscal 1997. Average gross
assets of approximately $8.97 billion in the computation of ROGA resulted from
a decline in gross assets at March 31, 1997, compared with September 30, 1996.
Management of the Company remains optimistic about achieving its fiscal
1997 financial milestones, including those for both ROGA and operating margins.
Management believes that operating margin and ROGA improvements will come from
decreased operating and SG&A costs, divestitures, internal growth and normal
seasonal improvement over the remainder of the fiscal year.
EBITDA (defined herein as income from operations plus depreciation and
amortization expense) was $607 million for the first six months of fiscal 1997
as compared with $600 million for the first six months of last year. EBITDA,
which is not a measure of financial performance under generally accepted
accounting principles, is included in this discussion because the Company
understands that such information is used by certain investors when analyzing
the Company's financial condition and performance.
Revenues -
Revenues for the six months ended March 31, 1997, were $2.91 billion, a
3.7% increase over the same period last year. The following table reflects
total revenues of the Company by each of the principal lines of business
(dollar amounts in thousands):
-19-
<PAGE> 20
<TABLE>
<CAPTION>
Six Months Ended
---------------------- %
3/31/97 3/31/96 Change
---------- ---------- --------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $1,472,093 $1,402,908 4.9%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 271,544 251,506 8.0%
Affiliated companies 254,851 242,462 5.1%
---------- ----------
526,395 493,968 6.6%
Recycling Services 266,565 262,606 1.5%
Medical Waste Services 99,723 100,485 (0.8)%
Services Group and Other 41,555 41,260 0.7%
Elimination of affiliated
companies' revenues (254,851) (242,462) 5.1%
---------- ----------
Total North American Operations 2,151,480 2,058,765 4.5%
International Operations 757,388 745,903 1.5%
---------- ----------
Total Company $2,908,868 $2,804,668 3.7%
========== ==========
</TABLE>
As the table below reflects, revenue growth for the six months ended March
31, 1997, was due principally to acquisitions and, to a lesser extent, pricing
and volume which more than offset the decline related to foreign currency
translation.
<TABLE>
<CAPTION>
Changes in Revenue for
Six Months Ended
March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Price 1.1% (3.9)%
Volume 1.2 (0.5)
Acquisitions/divestitures, net 3.0 7.4
Foreign currency translation (1.6) 0.8
---- ----
Total Percentage Increase 3.7% 3.8%
==== ====
</TABLE>
As shown above, acquisitions, net of divestitures, accounted for revenue
growth of 3.0% for the first six months of fiscal 1997 over the same period of
the prior year. Revenue growth due to acquisitions was attributable principally
to acquisitions consummated in fiscal 1996. No significant acquisitions were
closed in the first six months of the current year with the new emphasis on
internal rather than external growth. Revenues
-20-
<PAGE> 21
increased due to change in price during the first half of fiscal 1997 despite
the decline in pricing in the North American recycling business previously
discussed. Increases in revenues due to price were noted in the Company's
collection, medical waste and international businesses while a slight decrease
was experienced in the transfer and disposal business. The increases in revenue
due to volume in the first six months of the current year compared with the
same period of the prior year were driven by increases in the North American
collection, transfer and disposal and recycling businesses.
Cost of Operations -
Cost of operations increased $91 million or 4.4% for the first six months
of fiscal 1997, compared with the same period of the prior year. Most of the
increase in cost of operations is attributable to businesses acquired in fiscal
1996. Cost of operations as a percent of revenues increased from 74.0% for the
six months ended March 31, 1996 to 74.4% for the six months ended March 31,
1997. Included in cost of operations is depreciation and amortization expense
of approximately $240.6 million and $238.2 million for the six months ended
March 31, 1997 and 1996, respectively.
Selling, General and Administrative Expense -
SG&A was $427 million for the first six months of fiscal 1997, an increase
of 1.3% over the same period last year. SG&A as a percent of revenues decreased
from 15.0% of revenues for the six months ended March 31, 1996 to 14.7% of
revenues for the six months ended March 31, 1997. The $5.6 million increase in
SG&A was primarily related to higher costs (including goodwill amortization)
associated with the Company's acquisition activities and approximately $13.5
million of severance and reorganization expenses included in SG&A associated
with both the reorganization of North American operations in June 1996 and the
current year reduction of employees worldwide. The increase was offset largely
by the reduction in employees worldwide and other cost reduction actions to
improve operating and administrative efficiency. Included in SG&A for the six
months ended March 31, 1997 and 1996 was depreciation and amortization expense
of $50.0 million and $53.6 million, respectively.
Net Interest Expense -
Net interest expense increased $6.0 million or 7.3% for the first six
months of fiscal 1997 compared with the same period of the prior year as a
result of the increase in average debt outstanding between the periods,
associated principally with fiscal 1996 capital expenditures of approximately
$1.2 billion. At the end of the second quarter of fiscal 1997, debt outstanding
had declined by $230 million from yearend fiscal 1996, largely as a result of
the limitation on capital spending during the period. The Company has
established a milestone for long-term debt which is to maintain
interest-bearing debt at or below the September 30, 1996 level.
-21-
<PAGE> 22
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates declined between the
periods primarily due to lower earnings from American Ref-Fuel waste-to-energy
operations and the reduction in equity earnings from P&R due to the acquisition
of the remaining 50% ownership interest of P&R by Otto Waste Services during
the second quarter of fiscal 1996. Included in this caption are the earnings of
unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto
Waste Services' financial results, which include equity in earnings of Otto's
unconsolidated affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The decrease in minority interest in income of consolidated subsidiaries
is due to lower consolidated earnings reported by Otto Waste Services during
the current period compared with the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital deficit of $10.7 million at September 30,
1996, increased to a deficit of $104.3 million at March 31, 1997. Over the long
term, it continues to be the Company's desire to maintain substantial available
commitments under bank credit agreements or other financial agreements to
finance short-term capital requirements in excess of internally generated cash
while minimizing working capital.
As discussed in Note (8) of Notes to Consolidated Financial Statements, in
July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common
Exchange Securities with a stated amount of $35.625 per security. These
securities are not included on the Company's balance sheet; an increase in
common stockholders' equity will be reflected when cash proceeds totaling over
$400 million are received by the Company no later than June 30, 1998.
Long-term indebtedness including the current portion of long-term
debt (including $525.5 million of Otto Waste Services debt, which has not been
guaranteed by the Company) as a percentage of total capitalization was 51% as
of March 31, 1997, down from 53% at September 30, 1996. The ratio would have
been 43% at March 31, 1997, on a pro forma basis assuming that under the
provisions related to the Automatic Common Exchange Securities, cash proceeds
of $409.7 million were paid to the Company to purchase common stock and such
proceeds were utilized to repay long-term debt.
The capital appropriations budget for fiscal 1997 was established at $790
million to provide for normal replacement capital needs in the Company's core
business, to provide new assets to support planned revenue growth within all
consolidated businesses and in anticipation of selective business acquisition
and development opportunities. This is a significant reduction from the $1.2
billion level of capital expenditures in fiscal 1996 and is reflective of the
new emphasis on internal rather than
-22-
<PAGE> 23
external growth. The Company believes that its cash flows from operations and
its access to cash from banks and other external sources, including the public
markets, are more than sufficient for its current financing needs.
As of March 31, 1997, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1996, and there have been no
material changes in the Company's financial condition from that reported at
September 30, 1996, except with respect to the declines in balance sheet
amounts associated with the impact of foreign currency exchange resulting from
the strengthening of the U.S. dollar against the German, Dutch, Spanish and
Italian currencies, and except as disclosed herein.
-23-
<PAGE> 24
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain subsidiaries are involved in various administrative
matters or litigation, including original or renewal permit application
proceedings in connection with the establishment, operation, expansion, closure
and post-closure activities of certain landfill disposal facilities,
environmental proceedings relating to governmental actions resulting from the
involvement of various subsidiaries of the Company with certain waste sites
(including Superfund sites), personal injury and other civil actions, as well
as other claims and disputes that could result in additional litigation or
other adversary proceedings.
While the final resolution of any such litigation or such other matters may
have an impact on the Company's consolidated financial results for a particular
quarterly or annual reporting period, management believes that the ultimate
disposition of such litigation or such other matters will not have a materially
adverse effect upon the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On March 5, 1997, the Company held its Annual Meeting of Stockholders. The
matters voted on were (1) the election of four nominees to serve as directors
for three-year terms, (2) the approval of the selection of Arthur Andersen LLP
as auditors for the Company's 1997 fiscal year and (3) the approval of the
Company's incentive compensation program, consisting of the 1996 Stock
Incentive Plan, the Annual Management Incentive Plan and the Long-Term
Incentive Plan.
In the election for directors, Gregory D. Brenneman received 169,466,867 votes
and 2,573,795 votes were withheld; Harry J. Phillips, Sr. received 169,429,746
votes and 2,610,916 votes were withheld; Marc J. Shapiro received 169,425,918
votes and 2,614,744 votes were withheld; and Robert M. Teeter received
169,346,308 votes and 2,694,354 votes where withheld. In the approval of
auditors, the holders of 171,063,381 shares voted for, the holders of 507,545
shares voted against, and the holders of 469,736 shares abstained from voting
on the matter. In the approval of the Company's incentive compensation program,
the holders of 144,010,578 shares voted for, the holders of 9,839,344 shares
voted against, the holders of 1,157,283 shares abstained from voting on the
matter and there were 17,033,457 broker non-votes.
24
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3. By-laws, as amended through March 5, 1997.
10.1 Browning-Ferris Industries, Inc. 1996 Stock Incentive Plan
10.2 Browning-Ferris Industries Annual Management Incentive Plan
10.3 Browning-Ferris Industries Long-Term Incentive Plan
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
(b) Reports on Form 8-K: None
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
/s/ Bruce E. Ranck
--------------------------------------
Bruce E. Ranck
President and
Chief Executive Officer
/s/ Jeffrey E. Curtiss
--------------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: May 13, 1997
26
<PAGE> 27
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3. By-laws, as amended through March 5, 1997.
10.1 Browning-Ferris Industries, Inc. 1996 Stock Incentive Plan
10.2 Browning-Ferris Industries Annual Management Incentive Plan
10.3 Browning-Ferris Industries Long-Term Incentive Plan
12. Computation of Ratio of Earnings to Fixed Charges of Browning-Ferris
Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3
BY-LAWS OF
BROWNING-FERRIS INDUSTRIES, INC.
A DELAWARE CORPORATION
AS AMENDED THROUGH MARCH 5, 1997
<PAGE> 2
BY-LAWS, AS AMENDED, OF
BROWNING-FERRIS INDUSTRIES, INC.
A DELAWARE CORPORATION
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
ARTICLE 1-Offices
Page
----
<S> <C>
SECTION 1.1 Registered Office......................................... 1
SECTION 1.2 Other Offices............................................. 1
ARTICLE II-Meetings of Stockholders
SECTION 2.1 Place of Meeting.......................................... 1
SECTION 2.2 Annual Meeting............................................ 1
SECTION 2.3 Voting List............................................... 1
SECTION 2.4 Special Meeting........................................... 1
SECTION 2.5 Notice of Meeting......................................... 1
SECTION 2.6 Quorum.................................................... 2
SECTION 2.7 Voting.................................................... 2
SECTION 2.8 Consent of Stockholders................................... 2
SECTION 2.9 Voting of Stock of Certain Holders........................ 2
SECTION 2.10 Treasury Stock............................................ 2
SECTION 2.11 Fixing Record Date........................................ 2
SECTION 2.12 Notification of Nominations............................... 3
ARTICLE III-Board of Directors
SECTION 3.1 Powers.................................................... 3
SECTION 3.2 Number, Election and Term................................. 3
SECTION 3.3 Vacancies, Additional Directors and Removal from Office... 3
SECTION 3.4 Regular Meeting........................................... 4
SECTION 3.5 Special Meeting........................................... 4
SECTION 3.6 Notice of Special Meeting................................. 4
SECTION 3.7 Quorum.................................................... 4
SECTION 3.8 Action Without Meeting.................................... 4
SECTION 3.9 Meeting by Telephone...................................... 4
SECTION 3.10 Compensation.............................................. 4
</TABLE>
- ----------
* This Table of Contents is not part of the By-Laws, as amended.
