<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 December 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
February 11, 1998: 194,133,381.
<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
December 31,
-----------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 1,344,742 $ 1,495,137
Cost of operations 981,359 1,111,298
----------- -----------
Gross profit 363,383 383,839
Selling, general and administrative
expense 190,619 220,037
Special credits, net (2,557) --
----------- -----------
Income from operations 175,321 163,802
Interest, net 35,619 45,256
Equity in earnings of unconsolidated
affiliates (10,089) (7,721)
----------- -----------
Income before income taxes, minority
interest and cumulative effect
of change in accounting principle 149,791 126,267
Income taxes 59,916 50,507
Minority interest in
income of consolidated
subsidiaries 3,117 3,880
----------- -----------
Income before cumulative effect of
change in accounting principle 86,758 71,880
Cumulative effect of change in
accounting principle, net of income
tax benefit of $7,411 13,763 --
----------- -----------
Net income $ 72,995 $ 71,880
=========== ===========
</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
December 31,
-----------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Earnings per share:
Basic -
Income before cumulative effect of
change in accounting principle $ .45 $ .36
Cumulative effect of change in
accounting principle (.07) --
----------- -----------
Net income $ .38 $ .36
=========== ===========
Diluted -
Income before cumulative effect of
change in accounting principle $ .45 $ .36
Cumulative effect of change in
accounting principle (.07) --
----------- -----------
Net income $ .38 $ .36
=========== ===========
Number of common shares used in computing
earnings per share:
Basic 190,911 201,513
=========== ===========
Diluted 192,282 201,877
=========== ===========
Cash dividends per common share $ .19 $ .17
=========== ===========
</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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, September 30,
1997 1997
(Unaudited)
- --------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 85,599 $ 78,746
Short-term investments 13,294 3,811
Receivables -
Trade, net of allowances for doubtful
accounts of $39,136 and $38,376 812,493 820,678
Other 45,950 71,547
Inventories 43,936 40,414
Deferred income taxes 110,012 117,404
Prepayments and other 75,907 112,063
---------- ----------
Total current assets 1,187,191 1,244,663
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,557,758 and $2,512,196 3,473,372 3,567,155
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$176,186 and $168,401 1,397,197 1,418,827
Other intangible assets, net of
accumulated amortization of $93,054
and $92,794 76,649 81,208
Deferred income taxes 40,938 50,057
Investments in unconsolidated affiliates 234,421 235,559
Other 75,718 80,823
---------- ----------
Total other assets 1,824,923 1,866,474
---------- ----------
Total assets $6,485,486 $6,678,292
========== ==========
</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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, September 30,
1997 1997
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES: (In Thousands Except for Share Amounts)
Notes payable and current portion of
long-term debt $ 127,019 $ 151,736
Accounts payable 400,419 496,733
Accrued liabilities -
Salaries and wages 89,835 115,477
Taxes, other than income 45,894 58,112
Other 403,655 414,601
Income taxes 20,522 19,204
Deferred revenues 172,045 178,661
----------- -----------
Total current liabilities 1,259,389 1,434,524
----------- -----------
DEFERRED ITEMS:
Accrued environmental and landfill costs 503,134 505,278
Deferred income taxes 149,627 149,803
Other 238,567 252,762
----------- -----------
Total deferred items 891,328 907,843
----------- -----------
LONG-TERM DEBT, net of current portion 2,300,923 1,675,162
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,387,697
shares issued for both periods 35,572 35,572
Additional paid-in capital 1,826,423 1,839,378
Retained earnings 1,092,341 1,080,810
Treasury stock, 18,244,721 and 1,239,246
shares, at cost (678,342) (18,951)
Stock and Employee Benefit Trust,
6,544,529 and 7,252,452 shares (242,148) (276,046)
----------- -----------
Total common stockholders' equity 2,033,846 2,660,763
----------- -----------
Total liabilities and common
stockholders' equity $ 6,485,486 $ 6,678,292
=========== ===========
</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>
- --------------------------------------------------------------------------------
Three Months Ended
December 31,
-------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 72,995 $ 71,880
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization -
Property and equipment 114,021 129,292
Goodwill 10,062 11,155
Other intangible assets 5,209 6,654
Special credits, net (2,557) --
Cumulative effect of change in accounting
principle 13,763 --
Deferred income tax expense 11,983 23,417
Amortization of deferred investment tax credit (177) (177)
Provision for losses on accounts receivable 7,511 7,531
Gains on sales of fixed assets (504) (1,603)
Equity in earnings of unconsolidated affiliates,
net of dividends received 11,256 (5,427)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 2,297 3,880
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions and divestitures -
Trade receivables (9,203) (6,568)
Inventories (4,180) 1,283
Other assets 81,433 18,015
Other liabilities (120,478) (38,182)
--------- ---------
Total adjustments 120,436 149,270
--------- ---------
Net cash provided by operating activities 193,431 221,150
--------- ---------
</TABLE>
(Continued on following page)
6
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
December 31,
-------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (108,707) (103,176)
Payments for businesses acquired (1,022) (58)
Proceeds from businesses divested 15,240 --
Investments in unconsolidated affiliates (29,740) (6,983)
Proceeds from disposition of assets 9,086 10,833
Purchases of short-term investments (9,519) --
Sales of short-term investments -- 14,222
Return of investment in unconsolidated affiliates 17,672 10,241
--------- ---------
Net cash used in investing activities (106,990) (74,921)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 16,668 1,861
Proceeds from issuance of indebtedness 664,397 112,907
Repayments of indebtedness (61,987) (222,951)
Repurchases of common stock (659,391) --
Dividends paid (38,919) (34,225)
--------- ---------
Net cash used in financing activities (79,232) (142,408)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (356) 323
--------- ---------
NET INCREASE IN CASH 6,853 4,144
CASH AT BEGINNING OF PERIOD 78,746 110,224
--------- ---------
CASH AT END OF PERIOD $ 85,599 $ 114,368
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 26,926 $ 30,938
Income taxes $ 12,731 $ 6,142
</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, 1997 as filed with the Securities
and Exchange Commission.
(2) Earnings Per Common Share -
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128 - "Earnings Per Share" was issued. This statement, which established new
standards for computing and presenting earnings per share, became effective for
the Company's quarter ended December 31, 1997. All prior periods presented have
been restated pursuant to the requirements of this new standard. The adoption of
SFAS No. 128 had no material effect on the Company's previously reported
earnings per share.
The following table reconciles the number of common shares outstanding with
the number of common shares used in computing basic and diluted earnings per
share (in thousands):
8
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Common shares outstanding, end of period 195,143 212,360
Less - Shares held in the Stock and
Employee Benefit Trust (6,545) (10,702)
-------- --------
Common shares outstanding for purposes
of computing earnings per share, end
of period 188,598 201,658
Effect of using weighted average common
shares outstanding 2,313 (145)
-------- --------
Shares used in computing earnings per
share - basic 190,911 201,513
Effect of shares issuable under stock
option plans based on the treasury
stock method 1,371 364
-------- --------
Shares used in computing earnings
per share - diluted 192,282 201,877
======== ========
</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.
Basic earnings per share amounts were computed by dividing earnings by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share amounts were computed considering the
dilutive effect of stock options in the calculation. Options to purchase 2.7
million shares of common stock at prices ranging from $36.19 to $43.38 per share
were outstanding during the first quarter of fiscal 1998 but were not included
in the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares. The
7.25% Automatic Common Exchange Securities had no effect on the computations for
the periods presented.
9
<PAGE> 10
(3) Cumulative Effect of Change in Accounting Principle
On November 20, 1997, the Financial Accounting Standards Board's Emerging
Issues Task Force issued EITF No. 97-13, a consensus ruling requiring that
certain business process reengineering costs typically capitalized by companies
be expensed as incurred. The ruling further required that previously capitalized
costs of this nature be written off as a cumulative effect of a change in
accounting principle in the quarter containing November 20, 1997. The Company
had previously capitalized these types of costs in connection with its current
SAP software implementation project. As a result, the Company recorded an
after-tax charge of $13,763,000 or $.07 per share in the first quarter of fiscal
1998 as the cumulative effect of a change in accounting principle.
(4) Business Combinations -
During the current fiscal year, the Company paid approximately $1.2 million
(including additional amounts payable, principally to former owners, of $0.1
million) to acquire five solid waste businesses, which were accounted for as
purchases. In connection with these acquisitions, the Company recorded
additional interest-bearing indebtedness of $0.2 million and other liabilities
of $0.4 million. 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 $22.5 million
(including additional amounts payable, principally to former owners, of $1.2
million) to acquire 22 solid waste businesses, which were accounted for as
purchases. In connection with these acquisitions, the Company recorded
additional interest-bearing indebtedness of $2.5 million and other liabilities
of $4.8 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 1998 and 1997 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.
10
<PAGE> 11
(5) Long-Term Debt -
Long-term debt at December 31, 1997, and September 30, 1997, was as follows
(in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---------- ----------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,160
and $1,218 $ 155,529 $ 155,471
6.375% Senior Notes, net of
unamortized discount of $1,470
and $1,507 159,730 159,693
7 7/8% Senior Notes, net of
unamortized discount of $188
and $195 69,313 69,306
7.40% Debentures, net of
unamortized discount of
$1,755 and $1,767 358,245 358,233
9 1/4% Debentures 99,500 99,500
Solid waste revenue bond
obligations 219,992 219,974
Other notes payable 468,740 505,674
---------- ----------
1,531,049 1,567,851
Commercial paper and short-term
facilities to be refinanced 896,893 259,047
---------- ----------
Total long-term debt 2,427,942 1,826,898
Less current portion 127,019 151,736
---------- ----------
Long-term debt, net of current
portion $2,300,923 $1,675,162
========== ==========
</TABLE>
During December 1997, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement to reduce the total commitment
to $500,000,000 and to extend the termination date. 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 1998. The agreement contains a net worth requirement consistent with
the Company's $1 billion revolving credit agreement.
11
<PAGE> 12
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 December 31, 1997 and September 30, 1997 is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
<S> <C> <C>
United States -
Commercial paper $642,343 $ --
Germany 254,550 259,047
-------- --------
$896,893 $259,047
======== ========
</TABLE>
As of December 31, 1997, distributions from retained earnings could not
exceed $534 million under the most restrictive of the Company's net worth
maintenance requirements.
(6) Common Stock Repurchase Program -
As previously announced, in October 1997, the Company repurchased 15
million shares of its outstanding common stock at a price of $39 per share under
the terms of a Dutch auction tender offer. This purchase of approximately $585
million of common stock was the first phase of the Company's two-part program to
buy back $1 billion of its common stock. The second phase of this program,
approximately $415 million in open market purchases and privately negotiated
transactions of common stock or automatic common exchange security units, is
expected to be completed by September 30, 1998. Through December 31, 1997, the
Company had repurchased approximately 17 million shares of its common stock
under both phases of this program.
(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.
12
<PAGE> 13
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 (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.
13
<PAGE> 14
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, 1997 ("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: Assistant
Corporate Secretary.
RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1997, was $85.2 million
($.45 per share), before special credits and the cumulative effect of a change
in accounting principle, an increase of 18.6% from the first quarter of the
prior year, on consolidated revenues of $1.345 billion. The first quarter 1998
results reflect pre-tax special credits of $2.6 million (a $1.5 million gain
after tax) and an after-tax charge of $13.8 million ($.07 per share) related to
the cumulative effect of a change in accounting principle. After special credits
and the effect of the accounting change, net income for the first three months
of fiscal 1998 was $73.0 million ($.38 per share). Earnings per share for the
three months ended December 31, 1997 was affected favorably by the Company's
common stock repurchase program, which resulted in reduced weighted average
shares outstanding in the current quarter. These results compare with net income
for the first three months of the prior fiscal year of $71.9 million ($.36 per
share on a restated basis) on consolidated revenues of $1.495 billion.
In November 1997, the Financial Accounting Standards Board's Emerging
Issues Task Force issued a consensus ruling requiring that business process
reengineering costs incurred by companies be expensed as incurred and that
previously capitalized costs be written off as a cumulative effect of a change
in accounting principle in the quarter containing November 20, 1997. The Company
was required to write off previously capitalized costs of this nature of
approximately $21 million (before tax) as a result of this ruling.
14
<PAGE> 15
Fiscal 1998 first quarter results compared with the same period of last
year, before special charges and cumulative effect of change in accounting
principle, were favorably affected by improved operating profit in the Company's
North American operations, which resulted principally from actions taken in
fiscal 1997 to (1) reduce SG&A staffing levels and operating costs in the
Company's collection and recycling businesses, (2) divest underperforming
operations and assets and (3) improve customer pricing. Similar actions taken in
the Company's international operations are beginning to impact favorably the
Company's international operating results. However, a decline in earnings of the
Company's international operations was experienced in the first quarter of
fiscal 1998 as compared with the same period of the prior year.
In November 1997, the Company announced the signing of an agreement to
merge its operations outside North America with SITA, a Paris-based subsidiary
of Suez Lyonnaise des Eaux. Under the terms of the agreement, the Company will
receive cash totaling U.S. $1 billion and ordinary shares of SITA stock that
will result in approximately a 20 percent ownership in the company. Upon
completion of the transaction, Suez Lyonnaise des Eaux will own more than 50
percent of SITA. The transaction has been approved by the boards of the Company
and SITA, and is subject to satisfactory completion of due diligence, approval
by regulatory authorities and authorization by SITA's shareholders of the
issuance of additional ordinary shares. The Company is continuing to work
through due diligence issues with SITA and both companies are working toward a
transaction completion by March 31, 1998. SITA is a leading industrial waste
services company, which provides collection, recycling, waste-to-energy and
disposal services related to residential, commercial, industrial and medical
waste. As a result of this transaction, SITA will be an industry leader in
France, the United Kingdom, the Netherlands, Germany, Spain and Brazil.
The following profitability ratios (shown as a percent of revenues) reflect
certain profitability trends for the Company's operations. Also presented below
are return on asset information and ratios of earnings to fixed charges.
15
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended
------------------ Year Ended
12/31/97 12/31/96 9/30/97
-------- -------- -------
<S> <C> <C> <C>
Profitability Margins:
Gross profit 27.0% 25.7% 25.8%
Income from operations before
special charges/credits 12.8% 11.0% 11.8%
Income from operations 13.0% 11.0% 10.4%
Income before income taxes,
minority interest, extraordinary
items and cumulative effect of
change in accounting principle 11.1% 8.4% 8.6%
Net income before special
charges/credits, extraordinary
items and cumulative effect of
change in accounting principle (1) 6.3% 4.8% 5.8%
Net income (1) 5.4% 4.8% 4.6%
Other Financial Information:
Return on Gross Assets 3.11% 2.76% 11.9%
Ratio of earnings to fixed
charges before special
charges/credits (1) 3.52 2.81 3.31
Ratio of earnings to fixed
charges (1) 3.58 2.81 2.98
</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.)
Improvement was reflected in all of the profitability margins presented
above for the three months ended December 31, 1997 compared with the same period
of the prior year. Profitability margins in the first quarter were affected
favorably by the divestiture of underperforming operations and assets, which
occurred principally in the latter half of fiscal 1997. Improvement in the North
American income from operations margin was noted in each of the Company's core
businesses. Reduced SG&A expenses as a percentage of revenues also affected
favorably the North American income from operations margin. However, the
improvement in profitability margins was offset somewhat in the current quarter
by the loss incurred at the Company's wholly-owned waste-to-energy facility in
Chester, Pennsylvania (acquired in April 1997). This loss was attributable
principally to planned and unplanned outages at the facility and additional
compensation expense recorded
16
<PAGE> 17
during the quarter. The weighted average market prices for recycling commodities
in North America, principally corrugated, office paper and newspaper increased
to approximately $74 per ton in the first three months of the current year from
approximately $60 per ton in the comparable period last year. In the Company's
international operations, the gross profit margin and the income from operations
margins declined in the current year compared with the same period of the prior
year.
The Company's goals and actions in fiscal 1998 continue to align the
Company's performance with its stockholders' interests. In addition, incentive
compensation plans continue to link employees to common goals and reward them
only as stockholders and customers benefit from improved performance by the
Company. The fiscal 1998 milestones for both the total Company and its North
American operations compared with actual performance for the first three months
of fiscal year 1998 is as follows:
<TABLE>
<CAPTION>
Total Company North America
------------------------ -----------------------
Fiscal First Fiscal First
1998 Quarter of 1998 Quarter of
Milestone Fiscal 1998 Milestone Fiscal 1998
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
SG&A as a percent
of revenues 13.5% 14.2% 13.5% 14.3%
Operating profit
margin 13.8% 12.8% 15.0% 14.1%
Revenue growth (1) -
Internal 3.5% (0.4)% 4.0% (0.7)%
Acquisitions 1.0% 1.5% 1.0% 1.5%
----- ----- ----- -----
Total 4.5% 1.1% 5.0% 0.8%
ROGA 13.3% 3.1% 14.7% 3.5%
</TABLE>
(1) Revenue growth from price, volume and acquisitions, excluding the effects
of divestitures and foreign currency exchange.
Since the Company's first quarter performance was disappointing, falling
short of fiscal 1998 milestones, the achievement of these milestones in fiscal
1998 has become even more challenging. Generating profitable internal growth
while maintaining tight cost control during the remainder of the fiscal year
will be essential to accomplishing these milestones.
17
<PAGE> 18
The fiscal year milestones for SG&A as a percent of revenues are very
aggressive considering the increased costs related to staffing for
implementation of the Company's new SAP software system and the continued
support of certain existing systems not yet replaced. The Company began to
experience these costs in the first three months of fiscal 1998. These costs
will increase approximately $20 million over the remainder of the year as the
new system is implemented and amortization commences. Additionally, the impact
of expensing reengineering costs over the remainder of the year, offset
partially by lower costs being amortized as a result of the charge associated
with the change in accounting principle, is expected to increase SG&A expense by
an additional $3-$4 million. The ability to achieve this milestone is also
closely linked to achievement of the Company's revenue growth milestones.
The Company's goals and objectives continue to emphasize 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 measurement utilized by the Company which
represents 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 items
and cumulative effect of a change in accounting principle, (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 years 1996 and 1997).
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 $96 million at both December 31,
and September 30, 1997) 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 $432 million at December 31, 1997) and (iii) deferred income
tax liabilities.
Gross assets in the ROGA computations for the first three months of a
fiscal year is the average of the applicable beginning of year and end of first
quarter amounts; gross assets for a fiscal year is the average of the applicable
five quarter-end amounts in the period.
Total assets decreased slightly from $6.68 billion at September 30, 1997 to
$6.49 billion at December 31, 1997. Average gross assets of approximately $7.69
billion in the computation of ROGA resulted from a
18
<PAGE> 19
slight increase in gross assets at December 31, 1997, compared with September
30, 1997 ($7.68 billion).
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges or credits) was $302
million for the first three months of fiscal 1998 as compared with $311 million
for the first three months of last year. The current year decline in EBITDA is
principally attributable to the divestiture of business operations by the
Company during fiscal 1997. 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 three months ended December 31, 1997, were $1.34 billion,
a 10.1% decrease from 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):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------- %
12/31/97 12/31/96 Change
----------- ----------- ------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $ 683,249 $ 743,006 (8.0)%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 130,383 145,228 (10.2)%
Affiliated companies 130,252 131,726 (1.1)%
----------- -----------
260,635 276,954 (5.9)%
Recycling Services 124,213 133,597 (7.0)%
Medical Waste Services 49,148 49,927 (1.6)%
Services Group and Other 30,687 21,884 40.2 %
Elimination of affiliated
companies' revenues (130,252) (131,726) 1.1 %
----------- -----------
Total North American Operations 1,017,680 1,093,642 (6.9)%
International Operations 327,062 401,495 (18.5)%
----------- -----------
Total Company $ 1,344,742 $ 1,495,137 (10.1)%
=========== ===========
</TABLE>
19
<PAGE> 20
As the table below reflects, lower revenues for the three months ended
December 31, 1997, were due principally to the decline related to the
divestiture of business operations and foreign currency exchange.
<TABLE>
<CAPTION>
Changes in Revenue for
Three Months Ended
December 31,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Price 0.8% 1.2%
Volume (1.2) 0.9
Acquisitions 1.5 3.4
Divestitures (8.0) --
Foreign currency translation (3.2) (1.0)
----- ----
Total Percentage Change (10.1)% 4.5%
===== ====
</TABLE>
As shown above, the divestiture of business operations, principally in the
latter half of fiscal 1997, resulted in a significant reduction in revenues for
the first three months of fiscal 1998 compared with the same period of last
year. Foreign currency translation also resulted in reduced revenues in the
current quarter as the U.S. dollar strengthened against local currencies in the
Company's international operations, principally in Germany, the Netherlands and
Spain. Further, the Company experienced a decline in revenues due to volume
between these two periods due largely to the loss of (1) certain municipal
contracts put out to bid that were not reawarded to the Company and (2) certain
small container work for schools, post offices, city-controlled apartment
projects and other government-owned buildings. These revenue declines were
offset partially by increases in revenues due to pricing, principally in the
North American collection and recycling operations, and due to acquisitions.
In order to achieve greater revenue growth in the future, the Company plans
to deploy additional outside sales personnel in its customer segments as deemed
appropriate, particularly in the inside direct sales segment where it has been
determined that outside sales personnel are needed in order to acquire
additional new business. The Company also plans to implement more aggressive
price increases in its less competitive segments and marketplaces and to more
competitively price business in general business and small container government
contract work to maintain route density. The Company will continue to
20
<PAGE> 21
exercise pricing discipline on municipal contracts and, as a result, may
continue to lose more of this work than contemplated. Lastly, the Company is
aggressively pursuing additional third party volumes via reciprocal waste
disposal agreements with other companies.
Cost of Operations -
The following table reflects the portion of cost of operations associated
with depreciation and amortization expense for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------
Revenue Revenue
1997 % 1996 %
-------- ------- ---------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Cost of operations, excluding
depreciation and amortization
expense $873,431 65.0% $ 989,416 66.2%
Depreciation and amortization
expense 107,928 8.0% 121,882 8.1%
-------- ---- ---------- ----
Total $981,359 73.0% $1,111,298 74.3%
======== ==== ========== ====
</TABLE>
Cost of operations decreased $130 million or 11.7% for the first three
months of fiscal 1998, compared with the same period of the prior year. Most of
the decrease in cost of operations is attributable to the impact of divestitures
of certain business operations and assets and the operating cost reduction
program begun in fiscal 1997. As a result of this cost reduction program, the
Company has reduced its operating headcount through the re-routing of trucks,
consolidations and closures of operating facilities and, where appropriate,
after careful review, a reduction in supervisory personnel.
Selling, General and Administrative Expense -
The following table reflects the portion of SG&A expense associated with
depreciation and amortization expense for the periods presented:
21
<PAGE> 22
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------
Revenue Revenue
1997 % 1996 %
-------- ------- ---------- -------
<S> <C> <C> <C> <C>
(Dollar amounts in thousands)
SG&A, excluding depreciation and
amortization expense $169,255 12.6% $194,818 13.0%
Depreciation and amortization
expense 21,364 1.6% 25,219 1.7%
-------- ---- -------- ----
Total $190,619 14.2% $220,037 14.7%
======== ==== ======== ====
</TABLE>
SG&A expense decreased $29 million for the first three months of fiscal
1998, a decrease of 13.4% from the same period last year. The decrease in SG&A
was driven largely by the reduction in employees worldwide and other cost
reduction actions to improve operating and administrative efficiency begun in
fiscal 1997. This decrease was offset partially by higher costs related to
staffing for implementation of the Company's new SAP software system and the
continued support of certain existing systems not yet replaced, which the
Company began to experience in the first three months of fiscal 1998.
Special Credits, net -
Pre-tax special credits of $2.6 million were reported in the first quarter
of fiscal 1998. The special credits were attributable principally to net gains
associated with the divestiture of certain North American operations in the
first three months of fiscal 1998.
Net Interest Expense -
Net interest expense decreased $9.6 million or 21.3% for the first three
months of fiscal 1998 compared with the same period of the prior year as a
result of the decrease in average debt outstanding between the periods. The
decrease was driven principally by the $999.8 million reduction in debt during
fiscal 1997, largely as a result of cash proceeds from businesses divested,
increased cash flow from improved operating performance and the limitation on
capital spending in fiscal 1997 and during the first quarter of fiscal 1998. The
reduction in net interest expense was offset partially by increased interest
expense from additional borrowings associated with the Company's common stock
repurchase program commenced in the first quarter of fiscal 1998, under which
the Company had acquired approximately 17 million shares through December 31,
1997.
22
<PAGE> 23
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased $2.4 million
between the periods primarily due to improved earnings from the Company's North
American waste-to-energy and, to a lesser extent, Hong Kong equity affiliates.
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
was not significant, $0.8 million for the first three months of fiscal 1998
compared with the same period of last year.
Cumulative Effect of Change in Accounting Principle -
On November 20, 1997, the FASB's Emerging Issues Task Force issued EITF No.
97-13, a consensus ruling requiring that certain business process reeingineering
costs typically capitalized by companies be expensed as incurred. The ruling
further required that previously capitalized costs of this nature be written off
as a cumulative effect of a change in accounting principle in the quarter
containing November 20, 1997. The Company had previously capitalized these types
of costs in connection with its current SAP software implementation project. As
a result, the Company recorded an after-tax charge of $13,763,000 or $.07 per
share in the first quarter of fiscal 1998 as the cumulative effect of a change
in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $189.9 million at September 30,
1997, compared with a deficit of $72.2 million at December 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.
