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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND 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)
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DELAWARE 73-1309529
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1001 FANNIN STREET, SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (713) 512-6200
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
4% Convertible Subordinated Debentures due 2002
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Securities registered pursuant to Section 12(g) of the Act:
5.75% Convertible Subordinated Notes due 2005
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 15, 2000, was approximately $8,186,801,350. The
aggregate market value was computed by using the closing price of the common
stock as of that date on the New York Stock Exchange. (For purposes of
calculating this amount only, all directors and executive officers of the
registrant have been treated as affiliates.)
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at March 15, 2000, was 619,941,387 (excluding 7,892,612 shares held
in the Waste Management, Inc. Employee Stock Benefit Trust and treasury shares
of 73,709).
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT INCORPORATED AS TO
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Proxy Statement for the
2000 Annual Meeting of Stockholders Part III
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 24
Item 3. Legal Proceedings........................................... 25
Item 4. Submission of Matters to a Vote of Security Holders......... 31
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 31
Item 6. Selected Financial Data..................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 33
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 49
Item 8. Financial Statements and Supplementary Data................. 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 116
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 116
Item 11. Executive Compensation...................................... 117
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 117
Item 13. Certain Relationships and Related Transactions.............. 117
PART IV
Item 14. Financial Statement Schedules, Exhibits, and Reports on Form
8-K......................................................... 117
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PART I
ITEM 1. BUSINESS.
GENERAL
Waste Management, Inc. ("Waste Management" or the "Company") 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 in South America. Included in the Company's 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.
The Company's diversified customer base for its North American solid waste
("NASW") operations was approximately 27 million customers as of December 31,
1999. This customer base includes commercial, industrial, municipal and
residential customers, other waste management companies, governmental entities
and independent power markets, with no single customer accounting for more than
5% of the Company's operating revenues during 1999. The Company employed
approximately 75,000 people as of December 31, 1999 of which, approximately
55,000 related to its NASW operations.
In August 1999, the Company's Board of Directors adopted a strategic plan
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 assets, its non-core assets and up
to 10% of its NASW operations.
- 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.
As part of the strategic plan, the Company announced in January 2000 that
one of its subsidiaries reached an agreement to sell its waste services
operations in Finland to Lassila & Tikanoja plc for approximately $100 million.
The transaction is subject to the approval of the Finnish Competition Authority.
Additionally, in February 2000, the Company announced that one of its
subsidiaries intends to sell the 60.5% interest in Waste Management New Zealand
Limited that it owns. The sale is to be by way of a public and institutional
offering in New Zealand and an institutional offering in selected overseas
markets. The shares will not be or have not been registered under the United
States Securities Act of 1933, as amended, and may not be offered and sold in
the United States without registration thereof. Also, in March 2000, the Company
announced that one of its subsidiaries has reached an agreement to sell its
waste services operations in The Netherlands to Shanks Group plc for
approximately $328 million. The sale is subject to the Shanks Group's raising
capital and obtaining financing. The Company expects each of these transactions
to be completed in the second quarter of 2000. See "Business -- WM
International."
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Additionally, in March 2000, the Company announced that one of its
subsidiaries reached an agreement to sell its nuclear services business 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 sale, which is subject to
regulatory approvals and other customary conditions, is expected to occur in the
second quarter of 2000.
The Company's operations are subject to extensive governmental regulation
and legislative initiative, such as environmental regulation, mandatory
recycling laws, preclusion of certain waste from landfills and restrictions on
the flow of solid waste. Due to public awareness and influence regarding waste
and the environment, and uncertainty with respect to the enactment and
enforcement of future laws, the Company can not always accurately project the
impact any future regulation or legislative initiatives may have on its
operations. See "-- Regulation" and "Legal Proceedings" for additional
information.
On July 16, 1998, the Company, then known as USA Waste Services, Inc.,
completed a merger with Waste Management Holdings, Inc. ("WM Holdings") (the "WM
Holdings Merger"). At the effective time of the WM Holdings Merger, the Company
changed its name to "Waste Management, Inc."
The terms "Waste Management" and the "Company" refer to Waste Management,
Inc., a Delaware corporation incorporated on April 28, 1995, and include its
predecessors, subsidiaries, and affiliates, unless the context requires
otherwise. Waste Management's executive offices are located at 1001 Fannin
Street, Suite 4000, Houston, Texas 77002, and its telephone number is (713)
512-6200. The Company's common stock is listed on the New York Stock Exchange
under the trading symbol "WMI."
OPERATIONS
General
The following table reflects the Company's operating revenues for each of
the three years in the period ended December 31, 1999 for each of the Company's
principal lines of business, which are as follows: (i) the Company's NASW
operations, which include integrated waste management services consisting of
collection, transfer, disposal (solid waste landfill, hazardous waste landfill
and waste-to-energy facilities), recycling, and other services in the United
States and Puerto Rico, Canada and Mexico, (ii) the Company's operations outside
of North America ("WM International") and (iii) the Company's hazardous waste
management, waste-to-energy facilities and other non-solid waste services
("non-solid waste"). Certain reclassifications have been made to prior year
amounts in the financial statements in order to conform to the current year
presentation. Additional information regarding the results of operations for the
Company's business lines is included in Note 14 to the Company's financial
statements included elsewhere herein (in millions).
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YEARS ENDED DECEMBER 31,
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1999 1998 1997
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NASW:
Collection........................................ $ 7,553.6 $ 6,963.6 $ 6,071.2
Disposal.......................................... 3,266.9 3,169.4 2,811.9
Transfer.......................................... 1,195.0 1,054.3 814.5
Recycling and other............................... 658.8 640.6 720.0
Intercompany...................................... (1,985.2) (1,685.1) (1,172.7)
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10,689.1 10,142.8 9,244.9
WM International.................................... 1,650.8 1,533.6 1,790.0
Non-solid waste..................................... 787.0 949.4 937.6
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Operating revenues.................................. $13,126.9 $12,625.8 $11,972.5
========= ========= =========
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North American Solid Waste
Management of the Company's NASW operations is primarily achieved through
an alignment that currently includes six geographic areas. Each area is directed
by a senior Company officer who is responsible
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for oversight of the area's sales and marketing, administration and finance,
operations, and maintenance functions and who typically has staff that work
interactively with the corporate office to provide regulatory compliance and
reporting, legal, engineering, internal and external development, and strategic
planning services. Areas are organized into regions, each of which is managed by
a Company vice-president. Regions are further organized into divisions and
districts which are led by local managers. Geographically, an area encompasses
several states or provinces and may have up to nine regions, each of which is
responsible for the oversight of several divisions and districts. The division
or district manager is responsible for the day-to-day oversight of that local
operation, with direct responsibility for customer satisfaction, employee
motivation, labor and equipment productivity, internal growth, financial
budgets, and profit and loss activity.
Collection. The Company provides different types of solid waste collection
services depending on the customer serviced. Commercial and industrial
collection services are generally performed under one to five-year service
agreements, and fees are determined by such factors as collection frequency,
type of collection equipment furnished by the Company, type and volume or weight
of the waste collected, the distance to the disposal facility, labor cost, and
cost of disposal. Most residential solid waste collection services are performed
under contracts with, or franchises granted by, municipalities or regional
authorities that have granted the Company exclusive rights to service all or a
portion of the homes in their respective jurisdictions. Such contracts or
franchises usually range in duration from one to five years, however, in certain
cases, they have significantly longer terms. Residential collection fees are
either paid by the municipalities from their tax revenues or service charges, or
are paid directly by the residents receiving the service.
As part of its services, the Company provides steel containers to most of
its commercial and industrial customers to store solid waste. These containers,
ranging in size from one to 45 cubic yards, are designed to be lifted
mechanically and either emptied into a collection vehicle's compaction hopper or
directly into a disposal site in the case of industrial customers. The use of
containers enables the Company to service most of its commercial and industrial
customers with collection vehicles operated by a single employee.
The Company often obtains waste collection accounts through acquisitions.
Once a collection operation is acquired, the Company implements programs
designed to improve equipment utilization, employee productivity, operating
efficiencies, and overall profitability. The Company also solicits commercial
and industrial customers in areas surrounding acquired residential collection
markets as a means of further improving operating efficiencies and increasing
solid waste collection volumes.
The cost of transporting solid waste to a disposal location effectively
constrains where the Company chooses to operate its businesses. In addition, the
Company believes that it is generally preferable for its collection operations
to utilize disposal facilities owned or operated by affiliated parties so that
access can be assured on reasonable terms. In the remaining areas, waste is
collected and delivered to a municipal, county or privately-owned unaffiliated
landfill or transfer station.
Disposal. Landfills are the primary depository for solid waste. A solid
waste landfill site must have geological and hydrological properties and design
features which limit the possibility of water pollution, directly or by
leaching. Solid waste landfill operations, which include carefully planned
excavation, construction of liners and final caps, continuous spreading,
compacting and covering of solid waste, are designed to maintain sanitary
conditions, insure optimum utilization of the airspace and prepare the site for
ultimate use for other purposes. Solid waste landfill operations are required to
be conducted in accordance with the terms of permits obtained from various
regulatory authorities, which typically incorporate the requirements of federal
environmental laws or applicable state requirements, whichever are more
stringent. These requirements address such matters as daily volume limitations,
placement of daily, interim and final site cover materials on waste disposed at
the site, construction and operation of methane gas and leachate management
systems, periodic groundwater monitoring activity and final closure requirements
and post-closure monitoring and maintenance activities.
Solid waste landfill customers are charged disposal charges, known as
"tipping fees," based on market factors and the type and volume of solid waste
deposited and the type and size of vehicles used in the conveyance of solid
waste. The ownership or lease of a solid waste landfill enables the Company to
dispose of
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waste without payment of tipping fees to unaffiliated parties. The Company's
solid waste landfills are also used by unaffiliated waste collection companies
and government agencies.
The Company operates five secure hazardous waste land disposal facilities
in the United States, all of which have been issued permits under the Resource
Conservative and Recovery Act ("RCRA"). See "Regulation -- RCRA." In general,
the Company's hazardous waste land disposal facilities have received the
necessary permits and approvals to accept hazardous wastes, although some of
such sites may accept only certain hazardous wastes. Only hazardous waste in a
stable, solid form which meets applicable regulatory requirements may be
deposited in the Company's secure disposal cells. These land disposal facilities
are sited, constructed and operated in a manner designed to provide long-term
containment of such waste. Hazardous wastes may be treated prior to disposal.
Physical treatment methods include distillation, evaporation and separation, all
of which effectively result in the separation or removal of solid materials from
liquids. Chemical treatment methods include chemical oxidation and reduction,
chemical precipitation of heavy metals, hydrolysis and neutralization of acid
and alkaline wastes and essentially involve the transformation of wastes into
inert materials through one or more chemical reaction processes. At two
facilities, the Company isolates treated hazardous wastes in liquid form by
injection into deep wells. Deep well technology involves drilling wells in
suitable rock formations far below the base of fresh water to a point that is
separated by other substantial geological confining layers.
Excluding landfills that the Company has held for sale as of December 31,
1999, the average landfill volume of the Company's North American active sites
for 1999 was approximately 421,000 tons per day. The average remaining life for
these landfills was approximately 18 years based on remaining permitted capacity
as of December 31, 1999 and projected annual disposal volumes. The average
remaining life for these sites was approximately 31 years based on remaining
permitted capacity and probable expansion capacity. The expected remaining
airspace capacity in cubic yards and the remaining landfill gate tons of the
Company's active sites, excluding sites that are held for sale as of
December 31, 1999, is as follows (in millions):
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PERMITTED EXPANSION TOTAL
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Remaining cubic yards................................... 2,607.8 1,844.1 4,451.9
Remaining tonnage....................................... 2,115.9 1,461.7 3,577.6
</TABLE>
In areas where additional airspace is required, the Company may attempt to
develop a new disposal facility or seek the required permits to expand an
existing site. An expansion of an existing site may include either a lateral
expansion onto property not previously permitted for landfill use or a vertical
expansion by increasing the height of the landfill beyond the current permitted
height.
Suitable solid waste landfill facilities and permission to expand existing
facilities may be difficult to obtain in some areas because of land scarcity,
local resident opposition and governmental regulation. As its existing
facilities become filled in such areas, the Company's solid waste disposal
operations are and will continue to be materially dependent on its ability to
purchase, lease or otherwise obtain operating rights for additional sites or
expansion of existing sites and to obtain the necessary permits from regulatory
authorities to construct and operate them. In addition, there can be no
assurance that additional sites can be obtained or that existing facilities can
continue to be expanded or operated.
To develop a new disposal facility or obtain approval for the expansion of
an existing site, the Company must expend significant time and capital resources
without any certainty that the necessary permits will ultimately be issued for
such facility or that the Company will be able to achieve and maintain the
desired disposal volume at such facility. If the inability to obtain and retain
necessary permits, the failure of a facility to achieve the desired disposal
volume or other factors cause the Company to abandon development efforts for a
facility, the capitalized development costs of the facility are charged to
expense.
Transfer Stations. A transfer station is a facility located near
residential and commercial collection routes where solid waste is received from
collection vehicles and then transferred to and compacted in large,
specially-constructed trailers for transportation to disposal facilities. This
consolidation reduces costs by improving the utilization of collection personnel
and equipment. Fees are generally based on such factors as the type and volume
of the waste transferred and the transportation distance to disposal sites.
Transfer stations
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can also be used to facilitate internalizing disposal costs by giving Company
collection operations more cost-effective access to disposal facilities owned or
operated by the Company.
Recycling. The Company provides recycling services in the United States and
Canada through its Recycle America(R), Recycle Canada(R) and other programs.
Recycling involves the removal of reusable materials from the waste stream for
processing and sale or other disposition for use in various applications.
Participating commercial and industrial operations use containers to separate
recyclable paper, glass, plastic and metal wastes for collection, processing and
sale by the Company. Fees are determined by such considerations as competition,
frequency of collection, type and volume or weight of the recyclable material,
degree of processing required, distance the recyclable material must be
transported and value of the recyclable material.
As part of its residential solid waste collection services, the Company
engages in curbside collection of recyclable materials from residences in the
United States and Canada. Curbside recycling services generally involve the
collection of recyclable paper, glass, plastic and metal waste materials, which
may be separated by residents into different waste containers or commingled with
other recyclable materials. The recyclable materials are then typically
deposited at a local materials recovery facility ("MRF") where they are sorted
and processed for sale. The Company operates over 170 MRFs for the receipt and
processing of recyclable materials. Such processing consists of separating
recyclable materials according to type and baling or otherwise preparing the
separated materials for sale.
The prices received by the Company for recyclable materials fluctuate
substantially from quarter to quarter and year to year depending upon domestic
and foreign demand for such materials, the quality of such materials, prices for
new materials and other factors. In some instances, the Company enters into
agreements with customers or the local governments of municipalities in which it
provides recycling services whereby the customers or the governments share in
the gains and losses resulting from fluctuation in prices of recyclable
commodities. These agreements can reduce both the Company's gains and losses
from such fluctuations.
Energy Recovery. The Company develops, operates, and owns waste-to-energy
facilities in the United States. The Company's waste-to-energy projects are
capable of processing up to 23,750 tons of solid waste per day. The heat from
this combustion process is converted into high-pressure steam, which typically
is used to generate electricity for sale to public utility companies under
long-term contracts.
At 70 Company-owned or Company-operated solid waste landfill facilities,
the Company is engaged in methane gas recovery operations. These operations
involve the installation of a gas collection system into a solid waste landfill
facility. Through the gas collection system, gas generated by decomposing solid
waste is collected and transported to a gas-processing facility at the landfill
site. Through physical and chemical processes, methane gas is separated from
contaminants. The processed methane gas is then generally either sold directly
to industrial users or to an affiliate of the Company which uses it as a fuel to
power electricity generators. Electricity generated by these facilities is sold,
usually to public utilities under long-term sales contracts, often under terms
or conditions which are subject to approval by regulatory authorities.
Portable Sanitation Services. The Company also provides portable sanitation
services to municipalities and commercial customers.
WM International
In August 1999, the Board of Directors of the Company announced its
strategic plan, one element of which is to sell its WM International operations.
In the first quarter of 2000, the Company announced that certain of its
subsidiaries had signed definitive agreements to sell its operations in Finland
and The Netherlands and intend to sell its interest in Waste Management New
Zealand Limited. The Company expects to complete the sales of its WM
International operations pursuant to the strategic plan in the year 2000.
The Company's WM International operations, which include all of the
Company's operations outside of North America, may broadly be characterized into
two areas of activity, collection services and treatment and disposal services.
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While the Company has considerable experience in mobilizing operations
internationally and managing foreign projects, its operations continue to be
subject generally to such risks as currency fluctuations and exchange controls,
the need to recruit and retain suitable local labor forces and to control and
coordinate operations in different jurisdictions, changes in foreign laws or
governmental policies or attitudes concerning their enforcement, political
changes, local economic conditions and international tensions. In addition,
price adjustment provisions based on certain formulas or indices may not
accurately reflect the actual impact of inflation on the cost of performance.
Collection. Internationally, collection services include collection and
transportation of solid, hazardous and medical wastes and recyclable material
from residential, commercial and industrial customers. The residential solid
waste collection process, as well as the commercial and industrial solid and
hazardous waste collection process, is similar to that utilized by the Company
in its North American operations. Business is obtained through public bids or
tenders, negotiated contracts, and, in the case of commercial and industrial
customers, direct contracts.
Residential solid waste collection is typically performed internationally
pursuant to municipal contracts. The scope, specifications, services provided
and duration of such contracts vary substantially, with some contracts
encompassing landfill disposal of collected waste, street sweeping and other
related municipal services. Pricing for municipal contracts is generally based
on volume of waste, number and frequency of collection pick-ups, and disposal
arrangements. Longer-term contracts typically have formulas for periodic price
increases or adjustments. The Company's WM International operations also include
providing curbside recycling services similar to those provided by the Company's
North American operations.
International commercial and industrial solid and hazardous waste
collection services are generally contracted for by individual establishments.
In addition to solid waste collection customers, the Company provides services
to small quantity waste generators, as well as larger petrochemical,
pharmaceutical and other industrial customers, including collection of
hazardous, chemical or medical wastes or residues. Contract terms and prices
vary substantially among jurisdictions and types of customers. Commercial and
industrial recycling services are also provided as part of the Company's WM
International operations.
Treatment and Disposal. Treatment and disposal services include processing
of recyclable materials, operation of both solid and hazardous waste landfills,
operation of municipal and hazardous waste incinerators, operation of water and
wastewater treatment facilities, operation of hazardous waste treatment
facilities and construction of treatment or disposal facilities for third
parties. Treatment and disposal services are provided under contracts which may
be obtained through public bid or tender or by direct negotiation, and are also
provided directly to other waste service companies.
Once collected, solid waste processed in a MRF may be sold, utilized or
disposed of in various applications. Unprocessed solid wastes, or the portion of
the waste stream remaining after recovery of recyclable materials, require
disposal, which may be accomplished through incineration (in which the energy
value may be recovered in a waste-to-energy facility) or through disposal in a
solid waste landfill. The relative use of landfills versus incinerators differs
from country to country and will depend on many factors, including the
availability of land, geological and hydrogeological conditions, the
availability and cost of technology and capital, and the regulatory environment.
The main determinants of the disposal method are the disposal costs at local
landfills, as incineration is generally more expensive, community preferences
and regulatory provisions.
At present, in most countries in which the Company has WM International
operations, landfilling is the predominant disposal method employed. Through its
international subsidiaries, the Company owns or operates solid waste landfills
in Argentina, Australia, Brazil, Denmark, Germany, Hong Kong, Italy, New
Zealand, Sweden and the United Kingdom. Landfill disposal agreements may be
separate contracts or an integrated portion of collection or treatment
contracts.
Through its international subsidiaries, the Company owns or operates
hazardous waste treatment facilities in Australia, Brazil, Brunei, Denmark,
Finland, Germany, Hong Kong, Indonesia, The Netherlands, Sweden, and the United
Kingdom.
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Other. Industrial premises, office, street and parking lot cleaning
services are also part of the Company's WM International operations, along with
portable sanitation services for occasions such as outdoor concerts and special
events.
Non-Solid Waste Services
Hazardous Waste Management Services. Hazardous wastes handled by the
Company include industrial by-products and residues that have been identified as
"hazardous" pursuant to RCRA, as well as other materials contaminated with a
wide variety of chemical substances. Hazardous waste may be collected from
customers and transported by the Company or contractors retained by the Company
or delivered by customers to the facilities. Hazardous waste is transported
primarily in specially constructed tankers and semi-trailers, including
stainless steel and rubber or epoxy-lined tankers and vacuum trucks, or in
containers or drums on trailers designed to comply with applicable regulations
and specifications of the United States Department of Transportation ("DOT")
relating to the transportation of hazardous materials. The Company also operates
several facilities at which waste collected from or delivered by customers may
be analyzed and consolidated prior to further shipment.
In the United States, most hazardous wastes generated by industrial
processes are handled "on-site" at the generators' facilities. Since the
mid-1970's, public awareness of the harmful effects of unregulated disposal of
hazardous wastes on the environment and health has led to extensive and evolving
federal, state and local regulation of hazardous waste management activities.
The major federal statutes regulating the management of hazardous wastes or
substances include RCRA, the Toxic Substances Control Act ("TSCA") and the
Comprehensive Environmental Response, Compensation and Liabilities Act of 1980,
as amended ("CERCLA" or "Superfund"), all primarily administered by the EPA. The
hazardous waste management business is heavily dependent upon the extent to
which regulations promulgated under these or similar state statutes and their
enforcement over time effectively require wastes to be specially handled or
managed and disposed of in facilities of the type owned and operated by the
Company. See "Regulation -- Hazardous Waste," "-- RCRA" and "-- Superfund." The
hazardous waste services industry currently has substantial excess capacity
caused by a number of factors, including a decline in environmental remediation
projects generating hazardous waste for off-site treatment and disposal,
continuing efforts by hazardous waste generators to reduce volume and to manage
the wastes on-site, and the uncertain regulatory environment regarding hazardous
waste management and remediation requirements. These factors have led to reduced
demand and increased pressure on pricing for hazardous waste management
services, conditions which the Company expects to continue for the foreseeable
future.
Low-Level and Other Radioactive Waste Services. Radioactive wastes with
varying degrees of radioactivity are generated by nuclear reactors and by
medical, industrial, research and governmental users of radioactive material.
Radioactive wastes are generally classified as either high-level or low-level.
High-level radioactive waste, such as spent nuclear fuel and waste generated
during the reprocessing of spent fuel from nuclear reactors, contains
substantial quantities of long-lived radionuclides and is the ultimate
responsibility of the federal government. Low-level radioactive waste, which
decays more quickly than high-level waste, largely consists of dry compressible
wastes (such as contaminated gloves, paper, tools and clothing), resins and
filters which have removed radioactive contaminants from nuclear reactor cooling
water, and solidified wastes from power plants which have become contaminated
with radioactive substances and irradiated hardware.
The Company announced in March 2000 that, pursuant to its strategic plan,
one of its subsidiaries has entered into an agreement to sell all of its
low-level and other radioactive waste service operations. The Company expects
that the sale of these operations, which are described below, will be completed
during the second quarter of 2000. See "Business -- General."
The Company's Chem-Nuclear Systems LLC subsidiary ("Chem-Nuclear") provides
comprehensive low-level radioactive waste management services in the United
States, consisting of disposal, processing and various other special services.
To a lesser extent, it provides services with respect to radioactive waste that
has become mixed with regulated hazardous waste. Its Barnwell, South Carolina
facility, which has been in operation since 1971, is one of three licensed
commercial low-level radioactive waste disposal facilities in the
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United States. A trust has been established and funded to pay the estimated cost
of decommissioning the Barnwell facility. A second trust, for the extended care
of the facility, is funded by a surcharge on each cubic foot of waste received.
Chem-Nuclear may be liable for additional costs if the extra charges collected
to restore and maintain the facility are insufficient to cover the cost of
restoring or maintaining the site during and after its closure. The Company does
not expect this to have a material adverse impact on future operating results.
Under state legislation enacted in 1995, the Barnwell site is authorized to
operate until its current permitted disposal activity is fully utilized.
However, that legislation was attached to a state appropriations bill that
included a provision for a state tax of $235 to be imposed on every cubic foot
of waste disposed of at the Barnwell facility. As a result of decreased disposal
volume and a shortfall in anticipated tax revenue, in June 1997, the state of
South Carolina enacted new legislation requiring that Chem-Nuclear guarantee
certain portions of anticipated tax revenues from the facility. Such reduced
disposal volume and the requirement that Chem-Nuclear fund such tax payments
have caused Chem-Nuclear to review its alternatives with respect to the Barnwell
facility.
Chem-Nuclear also processes low-level radioactive waste at its customers'
plants to enable such waste to be shipped in dry matter rather than liquid form
to meet the requirements for receipt at disposal facilities and to reduce the
volume of waste that must be transported. Processing operations include
solidification, demineralization, dewatering and filtration. Other services
offered by Chem-Nuclear include providing electro-chemical, abrasive and
chemical removal of radioactive contamination, providing management services for
spent nuclear fuel storage pools and storing and incinerating liquid radioactive
organic wastes.
Through its Waste Management Federal Services, Inc. subsidiary, the Company
provides hazardous, radioactive and mixed waste program and facilities
management services, primarily to the United States Department of Energy and
other federal government agencies. Such services include waste treatment,
storage, characterization and disposal, and privatization services.
Independent Power Projects. The Company also operates and, in some cases,
owns independent power projects which either cogenerate electricity and thermal
energy or generate electricity alone for sale to customers, including utilities
and private customers.
COMPETITION
The North American solid waste industry, despite recent consolidation, is
still highly competitive. The Company encounters intense competition, primarily
in the pricing and rendering of services, from various sources in all phases of
its operations. The competition encountered by the Company in its North American
solid waste operations is primarily from numerous publicly-held companies,
locally-owned private solid waste services companies, municipalities and other
regional or multi-governmental authorities, and large commercial and industrial
companies handling their own waste collection or disposal operations. Local
governmental entities are at times able to offer lower direct charges to the
customer for the same service by subsidizing the cost of such services through
the use of tax revenues and tax-exempt financing. Generally, however,
municipalities do not provide significant commercial and industrial waste
collection or waste disposal.
Operating costs, disposal costs, and collection fees vary widely throughout
the geographic areas in which the Company operates. The prices that the Company
charges are determined locally, and typically vary by the volume, type of waste
collected, treatment requirements, risks involved in the handling or disposing
of waste, frequency of collections, distance to final disposal sites, labor
costs and amount and type of equipment furnished to the customer. Long-term
solid waste collection contracts typically contain a formula, generally based on
published price indices, for automatic adjustment of fees.
The Company competes for landfill business on the basis of tipping fees,
geographical location, and quality of operations. The Company's ability to
obtain landfill volume may be limited by the fact that some major collection
companies also own or operate landfills to which they internalize their waste.
The Company competes for collection accounts primarily based on price and the
quality of its services. Intense competition is encountered for both quality of
service and pricing. From time to time, competitors may reduce the price of
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their services and accept lower profit margins in an effort to expand or
maintain market share or to successfully obtain competitively bid contracts.
The Company provides residential collection services under a number of
municipal contracts. Such contracts are subject to periodic competitive bidding,
and there is no assurance that the Company will be the successful bidder and
will be able to retain such contracts. If the Company is unable to replace
certain contracts lost through the competitive bidding process with comparable
contracts within a reasonable time period, the earnings of the Company could be
adversely affected.
Increased public environmental awareness and certain mandated state
regulations have resulted in increased recycling, composting and waste reduction
efforts in many different areas of North America. Such efforts tend to reduce
the amount of solid waste directed to landfills and waste-to-energy facilities.
Although the Company believes that landfills and waste-to-energy facilities will
continue to be the primary depository for solid waste well into the future,
there can be no assurance that recycling, composting, and waste reduction
efforts will not affect future disposal volumes. The effect, if any, on such
volumes could also vary between different geographic regions as well as within
individual market areas in each region.
The Company also encounters intense competition in pricing and rendering of
services in its portable sanitation service business, from numerous large and
small competitors. In addition, the Company's program and facilities management
business encounters intense competition, primarily in pricing, quality and
reliability of services, from various sources in all aspects of its business.
In its hazardous waste management operations, the Company encounters
competition from a number of sources, including several national or regional
firms specializing primarily in hazardous waste management, local waste
management concerns and, to a much greater extent, generators of hazardous
wastes which seek to reduce the volume of or otherwise process and dispose of
such wastes themselves. The basis of competition is primarily technical
expertise and the price, quality and reliability of service.
Similarly, the Company encounters intense competition in its WM
International operations from local companies and governmental entities in
particular countries, as well as from major international companies. Pricing,
quality of service and type of equipment utilized are the primary methods of
competition for collection services, and proximity of suitable treatment or
disposal facilities, technical expertise, price, quality and reliability of
services are the primary methods of competition for treatment and disposal
services.
EMPLOYEES
At December 31, 1999, the Company had approximately 75,000 full-time
employees, of which approximately 10,000 were employed in clerical,
administrative, and sales positions, 3,000 in management, and the balance in
collection, disposal, transfer station and other operations. Approximately
13,000 of the Company's employees are covered by collective bargaining
agreements. Of the Company's 75,000 full-time employees, there are approximately
55,000 related to its NASW operations at December 31, 1999. The Company has not
experienced a significant work stoppage, and management considers its employee
relations to be good.
INSURANCE AND FINANCIAL ASSURANCE OBLIGATIONS
The Company carries a broad range of insurance coverages, which management
considers prudent for the protection of the Company's assets and operations,
including general liability, automobile liability, real and personal property,
workers' compensation, directors' and officers' liability, and such other
coverages as management deems necessary. Some of these coverages are subject to
varying retentions of risk by the Company. At December 31, 1999, the Company's
casualty policies provided for $2 million per occurrence coverage for primary
commercial general liability and $1 million per accident coverage for primary
automobile liability (including coverage for pollution exposure arising out of
trucking operations) supported by $500 million in umbrella insurance protection.
At December 31, 1999, the Company's property policy provided insurance coverage
for all of the Company's real and personal property on a replacement cost basis,
including California earthquake perils. At December 31, 1999, the Company also
carried $200 million in aircraft liability
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protection. The Company believes these are appropriate levels for its operations
and that such levels meet applicable requirements of the various states and
countries in which it operates, however, various factors, including cost and
coverage availability, could cause the Company to change its levels of coverage.
The Company maintains workers' compensation insurance in accordance with
laws of the various states and countries in which it has employees. At December
31, 1999, the Company's ongoing workers' compensation insurance program had a
deductible per incident of $250,000. Through the second quarter of 1999, the
Company estimated its insurance-related liabilities for the ongoing programs
mainly related to workers' compensation, based on an analysis of insurance
claims submitted for reimbursement, plus an estimate for liabilities incurred as
of the balance sheet date, but not yet reported to the Company. In the third
quarter of 1999, the Company began estimating these liabilities based on
actuarially determined estimates of ultimate losses. These estimates are
generally within a range of potential ultimate outcomes.
The Company also currently has an environmental impairment liability
("EIL") insurance policy for certain of its landfills, transfer stations, and
recycling facilities that provides coverage for property damages and/or bodily
injuries to third parties caused by off-site pollution emanating from such
landfills, transfer stations, or recycling facilities. At December 31, 1999,
this policy provided $10 million of coverage per loss with a $20 million
aggregate limit.
To date, the Company has not experienced any difficulty in obtaining
insurance. However, if the Company in the future is unable to obtain adequate
insurance, or decides to operate without insurance, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect upon the Company's financial condition,
results of operations or cash flows. Additionally, continued availability of
casualty and EIL insurance with sufficient limits at acceptable terms is an
important aspect of obtaining revenue-producing waste service contracts.
Municipal and governmental waste management contracts typically require
performance bonds or bank letters of credit to secure performance. In addition,
the Company is required to provide financial assurance for final closure and
post-closure obligations with respect to its landfills. The Company uses
different mechanisms for establishing financial assurance depending on the
jurisdiction, including escrow-type accounts funded by revenues during the
operational life of a facility, letters of credit from third parties, corporate
guarantees, surety bonds and traditional insurance. However, the Company also
establishes financial assurance through "captive insurance" which is insurance
provided by the Company's wholly-owned, but independent, regulated insurance
company subsidiary, National Guaranty Insurance Company ("NGIC"). NGIC is
authorized to write up to $1.1 billion in insurance policies or surety bond
limits for the Company's final closure and post-closure requirements. In those
instances where the use of NGIC or 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. As of December 31, 1999, the Company had provided
letters of credit of approximately $1.5 billion, and surety bonds of
approximately $3.0 billion to municipalities and other customers and other
regulatory authorities supporting tax-exempt bonds, performance of landfill
final closure and post-closure requirements, insurance contracts, and other
contracts. Continued availability of surety bonds and letters of credit in
sufficient amounts at acceptable rates is an important aspect of obtaining
additional municipal collection contracts and obtaining or retaining disposal
site operating permits.
REGULATION
General -- Potential Adverse Effect of Government Regulations
The Company's principal business activities are subject to extensive and
evolving federal, state, local and foreign environmental, health, safety, and
transportation laws and regulations. These regulations are administered by the
EPA in the United States, various other federal, state, and local environmental,
zoning, health, and safety agencies in the United States and elsewhere,
including the European Environmental Agency in Europe and various other national
agencies outside of Europe. Many of these agencies periodically examine the
Company's operations to monitor compliance with such laws and regulations.
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Generally, the regulatory process requires the Company, and other companies
in the industry, to obtain and retain numerous governmental permits to conduct
various aspects of its operations, any of which may be subject to revocation,
modification or denial. Particularly, the development, expansion, and operation
of landfills and transfer stations are subject to extensive regulations
governing siting, design, operations, monitoring, site maintenance, corrective
action, financial assurance, and final closure and post-closure obligations. In
order to construct, expand, and operate a landfill or transfer station, the
Company must obtain and maintain one or more construction or operating permits
and licenses and, in certain instances, applicable zoning approvals. Obtaining
the necessary permits and approvals in connection with the acquisition,
development, or expansion of a landfill or transfer station is difficult,
time-consuming (often taking two to three years or more), and expensive, and is
frequently opposed by local citizens as well as environmental groups. Many
agencies require public hearings prior to issuance of such permits giving such
opposition an opportunity to be heard. In addition, many agencies consider the
compliance history of the applicant as well as any parent, subsidiary or
affiliated company as a factor in the permit approval process. Once obtained,
operating permits are subject to modification and revocation by the issuing
agency. The Company is also subject to the licensing requirements of the Federal
Communications Commission ("FCC") with respect to two-way radio communications.
Compliance with current and future regulatory requirements may require the
Company, as well as others in the waste management industry, from time to time,
to make significant capital and operating expenditures.
For collection operations, regulation takes such forms as licensing
collection vehicles, health and safety requirements, vehicular weight
limitations, and, in certain localities, limitations on weight, area, time, and
frequency of collection.
Federal, state, local and foreign governments have, from time to time,
proposed or adopted other types of laws, regulations, or initiatives with
respect to the environmental services industry, including laws, regulations, and
initiatives to ban or restrict the international, interstate, or intrastate
shipment of wastes, impose higher taxes on out-of-state waste shipments than on
in-state shipments, limit the types of wastes that may be disposed of at
existing landfills, mandate waste minimization initiatives, require recycling
and yard waste composting, reclassify certain categories of nonhazardous waste
as hazardous, and regulate disposal facilities as public utilities. Congress
has, from time to time, considered legislation that would enable or facilitate
such bans, restrictions, taxes, and regulations, many of which could adversely
affect the demand for the Company's services. Similar types of laws,
regulations, and initiatives have also, from time to time, been proposed or
adjusted in other jurisdictions in which the Company operates. The effect of
these and similar laws could be a reduction of the volume of waste that would
otherwise be disposed of in the Company's landfills. The Company makes a
continuing effort to anticipate regulatory, political, and legal developments
that might affect its operations, but it is not always able to do so. The
Company cannot predict the extent to which any legislation or regulation that
may be enacted, amended, repealed, reinterpreted, or enforced in the future may
affect its operations. Such actions could adversely affect the Company's
operations or impact the Company's future financial condition or earnings.
Also, in May 1994, the United States Supreme Court ruled that state and
local governments may not constitutionally restrict the free movement of waste
in interstate commerce through the use of flow control laws. Such laws typically
involve a local government specifying a jurisdictional disposal site for all
solid waste generated within its borders. Since the ruling, several decisions of
state or federal courts have invalidated regulatory flow control schemes in a
number of jurisdictions. Other judicial decisions have upheld non-regulatory
means by which municipalities may effectively control the flow of municipal
solid waste. In addition, federal legislation has been proposed, but not yet
enacted, to effectively grandfather existing flow control mandates. There can be
no assurance that such alternatives to regulatory flow control will in every
case be found lawful or that such legislation will be enacted into law. However,
the Supreme Court's 1994 ruling and subsequent court decisions have not to date
had a material adverse effect on any of the Company's operations. In the event
that such legislation is not adopted, the Company believes that affected
municipalities will endeavor to implement alternative lawful means to continue
controlling the flow of waste. In view of the uncertain state of the law at this
time, however, the Company is unable to predict whether such efforts would be
successful or what impact, if any, this matter might have on the Company's
operations.
