<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 1-12154
WASTE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-1309529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1001 FANNIN
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(713) 512-6200
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at May 9, 2000 was 621,088,479 (excluding 7,892,612 shares held in
the Waste Management, Inc. Employee Stock Benefit Trust and treasury shares of
73,709).
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<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 147,422 $ 181,357
Accounts receivable, net.................................. 1,614,113 1,907,287
Parts and supplies........................................ 115,160 107,222
Deferred income taxes..................................... 291,479 298,433
Prepaid expenses and other................................ 154,198 190,744
Operations held for sale.................................. 3,583,650 3,535,502
----------- -----------
Total current assets............................... 5,906,022 6,220,545
Property and equipment, net................................. 10,136,441 10,303,803
Excess of cost over net assets of acquired businesses,
net....................................................... 5,212,046 5,185,909
Other intangible assets, net................................ 152,735 170,768
Other assets................................................ 816,937 800,399
----------- -----------
Total assets....................................... $22,224,181 $22,681,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 965,868 $ 1,062,536
Accrued liabilities....................................... 1,432,917 1,512,873
Deferred revenues......................................... 404,881 407,084
Current maturities of long-term debt...................... 2,760,371 3,098,742
Operations held for sale.................................. 1,397,985 1,408,220
----------- -----------
Total current liabilities.......................... 6,962,022 7,489,455
Long-term debt, less current maturities..................... 8,352,949 8,399,346
Deferred income taxes....................................... 807,657 729,902
Environmental liabilities................................... 849,312 837,407
Other liabilities........................................... 790,515 815,028
----------- -----------
Total liabilities.................................. 17,762,455 18,271,138
----------- -----------
Minority interest in subsidiaries........................... 8,964 7,674
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................. -- --
Common stock, $.01 par value; 1,500,000,000 shares
authorized; 629,006,157 and 627,283,618 shares issued,
respectively............................................ 6,290 6,273
Additional paid-in capital................................ 4,439,324 4,440,159
Retained earnings......................................... 717,749 662,746
Accumulated other comprehensive income (loss)............. (594,420) (563,086)
Restricted stock unearned compensation.................... (4,261) (3,936)
Treasury stock at cost, 73,709 shares..................... (3,890) (3,890)
Employee stock benefit trust at market, 7,892,612
shares.................................................. (108,030) (135,654)
----------- -----------
Total stockholders' equity......................... 4,452,762 4,402,612
----------- -----------
Total liabilities and stockholders' equity......... $22,224,181 $22,681,424
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 3
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating revenues.......................................... $3,217,309 $3,070,635
---------- ----------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 1,955,716 1,676,783
General and administrative................................ 494,011 259,938
Depreciation and amortization............................. 350,409 356,332
Merger and acquisition related costs...................... -- 17,484
Asset impairments and unusual items....................... 103,353 --
---------- ----------
2,903,489 2,310,537
---------- ----------
Income from operations...................................... 313,820 760,098
---------- ----------
Other income (expense):
Interest expense.......................................... (210,209) (176,157)
Interest income........................................... 8,848 2,818
Minority interest......................................... (5,972) (6,462)
Other income, net......................................... 13,366 14,363
---------- ----------
(193,967) (165,438)
---------- ----------
Income before income taxes.................................. 119,853 594,660
Provision for income taxes.................................. 64,850 247,972
---------- ----------
Net income.................................................. $ 55,003 $ 346,688
========== ==========
Basic earnings per common share............................. $ 0.09 $ 0.57
========== ==========
Diluted earnings per common share........................... $ 0.09 $ 0.55
========== ==========
Weighted average number of common shares outstanding........ 620,633 602,522
========== ==========
Weighted average number of common and dilutive potential
common shares outstanding................................. 621,542 642,481
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RESTRICTED STOCK
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED TREASURY
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) COMPENSATION STOCK
--------- ------ ---------- -------- ------------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1999...................... $ -- $6,273 $4,440,159 $662,746 $(563,086) $(3,936) $(3,890)
Net income................ -- -- -- 55,003 -- -- --
Common stock issued upon
exercise of stock
options and warrants and
grants of restricted
stock (including tax
benefit)................ -- 2 1,559 -- -- (685) --
Earned compensation
related to restricted
stock................... -- -- -- -- -- 360 --
Common stock issued in
connection with
litigation
settlements............. -- 11 17,141 -- -- -- --
Adjustment of employee
stock benefit trust to
market value............ -- -- (27,624) -- -- -- --
Adjustment for minimum
pension liability, net
of taxes................ -- -- -- -- 48,013 -- --
Cumulative translation
adjustment of foreign
currency statements..... -- -- -- -- (79,347) -- --
Other..................... -- 4 8,089 -- -- -- --
---- ------ ---------- -------- --------- ------- -------
Balance, March 31, 2000..... $ -- $6,290 $4,439,324 $717,749 $(594,420) $(4,261) $(3,890)
==== ====== ========== ======== ========= ======= =======
<CAPTION>
EMPLOYEE
STOCK
BENEFIT TRUST
-------------
<S> <C>
Balance, December 31,
1999...................... $(135,654)
Net income................ --
Common stock issued upon
exercise of stock
options and warrants and
grants of restricted
stock (including tax
benefit)................ --
Earned compensation
related to restricted
stock................... --
Common stock issued in
connection with
litigation
settlements............. --
Adjustment of employee
stock benefit trust to
market value............ 27,624
Adjustment for minimum
pension liability, net
of taxes................ --
Cumulative translation
adjustment of foreign
currency statements..... --
Other..................... --
---------
Balance, March 31, 2000..... $(108,030)
=========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 55,003 $ 346,688
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts................................ 13,293 8,994
Depreciation and amortization.......................... 350,409 356,332
Deferred income tax provision.......................... 38,822 129,726
Net gain on disposal of assets......................... (12,632) (7,004)
Minority interest in subsidiaries...................... 5,972 6,462
Effect of asset impairments and unusual items.......... 103,353 --
Change in assets and liabilities, net of effects of
acquisitions and divestitures:
Accounts receivable and other receivables............ 288,043 (70,506)
Prepaid expenses and other current assets............ (20,782) (88,697)
Other assets......................................... 21,049 26,683
Accounts payable and accrued liabilities............. (182,017) (34,245)
Deferred revenues and other liabilities.............. 16,712 (328,539)
Other, net........................................... (1,996) 12,570
--------- ---------
Net cash provided by operating activities................... 675,229 358,464
--------- ---------
Cash flows from investing activities:
Short-term investments.................................... 53,733 (6,466)
Acquisitions of businesses, net of cash acquired.......... (114,110) (280,797)
Capital expenditures...................................... (248,565) (281,272)
Proceeds from divestitures of businesses and other asset
sales.................................................. 62,022 275,733
Other..................................................... (43,776) 4,998
--------- ---------
Net cash used in investing activities....................... (290,696) (287,804)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 64,774 636,745
Principal payments on long-term debt...................... (481,649) (757,217)
Other..................................................... 874 24,069
--------- ---------
Net cash used in financing activities....................... (416,001) (96,403)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2,467) (1,766)
--------- ---------
Decrease in cash and cash equivalents....................... (33,935) (27,509)
Cash and cash equivalents at beginning of period............ 181,357 86,873
--------- ---------
Cash and cash equivalents at end of period.................. $ 147,422 $ 59,364
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income.................................................. $ 55,003 $346,688
-------- --------
Other comprehensive income (loss):
Foreign currency translation adjustment................... (79,347) (61,545)
Minimum pension liability adjustment, net of taxes of
$30,568 in 2000........................................ 48,013 --
-------- --------
Other comprehensive income (loss)........................... (31,334) (61,545)
-------- --------
Comprehensive income........................................ $ 23,669 $285,143
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 7
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated financial statements of Waste Management, Inc.
and subsidiaries (collectively referred to herein as the "Company", unless the
context indicates otherwise) presented herein are unaudited. In the opinion of
management, these financial statements include all adjustments necessary for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented. The results for interim periods are not
necessarily indicative of results for the entire year. The financial statements
presented herein should be read in connection with the financial statements
included in the Annual Report on Form 10-K for the year ended December 31, 1999.
As previously reported in the Company's Form 10-Q for the quarter ended
September 30, 1999 and the Company's Form 10-K for the year ended December 31,
1999, the Company concluded that its internal controls for the preparation of
interim financial information during 1999 did not provide an adequate basis for
its independent public accountants to complete reviews of the 1999 quarterly
financial information in accordance with standards established by the American
Institute of Certified Public Accountants.
The Company believes that the processes it used for the preparation of its
March 31, 2000 interim financial statements have improved. In addition, the
Company has committed substantial resources to mitigate the previously
identified control weaknesses. Management believes these efforts have enabled
the Company to produce timely and reliable interim financial statements as of
March 31, 2000 and for the three months then ended. Management further believes
that its processes will continue to improve throughout 2000, allowing it to
reduce its reliance on the use of external resources as mitigating controls,
although there can be no assurance that this will be the case.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
income and expenses and disclosures of contingent assets and liabilities at the
date of the financial statements and during the reporting period. Specifically,
with regard to landfill accounting, the Company uses engineering and accounting
estimates when projecting future development and final closure and post-closure
costs, forecasting various engineering specifications (including the prediction
of waste settlement), and future operational plans and waste volumes. Actual
results could differ materially from those estimates. See "Management's
Discussion and Analysis" elsewhere herein.
Certain reclassifications have been made to prior year amounts in the
financial statements in order to conform to the current year presentation.
1. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
Bank credit facilities..................................... $ 2,290,000 $ 2,250,000
Commercial paper, average interest of 5.5% in 1999......... -- 21,899
Senior notes and debentures, interest of 6% to 8 3/4%
through 2029............................................. 6,750,725 6,749,785
4% Convertible subordinated notes due 2002................. 535,275 535,275
5.75% Convertible subordinated notes due 2005.............. 30,735 426,726
Tax-exempt and project bonds, principal payable in periodic
installments, maturing through 2021, fixed and variable
interest rates ranging from 4.0% to 9.25% at March 31,
2000..................................................... 1,201,757 1,234,668
Installment loans, notes payable, and other, interest to
14%, maturing through 2015............................... 304,828 279,735
----------- -----------
11,113,320 11,498,088
Less current maturities.................................... 2,760,371 3,098,742
----------- -----------
$ 8,352,949 $ 8,399,346
=========== ===========
</TABLE>
6
<PAGE> 8
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a $3 billion syndicated loan facility (the "Syndicated
Facility") and a $2 billion senior revolving credit facility (the "Credit
Facility"). The Syndicated Facility requires annual renewal by the lender and
provides for a one-year term option at the Company's request in the event of
non-renewal. The Syndicated Facility is available for borrowings, including
letters of credit, and for supporting the issuance of commercial paper. The
covenant restrictions for the Syndicated Facility and Credit Facility include,
among others, interest coverage and debt capitalization ratios, limitations on
dividends, additional indebtedness and liens. The Syndicated Facility and Credit
Facility are used to refinance existing bank loans and letters of credit, to
fund acquisitions, and for working capital purposes.
At March 31, 2000, the Company had borrowings of approximately $1.8 billion
under the Syndicated Facility at an average interest rate of 7.03%, and had
borrowings of $500.0 million under the Credit Facility at 7.0% interest. The
facility fees were 0.20% and 0.25% per annum under the Syndicated Facility and
Credit Facility, respectively, at March 31, 2000. The Company had issued letters
of credit of approximately $1.2 billion in aggregate under the Syndicated
Facility and Credit Facility leaving unused and available credit capacity of
approximately $1.5 billion at March 31, 2000.
Under the terms of the Syndicated Facility and Credit Facility, the Company
is obligated to repay its indebtedness under such facilities with the cash
proceeds to be received from the divestitures of its international operations
outside North America ("WM International"), domestic non-core assets and up to
10% of its North America solid waste ("NASW") operations. Specifically, the
Company must use all of the first $1.5 billion from sales of domestic operations
to repay indebtedness under such facilities. Additionally, 50% of the net
proceeds greater than $1.5 billion but less than $2.5 billion from the sales of
domestic operations must be used to repay the indebtedness. Finally, all net
proceeds from the divestiture of the Company's WM International operations were
required to be used to repay indebtedness under the Company's Eurocurrency
facilities, all of which indebtedness, as described below, has been repaid since
March 31, 2000. The net proceeds from WM International divestitures received by
the Company after the repayment of the Eurocurrency facilities are subject to
the same requirements to repay the Syndicated Facility and Credit Facility as
net proceeds received from the sales of domestic operations.
The Company has obtained amendments to the Syndicated Facility and Credit
Facility agreements for the quarter ended March 31, 2000 to maintain compliance
with certain financial ratios. The Company anticipates that it may need to
obtain further amendments to its existing financial covenants in those
agreements in future quarters and, therefore, expects to restructure its
covenant requirements during the renewal process for its Syndicated Facility in
mid-2000. Until such restructuring is completed, the Company will continue to
classify the borrowings outstanding under its Syndicated Facility and Credit
Facility as short-term obligations. There can be no assurance the Company will
be successful in obtaining a restructuring of its covenant requirements, and
failure to obtain such a restructuring or additional amendments or waivers,
would, in the event of an actual violation by the Company, have an adverse
effect on the Company's financial condition, results of operations and cash
flows.
On December 17, 1999, the Company's two Eurocurrency facilities were
converted into two term loans totaling Euro 180.6 million (equivalent to
approximately $172.7 million at March 31, 2000). These loans are included in
current liabilities of operations held for sale as of March 31, 2000 and
December 31, 1999, as they relate to WM International operations, which are
being sold pursuant to the Company's strategic plan. The interest rate was 4.91%
for these loans as of March 31, 2000. Subsequent to March 31, 2000, the Company
repaid and terminated its Eurocurrency term loans with net proceeds from its WM
International divestiture activity.
The Company's 5.75% convertible subordinated notes due 2005 are
subordinated to all existing and future senior indebtedness of the Company. Each
note bears cash interest at the rate of two percent per annum of the $1,000
principal amount at maturity, payable semi-annually. The difference between the
principal amount at maturity of $1,000 and the $717.80 stated issue price of
each note represents the stated discount. At the option
7
<PAGE> 9
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the holder, each note was redeemable for cash by the Company on March 15,
2000, at $843.03, plus accrued interest through the date of redemption. The
notes are callable by the Company for cash, plus accrued stated discount and
accrued interest. In addition, each $1,000 principal amount note is convertible
at any time prior to maturity into approximately 18.9 shares of the Company's
common stock, subject to adjustment upon the occurrence of certain events. Upon
any such conversion, the Company has the option of paying cash equal to the
market value of the shares which would otherwise be issuable. Through March 31,
2000, the Company had repurchased, for cash, $396.7 million of these notes that
were outstanding at December 31, 1999.
2. INCOME TAXES
The differences in federal income taxes computed at the federal statutory
rate and reported income taxes for the three months ended March 31, 2000 and
1999 are primarily due to state and local income taxes, non-deductible costs
related to acquired intangibles, and non-deductible held-for-sale impairment
charges associated with certain foreign businesses.
3. EARNINGS PER SHARE
The following reconciles the number of common shares outstanding at March
31 of each year indicated to the weighted average number of common shares
outstanding and the weighted average number of common and dilutive potential
common shares outstanding for the purposes of calculating basic and dilutive
earnings per common share, respectively (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Number of common shares outstanding at end of period........ 621,040 605,940
Effect of using weighted average common shares
outstanding............................................... (407) (3,418)
------- -------
Weighted average number of common shares outstanding........ 620,633 602,522
Dilutive effect of common stock options and warrants........ 909 9,652
Diluted effect of convertible subordinated notes and
debentures................................................ -- 30,307
------- -------
Weighted average number of common and dilutive potential
common shares outstanding................................. 621,542 642,481
======= =======
</TABLE>
For the three months ended March 31,1999, interest (net of taxes) of $7.2
million has been added to net income for the diluted earnings per share
calculation. For the three months ended March 31, 2000, the effect of the
Company's convertible subordinated notes and debentures are excluded from the
dilutive earnings per share calculation since the inclusion of such items would
be antidilutive.
At March 31, 2000, there were approximately 56.6 million shares of common
stock potentially issuable with respect to stock options, warrants and
convertible debt, which could dilute basic earnings per share in the future.
8
<PAGE> 10
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents the change in the Company's equity
from transactions and other events and circumstances from nonowner sources and
includes all changes in equity except those resulting from investments by owners
and distributions to owners. The components of accumulated other comprehensive
income (loss) are as follows for the periods indicated (in thousands):
<TABLE>
<CAPTION>
MINIMUM ACCUMULATED
FOREIGN CURRENCY PENSION LIABILITY OTHER
TRANSLATION ADJUSTMENT (NET COMPREHENSIVE
ADJUSTMENT OF TAX) INCOME (LOSS)
---------------- ----------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1999................ $(430,080) $(133,006) $(563,086)
Year-to-date change..................... (79,347) 48,013 (31,334)
--------- --------- ---------
Balance, March 31, 2000................... $(509,427) $ (84,993) $(594,420)
========= ========= =========
</TABLE>
The Company is continuing the process of settling its obligations under the
qualified defined benefit plan (the "Plan") for all eligible non-union domestic
employees of Waste Management Holdings, Inc. ("WM Holdings") which was
terminated as of October 31, 1999 in connection with the merger between the
Company and WM Holdings in July 1998 (the "WM Holdings Merger"). To the extent
that the termination benefit has not yet been charged to expense, additional
minimum pension liability has been recorded as a charge to other comprehensive
income. The pension related charge recorded in the three months ended March 31,
2000 of $78.6 million, which is included in asset impairments and unusual items,
is primarily due to the settlement by the Plan of obligations to certain
participants that occurred during the three months ended March 31, 2000. The
settlements were funded by the Plan's trust and resulted in a reduction in the
minimum pension liability and a credit to other comprehensive income for the
period. The Company expects to settle the remaining obligations at various dates
through the remainder of 2000, at which time settlement expense will be recorded
and adjustments to other comprehensive income will be made. In conjunction with
the termination of the Plan, the Company expects to make payments of
approximately $185 million to the Plan's trust through the remainder of 2000.
The Company adopted a strategic plan in August 1999, one element of which
is to pursue the divestiture of its WM International operations. Upon the
divestiture of the Company's WM International operations, the foreign currency
translation losses that are included in accumulated other comprehensive income
(loss) will be recognized in the Company's statement of operations (decreasing
any gain, or increasing any loss). The accumulated foreign currency translation
loss for the Company's WM International operations was $424.7 million and $353.1
million as of March 31, 2000 and December 31, 1999, respectively; however, that
amount will fluctuate from period to period with the change in foreign currency
exchange rates. Such fluctuations may be material.
5. ENVIRONMENTAL LIABILITIES
The Company has material financial commitments for the costs associated
with its future obligations for final closure, which is the closure of the
landfill and the capping of the final uncapped areas of a landfill or costs
required by regulation associated with existing operations at a hazardous waste
treatment, storage or disposal facility which are subject to the Toxic
Substances Control Act ("TSCA") or Subtitle C of the Resource Conservation and
Recovery Act ("RCRA"), and post-closure maintenance of those facilities.
Estimates for final closure and post-closure costs are developed using input
from the Company's engineers and accountants and are reviewed by management,
typically at least once per year. The estimates are based on the Company's
interpretation of current requirements and proposed regulatory changes. For
landfills, the present value of final closure and post-closure liabilities are
accrued using the calculated rate per ton and charged to expense as airspace is
consumed such that the present value of total estimated final closure and
post-closure cost will be accrued for each landfill at the time the site
discontinues accepting waste and is closed. In the
9
<PAGE> 11
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
United States, the final closure and post-closure requirements are established
under the standards of the United States Environmental Protection Agency's
("EPA") Subtitle C and D regulations, as implemented and applied on a
state-by-state basis. Such costs may increase in the future as a result of
legislation or regulation. Final closure and post-closure accruals consider
estimates for the final cap and cover for the site, methane gas control,
leachate management and groundwater monitoring, and other operational and
maintenance costs to be incurred after the site discontinues accepting waste,
which is generally expected to be for a period of up to thirty years after final
site closure. For purchased disposal sites, the Company assesses and records a
present value-based final closure and post-closure liability at the time the
Company assumes closure responsibility based upon the estimated final closure
and post-closure costs and the percentage of airspace utilized as of such date.
Thereafter, the difference between the final closure and post-closure liability
recorded at the time of acquisition and the present value of total estimated
final closure and post-closure costs to be incurred is accrued using the
calculated rate and charged to expense as airspace is consumed. Such costs for
foreign landfills are estimated based on compliance with local laws, regulations
and customs. For other facilities, final closure and post-closure costs are
determined in consideration of regulatory requirements.
In March 1996, the EPA issued regulations that require large, municipal
solid waste landfills with significant emissions of nonmethane organic compounds
("NMOC") to install and monitor systems to collect and control landfill gas. The
regulations apply to landfills designed to accommodate 2.5 million cubic meters
or more of municipal solid waste that emit 50 megagrams or more of NMOC
emissions and that accepted waste for disposal after November 8, 1987,
regardless of whether the site is active or closed. The date by which each
affected landfill must have such a gas collection and control system depends on
whether the landfill began operations before or after May 30, 1991. In the
United States, landfills constructed, reconstructed, modified or first accepting
waste after May 30, 1991, generally were required to have systems in place by
late 1998 or within approximately 30 months of triggering the applicability
criteria. Older landfills are generally regulated by states and are required to
have landfill gas systems in place within approximately 30 months of EPA's
approval of the state program. Many state solid waste regulations already
require gas collection and control systems.
The Company has also established procedures to evaluate its potential
remedial liabilities at closed sites which it owns or operates, or to which it
transported waste, including 85 sites listed on the Superfund National
Priorities List ("NPL") as of March 31, 2000. The majority of situations
involving NPL sites relate to allegations that subsidiaries of the Company (or
their predecessors) transported waste to the facilities in question, often prior
to the acquisition of such subsidiaries by the Company. The Company routinely
reviews and evaluates sites that require remediation, including NPL sites,
giving consideration to the nature (e.g., owner, operator, transporter, or
generator), and the extent (e.g., amount and nature of waste hauled to the
location, number of years of site operation by the Company, or other relevant
factors) of the Company's alleged connection with the site, the accuracy and
strength of evidence connecting the Company to the location, the number,
connection and financial ability of other named and unnamed potentially
responsible parties ("PRPs"), and the nature and estimated cost of the likely
remedy. Cost estimates are based on management's judgment and experience in
remediating such sites for the Company as well as for unrelated parties,
information available from regulatory agencies as to costs of remediation, and
the number, financial resources and relative degree of responsibility of other
PRPs who are jointly and severally liable for remediation of a specific site, as
well as the typical allocation of costs among PRPs. These estimates are
sometimes a range of possible outcomes. In such cases, the Company provides for
the amount within the range which constitutes its best estimate. If no amount
within the range appears to be a better estimate than any other amount, then the
Company provides for the minimum amount within the range in accordance with the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 5, Accounting for Contingencies.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult, and
10
<PAGE> 12
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the ultimate outcome may differ from current estimates. However, the Company
believes that its extensive experience in the environmental services business,
as well as its involvement with a large number of sites, provides a reasonable
basis for estimating its aggregate liability. As additional information becomes
available, estimates are adjusted as necessary. While the Company does not
anticipate that any such adjustment would be material to its financial
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies, the
non-existence or inability of other PRPs to contribute to the settlements of
such liabilities, or other factors could necessitate the recording of additional
liabilities which could be material.
As part of its ongoing operations, the Company reviews its reserve
requirements for remediation and other environmental matters based on an
analysis of, among other things, the regulatory context surrounding landfills
and remaining airspace capacity in light of changes to operational efficiencies.
Accordingly, revisions to remediation reserve requirements may result in upward
or downward adjustments to income from operations in any given period.
Adjustments for final closure and post-closure estimates are accounted for
prospectively over the remaining capacity of the landfill.
Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated (3.0% at March 31, 2000
and 2% at December 31, 1999) until expected time of payment and then discounted
to present value (6.5% at March 31, 2000 and 5.5% at December 31, 1999). The
accretion of the interest related to the discounted environmental liabilities is
included in the annual calculation of the landfill's final closure and
post-closure cost per ton and is charged to operating expense as landfill
airspace is consumed.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company subsidiary having allegedly owned,
operated or transported waste to a disposal facility which is alleged to have
contaminated the environment or, in certain cases, conducted environmental
remediation activities at such sites. While the Company believes it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to a number of factors, and it is possible such
matters could have a material adverse impact on the Company's earnings for one
or more quarters or years.
The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future environmentally related remedial, defense and
tort claim costs at a number of sites. Carriers involved in these matters have
typically denied coverage and are defending against the Company's claims. While
the Company is vigorously pursuing such claims, it regularly considers
settlement opportunities when appropriate terms are offered.
6. COMMITMENTS AND CONTINGENCIES
Financial instruments -- Letters of credit, performance bonds and other
guarantees have been provided by the Company to support tax-exempt bonds,
performance of landfill final closure and post-closure requirements, insurance
contracts, and other contracts. The insurance policies are issued by a
wholly-owned insurance company subsidiary, the sole business of which is to
issue such policies to customers of the Company. In those instances where the
use of captive insurance is not acceptable, the Company has available
alternative bonding mechanisms. The Company has not experienced difficulty in
obtaining performance bonds or letters of credit for its current operations.
Because virtually no claims have been made against these financial instruments
in the past, management does not expect these instruments will have a material
adverse effect on the Company's consolidated financial statements.
Environmental matters -- The continuing business in which the Company is
engaged is intrinsically connected with the protection of the environment. As
such, a significant portion of the Company's operating costs and capital
expenditures could be characterized as costs of environmental protection. Such
costs may
11
<PAGE> 13
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increase in the future as a result of legislation or regulation, however, the
Company believes that in general it tends to benefit when environmental
regulation increases, which may increase the demand for its services, and that
it has the resources and experience to manage environmental risk. See Note 5 for
further discussion.
Litigation-- In February 1998, WM Holdings announced a restatement of
prior-period earnings for 1991 and earlier as well as for 1992 through 1996 and
the first three quarters of 1997. Many actions were brought or claims made
against WM Holdings as a result of this restatement, as set forth in earlier
annual and quarterly reports made by the Company. The Company has resolved many
of these actions and claims, as discussed in earlier filings, including the
settlement, in January 2000, of two actions, one pending in Illinois state court
and the other in Florida federal court. The following actions, however, remain
outstanding.
In July 1998, a business owner who received WM Holdings common stock in the
sale of his business to WM Holdings brought a purported class action against
that company alleging breach of warranty. In April 1999, the court in that
action granted summary judgment against WM Holdings and in favor of the
individual plaintiff. In October 1999, the court certified a class consisting of
all sellers of business assets to WM Holdings between January 1, 1990, and
February 24, 1998, whose purchase agreements with WM Holdings contained express
warranties regarding the accuracy of WM Holdings' financial statements. In March
1999, the court of appeals upheld this certification order. Also in March 1999,
the trial court granted summary judgment on the claim of breach of warranty
against WM Holdings and in favor of all members of the class except for a
discrete group of plaintiffs whose claims may have expired under applicable
statutes of limitations. The extent of damages, if any, in this class action has
not yet been determined.
In February and March 2000, two asset sellers who otherwise would have been
included in the above class, as currently defined, brought separate actions
against the Company for breach of contract and fraud, among other things. One of
the suits arises out of a transaction valued at over $200 million at the time of
closing in 1996, while the other involves a transaction in excess of $11 million
at its closing in 1995. Both suits are in their early stages and the extent of
possible damages, if any, has not yet been determined.
In December 1999, a sole plaintiff brought an action against the Company,
five former officers of WM Holdings, and WM Holdings' auditors in Illinois state
court on behalf of a proposed class of individuals who purchased WM Holdings
common stock before November 3, 1994, and who held that stock through February
24, 1998, for alleged acts of common law fraud, negligence, and breach of
fiduciary duty. The defendants have removed this action to federal court but the
case has been remanded back to the state forum. This action is in its early
stages and the extent of possible damages, if any, has not yet been determined.
Purported derivative actions have also been filed in Delaware Chancery
Court by alleged former shareholders of WM Holdings against certain former
officers and directors of WM Holdings and nominally against WM Holdings to
recover damages caused to WM Holdings as a result of the settled consolidated
federal securities class action described above. These actions have been
consolidated and plaintiffs have filed a consolidated amended complaint. The
plaintiffs seek to recover from the former officers and directors, on behalf of
WM Holdings, the amounts paid in the federal class action as well as additional
amounts based on alleged harms not at issue in the federal class action.
The Company is also aware that the United States Securities and Exchange
Commission ("SEC") has commenced a formal investigation with respect to WM
Holdings' previously filed financial statements (which were subsequently
restated) and related accounting policies, procedures and system of internal
controls. The Company intends to cooperate with such investigation. The Company
is unable to predict the outcome or impact of this investigation at this time.
In March and April 1999, two former officers of WM Holdings sued the
Company for retirement and other benefits. These actions are in their early
stages and the extent of possible damages, if any, has not yet been determined.
Additionally, a third former officer brought a similar claim, that was
subsequently dismissed,
12
<PAGE> 14
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in March 2000. The newest action included claims related to the decision by the
board of WM Holdings to recommend the merger of WM Holdings with the Company.
On July 6, 1999, the Company announced that it had lowered its expected
earnings per share for the three months ended June 30, 1999. On July 29, 1999,
the Company announced a further reduction in its expected earnings for that
period. On August 3, 1999, the Company announced a further reduction in its
expected earnings for that period and that its reported operating income for the
three months ended March 31, 1999 may have included certain unusual pretax
income items. More than 30 lawsuits that purport to be based on one or more of
these announcements were filed against the Company and certain of its officers
and directors in the United States District Court for the Southern District of
Texas. These actions have been consolidated into a single action. On September
7, 1999, a lawsuit was filed against the Company and certain of its officers and
directors in the United States District Court for the Eastern District of Texas.