23
<PAGE> 24
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.
As previously announced, in October 1997, the Company repurchased 15
million shares of its outstanding common stock at a price of $39 per share under
the terms of a Dutch auction tender offer. This purchase of approximately $585
million of common stock was the first phase of the Company's two-part program to
buy back $1 billion of its common stock. The second phase of this program,
approximately $415 million in open market purchases and privately negotiated
transactions of common stock or automatic common exchange security units, is
expected to be completed by September 30, 1998. Through December 31, 1997, the
Company had repurchased approximately 17 million shares of its common stock
under both phases of this program.
During December 1997, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement to reduce the total commitment
to $500,000,000 and to extend the termination date. 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 1998. The agreement contains a net worth requirement consistent with
the Company's $1 billion revolving credit agreement.
Long-term indebtedness including the current portion of long-term
debt(including $456.2 million of Otto Waste Services debt, which has not been
guaranteed by the Company) as a percentage of total capitalization was 54% as of
December 31, 1997, up from 41% at September 30, 1997. The ratio would have been
45% at December 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 1998 was established at $550
million to provide for normal replacement requirements, new assets to support
planned revenue growth within all consolidated businesses and corporate market
development activities. This is a slight increase from the $527 million level of
capital expenditures in fiscal 1997 and is reflective of the continued emphasis
on internal rather than external growth. Capital expenditures through December
31, 1997 were approximately $113 million.
24
<PAGE> 25
As previously discussed, in November 1997, the Company announced the
signing of an agreement to merge its operations outside North America with SITA,
a subsidiary of Suez Lyonnaise des Eaux. Under the terms of the agreement, the
Company will receive cash totaling U.S. $1 billion and shares of SITA stock that
will result in approximately a 20 percent ownership in SITA. The transaction is
subject to satisfactory completion of due diligence, approval by regulatory
authorities and authorization by SITA's shareholders of the issuance of
additional ordinary shares. The Company is continuing to work through due
diligence issues with SITA and both companies are working toward a transaction
completion by March 31, 1998. The Company intends to use the proceeds from the
transaction to continue its Board-approved financial strategy to pay down debt
and buy back equity. Additionally, the Company will accelerate a prudent,
returns-driven, external growth strategy as a result of this transaction and the
recent streamlining of North American operations.
As of December 31, 1997, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1997, and there have been no
material changes in the Company's financial condition from that reported at
September 30, 1997, except as disclosed herein.
25
<PAGE> 26
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in BFI's Annual Report on Form 10-K for the year ended
September 30, 1997 and other filings, on March 9, 1991, a subsidiary of the
Company, CECOS International, Inc. ("CECOS") was named in a civil administrative
complaint, entitled In the Matter of CECOS International, Inc., initiated by
Region II of the EPA. This complaint alleged that CECOS landfilled certain waste
generated by General Motors Corporation that by definition contained
polychlorinated biphenyls in excess of the regulatory limit, rather than
incinerating such waste, and that CECOS failed to test the waste in accordance
with the requirements of its permits. The original complaint sought monetary
sanctions against CECOS in the amount of $14,150,000. In September 1996, the EPA
withdrew certain of its allegations resulting in a reduction in the monetary
sanctions sought to $2,975,000. On January 21, 1998, the Company agreed to pay
$312,000 in full settlement of the alleged violations.
On January 23, 1998, the Company and a subsidiary were notified by the U.S
Department of Justice that they are targets of a federal grand jury
investigation regarding possible violations of the Clean Water Act with respect
to a BFI medical waste facility located in the District of Columbia. The Company
does not believe that it or its subsidiary violated the Act and intends to
vigorously contest this matter. Management of the Company is unable to determine
whether the ultimate monetary sanction, if any, will be more than $100,000.
In addition to the above described litigation, 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.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amended and Restated Partnership Agreement, dated as of December 5,
1997 by and between Duke/UAE Ref-Fuel Management LLC, BFI Ref-Fuel,
Inc. and Air Products Ref-Fuel, Inc.
10.2 Amended and Restated Parent Agreement relating to American Ref-Fuel
Company, dated as of December 5, 1997, among Duke Capital Corporation,
United American Energy Corp., Duke/UAE Ref-Fuel LLC and BFI.
10.3 First Amendment to Amended and Restated Multicurrency Revolving Credit
Agreement and Amendment to Notes dated as of December 26, 1997, among
BFI, the banks and other financial institutions listed therein and
Credit Suisse First Boston, as administrative agent.
10.4 BFI Deferred Compensation 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
27
<PAGE> 28
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: February 12, 1998
28
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
------- -----------
<S> <C>
10.1 Amended and Restated Partnership Agreement, dated as of December 5,
1997 by and between Duke/UAE Ref-Fuel Management LLC, BFI Ref-Fuel,
Inc. and Air Products Ref-Fuel, Inc.
10.2 Amended and Restated Parent Agreement relating to American Ref-Fuel
Company, dated as of December 5, 1997, among Duke Capital Corporation,
United American Energy Corp., Duke/UAE Ref-Fuel LLC and BFI.
10.3 First Amendment to Amended and Restated Multicurrency Revolving Credit
Agreement and Amendment to Notes dated as of December 26, 1997, among
BFI, the banks and other financial institutions listed therein and
Credit Suisse First Boston, as administrative agent.
10.4 BFI Deferred Compensation 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 10.1
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
AMERICAN REF-FUEL COMPANY
Dated as of December 5, 1997
<PAGE> 2
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
AMERICAN REF-FUEL COMPANY
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT (this "Agreement") is
entered into as of December 5, 1997 by and between Duke/UAE Ref-Fuel Management
LLC, a limited liability company organized and operating under the laws of the
State of Delaware ("Duke/UAE Sub"), BFI Ref-Fuel, Inc., a corporation organized
and operating under the laws of the State of Delaware ("BFI Sub") and Air
Products Ref-Fuel, Inc., a corporation organized and operating under the laws
of the State of Delaware ("AP Sub"). Duke/UAE Sub, BFI Sub and AP Sub are at
times referred to collectively as the "Partners" and individually as a
"Partner," and AP Sub is sometimes referred to as the "Special Partner."
WHEREAS, AP Sub and BFI Sub are parties to an Amended and Restated
Partnership Agreement, dated as of January 25, 1991 (the "Original Agreement");
WHEREAS, Duke/UAE Sub has purchased a 49.9% general partnership interest
in the Partnership from AP Sub, and AP Sub has retained the Base Interest (as
hereinafter defined);
<PAGE> 3
WHEREAS, Duke/UAE Sub has been granted an option by AP Sub to purchase AP
Sub's 0.1% general partnership interest in the partnership; and
WHEREAS, the Partners now desire to amend and restate the Original
Agreement in its entirety as of the date hereof.
NOW, THEREFORE, the Partners hereby agree as follows, which agreement
shall constitute the entire Amended and Restated Partnership Agreement (the
"Agreement").
ARTICLE 1
THE PARTNERSHIP
Section 1.1 Certain Definitions. In addition to terms otherwise
defined herein, the terms set forth below shall have the following meanings:
"Act" shall mean the Uniform Partnership Act of the State of Delaware.
"Affiliate" shall mean, (i) with respect to BFI-Sub, BFI and any Person
controlling, controlled by or under common control with BFI-Sub or BFI, (ii)
with respect to Duke/UAE Sub, Duke/UAE, Duke Capital and UAE and any Person
controlling, controlled by or under common control with Duke/UAE, Duke Capital,
UAE or Duke/UAE Sub, (iii)
2
<PAGE> 4
with respect to AP Sub, APCI and any Person controlling, controlled by or under
common control with AP Sub or APCI, and (iv) with respect to any other Person,
any Person controlling, controlled by or under common control with such Person.
For the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or partnership,
membership or other ownership interests or by contract or otherwise. For the
avoidance of doubt, it is acknowledged and agreed that ownership of 50% of the
outstanding voting securities or other equity interests of an entity in which
an unrelated third party owns an equal interest shall be deemed not to
constitute control of that entity and that therefore such entity shall not be
considered an Affiliate of either party owning such securities or other equity
interests.
"AP Sub" shall mean Air Products Ref-Fuel, Inc., a Delaware
corporation.
"APCI" shall mean Air Products and Chemicals, Inc., a Delaware
corporation, the ultimate parent company of AP Sub.
"Appropriate Committee" shall mean the Management Committee, or, if
acting within the scope of its authority pursuant to Section 3.1, the Executive
Committee or any committee appointed by the Management Committee pursuant to
Section 3.1(h).
3
<PAGE> 5
"Base Interest" shall mean the interest of AP Sub as a partner in the
Partnership entitling the owner of such interest to 0.1% of the profit, loss
and capital of the Partnership.
"Base Interest Option Agreement" shall mean the option agreement with
respect to the Base Interest, dated as of the date hereof between Duke/UAE Sub
and AP Sub.
"BFI" shall mean Browning-Ferris Industries, Inc., a Delaware
corporation, the ultimate parent company of BFI Sub.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Compensation Committee" shall have the meaning and functions
established in Section 3.1.
"Competing Technology" shall mean a system for burning refuse,
consisting of a refuse burning device and an integral heat recovery device for
the recovery of energy, other than such a system employing Proprietary
Equipment.
"DBA" shall mean Deutsche Babcock Anlagen GmbH, a corporation of the
Federal Republic of Germany, and its successors and assigns.
4
<PAGE> 6
"DBA License" shall mean the World Wide Cooperation and Limited License
Agreement, dated effective as of January 1, 1996. The term "DBA License" shall
also include any amendment, renewal, successor or replacement thereof between
DBA and the Partnership.
"Development Project" shall mean any Project that, at the time in
question, is not in the Operations stage and is designated as a "Development
Project" by the Management Committee.
"Duke Capital" shall mean Duke Capital Corporation, a Delaware
corporation.
"Duke/UAE" shall mean Duke/UAE Ref-Fuel LLC, a limited liability
company organized under the laws of the State of Delaware.
"Executive Committee" shall have the meaning and functions established
in Section 3.1.
"Implement" or "Implementation" shall mean the process by which and the
time period during which a Project is either (a) designed, constructed and
passes an acceptance test established for the Project or (b) is identified as
an acquisition opportunity, evaluated and acquired, all in accord with the
obligations of and as further defined in the contracts for the Project.
5
<PAGE> 7
"Intellectual Property" shall mean all rights, property and
information of DBA to which the Partnership has access under the DBA License,
and all patents, trademarks and copyrights, and applications therefor and
registrations thereof, trade names, trade secrets and proprietary technology or
information owned or used by the Partnership.
"Interest Rate" shall have the meaning given to that term in Section
7.4(a).
"Licensed Plant" shall mean a waste incineration plant employing the
Proprietary Equipment.
"Liquidating Trustee" shall have the meaning given to that term in
Section 11.2(a).
"Management Committee" shall have the meaning and functions established
in Section 3.1.
"Municipal Solid Waste" shall mean solid waste of the type generally
collected as refuse from residential and commercial properties by
municipalities, including durable goods, containers, packaging, food waste,
yard waste and miscellaneous inorganic waste, but excluding industrial waste,
agricultural waste, sewage sludge, tires and all categories of hazardous waste,
including batteries and medical waste.
6
<PAGE> 8
"Operate" or "Operations" shall refer to the period commencing after a
Project is Implemented during which the Project is operated and maintained in
accordance with the applicable contractual obligations, if any.
"Other Waste Incineration Plants" shall mean facilities that employ
Competing Technology.
"Parent", as to BFI Sub, shall mean BFI, and, as to Duke/UAE Sub, shall
mean Duke/UAE.
"Parent Agreement" shall mean the Parent Agreement with respect to the
Partnership by and among Duke Capital, UAE, Duke/UAE and BFI dated as of the
same date as this Agreement, as that agreement may be amended from time to
time.
"Partnership" shall mean the partnership confirmed by this Agreement.
"Person" shall mean an individual, partnership, corporation (including
a business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or any other legal entity.
"Project" is a term used generically in this Agreement and shall mean a
plant, located within the Territory, that burns Municipal Solid Waste and
generates energy and includes the entire process by which a Licensed Plant or
Other Waste Incineration Plant is
7
<PAGE> 9
Implemented and Operated, and includes all phases of a particular Project
commencing with the identification of the opportunity for the Project and
continuing through the stage of Operation.
"Project Agreements" shall mean the agreements that are entered into to
Implement and Operate a Project or for the undertaking or pursuit of an
opportunity for a Project.
"Project Company" shall have the meaning given to that term in Section
1.6(b).
"Project Subsidiary" shall mean a corporation organized by an Affiliate
of a Partner formed for the sole purpose of being a partner, stockholder or
other equity participant in a Project Company.
"Proposal" shall mean the process of developing and submitting either a
definitive or general special written technical and/or pricing proposal
relative to a particular Project. A Proposal may either be a technical
proposal or a definitive pricing proposal (or both) submitted without
invitation from a client or in response to a request for proposals or bid from
a client and may, if necessary, be submitted with a Proposal bond.
"Proprietary Equipment" shall mean the Incineration System and Boiler
System as more fully described in Item 2 of Appendix I to the DBA License.
8
<PAGE> 10
"Reasonable business efforts" shall mean those efforts that would be
expended by a reasonably prudent businessman in the exercise of his business
judgment under the same or similar circumstances, provided that he, or the
enterprise by which he is employed, would not incur a financial loss (other
than time expended and incidental out-of- pocket expenditures which are
reimbursable pursuant to this Agreement) by reason of having expended or
expending such efforts.
"Special Partner" shall mean AP Sub, so long as it remains the owner of
the Base Interest.
"Territory" shall mean the United States of America, its territories
and possessions, and the Dominion of Canada, its territories and possessions.
"UAE" shall mean United American Energy Corp., a New York corporation.
Section 1.2 Continuation of Partnership. The Partners hereby
confirm the continuation of the Partnership as a general partnership under and
pursuant to the provisions of the Act, notwithstanding any addition or
withdrawal of a Partner on the date hereof or in accordance with the Base
Option Agreement. The amendment of this Section 1.2 shall be deemed for all
purposes to have been effected prior to the addition of Duke/UAE Sub as a
Partner on the date hereof.
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Section 1.3 Rights and Liabilities. The rights and liabilities
of the Partners shall be as provided in the Act except as otherwise expressly
provided herein.
Section 1.4 Partnership Name. The name of the Partnership shall
be American Ref-Fuel Company. All business of the Partnership shall be
conducted under such name and under such variations thereof as the Management
Committee deems necessary or appropriate to comply with the requirements of law
in any jurisdiction in which the Partnership may elect to do business.
Section 1.5 Principal Place of Business. The principal place of
business of the Partnership initially shall initially be located at 757 North
Eldridge at Memorial Drive, Houston, Texas 77079, but the Management Committee
may substitute or establish such other places of business for the Partnership
as it may, from time to time, deem necessary or appropriate.
Section 1.6 Business and Purposes of the Partnership.
(1) The Partnership is intended to have access to sufficient
professional staff and financial resources that will enable the Partnership to
prepare and submit definitive Proposals, and investigate opportunities, for
power generating plants fueled by Municipal Solid Waste.
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(2) The Partnership is also intended to evaluate various Proposals
that may be submitted for power generating plants fueled by Municipal Solid
Waste that would constitute Projects that Affiliates of the Partners, together
(through separate business organizations formed for the particular Projects,
herein a "Project Company") or in combination with other parties, can Implement
and that may be owned and/or Operated through other entities owned by
Affiliates of the Partners (and possibly others). The Partnership is intended
to develop Proposals (i) in response to requests from governmental entities or
other clients where sufficient profit opportunity exits, and (ii) in markets
that offer unique opportunity for private investment (particularly those areas
where Affiliates of BFI collect large quantities of refuse). Developmental
expenses for Projects shall be incurred by the Partnership on behalf of the
Project Companies to be formed for those Projects and shall be reimbursed by
those Project Companies after they have been formed.
(3) The Partners recognize, and are committed in principle to the
proposition, that preliminary planning, design and construction funds for
Projects initially selected for development by an Appropriate Committee, as
well as additional commitments of capital resources for the Projects to be
Implemented, if not otherwise available from the resources of the Partnership
or from third parties, will have to be provided by the Partners, It is
further contemplated that contractual relationships necessary for the Projects
to be Implemented will have to be negotiated with municipalities, energy users
and others. A current, definitive economic analysis of projected financial
results of each Project shall be reviewed by an Appropriate Committee during
the Proposal stage of that Project. The
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substance of all contemplated Proposals that cannot be withdrawn without a
material risk of liability shall be approved by an Appropriate Committee prior
to submission.
(4) The Partners also intend that Projects will be Implemented
(possibly with other participants or limited partners included) through the
formation of Project Companies. Agreements for the undertaking or pursuit of
particular Projects or opportunities for Projects may be entered into by
Affiliates of the Partners. The Partnership will have its own employees, and
will have access to the management and staff support personnel of Affiliates of
the Partners, in accordance with Section 3.3(a). The Partnership will furnish
professional staff and other personnel to Project Companies pursuant to General
Services Contracts. Forms of such Contracts have been approved by the
Partners, and will be used for each Project. Such forms may be modified only
with the approval of each Partner and an Appropriate Committee.
Section 1.7 Term. The Partnership shall continue in full force
and effect until December 31, 2087 unless earlier terminated or dissolved in
accordance with the provisions of this Agreement.
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Section 1.8 DBA License.
(1) Each Partner covenants and agrees with the other Partners and the
Partnership and for the benefit of DBA and the Partnership that such Partner
and its Affiliates having access to the Intellectual Property of DBA protected
by the DBA License shall be bound to the same obligations of confidentiality to
the Partnership and DBA as and to the same legal effect as the Partnership is
bound to such obligations pursuant to the DBA License. Each Partner shall
cause any of its Affiliates having access to the Intellectual Property of DBA
protected by the DBA License to similarly be bound to such obligations of
confidentiality. Each Partner agrees that any of the other Partners, the
Partnership or DBA may enforce directly against such Partner and its Affiliates
(subject to compliance with Section 12.3 and 12.4 of this Agreement), and
benefit from those remedies available for the breach of, those obligations of
confidentiality set forth in the DBA License with the same legal force and
effect as if such Partner and its Affiliates were an actual party to the DBA
License. The obligations under this Section 1.7 shall survive the dissolution
and termination of the Partnership, or the disposition by a Partner or its
Affiliates of any or all of its or their direct or indirect interests in the
Partnership or in a Partner. With respect to confidential information of the
Partners or their Affiliates, the Partners shall be bound by the provisions of
Section 1.8.
(2) Each Partner covenants to each other Partner and the Partnership
that such Partner and its Affiliates will not independently and intentionally
take any action that would obligate the Partnership to commit or omit to take
any act, or otherwise place the Partnership in a position, that would causes
the Partnership to be deemed to be in breach of the DBA License.
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Section 1.9 Confidentiality.
(1) The Partners expect that it will be necessary to receive and use
under this Agreement information considered proprietary and confidential by one
or more Partners or one or more of their Affiliates and further that such
information may, in fulfillment of the business purpose of the Partnership, be
disclosed to and used by the Partners or their Affiliates. The Partners agree
to comply with the provisions of Article VIII of the Parent Agreement with
respect to such information as if each Partner were an Affiliate of a Parent
thereunder.
(2) Dissolution of the Partnership shall not relieve a Partner of any
continuing obligations under Section 8.2 of the Parent Agreement, except as
provided in Section 8.3 of the Parent Agreement and Section 11.2(j) of this
Agreement.
(3) The obligations of each Partner and its Affiliates with respect to
Intellectual Property of DBA are as set forth in Sections 1.7(a) and 11.2(i),
(j) and (k) of this Agreement, which obligations may be enforced by either DBA,
the Partnership or any other Partner or its Affiliates.
(4) Each Partner represents and warrants that it and its Affiliates
have the right to make or to permit the disclosures contemplated by this
Agreement.
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ARTICLE 2
THE PARTNERS
Section 2.1 Partners. Duke/UAE Sub, BFI Sub and AP Sub shall be
the Partners of the Partnership. AP Sub shall be a Special Partner of the
Partnership. The Partners shall devote such time and attention to the business
of the Partnership as may be reasonably necessary to the conduct of such
business for the greatest advantage of the Partnership.
Section 2.2 Rights and Powers of the Partners.
(1) Subject to the Act and the further provisions of this Agreement,
the consent of the Partners other than the Special Partner shall be required to
exercise control, management and discretion and take all action in connection
with the business of the Partnership, except to the extent that powers and
authority have been delegated to Appropriate Committees, officers and agents in
accordance with this Agreement. The Special Partner shall have no power or
authority to bind the Partnership unless specific power and authority is
delegated by an Appropriate Committee pursuant to this Agreement.
(1) The Partnership shall take all actions necessary to ensure that
it complies with all laws and regulations applicable to the operation of its
business, and to ensure that it fulfills all of its contractual obligations
material to the continued operation of its business, it
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being agreed, however, that the Partners shall have no obligation to supply
funds or resources to the Partnership for such purposes, except as provided in
this Agreement.
(2) Notwithstanding Section 2.2(a), no person, firm or corporation
dealing with the Partnership shall be required to inquire into the authority of
a Partner (other than the Special Partner) or Partnership officer to take any
action or make any decision hereunder. As between the Partnership and any
person, firm or corporation lending money or extending credit to the
Partnership, it shall be conclusively presumed that the proceeds of such
indebtedness are to be and will be used exclusively for purposes authorized
under this Agreement.
(3) None of the Partners nor the Partnership shall be entitled to
recover from any other Partner or its Affiliates special or consequential
damages, or damages for anticipated future profits, loss of business
opportunities or other similar speculative damages for breach of any covenant
or undertaking of such parties set forth in this Agreement, and shall only be
entitled to seek reimbursement for the actual out-of-pocket costs and expenses
incurred by the non-breaching party as a direct result of the conduct of the
breaching party.
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(4) Except as provided in Section 2.2(f), each Partner shall
indemnify the other Partners and their Affiliates and the officers, directors
and employees of the such other Partners and their Affiliates to the extent of
the percentage interest of the indemnifying Partner set forth on Appendix A
hereto, for any costs, judgments, claims, liabilities, damages, losses,
penalties or expenses suffered by an indemnitee that (x) pertain to the
activities conducted pursuant to, or incidental to a Partner's obligations
under, this Agreement, or in connection with the defense of any action based on
such activities, including reasonable attorneys' fees and expenses of
investigation (which fees and expenses shall be paid as incurred), and (y) do
not result from claims or actions by the Partnership or any Partner against
another Partner or its Affiliates under Section 2.2(g) or (i); provided,
however, that where the indemnifiable amounts arise out of the actions of an
employee of a Partner or its Affiliate, such indemnity shall apply for the
benefit of that Partner, its Affiliates and the officers, directors or
employees of that Partner or its Affiliates only if such employee (x) at the
time of such actions, was being furnished to the Partnership pursuant to a
General Services Contract approved by an Appropriate Committee pursuant to
Section 3.3(a) and acting within the scope of his duties thereunder, or (y) was
acting on behalf of the Partnership with the prior knowledge and authorization
of an officer of the Partnership pursuant to Section 3.3(a); provided further
that such indemnity shall not apply for the benefit of an indemnitee unless
such indemnitee shall, in respect of the matter that gave rise to the indemnity
claim, have acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Partnership and with respect to any
criminal action or proceeding had no reasonable cause to believe such
indemnitee's conduct was unlawful. Employees of a Partner or its
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Affiliate who are not also employees of the Partnership shall act for or on
behalf of the Partnership only with the prior knowledge and authorization of an
officer of the Partnership.
(5) Paragraph (e) above shall not apply to matters that are the
subject of the indemnity provisions of Section 2.3. Paragraph (e) above also
shall not apply to activities that may be performed by Affiliates of BFI Sub in
connection with (i) the providing through contractual arrangements of solid
waste to a Project, (ii) the operating of, to the extent consistent with a
Project, any solid waste transfer station that may be established as part of or
for the benefit of the Project, and (iii) to the extent consistent with a
Project, the transportation and/or disposal through contractual arrangements of
ash, by-pass waste and other solid waste residue from the Project; and also
shall not apply to any other activities that may be performed by Affiliates of
any Partner through contractual arrangements with the Partnership except in
those instances where such activities are performed at cost, or otherwise at
substantially below the price that would be available from a third party in an
arm's length transaction on comparable terms and conditions, pursuant to
contracts that have been approved in advance by an Appropriate Committee.
(6) If the Partnership enters into an agreement, waiver, or
modification or amendment thereto with an Affiliate of a Partner, then the
terms and provisions of such agreement, waiver, modification or amendment shall
govern exclusively (except the predicate acts necessary for the Partnership to
assert any claim against an Affiliate of a Partner shall be governed
exclusively as provided in paragraph (h) below) all rights and
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obligations of the parties thereto and their respective Affiliates, including
any remedies at law or in equity which may be available to either party thereto
or its Affiliate pursuant to any statute, regulation or order of any court, or
in contract, in tort (including negligence) or otherwise, in connection with
the performance or failure of performance of the terms and provisions of such
agreement, waiver, modification or amendment.