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV-Committees of Directors
SECTION 4.1 Executive Committee....................................... 5
SECTION 4.2 Compensation Committee.................................... 5
SECTION 4.3 Audit Committee........................................... 5
SECTION 4.4 Directors and Corporate Governance Committee.............. 6
SECTION 4.5 Corporate Responsibility Committee........................ 6
SECTION 4.6 Designation, Powers and Name.............................. 7
SECTION 4.7 Committee Operations...................................... 7
SECTION 4.8 Minutes................................................... 7
SECTION 4.9 Compensation.............................................. 7
ARTICLE V-Notice
SECTION 5.1 Methods of Giving Notice.................................. 7
SECTION 5.2 Written Waiver............................................ 8
ARTICLE VI-Officers
SECTION 6.1 Officers.................................................. 8
SECTION 6.2 Election and Term of Office............................... 8
SECTION 6.3 Removal and Resignation................................... 8
SECTION 6.4 Vacancies................................................. 8
SECTION 6.5 Salaries.................................................. 8
SECTION 6.6 Chairman of the Board..................................... 8
SECTION 6.7 Chief Executive Officer................................... 9
SECTION 6.8 President................................................. 9
SECTION 6.9 Chief Operating Officer................................... 9
SECTION 6.10 Vice Presidents........................................... 10
SECTION 6.11 Secretary................................................. 10
SECTION 6.12 Treasurer................................................. 10
SECTION 6.13 Assistant Secretary or Assistant Treasurer................ 10
ARTICLE VII-Contracts, Checks and Deposits
SECTION 7.1 Contracts................................................. 11
SECTION 7.2 Checks, etc. ............................................. 11
SECTION 7.3 Deposits.................................................. 11
ARTICLE VIII-Certificate of Stock
SECTION 8.1 Issuance.................................................. 11
SECTION 8.2 Lost Certificates......................................... 11
SECTION 8.3 Transfers................................................. 12
SECTION 8.4 Registered Stockholders................................... 12
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX-Dividends
SECTION 9.1 Declaration............................................... 12
SECTION 9.2 Reserve................................................... 12
ARTICLE X-Indemnification
SECTION 10.1 Third Party Actions....................................... 12
SECTION 10.2 Actions by or in the Right of the Corporation............. 12
SECTION 10.3 Successful Defense........................................ 13
SECTION 10.4 Determination of Conduct.................................. 13
SECTION 10.5 Payment of Expenses in Advance............................ 13
SECTION 10.6 Indemnity Not Exclusive................................... 13
SECTION 10.7 The Corporation........................................... 13
SECTION 10.8 Insurance Indemnification................................. 13
SECTION 10.9 Heirs, Executors and Administrators....................... 14
ARTICLE XI-Miscellaneous
SECTION 11.1 Seal...................................................... 14
SECTION 11.2 Books..................................................... 14
ARTICLE XII-Amendment
</TABLE>
iii
<PAGE> 5
BY-LAWS, AS AMENDED,*
OF
BROWNING-FERRIS INDUSTRIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices
SECTION 1.1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle, and the name of its registered agent shall be The Corporation Trust
Company.
SECTION 1.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. Place of Meeting. All meetings of stockholders(21) shall be
held at such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.2. Annual Meeting. The annual meeting of stockholders shall be
held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
SECTION 2.3. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting,(21) or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.4. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Restated Certificate of Incorporation of the corporation (the "Certificate of
Incorporation"), may be called only by the persons specified in the Certificate
of Incorporation. The officers or directors shall fix the time and any place,
either within or without the State of Delaware, as the place for holding such
meeting.(21)
SECTION 2.5. Notice of Meeting. Written notice of the annual, and each
special meeting of stockholders, stating the time, place and in the case of
special meetings, the(17) purpose or purposes thereof, shall be given to each
stockholder entitled to vote thereat, not less than ten nor more than 60(7) days
before the meeting.
- ----------
* Through March 5, 1997. Neither the footnote references, the footnotes, nor
the Officer's Certificate appended hereto, are a part of these by-laws, as
amended.
<PAGE> 6
SECTION 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except when stockholders are required to vote by class,
in which event a majority of the issued and outstanding shares of the
appropriate class shall be present in person or by proxy, and(2) except as
otherwise provided by statute or by the Certificate of Incorporation.
Notwithstanding any other provisions of the Certificate of Incorporation or
these by-laws, the holders of a majority of the shares of capital stock
entitled to vote thereat, present in person or represented by proxy, whether or
not a quorum is present, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
SECTION 2.7. Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Certificate of Incorporation or of these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question. Every stockholder
having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder, bearing a
date not more than one year(2) prior to voting(2) and filed with the Secretary
of the Corporation before, or at the time of, the meeting. If such instrument
shall designate two or more persons to act as proxies, unless such instrument
shall provide the contrary, a majority of such persons present at any meeting
at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting(21) thereby conferred, or if only one be
present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, each proxy so
attending shall be entitled to exercise such powers in respect of the same
portion of the shares as he is of the proxies representing such shares. Unless
required by statute or determined by the Chairman of the Meeting to be
advisable, the vote on any question need not be by written ballot.(2)
SECTION 2.8. Consent of Stockholders. Any action required or permitted to
be taken by the stockholders of the corporation must be effected at a duly
called annual or special meeting of stockholders of the corporation and may not
be effected by a consent in writing by such stockholders.(21)
SECTION 2.9. Voting of Stock of Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe, or in the
absence of such provision, the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by the
executor or administrator of such deceased person, either in person or by
proxy.(17) Shares standing in the name of a receiver may be voted by such
receiver. A stockholder whose shares are pledged shall be entitled to vote such
shares, unless in the transfer by the pledgor on the books of the corporation,
he has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such(21) stock and vote thereon.
SECTION 2.10. Treasury Stock. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.11. Fixing Record Date. The Board of Directors may fix in
advance a date, not exceeding 60 nor less than 10(2) days preceding the date of
any meeting of stockholders, or the date for payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect,(21) as
a record date for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting and any adjournment thereof, or entitled to
receive
2
<PAGE> 7
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect of any such change, conversion
or exchange of capital stock,(21) and in such case such stockholders and only
such stockholders as shall be stockholders of record on the date so fixed shall
be entitled to such notice of and to vote at, any such meeting and any
adjournment thereof, or to receive payment of such dividend or distribution, or
to receive such allotment of rights, or to exercise such rights,(21) as the
case may be notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
SECTION 2.12. Notification of Nominations. Subject to the rights of
holders of Preferred Stock, nominations for the election of directors may be
made by the Board of Directors or the Directors and Corporate Governance(30)
Committee, as provided in Section 4.4, or by any stockholder entitled to vote
in the election of directors generally. However, any stockholder entitled to
vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Directors and Corporate Governance(30) Committee, at the address of the
corporation's principal executive offices, not later than (i) with respect to
an election to be held at an annual meeting of stockholders, 9027 days in
advance of the date of the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders, and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is first
given to stockholders. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the corporation at the time of giving such notice,
will be a holder of record entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated by the Board of Directors or Directors and Corporate
Governance(30) Committee; and (e) the consent of each nominee to serve as a
director of the corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedures.(21)
ARTICLE III
Board of Directors
SECTION 3.1. Powers. The business and affairs of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation(17) directed or required to be exercised or
done by the stockholders.
SECTION 3.2. Number, Election and Term. The number of directors which
shall constitute the whole Board shall be determined as provided in the
Certificate of Incorporation. Such number of directors shall, from time to
time, be fixed and determined by the directors and shall be set forth in the
notice of any meeting of stockholders held for the purpose of electing
directors. The directors shall be elected at the annual meeting of
stockholders, except as provided in Section 3.3, and each director elected
shall hold office until his successor shall be elected and shall qualify or
until his earlier resignation or removal. Directors need not be residents of
Delaware or stockholders of the corporation.(21)
SECTION 3.3. Vacancies, Additional Directors and Removal From Office. If
any vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of
3
<PAGE> 8
any director, or otherwise, or if any new directorship is created by an
increase in the authorized number of directors, a majority of the directors
then in office, though less than a quorum, or a sole remaining director, may
choose a successor or fill the newly created directorship; and a director so
chosen shall hold office until the end of the term he is chosen to fill and
until his successor shall be duly elected and shall qualify, or until his
earlier resignation or removal. Any director may be removed from office as a
director only as provided in the Certificate of Incorporation.(9)(21)
SECTION 3.4. Regular Meeting. A regular meeting of the Board of Directors
shall be held each year, without other notice than this by-law, at the place
of, and immediately following, the annual meeting of stockholders; and other
regular meetings of the Board of Directors shall be held during(9) each year,
at such time and place as the Board of Directors may from time to time(9)
provide, by resolution, either within or without the State of Delaware, without
other notice than such resolution.
SECTION 3.5. Special Meeting. A special meeting of the Board of Directors
may be called by the Chairman of the Board(9),(20) and shall be called by the
Secretary on the written request of any two directors. The Chairman of the
Board(20) so calling, or the directors so requesting, any such meeting shall
fix the time and any place, either within or without the State of Delaware, as
the place for holding such meeting.
SECTION 3.6. Notice of Special Meeting. Notice(21) of special meetings of
the Board of Directors shall be given to each director at least 48 hours prior
to the time of such meeting. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting, except that notice shall be
given of any proposed amendment to the by-laws if it is to be adopted at any
special meeting or with respect to any other matter where notice is required by
statute.
SECTION 3.7. Quorum. A majority of the Board of Directors shall constitute
a quorum for the transaction of business at any meeting of the Board of
Directors, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these by-laws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.8. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof as provided in Article IV of these by-laws, may be taken without a
meeting, if a written consent thereto is signed by all members of the Board or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
SECTION 3.9. Meeting by Telephone. Any action required or permitted to be
taken by the Board of Directors or any committee thereof may be taken by means
of a meeting by conference telephone or similar communications equipment so
long as all persons participating in the meeting can hear each other. Any
person participating in such meeting shall be deemed to be present in person at
such meeting.
SECTION 3.10.(22) Compensation. Directors, as such, shall not be entitled
to any stated salary for their services unless voted by the stockholders, the
Board of Directors or the Compensation Committee of the Board of Directors; but
by resolution of the Board of Directors or the Compensation Committee of the
Board of Directors, a fixed sum and expenses of attendance, if any, may be
allowed for attendance at each regular or special meeting of the Board of
Directors or any meeting of a committee of directors. No provision of these
by-laws shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
4
<PAGE> 9
ARTICLE IV
Committees(9) of Directors
SECTION 4.1. Executive Committee. The Executive Committee of the Board of
Directors (the "Executive Committee") shall consist of not less than three
directors to be designated by the Board of Directors annually at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. None of
the members of the Executive Committee need be officers of the corporation. The
Executive Committee shall have and may exercise all of the powers of the Board
of Directors during the period between meetings of the Board of Directors
except as reserved to the Board of Directors or as delegated by these by-laws
or by the Board of Directors to another standing or special committee or as may
be prohibited by law and, except further, that the Executive Committee shall
not have the power to elect officers of the corporation. The Chairman of the
Board shall be a member of the Executive Committee.(16)
SECTION 4.2.(12) Compensation Committee. The Compensation Committee of the
Board of Directors (the "Compensation Committee") shall consist of at least
two(25) directors, all(25) of whom shall be "outside" directors of the
corporation, to be designated annually by the Board of Directors at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. The
term "outside" director, as used in this Section 4.2, shall mean a director of
the corporation who is(17,21,26) free of any relationship that, in the opinion
of the Board of Directors, would interfere with the designated director's
exercise of independent judgment as a member of the Compensation Committee. The
Compensation Committee shall have and may exercise all of the powers of the
Board of Directors during the period between meetings of the Board of
Directors, except as may be prohibited by law, with respect to (i) studying,
recommending, adopting, implementing, administering, determining and
authorizing the amount, terms, and conditions of payment of any and all forms
of compensation for the corporation's directors, officers, employees and
agents, (ii) approving and administering any loan to, guarantee of any
obligation of, or other assistance to any officer or other employee of the
corporation or any of its subsidiaries, including any officer or employee who
is a director of the corporation or any of its subsidiaries,(31) (iii)
implementing and administering those qualified, nonqualified, or other stock
option or purchase plans of the corporation, as designated by the Board of
Directors, and (iv) overseeing and reviewing the administration and results of
operations of the "Browning-Ferris Industries, Inc. Retirement Plan", as
amended (the "Plan"), the "Browning-Ferris Industries, Inc. Canadian Retirement
Plan (the "Canadian Plan") and any other pension benefit or retirement plan or
arrangement maintained by any subsidiary of the Company (the "Subsidiary
Plan"), the Plan, Canadian Plan and Subsidiary Plan being referred to
collectively as the "Pension Plans", and further to acquaint the Board of
Directors with the Compensation Committee's oversight and surveillance
activities in connection with the Pension Plans.(31)
SECTION 4.3.(12) Audit Committee.20 The Audit Committee of the Board of
Directors (the "Audit Committee") shall consist solely of directors, not less
than three, all of whom shall be "outside" directors of the corporation, to be
designated annually by the Board of Directors at its first regular meeting held
pursuant to Section 3.4 of these by-laws after the annual meeting of
stockholders or as soon thereafter as conveniently possible. The term "outside"
director, as used in this Section 4.3, shall mean a director of the corporation
who is (17,26) free of any relationship that, in the opinion of the Board of
Directors, would interfere with the designated director's exercise of
independent judgment as a member of the Audit Committee. The Audit Committee
shall have and may exercise all of the powers of the Board of Directors during
the period between meetings of the Board of Directors, except as may be
prohibited by law, with respect to (i) the selection and recommendation for
employment by the corporation, subject to approval by the Board of Directors
and the stockholders, of a firm of certified public accountants whose duty it
shall be to audit the books and accounts of the corporation and its
subsidiaries for the fiscal year in which they are appointed and who shall
report to the Audit Committee, provided, that in selecting and recommending for
employment any firm of certified public accountants, the Audit Committee shall
make a thorough investigation to ensure the "independence" of such accountants
as defined in the applicable rules and regulations of the Securities and
Exchange Commission; (ii) instructing the certified
5
<PAGE> 10
public accountants to expand the scope and extent of the annual audits of the
corporation into areas of any concern to the Audit Committee, which may be
beyond that necessary for the certified public accountants to report on the
financial statements of the corporation and, at its discretion, directing other
special investigations to ensure the objectivity of the financial reporting of
the corporation; (iii) reviewing the reports submitted by the certified public
accountants, conferring with the auditors and reporting thereon to the Board of
Directors with such recommendations as the Audit Committee may deem
appropriate; (iv) meeting with the corporation's principal accounting and
financial officers, the certified public accountants and auditors, and other
officers or department managers of the corporation as the Audit Committee shall
deem necessary in order to determine the adequacy of the corporation's
accounting principles and financial and operating policies, controls and
practices, its public financial reporting principles and practices, and the
results of the corporation's annual audit; (v) conducting inquiries into any of
the foregoing, the underlying and related facts, including such matters as the
conduct of the personnel of the corporation, the integrity of the records of
the corporation, the adequacy of the procedures and the legal and financial
consequences of such facts; and (vi) retaining and deploying such professional
assistance, including outside counsel and auditors and any others, as the Audit
Committee shall deem necessary or appropriate, in connection with the exercise
of its powers on such terms as the Audit Committee shall deem necessary or
appropriate to protect the interests of the stockholders of the corporation.