Pursuant to a joint motion this case was transferred to the United States
District Court for the Southern District of Texas, to be consolidated with the
consolidated action pending there. Taken together, the plaintiffs in these
lawsuits purport to assert claims on behalf of a class of purchasers of the
Company's common stock between June 10, 1998 and August 16, 1999. Among other
things, the plaintiffs allege that the Company and certain of its officers and
directors (i) made knowingly false earnings projections for the three months
ended June 30, 1999 and (ii) failed to adequately disclose facts relating to its
earnings projections that the plaintiffs allege would have been material to
purchasers of the Company's common stock. The plaintiffs also claim that certain
of the Company's officers and directors sold common stock between March 31, 1999
and July 6, 1999 at prices allegedly known to be inflated by the alleged
material misstatements and omissions. The plaintiffs in these actions seek
damages with interest, costs and such other relief as the court deems proper.
The case is at an early stage and the extent of possible damages, if any, can
not yet be determined.
The Company is defending a lawsuit and two arbitration actions initiated by
individuals who received common stock in sale of their business to the Company
or to a company later acquired by the Company. The first of these actions was
filed in state court in Oregon in November 1999. Subsequently, two arbitrations
have been initiated, both related to the sale of businesses to Eastern
Environmental Services, Inc. ("Eastern"). For reasons similar to those alleged
in the class actions described above, or for reasons related to their
acquisition by Eastern, these individuals allege that the stock they received
was overvalued. These cases are in an early stage and the extent of possible
damages, if any, have not yet been determined.
In addition, three of the Company's shareholders have filed purported
derivative lawsuits against certain officers and directors of the Company in
connection with the events surrounding the Company's second quarter 1999
earnings projections and July 6, 1999 earnings announcement. Two of these
lawsuits were filed in the Delaware Court of Chancery on July 16, 1999 and
August 18, 1999, respectively, and one was filed in the United States District
Court for the Southern District of Texas on July 27, 1999. The Delaware cases
have been consolidated and the plaintiffs have filed an amended consolidated
complaint. The amended complaint alleges claims relating to the Company's 1999
annual and quarterly earnings, sales of Company stock by certain of the
Company's officers and directors, and alleged self-dealing by certain Company's
officers. The plaintiffs in these actions purport to allege derivative claims on
behalf of the Company against these individuals for alleged breaches of
fiduciary duty resulting from their alleged common stock sales during the three
months ended June 30, 1999 and/or their oversight of the Company's affairs. The
lawsuits name Waste Management, Inc. as a nominal defendant and seek
compensatory and punitive damages with interest, equitable and/or injunctive
relief, costs and such other relief as the respective courts deem proper. The
defendants have not yet been required to respond to the complaints.
Beginning at year end 1999 the Company became involved in a series of
disputes with Louis D. Paolino, former President and Chief Executive Officer of
Eastern and others in connection with the merger between the Company and Eastern
("the Eastern Merger"). The Company alleges, among other things, that the
defendants usurped Eastern corporate opportunities for personal gain and
otherwise mismanaged certain
13
<PAGE> 15
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
affairs of Eastern. Mr. Paolino and others allege that the Company and unnamed
others committed security fraud alleging that the stock they were issued in
connection with the Eastern Merger was over-valued because the Company failed to
disclose that it was having problems integrating the operations of WM Holdings
and the Company after the WM Holdings Merger. These disputes are in an early
state and the extent that the Company may recover damages, if any, or be
required to pay damages, if any, has not yet been determined.
The Company is aware of a lawsuit filed in state court in Houston, Texas by
several related shareholders against the Company and three of its former
officers. The Company has not been served. The petition alleges that the
plaintiffs are substantial shareholders of the Company's common stock who
intended to sell their stock in 1999, but that the individual defendants made
false and misleading statements regarding the Company's prospects that induced
the plaintiffs to retain their stock. Plaintiffs assert that the value of their
retained stock declined dramatically. Plaintiffs asserted claims for fraud,
negligent misrepresentation, and conspiracy. As neither the Company nor the
individual defendants have been served in this action, the defendants have filed
no responsive pleadings in the action.
In addition, the SEC has notified the Company of an informal inquiry into
the period ended June 30, 1999, as well as certain sales of the Company's common
stock that preceded the Company's July 6, 1999 earnings announcement.
The New York Stock Exchange has notified the Company that its Market
Trading Analysis Department is reviewing transactions in the common stock of the
Company prior to the July 6, 1999 earnings forecast announcement.
The Company is conducting a thorough investigation of each of the
allegations that have been made in connection with the Company's second quarter
1999 earnings communications. As part of this investigation, the Company's Board
of Directors has authorized a review of the allegations that have been made
against certain of the Company's officers and directors. Roderick M. Hills, a
former chairman of the SEC and chairman of the Company's Audit Committee, is
directing the review.
The Company received a Civil Investigative Demand ("CID") from the
Antitrust Division of the United States Department of Justice in July 1999
inquiring into the Company's non-hazardous solid waste operations in the State
of Massachusetts. The CID purports to have been issued for the purpose of
determining whether the Company has engaged in monopolization, illegal contracts
in restraint of trade, or anticompetitive acquisitions of disposal and/or
hauling assets. The CID requires the Company to provide the United States
Department of Justice with certain documents to assist it in its inquiry with
which the Company is fully cooperating.
On July 16, 1999, a lawsuit was filed against the Company in the Circuit
Court for Sumter County in the State of Alabama. The plaintiff in the lawsuit
purported to allege on behalf of a class of similarly situated persons that the
Company has deprived the class of lump sum payments of pension plan benefits
allegedly promised to be paid in connection with termination of the Plan. On
behalf of the purported class, the plaintiff sought compensatory and punitive
damages, costs, restitution with interest, and such relief as the Court deemed
proper. On July 29, 1999, the Company announced that it had determined to
proceed with the termination of the Plan, liquidating the Plan's assets and
settling its obligations to participants. The plaintiff voluntarily dismissed
her case on September 13, 1999. However, that same day, the same attorneys filed
another Plan-related putative class action against the Company and various
individual defendants in the United States District Court for the Middle
District of Alabama, Northern Division. This case, brought by a different
putative class representative, alleges that the defendants violated the federal
Employee Retirement Income Security Act ("ERISA") by failing to terminate the
Plan in accordance with its terms, by failing to manage Plan assets prudently
and in the interests of Plan participants, and by delaying the Plan's
termination date and the expected distribution of lump-sum pension benefits. On
behalf of the purported class, the plaintiff seeks declaratory and injunctive
relief, restitution of all losses and expenses allegedly incurred by the Plan,
14
<PAGE> 16
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment of all benefits allegedly owed to Plan participants, attorney's fees and
costs, and other "appropriate" relief under the Internal Revenue Code, ERISA and
the Plan. The case is in its early stages and the extent of possible damages, if
any, can not yet be determined.
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment and the potential for the
unintended or unpermitted discharge of materials into the environment. In the
ordinary course of conducting its business activities, the Company becomes
involved in judicial and administrative proceedings involving governmental
authorities at the foreign, federal, state, and local level, including, in
certain instances, proceedings instituted by citizens or local governmental
authorities seeking to overturn governmental action where governmental officials
or agencies are named as defendants together with the Company or one or more of
its subsidiaries, or both. In the majority of the situations where proceedings
are commenced by governmental authorities, the matters involved related to
alleged technical violations of licenses or permits pursuant to which the
Company operates or is seeking to operate or laws or regulations to which its
operations are subject or are the result of different interpretations of
applicable requirements. From time to time, the Company pays fines or penalties
in environmental proceedings relating primarily to waste treatment, storage or
disposal facilities. As of March 31, 2000, there were four proceedings involving
Company subsidiaries where the sanctions involved could potentially exceed
$100,000. The Company believes that these matters will not have a material
adverse effect on its results of operations or financial condition. However, the
outcome of any particular proceeding cannot be predicted with certainty, and the
possibility remains that technological, regulatory or enforcement developments,
the results of environmental studies or other factors could materially alter
this expectation at any time.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company's subsidiary having owned, operated or
transported waste to a disposal facility which is alleged to have contaminated
the environment or, in certain cases, conducted environmental remediation
activities at sites. Some of such lawsuits may seek to have the Company or its
subsidiaries pay the costs of groundwater monitoring and health care
examinations of allegedly affected persons for a substantial period of time even
where no actual damage is proven. While the Company believes it has meritorious
defenses to these lawsuits, their ultimate resolution is often substantially
uncertain due to the difficulty of determining the cause, extent and impact of
alleged contamination (which may have occurred over a long period of time), the
potential for successive groups of complainants to emerge, the diversity of the
individual plaintiffs' circumstances, and the potential contribution or
indemnification obligations of co-defendants or other third parties, among other
factors. Accordingly, it is possible such matters could have a material adverse
impact on the Company's financial statements.
The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under the Comprehensive Environmental Response, Compensation and
Liabilities Act of 1980, as amended ("CERCLA" or "Superfund"). The majority of
these proceedings are based on allegations that certain subsidiaries of the
Company (or their predecessors) transported hazardous substances to the sites in
question, often prior to acquisition of such subsidiaries by the Company. CERCLA
generally provides for joint and several liability for those parties owning,
operating, transporting to or disposing at the sites. Such proceedings arising
under Superfund typically involve numerous waste generators and other waste
transportation and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be substantial
and could have a material adverse effect on the Company's financial statements.
In June 1999, the Company was notified that the EPA is conducting a civil
investigation of alleged chlorofluorocarbons ("CFC") disposal violations by
Waste Management of Massachusetts, Inc. ("WMMA"), one of the Company's wholly
owned subsidiaries, to determine whether further enforcement measures are
warranted. The activities giving rise to the allegations of CFC disposal
violations appear to have
15
<PAGE> 17
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurred prior to July 30, 1998. On July 29, 1998, the EPA inspected WMMA's
operations, notified the Company of the alleged violations and issued an
Administrative Order in January 1999 requiring WMMA to comply with the CFC
regulations. WMMA is cooperating with the investigation and the Company believes
that the ultimate outcome of this matter will not have a material adverse effect
on the Company's financial statements.
In August 1999, sludge materials from trucks entering the Company's
Woodland Meadows Landfill in Michigan were seized by the FBI pursuant to an
investigation of the generator of the sludge materials, a company that provides
waste treatment services. Subsequently, the Company received two Grand Jury
subpoenas as well as requests for information from the Michigan Department of
Environmental Quality, seeking information related to the landfill's waste
acceptance practices and the Company's business relationship with the generator.
According to affidavits attached to the subpoena, the generator's treatment
plant was sold by the Company to the generator in May 1998. The Company is
cooperating with the pending investigation and believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial statements.
As of March 31, 2000, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 85 locations
listed on the NPL. Of the 85 NPL sites at which claims have been made against
the Company, 17 are sites which the Company has come to own over time. All of
the NPL sites owned by the Company were initially developed by others as land
disposal facilities. At each of the 17 owned facilities, the Company is working
in conjunction with the government to characterize or remediate identified site
problems. In addition, at these 17 facilities, the Company has either agreed
with other legally liable parties on an arrangement for sharing the costs of
remediation or is pursuing resolution of an allocation formula. The 68 NPL sites
at which claims have been made against the Company and which are not owned by
the Company are at different procedural stages under Superfund. At some of these
sites, the Company's liability is well defined as a consequence of a
governmental decision as to the appropriate remedy and an agreement among liable
parties as to the share each will pay for implementing that remedy. At others
where no remedy has been selected or the liable parties have been unable to
agree on an appropriate allocation, the Company's future costs are uncertain.
Any of these matters could have a material adverse effect on the Company's
financial statements.
In November 1998, the Company was sued by the estate of Shayne Conner, who
died on November 24, 1995 in Greenland, New Hampshire. Plaintiffs allege that
Mr. Conner's death was caused by biosolids that were applied to a nearby field
by the Company's BioGro business unit. The litigation is currently in the
discovery phase, and the Company is preparing a rebuttal to plaintiff's expert
report on causation. The Company is vigorously defending itself in the
litigation.
In February 1999, a San Bernardino County, California grand jury returned
an amended felony indictment against the Company, certain of its subsidiaries
and their current or former employees, and a County employee. The proceeding is
based on events that allegedly occurred prior to the WM Holdings Merger in
connection with a WM Holdings landfill development project. The indictment
includes allegations that certain of the defendants engaged in conduct involving
fraud, wiretapping, theft of a trade secret and manipulation of computer data,
and that they engaged in a conspiracy to do so. If convicted, the most serious
of the available sanctions against the corporate defendants would include
substantial fines and forfeitures. The Company believes that meritorious
defenses exist to each of the allegations, and the defendants are vigorously
contesting them. The Company believes that the ultimate outcome of this matter
will not have a material adverse effect on the Company's financial statements.
The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior Court in Hudson County, New
Jersey. In this action, the Company is seeking a declaratory judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to
16
<PAGE> 18
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recover defense costs and other damages incurred as a result of the assertion of
environmental liabilities against the Company or its subsidiaries for events
occurring over at least the last 25 years at approximately 140 sites and the
defendant insurance carriers' denial of coverage of such liabilities. While the
Company has reached settlements with some of the carriers, the remaining
defendants have denied liability to the Company and have asserted various
defenses, including that environmental liabilities of the type for which the
Company is seeking relief are not risks covered by the insurance policies in
question. The remaining defendants are contesting these claims vigorously.
Discovery is complete as to the 12 sites in the first phase of the case and
discovery is expected to continue for several years as to the remaining sites.
Currently, trial dates have not been set. The Company is unable at this time to
predict the outcome of this proceeding. No amounts have been recognized in the
Company's financial statements for potential recoveries.
It is not possible at this time to predict the impact that the above
lawsuits, proceedings, investigations and inquiries may have on WM Holdings or
the Company, nor is it possible to predict whether any other suits or claims may
arise out of these matters in the future. However, it is reasonably possible
that the outcome of any present or future litigation, proceedings,
investigations or inquiries may have a material adverse impact on their
respective financial conditions or results of operations in one or more future
periods. The Company and WM Holdings intend to defend themselves vigorously in
all the above matters.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. The outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty and these matters could have a
material adverse impact on the Company's financial statements.
7. SEGMENT AND RELATED INFORMATION
NASW operations is the Company's principal reportable segment. This segment
provides integrated waste management services consisting of collection,
transfer, disposal (solid waste landfill, hazardous waste landfill and
waste-to-energy facilities), recycling, and other miscellaneous services to
commercial, industrial, municipal and residential customers in North America,
including the United States, Puerto Rico, Mexico and Canada. Similar operations
in international markets outside of North America are disclosed as a separate
segment under WM International, which includes operations in Europe, the Pacific
Rim, South America and Israel. The Company's other reportable segment consists
of non-solid waste services, aggregated as a single segment for this reporting
presentation. The non-solid waste segment includes other hazardous waste
services such as chemical waste management services and low-level and other
radioactive waste management services, the Company's independent power projects,
and other non-solid waste services to commercial, industrial and government
customers, and includes business lines that are being actively marketed and
considered to be held for sale.
Summarized financial information concerning the Company's reportable
segments is shown in the following table.
<TABLE>
<CAPTION>
NORTH AMERICAN NON-SOLID CORPORATE
SOLID WASTE WM INTERNATIONAL WASTE FUNCTIONS(A) TOTAL
-------------- ---------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED:
March 31, 2000
- ----------------------------
Net operating
revenues(b)............ $2,707,983 $401,484 $107,842 $ -- $3,217,309
Earnings before interest
and taxes
(EBIT)(c),(d).......... 529,606 70,055 12,173 (194,661) 417,173
March 31, 1999
- ----------------------------
Net operating
revenues(b)............ $2,511,533 $371,091 $188,011 $ -- $3,070,635
Earnings before interest
and taxes
(EBIT)(c),(d).......... 673,515 34,991 24,363 44,713 777,582
</TABLE>
17
<PAGE> 19
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) Corporate functions include the corporate treasury function (except for
limited amounts of locally negotiated and managed project debt),
administration of corporate tax function, the corporate insurance function,
management of closed landfill and related insurance recovery functions,
other typical administrative functions and certain inter-segment
transactions.
(b) Non-solid waste revenues are net of inter-segment revenue with NASW of $4.2
million and, $17.9 million, for the three months ended March 31, 2000 and
1999 respectively. There are no other significant sales between segments.
(c) For those items included in the determination of EBIT (the earnings
measurement used by management to evaluate operating performance), the
accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies in the
Company's Form 10-K for the year ended December 31, 1999.
(d) There are no material asymmetrical allocations of EBIT versus assets
between segments or corporate. Certain asset impairments and unusual items
reported in the reconciliation of EBIT to reported net income below,
however, have resulted in adjustments to assets ultimately reflected on
segment balance sheets. Assets are net of inter-segment receivables and
investments.
The reconciliation of total EBIT reported above to net income is as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
EBIT, as reported above(a).................................. $ 417,173 $ 777,582
Less:
Merger and acquisition related costs...................... -- 17,484
Asset impairments and unusual items....................... 103,353 --
--------- ---------
Income from operations...................................... 313,820 760,098
Interest expense............................................ (210,209) (176,157)
Interest income............................................. 8,848 2,818
Minority interest........................................... (5,972) (6,462)
Other income, net........................................... 13,366 14,363
--------- ---------
Income before income taxes.................................. 119,853 594,660
Provision for income taxes.................................. 64,850 247,972
--------- ---------
Net income.................................................. $ 55,003 $ 346,688
========= =========
</TABLE>
- ---------------
(a) EBIT is defined as income from operations excluding merger and acquisition
related costs and asset impairments and unusual items.
8. OPERATIONS HELD FOR SALE
During the third quarter of 1999, the Company's Board of Directors adopted
a strategic plan, one element of which is for the Company to market for sale its
WM International operations, significant portions of its domestic non-core
businesses and selected NASW operations. As discussed in Note 2 to the financial
statements in the Company's Form 10-K for the year ended December 31, 1999, the
Company has recorded charges to write down certain of these assets.
Additionally, the Company recorded a charge in the first quarter of 2000 to
asset impairments and unusual items of approximately $24.8 million related
primarily to the Company's WM International operations, which are held for sale,
that have a carrying value greater than management's best current estimate of
anticipated proceeds. In determining fair value, the Company considered, among
other things, the range of preliminary purchase prices being discussed with
potential
18
<PAGE> 20
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
buyers. These businesses' results of operations are included in revenues and
expenses in the accompanying statement of operations.
Operational information included in the statements of operations regarding
the businesses classified as operations held for sale at March 31, 2000, is as
follows (in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN NON-SOLID
SOLID WASTE WM INTERNATIONAL WASTE TOTAL
-------------- ----------------- --------- --------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED:
March 31, 2000
Operating revenues...................... $123,259 $401,484 $54,218 $578,961
Earnings before interest and taxes(a)... 11,372 70,055 12,466 93,893
THREE MONTHS ENDED:
March 31, 1999
Operating revenues...................... $113,102 $371,091 $68,312 $552,505
Earnings before interest and taxes(a)... 2,688 34,991 10,985 48,664
</TABLE>
- ---------------
(a) EBIT is defined as income from operations excluding merger and acquisition
related costs and asset impairments and unusual items.
The Company has classified as current operations held for sale its WM
International operations and certain domestic operations, which management
believes will be divested prior to March 31, 2001. The Company has classified as
non-current operations held for sale its surplus real estate portfolio.
<TABLE>
<CAPTION>
NORTH AMERICAN WM NON-SOLID
SOLID WASTE INTERNATIONAL WASTE TOTAL
-------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
As of March 31, 2000:
Accounts receivable, net.................. $ 26,715 $ 353,693 $ 33,953 $ 414,361
Other current assets...................... 13,902 203,842 13,654 231,398
Property and equipment and other
non-current assets...................... 657,019 2,220,035 103,334 2,980,388
Current maturities of long-term debt...... (2,344) (65,224) -- (67,568)
Other current liabilities................. (19,638) (453,045) (58,465) (531,148)
Long-term debt, less current maturities... (54,326) (202,250) -- (256,576)
Other noncurrent liabilities.............. (20,245) (394,655) (14,493) (429,393)
Minority interest......................... -- (109,096) (4,204) (113,300)
-------- ----------- -------- -----------
Net operations held for sale.... $601,083 $ 1,553,300 $ 73,779 $ 2,228,162
======== =========== ======== ===========
Current assets:
Operations held for sale................ $655,139 $ 2,777,570 $150,941 $ 3,583,650
Long-term assets:
Operations held for sale (included in
other assets)........................ 42,497 -- -- 42,497
Current liabilities:
Operations held for sale................ (96,553) (1,224,270) (77,162) (1,397,985)
Long-term liabilities:
Operations held for sale (included in
other liabilities)................... -- -- -- --
-------- ----------- -------- -----------
Net operations held for sale.... $601,083 $ 1,553,300 $ 73,779 $ 2,228,162
======== =========== ======== ===========
</TABLE>
19
<PAGE> 21
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company classified as current operations held for
sale its WM International operations and certain domestic operations. The
Company classified as non-current operations held for sale certain NASW
operations, which the Company had committed to sell to Allied Waste Industries,
Inc. ("Allied") in connection with the Company's purchase of certain of Allied's
operations, as well as the Company's surplus real estate portfolio.
<TABLE>
<CAPTION>
NORTH AMERICAN WM NON-SOLID
SOLID WASTE INTERNATIONAL WASTE TOTAL
-------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1999:
Accounts receivable, net................ $ 36,506 $ 364,552 $ 32,550 $ 433,608
Other current assets.................... 14,311 208,842 14,990 238,143
Property and equipment and other
non-current assets................... 737,072 2,271,611 108,400 3,117,083
Current maturities of long-term debt.... (2,339) (51,817) -- (54,156)
Other current liabilities............... (23,854) (481,617) (62,267) (567,738)
Long-term debt, less current
maturities........................... (57,871) (212,629) -- (270,500)
Other noncurrent liabilities............ (37,814) (347,264) (13,166) (398,244)
Minority interest....................... -- (117,676) (3,705) (121,381)
--------- ----------- -------- -----------
Net operations held for sale.... $ 666,011 $ 1,634,002 $ 76,802 $ 2,376,815
========= =========== ======== ===========
Current assets:
Operations held for sale................ $ 534,557 $ 2,845,005 $155,940 $ 3,535,502
Long-term assets:
Operations held for sale (included in
other assets)........................ 253,331 -- -- 253,331
Current liabilities:
Operations held for sale................ (118,079) (1,211,003) (79,138) (1,408,220)
Long-term liabilities:
Operations held for sale (included in
other liabilities)................... (3,798) -- -- (3,798)
--------- ----------- -------- -----------
Net operations held for sale.... $ 666,011 $ 1,634,002 $ 76,802 $ 2,376,815
========= =========== ======== ===========
</TABLE>
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and derivatives used for
hedging purposes. SFAS No. 133 requires that entities recognize all derivative
financial instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 133, as
amended by SFAS No. 137, is effective for the Company in its first fiscal
quarter in 2001. Management is currently assessing the impact that the adoption
of SFAS No. 133 will have on the Company's consolidated financial statements.
10. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
WM Holdings ("Guarantor"), a wholly-owned subsidiary of Waste Management,
Inc. ("Parent"), has fully and unconditionally guaranteed all of the senior
indebtedness of the Parent, as well as the Parent's 4% convertible subordinated
notes due 2002. The Parent has fully and unconditionally guaranteed all of the
senior indebtedness of WM Holdings, as well as WM Holdings' 5.75% convertible
subordinated debentures due 2005. However, none of the Company's nor WM
Holdings' debt is guaranteed by any of the Parent's indirect subsidiaries or WM
Holdings' subsidiaries ("Non-Guarantor"). Accordingly, the following unaudited
condensed consolidating balance sheet as of March 31, 2000 and the condensed
consolidated balance sheet as of December 31, 1999, the unaudited condensed
consolidating statements of operations for the three months ended March 31, 2000
and 1999, along with the related unaudited statements of cash flows, have been
provided below (in thousands).
20
<PAGE> 22
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $ 57,290 $ 750 $ 89,382 $ -- $ 147,422
Other current assets.......... -- 36,604 5,721,996 5,758,600
----------- ---------- ------------ ----------- -----------
57,290 37,354 5,811,378 -- 5,906,022
Property and equipment, net..... -- -- 10,136,441 -- 10,136,441
Intercompany and investment in
subsidiaries.................. 11,438,171 5,780,964 (12,744,917) (4,474,218) --
Other assets.................... 19,257 9,261 6,153,200 -- 6,181,718
----------- ---------- ------------ ----------- -----------
Total assets.......... $11,514,718 $5,827,579 $ 9,356,102 $(4,474,218) $22,224,181
=========== ========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt............. $ 2,290,000 $ 250,000 $ 220,371 $ -- $ 2,760,371
Accounts payable and other
accrued liabilities........ 114,761 348,778 3,738,112 -- 4,201,651
----------- ---------- ------------ ----------- -----------
2,404,761 598,778 3,958,483 -- 6,962,022
Long-term debt, less current
maturities.................... 3,954,745 3,111,989 1,286,215 -- 8,352,949
Other liabilities............... -- -- 2,447,484 -- 2,447,484
----------- ---------- ------------ ----------- -----------
Total liabilities..... 6,359,506 3,710,767 7,692,182 -- 17,762,455
Minority interest in
subsidiaries.................. -- 8,964 8,964
Stockholders' equity............ 5,155,212 2,116,812 1,654,956 (4,474,218) 4,452,762
----------- ---------- ------------ ----------- -----------
Total liabilities and
stockholders'
equity.............. $11,514,718 $5,827,579 $ 9,356,102 $(4,474,218) $22,224,181
=========== ========== ============ =========== ===========
</TABLE>
21
<PAGE> 23
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $ 33,690 $ 4,496 $ 143,171 $ -- $ 181,357
Other current assets.......... -- 36,604 6,002,584 -- 6,039,188
----------- ---------- ------------ ----------- -----------
33,690 41,100 6,145,755 -- 6,220,545
Property and equipment, net..... -- -- 10,303,803 -- 10,303,803
Intercompany and investment in
subsidiaries.................. 11,367,467 5,939,729 (13,139,748) (4,167,448) --
Other assets.................... 27,004 9,795 6,120,277 -- 6,157,076
----------- ---------- ------------ ----------- -----------
Total assets.......... $11,428,161 $5,990,624 $ 9,430,087 $(4,167,448) $22,681,424
=========== ========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt............. $ 2,271,899 $ 250,000 $ 576,843 $ -- $ 3,098,742
Accounts payable and other
accrued liabilities........ 100,978 325,644 3,964,091 -- 4,390,713
----------- ---------- ------------ ----------- -----------
2,372,877 575,644 4,540,934 -- 7,489,455
Long-term debt, less current
maturities................. 3,953,932 3,507,853 937,561 -- 8,399,346
Other liabilities............. -- -- 2,382,337 -- 2,382,337
----------- ---------- ------------ ----------- -----------
Total liabilities..... 6,326,809 4,083,497 7,860,832 -- 18,271,138
Minority interest in
subsidiaries.................. -- -- 7,674 -- 7,674
Stockholders' equity............ 5,101,352 1,907,127 1,561,581 (4,167,448) 4,402,612
----------- ---------- ------------ ----------- -----------
Total liabilities and
stockholders'
equity.............. $11,428,161 $5,990,624 $ 9,430,087 $(4,167,448) $22,681,424
=========== ========== ============ =========== ===========
</TABLE>
22
<PAGE> 24
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING FINANCIAL STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating revenues............... $ -- $ -- $3,217,309 $ -- $3,217,309
Costs and expenses............... -- -- 2,903,489 -- 2,903,489
--------- -------- ---------- --------- ----------
Income from operations........... -- -- 313,820 -- 313,820
--------- -------- ---------- --------- ----------
Other income (expense):
Interest income (expense),
net......................... (126,471) (61,879) (13,011) -- (201,361)
Equity in subsidiaries, net of
taxes....................... 134,048 172,722 -- (306,770) --
Minority interest.............. -- -- (5,972) -- (5,972)
Other, net..................... -- -- 13,366 -- 13,366
--------- -------- ---------- --------- ----------
7,577 110,843 308,203 (306,770) 119,853
Provision for (benefit from)
income taxes................... (47,426) (23,205) 135,481 -- 64,850
--------- -------- ---------- --------- ----------
Net income....................... $ 55,003 $134,048 $ 172,722 $(306,770) $ 55,003
========= ======== ========== ========= ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
-------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating revenues................ $ -- $ -- $3,070,635 $ -- $3,070,635
Costs and expenses................ -- -- 2,310,537 -- 2,310,537
-------- -------- ---------- --------- ----------
Income from operations............ -- -- 760,098 -- 760,098
-------- -------- ---------- --------- ----------
Other income (expense):
Interest income (expense),
net.......................... (85,965) (72,248) (15,126) -- (173,339)
Equity in subsidiaries, net of
taxes........................ 400,416 445,571 -- (845,987) --
Minority interest............... -- -- (6,462) -- (6,462)
Other, net...................... -- -- 14,363 -- 14,363
-------- -------- ---------- --------- ----------
314,451 373,323 752,873 (845,987) 594,660
Provision for (benefit from)
income taxes.................... (32,237) (27,093) 307,302 -- 247,972
-------- -------- ---------- --------- ----------
Net income........................ $346,688 $400,416 $ 445,571 $(845,987) $ 346,688
======== ======== ========== ========= ==========
</TABLE>
23
<PAGE> 25
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 55,003 $ 134,048 $ 172,722 $(306,770) $ 55,003
Equity in earnings of
subsidiaries, net of
taxes...................... (134,048) (172,722) -- 306,770 --
Other adjustments and
charges.................... 28,913 93,493 497,820 -- 620,226
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... (50,132) 54,819 670,542 -- 675,229
--------- --------- --------- --------- ---------
Cash flows from investing
activities:
Short-term investments........ -- -- 53,733 -- 53,733
Acquisitions of businesses,
net of cash acquired....... -- -- (114,110) -- (114,110)
Capital expenditures.......... -- -- (248,565) -- (248,565)
Proceeds from sale of
assets..................... -- -- 62,022 -- 62,022
Other, net.................... -- -- (43,776) -- (43,776)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... -- -- (290,696) -- (290,696)
--------- --------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............. 40,000 -- 24,774 -- 64,774
Principal payments on
long-term debt............. (21,899) (396,684) (63,066) -- (481,649)
(Increase) decrease in
intercompany and
investments, net........... 55,631 338,119 (393,750) -- --
Other, net.................... 874 -- 874
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... 73,732 (58,565) (431,168) -- (416,001)
--------- --------- --------- --------- ---------
Effect of exchange rate changes
on cash and cash
equivalents................... -- -- (2,467) -- (2,467)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and
cash equivalents.............. 23,600 (3,746) (53,789) -- (33,935)
Cash and cash equivalents at
beginning of period........... 33,690 4,496 143,171 -- 181,357
--------- --------- --------- --------- ---------
Cash and cash equivalents at end
of period..................... $ 57,290 $ 750 $ 89,382 $ -- $ 147,422
========= ========= ========= ========= =========
</TABLE>
24
<PAGE> 26
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income.................... $ 346,688 $ 400,416 $ 445,571 $(845,987) $ 346,688
Equity in earnings of
subsidiaries, net of
taxes...................... (400,416) (445,571) -- 845,987 --
Other adjustments and
changes.................... (786) 35,195 (22,633) -- 11,776
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... (54,514) (9,960) 422,938 -- 358,464
--------- --------- --------- --------- ---------
Cash flows from investing
activities
Short-term investments........ -- -- (6,466) -- (6,466)
Acquisitions of businesses,
net of cash acquired....... -- -- (280,797) -- (280,797)
Capital expenditures.......... -- -- (281,272) -- (281,272)
Proceeds from sale of
assets..................... -- -- 275,733 -- 275,733
Other, net.................... -- -- 4,998 -- 4,998
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... -- -- (287,804) -- (287,804)
--------- --------- --------- --------- ---------
Cash flows from financing
activities
Proceeds from issuance of
long-term debt............. 629,384 -- 7,361 -- 636,745
Principal payments on
long-term debt............. (519,532) 1,573 (239,258) -- (757,217)
Proceeds from exercise of
common stock options and
warrants................... 24,069 -- -- -- 24,069
(Increase) decrease in amounts
due to and from
subsidiaries, net.......... (72,314) (6,340) 78,654 -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities....... 61,607 (4,767) (153,243) -- (96,403)
--------- --------- --------- --------- ---------
Effect of exchange rate
changes on cash and cash
equivalents................ -- -- (1,766) -- (1,766)
--------- --------- --------- --------- ---------
Increase (decrease) in cash
and cash equivalents....... 7,093 (14,727) (19,875) -- (27,509)
Cash and cash equivalents at
beginning of period........ 27,726 (48,578) 107,725 -- 86,873
--------- --------- --------- --------- ---------
Cash and cash equivalents at
end of period.............. $ 34,819 $ (63,305) $ 87,850 $ -- $ 59,364
========= ========= ========= ========= =========
</TABLE>
25
<PAGE> 27
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
On March 29, 2000, the Company announced that its wholly-owned subsidiary
had reached a definitive agreement to sell its nuclear waste services operations
to GTS Duratek, Inc. for up to $65 million in cash, consisting of $55 million at
closing and up to $10 million in additional cash consideration upon the
satisfaction of certain post-closing conditions. The Company expects the sale to
be completed in the second quarter of 2000. The transaction is subject to
certain regulatory approvals and the other customary conditions.