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In 1997, the EPA released guidance interpreting the Civil Rights Act to
require federal, state, or local permitting authorities receiving money from the
EPA to consider the discriminatory effects that may result from permit
issuances, renewals or modifications. The EPA will entertain challenges to any
such permits on the grounds that the permitted activities, alone or in
conjunction with other permitted activities, subject minority communities to
disparate exposure to pollution. The lack of specific standards in the EPA's
guidance creates some uncertainty about the effects any such challenges could
have on the Company's ability to obtain or renew necessary permits.
The demand for certain of the services provided by the Company,
particularly its hazardous waste management services, is dependent in part on
the existence and enforcement of federal, state, local and foreign laws and
regulations which govern the discharge of hazardous substances into the
environment and on the funding of agencies and programs under such laws and
regulations. Such businesses will be adversely affected to the extent that such
laws or regulations are amended or repealed, with the effect of reducing the
regulation of, or liability for, such activity, that the enforcement of such
laws and regulations is lessened or that funding of agencies and programs under
such laws and regulations is delayed or reduced. In particular, the EPA
continues to consider proposals under RCRA to redefine the term "hazardous
waste" for regulatory purposes. Under some such proposals, wastes containing
minimal concentrations of hazardous substances would no longer be subject to the
stringent record-keeping, handling, treatment and disposal rules applied to
hazardous wastes under RCRA. These proposals would, if adopted, reduce the
volume of wastes for which the Company's hazardous waste management services are
needed.
In addition to environmental laws and regulations, federal government
contractors, including the Company, are subject to extensive regulation under
the United States Federal Acquisition Regulation and numerous statutes which
deal with the accuracy of cost and pricing information furnished to the United
States government, the allowability of costs charged to the United States
government, the conditions under which contracts may be modified or terminated,
and other similar matters. Various aspects of the Company's operations are
subject to audit by agencies of the United States government in connection with
its performance of work under such contracts as well as its submission of bids
or proposals to the United States government. Failure to comply with contract
provisions or other applicable requirements may result in termination of the
contract, the imposition of civil and criminal penalties against the Company, or
the suspension or debarment of all or a part of the Company from performing
services for the United States government, which could have a material adverse
impact upon the Company's financial condition or earnings for one or more fiscal
quarters or years. Among the reasons for debarment are violations of various
statutes, including those related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs. Other
governmental authorities have similar suspension and debarment laws or
regulations which are applicable to their respective jurisdictions.
Governmental authorities have the power to enforce compliance with
regulations and permit conditions and to obtain injunctions or impose fines in
case of violations. During the ordinary course of its operations, the Company
may, from time to time, receive citations or notices from such authorities that
a facility is not in full compliance with applicable environmental or health and
safety regulations. Upon receipt of such citations or notices, the Company will
work with the authorities to address their concerns. Failure to correct the
problems to the satisfaction of the authorities could lead to monetary
penalties, curtailed operations, jail terms, facility closure, or an inability
to obtain permits for additional sites.
As a result of changing government and public attitudes in the area of
environmental regulation and enforcement, management anticipates that
continually changing requirements in health, safety, and environmental
protection laws will require the Company and others engaged in the waste
management industry to continually modify or replace various facilities and
alter methods of operation at costs that may be substantial. The Company's
significant expenditures incurred in the operation of its disposal facilities
relate to complying with the requirements of laws concerning the environment.
These expenditures relate to facility upgrades, corrective actions, and facility
final closure and post-closure care. The majority of these expenditures are made
in the normal course of the Company's business and neither materially adversely
affect the Company's earnings nor place the Company at any competitive
disadvantage. Although the Company, to its knowledge, is currently in compliance
in all material respects with all applicable federal, state, and local laws,
permits,
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regulations, and orders affecting its operations where noncompliance would
result in a material adverse effect on the Company's financial condition,
results of operations or cash flows, there is no assurance that the Company will
not have to expend substantial amounts for such actions in the future.
The Company expects to grow in part by acquiring existing landfills,
transfer stations, and collection operations. Although the Company conducts
environmental due diligence investigations associated with the past waste
management practices of the businesses that it acquires, it can have no
assurance that, through its investigation, it will identify all potential
environmental problems or risks. As a result, the Company may have acquired, or
may in the future acquire, landfills or other properties or businesses that have
unknown environmental problems and related liabilities. The Company will be
subject to similar risks and uncertainties in connection with the acquisition of
closed facilities that had been previously operated by businesses acquired by
the Company. The Company seeks to mitigate the foregoing risks by obtaining
environmental representations and indemnities from the sellers of the businesses
that it acquires. However, there can be no assurance that the Company will be
able to rely on any such indemnities if an environmental liability exists.
Solid Waste
Operating permits are generally required at the state and local level for
landfills, transfer stations and collection vehicles. Operating permits need to
be renewed periodically and may be subject to revocation, modification, denial
or non-renewal for various reasons, including failure of the Company to satisfy
regulatory concerns. With respect to solid waste collection, regulation takes
such forms as licensing of collection vehicles, truck safety requirements, radio
communication licensing, vehicular weight limitations and, in certain
localities, limitations on rates, area, time and frequency of collection. With
respect to solid waste disposal, regulation covers various matters, including
landfill location and design, groundwater monitoring, gas control, liquid runoff
and rodent, pest, litter and traffic control. Zoning and land use requirements
and limitations are encountered in the solid waste collection, transfer,
recycling, energy recovery and disposal phases of the Company's business. In
almost all cases the Company is required to obtain conditional use permits or
zoning law changes in order to develop transfer station, resource recovery or
disposal facilities. In addition, the Company's disposal facilities are subject
to water and air pollution laws and regulations. Noise pollution laws and
regulations may also affect the Company's operations. Governmental authorities
have the power to enforce compliance with these various laws and regulations and
violators are subject to injunctions, fines and revocation of permits. Private
individuals may also have the right to sue to enforce compliance. Safety
standards under the Occupational Safety and Health Act ("OSHA") are also
applicable to the Company's solid waste and related services operations.
The EPA and various states acting pursuant to EPA-delegated authority have
promulgated rules pursuant to RCRA which serve as minimum requirements for land
disposal of municipal wastes. The rules establish requirements applicable to the
siting, construction, operations, final closure and post-closure monitoring and
maintenance of all but the smallest municipal waste landfill facilities. The
Company does not believe that continued compliance with the more stringent
minimum requirements will have a material adverse effect on the Company's
operations. See also "-- RCRA" and "-- Superfund" below for additional
regulatory information.
In March 1996, the EPA issued regulations that require large, municipal
solid waste landfills to install and monitor systems to collect and control
landfill gas. The regulations apply to landfills that are designed to
accommodate 2.5 million cubic meters or more of municipal solid waste and that
accepted waste for disposal after November 8, 1987, regardless of whether the
site is active or closed. The date by which each affected landfill must have
such a gas collection and control system depends on whether the landfill began
operation before or after May 30, 1991. In the United States, landfills
constructed, reconstructed, modified or first accepting waste after May 30,
1991, generally must have had systems in place by late 1998. Older landfills are
generally regulated by states and will be required to have landfill gas systems
in place within approximately 30 months of EPA's approval of the state program.
Many state solid waste regulations already require collection and control
systems. Compliance with the new regulations is not expected to have a material
adverse effect on the Company.
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Hazardous Waste
The Company is required to obtain federal, state, local and foreign
governmental permits for its hazardous waste treatment, storage and disposal
facilities. Such permits are difficult to obtain, and in most instances
extensive geological studies, tests and public hearings are required before
permits may be issued. The Company's hazardous waste treatment, storage and
disposal facilities are also subject to siting, zoning and land use
restrictions, as well as to regulations (including certain requirements pursuant
to federal statutes) which may govern operating procedures and water and air
pollution, among other matters. In particular, the Company's operations in the
United States are subject to the Safe Drinking Water Act (which regulates deep
well injection), TSCA (pursuant to which the EPA has promulgated regulations
concerning the disposal of polychlorinated biphenyls ("PCBs")), the Clean Water
Act (which regulates the discharge of pollutants into surface waters and sewers
by municipal, industrial and other sources) and the Clean Air Act (which
regulates emissions into the air of certain potentially harmful substances). In
transportation operations, the Company is subject to the jurisdiction of the
Interstate Commerce Commission and regulated by the DOT and by regulatory
agencies in each state. Employee safety and health standards under OSHA are also
applicable. The Company is also subject to the licensing requirements of the FCC
with respect to two-way radio communications.
All of the Company's hazardous waste treatment, storage or disposal
facilities in the United States have been issued permits under RCRA. The
regulations governing issuance of permits contain detailed standards for
hazardous waste facilities on matters such as construction, waste analysis,
security, inspections, training, preparedness and prevention, emergency
procedures, reporting and recordkeeping, final closure and post-closure
monitoring and maintenance. Once issued, a final permit has a maximum fixed term
of ten years, and such permits for land disposal facilities are required to be
reviewed five years from the date of issuance. The issuing agency (either the
EPA or an authorized state) may review or modify a permit at any time during its
term.
The Company believes that it maintains each of its operating treatment,
storage or disposal facilities in substantial compliance with the applicable
requirements promulgated pursuant to RCRA. It is possible, however, that the
issuance or renewal of a permit could be made conditional upon the initiation or
completion of modifications or corrective actions at facilities, which might
involve substantial additional capital expenditures. Although the Company
anticipates the reauthorization of each permit at the end of its term if the
facility's operations are in compliance with applicable requirements, there can
be no assurance that such will be the case.
The radioactive waste services of Chem-Nuclear are also subject to
extensive governmental regulation. Due to the extensive geological and
hydrogeological testing and environmental data required, and the complex
political environment, it is difficult to obtain permits for radioactive waste
disposal facilities. Various phases of Chem-Nuclear's low-level radioactive
waste management services are regulated by various state agencies, the United
States Nuclear Regulatory Commission (the "NRC") and the DOT. Regulations
applicable to Chem-Nuclear's operations include those dealing with packaging,
handling, labeling and routing of radioactive materials, and prescribe detailed
safety and equipment standards and requirements for training, quality control
and insurance, among other matters. Employee safety and health standards under
OSHA are also applicable, as well as radio communication licensing by the FCC.
Waste-to-Energy and Related Services
The Company provides waste-to-energy and related services through its
wholly-owned subsidiary Wheelabrator Technologies Inc. ("WTI"), which is now
managed as part of the NASW operations. WTI's business activities are subject to
environmental regulation under federal, state and local laws and regulations.
These regulations include the Clean Air Act, the Clean Water Act and RCRA. The
Company believes that this business is conducted in material compliance with
applicable laws and regulations. There can be no assurance, however, that such
requirements will not change to the extent that it would materially affect the
Company's consolidated financial statements. The Company believes that the air
pollution control systems at certain waste-to-energy facilities owned or leased
for use in these operations most likely will be required to be
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modified to comply with more stringent air pollution control standards adopted
by the EPA in December 1995 for large municipal waste combusters. The compliance
dates have varied by facility, but all affected facilities will be required to
be in compliance with the standards by the end of the year 2000. Currently
available technologies are adequate to meet the new standards. Although the
total expenditures required for such modifications are approximately $75.2
million, they are not expected to have a material adverse effect on the
Company's liquidity or results of operations because provisions in the impacted
facilities' long-term waste supply agreements generally allow the Company to
recover from customers the majority of incremental capital and operating costs.
The customer's share of capital and financing costs is typically recovered over
the remaining life of the waste supply agreements, and pro rata operating costs
are recovered in the period incurred. There can be no assurance, however, the
Company will be able to recover, for each project, all such increased costs from
its customers. Moreover, it is possible that future developments, such as
increasingly strict requirements of environmental laws, and enforcement policies
thereunder, could affect the manner in which the Company operates its
waste-to-energy projects and conducts its business, including the handling,
processing or disposal of the wastes, by-products and residues generated
thereby.
The Company's Gloucester County, New Jersey waste-to-energy facility
historically relied on a disposal franchise for substantially all of its supply
of municipal solid waste. On May 1, 1997, the Third Circuit Court of Appeals
(the "Third Circuit") permanently enjoined the State of New Jersey from
enforcing its franchise system as a form of unconstitutional solid waste flow
control, but stayed the injunction for so long as any appeals were pending. On
November 10, 1997, the United States Supreme Court announced its decision not to
review the Third Circuit decision, thereby ending the stay and, effectively, the
facility's disposal franchise. In response, the Gloucester facility lowered its
prices. In early 1999, the Company entered into an agreement pursuant to which
the Company will operate the Gloucester facility and provide disposal services
under a new service agreement for the next ten years. As part of the agreement,
Gloucester County agreed to cooperate in a refinancing of the existing project
debt. The refinancing, which closed in the fourth quarter of 1999, settled all
disputes and released the existing letter of credit. As a result of the
agreement and refinancing, the Company expects the Gloucester project to operate
profitably, albeit at reduced levels, in the absence of regulatory control.
The Company's energy facilities in the United States are also subject to
the provisions of various energy-related laws and regulations, including the
Public Utility Regulatory Policies Act of 1978 ("PURPA"). The ability of the
Company's waste-to-energy and small power production facilities to sell power to
electric utilities on advantageous terms and conditions and to avoid burdensome
public utility regulation has historically depended, in part, upon the
applicability of certain provisions of PURPA, which generally exempts the
Company from state and federal regulatory control over electricity prices
charged by, and the finances of, the Company and its energy-producing
subsidiaries. As state legislatures and the United States Congress have
accelerated their consideration of the manner in which economic efficiencies can
be gained by deregulating the electric generation industry, utilities and others
have taken the position that power sales agreements entered into pursuant to
PURPA which provide for rates in excess of current market rates should be
voidable as "stranded assets." The Company's power production facilities are
qualifying facilities under PURPA and depend on the sanctity of their power
sales agreements for their economic viability. Although a repeal or modification
of PURPA is possible within the next two years, the Company believes that
federal law offers strong protection to the PURPA contracts and recent state and
federal agency and court decisions have unanimously upheld the inviolate nature
of these contracts. In addition, state legislative actions to date have not
attempted to abrogate these contracts. While there is some risk that future
utility restructurings, court decisions and/or legislative or administrative
action in this area could have an adverse effect on the business of the Company,
in light of recent developments, the Company currently believes such risk is
remote. In addition, the passage of the Energy Policy Act of 1992 created an
alternative ownership mechanism by which the Company's future independent power
projects would be able to participate in the electricity generation industry
without the burdens of traditional public utility regulation. For those reasons,
the operations of existing waste-to-energy and other small power production
facilities business are not currently expected to be materially and adversely
affected if the various benefits of PURPA are repealed or substantially reduced
on a prospective basis. However, the Company can give no assurances that future
utility restructurings, court
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decisions or legislative or administrative action in this area will not have a
material adverse impact on its consolidated financial statements.
RCRA
Pursuant to RCRA, the EPA has established and administers a comprehensive
"cradle-to-grave" system for the management of a wide range of industrial
by-products and residues identified as "hazardous" wastes. States that have
adopted hazardous waste management programs with standards at least as stringent
as those promulgated by the EPA may be authorized by the EPA to administer their
programs in lieu of RCRA.
Under RCRA and federal transportation laws, a transporter must deliver
hazardous waste in accordance with a manifest prepared by the generator of the
waste and only to a treatment, storage or disposal facility having a RCRA permit
or interim status under RCRA. Every facility that treats or disposes of
hazardous wastes must obtain a RCRA permit from the EPA or an authorized state
and must comply with certain operating standards. The RCRA permitting process
involves applying for interim status and also for a final permit. Under RCRA and
the implementing regulations, facilities which have obtained interim status are
allowed to continue operating by complying with certain minimum standards
pending issuance of a permit.
RCRA also imposes restrictions on land disposal of certain hazardous wastes
and prescribes standards for hazardous waste land disposal facilities. Under
RCRA, land disposal of certain types of untreated hazardous wastes has been
banned, except where the EPA has determined that land disposal of such wastes
and treatment residuals should be permitted. The disposal of liquids in
hazardous waste land disposal facilities is also prohibited.
The EPA, from time to time, considers fundamental changes to its
regulations under RCRA that could facilitate exemptions from hazardous waste
management requirements, including policies and regulations that could implement
the following changes: redefine the criteria for determining whether wastes are
hazardous; prescribe treatment levels which, if achieved, could render wastes
nonhazardous; encourage further recycling and waste immunization; and indirectly
encourage on-site remediation. To the extent such changes are adopted, they can
be expected to adversely affect the demand for the Company's hazardous waste
management disposal facilities. In this regard, the EPA has recently proposed
regulations which would have the effect of reducing the volume of waste
classified as hazardous for RCRA regulatory purposes.
In addition to the foregoing provisions, RCRA regulations require the
Company to demonstrate financial responsibility for possible bodily injury and
property damage to third parties caused by both sudden and nonsudden accidental
occurrences. Also, RCRA regulations require the Company to provide financial
assurance that funds will be available when needed for final closure and
post-closure care at its waste treatment, storage and disposal facilities, the
costs of which could be substantial. See "Business -- Insurance and Financial
Assurance Obligations." Such regulations allow the financial assurance
requirements to be satisfied by various means, including letters of credit,
surety bonds, trust funds, a financial (net worth) test and a guarantee by a
parent corporation. Under RCRA regulations, a company must pay the closure costs
for a waste treatment, storage or disposal facility owned by it upon the closure
of the facility and thereafter pay post-closure care costs. If such a facility
is closed prior to its originally anticipated time, it is unlikely that
sufficient funds or reserves will have been accrued over the life of the
facility to provide for such costs, and the owner of the facility could suffer a
material adverse impact as a result. Consequently, it may be difficult to close
such facilities to reduce operating costs at times when, as is currently the
case in the hazardous waste services industry, excess treatment, storage or
disposal capacity exists.
Superfund
Among other things, Superfund generally provides for the remediation of
sites from which there has been a release or threatened release of a hazardous
substance into the environment. Superfund imposes joint and several liability
for the costs of remediation and for damages to natural resources upon the
present and former owners or operators of facilities or sites from which there
is a release or threatened release of hazardous substances. Waste generators and
waste transporters are also strictly liable. Under the authority of CERCLA,
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detailed requirements apply to the manner and degree of remediation of
facilities and sites where hazardous substances have been or are threatened to
be released into the environment.
Liability under CERCLA is not dependent upon the intentional disposal of
"hazardous wastes," as defined under RCRA. It can be founded upon a release or
threatened release, even as a result of lawful, unintentional, and non-negligent
action, of any one of more than 750 "hazardous substances," including very small
quantities of such substances. CERCLA requires the EPA to establish a National
Priorities List ("NPL") of sites at which hazardous substances have been or are
threatened to be released and which require investigation or remediation. The
EPA's primary way of determining whether a site is to be included on the NPL is
the Hazard Ranking System, which evaluates the relative potential for a release
of hazardous substances to pose a threat to human health or the environment
pursuant to a scoring system based on factors grouped into three categories: (1)
likelihood of release, (2) hazardous substance characteristics, and (3)
receptors. To date, approximately 31,000 sites have been reviewed. These sites
are compiled on the Comprehensive Environmental Response, Compensation, and
Liability Information System ("CERCLIS") list. The identification of a site on
the CERCLIS list indicates only that the site has been brought to the attention
of the EPA and will undergo an assessment of environmental conditions thereon,
but it does not necessarily mean that an actual health or environmental threat
currently exists or has ever existed.
Of the 1405 NPL sites, 250 of the sites are solid waste landfills. Thus,
even if the Company's landfills have never received "hazardous wastes" as such,
one or more hazardous substances may have come to be located at its landfills.
Because of the extremely broad definition of "hazardous substances," the same is
true of other industrial properties with which the Company or its predecessors
has been, or with which the Company may become, associated as an owner or
operator. Consequently, if there is a release or threatened release of such
substances into the environment from a site currently or previously owned or
operated by the Company, the Company could be liable under CERCLA for the cost
of removing such hazardous substances at the site, remediation of contaminated
soil or groundwater, and for damages to natural resources, even if those
substances were deposited at the Company's facilities before the Company
acquired or operated them. A finding of such liability could have a material
adverse impact on the Company's business and financial condition. See
"Business -- Insurance and Financial Assurance Obligations."
Under CERCLA, the Company may not be liable for the remediation of a
disposal site that was never owned or operated by the Company ("third party
site") containing hazardous substances transported to such site by the Company
if the site was selected by the generator of the hazardous substance. However,
the Company would be responsible for any hazardous substances during actual
transportation. Also, the Company could be liable under CERCLA for environmental
contamination at a third party site caused by the release of hazardous
substances transported by the Company where the Company selected the disposal
site. CERCLA imposes liability for certain environmental response measures upon
transporters who selected the disposal site at which a release or threatened
release of hazardous substances occurs. It therefore is common in the solid
waste transport business to receive information requests from the EPA about
transporting activities to disposal sites. The Company has received information
requests regarding transporting activities to its own disposal sites as well as
third party sites. The environmental agencies or other potentially responsible
parties could assert that the Company is liable for environmental response
measures arising out of disposal at a third party site that was selected by the
Company, a waste transporter acquired by the Company, or a waste transporter
with whom the Company contracted.
Traditionally, in most states, purchasers of assets have not acquired the
liabilities of the seller unless explicitly agreeing to do so. A trend
developing in federal courts is the expansion of the number of entities liable
under Superfund. Some Federal courts have ruled that because of the "broad
remedial purposes" of Superfund, asset purchasers should be liable for the
activities of the seller. Over the years, the Company has acquired assets from a
significant number of sellers whose liabilities were not considered at the time
of the transaction. This developing trend could materially increase the
Company's Superfund exposure. The Company is vigorously resisting this change
both judicially and legislatively.
Several bills have been introduced in the United States Congress to
reauthorize and substantially amend CERCLA. In addition to possible changes in
the statute's funding mechanisms and provisions for allocating
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cleanup responsibility, Congress may also fundamentally alter the statute's
provisions governing the selection of appropriate site remedial action. In this
regard, new approaches to cleanup, removal, treatment, and remediation of
hazardous substance releases may be adopted which rely on nationally or
site-specific risk based standards. These types of policy changes could
significantly affect the stringency and extent of site remediation, the types of
remediation techniques employed, and the types of waste management facilities
that may be used for the treatment and disposal of hazardous substances.
Congress may additionally consider revision of the liability imposed by CERCLA
on current owners of property for contamination caused prior to a party's
acquisition of a site. This consideration could potentially reduce
responsibility for remediation obligations under CERCLA that the Company could
otherwise incur.
WM International
The Company's WM International operations are subject to the general
business, liability, land-use planning and other environmental laws and
regulations of the countries where the services are performed and, in Europe, to
European Union ("EU") regulations and directives. The degree of local
enforcement of applicable laws and regulations varies substantially between, and
even within, the various countries where the Company has WM International
operations. The Company has WM International operations in many countries that
are members of the EU, which has issued and continues to issue environmental
directives and regulations covering a broad range of environmental matters and
has created a European Environmental Agency responsible for monitoring and
collating member state environmental data. The Single European Act, passed in
1987, established three fundamental principles to guide the development of
future EU environmental law: (i) the need for preventative action; (ii) the
correction of environmental problems at the source; and (iii) the polluter's
liability for environmental damage.
The Treaty on European Union, signed in December 1991, came into force in
November 1993. Revised in Amsterdam in June 1997, the Treaty now regards
"sustainable development" as a key component of EU policy-making and requires
that environmental protection be integrated into the definition and application
of all EU laws.
The impact of current and future EU legislation will vary from country to
country according to the degree to which existing national requirements already
meet or fall short of the new EU standards and, in some jurisdictions, may
require extensive public and private sector investment and the development and
provision of the necessary technology, expertise, administrative procedures and
regulatory structures. These extensive laws and regulations are continually
evolving in response to technological advances and heightened public and
political concern.
Outside Europe, continuing industrialization, population expansion and
urbanization have caused increased levels of pollution with all of the resultant
social and economic implications. The desire to sustain economic growth and
address historical pollution problems is being accompanied by investments in
environmental infrastructure and the introduction of regulatory standards to
further control industrial activities.
The Company believes that its WM International operations are conducted in
material compliance with applicable laws and regulations and does not anticipate
that maintaining such compliance will adversely affect the Company's
consolidated financial statements or operations. There can be no assurance,
however, that such requirements will not change so as to require significant
additional expenditures or operating costs.
State and Local Regulation
The states in which the Company operates have their own laws and
regulations that may be more strict than comparable federal laws and regulations
governing hazardous and nonhazardous solid waste disposal, water and air
pollution, releases and cleanup of hazardous substances and liability for such
matters. The states also have adopted regulations governing the siting, design,
operation, maintenance, final closure, and post-closure maintenance of landfills
and transfer stations. The Company's facilities and operations are likely to be
subject to many, if not all, of these types of requirements. In addition, the
Company's collection and landfill operations may be affected by the trend in
many states toward requiring the development of waste reduction and recycling
programs. For example, several states have enacted laws that require counties to
adopt
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comprehensive plans to reduce, through waste planning, composting, recycling, or
other programs, the volume of solid waste deposited in landfills. Additionally,
the disposal of yard waste in solid waste landfills has been banned in several
states. Legislative and regulatory measures to mandate or encourage waste
reduction at the source and waste recycling have also been considered from time
to time by the United States Congress and the EPA.
Various states have enacted, or are considering enacting, laws that
restrict the disposal within the state of hazardous and nonhazardous solid waste
generated outside the state. While laws that overtly discriminate against
out-of-state waste have been found to be unconstitutional, some laws that are
less overtly discriminatory have been upheld in court. Additionally, certain
state and local governments have enacted "flow control" regulations, which
attempt to require that all waste generated within the state or local
jurisdiction be deposited at specific disposal sites. In May 1994, the United
States Supreme Court ruled that a flow control ordinance was unconstitutional.
However, from time to time, the United States Congress has considered
legislation authorizing states to adopt regulations, restrictions, or taxes on
the importation of extraterritorial waste, and granting states and local
governments authority to enact partial flow control legislation. To date, such
congressional efforts have been unsuccessful. The United States Congress'
adoption of such legislation allowing for restrictions on importation of
extraterritorial waste or certain types of flow control, or the adoption of
legislation affecting interstate transportation of waste at the federal or state
level, could adversely affect the Company's solid waste management services,
including collection, transfer, disposal, and recycling operations, and in
particular the Company's ability to expand landfill operations acquired in
certain areas.
Many states and local jurisdictions in which the Company operates have
enacted "fitness" laws that allow agencies having jurisdiction over waste
services contracts or permits to deny or revoke such contracts or permits on the
basis of an applicant's (or permit holder's) compliance history. Some states and
local jurisdictions go further and consider the compliance history of the
parent, subsidiaries or affiliated companies, in addition to the applicant.
These laws authorize the agencies to make determinations of an applicant's
fitness to be awarded a contract or to operate and to deny or revoke a contract
or permit because of unfitness absent a showing that the applicant has been
rehabilitated through the adoption of various operating policies and procedures
put in place to assure future compliance with applicable laws and regulations.
FACTORS INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD-LOOKING STATEMENTS
In the normal course of its business, the Company, in an effort to help
keep its stockholders and the public informed about the Company's operations,
may from time to time issue or make certain statements, either in writing or
orally, that are or contain forward-looking statements, as that term is defined
in the United States federal securities laws. Generally, these statements relate
to business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, projected or anticipated benefits from
acquisitions made by or to be made by the Company, or projections involving
anticipated revenues, earnings, or other aspects of operating results. The words
"may," "should," "expect," "believe," "anticipate," "project," "estimate," their
opposites and similar expressions are intended to identify forward-looking
statements. The Company cautions readers that such statements are not guarantees
of future performance or events and are subject to a number of factors that may
tend to influence the accuracy of the statements and the projections upon which
the statements are based, including but not limited to those discussed below. As
noted elsewhere in this report, all phases of the Company's operations are
subject to a number of uncertainties, risks, and other influences, many of which
are outside the control of the Company, and any one of which, or a combination
of which, could materially affect the Company's financial statements and
operations and whether forward-looking statements made by the Company ultimately
prove to be accurate.
The following discussion outlines certain factors that could affect the
Company's financial statements for 2000 and beyond and cause them to differ
materially from those that may be set forth in forward-looking statements made
by or on behalf of the Company.
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Uncertainties Relating to Pending Litigation and Investigations
The Company faces uncertainties relating to pending litigation and
investigations. See "Legal Proceedings." The Company is unable to predict the
outcome or impact of these matters and there can be no assurance that they will
not have a material adverse effect on the Company and its operations.
Accounting Charges Have Negatively Impacted Reported Financial Results, Have
Resulted in the Charges Related to the Impairment of the Value of Certain
Assets and May Reflect Decreases in Future Cash Flows
During 1999, the Company initiated a comprehensive internal review of its
accounting records, systems, processes and controls at the direction of the
Board of Directors. As a result of this review, the Company recorded certain
charges and adjustments in the third quarter of 1999 totaling $1.23 billion
after tax. Because of the size of the charges, generally accepted accounting
principles require the Company to attempt to determine whether portions of the
charges apply to prior periods. While the Company believes that certain of these
charges may have related to prior periods, it does not have sufficient
information to identify all specific charges attributable to prior periods.
Producing the information required to identify these charges would be cost
prohibitive and disruptive to the Company's operations. Additionally, the
Company concluded, based on its quantitative and qualitative analysis of
available information, after consultation with its independent public
accountants, that it did not have, nor was it able to obtain, sufficient
information to conclude what amount of the charges relate to any individual
prior year, although qualitative analysis indicates that these charges are
principally related to 1999. Accordingly, the Company has concluded that these
charges are appropriately reflected in the 1999 annual financial statements.
Some of the charges and adjustments recorded in 1999, such as certain
increases in insurance reserves, environmental reserves, loss contract
provisions and adjustments resulting from completing account reconciliations,
are recurring in nature, and should therefore be expected to occur in future
periods. Additionally, certain of these charges and adjustments, including
receivables-related adjustments and insurance reserves, could have an impact on
future cash flows.
Because some of the charges discussed above affect account balances
applicable to periods prior to the third quarter 1999, the Company concluded,
after consultation with its independent public accountants, that its internal
controls for the preparation of interim financial information did not provide an
adequate basis for its independent public accountants to complete reviews of the
quarterly financial data for the quarters in 1999.
The Company has taken steps to stabilize its accounting systems and its
internal control environment. However, there can be no assurances that there
will not be any additional material adjustments based on future events or that
the Company will be able to successfully stabilize its accounting systems and
procedures; any such failure could result in additional material charges and
adjustments in the future. See "Management's Discussion and Analysis -- 1999
Accounting Charges and Adjustments."
The Company May Encounter Difficulties in Implementing its Strategic Plan
The Company's ability to successfully implement its strategic plan may be
affected by 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 transactions. The success of the
strategic plan could also be affected by the availability of financing and
uncertainties relating to the impact of the proposed strategic plan on the
Company's credit ratings and, consequently, the availability and cost of debt
and equity financing to the Company.
Potential Difficulties in Continuing to Manage Growth
The Company has experienced rapid growth, primarily through acquisitions.
The Company's future financial results and prospects depend in large part on its
ability to successfully manage and improve the operating efficiencies and
productivity of these acquired operations. In particular, whether the
anticipated benefits of acquired operations are ultimately achieved will depend
on a number of factors, including the
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ability of the Company to achieve administrative cost savings, rationalization
of collection routes, insurance and bonding cost reductions, general economies
of scale, and the ability of the Company, generally, to capitalize on its asset
base and strategic position. Moreover, the ability of the Company to operate
successfully will depend on a number of factors, including competition from
other waste management companies, availability of working capital, ability to
maintain margins on existing or acquired operations, and the management of costs
in a changing regulatory environment. There can be no assurance that the Company
will be able to successfully manage its growth or that the historic pace of its
growth will not adversely affect its existing or acquired operations.
Potential Risks of Acquisition Strategy
The Company has regularly pursued opportunities to expand through the
acquisition of additional waste management businesses and continues to pursue
operations that can be effectively integrated with the Company's existing
operations. In addition, the Company has historically pursued mergers and
acquisition transactions, several of which have been significant, in new areas
where the Company believes that it can successfully become a provider of
integrated waste management services.
The Company's acquisition strategy involves certain potential risks, which
are continuing. These include the risk that the Company may not accurately
assess all of the pre-existing liabilities of acquired companies and that the
Company may encounter unexpected difficulties in successfully integrating the
operations of acquired companies with the Company's existing operations.
International Operations
Operations in foreign countries generally are subject to a number of risks
inherent in any business operating in foreign countries, including political,
social, economic instability and inflation, general strikes, nationalization of
assets, currency restrictions and exchange rate fluctuations, nullification,
modification or renegotiation of contracts, and governmental regulation, all of
which are beyond the control of the Company. No prediction can be made as to how
existing or future foreign governmental regulations in any jurisdiction may
affect the Company in particular or the waste management industry in general. As
part of its strategic plan, the Company is pursuing the divestiture of its WM
International operations. See "Business -- WM International."
Capital Requirements; Indebtedness Under Credit Facilities
The Company expects to generate sufficient cash flow from its operations in
2000 to cover its anticipated cash needs for capital expenditures and
acquisitions. If the Company's cash flow from operations during 2000 is less
than currently expected, or if the Company's capital requirements increase,
either due to strategic decisions or otherwise, the Company may elect to incur
future indebtedness to cover any additional capital needs. However, there can be
no assurance that the Company will be successful in obtaining additional capital
on acceptable terms through such debt incurrences.
The Company's current credit facilities require the Company to maintain
compliance with certain financial ratios. If the Company's cash flows from
operations are less than expected or the Company's capital requirements
increase, the Company may not be in compliance with such ratios, resulting in a
default under the credit agreements. If any such default occurs, the Company may
not be able to obtain waivers or secure amendments to the facilities, and the
lenders could elect to declare all borrowings outstanding to be due and payable.
If the Company's indebtedness under its credit facilities were to be
accelerated, there can be no assurances that the Company could repay such
indebtedness in full. Since the Company is partially dependent on the credit
facilities to fund its borrowing needs, any such default would have a material
adverse effect on the Company's financial condition and results of operations.
There can also be no assurances that the Company will be successful in
renewing its existing credit facility, which must be renewed annually, or that
any such renewal will be on terms acceptable to the Company. Any failure by the
Company to successfully renew its existing credit facility, or to obtain other
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financing sources, could have a material adverse effect on the Company's
operations and financial statements. See Note 6 to the financial statements
included elsewhere herein.
The Company has historically used variable rate debt under revolving bank
credit arrangements as one method of financing. Although recent financings by
the Company have reduced the amount of variable rate debt as a percentage of
total indebtedness outstanding, the Company intends to continue to use variable
rate debt as a financing alternative. To the extent that variable interest rates
fluctuate as general interest rates change, an increase in interest rates could
have a material adverse effect on the Company's earnings in the future.
Effect of Competition on Profitability
The waste management industry is highly competitive. In North America, the
industry consists of several large national waste management companies, and
numerous local and regional companies of varying sizes and financial resources.
The Company competes with numerous waste management companies and with counties
and municipalities that maintain their own waste collection and disposal
operations. These counties and municipalities may have financial competitive
advantages because tax revenues and tax-exempt financing are available to them.
In addition, competitors may reduce their prices to expand sales volume or to
win competitively bid municipal contracts. Profitability may decline because of
the national emphasis on recycling, composting, and other waste reduction
programs that could reduce the volume of solid waste collected or deposited in
disposal facilities.
Although the Company is a leading provider of waste management and related
services outside of North America, the Company does not believe that any
non-governmental entity accounts for a material portion of the very
decentralized, highly fragmented international business. In some areas, however,
the Company competes with substantial, well-capitalized companies which hold
significant market shares, particularly in Finland, Germany, The Netherlands,
Sweden and the United Kingdom. The international waste management and related
services industry is highly competitive and certain aspects require substantial
human and capital resources. The Company encounters intense competition from
governmental, quasi-governmental and private sources in all aspects of its
international operations. However, as part of its strategic plan, the Company
has determined to divest its international operations. See "Business -- WM
International."
Capitalized Expenditures
In accordance with generally accepted accounting principles, the Company
capitalizes certain expenditures and advances relating to acquisitions, pending
acquisitions, and disposal site development and expansion projects. The Company
expenses indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, as incurred.
The Company's policy is to charge against earnings any unamortized capitalized
expenditures and advances relating to any facility or operation that is
permanently shut down, any pending acquisition that is not consummated, and any
disposal site development or expansion project that is not completed. The charge
against earnings is reduced by any portion of the capitalized expenditure and
advances that the Company estimates will be recoverable, through sale or
otherwise. In future periods, the Company may be required to incur a charge
against earnings in accordance with such policy. Depending on the magnitude of
any such charge, it could have a material adverse effect on the Company's
financial statements.