(7) If a Partner (other than the Special Partner) (the "Claimant")
believes that the Partnership has a reasonable basis for a claim, whether or
not provided for in paragraph (g) above (the "Claim"), against any other
Partner (other than the Special Partner) or an Affiliate of such Partner, the
Claimant may, in the name and on behalf of the Partnership, assert and enforce
the Claim (subject to the provisions of Section 2.2(d)) including, without
limitation, the retention of attorneys and other consultants and advisors and
the institution and prosecution of litigation, without the approval of such
other Partner, provided the following conditions precedent are satisfied:
(1) The Claimant shall give such other Partner a written
notice (the "Notice") stating that the Claimant believes the Partnership has a
reasonable basis for the Claim, describing the Claim and relevant supporting
facts in reasonable detail and accompanied by an opinion of a law firm of
nationally recognized standing which does not provide general representation to
any Partner or any of its Affiliates on any regular basis, to the effect that
the Partnership has a reasonable legal and factual basis for the Claim. As to
the
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alleged factual basis for the Claim, such counsel may rely on affidavits of
persons having knowledge of facts relevant to the Claim.
(2) Thereafter, the Claimant shall, if requested by such
other Partner, negotiate in good faith with such other Partner or its
Affiliates in an effort to resolve their differences regarding the Claim. If
good faith negotiation does not resolve the Claim, then each such Partner
agrees to attempt to resolve the dispute giving rise to the Claim through a
mutually agreeable alternative dispute resolution technique before initiating
litigation. If such Partners are unable to agree on an alternative dispute
resolution technique within 45 days after either such Partner has requested the
use of alternative dispute resolution, or if, after completing an alternative
dispute resolution proceeding, either such Partner is unwilling to be bound by
the determination of such proceeding, then the Claimant may, within 60 days
after the expiration of such 45-day period or the completion of the alternative
dispute resolution proceeding, whichever is applicable, sue on the Claim on
behalf of the Partnership; provided, however, that at any time after any such
Partner has requested the use of alternative dispute resolution and before the
initiation of litigation, such Partner that is not the Claimant may require
that the Claim be submitted to binding arbitration pursuant to Section 9.2 of
the Parent Agreement. Subject to the foregoing, all decisions on behalf of the
Partnership regarding the Claim shall be made by the unanimous vote of the
Management Committee representatives of the Claimant and no approval of the
Management Committee representatives of such other Partner shall be required;
provided, however, that all such decisions shall be made in good faith on the
basis of the expected benefit to the Partnership.
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(8) If an Affiliate of a Partner (other than the Special Partner)
proposes to assert any claim against the Partnership, such claim shall be
subject to the provisions of Section 9.1 of the Parent Agreement, if and to the
extent that to do so would then be permitted by applicable agreements and legal
requirements. All decisions on behalf of the Partnership regarding such claim
shall be made by the unanimous vote of the Management Committee representatives
of the unaffiliated Partner other than the Special Partner and no approval of
the Management Committee representatives of the affiliated Partner shall be
required; provided however, that all such decisions shall be made in good faith
on the basis of the expected benefit to the Partnership.
(9) The provisions of Sections 2.2(d), (e), (f), (g) and (i) shall
survive the dissolution and termination of the Partnership and shall apply to
all judgments, claims or penalties that arise at any time from acts or
omissions that occurred prior to the termination of the Partnership. The
provisions of Section 2.2(h) shall not apply to any Claim (as defined in that
Section) initiated after the termination of the Partnership or after all
Partners have become Affiliates of the same Parent pursuant to the "Buy-Sell"
procedure of the Parent Agreement; provided, however, that the party against
which the Claim is asserted may require that the Claim be submitted to binding
arbitration pursuant to Section 9.2 of the Parent Agreement.
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Section 2.3 Indemnification of Committee Members, Officers and
Employees. Each person who is or was a member of a committee established
pursuant to Section 3.1, an officer or employee of the Partnership, or a
director, officer or employee of a Partner, shall, in accordance with this
Section 2.3 but not if prohibited by law, be indemnified and held harmless by
the Partnership from and against any and all costs, judgments, liabilities,
damages, losses, penalties or expenses arising from any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, in which he may be involved, as a party or otherwise, by reason
of his participation in the affairs of the Partnership or by his having been a
director, officer or employee of a Partner while such Partner was acting with
respect to the Partnership's affairs, whether or not he continues to be such at
the time any such liabilities or expenses are paid or incurred. No person
shall be entitled to indemnification hereunder if the claim or liability in
question arises from (i) such person not acting in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership, (ii) the gross negligence or willful malfeasance of such person,
(iii) with respect to any criminal action or proceeding, acts or omissions by
such person when he had reasonable cause to believe his conduct was unlawful,
(iv) the breach of this Agreement by a Partner, or (v) a matter unrelated to a
Partner's or such person's management of or participation in the Partnership's
affairs. The rights of indemnification provided in this Section 2.3 shall be
in addition to any rights to which any person may otherwise be entitled by
contract or as a matter of law and shall extend to his heirs, assigns and legal
representatives. Notwithstanding the foregoing, payments shall be made
pursuant to this Section 2.3 only to the extent that the indemnified person has
not been made whole by the proceeds of insurance maintained by the
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Partnership or a Project Company, or pursuant to an indemnity from a Project
Company. If after such payments have been made, the indemnified person
receives or becomes entitled to receive amounts in respect of the same matter
from an insurer or an indemnity from a Project Company, such person shall
promptly pay such amounts, or assign such entitlement, to the Partnership to
the extent necessary to reimburse the Partnership.
Section 2.4 Other Liabilities; Non-Competition.
(1) No Partner shall engage in any business or assume any liability
other than those provided for in or incidental to its obligations under this
Agreement, the Project Agreements or through the Partnership.
(2) The Partners recognize and agree that until the dissolution of
the Partnership, the Partners (other than the Special Partner) intend that the
Partnership and the Project Companies shall constitute the exclusive means for
each such Partner to Implement a Project. For this reason, the Partners hereby
agree that: (i) until after the dissolution of the Partnership, except as
provided in this Section 2.4(b) or in Section 2.4(c), no Affiliate of a Partner
(other than the Special Partner) shall have any Competing Interest in any
Project; (ii) should the appropriate committee representatives of a Partner
(other than the Special Partner) vote not to have the Partnership or a Project
Company Implement any Project (a "Declined Project"), the Affiliates of such
Partner may not pursue the Implementation of such Project independent of the
Partnership prior to the dissolution of the Partnership; provided that
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the Affiliates of the Partner voting to pursue the Implementation of such
Project may do so, so long as such Implementation does not materially and
adversely affect the Partnership, and in such event the Partnership will make
its personnel and other resources available, on commercially reasonable terms,
to assist the other Partner's Affiliates in such Implementation; and (iii) if
the Appropriate Committee representatives of all the Partners (other than the
Special Partner) vote not to pursue the Implementation of a particular Project,
the Affiliates of any Partner may become involved in such Project in another
capacity, e.g., BFI as a waste hauler and disposer to a site or Duke Capital as
a marketer of power or UAE as an operator. For the purposes of this Agreement,
"Competing Interest" shall mean providing any equity investment in, providing
financing to, or entering into a service contract having a term of more than
one year with, a Project that is not owned, in whole or in part, by a Project
Company.
(3) Notwithstanding any other provisions of this Agreement, (i) any
Affiliate of Duke/UAE may enter a contract having a term of more than one year
to provide (A) power marketing services (including the arranging for the
purchase, sale, transmission, marketing and trading of electrical energy and
capacity, whether by, on behalf of or for itself, its Affiliates or others),
(B) engineering services, or (C) other services, in each case to any operating
Project that is not owned, in whole or in part, by a Project Company
("Unaffiliated Project"), and (ii) any Affiliate of BFI may enter into a
contract having a term of more than one year to provide ash disposal, Municipal
Solid Waste or other services to any Unaffiliated Project; provided that
Duke/UAE or BFI, as the case may be, shall give written notice to the
Partnership within a reasonable time after any such Affiliate has determined to
negotiate or
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initiate negotiations for such a contract setting forth the name of such
Unaffiliated Project and the probable terms of such contract; and (iii)
Duke/UAE or BFI, as the case may be, and such Affiliate shall discuss such
contract in good faith with the Partnership, taking into account whether the
Unaffiliated Project is a reasonable acquisition opportunity for the
Partnership, the probability of similar terms from other service providers, and
such other factors as Duke/UAE or BFI and the Affiliate consider relevant. If
at any time after commencing such discussion Duke/UAE or BFI, as the case may
be, and its Affiliate determine that it is in the best interest of such
Affiliate to enter into such a contract, such Affiliate may do so. If the
Unaffiliated Project, in the reasonable judgment of the Chief Executive Officer
of the Partnership, is a competitor of the Partnership, the Affiliate of
Duke/UAE or BFI shall offer to the Partnership the same services, on the same
terms and conditions, proposed for the Unaffiliated Project, and the
Partnership shall have 90 days after delivery of notice of the proposed
services to the Partnership to accept such offer. If the proposed terms and
conditions of the services offered the Unaffiliated Projected are amended in
any material respect, Duke/UAE or BFI shall give notice to the Partnership
which shall have an additional ten days to consider whether to accept the
services, as amended.
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ARTICLE 3
MANAGEMENT
Section 3.1 Committees.
(1) The Partners will manage and coordinate the business and affairs
of the Partnership through a management committee (the "Management Committee")
and other committees described or provided for in this Article III.
(2) The Management Committee will consist of seven persons, three
appointed by each of Duke/UAE Sub and BFI Sub, each such person to have one
vote; the remaining member shall be the Chairman and Chief Executive Officer of
the Partnership but shall not have a vote. The voting members shall be persons
who are not officers or employees of the Partnership. Each voting member shall
serve until the Partner appointing him shall change its appointment, which it
may do at any time by written notice to the other Partner. The Management
Committee shall have control over the management of the business of the
Partnership, and shall be authorized to procure management services and engage
persons to provide other services in connection with the activities of the
Partnership. A unanimous vote of those votes cast at a meeting of the
Management Committee (a quorum, as defined in Section 3.1(c), being present)
will be required for Management Committee action, except as provided in Section
2.2(h), 2.2(i), 7.4(b) or 12.8.
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(3) The quorum for each meeting of the Management Committee shall be
two members including at least one member appointed by each of Duke/UAE Sub and
BFI Sub except that the presence of a person appointed by a Partner shall not
be required to authorize the taking of action against that Partner or its
Affiliates as provided in Section 2.2(h), 2.2(i), 7.4(b) or 12.8.
(4) The Management Committee shall annually elect officers of the
Partnership, consisting initially of a Chairman and Chief Executive Officer, a
President, one or more Vice Presidents, a Chief Financial Officer, a Chief
Legal Officer, a Secretary and such other officers as the Management Committee
shall from time to time deem appropriate. Any Partnership officer may be
removed by the Management Committee at any time with or without cause upon
delivery to such officer of a written notice of such removal. Any replacement
shall be elected by the Management Committee.
(5) The Partnership shall also have an Executive Committee consisting
of the Chairman and Chief Executive Officer and three other members of the
Management Committee appointed by the Management Committee, including an equal
number of representatives of each of Duke/UAE Sub and BFI Sub. The Chairman of
the Executive Committee shall be designated by the Management Committee and
may, but need not, be the Chairman and Chief Executive Officer. All members of
the Executive Committee shall have one vote, and a unanimous vote of all
members will be required for Executive Committee action. The Executive
Committee shall have and may exercise all of the powers and authority
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of the Management Committee in the management of the business and affairs of
the Partnership, but neither the Executive Committee nor any other committee
appointed by the Management Committee shall have such powers or authority in
reference to the following matters: (i) election or removal of Partnership
officers; (ii) determination of the compensation of officers of the
Partnership; (iii) approval or modification of the annual budget to be prepared
pursuant to Section 8.2(d); (iv) any assignment, amendment or termination of
the DBA License or the grant, amendment or termination of any sublicenses under
the DBA License; (v) pursuit or settlement of Claims against a Partner or its
Affiliates; (vi) the requirement of additional contributions pursuant to
Section 4.2, the return of contributions pursuant to Section 4.3, the making of
distributions pursuant to Article VII, or the matters that Article VIII states
are to be determined or approved by the Management Committee; or (vii) the
waiver of any conditions precedent required for a notice to proceed or similar
notice to be issued with respect to any Project. Matters on which the members
of the Executive Committee do not concur will be referred to the Management
Committee.
(6) The Partnership shall also have a Compensation Committee
consisting of three members of the Management Committee appointed by the
Management Committee, including at least one representative of each of Duke/UAE
Sub and BFI Sub, and none of whom shall be officers or employees of the
Partnership. The Compensation Committee shall have the exclusive power and
authority on behalf of the Partnership to determine the compensation of
officers of the Partnership and shall review at least annually (i) compensation
policies for all employees of the Partnership and Project Companies, (ii)
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reports prepared by or for the Partnership regarding the fringe benefit plans
provided by the Partnership and (iii) the funding levels of funded plans
maintained by the Partnership, and shall have such other powers and authority
as the Management Committee shall determine (subject to the limitations of
Section 3.1(e)). The quorum for each meeting of the Compensation Committee
shall be two members, including at least one representative of each Partner. A
majority of the votes cast at a meeting of the Compensation Committee, a quorum
being present, will be required for action by the Compensation Committee.
(7) The Partnership may also have such other committees as the
Management Committee may from time to time appoint, and which shall have such
powers and authority of the Management Committee as the Management Committee
shall determine (subject to the limitations of Section 3.1(e)). Each such
committee need not have an equal number of representatives of each of Duke/UAE
Sub and BFI Sub, and the members need not be members of the Management
Committee.
(8) It shall be policy of each committee to make decisions on the
basis of the benefit to the business of the Partnership rather than the
partisan interest of the respective Partners or their Affiliates. Any action
taken by a committee in accordance with this Agreement shall be binding on the
Partnership and the Partners and no further consent of the Partners shall be
required to authorize any such action.
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(9) Any committee shall meet in person or by telephone conference,
provided, in the case of a telephone conference, all participating members can
hear all other participating members and any action taken at a telephone
conference is promptly confirmed in writing. Such participation by telephone
shall constitute presence in person at the meeting. Minutes of the meetings of
each committee shall be taken, recorded and circulated to the members of the
committee and to the Legal Departments of Duke/UAE and BFI.
(10) Any action required or permitted to be taken at any meeting of a
committee may be taken without a meeting if all members of the committee
consent thereto in writing and the writing or writings are filed with the
minutes of the proceedings and meetings of the committee.
(11) Regular meetings of any committee shall be held at such times and
places as may be fixed by the committee, and may be held without further
notice. Special meetings may be called by any member. Notice of the time and
place of a special meeting shall be effective (i) if delivered to each member
by hand, telecopy, or telephone at least 24 hours prior to the time of the
special meeting, or (ii) if placed in the United States mail addressed to each
member with proper first-class postage prepaid, at least seven days prior to
the date of the special meeting. Actual receipt of notice by members shall not
be required and notice shall be deemed received if sent to a member at the
address or the telecopy number designated by the member for such notices or
communicated to the member or to a responsible
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person at the telephone number designated by the member for such notices.
Notices of special meetings shall identify the purpose of the meetings.
(12) Whenever notice is required to be given of a committee meeting, a
written waiver of notice, signed by the member entitled to notice, whether
before or after the meeting, shall be deemed equivalent to notice. A member's
attendance at a meeting shall constitute a waiver of notice of that meeting,
except when the member attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
(13) At least monthly, the Chairman of the Management Committee shall
report to members of the Management Committee any significant contracts or
arrangements that have been entered into between the Partnership or any Project
Company and a Parent or its Affiliate and have not been previously reviewed by
the Management Committee.
(14) At least quarterly, the Management Committee shall determine
which Projects are then deemed to be Development Projects.
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Section 3.2 Officers.
(1) The Chairman shall be the Chief Executive Officer of the
Partnership. Subject to this Agreement and the direction of the Management
Committee, he shall have primary responsibility for the overall business and
affairs of the Partnership including, without limitation, strategic planning,
general management and control of the activities contemplated by this Agreement
and the Project Agreements and for the communication of information to the
Appropriate Committees. In addition, he shall have such other duties as are
incidental to his office. He shall perform such other duties as may from time
to time be assigned to him, and shall have such other powers as may be
prescribed from time to time, by the Management Committee.
(2) The President shall perform such duties as may from time to time
be assigned to him by the Chairman or an Appropriate Committee and shall have
such other powers as may be prescribed from time to time by an Appropriate
Committee.
(1) The Secretary shall record all the proceedings of the meetings of
the committees in a book or books kept for that purpose; be custodian of the
records of the Partnership; and, in general, perform all duties incident to the
office of Secretary and have such other duties as may from time to time be
assigned to him by the Chairman or an Appropriate Committee and have such other
powers as may be prescribed from time to time by an Appropriate Committee.
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(2) Vice Presidents and any other officers of the Partnership
designated by the Management Committee shall perform such duties as from time
to time shall be assigned by the Chairman or an Appropriate Committee and have
such powers as may be prescribed from time to time by an Appropriate Committee.
(3) No officer or employee of the Partnership shall be authorized to
enter into or incur any material obligation or commitment on behalf of the
Partnership except pursuant to the limits of authority policy adopted by an
Appropriate Committee, as such policy may be amended from time to time.
(4) Officers of the Partnership shall report to such other officers
as determined from time to time by the Chairman.
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Section 3.3 Employees. Except for the officers elected by the
Management Committee, the Partnership shall have such employees as the Chairman
or his delegates shall from time to time deem appropriate, and the Chairman or
his delegates shall have authority to recruit, hire and discharge such
employees consistent with approved budgets. The Partners intend that the
Partnership will eventually be staffed wholly or primarily by its own
employees, but they recognize that during the early stages of the Partnership
it will be appropriate for the Partnership, to the extent practical, to avail
itself of the experience and incremental services available from the management
and staff support personnel of the Affiliates of the Partners. These persons
will be made available to the Partnership pursuant to a General Services
Contract. A form of this Contract has been approved by the Partners, and may
be modified only with the approval of each Partner (other than the Special
Partner) and an Appropriate Committee.
Section 3.4 Project Implementation.
(1) Recognizing that the Special Partner will not have any obligation
to contribute further capital to the Partnership, the Special Partner shall not
participate in any Project selected or Project Company formed after the date of
this Agreement. If a particular opportunity for such a Project shall be
selected for development by the Partnership, the Partners (other than the
Special Partner) shall, and shall cause their Affiliates to, negotiate in good
faith to develop such plans and agreements as are necessary to organize a
mutually acceptable form of Project Company for the ownership, Implementation
and Operation of that
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Project. Such agreement shall provide, among other things, for the Affiliate
of each Partner forming the Project Company to be represented ratably according
to its respective interests in the Project on the governing body of the Project
Company. The governing body or a committee thereof shall vote on all
substantial commitments. The normal day- to-day business of the Project
Company shall be managed by the officers elected by such governing body.
Affiliates of Duke/UAE Sub and BFI Sub will provide services to the Project
Company in accordance with Section 3.3 of this Agreement and Article VI of the
Parent Agreement.
(2) The Partners (other than the Special Partner) intend that the
Affiliates of a Partner other than the Special Partner shall have access to the
Intellectual Property, basic engineering services, and the required Proprietary
Equipment if an Affiliate of that Partner elects to pursue independently a
Project that the appropriate committee representatives of the other Partner
have caused the Partnership not to pursue. To effectuate such intent, if such
Partner's Affiliate desires to Implement such a Project the Partnership will
either provide what that Affiliate requires for such Project under the DBA
License, or will consent to DBA providing what that Affiliate requires for such
Project under the DBA License, and, if necessary, a Project specific license
directly to that Affiliate or the Project for purposes of Implementation of the
Project. The Partnership will also use its reasonable business efforts, if
requested by that Affiliate, to cause DBA to enter into the contractual
arrangements required for that particular Project to provide such items. As
used in the context of this Section 3.4(b), reasonable business efforts of the
Partnership shall mean efforts no less substantial than the Partnership would
have expended in the context of a Project in which both
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Duke/UAE Sub and BFI Sub or their Affiliates would participate. That Affiliate
shall reimburse the Partnership for its costs (including allocable salary and
overhead, plus expenses) incurred pursuant to this Section 3.4(b). If the
Partnership is not successful in such efforts, that Affiliate will be free to
negotiate an engineering, licensing and other arrangements directly with DBA on
terms acceptable to DBA. To the extent DBA agrees to indemnify the Project
Company under the DBA License for a particular Project or a subsequent
agreement relating to a particular Project, the Project Company shall indemnify
the Partnership in the Implementation of the Project and the Partners and their
Affiliates.
ARTICLE I
CAPITAL CONTRIBUTIONS
Section 3.5 Mandatory Contributions. The Partners shall be
required to contribute additional capital in proportion to their respective
ownership interests to the Partnership to enable the Partnership to meet its
obligations under any commitments properly authorized by an Appropriate
Committee which shall be entered into or undertaken in connection with
qualifying for a Proposal, preparing Proposals, evaluating and selecting the
Proposals to be negotiated and during such negotiations; provided, however,
that in no event shall the Special Partner be obligated to make contributions
of capital unless it consents to do so expressly and in writing. If both
Duke/UAE Sub and BFI Sub so agree, capital may be furnished in equal shares by
Duke/UAE Sub and BFI Sub (or their Parents or other Affiliates) in the form of
debt.
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Section 3.6 Additional Contributions. If the Management
Committee determines that the Partnership requires funds in excess of those
otherwise available to it, the Partners shall contribute additional capital in
proportion to their respective ownership interests; provided, however, that in
no event shall the Special Partner be obligated to make contributions of
capital unless it consents to do so expressly and in writing. If both Duke/UAE
Sub and BFI Sub so agree, capital may be furnished in equal shares by Duke/UAE
Sub and BFI Sub (or their Parents or other Affiliates) in the form of debt.
Section 3.7 Return of Capital Contributions. No Partner shall be
entitled to the return of its capital contribution except by way of
distribution of assets upon dissolution and liquidation of the Partnership
pursuant to the provisions of this Agreement or except as determined by the
Management Committee.
Section 3.8 Interest on Capital Contributions. No interest shall
be paid by the Partnership on or with respect to the capital contributions of
the Partners, except in respect of debt contemplated by Section 4.1 or as
expressly provided in Section 7.4 with respect to Partnership loans.
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ARTICLE II
COMPENSATION OF PARTNERS AND AFFILIATES
Section 3.9 Management Fee. No Partner shall receive any
management or other fee or salary for services rendered to the Partnership, or
reimbursement of any costs and expenses incurred in connection therewith except
as provided in Section 5.2.
Section 3.10 Reimbursement of Expenses; Service Contracts. Each
Partner (other than the Special Partner) shall be entitled to current
reimbursement out of Partnership assets for all reasonable costs and expenses
incurred by it when acting for or on behalf of the Partnership and in
accordance with the terms of this Agreement or the Project Agreements
specifically including, but not limited to, all salaries and related expenses
of employees of a Partner in performing authorized services for the Partnership
and all fees of third parties engaged as provided in this Agreement in
activities for or on behalf of the Partnership. Compensation and reimbursement
of expenses for services of employees of Affiliates shall be governed by the
applicable General Services Contract and must be authorized or approved by an
Appropriate Committee or by standing authorizations to appropriate officers.
The Special Partner and its Affiliates shall be entitled to reimbursement of
costs and expenses if and to the extent provided in any other agreement between
the Special Partner or its Affiliates and the Partnership.
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ARTICLE III
PROFITS AND LOSSES
Section 3.11 Allocations. Except to the extent the Partners agree
otherwise, all items of income, gain, loss, deduction and credit of the
Partnership shall be allocated among the Partners in accordance with the
percentages set forth on Appendix A hereto; provided, however, that the Special
Partner shall not receive any allocation of items of income, gain, loss,
deduction, or credit that are solely attributable to the Implementation of a
Project under Section 3.4(a) that is selected after the date of this Agreement,
and any such items shall be allocated equally between the BFI Sub and the
Duke/UAE Sub.
Section 3.12 Capital Accounts. A separate capital account shall
be maintained for each Partner. Each Partner's capital account shall consist
of the initial capital contribution, increased by additional capital
contributions and each Partner's share of Partnership profits, and decreased by
distributions and withdrawals and each Partner's share of Partnership losses.
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ARTICLE IV
DISTRIBUTIONS AND LOANS
Section 3.13 Distribution Ratio. To the extent that special
allocations are made to the BFI Sub and the Duke/UAE Sub pursuant to Section
6.1, distributions of cash and other Partnership assets attributable to such
items shall be made equally to BFI Sub and Duke/UAE Sub in priority to any
other distributions to the Partners. Following any such distributions, unless
otherwise provided herein, all cash and other Partnership assets to be
distributed under this Article VII or under Article XI shall be distributed to
the Partners in accordance with the percentages set forth on Schedule A
attached hereto.
Section 3.14 Time of Distributions. Subject to the provisions of
Section 7.4, the Partnership may make distributions from time to time as
approved by the Management Committee, and such distributions shall be made in
accordance with Section 7.1.
Section 3.15 Undistributed Assets. Except for interest on loans
pursuant to Sections 4.1, 4.2 or 7.4, no Partner shall be entitled to receive
any interest on undistributed cash or other property, nor shall any such cash
or property not withdrawn be deemed an increase in such Partner's share of the
capital of the Partnership, without the express written consent of both
Duke/UAE Sub and BFI Sub.
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Section 3.16 Partnership Loans.
(1) If any Partner, with the prior written consent of the other
Partners (other than the Special Partner), advances any funds or makes any
other payment to or on behalf of the Partnership not required pursuant to the
provisions hereof, such advance shall be deemed a loan to the Partnership by
such Partner, bearing interest from the date of such advance or payment was
made until such loan is repaid. The rate of interest payable on such loan
shall be equal to the lesser of (i) the greater of (x) the published base
lending rate from time to time in effect at Citibank N.A. for prime borrowers,
adjustable quarterly or (y) the applicable federal rate (within the meaning of
Section 1274(d) or successor provision) of the Code, or (ii) the maximum rate
of interest allowed by applicable law (the "Interest Rate"). All distributions
shall first be made to the Partner or Partners making such loans until all such
loans have been repaid to such Partners, together with interest accrued thereon
as above provided (with payments allocated first to accrued interest and then
to principal). If more than one Partner shall have made such loans,
distributions shall be made to such Partners pro rata in proportion to the
respective amounts owed them by the Partnership.