On March 31, 2000, the Company completed the previously announced purchase
of certain of the Canadian solid waste assets of Allied for approximately $75
million in cash. Under separate agreements, Allied contracted to purchase
certain of the Company's domestic solid waste operations, including 11 landfill
operations, 21 collection operations, seven transfer stations and a landfill
operating contract for approximately $234 million. On February 15, 2000, the
Company completed the sale to Allied of seven of such collection operations, a
transfer station and a landfill. On May 1, 2000, the Company completed the sale
to Allied of six collection operations, five landfill operations and three
transfer stations. The scope of some of the remaining domestic assets to be
acquired by Allied from the Company remains under antitrust review. However, the
Company expects all such sales to be completed in 2000.
In April of 2000, the Company announced that its wholly-owned subsidiaries
had completed the previously announced transactions regarding the sales of waste
services operations in the Netherlands and Finland, and the majority interest in
Waste Management New Zealand Limited. Additionally, the Company announced that
its wholly-owned subsidiary had reached an agreement to sell Pacific Waste
Management, its Australian subsidiary, to SITA for $230 million. Finally, the
Company announced that its wholly owned subsidiary had reached an agreement to
sell its waste services operations in Italy to Emas S.p.A. and Italcogim S.p.A.
for approximately $70 million. The Australian and Italian sales are expected to
be completed in the second quarter of 2000.
On April 25, 2000, the Company announced that it had reached a definitive
agreement to sell ten waste collection businesses in Arkansas, Kentucky,
Missouri, Nebraska, Oklahoma and Texas, 12 landfills in Arkansas, Kansas,
Kentucky, Missouri, Nebraska, Oklahoma and Texas and seven transfer stations in
Arkansas, Missouri, Nebraska and Oklahoma to Waste Corporation of America for
approximately $110 million and the assumption of closure and post-closure
liabilities. The transaction is expected to be completed in the third quarter of
2000, and is subject to approvals from various state and federal agencies, as
well as customary closing conditions.
On May 1, 2000, the Company announced that it had reached a definitive
agreement to sell its BioGro business, a leading manager of organic residuals in
North America, to Synagro Technologies, Inc. for approximately $200 million in
cash and assumed debt. The Company expects to complete the sale in the second
quarter of 2000.
On May 7, 2000, the Company announced that its wholly-owned subsidiary had
reached an agreement to sell its waste operations in Germany to Cleanaway
Deutschland Holding GmbH for approximately $80 million. The Company expects the
sale to be completed in the second half of 2000.
26
<PAGE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The discussion below and elsewhere in this Form 10-Q includes statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act. These include
statements that describe anticipated revenues, capital expenditures and other
financial items, statements that describe the Company's business plans and
objectives, and statements that describe the expected impact of competition,
government regulation, litigation and other factors on the Company's future
financial condition and results of operations. The words "may," "could,"
"should", "expect," "believe," "anticipate," "project," "estimate," and similar
expressions are intended to identify forward-looking statements. Such risks and
uncertainties, any one of which may cause actual results to differ materially
from those described in the forward-looking statements, include or relate to,
among other things:
- the impact of pending or threatened litigation and/or governmental
inquiries and investigation involving the Company.
- the Company's ability to stabilize its accounting systems and procedures
and maintain stability.
- the uncertainties to the Company's proposed strategic initiative,
including the willingness of prospective purchasers to purchase the
assets the Company identifies as divestiture candidates on terms the
Company finds acceptable, the timing and terms on which such assets may
be sold, uncertainties relating to regulatory approvals and other factors
affecting the ability of prospective purchasers to consummate such such
transactions, including the availability of financing and uncertainties
relating to the impact of the proposed strategic initiative on the
Company's credit ratings and consequently the availability and cost of
debt and equity financing to the Company.
- the Company's ability to successfully integrate the operations of
acquired companies with its existing operations, including risks and
uncertainties relating to its ability to achieve projected earnings
estimates, achieve administrative and operating cost savings and
anticipated synergies, rationalize collection routes, and generally
capitalize on its asset base and strategic position through its strategy
of decentralized decision making; and the risks and uncertainties
regarding government-forced divestitures.
- the Company's ability to continue its expansion through the acquisition
of other companies, including, without limitation, risks and
uncertainties concerning the availability of desirable acquisition
candidates, the availability of debt and equity capital to the Company to
finance acquisitions, the ability of the Company to accurately assess the
prior pre-existing liabilities and assets of acquisition candidates and
the restraints imposed by federal and state statutes and agencies
respecting market concentration and competitive behavior.
- the effect of competition on the Company's ability to maintain margins on
existing or acquired operations, including uncertainties relating to
competition with government owned and operated landfills which enjoy
certain competitive advantages from tax-exempt financing and tax revenue
subsidies.
- the potential impact of environmental and other regulation on the
Company's business, including risks and uncertainties concerning the
ultimate cost to the Company of complying with final closure requirements
and post-closure liabilities associated with its landfills and other
environmental liabilities associated with disposal at third party
landfills and the ability to obtain and maintain permits necessary to
operate its facilities, which may impact the life, operating capacity and
profitability of its landfills and other facilities.
- the Company's ability to generate sufficient cash flows from operations
to cover its cash needs, the Company's ability to obtain additional
capital if needed and the possible default under credit facilities if
cash flows are lower than expected or capital expenditures are greater
than expected.
- the potential changes in estimates from ongoing analysis of site
remediation requirements, final closure and post-closure issues,
compliance and other audits and regulatory developments.
27
<PAGE> 29
- the effectiveness of changes in management and the ability of the Company
to retain qualified individuals to serve in senior management positions.
- the effect of price fluctuations of recyclable materials processed by the
Company.
- certain risks that are inherent in operating in foreign countries that
are beyond the control of the Company, including but not limited to
political, social, and economic instability and government regulations.
- the potential impairment charges against earnings related to long-lived
assets which may result from possible future business events.
- the effect that recent trends regarding mandating recycling, waste
reduction at the source and prohibiting the disposal of certain types of
wastes could have on volumes of waste going to landfills and
waste-to-energy facilities.
- the potential impact of government regulation on the Company's ability to
obtain and maintain necessary permits and approvals required for
operations.
INTRODUCTION
Strategic Plan
In August 1999, the Company's Board of Directors adopted a strategic plan
that is intended to enhance value for its shareholders, customers, and
employees. The plan's major elements are to:
- Dispose of the Company's non-strategic and under-performing assets,
including the Company's international operations outside North America
("WM International"), its non-core assets and up to 10% of its North
American solid waste ("NASW") assets.
- Maintain or improve the Company's long-term investment grade
characteristics while using disposition proceeds for debt repayment,
repurchases of shares and selected tuck-in acquisitions.
- Bring more discipline and accountability to the enterprise while
continuing the Company's decentralized business model, which puts
authority close to the customer.
- Restore a disciplined capital allocation philosophy that focuses on
profits as opposed to growth.
- Give employees the tools they need to do their jobs, including updated
and more efficient information systems.
General
Waste Management is one of the largest publicly-owned companies providing
integrated waste management services in North America and internationally. In
North America, the Company provides solid waste management services throughout
the United States and Puerto Rico, as well as in Canada and Mexico, including
collection, transfer, recycling and resource recovery services, and disposal
services. In addition, the Company is a leading developer, operator and owner of
waste-to-energy facilities in the United States. The Company also engages in
hazardous waste management services throughout North America, as well as low-
level and other radioactive waste services.
Internationally, the Company operates throughout Europe, the Pacific Rim,
and South America. Included in the Company's WM International operations is the
collection and transportation of solid, hazardous and medical wastes and
recyclable materials, and the treatment and disposal of recyclable materials.
The Company also operates solid and hazardous waste landfills, municipal and
hazardous waste incinerators, water and waste water treatment facilities,
hazardous waste treatment facilities, waste-fuel powered independent power
facilities, and constructs treatment or disposal facilities for third parties
internationally.
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<PAGE> 30
The Company's operating revenues from waste management operations consist
primarily of fees charged for its collection and disposal services. Operating
revenues for collection services include fees from residential, commercial,
industrial, and municipal collection customers. A portion of these fees are
billed in advance; a liability for future service is recorded upon receipt of
payment and operating revenues are recognized as services are actually provided.
Fees for residential and municipal collection services are normally based on the
type and frequency of service. Fees for commercial and industrial services are
normally based on the type and frequency of service and the volume of waste
collected. The Company's operating revenues from its disposal operations consist
of disposal fees (known as tipping fees) charged to third parties and are
normally billed monthly or semi-monthly. Tipping fees are based on the volume of
waste being disposed of at the Company's disposal facilities. Fees are charged
at transfer stations based on the volume of waste deposited, taking into account
the Company's cost of loading, transporting, and disposing of the solid waste at
a disposal site. Intercompany revenues between the Company's operations have
been eliminated in the consolidated financial statements presented elsewhere
herein.
Operating expenses from waste management operations include direct and
indirect labor and the related taxes and benefits, fuel, maintenance and repairs
of equipment and facilities, tipping fees paid to third party disposal
facilities, and accruals for future landfill final closure and post-closure
costs. Certain direct development expenditures are capitalized and amortized
over the estimated useful life of a site as capacity is consumed, and include
acquisition, engineering, upgrading, construction, capitalized interest, and
permitting costs. All indirect expenses, such as administrative salaries and
general corporate overhead, are expensed in the period incurred. At times, the
Company receives reimbursements from insurance carriers relating to past and
future environmentally related remedial, defense and tort claim costs at a
number of the Company's sites. Such recoveries are included in operating costs
and expenses as an offset to environmental expenses.
General and administrative costs include management salaries, clerical and
administrative costs, professional services, facility rentals, provision for
doubtful accounts, and certain related insurance costs as well as costs related
to the Company's marketing and sales force.
Depreciation and amortization includes (i) amortization of the excess of
cost over net assets of acquired businesses on a straight-line basis over a
period not greater than 40 years commencing on the dates of the respective
acquisitions; (ii) amortization of other intangible assets on a straight-line
basis from 3 to 40 years; (iii) depreciation of property and equipment on a
straight-line basis from 3 to 40 years; and (iv) amortization of landfill costs
on a units-of-consumption method as landfill airspace is consumed over the
estimated remaining capacity of a site. The remaining capacity of a site is
determined by the unutilized permitted airspace and expansion airspace when the
success of obtaining such an expansion is considered probable. Effective as of
the third quarter of 1999, the Company applied a newly defined, more stringent
set of criteria for evaluating the probability of obtaining an expansion to
landfill airspace at existing sites, which are as follows:
- Personnel are actively working to obtain land use, local and state
approvals for an expansion of an existing landfill;
- At the time the expansion is added to the permitted site life, it is
probable that the approvals will be received within the normal
application and processing time periods for approvals in the jurisdiction
in which the landfill is located;
- The respective landfill owners or the Company has a legal right to use or
obtain land to be included in the expansion plan;
- There are no significant known technical, legal, community, business, or
political restrictions or issues that could impair the success of such
expansion;
- Financial analysis has been completed, and the results demonstrate that
the expansion has a positive financial and operational impact; and
- Airspace and related costs, including additional final closure and
post-closure costs, have been estimated based on conceptual design.
29
<PAGE> 31
Additionally, to include airspace from an expansion effort, the expansion
permit application must generally be expected to be submitted within one year,
and the expansion permit must be expected to be received within two to five
years. Exceptions to these criteria must be approved through a landfill specific
approval process that includes an approval from the Company's Chief Financial
Officer and prompt review by the Audit Committee of the Board of Directors. Such
exceptions at 35 landfill locations at March 31, 2000 were generally due to
permit application processes beyond the one-year limit, which in most cases were
due to state-specific permitting procedures. Generally, the Company has been
successful in obtaining landfill expansions pursued; however, there can be no
assurance that the Company will be successful in obtaining landfill expansions
in the future.
As disposal volumes are affected by seasonality and competitive factors,
airspace amortization varies from period to period due to changes in volumes of
waste disposed at the Company's landfills. Airspace amortization is also
affected by changes in engineering and cost estimates.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The following table presents, for the periods indicated, the period to
period change in dollars (in thousands) and percentages for the various
consolidated statements of operations line items and for certain supplementary
data.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
CHANGE FOR THE
THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
-----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.......................................... $ 146,674 4.8%
---------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 278,933 16.6
General and administrative................................ 234,073 90.0
Depreciation and amortization............................. (5,923) (1.7)
Merger and acquisition related costs...................... (17,484) (100.0)
Asset impairments and unusual items....................... 103,353 --
---------
592,952 25.7
---------
Income from operations...................................... (446,278) (58.7)
---------
Other income (expense):
Interest expense.......................................... (34,052) (19.3)
Interest and other income, net............................ 5,033 29.3
Minority interest......................................... 490 7.6
---------
(28,529) (17.2)
---------
Income before income taxes.................................. (474,807) (79.8)
Provision for income taxes.................................. (183,122) (73.8)
---------
Net income.................................................. $(291,685) (84.1)%
=========
</TABLE>
30
<PAGE> 32
The following table presents, for the periods indicated, the percentage
relationship that the various statements of operations line items and certain
supplementary data bear to operating revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
2000 1999
------ ------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.......................................... 100.0% 100.0%
----- -----
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)........................................... 60.8 54.6
General and administrative................................ 15.4 8.5
Depreciation and amortization............................. 10.9 11.6
Merger and acquisition related costs...................... -- 0.5
Asset impairments and unusual items....................... 3.1 --
----- -----
90.2 75.2
----- -----
Income from operations...................................... 9.8 24.8
----- -----
Other income (expense):
Interest expense.......................................... (6.6) (5.7)
Interest and other income, net............................ 0.7 0.5
Minority interest......................................... (0.2) (0.2)
----- -----
(6.1) (5.4)
----- -----
Income before income taxes.................................. 3.7 19.4
Provision for income taxes.................................. 2.0 8.1
----- -----
Net income.................................................. 1.7% 11.3%
===== =====
</TABLE>
As previously reported in the Company's Form 10-Q for the quarter ended
September 30, 1999 and the Company's Form 10-K for the year ended December 31,
1999, the Company concluded that its internal controls for the preparation of
interim financial information during 1999 did not provide an adequate basis for
its independent public accountants to complete reviews of the 1999 quarterly
financial information in accordance with standards established by the American
Institute of Certified Public Accountants.
The Company believes that the processes it used for the preparation of its
March 31, 2000 interim financial statements have improved. In addition, the
Company has committed substantial resources to mitigate the previously
identified control weaknesses. Management believes these efforts have enabled
the Company to produce timely and reliable interim financial statements as of
March 31, 2000 and for the three months then ended. Management further believes
that its processes will continue to improve throughout 2000, allowing it to
reduce its reliance on the use of external resources as mitigating controls,
although there can be no assurance that this will be the case.
The Company's principal business is its NASW operations, which include all
solid waste activities, such as collection, transfer operations, recycling and
disposal. The NASW disposal operations encompass solid waste and hazardous waste
landfills, as well as waste-to-energy facilities. In addition, the Company
operates outside of North America in activities similar to its NASW operations
through its WM International operations. As previously discussed, the Company's
Board of Directors adopted a plan in 1999 to divest its WM International
operations. Additionally, the Company performs certain non-solid waste services,
primarily in North America, such as low-level and other radioactive waste
management, and operates waste-fuel powered independent power facilities. The
Company announced in March 2000 that, in accordance with its strategic plan, one
of its subsidiaries had entered into an agreement to sell all of its low-level
and other radioactive waste service operations. Through June 30, 1999, the
Company's non-solid waste services also included non-land disposal hazardous
waste operations and on-site industrial cleaning services located in North
America. However, on June 30, 1999, the Company sold a 51% interest in these
operations to Vivendi S.A. The Company retained interest of 49% is being
accounted for using the equity method of accounting.
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<PAGE> 33
Operating Revenues
For the three months ended March 31, 2000, the Company's operating revenues
increased $146.7 million, or 4.8% as compared to the corresponding 1999 period.
The following presents the operating revenues by reportable segment for the
respective periods (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C> <C> <C>
NASW............................................. $2,708.0 84.2% $2,511.5 81.8%
WM International................................. 401.5 12.5 371.1 12.1
Non-solid waste.................................. 107.8 3.3 188.0 6.1
-------- ----- -------- -----
Operating revenues............................. $3,217.3 100.0% $3,070.6 100.0%
======== ===== ======== =====
</TABLE>
The increase in the Company's operating revenues for the quarter ended
March 31, 2000 is primarily due to NASW operations. The following table presents
the Company's mix of operating revenues from NASW for the respective periods
(dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C> <C> <C>
NASW:
Collection..................................... $1,861.6 58.4% $1,789.3 60.5%
Disposal....................................... 803.8 25.2 758.6 25.7
Transfer....................................... 322.4 10.1 265.6 9.0
Recycling and other............................ 202.6 6.3 143.2 4.8
-------- ----- -------- -----
3,190.4 100.0% 2,956.7 100.0%
===== =====
Intercompany................................... (482.4) (445.2)
-------- --------
Operating revenues..................... $2,708.0 $2,511.5
======== ========
</TABLE>
The increase in operating revenues in the first quarter of 2000 for NASW as
compared to the prior year period is primarily attributable to internal growth
of comparable operations. The increase in operating revenues due to internal
growth of NASW operations was $132.3 million, or 5.3%, comprised of 1.4% for
pricing increases and 3.9% for volume increases. The improvements in pricing
were favorably impacted by the improvements in the commodities markets for
recyclable materials as well as a fuel surcharge that was implemented in certain
operations during March 2000. Additionally, the Company's NASW operating
revenues increased $79.7 million due to acquisitions primarily of collection
operations throughout the United States and $4.0 million related to the foreign
currency fluctuation of the Canadian dollar. Offsetting the increase in
operating revenues was a decline in operating revenues of $19.5 million
associated with divestitures of NASW businesses.
The operating revenues from the Company's WM International operations
increased $30.4 million, or 8.2%, in the first quarter of 2000 as compared to
the prior year period. This increase in operating revenues is due to
acquisitions of solid waste businesses, primarily in Europe and Australia, with
operating revenues of approximately $65.4 million in the first quarter of 2000,
as well as internal growth of comparable operations of 1.0%. However, the
increase in operating revenues from the Company's WM International operations
was negatively impacted by the decline in operating revenues of $37.3 million
due to fluctuations in foreign currency.
Operating revenues for non-solid waste services decreased in the first
quarter of 2000 as compared to the prior year period due to the June 1999 sale
of a 51% interest in certain non-solid waste operations, as previously discussed
herein. However, this decrease was partially offset by the increase in operating
revenues associated with the acquisition of a geosynthetic manufacturing and
installation service company in July 1999. The Company expects decreasing
operating revenues from its non-solid waste operations in future periods as
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<PAGE> 34
the Company has entered into agreements for the sale of, or is actively
marketing, its non-solid waste operations pursuant to its strategic plan.
Operating Costs and Expenses (Exclusive of Depreciation and Amortization Shown
Below)
Operating costs and expenses increased $278.9 million or 16.6% in the first
quarter of 2000, as compared to the first quarter of 1999. As a percentage of
operating revenues, operating costs and expenses increased from 54.6% in the
first quarter of 1999 to 60.8% in the first quarter of 2000. The increase in
operating costs and expenses in the respective periods is due to internal
revenue growth and acquisitions of businesses, net of dispositions.
Additionally, the Company realized certain short-term cost reductions through
the first quarter of 1999 from its integration plan that was adopted in
connection with the Company's merger with Waste Management Holdings, Inc. ("WM
Holdings") which was completed in July 1998 (the "WM Holdings Merger"). The
integration plan included significant employee headcount reductions
(particularly including supervisory operating personnel), the elimination of
excess operating capacity through the sale or abandonment of certain assets and
operations, and the reconfiguration of operations within certain domestic
markets in which the Company operates. However, due to the breadth and
comprehensive nature of the changes the Company attempted to implement in 1999,
the Company was unable to sustain the effectiveness of its integration plan. As
a result, operating costs and expenses increased significantly as a percentage
of revenues in the second half of 1999 and in 2000 because the short-term cost
reductions experienced in the first quarter of 1999 were not sustained in these
subsequent periods.
As part of its ongoing operations, the Company reviews its reserve
requirements for remediation and other environmental matters based on an
analysis of, among other things, the regulatory context surrounding landfills,
site-specific environmental issues and remaining airspace capacity in light of
changes in operational efficiencies. Accordingly, revisions to remediation
reserve requirements may result in upward or downward adjustments to income from
operations in any given period. Adjustments for final closure and post-closure
estimates are accounted for prospectively over the remaining capacity of the
operating landfill. The impact of revisions to remedial, environmental and other
similar liabilities resulted in a reduction of operating costs and expenses as a
percentage of revenues of 1.9% in the first quarter of 1999. There were no such
adjustments in the first quarter of 2000.
General and Administrative
General and administrative expenses increased $234.1 million or 90.0% in
the first quarter of 2000 as compared to the 1999 period. As a percentage of
operating revenues, the Company's general and administrative expenses were 15.4%
and 8.5% for the three months ended March 31, 2000 and 1999, respectively. As
discussed above, the Company believes it experienced short-term cost reductions
related to the elimination of duplicate corporate administrative functions from
the WM Holdings Merger through the second quarter of 1999. Such cost reductions
were substantially offset in the second half of 1999 and the first quarter of
2000 by the effect of difficulties encountered by the Company in integrating the
operations of WM Holdings, including increased administrative costs in field
operations attributable to increased costs to perform billing, collections and
other administrative functions. Additionally, the Company experienced
significant cost increases in its corporate administrative functions for items
such as additional personnel and professional accounting and consulting services
in the first quarter of 2000 that became necessary as a result of the
ineffectiveness of the WM Holdings Merger integration plan.
Depreciation and Amortization
Depreciation and amortization expense decreased $5.9 million or 1.7% for
the first quarter of 2000 as compared to the first quarter of 1999. As a
percentage of operating revenues, depreciation and amortization expense was
10.9% and 11.6% for the quarters ended March 31, 2000 and 1999, respectively.
The decrease in depreciation and amortization expense as a percentage of
operating revenues is primarily due to the suspension of depreciation on fixed
assets related to certain operations which were held for sale as of December 31,
1999. The depreciation suspension in the first quarter of 2000 for these
operations held for sale was $51.0 million, or 1.6% of operating revenues for
the first quarter of 2000. The suspension of depreciation was partially offset
by
33
<PAGE> 35
an increase of $32.8 million, or 1.0% of operating revenues, in landfill
depletion, which is primarily due to increased landfill volumes and depletion
rates.
Merger and Acquisition Related Costs, Asset Impairments and Unusual Items
The Company is in the process of settling its obligations under the
Company's qualified defined benefit plan (the "Plan"). The Plan was terminated
as of October 31, 1999 in connection with the WM Holdings Merger. Termination
benefits that were paid to certain plan participants in the first quarter of
2000 from the trust fund assets of the Plan as well as other customary Plan
period costs resulted in a non-cash charge to asset impairments and unusual
items of approximately $78.6 million for the quarter.
Additionally, the Company recorded a charge in the first quarter of 2000 to
asset impairments and unusual items of approximately $24.8 million related to
operations held for sale that have a carrying value greater than management's
best current estimate of anticipated proceeds.
In connection with merger transactions that the Company completed in 1998,
the Company incurred approximately $33.1 million of costs in the first quarter
of 1999 that were transitional in nature. Such costs included transitional wages
and other reorganizational costs. Offsetting these costs was an adjustment of
$15.6 million primarily to conform accounting methods of the Company's ash
monofil landfills to that of its solid waste landfills.
Income from Operations
Income from operations was $313.8 million and $760.1 million for the
quarters ended March 31, 2000 and 1999, respectively, for the reasons discussed
above.
Other Income and Expenses
Other income and expenses consists of interest expense, interest income,
other income (including gains and losses on sales of businesses) and minority
interest. The most significant of these is interest expense. The increase in
interest expense is primarily due to the decline in the Company's public credit
ratings during the last six months of 1999, as well as a general market increase
in interest rates since the first quarter of 1999. Furthermore, the Company has
experienced a decrease in the amount of interest it has capitalized from $11.1
million in the first quarter of 1999 to $4.3 million during the first quarter of
2000.
Other income in the quarter ended March 31, 2000 also includes a net gain
of approximately $11.1 million on the sale of certain NASW operations in
accordance with the Company's strategic plan to divest of non-strategic and
underperforming assets.
Provision for Income Taxes
The Company recorded a provision for income taxes of $64.9 million and
$248.0 million for the three months ended March 31, 2000 and 1999, respectively.
The difference between the federal income taxes at the federal statutory rate
and the provision for income taxes for the three months ended March 31, 2000 is
primarily due to state and local income taxes, non-deductible costs related to
acquired intangibles and non-deductible costs associated with additional
impairment charges in the first quarter associated with certain foreign
businesses.
Net Income
For the three months ended March 31, 2000 and 1999, net income was $55.0
million and $346.7 million or $0.09 and $0.55 per share on a diluted basis,
respectively, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in an industry that requires a high level of capital
investment. The Company's capital requirements primarily stem from (i) its
working capital needs for its ongoing operations, (ii) capital expenditures for
construction and expansion of its landfill sites, as well as new trucks and
equipment for its
34
<PAGE> 36
collection operations, (iii) refurbishments and improvements at its
waste-to-energy facilities and (iv) business acquisitions. The Company's
strategy is to meet these capital needs first from internally generated funds.
Historically, the Company has also obtained financing from various financing
sources available at the time, including the incurrence of debt and the issuance
of its common stock. In August 1999, the Company announced a strategic plan that
included the sale of certain assets included in its WM International operations,
its non-core assets and up to 10% of its NASW operations. The proceeds from
these dispositions, which are primarily expected to be realized in 2000, will be
utilized for debt repayment, repurchases of shares and selected tuck-in
acquisitions. Although the Company has unused and available credit capacity
under its domestic bank facilities of $1.5 billion at March 31, 2000, the
Company expects reductions in bank line availability as debt levels are
decreased in connection with the strategic plan. In connection with its
strategic plan, the Company's acquisition activity has decreased as compared to
prior years and the divestiture activity has increased. Therefore, the Company's
level of capital expenditures is expected to decline along with its needs for
large amounts of credit capacity.
In December 1999, the Company received unanimous approval for amendments to
its Syndicated Facility, Credit Facility and Eurocurrency bank credit
facilities. The approvals provided permanent amendments to the waivers
previously granted to the Company related to its operating results for the third
quarter of 1999. Additionally, the amended terms and conditions of the
facilities contain the necessary provisions for the Company to proceed with
divestitures pursuant to its strategic plan. Through May 10, 2000, the Company
has announced agreements for sales of assets pursuant to its strategic plan from
its WM International, non-solid waste, and NASW operations with proceeds
totaling $1.3 billion. The proceeds collected related to its strategic plan are
in excess of $500 million, substantially all of which has been received since
March 31, 2000.