SECTION 4.4.(18) Directors and Corporate Governance(30) Committee. The
Directors and Corporate Governance(30) Committee of the Board of Directors (the
"Directors and Corporate Governance(30) Committee") shall consist of at least
three directors all of whom shall be "outside" directors of the
corporation,(26) all to be designated annually by the Board of Directors at its
first regular meeting held pursuant to Section 3.4 of these by-laws after the
annual meeting of stockholders or as soon thereafter as conveniently possible.
The term "outside" director, as used in this Section 4.4, shall mean a director
of the corporation who is(26) free of any relationship that, in the opinion of
the Board of Directors, would interfere with the designated director's exercise
of independent judgment as a member of the Directors and Corporate
Governance(30) Committee.(26) The Directors and Corporate Governance(30)
Committee shall have and may exercise all of the powers of the Board of
Directors during the period between meetings of the Board of Directors, except
as may be prohibited by law, with respect to (i) recommending to the whole
Board of Directors(26) the nominees for election as directors at the annual
meetings of stockholders; (ii) searching for, evaluating and recommending(26) to
the whole Board of Directors directors to fill vacancies and newly created
directorships resulting from any increase in the authorized number of
directors; (iii) recruitment of potential director candidates; (iv)
recommending to the whole Board of Directors changes in the responsibilities,
composition, size and committee structure of the Board of Directors; (v) review
of the composition and membership of each of the standing committees and
special committees of the Board of Directors; (vi) selection of the membership
of the proxy committee charged with voting solicited proxies at stockholder
meetings; (vii) review of proxy comments received from stockholders relating
directly or indirectly to the Board of Directors, its composition and duties;
(viii) review of stockholder suggestions as to nominees for directorships that
are submitted in writing to the Directors and Corporate Governance(30)
Committee, at the address of the company's principal executive offices, not
less than 90 days in advance of the date of the company's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; and (ix) retaining and deploying such professional assistance
as the Directors and Corporate Governance(30) Committee shall deem necessary or
appropriate, in connection with the exercise of its powers on such terms as the
Directors and Corporate Governance(30) Committee shall deem necessary or
appropriate, to protect the interests of the stockholders of the
corporation.(17)
SECTION 4.5.(18,28) Corporate Responsibility Committee. The Corporate
Responsibility Committee of the Board of Directors (the "Corporate
Responsibility Committee") shall consist solely of directors, not less than
three, all of whom shall be "outside" directors of the Company, to be
designated annually by the Board of Directors at its first regular meeting held
pursuant to Section 3.4 of these by-laws after the annual meeting of
stockholders or as soon thereafter as conveniently possible. The term "outside"
director, as used in this Section, shall mean a director of the corporation who
is free of any relationship that, in the opinion of the Board of Directors,
would interfere with the designated director's exercise of independent judgment
as a member of the Corporate Responsibility Committee. The Corporate
Responsibility Committee shall have and may exercise all of the powers of the
Board of Directors during the period between meetings of the Board of
Directors, except as
6
<PAGE> 11
may be prohibited by law, with respect to (i) surveying, monitoring and guiding
the corporation's role in the fulfillment of its social responsibilities toward
its shareholders, employees and the general public in the conduct of its normal
business activities; (ii) reporting to the Board of Directors with respect to
the foregoing; and (iii) retaining and deploying such professional assistance
as the Corporate Responsibility Committee shall deem reasonably necessary or
appropriate, in connection with the exercise of its powers on such terms as the
Corporate Responsibility Committee shall deem reasonably necessary or
appropriate to protect the interests of the corporation and its stockholders.
SECTION 4.6.(12,18,20,24,31) Designation, Powers and Name. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more additional special or standing(9) committees other than the
Executive Committee, Compensation Committee, Audit Committee,(11) Directors and
Corporate Governance(30) Committee and Corporate Responsibility
Committee,(28,31) each such additional(9) committee to consist of two or more
of the directors of the corporation. The committee shall have and may exercise
such of the powers of the Board of Directors in the management of the business
and affairs of the corporation as may be provided in such resolution, except as
delegated by these by-laws or by the Board of Directors to another standing or
special committee or as may be prohibited by law.(9)
SECTION 4.7.(12,18,24,31) Committee Operations. A majority of a committee
shall constitute a quorum for the transaction of any committee business. Such
committee or committees shall have such name or names and such limitations of
authority as provided in these by-laws or as(9) may be determined from time to
time by resolution adopted by the Board of Directors. The corporation shall pay
all expenses of committee operations.(9) The Board of Directors may designate
one or more appropriate(9) directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of such committee.
In the absence or disqualification of any members of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another appropriate(9) member of the Board of Directors to
act at the meeting in the place of any absent or disqualified member.
SECTION 4.8.(12,18,24,31) Minutes. Each committee of directors shall keep
regular minutes of its proceedings and report the same to the Board of
Directors when required. The Secretary or any Assistant Secretary of the
corporation shall (i) serve as the Secretary of the Executive Committee(20) and
any other special or standing committee of the Board of Directors of the
corporation, (ii) keep regular minutes of standing or special committee
proceedings, (iii) make available to the Board of Directors, as required,
copies of all resolutions adopted or minutes or reports of other actions
recommended or taken by any such standing or special committee and (iv)
otherwise as requested keep the members of the Board of Directors apprised of
the actions taken by such standing or special committees.(9)
SECTION 4.9.(12,18,24,31) Compensation. Members of special or standing
committees who are "outside" directors,(9) as that term is defined elsewhere in
this Article, may be allowed compensation for serving as a member of any such
committee and all members may be compensated for expenses of(9) attending
committee meetings, if the Board of Directors shall so determine.
ARTICLE V
Notice
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions of
the Delaware General Corporation Law,(21) the Certificate of Incorporation or
these by-laws, notice is required to be given to any director, member of any
committee or stockholder, such notice shall be in writing and delivered
personally or mailed to such director, member or stockholder; provided that in
the case of a director or a member of any committee such notice may be given
orally or by telephone or telegram. If mailed, notice to a director, member of
a committee or stockholder shall be deemed to be given when deposited in the
United States mail first class in a sealed envelope, with postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
7
<PAGE> 12
stockholder's address as it appears on the records of the corporation or, in
the case of a director or a member of a committee, to such person at his
business address. If sent by telegraph, notice to a director or member of a
committee shall be deemed to be given when the telegram, so addressed, is
delivered to the telegraph company.
SECTION 5.2. Written Waiver. Whenever any notice is required to be given
under the provisions of the Delaware General Corporation Law,(21) the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
Officers
SECTION 6.1. Officers. The officers of the corporation shall be Chairman
of the Board,(6,11) Chief Executive Officer,(29,31) President, Chief Operating
Officer,(29) one or more Vice Presidents, any one or more of which may be
designated Executive Vice President or Senior Vice President, a Secretary and a
Treasurer. The Board of Directors may appoint such other officers and agents,
including but not limited to,(9) Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined by the Board. Any two or more offices, other
than the offices of President and Secretary, may be held by the same person. No
officer shall execute, acknowledge, verify or countersign any instrument on
behalf of the corporation in more than one capacity, if such instrument is
required by law, by these by-laws or by any act of the corporation to be
executed, acknowledged, verified or countersigned by two or more officers. The
Chairman of the Board,(6,11,31) Chief Executive Officer(29) and President(20)
shall be elected from among the directors. With the foregoing exceptions, none
of the other officers need be a director, and none of the officers need be a
stockholder of the corporation.
SECTION 6.2. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at its first regular
meeting held after the annual meeting of stockholders or as soon thereafter as
conveniently possible. Each officer shall hold office until his successor shall
have been chosen and shall have qualified or until his death or the effective
date of his resignation or removal, or until he shall cease to be a director in
the case of the Chairman of the Board,(6,9,21) Chief Executive Officer(29,31)
or President.
SECTION 6.3. Removal and Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 6.4. Vacancies. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, shall(15) be filled by
the Board of Directors for the unexpired portion of the term.
SECTION 6.5. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or the Compensation
Committee(9) or pursuant to the(9) direction of the Board of Directors or
Compensation Committee(9); and no officer shall be prevented from receiving
such salary by reason of his also being a director.
SECTION 6.6. Chairman of the Board. The Chairman of the Board shall be
elected from among the directors of the corporation and(29) shall preside at all
meetings of the Board of Directors and of the stockholders
8
<PAGE> 13
of the corporation. In the Chairman's absence, such duties shall be attended to
by the Chief Executive Officer(29,31) or the President.(11) The Chairman of the
Board(11,15,20,29) shall perform such duties and possess such powers(15) as
usually pertain to the position(29) of chairman of the board of
directors(15,20,29) and shall have(15) such duties and possess such powers(15)
as may be further prescribed by these by-laws, the(15) Board of Directors or
the Executive Committee. In the absence of the Chief Executive Officer or
the(29) President, or in the event of such officers'(29) inability or refusal
to act, the Chairman of the Board shall perform the duties and exercise the
powers of the Chief Executive Officer or the(29) President until such vacancies
shall be filled in the manner prescribed by these by-laws or by law.(15) The
Chairman of the Board(29) may sign with the Secretary or any other officer of
the corporation thereunto authorized by the Board of Directors certificates for
shares of the corporation and any(29) other instruments which the Board of
Directors or the Executive Committee(9) has authorized to be executed, except
in cases where the signing and execution thereof has been expressly delegated
or reserved(9) by these by-laws or by the Board of Directors or the Executive
Committee(9) to some other officer or agent of the corporation, or shall be
required by law to be otherwise executed.(29)
SECTION 6.7(29). Chief Executive Officer. The Chief Executive Officer
shall be elected by the Board of Directors and such office may be held in
conjunction with any other office of the corporation. The Chief Executive
Officer shall in general supervise and control the business and affairs of the
corporation, shall perform such duties and possess such powers as usually
pertain to the position of Chief Executive Officer and shall have such duties
and possess such powers as may be further prescribed by these by-laws, the
Board of Directors or the Executive Committee. The Chief Executive Officer
shall formulate and submit to the Board of Directors or the Executive Committee
matters of general policy for the corporation. He shall have the power to
appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors. The Chief Executive Officer may
sign any deeds, bonds, mortgages, contracts, checks, notes, drafts or other
instruments which the Board of Directors or Executive Committee has authorized
to be executed, except in cases where the signing and execution thereof have
been expressly delegated or reserved by these by-laws or by the Board of
Directors or the Executive Committee to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed. The Chief
Executive Officer shall vote, or give a proxy to any other officer of the
corporation to vote, all shares of stock of any other corporation standing in
the name of the corporation.(29)
SECTION 6.8.(10,11,20,29,31) President. The President shall be the chief
operating(15,20) officer of the corporation unless elected otherwise by the
Board of Directors,(29) and, subject to the control of the Board of
Directors,(15) the Executive Committee,(15,29) the Chairman of the Board,(20)
and the Chief Executive Officer,(29) shall in general supervise and control the
day-to-day business operations of the corporation. He shall have the power to
appoint and remove subordinate officers, agents, and employees, except those
elected or appointed by the Board of Directors.(9,15) The President shall keep
the Board of Directors, the Executive Committee,(29) the Chairman of the
Board(9) and the Chief Executive Officer,(29) fully informed as they or any of
them shall request(9) and shall consult with them concerning the business of
the corporation. He may sign with the Secretary or any other officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of capital stock of the corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments which the Board of
Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated by
these by-laws or by the Board of Directors,(29) the Executive Committee or the
Chief Executive Officer(29) to some other officer or agent of the corporation,
or shall be required by law to be otherwise executed. In general he shall
perform all other duties normally incident to the office of President, except
any duties expressly delegated to other persons by these by-laws, the Board of
Directors, the Executive Committee,(29) the Chairman of the Board(20) or the
Chief Executive Officer,(29) and such other duties as may be prescribed by the
stockholders,(9,15) the Board of Directors, the Executive Committee(29), the
Chairman of the Board(20) or the Chief Executive Officer(29) from time to time.