(1) For purposes of this Section 7.4, a Partner (the
"Noncontributing Partner") shall be deemed to have given its prior written
consent to an advance or payment by any other Partner (the "Contributing
Partner") if (i) the Contributing Partner reasonably determines that an advance
or payment of funds to the Partnership would be necessary or beneficial to the
Partnership business; (ii) the Contributing Partner notifies the
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Noncontributing Partner to such effect citing this Section 7.4; and (iii) the
Noncontributing Partner does not, within five business days after receipt of
such notice, notify the Contributing Partner of its objection to the making of
an advance and the reason therefor.
(2) Each Partner other than the Special Partner may, from time to
time, on a demand basis, borrow up to one-half of the Partnership's cash
balance at the close of business on any day, subject to other agreements of the
Partner or the Partnership restricting such right, provided that (i) the
borrowing shall be repayable on demand and shall bear interest, payable
quarterly, at the Interest Rate, (ii) the Parent of the borrowing Partner
shall, pursuant to Article V of the Parent Agreement, unconditionally guarantee
the full and timely repayment of such borrowing, and (iii) at all times when
there shall be any such outstanding borrowing, the borrowing Partner or its
Parent shall have either (a) outstanding commercial paper or short-term
promissory notes that have been given the following short-term ratings (or
their equivalent if such ratings are no longer applicable) by at least two of
the following three rating agencies: rating F1 of Fitch Investors Service,
Inc., rating A1 of Moody's Investors Service and rating P1 of Standard & Poor's
Corporation, or (b) outstanding long-term debt rated at least A- or the
equivalent by at least two of such rating agencies, or, (c) if such paper,
notes or debt is not outstanding, the borrowing Partner shall furnish
collateral reasonably satisfactory to the other Partner. Such borrowings shall
be evidenced by appropriate entries on the books of the Partnership, and, if
requested by the other Partner, by promissory notes. Except to the extent the
Partners agree otherwise, the Partnership shall not make any distributions to
the borrowing Partner until all borrowings have been repaid by such Partner,
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together with interest accrued thereon as above provided (with payments
allocated first to accrued interest and then to principal).
ARTICLE V
ACCOUNTING AND REPORTS
Section 3.17 Books and Records. The Partnership shall maintain
complete and accurate books and records reflecting the nature and extent of the
assets, liabilities and contractual commitments of the Partnership and all
receipts and disbursements of the Partnership. In addition, the Partnership
shall maintain all other records necessary for documenting and recording the
operations and affairs of the Partnership. The Partnership shall keep its
books of account on an accrual basis, and its fiscal year shall end on
September 30. The books of the Partnership shall be kept at the principal
place of business of the Partnership or at such other place as the Management
Committee shall determine. Each Partner or its duly authorized representative
may, at its own expense, inspect the books of the Partnership at any time
during ordinary business hours.
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Section 3.18 Financial Statements and Reports.
(1) Not later than 45 days after the end of each fiscal year, the
Partnership shall prepare, or cause to be prepared, and shall furnish to each
Partner, (i) financial statements for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles consistently applied
throughout the period indicated, except for such changes in such principles
with which the independent public accountants referred to below have concurred,
and (ii) sufficient and timely tax information. If either Partner so requests,
such financial statements shall be audited by a firm of independent certified
public accountants selected by the Partners. All costs of preparation and
distribution of such reports and the costs of the audit shall be borne by the
Partnership.
(1) Promptly after becoming available and in any event within 20
days after the end of each fiscal quarterly period, the Partnership shall
prepare, or cause to be prepared, and shall furnish to each Partner, (i)
financial statements of the Partnership for the quarterly period then ended and
for the period from the beginning of the fiscal year to the end of such
quarterly period, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period indicated except to the
extent stated therein, subject to normal changes resulting from year-end
adjustments, and (ii) tax information sufficient to enable the Partners to
prepare their quarterly estimated income tax statements.
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(2) Promptly after becoming available and in any event within 15
days after the end of each calendar month, the Partnership shall prepare, or
cause to be prepared, and shall furnish to each Partner, financial statements
of the Partnership for the month then ended and for the period from the
beginning of the fiscal year to the end of such month, prepared in accordance
with generally accepted accounting principles consistently applied throughout
the period indicated except to the extent stated therein, subject to normal
changes resulting from year-end adjustments.
(3) Not later than July 1 of each year, the Chief Financial
Officer of the Partnership shall cause to be prepared and shall submit to the
Management Committee a preliminary budget of the Partnership and preliminary
Project budgets for the next fiscal year, setting forth in reasonable detail
the proposed activities, expenditures, sources of funds and other relevant
supporting information for that year, as well as the amount of the
distributions made and proposed to be made for the current fiscal year. The
Management Committee shall consider the preliminary budgets. If the Management
Committee objects to any preliminary budget, it shall request the submission of
an alternate proposed budget. If the Management Committee is unable to adopt a
budget, the Partnership shall continue to make expenditures, other than capital
expenditures, in order to continue, in the ordinary and usual course of
business, the operations otherwise to be covered by that budget.
(4) The Chief Financial Officer of the Partnership shall cause to
be prepared and shall submit to the Management Committee three financial
updates for anticipated
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needs and results during each fiscal year. Such financial updates shall
compare the then current forecast with the budgets and previous forecasts for
such fiscal year. The Partnership will obtain authorization from the
Management Committee to commit funds through the approval of the budgets, and
such approval shall be amended through the authorization of each forecast.
(5) The Partnership shall also furnish all such other financial
and tax information as a Partner shall from time to time reasonably request.
(6) For financial reporting (to the extent not inconsistent with
GAAP) and federal income tax reporting purposes, the Partnership and the
Partners will treat the Base Interest as part of a partnership interest
retained by AP Sub and not purchased by Duke/UAE Sub or any other person,
unless the Base Interest is in fact purchased by Duke/UAE Sub or by a third
party, in which case this provision shall no longer apply. In the event that
the Partnership's accountants determine in good faith that GAAP does not permit
reporting consistent with the foregoing provision, the Partnership's
accountants shall notify AP Sub at least thirty (30) days before the
Partnership issues a financial statement reflecting an inconsistent position,
and during such 30-day period, shall consult with AP Sub's accountants to
determine if consistent reporting can be achieved. If, after such
consultation, the Partnership's accountants conclude in good faith that GAAP
will not permit reporting consistent with the foregoing, the Partnership shall
not be required to report consistently for financial reporting purposes.
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Section 3.19 Tax Returns and Elections. The Partners designate
BFI Sub as the Tax Matters Partner, as that term is defined in Section
6231(a)(7) of the Code, and such Partner shall supervise the preparation and
filing of all tax and information returns which the Partnership may be required
to file and shall, on behalf of the Partnership, make such tax elections and
determinations as are necessary, appropriate or desirable, subject to the
written approval of Duke/UAE Sub. The Tax Matters Partner shall use its
reasonable efforts to deliver copies of all tax and information returns to
Duke/UAE Sub and the Management Committee not less than 60 days prior to the
filing of all such returns. If Duke/UAE Sub gives notice that it objects to a
return (or portion or item thereof), such Partners shall reach a mutually
satisfactory return position prior to filing. If they cannot agree, the matter
shall be resolved by the Management Committee.
Section 3.20 Committee Approval. All financial statements,
budgets, forecasts and other Partnership documents contemplated by this Article
VIII shall require the approval of the Management Committee.
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ARTICLE 4
PARTNERSHIP PROPERTY
Section 4.1 Partnership Property. The capital contributions of
the Partners shall become Partnership property, and all assets acquired with
Partnership funds, including without limitation the Project Agreements and the
Projects, the proceeds of sale of such assets, or the proceeds of Partnership
indebtedness shall be so reported in the accounts of the Partnership.
Section 4.2 Method of Holding Property. Property of the
Partnership may be acquired, held and conveyed in the name of the Partnership
or in the name of a Partner as nominee for the Partnership or in the name of
any other entity as agent or nominee for the Partnership or as security for any
loan made to the Partnership by such entity, but shall be recorded as
Partnership property in the accounts of the Partnership.
Section 4.3 Bank Accounts. The Partnership shall establish and
maintain such accounts in such financial institutions (including federal or
state banks, trust companies, or savings and loan institutions) and in such
amounts as an Appropriate Committee may deem necessary from time to time.
Checks may be drawn on, and withdrawals of funds shall be made from, any such
accounts for Partnership purposes and shall be signed or requested by the
Partners or by any of their or the Partnership's duly authorized personnel.
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Section 4.4 Commingling Partnership Property. Notwithstanding
anything to the contrary contained herein, property of the Partnership shall
not be commingled with the property of the Partners, and property of Project
Companies shall not be commingled with the property of the Partnership.
ARTICLE 5
DISPOSITION OF PARTNERSHIP INTEREST
Section 5.1 Restrictions. No interest in the Partnership or in
shares of capital stock or equity interest of a Partner may, directly or
indirectly, be sold, assigned, pledged, hypothecated, encumbered, transferred
or disposed of, except to the extent, if any, expressly permitted by the Parent
Agreement or the Base Interest Option Agreement.
ARTICLE 6
DISSOLUTION AND LIQUIDATION
Section 6.1 Causes of Dissolution. The Partnership shall be
dissolved upon the first of the following to occur (provided, the Partnership
shall not terminate until the winding up of affairs is complete):
(1) the expiration of the term provided in Section 1.6 hereof,
unless the Partners agree in writing to extend the term of the Partnership
beyond such term;
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(2) the agreement of all of the Partners to dissolve and terminate
the Partnership;
(3) the sale, abandonment or other disposition of all or
substantially all of the assets of the Partnership;
(4) the commission of a Terminating Act (as defined in Section
2.2(b) of the Parent Agreement) by a Partner, or by one of its Affiliates that
is a Project Subsidiary, and the giving by another Partner of written notice of
dissolution on or before the ninetieth day after such Terminating Act has been
committed; or
(5) except as otherwise provided herein, the occurrence of any
other event which under the Act mandates dissolution of the Partnership and is
not waivable by agreement of the Partners.
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Section 6.2 Termination of the Partnership.
(1) Upon the occurrence of any event which causes the dissolution
of the Partnership as set forth in Section 11.1, the Partners other than the
Special Partner shall unanimously elect a liquidating trustee (the "Liquidating
Trustee") and shall proceed to wind up and terminate the Partnership affairs
with full power and authority to do all acts necessary and in accordance with
the terms hereof. If such Partners are unable to elect a Liquidating Trustee,
each such Partner shall elect one liquidating trustee, who shall together
appoint one additional liquidating trustee. The three liquidating trustees
shall together act as Liquidating Trustee for the purposes of this Section
11.2.
(1) Upon dissolution of the Partnership, a proper accounting shall
be made of the Partnership's assets and liabilities and obligations from the
date of the last previous accounting to the date of such dissolution, and the
Partnership's business and affairs shall be liquidated in an orderly manner and
such sales of properties of the Partnership as may be required for such
purposes shall be made by the Liquidating Trustee including, without
limitation, the sale of any property which may not be susceptible to division
upon distribution to the Partners. Notwithstanding the foregoing, if the
Liquidating Trustee shall determine that an immediate sale of part or all of
the Partnership's assets could cause undue loss to the Partners, the
Liquidating Trustee may, upon notice to the Partners, either defer liquidation
(to the extent permitted by law) or withhold from distribution for a reasonable
time, any assets of the Partnership or distribute assets in kind to the
Partners. Pursuant to the liquidation of the
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Partnership, payments shall be made of all expenses of liquidation (including,
without limitation, any legal and accounting expenses incurred in connection
therewith) and all debts of the Partnership first to third party creditors and
then to Partners, or adequate provision shall be made for the payment thereof.
The remaining assets and properties of the Partnership shall be distributed to
the Partners, in cash or in kind, to the Partners in proportion to and to the
extent of their respective capital accounts.
(2) For this purpose, if any Partnership asset is to be
distributed in kind to a Partner, the Partnership books and the capital
accounts of the Partners shall be adjusted prior to the time of distribution to
reflect the fair market value of such asset and the gain or loss that would
result from the sale of such asset by the Partnership at such value, and upon
such distribution in kind the capital account of each Partner shall be reduced
by the fair market value of any asset distributed to it. Whenever a valuation
of the assets and properties of the Partnership shall be required to be made
for this purpose, such valuation shall be made by the Liquidating Trustee
utilizing such reasonable methods of valuation as the Liquidating Trustee shall
select, which determination shall be binding on all parties.
(3) Any Partner who, at the time of any distribution, has any
borrowings from the Partnership outstanding pursuant to the provisions of
Section 7.4(c) hereof, shall be obligated to repay such borrowings to the
Partnership, together with interest thereon, prior to any distributions to it.
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(4) Until terminated by final distribution of all assets, the
Partnership, the Partners and the assets of the Partnership shall remain
subject to this Agreement.
(5) All distributions of Partnership property pursuant to the
terms of this Agreement shall be subject to such liens, encumbrances,
obligations, commitments, undertakings and/or restrictions as affect such
property at the date of such distribution.
(6) The Liquidating Trustee (or any officer, director,
shareholder, partner or employee thereof) shall be indemnified and held
harmless by the Partnership from and against all claims, demands, liabilities,
causes of action, costs and damages of any nature whatsoever arising out of or
incidental to the Liquidating Trustee (or any officer, director, shareholder,
partner or employee thereof) taking any action authorized under this Section
11.2; provided, however, that the Liquidating Trustee (or any officer,
director, shareholder, partner or employee thereof) shall not be entitled to
indemnification hereunder where the claim or issue arose out of (a) a matter
entirely unrelated to the Liquidating Trustee acting under the provisions
hereof; or (b) the negligence or willful misconduct of the Liquidating Trustee
(or any officer, director, shareholder, partner or employee thereof); or (c)
the breach by the Liquidating Trustee of its obligations under this Section
11.2.
(2) To the extent that any Proposal has been submitted prior to
the date of dissolution of the Partnership, the Partners and their Affiliates
shall in good faith endeavor to
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negotiate a definitive Project Agreement pursuant to which their Affiliates
will Implement and Operate the Project.
(7) Any dissolution of the Partnership pursuant to Section 11.1(d)
shall result in the Partners that are not the Partner who committed (or whose
Affiliate committed) the Terminating Act having the right to all Intellectual
Property (excluding Intellectual Property of DBA protected under the DBA
License) and the right to use the same, to the extent the right is not
restricted as a result of a prior agreement with a third party (including DBA)
or by the provisions of Section 1.8.
(8) The provisions of Section 11.2(i) relating to the continued
obligation of confidentiality of information provided for in Section 1.8 shall
not be construed to limit the Partner that is not the Terminating Party from
using such information for purposes that would have been consistent with the
business purpose of the Partnership, provided that adequate steps are taken to
avoid it being introduced into the public domain.
(9) The dissolution of the Partnership shall not terminate the
confidentiality obligations of the Partners set forth in Section 1.7(a) or
Section 1.8 of this Agreement.
Section 6.3 Rights Not Affected. Upon termination of the
Partnership pursuant to this Article XI, all of the rights and obligations of
the Partners under this
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Agreement shall terminate except as otherwise specifically provided herein;
provided, however, that subject to the limitations contained in Section 2.2(d),
nothing contained in this Article XI shall be construed as a limitation upon,
and no action or transaction in pursuance of this Article XI, shall be deemed a
satisfaction, waiver or discharge of, any rights, claims or causes of action of
either Partner against the other, whether for damages or other relief, arising
out of or by virtue of (i) breach of this Agreement, theretofore or thereafter
committed, by the other Partner or (ii) any event of default, theretofore or
thereafter arising, on the part of the other Partner, and except, in each case,
as and to the extent that such default or breach is taken into account in any
computation or adjustment made pursuant to this Article XI. It shall be a
condition of any disposition of the books and records of the Partnership under
this Article that, notwithstanding the termination of the Partnership, each
Partner shall have access thereto at any time upon reasonable notice for the
purpose of inspection and obtaining copies at its own expense.
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ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1 Covenant as to Liens. Each Partner agrees that,
except (i) as provided in the Parent Agreement or the Base Interest Option
Agreement or (ii) with the prior written consent of each other Partner, other
than the Special Partner, it will not create, assume, incur, or suffer to be
created, assumed or incurred or to exist, any charge (which for the purposes of
this Section shall mean any mortgage, pledge, encumbrance, lien or charge of
any kind, including the charge upon property purchased under conditional sales
or other title retention agreements) upon its interest in the Partnership or
any portion of such interest, or acquire or hold or agree to acquire or hold
any such interest or portion thereof subject to any conditional sale agreement
or other title retention agreement.
Section 7.2 Liability. Nothing in this Agreement shall be deemed
to create any right in any third party and this Agreement shall not be
construed in any respect to be a contract in whole or in part for the benefit
of any third party, except as expressly provided herein.
Section 7.3 Claims and Litigation. The Partners and the
Partnership shall each notify the others of any claim, demand or right of
action asserted or any action, suit or proceeding threatened or instituted
against it which arises out of the conduct of business of the Partnership or
involves in whole or in material part the interpretation or performance of this
Agreement, the properties, rights or assets of the Partnership, or any material
portion thereof. Any negotiations or litigation with respect to any such
claim, demand, right of action, suit or proceeding shall be conducted by
whichever of the Partners or the Partnership
56
<PAGE> 58
the same may be asserted or brought against. Whichever of the Partners or the
Partnership may be conducting such negotiations or litigation shall keep the
others currently advised of the status thereof and any one or both of such
others shall be entitled to participate in such negotiations or litigation.
Section 7.4 Dispute Resolution. Any controversies or claims
among the Partners, or between a Partner and the Partnership, arising out of or
relating to this Agreement shall be resolved in the same manner as is set forth
in Article IX of the Parent Agreement.
Section 7.5 Waiver of Partition. Each Partner hereby irrevocably
waives during the term of the Partnership any right that such Partner may have
to maintain any action for partition with respect to any Partnership property.
Section 7.6 No Right of Withdrawal. No Partner shall have the
right to withdraw from the Partnership.
Section 7.7 Specific Performance. The Partners acknowledge that
the failure of any Partner to substantially perform its material obligations
and covenants under this Agreement may result in a significant frustration of
the respective business objectives of the Partners under this Agreement and
that the remedies at law may be inadequate to protect the rights and interests
of the other Partner. Accordingly, the Partners, in addition to the remedies
57
<PAGE> 59
provided in this Agreement and otherwise available under the law for the
enforcement of this Agreement and in view of Section 2.2(d), expressly consent
to an order for specific performance of such obligations and covenants of a
Partner or an order granting other substantially equivalent equitable remedies
calculated to require performance of any such obligations or covenants.
Section 7.8 Default in Payments. If a Partner shall default in
making any payment due from it to the Partnership pursuant to Section 4.1 or
4.2, (a) the Partnership may satisfy the defaulting Partner's indebtedness out
of its share of the net revenues of the Partnership; and (b) the Partnership
may exercise any other remedies available at law or in equity for the payment
of the sums owed. The Partnership may elect to charge the defaulting Partner
interest on any overdue payment at the Interest Rate, and may also elect to
charge such Partner for reasonable attorneys' fees, costs of investigation and
all other costs of collection. Actions to be taken by the Partnership pursuant
to this Section 12.8 may be authorized by the unanimous vote of the
representatives of the non-defaulting Partner on the Management Committee, and
no approval of the representatives of the defaulting Partner shall be required.
58
<PAGE> 60
Section 7.9 Notices.
(1) Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be sufficient if personally delivered
or sent by air courier, or by certified or registered mail (return receipt
requested) properly stamped and addressed, or by telecopy, as follows:
(1) If to Duke/UAE Sub, addressed to Duke/UAE Ref-Fuel Management
LLC, 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675, marked for the
attention of the Secretary with a copy sent to the same address marked for the
attention of the President (telecopy no. (201) 307-1020).
(2) If to BFI Sub, addressed to it, in the case of mail delivery,
c/o Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, or
in the case of other delivery, c/o Browning-Ferris Industries, Inc., 757 N.
Eldridge, Houston, Texas 77079, in either case marked for the attention of the
Secretary (telecopy no. (713) 870-7825).
(3) If to AP Sub, addressed to it c/o Air Products and Chemicals,
Inc., 7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501, marked for
the attention of the Corporate Secretary with a copy sent to the same address
marked for the attention of the President (telecopy no. (215) 481-8223).
(2) A Partner may change its address by giving written notice of
its new address to the other Partners.
59
<PAGE> 61
SECTION 7.10 CHOICE OF LAW. THIS AGREEMENT AND ALL RIGHTS AND
LIABILITIES OF THE PARTIES HERETO WITH REFERENCE TO THE PARTNERSHIP SHALL BE
SUBJECT TO AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
Section 7.11 Certificates. Each Partner agrees to execute,
acknowledge, record and file or deliver all such certificate, amendments,
instruments, questionnaires, documents or counterparts thereof as may be
required to comply with the laws of the State of Delaware or of any other
jurisdiction in which the Partnership does business.
Section 7.12 Binding Effect; Amendments. This Agreement shall be
binding upon and shall inure to the benefit of the Partners and their
respective legal representatives, successors and assigns, subject, however, to
the provisions and exceptions herein contained and provided. The written
agreement of the Partners (other than the Special Partner) is required for any
amendment to this Agreement; provided, however, that no such amendment shall
limit any right of the Special Partner nor increase any obligation or liability
of the Special Partner unless the Special Partner shall have consented in
writing thereto.
Section 7.13 Gender and Numbers. Whenever the context requires,
the gender of all words used herein shall include the masculine, feminine or
neuter, and the number of all words shall include the singular and plural.
60
<PAGE> 62
Section 7.14 Severability. If any provision of this Agreement, or
the application thereof, shall, for any reason and to any extent, be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the maximum extent permissible under applicable
law. The Partners shall negotiate in good faith regarding amendments to this
Agreement that would, to the maximum extent permissible under applicable law,
effectuate the intent of any provision determined to be invalid or
unenforceable.
Section 7.15 Multiple Counterparts. This Agreement contains the
entire agreement between the Partners. This Agreement may be executed in
multiple counterparts, each of which shall be an original hereof for all
purposes, and shall be binding upon the Partner so signing, irrespective of
whether or not each Partner executed each such counterpart, but all of which
shall be and constitute one instrument.
Section 7.16 Headings, etc. Captions and headings contained in
this Agreement are for ease of reference only and do not constitute a part of
this Agreement.
Section 7.17 Representations and Warranties. Each Partner
represents and warrants, as of the date hereof (the "Execution Date"), as
follows:
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<PAGE> 63
(1) It is an entity formed and validly existing in good standing
under the laws of the state of its formation, and is duly authorized,
qualified, permitted and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted (except where failure to be so
authorized, qualified, permitted and licensed would not have a material adverse
effect on the business, operations, properties, assets or financial condition
of such entity).
(2) It is not a party to any contract, agreement or other
commitment or instrument or subject to any charter or other corporate
restriction or subject to any restriction or condition contained in any permit,
license (including the DBA License), judgment, order, writ, injunction, decree
or award which would prevent or restrict its ability to enter into and perform
its obligations under this Agreement or which materially and adversely affects
or in the future is expected as far (as such Partner can, as of the Execution
Date, reasonably foresee) to materially and adversely affect its business
operations, properties, assets or conditions (financial or otherwise)
considered as a consolidated enterprise.
(3) Its execution and delivery of this Agreement and the
performance of the transactions contemplated herein have been duly and validly
authorized by its Board of Directors or members (or a duly authorized committee
thereof), and this Agreement has been duly and validly authorized by any other
necessary corporate action and will be, when executed and delivered, its legal,
valid and binding obligation.
62
<PAGE> 64
Section 7.18 Obligations of Affiliates. Whenever this Agreement
provides for obligations of an Affiliate of a Partner, the failure of the
Affiliate to perform those obligations shall be deemed a breach of this
Agreement by that Partner, but shall not give rise to any cause of action
against the Affiliate pursuant to this Agreement (although a cause of action
regarding such failure may arise pursuant to the Parent Agreement or other
agreements to which the Affiliate is a party). For the avoidance of doubt, the
Partnership shall not be considered on Affiliate of either Parent.
63
<PAGE> 65
IN WITNESS WHEREOF, the Partners hereto have caused their respective
officers to execute this Agreement as of the day and year first above written.
DUKE/UAE REF-FUEL MANAGEMENT LLC
By:
----------------------------
ATTEST: Name:
Title:
SEAL
BFI REF-FUEL, INC.
By:
----------------------------
ATTEST: Name:
Title:
SEAL
AIR PRODUCTS REF-FUEL, INC.