Under the terms of the Syndicated Facility and Credit Facility, the Company
is obligated to repay its indebtedness under such facilities with the cash
proceeds to be received from the divestitures of its strategic plan.
Specifically, the Company must use all of the first $1.5 billion of net proceeds
it receives from the sales of any domestic operations to repay indebtedness
under the Syndicated Facility and Credit Facility. Additionally, 50% of the net
proceeds greater than $1.5 billion but less than $2.5 billion from sales of
domestic operations must be used to repay indebtedness under such facilities.
Finally, all net proceeds from the divestiture of the Company's WM International
operations were required be used to repay indebtedness under the Company's
Eurocurrency facilities, all of which indebtedness, as described in Note 1 to
the financial statements, has been repaid. The net proceeds from WM
International divestitures received by the Company after the repayment of the
Eurocurrency facilities are subject to the same requirements to repay the
Syndicated Facility and Credit Facility as net proceeds received from the sales
of domestic operations. Subsequent to March 31, 2000, the Company repaid and
terminated its Eurocurrency term loans with net proceeds from its WM
International divestiture activity.
The Company has obtained amendments to the Syndicated Facility and Credit
Facility agreements for the quarter ended March 31, 2000 to maintain compliance
with certain financial ratios. The Company anticipates that it may need to
obtain further amendments to its existing financial covenants in those
agreements in future quarters and, therefore, expects to restructure its
covenant requirements during the renewal process for its Syndicated Facility in
mid-2000. Until such restructuring is completed, the Company will continue to
classify the borrowings outstanding under its Syndicated Facility and Credit
Facility as short-term obligations. There can be no assurance that the Company
will be successful in obtaining a restructuring of its covenant requirements and
failure to obtain such a restructuring or additional amendments or waivers,
would, in the event of an actual violation by the Company, have an adverse
effect on the Company's financial condition, results of operations and cash
flows.
During the last six months of 1999, the Company experienced a decline in
its public credit ratings which curtailed its access to the commercial paper
market. All outstanding commercial paper was redeemed by March 1, 2000. The
Company does not expect that it will be in a position to reissue commercial
paper in the foreseeable future. Additionally, as a result of a decline in its
credit ratings, the Company expects to incur substantially higher costs of
financing for the foreseeable future as compared to prior years should it
attempt any capital market activity. Should any of the Company's bonding sources
become unavailable without
35
<PAGE> 37
replacement from other bonding sources, the Company would have to utilize its
bank lines, which are at significantly higher rates, for replacement purposes.
As of March 31, 2000, the Company had a working capital deficit of $1.1
billion (a ratio of current assets to current liabilities of 0.85:1) and a cash
balance of $147.4 million, which compares to a working capital deficit of $1.3
billion (a ratio of current assets to current liabilities of 0.83:1) and a cash
balance of $181.4 million at December 31, 1999. For the quarter ended March 31,
2000, cash used to acquire businesses of $114.1 million, capital expenditures of
$248.6 million and net debt reductions of approximately $416.9 million were
primarily financed with cash flows from operating activities of $675.2 million
and proceeds from the sale of assets of $62.0 million. Favorably impacting cash
flows from operations for the quarter ended March 31, 2000 was a tax refund of
approximately $200 million and improvements in the Company's accounts receivable
average days sales outstanding. For the quarter ended March 31, 1999, cash used
to acquire businesses of $280.8 million, capital expenditures of $281.3 million
and net debt reductions of approximately $120.5 million were primarily financed
with cash flows from operating activities of $358.5 million and proceeds from
the sale of assets of $275.7 million.
From December 15, 1999 through March 16, 2000, the Company repurchased
$429.0 million of its 5.75% convertible subordinated notes due 2005 with funds
available from internally generated cash flows and its domestic credit
facilities. The Company has a scheduled maturity of $250 million of senior notes
on October 15, 2000. The Company expects to repay the notes with funds available
from its domestic credit facilities.
The Company has material financial commitments for the costs associated
with its future obligations for final closure, which is the closure of the
landfills and the capping of the final uncapped areas of the landfills, and for
post-closure of the landfills it operates or for which it is otherwise
responsible. The final closure and post-closure liabilities are charged to
expense as airspace is consumed such that the present value of total estimated
final closure and post-closure cost will be accrued for each landfill at the
time each site discontinues accepting waste and is closed. The Company has also
established procedures to evaluate its potential remedial liabilities at closed
sites which it owns or operated, or to which it transported waste, including 85
sites listed on the NPL. The majority of situations involving NPL sites relate
to allegations that subsidiaries of the Company (or their predecessors)
transported waste to the facilities in question, often prior to the acquisition
of such subsidiaries by the Company. In instances in which the Company has
concluded that it is probable that a liability has been incurred, an accrual has
been recorded in the financial statements.
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult, and the ultimate
outcome may differ from current estimates. However, the Company believes that
its extensive experience in the environmental services business, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
any such adjustment would be material to its financial statements, it is
reasonably possible that technological, regulatory or enforcement developments,
the results of environmental studies, the non-existence or inability of other
potentially responsible third parties to contribute to the settlements of such
liabilities, or other factors could necessitate the recording of additional
liabilities which could have a material adverse impact on the Company's
financial statements.
RECENT DEVELOPMENTS
On March 29, 2000, the Company announced that its wholly-owned subsidiary
had reached a definitive agreement to sell its nuclear waste services operations
to GTS Duratek, Inc. for up to $65 million in cash, consisting of $55 million at
closing and up to $10 million in additional cash consideration upon the
satisfaction of certain post-closing conditions. The Company expects the sale to
be completed in the second quarter. The transaction is subject to certain
regulatory approvals and other customary conditions.
On March 31, 2000, the Company completed the previously announced purchase
of certain of the Canadian solid waste assets of Allied Waste Industries, Inc.
("Allied") for approximately $75 million in cash.
36
<PAGE> 38
Under separate agreements, Allied contracted to purchase certain of the
Company's U.S. solid waste operations, including 11 landfill operations, 21
collection operations, seven transfer stations and a landfill operating contract
for approximately $234 million. On February 15, 2000, the Company completed the
sale to Allied of seven of such collection operations, a transfer station and a
landfill. On May 1, 2000, the Company completed the sale to Allied of six
collection operations, five landfill operations and three transfer stations. The
scope of some of the remaining U.S. assets to be acquired by Allied from the
Company remains under anti-trust review. However, the Company expects all such
sales to be completed in 2000.
In April of 2000, the Company announced that its wholly-owned subsidiaries
had completed the previously announced transactions regarding the sales of waste
services operations in the Netherlands and Finland, and the majority interest in
Waste Management New Zealand Limited. Additionally, the Company announced that
its wholly-owned subsidiary had reached an agreement to sell Pacific Waste
Management, its Australian subsidiary, to SITA for $230 million. Finally, the
Company announced that its wholly owned subsidiary had reached an agreement to
sell its waste services operations in Italy to Emas S.p.A. and Italcogim S.p.A.
for approximately $70 million. The Australian and Italian sales are expected to
be completed in the second quarter of 2000.
On April 25, 2000, the Company announced that it had reached a definitive
agreement to sell ten waste collection businesses in Arkansas, Kentucky,
Missouri, Nebraska, Oklahoma and Texas, 12 landfills in Arkansas, Kansas,
Kentucky, Missouri, Nebraska, Oklahoma and Texas and seven transfer stations in
Arkansas, Missouri, Nebraska and Oklahoma to Waste Corporation of America for
approximately $110 million and the assumption of closure and post-closure
liabilities. The transaction is expected to be completed in the third quarter of
2000, and is subject to approvals from various state and federal agencies as
well as customary closing conditions.
On May 1, 2000, the Company announced that it had reached a definitive
agreement to sell its BioGro business, a leading manager of organic residuals in
North America, to Synagro Technologies, Inc. for approximately $200 million in
cash and assumed debt. The Company expects to complete the sale in the second
quarter of 2000.
On May 7, 2000, the Company announced that its wholly-owned subsidiary had
reached an agreement to sell its waste operations in Germany to Cleanaway
Deutschland Holding GmbH for approximately $80 million. The Company expects the
sale to be completed in the second half of 2000.
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter
months. This is generally reflected in the Company's first quarter and fourth
quarter operating results. This is primarily attributable to the facts that (i)
the volume of waste relating to construction and demolition activities tends to
increase in the spring and summer months and (ii) the volume of residential
waste in certain regions where the Company operates tends to decrease during the
winter months.
The Company believes that inflation and changing prices have not had, and
are not expected to have, any material adverse effect on the results of
operations in the near future.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities was issued in 1998. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
derivatives used for hedging purposes. SFAS No. 133 requires that entities
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. SFAS No. 133, as amended by SFAS No. 137, is effective for the Company in
its first fiscal quarter of 2001. Management is currently assessing the impact
that the adoption of SFAS No. 133 will have on the Company's financial
statements.
37
<PAGE> 39
PART II.
ITEM 1. LEGAL PROCEEDINGS.
In February 1998, WM Holdings announced a restatement of prior-period
earnings for 1991 and earlier as well as for 1992 through 1996 and the first
three quarters of 1997. Many actions were brought or claims made against WM
Holdings as a result of this restatement, as set forth in earlier annual and
quarterly reports made by the Company. The Company has resolved many of these
actions and claims, as discussed in earlier filings, including the settlement,
in January 2000, of two actions, one pending in Illinois state court and the
other in Florida federal court. The following actions, however, remain
outstanding.
In July 1998, a business owner who received WM Holdings common stock in the
sale of his business to WM Holdings brought a purported class action against
that company alleging breach of warranty. In April 1999, the court in that
action granted summary judgment against WM Holdings and in favor of the
individual plaintiff. In October 1999, the court certified a class consisting of
all sellers of business assets to WM Holdings between January 1, 1990, and
February 24, 1998, whose purchase agreements with WM Holdings contained express
warranties regarding the accuracy of WM Holdings' financial statements. In March
1999, the court of appeals upheld this certification order. Also in March 1999,
the trial court granted summary judgment on the claim of breach of warranty
against WM Holdings and in favor of all members of the class except for a
discrete group of plaintiffs whose claims may have expired under applicable
statutes of limitations. The extent of damages, if any, in this class action has
not yet been determined.
In February and March 2000, two asset sellers who otherwise would have been
included in the above class, as currently defined, brought separate actions
against the Company for breach of contract and fraud, among other things. One of
the suits arises out of a transaction valued at over $200 million at the time of
closing in 1996, while the other involves a transaction in excess of $11 million
at its closing in 1995. Both suits are in their early stages and the extent of
possible damages, if any, has not yet been determined.
In December 1999, a sole plaintiff brought an action against the Company,
five former officers of WM Holdings, and WM Holdings' auditors in Illinois state
court on behalf of a proposed class of individuals who purchased WM Holdings
common stock before November 3, 1994, and who held that stock through February
24, 1998, for alleged acts of common law fraud, negligence, and breach of
fiduciary duty. The Defendants have removed this action to federal court but the
case has been remanded back to the state forum. This action is in its early
stages and the extent of possible damages, if any, has not yet been determined.
Purported derivative actions have also been filed in Delaware Chancery
Court by alleged former shareholders of WM Holdings against certain former
officers and directors of WM Holdings and nominally against WM Holdings to
recover damages caused to WM Holdings as a result of the settled consolidated
federal securities class action described above. These actions have been
consolidated and plaintiffs have filed a consolidated amended complaint. The
plaintiffs seek to recover from the former officers and directors, on behalf of
WM Holdings, the amounts paid in the federal class action as well as additional
amounts based on alleged harms not at issue in the federal class action.
The Company is also aware that the United States Securities and Exchange
Commission ("SEC") has commenced a formal investigation with respect to WM
Holdings' previously filed financial statements (which were subsequently
restated) and related accounting policies, procedures and system of internal
controls. The Company intends to cooperate with such investigation. The Company
is unable to predict the outcome or impact of this investigation at this time.
In March and April 1999, two former officers of WM Holdings sued the
Company for retirement and other benefits. These actions are in their early
stages and the extent of possible damages, if any, has not yet been determined.
Additionally, a third former officer brought a similar claim, that was
subsequently dismissed, in March 2000. The newest action included claims related
to the decision by the board of WM Holdings to recommend the merger of WM
Holdings with the Company.
38
<PAGE> 40
On July 6, 1999, the Company announced that it had lowered its expected
earnings per share for the three months ended June 30, 1999. On July 29, 1999,
the Company announced a further reduction in its expected earnings for that
period. On August 3, 1999, the Company announced a further reduction in its
expected earnings for that period and that its reported operating income for the
three months ended March 31, 1999 may have included certain unusual pretax
income items. More than 30 lawsuits that purport to be based on one or more of
these announcements were filed against the Company and certain of its officers
and directors in the United States District Court for the Southern District of
Texas. These actions have been consolidated into a single action. On September
7, 1999, a lawsuit was filed against the Company and certain of its officers and
directors in the United States District Court for the Eastern District of Texas.
Pursuant to a joint motion this case was transferred to the United States
District Court for the Southern District of Texas, to be consolidated with the
consolidated action pending there. Taken together, the plaintiffs in these
lawsuits purport to assert claims on behalf of a class of purchasers of the
Company's common stock between June 10, 1998 and August 16, 1999. Among other
things, the plaintiffs allege that the Company and certain of its officers and
directors (i) made knowingly false earnings projections for the three months
ended June 30, 1999 and (ii) failed to adequately disclose facts relating to its
earnings projections that the plaintiffs allege would have been material to
purchasers of the Company's common stock. The plaintiffs also claim that certain
of the Company's officers and directors sold common stock between March 31, 1999
and July 6, 1999 at prices allegedly known to be inflated by the alleged
material misstatements and omissions. The plaintiffs in these actions seek
damages with interest, costs and such other relief as the court deems proper.
The case is at an early stage and the extent of possible damages, if any, can
not yet be determined.
The Company is defending a lawsuit and two arbitration actions initiated by
individuals who received common stock in sale of their business to the Company
or to a company later acquired by the Company. The first of these actions was
filed in state court in Oregon in November 1999. Subsequently, two arbitrations
have been initiated, both related to the sale of businesses to Eastern
Environmental Services, Inc. ("Eastern"). For reasons similar to those alleged
in the class actions described above, or for reasons related to their
acquisition by Eastern, these individuals allege that the stock they received
was overvalued. These cases are in an early stage and the extent of possible
damages, if any, have not yet been determined.
In addition, three of the Company's shareholders have filed purported
derivative lawsuits against certain officers and directors of the Company in
connection with the events surrounding the Company's second quarter 1999
earnings projections and July 6, 1999 earnings announcement. Two of these
lawsuits were filed in the Delaware Court of Chancery on July 16, 1999 and
August 18, 1999, respectively, and one was filed in the United States District
Court for the Southern District of Texas on July 27, 1999. The Delaware cases
have been consolidated and the plaintiffs have filed an amended consolidated
complaint. The amended complaint alleges claims relating to the Company's 1999
annual and quarterly earnings, sales of Company stock by certain of the
Company's officers and directors, and alleged self-dealing by certain Company's
officers. The plaintiffs in these actions purport to allege derivative claims on
behalf of the Company against these individuals for alleged breaches of
fiduciary duty resulting from their alleged common stock sales during the three
months ended June 30, 1999 and/or their oversight of the Company's affairs. The
lawsuits name Waste Management, Inc. as a nominal defendant and seek
compensatory and punitive damages with interest, equitable and/or injunctive
relief, costs and such other relief as the respective courts deem proper. The
defendants have not yet been required to respond to the complaints.
Beginning at year end 1999 the Company became involved in a series of
disputes with Louis D. Paolino, former President and Chief Executive Officer of
Eastern and others in connection with the merger between the Company and Eastern
("the Eastern Merger"). The Company alleges, among other things, that the
defendants usurped Eastern corporate opportunities for personal gain and
otherwise mismanaged certain affairs of Eastern. Mr. Paolino and others allege
that the Company and unnamed others committed security fraud alleging that the
stock they were issued in connection with the Eastern Merger was over-valued
because the Company failed to disclose that it was having problems integrating
the operations of WM Holdings and the Company after the WM Holdings Merger.
These disputes are in an early state and the extent that the Company may recover
damages, if any, or be required to pay damages, if any, has not yet been
determined.
39
<PAGE> 41
The Company is aware of a lawsuit filed in state court in Houston, Texas by
several related shareholders against the Company and three of its former
officers. The Company has not been served. The petition alleges that the
plaintiffs are substantial shareholders of the Company's common stock who
intended to sell their stock in 1999, but that the individual defendants made
false and misleading statements regarding the Company's prospects that induced
the plaintiffs to retain their stock. Plaintiffs assert that the value of their
retained stock declined dramatically. Plaintiffs asserted claims for fraud,
negligent misrepresentation, and conspiracy. As neither the Company nor the
individual defendants have been served in this action, the defendants have filed
no responsive pleadings in the action.
In addition, the SEC has notified the Company of an informal inquiry into
the period ended June 30, 1999, as well as certain sales of the Company's common
stock that preceded the Company's July 6, 1999 earnings announcement.
The New York Stock Exchange has notified the Company that its Market
Trading Analysis Department is reviewing transactions in the common stock of the
Company prior to the July 6, 1999 earnings forecast announcement.
The Company is conducting a thorough investigation of each of the
allegations that have been made in connection with the Company's second quarter
1999 earnings communications. As part of this investigation, the Company's Board
of Directors has authorized a review of the allegations that have been made
against certain of the Company's officers and directors. Roderick M. Hills, a
former chairman of the SEC and chairman of the Company's Audit Committee, is
directing the review.
The Company received a Civil Investigative Demand ("CID") from the
Antitrust Division of the United States Department of Justice in July 1999
inquiring into the Company's non-hazardous solid waste operations in the State
of Massachusetts. The CID purports to have been issued for the purpose of
determining whether the Company has engaged in monopolization, illegal contracts
in restraint of trade, or anticompetitive acquisitions of disposal and/or
hauling assets. The CID requires the Company to provide the United States
Department of Justice with certain documents to assist it in its inquiry with
which the Company is fully cooperating.
On July 16, 1999, a lawsuit was filed against the Company in the Circuit
Court for Sumter County in the State of Alabama. The plaintiff in the lawsuit
purported to allege on behalf of a class of similarly situated persons that the
Company has deprived the class of lump sum payments of pension plan benefits
allegedly promised to be paid in connection with termination of the Plan. On
behalf of the purported class, the plaintiff sought compensatory and punitive
damages, costs, restitution with interest, and such relief as the Court deemed
proper. On July 29, 1999, the Company announced that it had determined to
proceed with the termination of the Plan, liquidating the Plan's assets and
settling its obligations to participants. The plaintiff voluntarily dismissed
her case on September 13, 1999. However, that same day, the same attorneys filed
another Plan-related putative class action against the Company and various
individual defendants in the United States District Court for the Middle
District of Alabama, Northern Division. This case, brought by a different
putative class representative, alleges that the defendants violated the federal
Employee Retirement Income Security Act ERISA by failing to terminate the Plan
in accordance with its terms, by failing to manage Plan assets prudently and in
the interests of Plan participants, and by delaying the Plan's termination date
and the expected distribution of lump-sum pension benefits. On behalf of the
purported class, the plaintiff seeks declaratory and injunctive relief,
restitution of all losses and expenses allegedly incurred by the Plan, payment
of all benefits allegedly owed to Plan participants, attorney's fees and costs,
and other "appropriate" relief under the Internal Revenue Code, ERISA and the
Plan. The case is in its early stages and the extent of possible damages, if
any, can not yet be determined.
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment and the potential for the
unintended or unpermitted discharge of materials into the environment. In the
ordinary course of conducting its business activities, the Company becomes
involved in judicial and administrative proceedings involving governmental
authorities at the foreign, federal, state, and local level, including, in
certain instances, proceedings instituted by citizens or local governmental
authorities seeking to overturn governmental action where governmental officials
or agencies are named as defendants
40
<PAGE> 42
together with the Company or one or more of its subsidiaries, or both. In the
majority of the situations where proceedings are commenced by governmental
authorities, the matters involved related to alleged technical violations of
licenses or permits pursuant to which the Company operates or is seeking to
operate or laws or regulations to which its operations are subject or are the
result of different interpretations of applicable requirements. From time to
time, the Company pays fines or penalties in environmental proceedings relating
primarily to waste treatment, storage or disposal facilities. As of March 31,
2000, there were four proceedings involving Company subsidiaries where the
sanctions involved could potentially exceed $100,000. The Company believes that
these matters will not have a material adverse effect on its results of
operations or financial condition. However, the outcome of any particular
proceeding cannot be predicted with certainty, and the possibility remains that
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter this expectation
at any time.
From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including purported
class actions, on the basis of a Company's subsidiary having owned, operated or
transported waste to a disposal facility which is alleged to have contaminated
the environment or, in certain cases, conducted environmental remediation
activities at sites. Some of such lawsuits may seek to have the Company or its
subsidiaries pay the costs of groundwater monitoring and health care
examinations of allegedly affected persons for a substantial period of time even
where no actual damage is proven. While the Company believes it has meritorious
defenses to these lawsuits, their ultimate resolution is often substantially
uncertain due to the difficulty of determining the cause, extent and impact of
alleged contamination (which may have occurred over a long period of time), the
potential for successive groups of complainants to emerge, the diversity of the
individual plaintiffs' circumstances, and the potential contribution or
indemnification obligations of co-defendants or other third parties, among other
factors. Accordingly, it is possible such matters could have a material adverse
impact on the Company's financial statements.
The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under the Comprehensive Environmental Response, Compensation and
Liabilities Act of 1980, as amended ("CERCLA" or "Superfund"). The majority of
these proceedings are based on allegations that certain subsidiaries of the
Company (or their predecessors) transported hazardous substances to the sites in
question, often prior to acquisition of such subsidiaries by the Company. CERCLA
generally provides for joint and several liability for those parties owning,
operating, transporting to or disposing at the sites. Such proceedings arising
under Superfund typically involve numerous waste generators and other waste
transportation and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be substantial
and could have a material adverse effect on the Company's financial statements.
In June 1999, the Company was notified that the EPA is conducting a civil
investigation of alleged chlorofluorocarbons ("CFC") disposal violations by
Waste Management of Massachusetts, Inc. ("WMMA"), one of the Company's wholly
owned subsidiaries, to determine whether further enforcement measures are
warranted. The activities giving rise to the allegations of CFC disposal
violations appear to have occurred prior to July 30, 1998. On July 29, 1998, the
EPA inspected WMMA's operations, notified the Company of the alleged violations
and issued an Administrative Order in January 1999 requiring WMMA to comply with
the CFC regulations. WMMA is cooperating with the investigation and the Company
believes that the ultimate outcome of this matter will not have a material
adverse effect on the Company's financial statements.
In August 1999, sludge materials from trucks entering the Company's
Woodland Meadows Landfill in Michigan were seized by the FBI pursuant to an
investigation of the generator of the sludge materials, a company that provides
waste treatment services. Subsequently, the Company received two Grand Jury
subpoenas as well as requests for information from the Michigan Department of
Environmental Quality, seeking information related to the landfill's waste
acceptance practices and the Company's business relationship with the generator.
According to affidavits attached to the subpoena, the generator's treatment
plant was sold by the Company to the generator in May 1998. The Company is
cooperating with the pending
41
<PAGE> 43
investigation and believes that the ultimate outcome of this matter will not
have a material adverse effect on the Company's financial statements.
As of March 31, 2000, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 85 locations
listed on the NPL. Of the 85 NPL sites at which claims have been made against
the Company, 17 are sites which the Company has come to own over time. All of
the NPL sites owned by the Company were initially developed by others as land
disposal facilities. At each of the 17 owned facilities, the Company is working
in conjunction with the government to characterize or remediate identified site
problems. In addition, at these 17 facilities, the Company has either agreed
with other legally liable parties on an arrangement for sharing the costs of
remediation or is pursuing resolution of an allocation formula. The 68 NPL sites
at which claims have been made against the Company and which are not owned by
the Company are at different procedural stages under Superfund. At some of these
sites, the Company's liability is well defined as a consequence of a
governmental decision as to the appropriate remedy and an agreement among liable
parties as to the share each will pay for implementing that remedy. At others
where no remedy has been selected or the liable parties have been unable to
agree on an appropriate allocation, the Company's future costs are uncertain.
Any of these matters could have a material adverse effect on the Company's
financial statements.
In November 1998, the Company was sued by the estate of Shayne Conner, who
died on November 24, 1995 in Greenland, New Hampshire. Plaintiffs allege that
Mr. Conner's death was caused by biosolids that were applied to a nearby field
by the Company's BioGro business unit. The litigation is currently in the
discovery phase, and the Company is preparing a rebuttal to plaintiff's expert
report on causation. The Company is vigorously defending itself in the
litigation.
In February 1999, a San Bernardino County, California grand jury returned
an amended felony indictment against the Company, certain of its subsidiaries
and their current or former employees, and a County employee. The proceeding is
based on events that allegedly occurred prior to the WM Holdings Merger in
connection with a WM Holdings landfill development project. The indictment
includes allegations that certain of the defendants engaged in conduct involving
fraud, wiretapping, theft of a trade secret and manipulation of computer data,
and that they engaged in a conspiracy to do so. If convicted, the most serious
of the available sanctions against the corporate defendants would include
substantial fines and forfeitures. The Company believes that meritorious
defenses exist to each of the allegations, and the defendants are vigorously
contesting them. The Company believes that the ultimate outcome of this matter
will not have a material adverse effect on the Company's financial statements.
The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior Court in Hudson County, New
Jersey. In this action, the Company is seeking a declaratory judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to recover
defense costs and other damages incurred as a result of the assertion of
environmental liabilities against the Company or its subsidiaries for events
occurring over at least the last 25 years at approximately 140 sites and the
defendant insurance carriers' denial of coverage of such liabilities. While the
Company has reached settlements with some of the carriers, the remaining
defendants have denied liability to the Company and have asserted various
defenses, including that environmental liabilities of the type for which the
Company is seeking relief are not risks covered by the insurance policies in
question. The remaining defendants are contesting these claims vigorously.
Discovery is complete as to the 12 sites in the first phase of the case and
discovery is expected to continue for several years as to the remaining sites.
Currently, trial dates have not been set. The Company is unable at this time to
predict the outcome of this proceeding. No amounts have been recognized in the
Company's financial statements for potential recoveries.
It is not possible at this time to predict the impact that the above
lawsuits, proceedings, investigations and inquiries may have on WM Holdings or
the Company, nor is it possible to predict whether any other suits or claims may
arise out of these matters in the future. However, it is reasonably possible
that the outcome of any present or future litigation, proceedings,
investigations or inquiries may have a material adverse impact on
42
<PAGE> 44
their respective financial conditions or results of operations in one or more
future periods. The Company and WM Holdings intend to defend themselves
vigorously in all the above matters.
The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. The outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty and these matters could have a
material adverse impact on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER* DESCRIPTION
------- -----------
<C> <S>
10.1 -- Employment Agreement dated January 21, 2000 between Waste
Management, Inc. and Lawrence O' Donnell, III.
10.2 -- Employment Agreement dated March 30, 2000 between Waste
Management, Inc. and David R. Hopkins.
10.3 -- Employment Agreement dated November 18, 1999 between
Waste Management, Inc. and Thomas L. Smith.
10.4 -- Employment Agreement dated May 10, 2000 between Waste
Management, Inc. and Robert E. Dees, Jr.
12 -- Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities and Exchange Act of 1934, the Registrant's file number under that
Act is 1-12154.
(b) Reports on Form 8-K:
During the first quarter of 2000, the Company filed a Current Report on
Form 8-K dated February 10, 2000, to announce its intention to sell the 60.5% of
the shares it owns in Waste Management New Zealand, Inc.
43
<PAGE> 45
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, thereunto duly authorized.
By: /s/ WILLIAM. L. TRUBECK
----------------------------------
William L. Trubeck
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ BRUCE E. SNYDER
----------------------------------
Bruce E. Snyder
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date: May 12, 2000
44
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER* DESCRIPTION
------- -----------
<C> <S>
10.1 -- Employment Agreement dated January 21, 2000 between Waste
Management, Inc. and Lawrence O'Donnell, III.
10.2 -- Employment Agreement dated March 30, 2000 between Waste
Management, Inc. and David R. Hopkins.
10.3 -- Employment Agreement dated November 18, 1999 between
Waste Management, Inc. and Thomas L. Smith.
10.4 -- Employment Agreement dated May 10, 2000 between Waste
Management, Inc. and Robert E. Dees, Jr.
12 -- Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities and Exchange Act of 1934, the Registrant's file number under that
Act is 1-12154.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and LAWRENCE O'DONNELL, III (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of January 21, 2000, as follows:
1. EMPLOYMENT.
The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT.
The period of Executive's employment under this Agreement shall commence on
February 14, 2000, or sooner at the option of the Executive, and be for a
continuously renewing (on a daily basis) five (5) year term, without any further
action by either the Company or Executive, unless Executive's employment is
terminated in accordance with Section 5 below. The date on which Executive
commences employment with the Company shall be referred to as the "Commencement
Date" and the period during which Executive is employed hereunder shall be
referred to as the "Employment Period".
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Senior Vice President and General Counsel, and
shall serve as Secretary to the Board of Directors of the Company (the
"Board"). In such capacities, Executive shall perform such duties and
have the power, authority and functions commensurate with such
positions in similarly sized public companies and such other authority
and functions consistent with such positions as may be assigned to
Executive from time to time by the Board.
(b) Executive shall devote substantially all of his working time, attention
and energies to the business of the Company, and affiliated entities.
Executive may make and manage his personal investments (provided such
investments in other activities do not violate, in any material
respect, the provisions of Section 8 of this Agreement), be involved in
charitable and professional activities and, with the consent of the
Board (which shall not unreasonably be withheld or delayed) serve on
boards of other for profit entities, provided such activities do not
materially interfere with the performance of his duties hereunder.
Service on the for profit boards that Executive is currently serving on
are hereby approved.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of four hundred seventy
thousand ($470,000) dollars per year or such higher rate as may be
determined from time to time by the Company ("Base Salary"). Such Base
Salary shall be paid in accordance with the Company's standard payroll
practice for its executive officers. Once increased, Base Salary shall
not be reduced.