Restrictions and Costs Associated with Government Regulation
The Company's operations are substantially affected by stringent government
regulations at the federal, state and local level in the United States and in
other countries. These laws, rules, orders and interpretations govern
environmental protection, health and safety, land use, zoning, and other
matters. They may impose restrictions on operations that could adversely affect
the Company's results of operations and financial condition, such as limitations
on the expansion of waste disposal, transfer or processing facilities,
limitations or bans on disposal of out-of-state waste or certain categories of
waste, or mandates regarding the disposal of solid waste. In order to develop,
expand or operate a landfill or other waste management facility, the Company
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must obtain and maintain in effect various facility permits and other
governmental approvals, including those relating to zoning, environmental
protection and land use. These permits and approvals are difficult, time
consuming and costly to obtain, in part because of possible opposition by
governmental officials or citizens. In addition, these permits and approvals may
contain conditions that limit operations and the Company's ability to change the
facility.
There can be no assurance that the Company will be successful in obtaining
and maintaining in effect permits and approvals required for the successful
operation and growth of its business, including permits and approvals for the
development of additional disposal capacity needed to replace existing capacity
that is exhausted. The siting, design, operation and closure of landfills are
also subject to extensive regulations. These regulations could also require the
Company to undertake investigatory or remedial activities, to curtail operations
or to close a landfill temporarily or permanently. Future changes in these
regulations may require the Company to modify, supplement, or replace equipment
or facilities at costs which could be substantial.
In the United States, court decisions have ruled that state and local
governments may not use regulatory flow control laws constitutionally to
restrict the free movement of waste in interstate commerce. The Company cannot
predict what impact, if any, these decisions will have on its disposal
facilities. See "Regulation."
Potential Environmental Liability and Insurance
The Company could be liable if its disposal facilities, transfer stations,
and collection operations cause environmental damage to the Company's properties
or to nearby landowners, particularly as a result of the contamination of
groundwater sources or soil, including damage resulting from conditions existing
prior to the acquisition of such assets or operations. Also, the Company could
be liable for any off-site environmental contamination caused by hazardous
substances, the transportation, disposal or treatment of which was arranged for
by the Company or predecessor owners where the Company is liable as a successor
to such prior owners. Any substantial liability for environmental damage could
materially adversely affect the operating results and financial condition of the
Company.
In the ordinary course of its business, the Company may become involved in
a variety of legal and administrative proceedings relating to land use and
environmental laws and regulations. These may include proceedings by foreign,
federal, state or local agencies seeking to impose civil or criminal penalties
on the Company for violations of such laws and regulations, or to impose
liability on the Company under applicable statutes, or to revoke or deny renewal
of a permit; actions brought by citizens groups, adjacent landowners or
governmental agencies opposing the issuance of a permit or approval to the
Company or alleging violations of the permits pursuant to which the Company
operates or laws or regulations to which the Company is subject; and actions
seeking to impose liability on the Company for any environmental damage at its
owned or operated facilities (or at facilities formerly owned by the Company or
its predecessors or facilities at which the Company or its predecessors arranged
for the disposal of hazardous substances) or damage that those facilities or
other properties may have caused to adjacent landowners or others, including
groundwater or soil contamination. The adverse outcome of one or more of these
proceedings could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
During the ordinary course of operations, the Company has from time to time
received, and expects that it may in the future receive, citations or notices
from governmental authorities that its operations are not in compliance with its
permits or certain applicable environmental or land use laws and regulations.
The Company generally seeks to work with the authorities to resolve the issues
raised by such citations or notices. There can be no assurance, however, that
the Company will always be successful in this regard or that such future
citations or notices will not have a materially adverse effect on the Company's
financial position, results of operations or cash flows. See "Regulation."
The Company's insurance for environmental liability meets or exceeds
statutory requirements. However, because the Company believes that the cost for
such insurance is high relative to the coverage it would provide, such coverages
are generally maintained at statutorily required levels. Due to the limited
nature of such insurance coverage for environmental liability, if the Company
were to incur liability for environmental
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damage, such liability could have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Alternatives to Landfill Disposal and Waste-to-Energy Facilities
Alternatives to disposal, such as recycling and composting, are
increasingly being used. There also has been an increasing trend to mandate
recycling and waste reduction at the source and to prohibit the disposal of
certain types of wastes, such as yard wastes, at landfills or waste-to-energy
facilities. These developments could reduce the volume of waste going to
landfills and waste-to-energy facilities in certain areas, which may affect the
Company's ability to operate its landfills and waste-to-energy facilities at
full capacity, and the prices that can be charged for landfill disposal and
waste-to-energy services.
Dependence on Key Personnel; Changes in Management
The Company's business is partially dependent upon the performance of
certain of its executive officers. The Company has entered into employment
agreements with its executive officers. Notwithstanding such agreements, there
can be no assurance that the Company will be able to retain such officers or
that it will be able to enforce non-compete provisions that are contained in
such agreements in the event of their departure. The loss of the services of the
Company's management could have a material adverse effect upon the Company.
There can be no assurance that the Company will be able to attract and retain
qualified individuals to serve in senior management positions. The Company is in
the process of establishing a formalized management succession plan to prepare
itself in the event of an unexpected departure.
Recyclable Materials Price Fluctuations
Recyclable materials processed by the Company for sale include paper,
plastics, aluminum and other commodities which are subject to significant price
fluctuations. These fluctuations will affect the Company's future operating
revenues and income.
Matters Related to WM Holdings Accounting Practices
The United States Securities and Exchange Commission has commenced a formal
investigation with respect to WM Holdings' previously filed financial statements
(which were subsequently restated) and the related accounting policies,
procedures and system of internal controls. The Company is fully cooperating
with such investigations. Additionally, several lawsuits and claims have been
filed against WM Holdings and several of its former officers and directors in
connection with the restatement of WM Holdings' financial statements. The
Company is unable to predict the outcome or impact of the investigation, some
previously filed lawsuits or any future lawsuits or claims arising out of the
restatement at this time. Any such outcome or impact could have a material
adverse effect on the Company's financial position, results of operations or
cash flows. See "Legal Proceedings."
Seasonality
The Company's operating revenues are usually lower in the winter months
primarily because the volume of waste relating to construction and demolition
activities usually increases in the spring and summer months, and the volume of
industrial and residential waste in certain regions where the Company operates
usually decreases during the winter months. The Company's first and fourth
quarter results of operations typically reflect this seasonality.
ITEM 2. PROPERTIES.
The principal property and equipment of the Company consists of land
(primarily disposal sites), buildings, waste treatment or processing facilities
(other than disposal sites) and vehicles and equipment. The Company owns or
leases real property in most locations in which it is doing business. Excluding
the landfills that the Company had held for sale at December 31, 1999, the
Company owned and operated through lease agreements 245 active disposal sites in
North America, which aggregated approximately 136,100 acres of land,
24
<PAGE> 27
including approximately 29,400 permitted acres and 6,800 acres for which the
Company considers as probable expansion acreage for landfill use. Additionally,
the Company operates 49 disposal sites through agreements with municipalities.
At December 31, 1999, the Company had for sale an additional 62 disposal sites,
consisting of 28 sites in its NASW operations and 34 sites operated through its
WM International operations. The sites in North America which were held for sale
at December 31, 1999 aggregated approximately 5,400 total acres, of which
approximately 2,100 acres were permitted for landfill use. Furthermore, the
Company owned or operated through agreements 23 waste-to-energy facilities in
North America as of December 31, 1999.
The Company leases approximately 207,000 square feet of office space in
Houston, Texas, for its executive offices under leasing arrangements expiring
through 2008. For the year ended December 31, 1999, aggregate annual rental
payments were approximately $137.7 million.
The Company owns approximately 47,000 items of equipment, including waste
collection vehicles and related support vehicles, as well as bulldozers,
compactors, earth movers, and other related heavy equipment and vehicles used in
landfill operations. The Company has approximately 2.7 million steel containers
in use, ranging from one to 45 cubic yards, and a number of stationary
compactors and self-dumping hoppers.
The Company believes that its vehicles, equipment, and operating properties
are well maintained and adequate for its current operations. However, the
Company expects to make substantial investments in additional equipment and
property for expansion, for replacement of assets, and in connection with future
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ITEM 3. LEGAL PROCEEDINGS.
In November and December 1997, several alleged purchasers of WM Holdings
securities (including but not limited to common stock), who allegedly bought
their securities during 1996 and 1997, brought 14 purported class action
lawsuits against WM Holdings and several of its current and former officers and
directors in the United States District Court for the Northern District of
Illinois. Each of these lawsuits asserted that the defendants violated the
federal securities laws by issuing allegedly false and misleading statements in
1996 and 1997 about WM Holdings' financial condition and results of operations.
In January 1998, the 14 putative class actions were consolidated before one
judge and 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. In July 1998, the class plaintiffs filed an amended
complaint against WM Holdings, its outside auditor, and five of WM Holdings'
former officers. The amended complaint sought recovery on behalf of a proposed
class of all purchasers of WM Holdings' securities between May 29, 1995, and
October 30, 1997. The amended complaint alleged, among other things, that WM
Holdings filed false and misleading financial statements beginning in 1991 and
continuing through October 1997 and sought recovery for alleged violations of
the federal securities laws between May 1995 and October 1997.
In December 1998, the Company announced an agreement to settle the
consolidated action against all defendants and the establishment of a settlement
fund of $220 million for the class of open market purchasers of WM Holdings
securities between November 3, 1994, and February 24, 1998. On September 17,
1999, the United States District Court for the Northern District of Illinois
gave final approval to the settlement after a hearing. There were no objections
to the fairness or adequacy of the settlement fund.
In January 2000, the Company settled two actions, one pending in Illinois
State court and the other in Florida Federal court, arising out of the same set
of facts as the above federal action brought by open market purchasers of WM
Holdings' securities.
Additionally, there are several other actions and claims, which arise out
of the same set of facts, that have been brought by business owners who received
WM Holdings common stock in the sales of their businesses to WM Holdings. These
actions and claims allege, among other things, breach of warranty or breach of
contract based on WM Holdings' restatement of earnings in February 1998. In
April 1999, courts having jurisdiction over two such actions granted summary
judgment against WM Holdings and in favor of the individual plaintiffs who
brought the respective claims on the issue of breach of contract. Additionally,
in October 1999,
25
<PAGE> 28
the court in one of these actions 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. The Company has
appealed that decision and the appeal is pending. The extent of damages, if any,
in this class action has not yet been determined. The Company, however, has
settled or resolved four, separate stock-for-asset disputes that otherwise would
have been part of the above class, as currently defined, including the
individual action identified above in which summary judgment was entered against
WM Holdings.
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, where
plaintiff is seeking a remand 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. This 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 20 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 13, 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
26
<PAGE> 29
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 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.
In November 1999, an action was filed in Oregon state court by individuals
who received Company common stock in the sale of their business to the Company.
For reasons similar to those alleged in the class actions described in the
preceding paragraph, these individuals allege that the stock they received was
overvalued. The case is in an early stage and the extent of possible damages, if
any, has 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 Court of Chancery of the State of Delaware 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 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.
On December 29, 1999, the Company sued Louis D. Paolino, former President
and Chief Executive Officer of Eastern Environmental Services, Inc. ("Eastern"),
and others in federal court in Delaware in connection with the Company's merger
with Eastern in December 1998 (the "Eastern Merger"). The Company alleges, among
other things, that defendants artificially inflated the revenues of Eastern by
employing improper accounting practices and usurped Eastern corporate
opportunities for personal gain. The Company alleges that the inflated Eastern
financials caused the Company to pay substantially more than Eastern was worth.
The defendants in this case have not yet filed a response to the complaint.
In a related matter, on December 31, 1999, Louis D. Paolino and others sued
the Company and unnamed defendants in Philadelphia for securities fraud in
connection with the Eastern Merger. Plaintiffs allege that the Company's stock
that 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. As
none of the defendants has been served in this action, no responsive pleadings
have yet been filed.
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 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.
The Company has also received a letter from participants in the Company's
Employee Stock Purchase Plan (the "ESPP") who purchased the Company's common
stock on June 30, 1999. The letter demands that the Administrative Committee of
the ESPP bring an action against the Company and certain selling officers and
directors for losses allegedly sustained by the participants in their stock
purchases. These ESPP participants stated in the letter that, absent action by
the Administrative Committee of the ESPP, they intended to sue the Company and
the directors and officers on behalf of the ESPP and its participants. The
Administrative Committee of the ESPP has advised these participants that it
cannot file suit, as requested, because the committee is neither a
representative of the plan nor a Waste Management shareholder. The
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<PAGE> 30
Company has not received any further communication from these participants.
However, the Company does not believe that this claim, if pursued, would have a
material adverse effect on the Company's financial statements.
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. Defendants' time to move, answer or otherwise respond to the complaint
has been extended, and no proceedings have yet occurred.
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
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<PAGE> 31
primarily to waste treatment, storage or disposal facilities. As of December 31,
1999, there were six 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 CERCLA or Superfund, as amended. 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 Federal Bureau of
Investigation ("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 December 31, 1999, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 84 locations
listed on the NPL. Of the 84 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
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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 67 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 impact 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 Wheelabrator's BioGro business unit. The litigation is currently in the
discovery phase, and the Company is waiting for plaintiff's production of a
court-ordered expert on causation. The Company is vigorously defending itself in
the litigation.
The Company has been advised by the United States Department of Justice
that Laurel Ridge Landfill, Inc., a wholly owned subsidiary of the Company as a
result of the merger with United Waste Systems, Inc. ("United") in August 1997
(the "United Merger"), allegedly committed certain violations of the Clean Water
Act at the Laurel Ridge Landfill in Kentucky. The alleged activities occurred
prior to the United Merger. In May 1999, the Company pleaded guilty to a
criminal misdemeanor and was sentenced in November 1999 to pay a fine of
$100,000 and perform in kind services valued at $1.0 million.
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
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<PAGE> 33
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.
No matters were submitted to the stockholders of the Company during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol "WMI." The following table sets forth the range of the
high and low per share sales prices for the common stock as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
First Quarter............................................. $46.88 $34.44
Second Quarter............................................ 50.00 44.69
Third Quarter............................................. 58.19 42.88
Fourth Quarter............................................ 48.88 35.25
1999
First Quarter............................................. $53.50 $41.88
Second Quarter............................................ 60.00 44.75
Third Quarter............................................. 55.44 18.13
Fourth Quarter............................................ 19.75 14.00
2000
First Quarter (through March 15, 2000).................... $18.50 $13.00
</TABLE>
On March 15, 2000, the closing sale price as reported on the NYSE was
$13.25 per share. The number of holders of record of common stock based on the
transfer records of the Company at March 15, 2000, was 30,543.
As of December 31, 1999, the Company is limited in its ability to pay
dividends pursuant to its current credit agreements to amounts not to exceed
$25.0 million per year. The Company declared and paid cash dividends of $0.01
per share, or approximately $6.2 million during 1999. See Note 10 to the
financial statements included elsewhere herein.
The Company effected the following unregistered sale of its securities
during the twelve months ended December 31, 1999 that was not previously
included in the Company's Quarterly Reports filed for such period. The
securities sold in the transaction referred to below were not registered under
the Securities Act of 1933, as amended, pursuant to the exemption provided under
Section 4(2) thereof for transactions not involving a public offering:
On September 13, 1999, the Company granted to Roderick M. Hills, a member
of the Company's Board of Directors and Chairman of the Board of Directors'
Audit Committee, 35,000 shares of restricted stock for extraordinary services
performed by Mr. Hills in 1999.
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<PAGE> 34
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information as of December 31, 1999 and
1998, and for each of the years in the three year period ended December 31,
1999, has been derived from the audited financial statements of the Company
included elsewhere herein. This information should be read in conjunction with
such financial statements and related notes thereto. The selected financial
information as of December 31, 1997, 1996 and 1995, and for each of the years in
the two year period ended December 31, 1996, has been derived from audited
financial statements, that have been previously included in the Company's
reports under the Securities Exchange Act of 1934 (the "Exchange Act"), restated
for certain pooling of interests transactions that are not included herein. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues................................. $13,126,920 $12,625,769 $11,972,498 $10,998,602 $10,432,775
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Operating (exclusive of depreciation and
amortization shown below)...................... 8,269,021 7,283,251 7,482,273 6,564,234 6,261,745
General and administrative....................... 1,920,309 1,332,736 1,438,501 1,316,480 1,279,719
Depreciation and amortization.................... 1,614,165 1,498,712 1,391,810 1,264,196 1,186,492
Merger costs and acquisition related............. 44,634 1,807,245 112,748 126,626 26,539
Asset impairments and unusual items.............. 738,837 864,063 1,771,145 529,768 394,092
(Income) loss from continuing operations held for
sale, net of minority interest................... -- 151 9,930 (315) (25,110)
----------- ----------- ----------- ----------- -----------
12,586,966 12,786,158 12,206,407 9,800,989 9,123,477
----------- ----------- ----------- ----------- -----------
Income (loss) from operations...................... 539,954 (160,389) (233,909) 1,197,613 1,309,298
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense................................. (769,655) (681,457) (555,576) (525,340) (534,964)
Interest income.................................. 38,497 26,829 45,214 34,603 41,565
Minority interest................................ (24, 181) (24,254) (45,442) (41,289) (81,367)
Other income, net................................ 52,653 139,392 127,216 108,645 257,773
----------- ----------- ----------- ----------- -----------
(702,686) (539,490) (428,588) (423,381) (316,993)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations before
income taxes..................................... (162,732) (699,879) (662,497) 774,232 992,305
Provision for income taxes......................... 232,319 66,923 363,341 486,700 493,375
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations........... (395,051) (766,802) (1,025,838) 287,532 498,930
Income (loss) from discontinued operations......... -- -- 95,688 (263,301) 4,863
Extraordinary item................................. (2,513) (3,900) (6,809) -- --
Accounting change.................................. -- -- (1,936) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $ (397,564) $ (770,702) $ (938,895) $ 24,231 $ 503,793
=========== =========== =========== =========== ===========
Basic earnings (loss) per common share:
Continuing operations............................ $ (0.64) $ (1.31) $ (1.84) $ 0.54 $ 0.99
Discontinued operations.......................... -- -- 0.17 (0.49) 0.01
Extraordinary item............................... (0.01) (0.01) (0.01) -- --
Accounting change................................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ (0.65) $ (1.32) $ (1.68) $ 0.05 $ 1.00
=========== =========== =========== =========== ===========
Diluted earnings (loss) per common share:
Continuing operations............................ $ (0.64) $ (1.31) $ (1.84) $ 0.53 $ 0.97
Discontinued operations.......................... -- -- 0.17 (0.49) 0.01
Extraordinary item............................... (0.01) (0.01) (0.01) -- --
Accounting change................................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ (0.65) $ (1.32) $ (1.68) $ 0.04 $ 0.98
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit).......................... $(1,268,910) $ (412,269) $(1,967,278) $ (258,210) $(1,027,093)
Intangible assets, net............................. 5,356,677 6,250,324 4,848,176 4,681,381 4,329,909
Total assets....................................... 22,681,424 22,882,164 20,156,424 20,727,524 19,950,426
Long-term debt, including current maturities....... 11,498,088 11,732,361 9,479,961 9,064,566 8,404,034
Stockholders' equity............................... 4,402,612 4,372,496 3,854,929 5,201,610 5,184,104
</TABLE>
32
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the Company's operations for the three years
ended December 31, 1999 should be read in conjunction with the Company's
financial statements and related notes thereto included elsewhere herein.
The discussion below and elsewhere in this Form 10-K 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," "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 relating 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 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
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.
33
<PAGE> 36
- 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.
- 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 WM International operations, its non-core assets
and up to 10% of its 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 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.
34
<PAGE> 37
The Company's diversified customer base for its NASW operations, was
approximately 27 million customers as of December 31, 1999. This customer base
includes commercial, industrial, municipal and residential customers, other
waste management companies, governmental entities and independent power markets,
with no single customer accounting for more than 5% of the Company's operating
revenues during 1999. The Company employed approximately 75,000 people as of
December 31, 1999 of which approximately 55,000 related to its NASW operations.
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 related insurance costs, as well as costs related to the
Company's marketing and sales force.
Depreciation and amortization include (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;
35
<PAGE> 38
- 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.
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 34 landfill locations at December 31, 1999 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 receiving approvals for 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.
1999 Accounting Charges and Adjustments
During 1999, the Company initiated a comprehensive internal review of its
accounting records, systems, processes and controls at the direction of its
Board of Directors. As discussed below, and in Note 2 to the financial
statements, the Company experienced significant difficulty in the integration
and conversion of information and accounting systems subsequent to the WM
Holdings Merger, including certain financial systems and its billing systems. As
a result of these systems and process issues, and other issues raised during the
1999 accounting review, certain charges and adjustments were recorded, as
discussed below. The review was completed in time such that the Company was able
to record related adjustments in its financial statements for the quarter ended
September 30, 1999. The amounts recorded by the Company as a result of the
review had a material effect on its financial statements for the year ended
December 31, 1999. The following is a summary of charges attributable to this
review which were recorded for the quarter ended September 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Held for sale adjustments................................... $ 414,275
Increase to allowance for doubtful accounts and other
accounts receivable adjustments........................... 211,483
Asset impairments (excluding held for sale adjustments)..... 178,309
Insurance reserves and other insurance adjustments.......... 147,868
Legal, severance and consulting accruals.................... 141,999
Merger and acquisition related costs........................ 31,568
Other charges and adjustments, including:
Account reconciliations................................... 347,668
Loss contract reserve adjustments......................... 49,338
Increase in environmental liabilities..................... 48,983
Other..................................................... 191,026 637,015
------- ----------
Impact of charges before income tax benefit................. 1,762,517
Income tax benefit.......................................... (536,756)
----------
After-tax charges........................................... $1,225,761
==========
</TABLE>
36
<PAGE> 39
The charges described above, which include both recurring and nonrecurring
items that have been aggregated for this presentation, are reflected in the
Company's financial statements for the year ended December 31, 1999, as follows
(in thousands):
<TABLE>
<CAPTION>
ALLOWANCE
FOR DOUBTFUL
ACCOUNTS INSURANCE LEGAL,
AND OTHER RESERVES SEVERANCE MERGER AND
HELD-FOR- ACCOUNTS OTHER AND OTHER AND ACQUISITION
SALE RECEIVABLE ASSET INSURANCE CONSULTING RELATED
ADJUSTMENTS ADJUSTMENTS IMPAIRMENTS ADJUSTMENTS ACCRUALS COSTS
----------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................. $ -- $ (44,164) $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------
Costs and expenses:
Operating (exclusive of
depreciation and amortization
shown below).................... -- -- -- 143,086 -- --
General and administrative........ -- 167,319 -- 4,782 57,599 --
Depreciation and amortization..... -- -- -- -- -- --
Merger and acquisition related
costs........................... -- -- -- -- -- 31,568
Asset impairments and unusual
items........................... 414,275 -- 178,309 -- 84,400 --
Loss from continuing operations
held for sale, net of minority
interest.......................... -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
414,275... 167,319 178,309 147,868 141,999 31,568
--------- --------- --------- --------- --------- --------
Loss from operations............... (414,275) (211,483) (178,309) (147,868) (141,999) (31,568)
--------- --------- --------- --------- --------- --------
Other income (expense)
Interest expense.................. -- -- -- -- -- --
Interest income................... -- -- -- -- -- --
Minority interest................. -- ....... -- -- -- -- --
Other income (expense)............ -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
-- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Loss before income taxes and
extraordinary items............... $(414,275) $(211,483) $(178,309) $(147,868) $(141,999) $(31,568)
========= ========= ========= ========= ========= ========
Benefit from income taxes..........
Net loss...........................
<CAPTION>
TOTAL
OTHER (INCLUDES
CHARGES RECURRING AND
AND NON-RECURRING
ADJUSTMENTS ITEMS)
----------- -------------
<S> <C> <C>
Operating revenues................. $ 13,236 $ (30,928)
--------- -----------
Costs and expenses:
Operating (exclusive of
depreciation and amortization
shown below).................... 423,331 566,417
General and administrative........ 172,029 401,729
Depreciation and amortization..... 59,628 59,628
Merger and acquisition related
costs........................... -- 31,568
Asset impairments and unusual
items........................... 3,300 680,284
Loss from continuing operations
held for sale, net of minority
interest.......................... -- --
--------- -----------
658,288 1,739,626
--------- -----------
Loss from operations............... (645,052) (1,770,554)
--------- -----------
Other income (expense)
Interest expense.................. 702 702
Interest income................... 13,359 13,359
Minority interest................. (288) (288)
Other income (expense)............ (5,736) (5,736)
--------- -----------
8,037 8,037
--------- -----------
Loss before income taxes and
extraordinary items............... $(637,015) (1,762,517)
=========
Benefit from income taxes.......... 536,756
-----------
Net loss........................... $(1,225,761)
===========
</TABLE>
Subsequent to the completion of the accounting review, and in conjunction
with the process of preparing its monthly financial statements during the fourth
quarter of 1999 and on a final basis at December 31, 1999, additional
adjustments attributable to the reconciliation of intercompany accounts, cash,
accounts receivable, fixed assets, accounts payable and certain other accounts
were recorded.
The Company recorded significant adjustments in the third and fourth
quarters of 1999, certain of which affect periods prior to these quarters.
Accordingly, the Company, after consultation with its independent public
accountants, has concluded that its internal controls for the preparation of
interim financial information did not provide an adequate basis for its
independent public accountants to complete reviews of the quarterly financial
data for the quarters during 1999. The Company believes that certain charges
that were recorded in the third and fourth quarters of 1999 may relate to
individual prior periods; however, the Company does not have sufficient
information to identify all specific charges attributable to prior periods. If
identification of all specific charges attributable to individual prior periods
were possible, the Company believes that the reported results of operations
presented in Note 20 to the financial statements for the third and fourth
quarters of 1999 would have been favorably impacted, and the reported results of
operations for the first and second quarters of 1999 would have been adversely
impacted. In connection with the preparation of its third quarter financial
statements, the Company concluded, based on its quantitative and qualitative
analysis of available information, after consultation with its independent
public accountants, that it did not have, nor was it able to obtain, sufficient
information to conclude what amount of the charges relate to any individual
prior year,
37
<PAGE> 40
although qualitative analysis indicates that these charges are principally
related to 1999. Accordingly, the Company has concluded that these charges were
appropriately reflected in the 1999 annual financial statements.
In connection with the comprehensive internal review, the Company
determined that it was necessary to stabilize its accounting systems and
procedures and the maintenance of its books and records, and to establish an
adequate control environment. As an initial step in this process, it contracted
with outside consulting accountants to provide accounting support to assist the
Company's corporate and field financial personnel with the analysis necessary to
prepare the Company's third quarter of 1999 financial statements. These
consulting accountants also provided such assistance in the fourth quarter of
1999 and will continue to do so until the Company has the corporate and field
financial resources needed to provide reasonable assurances that it can comply
with the recordkeeping and internal control requirements applicable to SEC
registrants. Since the third quarter of 1999, the Company has added
approximately 220 staff members to its corporate and field financial personnel,
including approximately 125 employees primarily engaged in receivables
collection and approximately 95 employees engaged in accounting. The Company
cannot estimate, at this time, how long it will take to complete the staffing
and training of its corporate and field financial personnel to perform its
recordkeeping responsibilities adequately without the support of outside
consultants.
In addition, during this same period, the Company began taking systematic
and orderly steps to develop a comprehensive program to address the integrity
and reliability of the Company's reporting of financial information, including
development of a long-term plan that will establish an adequate system of
internal controls. As part of this initiative, the Company formulated, and is in
the process of implementing, policies that establish fundamental principles and
discipline respecting certain key areas, including, among other things,
accounting and control of fixed assets, intercompany balances, revenue
reporting, landfill accounting and account reconciliations. Consistent with its
long-term plan, the Company has begun drafting and adopting policies and
procedures that will establish a foundation for its financial and accounting
functions to support ongoing improvements, and develop and install mechanisms
for directing, controlling and monitoring its accounting and financial
organization. The Company is also evaluating its systems needs with respect to,
among other things, the general ledger, revenue management and payroll. The
Company cannot estimate, at this time, how long it will take to completely
develop and establish an adequate internal control environment.
See Note 2 to the financial statements included elsewhere herein for
additional discussion.
38
<PAGE> 41
RESULTS OF OPERATIONS
Certain reclassifications have been made to prior year amounts in the
financial statements in order to conform to current year presentation.
The following table presents, for the periods indicated, the period to
period change in dollars (in thousands) and percentages for the various
statements of operations line items and for certain supplementary data.
<TABLE>
<CAPTION>
PERIOD TO PERIOD CHANGE
------------------------------------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998 AND
1998 1997
---------------------- ---------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues....................... $ 501,151 4.0% $ 653,271 5.5%
----------- ---------
Costs and expenses:
Operating (exclusive of depreciation
and amortization shown below)....... 985,770 13.5 (199,022) (2.7)
General and administrative............. 587,573 44.1 (105,765) (7.4)
Depreciation and amortization.......... 115,453 7.7 106,902 7.7
Merger and acquisition related costs... (1,762,611) (97.5) 1,694,497 1,502.9
Asset impairments and unusual items.... (125,226) (14.5) (907,082) (51.2)
Income from continuing operations held
for sale, net of minority interest..... (151) (100.0) (9,779) (98.5)
----------- ---------
(199,192) (1.6) 579,751 4.7
----------- ---------
Income (loss) from operations............ 700,343 436.7 73,520 31.4
----------- ---------
Other income (expense):
Interest expense....................... (88,198) (12.9) (125,881) (22.7)
Interest and other income, net......... (75,071) (45.2) (6,209) (3.6)
Minority interest...................... 73 0.3 21,188 46.6
----------- ---------
(163,196) (30.3) (110,902) (25.9)
----------- ---------
Loss from continuing operations before
income taxes........................... 537,147 76.7 (37,382) (5.6)
Provision for income taxes............... 165,396 247.1 (296,418) (81.6)
----------- ---------
Loss from continuing operations.......... 371,751 48.5 259,036 25.3
Discontinued operations.................. -- -- (95,688) (100.0)
Extraordinary item....................... 1,387 35.6 2,909 42.7
Accounting change........................ -- -- 1,936 100.0
----------- ---------
Net loss................................. $ 373,138 48.4% $ 168,193 17.9%
=========== =========
SUPPLEMENTARY DATA:
EBITDA(1)................................ $ 815,796 61.0% $ 180,422 15.6%
</TABLE>
- ---------------
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
See Management's Discussion and Analysis -- Introduction --
1999 Accounting Charges and Adjustments.
39
<PAGE> 42
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>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues........................................ 100.0% 100.0% 100.0%
------ ------ ------
Costs and expenses:
Operating (exclusive of depreciation and
amortization shown below)............................ 63.0 57.7 62.5
General and administrative.............................. 14.6 10.6 12.0
Depreciation and amortization........................... 12.3 11.9 11.6
Merger and acquisition related costs.................... 0.4 14.3 0.9
Asset impairments and unusual items..................... 5.6 6.8 14.8
(Income) loss from continuing operations held for sale,
net of minority interest................................ -- -- 0.1
------ ------ ------
95.9 101.3 101.9
------ ------ ------
Income (loss) from operations............................. 4.1 (1.3) (1.9)
------ ------ ------
Other income (expense):
Interest expense........................................ (5.8) (5.4) (4.6)
Interest and other income, net.......................... 0.7 1.3 1.4
Minority interest....................................... (0.2) (0.2) (0.4)
------ ------ ------
(5.3) (4.3) (3.6)
------ ------ ------
Loss from continuing operations before income taxes....... (1.2) (5.6) (5.5)
Provision for income taxes................................ 1.8 0.5 3.0
------ ------ ------
Loss from continuing operations........................... (3.0) (6.1) (8.5)
Discontinued operations................................... -- -- 0.8
Extraordinary item........................................ -- -- (0.1)
Accounting change......................................... -- -- --
------ ------ ------
Net loss.................................................. (3.0)% (6.1)% (7.8)%
====== ====== ======
SUPPLEMENTARY DATA:
EBITDA(1)................................................. 16.4% 10.6% 9.7%
</TABLE>
- ---------------
(1) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when
analyzing the financial position and performance of the Company.
See Management's Discussion and Analysis -- Introduction --
1999 Accounting Charges and Adjustments.
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<PAGE> 43
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
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 discussed above, 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. A substantial portion
of these operations were marketed for sale in accordance with the Company's
strategic plan. See "Business -- Operations -- Low Level and Other Radioactive
Waste Services." 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's retained interest of 49% is being accounted for using the equity
method of accounting.
Operating Revenues
The Company's operating revenues increased $501.2 million, or 4.0% in 1999
and $653.3 million or 5.5% in 1998, as compared to the respective prior years.
The following presents the operating revenues by reportable segment for the
respective years (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
NASW........................ $10,689.1 81.4% $10,142.8 80.3% $ 9,244.9 77.2%
WM International............ 1,650.8 12.6 1,533.6 12.2 1,790.0 15.0
Non-solid waste............. 787.0 6.0 949.4 7.5 937.6 7.8
--------- ----- --------- ------ --------- -----
Operating revenues........ $13,126.9 100.0% $12,625.8 100.0% $11,972.5 100.0%
========= ===== ========= ====== ========= =====
</TABLE>
The increase in the Company's operating revenues for 1997, 1998 and 1999 is
primarily due to acquisition related growth in the NASW operations. The
following table presents the Company's mix of operating revenues from NASW for
the respective years (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NASW:
Collection................. $ 7,553.6 59.6% $ 6,963.6 58.9% $ 6,071.2 58.3%
Disposal................... 3,266.9 25.8 3,169.4 26.8 2,811.9 27.0
Transfer................... 1,195.0 9.4 1,054.3 8.9 814.5 7.8
Recycling and other........ 658.8 5.2 640.6 5.4 720.0 6.9
--------- ----- --------- ----- --------- -----
12,674.3 100.0% 11,827.9 100.0% 10,417.6 100.0%
===== ===== =====
Intercompany............... (1,985.2) (1,685.1) (1,172.7)
--------- --------- ---------
Operating revenues......... $10,689.1 $10,142.8 $ 9,244.9
========= ========= =========
</TABLE>
Acquisitions of NASW businesses during 1999 and the full year effect of
acquisitions which were completed in 1998 accounted for an increase in operating
revenues of approximately $615.7 million for 1999, as compared to 1998. NASW
operating revenues also increased from internal growth of comparable operations
of 2.6% for 1999, as compared to 1998. The Company believes that its internal
revenue growth in 1999 was detrimentally affected by certain inflexibilities in
its pricing strategy and the lack of responsiveness of that strategy to
localized competitive conditions, resulting in lost customers and volumes. The
Company intends to continue to review its pricing strategy to enhance its
competitiveness in future periods. Offsetting the increase in operating revenues
were divestitures of NASW businesses with revenues of approximately
41
<PAGE> 44
$290.0 million, as well as other business factors that comprised the remaining
differences, including the foreign currency fluctuations with the Canadian
dollar.
NASW operating revenues in 1999 were lower than expected due to substantial
difficulties in the integration of the operations of the Company after the WM
Holdings Merger and the Eastern Merger, including the Company's information
systems (including billing systems) and work flow related thereto. In 1999, the
Company experienced significant difficulty in the conversion from the WM
Holdings' information systems to the systems currently in use, resulting in
delays and errors, particularly with respect to the Company's billing systems,
including delays in submitting bills to customers and errors in both computing
and delivering bills. Staffing levels were insufficient to address customer
complaints and disputes and did not support timely follow-up with customers.
Billing system issues initially became evident in the second quarter of 1999 as
receivable aging levels rose. At that time, management believed that the
increase in receivables was a short-term issue, receivables would return to
historical levels once the billing system conversions were complete and there
was not a significant collectability issue with its recorded receivables. In
connection with the 1999 accounting review, the Company concluded that certain
of these accounts had deteriorated to the point that they may be uncollectable,
and therefore, recorded an increase in the allowance for doubtful accounts in
the third quarter of 1999. These events also contributed a higher than usual
provision for uncollectable accounts in the fourth quarter of 1999. Beginning in
the third quarter of 1999, the Company has increased its resources dedicated to
receivable collection efforts and continues to pursue collection of all
outstanding balances.
The increase in operating revenues in 1998 for NASW, as compared to 1997,
is primarily attributable to the effects of acquisitions and the internal growth
of comparable operations. However, these increases were partially offset by the
divestiture of certain solid waste operations and the impact of the currency
translation fluctuations of the Canadian dollar. Acquisitions of solid waste
businesses in North America during 1998 and the full year effect of such
acquisitions completed during 1997 accounted for an increase in operating
revenues of approximately $1.16 billion. Internal growth for comparable NASW
services was 5.4%, which was comprised of 1.8% for pricing increases and 3.6%
for volume increases. For 1998, the NASW operating revenues were negatively
impacted by the lower prices received for recyclable materials, which can
fluctuate substantially from period to period. Had the pricing for recyclable
materials remained constant during 1998, internal growth for comparable NASW
operations would have been 5.9% for the period.