By:
----------------------------
ATTEST: Name:
Title:
64
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED PARENT AGREEMENT
RELATING TO AMERICAN REF-FUEL COMPANY
Dated as of December 5, 1997
<PAGE> 2
AMENDED AND RESTATED PARENT AGREEMENT
RELATING TO AMERICAN REF-FUEL COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Transfer
Section 1.1. Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.2. General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.3. Transfers to Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II
Options to Buy or Sell
Section 2.1. Buy-Sell Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.2. Option to Purchase in the Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.3. Closing of Purchases Under Sections 2.1 and 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.4. Project Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.5. No Waiver of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.6. Non-Competition After Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.7. No Regulatory Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
Transfers and Right of First Offer
Section 3.1 Right of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.2 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IV
Restrictions on Subsidiaries
Section 4.1. Single Purpose Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.2. Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
Performance of Partnership Obligations
Section 5.1. Parents' Performance Under Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.2. Obligations of Duke Capital and UAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
Certain Services; Competition
Section 6.1. Services to Partnership Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.2. Preferred Vendor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
Possible Formation of Limited Partnerships
Section 7.1. Good Faith Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VIII
Confidentiality
Section 8.1. Agreement to Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.2. Agreement to Keep Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 8.3. Termination of Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX
Disputes
Section 9.1. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.2. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.3. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE X
Miscellaneous
Section 10.1. Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.2. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.3. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.4. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.5. Binding Effect; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.6. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.7. Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.8. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.10. Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.11. Obligations of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
<PAGE> 4
AMENDED AND RESTATED PARENT AGREEMENT
RELATING TO AMERICAN REF-FUEL COMPANY
This Agreement, dated as of December 5, 1997, is among Duke
Capital Corporation, a Delaware corporation ("Duke Capital") having its
principal place of business at 422 South Church Street, Charlotte, North
Carolina, United American Energy Corp., a New York corporation ("UAE"), having
its principal place of business at 50 Tice Boulevard, Woodcliff Lake, New
Jersey 07675, Duke/UAE Ref-Fuel LLC, a Delaware limited liability company
("Duke/UAE Ref-Fuel") having its principal place of business at 50 Tice
Boulevard, Woodcliff Lake, New Jersey 07675, and Browning-Ferris Industries,
Inc., a Delaware corporation ("BFI") having its principal place of business at
757 N. Eldridge, Houston, Texas 77079.
WHEREAS, Duke Capital and UAE collectively hold 100% of the
membership interests in Duke/UAE Ref-Fuel;
WHEREAS, a wholly owned subsidiary of Duke/UAE Ref-Fuel,
Duke/UAE Ref-Fuel Management LLC ("Duke/UAE Sub"), is a partner holding a 49.9%
general partnership interest in American Ref-Fuel Company, a Delaware general
partnership (the "Partnership") existing under an Amended and Restated
Partnership Agreement, dated as of the date hereof (the "Partnership
Agreement");
<PAGE> 5
WHEREAS, Duke/UAE Ref-Fuel wholly owns, directly or
indirectly, various entities which were formed solely for the purposes of being
a partner or other equity participant in the Project Companies (as defined in
Section 1.5 of the Partnership Agreement) (the "Duke/UAE Project
Subsidiaries");
WHEREAS, a wholly owned subsidiary of BFI, BFI Ref-Fuel, Inc.
("BFI Sub"), is a partner holding a 50% general partnership interest in the
Partnership;
WHEREAS, BFI Sub and Duke/UAE Sub are sometimes referred to
herein as the "Partnership Subsidiaries";
WHEREAS, BFI wholly owns, directly or indirectly, various
entities which were formed solely for the purposes of being a partner or other
equity participant in the Project Companies (the "BFI Project Subsidiaries")
(the Duke/UAE Project Subsidiaries and the BFI Project Subsidiaries are
sometimes referred to herein as the "Project Subsidiaries");
WHEREAS, Duke/UAE Ref-Fuel and BFI are each, directly or
through their respective wholly owned Project Subsidiaries, the owner of a
49.9% and a 50% interest, respectively, in the Partnership and each of the
Project Companies (other than American Ref-Fuel Company of Southeastern
Connecticut in which Duke/UAE Ref-Fuel and BFI are each, through their
respective wholly owned subsidiaries, the owner of a 50% interest);
2
<PAGE> 6
WHEREAS, Duke/UAE Sub holds certain option rights to acquire
from Air Products Ref-Fuel, Inc. ("AP Sub") an additional 0.1% interest in the
Partnership, which upon exercise will cause Duke/UAE Sub to hold a 50% general
partnership interest in the Partnership; and the Duke/UAE Project Subsidiaries
hold option rights to acquire (i) additional 0.1% interests in each of the
Project Companies (other than American Ref-Fuel Company of Southeastern
Connecticut) and (ii) the Niagara Gross Income Interest as such term is defined
in the Niagara Option Agreement dated as of the date hereof between Air
Products Ref-Fuel of Niagara, Inc. and Duke/UAE Niagara LLC;
WHEREAS, each of such option rights to acquire an additional
0.1% interest and any such interest acquired pursuant to the exercise of such
rights are referred to collectively herein as the "Base Interest";
WHEREAS, Duke/UAE Ref-Fuel and BFI are sometimes referred to
herein as the "Parents" of their respective subsidiaries; and
WHEREAS, Duke Capital, UAE, Duke/UAE Ref-Fuel and BFI desire
to fully set forth their agreement with respect to, among other things, the
transferability of the interests of Duke/UAE Ref-Fuel and BFI Ref-Fuel in their
respective subsidiaries.
NOW THEREFORE, Duke Capital, UAE, Duke/UAE Ref-Fuel and BFI
agree as follows:
3
<PAGE> 7
ARTICLE I
Transfer
Section I.1. Restrictions. (1) Except as hereinafter
provided, BFI will not cause or permit any shares in BFI Sub or any of the BFI
Project Subsidiaries, or any of BFI Sub's interest in the Partnership or any of
the BFI Project Subsidiaries' interests in any Project Company (such shares and
interests being referred to herein as the "BFI Interests") to be issued, sold,
assigned, transferred, pledged or otherwise encumbered or disposed of, directly
or indirectly, by sale, merger or otherwise.
(2) Except as hereinafter provided, Duke/UAE Ref-Fuel
will not cause or permit any interests in Duke/UAE Sub or any of the Duke/UAE
Project Subsidiaries, or any Duke/UAE Sub's interest in the Partnership or any
of the Duke/UAE Project Subsidiaries' interests in any Project Company (such
interests being referred to as the "Duke/UAE Interests"; the BFI interests and
the Duke/UAE interests are sometimes referred to herein as "Interests") to be
issued, sold, assigned, transferred, pledged or otherwise encumbered or
disposed of, directly or indirectly, by sale, merger or otherwise. For the
avoidance of doubt, the indirect rights and obligations of Duke/UAE with
respect to the Base Interest and the Niagara Gross Income Interest shall, prior
to the exercise of option rights with respect thereto, be deemed "Interests" of
Duke/UAE under this Agreement; and, upon any purchase by Duke/UAE, the Base
Interest and the Niagara Gross Income Interest shall likewise constitute
"Interests" of Duke/UAE subject to all the terms and conditions of this
Agreement.
4
<PAGE> 8
Notwithstanding the foregoing, the Duke/UAE Interests may be pledged and
assigned to, and encumbered by the security interests for the benefit of, Duke
Capital.
(3) Duke Capital will not cause or permit any of its
direct or indirect interest in Duke/UAE Ref- Fuel or in any Duke/UAE Interests
in which Duke Capital has a security interest to be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of, directly or
indirectly, by sale, merger or otherwise unless (i) such action does not reduce
Duke Capital's aggregate direct and indirect interest in Duke/UAE Ref-Fuel and
in the Duke/UAE Interests, in either case, to less than 51% and (ii) UAE or its
Affiliates directly or indirectly hold the remaining interest in Duke/UAE
Ref-Fuel and the Duke/UAE Ref-Fuel Interests.
(4) Notwithstanding the foregoing (i) a Parent may sell
or permit the sale of its Interests if (A) it has received the prior written
consent of the other Parent, which consent shall not be withheld unreasonably,
and (B) the additional conditions set forth in Section 1.2 are satisfied or
waived and (ii) Interests in the Partnership or in Project Subsidiaries may be
sold if and to the extent permitted pursuant to Article II, III or VII of this
Agreement or pursuant to applicable provisions, if any, of a partnership
agreement of a Project Company.
Section I.2. General Conditions. A Parent shall not sell,
assign, transfer, pledge, encumber, or otherwise dispose of or permit the sale,
assignment, transfer, pledge, encumbrance, or other disposition of any
Interests unless the following conditions are met (or are waived in writing by
the other Parent):
5
<PAGE> 9
(1) There is not pending a "Buy-Sell" procedure initiated
pursuant to Article II;
(2) The transaction does not result in a violation of, or
trigger materially greater regulatory obligations under, any applicable law,
rule or regulation, including but not limited to the Federal Power Act, the
Public Utility Holding Company Act of 1935, as amended ("PUHCA") (including
specifically a loss of an exemption under Section 3(a)(2) of PUHCA), the Public
Utility Regulatory Policies Act of 1978, as amended ("PURPA"), all other
federal laws and all state laws regulating the cogeneration, generation,
transmission, distribution, sale, marketing or trading of electrical energy or
capacity, all antitrust laws and all securities laws;
(3) Neither the transferee nor any of its Affiliates is a
competitor of the other Parent or its Affiliates that engages in a principal
line of business which is (i) the business of burning Municipal Solid Waste and
generating electricity or any other phase of the waste handling and disposal
business in the case of a transfer of Interests held directly or indirectly by
Duke/UAE Ref-Fuel or (ii) the business of generating, distributing,
transmitting, selling, marketing or trading electrical energy or capacity in
the case of a transfer of Interests held directly or indirectly by BFI;
(4) The senior unsecured debt, if any, of the transferee
is rated by Standard & Poor's or Moody's as investment grade, or, if the
transferee has no senior unsecured debt
6
<PAGE> 10
rated by Standard & Poor's or Moody's, the financial condition of the
transferee is reasonably satisfactory to the other Parent (for illustrative
purposes, an investment grade rating means (i) with respect to Moody's
Investors Service, Inc., a long-term credit rating which is at least equal to
"Baa" (or equivalent) without regard to any refinement or gradation of such
rating by a numerical modifier; and (ii) with respect to Standard & Poor's
Ratings Group, a long-term credit rating which is at least equal to "BBB" (or
equivalent) without regard to any refinement or gradation of such rating by a
numerical modifier);
(5) The transaction does not and will not, with or
without the giving of notice or the lapse of time, or both, conflict with, or
result in any breach of, or in any right to accelerate or the creation of any
lien, charge or encumbrance pursuant to any Project Agreement or any agreement
or other instrument or obligation to which the Partnership, any Project
Company, the transferor or any Affiliate of the transferor is a party, or by
which any of them or any of their properties or assets may be bound or
affected, or any judgment, order, decree or law applicable to any of them;
(6) All outstanding borrowings by the transferor's
subsidiaries from the Partnership or any Project Company shall have been repaid
in full;
(7) Each transferee has agreed to be bound by the
provisions of this Agreement, and this Agreement has been appropriately amended
to reflect the transfer in a
7
<PAGE> 11
manner reasonably satisfactory to the transferee and all entities that will
continue to be parties to this Agreement; and
(8) The transfer will not cause a termination of the
Partnership within the meaning of I.R.C. Section 708(b); provided, however,
the parties shall cooperate in good faith to structure any transaction so as
not to cause such a termination.
For the purposes of this Agreement, (a) "Affiliate" shall mean
(i) with respect to BFI-Sub, BFI and any Person controlling, controlled by or
under common control with BFI-Sub or BFI, (ii) with respect to Duke/UAE, Duke
Capital and UAE and any Person controlling, controlled by or under common
control with Duke/UAE, Duke Capital, UAE or Duke/UAE Sub, (iii) with respect to
AP Sub, APCI and any Person controlling, controlled by or under common control
with AP Sub or APCI and (iv) with respect to any other Person, any Person
controlling, controlled by or under common control with such Person; (b)
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or partnership, membership or other
ownership interests, or by contract or otherwise; (c) "Person" shall mean an
individual, partnership, corporation (including a business trust), limited
liability company, joint stock company, trust, unincorporated association,
joint venture or any other legal entity; and (d) "Municipal Solid Waste" shall
mean normal waste of the type customarily collected by
8
<PAGE> 12
municipalities, including durable goods, containers, packaging, food waste,
yard waste and miscellaneous inorganic waste, but excluding industrial waste,
agricultural waste, sewage sludge, tires and all categories of hazardous waste,
including batteries and medical waste.
For the avoidance of doubt, it is acknowledged and agreed that
ownership of 50% of the outstanding voting securities or other equity interests
of an entity in which an unrelated third party owns an equal interest shall be
deemed not to constitute control of that entity and that therefore such entity
shall not be considered an Affiliate of either party owning such securities or
other equity interests.
Section I.3. Transfers to Affiliates. Notwithstanding the
provisions of Section 1.1, a Parent may at any time transfer or permit the
transfer of all, but not less than all, of the Interests it holds in its
Partnership Subsidiary or the Interests it holds in any of its Project
Subsidiaries to any corporation, limited liability company or other entity that
is wholly owned, directly or indirectly, by that Parent, or that owns, directly
or indirectly, more than 50% of the outstanding voting securities or equity
interests of that Parent; provided that the conditions set forth in paragraphs
(b), (c), (e), (h) and, if and to the extent that the other Parent may so
reasonably request, (f) and (g) of Section 1.2 are met; provided, however, that
if a "Buy-Sell" procedure has been initiated pursuant to Article II hereof, the
Interests being transferred pursuant to this Section 1.3 shall remain subject
to such "Buy-Sell" procedure, notwithstanding any transfer pursuant to this
Section 1.3.
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ARTICLE II
Options to Buy or Sell
Section II.1. Buy-Sell Provision. (1) Each Parent shall be
entitled to initiate the "Buy-Sell" procedure described below at any time,
subject to the conditions set forth below.
(2)(1) The Parent desiring to initiate the "Buy-Sell"
procedure (the "initiating party") shall give to the other Parent (the
"receiving party") at least 30 days' prior written notice that it intends to
submit the offers described below. During such 30-day period the initiating
party shall enter in good faith into such discussions as the receiving party
shall reasonably request regarding the circumstances that gave rise to the
initiating party's decision to initiate the "Buy-Sell" procedure. If Duke/UAE
Ref-Fuel is the initiating party, during such 30-day period BFI shall furnish
to Duke/UAE Ref-Fuel the Statement described in Section 2.1(b)(2)(b). Within
45 days after the expiration of such 30-day period, the initiating party may,
at its option, submit to the receiving party two offers in writing, the first
of which shall be an offer to purchase the Interests of the receiving party and
the second shall be an offer to sell to the receiving party the Interests of
the initiating party, such offer to be made at the same price. If BFI is the
initiating party, its submission of the two offers shall be accompanied by the
Statement described in Section 2.1(b)(2)(b). If Duke/UAE Ref-Fuel is the
initiating party, its submission of the two offers shall include its
irrevocable election whether or not to accept the arrangements contemplated by
such Statement (which must be accepted in their entirety or not at all). Such
offers shall be irrevocable except as expressly provided in
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Section 2.1(e) or 2.3. If the initiating party elects not to submit such
offers within such 45-day period, its 30-day notice shall be deemed withdrawn
and it may not again initiate the "Buy-Sell" procedure unless it has given a
new 30-day notice in accordance with the first sentence of this Section
2.1(b)(1).
(b)(2)(a) Following the submission of the offers, BFI shall,
if so requested by Duke/UAE Ref-Fuel, continue to work in good faith with
Duke/UAE Ref-Fuel in an effort to develop terms and conditions that would apply
if Duke/UAE Ref-Fuel were to buy BFI's Interests pursuant to the offers and
under which BFI would supply solid waste and provide ash and by-pass disposal
capacity and services and transportation services to Projects that, at the date
the offers are submitted, are Development Projects. If terms and conditions
for those activities have, prior to the submission of the Offers, been offered
by BFI to the Partnership or the relevant Project Company, then the terms and
conditions to be offered by BFI shall be consistent with those previously
offered, subject to appropriate changes to reflect changed circumstances.
(b)(2)(b) In accordance with Section 2.1(b)(1), BFI shall
furnish Duke/UAE Ref-Fuel a Statement that shall apply if Duke/UAE Ref-Fuel
were to buy BFI's Interests pursuant to the offers and that shall set forth the
terms and conditions on which BFI would make disposal capacity available to
Projects that are initiated by Duke/UAE Ref-Fuel or its Affiliates after the
date the offers are submitted, but excluding Development Projects that are
covered by Section 2.1(b)(2)(a). Such disposal capacity would be made
available, at the
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posted market rate at the site in question, on an unreserved basis to such
Projects owned, operated or controlled by Duke/UAE Ref-Fuel and its Affiliates,
in solid waste landfills which are owned, operated or controlled by BFI or its
Affiliates. The Statement shall also set forth the price, terms and conditions
of a Site Option Agreement under which BFI would grant Duke/UAE Ref-Fuel an
exclusive option for a minimum term of three years to purchase, lease or
sublease lands that are owned or leased by BFI or its Affiliates and are
located on or adjacent to solid waste landfill facilities owned, operated or
controlled by BFI or its Affiliates. Except as specified above in this Section
2.1(b)(2)(b), the terms and conditions to be set forth in the Statement shall
be determined solely by BFI. If Duke/UAE Ref-Fuel purchases BFI's Interests,
and has elected to accept the arrangements contemplated by the Statement, then,
at the closing of such purchase, the appropriate parties shall enter into
definitive agreements regarding those arrangements. Duke/UAE Ref-Fuel's rights
under such agreements shall be assignable to and enforceable by successors to
Duke/UAE Ref-Fuel's Interests.
(b)(3) A Parent may not submit the offers described in
Section 2.1(b)(1) if prior to such submission there has occurred and at the
time of such submission there is continuing any event or condition which with
or without the lapse of time or giving of notice, or both, would constitute a
Terminating Act (as defined in Section 2.2(b)) of such Parent, its Partnership
Subsidiary or one of its Project Companies pursuant to Section 2.2(a)(1).
(b)(4) Upon due submission of the offers, neither Parent
shall thereafter have the right to submit other offers pursuant to this Section
2.1(b) (unless and until the closing
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under the offers previously duly submitted fails to occur on the closing date
therefor as defined in Section 2.3, by reason of any failure on the part of
only one of the Parents to perform one or more of its obligations under this
Section and Section 2.3, in which event the Parent not so failing may, if
otherwise so entitled, submit other offers). During the pendency of the
offers, the Parents shall cause the Partnership and the Project Companies to be
operated in the ordinary course in accordance with prior practice and in the
best interest of the Partnership and the Project Companies and with due regard
to the fiduciary obligations among partners.
(3) The price to be contained in the offer to purchase
shall be an amount of cash as the initiating party shall determine, subject to
adjustment as provided in Section 2.1(f), plus the undertaking described below.
The price to be contained in the offer to sell shall be the same amount of cash
as is contained in the offer to purchase, subject to adjustment as provided in
Section 2.1(f), plus the undertaking described below. The undertaking shall be
as follows: Duke/UAE Ref-Fuel or BFI, whichever shall be the buyer, the Parent
of the buyer, or the assignor of the right to buy the Interests being sold,
shall undertake at the closing of the purchase, subject to the provisions of
Section 2.5, (i) to assume, and indemnify the other Parent and its Affiliates
against, all obligations under the Company Support Agreements, (ii) to
indemnify the other Parent and its Affiliates against, but not to assume, all
other Project Liabilities, and (iii) to use its reasonable business efforts to
have the other Parent and its Affiliates released from all Project Liabilities.
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(4) Within 180 days after submission of the irrevocable
offers, the receiving party on behalf of itself, an Affiliate or a third party
must accept in writing one such offer (the acceptance of one such offer to
constitute a rejection of the other). If the receiving party has not accepted
in writing one of the offers within such 180-day period, the receiving party
shall be deemed to have accepted on the last day of such period the offer to
sell its Interests for the specified price. The receiving party may not reject
both offers. If Duke/UAE Ref-Fuel is the receiving party and elects to
purchase BFI's Interests, its notice of acceptance shall be accompanied by a
statement of its irrevocable election whether it will accept the arrangements
contemplated by the Statement (which must be accepted in their entirety or not
at all).
(5) The foregoing provisions of this Section 2.1 to the
contrary notwithstanding, if, at any time after the offers to purchase
described in Section 2.1(b)(1) have been submitted and prior to the closing of
any purchase resulting from such offers to purchase, either party becomes
unable to meet the conditions set forth in Section 2.1(b)(3) for submitting the
offers described in Section 2.1(b)(1), then the non-defaulting party shall have
the right, upon notice to the defaulting party prior to the closing referred to
in Section 2.3, unilaterally to rescind and invalidate such offers, and any
acceptance thereof made or deemed to have been made, whereupon such offers and
acceptance shall be deemed to have no further force or effect.
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(6) The purchase price to be paid pursuant to this
Section 2.1 is intended to be the amount that would be paid if each entity that
is being purchased (a "Sold Company") had no assets or liabilities other than
its direct or indirect interests in the Partnership or one or more Project
Companies and if the collective value of all of the Interests and Sold
Companies were equal to one-half of the value of the Partnership and the
Project Companies. Although a Sold Company would have been restricted in its
activities as provided in Section 3.1, the Parents recognize that a Sold
Company may have acquired additional assets or liabilities, primarily because
of its cash management policy and because of its income and franchise tax
obligations. Accordingly, at the closing of a purchase under Section 2.1,
Duke/UAE Ref-Fuel or BFI, whichever is the Parent of each Sold Company, shall
indemnify the buyer and its Affiliates, pursuant to an indemnity reasonably
satisfactory to the buyer, against all liabilities of such Sold Company and its
Affiliates, other than Project Liabilities (as defined in Section 2.4) that the
buyer or, if the buyer is an Affiliate of a Parent, Parent is assuming or
indemnifying against pursuant to the undertaking described in Section 2.1(c),
and at or prior to the closing the Parent of such Sold Company may withdraw
from such Sold Company and its subsidiaries any assets other than the Parent's
direct or indirect interests in the Partnership and the Project Companies. In
addition, if for any reason all of the Interests and Sold Companies immediately
prior to the closing constitute collectively more or less than a one-half
direct or indirect interest in the Partnership and each of the Project
Companies, the purchase price shall be proportionately adjusted. The amount of
such adjustment shall be determined in accordance with the procedures set forth
in Section 2.2(d) (the second through the eighth sentences thereof) except that
the fair value shall be determined as of the date of the submission of the
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irrevocable offers described in Section 2.1(b)(1) and the parties shall have 20
days after a request for valuation is made in which to attempt to agree on the
selection of one nationally recognized investment banking firm.
(7) Neither Parent shall be entitled to initiate or
consummate the "Buy-Sell" procedure described in this Section 2.1 if at such
time either Parent is legally prohibited from acquiring any of the other
Parent's Interests or under any law or regulation such acquisition would result
in the imposition of substantial limitations on the ability of any Project
Subsidiary to operate or produce an economic return substantially similar to
that produced prior to such acquisition.
Section II.2. Option to Purchase in the Event of Default.
(1) Each of the following circumstances shall constitute an "event of default"
for purposes of this Section 2.2:
(1) A Parent, its Partnership Subsidiary or any of its
Project Subsidiaries shall commit any Terminating Act;
(2) A Parent, its Partnership Subsidiary or any of its
Project Subsidiaries shall fail to pay when due any amounts owing
pursuant to this Agreement, the Partnership Agreement, a Project
Company Partnership Agreement, a Parent Agreement, shareholders
agreement or similar agreement for a Project Company, a Company
Support Agreement or any other Project Agreement (but, in the case of
such
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other Project Agreement, solely to the extent that such failure under
such other Project Agreement results in a breach of a Company Support
Agreement or a guaranty agreement entered into by a Parent in lieu of
a Company Support Agreement) and such failure is not cured within 60
days after written notice thereof from the other Parent referring to
this Section 2.2(a)(ii) and specifying such failure;
(3) It shall be finally determined by binding arbitration
or by a court of competent jurisdiction in a ruling which is subject
to no further appeals that (i) a Parent, its Partnership Subsidiary or
any of its Project Subsidiaries shall have failed in any material
respect to observe, perform or comply with any material agreement,
condition or obligation required by this Agreement, the Partnership
Agreement, a Project Company Partnership Agreement, a Parent
Agreement, shareholders agreement or similar agreement for a Project
Company, a Company Support Agreement or any other Project Agreement
(but, in the case of such other Project Agreement, solely to the
extent that such failure under such other Project Agreement results in
a breach of a Company Support Agreement or a guaranty agreement
entered into by a Parent in lieu of a Company Support Agreement) other
than a failure to make a payment specified in Section 2.2(a)(ii) which
failure shall be governed by Section 2.2(a)(ii), (ii) such failure was
still continuing at the time of the initiation of such proceeding and
had continued for a period of at least 30 days after written notice
thereof from the other Parent referring to this Section 2.2(a)(iii)
and specifying such failure, and (iii) steps to cure
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such failure have not commenced, or, if commenced, have not continued
with all due diligence;
(4) A Parent, directly or through Affiliates, shall have
sold its direct or indirect equity interests in at least two Project
Companies to the other Parent or its Affiliates pursuant to options to
purchase because of the occurrence of an Event of Default under the
applicable Project Company Partnership Agreement (or the Parent
Agreement of the Project Company).