<PAGE> 2
(b) ANNUAL BONUS. During the Employment Period, Executive will be entitled
to participate in an annual incentive compensation plan of the Company.
The Executive's target annual bonus will be sixty percent (60%) of his
Base Salary as in effect for such year (the "Target Bonus"), and his
actual annual bonus may range from 0% to 120% (two times target), and
will be determined based upon achievement of performance goals (seventy
percent [70%] financial [return on capital investments and EBITDA] and
thirty percent [30%] personal) as approved by the Compensation
Committee of the Board.
(c) SIGN-ON BONUS. Within thirty (30) days after the Commencement Date, the
Company will pay Executive a two hundred thousand ($200,000) dollar
sign-on bonus.
(d) FIRST BONUS GUARANTEED. The Company will pay to Executive a minimum
guaranteed bonus in the amount of one hundred eighty-eight thousand
($188,000) dollars, to be paid in 2001.
(e) STOCK OPTIONS.
(i) Effective as of the date of this Agreement, Executive will be
granted a ten-year stock option award under the Stock
Incentive Plan to purchase three hundred fifty thousand
(350,000) shares of Stock. The exercise price shall be the
fair market value on such date, and the options shall vest in
equal installments in each of the first four (4) anniversaries
of the date of this Agreement.
(ii) Following the February/March, 2001 meeting of the Compensation
Committee of the Board of Directors, Executive will be granted
a ten (10) year stock option award under the Stock Incentive
Plan to purchase one hundred seventy-five thousand (175,000)
shares of Stock. The exercise price shall be the fair market
value on the date the Compensation Committee meets to award
the options, and the options shall vest in equal installments
over five (5) years. Thereafter, Executive shall participate
in the Company's annual stock option award program as
administered by, and at the discretion of, the Compensation
Committee of the Board of Directors.
(f) REPLACEMENT AWARDS. In order to address certain forfeitures that
Executive will face upon termination of his employment with his prior
employer, Executive shall be awarded or receive the following:
Restricted Stock Award. Effective as of the Commencement Date, the
Company will grant Executive an award of restricted shares of the
Company's common stock (the "Stock") (valued at three hundred
thousand [$300,000] dollars on the date of grant) under the Waste
Management, Inc. 1993 Stock Incentive Plan (the "Stock Incentive
Plan") that will vest in equal installments on each of the first
four (4) anniversaries of the Commencement Date, subject (except
as otherwise provided herein) to Executive's continuous employment
with the Company through the applicable vesting date (the
"Restricted Stock Grant"). The Restricted Stock Grant shall be
deemed outstanding shares for all purposes and Executive shall be
fully vested in any cash dividends paid therein (and non cash
dividends being subject to the same forfeiture provisions as the
underlying Restricted Stock Grant shares).
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<PAGE> 3
(g) OTHER COMPENSATION. Executive shall be entitled to participate in the
Company's "Executive Deferral Plan" and any incentive or supplemental
compensation plan, or arrangement maintained or instituted by the
Company, and covering its principal executive officers, at a level
commensurate with his positions and to receive additional compensation
from the Company in such form, and to such extent, if any, as the
Compensation Committee may in its sole discretion from time to time
specify.
(h) BENEFIT PLANS AND VACATION. Executive shall be eligible to participate
in or receive benefits under any pension plan, profit sharing plan,
medical and dental benefits plan, life insurance plan, short-term and
long-term disability plans, or any other health, welfare or fringe
benefit plan, generally made available by the Company to its executive
officers at a level commensurate with his positions. All waiting
periods for welfare plans shall be waived, and pre-existing medical
conditions for Executive and Executive's family members will not be a
basis for withholding medical insurance benefits. During the Employment
Period, Executive shall be entitled to vacation each year in accordance
with the Company's policies in effect from time to time, but in no
event less than four (4) weeks paid vacation per calendar year. The
Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
Executive shall be eligible to participate in the Company's 401(k) Plan
after 90 days of employment.
(i) OTHER PERQUISITES. Executive shall be entitled to the following
benefits:
1. Auto Allowance in the amount of one thousand ($1,000) dollars
per month;
2. Financial Planning Services at actual cost, and not to exceed
fifteen thousand ($15,000) dollars annually;
3. Club Dues and Assessments at actual cost, and not to exceed
twelve thousand ($12,000) dollars annually; and
4. An Annual Physical Examination on a program designated by the
Company.
(j) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
for the ordinary and necessary business expenses incurred by Executive
in the performance of the duties hereunder in accordance with the
Company's customary practices applicable to its executive officers. In
addition the Company shall (i) pay for the reasonable costs, fees and
expenses incurred by Executive, his consultants or legal advisors in
connection with the negotiation and execution of this Agreement in an
amount not to exceed ten thousand ($10,000) dollars.
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<PAGE> 4
5. TERMINATION OF EMPLOYMENT.
Executive's employment hereunder may be terminated under the following
circumstances:
(a) DEATH. Executive's employment hereunder shall terminate upon
Executive's death.
(b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled". For purposes of
this Agreement, Executive shall be "Totally Disabled" if Executive has
been physically or mentally incapacitated so as to render Executive
incapable of performing Executive's material usual and customary duties
under this Agreement for six (6) consecutive months (such consecutive
absence not being deemed interrupted by Executive's return to service
for less than 10 consecutive business days if absent thereafter for the
same illness or disability). Any such termination shall be upon thirty
(30) days written notice given at any time thereafter while Executive
remains Totally Disabled, provided that a termination for Total
Disability hereunder shall not be effective if Executive returns to
full performance of his duties within such thirty (30) day period.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time within ninety
(90) days after the Chairman of the Audit or Governance Committee of
the Board has knowledge thereof.
(i) For purposes of this Agreement, the term "Cause" shall be
limited to (1) willful misconduct by Executive with regard to
the Company which has a material adverse effect on the
Company; (2) the willful refusal of Executive to attempt to
follow the proper written direction of the Board, provided
that the foregoing refusal shall not be "Cause" if Executive
in good faith believes that such direction is illegal,
unethical or immoral and promptly so notifies the Board; (3)
substantial and continuing willful refusal by the Executive to
attempt to perform the duties required of him hereunder (other
than any such failure resulting from incapacity due to
physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the
Board which specifically identifies the manner in which it is
believed that the Executive has substantially and continually
refused to attempt to perform his duties hereunder; or (4) the
Executive being convicted of a felony (other than a felony
involving a traffic violation or as a result of vicarious
liability). For purposes of this paragraph, no act, or failure
to act, on Executive's part shall be considered "willful"
unless done or omitted to be done, by him not in good faith
and without reasonable belief that his action or omission was
in the best interests of the Company.
(ii) A Notice of Termination for Cause shall mean a notice that
shall indicate the specific termination provision in Section
5(c)(i) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for
termination for Cause. Further, a Notification for Cause shall
be required to
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<PAGE> 5
include a copy of a resolution duly adopted by at least
two-thirds (2/3rds) of the entire membership of the Board at a
meeting of the Board which was called for the purpose of
considering such termination and which Executive and his
representative had the right to attend and address the Board,
finding that, in the good faith of the Board, Executive
engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail.
The date of termination for a termination for Cause shall be
the date indicated in the Notice of Termination. Any purported
termination for Cause which is held by a court or arbitrator
not to have been based on the grounds set forth in this
Agreement or not to have followed the procedures set forth in
this Agreement shall be deemed a termination by the Company
without Cause.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder with or without Good Reason at any time upon written notice
to the Company.
(i) A Termination for Good Reason means a termination by Executive
by written notice given within ninety (90) days after the
occurrence of the Good Reason event, unless such circumstances
are fully corrected prior to the date of termination specified
in the Notice of Termination for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean the occurrence or
failure to cause the occurrence, as the case may be, without
Executive's express written consent, of any of the following
circumstances: (1) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in
each case in connection with the termination of Executive's
employment for Cause or Total Disability or as a result of
Executive's death, or temporarily as a result of Executive's
illness or other absence), or, the assignment to Executive of
duties or responsibilities that are inconsistent with
Executive's then position; provided that if the Company
becomes a fifty percent or more subsidiary of any other
entity, Executive shall be deemed to have a material
diminution of his position unless he is also Senior Vice
President and General Counsel, and Secretary to the Board of
the ultimate parent entity; (2) removal of, or the
non-re-election of, the Executive from officer positions with
the Company specified herein or removal of the Executive from
any of his then officer positions; (3) requiring Executive's
principal place of business to be located other than in the
Houston, Texas greater Metropolitan region; (4) a failure by
the Company (I) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate (the
"Bonus Plans"), provided that any such Bonus Plans may be
modified at the Company's discretion from time to time but
shall be deemed terminated if (x) any such plan does not
remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with
substantially similar benefits are not substituted therefor
("Substitute Plans"), or (II) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at
least the same basis as to potential amount of the bonus as
Executive participated in prior to any change in such plans or
awards, in accordance with the Bonus Plans and the Substitute
Plans; (5) any material breach by the Company of any provision
of this Agreement, including without limitation Section 10
hereof; or (6) failure of any
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<PAGE> 6
successor to the Company (whether direct or indirect and
whether by merger, acquisition, consolidation or otherwise) to
assume in a writing delivered to Executive upon the assignee
becoming such, the obligations of the Company hereunder.
(ii) A Notice of Termination for Good Reason shall mean a notice
that shall indicate the specific termination provision relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for Termination for
Good Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or
circumstances which contribute to the showing of Good Reason
shall not waive any right of Executive hereunder or preclude
Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for
Good Reason shall provide for a date of termination not less
than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given, provided
that in the case of the events set forth in Sections (i)(1) or
(2) the date may be five (5) days after the giving of such
notice.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time upon written
notice to Executive.
(f) EFFECT OF TERMINATION. Upon any termination of employment, Executive
shall immediately resign from all Board memberships and other positions
with the Company or any of its subsidiaries held by him at such time.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) TERMINATION BY REASON OF DEATH. In the event that Executive's
employment is terminated by reason of Executive's death, the Company
shall pay the following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of death, any accrued but unpaid expenses required to
be reimbursed under this Agreement, any vacation accrued to
the date of termination, any earned but unpaid bonuses for any
prior period, a pro-rata "bonus" or incentive compensation
payment to the extent payments are awarded senior executives
and paid at the same time as senior executives are paid, and
any vacation accrued to the date of death.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Sections 4(g)-(i) hereof), as determined and paid in
accordance with the terms of such plans, policies and
arrangements.
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<PAGE> 7
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's death) which would have been
payable to Executive if Executive had continued in employment
for two additional years. Said payments will be paid to
Executive's estate or beneficiary at the same time and in the
same manner as such compensation would have been paid if
Executive had remained in active employment.
(iv) As of the date of termination by reason of Executive's death,
stock options awarded to Executive and the Restricted Stock
Grant shall be fully vested and Executive's estate or
beneficiary shall have up to one (1) year from the date of
death to exercise all such options.
(v) As otherwise specifically provided herein.
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Executive's employment is terminated by reason of Executive's Total
Disability as determined in accordance with Section 5(b), the Company
shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period. Executive shall also be eligible
for a pro-rata bonus or incentive compensation payment to the
extent such awards are made to senior executives for the year
in which Executive is terminated.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Sections 4(g)-(i) hereof) shall be determined and paid
in accordance with the terms of such plans, policies and
arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's Total Disability) which would have
been payable to Executive if Executive had continued in active
employment for two years following termination of employment,
less any payments under any long-term disability plan or
arrangement paid for by the Company. Payment shall be made at
the same time and in the same manner as such compensation
would have been paid if Executive had remained in active
employment until the end of such period.
(iv) As of the date of termination by reason of Executive's Total
Disability, Executive shall be fully vested in all stock
option awards and the Restricted Stock Grant and Executive
shall have up to one (1) year from the date of termination by
reason of Total Disability to exercise all such options.
(v) As otherwise specifically provided herein.
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<PAGE> 8
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause, the Company shall pay the
following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Sections 4(g)-(i) hereof) shall be determined and paid
in accordance with the terms of such plans, policies and
arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
and any options held by Executive shall be cancelled, whether or not
then vested.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
voluntarily terminates employment other than for Good Reason, the
Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Sections 4(g)-(i) hereof) shall be determined and paid
in accordance with the terms of such plans, policies and
arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
and Executive shall have 90 days following termination of employment to
exercise any previously vested options (or, if earlier, until the
stated expiration thereof).
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
GOOD REASON. In the event that Executive's employment is terminated by
the Company for reasons other than death, Total Disability or Cause, or
Executive terminates his employment for Good Reason, the Company shall
pay the following amounts to Executive:
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<PAGE> 9
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Sections
4(g)-(i) hereof shall be determined and paid in accordance
with the terms of such plans, policies and arrangements.
(iii) An amount equal to two times the sum of Executive's Base
Salary plus his Target Annual Bonus (in each case as then in
effect), of which one-half shall be paid in a lump sum within
ten (10) days after such termination and one-half shall be
paid during the two (2) year period beginning on the date of
Executive's termination and shall be paid at the same time and
in the same manner as Base Salary would have been paid if
Executive had remained in active employment until the end of
such period.
(iv) The Company at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and
also including deferred compensation, disability, automobile,
and other benefit plans, in which Executive was entitled to
participate at any time during the twelve-month period prior
to the date of termination, until the earliest to occur of (A)
two years after the date of termination; (B) Executive's death
(provided that benefits payable to Executive's beneficiaries
shall not terminate upon Executive's death); or (C) with
respect to any particular plan, program or arrangement, the
date Executive becomes covered by a comparable benefit by a
subsequent employer. In the event that Executive's continued
participation in any such plan, program, or arrangement of the
Company is prohibited, the Company will arrange to provide
Executive with benefits substantially similar to those which
Executive would have been entitled to receive under such plan,
program, or arrangement, for such period on a basis which
provides Executive with no additional after tax cost.
(v) Except to the extent prohibited by law, and except as
otherwise provided herein, Executive will be 100% vested in
all benefits, awards, and grants accrued but unpaid as of the
date of termination under any pension plan, profit sharing
plan, supplemental and/or incentive compensation plans in
which Executive was a participant as of the date of
termination. Executive shall also be eligible for a bonus or
incentive compensation payment, at the same time, on the same
basis, and to the same extent payments are made to senior
executives, pro-rated for the fiscal year in which the
Executive is terminated.
(vi) As of the date of such termination of employment, the stock
options awarded to Executive pursuant to Section 4(e)(i)
hereof and the Restricted Stock Grant shall be fully vested.
Executive shall continue to vest in all other stock option
awards or restricted stock awards over the two (2) year period
commencing on the date of such termination. Executive shall
have two (2) years and six (6) months after the date of
termination to exercise all options, unless by virtue of the
particular stock option award, the option grant expires on an
earlier date.
(vii) As otherwise specifically provided herein.
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<PAGE> 10
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
Agreement, under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Executive at the time of
Executive's termination or resignation of employment, Executive shall
have no right to receive any other compensation, or to participate in
any other plan, arrangement or benefit, with respect to future periods
after such termination or resignation.
(g) NO MITIGATION; NO SET-OFF. In the event of any termination of
employment hereunder, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that Executive may obtain.
The amounts payable hereunder shall not be subject to setoff,
counterclaim, recoupment, defense or other right which the Company may
have against the Executive or others, except upon obtaining by the
Company of a final unappealable judgment against Executive.
7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
FOLLOWING CHANGE IN CONTROL.
(a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
"Change in Control" occurs and Executive terminates his employment for
Good Reason thereafter, or the Company terminates Executive's
employment other than for Cause or such termination for Good Reason or
without Cause occurs in contemplation of such Change in Control (any
termination within six (6) months prior to such Change in Control being
presumed to be in contemplation unless rebutted by clear and
demonstrable evidence to the contrary), the Company shall pay the
following amounts to Executive:
(i) The payments and benefits provided for in Section 6(e), except
that (A) the period with respect to which severance is
calculated pursuant to Section 6(e)(iii) will be three (3)
years and the amount shall be paid in a lump-sum and (B) the
benefit continuation period in Section 6(e)(iv) shall be three
years.
(ii) Executive will be 100% vested in all benefits, awards, and
grants (including stock option grants and stock awards, all of
such stock options exercisable for three (3) years following
Termination) accrued but unpaid as of the date of termination
under any non-qualified pension plan, supplemental and/or
incentive compensation or bonus plans, in which Executive was
a participant as of the date of termination. Executive shall
also receive a bonus or incentive compensation payment (the
"bonus payment"), payable at 100% of the maximum bonus
available to Executive, pro-rated as of the effective date of
the termination. The
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<PAGE> 11
bonus payment shall be payable within five (5) days after the
effective date of Employee's termination. Except as may be
provided under this Section 7 or under the terms of any
incentive compensation, employee benefit, or fringe benefit
plan applicable to Executive at the time of Executive's
resignation from employment, Executive shall have no right to
receive any other compensation, or to participate in any other
plan, arrangement or benefit, with respect to future periods
after such resignation or termination.
(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) In the event that the Executive shall become entitled to
payments and/or benefits provided by this Agreement or any
other amounts in the "nature of compensation" (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a change of ownership or effective control
covered by Section 280G(b)(2) of the Code or any person
affiliated with the Company or such person) as a result of
such change in ownership or effective control (collectively
the "Company Payments"), and such Company Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (and any similar tax that may hereafter be imposed
by any taxing authority) the Company shall pay to the
Executive at the time specified in subsection (iv) below an
additional amount (the "Gross-up Payment") such that the net
amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any U.S. federal,
state, and for local income or payroll tax upon the Gross-up
Payment provided for by this Section 7(b), but before
deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the
Company Payments.
(ii) For purposes of determining whether any of the Company
Payments and Gross-up Payments (collectively the "Total
Payments") will be subject to the Excise Tax and the amount of
such Excise Tax, (x) the Total Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "parachute payments" in excess of the
"base amount" (as defined under Code Section 280G[b][3] of the
Code) shall be treated as subject to the Excise Tax, unless
and except to the extent that, in the opinion of the Company's
independent certified public accountants appointed prior to
any change in ownership (as defined under Code Section
280G[b][2]) or tax counsel selected by such accountants (the
"Accountants") such Total Payments (in whole or in part)
either do not constitute "parachute payments," represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
"base amount" or are otherwise not subject to the Excise Tax,
and (y) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay U.S. federal
income taxes at the highest marginal rate of
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<PAGE> 12
U.S. federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state
and locality of the Executive's residence for the calendar
year in which the Company Payment is to be made, net of the
maximum reduction in U.S. federal income taxes which could be
obtained from deduction of such state and local taxes if paid
in such year. In the event that the Excise Tax is subsequently
determined by the Accountants to be less than the amount taken
into account hereunder at the time the Gross-up Payment is
made, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally
determined, the portion of the prior Gross-up Payment
attributable to such reduction (plus the portion of the
Gross-up Payment attributable to the Excise Tax and U.S.
federal, state and local income tax imposed on the portion of
the Gross-up Payment being repaid by the Executive if such
repayment results in a reduction in Excise Tax or a U.S.
federal, state and local income tax deduction), plus interest
on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to
be refunded to the Company has been paid to any U.S. federal,
state and local tax authority, repayment thereof (and related
amounts) shall not be required until actual refund or credit
of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received
or credited to the Executive by such tax authority for the
period it held such portion. The Executive and the Company
shall mutually agree upon the course of action to be pursued
(and the method of allocating the expense thereof) if the
Executive's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest
or penalties payable with respect to such excess) at the time
that the amount of such excess is finally determined.
(iv) The Gross-up Payment or portion thereof provided for in
subsection (iii) above shall be paid not later than the
thirtieth (30th) day following an event occurring which
subjects the Executive to the Excise Tax; provided, however,
that if the amount of such Gross-up Payment or portion thereof
cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Accountant, of the minimum
amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), subject to further
payments pursuant to subsection (iii) hereof, as soon as the
amount thereof can reasonably be determined, but in no event
later than the ninetieth day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that
the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company
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<PAGE> 13
to the Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(v) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) with regard to the Excise
Tax, the Executive shall permit the Company to control issues
related to the Excise Tax (at its expense), provided that such
issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues.
In the event the issues are interrelated, the Executive and
the Company shall in good faith cooperate so as not to
jeopardize resolution of either issue, but if the parties
cannot agree the Executive shall make the final determination
with regard to the issues. In the event of any conference with
any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the
Company to accompany the Executive, and the Executive and the
Executive's representative shall cooperate with the Company
and its representative.
(vi) The Company shall be responsible for all charges of the
Accountant.
(vii) The Company and the Executive shall promptly deliver to each
other copies of any written communications, and summaries of
any verbal communications, with any taxing authority regarding
the Excise Tax covered by this Section 7(b).
(c) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities
acquired directly from the Company or its Affiliates)
representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding voting
securities;
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the Commencement Date, constitute the Board and any
new director (other than a director whose initial assumption
of office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of the at least two-thirds
(2/3rds) of the directors then still in office who either were
directors on the Commencement Date or whose appointment,
election or nomination for election was previously so approved
or recommended;
(iii) there is a consummated merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any
other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the
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<PAGE> 14
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent
entity) more than fifty percent (50%) of the combined voting
power of the voting securities of the Company or such
surviving or parent equity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no Person, directly or
indirectly, acquired twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities (not including in the securities beneficially owned
by such person any securities acquired directly from the
Company or its Affiliates); or
(iv) the stock holders of the Company approve a plan of complete
liquidation of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect), other than a sale or disposition by
the Company of all or substantially all of the Company's
assets to an entity, at least fifty percent (50%) of the
combined voting power of the voting securities of which are
owned by stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale.
For purposes of this Section 7(c), the following terms shall have the
following meanings:
(i) "Affiliate" shall mean an affiliate of the Company, as
defined in Rule 12b-2 promulgated under Section 12 of the
Securities Exchange Act of 1934, as amended from time to time
(the "Exchange Act");
(ii) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act;
(iii) "Person" shall have the meaning set forth in Section
3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (1) the Company, (2) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities or (4) a
corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their
ownership of shares of Common Stock of the Company.
8. RESTRICTIVE COVENANTS.
(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for two
(2) years thereafter, Executive will not engage in, assist, or have any
active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 3% of the stock of a public company),
partner, proprietor or any type of principal whatsoever in any person,
firm, or business entity which, directly
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<PAGE> 15
or indirectly, is materially engaged in the waste management business
competitive with that conducted and carried on by the Company, without
the Company's specific written consent to do so. "Material" shall mean
more than five (5%) percent of their revenue is generated from the
waste management business; provided that the revenues within
Executive's area of responsibility or authority are more than 10%
composed of revenues from the waste disposal business. Notwithstanding
the foregoing, Executive may be employed by or provide services to, an
investment banking firm, law firm or consulting firm that provides
services to entities described in the previous sentence, provided that
Executive does not personally represent or provide services to such
entities.
(b) NON-SOLICITATION. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for a
period of two (2) years after the Termination thereof, whether such
termination is voluntary or involuntary by wrongful discharge, or
otherwise, Executive will not directly and personally knowingly (i)
induce any customers of the Company or corporations affiliated with the
Company to patronize any similar business which competes with any
material business of the Company; (ii) after his termination of
employment, request or advise any customers of the Company or
corporations affiliated with the Company to withdraw, curtail or cancel
such customer's business with the Company; or (iii) after his
termination of employment, individually or through any person, firm,
association or corporation with which he is now, or may hereafter
become associated, solicit, entice or induce any then employee of the
Company, or any subsidiary of the Company, to leave the employ of the
Company, or such other corporation, to accept employment with, or
compensation from the Executive, or any person, firm, association or
corporation with which Executive is affiliated without prior written
consent of the Company. The foregoing shall not prevent Executive from
serving as a reference for employees.
(c) PROTECTED INFORMATION. Executive recognizes and acknowledges that
Executive has had and will continue to have access to various
confidential or proprietary information concerning the Company and
corporations affiliated with the Company of a special and unique value
which may include, without limitation, (i) books and records relating
to operation, finance, accounting, sales, personnel and management,
(ii) policies and matters relating particularly to operations such as
customer service requirements, costs of providing service and
equipment, operating costs and pricing matters, and (iii) various trade
or business secrets, including customer lists, route sheets, business
opportunities, marketing or business diversification plans, business
development and bidding techniques, methods and processes, financial
data and the like, to the extent not generally known in the industry
(collectively, the "Protected Information"). Executive therefore
covenants and agrees that Executive will not at any time, either while
employed by the Company or afterwards, knowingly make any independent
use of, or knowingly disclose to any other person or organization
(except as authorized by the Company) any of the Protected Information,
provided that (i) while employed by the Company, Executive may in good
faith make disclosures he believes desirable, and (ii) Executive may
comply with legal process.
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<PAGE> 16
9. ENFORCEMENT OF COVENANTS.
(a) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
covenants set forth in Section 8 hereof will cause irreparable damage
to the Company with respect to which the Company's remedy at law for
damages may be inadequate. Therefore, in the event of breach or
threatened breach of the covenants set forth in this section by
Executive, Executive and the Company agree that the Company shall be
entitled to the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity; injunctions, both
preliminary and permanent, enjoining or restraining such breach or
threatened breach and Executive hereby consents to the issuance thereof
forthwith and without bond by any court of competent jurisdiction.
(b) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
constitute a series of separate covenants, one for each applicable
State in the United States and the District of Columbia, and one for
each applicable foreign country. If in any judicial proceeding, a court
shall hold that any of the covenants set forth in Section 8 exceed the
time, geographic, or occupational limitations permitted by applicable
laws, Executive and the Company agree that such provisions shall and
are hereby reformed to the maximum time, geographic, or occupational
limitations permitted by such laws. Further, in the event a court shall
hold unenforceable any of the separate covenants deemed included
herein, then such unenforceable covenant or covenants shall be deemed
eliminated from the provisions of this Agreement for the purpose of
such proceeding to the extent necessary to permit the remaining
separate covenants to be enforced in such proceeding.
Executive and the Company further agree that the covenants in Section 8
shall each be construed as a separate agreement independent of any
other provisions of this Agreement, and the existence of any claim or
cause of action by Executive against the Company whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of the covenants of Section 8.
10. INDEMNIFICATION.
The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by law for any action or inaction of Executive while serving as an
officer and director of the Company or, at the Company's request, as an officer
or director of any other entity or as a fiduciary of any benefit plan. The
Company shall cover the Executive under directors and officers liability
insurance both during and, while potential liability exists, after the
Employment Term in the same amount and to the same extent as the Company covers
its other officers and directors.
11. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.
If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly
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<PAGE> 17
provide sums sufficient to pay on a current basis (either directly or by
reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and expenses
of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to at least one
material claim or issue in such dispute or litigation. The provisions of this
Section 11, without implication as to any other section hereof, shall survive
the expiration or termination of this Agreement and of Executive's employment
hereunder.
12. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.
14. ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).
15. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company. It may not be amended except by a written agreement
signed by both parties.
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<PAGE> 18
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. REQUIREMENT OF TIMELY PAYMENTS.
If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.
18. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Company: Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive: At the address for Executive set forth below.
19. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
this Agreement is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such
term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
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<PAGE> 19
(c) HEADINGS. Section headings are used herein for convenience of reference
only and shall not affect the meaning of any provision of this
Agreement.
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
singular shall be deemed to include the plural and vice versa.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, and such counterparts will together constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
WASTE MANAGEMENT, INC.
By: /s/ A. Maurice Myers
--------------------------------------------------------
Name: A. Maurice Myers
Title: Chairman, Chief Executive Officer and President
Date: January 21, 2000
------------------------------------------------------
EXECUTIVE
/s/ Lawrence O'Donnell, III
- ----------------------------------------------------------
Lawrence O'Donnell, III
Date: January 21, 2000
------------------------------------------------------
Social Security Number:
Address:
Page 19 of 19
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and DAVID HOPKINS (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as of March 30,
2000, as follows:
1. EMPLOYMENT.
The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT.
The period of Executive's employment under this Agreement shall commence on
April 17, 2000, and be for a continuously renewing (on a daily basis) three (3)
year term, without any further action by either the Company or Executive, unless
Executive's employment is terminated in accordance with Section 5 below. The
date on which Executive commences employment with the Company shall be referred
to as the "Commencement Date" and the period during which Executive is employed
hereunder shall be referred to as the "Employment Period".
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Senior Vice President of the Company with
responsibility for the Southern Area operations, as designated from
time to time by the Chief Executive Officer or President of the
Company, or such other areas of operation as designated by the Chief
Executive Officer or President of the Company from time to time. In
such capacities, Executive shall perform such duties and have the
power, authority and functions commensurate with such positions in
similarly sized public companies and such other authority and functions
consistent with such positions as may be assigned to Executive from
time to time by the Chief Executive Officer, President, or the Board of
Directors.
(b) Executive shall devote substantially all of his working time, attention
and energies to the business of the Company, and affiliated entities.
Executive may make and manage his personal investments (provided such
investments in other activities do not violate, in any material
respect, the provisions of Section 8 of this Agreement), be involved in
charitable and professional activities and, with the consent of the
Board, serve on boards of other for profit entities, provided such
activities do not materially interfere with the performance of his
duties hereunder.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of FOUR HUNDRED THOUSAND
($400,000.00) dollars per year or such higher rate as may be determined
from time to time by the Company ("Base Salary"). Such Base Salary
shall be paid in accordance with the Company's standard payroll
practice for its executive officers. Once increased, Base Salary shall
not be reduced.
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<PAGE> 2
(b) ANNUAL BONUS. During the Employment Period, Executive will be entitled
to participate in an annual incentive compensation plan of the Company.
The Executive's target annual bonus will be sixty percent (60%) of his
Base Salary as in effect for such year (the "Target Bonus"), and his
actual annual bonus may range from 0% to 120% (2 times target), and
will be determined based upon achievement of performance goals (seventy
percent (70%) financial (initially return on capital investments and
EBITDA, but may be tied to other metrics as may be established from
time to time by the Compensation Committee of the Board) and thirty
percent (30%) personal), all as approved by the Compensation Committee
of the Board from time to time.