The operating revenues from WM International increased approximately $117.2
million, or 7.6%, in 1999, but decreased approximately $256.4 million, or 14.3%,
during 1998, from the respective prior years. The increase in operating revenues
for WM International in 1999 is due to acquisitions of businesses, primarily in
Denmark and Australia, with 1999 operating revenues of $182.8 million and
internal growth of 1.6%. These increases in 1999 were offset by the disposition
of operations, primarily in Italy, with 1998 operating revenues of $43.3
million. Additionally offsetting the increases in operating revenues in 1999
were fluctuations in foreign currency of $51.2 million. The decrease in 1998, as
compared to 1997 is primarily due to the sale of certain assets, such as the
waste-to-energy facility in Hamm, Germany in January 1998, as well as the
expiration of the City of Buenos Aires, Argentina contract in February 1998. In
1998, internal growth from WM International operations reflected a modest
decline. Operating revenues in 1998 were also negatively affected by foreign
currency fluctuations of approximately $53.0 million as compared to 1997.
Operating revenues for non-solid waste services decreased in 1999, as
compared to 1998, due to the sale of a 51% interest in certain non-solid waste
operations, as previously discussed herein. However, this decrease was partially
offset by the acquisition of a geosynthetic manufacturing and installation
service company in July 1999. Exclusive of acquisitions and dispositions, the
Company's non-solid waste operating revenues for 1999 were substantially
consistent with 1998. Operating revenues in 1998 for the Company's non-solid
waste operations were substantially consistent with 1997. The Company expects
decreasing operating revenues from its non-solid waste operations in future
periods because the Company is actively marketing certain of its non-solid waste
operations pursuant to its strategic plan.
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<PAGE> 45
Operating Costs and Expenses (Exclusive of Depreciation and Amortization Shown
Below)
Operating costs and expenses increased $985.8 million or 13.5% for 1999, as
compared to 1998, and decreased $199.0 million, or 2.7%, for 1998, as compared
to 1997. As a percentage of operating revenues, operating costs and expenses
increased from 57.7% in 1998 to 63.0% in 1999 and were 62.5% in 1997.
For the three years ended December 31, 1999, operating costs and expenses
increased primarily as a result of the Company's acquisition activities and
internal revenue growth net of dispositions. Over that three-year period,
operating costs and expenses as a percentage of revenues fluctuated, primarily
due to the effects of the Company's merger integration plan that was adopted in
connection with the WM Holdings Merger in July 1998. See "Operating Revenues"
above. The merger 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. The Company's employee
headcount reductions and the elimination of excess operating capacity were
largely effected in the third quarter of 1998, while the reconfiguration of
certain domestic markets began principally in the first quarter of 1999.
In 1998, soon after the WM Holdings Merger, the Company experienced
reductions, both in absolute terms and as a percentage of operating revenues, in
its operating costs and expenses as a result of the reductions in employee
headcount and the elimination of excess operating assets that were either sold
or abandoned pursuant to the merger integration plan. The Company believes that
the reductions in employee headcount and the disposition of excess operating
assets resulted in short-term cost efficiencies in 1998.
In 1999, the Company continued the implementation of its merger integration
plan. 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. Operating costs and expenses therefore
increased significantly as a percentage of revenues in 1999 because the
short-term cost reductions experienced in 1998 were not sustained in 1999 and
due to the operational difficulties encountered by the Company.
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 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
operating landfill. The impact of revisions to remedial environmental and other
similar liabilities resulted in reductions of operating costs and expenses as a
percentage of revenues in the amount of 0.5% and 0.9% in 1999 and 1998,
respectively. Similar revisions in 1997 resulted in an increase to operating
costs and expenses equivalent to 0.8% of revenues.
General and Administrative Expenses
General and administrative expenses increased $587.6 million or 44.1% from
1998 to 1999 and decreased $105.8 million or 7.4% from 1997 to 1998. As a
percentage of operating revenues, the Company's general and administrative
expense was 14.6% for 1999, 10.6% for 1998 and 12.0% for 1997. Over the
three-year period ended December 31, 1999, general and administrative expenses
increased primarily as a result of the Company's acquisition activity, partially
offset by divestitures.
General and administrative expenses for 1999 include $326.6 million in
adjustments resulting from the 1999 accounting review, some of which are
recurring in nature and should be expected in future periods. These significant
adjustments include an increase of $167.3 million relative to the allowance for
doubtful accounts. In addition, general and administrative expenses for 1999
include $159.3 million in costs for accounting, legal and other professional
services. These costs are primarily related to litigation and investigations
conducted by the Company in 1999. See discussion, in "Operating Revenues" and
"Operating Costs and Expenses" above, of the Company's substantial difficulties
in integrating the operations of WM Holdings subsequent to the WM Holdings
Merger.
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<PAGE> 46
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 in 1998 and the first and second quarters
of 1999. Such cost reductions were substantially offset by the effect of
difficulties encountered by the Company in integrating the operations of WM
Holdings, including increased administrative costs in field operations,
particularly in the third and fourth quarters of 1999, attributable to increased
costs to perform billing, collection and other administrative functions.
Depreciation and Amortization
Depreciation and amortization expense increased $115.5 million or 7.7% in
1999 and $106.9 million, or 7.7% in 1998, as compared to the respective prior
year. As a percentage of operating revenues, depreciation and amortization
expense was 12.3% in 1999, 11.9% in 1998 and 11.6% in 1997.
Over the three-year period ended December 31, 1999, depreciation and
amortization increased primarily as a result of the Company's acquisition
program, partially offset by divestitures. In addition to the increase
associated with acquisitions, depreciation and amortization expense for 1999
includes adjustments resulting from the 1999 accounting review, some of which
are recurring in nature and should be expected in future periods. These
adjustments primarily include adjustments to increases to landfill amortization
expense as a result of the comprehensive review of the NASW landfill expansion
projects. The increase in landfill amortization as a result of this review
aggregated $24.3 million, or 0.2% of annual revenues, for the third and fourth
quarters of 1999. The Company discontinued depreciation on fixed assets relative
to certain operations which are held for sale as of October 1, 1999. The
depreciation discontinued in the fourth quarter of 1999 for these operations
held for sale was $45.6 million, or 0.3% of annual revenues, which was primarily
related to the Company's WM International operations.
Merger and Acquisition Related Costs, Asset Impairments and Unusual Items
As further discussed in Notes 4 and 15 to the financial statements included
elsewhere herein, in connection with the WM Holdings Merger and the Eastern
Merger, the Company incurred significant merger and acquisition related costs,
asset impairments and unusual items in 1998 of approximately $2.7 billion. In
1999, the Company incurred approximately $44.6 million in merger costs and
$738.8 million in asset impairments and unusual items. The 1999 merger and
acquisition related costs were primarily related to these mergers and included
costs that were transitional in nature. The 1999 charge for asset impairments
and unusual items primarily consisted of held for sale asset adjustments, other
asset impairments and provisions for increases in certain legal reserves. In
1998 and 1997, the Company incurred merger and acquisition related costs of
approximately $17.2 million and $112.7 million, respectively, related to other
business combinations accounted for as poolings of interests that were completed
during those years. The 1997 financial statements include a charge to asset
impairments and unusual items of approximately $1.8 billion related primarily to
a significant accounting charge resulting from a comprehensive review performed
by the management of WM Holdings of its operations and investments. See Note 15
to the financial statements for further discussion.
(Income) Loss from Continuing Operations Held for Sale, Net of Minority
Interest
In 1998 and 1997, the Company had operations that were previously
classified as discontinued operations for accounting and financial reporting
purposes that were subsequently reclassified to continuing operations as of
December 31, 1997, as the dispositions were not completed within one year from
the date of their classification as discontinued operations. The Company
divested of substantially all of such operations by September 30, 1998.
Income (Loss) from Operations
Income (loss) from operations was $540.0 million, $(160.4) million, and
$(233.9) million for 1999, 1998 and 1997, respectively, for the reasons
discussed above.
44
<PAGE> 47
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. Although the
Company has experienced lower borrowing rates during most of 1999, as compared
to 1998 and 1997, interest costs, which include amounts capitalized, increased
for each year from 1997 to 1999 due to increases in the Company's outstanding
indebtedness. During the last six months of 1999, the Company experienced a
decline in its public credit ratings. As a result, it is likely that the
borrowing rates in the foreseeable future will be higher than the rates
previously experienced by the Company. Capitalized interest was $34.3 million,
$41.5 million and $51.4 million, for 1999, 1998, and 1997, respectively. The
decline in the amount of interest capitalized by the Company over these periods
is primarily due to shortening of the cycles in which the Company performs
landfill construction activities and the success in obtaining permits at certain
significant landfill expansion projects.
During 1998, the Company acquired the outstanding minority interest in WTI,
WM plc, as well as WM plc's operations in the United Kingdom, which were 49%
owned by Wessex Water Plc. As a result, the minority interest expense was less
significant to the Company in 1999 as compared to prior years.
Other income in 1997 includes a gain of $129.0 million related to the sale
of the Company's investment in ServiceMaster Consumer Services L.P., which
occurred during the first quarter of 1997. Other income in 1998 includes the
sale of certain of the Company's investments and businesses. In January 1998 the
Company recognized a gain of $38.0 million from the sale of a waste-to-energy
facility in Hamm, Germany.
Provision for Income Taxes
The Company recorded a provision for income taxes of $232.3 million, $66.9
million, and $363.3 million for 1999, 1998 and 1997, respectively, resulting in
an effective income tax rate of 142.8%, 9.6%, and 54.9% for each of these years,
respectively. The difference in federal income taxes computed at the federal
statutory rate and reported income taxes for these years is primarily due to
state and local income taxes, non-deductible costs related to acquired
intangibles, non-deductible costs associated with the impairment of certain
foreign businesses and other third quarter 1999 charges and adjustments as
discussed in Note 2 to the financial statements, and the cost associated with
remitting the earnings of certain foreign subsidiaries, which are no longer
permanently reinvested.
Discontinued Operations
The Company recorded $95.7 million in 1997 for the net results of
discontinued operations. See Note 19 of the financial statements included herein
for additional discussion of discontinued operations.
Extraordinary Item
During 1999, 1998 and 1997, the Company retired certain debt prior to their
scheduled maturities. As a result, the Company incurred prepayment penalties and
other fees, as well as charged to expense the unamortized discounts and debt
issuance costs. Total charges for these items, net of tax, were $2.5 million,
$3.9 million and $6.8 million for 1999, 1998 and 1997, respectively.
Cumulative Effect of Change in Accounting Principle
In the fourth quarter of 1997, the Company began expensing process
reengineering costs in accordance with the Financial Accounting Standards Board
Emerging Issues Task Force Issue No. 97-13. Accordingly, the Company expensed
any amounts previously capitalized, which reduced net income by $1.9 million in
1997.
Net Loss
For the reasons discussed above, net loss was $397.6 million in 1999,
$770.7 million in 1998, and $938.9 million in 1997.
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<PAGE> 48
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 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 to the Company 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 non-strategic and
under-performing assets, including 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, repurchase 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 December 31, 1999 and $1.4
billion as of March 15, 2000, the Company expects reductions in bank line
availability as debt levels are decreased in connection with the strategic plan.
However, due to a projected decrease in acquisition activity in future periods
and the sale of certain of its international businesses, the Company's level of
capital expenditures is expected to decline along with its needs for large
amounts of credit capacity.
As a result of the accounting charges and adjustments recorded in the third
quarter of 1999 (see Note 2), absent waivers, the Company would not have been in
compliance as of September 30, 1999 with certain financial covenants as required
by its four bank credit facilities. The Company received waivers from each of
its four bank groups for the period ended September 30, 1999, enabling the
Company to be in full compliance with and have full access to its existing bank
credit facilities. During the fourth quarter of 1999, the Company incurred
approximately $8.0 million (which is included in interest expense) to obtain
these waivers. In December 1999, the Company received unanimous approval for
amendments to its existing $2 billion, $3 billion and Eurocurrency bank credit
facilities. The approvals provide 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 its strategy of
divesting of its WM International operations and domestic non-core assets.
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 WM International
operations, domestic non-core assets and up to 10% of its NASW operations
pursuant to 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 WM International operations must be used to repay indebtedness
under the Company's Eurocurrency facilities. The net proceeds remaining after
the repayment of the Eurocurrency facilities will be counted as, and therefore
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 was in compliance with all financial requirements under its
credit agreements as of December 31, 1999. However, the Company anticipates that
its cash flows from operations for the year 2000 will likely not be sufficient
for the Company to maintain compliance with certain of the financial ratios
contained in its Syndicated Facility, Credit Facility, and Eurocurrency credit
facilities. Therefore, it has classified the borrowings outstanding under the
Syndicated Facilities and the Credit Facility as short-term obligations as of
December 31, 1999. The Eurocurrency Credit Facility is included in operations
held for sale at December 31, 1999. As discussed in the preceding paragraph, the
Company expects to make a substantial principal reduction on these facilities
with the net proceeds of its anticipated divestitures. The Company intends to
pursue waivers or amendments of such agreements in advance of any potential
violation of the credit agreements. However, there can be no assurance that, in
the event the Company actually violates its
46
<PAGE> 49
agreements, that such waivers or amendments will be obtained. Failure to obtain
such waivers or amendments would 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. The Company utilizes approximately $3
billion in bonding related to its operations. Should any of these bonding
sources become unavailable without 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 December 31, 1999, the Company had working capital deficit of $1.3
billion (a ratio of current assets to current liabilities of 0.8:1) and a cash
balance of $181.4 million, which compares to a working capital deficit of $412.3
million (a current ratio of 0.9:1) and a cash balance of $86.9 million as of
December 31, 1998. For 1999, net cash provided by operating activities was $1.7
billion, as compared to $1.5 billion in 1998 and $2.1 billion in 1997, and net
cash provided by (used in) financing activities was $426.2 million in 1999, as
compared to $3.0 billion in 1998 and $(445.0) million in 1997. In 1999, cash
generated from operating and financing activities was primarily used to acquire
business and outstanding minority interest positions for $1.3 billion and for
capital expenditures of $1.3 billion. In 1998, cash generated from operating and
financing activities was primarily used to acquire businesses and outstanding
minority interest positions for $3.6 billion and for capital expenditures of
$1.7 billion. In 1997, capital expenditures of $1.3 billion and acquisitions of
businesses and outstanding minority interests of $1.8 billion were primarily
financed through net cash from operations of $2.1 billion as well as proceeds
from divestitures of businesses and other sales of assets of $1.5 billion.
Additionally, in 1997 the Company acquired $1.0 billion of its stock and paid
cash dividends to its shareholders of $309.6 million.
During 1999, the Company paid approximately $550 million for costs directly
or indirectly related to the WM Holdings Merger and the Eastern Merger.
Consequently, the Company's net cash provided by operating activities for 1999
was significantly impacted by its 1998 merger activity, and to a lesser extent,
other working capital issues. The Company contributed approximately $43.4
million during 1999, which is included in the above amounts, and expects
payments of approximately $185 million to be paid through 2000 relating to the
termination of the WM Holdings' defined benefit plan. Furthermore, the Company
expects to fund additional merger and legal obligations throughout 2000.
From December 15, 1999 through March 16, 2000, the Company repurchased
$430.2 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 this senior note with funds
available from its domestic credit facilities.
In the second quarter of 1999, the Company agreed to purchase all of the
Canadian solid waste operations of Allied Waste Industries, Inc. ("Allied")
other than its medical waste disposal assets (the "Canadian Operations") for a
purchase price of approximately $501 million in cash. That agreement was revised
and superseded on November 8, 1999. Under the revised agreements, the Company
agreed to acquire the Canadian Operations through the purchase of the stock of
Allied's Canadian subsidiary. The revised agreements also provide for the
purchase by Allied of certain of the Company's solid waste operations having
combined reported historical net revenue of approximately $120 million,
including nine landfill operations, 19 collection operations, five transfer
stations and a landfill operating contract. The prices of Canadian operations to
be acquired, and the domestic operations to be disposed of, by the Company were
all established based upon the same multiple of historical operating earnings,
although the transactions may proceed separately.
The sale of the Canadian Operations is subject to final approval under the
Canadian Competition Act and Investment Canada Act. The Competition Bureau of
Canada has requested that the Company divest a substantial portion of the
Canadian Operations as a condition to recommending such approval. In response,
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<PAGE> 50
the Company and Allied are actively pursuing a restructured transaction, whereby
the Company would acquire only those portions of the Canadian Operations
approved by Canadian regulators. The scope of the United States assets to be
acquired by Allied from the Company also remains under governmental antitrust
review.
ENVIRONMENTAL MATTERS
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 84
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 nonexistence 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.
While the precise amount of these future costs cannot be determined with
certainty, the Company has estimated that the aggregate cost of environmental
liabilities as of December 31, 1999 is approximately $2.6 billion. As of
December 31, 1999 and 1998, the Company had recorded liabilities of $977.5
million and $1.2 billion, respectively, for the present value of final closure,
post-closure, and remediation costs of disposal facilities. The difference
between the final closure and post-closure costs accrued at December 31, 1999,
and the total present value of estimated costs represents final closure and
post-closure costs which will be accrued and charged to expense as airspace is
consumed such that the total present value of estimated final closure and
post-closure costs to be incurred will be fully accrued for each landfill at the
time each site discontinues accepting waste and is closed. Average landfill
final closure and post-closure expense, on a per ton basis, for 1999 was $0.27
per ton.
As of December 31, 1999, the Company also expects to incur approximately
$6.9 billion related to future construction activities during the remaining
operating lives of the disposal sites, which are capitalized as incurred and
expensed over the useful lives of the disposal sites as airspace is consumed.
SEASONALITY AND INFLATION
The Company's operating revenues tend to be somewhat lower in the winter
months, which corresponds with the Company's first and fourth quarters. 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 industrial and residential waste in certain
regions where the Company operates tends to decrease during the winter months.
The Company believes that inflation has not had, and is not expected to
have, any material adverse effect on the results of operations in the near
future.
48
<PAGE> 51
YEAR 2000 DATE CONVERSION
The Company completed all preparation to assure its computerized
information systems, embedded technologies in its equipment, and to the extent
possible, its suppliers, were ready for Year 2000. As a result, the Company
suffered no material adverse business impact with the Year 2000 occurrence.
NEW ACCOUNTING PRONOUNCEMENTS
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
In the normal course of business, the Company is exposed to market risk,
including changes in interest rates, currency exchange rates, certain commodity
prices and certain equity prices. From time to time, the Company and certain of
its subsidiaries use derivatives to manage some portion of these risks. The
derivatives used are simple agreements which provide for payments based on the
notional amount, with no multipliers or leverage. All derivatives are related to
actual or anticipated exposures of transactions of the Company. While the
Company is exposed to credit risk in the event of non-performance by
counterparties to derivatives, in all cases such counterparties are highly rated
financial institutions and the Company does not anticipate non-performance. The
Company does not hold or issue derivative financial instruments for trading
purposes. The Company monitors its derivative positions by regularly evaluating
the positions at market and by performing sensitivity analyses.
The Company has performed sensitivity analyses to determine how market rate
changes will affect the fair value of the Company's market risk sensitive
derivatives and related positions. Such an analysis is inherently limited in
that it represents a singular, hypothetical set of assumptions. Actual market
movements may vary significantly from the Company's assumptions. The effects of
such market movements may also directly or indirectly affect the Company's
assumptions. The effects of such market movements may also directly or
indirectly affect Company rights and obligations not covered by sensitivity
analysis. Fair value sensitivity is not necessarily indicative of the ultimate
cash flow or earnings effect on the Company from the assumed market rate
movements.
Interest Rate Exposure. The Company's exposure to market risk for changes
in interest rates relates primarily to the Company's debt obligations, which are
mainly denominated in U.S. dollars. In addition, interest rate swaps are
generally used to either lock-in or limit the variability in the interest
expense of certain floating rate debt obligations or to manage the mix of fixed
and floating rate debt obligations. An instantaneous, one percentage point
increase in interest rates across all maturities and applicable yield curves
would increase the fair value of the Company's combined debt and interest rate
swap positions at December 31, 1999 and 1998 by approximately $499.2 million and
$591.0 million, respectively. This analysis does not reflect the effect that
declining interest rates would have on other items such as pension liabilities,
nor the favorable impact they would have on interest expense and cash payments
for interest. Since a significant portion of the Company's debt is at fixed
rates, changes in market interest rates would not significantly impact operating
results until and unless such debt would need to be refinanced at maturity.
Currency Rate Exposure. From time to time, the Company and certain of its
subsidiaries have used foreign currency derivatives to seek to mitigate the
impact of translation on foreign earnings and income from foreign investees.
Typically these derivatives have taken the form of purchased put options or
collars. There were no currency derivatives outstanding at December 31, 1999 or
1998 that relate to hedging the translation of foreign earnings.
49
<PAGE> 52
The Company occasionally incurs currency risk from cross border
transactions. When such transactions are anticipated or committed to, the
Company may enter into forward contracts or purchase options to reduce or
eliminate the related foreign exchange risk. The Company also incurs exchange
rate risk from borrowings denominated in foreign currencies. An instantaneous,
ten percent increase in foreign exchange rates would decrease the fair value of
the Company's foreign currency borrowings at December 31, 1999 and 1998, by
approximately $42.7 million and $13.1 million, respectively. This difference can
be attributed to a variety of factors, including a change in the composition of
the portfolio, a change in the correlations across different instruments
resulting from the WM Holdings Merger or other factors arising from changing
market conditions. The total effect on the Company from movements in exchange
rates will also be influenced by other factors. For example, an increase in the
fair value of foreign currency denominated debt caused by exchange rate
movements may be more than offset by an increase in the value of the Company's
net investment in foreign countries. At December 31, 1999, all debt of WM
International is classified in current assets as assets held for sale.
Commodities Price Exposure. The Company markets recycled paper products
such as old newspaper ("ONP") and old corrugated containers ("OCC"). Beginning
in 1999, the Company entered into financial swaps in an effort to mitigate the
risk of recyclable paper price fluctuations. Under its financial swap
agreements, the Company transfers a floating market price for a fixed price for
a fixed period of time. The two parties agree to use a market index as an
indicator of the market price during the term of the swap. An instantaneous ten
percent increase in this commodity at December 31, 1999 creates an exposure risk
of approximately $50,000. All of the Company's waste paper hedges are cash
settled on a monthly basis with the counterparty.
Equity Price Exposure. The Company is also subject to equity price exposure
from Company debt issues that are convertible into the Company's common stock.
These debt issues had an aggregate carrying value of $962.0 million and $1.25
billion as of December 1999 and 1998, respectively. An instantaneous, ten
percent decrease in the Company's stock price on December 31, 1999 and 1998,
would increase the fair value of the Company's convertible debt by approximately
$12.4 million and $121.0 million, respectively. The change in fair value is due
to the change in the Company's stock price from December 31, 1998 to December
31, 1999. The Company's share price fell from $46.63 on December 31, 1998 to
$17.19 at the close of trading on December 31, 1999. However, such changes in
stock prices did not impact net income.
See Notes 3 and 9 to the financial statements included elsewhere herein for
further discussion of the use of and accounting for derivative instruments.
50
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 52
Report of Independent Accountants........................... 53
Consolidated Balance Sheets as of December 31, 1999 and
1998 ..................................................... 54
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997. ....................... 55
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998, and 1997. ........... 56
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997. ....................... 59
Consolidated Statements of Comprehensive Income (Loss) for
the Years Ended December 31, 1999, 1998, and 1997. ....... 60
Notes to Consolidated Financial Statements.................. 61
</TABLE>
51
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Waste Management, Inc.:
We have audited the accompanying consolidated balance sheets of Waste
Management, Inc. and subsidiaries (the "Company"), a Delaware corporation, as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, cash flows and comprehensive income (loss) for
each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
As discussed in Note 4, the financial statements referred to above give
retroactive effect to the merger of the Company (then known as USA Waste
Services, Inc.) and Waste Management Holdings, Inc., (then known as Waste
Management, Inc.) on July 16, 1998, and the Company's merger with Eastern
Environmental Services, Inc. on December 31, 1998, which were accounted for as
poolings of interests.
We did not audit the consolidated financial statements of the former USA
Waste Services, Inc. and subsidiaries for the year ended December 31, 1997. Such
statements are included in the consolidated financial statements of the Company
and reflect operating revenues constituting twenty-two percent of the related
consolidated total in 1997. These statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for the former USA Waste Services, Inc. and subsidiaries
for the year ended December 31, 1997 is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
The selected quarterly financial data included in Note 20 contains
information that we did not audit, and, accordingly, we do not express an
opinion on that data. We attempted, but were unable, to review the quarterly
financial data for the interim periods within 1999 in accordance with standards
established by the American Institute of Certified Public Accountants because we
believe that the Company's internal controls for the preparation of interim
financial information did not provide an adequate basis to enable us to complete
such a review.
In our opinion, based upon our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Waste Management, Inc. and subsidiaries as
of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 2000
52
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of USA Waste Services, Inc.:
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of USA Waste Services, Inc. for the year ended December
31, 1997. These financial statements (not presented separately herein) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of USA Waste Services, Inc. for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P
Houston, Texas
March 16, 1998
53
<PAGE> 56
WASTE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 181,357 $ 86,873
Accounts receivable, net of allowance for doubtful
accounts of $289,499 and $116,430, respectively......... 1,540,653 2,245,977
Notes and other receivables............................... 366,634 139,934
Parts and supplies........................................ 107,222 128,254
Deferred income taxes..................................... 298,433 237,616
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 8,985 127,975
Prepaid expenses and other................................ 181,759 168,163
Operations held for sale.................................. 3,535,502 856,413
------------ -----------
Total current assets............................... 6,220,545 3,991,205
Notes and other receivables, net............................ 42,861 190,237
Property and equipment, net................................. 10,303,803 11,625,657
Excess of cost over net assets of acquired businesses,
net....................................................... 5,185,909 6,069,098
Other intangible assets, net................................ 170,768 181,226
Other assets................................................ 757,538 824,741
------------ -----------
Total assets....................................... $ 22,681,424 $22,882,164
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,062,536 $ 1,040,601
Accrued liabilities....................................... 1,512,873 2,273,543
Deferred revenues......................................... 407,084 381,780
Current maturities of long-term debt...................... 3,098,742 597,742
Operations held for sale.................................. 1,408,220 109,808
------------ -----------
Total current liabilities.......................... 7,489,455 4,403,474
Long-term debt, less current maturities..................... 8,399,346 11,134,619
Deferred income taxes....................................... 729,902 470,107
Environmental liabilities................................... 837,407 1,040,747
Other liabilities........................................... 815,028 1,348,645
------------ -----------
Total liabilities.................................. 18,271,138 18,397,592
------------ -----------
Minority interest in subsidiaries........................... 7,674 112,076
------------ -----------
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; 627,283,618 and 608,307,531 shares issued,
respectively............................................ 6,273 6,083
Additional paid-in capital................................ 4,440,159 4,091,525
Retained earnings......................................... 662,746 1,066,506
Accumulated other comprehensive income (loss)............. (563,086) (420,804)
Restricted stock unearned compensation.................... (3,936) --
Treasury stock at cost, 73,709 and 63,950 shares,
respectively............................................ (3,890) (2,821)
Employee stock benefit trust at market, 7,892,612
shares.................................................. (135,654) (367,993)
------------ -----------
Total stockholders' equity......................... 4,402,612 4,372,496
------------ -----------
Total liabilities and stockholders' equity......... $ 22,681,424 $22,882,164
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues.......................................... $13,126,920 $12,625,769 $11,972,498
----------- ----------- -----------
Costs and expenses:
Operating (exclusive of depreciation and amortization
shown below)............................................ 8,269,021 7,283,251 7,482,273
General and administrative................................ 1,920,309 1,332,736 1,438,501
Depreciation and amortization............................. 1,614,165 1,498,712 1,391,810
Merger and acquisition related costs...................... 44,634 1,807,245 112,748
Asset impairments and unusual items....................... 738,837 864,063 1,771,145
Income from continuing operations held for sale, net of
minority interest......................................... -- 151 9,930
----------- ----------- -----------
12,586,966 12,786,158 12,206,407
----------- ----------- -----------
Income (loss) from operations............................... 539,954 (160,389) (233,909)
----------- ----------- -----------
Other income (expense):
Interest expense.......................................... (769,655) (681,457) (555,576)
Interest income........................................... 38,497 26,829 45,214
Minority interest......................................... (24,181) (24,254) (45,442)
Other income, net......................................... 52,653 139,392 127,216
----------- ----------- -----------
(702,686) (539,490) (428,588)
----------- ----------- -----------
Loss from continuing operations before income taxes......... (162,732) (699,879) (662,497)
Provision for income taxes.................................. 232,319 66,923 363,341
----------- ----------- -----------
Loss from continuing operations............................. (395,051) (766,802) (1,025,838)
Discontinued operations:
Income on disposal or from reserve adjustment, net of
applicable income tax and minority interest of $100,842
in 1997................................................. -- -- 95,688
----------- ----------- -----------
Loss before extraordinary item and cumulative effect of
change in accounting principle............................ (395,051) (766,802) (930,150)
Extraordinary loss on refinancing or retirement of debt, net
of income tax and minority interest of $1,599 in 1999,
$2,600 in 1998 and $4,962 in 1997......................... (2,513) (3,900) (6,809)
Cumulative effect of change in accounting principle, net of
income tax of $1,100 in 1997.............................. -- -- (1,936)
----------- ----------- -----------
Net loss.................................................... $ (397,564) $ (770,702) $ (938,895)
=========== =========== ===========
Basic earnings (loss) per common share:
Continuing operations..................................... $ (0.64) $ (1.31) $ (1.84)
Discontinued operations................................... -- -- 0.17
Extraordinary item........................................ (0.01) (0.01) (0.01)
Cumulative effect of change in accounting principle....... -- -- --
----------- ----------- -----------
Net loss.................................................. $ (0.65) $ (1.32) $ (1.68)
=========== =========== ===========
Diluted earnings (loss) per common share:
Continuing operations..................................... $ (0.64) $ (1.31) $ (1.84)
Discontinued operations................................... -- -- 0.17
Extraordinary item........................................ (0.01) (0.01) (0.01)
Cumulative effect of change in accounting principle....... -- -- --
----------- ----------- -----------
Net loss.................................................. $ (0.65) $ (1.32) $ (1.68)
=========== =========== ===========
Weighted average number of common shares outstanding........ 612,932 584,301 557,675
=========== =========== ===========
Weighted average number of common and dilutive potential
common shares outstanding................................. 612,932 584,301 557,675
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RESTRICTED STOCK 1998 EMPLOYEE
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED STOCK
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) COMPENSATION OWNERSHIP PLAN
--------- ------ ---------- ---------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997.................... $ -- $5,583 $2,900,978 $3,192,165 $(113,941) $ (2,541) $(6,396)
Net loss................ -- -- -- (938,895) -- -- --
Cash dividends.......... -- -- -- (309,577) -- -- --
Dividends paid to
employee stock benefit
trust................. -- -- 7,294 (7,294) -- -- --
Common stock issued upon
exercise of stock
options and warrants
and grants of
restricted stock
(including tax
benefit).............. -- 38 71,732 -- -- -- --
Unearned compensation
related to issuance of
restricted stock to
employees............. -- -- -- -- -- (23,444) --
Earned compensation
related to restricted
stock, net of
reversals on forfeited
shares................ -- -- -- -- -- 2,357 --
Reversals of unearned
compensation upon
cancellation of
restricted stock...... -- -- -- -- -- 12,526 --
Contribution to 1988
ESOP (213,940
shares)............... -- -- -- -- -- -- 6,396
Common stock issued for
acquisitions.......... -- 146 218,637 1,628 -- -- --
Common stock issued in
public offerings...... -- 186 580,234 -- -- -- --
Common stock issued for
United stock
options............... -- 19 25,809 -- -- -- --
Temporary equity related
to put options........ -- -- 95,789 -- -- -- --
Settlement of put
options............... -- -- (1,605) -- -- -- --
Adjustment of employee
stock benefit trust to
market value.......... -- -- (54,432) -- -- -- --
Adjustment for minimum
pension liability, net
of taxes.............. -- -- -- -- 11,492 -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- -- -- (180,744) -- --
Common stock repurchased
(26,111,795 shares)... -- -- -- -- -- -- --
Other................... -- 15 29,554 -- -- -- --
---- ------ ---------- ---------- --------- -------- -------
Balance, December 31,
1997.................... $ -- $5,987 $3,873,990 $1,938,027 $(283,193) $(11,102) $ --
==== ====== ========== ========== ========= ======== =======
<CAPTION>
EMPLOYEE
TREASURY STOCK
STOCK BENEFIT TRUST
----------- -------------
<S> <C> <C>
Balance, January 1,
1997.................... $ (420,431) $(353,807)
Net loss................ -- --
Cash dividends.......... -- --
Dividends paid to
employee stock benefit
trust................. -- --
Common stock issued upon
exercise of stock
options and warrants
and grants of
restricted stock
(including tax
benefit).............. 47,271 --
Unearned compensation
related to issuance of
restricted stock to
employees............. -- --
Earned compensation
related to restricted
stock, net of
reversals on forfeited
shares................ -- --
Reversals of unearned
compensation upon
cancellation of
restricted stock...... -- --
Contribution to 1988
ESOP (213,940
shares)............... -- --
Common stock issued for
acquisitions.......... 3,753 --
Common stock issued in
public offerings...... -- --
Common stock issued for
United stock
options............... -- --
Temporary equity related
to put options........ -- --
Settlement of put
options............... -- --
Adjustment of employee
stock benefit trust to
market value.......... -- 54,432
Adjustment for minimum
pension liability, net
of taxes.............. -- --
Cumulative translation
adjustment of foreign
currency statements... -- --
Common stock repurchased
(26,111,795 shares)... (1,000,208) --
Other................... 210 --
----------- ---------
Balance, December 31,
1997.................... $(1,369,405) $(299,375)
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE> 59
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(IN THOUSANDS)
<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, January 1, 1998.... $ -- $5,987 $3,873,990 $1,938,027 $(283,193) $(11,102) $(1,369,405)
Net loss.................. -- -- -- (770,702) -- -- --
Cash dividends............ -- -- -- (93,810) -- -- --
Dividends paid to employee
stock benefit trust..... -- -- 1,963 (1,963) -- -- --
Common stock issued upon
exercise of stock
options and warrants and
grants of restricted
stock (including tax
benefit)................ -- 44 94,507 -- -- -- 75,212
Earned compensation
related to restricted
stock, net of reversals
on forfeited shares..... -- -- -- -- -- 759 --
Reversals of unearned
compensation upon
cancellation of
restricted stock........ -- -- -- -- -- 1,134 --
Accelerated vesting of
restricted stock due to
WM Holdings Merger...... -- -- -- -- -- 9,209 --
Common stock issued for
acquisitions............ -- 76 180,051 (6,032) -- -- --
Common stock issued in
public offerings........ -- 52 205,811 -- -- -- --
Put rights on WM Holdings
employee stock options,
net of taxes............ -- -- 70,495 -- -- -- --
Adjustment of employee
stock benefit trust to
market value............ -- -- 68,618 -- -- -- --
Adjustment for minimum
pension liability, net
of taxes................ -- -- -- -- (59,769) -- --
Cumulative translation
adjustment of foreign
currency statements..... -- -- -- -- (77,842) -- --
Sale of treasury stock.... -- -- 3,755 -- -- -- 725,103
Cancellation of treasury
stock................... -- (133) (566,136) -- -- -- 566,269
Change in Eastern fiscal
year.................... -- 39 91,294 986 -- -- --
Conversion of WTI stock
options................. -- -- 20,138 -- -- -- --
Other..................... -- 18 47,039 -- -- -- --
---- ------ ---------- ---------- --------- -------- -----------
Balance, December 31,
1998...................... $ -- $6,083 $4,091,525 $1,066,506 $(420,804) $ -- $ (2,821)
==== ====== ========== ========== ========= ======== ===========
<CAPTION>
EMPLOYEE
STOCK
BENEFIT TRUST
-------------
<S> <C>
Balance, January 1, 1998.... $(299,375)
Net loss.................. --
Cash dividends............ --
Dividends paid to employee
stock benefit trust..... --
Common stock issued upon
exercise of stock
options and warrants and
grants of restricted
stock (including tax
benefit)................ --
Earned compensation
related to restricted
stock, net of reversals
on forfeited shares..... --
Reversals of unearned
compensation upon
cancellation of
restricted stock........ --
Accelerated vesting of
restricted stock due to
WM Holdings Merger...... --
Common stock issued for
acquisitions............ --
Common stock issued in
public offerings........ --
Put rights on WM Holdings
employee stock options,
net of taxes............ --
Adjustment of employee
stock benefit trust to
market value............ (68,618)
Adjustment for minimum
pension liability, net
of taxes................ --
Cumulative translation
adjustment of foreign
currency statements..... --
Sale of treasury stock.... --
Cancellation of treasury
stock................... --
Change in Eastern fiscal
year.................... --
Conversion of WTI stock
options................. --
Other..................... --
---------
Balance, December 31,
1998...................... $(367,993)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE> 60
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED EMPLOYEE
ADDITIONAL OTHER RESTRICTED STOCK STOCK
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED TREASURY BENEFIT
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) COMPENSATION STOCK TRUST
--------- ------ ---------- ---------- -------------- ---------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999... $-- $6,083 $4,091,525 $1,066,506 $(420,804) $ -- $(2,821) $(367,993)
Net loss................. -- -- -- (397,564) -- -- -- --
Cash dividends........... -- -- -- (6,196) -- -- -- --
Common stock issued upon
exercise of stock
options and warrants
and grants of
restricted stock
(including tax
benefit)............... -- 84 242,504 -- -- -- -- --
Unearned compensation
related to issuance of
restricted stock to
employees.............. -- 3 4,121 -- -- (4,124) --
Earned compensation
related to restricted
stock.................. -- -- -- -- -- 188 -- --
Common stock issued for
acquisitions........... -- 5 33,433 -- -- -- -- --
Common stock issued for
conversion of
subordinated debt...... -- 90 260,588 -- -- -- -- --
Adjustment of employee
stock benefit trust to
market value........... -- -- (232,339) -- -- -- -- 232,339
Adjustment for minimum
pension liability, net
of taxes............... -- -- -- -- (65,844) -- -- --
Cumulative translation
adjustment of foreign
currency statements.... -- -- -- -- (76,438) -- -- --
Other.................... -- 8 40,327 -- -- -- (1,069) --
--- ------ ---------- ---------- --------- ------- ------- ---------
Balance, December 31,
1999..................... $-- $6,273 $4,440,159 $ 662,746 $(563,086) $(3,936) $(3,890) $(135,654)
=== ====== ========== ========== ========= ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE> 61
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (397,564) $ (770,702) $ (938,895)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for bad debts................................. 268,379 70,727 69,592
Depreciation and amortization........................... 1,614,165 1,498,712 1,391,810
Deferred income tax provision (benefit)................. 317,819 (450,158) (375,543)
Undistributed earnings of equity investees.............. -- (3,294) 8,000
Minority interest in subsidiaries....................... 24,181 24,254 45,442
Interest accretion...................................... 8,328 18,023 20,682
Contribution to 1988 Employee Stock Ownership Plan...... -- -- 6,396
Net gain on disposal of assets.......................... (18,961) (83,503) (133,981)
Effect of merger costs, asset impairments and unusual
items................................................. 574,858 1,555,000 1,675,247
Income (loss) on disposal or from reserve adjustment of
discontinued operations, net of tax and minority
interest.............................................. -- -- (95,688)
Change in assets and liabilities, net of effects of
acquisitions and divestitures:
Receivables............................................. (168,745) (256,722) (114,829)
Prepaid expenses and other current assets............... 183,733 (11,235) 68,791
Other assets............................................ 60,551 135,120 90,614
Accounts payable and accrued liabilities................ (492,006) (140,613) 228,022
Deferred revenues and other liabilities................. (303,245) (16,721) 72,938
Other, net.............................................. 18,096 (66,853) 47,308
----------- ----------- -----------
Net cash provided by operating activities................... 1,689,589 1,502,035 2,065,906
----------- ----------- -----------
Cash flows from investing activities:
Short-term investments.................................... (40,688) 57,509 (117,668)
Acquisitions of businesses, net of cash acquired.......... (1,289,271) (1,946,197) (1,685,415)
Capital expenditures...................................... (1,326,684) (1,651,489) (1,332,207)
Proceeds from divestitures of businesses and other sale of
assets.................................................. 650,512 545,143 1,496,562
Other investments......................................... 9,781 76,244 (8,877)
Acquisition of minority interests......................... -- (1,673,168) (104,165)
Other..................................................... (20,563) 36,821 (25,758)
----------- ----------- -----------
Net cash used in investing activities....................... (2,016,913) (4,555,137) (1,777,528)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 4,246,131 6,401,897 4,616,718
Principal payments on long-term debt...................... (3,986,677) (4,406,910) (4,378,952)
Cash dividends............................................ (6,196) (93,810) (309,577)
Net proceeds from issuance of common stock................ -- 205,863 580,833
Proceeds from sale of treasury stock...................... -- 739,161 --
Proceeds from exercise of common stock options and
warrants................................................ 175,861 133,119 78,175
Other distributions to minority shareholders by affiliated
companies............................................... -- (23,514) (36,341)
Stock repurchases......................................... -- -- (1,000,208)
Other..................................................... (2,941) (10) 4,402
----------- ----------- -----------
Net cash provided by (used in) financing activities......... 426,178 2,955,796 (444,950)
----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents............................................... (4,370) (5,763) (5,788)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ 94,484 (103,069) (162,360)
Cash and cash equivalents at beginning of year.............. 86,873 189,942 352,302
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 181,357 $ 86,873 $ 189,942
=========== =========== ===========
Supplemental cash flow information:
Cash paid during the year for:
Interest................................................ $ 739,637 $ 610,084 $ 492,593
Income taxes............................................ 276,041 253,770 410,438
Non-cash investing and financing activities:
Note receivable from sale of assets..................... -- 28,571 26,583
Conversion of subordinated debt to common stock......... 262,814 10,086 1,159
Acquisitions of businesses and development projects:
Liabilities incurred or assumed....................... 357,378 432,462 222,536
Common stock issued................................... 33,438 180,127 251,863
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
59
<PAGE> 62
WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Net loss................................................. $(397,564) $(770,702) $ (938,895)
--------- --------- -----------
Other comprehensive income (loss):
Foreign currency translation adjustment................ (76,438) (77,842) (180,744)
Minimum pension liability adjustment, net of taxes of
($36,890) in 1999, ($46,982) in 1998, and $7,347 in
1997................................................ (65,844) (59,769) 11,492
--------- --------- -----------
Other comprehensive loss................................. (142,282) (137,611) (169,252)
--------- --------- -----------
Comprehensive income (loss).............................. $(539,846) $(908,313) $(1,108,147)
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
60
<PAGE> 63
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FINANCIAL STATEMENTS
Business -- Waste Management, Inc. and Subsidiaries ("Waste Management" or
the "Company") provides integrated waste management services throughout North
America consisting of collection, transfer, disposal (including landfill
disposal of hazardous waste), recycling and resource recovery services, as well
as other hazardous waste services, and low-level and other radioactive waste
services to commercial, industrial, municipal and residential customers.