(2) A Terminating Act by an entity shall consist of:
(1) the commencement by such entity of any proceeding
under any applicable bankruptcy or insolvency law, or its consent to
the commencement of any such proceeding against it, or the entry
against it of a decree or order of a court having jurisdiction over it
adjudicating it a bankrupt or insolvent or approving a petition
seeking its reorganization under any applicable bankruptcy or
insolvency law, if such decree or order shall have continued
undischarged or unstayed for a period of 90 days or more;
(2) the assignment by such entity for the benefit of its
creditors of all or any substantial part of its property or the
winding up or liquidation of its affairs, its admission in writing of
its inability to pay its debts generally as they become due or its
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consent to the appointment of a receiver, liquidator, trustee, curator
or assignee of all or any substantial part of its properties, which
appointment shall not have been vacated;
(3) the acquisition, pursuant to court order or
otherwise, by a creditor of such entity (other than any such
acquisition by Duke Capital upon foreclosure of security interests
permitted in the Duke/UAE Interests) of any rights with respect to its
interest (if any) in its Partnership Subsidiary, the Partnership, any
Project Subsidiary, a Project Company or any property or activities
arising therefrom, and such condition continues uncured for more than
the shorter of 30 days or the period, if any, available to avoid
having such acquisition constitute a breach of any Company Support
Agreement or any other Project Agreement; or
(4) the Board of Directors or other committee or group
performing similar functions of such entity taking formal action for
the dissolution or the winding up of its affairs.
(3) If an event of default shall occur at any time and be
continuing, then the Parent that is not affiliated with the defaulting entity
(the "buyer") shall have the right to purchase Interests as follows: if the
defaulting entity (the "seller") is the other Parent or the other Parent's
Partnership Subsidiary, the option shall apply to all, but not less than all,
of the outstanding Interests of the defaulting Parent; or, if the buyer so
elects, of the other Parent's Partnership Subsidiary and each of its Project
Subsidiaries; and if the defaulting entity is a
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partner, shareholder or member in a Project Company, the option shall apply to
all, but not less than all, of the Seller's interests in the defaulting entity.
In each case, the price shall be equal to 90% of the fair value of the
Interests to be purchased (except that in the case of an event of default that
is specified in clause (i) of Section 2.2(a) and that relates to a Terminating
Act described in clause (i), (ii) or (iii) of Section 2.2(b), the percentage
shall be 100%), plus (B) an undertaking by the buyer, subject to the provisions
of Section 2.5, (i) to assume, and indemnify the seller and its Affiliates
against, all obligations under the Company Support Agreement (or, if
applicable, the guaranty agreement entered into in lieu of the Company Support
Agreement), (ii) to indemnify the seller and its Affiliates against all Project
Liabilities (as defined in Section 2.4), and (iii) to use its reasonable
business efforts to have the seller and its Affiliates released from all
Project Liabilities, except that if only the Interests of a partner in the
Partnership or in a Project Company are being sold, the indemnity shall be
against only those Project Liabilities that arise out of the Partnership or the
Project Company. The financial benefit conferred by this right to purchase at
90% of fair value shall be considered liquidated damages, and not a penalty, in
respect of the event of default, it being agreed that it would be impracticable
or extremely difficult to fix the actual damages, and shall be exclusive of any
other right to damages in respect of the event of default. The right of
purchase provided in this Section 2.2(c) shall be inapplicable if there has
occurred and is continuing any event of default described in this Section
2.2(c) on the part of the buyer or its Affiliates.
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(4) The right to purchase under Section 2.2(c) shall be
exercisable by the buyer giving written notice to the seller, on or before the
ninetieth day after such event of default has occurred, of its intention to
exercise such right. The fair value of the capital stock of a corporation or
of the interests in a limited liability company shall be deemed to be 50% of
the fair value of the Partnership and Project Companies (such percentage to be
appropriately adjusted if there are outstanding any minority equity interests
in those entities), and shall be determined, as of the most recent practicable
date prior to the delivery of the initial report referred to below, by a
nationally recognized investment banking firm selected by agreement of the
buyer and the seller or, if they fail to select such firm not later than 20
days after the giving of the notice by the buyer, then each of them shall
within 10 days thereafter select, at its own expense, a nationally recognized
investment banking firm. Such firms shall be instructed to attempt to agree on
the fair value within 30 days after their selection or, failing such agreement,
to select, within such 30 days, a third nationally recognized investment
banking firm who shall alone determine the fair value. For the purposes of
this Section 2.2, fair value of the Partnership shall mean the purchase price
therefor that would, as of the date of valuation, be agreed to in an arm's
length transaction between an informed and willing buyer and an informed and
willing seller under no compulsion to sell. In determining such fair value,
the investment banking firm or firms shall take into account the value of the
obligations of the Parents and Affiliates under the Company Support Agreements,
the effect of any minority equity interests that may be outstanding pursuant to
Article VII and all other factors as such firm or firms deem relevant;
provided, however, that such firm or firms shall not discount or otherwise
adjust fair value because of the actual or asserted lack of
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marketability of the Interest being sold or because the Interests being sold
are only a minority interest in the Partnership and may not confer control of
the Partnership. Where the fair value is being determined by only one firm, as
promptly as practicable, such firm shall deliver to the buyer and the seller an
initial report of its determination of fair value. The buyer and the seller
shall then have 20 days in which to submit to such firm their objections, if
any, to the report. Thereafter, as promptly as practicable, such firm shall
deliver to the buyer and the seller its final report. The determination of
fair value in accordance with the foregoing procedures shall be final,
conclusive and binding on the buyer and the seller for the purposes of this
Section 2.2. However, the buyer shall have the right, at its election, to
rescind its notice of intention to purchase by so notifying the seller within
10 days after receipt of notice of the fair value as so determined. The fees
and expenses of a firm selected by agreement of the buyer and the seller or by
agreement of two firms shall be borne equally by the buyer and the seller,
except that if the buyer elects to rescind its notice of intention to purchase
pursuant to the proviso in the preceding sentence, those fees and expenses
shall be borne solely by the buyer.
(5) In the event that any entity is being sold, the
purchase price to be paid pursuant to this Section 2.2 is intended to be the
amount that would be paid if each entity that is being sold (a "Sold Company")
had no assets or liabilities other than the Interest owned directly or
indirectly by the Sold Company and if the value of such Sold Company were equal
to the relevant percentage of the value of the Project Companies evidenced by
such Interests. Although each Sold Company would have been restricted in its
activities as provided in
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Section 4.1, the Parents recognize that a Sold Company may have acquired
additional assets or liabilities, primarily because of its cash management
policy and because of its income and franchise tax obligations. Accordingly,
at the closing of a purchase under this Section 2.2, the Parent of each Sold
Company shall indemnify the buyer and its Affiliates, pursuant to an indemnity
reasonably satisfactory to the buyer, against all liabilities of such Sold
Company and its Affiliates, other than Project Liabilities (as defined in
Section 2.4 hereof) that the buyer or, if the buyer is an Affiliate of a
Parent, its Parent, is assuming or indemnifying against pursuant to the
undertaking described in Section 2.2(c) hereof, and at or prior to the closing
the Parent of such Sold Company may withdraw from such Sold Company any assets
other than its interest in the Partnership.
(6) If the Partnership Agreement, Parent Agreement or any
other agreement for a particular Project Company contains an option to purchase
in the event of default, and the provisions of such other option are
inconsistent with the provisions of Sections 2.2 through 2.6 of this Agreement,
then the applicable provisions of this Agreement shall be controlling unless
the provisions of such other option specifically state that they shall be
controlling.
Section II.3. Closing of Purchases Under Sections 2.1 and
2.2. (1) The closing of any purchase made pursuant to either of the offers
provided for in Section 2.1 or pursuant to the option to purchase provided for
in Section 2.2 shall be held at the principal office of the Partnership on the
closing date or such other location as shall be mutually agreeable. Such
closing date shall be the date, which shall be not less than 20 days nor more
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than 60 days after the date upon which acceptance of the offer is made or
deemed to be made or the notice of intention to exercise the right to purchase
is given (the "Acceptance Date"), as the case may be, designated by written
notice by the buyer to the seller; provided, however, that if a dispute exists
as to the right of a party to purchase or sell, or if an interest is to be
valued, the closing shall be held not more than 45 days after the resolution of
such dispute or the determination of such value; provided further that if there
is any litigation or governmental requirement relating to such purchase and
sale, the closing date shall be postponed until a date not more than 30 days
after the termination of such litigation or satisfaction of all governmental
requirements, and the parties shall use their reasonable business efforts to
satisfy such requirements promptly; provided further that if the closing date
shall be delayed more than 180 days after the Acceptance Date, either party,
unless it has acted in bad faith in substantially contributing to the delay,
shall, at its election, have the right to terminate the Buy-Sell or option
procedure and the offers, and any acceptance thereof, shall have no further
force or effect.
(2) At such closing the buyer shall receive from the
seller the certificates representing the capital stock or limited liability
company Interests being purchased, duly endorsed in blank and with all
appropriate transfer and documentary stamps, if any, affixed and shall deliver
to the seller (i) funds, by bank or certified check or wire transfer of
immediately available funds, in the amount of the purchase price, and (ii) the
undertaking, in accordance with Section 2.1 or 2.2, or 2.3, whichever is
applicable, regarding Project Liabilities, all in such form as shall be
reasonably requested by the seller. Such stock or
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interest shall be conveyed free and clear of any claims, pledges, liens or
encumbrances. In addition, at the closing, there shall be paid in full any
debts between (x)(i) a Sold Company, and (ii) the Partnership, and any debts
between (y)(i) a Sold Company and (ii) the seller or any of its Affiliates,
except in each case to the extent that such debts are already appropriately
reflected in the purchase price. Any party's right or obligation to purchase
at the closing may be exercised or discharged by any Affiliate of that party or
any assignee, as provided in this Section 2.3.
(3) At the closing, the Parent of each Sold Company shall
indemnify the buyer and its Affiliates, pursuant to an indemnity reasonably
satisfactory to the buyer, against all liabilities of such Sold Company and its
Affiliates, other than Project Liabilities (as defined in Section 2.4) that the
buyer is assuming or indemnifying against pursuant to the undertaking described
in Section 2.1, 2.2(c) or 2.3, whichever is applicable, and at or prior to the
closing the Parent of such Sold Company may withdraw from such Sold Company any
assets other than the Interests held by such Sold Company.
Section II.4. Project Liabilities. For the purposes of this
Article II, "Project Liabilities" shall mean: (a) all liabilities, obligations
and commitments of the Parents or their Affiliates under or arising out of this
Agreement, the Partnership Agreement, any Project Company Partnership
Agreement, the Company Support Agreements or any other Project Agreements, and
(b) all liabilities, obligations and commitments incurred or assumed by the
Partnership or any Project Company, except that Project Liabilities to be
assumed or
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indemnified by a buyer shall not include liabilities, obligations and
commitments that are specifically intended to apply to the Parent of the seller
or its Affiliates following a sale of its Interests pursuant to this Article II
or the dissolution or termination of the Partnership or a Project Company (such
as obligations under the Site Option Agreement or obligations regarding
maintaining confidentiality of information or refraining from competition with
the Partnership or a Project Company), or that are incurred by the Parent of
the seller or its Affiliates in providing to the Partnership or a Project
Company services described in the second sentence of Section 2.2(f) of the
Partnership Agreement, or any liabilities for income or franchise taxes.
Section II.5. No Waiver of Defaults. Nothing contained in
this Article II shall be construed as a limitation upon, and no action, or
transaction in pursuance of this Article II shall be deemed a satisfaction,
waiver or discharge of, any rights, claims or causes of action of either Parent
or its Affiliates against the other Parent or its Affiliates, whether for
damages or other relief, arising out of or by virtue of (i) breach of this
Agreement, the Partnership Agreement, any Project Company Partnership Agreement
or any other Project Agreement, theretofore or thereafter committed, by the
other Parent or its Affiliates or (ii) any other event of default, theretofore
or thereafter arising on the part of the other Partner or its Affiliates, and
the undertakings provided for in Sections 2.1 and 2.2 shall not be construed to
include or relate to any such rights, claims or causes of action, or any
liability incident thereto, except, in each case, as and to the extent that
such default or breach is taken into account in any computation, adjustment or
payment made pursuant to this Article II, it being acknowledged
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and agreed, however, that upon the closing of a purchase pursuant to Section
2.2 there shall be no other liability as a result of the event of default
triggered by such right to purchase and upon the closing of a purchase pursuant
to Section 2.3 there shall be no other liability as a result of the failure to
make a capital contribution triggering such right to purchase.
Section II.6. Non-Competition After Sale. For a period of
three years following the sale of its Interests pursuant to Section 2.1 or 2.2,
except as set forth in this Section 2.6, neither the selling Parent nor any of
its Affiliates shall, within the Territory, provide an equity interest in,
provide financing to, or enter into a service contract having a term of more
than one year with a Project (a "Competing Project") which, in the reasonable
judgment of the Chief Executive Officer of the Partnership, is in competition
with any Development Project or Project in Operations owned by a Project
Company, in any case as of the date of such sale, without the express written
consent of the other Parent. Notwithstanding the foregoing, the selling Parent
and any of its Affiliates may enter into such a service contract with a
Competing Project in accordance with the following procedure: The selling
Parent shall deliver to the other Parent notice of the proposed terms and
conditions of services to any Competing Project or any Project which the
selling Parent reasonably believes would be a Competing Project, and the
selling Parent or its Affiliate shall offer to the Project Company with which
the Competing Project is in competition the same services, on the same terms
and conditions, proposed for the Competing Project, and such Project Company
shall have 90 days after delivery of such notice to accept such offer. If the
proposed terms and conditions of the services offered to the Competing Project
are amended in any material respect, the selling
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Parent shall give notice to the other Parent and such Project Company shall
have an additional ten days to consider whether to accept the services, as
amended. In addition, such Selling Parent and its Affiliates shall not violate
the provisions of the DBA License or the confidentiality provisions of Article
VIII herein.
Section II.7. No Regulatory Violations. In no event shall
there be any purchase pursuant to either of the offers provided for in Section
2.1 or pursuant to the option to purchase provided for in Section 2.2 if such
purchase would violate, or trigger substantially greater regulatory obligations
under, the Federal Power Act, PUHCA, PURPA, or any other federal law or any
state law regulating the cogeneration, generation, transmission, distribution,
sale, marketing or trading of electrical energy or capacity.
ARTICLE III
Transfers and Right of First Offer
Section III.1 Right of Transfer. Either Parent may transfer
all or substantially all but not less than all or substantially all of its
Interests in accordance with the following provisions of this Article III.
Section III.2 Right of First Offer. (1) A Parent desiring to
transfer its Interests (the "transferring party") shall give to the other
Parent (the "non-transferring party") written notice of the transferring
party's desire to transfer such Interests, which notice shall (i) set forth the
minimum price at which the transferring party is willing to sell or transfer
its
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Interests (the "Minimum Price") and (ii) constitute an irrevocable offer by the
transferring party to sell such Interests to the non-transferring party at the
Minimum Price. The non-transferring party shall then have a period of sixty
(60) days from receipt of such notice to accept or reject the offer (the
"Notice Period") or assign its right to the irrevocable offer to a third party;
provided, however, that (i) such assignment shall not be made to a third party
that is not reasonably expected to be capable of satisfying the conditions
specified in Section 1.2 and this Article III and (ii) such assignee shall not
purchase such Interests unless at the closing of such purchase the conditions
specified in Section 1.2 and this Article III are satisfied or waived; and
provided, further, that if a closing does not occur and the non-transferring
party is obligated to make a payment pursuant to Section 3.2(e), the original
non-transferring party shall remain liable for such payment if and to the
extent it is not made by the assignee.
(2) If the non-transferring party desires to accept the
offer during the Notice Period, the procedures set forth in Section 3.2(d) and
(e) shall apply.
(3) If the non-transferring party rejects the offer or
fails to respond during the Notice Period, the transferring party may negotiate
with third parties to sell its Interests. If the transferring party reaches
agreement with a bona fide third party to sell its interests at a price equal
to or higher than the Minimum Price and such transfer satisfies the conditions
specified in Section 1.2 (or such conditions are waived by the non-transferring
party), the transferring party may sell its interests to such third party at
any time on or prior to the date twelve months after the last day of the Notice
Period. If the transferring party reaches
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agreement with a bona fide third party to sell its interests at a price lower
than the Minimum Price (the "Third Party Price"), the transferring party shall
give the non-transferring party written notice of the Third Party Price, which
notice shall constitute an offer to sell the Interests to the non-transferring
party at the Third Party Price. The non- transferring party shall then have
sixty days to accept or reject the offer (the "Second Notice Period"). If the
non- transferring party rejects the offer or fails to respond during the Second
Notice Period, the transferring party may proceed with the transaction with the
third party at the Third Party Price in accordance with the second sentence of
this Section 3.2(c). If the non-transferring party desires to accept the
offer, the procedures set forth in Section 3.2(d) shall apply.
(4) If the non-transferring party desires to accept the
offer during the Notice Period or the Second Notice Period, such
non-transferring party shall notify the transferring party in writing of such
acceptance and shall have a period equal to 120 days plus the number of days
remaining in the Notice Period or the Second Notice Period to consummate the
transaction (the "Closing Period"). Closing of the sale shall be in accordance
with the provisions of Section 2.3. If the non-transferring party fails to
consummate the transaction within the Closing Period, the transferring party
shall be permitted to sell its interests to a third party without further
restriction by this Article III.
(5) If (i) a non-transferring party fails to close during
the Closing Period after accepting an offer to purchase during the Notice
Period or the Second Notice Period, (ii) the reason for such failure to close
was reasonably foreseeable at the time the offer to
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purchase was accepted and (iii) the transferring party completes the sale of
the Interests to a bona fide third party during the twelve month period after
the expiration of the Closing Period at a purchase price less than the Minimum
Price or the Third Party Price, as the case may be, the non-transferring party
shall pay to the transferring party an amount equal to the lesser of (x) fifty
percent of the difference between the Minimum Price or the Third Party Price,
as the case may be, and the purchase price actually paid by the bona fide third
party or (y) $15 million.
(6) In the event of a transfer pursuant to this
Agreement, the non-transferring party shall cooperate in good faith with
respect to such issues as amendments to the Partnership Agreement and this
Agreement, as well as any required regulatory and third party consents.
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ARTICLE IV
Restrictions on Subsidiaries
Section IV.1. Single Purpose Subsidiaries. It is the
intention and agreement of each Parent that at all times it will own and
operate BFI Sub, or Duke/UAE Sub, as the case may be, solely for the purpose of
holding interests, directly or through wholly-owned Project Subsidiaries, in
the Partnership or the Project Companies and will not permit them to acquire
any assets or incur any liabilities not reasonably necessary to such purpose,
and each of its Project Subsidiaries that participates in a Project that is
being actively pursued will be wholly owned, directly or indirectly, by the
Parent, will be owned and operated solely for the purpose of such participation
and will not acquire any assets or incur any liabilities not reasonably
necessary to such purpose, except as may be specifically permitted by this
Agreement or the Partnership Agreement.
Section IV.2. Transfer Restrictions. It is the intention and
agreement of each Parent that at all times its Partnership Subsidiary and
Project Subsidiaries will each be wholly owned, directly or indirectly, by it,
and that it will, directly or indirectly, own such Parent's Interests, except
for transfers expressly permitted by this Agreement, the Partnership Agreement
or the applicable Project Agreement.
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ARTICLE V
Performance of Partnership Obligations
Section V.1. Parents' Performance Under Partnership
Agreement. If and to the extent that the Partnership Agreement for the
Partnership, or the Partnership Agreement, shareholders' agreement or similar
agreement for any Project Company, provides for obligations of Duke/UAE
Ref-Fuel or BFI or their Affiliates that are not parties to such Agreement,
Duke/UAE Ref-Fuel and BFI shall each perform the obligations provided for it,
and shall cause its Affiliates to perform the obligations provided for them
therein. Without limiting the generality of the foregoing, each Parent hereby
agrees to be bound by Section 1.7 of the Partnership Agreement and guarantees
the payment on demand of any borrowings by its Affiliates (other than the
Partnership) pursuant to Section 7.4 of the Partnership Agreement or the
comparable provisions of any Partnership Agreement for any Project Company.
Such guarantee is absolute, unconditional, present and continuing and is in no
way conditional or contingent upon any event or circumstance, action or
omission that might in any way discharge a guarantor or surety.
Section V.2. Obligations of Duke Capital and UAE. Duke
Capital joins in the execution of this Agreement to evidence the liability of
Duke Capital to perform and pay each and every obligation of Duke/UAE Ref-Fuel
under this Agreement as fully and to the same extent as if Duke Capital were
named as a Parent in lieu of and in substitution for Duke/UAE Ref-Fuel. If
Duke Capital and UAE each so elect in writing, Duke Capital and UAE shall have
joint and several liability for the obligations specified in the prior
sentence. In
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furtherance of the foregoing, and not by way of limitation, Duke Capital hereby
covenants and agrees, for the benefit of BFI, that Duke/UAE Ref-Fuel and its
Affiliates will perform the covenants set forth in Sections 1.7, 1.8, 7.4 and
12.1 of the Partnership Agreement.
ARTICLE VI
Certain Services; Competition
Section VI.1. Services to Partnership Projects. (1) If a
particular Project shall be designated as a Development Project by the
Partnership, BFI, if selected as the vendor in accordance with Section 6.2,
will use its reasonable business efforts to cause one or more of its Affiliates
to (a) provide or attempt to arrange through contracts with others to provide,
adequate quantities of solid waste to the Project to the extent such solid
waste is not being provided by the client or others that are under contract to
the client or to the Project, (b) provide for the conceptual design of and
operate, to the extent consistent with the Project, any stand-alone solid waste
transfer stations or stand-alone recycling facilities that may be established
as part of a particular Project, and (c) to the extent consistent with the
Project, attempt to dispose of, if required (or provide for the disposal of),
ash, bypass waste and other solid waste residues from the Projects, including
undertaking to provide for the site for such disposal.
(2) If a particular Project shall be designated as a
Development Project by the Partnership, Duke Capital and/or UAE, if selected a
vendor in accordance with Section 6.2, will use its reasonable business efforts
to cause one or more of its Affiliates to
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provide certain services to the Project including, but not limited to, the
marketing or trading of electrical energy or capacity or engineering services.
Section VI.2. Preferred Vendor Status. (1) It is the
intention of BFI and Duke/UAE Ref-Fuel that the Partnership, or an appropriate
Project Company, will construct, own and operate, at competitive prices, terms
and conditions, any waste-to-energy plants which would be required by BFI for
its sole or principal use as a provider of waste. BFI, in its capacity as the
vendee of the services of the Partnership or a Project Company and Duke/UAE
Ref-Fuel and BFI, each acting through its subsidiary that is a partner in the
Partnership or the appropriate Project Company, will employ reasonable business
efforts to achieve this goal. Accordingly, the Partnership and the Project
Companies will be the preferred vendor to BFI for all procurement by BFI of
waste-to-energy plant services of the types then being offered by them. The
status of the Partnership and the Project Companies as the "preferred vendor"
shall mean that BFI and its Affiliates will not, so long as the Partnership is
at least 45% owned by BFI (whether directly or through Affiliates), purchase
any such services from any unaffiliated third party unless BFI or its
Affiliates has determined in the exercise of its reasonable business judgment
that the overall value, in terms of price, terms and conditions, quality,
documentation, service and other matters, of such services available from the
Partnership and the Project Companies is not competitive with that available
from such other party, in which event BFI and its Affiliates may purchase such
services from such other party; provided, however, that BFI and its Affiliates
shall be excused from the foregoing obligation if, upon written notice to the
Partnership, BFI or its Affiliates advises that
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(i) the Partnership has failed to respond within a reasonable period of time to
a request by BFI (or its Affiliates) for a price quotation or other terms or
information with respect to such services or has failed to commit to deliver
such services within the time period in which BFI (or its Affiliates) shall
have required such services to be delivered, which time period, in either case,
shall not be substantially shorter than the time period that would have been
required from or allowed to an unaffiliated third party; or (ii) in BFI's
reasonable business judgment, it is not appropriate for the Partnership or a
Project Company to furnish the particular service in light of the Partnership's
expertise and experience; provided further that nothing in this Section 6.2
shall authorize BFI or its Affiliates to take any action that would result in a
breach of the DBA License. If at any time in accordance with this Section 6.2
BFI determines not to use the services of the Partnership or a Project Company,
BFI shall give a full and prompt report to the Management Committee of the
Partnership giving the rationale for this decision. The foregoing shall not
authorize BFI or any of its Affiliates to provide such services on their own in
lieu of purchasing them from unaffiliated third parties or the Partnership.
(2) It is the intention of BFI and Duke/UAE Ref-Fuel that
BFI and its Affiliates will supply certain of its traditional services to the
Partnership and the Project Companies at competitive prices, terms and
conditions, including, without limitation, those services specified in Section
6.1. BFI, in its capacity as service provider, and Duke/UAE Ref-Fuel and BFI
and its Affiliates, each acting through its subsidiary that is a partner in the
Partnership or the appropriate Project Company, will employ reasonable business
efforts to
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achieve this goal. Accordingly, BFI and its Affiliates will be a preferred
vendor to the Partnership and each Project Company for all services of the
types then being offered by BFI (directly or through its Affiliates) in the
Territory. The status of BFI and its Affiliates as the "preferred vendor"
shall mean that neither the Partnership nor any Project Company will, so long
as it is at least 45% owned by BFI (whether directly or through its
Affiliates), purchase any such services from any one other than BFI and its
Affiliates unless the Chief Executive Officer of the Partnership (the "CEO")
has determined in the exercise of his reasonable business judgment that the
overall value, in terms of price, terms and conditions, quality, documentation,
service and other matters, of such services available from BFI and its
Affiliates is not competitive with that available from such other party, in
which event the vendee may purchase such services from such other party;
provided, however, that the vendee shall be excused from the foregoing
obligation if upon written notice to BFI, the vendee advises that (i) BFI (or
its appropriate Affiliate) has failed, in the reasonable business judgment of
the CEO, to respond within a reasonable period of time to a request by the
vendee for a price quotation or other terms or information with respect to such
services or has failed to commit to deliver such services within the time
period in which the vendee shall have required such services to be delivered,
which time period, in either case, shall not be substantially shorter than the
time period that would have been required from or allowed to an unaffiliated
third party; or (ii) in the reasonable business judgment of the CEO, it is not
appropriate for BFI and its Affiliates to furnish the particular service in
light of the expertise and experience of BFI and its Affiliates or the stated
preference of the vendee's customers regarding the selection of service
providers. If at any time in accordance with this Section 6.2(b) the vendee
elects not to use the services of BFI or its Affiliates for any contract
involving the expenditure greater
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than $250,000, the CEO shall give a full and prompt report to the Management
Committee of the Partnership giving the rationale for this decision.