(c) STOCK OPTIONS. Executive shall be granted a stock option for 100,000
shares of the Company's common stock following the meeting of the
Compensation Committee at the end of February, 2000, subject to the
approval of the Compensation Committee of the Board of Directors, under
the terms of the Company's 1993 Stock Incentive Plan. The exercise
price for this option will be the fair market value on the date the
option is granted by the Compensation Committee, and the option will
vest in equal installments of 25,000 shares over four (4) years
beginning on the first anniversary of the date of the grant of such
option. Thereafter, Executive shall be eligible to be considered for
stock option grants under the Company's annual stock option award
program as administered by, and at the discretion of, the Compensation
Committee of the Board of Directors.
(d) BENEFIT PLANS AND VACATION. Executive shall be eligible to participate
in or receive benefits under any pension plan, profit sharing plan,
medical and dental benefits plan, life insurance plan, short-term and
long-term disability plans, or any other health, welfare or fringe
benefit plan, generally made available by the Company to its executive
officers at a level commensurate with his position. During the
Employment Period, Executive shall be entitled to vacation each year in
accordance with the Company's policies in effect from time to time, but
in no event less than four (4) weeks paid vacation per calendar year.
The Executive shall also be entitled to such periods of sick leave as
is customarily provided by the Company for its senior executive
employees. Executive shall be eligible to participate in the Company's
401(k) Plan after 90 days of employment.
(e) OTHER PERQUISITES. Executive shall be entitled to the following
benefits:
1. Financial Planning Services at actual cost, not to exceed
Fifteen Thousand Dollars ($15,000.00) annually;
2. Club Dues and Assessments at actual costs, and not to exceed
Twelve Thousand Dollars ($12,000.00) annually.
3. An Annual Physical Examination on a program designated by
the Company.
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<PAGE> 3
(f) OTHER BENEFITS. Executive shall be entitled to participate in the
Company's "Executive Deferral Plan", as it presently exists or may be
modified in the future, for the Company's executive officers, at a
level commensurate with the Executive's position.
(g) OTHER INCENTIVES. Executive shall be eligible to (i) receive incentive
compensation for 1999 to the extent of the achievement of certain EBIT,
EBITDA and free cash flow goals, as previously established; and (ii)
continue his participation in the "divestiture incentive program",
consisting of a "retention incentive" and a "divestiture sale
incentive"; all as detailed in the memos dated August 25, 1999,
September 22, 1999, and December 22, 1999, and the agreements of Steve
Miller and Ralph Whitworth interlineated by hand in those memos, with
no reduction or penalty for having transferred to a new Waste
Management executive position.
(h) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
for the ordinary and necessary business expenses incurred by Executive
in the performance of the duties hereunder in accordance with the
Company's customary practices applicable to its executive officers.
(i) RELOCATION. The Company will reimburse Executive for reasonable and
necessary expenses incurred in connection with the relocation of his
principal residence from Houston, Texas to Atlanta, Georgia, as
follows:
(1) Reasonable costs of temporary housing in the Atlanta area
for up to ninety (90) days.
(2) Normal and customary expenses incurred in connection with
the sale of Executive's residence in Houston such as real
estate commissions, title insurance, escrow fees, and
reasonable attorneys fees.
(3) Reasonable costs to move Executive's household goods from
Houston to Atlanta.
(4) Normal and customary expenses incurred in connection with
the purchase by Executive of a new residence in Atlanta,
such as loan origination fees, mortgagee title insurance,
escrow fees, and reasonable attorneys fees, but not
including equity costs.
(5) If Executive is not able to sell his residence in Houston
within sixty (60) days after the date of this Agreement, at
Executive's option, Executive may elect to have the Company
(or a relocation company selected by the Company) purchase
Executive's home in Houston under the Company's relocation
program, which includes having the home appraised by two
appraisers selected by the Company.
5. TERMINATION OF EMPLOYMENT.
Executive's employment hereunder may be terminated under the following
circumstances:
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<PAGE> 4
(a) DEATH. Executive's employment hereunder shall terminate upon
Executive's death.
(b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled". For purposes of
this Agreement, Executive shall be "Totally Disabled" if Executive has
been physically or mentally incapacitated so as to render Executive
incapable of performing Executive's material usual and customary duties
under this Agreement for six (6) consecutive months (such consecutive
absence not being deemed interrupted by Executive's return to service
for less than 10 consecutive business days if absent thereafter for the
same illness or disability). Any such termination shall be upon thirty
(30) days written notice given at any time thereafter while Executive
remains Totally Disabled, provided that a termination for Total
Disability hereunder shall not be effective if Executive returns to
full performance of his duties within such thirty (30) day period.
(c) TERMINATION BY THE COMPANY FOR CAUSE. Provided that Executive has not
tendered a timely "Notice of Termination for Good Reason" in accordance
with Section 5(d) below in a situation where Good Reason exists, the
Company may terminate Executive's employment hereunder for "Cause" at
any time within ninety (90) days after the Chairman of the Audit or
Governance Committee of the Board has knowledge thereof.
(i) For purposes of this Agreement, the term "Cause" shall be
limited to (1) willful misconduct by Executive with regard to
the Company which has a material adverse effect on the
Company; (2) the willful refusal of Executive to attempt to
follow the proper written direction of the Chief Executive
Officer, the President, or the Board of Directors, provided
that the foregoing refusal shall not be "Cause" if Executive
in good faith believes that such direction is illegal,
unethical or immoral and promptly so notifies the Board; (3)
substantial and continuing willful refusal by the Executive
to attempt to perform the duties required of him hereunder
(other than any such failure resulting from incapacity due to
physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the
Chief Executive Officer, the President, or the Board of
Directors, which specifically identifies the manner in which
it is believed that the Executive has substantially and
continually refused to attempt to perform his duties
hereunder; or (4) the Executive being convicted of a felony
(other than a felony involving a traffic violation or as a
result of vicarious liability). For purposes of this
paragraph, no act, or failure to act, on Executive's part
shall be considered "willful" unless done or omitted to be
done, by him not in good faith and without reasonable belief
that his action or omission was in the best interests of the
Company.
(ii) A Notice of Termination for Cause shall mean a notice that
shall indicate the specific termination provision in Section
5(c)(i) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for
termination for Cause. Further, a Notification for Cause
shall be required to
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<PAGE> 5
include a copy of a resolution duly adopted by at least
two-thirds (2/3rds) of the entire membership of the Board at
a meeting of the Board which was called for the purpose of
considering such termination and which Executive and his
representative had the right to attend and address the Board,
finding that, in the good faith of the Board, Executive
engaged in conduct set forth in the definition of Cause
herein and specifying the particulars thereof in reasonable
detail. The date of termination for a termination for Cause
shall be the date indicated in the Notice of Termination. Any
purported termination for Cause which is held by a court or
arbitrator not to have been based on the grounds set forth in
this Agreement or not to have followed the procedures set
forth in this Agreement shall be deemed a termination by the
Company without Cause.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder with or without Good Reason at any time upon written notice
to the Company.
(i) A Termination for Good Reason means a termination by
Executive by written notice given within ninety (90) days
after the occurrence of the Good Reason event, unless such
circumstances are fully corrected prior to the date of
termination specified in the Notice of Termination for Good
Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence or failure to cause the occurrence, as
the case may be, without Executive's express written consent,
of any of the following circumstances: (1) any material
diminution of Executive's positions, duties or
responsibilities hereunder (except in each case in connection
with the termination of Executive's employment for Cause or
Total Disability or as a result of Executive's death, or
temporarily as a result of Executive's illness or other
absence); provided that the change in the geographic area of
Executive's responsibility or the reassignment of Executive
to a different geographic area within the United States or
the change in reporting structure shall not constitute Good
Reason under any circumstances; further provided that if the
Company becomes a fifty percent or more subsidiary of any
other entity, Executive shall be deemed to have a material
diminution of his position unless he is also a Senior Vice
President of the ultimate parent entity; (2) removal of, or
the non-re-election of, the Executive from officer positions
with the Company specified herein; (3) requiring Executive's
principal place of business to be located other than in the
United States; (4) a failure by the Company (I) to continue
any bonus plan, program or arrangement in which Executive is
entitled to participate (the "Bonus Plans"), provided that
any such Bonus Plans may be modified at the Company's
discretion from time to time but shall be deemed terminated
if (x) any such plan does not remain substantially in the
form in effect prior to such modification and (y) if plans
providing Executive with substantially similar benefits are
not substituted therefore ("Substitute Plans"), or (II) to
continue Executive as a participant in the Bonus Plans and
Substitute Plans on at least the same basis as to potential
amount of the bonus as Executive participated in prior to any
change in such plans or awards, in accordance with the Bonus
Plans and the Substitute Plans; (5) any material breach by
the Company of any
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<PAGE> 6
provision of this Agreement, including without limitation
Section 10 hereof; or (6) failure of any successor to the
Company (whether direct or indirect and whether by merger,
acquisition, consolidation or otherwise) to assume in a
writing delivered to Executive upon the assignee becoming
such, the obligations of the Company hereunder.
(ii) A Notice of Termination for Good Reason shall mean a notice
that shall indicate the specific termination provision relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for Termination for
Good Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or
circumstances which contribute to the showing of Good Reason
shall not waive any right of Executive hereunder or preclude
Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for
Good Reason shall provide for a date of termination not less
than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given, provided
that in the case of the events set forth in Sections
5(d)(i)(1) or (2) the date may be five (5) days after the
giving of such notice.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time upon written
notice to Executive.
(f) EFFECT OF TERMINATION. Upon any termination of employment, Executive
shall immediately resign from all Board memberships and other positions
with the Company or any of its subsidiaries held by him at such time.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) TERMINATION BY REASON OF DEATH. In the event that Executive's
employment is terminated by reason of Executive's death, the Company
shall pay the following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of death, any accrued but unpaid expenses required
to be reimbursed under this Agreement, any vacation accrued
to the date of termination, any earned but unpaid bonuses for
any prior period, and, to the extent not otherwise paid, a
pro-rata "bonus" or incentive compensation payment to the
extent payments are awarded to senior executives of the
Company and paid at the same time as senior executives are
paid.
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<PAGE> 7
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those
referred to in Sections 4(d), (e) and (f) hereof), as
determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's death) which would have been
payable to Executive if Executive had continued in employment
for two additional years. Said payments will be paid to
Executive's estate or beneficiary at the same time and in the
same manner as such compensation would have been paid if
Executive had remained in active employment.
(iv) As of the date of termination by reason of Executive's death,
stock options awarded to Executive shall be fully vested and
Executive's estate or beneficiary shall have up to one (1)
year from the date of death to exercise all such options,
provided that in no event will any option be exercisable
beyond its term.
(v) As otherwise specifically provided herein.
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Executive's employment is terminated by reason of Executive's Total
Disability as determined in accordance with Section 5(b), the Company
shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period. Executive shall also be
eligible for a pro-rata bonus or incentive compensation
payment to the extent such awards are made to senior
executives of the Company for the year in which Executive is
terminated, and to the extent not otherwise paid to the
Executive.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those
referred to in Sections 4(d), (e) and (f) hereof) shall be
determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's Total Disability) which would have
been payable to Executive if Executive had continued in
active employment for two years following termination of
employment, less any payments under any long-term disability
plan or arrangement paid for by the Company. Payment shall be
made at the same time and in the same manner as such
compensation would have been paid if Executive had remained
in active employment until the end of such period.
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<PAGE> 8
(iv) As of the date of termination by reason of Executive's Total
Disability, Executive shall be fully vested in all stock
option awards and Executive shall have up to one (1) year
from the date of termination by reason of Total Disability to
exercise all such options, provided that in no event will any
option be exercisable beyond its term.
(v) As otherwise specifically provided herein.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause, the Company shall pay the
following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those
referred to in Section 4(d), (e) and (f) hereof up to the
date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and
arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
and any options held by Executive shall be cancelled, whether or not
then vested.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
voluntarily terminates employment other than for Good Reason, the
Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those
referred to in Sections 4(d), (e) and (f) hereof up to the
date of termination) shall be determined and paid in
accordance with the terms of such plans, policies and
arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
and Executive shall have 90 days following
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<PAGE> 9
termination of employment to exercise any previously vested options,
provided that in no event will any option be exercisable beyond its
term.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
GOOD REASON. In the event that Executive's employment is terminated by
the Company for reasons other than death, Total Disability or Cause, or
Executive terminates his employment for Good Reason, the Company shall
pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Sections
4(d) and (e) hereof shall be determined and paid in
accordance with the terms of such plans, policies and
arrangements.
(iii) An amount equal to two times the sum of Executive's Base
Salary plus his Target Annual Bonus (in each case as then in
effect), of which one-half shall be paid in a lump sum within
ten (10) days after such termination and one-half shall be
paid during the two (2) year period beginning on the date of
Executive's termination and shall be paid at the same time
and in the same manner as Base Salary would have been paid if
Executive had remained in active employment until the end of
such period.
(iv) The Company at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and
also including deferred compensation, disability, automobile,
and other benefit plans, in which Executive was entitled to
participate at any time during the twelve-month period prior
to the date of termination, until the earliest to occur of
(A) two years after the date of termination; (B) Executive's
death (provided that benefits payable to Executive's
beneficiaries shall not terminate upon Executive's death); or
(C) with respect to any particular plan, program or
arrangement, the date Executive becomes covered by a
comparable benefit by a subsequent employer. In the event
that Executive's continued participation in any such plan,
program, or arrangement of the Company is prohibited, the
Company will arrange to provide Executive with benefits
substantially similar to those which Executive would have
been entitled to receive under such plan, program, or
arrangement, for such period on a basis which provides
Executive with no additional after tax cost.
(v) Except to the extent prohibited by law, and except as
otherwise provided herein, Executive will be 100% vested in
all benefits, awards, and grants accrued but unpaid as of the
date of termination under any pension plan, profit sharing
plan,
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<PAGE> 10
supplemental and/or incentive compensation plans in which
Executive was a participant as of the date of termination.
Executive shall also be eligible for a bonus or incentive
compensation payment, at the same time, on the same basis,
and to the same extent payments are made to senior executives
of the Company, pro-rated for the fiscal year in which the
Executive is terminated.
(vi) Executive shall continue to vest in all stock option awards
or restricted stock awards over the two (2) year period
commencing on the date of such termination. Executive shall
have two (2) years and six (6) months after the date of
termination to exercise all options, provided that in no
event will any option be exercisable beyond its term.
(vii) As otherwise specifically provided herein.
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
Agreement, under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Executive at the time of
Executive's termination or resignation of employment, Executive shall
have no right to receive any other compensation, or to participate in
any other plan, arrangement or benefit, with respect to future periods
after such termination or resignation.
(g) NO MITIGATION; NO SET-OFF. In the event of any termination of
employment hereunder, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that Executive may obtain.
The amounts payable hereunder shall not be subject to setoff,
counterclaim, recoupment, defense or other right which the Company may
have against the Executive or others, except upon obtaining by the
Company of a final unappealable judgment against Executive.
7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
FOLLOWING CHANGE IN CONTROL.
(a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
"Change in Control" occurs and Executive terminates his employment for
Good Reason thereafter, or the Company terminates Executive's
employment other than for Cause or such termination for Good Reason or
without Cause occurs in contemplation of such Change in Control (any
termination within six (6) months prior to such Change in Control being
presumed to be in contemplation unless rebutted by clear and
demonstrable evidence to the contrary), the Company shall pay the
following amounts to Executive:
(i) The payments and benefits provided for in Section 6(e),
except that the severance amount which is calculated pursuant
to Section 6(e)(iii) will be paid in a lump-sum.
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<PAGE> 11
(ii) Executive will be 100% vested in all benefits, awards, and
grants (including stock option grants and stock awards, all
of such stock options exercisable for three (3) years
following Termination, provided that in no event will any
option be exercisable beyond its term) accrued but unpaid as
of the date of termination under any non-qualified pension
plan, supplemental and/or incentive compensation or bonus
plans, in which Executive was a participant as of the date of
termination. Executive shall also receive a bonus or
incentive compensation payment (the "bonus payment"), payable
at 100% of the maximum bonus available to Executive,
pro-rated as of the effective date of the termination. The
bonus payment shall be payable within five (5) days after the
effective date of Employee's termination. Except as may be
provided under this Section 7 or under the terms of any
incentive compensation, employee benefit, or fringe benefit
plan applicable to Executive at the time of Executive's
resignation from employment, Executive shall have no right to
receive any other compensation, or to participate in any
other plan, arrangement or benefit, with respect to future
periods after such resignation or termination.
(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) In the event that the Executive shall become entitled to
payments and/or benefits provided by this Agreement or any
other amounts in the "nature of compensation" (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a change of ownership or effective control
covered by Section 280G(b)(2) of the Code or any person
affiliated with the Company or such person) as a result of
such change in ownership or effective control (collectively
the "Company Payments"), and such Company Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (and any similar tax that may hereafter be
imposed by any taxing authority) the Company shall pay to the
Executive at the time specified in subsection (iv) below an
additional amount (the "Gross-up Payment") such that the net
amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any U.S. federal,
state, and for local income or payroll tax upon the Gross-up
Payment provided for by this Section 7(b), but before
deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the
Company Payments.
(ii) For purposes of determining whether any of the Company
Payments and Gross-up Payments (collectively the "Total
Payments") will be subject to the Excise Tax and the amount
of such Excise Tax, (x) the Total Payments shall be treated
as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in
excess of the "base amount" (as defined under Code Section
280G[b][3] of the Code) shall be treated as subject to the
Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public
accountants appointed prior to any change in ownership (as
defined under Code Section 280G[b][2]) or tax counsel
selected by such
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<PAGE> 12
accountants (the "Accountants") such Total Payments (in whole
or in part) either do not constitute "parachute payments,"
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the "base amount" or are otherwise not subject
to the Excise Tax, and (y) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G
of the Code.
(iii) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay U.S. federal
income taxes at the highest marginal rate of U.S. federal
income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality
of the Executive's residence for the calendar year in which
the Company Payment is to be made, net of the maximum
reduction in U.S. federal income taxes which could be
obtained from deduction of such state and local taxes if paid
in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than
the amount taken into account hereunder at the time the
Gross-up Payment is made, the Executive shall repay to the
Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the prior
Gross-up Payment attributable to such reduction (plus the
portion of the Gross-up Payment attributable to the Excise
Tax and U.S. federal, state and local income tax imposed on
the portion of the Gross-up Payment being repaid by the
Executive if such repayment results in a reduction in Excise
Tax or a U.S. federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of
the Gross-up Payment to be refunded to the Company has been
paid to any U.S. federal, state and local tax authority,
repayment thereof (and related amounts) shall not be required
until actual refund or credit of such portion has been made
to the Executive, and interest payable to the Company shall
not exceed the interest received or credited to the Executive
by such tax authority for the period it held such portion.
The Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating
the expense thereof) if the Executive's claim for refund or
credit is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an
additional Gross-up Payment in respect of such excess (plus
any interest or penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
(iv) The Gross-up Payment or portion thereof provided for in
subsection (iii) above shall be paid not later than the
thirtieth (30th) day following an event occurring
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<PAGE> 13
which subjects the Executive to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day
an estimate, as determined in good faith by the Accountant,
of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code), subject
to further payments pursuant to subsection (iii) hereof, as
soon as the amount thereof can reasonably be determined, but
in no event later than the ninetieth day after the occurrence
of the event subjecting the Executive to the Excise Tax. In
the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the
Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(v) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) with regard to the Excise
Tax, the Executive shall permit the Company to control issues
related to the Excise Tax (at its expense), provided that
such issues do not potentially materially adversely affect
the Executive, but the Executive shall control any other
issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the
parties cannot agree the Executive shall make the final
determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the
representative of the Company to accompany the Executive, and
the Executive and the Executive's representative shall
cooperate with the Company and its representative.
(vi) The Company shall be responsible for all charges of the
Accountant.
(vii) The Company and the Executive shall promptly deliver to each
other copies of any written communications, and summaries of
any verbal communications, with any taxing authority
regarding the Excise Tax covered by this Section 7(b).
(c) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any
securities acquired directly from the Company or its
Affiliates) representing twenty-five percent (25%) or more of
the combined voting power of the Company's then outstanding
voting securities;
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors then serving:
individuals who, on the Commencement Date, constitute the
Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest,
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<PAGE> 14
including but not limited to a consent solicitation, relating
to the election of directors of the Company) whose
appointment or election by the Board or nomination for
election by the Company's stockholders was approved or
recommended by a vote of the at least two-thirds (2/3rds) of
the directors then still in office who either were directors
on the Commencement Date or whose appointment, election or
nomination for election was previously so approved or
recommended;
(iii) there is a consummated merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any
other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) more
than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving or parent
equity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person, directly or indirectly,
acquired twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such
person any securities acquired directly from the Company or
its Affiliates); or
(iv) the stock holders of the Company approve a plan of complete
liquidation of the Company or there is consummated an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets (or any
transaction having a similar effect), other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least fifty percent (50%)
of the combined voting power of the voting securities of
which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
For purposes of this Section 7(c), the following terms shall have the
following meanings:
(i) "Affiliate" shall mean an affiliate of the Company, as
defined in Rule 12b-2 promulgated under Section 12 of the
Securities Exchange Act of 1934, as amended from time to time
(the "Exchange Act");
(ii) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act;
(iii) "Person" shall have the meaning set forth in Section
3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (1) the Company, (2) a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, (3) an underwriter temporarily holding securities
pursuant to an offering of such
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<PAGE> 15
securities or (4) a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
shares of Common Stock of the Company.
8. RESTRICTIVE COVENANTS.
(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for two
(2) years thereafter, Executive will not engage in, assist, or have any
active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 3% of the stock of a public company),
partner, proprietor or any type of principal whatsoever in any person,
firm, or business entity which, directly or indirectly, is materially
engaged in the waste management business competitive with that
conducted and carried on by the Company, without the Company's specific
written consent to do so. "Material" shall mean more than five (5%)
percent of their revenue is generated from the waste management
business; provided that the revenues within Executive's area of
responsibility or authority are more than 10% composed of revenues from
the waste disposal business.
(b) NON-SOLICITATION. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for a
period of two (2) years after the Termination thereof, whether such
termination is voluntary or involuntary by wrongful discharge, or
otherwise, Executive will not directly and personally knowingly (i)
induce any customers of the Company or corporations affiliated with the
Company to patronize any similar business which competes with any
material business of the Company; (ii) after his termination of
employment, request or advise any customers of the Company or
corporations affiliated with the Company to withdraw, curtail or cancel
such customer's business with the Company; or (iii) after his
termination of employment, individually or through any person, firm,
association or corporation with which he is now, or may hereafter
become associated, solicit, entice or induce any then employee of the
Company, or any subsidiary of the Company, to leave the employ of the
Company, or such other corporation, to accept employment with, or
compensation from the Executive, or any person, firm, association or
corporation with which Executive is affiliated without prior written
consent of the Company. The foregoing shall not prevent Executive from
serving as a reference for employees.
(c) PROTECTED INFORMATION. Executive recognizes and acknowledges that
Executive has had and will continue to have access to various
confidential or proprietary information concerning the Company and
corporations affiliated with the Company of a special and unique value
which may include, without limitation, (i) books and records relating
to operation, finance, accounting, sales, personnel and management,
(ii) policies and matters relating particularly to operations such as
customer service requirements, costs of providing service and
equipment, operating costs and pricing matters, and (iii) various trade
or business secrets, including customer lists, route sheets, business
opportunities, marketing or business diversification plans, business
development and bidding
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<PAGE> 16
techniques, methods and processes, financial data and the like, to the
extent not generally known in the industry (collectively, the
"Protected Information"). Executive therefore covenants and agrees that
Executive will not at any time, either while employed by the Company or
afterwards, knowingly make any independent use of, or knowingly
disclose to any other person or organization (except as authorized by
the Company) any of the Protected Information, provided that (i) while
employed by the Company, Executive may in good faith make disclosures
he believes desirable, provided they are authorized by the Company or
otherwise in accordance with Company policy, and (ii) Executive may
comply with legal process.
9. ENFORCEMENT OF COVENANTS.
(a) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
covenants set forth in Section 8 hereof will cause irreparable damage
to the Company with respect to which the Company's remedy at law for
damages may be inadequate. Therefore, in the event of breach or
threatened breach of the covenants set forth in this section by
Executive, Executive and the Company agree that the Company shall be
entitled to the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity; injunctions, both
preliminary and permanent, enjoining or restraining such breach or
threatened breach and Executive hereby consents to the issuance thereof
forthwith and without bond by any court of competent jurisdiction.
(b) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
constitute a series of separate covenants, one for each applicable
State in the United States and the District of Columbia, and one for
each applicable foreign country. If in any judicial proceeding, a court
shall hold that any of the covenants set forth in Section 8 exceed the
time, geographic, or occupational limitations permitted by applicable
laws, Executive and the Company agree that such provisions shall and
are hereby reformed to the maximum time, geographic, or occupational
limitations permitted by such laws. Further, in the event a court shall
hold unenforceable any of the separate covenants deemed included
herein, then such unenforceable covenant or covenants shall be deemed
eliminated from the provisions of this Agreement for the purpose of
such proceeding to the extent necessary to permit the remaining
separate covenants to be enforced in such proceeding.
Executive and the Company further agree that the covenants in Section 8
shall each be construed as a separate agreement independent of any
other provisions of this Agreement, and the existence of any claim or
cause of action by Executive against the Company whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of the covenants of Section 8.
10. INDEMNIFICATION.
The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by Delaware law against any and all losses, costs, and expenses
(including attorney's fees) incurred
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<PAGE> 17
by Executive arising from or related to Executive serving as an officer or
director of the Company or any of its affiliates, at the Company's request, or
any action or inaction of the Executive on behalf of the Company or its
affiliates while serving in such capacities. This provision includes the
obligation and undertaking of the Executive to reimburse the Company for any
fees advanced by the Company on behalf of the Executive should it later be
determined that Executive was not entitled to have such fees advanced by the
Company under Delaware law. The Company's obligation for the indemnity contained
herein shall survive the termination of this Agreement, and shall remain in
place for so long as Executive remains subject to any claim arising from his
services as an officer or director of the Company or any affiliate of the
Company, at the Company's request. Executive shall promptly notify the Company
of any claim against the Executive. The failure, however, of the Executive to so
notify the Company of the assertion of such claim shall not relieve the Company
of any obligation hereunder.
11. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.
If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly advance sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and expenses
of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to at least one
material claim or issue in such dispute or litigation. Under no circumstances
shall Executive be obligated to pay or reimburse the Company for any attorney's
fees, costs, or expenses incurred by the Company in such dispute or litigation.
The provisions of this Section 11, without implication as to any other section
hereof, shall survive the expiration or termination of this Agreement and of
Executive's employment hereunder.
12. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the
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<PAGE> 18
Company may make to aid the Company in meeting its obligations hereunder. To the
extent that any person acquires a right to receive payments from the Company
hereunder, such right shall be no greater than the right of an unsecured
creditor of the Company.
14. ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).
15. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company and any other matters covered hereby, including
without limitation, that certain Employment Agreement between the Company and
Executive dated January 1, 1999, as amended. It may not be amended except by a
written agreement signed by both parties.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. REQUIREMENT OF TIMELY PAYMENTS.
If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.
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<PAGE> 19
18. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Company: Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive: At the address for Executive set
forth below.
19. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
this Agreement is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such
term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
(c) HEADINGS. Section headings are used herein for convenience of reference
only and shall not affect the meaning of any provision of this
Agreement.
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
singular shall be deemed to include the plural and vice versa.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, and such counterparts will together constitute but one
Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
COMPANY:
WASTE MANAGEMENT, INC.
By: /s/ A. Maurice Myers
-----------------------------------------------
Name: A. Maurice Myers
Title: Chairman, Chief Executive Officer and President
Date: April 16, 2000
-----------------------------------------------
EXECUTIVE:
/s/ David R. Hopkins
- --------------------------------------------------------
David Hopkins
Date: March 30, 2000
--------------------------------------------------
Social Security Number:
--------------------------------
Address:
-----------------------------------------------
Page 20 of 20
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and THOMAS L. SMITH (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement"), executed the day and
year written below, but effective as of November 18, 1999, as follows:
1. EMPLOYMENT.
The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT.
The period of Executive's employment under this Agreement shall commence on
11-22-99, and be for a continuously renewing (on a daily basis) three (3) year
term, without any further action by either the Company or Executive, unless
Executive's employment is terminated in accordance with Section 5 below. The
date on which Executive commences employment with the Company shall be referred
to as the "Commencement Date" and the period during which Executive is employed
hereunder shall be referred to as the "Employment Period".
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Sr. Vice President-Information Technology.
Executive will report either to the Chief Executive Officer, President, or
Executive Vice President designated by the Chief Executive Officer. In
such capacity, Executive shall perform such duties and have the power,
authority and functions commensurate with such positions in similarly
sized public companies and such other authority and functions consistent
with such positions as may be assigned to Executive from time to time by
the Chief Executive Officer, President, Executive Vice President, or the
Board of Directors.
(b) Executive shall devote substantially all of his working time, attention
and energies to the business of the Company, and affiliated entities.
Executive may make and manage his personal investments (provided such
investments in other activities do not violate, in any material respect,
the provisions of Section 8 of this Agreement), be involved in charitable
and professional activities and, with the consent of the Board, serve on
boards of other for profit entities, provided such activities do not
materially interfere with the performance of his duties hereunder.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Period, the Company shall pay Executive
a base salary at the annual rate of TWO HUNDRED EIGHTY THOUSAND
($280,000.00) DOLLARS per year or such higher rate as may be determined
from time to time by the Company ("Base Salary"). Such Base Salary shall
be paid in accordance with the Company's standard payroll practice for its
executive officers. Once increased, Base Salary shall not be reduced.
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<PAGE> 2
(b) ANNUAL BONUS. During the Employment Period, Executive will be entitled to
participate in an annual incentive compensation plan of the Company. The
Executive's target annual bonus will be forty-five percent (45%) of his
Base Salary as in effect for such year (the "Target Bonus"), and his
actual annual bonus may range from 0% to 90% (two times Target Bonus), and
will be determined based upon achievement of performance goals (initially
seventy percent [70%] financial [return on capital investments and EBITDA]
and thirty percent [30%] personal, but may be tied to other metrics as may
be established from time to time by the Compensation Committee of the
Board) as approved by the Compensation Committee of the Board, from time
to time.