Additionally, the Company is a developer, owner and operator of waste-to-energy
and waste-fuel powered independent power facilities. The Company also operates
throughout Europe, the Pacific Rim and South America. Internationally, the
Company collects and transports solid, hazardous and medical wastes and
recyclables from customers and operates solid and hazardous waste landfills and
municipal and hazardous waste incinerators, water and wastewater treatment
facilities, hazardous waste treatment facilities and constructs treatment or
disposal facilities for third parties. The Company plans to dispose of its
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") operations.
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of all material intercompany balances and
transactions. Investments in affiliated companies in which the Company has a
controlling interest are consolidated for financial reporting purposes.
Investments in affiliated entities in which the Company does not have a
controlling interest are accounted for under either the equity method or cost
method of accounting, as appropriate.
WM Holdings Merger -- On July 16, 1998, the Company, then known as USA
Waste Services, Inc., completed a merger with Waste Management Holdings, Inc.
("WM Holdings"), which was accounted for as a pooling of interests (the "WM
Holdings Merger"). WM Holdings was previously the largest publicly traded solid
waste company in the United States, providing integrated solid waste management
and hazardous waste management services in North America and comprehensive waste
management and related services, including solid and hazardous waste management
services, internationally. At the effective time of the WM Holdings Merger, the
Company changed its name to "Waste Management, Inc."
Eastern Merger -- On December 31, 1998, the Company completed a merger with
Eastern Environmental Services, Inc. ("Eastern"), which was accounted for as a
pooling of interests (the "Eastern Merger").
Use of estimates -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts for
certain revenues and expenses 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.
Reclassifications -- Certain reclassifications have been made to prior year
amounts in the financial statements in order to conform to the current year
presentation.
2. 1999 ACCOUNTING CHARGES AND ADJUSTMENTS
During 1999, the Company initiated a comprehensive internal review of its
accounting records, systems, processes and controls at the direction of its
Board of Directors. As discussed below, the Company experienced significant
difficulty in the integration and conversion of information and accounting
systems subsequent to the WM Holdings Merger, including certain financial
systems and its billing systems. As a result of these systems and process
issues, and other issues raised during the 1999 accounting review, certain
61
<PAGE> 64
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
charges and adjustments were recorded, as discussed below. The review was
completed in time such that the Company was able to record related adjustments
in its financial statements for the quarter ended September 30, 1999. The
amounts recorded by the Company as a result of the review had a material effect
on its financial statements for the year ended December 31, 1999. The following
is a summary of charges attributable to this review which were recorded for the
quarter ended September 30, 1999 (in thousands):
<TABLE>
<S> <C> <C>
Held for sale adjustments................................... $ 414,275
Increase to allowance for doubtful accounts and other
accounts receivable adjustments........................... 211,483
Asset impairments (excluding held for sale adjustments)..... 178,309
Insurance reserves and other insurance adjustments.......... 147,868
Legal, severance and consulting accruals.................... 141,999
Merger and acquisition related costs........................ 31,568
Other charges and adjustments, including:
Account reconciliations................................... 347,668
Loss contract reserve adjustments......................... 49,338
Increase in environmental liabilities..................... 48,983
Other..................................................... 191,026 637,015
------- ----------
Impact of charges before income tax benefit................. 1,762,517
Income tax benefit.......................................... (536,756)
----------
After-tax charges........................................... $1,225,761
==========
</TABLE>
In August 1999, the Company's Board of Directors adopted a strategic plan
that includes the divestiture of its WM International operations and certain
other businesses. (See Note 14, "Segment and Related Information" and Note 19,
"Operations Held for Sale" for further discussion of the Company's WM
International operations). Based primarily on preliminary bids from interested
parties, these and certain other assets which were identified as held for sale
during the third quarter were written down to fair value less cost to sell in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-lived Assets and Assets to be Disposed of,
resulting in a pre-tax charge of approximately $414.3 million at September 30,
1999. These assets were considered to be held for use for periods prior to the
third quarter of 1999 and did not meet the criteria for impairment recognition
as a "held for use" asset, and therefore, were not considered impaired for
periods prior to the third quarter of 1999. The assets which were identified as
held for sale and subject to adjustment include, among others, the Company's WM
International operations, the Company's nuclear services disposal site
operations and certain NASW operations that are not essential parts of the
Company's network. Revisions to the third quarter estimates were required due to
revisions in estimated proceeds and certain changes in business plans during the
fourth quarter of 1999, as further discussed in Note 15, "Asset Impairments and
Unusual Items".
In 1999, subsequent to the WM Holdings Merger, the Company experienced
significant difficulty in the conversion from the WM Holdings' information
systems to the systems currently in use, resulting in delays and errors,
particularly with respect to the Company's billing systems, including delays in
submitting bills to customers and errors in both computing and delivering bills.
Staffing levels were insufficient to address customer complaints and disputes
and did not support timely follow-up with customers. Billing system issues
initially became evident in the second quarter of 1999 as receivable aging
levels continued to rise. At that time, management believed that the increase in
receivables was a short-term issue, receivables would return to historical
levels once the billing system conversions were complete and there was not a
significant collectability issue with its recorded receivables. In connection
with the 1999 accounting review, the Company concluded that certain of these
accounts had deteriorated to the point that they may be uncollectable, and
therefore, recorded an increase in the allowance for doubtful accounts in the
third quarter of 1999. Beginning in the third quarter of 1999, the Company has
increased its resources dedicated to receivable collection efforts and continues
to pursue collection of all outstanding balances. In addition, the Company
performed a review
62
<PAGE> 65
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of notes and other receivable-related balances in connection with this review.
Taken together, the Company recorded receivable-related pre-tax charges of
$211.5 million in the third quarter of 1999.
During the review, the Company recorded asset impairments of $178.3 million
related to several landfill sites and certain other operating assets in the
third quarter of 1999. Included in the amount is $75.7 million relating to the
abandonment or closure of facilities resulting from the Company's recent
business decisions regarding optimal operating strategies in specific markets in
which the Company operates, or consideration of other new facts and
circumstances during the review. Also included in the amount is $40.4 million,
which is primarily the result of permit denials and other regulatory problems in
the third quarter of 1999, which is one of the many types of facts and
circumstances that may from time to time trigger impairments, and which may
occasionally overlap with other triggering events or result in abandonment or
closure.
The Company performs a comprehensive, centrally coordinated review of its
North American landfills on an annual basis. During the third quarter of 1999,
that review included an evaluation of potential landfill expansion projects,
with a newly refined and more stringent set of criteria for evaluating the
probability of obtaining expansions to existing sites, which had the effect of
excluding certain expansions that met the Company's previous criteria. For
further discussion on this criteria, refer to Note 3.
The exclusion of these expansions, due to the more stringent criteria and
related business judgements regarding probable success of obtaining expansions,
increased depreciation and amortization and the provision for final closure and
post closure costs (included in operating expense). Impairments resulting from
the application of these new stringent criteria and resulting from other facts
and circumstances comprise the remaining $62.2 million impairments included in
the $178.3 million of impairments disclosed above.
The Company historically estimated its insurance-related liabilities for
its ongoing programs based on an analysis of insurance claims submitted for
reimbursement, plus an estimate for liabilities incurred as of the balance sheet
date, but not yet reported to the Company. This is the estimation method that
had been used by WM Holdings prior to the WM Holdings Merger, and was continued
by the Company for that pool of pre-merger WM Holdings' claims. In connection
with this review, the Company evaluated the adequacy of its self-insurance
liabilities and changed the manner in which it estimates its insurance-related
liabilities for its ongoing property and casualty insurance programs. Both of
these approaches result in acceptable estimates, but during the review the
Company noted that the actuarially determined estimates using a fully-developed
method provided a better estimate of the ultimate costs of the claims than a
claims made plus incurred but not reported method. Accordingly, in the third
quarter of 1999, the Company began estimating all insurance-related liabilities
based on actuarially determined estimates of ultimate losses. This change in
estimate resulted in an increased pre-tax expense of $43.9 million for the third
quarter of 1999. In addition, the Company increased its insurance-related
liabilities based on its assessment of current and expected claims activities
and unfavorable claims experience, resulting in an additional pre-tax charge of
$104.0 million in the third quarter of 1999.
The Company recorded pre-tax charges related to legal, severance and
consulting costs incurred in the third quarter of 1999, including increases in
legal reserves and related charges of $96.3 million, principally related to
increases in legal reserves in response to developments in various legal
proceedings brought against WM Holdings by former shareholders of that company
in connection with its restatement of earnings in February 1998. These legal
developments caused the Company to evaluate the numerous shareholder cases filed
against WM Holdings and to reassess their range of exposure. Additionally, the
charges included $25.0 million related to severance costs, principally for
executives who left the Company in the third quarter of 1999, and $20.7 million
of consulting costs related primarily to the accounting review and related
matters.
The Company recorded $31.6 million of merger and acquisition related costs
during the third quarter of 1999, which consisted of $12.5 million related to a
third quarter purchase business combination and
63
<PAGE> 66
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$19.1 million related to the costs incurred by the Company related to the WM
Holdings and the Eastern Mergers which are required to be expensed as incurred.
The Company's results of operations for 1999 reflect pre-tax charges of
approximately $347.7 million recorded in the third quarter 1999 attributable to
the reconciliation of intercompany accounts, cash, accounts receivable, fixed
asset, accounts payable and certain other accounts at the Company's operating
districts and other locations resulting from the 1999 accounting review. The
Company's third quarter accounting review included a detailed review of
substantially all of the districts' and other locations' financial and
accounting records. That work necessitated a number of adjustments affecting
transactions related to the current period and to periods prior to the quarter
ended September 30, 1999 involving many different accounts. Although some
portion of the charges of $347.7 million may relate to a number of periods, the
Company does not have sufficient information to identify all specific charges
attributable to individual prior periods. Furthermore, producing the required
information to perform such an identification of these charges would be cost
prohibitive and disruptive to operations. In connection with the preparation of
its third quarter financial statements, the Company concluded that, based on its
quantitative and qualitative analysis of available information, and after
consultation with its independent public accountants, it did not have, nor was
it able to obtain, sufficient information to conclude what amount of charges
relate to any individual prior year, although qualitative analysis indicated
that these charges were principally related to 1999. Accordingly, the Company
has concluded that these charges are appropriately reflected in the 1999 annual
financial statements.
The Company evaluated significant contracts under which it provides
services. As a result of that review, the Company recorded a pre-tax provision
of $49.3 million related to contracts which were determined to be in a loss
position, including revisions to previously established reserves based on new
facts and circumstances.
The Company increased its estimate by $32.5 million of the ultimate costs
required for final closure and post-closure obligations at certain landfills
which are either closed or near final closure. That increase, and provisions
related to various other environmental matters, totaled $49.0 million as a
result of the 1999 accounting review.
In addition to the charges described above, the Company recorded additional
pre-tax charges of $191.0 million as a result of the 1999 accounting review.
These additional charges involved many different issues at all levels of the
Company, including, for example, adjustments to reserves for specific business
disputes, adjustments of over- or under- accruals not described elsewhere
herein, and numerous other items.
64
<PAGE> 67
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The charges described above, which include both recurring and nonrecurring
items that have been aggregated for this presentation, are reflected in the
Company's financial statements for the year ended December 31, 1999, as follows
(in thousands):
<TABLE>
<CAPTION>
ALLOWANCE
FOR DOUBTFUL
ACCOUNTS INSURANCE MERGER
AND OTHER RESERVES LEGAL, AND OTHER
HELD-FOR- ACCOUNTS OTHER AND OTHER SEVERANCE AND ACQUISITION CHARGES
SALE RECEIVABLE ASSET INSURANCE CONSULTING RELATED AND
ADJUSTMENTS ADJUSTMENTS IMPAIRMENTS ADJUSTMENTS ACCRUALS COSTS ADJUSTMENTS
----------- ------------ ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............. $ -- $ (44,164) $ -- $ -- $ -- $ -- $ 13,236
--------- --------- --------- --------- --------- -------- ---------
Costs and expenses:
Operating (exclusive of
depreciation and
amortization shown below)... -- -- -- 143,086 -- -- 423,331
General and administrative.... -- 167,319 -- 4,782 57,599 -- 172,029
Depreciation and
amortization................ -- -- -- -- -- -- 59,628
Merger and acquisition related
costs....................... -- -- -- -- -- 31,568 --
Asset impairments and unusual
items....................... 414,275 -- 178,309 -- 84,400 -- 3,300
Loss from continuing operations
held for sale, net of minority
interest...................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- -------- ---------
414,275 167,319 178,309 147,868 141,999 31,568 658,288
--------- --------- --------- --------- --------- -------- ---------
Loss from operations........... (414,275) (211,483) (178,309) (147,868) (141,999) (31,568) (645,052)
--------- --------- --------- --------- --------- -------- ---------
Other income (expense)
Interest expense.............. -- -- -- -- -- -- 702
Interest income............... -- -- -- -- -- -- 13,359
Minority interest............. -- -- -- -- -- -- (288)
Other income (expense)........ -- -- -- -- -- -- (5,736)
--------- --------- --------- --------- --------- -------- ---------
-- -- -- -- -- -- 8,037
--------- --------- --------- --------- --------- -------- ---------
Loss before income taxes and
extraordinary items........... $(414,275) $(211,483) $(178,309) $(147,868) $(141,999) $(31,568) $(637,015)
========= ========= ========= ========= ========= ======== =========
Benefit from income taxes......
Net loss.......................
<CAPTION>
TOTAL
(INCLUDES
RECURRING AND
NON-RECURRING
ITEMS)
-------------
<S> <C>
Operating revenues............. $ (30,928)
-----------
Costs and expenses:
Operating (exclusive of
depreciation and
amortization shown below)... 566,417
General and administrative.... 401,729
Depreciation and
amortization................ 59,628
Merger and acquisition related
costs....................... 31,568
Asset impairments and unusual
items....................... 680,284
Loss from continuing operations
held for sale, net of minority
interest...................... --
-----------
1,739,626
-----------
Loss from operations........... (1,770,554)
-----------
Other income (expense)
Interest expense.............. 702
Interest income............... 13,359
Minority interest............. (288)
Other income (expense)........ (5,736)
-----------
8,037
-----------
Loss before income taxes and
extraordinary items........... (1,762,517)
Benefit from income taxes...... 536,756
-----------
Net loss....................... $(1,225,761)
===========
</TABLE>
Subsequent to the completion of the accounting review, and in conjunction
with the process of preparing its monthly financial statements during the fourth
quarter of 1999 and on a final basis at December 31, 1999, additional
adjustments attributable to the reconciliation of intercompany accounts, cash,
accounts receivable, fixed assets, accounts payable and certain other accounts
were recorded.
The Company recorded significant adjustments in the third and fourth
quarters of 1999, certain of which affect periods prior to these quarters.
Accordingly, the Company, after consultation with its independent public
accountants, has concluded that its internal controls for the preparation of
interim financial information did not provide an adequate basis for its
independent public accountants to complete reviews of the quarterly financial
data for the quarters during 1999. The Company believes that certain charges
that were recorded in the third and fourth quarters of 1999 may relate to
individual prior periods; however, the Company does not have sufficient
information to identify all specific charges attributable to prior periods. If
identification of all specific charges attributable to individual prior periods
were possible, the Company believes that the reported results of operations
presented in Note 20 to the financial statements for the third and fourth
quarters of 1999 would have been favorably impacted, and the reported results of
operations for the first and second quarters of 1999 would have been adversely
impacted. In connection with the preparation of its third quarter financial
statements, the Company concluded, based on its quantitative and qualitative
analysis of available information, after consultation with its independent
public accountants, that it did not have, nor was it able to obtain, sufficient
information to conclude what amount of the charges relate to any individual
prior year, although
65
<PAGE> 68
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
qualitative analysis indicates that these charges are principally related to
1999. Accordingly, the Company has concluded that these charges were
appropriately reflected in the 1999 annual financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents -- Cash and cash equivalents consist primarily of
cash on deposit, certificates of deposit, money market accounts, and investment
grade commercial paper purchased with original maturities of three months or
less.
Restricted funds held by trustees -- Restricted funds held by trustees of
$167.1 million and $153.0 million at December 31, 1999 and 1998, respectively,
are included in other non-current assets and consist principally of funds
deposited in connection with landfill final closure and post-closure
obligations, insurance escrow deposits, and amounts held for landfill and other
construction arising from industrial revenue financings. These amounts are
principally invested in fixed income securities of federal, state and local
governmental entities and financial institutions. The Company considers its
landfill final closure, post-closure and construction escrow investments to be
held to maturity. At December 31, 1999 and 1998, the aggregate fair value of
these investments approximates their net book value and substantially all of
these investments mature within one year. The Company's insurance escrow funds
are invested in pooled investment accounts that hold debt and equity securities
and are considered to be available for sale. The market value of those pooled
accounts approximates their aggregate cost at December 31, 1999 and 1998.
Concentrations of credit risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company places its cash and
cash equivalents with high quality financial institutions and limits the amount
of credit exposure with any one institution. Concentrations of credit risk with
respect to accounts receivable are limited because a large number of
geographically diverse customers comprise the Company's customer base, thus
spreading the trade credit risk. At December 31, 1999 and 1998, no single group
or customer represents greater than 10% of total accounts receivable. The
Company controls credit risk through credit evaluations, credit limits, and
monitoring procedures. The Company performs credit evaluations for commercial
and industrial customers and performs ongoing credit evaluations of its
customers, but generally does not require collateral to support accounts
receivable.
Derivative financial instruments -- From time to time, the Company uses
derivatives to manage interest rate and currency risk. At December 31, 1999, the
Company also engaged in hedging of recyclable paper price risk. The Company's
policy is to use derivatives for risk management purposes only, which includes
maintaining the ratio between the Company's fixed and floating rate debt
obligations that management deems appropriate, and prohibits entering into such
contracts for trading purposes. The Company enters into derivatives only with
counterparties (primarily financial institutions) which have substantial
financial wherewithal to minimize credit risk. The amount of gains or losses
from the use of derivative financial instruments has not been and is not
expected to be material to the Company's financial statements.
Instruments accounted for as hedges must be effective at managing risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract. Accordingly, changes in market values or cash
flows of hedge instruments must have a high degree of inverse correlation with
changes in market values or cash flows of the underlying hedged items.
Derivatives that meet the hedge criteria are accounted for under the deferral or
accrual method. See Note 9.
Operations held for sale -- It is the Company's policy to classify the
businesses that the Company is marketing for sale and the portfolio of real
estate that the Company considers surplus and is marketing for sale, as
operations held for sale. The carrying values of these assets are written down
to fair value, less costs to sell. These charges are based on estimates and
certain contingencies that could materially differ from actual results and
resolution of any such contingencies. In the fourth quarter of 1999, the Company
identified certain
66
<PAGE> 69
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations for sale whose depreciation on fixed assets was discontinued as of
October 1, 1999. If depreciation had not been discontinued, depreciation and
amortization for 1999 would have increased by $45.6 million.
Property and equipment -- Property and equipment are recorded at cost.
Except for the Company's waste-to-energy and independent power facilities,
expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. At the
Company's waste-to-energy and independent power facilities, the Company accrues
for major maintenance expenditures. Such accruals are based upon planned
maintenance expenditures and are classified as current or non-current
liabilities based on the expected timing of the expenditures.
When property and equipment are retired or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the results of operations as increases or offsets to
operating expense for the respective period. Depreciation is provided over the
estimated useful lives of the related assets using the straight-line method. The
estimated useful lives for significant property and equipment categories are as
follows (in years):
<TABLE>
<CAPTION>
OCTOBER 1, 1997 PRIOR TO
AND THEREAFTER OCTOBER 1, 1997
--------------- ---------------
<S> <C> <C>
Vehicles................................................. 3 to 10 3 to 12
Machinery and equipment.................................. 3 to 20 3 to 20
Commercial and roll-off containers....................... 8 to 12 8 to 20
Buildings and improvements............................... 10 to 40 10 to 40
</TABLE>
As of October 1, 1997, and thereafter, the Company assumes no salvage value
for its depreciable North American fixed assets. Prior to October 1, 1997, WM
Holdings assigned salvage value to certain fixed asset categories as described
in Note 5.
Landfill accounting -- Capitalizable landfill site costs are recorded at
cost. Recorded costs, net of recorded amortization, are added to estimated
projected costs to determine the amount to be amortized over the remaining
estimated useful life of a site. Amortization is recorded on a units of
consumption basis, typically applying cost as a rate per ton. Landfill site
costs are amortized to expected net realizable value upon final closure of a
landfill.
The difference between the present value of a landfill's estimated total
final closure and post-closure costs and amounts accrued to date is accrued
prospectively on a units of consumption basis, typically by applying a rate per
ton over the remaining capacity of the landfill. The present value of final
closure and post-closure costs are accrued for each landfill once the site
discontinues operations.
The remaining capacity of a landfill is determined by the unutilized
permitted airspace and expansion airspace when the success of obtaining such
expansion permit 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 permit 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;
67
<PAGE> 70
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 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.
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 are generally due to permit application processes beyond the one-year
limit, which in most cases, are due to state-specific permitting procedures.
Generally, the Company has been successful in receiving approvals for 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 between fiscal quarters due to changes in volumes
of waste disposal at the Company's landfills. Airspace amortization is also
affected by changes in engineering costs and estimates.
Business combinations -- The Company assesses each business combination to
determine whether the pooling of interests or the purchase method of accounting
is appropriate. For those business combinations accounted for under the pooling
of interests method, the financial statements are combined with those of the
Company at their historical amounts, and, if material, all periods presented are
restated as if the combination occurred on the first day of the earliest year
presented. For those acquisitions accounted for using the purchase method of
accounting, the Company allocates the cost of the acquired business to the
assets acquired and the liabilities assumed based on estimates of fair values
thereof. These estimates are revised during the allocation period as necessary
when, and if, information regarding contingencies becomes available to define
and quantify assets acquired and liabilities assumed. The allocation period
generally does not exceed one year. To the extent contingencies such as
preacquisition environmental matters, litigation and related legal fees are
resolved or settled during the allocation period, such items are included in the
revised allocation of the purchase price. After the allocation period, the
effect of changes in such contingencies is included in results of operations in
the periods in which the adjustments are determined. The Company does not
believe potential differences between its fair value estimates and actual fair
values will be material.
In certain business combinations, the Company agrees to pay additional
amounts to sellers contingent upon achievement by the acquired businesses of
certain negotiated goals, such as targeted revenue levels, targeted disposal
volumes or the issuance of permits for expanded landfill airspace. Contingent
payments, when incurred, are recorded as purchase price adjustments or
compensation expense, as appropriate, based on the nature of each contingent
payment.
Excess of cost over net assets of acquired businesses and other intangible
assets -- The excess of cost over net assets of acquired businesses is amortized
on a straight-line basis over a period not greater than 40 years commencing on
the dates of the respective acquisitions. Accumulated amortization for the
excess of cost over net assets of acquired businesses was $627.2 million and
$813.6 million at December 31, 1999 and 1998, respectively. Other intangible
assets consist primarily of customer lists, covenants not to compete, licenses
and permits. Other intangible assets are recorded at cost and amortized on a
straight-line basis. Customer lists are generally amortized over five to seven
years. Covenants not to compete are amortized over the term of the
68
<PAGE> 71
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement, which is generally three to five years. Licenses, permits and
contracts are amortized over the shorter of the definitive terms of the related
agreements or 40 years. Accumulated amortization for other intangible assets was
$135.9 million and $113.3 million at December 31, 1999 and 1998, respectively.
The Company recorded $271.0 million, $184.1 million and $149.7 million of
amortization expense for excess of costs over net assets of acquired businesses
and other intangibles for 1999, 1998 and 1997, respectively.
Long-lived assets -- Long-lived assets consist primarily of property and
equipment, excess of cost over net assets of acquired businesses, and other
intangible assets. The recoverability of long-lived assets is evaluated
periodically at the operating unit level by an analysis of operating results and
consideration of other significant events or changes in the business
environment. If an operating unit has indications of possible impairment, such
as current operating losses, the Company will evaluate whether impairment exists
on the basis of undiscounted expected future cash flows from operations for the
remaining amortization period. If an impairment loss exists, the carrying amount
of the related long-lived assets is reduced to its estimated fair value.
Contracts in process -- Contracts in process relate to contracts involving
a substantial construction component. For 1998, such contracts primarily related
to activities performed by the Company's international operations. In 1999, this
presentation does not include contracts for certain of the Company's WM
International operations because they have been classified as operations held
for sale as of December 31, 1999. Contracts in process are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- -----------
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts....... $ 143,185 $ 1,312,158
Less billings on uncompleted contracts...................... (137,594) (1,213,795)
--------- -----------
Total contracts in process........................ $ 5,591 $ 98,363
========= ===========
</TABLE>
Contracts in process are included in the accompanying balance sheets under
the following captions (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 8,985 $127,975
Billings in excess of costs and estimated earnings on
uncompleted contracts (included in deferred revenues)..... (3,394) (29,612)
------- --------
Total contracts in process........................ $ 5,591 $ 98,363
======= ========
</TABLE>
As of December 31, 1999, all contracts in process are expected to be billed
and collected within two years.
Income taxes -- Deferred income taxes are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities. Deferred income tax expense represents the change during the
reporting period in the deferred tax assets and deferred tax liabilities, net of
the effect of acquisitions and dispositions. Deferred tax assets include tax
loss and credit carryforwards and are reduced by a valuation allowance if, based
on available evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Foreign currency -- The functional currency of the majority of the
Company's foreign operations is the local currency of the country in which the
Company operates. Adjustments resulting from the translation of financial
information are included in comprehensive income.
Revenue recognition -- The Company recognizes revenues on service contracts
as services are provided. Amounts billed and collected prior to services being
performed are included in deferred revenues. Results
69
<PAGE> 72
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from long-term contracts involving a substantial construction component are
recorded on the percentage-of-completion basis. Changes in project performance
and conditions, estimated profitability and final contract settlements may
result in future revisions to long-term construction contract costs and income.
Capitalized interest -- Interest is capitalized on certain projects under
development including greenfield landfill projects and probable landfill
expansion projects, and on certain assets under construction, including
operating landfills and waste-to-energy facilities. The capitalization of
interest for operating landfills is based on the costs incurred on discrete cell
construction projects, plus an allocated portion of the common site costs. The
common site costs include the development costs of a greenfield site or the
purchase price of an operating landfill, and the ongoing infrastructure costs
benefiting the lifecycle of the landfill. Cell construction costs include the
construction of cell liners and final capping during the operating life of the
site. During 1999, 1998, and 1997, total interest costs were $804.0 million,
$723.0 million and $607.0 million, respectively, of which $34.3 million, $41.5
million and $51.4 million were capitalized, respectively.
Cumulative Effect of Change in Accounting Principle -- In the fourth
quarter of 1997, the Company began expensing process reengineering costs in
accordance with the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 97-13. Accordingly, the Company expensed any amounts previously
capitalized, which reduced net income by $1.9 million in 1997.
New accounting pronouncements -- In June 1998, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities was issued. 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.
4. BUSINESS COMBINATIONS
Pooling of Interests Transactions
On December 31, 1998, the Company consummated the Eastern Merger, which was
accounted for as a pooling of interests, and accordingly, the accompanying
financial statements include the accounts and operations of Eastern for all
periods presented. Under the terms of the Eastern Merger, the Company issued
0.6406 of a share of its common stock for each share of Eastern's outstanding
common stock. Prior to the Eastern Merger, the Company owned approximately 1.3%
of Eastern's outstanding shares, which were canceled on the effective date of
the Eastern Merger. The Eastern Merger increased the Company's outstanding
shares of common stock by approximately 24.5 million shares, and the Company
assumed Eastern's stock options equivalent to approximately 2.3 million
underlying shares of the Company's common stock. The results of operations for
Eastern prior to consummation of the Eastern Merger for the restated periods are
as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Operating revenues......................................... $227,821 $170,148
Income from continuing operations before income taxes...... 34,121 6,016
Net income................................................. 17,483 4,139
</TABLE>
Prior to December 31, 1997, Eastern reported on a June 30 fiscal year-end.
The accounts of Eastern for its 1997 fiscal year have been consolidated with the
accounts of the Company as of and for the year ended December 31, 1997.
Operating revenues and net income for Eastern for the six-month period ended
70
<PAGE> 73
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997, were approximately $119.5 million and $5.3 million,
respectively. Accordingly, an adjustment is included in the Company's 1998
financial statements for this six-month period. In addition, Eastern issued
shares of its common stock in connection with acquisitions and a public offering
during that six-month period.
On July 16, 1998, the Company consummated a merger with WM Holdings, which
was accounted for as a pooling of interests and, accordingly, the accompanying
financial statements include the accounts and operations of WM Holdings for all
periods presented. Under the terms of the WM Holdings Merger, the Company issued
0.725 of a share of its common stock for each share of WM Holdings outstanding
common stock. The WM Holdings Merger increased the Company's outstanding shares
of common stock by approximately 354.0 million shares, and the Company assumed
WM Holdings' stock options equivalent to approximately 16.0 million underlying
shares of the Company's common stock. Any unvested WM Holdings' stock options
granted prior to March 10, 1998 vested upon consummation of the WM Holdings
Merger due to change of control provisions. The results of operations for WM
Holdings prior to consummation of the WM Holdings Merger for the restated
periods are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Operating revenues........................................ $2,131,621 $ 9,188,582
Income (loss) from continuing operations before income
taxes................................................... 170,968 (1,053,673)
Net income (loss)......................................... 74,417 (1,176,104)
</TABLE>
In 1999, the Company incurred approximately $44.6 million in merger costs
primarily related to the WM Holdings Merger and the Eastern Merger. The table
below reflects the amounts charged to merger costs in 1998 related to the WM
Holdings Merger and the Eastern Merger (in thousands):
<TABLE>
<CAPTION>
WM HOLDINGS EASTERN
CHARGES IN CHARGES IN
1998 1998
----------- ----------
<S> <C> <C>
Transaction or deal costs, primarily professional fees and
filing fees............................................... $ 124,100 $ 14,300
Employee severance, separation and transitional costs....... 323,900 25,500
Restructuring charges relating to the consolidation and
relocation of operations, and the transition and
implementation of information systems..................... 166,900 20,500
Estimated loss on the sale of:
Assets to comply with governmental orders................. 255,000 32,200
Duplicate facilities and related leasehold improvements... 188,900 29,300
Duplicate revenue producing assets........................ 26,200 32,400
Provision for the abandonment of:
Revenue producing assets.................................. 126,600 3,000
Non-revenue producing assets, consisting of landfill
projects and leasehold improvements which were
determined to be duplicative assets from the related
merger................................................. 263,000 6,500
Other assets, consisting primarily of computer hardware
and software costs which have no future value.......... 150,300 1,500
---------- --------
Total............................................. $1,624,900 $165,200
========== ========
</TABLE>
Merger and acquisition related costs include estimates for anticipated
losses from the sales of assets pursuant to governmental orders and other asset
divestiture plans. These anticipated losses have been estimated based on the
Company's assessment of relevant facts and circumstances, including
consideration of
71
<PAGE> 74
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the various provisions of asset sale agreements. In certain instances, the asset
sale agreements contain contingencies, the resolution of which are uncertain and
may materially change the proceeds which the Company will ultimately receive.