SECTION 6.9.(29,31) Chief Operating Officer. The Chief Operating Officer
shall be the President unless elected otherwise by the Board of Directors. If
the office of Chief Operating Officer is not the President, then such office
will perform the duties and possess the powers as delegated by the President in
connection with the
9
<PAGE> 14
supervision and control of the corporation's day-to-day operations. The Chief
Operating Officer shall have such other duties and possess such other powers as
from time to time may be further prescribed by the Chairman of the Board, the
Chief Executive Officer, the Board of Directors or the Executive Committee.(29)
SECTION 6.10.(10,11,20,29,31) Vice Presidents.(15) Any Vice President
(including any Vice Presidents designated by the Board of Directors as an
Executive Vice President or as a Senior Vice President)(15,20) may sign, with
the Secretary or any Assistant Secretary, certificates for shares of capital
stock of the corporation. The Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the Chairman of the
Board,(9,20) the Chief Executive Officer,(29) the Board of Directors or the
Executive Committee.
SECTION 6.11.(10,11,20,29,31) Secretary. The Secretary shall (a) keep the
minutes of the meetings of the stockholders, the Board of Directors and
committees of directors; (b) see that all notices are duly given in accordance
with the provisions of these by-laws and as required by law; (c) be custodian
of the corporate records and of the seal of the corporation, and see that the
seal of the corporation or a facsimile thereof is affixed to all certificates
for shares prior to the issue thereof and to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized in
accordance with the provisions of these by-laws; (d) keep or cause to be kept a
register of the post office address of each stockholder which shall be
furnished by such stockholder; (e) sign with the Chairman of the Board,(11) the
Chief Executive Officer,(29,31) President, or a Vice President, certificates
for shares of the corporation, the issue of which shall have been authorized by
resolution of the Board of Directors(9); (f) have general charge of the stock
transfer books of the corporation; and (g) in general, perform all duties
normally incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the Chairman of the Board,(11,20) the Chief
Executive Officer,(29) the Board of Directors or the Executive Committee.
SECTION 6.12.(10,11,20,29,31) Treasurer. If required by the Board of
Directors or the Executive Committee, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Board of Directors or the Executive Committee shall determine. He shall
(a) have charge and custody of and be responsible for all funds and securities
of the corporation; receive and give receipts for monies due and payable to the
corporation from any source whatsoever and deposit all such monies in the name
of the corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Section 7.3 of these
by-laws; (b) prepare, or cause to be prepared, for submission at each regular
meeting of the Board of Directors, at each annual meeting of the stockholders,
and at such other times as may be required by the Board of Directors, the
Chairman of the Board,(11,20) the Chief Executive Officer,(29) the Executive
Committee, or as may be required by law,(17) a statement of financial condition
of the corporation in such detail as may be required; (c) have the power to
sign stock certificates to the full extent permitted by law,(17) and (d17) in
general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Chairman of the
Board,(11,20) the Chief Executive Officer,(29) the Board of Directors or the
Executive Committee.
SECTION 6.13.(10,11,20,29,31) Assistant Secretary or Assistant(17)
Treasurer. The Assistant Secretaries and Assistant Treasurers shall, in
general, perform such duties as shall be assigned to them by the Secretary or
the Treasurer, respectively, or by the Chairman of the Board,(11,20) the Chief
Executive Officer,(29) the Board of Directors or the Executive Committee. The
Assistant Secretaries and Assistant Treasurers shall, in the absence of the
Secretary or Treasurer, respectively, perform all functions and duties which
such absent officers may delegate, but such delegation shall not relieve the
absent officer from the responsibilities and liabilities of his office. The
Assistant Secretaries and Assistant Treasurers(20) may sign, with the Chairman
of the Board,(11) the Chief Executive Officer,(29,31) the President or a Vice
President, certificates for shares of the corporation, the issue of which shall
have been authorized by a resolution of the Board of Directors.(9) The
Assistant Treasurers shall respectively, if required by the Board of Directors
or the Executive Committee, give bonds for the faithful discharge of their
duties in such sums and with such sureties as the Board of Directors or the
Executive Committee(9) shall determine.
10
<PAGE> 15
ARTICLE VII
Contracts, Checks and Deposits
SECTION 7.1. Contracts. Subject to the provisions of Section 6.1, the
Board of Directors or the Executive Committee may authorize any officer,
officers, agent or agents, to enter into any contract or execute and deliver an
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 7.2. Checks, etc. All checks, demands, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as shall be determined
by the Board of Directors or the Executive Committee.
SECTION 7.3. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Chief Executive
Officer,(29) President or Treasurer may be empowered by the Board of Directors
or Executive Committee to select or(9) as the Board of Directors or the
Executive Committee may select.
ARTICLE VIII
Certificate of Stock
SECTION 8.1. Issuance. Each Stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificate shall
be in such form as may be determined by the Board of Directors or the Executive
Committee, and shall be issued in numerical order and shall be entered in the
books of the corporation as they are issued. They shall exhibit the holder's
name and the number of shares and shall be signed by the Chairman of the Board,
the Chief Executive Officer,(29,31) the President or a Vice President and by
the Secretary,(17) an Assistant Secretary, the Treasurer or an Assistant
Treasurer.(17) Any of or all the signatures on the certificate may be a
facsimile(4). If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designation,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preference and rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class of stock; provided that, except as otherwise
provided by statute, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the corporation
will furnish to each Stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and rights. All certificates surrendered to the corporation
for transfer shall be cancelled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been surrendered
and cancelled, except that in the case of a lost, stolen, destroyed or
mutilated certificate, a new one may be issued therefore upon such terms and
with such indemnity, if any, to the corporation as the Board of Directors(9)
may prescribe. Certificates may be issued representing fractional shares of
stock.
SECTION 8.2. Lost Certificates. The Board of Directors(9) may direct that
a new certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed.(17) When authorizing such issue of a new certificate or
certificates, the Board of Directors(9) may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal
representative,(17) to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed, or both.
11
<PAGE> 16
SECTION 8.3. Transfers. Upon surrender to the corporation or the transfer
agents of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the transfer agents.
SECTION 8.4. Registered Stockholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
ARTICLE IX
Dividends
SECTION 9.1. Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors(9) at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 9.2. Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors(9) from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors(9) shall think
conducive to the interest of the corporation, and the Board of Directors(9) may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Indemnification
SECTION 10.1. Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to, or
otherwise becomes involved in(25), any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(formal or informal)(25), other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement(9), conviction, or upon a plea of nolo contendere(9)
or its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION 10.2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to, or otherwise becomes involved in(25), any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation,
12
<PAGE> 17
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable(23) to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
SECTION 10.3.(13) Successful Defense. To the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 10.1 and 10.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 10.4.(13) Determination of Conduct. Any idemnification under
Sections 10.1, 10.2 or 10.7 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections 10.1 and 10.2.9 Such determination(9) shall be made (1) by the Board
of Directors or the Executive Committee(9) by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding
or(9) (2) if such quorum is not obtainable or, even(9) if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
SECTION 10.5.(13,21,23) Payment of Expenses in Advance. Expenses incurred
by an officer or director in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer(21) to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article X.
SECTION 10.6.(13,23) Indemnity Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
provisions of this Article X, shall not be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any(17) by-law, agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
SECTION 10.7.(14) The Corporation. For purposes of this Article X,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under and subject
to the provisions of this Article X (including, without limitation, the
provisions of Section 10.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
SECTION 10.8.(3,13) Insurance Indemnification. The corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article X.
13
<PAGE> 18
SECTION 10.9.(23) Heirs, Executors and Administrators. The indemnification
and advancement of expenses provided by Article X shall continue as to a person
who has ceased to be a director, officer, employee or agent of the corporation
and shall inure to the benefit of the heirs, executors and administrators of
such person.
ARTICLE XI
Miscellaneous
SECTION 11.1. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
SECTION 11.2. Books. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at the
offices of the corporation at Houston, Texas, or at such other place or places
as may be designed from time to time by the Board of Directors or the Executive
Committee.
ARTICLE XII
Amendment
The by-laws of the corporation may be adopted, amended or repealed at any
regular meeting of the Board of Directors without prior notice, or at any
special meeting of the Board of Directors if notice of such alteration,
amendment or repeal be contained in the notice of such special meeting, except
as provided in the Certificate of Incorporation(21).
----------------
OFFICER'S CERTIFICATE
The undersigned, of Browning-Ferris Industries, Inc., a Delaware
corporation (the "Corporation"), hereby certifies that the above and foregoing
is a true and correct copy of the by-laws, as amended, of the Corporation in
effect on the date of this certificate.
[Seal]
-----------------------------------
Date:
------------------------------------
----------------
14
<PAGE> 19
- ----------
FOOTNOTES
1 Amended August 23, 1971.
2 Amended November 19, 1971.
3 Added November 19, 1971.
4 Amended November 21, 1972.
5 Amended December 12, 1972.
6 Amended March 20, 1973.
7 Amended December 2, 1975.
8 Amended December 7, 1976.
9 Amended June 7, 1977.
10 Section 6.8 concerning "Vice Chairman of the Board" was deleted by amendment
adopted March 20, 1973, and Sections 6.9-.13 were accordingly renumbered as
6.8-.12.
11 Section 6.7 concerning "Chairman of the Executive Committee" was deleted by
amendment adopted June 18, 1976, and Sections 2.4, 4.1, 6.1, 6.6 and 6.8-.12
were amended to reflect the deletion and Sections 6.8-.12 were accordingly
renumbered as 6.7-.11.
12 Sections 4.2 and 4.3 were added by amendment adopted June 7, 1977, and
Sections 4.2-.5 were accordingly renumbered as 4.4-.7. When Sections 4.4 and
4.5 were added by amendment adopted March 3, 1981, Sections 4.4-.7 were
accordingly renumbered as 4.6-4.9.
13 Section 10.3 was added by amendment adopted June 7, 1977, and Sections
10.3-.7 were accordingly renumbered as 10.4-.8.
14 Section 10.7 was originally adopted as Section 10.6 on November 19, 1971,
and amended in its entirety and renumbered as Section 10.7 on June 7, 1977.
15 Amended December 6, 1977.
16 Amended December 1, 1980.
17 Amended March 3, 1981.
18 New Sections 4.4 and 4.5 were added by amendment adopted March 3, 1981, and
the following Sections 4.6 through 4.9 were renumbered accordingly.
19 The position of Vice Chairman was reintroduced to these by-laws by the
adoption of new Section 6.7 on December 6, 1982, and the following sections
were renumbered accordingly.
20 Amended December 6, 1982.
21 Amended March 6, 1985.
22 Amended December 2, 1986.
23 Amended March 4, 1987.
24 Amended September 7, 1988.
25 Amended March 6, 1991.
26 Amended December 1, 1992.
27 Amended March 3, 1993.
28 Amended March 1, 1995. Included the addition of a new Section 4.5.
29 Amended September 6, 1995. Included the addition of new Sections 6.7 and
6.10.
30 Amended December 5, 1995.
31 Amended March 5, 1997. Section 6.8 concerning "Vice Chairman" was deleted
and Sections 6.9-.14 were accordingly renumbered 6.8-.13.
----------------
15
<PAGE> 1
EXHIBIT 10.1
BROWNING-FERRIS INDUSTRIES, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE. The 1996 Stock Incentive Plan (the "Plan") is to benefit
Browning-Ferris Industries, Inc. (the "Company") and its subsidiary
corporations through the maintenance and development of its management
by offering certain executives, key employees (including
employee-directors) and consultants of the Company and its
subsidiaries (the "Participants") an opportunity to become owners of
the Common Stock, $.16-2/3 par value, of the Company and is intended
to advance the best interests of the Company by providing such persons
with additional incentive by increasing their proprietary interest in
the success of the Company and its subsidiary corporations.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company or by another
committee designated to act by the Board of Directors (the
"Committee"). The Committee shall be comprised solely of two or more
directors each of whom is an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations issued thereunder, and a "non-employee
director" as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). Meetings shall be
held at such times and places as shall be determined by the Committee.
A majority of the members of the Committee shall constitute a quorum
for the transaction of business, and the vote of a majority of those
members present at any meeting shall decide any question brought
before that meeting. In addition, the Committee may take any action
otherwise proper under the Plan by the unanimous written consent of
its members. No member of the Committee shall be liable for any act or
omission of any other member of the Committee or for any act or
omission on his own part, including but not limited to the exercise of
any power or discretion given to him under the Plan, except those
resulting from his own gross negligence or willful misconduct. All
questions of interpretation and application of the Plan, or of options
granted hereunder (the "Options") and of stock awards and restricted
stock (which are defined in Paragraph 17 hereof) granted hereunder,
shall be subject to the determination, which shall be final and
binding, of a majority of the whole Committee.