(3) It is the intention of BFI and Duke/UAE Ref-Fuel that
Duke Capital and its Affiliates will supply engineering and power marketing
services to the Partnership and the Project Companies at competitive prices,
terms and conditions. Duke Capital and its Affiliates, in its capacity as
service provider, and Duke/UAE Ref-Fuel and BFI, each acting through its
subsidiary that is a partner in the Partnership or the appropriate Project
Company, will employ reasonable business efforts to achieve this goal.
Accordingly, Duke Capital and its Affiliates will be preferred vendors to the
Partnership and each Project Company for all such services then being offered
by Duke Capital (directly or through its Affiliates) in the Territory. The
status of Duke Capital and its Affiliates as the "preferred vendor" shall mean
that neither the Partnership nor any Project Company will, so long as it is at
least 45% owned by Duke/UAE Ref-Fuel (whether directly or through its
Affiliates), purchase any such services from any one other than Duke Capital
and its Affiliates unless the Chief Executive Officer of the Partnership (the
"CEO") has determined in the exercise of his reasonable business judgment that
the overall value, in terms of price, terms and conditions, quality,
documentation, service and other matters, of such services available from Duke
Capital or its Affiliates is not competitive with that available from another
party, in which event the vendee may purchase such services from such other
party; provided, however, that the vendee shall be excused from the foregoing
obligation if upon written notice to Duke Capital, the vendee so advises that
(i) Duke Capital (or its appropriate Affiliate) has failed, in the reasonable
business judgment of the CEO, to respond within a reasonable period of time to
a request by the vendee
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for a price quotation or other terms or information with respect to such
services or has failed to commit to deliver such services within the time
period in which the vendee shall have required such services to be delivered,
which time period, in either case, shall not be substantially shorter than the
time period that would have been required from or allowed to an unaffiliated
third party; or (ii) in the reasonable business judgment of the CEO, it is not
appropriate for Duke Capital and its Affiliates to furnish the particular
service in light of the expertise and experience of Duke Capital and its
Affiliates or the stated preference of the vendee's customers regarding the
selection of service providers. If at any time in accordance with this Section
6.2(c) the vendee elects not to use the services of Duke Capital or its
Affiliates for any contract involving the expenditure greater than $250,000,
the CEO shall give a full and prompt report to the Management Committee of the
Partnership giving the rationale for this decision.
ARTICLE VII
Possible Formation of Limited Partnerships
Section VII.1. Good Faith Negotiations. The Parents
recognize that one or both of them may desire to organize or reorganize Project
Companies as limited partnerships, or to organize limited partnerships that
would hold interests in Projects, and arrange for the sale of limited
partnership interests to investors in order to reduce the financial commitments
of the parties, while at the same time maintaining control of their interests
in the Project Companies. The Parents agree that, following the submission of
any such proposal by either
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Parent or an Affiliate, they, or their Affiliates, as appropriate, shall
negotiate in good faith regarding such proposal and will not withhold their
approval unreasonably.
ARTICLE VIII
Confidentiality
Section VIII.1. Agreement to Disclose. The Parents shall
disclose or cause to be disclosed to the Partnership, the Project Companies and
to each other and their respective Affiliates all information which in the
collective judgment of the Parents is required for fulfillment of the business
purpose of the Partnership and the Project Companies.
Section VIII.2. Agreement to Keep Confidential. Each Parent
and its Affiliates will receive in confidence, will not use except in
accordance with any applicable agreements, including the DBA License, and
except for permitted purposes (as hereinafter defined), and will disclose only
to third parties under obligations of confidentiality and non-use acceptable to
the other Parent, without the prior written consent of the other Parent, any
information disclosed to a Parent or its Affiliates by the other Parent or its
Affiliates in writing, or orally or by demonstration and reduced to writing
within 15 days of disclosure, and identified as confidential at the time of
such disclosure. "Permitted purposes" shall mean (a) purposes consistent with
the business purposes of the Partnership and its affiliated Project Companies
and (b) for the purpose of providing information to any third party that is
reasonably being considered as a potential purchaser of any Interest as
permitted by Section 1.2. The care exercised by each Parent and its Affiliates
in maintaining such information in confidence shall
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be the care exercised by that Parent with respect to its own information that
it considers confidential.
Section VIII.3. Termination of Confidentiality. The
obligations set forth in Section 8.2 shall automatically terminate five years
from and after the dissolution and winding up of the Partnership and all
Project Companies or at such earlier time to the extent that information
required to be treated as confidential pursuant to Section 8.2:
(1) has become available to the public through no fault
of the receiving Parent or its Affiliates;
(2) is already known to the receiving Parent or its
Affiliates at the time of disclosure;
(3) is received by the receiving Parent or its Affiliates
from a third party without obligation of confidentiality or non-use;
or
(4) is subsequently developed by employees or consultants
of the receiving Parent or its Affiliates independently of disclosure
hereunder;
provided, however, that any disclosure of such information may be made as
otherwise required by law in the opinion of counsel to the receiving
(including, without limitation, pursuant to any federal or state securities or
public utility laws or regulations or pursuant to any legal, regulatory or
legislative proceeding) or as contemplated by the following sentence (the
"Legal
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Exception"). In the event that a receiving Parent or its Affiliates receives a
request to disclose all or any part of such information under the terms of a
valid and effective subpoena, order, civil investigative demand or similar
process or other written request issued by a court of competent jurisdiction or
by a federal, state or local, foreign or domestic, governmental or regulatory
body or agency, such receiving Parent or its affiliates agrees to the extent
practicable to (i) promptly notify the other Parent of the existence, terms and
circumstances surrounding such request, (ii) consult with the other Parent on
the advisability of taking legally available steps to resist or narrow such
request, and (iii) only disclose the information requested after complying with
clauses (i) and (ii) and exercising reasonable effort (if so requested by the
other Parent and at the other Parent's sole expense) to obtain, to the extent
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such portion of any disclosed information as the other
Parent may designate.
ARTICLE IX
Disputes
Section IX.1. Dispute Resolution. The parties shall endeavor
in good faith to resolve any controversies or claims arising out of or relating
to this Agreement, the Partnership Agreement or any Partnership, Parent,
shareholders' or other similar agreement for any Project Company without resort
to litigation or arbitration. To that end, if either party gives the other
written notice (the "Notice") of a claim or controversy (a "Dispute"), they
shall promptly engage in good faith discussions in an effort to resolve the
Dispute and, if either party so requests, they shall select a mutually
acceptable expert (the "Expert") to participate in the discussions, evaluate
the respective positions of the parties and advise the parties of the
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Expert's opinion as to the merits of the Dispute. Such opinion shall be
advisory only and shall not be binding on the parties. If by means of this
procedure the parties are unable to resolve the Dispute within the 60-day
period beginning when the Notice was given, then either party may commence
litigation or, if the parties so agree or if binding arbitration is mandated by
the applicable agreement, arbitration pursuant to Section 9.2. Time shall be
of the essence, and each party shall in good faith proceed with the discussions
contemplated herein. Each party shall be entitled to utilize the services of
advisers and experts in connection with those discussions. The fees and
expenses of the Expert will be borne equally by the parties. The provisions of
this Section 9.1 shall not apply where a party believes it requires a temporary
restraining order, injunction or order for specific performance issued by a
court in order to protect its interests, and time does not permit the party to
comply with the procedures and the 60-day waiting period specified in this
Section 9.1 without the risk of substantial detriment to that party. In that
event the party may apply for such judicial relief without such compliance. If
any controversy or claim is submitted to arbitration or litigation, all
counterclaims arising out of the same subject matter shall be asserted and
resolved in that arbitration or litigation.
Section IX.2. Arbitration. If the parties to a controversy
or claim arising out of or relating to this Agreement agree to submit the
matter to arbitration, then, unless the parties specify otherwise, the
following procedures will apply. The controversy or claim shall be settled by
arbitration in Houston, Texas in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The parties shall agree on one
arbitrator or, if they are unable to agree within 60 days after an arbitrator
has first been proposed, then each
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party shall select one arbitrator, and the two arbitrators so selected shall
together select the third arbitrator. Any arbitration shall be subject to the
following:
(1) Any award pursuant to such arbitration shall be
accompanied by the written opinion of a majority of the arbitrators giving
their reasons therefor and rendered within 30 days of the date of closing of
the arbitration hearing.
(2) The arbitrators shall be selected by mutual consent
of the parties from a list of arbitrators knowledgeable about the operation of
resource recovery facilities prepared by the American Arbitration Association,
but if the parties cannot so agree within 20 days of the date of request for
arbitration, the selection shall be made pursuant to the rules of such
Association.
(3) The award rendered by the arbitrators shall, solely
with respect to the particular dispute, difference or alleged breach of this
Agreement which was submitted to arbitration, be conclusive and binding upon
the parties hereto and judgment on the award may be entered in any court of
proper jurisdiction; provided, however, that nothing herein shall give the
arbitrators any authority to amend, alter or delete any term, condition or
provision of this Agreement.
(4) Each party shall pay its own expenses of arbitration
and the expenses of the arbitrators shall be equally shared; except that if any
matter or dispute raised by a party or any defense or objection thereto was
unreasonable, the arbitrators may assess, as part of the
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award, all or any part of the arbitration expenses (including reasonable
attorneys' fees) of the other party or parties and of the arbitrators against
the party raising such unreasonable matter or dispute or defense or objection
thereto.
(5) The arbitrators shall fix the time and place in
Houston, Texas, for the arbitration hearing, which shall be held within 45 days
after appointment of the arbitrators. Notice of such hearing shall be given by
the arbitrators to the parties at least 20 days in advance, unless the parties
by mutual agreement waive such notice.
(6) The parties shall submit all documents and proof upon
which they intend to rely within 30 days after the appointment of the
arbitrators. All parties shall be afforded a reasonable opportunity to examine
such documents and proof prior to any hearing.
(7) The arbitrators, when authorized by law to subpoena
witnesses or documents, may do so upon their own initiative or upon the request
of any party. All evidence shall be taken in the presence of the arbitrators
and all of the parties, except when any of the parties is absent in default, or
has waived the right to be present.
(8) Any party may be represented by counsel. A party
intending to be so represented shall notify the other party or parties and the
arbitrators of the name and address of counsel at least three days prior to the
date set for the hearing at which counsel is first to appear. When an
arbitration is initiated by counsel, or where any attorney replies for another
party, such notice is deemed to have been given by such party.
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(9) The parties may modify any period of time by mutual
agreement. The arbitrators for good cause may extend any period of time
established by this Agreement, except the time for making the award. The panel
shall notify the parties of any such extension of time and its reason therefor.
(10) The scope of discovery allowed with respect to the
arbitration proceeding shall be the same as that allowed under the Federal
Rules of Civil Procedure.
(11) If a controversy or claim that is to be settled by
arbitration pursuant to this Agreement also arises under the Partnership
Agreement or a Partnership Agreement, Parent Agreement, shareholders' agreement
or similar agreement for any Project Company or any Project Agreement, the
matter shall, to the extent permitted by the applicable agreements, be resolved
in one combined arbitration proceeding, with each Parent and its Affiliates
acting as only one party.
Section IX.3. Specific Performance. The parties acknowledge
that the failure of either party to substantially perform its material
obligations and covenants under this Agreement may result in a significant
frustration of the respective business objectives of the parties under this
Agreement and that the remedies at law may be inadequate to protect the rights
and interests of the other party. Accordingly, the parties, in addition to the
remedies otherwise available under the law for the enforcement of this
Agreement and in view of Section 10.1, expressly consent to an order for
specific performance of such obligations and
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covenants of a party or an order granting other substantially equivalent
equitable remedies calculated to require performance of any such covenants or
obligations.
ARTICLE X
Miscellaneous
Section X.1. Damages. A Parent and its Affiliates shall not
be entitled to recover from the other Parent or its Affiliates special or
consequential damages, or damages for anticipated future profits, loss of
business opportunities or other similar speculative damages for breach of any
covenant or understanding set forth in this Agreement or the Partnership
Agreement, and shall only be entitled to seek reimbursement for the actual
out-of-pocket costs and expenses incurred by the non-breaching party as a
direct result of the conduct of the breaching party (except as provided in
Section 2.2(c) for a right of liquidated damages).
Section X.2. Representations, Warranties and Covenants. (1)
Each party represents and warrants, as of the date hereof (the "Execution
Date"), as follows:
(1) It is a corporation duly incorporated or limited
liability company duly formed and validly existing in good standing
under the laws of the State of its formation, and is duly authorized,
qualified, permitted and licensed under all applicable laws,
regulations, ordinances and orders of public authorities to carry on
its business in the places and in the manner as now conducted (except
where failure to be so authorized, qualified, permitted and licensed
would not have a material adverse effect
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on the business, operations, properties, assets or financial condition
of such corporation or limited liability company).
(2) It is not a party to any contract, agreement or other
commitment or instrument or subject to any charter or other corporate
restriction or subject to any restriction or condition contained in
any permit, license, judgment, order, writ, injunction, decree or
award which would prevent or restrict its ability to enter into and
perform its obligations under this Agreement or which materially and
adversely affects or in the future is expected (as far as such party
can, as of the Execution Date, reasonably foresee) to materially and
adversely affect its business operations, properties, assets or
conditions (financial or otherwise) considered as a consolidated
enterprise.
(3) Its execution and delivery of this Agreement and the
performance of the transactions contemplated herein have been duly and
validly authorized by any necessary corporate action and this
Agreement will be, when executed and delivered, its legal, valid and
binding obligation.
(2) BFI represents and warrants that it is not a public
utility or public utility holding company as such terms are used in the Federal
Power Act, PUHCA, PURPA or any other federal law or state law regulating the
cogeneration, generation, transmission, distribution, sale, marketing or
trading of electrical energy or capacity.
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(3) Duke/UAE Ref-Fuel represents and warrants that its
purchase of the Interests will not (i) violate, or substantially increase the
regulatory obligations of the Partnership or any Project Company under, the
Federal Power Act, PUHCA, PURPA or any other federal law or any state law
regulating the cogeneration, generation, transmission, distribution, sale,
marketing or trading of electrical energy or capacity, or (ii) cause any
electric generating facility owned or operated by a Project Company to lose its
status as a qualifying facility under PURPA.
(4) Each party covenants and agrees that it shall not
take any action or enter into any agreement that would (i) violate, or
substantially increase the regulatory obligations of the Partnership or any
Project Company under, the Federal Power Act, PUHCA, PURPA or any other federal
law or any state law regulating the cogeneration, generation, transmission,
distribution, sale, marketing or trading of electrical energy or capacity, or
(ii) cause any electric generating facility owned or operated by a Project
Company to lose its status as a qualifying facility under PURPA.
Section X.3. Notices.
(1) Any notice required or permitted to be given pursuant
to this Agreement shall be in writing and shall be sufficient if personally
delivered or sent by air courier, or by certified or registered mail (return
receipt requested) properly stamped and addressed, or by telecopy, as follows:
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<PAGE> 53
(1) If to Duke/UAE Ref-Fuel, addressed to Duke/UAE
Ref-Fuel LLC, 50 Tice Boulevard, Woodcliff Lake, NJ 07675, marked for
the attention of the Secretary (telecopy no. (201) 307-1020).
(2) If to BFI, addressed to, in the case of mail
delivery, P.O. Box 3151, Houston, Texas 77253, or, in the case of
other delivery, 757 N. Eldridge, Houston, Texas 77079, in either case
marked for the attention of the Secretary, with a copy sent to the
same address marked for the attention of the Chairman, American Ref-
Fuel Company (telecopy no. (713) 870-7825).
(20 Either party may change its address by giving written
notice of its new address to the other party.
SECTION X.4. CHOICE OF LAW. THIS AGREEMENT AND ALL RIGHTS
AND LIABILITIES OF THE PARTIES SHALL BE SUBJECT TO AND GOVERNED BY THE LAWS OF
THE STATE OP DELAWARE.
Section X.5. Binding Effect; Amendments. This Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective legal representatives, successors and permitted assigns. The
written agreement of both Parents is required for any amendment to this
Agreement. Nothing in this Agreement shall be deemed to create any right in
any third party and this Agreement shall not be construed in any respect to be
a contract in whole or in part for the benefit of any third party, except as
expressly provided herein.
50
<PAGE> 54
Section X.6. Multiple Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be an original hereof
for all purposes, and shall be binding upon the party so signing, irrespective
of whether or not both parties executed each counterpart, but all of which
shall be and constitute one instrument.
Section X.7. Gender and Number. Whenever the context
requires, the gender of all words used herein shall include the masculine,
feminine or neuter, and the number of all words shall include the singular and
plural.
Section X.8. Definitions. Capitalized terms used herein but
not specifically defined shall have the meanings ascribed to them in the
Partnership Agreement.
Section X.9. Severability. If any provision of this
Agreement, or the application thereof, shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby, but rather shall be enforced to the maximum extent
permissible under applicable law. The Parents shall negotiate in good faith
regarding amendments to this Agreement that would, to the maximum extent
permissible under applicable law, effectuate the intent of any provision
determined to be invalid or unenforceable.
51
<PAGE> 55
Section X.10. Headings, etc. Captions and headings contained
in this Agreement are for ease of reference only and do not constitute a part
of this Agreement.
Section X.11. Obligations of Affiliates. Whenever this
Agreement provides for obligations of an Affiliate of a Parent, the failure of
the Affiliate to perform those obligations shall be deemed a breach of this
Agreement by that Parent, but shall not give rise to any cause of action
against the Affiliate pursuant to this Agreement (although a cause of action
regarding such failure may arise pursuant to an agreement to which the
Affiliate is a party). For the avoidance of doubt, the Partnership shall not
be considered an Affiliate of either Parent.
52
<PAGE> 56
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed as of the date first above written.
DUKE CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
UNITED AMERICAN ENERGY CORP.
By:
------------------------------
Name:
Title:
DUKE/UAE REF-FUEL LLC
By:
------------------------------
Name:
Title:
BROWNING-FERRIS INDUSTRIES, INC.
By:
------------------------------
53
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT
TO
AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT AGREEMENT
AND AMENDMENT TO NOTES
THIS FIRST AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY REVOLVING
CREDIT AGREEMENT AND AMENDMENT TO NOTES (this "Amendment") dated as of December
26, 1997 is among BROWNING-FERRIS INDUSTRIES, INC., a Delaware corporation (the
"Company"), the banks and other financial institutions listed on the signature
pages under the heading Banks (collectively, the "Banks"), and CREDIT SUISSE
FIRST BOSTON, as administrative agent (in such capacity, the "Administrative
Agent"), for the Banks.
PRELIMINARY STATEMENT
(a) The Company, the Banks and the Administrative Agent executed
an Amended and Restated Multicurrency Revolving Credit Agreement dated as of
December 27, 1996 (the "Credit Agreement"), pursuant to which the Banks agreed
to extend credit thereunder in an aggregate principal amount not in excess of
$750,000,000 at any time outstanding.
(b) The Company wishes to reduce the Total Commitment to
$500,000,000 and has requested an extension of the Termination Date to December
24, 1998.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Company, the Banks and the
Administrative Agent hereby agree as follows:
SECTION 1. Definitions and Interpretations. (a) All
capitalized terms defined in
<PAGE> 2
the Credit Agreement and not otherwise defined herein shall have the same
meanings herein as in the Credit Agreement.
(b) In this Amendment, unless a clear contrary intention appears:
(i) the singular number includes the plural number and
vice versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Amendment as a whole and not to
any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by this Amendment, and reference to a Person in
a particular capacity excludes such Person in any other capacity or
individually, provided that nothing in this clause (iv) is intended to
authorize any assignment not otherwise permitted by this Amendment;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Amendment) means such agreement, document or instrument as amended,
supplemented or modified and in effect from time to time in accordance
with the terms thereof and, if applicable, the terms hereof, and
reference to any Note or other note includes any note issued pursuant
hereto in extension or renewal thereof and in substitution or
replacement therefor;
(vi) unless the context indicates otherwise, reference to
any Article or Section means such Article or Section hereof;
<PAGE> 3
(vii) the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of
time, except as expressly provided to the contrary, the word "from"
means "from and including" and the word "to" means "to but excluding";
and
(ix) reference to any law, rule or regulation means such
as amended, modified, codified or reenacted, in whole or in part, and
in effect from time to time.
(c) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
(d) No provision of this Amendment shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
SECTION 2. Amendments to Section 1.01 of the Credit Agreement. The
definitions of the terms "Commitment" and "Termination Date" contained in
Section 1.01 of the Credit Agreement are hereby amended in their entirety to
read as follows:
"Commitment" means, with respect to each Bank, the amount set forth
beneath the name of such Bank on the signature pages of the First Amendment
to Amended and Restated Multicurrency Revolving Credit Agreement and
Amendment to Notes dated as of December 26, 1997 (or, as to any Person who
becomes a Bank after December 26, l997, on the signature page of the
Assignment and Acceptance executed by such Person), as such amount may be
permanently terminated or reduced from time to time pursuant to Section
2.11,
<PAGE> 4
Section 2.12(d), Section 2.13, Section 2.14 or Section 9.11, and as such
amount may be increased from time to time by assignment or assumption
pursuant to Section 2.13, Section 2.14 or Section 9.11. The Commitment of
each Bank shall automatically and permanently terminate on the Termination
Date.
"Termination Date" means December 24, 1998 or the earlier maturity of
the Revolving Credit Loans pursuant to Section 2.11 or Section 6.01.
SECTION 3. Amendment to Exhibit 1.01C. Exhibit 1.01C is hereby
amended by deleting the number "750,000,000" and the words "SEVEN HUNDRED FIFTY
MILLION" and substituting therefor the number "500,000,000" and the words "FIVE
HUNDRED MILLION", respectively.
SECTION 4. Amendment to Notes. (a) The Committed Note of each
Bank other than Credit Suisse First Boston is hereby amended by deleting the
number "56,000,000" and the words "FIFTY-SIX MILLION" and substituting therefor
the number "37,500,000" and the words "THIRTY-SEVEN MILLION FIVE HUNDRED
THOUSAND", respectively.
(b) The Committed Note of Credit Suisse First Boston is hereby
amended by deleting the number "78,000,000" and the words "SEVENTY-EIGHT
MILLION" and substituting therefor the number "50,000,000" and the words "FIFTY
MILLION", respectively.
(c) The Competitive Note of each Bank is hereby amended by
deleting the number "750,000,000" and the words "SEVEN HUNDRED FIFTY MILLION"
and substituting therefor the number "500,000,000" and the words "FIVE HUNDRED
MILLION", respectively.
<PAGE> 5
SECTION 5. Conditions to Effectiveness. This Amendment shall become
effective when, and only when, the following conditions have been fulfilled:
(a) the Company and the Banks shall have executed a counterpart of
this Amendment; and
(b) the Administrative Agent shall have executed a counterpart of
this Amendment and shall have received counterparts of this Amendment executed
by the Company and the Banks.
SECTION 6. Representations and Warranties True; No Default or Event
of Default. The Company hereby represents and warrants to the Administrative
Agent and the Banks that after giving effect to the execution and delivery of
this Amendment (a) the representations and warranties set forth in the Credit
Agreement are true and correct on the date hereof as though made on and as of
such date and (b) no Default or Event of Default has occurred and is
continuing.
SECTION 7. Reference to the Credit Agreement and Effect on the Other
Documents. (a) Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement," "hereunder," "herein" or words of like
import shall mean and be a reference to the Credit Agreement, as amended and
affected hereby.
(b) Upon the effectiveness of this Amendment, each reference in
the Notes to "the Credit Agreement" shall mean and be a reference to the Credit
Agreement, as amended and affected hereby.
(c) Upon the effectiveness of this Amendment, each reference to
"Exhibit 1.01C" shall mean and be a reference to "Exhibit 1.01C", as amended
hereby.
<PAGE> 6
(d) Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to the Notes shall mean and be a reference to the Notes,
as amended and affected hereby.
(e) Upon the effectiveness of this Amendment, each reference in
the Credit Agreement and the Notes to the "Commitment," and "Termination Date"
shall mean and be a reference to such terms as modified pursuant to Section 2.
(f) The Credit Agreement and the Notes, as amended and affected
hereby, shall remain in full force and effect and are hereby ratified and
confirmed.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE BANKS AND
THE ADMINISTRATIVE AGENT AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
SECTION 9. FINAL AGREEMENT OF THE PARTIES. THE CREDIT AGREEMENT
(INCLUDING THE EXHIBITS AND SCHEDULES THERETO), AS AMENDED HEREBY, THE NOTES
AND THE ADMINISTRATIVE AGENT'S LETTER, CONSTITUTE A "LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES RESPECTING THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES RESPECTING THE SUBJECT MATTER HEREOF AND THEREOF.