During the second quarter of 1999, the Company resolved an outstanding
contingency regarding its governmentally-ordered sale of assets to Republic
Services, Inc., which reduced the previously reported loss on that sale by
approximately $80.0 million. Offsetting this amount in the same quarter, the
Company (i) consummated its sale of 51% of its non-land disposal hazardous waste
operations and on-site industrial cleaning services to Vivendi S.A. which
resulted in losses of approximately $79 million greater than previously
estimated; (ii) increased its anticipated losses by approximately $14 million
related to the assets required to be sold pursuant to the Eastern Merger; and
(iii) decreased other anticipated losses by approximately $13 million.
Furthermore, the Company recorded certain unusual charges of $864.1 million
in 1998 that were primarily, yet indirectly, related to the WM Holdings Merger
as discussed in Note 15.
On August 26, 1997, the Company consummated a merger with United Waste
Systems, Inc. ("United") which was accounted for as a pooling of interests (the
"United Merger") and, accordingly, the accompanying financial statements include
the accounts and operations of United for all periods presented. Under the terms
of the United Merger, the Company issued 1.075 shares of its common stock for
each outstanding share of United common stock. Additionally, at the effective
date of the United Merger, United stock options, whether or not such stock
options had vested or had become exercisable, were canceled in exchange for
shares of the Company's common stock equal in market value to the fair value of
such United stock options, as determined by an independent third party. The
United Merger increased the Company's outstanding shares of common stock by
approximately 51.9 million shares, which includes approximately 1.9 million
shares exchanged for the United stock options. In the third quarter of 1997, the
Company incurred approximately $89.2 million in merger costs associated with the
United Merger. Of this amount, $17.6 million was for transaction costs, $26.2
million for severance and other termination benefits, $21.6 million for
integration of operations, and $23.8 million for disposal of duplicate
facilities and impaired assets as a result of the United Merger. The results of
operations for United prior to consummation of the United Merger for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997
----------------
(UNAUDITED)
<S> <C>
Operating revenues.................................. $216,619
Net income.......................................... 23,849
</TABLE>
Purchase Acquisitions and Acquisitions of Minority Interests
During 1999, the Company consummated over 240 acquisitions that were
accounted for under the purchase method of accounting. The total cost of
acquisitions was approximately $1.4 billion, which included cash paid, common
stock issued and debt assumed.
The Company consummated purchases of outstanding minority interest and
numerous acquisitions in 1998 that were accounted for under the purchase method
of accounting. The total cost of all acquisitions accounted for under the
purchase method of accounting, and completed purchases of outstanding minority
interests, was approximately $4.1 billion in 1998.
The pro forma information set forth below assumes acquisitions in 1999 and
1998 accounted for as if the purchases had occurred at the beginning of 1998.
The pro forma information is presented for informational
72
<PAGE> 75
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the acquisitions been consummated at
that time (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating revenues......................................... $13,423,975 $13,824,390
Loss from continuing operations............................ (376,238) (688,379)
Net loss................................................... (378,751) (692,279)
Basic loss per common share:
Loss from continuing operations.......................... (0.61) (1.17)
Net loss................................................. (0.62) (1.18)
Diluted loss per common share:
Loss from continuing operations.......................... (0.61) (1.17)
Net loss................................................. (0.62) (1.18)
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land and landfills......................................... $ 8,009,123 $ 8,358,535
Vehicles................................................... 2,761,866 2,889,029
Machinery and equipment.................................... 2,254,390 3,069,041
Containers................................................. 1,871,228 1,846,226
Buildings and improvements................................. 1,383,203 1,624,614
Furniture and fixtures..................................... 189,466 509,137
----------- -----------
16,469,276 18,296,582
Less accumulated depreciation and amortization............. 6,165,473 6,670,925
----------- -----------
$10,303,803 $11,625,657
=========== ===========
</TABLE>
Depreciation and amortization expense for property and equipment was $1.3
billion for each of 1999 and 1998, and $1.2 billion for 1997.
The exclusion of certain landfill expansions from the airspace amortization
estimates due to more stringent criteria (see Note 3) and related business
judgements regarding probable success increased depreciation and amortization
expense and the provision for final closure and post-closure (included in
operating expenses) in the second half of 1999. The exclusions of these
expansions also resulted in the Company recognizing $32.6 million in landfill
impairments in the third quarter of 1999 (see Note 2).
Effective October 1, 1997, the Board of Directors of WM Holdings approved a
revision to WM Holdings' North American collection fleet management policy.
Under the revised policy, WM Holdings replaced front-end loaders after eight
years, and rear-end loaders and roll-off trucks after ten years. The previous
policy was to not replace front-end loaders before they were a minimum of ten
years old and other heavy collection vehicles before they were a minimum of 12
years old. As a result of this decision, the Company recognized an impairment
writedown of $70.9 million in the fourth quarter of 1997 for those vehicles
scheduled for replacement in the next two years under the new policy.
Depreciable lives were adjusted for the WM Holdings' fleet commencing in the
fourth quarter of 1997 to reflect the new policy. Also effective October 1,
1997, WM Holdings reduced depreciable lives on containers from 15 and 20 years
to 12 years, and ceased assigning salvage value in computing depreciation on
North American collection vehicles or containers. These changes in estimates
resulted in an increase in depreciation expense of $33.7 million in the fourth
quarter of 1997.
73
<PAGE> 76
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon consummation of the WM Holdings Merger, WM Holdings' replacement policies
were conformed with that of the Company, which are materially consistent with
the revised WM Holdings' policy stated above.
Also effective October 1, 1997, WM Holdings changed its process of
evaluating the probability that airspace from expansions would be permitted.
This change in estimate decreased the useful lives of certain WM Holdings
landfills and increased depreciation and amortization expense and the provision
for final closure and post-closure by $15.8 million in the fourth quarter of
1997.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Bank credit facilities..................................... $ 2,250,000 $ 1,903,100
Commercial paper, average interest of 5.5% in 1999 and 5.7%
in 1998.................................................. 21,899 840,108
Senior notes and debentures, interest of 6% to 8 3/4%
through 2029............................................. 6,749,785 5,959,884
4% Convertible subordinated notes due 2002................. 535,275 535,275
4 1/2% Convertible subordinated notes due 2001............. -- 148,370
5% Convertible subordinated debentures due 2006............ -- 114,445
5.75% Convertible subordinated notes due 2005.............. 426,726 453,680
Tax-exempt and project bonds, principal payable in periodic
installments, maturing through 2021, fixed and variable
interest rates ranging from 4.75% to 9.25% at December
31, 1999................................................. 1,234,668 1,220,634
Installment loans, notes payable, and other, interest to
14%, maturing through 2015............................... 279,735 556,865
----------- -----------
11,498,088 11,732,361
Less current maturities.................................... 3,098,742 597,742
----------- -----------
$ 8,399,346 $11,134,619
=========== ===========
</TABLE>
The aggregate estimated payments, including scheduled minimum maturities,
of long-term debt outstanding at December 31, 1999, are as follows (in
thousands).
<TABLE>
<S> <C>
2000................................................... $ 3,098,742(a)
2001................................................... 755,925
2002................................................... 1,552,351
2003................................................... 587,966
2004................................................... 725,197
Thereafter............................................. 4,777,907
-----------
$11,498,088
===========
</TABLE>
- ---------------
(a) Consists of $848.7 million that will be repaid in 2000 under the terms of
the respective credit agreements and $2.25 billion of debt, which is
classified as current based on the likelihood that the Company will be in
non-compliance with certain of the financial requirements under its credit
agreements in the year 2000.
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
74
<PAGE> 77
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Syndicated Facility and Credit Facility are used to refinance existing bank
loans and letters of credit, to fund acquisitions, and for working capital
purposes.
As a result of the charges and adjustments recorded in the third quarter of
1999 (see Note 2), absent waivers, the Company would not have been in compliance
with certain financial covenants as required by its bank credit facilities as of
September 30, 1999. The Company received waivers from each of its bank groups
for the period ended September 30, 1999, enabling the Company to be in full
compliance with and have full access to its existing bank credit facilities. In
December 1999, the Company received unanimous approval for amendments to its
existing $2 billion, $3 billion, and Eurocurrency bank credit facilities. The
approvals provide 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 its strategy of divesting
certain of its international and non-core assets.
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 WM International
operations, domestic non-core assets and up to 10% of its NASW operations
pursuant to 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 WM International operations must be used to repay indebtedness
under the Company's Eurocurrency facilities. The net proceeds remaining after
the repayment of the Eurocurrency facilities will be counted as, and therefore
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 was in compliance with all financial requirements under its
credit agreements as of December 31, 1999. However, the Company anticipates that
its cash flows from operations for the year 2000 will likely not be sufficient
for the Company to maintain compliance with certain of the financial ratios
contained in its Syndicated Facility, Credit Facility, and Eurocurrency credit
facilities. Therefore, it has classified the borrowings outstanding under the
Syndicated Facility and the Credit Facility as short-term obligations as of
December 31, 1999. The Eurocurrency credit facility is included in operations
held for sale at December 31, 1999. As discussed in the preceding paragraph, the
Company expects to make a substantial principal reduction on these facilities
with the net proceeds of its anticipated divestitures. The Company intends to
pursue waivers or amendments of such agreements in advance of any potential
violation of the credit agreements. However, there can be no assurance that, in
the event the Company actually violates its agreements, that such waivers or
amendments will be obtained. Failure to obtain such waivers or amendments would
have an adverse effect on the Company's financial condition, results of
operations and cash flows.
At December 31, 1999, the Company had borrowings of $1.75 billion under the
Syndicated Facility at 7.54% interest, and had borrowings of $500.0 million
under the Credit Facility at 7.25% interest. The facility fees were 0.20% and
0.25% per annum under the Syndicated Facility and Credit Facility, respectively,
at December 31, 1999. 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
December 31, 1999.
At December 31, 1998, the Company's long-term debt balances included two
Eurocurrency credit facilities. On December 17, 1999, the Company's two
Eurocurrency facilities were converted into two Euro term loans totaling Euro
180.6 million (equivalent to approximately $181.9 million). These loans are
included in current liabilities of operations held for sale at December 31,
1999, as they relate to WM International operations, which are being sold
pursuant to the Company's strategic plan. These facilities mature on July 3,
75
<PAGE> 78
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000. The initial interest rate is 4.80% for the first 32 day period and will be
reset based on Euro LIBOR rates each 30 days until paid.
In 1999, the Company redeemed its $150.0 million of 4 1/2% convertible
subordinated notes and its $115.0 million of 5% convertible subordinated
debentures. These debentures were subsequently converted into equity by the
debenture holders. Approximately 9.0 million shares of the Company's common
stock were issued upon such conversions.
On May 21, 1999, the Company completed a private placement of $1.15 billion
of its senior notes. The Company issued $200.0 million of 6% senior notes, due
2001; $200.0 million of 6 1/2% senior notes due 2004; $500.0 million of 6 7/8%
senior notes due 2009; and $250.0 million of 7 3/8% senior notes due 2029. The
senior notes constitute senior and unsecured obligations of the Company ranking
equal in right of payment with all other senior and unsecured obligations of the
Company, as defined in the indenture. The 6% senior notes are not redeemable by
the Company. The 6 1/2% senior notes, the 6 7/8% senior notes, and 7 3/8% senior
notes are redeemable, in whole or in part, at the option of the Company at any
time, or from time to time, at a redemption price defined in the indenture.
Interest is payable semi-annually on May 15 and November 15. All proceeds from
the private placement notes were used to repay outstanding debt under the Credit
Facility and to reduce the amount of commercial paper outstanding.
On July 17, 1998, the Company issued $600.0 million of 7% senior notes, due
on July 15, 2028 (the "7% Notes") and $600.0 million of 6 1/8% mandatorily
tendered senior notes, due on July 15, 2011 (the "6 1/8% Notes"). The 7% Notes
are redeemable, in whole or in part, at the option of the Company at any time
and from time to time at the redemption price, as defined in the indenture. The
6 1/8% Notes are subject to certain mandatory tender features as described in
the indenture, which may require the purchase by the Company of a portion of or
all of the outstanding notes on July 15, 2001. The proceeds from the 7% Notes
and 6 1/8% Notes were used to repay outstanding indebtedness under the Company's
credit facilities. Interest on the 7% Notes and 6 1/8% Notes is payable
semi-annually on January 15 and July 15.
On December 17, 1997, the Company issued $350.0 million of 6 1/2% senior
notes due December 15, 2002, and $150.0 million of 7 1/8% senior notes due
December 15, 2017. The senior notes constitute senior and unsecured obligations
of the Company ranking equal in right of payment with all other senior and
unsecured obligations of the Company, as defined in the indenture. The 6 1/2%
senior notes due December 15, 2002, are not redeemable. The $150.0 million of
7 1/8% senior notes due December 15, 2017, are redeemable, in whole or in part,
at the option of the Company at any time and from time to time at a redemption
price defined in the indenture. Interest is payable semi-annually on December 15
and June 15. The proceeds were used to repay debt under the Company's credit
facilities.
On February 7, 1997, the Company issued $535.3 million of 4% convertible
subordinated notes, due on February 1, 2002. Interest is payable semi-annually
in February and August. The notes are convertible by the holders into shares of
the Company's common stock at any time at a conversion price of $43.56 per
share. The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined in the indenture. The notes are redeemable after
February 1, 2000 at the option of the Company at 101.6% of the principal amount,
declining to 100.8% of the principal amount on February 1, 2001 and thereafter
until maturity, at which time the notes will be redeemed at par, plus accrued
interest. The proceeds were primarily used to repay debt under the Company's
bank borrowings, to fund acquisitions, and for general corporate purposes.
The 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 of the holder, each note can be redeemed for
cash by the Company on March 15, 2000, at $843.03. Accrued
76
<PAGE> 79
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unpaid interest to those dates will also be paid. The notes will be callable by
the Company on and after March 15, 2000, for cash, at the stated issue price
plus accrued stated discount and accrued but unpaid interest through the date of
redemption. In addition, each note is convertible at any time prior to maturity
into 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 will have the option of paying cash equal to the market value of the
shares which would otherwise be issuable. Since these securities are redeemable
at the option of the holders prior to maturity, the outstanding balance is
classified as current in the accompanying financial statements. In December of
1999, the Company began repurchasing its 5.75% convertible notes. At December
31, 1999, the Company had repurchased $32.3 million of these notes. Through
March 16, 2000, the Company had repurchased an additional $397.9 million of the
remaining outstanding notes.
7. 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 the 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 United States, the final
closure and post-closure requirements are established under the standards of the
United States Environmental Protection Agency's 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.
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 84 sites listed on the Superfund National
Priorities List ("NPL") as of December 31, 1999. 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
77
<PAGE> 80
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 SFAS No. 5, Accounting for Contingencies. The Company
believes that it is "reasonably possible," as that term is defined in SFAS No. 5
("more than remote but less than likely"), that its potential liability, at the
high end of such ranges, would be approximately $190.0 million higher, on a
discounted basis in the aggregate than the estimate that has been recorded in
the consolidated financial statements as of December 31, 1999.
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
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 (2% at December 31, 1999
and 1998) until expected time of payment and then discounted to present value
(5.5% at December 31, 1999 and 1998). 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. The portion of the Company's
recorded environmental liabilities that is not inflated or discounted was
approximately $370.6 million and $492.3 million at December 31, 1999 and 1998,
respectively. Had the Company not discounted any portion of its liability, the
amount recorded would have been increased by approximately $342.9 million at
December 31, 1999.
The Company's liabilities for final closure, post-closure and environmental
remediation costs are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Current portion, included in accrued liabilities............ $ 140,101 $ 150,592
Non-current portion......................................... 837,407 1,040,747
---------- ----------
Total recorded.............................................. 977,508 $1,191,339
==========
Amount to be provided including discount of $342,900 related
to recorded amounts....................................... 1,657,578
----------
Expected aggregate environmental liabilities based on
current cost.............................................. $2,635,086
==========
</TABLE>
78
<PAGE> 81
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Anticipated payments (based on current costs) of environmental liabilities
at December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000.................................................... $ 140,101
2001.................................................... 64,599
2002.................................................... 61,248
2003.................................................... 55,313
2004.................................................... 40,468
Thereafter.............................................. 2,273,357
----------
Total......................................... $2,635,086
==========
</TABLE>
In addition to the amounts above, at a certain site, the Company has
perpetual care obligations aggregating approximately $1.5 million per year.
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. Settlements to date
($7.1 million in 1999, $46.6 million in 1998, and $94.3 million in 1997) have
been included in operating costs and expenses as an offset to environmental
expenses.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of the Company's financial instruments
have been determined by the Company using available market information and
commonly accepted valuation methodologies. However, considerable judgement is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company or holders of the instruments could realize in a
current market exchange. The use of different assumptions and/ or estimation
methodologies may have a material effect on the estimated fair values. The fair
value estimates presented herein are based on information available to
management as of December 31, 1999 and 1998. Such amounts have not been revalued
since those dates, and current estimates of fair value may differ significantly
from the amounts presented herein.
The carrying values of cash and cash equivalents, short-term investments,
restricted funds held by trustees, trade accounts receivable, trade accounts
payable, financial instruments included in notes and other receivables and
financial instruments included in other assets approximate their fair values
principally because of the short-term maturities of these instruments.
79
<PAGE> 82
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair values of the Company's outstanding indebtedness is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Senior notes and debentures.............. $6,749,785 $6,185,236 $5,959,884 $6,202,556
4% Convertible subordinated notes due
2002................................... 535,275 469,436 535,275 641,795
4 1/2% Convertible subordinated notes due
2001................................... -- -- 148,370 232,985
5% Convertible subordinated debentures
due 2006............................... -- -- 114,445 188,489
5.75% Convertible subordinated notes due
2005................................... 426,726 353,500 453,680 442,928
Tax-exempt and project bonds............. 1,234,668 1,204,925 1,220,634 1,320,841
Other borrowings......................... 2,551,634 2,563,597 3,300,073 3,340,848
</TABLE>
9. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate agreements -- The Company has entered into interest rate swap
agreements to balance fixed and floating rate debt in accordance with
management's criteria (see Note 3). The agreements are contracts to exchange
fixed and floating interest rate payments periodically over a specified term
without the exchange of the underlying notional amounts. The agreements provide
only for the exchange of interest on the notional amounts at the stated rates,
with no multipliers or leverage. Differences paid or received are accrued in the
consolidated financial statements as a part of interest expense on the
underlying debt over the life of the agreements, and the swap is not recorded on
the balance sheet. As of December 31, 1999, interest rate agreements in notional
amounts and with terms as set forth in the following table were outstanding (in
thousands):
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
CURRENCY (IN U.S. DOLLARS) RECEIVE PAY MATURITY DATE
- -------- ----------------- -------- -------- -------------------------
<S> <C> <C> <C> <C>
Dutch Guilder.......... $ 27,600 Floating Fixed January 21, 2000
German Deutschemark.... $ 25,750 Floating Fixed January 21, 2000
French Franc........... $ 30,600 Fixed Floating December 31, 2002
U.S. Dollar............ $ 52,232 Floating Fixed Through December 31, 2012
U.S. Dollar............ $1,028,570 Fixed Floating Through April 1, 2010
</TABLE>
Commodity agreements -- The Company has entered into recycled paper swap
agreements to help mitigate the price volatility of recycled paper. The
agreements are contracts to exchange fixed and floating commodity prices over a
fixed period of time. All of the Company's recyclable paper hedges are
cash-settled on a monthly basis with the counterparty. At December 31, 1999 the
Company had recycled paper swap agreements for a total notional amount of 14,100
tons per month expiring at various dates through February 2007 at a weighted
average contract price of $66 per ton. These swap agreements are not recorded on
the balance sheet.
Fair values -- The fair values of the interest rate swaps and recycled
paper swaps represent the amounts at which the agreements could be settled based
on estimated market rates. At December 31, 1999, the Company would have had to
pay $26.5 million and $4.5 million to settle the interest rate swap agreements
and recycled paper swap agreements, respectively.
80
<PAGE> 83
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CAPITAL STOCK
The Board of Directors is authorized to issue preferred stock in series,
and with respect to each series, to fix its designation, relative rights
(including voting, dividend, conversion, sinking fund, and redemption rights),
preferences (including dividends and liquidation), and limitations. The Company
currently has no issued or outstanding preferred stock.
In 1999, the Company resolved certain litigation relating to
stock-for-asset acquisitions through the issuance of approximately 1,125,000
shares of the Company's common stock, which were issued in February 2000.
As discussed in Note 6, in 1999, certain of the Company's convertible
subordinated notes and convertible subordinated debentures were converted into
approximately 9.0 million shares of common stock.
In June 1998, Eastern completed the registration and sale of approximately
8.6 million shares of its common stock at $26.38 per share (equivalent to
approximately 5.5 million shares of the Company's common stock at $41.17 per
share). This public offering included the sale of 500,000 shares of Eastern
common stock by selling shareholders (equivalent to 320,300 shares of the
Company's common stock). The net proceeds, after deducting fees and related
costs, were approximately $205.0 million and were primarily used to repay debt
under Eastern's credit facility and for general corporate purposes.
As a condition to completing the WM Holdings Merger, during June 1998, WM
Holdings sold 20.0 million shares of its common stock from its treasury
(equivalent to 14.5 million shares of the Company's common stock) in an offering
to the public. The net proceeds of approximately $607.0 million were used by WM
Holdings to retire outstanding debt under its credit facilities.
In June 1997, prior to the WM Holdings Merger, the Company acquired a
majority of the Canadian solid waste businesses of WM Holdings in a purchase
business combination for consideration that included approximately 1.7 million
shares of the Company's common stock. WM Holdings sold its shares of the
Company's common stock on the open market during December 1997 for approximately
$65.0 million. Because the WM Holdings Merger was accounted for as a pooling of
interests, WM Holdings' sale of its shares of the Company's common stock is
treated as an equity offering to the public for financial reporting purposes.
On March 3, 1997, prior to the United Merger, United completed a public
offering in which it issued approximately 3.5 million shares of its common
stock, priced at $36.50 per share (equivalent to 3.7 million shares of the
Company's common stock, priced at $33.95 per share). The net proceeds of
approximately $119.0 million were used to repay debt under United's credit
facility, to fund acquisitions and for general corporate purposes.
On February 7, 1997, the Company completed a public offering of 11.5
million shares of its common stock, priced at $35.13 per share. The net proceeds
of approximately $387.4 million were primarily used to repay bank borrowings.
In February 1997, the board of directors of WM Holdings authorized the
repurchase of up to 50.0 million shares of its own common stock (equivalent to
36.3 million shares of the Company's common stock) in the open market, in
privately negotiated transactions or through issuer tender offers. WM Holdings
repurchased 30.0 million shares of its own common stock (equivalent to 21.8
million shares of the Company's common stock) through a "Dutch auction" tender
offer in the second quarter of 1997.
During 1994 through 1996, WM Holdings sold put options on 42.3 million
shares of its common stock (equivalent to 30.7 million shares of the Company's
common stock). The put options gave the holders the right at maturity to require
WM Holdings to repurchase shares of its common stock at specified prices.
Proceeds from the sale of put options were credited to additional paid-in
capital. The amount WM Holdings
81
<PAGE> 84
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would be obligated to pay to repurchase shares of its common stock if all
outstanding put options were exercised was reclassified to a temporary equity
account. In the event the options were exercised, WM Holdings had the right to
pay the holder the difference in cash between the strike price and the market
price of WM Holdings' shares, in lieu of repurchasing the stock. Options on 32.5
million shares expired unexercised, as the price of WM Holdings' stock was in
excess of the strike price at maturity. WM Holdings repurchased 3.1 million
shares of its common stock at a cost of $107.5 million, and 6.7 million options
were settled for cash of $13.6 million. There were no put options outstanding at
and subsequent to December 31, 1997.
As of December 31, 1999, the Company is limited in its ability to pay
dividends pursuant to its current credit agreements of amounts not to exceed
$25.0 million per year. The Company declared cash dividends of approximately
$6.2 million, $93.8 million, and $309.6 million to its shareholders during 1999,
1998, and 1997, respectively. Based on the Company's weighted average common
shares outstanding, the cash dividends per common share were $0.01, $0.16, and
$0.56 for 1999, 1998 and 1997, respectively.
11. COMMON STOCK OPTIONS AND WARRANTS
The Company accounts for its stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation cost for
stock options is recognized for stock option awards granted at or above fair
market value. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. The Company
has adopted the disclosure requirements of SFAS No. 123, which are included
below.
In accordance with the Company's 1993 Stock Option Incentive Plan, as
amended (the "1993 Plan"), options to purchase 26.5 million shares of the
Company's common stock may be granted to officers, directors, and key employees.
Options are granted under the 1993 Plan at an exercise price which equals or
exceeds the fair market value of the common stock on the date of grant, with
various vesting periods, and expire up to ten years from the date of grant.
Under the Company's 1996 Stock Option Plan for Non-Employee Directors
("1996 Directors Plan"), its directors who are not officers, full-time employees
or consultants of the Company receive an annual grant of 10,000 options on each
January 1. In accordance with the 1996 Directors Plan, options to purchase up to
1,400,000 shares of the Company's common stock may be granted, with one-year
vesting periods and expiration dates ten years from the date of grant. Options
may be granted at an exercise price which equals fair market value of the common
stock on the date of grant.
Stock options granted by the Company in 1999, 1998, and 1997 generally have
ten-year terms. At the effective date of the United Merger, United stock
options, whether or not such stock options had vested or had become exercisable,
were canceled in exchange for shares of the Company's common stock equal in
market value to the fair value of such United stock options, as determined by an
independent third party. Stock options granted by WM Holdings prior to March 10,
1998, became fully vested upon consummation of the WM Holdings Merger, and
certain of those include put provision benefits for up to a one-year period from
the date of the WM Holdings Merger, which expired in 1999 (See Note 4). WM
Holdings' options granted after March 10, 1998, continue to vest in accordance
with their original vesting schedule of 3 years. All other stock options granted
by merged entities continue to vest under varying vesting periods ranging from
immediate vesting to five years following the date of the grant.
The Company also has outstanding options and warrants related to various
predecessor plans acquired through merger and acquisition activity.
82
<PAGE> 85
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes common stock option and warrant transactions
under the aforementioned plans and various predecessor plans for 1999, 1998, and
1997:
<TABLE>
<CAPTION>
OPTIONS AND WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
----------- ----------------
(IN 000'S)
<S> <C> <C>
Outstanding at December 31, 1996.......................... 37,911 $27.13
Granted................................................. 10,424 35.20
Exercised............................................... (8,023) 17.26
Forfeited............................................... (2,681) 43.99
-------
Outstanding at December 31, 1997.......................... 37,631 30.46
Granted................................................. 10,645 43.92
Assumed in acquisitions................................. 1,986 36.77
Exercised............................................... (8,593) 34.17
Forfeited............................................... (859) 45.33
-------
Outstanding at December 31, 1998.......................... 40,810 32.72
Granted................................................. 8,206 33.86
Exercised............................................... (11,685) 26.88
Forfeited............................................... (598) 51.54
-------
Outstanding at December 31, 1999.......................... 36,733 34.53
=======
Exercisable at December 31, 1997.......................... 20,440 30.34
Exercisable at December 31, 1998.......................... 23,994 29.25
Exercisable at December 31, 1999.......................... 22,055 33.93
</TABLE>
In addition to the options and warrants discussed above, the Company also
has approximately 1.0 million warrants outstanding that were issued by United
prior to the United Merger that have a weighted average exercise price of $20.96
per share.
Outstanding and exercisable stock options and warrants at December 31,
1999, were as follows (in thousands):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------- ------------------------------
OPTIONS AND WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS AND WEIGHTED AVERAGE
EXERCISE PRICE WARRANTS EXERCISE PRICE REMAINING TERM WARRANTS EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.25 to $10.00............ 445 $ 6.38 3.3 years 445 $ 6.38
$10.01 to $20.00........... 6,290 14.40 6.1 years 4,261 13.73
$20.01 to $30.00........... 8,036 24.52 6.4 years 4,266 25.72
$30.01 to $40.00........... 8,363 35.29 7.0 years 4,797 35.59
$40.01 to $50.00........... 6,153 45.55 5.1 years 5,364 45.39
$50.01 to $140.16.......... 7,446 54.06 6.9 years 2,922 55.76
------ ------
$2.25 to $140.16........... 36,733 34.53 6.3 years 22,055 33.93
====== ======
</TABLE>
The weighted average fair value per share of common stock options and
warrants granted during 1999, 1998 and 1997 were $16.17, $18.61, and $11.92,
respectively. The fair value of each common stock option or warrant granted to
employees or directors by the Company during 1999, 1998 and 1997 is estimated
utilizing the Black-Scholes option-pricing model. The following weighted average
assumptions were used: dividend yield of 0% to 2%, risk-free interest rates
which vary for each grant and range from 4.63% to 7.67%, expected life of three
to seven years for all grants, and stock price volatility primarily ranging from
25.2% to 41.9% for all three to seven year grants.
83
<PAGE> 86
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company applied the recognition provisions of SFAS No. 123, the
Company's net loss and loss per common share for 1999, 1998, and 1997 would
approximate the pro forma amounts shown below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported............................................. $(397,564) $(770,702) $(938,895)
Pro forma............................................... (479,455) (833,014) (978,831)
Basic loss per common share:
As reported............................................. (0.65) (1.32) (1.68)
Pro forma............................................... (0.78) (1.43) (1.76)
Diluted loss per common share:
As reported............................................. (0.65) (1.32) (1.68)
Pro forma............................................... (0.78) (1.43) (1.76)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future results or performance.
Beginning in 1996, WM Holdings made grants of restricted stock.
Compensation expense for grants of restricted shares was recognized ratably over
the vesting period (generally five to ten years) and amounted to approximately
$759,000 in 1998 through the date of the WM Holdings Merger and $2.4 million in
1997. The unamortized restricted stock of $9.2 million vested upon consummation
of the WM Holdings Merger, and accordingly was included in merger costs in 1998.
In November 1999, one of the Company's senior executives was granted
265,000 shares of restricted stock that vest in three equal installments over
the next three years and 650,000 stock options that vest according to certain
performance goals in lieu of the normal vesting schedules. Notwithstanding these
performance goals, all of these options will vest no later than five years from
the date of grant.
12. EMPLOYEE BENEFIT PLANS
Effective January 1, 1999, the Waste Management Retirement Savings Plan and
the Wheelabrator-Rust Savings and Retirement Plan were merged into the USA Waste
Services, Inc. Employee Savings Plan, which was then renamed the Waste
Management Retirement Savings Plan ("Savings Plan"). The Savings Plan covers
employees (except those working subject to collective bargaining agreements
which do not provide for coverage under such plans) following a 90 day waiting
period after hire, and allows eligible employees to contribute up to 15% of
their annual compensation, as limited by IRS regulations. Under the Savings
Plan, the Company matches employee contributions up to 3% of their eligible
compensation and matches 50% of employee contributions in excess of 3% but no
more than 6% of eligible compensation. Both employee and Company contributions
vest immediately. Charges to operations for the Company's defined contribution
plans were $49.4 million, $69.7 million, and $42.3 million during 1999, 1998 and
1997, respectively.
Certain of the Company's foreign subsidiaries participate in both defined
benefit and defined contribution retirement plans for its employees in those
countries. The projected benefit obligation of $64.8 million and $53.1 million,
plan assets of $55.1 million and $43.7 million and unfunded liability of $9.8
million and $9.4 million as of December 31, 1999 and 1998, respectively,
relating to the foreign subsidiaries' defined benefit plans are not included in
the tables below primarily due to their insignificance and pending sale of the
related operating companies. In addition to the pension plan for certain
employees under collective bargaining agreements established at the end of 1998
(see below), other Company subsidiaries participate in various multi-employer
pension plans and in two instances, site or contract specific plans, covering
certain employees not covered under the Company's pension plan. These
multi-employer plans are generally defined benefit
84
<PAGE> 87
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans; however, in many cases, specific benefit levels are not negotiated with
or known by the employer contributors. The projected benefit obligation, plan
assets and unfunded liability of the site or contract specific plans are not
material and are not included in tables below. Contributions of $30.9 million,
$25.8 million, and $18.6 million for subsidiaries' defined benefit plans were
charged to operations in 1999, 1998 and 1997, respectively.
The Company had a qualified defined benefit pension plan (the "Plan") for
all eligible non-union domestic employees of WM Holdings which, as discussed
below, was terminated as of October 31, 1999 in connection with the WM Holdings
Merger. Throughout the life of the Plan, benefits were based on the employee's
years of service and compensation during the highest five consecutive years out
of the last ten years of employment. The Company's funding policy was to
contribute annually an amount determined in consultation with its actuaries,
approximately equal to pension expense, except as may be limited by the
requirements of the Employee Retirement Income Security Act ("ERISA"). An
actuarial valuation report was prepared for the Plan as of September 30 each
year and used, as permitted by the SFAS No. 87, Employers Accounting for
Pensions, for the year-end disclosures.
In connection with the WM Holdings Merger, the Company ceased benefit
accruals for the Plan as of December 31, 1998. The Company planned to liquidate
the Plan's assets and settle its obligations to participants, except as related
to certain employees participating under collective bargaining agreements, whose
benefits were transferred to a newly created plan effective October 1, 1998. As
required under SFAS No. 88, Employer's Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, this
decision has resulted in a curtailment expense charge in unusual items of $34.7
million in 1998. The Plan was officially terminated as of October 31, 1999. The
Company contributed approximately $43.4 million to the Plan's trusts during 1999
and expects payments of approximately $185 million to be made through 2000
relating to the termination of the Plan. The actual charge to expense of
settling the Plan will be recorded as settlements occur.
Also in conjunction with the WM Holdings Merger, the Company has terminated
certain non-qualified supplemental benefit plans for certain officers and
non-officer managers, the most significant plan being the WM Holdings'
Supplemental Executive Retirement Plan ("SERP") (collectively the "Supplemental
Plans"). The curtailment and settlement loss related to these plans of $62.0
million was recorded in unusual items in 1998.
WM Holdings and certain of its subsidiaries provided post-retirement health
care and other benefits to eligible employees. In conjunction with the WM
Holdings Merger, the Company limited participation in these plans to
participating retired employees as of December 31, 1998.
85
<PAGE> 88
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and the fair value of assets over the two-year period ending
December 31, 1999, and a statement of the funded status as of December 31 of
both years (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of
year................................ $ 471,768 $ 328,892 $ 53,723 $ 64,482
Service cost........................... 1,208 17,892 -- 1,783
Interest cost.......................... 23,306 23,944 3,478 4,535
Plan participants' contributions....... -- -- 400 300
Amendments............................. -- 23,372 -- (24,188)
Actuarial loss......................... 73,171 90,346 1,638 4,651
Benefits paid.......................... (8,021) (11,928) (4,100) (1,925)
Curtailments........................... -- 52,209 -- 4,085
Settlements............................ -- (52,959) -- --
--------- --------- -------- --------
Benefit obligation at end of year...... $ 561,432 $ 471,768 $ 55,139 $ 53,723
========= ========= ======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning
of year............................. $ 319,278 $ 264,870 $ -- $ --
Actual return on plan assets........... (18,758) 29,310 -- --
Employer contributions................. 43,391 89,985 3,700 1,625
Plan participants' contributions....... -- -- 400 300
Benefits paid.......................... (8,021) (11,928) (4,100) (1,925)
Settlements............................ -- (52,959) -- --
--------- --------- -------- --------
Fair value of plan assets at end of
year................................ $ 335,890 $ 319,278 $ -- $ --
========= ========= ======== ========
FUNDED STATUS:
Funded status at December 31........... $(225,542) $(152,490) $(55,139) $(53,723)
Unrecognized transition (asset)
obligation.......................... -- (1,430) -- --
Unrecognized net actuarial loss........ 223,246 123,554 2,107 469
Unrecognized prior service cost........ -- (10) (19,076) (20,576)
--------- --------- -------- --------
Net amount recognized.................. $ (2,296) $ (30,376) $(72,108) $(73,830)
========= ========= ======== ========
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31 of both years (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Prepaid benefit cost..................... $ 36,604 $ 8,220 $ -- $ --
Accrued benefit liability................ (38,900) (38,596) (72,108) (73,830)
Minimum pension liability................ (221,605) (118,871) -- --
Accumulated other comprehensive income
before tax benefit..................... 221,605 118,871 -- --
--------- --------- -------- --------
Net amount recognized.................... $ (2,296) $ (30,376) $(72,108) $(73,830)
========= ========= ======== ========
</TABLE>
86
<PAGE> 89
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the components of net periodic benefit cost
for 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ -------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost.......................... $ 1,208 $ 17,892 $ 14,720 $ -- $1,783 $1,212
Interest cost......................... 23,306 23,944 20,877 3,478 4,535 4,538
Expected return on plan assets........ (17,001) (20,954) (17,084) -- -- --
Amortization of transition asset...... (1,430) (1,430) (1,430) (1,500) -- --
Amortization of prior service cost.... (5) (35) 202 -- 278 --
Amortization of net (gain) loss....... 9,233 8,450 4,772 -- (445) (253)
-------- -------- -------- ------- ------ ------
Net periodic benefit cost.......... 15,311 27,867 22,057 1,978 6,151 5,497
Curtailment loss (included in asset
impairments and unusual items)..... -- 53,208 -- -- -- --
Settlement loss (included in asset
impairments and unusual items)..... -- 43,495 -- -- -- --
-------- -------- -------- ------- ------ ------
Net periodic benefit cost
after curtailments and
settlements................. $ 15,311 $124,570 $ 22,057 $ 1,978 $6,151 $5,497
======== ======== ======== ======= ====== ======
</TABLE>
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table (weighted average assumptions as of
December 31):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount rate............................................ 5.83% 6.25% 7.50% 6.50%
Expected return on plan assets........................... 6.11% 9.00% n/a n/a
Rate of compensation..................................... 3.50% 3.50% n/a n/a
</TABLE>
The assumptions used for discount rate and expected long-term rate of
return on assets in the 1999 disclosure reflect the weighted average assumptions
for the terminated and ongoing plans. Since the terminating Waste Management,
Inc. Pension Plan is large relative to other plans, the assumptions applicable
to this plan are the main factor in these weighted average assumptions. The
assumptions for the terminating plan reflect the assumptions used in settling
this plan (lump sum interest rates and annuity purchase rates) and the return on
the immunized assets for this plan. A discount rate of 7.5% and an expected long
term rate of return of 9.0% are used for the ongoing plan.