3. OPTIONS, STOCK AWARDS AND RESTRICTED STOCK GRANTS. The stock subject
to the Options and other provisions of the Plan shall be shares of the
Company's Common Stock, $.16-2/3 par value (the "Stock"). The total
amount of the Stock with respect to which Options, stock awards and
restricted stock may be granted under this Plan shall not exceed in
the aggregate 10,000,000 shares, but no more than 1,500,000 shares of
Stock in the aggregate may be awarded as stock awards and restricted
stock grants; provided, that the class and aggregate number of shares
of Stock which may be subject to Options, stock awards and restricted
stock granted hereunder shall be subject to adjustment in accordance
with the provisions of Paragraph 16 hereof. Such shares of Stock may
be treasury shares or authorized but unissued shares of Stock. In the
event that any outstanding Option for any reason shall
<PAGE> 2
expire or is terminated or canceled, the shares of Stock allocable to
the unexercised portion of such Option may again be subject to an
Option, stock award or restricted stock under the Plan.
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant from time to time
to such eligible individuals (the "Optionees") as set forth in
Paragraph 5 an Option or Options to buy a stated number of shares of
Stock under the terms and conditions of the Plan and the stock option
agreement. Options granted under the Plan may, in the discretion of
the Committee, be either incentive stock options as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. Each stock option agreement shall
specifically state, for each Option granted thereunder, whether the
Option is an incentive stock option or a non-qualified option, but any
Option not designated by the Committee as an incentive stock option
shall be a non-qualified stock option. In no event, however, shall
both an incentive stock option and a non-qualified stock option be
granted together under the Plan in such a manner that the exercise of
one Option affects the rights to exercise the other. No Options shall
be granted under the Plan subsequent to September 3, 2006. Except as
provided in Paragraph 6, all provisions of this Plan relating to
options apply to both incentive and non-qualified options. The only
Options under the Plan which may be granted are those which either (i)
are granted after adoption of the Plan and are conditioned upon
approval of the Plan by the stockholders of the Company within twelve
months of such adoption or (ii) are granted after both adoption of the
Plan and approval thereof by the stockholders of the Company within
twelve months after the date of such adoption, all as provided in
Paragraph 21 hereof. The maximum number of Options which may be
granted to any one Participant from this Plan annually is 250,000;
provided, that the class and the aforesaid maximum number of shares
shall be subject to adjustments in accordance with the provisions of
Paragraph 16 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS. Except as provided in Paragraph 6(iv),
the individuals who shall be eligible to receive Options under the
Plan shall be key employees (including employee-directors) of the
Company or of any subsidiary corporation and any person who is a party
to a written consulting agreement with the Company or any of its
subsidiary corporations, as determined by the Committee. Non-employee
directors are not eligible. For all purposes of the Plan, the term
"subsidiary corporation" shall mean any corporation of which the
Company is the "parent corporation" as that term is defined in Section
424(e) of the Code.
6. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The following
provisions shall apply only to incentive stock options granted under
the Plan:
(i) No incentive stock option shall be granted to any employee
who, at the time such Option is granted, owns, within the
meaning of Section 422 of the Code, stock possessing more
than 10 percent of the total combined voting power of all
classes of Stock of the Company or any of its subsidiaries,
except that such an Option may be granted to such an employee
if at the time the Option is granted the option price is at
-2-
<PAGE> 3
least 110 percent of the fair market value of the Stock
(determined in accordance with Paragraph 7) subject to the
Option, and the Option by its terms is not exercisable after
the expiration of five years from the date the Option is
granted;
(ii) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options (without regard
to this subparagraph) are exercisable for the first time by
any individual during any calendar year (under all plans of
the Company and its subsidiaries) exceeds $100,000, such
Options shall be treated as Options which are not incentive
stock options. This subparagraph shall be applied by taking
Options into account in the order in which they were granted.
If some but not all Options granted on any one day are
subject to this subparagraph, then such Options shall be
apportioned between incentive stock option and non-qualified
stock option treatment in such manner as the Committee shall
determine. For purposes of this subparagraph, the fair market
value of any stock shall be determined, in accordance with
Paragraph 7, as of the date the Option with respect to such
Stock is granted.
(iii) No incentive stock option granted under the Plan shall be
exercisable any sooner than one year from the date of grant.
(iv) Only employees (including employee-directors) of the Company
and its subsidiary corporations shall be eligible to receive
incentive stock options.
(v) Incentive stock options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal guardian or
representative.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock
may be purchased pursuant to an Option shall be not less than the fair
market value of the shares of Stock on the date the Option is granted,
and the Committee in its discretion may provide that the price at
which shares may be so purchased shall be more than such fair market
value. For all purposes of this Plan, the "fair market value" of the
Stock shall be the closing selling price of the Stock as reported in
The Wall Street Journal for the last trading day before the date as of
which such fair market value is to be determined. No Option may be
repriced.
8. DURATION OF OPTIONS. Subject to Paragraph 6 (i), no Option shall be
exercisable after the expiration of ten years from the date such
Option is granted. An Option shall expire immediately following the
last day on which such Option is exercisable pursuant to this
Paragraph 8 or any decision of the Committee made pursuant to
Paragraph 9.
9. AMOUNT EXERCISABLE. The Committee in its discretion may provide that
an Option shall be exercisable throughout the term of the Option or
during any lesser period of time from the date of grant of the Option
and ending upon or before the expiration of the term. Each Option may
be exercised, so long as it is valid and outstanding, from time to
time in part or
-3-
<PAGE> 4
as a whole, subject to any limitations with respect to the number of
shares for which the Option may be exercised at a particular time and
to such other conditions as the Committee in its discretion may
specify upon granting the Option.
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of
Stock with respect to which the Option is to be exercised, together
with cash, wire transfer, certified check, bank draft or postal or
express money order payable to the order of the Company (the
"Acceptable Funds") for an amount equal to the Option price of such
shares of Stock, or at the election of the Optionee, by exchanging
shares of Stock owned by the Optionee, so long as the exchanged shares
of Stock plus Acceptable Funds paid, if any, have a total fair market
value (determined in accordance with Paragraph 7, as of the date of
exercise) equal to the purchase prices for such shares to be acquired
upon exercise of said Option, and specifying the address to which the
certificates for such shares are to be mailed. Whenever an Option is
exercised by exchanging shares of Stock theretofore owned by the
Optionee: (1) no shares of Stock received upon exercise of that Option
thereafter may be exchanged to pay the Option price for additional
shares of Stock within the following six months; and (2) the Optionee
shall deliver to the Company certificates registered in the name of
such Optionee representing a number of shares of Stock legally and
beneficially owned by such Optionee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed
in blank by the record holder of the shares represented by such
certificates, with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to the
Secretary of the Company, or may be sent by mail to the Secretary of
the Company, in which case delivery shall be deemed made on the date
such notice is received. As promptly as practicable after receipt of
such written notification and payment, the Company shall deliver to
the Optionee certificates for the number of shares with respect to
which such Option has been so exercised, issued in the Optionee's
name; provided, that such delivery shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to
the Optionee, at the address specified pursuant to this Paragraph 10.
The delivery of certificates upon the exercise of Options may, in the
discretion of the Committee, be subject to any reasonable conditions,
including, but not limited to (a) payment to the Company by the person
exercising such Option of the amount, determined by the Company, of
any tax liability of the Company (including but not limited to federal
and state income and employment taxes required to be withheld)
resulting from such exercise, or from a sale or other disposition of
the stock issued upon exercise of such Option (or a stock option
granted under another plan of the Company), if such sale or other
disposition might be a "disqualifying disposition" described in
Section 422(a) of the Code and (b) agreement by the person exercising
such Option to provide the Company with such information as the
Company might reasonably request pertaining to such exercise, sale or
other disposition. The Optionee may elect to have the Company accept
or retain Stock as payment of an Optionee's tax liability to the
Company, as described in (a), above.
-4-
<PAGE> 5
11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal guardian or
representative; provided, however, subject to Paragraph 6(v), the
Committee, in its sole discretion, may grant Options that are
transferable by the Optionee to (i) immediate family members (such as
children, grandchildren or spouse); (ii) trusts for the benefit of the
Optionee's immediate family members; and (iii) partnerships in which
immediate family members are the only partners.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE. Except as may be otherwise
expressly provided herein, Options shall terminate on such date as
shall be selected by the Committee in its discretion and specified in
the option agreement. If an Optionee is an employee of the Company or
of a subsidiary corporation at the time an Option is granted, and,
before the date of expiration of the Option, an employment
relationship with the Company and all subsidiaries is severed, for any
reason (except as otherwise provided for herein), the Option shall
terminate thirty days following severance of the employment
relationship. Whether authorized leave of absence, or absence on
military or government service, shall constitute severance of an
employment relationship with the Company or a subsidiary corporation
and the Optionee, shall be determined by the Committee at the time
thereof. If, before the date of expiration of a non-qualified Option,
the Optionee shall be retired in good standing from the employ of the
Company and all subsidiaries for reasons of age or disability under
the then established rules of the Company, the Option shall terminate
on the earlier of such date of expiration or one year after the date
of such retirement. In the event of such retirement, the Optionee
shall have the right prior to the termination of such Option to
exercise the Option to the extent to which he was entitled to exercise
such Option immediately prior to such retirement; however, in the
event that the Optionee has retired on or after attaining the age of
sixty-two (62) years, the Optionee shall be entitled to exercise all
or any part of such Option (without regard to any limitations imposed
pursuant to Paragraph 9 hereof. If during the exercisability period as
set forth hereinabove as being one year, an Optionee becomes an
employee or consultant for a competitor of the Company, it shall be
deemed that the employee's retirement status under the Plan shall be
considered as not in good standing and the exercisability period shall
automatically be reduced to thirty days from the date of the
consulting or employment arrangement, and further that the accelerated
vesting of stock options on or after age 62 shall be rescinded and
such Optionee shall only be able to exercise that portion of the
Option which was exercisable immediately prior to such retirement and
the remaining portion shall immediately be deemed canceled. Upon the
death of the Optionee, his executors, administrators, or any person or
persons to whom his Option may be transferred by will or by the laws
of descent and distribution, shall have the right, at any time prior
to the earlier of the date of expiration or one year following the
date of such death, to exercise the Option, in whole or in part
(without regard to any limitations imposed pursuant to Paragraph 9
hereof. The Committee shall be permitted, in its discretion, to grant
to any employee an Option which is an incentive stock option or a
non-qualified stock option with a provision that the Option shall
continue in full force and effect
-5-
<PAGE> 6
as a non-qualified stock option with no modification of the option
price if the person's status with the Company or its subsidiary
changes, but such person continues as a director or consultant of the
Company.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares under any Option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
Stockholder with respect to shares covered by any Option until the
date of issuance of a stock certificate for such shares; and, except
as otherwise provided in Paragraph 16 hereof, no adjustment for
dividends, or otherwise, shall be made if the record date thereof is
prior to the date of issuance of such certificate.
15. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any Option
shall not impose upon the Company or any subsidiary any obligation to
continue to nominate an Optionee for election as a director or to
employ or continue to employ any Optionee; and the right of the
Company or any subsidiary to terminate the employment of any employee
shall not be diminished or affected by reason of the fact that an
Option has been granted to the employee.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or
the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or
other increase or reduction of the number of shares of the Stock
outstanding, without receiving compensation therefor in money,
services or property, then (a) the number, class, and per share price
of shares of stock subject to outstanding Options hereunder shall be
appropriately adjusted in such a manner as to entitle an Optionee to
receive upon exercise of an Option, for the same aggregate cash
consideration, an equivalent total number and class of shares as he
would have received had he exercised his Option in full immediately
prior to the event requiring the adjustment; and (b) the number and
class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number and class of shares of
Stock then reserved that number and class of shares of stock that
would have been received by the owner of an equal number of
outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
-6-
<PAGE> 7
After a merger of one or more corporations into the Company, or after
a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number and class of shares as to which
such Option would have been so exercisable in the absence of such
event, the number and class of shares of stock or other securities or
property to which such holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately
prior to such merger or consolidation, such holder had been the holder
of record of the number and class of shares of Stock equal to the
number and class of shares as to which such Option shall be so
exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving
corporation, or if the Company sells or otherwise disposes of
substantially all its assets to another corporation and is liquidated
while unexercised Options remain outstanding under the Plan, (i)
subject to the provisions of clause (iii) below, after the effective
date of such merger, consolidation or sale and liquidation, as the
case may be, each holder of an outstanding Option shall be entitled,
upon exercise of such Option, to receive, in lieu of shares of the
Stock, shares of such stock or other securities as the holders of
shares of such class of Stock received pursuant to the terms of the
merger, consolidation or sale; (ii) the Committee may waive any
limitations imposed pursuant to Paragraph 9 hereof so that all
Options, from and after a date prior to the effective date of such
merger, consolidation, or sale and liquidation, as the case may be,
specified by the Committee, shall be exercisable in full; and (iii)
all outstanding Options may be canceled by the Committee as of the
effective date of any such merger, consolidation or sale and
liquidation provided that (x) notice of such cancellation shall be
given to each holder of an Option and (y) each holder of an Option
shall have the right to exercise such Option in full (without regard
to any limitations imposed pursuant to Paragraph 9 hereof during a
30-day period preceding the effective date of such merger,
consolidation or sale and liquidation.