(c) STOCK OPTIONS. Subject to the approval of the Compensation Committee of
the Board of Directors, Executive shall be granted an initial stock option
grant for ONE HUNDRED THOUSAND (100,000) shares of the Company's common
stock, effective as of the Commencement Date. The exercise price shall be
the fair market value on such date, and the option shall vest in equal
installments of twenty-five percent (25%) in each of the first four (4)
anniversaries of the Commencement Date. Executive shall be eligible to be
considered for stock option grants under the Company's annual stock option
award program as administered by, and at the discretion of, the
Compensation Committee of the Board of Directors, commencing in 2001.
(d) BENEFIT PLANS AND VACATION. Executive shall be eligible to participate in
or receive benefits under any pension plan, profit sharing plan, medical
and dental benefits plan, life insurance plan, short-term and long-term
disability plans, or any other health, welfare or fringe benefit plan,
generally made available by the Company to its executive officers at a
level commensurate with his position. All waiting periods for welfare
plans shall be waived for Executive and Executive's eligible family
members. During the Employment Period, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect
from time to time, but in no event less than four (4) weeks paid vacation
per calendar year. The Executive shall also be entitled to such periods of
sick leave as is customarily provided by the Company for its senior
executive employees. Executive shall be eligible to participate in the
Company's 401(k) Plan after 90 days of employment. Executive shall be
eligible to participate in the Company's Employee Stock Purchase Plan
beginning January 1, 2000.
(e) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive for
the ordinary and necessary business expenses incurred by Executive in the
performance of the duties hereunder in accordance with the Company's
customary practices applicable to its executive officers.
(f) SIGN-ON BONUS. Within thirty (30) days after the Commencement Date, the
Company will pay Executive a sign-on bonus in the amount of ONE HUNDRED
TWENTY THOUSAND DOLLARS ($120,000). As of the date of the execution of
this Agreement, Executive acknowledges having received this sign-on bonus.
(g) EXECUTIVE DEFERRAL PLAN. Executive shall be entitled to participate in the
Company's "Executive Deferral Plan" beginning January 1, 2000, and any
incentive or supplemental compensation plan, or arrangement, all to the
extent maintained or instituted by the
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<PAGE> 3
Company, and covering its principal executive officers, at a level
commensurate with his position.
(h) RETIREMENT BENEFIT. Upon Executive's retirement from the Company following
Executive attaining sixty-five (65) years of age, and provided that
Executive's employment is not terminated for Cause, the Company will
provide Executive an annual retirement benefit in the amount of
FIFTY-THOUSAND DOLLARS ($50,000.00) cash per year for the remainder of his
life. This retirement benefit will vest in twenty percent (20%) increments
(or $10,000.00) on each of the Executive's five (5) birthdays beginning on
the date Executive attains sixty-one (61) years of age, provided Executive
is employed by the Company on each such birth date. Executive may elect to
retire from the Company prior to his sixty-fifth birthday, and receive the
annual retirement benefit to the extent it is then vested. No amounts will
be paid under this paragraph prior to Executive's retirement (or death, if
sooner). The annual retirement benefit will be paid on the date of
Executive's retirement and on each anniversary of such date of retirement
for as long as such amount is to be paid under this paragraph. Following
Executive's death, such annual retirement benefit, to the extent vested,
will thereafter be paid to Executive's wife, Nancy Smith, if she survives
Executive, for the remainder of her life, with such amount being paid on
each anniversary of Executive's birth date; provided that in the event
Executive is less than forty percent (40%) vested at his death, he will be
deemed to be forty percent (40%) vested at his death, so that upon
Executive's death, his wife, if she survives Executive, will receive at
least $20,000.00 per year on each anniversary of Executive's birth date
for the remainder of her life, under this paragraph. (For example, if
Executive elects to retire immediately following his 62nd birthday,
Executive will receive an annual retirement benefit of $20,000 per year,
and following Executive's death, if Executive's wife, Nancy Smith,
survives Executive, such $20,000 per year will be paid to her for the
remainder of her life on Executive's birth date). No amounts will be
payable under this paragraph following the death of both Executive and his
wife, Nancy Smith.
(i) RELOCATION. The Company shall promptly reimburse Executive (on a fully
grossed up basis for any amounts taxable to Executive), to the extent not
already reimbursed by the Company, for reasonable and customary costs
incurred in connection with the relocation of his principal residence to
the Houston, Texas area at a level commensurate with Executive's position
and the type of relocation benefits provided by public companies of
similar size to their executives, which shall in any event include the
purchase by the Company (or a relocation company) of such residence at its
fair market value if not sold within 90 days from the Commencement Date,
any real estate commissions incurred in connection with the sale of such
residence and any points on a loan for a new home. In addition, the
Company shall provide Executive temporary housing in the Houston area for
up to six (6) months from the Commencement Date.
5. TERMINATION OF EMPLOYMENT.
Executive's employment hereunder may be terminated under the following
circumstances:
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<PAGE> 4
(a) DEATH. Executive's employment hereunder shall terminate upon Executive's
death.
(b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled". For purposes of this
Agreement, Executive shall be "Totally Disabled" if Executive has been
physically or mentally incapacitated so as to render Executive incapable
of performing Executive's material usual and customary duties under this
Agreement for six (6) consecutive months (such consecutive absence not
being deemed interrupted by Executive's return to service for less than 10
consecutive business days if absent thereafter for the same illness or
disability). Any such termination shall be upon thirty (30) days written
notice given at any time thereafter while Executive remains Totally
Disabled, provided that a termination for Total Disability hereunder shall
not be effective if Executive returns to full performance of his duties
within such thirty (30) day period.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time within ninety
(90) days after the Chairman of the Audit or Governance Committee of the
Board has knowledge thereof.
(i) For purposes of this Agreement, the term "Cause" shall be limited to
(1) willful misconduct by Executive with regard to the Company which
has a material adverse effect on the Company; (2) the willful
refusal of Executive to attempt to follow the proper written
direction of the Chief Executive Officer, the President, an
Executive Vice President, or the Board of Directors, provided that
the foregoing refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral
and promptly so notifies the Board; (3) substantial and continuing
willful refusal by the Executive to attempt to perform the duties
required of him hereunder (other than any such failure resulting
from incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to the Executive by
the Chief Executive Officer, the President, an Executive Vice
President, or the Board of Directors, which specifically identifies
the manner in which it is believed that the Executive has
substantially and continually refused to attempt to perform his
duties hereunder; or (4) the Executive being convicted of a felony
(other than a felony involving a traffic violation or as a result of
vicarious liability). For purposes of this paragraph, no act, or
failure to act, on Executive's part shall be considered "willful"
unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the
best interests of the Company.
(ii) A Notice of Termination for Cause shall mean a notice that shall
indicate the specific termination provision in Section 5(c)(i)
relied upon and shall set forth in reasonable detail the facts and
circumstances which provide for a basis for termination for Cause.
Further, a Notification for Cause shall be required to include a
copy of a resolution duly adopted by at least two-thirds (2/3rds) of
the entire membership of the Board at a meeting of the Board which
was called for the purpose of considering such termination and which
Executive and his
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<PAGE> 5
representative had the right to attend and address the Board,
finding that, in the good faith of the Board, Executive engaged in
conduct set forth in the definition of Cause herein and specifying
the particulars thereof in reasonable detail. The date of
termination for a termination for Cause shall be the date indicated
in the Notice of Termination. Any purported termination for Cause
which is held by a court or arbitrator not to have been based on the
grounds set forth in this Agreement or not to have followed the
procedures set forth in this Agreement shall be deemed a termination
by the Company without Cause.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder with or without Good Reason at any time upon written notice to
the Company.
(i) A Termination for Good Reason means a termination by Executive by
written notice given within ninety (90) days after the occurrence of
the Good Reason event, unless such circumstances are fully corrected
prior to the date of termination specified in the Notice of
Termination for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written
consent, of any of the following circumstances: (1) any material
diminution of Executive's positions, duties or responsibilities
hereunder (except in each case in connection with the termination of
Executive's employment for Cause or Total Disability or as a result
of Executive's death, or temporarily as a result of Executive's
illness or other absence), provided that the change in reporting
structure where Executive reports to either an Executive Vice
President of the Company or higher in the Company shall not
constitute Good Reason under any circumstances; further provided
that if the Company becomes a fifty percent or more subsidiary of
any other entity, Executive shall be deemed to have a material
diminution of his position unless he is also a Sr. Vice President of
the ultimate parent entity; (2) removal of, or the non-re-election
of, the Executive from officer positions with the Company specified
herein or removal of the Executive from any of his then officer
positions; (3) requiring Executive's principal place of business to
be located other than in Houston, Texas; (4) a failure by the
Company (I) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate (the "Bonus Plans"),
provided that any such Bonus Plans may be modified at the Company's
discretion from time to time but shall be deemed terminated if (x)
any such plan does not remain substantially in the form in effect
prior to such modification and (y) if plans providing Executive with
substantially similar benefits are not substituted therefor
("Substitute Plans"), or (II) to continue Executive as a participant
in the Bonus Plans and Substitute Plans on at least the same basis
as to potential amount of the bonus as Executive participated in
prior to any change in such plans or awards, in accordance with the
Bonus Plans and the Substitute Plans; (5) any material breach by the
Company of any provision of this Agreement, including without
limitation Section 10 hereof; or (6) failure of any successor to the
Company (whether direct or indirect and whether by merger,
acquisition, consolidation or otherwise) to assume in a writing
delivered to Executive upon the assignee becoming such, the
obligations of the Company hereunder.
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<PAGE> 6
(ii) A Notice of Termination for Good Reason shall mean a notice that
shall indicate the specific termination provision relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for Termination for Good Reason. The
failure by Executive to set forth in the Notice of Termination for
Good Reason any facts or circumstances which contribute to the
showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or
circumstance in enforcing his rights hereunder. The Notice of
Termination for Good Reason shall provide for a date of termination
not less than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given, provided that
in the case of the events set forth in Sections 5(d)(i)(1) or (2)
the date may be five (5) days after the giving of such notice.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time upon written
notice to Executive.
(f) EFFECT OF TERMINATION. Upon any termination of employment, Executive shall
immediately resign from all Board memberships and other positions with the
Company or any of its subsidiaries held by him at such time.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) TERMINATION BY REASON OF DEATH. In the event that Executive's employment
is terminated by reason of Executive's death, the Company shall pay the
following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered to the date
of death, any accrued but unpaid expenses required to be reimbursed
under this Agreement, any vacation accrued to the date of
termination, any earned but unpaid bonuses for any prior period,
and, to the extent not otherwise paid, a pro-rata "bonus" or
incentive compensation payment to the extent payments are awarded to
senior executives of the Company and paid at the same time as senior
executives are paid.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements (including those referred to in
Section 4(d) hereof), as determined and paid in accordance with the
terms of such plans, policies and arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as of the
date of Executive's death) which would have been payable to
Executive if Executive had continued in employment for two
additional years. Said payments will be paid to
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<PAGE> 7
Executive's estate or beneficiary at the same time and in the same
manner as such compensation would have been paid if Executive had
remained in active employment.
(iv) As of the date of termination by reason of Executive's death, stock
options awarded to Executive shall be fully vested and Executive's
estate or beneficiary shall have up to one (1) year from the date of
death to exercise all such options, provided that in no event will
any option be exercisable beyond its term.
(v) As otherwise specifically provided herein, including the retirement
benefit to the extent payable to Executive's wife, Nancy Smith, if
she survives Executive, for her life, pursuant to Section 4(h).
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that Executive's
employment is terminated by reason of Executive's Total Disability as
determined in accordance with Section 5(b), the Company shall pay the
following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to the date
of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date of
termination and any earned but unpaid bonuses for any prior period.
Executive shall also be eligible for a pro-rata bonus or incentive
compensation payment to the extent such awards are made to senior
executives of the Company for the year in which Executive is
terminated, and to the extent not otherwise paid to the Executive.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements (including those referred to in
Section 4(d) hereof) shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as of the
date of Executive's Total Disability) which would have been payable
to Executive if Executive had continued in active employment for two
years following termination of employment, less any payments under
any long-term disability plan or arrangement paid for by the
Company. Payment shall be made at the same time and in the same
manner as such compensation would have been paid if Executive had
remained in active employment until the end of such period.
(iv) As of the date of termination by reason of Executive's Total
Disability, Executive shall be fully vested in all stock option
awards and Executive shall have up to one (1) year from the date of
termination by reason of Total Disability to exercise all such
options; provided that in no event will any option be exercisable
beyond its term.
(v) As otherwise specifically provided herein, including the retirement
benefit to the extent payable pursuant to Section 4(h).
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<PAGE> 8
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause, the Company shall pay the following
amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to the date
of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date of
termination and any earned but unpaid bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements (including those referred to in
Section 4(d) hereof up to the date of termination) shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested prior
to the date of such termination of employment shall be cancelled and any
options held by Executive shall be cancelled, whether or not then vested.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
voluntarily terminates employment other than for Good Reason, the Company
shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to the date
of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date of
termination and any earned but unpaid bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements (including those referred to in
Section 4(d) hereof up to the date of termination) shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(iii) In the event of such termination due to Executive's retirement
following Executive's sixty-first (61st) birthday, Executive shall
be entitled to the annual retirement benefit to the extent payable
pursuant to Section 4(h).
(iv) As otherwise specifically provided herein.
In the event of such termination prior to Executive's sixty-first (61st)
birthday, any options, restricted stock or other awards that have not
vested prior to the date of such termination of employment shall be
cancelled and Executive shall have ninety (90) days following termination
of employment to exercise any previously vested options; provided that in
no event will any option be exercisable beyond its term. In the event of
such termination due to Executive's retirement following Executive's
sixty-first (61st)
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<PAGE> 9
birthday, any options, restricted stock or other awards that have not
vested prior to the date of such termination of employment shall be
cancelled and Executive shall have three (3) years following such
termination of employment due to retirement to exercise any previously
vested options; provided that in no event will any option be exercisable
beyond its term.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
GOOD REASON. In the event that Executive's employment is terminated by the
Company for reasons other than death, Total Disability or Cause, or
Executive terminates his employment for Good Reason, the Company shall pay
the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to the date
of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date of
termination and any earned but unpaid bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4(d) hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) Base Salary (as then in effect) shall continue to be paid to
Executive during the three (3) year period beginning on the date of
Executive's termination and shall be paid at the same time, in the
same amount (as in effect on the date of termination) and in the
same manner as Base Salary would have been paid if Executive had
remained in active employment until the end of such period.
(iv) The Company at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and also
including deferred compensation, disability, automobile, and other
benefit plans, in which Executive was entitled to participate at any
time during the twelve-month period prior to the date of
termination, until the earliest to occur of (A) three years after
the date of termination; (B) Executive's death (provided that
benefits payable to Executive's beneficiaries shall not terminate
upon Executive's death); or (C) with respect to any particular plan,
program or arrangement, the date Executive becomes covered by a
comparable benefit by a subsequent employer. In the event that
Executive's continued participation in any such plan, program, or
arrangement of the Company is prohibited, the Company will arrange
to provide Executive with benefits substantially similar to those
which Executive would have been entitled to receive under such plan,
program, or arrangement, for such period on a basis which provides
Executive with no additional after tax cost.
(v) Except to the extent prohibited by law, and except as otherwise
provided herein, Executive will be 100% vested in all benefits,
awards, and grants accrued but unpaid as of the date of termination
under any pension plan, profit sharing plan, supplemental and/or
incentive compensation plans in which Executive was a participant as
of the date of termination.
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<PAGE> 10
(vi) Executive shall continue to vest in all stock option awards or
restricted stock awards over the three (3) year period commencing on
the date of such termination. Executive shall have ninety (90) days
following the expiration of such three (3) year period to exercise
all options to the extent then vested, provided that in no event
will any option be exercisable beyond its term.
(vii) As otherwise specifically provided herein, including the retirement
benefit to the extent payable pursuant to Section 4(h).
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
Agreement, under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Executive at the time of
Executive's termination or resignation of employment, Executive shall have
no right to receive any other compensation, or to participate in any other
plan, arrangement or benefit, with respect to future periods after such
termination or resignation.
(g) NO MITIGATION; NO SET-OFF. In the event of any termination of employment
hereunder, Executive shall be under no obligation to seek other employment
and there shall be no offset against any amounts due Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. The amounts payable hereunder shall
not be subject to setoff, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or others, except upon
obtaining by the Company of a final unappealable judgment against
Executive.
7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
FOLLOWING CHANGE IN CONTROL.
(a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
"Change in Control" occurs and Executive terminates his employment for
Good Reason thereafter, or the Company terminates Executive's employment
other than for Cause or such termination for Good Reason or without Cause
occurs in contemplation of such Change in Control (any termination within
six (6) months prior to such Change in Control being presumed to be in
contemplation unless rebutted by clear and demonstrable evidence to the
contrary), the Company shall pay the following amounts to Executive:
(i) The payments and benefits provided for in Section 6(e), except that
the severance amount pursuant to Section 6(e)(iii) will be paid in a
lump-sum.
(ii) Executive will be 100% vested in all benefits, awards, and grants
(including stock option grants and stock awards, all of such stock
options exercisable for three (3) years following Termination,
provided that in no event will any option be exercisable beyond its
term) accrued but unpaid as of the date of termination under any
non-qualified pension plan, supplemental and/or incentive
compensation or bonus plans, in which Executive was a participant as
of the date
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<PAGE> 11
of termination. Executive shall also receive a bonus or incentive
compensation payment (the "bonus payment"), payable at 100% of the
maximum bonus available to Executive, pro-rated as of the effective
date of the termination. The bonus payment shall be payable within
five (5) days after the effective date of Employee's termination.
Except as may be provided under this Section 7 or under the terms of
any incentive compensation, employee benefit, or fringe benefit plan
applicable to Executive at the time of Executive's resignation from
employment, Executive shall have no right to receive any other
compensation, or to participate in any other plan, arrangement or
benefit, with respect to future periods after such resignation or
termination.
(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) In the event that the Executive shall become entitled to payments
and/or benefits provided by this Agreement or any other amounts in
the "nature of compensation" (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of ownership or
effective control covered by Section 280G(b)(2) of the Code or any
person affiliated with the Company or such person) as a result of
such change in ownership or effective control (collectively the
"Company Payments"), and such Company Payments will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the Code (and
any similar tax that may hereafter be imposed by any taxing
authority) the Company shall pay to the Executive at the time
specified in subsection (iv) below an additional amount (the
"Gross-up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Company Payments
and any U.S. federal, state, and for local income or payroll tax
upon the Gross-up Payment provided for by this Section 7(b), but
before deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the Company
Payments.
(ii) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be
subject to the Excise Tax and the amount of such Excise Tax, (x) the
Total Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Code
Section 280G[b][3] of the Code) shall be treated as subject to the
Excise Tax, unless and except to the extent that, in the opinion of
the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section
280G[b][2]) or tax counsel selected by such accountants (the
"Accountants") such Total Payments (in whole or in part) either do
not constitute "parachute payments," represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the "base amount" or are
otherwise not subject to the Excise Tax, and (y) the value of any
non-cash benefits or any deferred payment or benefit shall be
determined by the Accountants in accordance with the principles of
Section 280G of the Code.
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<PAGE> 12
(iii) For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed to pay U.S. federal income taxes at the
highest marginal rate of U.S. federal income taxation in the
calendar year in which the Gross-up Payment is to be made and state
and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence for the calendar
year in which the Company Payment is to be made, net of the maximum
reduction in U.S. federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year. In the
event that the Excise Tax is subsequently determined by the
Accountants to be less than the amount taken into account hereunder
at the time the Gross-up Payment is made, the Executive shall repay
to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction (plus the portion of the
Gross-up Payment attributable to the Excise Tax and U.S. federal,
state and local income tax imposed on the portion of the Gross-up
Payment being repaid by the Executive if such repayment results in a
reduction in Excise Tax or a U.S. federal, state and local income
tax deduction), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding
the foregoing, in the event any portion of the Gross-up Payment to
be refunded to the Company has been paid to any U.S. federal, state
and local tax authority, repayment thereof (and related amounts)
shall not be required until actual refund or credit of such portion
has been made to the Executive, and interest payable to the Company
shall not exceed the interest received or credited to the Executive
by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expense
thereof) if the Executive's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount
taken into account hereunder at the time the Gross-up Payment is
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up Payment), the
Company shall make an additional Gross-up Payment in respect of such
excess (plus any interest or penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
(iv) The Gross-up Payment or portion thereof provided for in subsection
(iii) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects the Executive to the
Excise Tax; provided, however, that if the amount of such Gross-up
Payment or portion thereof cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Accountant, of the
minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to
subsection (iii) hereof, as soon as the amount thereof can
reasonably be determined, but in no event later than the ninetieth
day after the occurrence of the event subjecting the Executive to
the Excise Tax. In the event that the amount of the estimated
payments exceeds the amount subsequently
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<PAGE> 13
determined to have been due, such excess shall constitute a loan by
the Company to the Executive, payable on the fifth day after demand
by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(v) In the event of any controversy with the Internal Revenue Service
(or other taxing authority) with regard to the Excise Tax, the
Executive shall permit the Company to control issues related to the
Excise Tax (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues
are interrelated, the Executive and the Company shall in good faith
cooperate so as not to jeopardize resolution of either issue, but if
the parties cannot agree the Executive shall make the final
determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the
representative of the Company to accompany the Executive, and the
Executive and the Executive's representative shall cooperate with
the Company and its representative.
(vi) The Company shall be responsible for all charges of the Accountant.
(vii) The Company and the Executive shall promptly deliver to each other
copies of any written communications, and summaries of any verbal
communications, with any taxing authority regarding the Excise Tax
covered by this Section 7(b).
(c) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired
directly from the Company or its Affiliates) representing
twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding voting securities;
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who,
on the Commencement Date, constitute the Board and any new director
(other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election
of directors of the Company) whose appointment or election by the
Board or nomination for election by the Company's stockholders was
approved or recommended by a vote of the at least two-thirds
(2/3rds) of the directors then still in office who either were
directors on the Commencement Date or whose appointment, election or
nomination for election was previously so approved or recommended;
(iii) there is a consummated merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of the
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<PAGE> 14
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) more than
fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving or parent equity
outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person, directly or
indirectly, acquired twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such person
any securities acquired directly from the Company or its
Affiliates); or
(iv) the stock holders of the Company approve a plan of complete
liquidation of the Company or there is consummated an agreement for
the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar
effect), other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
fifty percent (50%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 7(c), the following terms shall have the
following meanings:
(i) "Affiliate" shall mean an affiliate of the Company, as defined in
Rule 12b-2 promulgated under Section 12 of the Securities Exchange
Act of 1934, as amended from time to time (the "Exchange Act");
(ii) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act;
(iii) "Person" shall have the meaning set forth in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (1) the Company,
(2) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, (3) an underwriter temporarily
holding securities pursuant to an offering of such securities or (4)
a corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership
of shares of Common Stock of the Company.
8. RESTRICTIVE COVENANTS.
(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for two (2)
years thereafter, Executive will not engage in, assist, or have any active
interest or involvement, whether as an employee, agent, consultant,
creditor, advisor, officer, director, stockholder (excluding holding of
less than 3% of the stock of a public company), partner, proprietor or any
type of principal whatsoever in any person, firm, or business entity
which, directly or indirectly, is materially engaged in the waste
management business competitive with
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<PAGE> 15
that conducted and carried on by the Company, without the Company's
specific written consent to do so. "Material" shall mean more than five
(5%) percent of their revenue is generated from the waste management
business; provided that the revenues within Executive's area of
responsibility or authority are more than 10% composed of revenues from
the waste disposal business.
(b) NON-SOLICITATION. Executive covenants and agrees that at all times during
Executive's period of employment with the Company, and for a period of two
(2) years after the Termination thereof, whether such termination is
voluntary or involuntary by wrongful discharge, or otherwise, Executive
will not directly and personally knowingly (i) induce any customers of the
Company or corporations affiliated with the Company to patronize any
similar business which competes with any material business of the Company;
(ii) after his termination of employment, request or advise any customers
of the Company or corporations affiliated with the Company to withdraw,
curtail or cancel such customer's business with the Company; or (iii)
after his termination of employment, individually or through any person,
firm, association or corporation with which he is now, or may hereafter
become associated, solicit, entice or induce any then employee of the
Company, or any subsidiary of the Company, to leave the employ of the
Company, or such other corporation, to accept employment with, or
compensation from the Executive, or any person, firm, association or
corporation with which Executive is affiliated without prior written
consent of the Company. The foregoing shall not prevent Executive from
serving as a reference for employees.
(c) PROTECTED INFORMATION. Executive recognizes and acknowledges that
Executive has had and will continue to have access to various confidential
or proprietary information concerning the Company and corporations
affiliated with the Company of a special and unique value which may
include, without limitation, (i) books and records relating to operation,
finance, accounting, sales, personnel and management, (ii) policies and
matters relating particularly to operations such as customer service
requirements, costs of providing service and equipment, operating costs
and pricing matters, and (iii) various trade or business secrets,
including customer lists, route sheets, business opportunities, marketing
or business diversification plans, business development and bidding
techniques, methods and processes, management information systems,
financial data and the like, to the extent not generally known in the
industry (collectively, the "Protected Information"). Executive therefore
covenants and agrees that Executive will not at any time, either while
employed by the Company or afterwards, knowingly make any independent use
of, or knowingly disclose to any other person or organization (except as
authorized by the Company) any of the Protected Information, provided that
(i) while employed by the Company, Executive may in good faith make
disclosures he believes desirable, provided that are authorized by the
Company or otherwise in accordance with Company policy, and (ii) Executive
may comply with legal process.
9. ENFORCEMENT OF COVENANTS.
(a) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the covenants
set forth in Section 8 hereof will cause irreparable damage to the Company
with respect to which the Company's remedy at law for damages may be
inadequate. Therefore, in the event of
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<PAGE> 16
breach or threatened breach of the covenants set forth in this section by
Executive, Executive and the Company agree that the Company shall be
entitled to the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity; injunctions, both
preliminary and permanent, enjoining or restraining such breach or
threatened breach and Executive hereby consents to the issuance thereof
forthwith and without bond by any court of competent jurisdiction.
(b) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
constitute a series of separate covenants, one for each applicable State
in the United States and the District of Columbia, and one for each
applicable foreign country. If in any judicial proceeding, a court shall
hold that any of the covenants set forth in Section 8 exceed the time,
geographic, or occupational limitations permitted by applicable laws,
Executive and the Company agree that such provisions shall and are hereby
reformed to the maximum time, geographic, or occupational limitations
permitted by such laws. Further, in the event a court shall hold
unenforceable any of the separate covenants deemed included herein, then
such unenforceable covenant or covenants shall be deemed eliminated from
the provisions of this Agreement for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced
in such proceeding.
Executive and the Company further agree that the covenants in Section 8
shall each be construed as a separate agreement independent of any other
provisions of this Agreement, and the existence of any claim or cause of
action by Executive against the Company whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of any of the covenants of Section 8.
10. INDEMNIFICATION.
The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by Delaware law for any action or inaction of Executive while serving
as an officer and director of the Company or, at the Company's request, as an
officer or director of any other entity or as a fiduciary of any benefit plan.
This provision includes the obligation and undertaking of the Executive to
reimburse the Company for any fees advanced by the Company on behalf of the
Executive should it later be determined that Executive was not entitled to have
such fees advanced by the Company under Delaware law. The Company shall cover
the Executive under directors and officers liability insurance both during and,
while potential liability exists, after the Employment Term in the same amount
and to the same extent as the Company covers its other officers and directors.
11. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.
If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and
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<PAGE> 17
disbursements for the fees and expenses of experts, etc.) incurred by Executive
in connection with any such dispute or any litigation, provided that Executive
shall repay any such amounts paid or advanced if Executive is not the prevailing
party with respect to at least one material claim or issue in such dispute or
litigation. The provisions of this Section 11, without implication as to any
other section hereof, shall survive the expiration or termination of this
Agreement and of Executive's employment hereunder.
12. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.
14. ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).
15. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company, including without limitation, that certain offer
letter dated November 18, 1999 by and between Executive and the Company. It may
not be amended except by a written agreement signed by both parties.
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<PAGE> 18
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. REQUIREMENT OF TIMELY PAYMENTS.
If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.
18. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Company: Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive: At the address for Executive set forth below.
19. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver thereof
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
this Agreement is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such term
or provision shall immediately become null and void, leaving the remainder
of this Agreement in full force and effect.
(c) HEADINGS. Section headings are used herein for convenience of reference
only and shall not affect the meaning of any provision of this Agreement.
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<PAGE> 19
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
singular shall be deemed to include the plural and vice versa.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original,
and such counterparts will together constitute but one Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
WASTE MANAGEMENT, INC.
By:/s/ A. Maurice Myers
------------------------------------
Name: A. Maurice Myers
Title: Chairman, Chief Executive Officer and President
Date: April 14, 2000
---------------------------------
EXECUTIVE
/s/ Thomas L. Smith
- ---------------------------------------
THOMAS L. SMITH
Date: April 11, 2000
---------------------------------
Address:
-------------------------------
- ---------------------------------------
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and ROBERT E. DEES, JR. (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of May 10, 2000 (the "Effective Date"), as follows:
1. EMPLOYMENT.
The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT.
The period of Executive's employment under this Agreement shall commence on May
22, 2000, and be for a continuously renewing (on a daily basis) three (3) year
term, without any further action by either the Company or Executive, unless
Executive's employment is terminated in accordance with Section 5 below. The
date on which Executive commences employment with the Company shall be referred
to as the "Commencement Date" and the period during which Executive is employed
hereunder shall be referred to as the "Employment Period".
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Senior Vice President-People. In such
capacity, Executive shall perform such duties and have the power,
authority and functions commensurate with such positions in similarly
sized public companies and such other authority and functions
consistent with such positions as may be assigned to Executive from
time to time by the Chief Executive Officer, President, or the Board of
Directors.