The principal element of the "other benefits" referred to above is the
post-retirement health care plan. Participants in the WM Holdings
post-retirement plan contribute to the cost of the benefit, and for retirees
since January 1, 1992, the Company's contribution is capped at between $0 and
$600 per month per retiree, based on years of service. For measurement purposes,
a 10.0% annual rate of increase in the per capita cost of covered health care
claims was assumed for 1999 (being an average of the rate used by all plans);
the rate was assumed to decrease to 6.0% in 2004 and remain at that level
thereafter. A 1% change in assumed health care cost trend rates would have the
following effects (in thousands):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest components of net
periodic post-retirement health care benefit cost......... $ 260 $ (239)
Effect on the health care component of the accumulated post-
retirement benefit obligation............................. $3,972 $(3,664)
</TABLE>
87
<PAGE> 90
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, WM Holdings merged the Employee Stock Ownership Plan that was
initially established for eligible WM Holdings' employees in 1988, into the
Waste Management Retirement Savings Plan, which has since been merged into the
Savings Plan. During 1994, WM Holdings established an Employee Stock Benefit
Trust ("Trust") and sold 12.6 million shares of its treasury stock to the Trust
in return for a 30-year, 7.33% note with interest payable quarterly and
principal due at maturity. WM Holdings has agreed to contribute to the Trust
each quarter funds sufficient, when added to dividends on the shares held by the
Trust, to pay interest on the note as well as principal outstanding at maturity.
At the direction of an administrative committee, the trustee will use the shares
or proceeds from the sale of shares to pay employee benefits, and to the extent
of such payments by the Trust, the Company will forgive principal and interest
on the note. The shares of common stock issued to the Trust are not considered
to be outstanding in the computation of earnings per share until the shares are
utilized to fund obligations for which the Trust was established. Changes in the
market value of these shares are reflected as adjustments in additional
paid-in-capital.
13. INCOME TAXES
For financial reporting purposes, loss from continuing operations before
income taxes, showing domestic and international sources, is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Domestic.......................................... $ (41,588) $(896,875) $(865,783)
International..................................... (121,144) 196,996 203,286
--------- --------- ---------
Loss from continuing operations................. $(162,732) $(699,879) $(662,497)
========= ========= =========
</TABLE>
The provision for income taxes on continuing operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $(149,519) $ 356,056 $ 569,935
State........................................... (19,265) 88,484 83,592
Foreign......................................... 83,284 72,541 85,357
--------- --------- ---------
(85,500) 517,081 738,884
--------- --------- ---------
Deferred:
Federal......................................... 270,499 (463,635) (369,408)
State........................................... 39,621 (51,889) (27,271)
Foreign......................................... 7,699 65,366 21,136
--------- --------- ---------
317,819 (450,158) (375,543)
--------- --------- ---------
Provision for income taxes.............. $ 232,319 $ 66,923 $ 363,341
========= ========= =========
</TABLE>
88
<PAGE> 91
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The federal statutory rate is reconciled to the effective rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Income tax benefit at federal statutory rate............ (35.00)% (35.00)% (35.00)%
State and local income taxes, net of federal income tax
benefit............................................... 19.31 3.23 5.51
Nondeductible costs relating to acquired intangibles.... 22.01 16.85 30.88
Nondeductible merger costs.............................. -- 8.22 1.40
Writedown of investments in subsidiary.................. 74.85 -- 6.46
Minority interest....................................... 5.20 0.82 2.40
Deferred tax valuation and other tax reserves........... 25.24 8.79 40.11
Federal tax on foreign income........................... 30.30 4.35 0.30
Nonconventional fuel tax credit......................... -- (3.61) (2.80)
Other................................................... 0.85 5.91 5.59
------- ------ ------
Provision for income taxes............................ 142.76% 9.56% 54.85%
======= ====== ======
</TABLE>
The components of the net deferred tax assets (liabilities), excluding $80
million of net deferred tax liability related to operations held for sale, are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss, capital loss and tax credit
carryforwards......................................... $ 244,228 $ 322,129
Environmental and other reserves......................... 1,020,880 670,502
Reserves not deductible until paid....................... 205,245 178,608
----------- -----------
Subtotal......................................... 1,470,353 1,171,239
----------- -----------
Deferred tax liabilities:
Property, equipment, intangible assets, and other........ (1,573,893) (1,072,138)
Valuation allowance........................................ (327,929) (331,592)
----------- -----------
Net deferred tax liabilities..................... $ (431,469) $ (232,491)
=========== ===========
</TABLE>
At December 31, 1999 the Company's subsidiaries have approximately $142.4
million of federal net operating loss ("NOL") carryforwards, $1.8 billion of
state NOL carryforwards, and $522.5 million of foreign NOL carryforwards.
Foreign NOL carryforwards of approximately $287.3 million may be carried forward
indefinitely; the remaining NOL carryforwards have expiration dates through
2019. The Company's subsidiaries have approximately $1.0 million of alternative
minimum tax credit carryforwards that may be used indefinitely; state tax credit
carryforwards of $13.6 million; federal investment tax credit carryforwards of
approximately $0.1 million; and foreign tax credit carryforwards of $50.7
million. Certain foreign NOL carryforwards are included in operations held for
sale.
Valuation allowances have been established for uncertainties in realizing
the benefit of tax loss and credit carryforwards. While the Company expects to
realize the deferred tax assets, net of the valuation allowances, changes in
estimates of future taxable income or in tax laws may alter this expectation.
The valuation allowance increased approximately $121.2 million and $98.8 million
in 1999 and 1998, respectively, primarily due to the uncertainty of realizing
foreign tax credits and NOL carryforwards. However, valuation allowances of $124
million for certain foreign deferred tax assets are included in operations held
for sale.
Prior to the Board of Directors' adoption of the strategic plan in August
1999, which included the divestiture of the Company's WM International
operations, the Company did not provide for United States income taxes on
unremitted earnings of foreign subsidiaries as it was the intention of
management to reinvest the unremitted earnings in its foreign operations. Since
the adoption of the strategic plan in August 1999, the
89
<PAGE> 92
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has provided for United States income taxes on unremitted foreign
earnings on its international operations other than in Canada. The amount of
United States income tax provided for the repatriation of its international
operations other than in Canada in 1999 is approximately $13.0 million. With
respect to its Canadian operations, the Company intends to reinvest its
earnings. Unremitted earnings in Canada are approximately $28.0 million at
December 31, 1999. It is not practicable to determine the amount of United
States income taxes that would be payable upon remittance of the assets that
represent those earnings.
14. SEGMENT AND RELATED INFORMATION
The Company's North American solid waste management operations represent
approximately $10.7 billion of operating revenues, $1.6 billion of earnings
before interest and tax ("EBIT"), and $17.2 billion of total assets in 1999, and
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 and
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. No single customer accounted for 10% or more of consolidated
revenues in any year presented.
Certain of the services provided by the Company are subject to extensive
and evolving federal, state, and local environmental laws and regulations in the
United States and elsewhere that have been enacted in response to technological
advances and the public's increased concern over environmental issues. Refer to
Notes 7 and 18 for a further discussion of regulatory issues.
Summarized financial information concerning the Company's reportable
segments for the respective years ended December 31, is shown in the following
table. Prior period information has been restated to conform to the segments
described above, which are based on the structure and internal organization of
the Company as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN NON-SOLID CORPORATE
SOLID WASTE WM INTERNATIONAL WASTE FUNCTIONS(A) TOTAL
-------------- ---------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1999
Net operating
revenues(b)............. $10,689,062 $1,650,860 $ 786,998 $ -- $13,126,920
Earnings before interest
and taxes
(EBIT)(c),(d)........... 1,635,198 211,713 35,784 (559,270) 1,323,425
Depreciation and
amortization............ 1,362,266 148,267 24,645 78,987 1,614,165
Capital expenditures....... 1,085,581 206,538 16,580 17,984 1,326,683
Total assets(d)............ 17,206,643 2,914,698 1,477,786 1,082,297 22,681,424
1998
Net operating
revenues(b)............. $10,142,778 $1,533,635 $ 949,356 $ -- $12,625,769
Earnings before interest
and taxes
(EBIT)(c),(d)........... 2,478,733 132,937 103,443 (204,043) 2,511,070
Depreciation and
amortization............ 1,241,330 169,051 43,579 44,752 1,498,712
Capital expenditures....... 1,438,458 166,035 34,605 12,391 1,651,489
Total assets(d)............ 17,713,393 3,107,968 1,010,565 1,050,238 22,882,164
</TABLE>
90
<PAGE> 93
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NORTH AMERICAN NON-SOLID CORPORATE
SOLID WASTE WM INTERNATIONAL WASTE FUNCTIONS(A) TOTAL
-------------- ---------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1997
Net operating
revenues(b)............. $ 9,244,910 $1,789,988 $ 937,600 $ -- $11,972,498
Earnings before interest
and taxes
(EBIT)(c),(d)........... 1,790,027 187,619 96,082 (413,814) 1,659,914
Depreciation and
amortization............ 1,086,547 181,353 55,258 68,652 1,391,810
Capital expenditures....... 1,128,904 150,908 29,337 23,058 1,332,207
Total assets(d)............ 15,067,951 3,055,634 1,222,464 810,375 20,156,424
</TABLE>
- ---------------
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
and management of closed landfill and related insurance recovery functions,
along with other typical administrative functions.
b) Non-solid waste revenues are net of inter-segment revenue with North
American solid waste of $45.7 million, $122.4 million, and $86.4 million in
1999, 1998, and 1997, 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.
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 loss 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 loss is as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
EBIT, as reported above.......................... $1,323,425 $2,511,070 $1,659,914
(Plus) less:
Merger and acquisition related costs........... 44,634 1,807,245 112,748
Asset impairments and unusual items............ 738,837 864,063 1,771,145
Income (loss) from continuing operations held
for sale.................................... -- 151 9,930
Interest expense............................... 769,655 681,457 555,576
Interest income................................ (38,497) (26,829) (45,214)
Minority interest.............................. 24,181 24,254 45,442
Other income, net.............................. (52,653) (139,392) (127,216)
---------- ---------- ----------
Loss from continuing operations before income
taxes.......................................... (162,732) (699,879) (662,497)
Provision for income taxes....................... 232,319 66,923 363,341
---------- ---------- ----------
Loss from continuing operations.................. (395,051) (766,802) (1,025,838)
Discontinued operations.......................... -- -- (95,688)
Extraordinary loss............................... 2,513 3,900 6,809
Cumulative effect of change in accounting
principle...................................... -- -- 1,936
---------- ---------- ----------
Net loss............................... $ (397,564) $ (770,702) $ (938,895)
========== ========== ==========
</TABLE>
In 1999, the Company operated outside the United States and Puerto Rico
through its subsidiaries in nine countries in Europe, seven countries in the
Pacific Rim, Canada, Mexico, Brazil, and Argentina. The Company's WM
International operations, as well as certain of the Company's operations in
Mexico (which is
91
<PAGE> 94
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
considered NASW), have their property and equipment reflected in current
operations held for sale. Operating revenues and property and equipment (net)
relating to operations in the United States and Puerto Rico, Europe, Canada and
all other geographic areas ("other foreign") are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
United States............................... $11,015,291 $10,604,224 $ 9,707,546
Europe...................................... 1,354,759 1,264,209 1,406,026
Canada...................................... 408,615 425,531 412,633
Other foreign............................... 348,255 331,805 446,293
----------- ----------- -----------
Total............................... $13,126,920 $12,625,769 $11,972,498
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Property and equipment, net:
United States............................... $ 9,468,175 9,773,763 $ 9,187,923
Europe...................................... -- 841,418 903,174
Canada...................................... 835,628 840,887 906,142
Other foreign............................... -- 169,589 191,291
----------- ----------- -----------
Total............................... $10,303,803 $11,625,657 $11,188,530
=========== =========== ===========
</TABLE>
The Company operates facilities in Hong Kong which are owned by the Hong
Kong government. The Hong Kong economy has been impacted by the economic
uncertainty associated with many of the countries in the region. High and
volatile interest rates have resulted from speculation regarding its currency.
The Company also has operations in Indonesia, Brazil, and an office in Thailand.
These countries have experienced illiquidity, volatile currency exchange rates
and interest rates, and reduced economic activity. The Company will be affected
for the foreseeable future by economic conditions in this region, although it is
not possible to determine the extent of such impact. For 1999, the Company
recorded $96.1 million of revenues in the above Asian countries (including Hong
Kong). Income from continuing operations before income taxes from Hong Kong was
$26.5 million in 1999. Income from Indonesia, Thailand and Brazil has not been
significant to date.
15. ASSET IMPAIRMENTS AND UNUSUAL ITEMS
In 1999, 1998 and 1997, the Company recorded certain charges for asset
impairments and unusual items. Fair values for asset impairment losses were
determined for landfills, hazardous waste facilities, recycling investments and
other facilities, primarily based on future cash flow projections discounted
back using discount rates appropriate for the risks involved with the specific
assets, or offers from interested third parties. For surplus real estate, third
party bids, market opinions and appraisals were used to determine fair value. In
determining fair values for abandoned projects and vehicles to be sold,
recoverable salvage values were determined using market estimates. Impaired
assets to be sold are primarily businesses to be sold (see Note 19) and surplus
real estate. The Company provides for losses in connection with long-term waste
service contracts where an obligation exists to perform services and when it
becomes evident the projected direct and incremental contract costs will exceed
the related contract revenues. In general, these losses relate to contracts with
remaining average duration of five years.
92
<PAGE> 95
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of asset impairments and unusual items that are
reflected in the Company's financial statements for 1999 (in millions):
<TABLE>
<S> <C>
Held for sale adjustments................................... $443.0
Asset impairments (excluding held for sale adjustments)..... 194.2
Changes in estimates relating to the reassessment of
ultimate losses for certain legal issues and related
costs..................................................... 91.7
Net pension costs related to the WM Holdings' defined
benefit plan which was terminated as of October 31,
1999...................................................... 13.1
Adjustments to certain losses on contractual commitments.... (3.2)
------
Total............................................. $738.8
======
</TABLE>
In August 1999, the Company's Board of Directors adopted a strategic plan
that includes the divestiture of its WM International operations and certain
other businesses. (See Note 14, "Segment and Related Information" and Note 19,
"Operations Held for Sale" for further discussion of the Company's international
operations). Based primarily on preliminary bids from interested parties, these
and certain other assets which were identified as "held for sale" during the
third quarter were written down to fair value less cost to sell in accordance
with SFAS No. 121, resulting in a pre-tax charge of approximately $414.3 million
at September 30, 1999. These assets were considered to be held for use for
periods prior to the third quarter of 1999 and did not meet the criteria for
impairment recognition as a held for use asset, and therefore, were not
considered impaired for periods prior to the third quarter of 1999. The assets
which were identified as held for sale and subject to adjustment include, among
others, the Company's WM International operations, the Company's nuclear
services disposal site operations and certain NASW operations that are not
essential parts of the Company's network. Revisions to the third quarter
estimates were required due to revisions in estimated proceeds and certain
changes in business plans during the fourth quarter. These revisions resulted in
a net increase to the charge of $18.5 million. That amount includes a reduction
of $30 million relating to assets in a single market that have been reclassified
from held for sale assets to operating assets, based on new facts and business
judgments, that have developed through February 2000. Based on these new facts
and business judgements the Company has determined not to divest those assets,
and those assets are not impaired as operating assets. Accordingly, the
impairment recorded in the third quarter of 1999 was reversed in the same
statement of operations caption originally reported, with no net effect for the
year ended December 31, 1999. The remaining $10.2 million of held for sale
adjustments primarily resulted from revisions of estimated proceeds related to
surplus real estate. See Note 19 for further analysis of operations held for
sale.
The Company recorded asset impairments of $178.3 million during the third
quarter of 1999 (see Note 2 "1999 Accounting Charges and Adjustments") and $15.9
million during the fourth quarter of 1999 related to several landfill sites and
certain other operating assets. Included in this amount is $76.0 million related
to the abandonment or closure of facilities resulting from the Company's recent
business decisions regarding optimal operating strategies in specific markets in
which the Company operates, or consideration of new facts or circumstances
during 1999. Also included in the amount is $40.4 million which is primarily the
result of permit denials and other regulatory problems during the third quarter
of 1999, which is one of the many types of facts and circumstances that may from
time to time trigger impairments, and which may occasionally overlap with other
triggering events or result in abandonment or closure.
The Company recorded $91.7 million related to the reassessment of ultimate
losses for certain legal issues related to the WM Holdings Merger, which
primarily included increases to its legal reserves in response to developments
in connection with WM Holdings' restatement of earnings in February 1998. These
legal developments caused the Company to evaluate the numerous shareholder cases
filed against WM Holdings and to reassess the range of exposure.
93
<PAGE> 96
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is in the process of settling its obligations under the WM
Holdings' defined benefit plan which was terminated as of October 31, 1999 (see
Note 12). The Company has included $13.1 million related to the current year
recognition of net pension costs associated with the terminated plan and will
incur similar charges in future periods until all participants have been paid
the termination benefits.
The following is a summary of asset impairments and unusual items that are
reflected in the Company's consolidated financial statements for 1998 (in
millions):
<TABLE>
<S> <C>
Provision for losses on contractual commitments............. $115.6
Changes in estimates relating to the reassessment of
ultimate losses for certain legal and remediation
issues.................................................... 331.9
Write-down to estimated net sales proceeds of businesses to
be sold................................................... 195.1
Curtailment and settlement costs of terminating the defined
benefit pension plan (Note 12)............................ 34.7
Compensation charges for the liquidation of WM Holdings'
SERP (Note 12) and other supplemental plans............... 72.2
Put provisions of certain WM Holdings' stock options as a
result of change in control provisions.................... 114.6
------
Total............................................. $864.1
======
</TABLE>
In 1998, the Company increased its reserves for certain legal and
environmental remediation issues as a result of management's emphasis to resolve
and settle certain issues relating primarily to WM Holdings, including a class
action securities litigation against WM Holdings.
Certain WM Holdings' employee stock option plans included change of control
provisions that were activated as a result of the WM Holdings Merger whereby the
option holder received certain put rights that require charges to earnings
through the put periods. The charge to pre-tax earnings as a result of these put
rights was $114.6 million in the third quarter of 1998. To the extent the future
market value of the Company's common stock exceeded $54.34 per share at the end
of a quarter (the "measurement date"), the Company was required to record
additional charges to earnings through July 16, 1999, at which time all put
rights expired. As the market value of the Company's common stock was less than
$54.34 per share on each measurement date, there were no additional charges to
earnings related to the put rights.
The following is a summary of asset impairments and unusual items reflected
in the Company's consolidated financial statements for 1997 (in millions):
<TABLE>
<S> <C>
Asset impairments:
Landfills, related primarily to management decisions to
abandon expansions and development projects due to
political or competitive factors, which will result in
closure earlier than previously expected (includes
$233.8 for hazardous waste sites)...................... $ 592.9
Hazardous waste facilities, resulting from continuing
market deterioration, increased competition, excess
capacity and changing regulation....................... 131.4
Goodwill, primarily related to landfills and hazardous
waste facilities impaired (including $411.0 related to
hazardous waste business).............................. 433.4
Write-down of WTI long-lived assets, including $47.1
related to a wood waste burning independent power
production facility.................................... 57.2
Recycling investments, related primarily to continued
pricing, overcapacity and competitive factors.......... 21.5
Write-down to estimated net realizable value of trucks to
be sold as a result of new fleet management policy
(Note 5)............................................... 70.9
Write-down to estimated net sales proceeds of businesses
to be sold (Note 19)................................... 122.2
Abandoned equipment and facilities........................ 37.3
</TABLE>
94
<PAGE> 97
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Surplus real estate....................................... 38.2
Provisions for losses on contractual commitments............ 120.2
Severance for terminated employees.......................... 41.6
Special charge for international operations, primarily costs
of demobilization in Argentina following the expiration of
the City of Buenos Aires contract, divestiture or closure
of underperforming businesses (primarily in Italy and
Germany) and abandonment of projects (primarily in
Germany).................................................. 104.3
--------
Total............................................. $1,771.1
========
</TABLE>
16. EARNINGS PER SHARE
The following reconciles the number of common shares outstanding at
December 31 of each year 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>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Number of common shares outstanding..................... 619,317 600,351 556,546
Effect of using weighted average common shares
outstanding........................................... (6,385) (16,050) 1,129
------- ------- -------
Weighted average number of common shares outstanding.... 612,932 584,301 557,675
======= ======= =======
</TABLE>
For all periods presented, the effect of the Company's common stock options
and warrants and the effect of the Company's convertible subordinated notes and
debentures are excluded from the dilutive earnings per share calculation since
inclusion of such items would be antidilutive.
At December 31, 1999, there were approximately 59.7 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.
17. 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 PENSION OTHER
CURRENCY LIABILITY COMPREHENSIVE
TRANSLATION ADJUSTMENT INCOME
ADJUSTMENT (NET OF TAX) (LOSS)
----------- ------------ -------------
<S> <C> <C> <C>
Balance, December 31, 1997...................... $(275,800) $ (7,393) $(283,193)
Current-period change......................... (77,842) (59,769) (137,611)
--------- --------- ---------
Balance, December 31, 1998...................... (353,642) (67,162) (420,804)
Current-period change......................... (76,438) (65,844) (142,282)
--------- --------- ---------
Balance, December 31, 1999...................... $(430,080) $(133,006) $(563,086)
========= ========= =========
</TABLE>
The Company is continuing the process of settling its obligations under the
Plan, and the change in minimum pension liability adjustment relates to the
Plan. 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
95
<PAGE> 98
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income. The Company expects to settle the obligations at various
dates in 2000, at which time settlement expense will be recorded and adjustments
to other comprehensive income will be made.
As discussed in Note 1, the Company adopted a strategic plan in August 1999
one element of which is to pursue the divestiture of its WM International
operations. Of the $430.1 million in foreign currency translation adjustment
within accumulated other comprehensive income (loss), approximately $344.9
million relates to the Company's 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 as a
component of such operations (decreasing any gain, or increasing any loss). The
foreign currency translation loss for the Company's WM International operations
was $344.9 million at December 31, 1999; however, that amount will fluctuate
from period to period with the change in foreign currency exchange rates.
18. COMMITMENTS AND CONTINGENCIES
Operating leases -- The Company leases certain of its operating and office
facilities for various terms. Lease expense aggregated $189.3 million, $194.9
million and $189.9 million during 1999, 1998 and 1997, respectively. These
amounts include rents under long-term leases, short-term cancelable leases and
rents charged as a percentage of revenue, but are exclusive of financing leases
which are capitalized for accounting purposes.
The long-term rental obligations as of December 31, 1999 are due in the
following years (in thousands):
<TABLE>
<S> <C>
2000.................................................... $ 148,257
2001.................................................... 135,072
2002.................................................... 121,848
2003.................................................... 109,030
2004.................................................... 109,228
2005 to 2009............................................ 351,496
2010 and thereafter..................................... 68,197
----------
$1,043,128
==========
</TABLE>
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. Total letters of credit, performance bonds,
insurance policies, and other guarantees outstanding at December 31, 1999
aggregated approximately $5.2 billion. 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 and its subsidiaries.
Approximately $87.4 million (at fair market value) of the Company's assets have
been contributed to this subsidiary to meet regulatory minimum capital
requirements. 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 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.
96
<PAGE> 99
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of its ongoing operations, the Company provides for the present
value of estimated final closure and post-closure monitoring costs over the
estimated operating life of disposal sites as airspace is consumed. The Company
has also established procedures to evaluate potential remedial liabilities at
closed sites which it owns or operated, or to which it transported waste,
including 84 sites listed on the NPL as of December 31, 1999. Where the Company
concludes that it is probable that a liability has been incurred, provision is
made 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 industry, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes available,
estimates are adjusted as necessary. While the Company does not anticipate that
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 nonexistence 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 be material.
Litigation -- In November and December 1997, several alleged purchasers of
WM Holdings securities (including but not limited to common stock), who
allegedly bought their securities during 1996 and 1997, brought fourteen
purported class action lawsuits against WM Holdings and several of its current
and former officers and directors in the United States District Court for the
Northern District of Illinois. Each of these lawsuits asserted that the
defendants violated the federal securities laws by issuing allegedly false and
misleading statements in 1996 and 1997 about WM Holdings' financial condition
and results of operations. In January 1998, the 14 putative class actions were
consolidated before one judge and 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. In July 1998, the class
plaintiffs filed an amended complaint against WM Holdings, its outside auditor,
and five of WM Holdings' former officers. The amended complaint sought recovery
on behalf of a proposed class of all purchasers of WM Holdings' securities
between May 29, 1995, and October 30, 1997. The amended complaint alleged, among
other things, that WM Holdings filed false and misleading financial statements
beginning in 1991 and continuing through October 1997 and sought recovery for
alleged violations of the federal securities laws between May 1995 and October
1997.
In December 1998, the Company announced an agreement to settle the
consolidated action against all defendants and the establishment of a settlement
fund of $220 million for the class of open market purchasers of WM Holdings
securities between November 3, 1994, and February 24, 1998. On September 17,
1999, the United States District Court for the Northern District of Illinois
gave final approval to the settlement after a hearing. There were no objections
to the fairness or adequacy of the settlement fund.
In January 2000, the Company settled two actions, one pending in Illinois
State court and the other in Florida Federal court, arising out of the same set
of facts as the above federal action brought by open market purchasers of WM
Holdings' securities.
Additionally, there are several other actions and claims, which arise out
of the same set of facts, that have been brought by business owners who received
WM Holdings common stock in the sales of their businesses to WM Holdings. These
actions and claims allege, among other things, breach of warranty or breach of
contract based on WM Holdings' restatement of earnings in February 1998. In
April 1999, courts having jurisdiction over two such actions granted summary
judgment against WM Holdings and in favor of the individual plaintiffs who
brought the respective claims on the issue of breach of contract. Additionally,
in October 1999, the court in one of these actions 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. The
Company has appealed that decision and the appeal is pending. The extent of
damages, if any, in this class action has not yet been
97
<PAGE> 100
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined. The Company, however, has settled or resolved four, separate
stock-for-asset disputes that otherwise would have been part of the above class,
as currently defined, including the individual action identified above in which
summary judgment was entered against WM Holdings.
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, where
plaintiff is seeking a remand 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. This 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 20 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 13, 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
98
<PAGE> 101
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In November 1999, an action was filed in Oregon state court by individuals
who received Company common stock in the sale of their business to the Company.
For reasons similar to those alleged in the class actions described in the
preceding paragraph, these individuals allege that the stock they received was
overvalued. The case is in an early stage and the extent of possible damages, if
any, has 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 Court of Chancery of the State of Delaware 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 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.
On December 29, 1999, the Company sued Louis D. Paolino, former President
and Chief Executive Officer of Eastern, and others in federal court in Delaware
in connection with the Eastern Merger. The Company alleges, among other things,
that defendants artificially inflated the revenues of Eastern by employing
improper accounting practices and usurped Eastern corporate opportunities for
personal gain. The Company alleges that the inflated Eastern financials caused
the Company to pay substantially more than Eastern was worth. The defendants in
this case have not yet filed a response to the complaint.
In a related matter, on December 31, 1999, Louis D. Paolino and others sued
the Company and unnamed defendants in Philadelphia for securities fraud in
connection with the Eastern Merger. Plaintiffs allege that the Company's stock
that 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. As
none of the defendants has been served in this action, no responsive pleadings
have been filed.
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 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.
The Company has also received a letter from participants in the Company's
Employee Stock Purchase Plan (the "ESPP") who purchased the Company's common
stock on June 30, 1999. The letter demands that the Administrative Committee of
the ESPP bring an action against the Company and certain selling officers and
directors for losses allegedly sustained by the participants in their stock
purchases. These ESPP participants stated in the letter that, absent action by
the Administrative Committee of the ESPP, they intended to sue the Company and
the directors and officers on behalf of the ESPP and its participants. The
Administrative Committee of the ESPP has advised these participants that it
cannot file suit, as requested, because the committee is neither a
representative of the plan nor a Waste Management shareholder. The Company has
not
99
<PAGE> 102
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
received any further communication from these participants. However, the Company
does not believe that this claim, if pursued, would have a material adverse
effect on the Company's financial statements.
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 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. Defendants' time to move, answer or otherwise
respond to the complaint has been extended, and no proceedings have yet
occurred.
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
100
<PAGE> 103
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 31, 1999, there were six 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 investigation and believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
financial statements.
101
<PAGE> 104
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the Company or its subsidiaries had been notified
that they are potentially responsible parties in connection with 84 locations
listed on the NPL. Of the 84 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 67 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 Wheelabrator's BioGro business unit. The litigation is currently in the
discovery phase, and the Company is waiting for plaintiff's production of a
court-ordered expert on causation. The Company is vigorously defending itself in
the litigation.
The Company has been advised by the United States Department of Justice
that Laurel Ridge Landfill, Inc., a wholly owned subsidiary of the Company as a
result of the United Merger in August 1997, allegedly committed certain
violations of the Clean Water Act at the Laurel Ridge Landfill in Kentucky. The
alleged activities occurred prior to the United Merger. In May 1999, the Company
pleaded guilty to a criminal misdemeanor and was sentenced in November 1999 to
pay a fine of $100,000 and perform in kind services valued at $1.0 million.
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
102
<PAGE> 105
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Insurance -- The Company carries a broad range of insurance coverages,
which management considers prudent for the protection of the Company's assets
and operations including general liability, automobile liability, real and
personal property, workers' compensation, directors' and officers' liability,
and such other coverages as management deems necessary. Some of these coverages
are subject to varying retentions of risk by the Company. At December 31, 1999,
the Company's casualty policies provided for $2 million per occurrence coverage
for primary commercial general liability and $1 million per accident coverage
for primary automobile liability (including coverage for pollution exposure
arising out of trucking operations) supported by $500 million in umbrella
insurance protection. At December 31, 1999 the Company's property policy
provided insurance coverage for all of the Company's real and personal property
on a replacement cost basis, including California earthquake perils. At December
31, 1999 the Company also carried $200 million in aircraft liability protection.
The Company believes these are appropriate levels for its operations and that
such levels meet applicable requirements of the various states and countries in
which it operates, however, various factors including cost and coverage
availability could cause the Company to change its levels of coverage.
The Company maintains workers' compensation insurance in accordance with
laws of the various states and countries in which it has employees. At December
31, 1999, the Company's ongoing workers' compensation insurance program had a
deductible per incident of $250,000. Through the second quarter of 1999, the
Company estimated its insurance-related liabilities for the ongoing programs
mainly related to workers' compensation, based on an analysis of insurance
claims submitted for reimbursement, plus an estimate for liabilities incurred as
of the balance sheet date, but not yet reported to the Company. In the third
quarter of 1999, the Company began estimating these liabilities based on
actuarially determined estimates of ultimate losses. These estimates are
generally within a range of potential ultimate outcomes.
The Company also currently has an environmental impairment liability
("EIL") insurance policy for certain of its landfills, transfer stations, and
recycling facilities that provides coverage for property damages and/or bodily
injuries to third parties caused by off-site pollution emanating from such
landfills, transfer stations, or recycling facilities. At December 31, 1999,
this policy provides $10 million of coverage per loss with a $20 million
aggregate limit.
Through the date of the WM Holdings Merger, certain of WM Holdings' auto,
general liability, environmental impairment liability, and workers' compensation
risks were self-insured up to $5.0 million per accident. For such programs, a
provision was made in each accounting period for estimated losses, including
losses incurred but not reported, and the related reserves are adjusted as
additional claims information becomes available. Claims reserves related to WM
Holdings are discounted at 5.5% at December 31, 1999 and 1998. The
insurance-related liability for the ongoing program and the WM Holdings'
self-insurance runoff program included in the accompanying balance sheet amounts
to $361.7 million and $334.5 million at December 31, 1999 and 1998,
respectively.
103
<PAGE> 106
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
To date, the Company has not experienced any difficulty in obtaining
insurance. However, if the Company in the future is unable to obtain adequate
insurance, or decides to operate without insurance, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows. Additionally, continued availability of
casualty and EIL insurance with sufficient limits at acceptable terms is an
important aspect of obtaining revenue-producing waste service contracts.
19. 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, the Company has
recorded charges to write down certain of these assets. In determining fair
value, the Company considered, among other things, the range of preliminary
purchase prices being discussed with potential buyers. These businesses' results
of operations are fully included in revenues and expenses in the accompanying
statement of operations.
Operational information included in the statement of operations regarding
the businesses classified as operations held for sale at December 31, 1999, is
as follows (in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN WM NON-SOLID
SOLID WASTE INTERNATIONAL WASTE TOTAL
-------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Year Ended:
December 31, 1999
Operating revenues.............. $541,000 $1,650,860 $288,445 $2,480,305
Earnings before interest and
taxes(a)...................... (22,249) 211,713 52,307 241,771
December 31, 1998
Operating revenues.............. $522,271 $1,533,635 $304,746 $2,360,652
Earnings before interest and
taxes(a)...................... 20,595 132,937 48,364 201,896
December 31, 1997
Operating revenues.............. $460,071 $1,789,988 $352,115 $2,602,174
Earnings before interest and
taxes(a)...................... (40,859) 187,619 (25,492) 121,268
</TABLE>
- ---------------
(a) 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. (See Note 3.)
EBIT is defined as income (loss) from operations excluding merger and
acquisition related costs, asset impairments and unusual items, and income
from continuing operations held for sale, net of minority interest.
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 December 31, 2000. The Company has classified
as non-current operations held for sale certain NASW operations which the
Company
104
<PAGE> 107
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has 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:
Receivables, 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>
At December 31, 1998, the Company planned to dispose of certain assets to
comply with governmental orders related to the WM Holdings Merger and Eastern
Merger and certain other assets as a result of implementing the business
strategy related to the WM Holdings Merger and thus, classified these assets as
current assets held for sale. These operations are set forth in the table below.
These businesses' results of operations are fully included in revenues and
expenses in the 1998 statement of operations and generated third-party operating
revenues of approximately $372.6 million and earnings before interest and taxes
of approximately $20.6 million in 1998. As discussed in Notes 4 and 15, the
Company recorded charges to write these assets down to fair value, less costs to
sell.
105
<PAGE> 108
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the businesses classified as operations held for sale
as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN NON-SOLID
SOLID WASTE WASTE TOTAL
-------------- --------- ---------
<S> <C> <C> <C>
Receivables, net.................................. $ 1,056 $ -- $ 1,056
Property and equipment and other non current
assets.......................................... 734,359 120,998 855,357
Current maturities of long-term debt.............. -- -- --
Other current liabilities......................... (51,728) (7,530) (59,258)
Long-term debt, less current maturities........... -- -- --
Other noncurrent liabilities...................... (50,550) -- (50,550)
Minority interest................................. -- -- --
Net operations held for sale...................... -- -- --
--------- -------- ---------
$ 633,137 $113,468 $ 746,605
========= ======== =========
Current assets:
Operations held for sale........................ $ 735,415 $120,998 $ 856,413
Current liabilities:
Operations held for sale........................ (102,278) (7,530) (109,808)
--------- -------- ---------
Net operations held for sale............ $ 633,137 $113,468 $ 746,605
========= ======== =========
</TABLE>
At the beginning of 1997, management classified as discontinued and planned
to sell Rust International Inc.'s ("Rust") domestic environmental and
infrastructure engineering and consulting business and Chemical Waste
Management, Inc.'s ("CWM") high organic waste fuel blending services business.