Except as herein before expressly provided, the issue by the Company
of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number, class or price of shares of Stock then subject to
outstanding Options.
17. STOCK AWARDS AND RESTRICTED STOCK GRANTS. A stock award consists of
the issuance by the Company to a Participant of shares of Stock,
without other payment therefor, in lieu of certain cash compensation
or as additional compensation for his services to the Company.
Restricted stock grants consist of shares of Stock which are issued by
the Company to a Participant at a price which may be below their fair
market value or for no payment, but
-7-
<PAGE> 8
subject to restrictions on their sale or other transfer by the
Participant. The issuance of Stock pursuant to stock awards and
restricted stock grants shall be subject to the following terms and
conditions:
(i) Number of Shares. Subject to Section 3, the number of shares
to be issued by the Company to a Participant pursuant to a
stock award or restricted stock grant shall be determined by
the Committee.
(ii) Sale Price. The Committee shall determine the prices, if any,
at which shares of restricted stock shall be issued to a
Participant, which may vary from time to time and among
Participants and which may be below the fair market value of
such shares of Stock at the date of sale and which may be
zero.
(iii) Restrictions. All shares of restricted stock issued hereunder
shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the
following:
(a) a prohibition against the sale, transfer, pledge or
other encumbrance of the shares of restricted stock,
such prohibition to lapse (i) at such time or times
as the Committee shall determine (whether in annual
or more frequent installments, at the time of the
death, disability or retirement of the holder of
such shares, or otherwise) or (ii) upon written
certification by the Committee of the attainment of
certain performance measurements;
(b) a requirement that the holder of shares of
restricted stock forfeit, or (in the case of shares
sold to a Participant) resell back to the Company at
his cost, all or a part of such shares in the event
of termination of the holder's employment during any
period in which such shares are subject to
restrictions; or
(c) a prohibition against employment of the holder of
such restricted stock by any competitor of the
Company or its affiliates, or against such holder's
dissemination of any secret or confidential
information belonging to the Company or a subsidiary
of the Company.
Shares of restricted stock shall be registered in the name of the
Participant and deposited, together with a stock power endorsed in
blank, with the Company. Each such certificate shall bear a legend in
substantially the following form:
"The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in
the 1996 Stock Incentive Plan of the Company, and an
agreement entered into between the registered owner and the
Company. A copy of the Plan and agreement is on file in the
office of the Secretary of the Company."
-8-
<PAGE> 9
At the end of any time period during which the shares of restricted
stock are subject to forfeiture and restrictions on transfer or upon
the attainment of certain performance measurements, such shares will
be delivered free of all restrictions to the Participant or to the
Participant's legal representative, beneficiary or heir.
Subject to the terms and conditions of the Plan, each Participant
receiving restricted stock shall have all the rights of a stockholder
with respect to shares of stock during any period in which such shares
are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. By accepting a
stock award or a restricted stock grant, the Participant agrees to
remit to the Company when due any federal and state income and
employment taxes required to be withheld by the Company and the
Participant may elect to have the Company accept or retain Stock as
payment of such tax liability. Dividends paid in cash or property
other than Stock with respect to shares of restricted stock shall be
paid to the Participant currently or, at the election of the
Participant, be reinvested by the Participant under the Company's
Dividend Reinvestment Plan. Shares purchased with reinvested dividends
shall not be restricted.
18. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, no amendment that
would (a) materially increase the number of shares of Stock that may
be issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to Participants under the Plan shall be
made without the approval of the Company's stockholders.
19. WRITTEN AGREEMENT. Each Option or restricted stock granted hereunder
shall be embodied in a written agreement, which shall be subject to
the terms and conditions prescribed above and shall be signed by the
Participant and by the Chairman of the Board, Chief Executive Officer,
the Vice Chairman, the President or any Vice President of the Company
for and in the name and on behalf of the Company. Stock awards granted
hereunder may be embodied in such a written agreement. Such an Option,
stock award or restricted stock agreement shall contain such other
provisions as the Committee in its discretion shall deem advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each present
and future member of the Committee against, and each member of the
Committee shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of
judgments and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the
Company itself) reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be
involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee
at the time of incurring such expenses; provided, however, that such
indemnity shall not include any expenses incurred by any such member
of the Committee (a) in respect of matters as to which he shall be
-9-
<PAGE> 10
finally adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee, or (b) in respect of any matter
in which any settlement is effected, to an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and
provided further, that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by
any such member of the Committee unless, within sixty (60) days after
institution of any such action, suit or proceeding, he shall have
offered the Company, in writing, the opportunity to handle and defend
same at its own expense. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each
such member of the Committee and shall be in addition to all other
rights to which such member of the Committee may be entitled as a
matter of law, contract, or otherwise.
21. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be
considered adopted and shall become effective on the date the Plan is
approved by the Board of Directors of the Company; provided, however,
that the Plan and any grants of Options, stock awards or restricted
stock grants thereunder, shall be void, if the stockholders of the
Company shall not have approved adoption of the Plan within twelve
months after such effective date.
22. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of
Delaware, without reference to principles of conflict of laws, and
shall be construed accordingly.
23. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that all
transactions under the Plan comply in all respects with Rule 16b-3,
and any successor rule pursuant thereto. If any provision of this Plan
is later found not to be in compliance with the Rule, the provision
shall be deemed null and void. All grants of Options and Stock and all
exercises of Options under this Plan shall be executed in accordance
with the requirements of Section 16 of the Securities Exchange Act of
1934, as amended, and any regulations promulgated thereunder.
-10-
<PAGE> 1
EXHIBIT 10.2
BROWNING-FERRIS INDUSTRIES
ANNUAL MANAGEMENT INCENTIVE PLAN
ARTICLE I. PURPOSE AND GENERAL DESCRIPTION
The purpose of the Annual Management Incentive Plan (the "Plan") of
Browning-Ferris Industries (the "Company") is to align the interest of the
Company's management and shareholders. Specifically, the Plan's objectives are
to:
o Focus management's attention on accomplishing results that lead to
increases in shareholder value;
o Support the financial objectives of the Company; and
o Offer a results-based compensation program that is competitive and
delivers superior rewards for exceptional results.
Accordingly, the Company may award to executive officers and other officers of
the Company, annual incentive compensation on the terms and conditions
established herein.
ARTICLE II. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
"Annual Incentive Award" or "Award" means the compensation payable in
cash granted under the Plan to a Participant by the Committee pursuant
to such terms, conditions, restrictions and limitations established by
the Committee and the Plan.
"Base Salary" shall mean the actual base earnings of a Participant for
the Plan Year, as approved by the Committee, exclusive of any Awards
under this Plan or any other prior or present commitment, including
contractual arrangements, any salary advance, any allowance or
reimbursement, gratifications, and the value of any basic or
supplemental employee benefits or perquisites.
"Board" shall mean the Board of Directors of the Company.
"Change in Control," for all purposes of the Plan, shall be deemed to
have occurred if, with or without the approval of the Board, any of
the following events shall occur:
<PAGE> 2
(1) more than 25% of the voting power of the Company's
outstanding securities entitled to vote in elections of
directors shall be acquired by any person (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) except
with respect to any Participant who is included in any such
person; or
(2) as the result of a tender offer, merger, consolidation,
sale of assets or contested election, or any combination of
such transactions, the persons who were directors of the
Company immediately before the transaction shall cease to
constitute a majority of the Board of the Company or of any
successor to the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board to administer the Plan,
provided that the Committee shall consist of two or more persons, each
of whom is an "outside director" within the meaning of Section 162(m)
of the Code.
"Company" means Browning-Ferris Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Covered Employees" means those participants in the Plan who are
"covered employees" within the meaning of Section 162(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Participant" means an individual who is an executive officer or other
officer of the Company, including any Covered Employee.
"Performance Goals" shall be defined as the objective performance
criterion or criteria established by the Committee, pursuant to
Section V hereof, for the purpose of determining Awards under the
Plan.
"Plan" shall mean the Browning-Ferris Industries, Inc. Annual
Management Incentive Plan.
"Plan Year" means the consecutive 12 month period that constitutes the
Company's fiscal year.
"Restricted Stock" shall mean the shares of Common Stock, $.16-2/3 par
value, of the Company with such restrictions, including transfer and
vesting restrictions, as provided
-2-
<PAGE> 3
for in the Company's Convertible Annual Incentive Award Plan, as such
plan may be amended from time to time.
"Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder.
ARTICLE III. ADMINISTRATION
3.1 The Plan shall be administered by the Committee.
3.2 Subject to the provisions of the Plan, the Committee shall have the
authority in its sole discretion to administer and interpret the Plan
and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, to
establish the target and maximum Awards for each level of Participant;
to determine the performance measures and their relative weighting; to
determine whether, to what extent and under what circumstances any
Award may be settled, canceled, forfeited, exchanged, or surrendered;
to waive or modify any condition applicable to an Award subject to
compliance with Section 162(m); to make adjustments in the performance
goals of an Award (i) in recognition of unusual or nonrecurring events
affecting the Company or the financial statements of the Company,
subject to compliance, with Section 162(m), if applicable, or (ii) in
response to changes in applicable laws, regulations, or accounting
principles; to establish, amend or rescind any administrative
policies; and to make all other determinations necessary or advisable
for the administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan
or in any Award in the manner and to the extent it shall deem
desirable to carry it into effect. The determinations of the Committee
in the administration of the Plan, as described herein, shall be final
and conclusive; provided, however, that no action shall be taken which
will prevent Awards granted under the Plan that are intended to
provide "performance-based compensation," within the meaning of
Section 162(m), from doing so.
ARTICLE IV. ELIGIBILITY
All executive officers and other officers of the Company shall participate in
the Plan. The Committee may withdraw its approval for participation in the Plan
for a Participant at any time. In the event of such withdrawal, such
Participant shall cease to be a Participant as of the date designated by the
Committee and the employee shall be notified of such withdrawal as soon as
practicable following such action. Further, such Participant shall cease to
have any right to an Award for the Plan Year in which such withdrawal is
effective; provided, however, that the Committee may in its sole discretion,
authorize a prorated award based on the number
-3-
<PAGE> 4
of full months of participation prior to the effective date of such withdrawal
and the Company's performance during such period.
ARTICLE V. PERFORMANCE GOALS AND MEASURES
5.1 Performance Goals that are intended to comply with Section 162(m)
shall be established by the Committee within the time period
prescribed by Section 162(m) for the Plan Year relating to a specific
Award; provided, however, the Committee may establish Performance
Goals that are not intended to comply with Section 162(m) after such
time period. The Performance Goals may be identical for all
Participants or, at the discretion of the Committee, may be different
to reflect more appropriate measures of individual performance. The
criterion or criteria used in establishing Performance Goals may, at
the discretion of the Committee, include one or any combination of the
following: (i) return on equity, assets, capital or investment; (ii)
pre-tax or after-tax profit levels expressed in absolute dollars or
earnings per share of the Company; (iii) cash flow or similar
measures; or (iv) objective customer satisfaction measures. The
Performance Goals established by the Committee shall include a
threshold level of performance below which no Award will be payable
and a maximum Award opportunity for each Participant. Performance
Goals also may be based upon attaining specified levels of Company
performance based upon one or more of the criteria described above
relative to prior periods or the performance of other companies. The
determination of attainment of the Performance Goals shall be
determined in accordance with generally accepted accounting principles
and certified in writing by the Committee.
5.2 The Committee shall be authorized to make adjustments in the method of
calculating attainment of Performance Goals in recognition of: (i)
extraordinary or non-recurring items, (ii) changes in tax laws, (iii)
changes in generally accepted accounting principles or changes in
accounting policies, (iv) charges related to restructured or
discontinued operations, (v) restatement of prior period financial
results, and (vi) any other unusual, non-recurring gain or loss that
is separately identified and quantified in the Company's financial
statements. Notwithstanding the foregoing, the Committee may, at its
sole discretion, reduce the performance results upon which Awards are
based under the Plan, to offset any unintended result(s) arising from
events not anticipated when the Performance Goals were established,
provided that such adjustment is permitted by Section 162(m).