<PAGE> 7
SECTION 10. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed effective as of the date first stated herein, by their respective
officers thereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
By:
Name:
Title:
<PAGE> 8
CREDIT SUISSE FIRST BOSTON, AS
ADMINISTRATIVE AGENT
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 9
BY: ABN AMRO NORTH AMERICA, INC., AS AGENT
By:
Name:
Title:
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 10
BANK OF AMERICA ILLINOIS
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 11
BANQUE NATIONALE DE PARIS
HOUSTON AGENCY
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 12
CITICORP USA, INC.
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 13
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 14
CREDIT SUISSE FIRST BOSTON
By:
Name:
Title:
By:
Name:
Title:
Commitment: $50,000,000
<PAGE> 15
DEUTSCHE BANK AG NEW YORK BRANCH
AND CAYMAN ISLAND BRANCH
By:
Name:
Title:
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 16
THE FIRST NATIONAL BANK OF CHICAGO
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 17
THE FUJI BANK, LIMITED
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 18
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 19
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 20
SOCIETE GENERALE,
SOUTHWEST AGENCY
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 21
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By:
Name:
Title:
Commitment: $37,500,000
<PAGE> 1
EXHIBIT 10.4
BROWNING-FERRIS INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
THIS INDENTURE is made effective as of January 1, 1998, by BROWNING-FERRIS
INDUSTRIES, INC., a corporation duly organized and existing under the laws of
the State of Delaware (hereinafter called the "Primary Sponsor").
INTRODUCTION
The Primary Sponsor desires to establish an unfunded plan of deferred
compensation primarily for the purpose of providing deferred compensation to one
or more individuals who are part of a select group of management or highly
compensated employees.
The Primary Sponsor intends the Plan to be a plan described in Section
301(a)(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
NOW, THEREFORE, the Primary Sponsor does hereby establish the
Browning-Ferris Industries, Inc. Deferred Compensation Plan (the "Plan"),
effective as of January 1, 1998, to read as follows:
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 DEFINITIONS.......................................................... 1
SECTION 2 DEFERRAL CREDITS..................................................... 3
SECTION 3 HYPOTHETICAL INVESTMENT OF ACCOUNTS.................................. 3
SECTION 4 RATE OF RETURN....................................................... 4
SECTION 5 HARDSHIP WITHDRAWALS................................................. 5
SECTION 6 PAYMENT OF BENEFITS.................................................. 6
SECTION 7 DEATH BENEFITS....................................................... 7
SECTION 8 ADMINISTRATION OF THE PLAN........................................... 7
SECTION 9 CLAIM REVIEW PROCEDURE............................................... 9
SECTION 10 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEES
AND UNCLAIMS PAYMENTS ............................................... 10
SECTION 11 LIMITATION OF RIGHTS................................................. 11
SECTION 12 AMENDMENT TO OR TERMINATION OF THE PLAN.............................. 11
SECTION 13 ADOPTION OF THE PLAN BY AFFILIATES................................... 12
SECTION 14 MISCELLANEOUS........................................................ 12
</TABLE>
-i-
<PAGE> 3
SECTION 1
DEFINITIONS
Wherever used herein, the masculine pronoun will be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise and the following words and phrases shall, when used herein,
have the meanings set forth below:
1.1 "Account" means the account established and maintained by the Plan
Administrator on the bookkeeping records of the Plan Sponsor
reflecting the amount of a Member's deferred amounts from deferred
compensation agreements with a Plan Sponsor entered into before the
date of this Plan and deferrals and the rate of return credited to the
account in accordance with Plan Sections 2, 3, and 4. The Account at
any time shall reflect the total amount of the Member's Subaccounts.
1.2 "Affiliate" means (a) any corporation which is a member of the same
controlled group of corporations (within the meaning of Code Section
414(b)) as is a Plan Sponsor, and (b) any other trade or business
(whether or not incorporated) under common control (within the meaning
of Code Section 414(c)) with a Plan Sponsor.
1.3 "Annual Compensation" means the amount paid to an Employee by a Plan
Sponsor during the Plan Year as regular or base salary or wages
(excluding bonuses), before any deferrals by the Member under the Plan
and any amounts contributed by a Plan Sponsor during the Plan Year
pursuant to a salary reduction agreement and which is not includible
in the gross income of an Employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code.
1.4 "Beneficiary" means the person or trust that a Member designated most
recently in writing to the Plan Administrator; provided, however, that
if the Member has failed to make a designation, no person designated
is alive, no trust has been established, or no successor Beneficiary
has been designated who is alive, the term "Beneficiary" means the
deceased Member's estate.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Compensation Committee" means the Compensation Committee of the Board
of Directors of the Primary Sponsor.
1.7 "Deferral Form" means the election form completed by the Member
indicating the percentage of his compensation and bonus that he wishes
to defer and indicating the form and time of distribution.
<PAGE> 4
1.8 "Eligible Employee" means any Employee of a Plan Sponsor who is both
determined by the Plan Administrator to be a member of a "select group
of management and highly compensated employees," within the meaning of
ERISA Section 301(a)(3), and selected by the Plan Administrator for
participation in the Plan.
1.9 "Employee" means any person who is designated on the records of the
Plan Sponsor as being employed by a Plan Sponsor or an Affiliate for
purposes of the Federal Insurance Contributions Act.
1.10 "Investment Fund" means each individual investment fund established by
the Plan Administrator for purposes of determining the balance of each
Member's Account.
1.11 "Member" means any Employee or former Employee who has become a
participant in the Plan, for so long as his Account has not been fully
distributed.
1.12 "Plan Administrator" means the Primary Sponsor, unless the
Compensation Committee designates another organization or person to
administer the Plan.
1.13 "Plan Sponsor" means individually the Primary Sponsor and any
Affiliate or other entity which has adopted the Plan.
1.14 "Plan Year" means the calendar year.
1.15 "Subaccount" means the subaccount of each Member's Account reflecting
the portion of the Member's Account hypothetically invested in each
Investment Fund.
1.16 "Valuation Date" means the last business day of the month of the
entity maintaining the investments in which the Individual Funds are
invested, if such entity values such Individual Funds on such basis;
provided, however, that the Plan Administrator may in its sole
discretion provide for more or less frequent Valuation Dates with
respect to Individual Funds.
-2-
<PAGE> 5
SECTION 2
DEFERRAL CREDITS
Any Member who is an Eligible Employee may elect to defer a portion of
his Annual Compensation and bonuses in amounts not to exceed any limit
established by the Plan Administrator pursuant to the Deferral Form. The
deferral will relate only to the portion of the Member's Annual Compensation and
bonuses which have not yet been earned by the Member. The election must be made
in such form and subject to such rules and limitations as the Plan Administrator
may prescribe and shall specify the amount of Annual Compensation and bonuses
that the Member desires to defer. As of each Valuation Date, the Plan
Administrator shall credit the Account of the Member in the amount deferred by
the Member pursuant to this Plan Section since the prior Valuation Date. Once a
Member has made a deferral election, it will be irrevocable as to amounts
already deferred, and cannot be modified to increase or reduce the rate of
future deferrals for that Plan Year, unless otherwise permitted by the Plan
Administrator. However, a Member may revoke a deferral election at any time,
which revocation shall be effective as of the pay period coinciding with or
immediately following the date the Plan Administrator processes the revocation
pursuant to normal administrative procedures. An election shall be effective
until revoked or modified.
SECTION 3
HYPOTHETICAL INVESTMENT OF ACCOUNTS
3.1 All deferrals credited to a Member's Account shall be
hypothetically invested in such Investment Fund(s) as the Member shall direct
the Plan Administrator by notice in the form and manner prescribed by the Plan
Administrator, which direction shall be stated in whole number percentages and
may be given effect for amounts credited to the Member's Account on or after the
Valuation Date coinciding with or next following the Plan Administrator's
processing of the direction pursuant to normal administrative procedures. The
Plan Administration may require that the whole number percentages so specified
will apply both to future deferrals and existing Account balances. If no
direction is effective for the date an amount is to be credited, all amounts
which are then to be credited shall be hypothetically invested in such
Investment Fund(s) to which the Member last directed amounts to be credited, or,
if no direction is outstanding, to such Investment Fund as the Plan
Administrator in its absolute discretion determines best preserves principal. A
Member may change his investment directions only once in any calendar month
unless more frequent changes are allowed by the Plan Administrator
3.2 A Member may modify or change his investment direction at any time
and direct that a portion or all of his Subaccount hypothetically invested in
one or more of the Investment Fund(s) be transferred to another Investment Fund
by giving notice to the Plan Administrator in the form and manner prescribed by
the Plan Administrator as provided in and subject to the following rules:
-3-
<PAGE> 6
(a) Directions as to a modification or change in investment
or a transfer may be given effect for any Valuation Date coinciding
with or next following the Plan Administrator's processing of the
modification pursuant to normal administrative procedures.
(b) Any distributions to a Member pursuant to the Plan shall
be treated as a reduction pro rata from each Investment Fund in which
he has an interest, unless otherwise elected by the Member and
permitted by the Plan Administrator.
(c) A Member may change his investment directions only once
in any calendar month unless more frequent changes are allowed by the
Plan Administrator.
3.3 Each portion of a Member's Account hypothetically invested in each
Investment Fund shall be reflected as a separate Subaccount.
SECTION 4
RATE OF RETURN
4.1 The Plan Administrator shall adjust each Subaccount (except for
the Subaccount hypothetically invested in the BFI Common Stock fund) as of each
Valuation Date by a rate of return equal to the rate of return in the Investment
Fund in which the Subaccount is hypothetically invested. For purposes of
adjusting one or more of a Member's Subaccounts for rates of return on the
applicable Investment Funds, the Plan Administrator shall make such adjustments
in accordance with administrative procedures used by the Plan Administrator at
the time of such calculation, which may include but shall not be limited to
treating deferrals that are credited as of the Valuation Date as being
hypothetically invested in the Investment Fund as of an intermediate date
between that Valuation Date and the prior Valuation Date. Distributions made
between Valuation Dates may not be credited with a rate of return for the period
from the prior Valuation Date through the date of distribution.
4.2 The Subaccount hypothetically invested in the BFI Common Stock Fund
will receive a rate of return as follows:
-4-
<PAGE> 7
The opening balance of a Member's BFI Common Stock Subaccount as of
the effective date of the Plan will be his number of Share Units (defined below)
as of such date under his old deferred compensation agreements. The amount
credited to a Member's BFI Common Stock Subaccount during a month shall be
converted to that number of share units equal to the number of shares (to the
nearest hundredth of a share) of Common Stock of Browning-Ferris Industries,
Inc. ("BFI Common Stock") which could have been purchased with this amount at
the average of the closing prices on the New York Stock Exchange - Composite
Transactions, as reported in The Wall Street Journal, for shares of BFI Common
Stock for each trading day during the month (the "Share Units"). On each day on
which the Primary Sponsor pays dividends on shares of BFI Common Stock, it shall
credit a Member's BFI Common Stock Subaccount with an additional number of Share
Units equal to the number of shares (to the nearest hundredth of a share) of BFI
Common Stock which could have been purchased at the average of the high and low
prices on the New York Stock Exchange - Composite Transactions, as reported in
The Wall Street Journal, for shares of BFI Common Stock on such dividend payment
date, with the amount of dividends that would have been received on the number
of shares of BFI Common Stock equal to the number of Share Units in the Member's
BFI Common Stock Subaccount, as of the end of the month preceding the dividend
record date. In the event of any stock dividend, stock split, combination of
shares, recapitalization or the like of BFI Common Stock, BFI will make an
appropriate adjustment in the number of Share Units credited to the Member's BFI
Common Stock Subaccount. Any transfers or withdrawals from this fund may be
restricted in order to comply with the rules and regulations of the Securities
and Exchange Commission prohibiting short-swing transactions, to the extent
applicable.
SECTION 5
HARDSHIP WITHDRAWALS
5.3 A Member may make a withdrawal from his Account, prior to the time
such account is otherwise distributable in accordance with the other provisions
of the Plan; provided, however, that any such distribution shall be made only if
the Plan Administrator, in its discretion, consents to the distribution and the
Member demonstrates that he is suffering from "hardship" as determined herein.
The withdrawal will be limited to the amount necessary to meet the hardship,
after payment of taxes estimated to arise from the withdrawal. For purposes of
this Section, a distribution will be deemed to be on account of hardship if the
distribution is on account of:
(a) expenses for medical care described in Section 213(d) of
the Code incurred by the Member, his spouse, or any dependents of the
Member (as defined in Section 152 of the Code) or necessary for these
persons to obtain medical care described in Code Section 213(d);
(b) purchase (excluding mortgage payments) of a principal
residence for the Member;
-5-
<PAGE> 8
(c) payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the Member, his
spouse, children, or dependents;
(d) the need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage of the Member's
principal residence; or
(e) any other contingency determined by the Internal Revenue
Service to constitute an "immediate and heavy financial need" within
the meaning of Treasury Regulations Section 1.401(k)-1(d).
5.4 Such distribution shall be made only in the discretion of the Plan
Administrator in accordance with such rules, policies, procedures, restrictions,
and conditions as the Plan Administrator may from time to time adopt. Any
determination of the existence of hardship and the amount to be distributed on
account thereof shall be made by the Plan Administrator (or such other person as
may be required to make such decisions). A distribution under this Section shall
be made in a lump sum to the Member.
SECTION 6
PAYMENT OF BENEFITS
6.1 A Member's Account will be paid in a lump sum or in installments
with a frequency (e.g., monthly or annually) and over a period not to exceed a
number of years established by the Plan Administrator.
6.2 The Plan Administrator shall require a Member to elect the form and
timing of payment in his Deferral Form.
6.3 The Plan Administrator shall allow a Member who has not made an
irrevocable election in his first Deferral Form to change his election regarding
the time and form of payment. Such election must be made at least one year
before the commencement of receipt of payment. In such event, the Member's new
election as to timing and form of payment will be subject to the approval of the
Plan Administrator.
6.4 Notwithstanding Section 6.2 and 6.3 or any other provision hereof,
the Plan Administrator may require a Member:
(a) to commence receipt of his Account at any time after
termination of employment (which the Plan Administrator may require to
be paid in a lump sum at such date); or
-6-
<PAGE> 9
(b) to delay receipt of all or a portion of his Account in
any Plan Year to the extent necessary to avoid the disallowance of an
deduction to the Plan Sponsor pursuant to Code Section 162(m) for the
payment that would otherwise be made hereunder.
6.5 The Account of the Member will be fully vested and nonforfeitable
at all times.
6.6 Transfer of a Member from one Plan Sponsor to another Plan Sponsor
or to an Affiliate shall not be deemed for any purpose under the Plan to be a
termination of employment of the Member.
SECTION 7
DEATH BENEFITS
7.1 Upon the death of a Member, his Beneficiary shall receive his
undistributed benefit in a lump sum.
7.2 If, subsequent to the death of a Member, the Member's Beneficiary
dies while entitled to receive benefits under the Plan, the successor
Beneficiary pursuant to Section 1.4 shall be entitled to receive benefits under
the Plan.
7.3 Any benefits payable under this Section 7 shall be paid after
receipt by the Plan Administrator of due notice of the death of the Member.
SECTION 8
ADMINISTRATION OF THE PLAN
8.1 Operation of the Plan Administrator. If an organization is
appointed to serve as the Plan Administrator, then the Plan Administrator may
designate in writing a person who may act on behalf of the Plan Administrator.
The Primary Sponsor shall have the right to remove the Plan Administrator at any
time by notice in writing. The Plan Administrator may resign at any time by
written notice of resignation to the Primary Sponsor. Upon removal or
resignation, or in the event of the dissolution of the Plan Administrator, the
Primary Sponsor shall appoint a successor.
8.2 Duties of the Plan Administrator.
(a) The Plan Administrator shall make all payments under the
terms of the Plan.
-7-
<PAGE> 10
(b) The Plan Administrator shall from time to time establish
rules, not contrary to the provisions of the Plan, for the
administration of the Plan and the transaction of its business. All
elections and designations under the Plan by a Member or Beneficiary
shall be made in the form prescribed by the Plan Administrator. The
Plan Administrator shall have discretionary authority to construe the
terms of the Plan and shall determine all questions arising in the
administration, interpretation and application of the Plan, including,
but not limited to, those concerning eligibility for benefits and it
shall not act so as to discriminate in favor of any person. All
determinations of the Plan Administrator shall be conclusive and
binding on all Members and Beneficiaries, subject to the provisions of
the Plan and subject to applicable law.
(c) The Plan Administrator shall furnish Members and
Beneficiaries with all disclosures now or hereafter required by law.
The Plan Administrator shall file, as required, the various reports and
disclosures concerning the Plan and its operations as required by law,
and shall be solely responsible for establishing and maintaining all
records of the Plan.
(d) The statement of specific duties for a Plan
Administrator in this Section is not in derogation of any other duties
which a Plan Administrator has under the provisions of the Plan or
under applicable law.
8.3 Action by the Primary Sponsor or a Plan Sponsor. Any action to be
taken by the Primary Sponsor shall be taken by resolution or written direction
duly adopted by the Compensation Committee or any officer of the Primary
Sponsor. Any action to be taken by a Plan Sponsor other than the Primary Sponsor
shall be taken by resolution or written direction duly adopted by its board of
directors or appropriate governing body, as the case may be; provided, however,
that by such resolution or written direction, the board of directors or
appropriate governing body, as the case may be, may delegate to any officer or
other appropriate person of a Plan Sponsor the authority to take any such
actions as may be specified in such resolution or written direction.
8.4 Deferral Form. A Member's Deferral Form may contain other terms and
conditions not set forth in the Plan that are both approved by the Plan
Administrator and not inconsistent with the Plan. Subject to Plan Section 12.1,
the Plan Administrator may change the terms and conditions of Deferral Forms
from time to time, including retroactive changes, by notifying the Members of
such changes.
-8-
<PAGE> 11
SECTION 9
CLAIM REVIEW PROCEDURE
9.1 In the event that a Member or Beneficiary is denied a claim for
benefits under the Plan, the Plan Administrator shall provide to such claimant
written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of the
Plan on which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of
why such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
9.2 After receiving written notice of the denial of a claim, a claimant
or his representative may:
(a) request a full and fair review of such denial by written
application to the Plan Administrator;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan
Administrator.
9.3 If the claimant wishes such a review of the decision denying his
claim to benefits under the Plan, he must submit such written application to the
Plan Administrator within sixty (60) days after receiving written notice of the
denial.
9.4 Upon receiving such written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not more than thirty (30) days from the
date on which the Plan Administrator received such written application for
review.
9.5 At least ten (10) days prior to the scheduled hearing, the claimant
and his representative designated in writing by him, if any, shall receive
written notice of the date, time, and place of such scheduled hearing. The
claimant or his representative, if any, may request that the hearing be
rescheduled, for his convenience, on another reasonable date or at another
reasonable time or place.
-9-
<PAGE> 12
9.6 All claimants requesting a review of the decision denying their
claim for benefits may employ counsel for purposes of the hearing.
9.7 No later than sixty (60) days following the receipt of the written
application for review, the Plan Administrator shall submit its decision on the
review in writing to the claimant involved and to his representative, if any;
provided, however, a decision on the written application for review may be
extended, in the event special circumstances such as the need to hold a hearing
require an extension of time, to a day no later than one hundred twenty (120)
days after the date of receipt of the written application for review. The
decision shall include specific reasons for the decision and specific references
to the pertinent provisions of the Plan on which the decision is based.
SECTION 10
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEES AND UNCLAIMED PAYMENTS
10.1 No benefit which shall be payable under the Plan to any person
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law.
10.2 Whenever any benefit which shall be payable under the Plan is to
be paid to or for the benefit of any person who is then a minor or determined to
be incompetent by qualified medical advice, the Plan Administrator need not
require the appointment of a guardian or custodian, but shall be authorized to
cause the same to be paid over to the person having custody of such minor or
incompetent, or to cause the same to be paid to such minor or incompetent
without the intervention of a guardian or custodian, or to cause the same to be
paid to a legal guardian or custodian of such minor or incompetent if one has
been appointed or to cause the same to be used for the benefit of such minor or
incompetent.
-10-
<PAGE> 13
SECTION 11
LIMITATION OF RIGHTS
Membership in the Plan shall not give any person any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan by any Plan Sponsor shall not be construed to
give any Employee a right to be continued in the employ of a Plan Sponsor or as
interfering with the right of a Plan Sponsor to terminate the employment of any
Employee at any time.
SECTION 12
AMENDMENT TO OR TERMINATION OF THE PLAN
12.1 The Primary Sponsor reserves the right at any time to modify or
amend or terminate the Plan. No such modifications or amendments shall have the
effect of retroactively changing or depriving Members or Beneficiaries of rights
already accrued under the Plan, except that, notwithstanding any other provision
of the Plan, upon Plan termination the Primary Sponsor may require all Members
and Beneficiaries to receive an immediate lump sum. No Plan Sponsor other than
the Primary Sponsor shall have the right to so modify, amend or terminate the
Plan. Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan.
12.2 Each Plan Sponsor other than the Primary Sponsor shall have the
right to terminate its participation in the Plan by resolution of its board of
directors or other appropriate governing body and notice in writing to the
Primary Sponsor. Any termination by a Plan Sponsor shall not be a termination as
to any other Plan Sponsor.
12.3 If the Plan is terminated by the Primary Sponsor it shall
terminate as to all Plan Sponsors.
12.4 In the event of the termination of the Plan with respect to a Plan
Sponsor, the Accounts of the Members with respect to the Plan as adopted by such
Plan Sponsor shall be held subject to the instructions of the Plan
Administrator.
-11-
<PAGE> 14
SECTION 13
ADOPTION OF THE PLAN BY AFFILIATES
Any corporation or other business entity related to the Primary Sponsor
by function or operation and any Affiliate, if the corporation, business entity
or Affiliate is authorized to do so by written direction adopted by the
Compensation Committee, may adopt the Plan by action of the board of directors
or other appropriate governing body of such corporation, business entity or
Affiliate. Any adoption shall be evidenced by certified copies of the
resolutions of the foregoing board of directors or governing body indicating the
adoption by the adopting corporation, or business entity or Affiliate. The
resolution shall state and define the effective date of the adoption of the Plan
by the Plan Sponsor.
SECTION 14
MISCELLANEOUS
14.1 All allocations to Accounts and the investment of and returns on
Accounts shall be hypothetical and used solely for bookkeeping purposes. It is
the intent of the Primary Sponsor that the Plan is unfunded for tax purposes and
for purposes of Title I of the Employee Retirement Income Security Act of 1974.
Participants have the status of general unsecured creditors of the Plan Sponsor
and the Plan constitutes a mere promise by the Plan Sponsor to make benefit
payments in the future.
14.2 All deferrals under Section 2 of the Plan and credits pursuant to
Sections 3 and 4 of the Plan shall be general assets of the applicable Plan
Sponsor. All payments provided under the Plan shall be paid from the general
assets of the applicable Plan Sponsor.
14.3 Each Plan Sponsor shall withhold from all deferrals and benefits
payable under the Plan all federal, state and local income taxes or other taxes
required to be withheld pursuant to applicable law.
14.4 To the extent not preempted by applicable federal law, the Plan
shall be governed by and construed in accordance with the laws of the State of
Texas.
-12-
<PAGE> 15
IN WITNESS WHEREOF, the Primary Sponsor has caused this indenture to be
executed as of the date first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By:
------------------------------------
Title:
---------------------------------
ATTEST:
- -----------------------------
Title:
-----------------------
[CORPORATE SEAL]
::ODMA\PCDOCS\ATL\167845\2
-13-
<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>
Three Months
Ended December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Earnings Available for Fixed Charges:
Income before minority interest and cumulative
effect of change in accounting principle $ 89,875 $ 75,760
Income taxes 59,916 50,507
-------- --------
Income before income taxes, minority
interest and cumulative effect of change
in accounting principle 149,791 126,267
Consolidated interest expense 37,084 47,094
Interest expense related to proportionate
share of 50% owned unconsolidated
affiliates 8,005 9,258
Portion of rents representing the interest
factor 9,198 8,648
Less-Equity in earnings of affiliates
less than 50% owned 255 848
-------- --------
Total $203,823 $190,419
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $ 39,727 $ 49,951
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned unconsolidated
affiliates 8,005 9,258
Portion of rents representing the interest
factor 9,198 8,648
-------- --------
Total $ 56,930 $ 67,857
======== ========
Ratio of Earnings to Fixed Charges 3.58(1) 2.81
======== ========
</TABLE>
(1) Excluding the effects of the special credits of $2.6 million, the ratio
of earnings to fixed charges is 3.52.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements for the three months ended December
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 98,893
<SECURITIES> 0
<RECEIVABLES> 897,579
<ALLOWANCES> (39,136)
<INVENTORY> 43,936
<CURRENT-ASSETS> 1,187,191
<PP&E> 6,031,130
<DEPRECIATION> (2,557,758)
<TOTAL-ASSETS> 6,485,486
<CURRENT-LIABILITIES> 1,259,389
<BONDS> 2,300,923
0
0
<COMMON> 35,572
<OTHER-SE> 1,998,274
<TOTAL-LIABILITY-AND-EQUITY> 6,485,486
<SALES> 0
<TOTAL-REVENUES> 1,344,742
<CGS> 0
<TOTAL-COSTS> 981,359
<OTHER-EXPENSES> 180,551
<LOSS-PROVISION> 7,511
<INTEREST-EXPENSE> 35,619
<INCOME-PRETAX> 149,791
<INCOME-TAX> 59,916
<INCOME-CONTINUING> 86,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 13,763
<NET-INCOME> 72,995
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