(b) Executive shall devote substantially all of his working time, attention
and energies to the business of the Company, and affiliated entities.
Executive may make and manage his personal investments (provided such
investments in other activities do not violate, in any material
respect, the provisions of Section 8 of this Agreement), be involved in
charitable and professional activities and, with the consent of the
Board, serve on boards of other for profit entities, provided such
activities do not materially interfere with the performance of his
duties hereunder.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of THREE HUNDRED FIFTY
THOUSAND DOLLARS ($350,000.00) per year or such higher rate as may be
determined from time to time by the Company ("Base Salary"). Such Base
Salary shall be paid in accordance with the Company's standard payroll
practice for its executive officers. Once increased, Base Salary shall
not be reduced.
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<PAGE> 2
(b) ANNUAL BONUS. During the Employment Period, Executive will be entitled
to participate in an annual incentive compensation plan of the Company.
The Executive's target annual bonus will be seventy-five percent (75%)
of his Base Salary as in effect for such year (the "Target Bonus"), and
his actual annual bonus may range from 0% to 200% (2 times Target
Bonus), and will be determined based upon achievement of performance
goals (initially seventy percent [70%] financial [return on capital
investments and EBITDA] and thirty percent [30%] personal, but may be
tied to other metrics as may be established from time to time by the
Compensation Committee of the Board) as approved by the Compensation
Committee of the Board, from time to time. The bonus for the year 2000
is guaranteed to be a minimum of $262,500.000, and will be paid at the
same time annual bonus are paid to other executives of the Company in
2001.
(c) STOCK OPTIONS. Subject to the approval of the Compensation Committee of
the Board of Directors, Executive shall be granted an initial stock
option grant for TWO HUNDRED THOUSAND (200,000) shares of the Company's
common stock, effective as of the Effective Date. The exercise price
shall be the fair market value on such date, and the option shall vest
in equal installments of twenty-five percent (25%) on each of the first
four (4) anniversaries of the Commencement Date. Executive shall be
eligible to be considered for stock option grants under the Company's
annual stock option award program as administered by, and at the
discretion of, the Compensation Committee of the Board of Directors,
beginning in 2001.
(d) BENEFIT PLANS AND VACATION. Executive shall be eligible to participate
in or receive benefits under any pension plan, profit sharing plan,
medical and dental benefits plan, life insurance plan, short-term and
long-term disability plans, or any other health, welfare or fringe
benefit plan, generally made available by the Company to its executive
officers at a level commensurate with his position. During the
Employment Period, Executive shall be entitled to vacation each year in
accordance with the Company's policies in effect from time to time, but
in no event less than four (4) weeks paid vacation per calendar year.
The Executive shall also be entitled to such periods of sick leave as
is customarily provided by the Company for its senior executive
employees. Executive shall be eligible to participate in the Company's
401(k) Plan after 90 days of employment.
(e) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
for the ordinary and necessary business expenses incurred by Executive
in the performance of the duties hereunder in accordance with the
Company's customary practices applicable to its executive officers.
(f) SIGN-ON BONUS. Within thirty (30) days after the Commencement Date,
the Company will pay Executive a sign-on bonus in the amount of ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000).
(g) EXECUTIVE DEFERRAL PLAN. Executive shall be entitled to participate in
the Company's "Executive Deferral Plan", and any replacement plan or
arrangement, all to the extent maintained or instituted by the Company,
and covering its principal executive officers, at a level commensurate
with his position.
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<PAGE> 3
(h) RELOCATION. The Company shall promptly reimburse Executive (on a fully
grossed up basis for any amounts taxable to Executive), for reasonable
and customary costs incurred in connection with the relocation of his
principal residence to the Houston, Texas area at a level commensurate
with Executive's position and the type of relocation benefits provided
by public companies of similar size to their executives, which shall in
any event include the purchase by the Company (or a relocation company)
of such residence at its fair market value if not sold within 90 days
from the Commencement Date, any real estate commissions incurred in
connection with the sale of such residence and any points on a loan for
a new home. In addition, the Company shall provide Executive temporary
housing in the Houston area for up to six (6) months from the
Commencement Date.
(i) OTHER PERQUISITES. Executive shall be entitled to the following
benefits:
1. Auto Allowance in the amount of one thousand ($1,000)
dollars per month; and
2. Financial Planning Services at actual cost, and not to
exceed ten thousand ($10,000) dollars annually.
3. An Annual Physical Examination on a program designated by
the Company.
5. TERMINATION OF EMPLOYMENT.
Executive's employment hereunder may be terminated under the following
circumstances:
(a) DEATH. Executive's employment hereunder shall terminate upon
Executive's death.
(b) TOTAL DISABILITY. The Company may terminate Executive's employment
hereunder upon Executive becoming "Totally Disabled". For purposes of
this Agreement, Executive shall be "Totally Disabled" if Executive has
been physically or mentally incapacitated so as to render Executive
incapable of performing Executive's material usual and customary duties
under this Agreement for six (6) consecutive months (such consecutive
absence not being deemed interrupted by Executive's return to service
for less than 10 consecutive business days if absent thereafter for the
same illness or disability). Any such termination shall be upon thirty
(30) days written notice given at any time thereafter while Executive
remains Totally Disabled, provided that a termination for Total
Disability hereunder shall not be effective if Executive returns to
full performance of his duties within such thirty (30) day period.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time within ninety
(90) days after the Chairman of the Audit or Governance Committee of
the Board has knowledge thereof.
(i) For purposes of this Agreement, the term "Cause" shall be
limited to (1) willful misconduct by Executive with regard to
the Company which has a material
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<PAGE> 4
adverse effect on the Company; (2) the willful refusal of
Executive to attempt to follow the proper written direction of
the Chief Executive Officer, the President, or the Board of
Directors, provided that the foregoing refusal shall not be
"Cause" if Executive in good faith believes that such
direction is illegal, unethical or immoral and promptly so
notifies the Board; (3) substantial and continuing willful
refusal by the Executive to attempt to perform the duties
required of him hereunder (other than any such failure
resulting from incapacity due to physical or mental illness)
after a written demand for substantial performance is
delivered to the Executive by the Chief Executive Officer, the
President, or the Board of Directors, which specifically
identifies the manner in which it is believed that the
Executive has substantially and continually refused to attempt
to perform his duties hereunder; or (4) the Executive being
convicted of a felony (other than a felony involving a traffic
violation or as a result of vicarious liability). For purposes
of this paragraph, no act, or failure to act, on Executive's
part shall be considered "willful" unless done or omitted to
be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interests
of the Company.
(ii) A Notice of Termination for Cause shall mean a notice that
shall indicate the specific termination provision in Section
5(c)(i) relied upon and shall set forth in reasonable detail
the facts and circumstances which provide for a basis for
termination for Cause. Further, a Notification for Cause shall
be required to include a copy of a resolution duly adopted by
at least two-thirds (2/3rds) of the entire membership of the
Board at a meeting of the Board which was called for the
purpose of considering such termination and which Executive
and his representative had the right to attend and address the
Board, finding that, in the good faith of the Board, Executive
engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail.
The date of termination for a termination for Cause shall be
the date indicated in the Notice of Termination. Any purported
termination for Cause which is held by a court or arbitrator
not to have been based on the grounds set forth in this
Agreement or not to have followed the procedures set forth in
this Agreement shall be deemed a termination by the Company
without Cause.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder with or without Good Reason at any time upon written notice
to the Company.
(i) A Termination for Good Reason means a termination by Executive
by written notice given within ninety (90) days after the
occurrence of the Good Reason event, unless such circumstances
are fully corrected prior to the date of termination specified
in the Notice of Termination for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean the occurrence or
failure to cause the occurrence, as the case may be, without
Executive's express written consent, of any of the following
circumstances: (1) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in
each case in
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<PAGE> 5
connection with the termination of Executive's employment for
Cause or Total Disability or as a result of Executive's death,
or temporarily as a result of Executive's illness or other
absence), provided that a change in reporting structure shall
not constitute Good Reason under any circumstances as long as
Executive reports to the Chief Executive Officer, the
President, the Chief Operating Officer, or an Executive Vice
President; further provided that if the Company becomes a
fifty percent or more subsidiary of any other entity,
Executive shall be deemed to have a material diminution of his
position unless he is also Senior Vice President of the
ultimate parent entity; (2) removal of, or the non-re-election
of, the Executive from officer positions with the Company
specified herein or removal of the Executive from any of his
then officer positions; (3) requiring Executive's principal
place of business to be located other than in Houston, Texas;
(4) a failure by the Company (I) to continue any bonus plan,
program or arrangement in which Executive is entitled to
participate (the "Bonus Plans"), provided that any such Bonus
Plans may be modified at the Company's discretion from time to
time but shall be deemed terminated if (x) any such plan does
not remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with
substantially similar benefits are not substituted therefor
("Substitute Plans"), or (II) to continue Executive as a
participant in the Bonus Plans and Substitute Plans on at
least the same basis as to potential amount of the bonus as
Executive participated in prior to any change in such plans or
awards, in accordance with the Bonus Plans and the Substitute
Plans; (5) any material breach by the Company of any provision
of this Agreement, including without limitation Section 10
hereof; or (6) failure of any successor to the Company
(whether direct or indirect and whether by merger,
acquisition, consolidation or otherwise) to assume in a
writing delivered to Executive upon the assignee becoming
such, the obligations of the Company hereunder.
(ii) A Notice of Termination for Good Reason shall mean a notice
that shall indicate the specific termination provision relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for Termination for
Good Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or
circumstances which contribute to the showing of Good Reason
shall not waive any right of Executive hereunder or preclude
Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for
Good Reason shall provide for a date of termination not less
than ten (10) nor more than sixty (60) days after the date
such Notice of Termination for Good Reason is given, provided
that in the case of the events set forth in Sections
5(d)(i)(1) or (2) the date may be five (5) days after the
giving of such notice.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time upon written
notice to Executive.
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<PAGE> 6
(f) EFFECT OF TERMINATION. Upon any termination of employment, Executive
shall immediately resign from all Board memberships and other positions
with the Company or any of its subsidiaries held by him at such time.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) Termination by Reason of Death. In the event that Executive's
employment is terminated by reason of Executive's death, the Company
shall pay the following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of death, any accrued but unpaid expenses required to
be reimbursed under this Agreement, any vacation accrued to
the date of termination, any earned but unpaid bonuses for any
prior period, and, to the extent not otherwise paid, a
pro-rata "bonus" or incentive compensation payment to the
extent payments are awarded to senior executives of the
Company and paid at the same time as senior executives are
paid.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Section 4(d) hereof), as determined and paid in
accordance with the terms of such plans, policies and
arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's death) which would have been
payable to Executive if Executive had continued in employment
for two additional years. Said payments will be paid to
Executive's estate or beneficiary at the same time and in the
same manner as such compensation would have been paid if
Executive had remained in active employment.
(iv) As of the date of termination by reason of Executive's death,
stock options awarded to Executive shall be fully vested and
Executive's estate or beneficiary shall have up to one (1)
year from the date of death to exercise all such options,
provided that in no event will any option be exercisable
beyond its term.
(v) As otherwise specifically provided herein.
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Executive's employment is terminated by reason of Executive's Total
Disability as determined in accordance with Section 5(b), the Company
shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of
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<PAGE> 7
termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the
date of termination and any earned but unpaid bonuses for any
prior period. Executive shall also be eligible for a pro-rata
bonus or incentive compensation payment to the extent such
awards are made to senior executives of the Company for the
year in which Executive is terminated, and to the extent not
otherwise paid to the Executive.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Section 4(d) hereof) shall be determined and paid in
accordance with the terms of such plans, policies and
arrangements.
(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive's Total Disability) which would have
been payable to Executive if Executive had continued in active
employment for two years following termination of employment,
less any payments under any long-term disability plan or
arrangement paid for by the Company. Payment shall be made at
the same time and in the same manner as such compensation
would have been paid if Executive had remained in active
employment until the end of such period.
(iv) As of the date of termination by reason of Executive's Total
Disability, Executive shall be fully vested in all stock
option awards, and Executive shall have up to one (1) year
from the date of termination by reason of Total Disability to
exercise all such options; provided that in no event will any
option be exercisable beyond its term.
(v) As otherwise specifically provided herein.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause, the Company shall pay the
following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Section 4(d) hereof up to the date of termination) shall
be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) As otherwise specifically provided herein.
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<PAGE> 8
Any options, restricted stock or other awards that have not
vested prior to the date of such termination of employment
shall be cancelled to the extent not then vested, and any
options held by Executive shall be cancelled, whether or not
then vested.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
voluntarily terminates employment other than for Good Reason, the
Company shall pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements (including those referred
to in Section 4(d) hereof up to the date of termination) shall
be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
to the extent not then vested, and Executive shall have 90 days
following termination of employment to exercise any previously vested
options; provided that in no event will any option be exercisable
beyond its term.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
GOOD REASON. In the event that Executive's employment is terminated by
the Company for reasons other than death, Total Disability or Cause, or
Executive terminates his employment for Good Reason, the Company shall
pay the following amounts to Executive:
(i) Any accrued but unpaid Base Salary for services rendered to
the date of termination, any accrued but unpaid expenses
required to be reimbursed under this Agreement, any vacation
accrued to the date of termination and any earned but unpaid
bonuses for any prior period.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(d) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An amount equal to two times the sum of Executive's Base
Salary plus his Target Annual Bonus (in each case as then in
effect), of which one-half shall be paid in a lump sum within
ten (10) days after such termination and one-half shall be
paid during the two (2) year period beginning on the date of
Executive's termination and shall be paid at the same time and
in the same manner as Base Salary would
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<PAGE> 9
have been paid if Executive had remained in active employment
until the end of such period.
(iv) The Company at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and
also including deferred compensation, disability, automobile,
and other benefit plans, in which Executive was entitled to
participate at any time during the twelve-month period prior
to the date of termination, until the earliest to occur of (A)
two years after the date of termination; (B) Executive's death
(provided that benefits payable to Executive's beneficiaries
shall not terminate upon Executive's death); or (C) with
respect to any particular plan, program or arrangement, the
date Executive becomes covered by a comparable benefit by a
subsequent employer. In the event that Executive's continued
participation in any such plan, program, or arrangement of the
Company is prohibited, the Company will arrange to provide
Executive with benefits substantially similar to those which
Executive would have been entitled to receive under such plan,
program, or arrangement, for such period on a basis which
provides Executive with no additional after tax cost.
(v) Except to the extent prohibited by law, and except as
otherwise provided herein, Executive will be 100% vested in
all benefits, awards, and grants accrued but unpaid as of the
date of termination under any pension plan, profit sharing
plan, supplemental and/or incentive compensation plans in
which Executive was a participant as of the date of
termination. Executive shall also be eligible for a bonus or
incentive compensation payment, at the same time, on the same
basis, and to the same extent payments are made to senior
executives of the Company, pro-rated for the fiscal year in
which the Executive is terminated.
(vi) Executive shall continue to vest in all stock option awards or
restricted stock awards over the two (2) year period
commencing on the date of such termination. Executive shall
have two (2) years and six (6) months after the date of
termination to exercise all options to the extent then vested,
provided that in no event will any option be exercisable
beyond its term.
(vii) As otherwise specifically provided herein.
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
Agreement, under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Executive at the time of
Executive's termination or resignation of employment, Executive shall
have no right to receive any other compensation, or to participate in
any other plan, arrangement or benefit, with respect to future periods
after such termination or resignation.
(g) NO MITIGATION; NO SET-OFF. In the event of any termination of
employment hereunder, Executive shall be under no obligation to seek
other employment and there shall be no
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<PAGE> 10
offset against any amounts due Executive under this Agreement on
account of any remuneration attributable to any subsequent employment
that Executive may obtain. The amounts payable hereunder shall not be
subject to setoff, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or others, except upon
obtaining by the Company of a final unappealable judgment against
Executive.
7. RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
FOLLOWING CHANGE IN CONTROL.
(a) RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
"Change in Control" occurs and Executive terminates his employment for
Good Reason thereafter, or the Company terminates Executive's
employment other than for Cause or such termination for Good Reason or
without Cause occurs in contemplation of such Change in Control (any
termination within six (6) months prior to such Change in Control being
presumed to be in contemplation unless rebutted by clear and
demonstrable evidence to the contrary), the Company shall pay the
following amounts to Executive:
(i) The payments and benefits provided for in Section 6(e), except
that the amount shall be paid in a lump-sum.
(ii) Executive will be 100% vested in all benefits, awards, and
grants (including stock option grants and stock awards; all of
such stock options exercisable for two (2) years following
Termination, provided that in no event will any option be
exercisable beyond its term) accrued but unpaid as of the date
of termination under any non-qualified pension plan,
supplemental and/or incentive compensation or bonus plans, in
which Executive was a participant as of the date of
termination. Executive shall also receive a bonus or incentive
compensation payment (the "bonus payment"), payable at 100% of
the maximum bonus available to Executive, pro-rated as of the
effective date of the termination. The bonus payment shall be
payable within five (5) days after the effective date of
Employee's termination. Except as may be provided under this
Section 7 or under the terms of any incentive compensation,
employee benefit, or fringe benefit plan applicable to
Executive at the time of Executive's resignation from
employment, Executive shall have no right to receive any other
compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such
resignation or termination.
(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) In the event that the Executive shall become entitled to
payments and/or benefits provided by this Agreement or any
other amounts in the "nature of compensation" (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a change of ownership or effective control
covered by Section 280G(b)(2) of the Code or any
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<PAGE> 11
person affiliated with the Company or such person) as a result
of such change in ownership or effective control (collectively
the "Company Payments"), and such Company Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (and any similar tax that may hereafter be imposed
by any taxing authority) the Company shall pay to the
Executive at the time specified in subsection (iv) below an
additional amount (the "Gross-up Payment") such that the net
amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any U.S. federal,
state, and for local income or payroll tax upon the Gross-up
Payment provided for by this Section 7(b), but before
deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the
Company Payments.
(ii) For purposes of determining whether any of the Company
Payments and Gross-up Payments (collectively the "Total
Payments") will be subject to the Excise Tax and the amount of
such Excise Tax, (x) the Total Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "parachute payments" in excess of the
"base amount" (as defined under Code Section 280G[b][3] of the
Code) shall be treated as subject to the Excise Tax, unless
and except to the extent that, in the opinion of the Company's
independent certified public accountants appointed prior to
any change in ownership (as defined under Code Section
280G[b][2]) or tax counsel selected by such accountants (the
"Accountants") such Total Payments (in whole or in part)
either do not constitute "parachute payments," represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
"base amount" or are otherwise not subject to the Excise Tax,
and (y) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay U.S. federal
income taxes at the highest marginal rate of U.S. federal
income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of
the Executive's residence for the calendar year in which the
Company Payment is to be made, net of the maximum reduction in
U.S. federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year.
In the event that the Excise Tax is subsequently determined by
the Accountants to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, the
Executive shall repay to the Company, at the time that the
amount of such reduction in Excise Tax is finally determined,
the portion of the prior Gross-up Payment attributable to such
reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and U.S. federal, state and
local income tax imposed on the portion of the Gross-up
Payment being repaid by the Executive if such repayment
results in a reduction in Excise Tax or a U.S. federal, state
and local income tax deduction),
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<PAGE> 12
plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding
the foregoing, in the event any portion of the Gross-up
Payment to be refunded to the Company has been paid to any
U.S. federal, state and local tax authority, repayment thereof
(and related amounts) shall not be required until actual
refund or credit of such portion has been made to the
Executive, and interest payable to the Company shall not
exceed the interest received or credited to the Executive by
such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course
of action to be pursued (and the method of allocating the
expense thereof) if the Executive's claim for refund or credit
is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest
or penalties payable with respect to such excess) at the time
that the amount of such excess is finally determined.
(iv) The Gross-up Payment or portion thereof provided for in
subsection (iii) above shall be paid not later than the
thirtieth (30th) day following an event occurring which
subjects the Executive to the Excise Tax; provided, however,
that if the amount of such Gross-up Payment or portion thereof
cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Accountant, of the minimum
amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), subject to further
payments pursuant to subsection (iii) hereof, as soon as the
amount thereof can reasonably be determined, but in no event
later than the ninetieth day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that
the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(v) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) with regard to the Excise
Tax, the Executive shall permit the Company to control issues
related to the Excise Tax (at its expense), provided that such
issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues.
In the event the issues are interrelated, the Executive and
the Company shall in good faith cooperate so as not to
jeopardize resolution of either issue, but if the parties
cannot agree the Executive shall make the final determination
with regard to the issues. In the event of any conference with
any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the
Company to accompany
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<PAGE> 13
the Executive, and the Executive and the Executive's
representative shall cooperate with the Company and its
representative.
(vi) The Company shall be responsible for all charges of the
Accountant.
(vii) The Company and the Executive shall promptly deliver to each
other copies of any written communications, and summaries of
any verbal communications, with any taxing authority regarding
the Excise Tax covered by this Section 7(b).
(c) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities
acquired directly from the Company or its Affiliates)
representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding voting
securities;
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the Commencement Date, constitute the Board and any
new director (other than a director whose initial assumption
of office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of the at least two-thirds
(2/3rds) of the directors then still in office who either were
directors on the Commencement Date or whose appointment,
election or nomination for election was previously so approved
or recommended;
(iii) there is a consummated merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any
other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) more than
fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving or parent equity
outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person, directly or indirectly, acquired twenty-five
percent (25%) or more of the combined voting power of the
Company's then outstanding securities (not including in the
securities beneficially owned by such person any securities
acquired directly from the Company or its Affiliates); or
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<PAGE> 14
(iv) the stock holders of the Company approve a plan of complete
liquidation of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect), other than a sale or disposition by
the Company of all or substantially all of the Company's
assets to an entity, at least fifty percent (50%) of the
combined voting power of the voting securities of which are
owned by stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale.
For purposes of this Section 7(c), the following terms shall have the
following meanings:
(i) "Affiliate" shall mean an affiliate of the Company, as defined
in Rule 12b-2 promulgated under Section 12 of the Securities
Exchange Act of 1934, as amended from time to time (the
"Exchange Act");
(ii) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act;
(iii) "Person" shall have the meaning set forth in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (1)
the Company, (2) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (3)
an underwriter temporarily holding securities pursuant to an
offering of such securities or (4) a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
shares of Common Stock of the Company.
8. RESTRICTIVE COVENANTS.
(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for two
(2) years thereafter, Executive will not engage in, assist, or have any
active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 3% of the stock of a public company),
partner, proprietor or any type of principal whatsoever in any person,
firm, or business entity which, directly or indirectly, is materially
engaged in the waste management business competitive with that
conducted and carried on by the Company, without the Company's specific
written consent to do so. "Material" shall mean more than five (5%)
percent of their revenue is generated from the waste management
business; provided that the revenues within Executive's area of
responsibility or authority are more than 10% composed of revenues from
the waste disposal business.
(b) NON-SOLICITATION. Executive covenants and agrees that at all times
during Executive's period of employment with the Company, and for a
period of two (2) years after the Termination thereof, whether such
termination is voluntary or involuntary by wrongful
Page 14 of 19
<PAGE> 15
discharge, or otherwise, Executive will not directly and personally
knowingly (i) induce any customers of the Company or corporations
affiliated with the Company to patronize any similar business which
competes with any material business of the Company; (ii) after his
termination of employment, request or advise any customers of the
Company or corporations affiliated with the Company to withdraw,
curtail or cancel such customer's business with the Company; or (iii)
after his termination of employment, individually or through any
person, firm, association or corporation with which he is now, or may
hereafter become associated, solicit, entice or induce any then
employee of the Company, or any subsidiary of the Company, to leave the
employ of the Company, or such other corporation, to accept employment
with, or compensation from the Executive, or any person, firm,
association or corporation with which Executive is affiliated without
prior written consent of the Company. The foregoing shall not prevent
Executive from serving as a reference for employees.
(c) PROTECTED INFORMATION. Executive recognizes and acknowledges that
Executive has had and will continue to have access to various
confidential or proprietary information concerning the Company and
corporations affiliated with the Company of a special and unique value
which may include, without limitation, (i) books and records relating
to operation, finance, accounting, sales, personnel and management,
(ii) policies and matters relating particularly to operations such as
customer service requirements, costs of providing service and
equipment, operating costs and pricing matters, and (iii) various trade
or business secrets, including customer lists, route sheets, business
opportunities, marketing or business diversification plans, business
development and bidding techniques, methods and processes, financial
data and the like, to the extent not generally known in the industry
(collectively, the "Protected Information"). Executive therefore
covenants and agrees that Executive will not at any time, either while
employed by the Company or afterwards, knowingly make any independent
use of, or knowingly disclose to any other person or organization
(except as authorized by the Company) any of the Protected Information,
provided that (i) while employed by the Company, Executive may in good
faith make disclosures he believes desirable, provided that are
authorized by the Company or otherwise in accordance with Company
policy, and (ii) Executive may comply with legal process.
9. ENFORCEMENT OF COVENANTS.
(a) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
covenants set forth in Section 8 hereof will cause irreparable damage
to the Company with respect to which the Company's remedy at law for
damages may be inadequate. Therefore, in the event of breach or
threatened breach of the covenants set forth in this section by
Executive, Executive and the Company agree that the Company shall be
entitled to the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity; injunctions, both
preliminary and permanent, enjoining or restraining such breach or
threatened breach and Executive hereby consents to the issuance thereof
forthwith and without bond by any court of competent jurisdiction.
Page 15 of 19
<PAGE> 16
(b) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
constitute a series of separate covenants, one for each applicable
State in the United States and the District of Columbia, and one for
each applicable foreign country. If in any judicial proceeding, a court
shall hold that any of the covenants set forth in Section 8 exceed the
time, geographic, or occupational limitations permitted by applicable
laws, Executive and the Company agree that such provisions shall and
are hereby reformed to the maximum time, geographic, or occupational
limitations permitted by such laws. Further, in the event a court shall
hold unenforceable any of the separate covenants deemed included
herein, then such unenforceable covenant or covenants shall be deemed
eliminated from the provisions of this Agreement for the purpose of
such proceeding to the extent necessary to permit the remaining
separate covenants to be enforced in such proceeding.
Executive and the Company further agree that the covenants in Section 8
shall each be construed as a separate agreement independent of any
other provisions of this Agreement, and the existence of any claim or
cause of action by Executive against the Company whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of the covenants of Section 8.
10. INDEMNIFICATION.
The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by Delaware law for any action or inaction of Executive while serving
as an officer and director of the Company or, at the Company's request, as an
officer or director of any other entity or as a fiduciary of any benefit plan.
This provision includes the obligation and undertaking of the Executive to
reimburse the Company for any fees advanced by the Company on behalf of the
Executive should it later be determined that Executive was not entitled to have
such fees advanced by the Company under Delaware law. The Company shall cover
the Executive under directors and officers liability insurance both during and,
while potential liability exists, after the Employment Term in the same amount
and to the same extent as the Company covers its other officers and directors.
11. DISPUTES AND PAYMENT OF ATTORNEY'S FEES.
If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and disbursements for the fees and expenses
of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to at least one
material claim or issue in such dispute or litigation. The provisions of this
Section 11, without
Page 16 of 19
<PAGE> 17
implication as to any other section hereof, shall survive the expiration or
termination of this Agreement and of Executive's employment hereunder.
12. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
13. SOURCE OF PAYMENTS.
All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.
14. ASSIGNMENT.
Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).
15. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company. It may not be amended except by a written agreement
signed by both parties.
Page 17 of 19
<PAGE> 18
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. REQUIREMENT OF TIMELY PAYMENTS.
If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.
18. NOTICES.
Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:
To the Company: Waste Management , Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive: At the address for Executive set forth below.
19. MISCELLANEOUS.
(a) WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
this Agreement is declared illegal or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such
term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.
Page 18 of 19
<PAGE> 19
(c) HEADINGS. Section headings are used herein for convenience of
reference only and shall not affect the meaning of any provision of
this Agreement.
(d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of
the singular shall be deemed to include the plural and vice versa.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, and such counterparts will together constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
WASTE MANAGEMENT, INC.
By:/s/ Lawrence O'Donnell, III
------------------------------------
Name: Lawrence O'Donnell, III
Title: Sr. Vice President, General
Counsel & Secretary
Date: May 11, 2000
EXECUTIVE:
/s/ Robert E. Dees, Jr.
- ---------------------------------------
ROBERT E. DEES, JR.
Date: May 10, 2000
Address:
------------------------------
- ---------------------------------------
Page 19 of 19
<PAGE> 1
EXHIBIT 12
WASTE MANAGEMENT, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Income before income taxes and
minority interest $ 125,825 $ 601,122
------------ ------------
Fixed charges deducted from income:
Interest expense 210,209 176,157
Implicit interest in rents 15,945 19,899
------------ ------------
226,154 196,056
------------ ------------
Earnings available for fixed charges $ 351,979 $ 797,178
============ ============
Interest expense $ 210,209 $ 176,157
Capitalized interest 4,265 11,110
Implicit interest in rents 15,945 19,899
------------ ------------
Total fixed charges $ 230,419 $ 207,166
============ ============
Ratio of earnings to fixed charges 1.53 3.85
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE THREE MONTHS ENDED MARCH
31, 2000 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> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 147,422
<SECURITIES> 0
<RECEIVABLES> 1,865,767
<ALLOWANCES> (251,654)
<INVENTORY> 115,160
<CURRENT-ASSETS> 5,906,022
<PP&E> 16,516,903
<DEPRECIATION> (6,380,462)
<TOTAL-ASSETS> 22,224,181
<CURRENT-LIABILITIES> 6,962,022
<BONDS> 1,201,757
0
0
<COMMON> 6,290
<OTHER-SE> 4,446,472
<TOTAL-LIABILITY-AND-EQUITY> 22,224,181
<SALES> 3,217,309
<TOTAL-REVENUES> 3,217,309
<CGS> 0
<TOTAL-COSTS> 2,903,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,209
<INCOME-PRETAX> 119,853
<INCOME-TAX> 64,850
<INCOME-CONTINUING> 55,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,003
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