5.3 With respect to Participants other than Covered Employees, the
Performance Goals may, at the discretion of the Committee, include
Individual Goal components. Individual Goals shall be measured based
upon actual individual or team performance as compared to the
objective goals established by the Committee pursuant to Paragraph
5.1. The Committee shall be responsible for determining the relative
weighting of Individual Goals as a component of a Participant's
Performance Goals. The Committee
-4-
<PAGE> 5
shall determine which Participants, if any, are eligible to include
Individual Goals as a component of their Performance Goals. The
Committee may, in its sole discretion, determine that the portion of
Award attributable to Individual Goals shall only be payable upon the
attainment of that component of Performance Goals established pursuant
to Paragraph 5.1. Covered Employees shall not be eligible to include
Individual Goals as a component of their Performance Goals unless
permitted by Section 162(m).
ARTICLE VI. AWARDS
6.1 Awards under the Plan shall be paid in cash, or at the election of the
Participant, shares of Restricted Stock pursuant to the Company's
Convertible Annual Incentive Award Plan.
6.2. The Committee shall review the prior year's performance in relation to
the Performance Goals and determine the level of achievement of the
Performance Goals. Payment of Annual Incentive Awards to Participants
under the Plan shall occur only after the Committee has certified in
writing that the Performance Goals have been achieved for the relevant
Plan Year. Notwithstanding the attainment of Performance Goals of the
Company as a whole, Awards for individual Participants under the Plan
may be denied or adjusted downward by the Committee, in its sole
judgment, based on its assessment of the Participant's performance.
The maximum Annual Incentive Award that may be granted to a
Participant under the Plan for any Plan Year shall be $2.0 million.
ARTICLE VII. DEFERRALS AND SETTLEMENTS
The Committee may permit Participants to elect to defer receipt of all or a
portion of the Annual Incentive Award under the terms established pursuant to
the Company's Deferred Compensation Plan. It may also provide that amounts be
credited with interest.
ARTICLE VIII. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to be made pursuant
to the Plan the amount of any taxes required by law.
ARTICLE IX. NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the
-5-
<PAGE> 6
Company or its subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to terminate the employment of any
Participant free from any liability, or any claim under the Plan, except as
provided herein.
ARTICLE X. CHANGE IN CONTROL
Immediately upon a Change in Control, all outstanding Awards (except Awards
held by a Participant included in any person causing a Change in Control
pursuant to clause (a) of the definition of Change in Control) shall be deemed
earned at the maximum Performance Goal level and the Company shall make payment
in cash to each Participant within ten (10) days after the effective date of
the Change in Control in the amount of such maximum Award. The granting of
Awards under the Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize, or otherwise change its capital or business
structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all
or any portion of its businesses or assets.
It is recognized that under certain circumstances: (a) payments or benefits
provided to a Participant might give rise to an "excess parachute payment"
within the meaning of Section 280G of the Code; and (b) it might be beneficial
to a Participant to disclaim some portion of the payment or benefit in order to
avoid such "excess parachute payment" and thereby avoid the imposition of an
excise tax resulting therefrom; and (c) under such circumstances it would not
be to the disadvantage of the Company to permit the Participant to disclaim any
such payment or benefit in order to avoid the "excess parachute payment" and
the excise tax resulting therefrom.
Accordingly, the Participant may, at the Participant's option, exercisable at
any time or from time to time, disclaim any entitlement to any portion of the
payment or benefits arising under this Plan which would constitute "excess
parachute payments," and it shall be the Participant's choice as to which
payments or benefits shall be so surrendered, if and to the extent that the
Participant exercises such option, so as to avoid "excess parachute payments."
ARTICLE XI. AMENDMENT, MODIFICATION,
SUSPENSION OR TERMINATION
The Board may amend, modify, suspend or terminate this Plan for any purpose
except that no amendment or alteration shall be effective prior to approval by
the Company's shareholders to the extent such approval is then required
pursuant to Section 162(m) or otherwise required by law. Further, no amendment
to the Plan shall be effective that would (i) increase the maximum amount that
can be paid to a Participant under the Plan; (ii) change the performance
criterion or criteria set forth in Section V hereof for payment of Awards; or
(iii) modify the eligibility requirements for Participants in the Plan unless
first approved by the Company's shareholders.
-6-
<PAGE> 7
ARTICLE XII. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Texas and applicable Federal law.
ARTICLE XIII. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, settlements of Awards received by Participants under the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, program or practice or any severance policy of the Company.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
ARTICLE XIV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
ARTICLE XV. EFFECTIVE DATE
This Plan shall be effective as of the date it is approved by the Board.
Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon approval by the Company's shareholders at the annual meeting
held in 1997. If the shareholders of the Company shall fail to approve this
Plan at such meeting, this Plan shall terminate and cease to be of any further
force or effect. Subject to earlier termination pursuant to Article XI, the
Plan shall have a term of five years from its effective date.
ARTICLE XVI. INTERPRETATION
The Plan as applicable to certain employees is designed and intended to comply
with Rule 16b-3 promulgated under the Exchange Act and with Section 162(m) of
the Code, and all provisions hereof shall be construed in a manner to so comply
with respect to such employees.
-7-
<PAGE> 1
EXHIBIT 10.3
BROWNING-FERRIS INDUSTRIES
LONG-TERM INCENTIVE PLAN
ARTICLE I. PURPOSE AND GENERAL DESCRIPTION
The purpose of the Long-Term Incentive Plan (the "Plan") of Browning-Ferris
Industries, Inc. (the "Company") is to align the interest of the Company's
management and shareholders. Specifically, the Plan's objectives are to:
o Focus management's attention on accomplishing results that lead to
increases in shareholder value;
o Support the financial objectives of the Company; and
o Offer a results-based compensation program that is competitive and
delivers superior rewards for exceptional results.
Participants in the Plan will receive Awards of Performance Shares which will
vest in segments subject to the Company's attaining specified Performance Goals
or Hurdles during the Performance Period of the Plan, as set forth herein. The
Performance Hurdles include the attainment of Cumulative Cash Value Amounts and
specified Moving Average Stock Prices. The Performance Period will be the five
years beginning October 1, 1996, subject to earlier termination as set forth
herein.
ARTICLE II. DEFINITIONS
1. As used in the Plan, the following terms shall have the meanings set
forth below:
"After-Tax Interest Expense" means the Interest Expense of the
Company, net of Interest Income, adjusted for income taxes based on
the effective tax rate or rates utilized in the Company's financial
statements for the period or periods for which the determination is
being made, excluding the effect on such tax rates of any special
charges at the discretion of the Committee.
"Average Gross Assets" means for any period the average of the Gross
Assets at the end of the immediately preceding fiscal year and at the
end of each fiscal quarter (including the fourth fiscal quarter)
ending on or prior to the date of such determination. Average Gross
Assets shall be calculated at the end of each fiscal year and at the
end of each fiscal quarter in such fiscal year during the Performance
Period.
"Award" means any grant of Performance Shares under the Plan to a
Participant by the Committee.
<PAGE> 2
"Award Agreement" means a written agreement with respect to an Award
between the Company and a Participant establishing the terms,
conditions, restrictions and limitations applicable to an Award. To
the extent an Award Agreement is inconsistent with the terms of the
Plan, the Plan shall govern the rights of the Participant thereunder.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day on which the Stock Exchange is open for
trading.
"Capital Charge" means for any period the Average Gross Assets for the
period multiplied by the Cost of Capital applicable to the period.
"Cash Value Added" or "CVA" means for any period (1) Operating Cash
Flow (whether positive or negative) less the Capital Charge applicable
to the period. Cash Value Added or CVA shall be determined as of the
end of each fiscal year and of each fiscal quarter in any partial
fiscal year during the Performance Period.
"Change in Control," for all purposes of the Plan, shall be deemed to
have occurred if any of the following events shall occur (with or
without the approval of the Board):
(a) more than 25% of the voting power of the Company's
outstanding securities entitled to vote in elections of
directors shall be acquired by any person (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), except
with respect to any Participant who is included in any such
person; or
(b) as the result of a tender offer, merger, consolidation, sale
of assets or contested election, or any combination of such
transactions, the persons who were directors of the Company
immediately before any such transaction shall cease to
constitute a majority of the Board of the Company or of any
successor to the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board to administer the Plan,
provided that the Committee shall consist of three or more persons,
each of whom is an "outside director" within the meaning of Section
162(m) of the Code.
"Common Stock" or "Shares" shall mean the shares of Common Stock, par
value $.16-2/3 a share, of the Company.
-2-
<PAGE> 3
"Company" means Browning-Ferris Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Continuing Environmental Accruals" means long-term environmental and
landfill costs associated with obligations for closure and
post-closure of the Company's landfills, corrective actions and
remediations at certain of these landfill facilities and corrective
actions at Superfund sites (excluding any such costs associated with
discontinued operations of the Company), determined as set forth in
the financial statements of the Company.
"Cost of Capital" means 13% per annum for all purposes of the Plan
during the Performance Period.
"Cumulative Cash Value Added" or "Cumulative CVA" means the sum of the
Cash Value Added during each fiscal year and each fiscal quarter in
each partial fiscal year from October 1, 1996, to the date of any such
determination.
"Disability" means any physical or mental condition of any Participant
continuing for more than six (6) months which, in the sole judgment of
the Committee, is likely to continue and to prevent the Participant
from having any significant influence on the financial performance of
the Company.
"Dividend Equivalent" means an amount in cash equal to (i) the cash
dividends declared on each share of Common Stock from October 1, 1996,
to the date of vesting of any Performance Shares (including any
Performance Shares which vest as a result of a Change in Control)
multiplied by (ii) the number of Performance Shares vesting on any
such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Forfeiture Termination of Employment" means (i) any termination of
employment of a Participant for cause or (ii) any voluntary
termination of employment by a Participation prior to Normal
Retirement Age.
"GAAP" means generally accepted accounting principles.
"Gross Assets" means at any time (a) the total of (i) the book value
of the Company's assets, plus (ii) accumulated Depreciation and
Amortization, plus (iii) Pooling-of-Interests Goodwill during the
Performance Period, plus (iv) any other reductions in the net book
value of the assets prior to disposition of the assets, less (b) the
total of (i) non-interest bearing current liabilities, plus (ii)
Deferred Tax Liabilities, plus (iii) Continuing Environmental Accruals
of the Company.
-3-
<PAGE> 4
"Moving Average Stock Price" means the average closing price of a
share of Common Stock as reported on the Stock Exchange composite tape
for each Business Day in the period beginning on any Business Day and
ending on the immediately preceding date which is also a Business Day
(or the next date which is a Business Day) in the third month
thereafter. For example, the Moving Average Stock Price would be
determined during the periods February 3 to May 2, 1997, and February
25 to May 25, 1998.
"Normal Retirement Age" means 65.
"Operating Cash Flow" means for any period the sum of (i) Net Income,
(ii) Minority Interest, (iii) Depreciation, (iv) Amortization, (v)
After-Tax Interest Expense, and (vi) asset impairment write-downs or
other special charges during the period (except to the extent such
write-downs or charges constitute Extraordinary Items), increased by
any Extraordinary Losses or decreased by any Extraordinary Income
during the period. Operating Cash Flow shall be determined for each
fiscal year and for each fiscal quarter in any partial fiscal year
during the Performance Period.
"Participant" means an officer or key employee of the Company or its
subsidiaries who is selected by the Committee to participate in the
Plan.
"Performance Goals" or "Hurdles" in respect to Awards of Performance
Shares mean the Cumulative CVA and Moving Average Stock Price
standards established pursuant to Paragraph 1 of Article V hereof, as
amended by the Committee in compliance with the provisions of
Paragraph 2 of Article V hereof.
"Performance Period" means the five year period beginning October 1,
1996, and ending September 30, 2001, subject to earlier termination at
the discretion of the Committee.
"Performance Shares" shall mean shares of Common Stock subject to an
Award granted pursuant to Article VI and deliverable upon attainment
of the Performance Goals.
"Plan" shall mean the Browning-Ferris Industries, Inc. Long Term
Incentive Plan.
"Pooling-of-Interests Goodwill" means, in connection with any
acquisition made by the Company during the Performance Period and
accounted for as a pooling-of-interests, an amount equal to the
closing price of a Share of Common Stock on the Stock Exchange on the
date of consummation of the acquisition multiplied by the number of
Shares issued in connection with the acquisition less the
stockholders' equity, partners' equity or other applicable measurement
of equity of the business acquired.
-4-
<PAGE> 5
"Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder.
"Stock Exchange" means the New York Stock Exchange, Inc. ("NYSE") or,
if the Common Stock is no longer included on the NYSE, then such other
market price reporting system on which the Common Stock is traded or
quoted.
"Voting Stock" means securities entitled to vote in an election of
Directors of the Company.
2. Recognized definitions under GAAP, if applicable, shall be used in
determining any accounting item hereunder, including, without
limitation, Amortization, current liabilities, Deferred Tax
Liabilities, Depreciation, Extraordinary Items, Extraordinary Losses,
Extraordinary Income, Interest Expense, Interest Income, Minority
Interest, and Net Income (Loss). Such determinations shall be made on
a consolidated basis unless not permissible pursuant to GAAP.
ARTICLE III. ADMINISTRATION
1. The Plan shall be administered by the Committee.
2. Subject to the provisions of the Plan, the Committee shall have the
authority in its sole discretion to administer and interpret the Plan
and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the
authority to select the Participants; to determine the Disability of
any Participant; to determine the number of Performance Shares subject
to any Award; to determine whether, to what extent and under what
circumstances any Award may be settled, canceled, forfeited,
exchanged, or surrendered, whether upon termination of employment or
otherwise; to waive or modify any condition applicable to an Award
subject to compliance with Section 162(m); to make adjustments in the
performance goals of an Award (i) in recognition of unusual or
nonrecurring events affecting the Company or the financial statements
of the Company, subject to compliance with Section 162(m), if
applicable, or (ii) in response to changes in applicable laws,
regulations, or accounting principles; to interpret the Plan; to
establish, amend or rescind any administrative policies; to determine
the terms and provisions of any agreements entered into hereunder; to
determine or establish procedures to determine whether Performance
Goals have been attained; to terminate the Plan after four (4) years
if the Committee so determines in its discretion; and to make all
other determinations necessary or advisable for the administration of
the Plan. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any Award in the manner
and
-5-
<PAGE> 6
to the extent it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive; provided, however,
that no action shall be taken which will prevent Awards granted under
the Plan from meeting the requirements for exemption from Section
16(b) of the Exchange Act, or subsequent comparable statute, as set
forth in Rule 16b-3 under the Exchange Act or any subsequent
comparable rule; and, provided further, that no action shall be taken
which will prevent Awards hereunder that are intended to provide
"performance-based compensation," within the meaning of Section
162(m), from doing so.
ARTICLE IV. AWARDS
1. Awards under the Plan shall consist of Performance Shares. Awards of
Performance Shares shall not provide the Participant with rights to
dividends or voting rights prior to the Participant becoming the
holder of record of shares issued pursuant to an Award, except for the
right to receive a Dividend Equivalent pursuant to Paragraph 3 of
Article V. The terms, conditions and restrictions of each Award shall
be set forth in an Award Agreement, and such Award Agreement shall
include provisions respecting arbitration of any disputes thereunder.
2. Participants shall, except as set forth below, be eligible for and
receive only one Award of Performance Shares, subject to approval of
the Plan by the Shareholders of the Company. The Committee may, in its
discretion, subject to compliance with Section 162(m), make an Award
to an employee who becomes eligible for participation in the Plan
after October 1, 1996. The number of Performance Shares subject to,
and the Performance Hurdles required for vesting of, any such Award
shall reflect the remaining time in the Performance Period when the
Award is granted.
3. Eligible Participants include any executive named under Section 162(m)
and any other officer, senior executive or other employee of the
Company or its affiliates deemed by the Committee as having a
significant influence on the financial performance of the Company.
ARTICLE V. PERFORMANCE HURDLES
1. The Performance Shares vest in four separate segments effective as of
the end of any fiscal period (regardless of when any determination is
actually made) when both the Cumulative CVA and Average Stock Price
Performance Hurdles have been attained and are in effect as of the end
of such fiscal period as set forth below:
-6-
<PAGE> 7
<TABLE>
<CAPTION>
Performance Hurdles
-------------------
1 2 3 4
- - - -
<S> <C> <C> <C> <C>
Cumulative CVA (in millions) $20 $130 $240 $350
Moving Average Stock Price $35 $ 40 $ 45 $ 50
Vesting of Performance Shares 25% 25% 25% 25%
Cumulative Vesting of Performance Shares 25% 50% 75% 100%
</TABLE>
2. The Committee shall have the right, in its discretion, to modify,
amend or otherwise adjust the Performance Hurdles, subject to
compliance with the requirements of Section 162(m), if it determines
an adjustment would be consistent with the objectives of the Plan,
taking into account the interests of the Participants and the
Shareholders of the Company. The types of events which could cause an
adjustment in the Performance Hurdles include, without limitation,
accounting changes which substantially affect the determination of
Performance Hurdles, changes in applicable laws or regulations which
affect the Performance Hurdles, divisive corporate reorganizations,
including spinoffs or other distributions of property or stock, or
other events which the Committee determines require an adjustment in
the Performance Goals.
3. Certificates representing any shares of Common Stock vested pursuant
to Paragraph 1 above shall be issued and distributed as soon as
reasonably practicable after the determination that such shares have
vested. The Company shall concurrently pay to each Participant any
Dividend Equivalent due in connection with the vesting of such
Performance Shares.
ARTICLE VI. PERFORMANCE SHARES SUBJECT TO THE PLAN
An aggregate of 1,5000,000 shares of Common Stock shall be available for Awards
of Performance Shares under the Plan, subject to adjustment in accordance with
the provisions of Article IX hereof. The maximum Award to any Participant shall
not exceed 200,000 Performance Shares in the aggregate. Shares of Common Stock
available for issuance under the Plan may be authorized and unissued Shares or
treasury shares, as the Company may from time to time determine. The Board of
Directors and the appropriate officers of the Company shall from time to time
take whatever actions are necessary to file required documents with
governmental authorities and the Stock Exchange to make shares of Common Stock
available for issuance pursuant to Awards. The Committee may from time to time
adopt and observe such procedures concerning the counting of shares against the
Plan maximum as it may deem appropriate under Rule 16b-3 issued pursuant to the
Exchange Act.
-7-
<PAGE> 8
ARTICLE VII. SPECIAL CIRCUMSTANCES
1. Forfeiture Termination of Employment. In the event of the Forfeiture
Termination of Employment of any Participant, any Award shall
automatically terminate, and the Participant shall not be entitled to
any Performance Shares which have not vested previously.
2. Normal Retirement, Death, Disability, Involuntary Termination. In the
event of (i) the death or Disability of a Participant, (ii) the
involuntary termination of employment (or notice of involuntary
termination of employment) of a Participant (other than for cause) or
(iii) the retirement from employment of a Participant after reaching
Normal Retirement Age, the Participant shall, subject to approval of
the Committee in the case set forth in clause (iii), be entitled to
receive a prorata portion of the next segment, if any, of Performance
Shares which vest and which the Participant would have been entitled
to receive if he had not been terminated without cause, retired, died
or become disabled but not any additional segment of Performance
Shares which become vested thereafter. The proration shall be based on
the date of the Participant's involuntary termination (or notice of
involuntary termination, if earlier then the actual date of
termination), retirement, death or Disability in relation to the date
of vesting of the Performance Shares occurring immediately before (or
October 1, 1996, if no such vesting date has occurred) and immediately
after such involuntary termination, retirement, death or Disability
date.
ARTICLE VIII. ADJUSTMENTS; WITHHOLDING TAXES
1. The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its shareholders to make or authorize
(i) any adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or its business; (ii) any
merger or consolidation of the Company; (iii) any issuance of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock);
(iv) the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business; or (v) any
other corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated above.
2. In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of
Common Stock issuable pursuant to each Award and (ii) the total number
of Shares reserved under the Plan shall each be proportionately
adjusted to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or
entity, the adoption by the Company of a plan of exchange affecting
the Common Stock or any distribution to holders of
-8-
<PAGE> 9
Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board of
Directors shall make appropriate adjustments to the number of shares
of Common Stock issuable pursuant to each Award to reflect such
transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the Participants
and preserve, without exceeding, the value of the Awards.
3. The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or to require a Participant to pay to the Company
such amount required to be withheld prior to the issuance or delivery
of any shares of Common Stock or the payment of any Dividend
Equivalent under the Plan. The Committee may, in its discretion,
permit a Participant to elect to satisfy such withholding obligation
by (i) having the Company retain the number of shares of Common Stock
or (ii) tendering the number of shares of Common Stock, in either
case, at a value determined by the Committee to be equal to the amount
required to be withheld. Any fraction of a share of Common Stock
required to satisfy such obligation shall be disregarded and the
amount due shall instead be paid in cash, to or by the Participant, as
the case may be.
ARTICLE IX. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates evidencing Shares
under this Plan prior to (i) the obtaining of any approval from any
governmental agency which the Company shall, in its sole discretion, determine
to be necessary or advisable; (ii) the listing of such Shares on the Stock
Exchange; and (iii) the completion of any registration or other qualification
of the Shares under any state or federal law or ruling of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or
advisable.
ARTICLE X. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or its subsidiaries. Further, the Company
and its subsidiaries expressly reserve the right at any time to terminate the
employment of any Participant free from any liability, or any claim under the
Plan, except as provided herein or in any Award Agreement entered into
hereunder.
-9-
<PAGE> 10
ARTICLE XI. CHANGE IN CONTROL
1. Immediately upon a Change in Control, all outstanding Awards (except
Awards held by a Participant included in any person causing a Change
in Control pursuant to clause (a) of the definition of Change in
Control) shall vest automatically, and all Performance Share Awards
(including any Dividend Equivalent) shall be deemed earned at the
maximum Performance Goal level, i.e., the Cumulative CVA shall be
deemed to be $350 million and the Moving Average Stock Price shall be
deemed to be $50 upon the occurrence of such Change in Control.
2. The Company shall issue certificates evidencing the shares subject to
such Performance Share Awards, and a check in payment of any Dividend
Equivalent due in connection with the vesting of such Performance
Shares, within 10 days after the effective date of the Change in
Control.
3. It is recognized that under certain circumstances: (a) payments or
benefits provided to a Participant might give rise to an "excess
parachute payment" within the meaning of Section 280G of the Code; and
(b) it might be beneficial to a Participant to disclaim some portion
of the payment or benefit in order to avoid such "excess parachute
payment" and thereby avoid the imposition of an excise tax resulting
therefrom; and (c) under such circumstances it would not be to the
disadvantage of the Company to permit the Participant to disclaim any
such payment or benefit in order to avoid the "excess parachute
payment" and the excise tax resulting therefrom.
Accordingly, the Participant may, at the Participant's option,
exercisable at any time or from time to time, disclaim any entitlement
to any portion of the payment or benefits arising under this Plan
which would constitute "excess parachute payments," and it shall be
the Participant's choice as to which payments or benefits shall be so
surrendered, if and to the extent that the Participant exercises such
option, so as to avoid "excess parachute payments."
ARTICLE XII. GOVERNING LAWS
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of Texas and applicable Federal law.
ARTICLE XIII. RIGHTS AS SHAREHOLDERS
A Participant shall have no rights as a shareholder until he or she becomes the
holder of record.
-10-
<PAGE> 11
ARTICLE XIV. OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically provided to the contrary in the relevant plan,
program or practice, settlements of Awards received by Participants under the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit plan, program or practice or any severance pay law of any country.
Further, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
ARTICLE XV. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
ARTICLE XVI. EFFECTIVE DATE
This Plan shall be effective as of October 1, 1996, subject to approval by the
Board. Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon approval by the Company's shareholders at the annual meeting
held in 1997. If the shareholders of the Company shall fail to approve this
Plan at such meeting, this Plan shall terminate and cease to be of any further
force or effect and all grants of Awards hereunder shall be null and void.
ARTICLE XVII. INTERPRETATION
The Plan as applicable to certain employees is designed and intended to comply
with Rule 16b-3 promulgated under the Exchange Act and with Section 162(m) of
the Code, and all provisions hereof shall be construed in a manner to so comply
with respect to such employees.
-11-
<PAGE> 1
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary item $147,693 $150,486
Income taxes 98,462 100,323
-------- --------
Income before income taxes, minority
interest and extraordinary item 246,155 250,809
Consolidated interest expense 92,329 87,845
Interest expense related to
proportionate share of 50% owned
unconsolidated affiliates 18,743 10,569
Portion of rents representing the
interest factor 17,485 17,105
Less-Equity in earnings of affiliates
less than 50% owned 1,640 1,525
-------- --------
Total $373,072 $364,803
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $ 97,938 $ 95,985
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned unconsolidated
affiliates 18,743 11,210
Portion of rents representing the
interest factor 17,485 17,105
-------- --------
Total $134,166 $124,300
======== ========
Ratio of Earnings to Fixed Charges 2.78 2.93
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 79,517
<SECURITIES> 0
<RECEIVABLES> 1,000,141
<ALLOWANCES> (41,349)
<INVENTORY> 51,523
<CURRENT-ASSETS> 1,287,576
<PP&E> 6,518,076
<DEPRECIATION> (2,734,379)
<TOTAL-ASSETS> 7,254,609
<CURRENT-LIABILITIES> 1,391,849
<BONDS> 2,395,837
0
0
<COMMON> 35,572
<OTHER-SE> 2,501,712
<TOTAL-LIABILITY-AND-EQUITY> 7,254,609
<SALES> 0
<TOTAL-REVENUES> 2,908,868
<CGS> 0
<TOTAL-COSTS> 2,165,648
<OTHER-EXPENSES> 410,041
<LOSS-PROVISION> 16,623
<INTEREST-EXPENSE> 88,910
<INCOME-PRETAX> 246,155
<INCOME-TAX> 98,462
<INCOME-CONTINUING> 142,835
<DISCONTINUED> 0
<EXTRAORDINARY> 3,124
<CHANGES> 0
<NET-INCOME> 139,711
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