At the end of 1997, management reclassified the CWM business back into
continuing operations, and classified certain of its sites as operations held
for sale. The Rust dispositions were not completed within one year, and
accordingly, these businesses were reclassified back into continuing operations
held for sale, at December 31, 1997, though management continued its efforts to
market these businesses. Because these businesses were reclassified to
continuing operations, the remaining provision for loss on disposal ($95.0
million after tax -- $87.0 million related to Rust and $8.0 million related to
CWM) was reversed in discontinued operations and an impairment loss for Rust of
$122.2 million was recorded in continuing operations in the fourth quarter of
1997.
20. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED
The Company's independent public accountants' report on these financial
statements indicates that they do not believe that the Company's internal
controls for the preparation of interim financial information were sufficient to
provide them an adequate basis to complete a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
selected 1999 quarterly financial data, set forth below. See Note 2.
106
<PAGE> 109
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited quarterly results of
operations for 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1999
Operating revenues.............. $3,070,635 $3,324,775 $ 3,395,052 $3,336,458
Operating income (loss)......... 760,098 715,484 (1,119,298) 183,670
Income (loss) from continuing
operations.................... 346,688 318,262 (947,773) (112,228)
Net income (loss)............... 346,688 318,262 (947,773) (114,741)
Earnings (loss) from continuing
operations per common share:
Basic......................... 0.57 0.52 (1.53) (0.18)
Diluted....................... 0.55 0.50 (1.53) (0.18)
Earnings (loss) per common
share:
Basic......................... 0.57 0.52 (1.53) (0.19)
Diluted....................... 0.55 0.50 (1.53) (0.19)
1998
Operating revenues.............. $2,939,533 $3,215,931 $ 3,237,701 $3,232,604
Operating income (loss)......... 452,248 569,247 (1,545,744) 363,860
Income (loss) from continuing
operations.................... 181,416 246,770 (1,258,473) 63,485
Net income (loss)............... 181,416 242,870 (1,258,473) 63,485
Earnings (loss) from continuing
operations per common share:
Basic......................... 0.32 0.43 (2.11) 0.11
Diluted....................... 0.31 0.42 (2.11) 0.10
Earnings (loss) per common
share:
Basic......................... 0.32 0.42 (2.11) 0.11
Diluted....................... 0.31 0.41 (2.11) 0.10
</TABLE>
Basic and diluted earnings per common share for each of the quarters
presented above is based on the respective weighted average number of common and
dilutive potential common shares outstanding for each period and the sum of the
quarters may not necessarily be equal to the full year basic and diluted
earnings per common share amounts. For certain periods presented, the effect of
the Company's common stock options and warrants and the effect of the Company's
convertible subordinated notes and debentures are excluded from the diluted
earnings per share calculations since inclusion of such items would be
antidilutive for that period.
21. 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 condensed
consolidating balance sheets as of December 31, 1999 and 1998 and the related
condensed consolidating statements of operations for 1999, 1998, and 1997, along
with the related statements of cash flows, have been provided below (in
thousands).
107
<PAGE> 110
WASTE MANAGEMENT, INC.
NOTES TO 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>
108
<PAGE> 111
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...... $ 27,726 $ (48,578) $ 107,725 $ -- $ 86,873
Other current assets........... -- 8,220 3,896,112 -- 3,904,332
----------- ---------- ------------ ----------- -----------
27,726 (40,358) 4,003,837 -- 3,991,205
Property and equipment, net...... -- -- 11,625,657 -- 11,625,657
Intercompany and investment in
subsidiaries................... 10,373,056 6,271,497 (12,371,573) (4,272,980) --
Other assets..................... 21,071 14,797 7,229,434 -- 7,265,302
----------- ---------- ------------ ----------- -----------
Total assets........... $10,421,853 $6,245,936 $ 10,487,355 $(4,272,980) $22,882,164
=========== ========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt........................ $ -- $ 350,000 $ 247,742 $ -- $ 597,742
Accounts payable and other
accrued liabilities......... 63,547 231,529 3,510,656 -- 3,805,732
----------- ---------- ------------ ----------- -----------
63,547 581,529 3,758,398 -- 4,403,474
Long-term debt, less current
maturities..................... 5,197,013 3,786,935 2,150,671 -- 11,134,619
Other liabilities................ -- -- 2,859,499 -- 2,859,499
----------- ---------- ------------ ----------- -----------
Total liabilities...... 5,260,560 4,368,464 8,768,568 -- 18,397,592
Minority interest in
subsidiaries................... -- -- 112,076 -- 112,076
Stockholders' equity............. 5,161,293 1,877,472 1,606,711 (4,272,980) 4,372,496
----------- ---------- ------------ ----------- -----------
Total liabilities and
stockholders'
equity............... $10,421,853 $6,245,936 $ 10,487,355 $(4,272,980) $22,882,164
=========== ========== ============ =========== ===========
</TABLE>
109
<PAGE> 112
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating revenues............. $ -- $ -- $13,126,920 $ -- $13,126,920
Costs and expenses............. -- -- 12,586,966 -- 12,586,966
--------- --------- ----------- -------- -----------
Income from operations......... -- -- 539,954 -- 539,954
--------- --------- ----------- -------- -----------
Other income (expense):
Interest income (expense),
net....................... (417,157) (269,038) (44,963) -- (731,158)
Equity in subsidiaries, net
of taxes.................. (136,841) 31,308 -- 105,533 --
Minority interest............ -- -- (24,181) -- (24,181)
Other, net................... -- -- 52,653 -- 52,653
--------- --------- ----------- -------- -----------
(533,998) (237,730) (16,491) 105,533 (702,686)
--------- --------- ----------- -------- -----------
Income (loss) from continuing
operations before income
taxes........................ (553,998) (237,730) 523,463 105,533 (162,732)
Provision for (benefit from)
income taxes................. (156,434) (100,889) 489,642 -- 232,319
--------- --------- ----------- -------- -----------
Loss from operations........... (397,564) (136,841) 33,821 105,533 (395,051)
Extraordinary item............. -- -- (2,513) -- (2,513)
--------- --------- ----------- -------- -----------
Net income (loss).... $(397,564) $(136,841) $ 31,308 $105,533 $ (397,564)
========= ========= =========== ======== ===========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
--------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating revenues............. $ -- $ -- $12,625,769 $ -- $12,625,769
Costs and expenses............. -- -- 12,786,158 -- 12,786,158
--------- --------- ----------- ---------- -----------
Income from operations......... -- -- (160,389) -- (160,389)
--------- --------- ----------- ---------- -----------
Other income (expense):
Interest income (expense),
net....................... (230,925) (307,591) (116,112) -- (654,628)
Equity in subsidiaries, net
of taxes.................. (626,374) (434,130) -- 1,060,504 --
Minority interest............ -- -- (24,254) -- (24,254)
Other, net................... -- -- 139,392 -- 139,392
--------- --------- ----------- ---------- -----------
(857,299) (741,721) (974) 1,060,504 (539,490)
--------- --------- ----------- ---------- -----------
Income (loss) from continuing
operations before income
taxes........................ (857,299) (741,721) (161,363) 1,060,504 (699,879)
Provision for (benefit from)
income
taxes........................ (86,597) (115,347) 268,867 -- 66,923
--------- --------- ----------- ---------- -----------
Loss from operations........... (770,702) (626,374) (430,230) 1,060,504 (766,802)
Extraordinary item............. -- -- (3,900) -- (3,900)
--------- --------- ----------- ---------- -----------
Net income (loss).... $(770,702) $(626,374) $ (434,130) $1,060,504 $ (770,702)
========= ========= =========== ========== ===========
</TABLE>
110
<PAGE> 113
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating revenues................ $ -- $ -- $11,972,498 -- $11,972,498
Costs and expenses................ -- -- 12,206,407 -- 12,206,407
---------- ----------- ----------- ---------- -----------
Income from operations............ -- -- (233,909) -- (233,909)
---------- ----------- ----------- ---------- -----------
Other income (expense):
Interest income (expense),
net.......................... (74,073) (319,202) (117,087) -- (510,362)
Equity in subsidiaries, net of
taxes........................ (892,599) (693,098) -- 1,585,697 --
Minority interest............... -- -- (45,442) -- (45,442)
Other, net...................... -- -- 127,216 -- 127,216
---------- ----------- ----------- ---------- -----------
(966,672) (1,012,300) (35,313) 1,585,697 (428,588)
---------- ----------- ----------- ---------- -----------
Income (loss) from continuing
operations before income
taxes........................... (966,672) (1,012,300) (269,222) 1,585,697 (662,497)
Provision for (benefit from)
income taxes.................... (27,777) (119,701) 510,819 -- 363,341
---------- ----------- ----------- ---------- -----------
Loss from operations.............. (938,895) (892,599) (780,041) 1,585,697 (1,025,838)
Discontinued operations........... -- -- 95,688 -- 95,688
Extraordinary item................ -- -- (6,809) -- (6,809)
Cumulative effect of change in
accounting principal, net of
taxes........................... -- -- (1,936) -- (1,936)
---------- ----------- ----------- ---------- -----------
Net income (loss)....... $ (938,895) $ (892,599) $ (693,098) $1,585,697 $ (938,895)
========== =========== =========== ========== ===========
</TABLE>
111
<PAGE> 114
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss).......... $ (397,564) $(136,841) $ 31,308 $ 105,533 $ (397,564)
Equity in earnings of
subsidiaries............ 136,841 (31,308) -- (105,533) --
Other adjustments and
changes................. 69,292 (9,915) 2,027,776 -- 2,087,153
----------- --------- ----------- ----------- -----------
Net cash provided by (used
in) operations............. (191,431) (178,064) 2,059,084 -- 1,689,589
----------- --------- ----------- ----------- -----------
Cash flows from investing
activities
Short-term investments..... -- -- (40,688) -- (40,688)
Acquisitions of businesses,
net of cash acquired.... -- -- (1,289,271) -- (1,289,271)
Capital expenditures....... -- -- (1,326,684) -- (1,326,684)
Proceeds from sale of
assets.................. -- -- 650,512 -- 650,512
Other, net................. -- -- (10,782) -- (10,782)
----------- --------- ----------- ----------- -----------
Net cash used in investing
activities................. -- -- (2,016,913) -- (2,016,913)
----------- --------- ----------- ----------- -----------
Cash flows from financing
activities
Proceeds from issuance of
long-term debt.......... 4,056,510 -- 189,621 -- 4,246,131
Principal payments on long-
term debt............... (3,029,957) (381,123) (575,597) -- (3,986,677)
Proceeds from exercise of
common stock options and
warrants................ 175,861 -- -- -- 175,861
Cash dividends............. (6,196) -- -- -- (6,196)
Other...................... -- -- (2,941) -- (2,941)
(Increase) decrease in
intercompany and
investments, net........ (998,823) 612,261 386,562 -- --
----------- --------- ----------- ----------- -----------
Net cash provided by
financing activities.... 197,395 231,138 (2,355) -- 426,178
----------- --------- ----------- ----------- -----------
Effect of exchange rate
changes on cash and cash
equivalents............. -- -- (4,370) -- (4,370)
----------- --------- ----------- ----------- -----------
Increase in cash and cash
equivalents............. 5,964 53,074 35,446 -- 94,484
Cash and cash equivalents
at beginning of
period.................. 27,726 (48,578) 107,725 -- 86,873
----------- --------- ----------- ----------- -----------
Cash and cash equivalents
at end of period........ $ 33,690 $ 4,496 $ 143,171 $ -- $ 181,357
=========== ========= =========== =========== ===========
</TABLE>
112
<PAGE> 115
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ (770,702) $(626,374) $ (434,130) $ 1,060,504 $ (770,702)
Equity in earnings of
subsidiaries................. 626,374 434,130 -- (1,060,504) --
Other adjustments and charges... 35,724 (18,848) 2,255,861 -- 2,272,737
----------- --------- ----------- ----------- -----------
Net cash provided by (used in)
operations...................... (108,604) (211,092) 1,821,731 -- 1,502,035
----------- --------- ----------- ----------- -----------
Cash flows from investing
activities Short-term
investments..................... -- -- 57,509 -- 57,509
Acquisitions of businesses, net
of cash acquired............. -- -- (1,946,197) -- (1,946,197)
Capital expenditures............ -- -- (1,651,489) -- (1,651,489)
Proceeds from sale of assets.... -- -- 621,387 -- 621,387
Acquisition of minority
interests.................... -- -- (1,673,168) -- (1,673,168)
Other, net...................... -- -- 36,821 -- 36,821
----------- --------- ----------- ----------- -----------
Net cash used in investing
activities...................... -- -- (4,555,137) -- (4,555,137)
----------- --------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............... 5,547,318 -- 854,579 -- 6,401,897
Principal payments on long-term
debt......................... (2,395,466) (786,425) (1,225,019) -- (4,406,910)
Cash dividends.................. (11,750) (82,060) -- -- (93,810)
Net proceeds from issuance of
common stock................. 205,863 -- -- -- 205,863
Proceeds from sale of treasury
stock........................ -- 739,161 -- -- 739,161
Proceeds from exercise of common
stock options and warrants... 133,119 -- -- -- 133,119
(Increase) decrease in
intercompany and investments,
net.......................... (3,357,384) 249,208 3,108,176 -- --
Other, net...................... -- -- (23,524) -- (23,524)
----------- --------- ----------- ----------- -----------
Net cash provided by financing
activities...................... 121,700 119,884 2,714,212 -- 2,955,796
----------- --------- ----------- ----------- -----------
Effect of exchange rate changes on
cash and cash equivalents....... -- -- (5,763) -- (5,763)
----------- --------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents................ 13,096 (91,208) (24,957) -- (103,069)
Cash and cash equivalents at
beginning of period............. 14,630 42,630 132,682 -- 189,942
----------- --------- ----------- ----------- -----------
Cash and cash equivalents at end
of period....................... $ 27,726 $ (48,578) $ 107,725 $ -- $ 86,873
=========== ========= =========== =========== ===========
</TABLE>
113
<PAGE> 116
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATION
----------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ (938,895) $(892,599) $ (693,098) $ 1,585,697 $ (938,895)
Equity in earnings of
subsidiaries................. 892,599 693,098 -- (1,585,697) --
Other adjustments and charges... 8,013 55 2,996,733 -- 3,004,801
----------- --------- ----------- ----------- -----------
Net cash provided by (used in)
operations...................... (38,283) (199,446) 2,303,635 -- 2,065,906
----------- --------- ----------- ----------- -----------
Cash flows from investing
activities Short-term
investments..................... -- -- (117,668) -- (117,668)
Acquisitions of businesses, net
of cash acquired............. -- -- (1,685,415) -- (1,685,415)
Capital expenditures............ -- -- (1,332,207) -- (1,332,207)
Proceeds from sale of assets.... -- -- 1,487,685 -- 1,487,685
Acquisition of minority
interests.................... -- -- (104,165) -- (104,165)
Other, net...................... -- -- (25,758) -- (25,758)
----------- --------- ----------- ----------- -----------
Net cash used in investing
activities...................... -- -- (1,777,528) -- (1,777,528)
----------- --------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............... 2,660,865 300,000 1,655,853 -- 4,616,718
Principal payments on long-term
debt......................... (1,884,500) (289,541) (2,204,911) -- (4,378,952)
Cash dividends.................. -- (309,577) -- -- (309,577)
Net proceeds from issuance of
common stock................. 580,833 -- -- -- 580,833
Proceeds from exercise of common
stock options and warrants... 36,955 41,220 -- -- 78,175
Stock repurchases............... (96,960) (903,248) -- -- (1,000,208)
(Increase) decrease in
intercompany and investments,
net.......................... (1,250,395) 1,329,375 (78,980) -- --
Other net....................... -- -- (31,939) -- (31,939)
----------- --------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............ 46,798 168,229 (659,977) -- (444,950)
----------- --------- ----------- ----------- -----------
Effect of exchange rate changes on
cash and cash equivalents....... -- -- (5,788) -- (5,788)
----------- --------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents................ 8,515 (31,217) (139,658) -- (162,360)
Cash and cash equivalents at
beginning of period............. 6,115 73,847 272,340 -- 352,302
----------- --------- ----------- ----------- -----------
Cash and cash equivalents at end
of period....................... $ 14,630 $ 42,630 $ 132,682 $ -- $ 189,942
=========== ========= =========== =========== ===========
</TABLE>
114
<PAGE> 117
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. SUBSEQUENT EVENTS
As part of its strategic plan, the Company announced in January 2000 that
one of its subsidiaries has reached an agreement to sell its waste services
operations in Finland to Lassila & Tikanoja plc for approximately $100 million.
The transaction is subject to the approval of the Finnish Competition Authority.
In February 2000, the Company announced that one of its subsidiaries intends to
sell the 60.5% interest in Waste Management New Zealand Limited that it owns.
The sale is to be by way of a public and institutional offering in New Zealand
and an institutional offering in selected overseas markets. The shares will not
be or have not been registered under the United States Securities Act of 1933,
as amended, and may not be offered and sold in the United States without
registration thereof. In March 2000, the Company announced that one of its
wholly-owned subsidiaries has reached an agreement to sell its waste services
operations in The Netherlands to Shanks Group plc for approximately $328
million. The sale is subject to the Shanks Group's raising capital and obtaining
financing. The Company expects each of these transactions to be completed in the
second quarter of 2000.
Additionally, in March 2000, the Company announced that one of its
subsidiaries reached an agreement to sell its nuclear services business to GTS
Duratek, Inc. for up to $65 million (unaudited) in cash, consisting of $55
million (unaudited) at closing and up to $10 million (unaudited) in additional
cash consideration upon the satisfaction of certain post-closing conditions. The
sale, which is subject to regulatory approvals and other customary conditions,
is expected to occur in the second quarter of 2000.
115
<PAGE> 118
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item concerning directors of the Company
is set forth under the caption "Election of Directors" in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "2000 Proxy Statement"), and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages, as of March 6, 2000, of the
Company's executive officers (as defined by regulations of the SEC), the
positions they hold with the Company, and summaries of their business
experience.
Robert P. Damico, age 51, has been Senior Vice President -- Midwest Area
since the consummation of the WM Holdings Merger in July 1998. Prior thereto,
Mr. Damico had served in various capacities at WM Holdings since 1980, including
District Manager, Division Manager and Region Manager for the Mountain Region.
David R. Hopkins, age 56, has been Senior Vice President -- International
Operations since November 1998 and has been Chief Executive Officer of Waste
Management International, Inc. during that same period. Prior thereto, Mr.
Hopkins had served as Vice President, Controller and Chief Accounting Officer of
Browning-Ferris Industries, Inc. since 1987.
Ronald H. Jones, age 49, has been Vice President and Treasurer since
joining the Company in June 1995. Prior to joining the Company, Mr. Jones was
employed by Chambers Development Company, Inc. ("Chambers") as Vice President
and Treasurer from July 1992 to June 1995, Director, Corporate Development from
December 1990 to July 1992, and Assistant Vice President -- Finance from July
1989 to December 1990. Prior to joining Chambers, Mr. Jones was a Vice President
and Manager of the Cincinnati regional office engaged in corporate and middle
market lending with Bank of New York (formerly Irving Trust Company) and with
Chase Manhattan Bank.
Miller J. Mathews, Jr., age 62, has been the Senior Vice
President -- Southern Area since the consummation of the WM Holdings Merger.
Prior thereto, Mr. Mathews was the Company's Region Vice President -- Southern
Region since 1995 when the waste company which he had owned since 1981, Sunray
Services, Inc., was acquired by the Company.
A. Maurice Myers, age 59, has been Chairman of the Board, Chief Executive
Officer and President of the Company since November 1999. Mr. Myers was employed
by Yellow Corporation, where he was Chairman, CEO and President since April
1996. Yellow Corporation is the parent company of Yellow Freight, one of the
nation's oldest and largest trucking companies. Prior to joining Yellow
Corporation in 1996, Mr. Myers served as President and Chief Operating Officer
of America West Airlines. Mr. Myers also served as President and CEO of Aloha
Airlines, and held a senior management position with Continental Airlines.
Lawrence O'Donnell, III, age 42, has been Senior Vice President, General
Counsel and Secretary of the Company since January 2000. From 1991 until joining
the Company, Mr. O'Donnell was with Baker Hughes Incorporated where he held
various positions, including Vice President and General Counsel since 1995.
Susan J. Piller, age 47, has been Senior Vice President -- Employee
Relations since May 1996. Prior to joining the Company, Ms. Piller was with
Browning-Ferris Industries, Inc. from 1984 until 1996, where she held various
labor and employment positions, including Vice President -- Employee Relations.
Prior thereto, Ms. Piller was employed by the Houston law firm of Fulbright &
Jaworski.
116
<PAGE> 119
Robert G. Simpson, age 48, has been Vice President -- Taxation since
November 1998. From July 1997 to November 1998, Mr. Simpson served as Vice
President and General Manager of Tenneco Inc. and Tenneco Business Services, a
diversified industrial company. From April 1990 to July 1997, Mr. Simpson served
as Vice President -- Tax of Tenneco Inc.
Thomas L. Smith, age 61, has been Senior Vice President -- Information
Systems since November 1999. From February 1997 through November 1999, Mr. Smith
was Vice President of Information Systems of Yellow Services, Inc., and from
November 1989 through February 1997 held the same position at America West
Airlines.
Bruce E. Snyder, age 44, has been Vice President and Chief Accounting
Officer of the Company since July 1992. Prior to joining the Company, Mr. Snyder
was employed by the international accounting firm of Coopers & Lybrand L.L.P.,
serving there since 1989 as an audit manager.
Douglas G. Sobey, age 48, has been Senior Vice President -- Western Area,
since July 1998. From 1996 to July 1998, Mr. Sobey was the Company's Region Vice
President -- Northwest Region. From 1990 to 1996, Mr. Sobey held similar
positions with Sanifill, Inc.
William L. Trubeck, age 53, has been Senior Vice President and Chief
Financial Officer since March 2000. Prior to joining the Company, Mr. Trubeck
was employed by International Multifoods Corporation, where he was Senior Vice
President -- Finance, and Chief Financial Officer since early 1997 and
President, Latin American Operations, since 1998. Prior to joining International
Multifoods, Mr. Trubeck was Senior Vice President -- Finance, and Chief
Financial Officer of SPX Corporation from 1994 to 1997.
Charles A. Wilcox, age 47, has been Senior Vice President -- Eastern Area
since July 1998. From August 1996 to July 1998, Mr. Wilcox was Region Vice
President -- Central Region. From December 1994 to August 1996, Mr. Wilcox
served as an Executive Vice President of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the caption
"Election of Directors -- Executive Compensation" in the 2000 Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the caption
"Election of Directors -- Beneficial Ownership of Waste Management Common Stock"
in the 2000 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the caption
"Election of Directors -- Certain Relationships and Related Transactions" in the
2000 Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements:
Report of Independent Public Accountants
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998, and 1997
117
<PAGE> 120
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because the required information
is not significant or is included in the financial statements or notes
thereto, or is not applicable.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of April 13, 1997,
by and among the Registrant, Riviera Acquisition
Corporation and United Waste Systems, Inc. [Incorporated
by reference to Appendix A in the Registrant's
Registration Statement on Form S-4, File No. 333-31979].
2.2 -- Agreement and Plan of Merger, dated March 10, 1998, by
and among the Registrant, Dome Merger Subsidiary, Inc.
and Waste Management, Inc. [Incorporated by reference to
Exhibit 99.1 of the Registrant's Current Report on Form
8-K dated March 10, 1998].
2.3 -- Agreement and Plan of Merger, dated as of February 16,
1998, by and among the Registrant, C&S Ohio Corp. and
American Waste Services, Inc. [Incorporated by reference
to Exhibit 10.70 to American Waste Services' Current
Report on Form 8-K, dated February 6, 1998].
2.4 -- Agreement and Plan of Merger, dated as of August 16,
1998, by and among the Registrant, Ocho Acquisition
Corporation and Eastern Environmental Services, Inc.
[Incorporated by reference to Annex A in the Registrant's
Registration Statement on Form S-4, File No. 333-64239].
2.5 -- Scheme of Arrangement between Waste Management
International plc and the Holders of the Scheme Shares
dated September 7, 1998 [Incorporated by reference to the
Registrant's Schedule 13E-3 Transaction Statement dated
September 7, 1998].
2.6 -- Agreement and Plan of Merger by and among the Registrant,
TransAmerican Acquisition Corp., and TransAmerican Waste
Industries, Inc. dated January 1998 [Incorporated by
reference to the Registrant's Registration Statement on
Form S-4, File No. 333-49253].
2.7 -- Agreement and Plan of Merger by and among Waste
Management, Inc., WMI Merger Sub, Inc. and Wheelabrator
Technologies Inc. dated December 8, 1997 [Incorporated by
reference to Exhibit A of WTI's Proxy Statement on
Schedule 14A filed on March 3, 1998].
3.1 -- Restated Certificate of Incorporation, as amended
[Incorporated by reference to Exhibit 3.2 of the
Registrant's current Report on Form 8-K dated July 16,
1998].
3.2 -- Bylaws [Incorporated by reference to Exhibit to
Registrant's Form 10-Q for the quarter ended June 30,
1999].
4.1 -- Specimen Stock Certificate [Incorporated by reference to
Exhibit 4.1 to the Registrants Annual Report on Form 10-K
for the year ended December 31, 1998].
4.2 -- Indenture for Subordinated Debt Securities dated February
1, 1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated February 7, 1997].
4.3 -- Indenture for Senior Debt Securities dated September 10,
1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated September 10, 1997].
</TABLE>
118
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.1 -- 1990 Stock Option Plan [Incorporated by reference to
Exhibit 10.1 of the Registrant's Annual report on Form
10-K for the year ended December 31, 1990].
10.2 -- Conformed copy of 1993 Stock Incentive Plan, as amended
and restated. [Incorporated by reference to Exhibit 10.2
(and 10.3) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.]
10.3 -- Conformed copy of 1996 Stock Option Plan for Non-Employee
Directors, as amended. [Incorporated by reference to
Exhibit 10.2 (and 10.3) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.]
10.4 -- Envirofil, Inc. 1993 Stock Incentive Plan [Incorporated
by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, File No. 33-84990].
10.5 -- Western Waste Industries Amended and Restated 1983
Incentive Stock Option Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-02181].
10.6 -- Western Waste Industries 1983 Non-Qualified Stock Option
Plan [Incorporated by reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-8, File No.
333-02181].
10.7 -- Western Waste Industries 1992 Option Plan [Incorporated
by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8, File No. 333-02181].
10.8 -- Sanifill, Inc. 1994 Long-Term Incentive Plan
[Incorporated by reference to Exhibit 99.1 of the
Registrant's Registration Statement on Form S-8, File No.
333-08161].
10.9 -- Sanifill, Inc. 1989 Stock Option Plan [Incorporated by
reference to Exhibit 99.2 of the Registrant's
Registration Statement on Form S-8, File No. 333-08161].
10.10 -- Waste Management, Inc. 1997 Equity Incentive Plan
[Incorporated by reference to Exhibit A to Waste
Management Holdings' Proxy Statement for its 1997 Annual
Meeting of Shareholders].
10.11 -- WMX Technologies, Inc. 1996 Replacement Stock Option Plan
[Incorporated by reference to Exhibit 4.13 to Waste
Management Holdings' Registration Statement on Form S-8,
File No. 333-01325].
10.12 -- WMX Technologies, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.31 to Waste
Management Holdings' Registration Statement on Form S-1,
File No. 33-44849].
10.13 -- WMX Technologies, Inc. 1992 Stock Option Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.23 to Waste Management Holdings' 1996 Annual
Report on Form 10-K].
10.14 -- Waste Management, Inc. 1982 Stock Option Plan, as amended
to March 11, 1988 [Incorporated by reference to Exhibit
10.3 to Waste Management Holdings' 1988 Annual Report on
Form 10-K].
10.15 -- Wheelabrator Technologies Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.45 to the 1991
Annual Report on Form 10-K of Wheelabrator Technologies
Inc.].
10.16 -- Wheelabrator Technologies Inc. 1988 Stock Plan for
Executive Employees of WTI and its Subsidiaries
[Incorporated by reference to Exhibit 28.1 to Amendment
No. 1 to the Registration Statement of Wheelabrator
Technologies Inc. on Form S-8, File No. 33-31523].
10.17 -- Chemical Waste Management, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.19 to the 1991
Annual Report on Form 10-K of Chemical Waste Management,
Inc].
10.18 -- 1991 Stock Option Plan for Non-Employee Directors of
Wheelabrator Technologies, Inc. [Incorporated by
reference to Exhibit 19.04 WTI's Quarterly Report for the
quarterly period ended June 30, 1991].
10.19 -- Amendments dated as of September 7, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
</TABLE>
119
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.20 -- Amendment dated as of November 1, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.04 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.21 -- Amendment dated as of November 1, 1990 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.03 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.22 -- Amendment dated as of December 6, 1991 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.01 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.23 -- Amendment dated as of December 6, 1991 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.24 -- 1997 Employee Stock Purchase Plan [Incorporated by
reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1997].
10.25 -- 401(k) Restoration Plan [Incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997].
10.26 -- TransAmerican Waste Industries, Inc. Amended and Restated
1990 Stock Incentive Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.27 -- TransAmerican Waste Industries, Inc. 1997 Non-Employee
Director Stock Option Plan [Incorporated by reference to
Exhibit 99.2 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.28 -- Eastern Environmental Services, Inc. 1997 Stock Option
Plan [Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, File
No.333-70055].
10.29 -- Eastern Environmental Services, Inc. Amended and Restated
1996 Stock Option Plan [Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-8, File No. 333-70055].
10.30 -- Eastern Environmental Services, Inc. 1991 Stock Option
Plan [Incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.31 -- Third Amended and Restated Revolving Credit Agreement,
dated as of December 15, 1999 among the Registrant, the
Guarantors Bank of America, N.A., Morgan Guaranty Trust
Company of New York and other financial institutions
[Incorporated by reference to Exhibit 10.32 of the
Registrant's Registration Statement on Form S-4, Reg. No.
333-87319].
10.32 -- Amended and Restated Loan Agreement dated as of December
15, 1999, among the Registrant, the Guarantors, Bank
Boston, N.A. Bank of America National Trust and Savings
Association, Chase Bank of Texas, N.A., Deutsche Bank AG,
New York Branch, Morgan Guaranty Trust Company of New
York and other financial institutions [Incorporated by
reference to Exhibit 10.33 of the Registrant's
Registration Statement on Form S-4, Reg. No. 333-87319].
10.33 -- 1998 Waste Management, Inc. Directors' Deferred
Compensation Plan [Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999].
10.34 -- 1999 Waste Management, Inc. Directors Deferred
Compensation Plan [Incorporated by reference to Exhibit
10.2 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.]
10.35 -- Employment Agreement between the Company and A. Maurice
Myers, dated November 8, 1999.
10.36 -- Employment Agreement between the Company and Lawrence
O'Donnell, III, dated January 21, 2000.
10.37 -- Employment Agreement between the Company and William L.
Trubeck, dated February 16, 2000.
</TABLE>
120
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.38 -- Term Sheet for Employment of Thomas L. Smith by the
Company.
10.39 -- Employment Agreement between the Company and Robert A.
Damico, dated December 17, 1998.
10.40 -- Employment Agreement between the Company and Charles A.
Wilcox, dated February 3, 1998.
10.41 -- Employment Agreement between the Company and Douglas G.
Sobey, dated May 7, 1997.
10.42 -- Employment Agreement between the Company and Miller J.
Mathews, Jr., dated October 1, 1998.
10.43 -- Employment Agreement between the Company and David R.
Hopkins, dated January 1, 1999.
10.44 -- Employment Agreement between the Company and Robert G.
Simpson, dated October 15, 1998.
10.45 -- Employment Agreement and Amendment to Employment
Agreement between the Company and Susan J. Piller, dated
as of June 1, 1997 and December 7, 1997, respectively
[Incorporated by reference to Exhibits 10.19 and 10.20 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997]
10.46 -- Employment Agreement between the Company and Ronald H.
Jones, dated as of August 27, 1997 and December 7, 1997
[Incorporated by reference to Exhibits 10.25 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997]
10.47 -- Employment Agreement and Amendment to Employment
Agreement between the Company and William A. Rothrock,
dated as of October 7, 1997 and December 12, 1997,
respectively [Incorporated by reference to Exhibits 10.21
and 10.22 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997]
10.48 -- Employment Agreement and Amendment to Employment
Agreement between the Company and Bruce E. Snyder, dated
as of June 1, 1997 and December 1, 1997 [Incorporated by
reference to Exhibits 10.26 and 10.27 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1997]
10.49 -- 2000 Broad-Based Employee Plan
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the Registrant's file number under that Act
is 1-12154. Waste Management Holdings' file number under the Exchange Act is
1-7327, Chemical Waste Management, Inc.'s file number is 1-9253 and
Wheelabrator Technologies Inc.'s file number is 0-14246.
(b) Reports on Form 8-K:
During the fourth quarter of 1999, the Company filed a Current Report on
Form 8-K dated October 20, 1999 to report the resignation of Messrs. Heckmann,
Kinder and Drury from the Board of Directors of the Company effective August 13,
September 23 and October 19, 1999, respectively. The Company also reported that
consistent with its plan to reduce the size of its Board of Directors, none of
Messrs. Heckmann's, Kinder's or Drury's board positions would be filled.
121
<PAGE> 124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASTE MANAGEMENT, INC.
By: /s/ A. MAURICE MYERS
----------------------------------
A. Maurice Myers
President, Chief Executive Officer
and
Chairman of the Board
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ A. MAURICE MYERS President, Chief Executive March 30, 2000
- ----------------------------------------------------- Officer, Chairman of the
A. Maurice Myers Board, and Director
(Principal Executive
Officer)
/s/ WILLIAM L. TRUBECK Senior Vice President and March 30, 2000
- ----------------------------------------------------- Chief Financial Officer
William L. Trubeck (Principal Financial
Officer)
/s/ BRUCE E. SNYDER Vice President and Chief March 30, 2000
- ----------------------------------------------------- Accounting Officer
Bruce E. Snyder (Principal Accounting
Officer)
/s/ H. JESSE ARNELLE Director March 30, 2000
- -----------------------------------------------------
H. Jesse Arnelle
/s/ PASTORA SAN JUAN CAFFERTY Director March 30, 2000
- -----------------------------------------------------
Pastora San Juan Cafferty
/s/ RALPH F. COX Director March 30, 2000
- -----------------------------------------------------
Ralph F. Cox
/s/ RODERICK M. HILLS Director March 30, 2000
- -----------------------------------------------------
Roderick M. Hills
Director March 30, 2000
- -----------------------------------------------------
Robert S. Miller
/s/ PAUL M. MONTRONE Director March 30, 2000
- -----------------------------------------------------
Paul M. Montrone
/s/ JOHN C. POPE Director March 30, 2000
- -----------------------------------------------------
John C. Pope
/s/ STEVEN G. ROTHMEIER Director March 30, 2000
- -----------------------------------------------------
Steven G. Rothmeier
/s/ RALPH V. WHITWORTH Director March 30, 2000
- -----------------------------------------------------
Ralph V. Whitworth
/s/ JEROME B. YORK Director March 30, 2000
- -----------------------------------------------------
Jerome B. York
</TABLE>
122
<PAGE> 125
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Waste Management, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Waste Management, Inc.
and subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated March 27, 2000, in which we expressed an unqualified
opinion based upon our audits and the report of other auditors. Our report
contained an explanatory paragraph indicating that we attempted, but were
unable, to review the quarterly financial data for the interim periods within
1999 included in Note 20 to the Company's consolidated financial statements. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
Schedule II has been subjected to the auditing procedures applied in the audits,
of the basic financial statements, and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 2000
<PAGE> 126
WASTE MANAGEMENT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Charged Accounts Effect of
Balance (Credited) Written Off/ Foreign Balance
Beginning to Use of Currency End of
of Year Income Reserve Other (A) Translation Year
--------- --------- ------------ --------- ----------- ---------
<C> <C> <C> <C> <C> <C> <C>
1997 - Reserve for doubtful accounts(B) $ 76,662 $ 69,592 $ (56,586) $ 7,336 $ (2,605) $ 94,399
1998 - Reserve for doubtful accounts(B) 94,399 70,727 (51,657) 4,164 1,284 118,917
1999 - Reserve for doubtful accounts(B) 118,917 268,379 (96,272) 7,222 (3,247) 294,999
1997 - Merger and restructuring accruals(C) 69,843 160,528 (109,039) -- -- 121,332
1998 - Merger and restructuring accruals(C) 121,332 675,200 (536,401) -- 1,106 261,237
1999 - Merger and restructuring accruals(C) 261,237 (8,182) (141,348) -- (3,127) 108,580
1997 - Reserve for major maintenance
expenditures(D) 63,790 6,924 (5,919) -- -- 64,795
1998 - Reserve for major maintenance
expenditures(D) 64,795 4,289 (9,658) -- -- 59,426
1999 - Reserve for major maintenance
expenditures(D) 59,426 8,881 (14,877) -- -- 53,430
</TABLE>
(A) Acquired reserves for doubtful accounts relative to purchase business
combinations, reserves associated with dispositions of businesses, and
reserves reclassified to operations held for sale.
(B) Includes reserves for doubtful long-term notes receivable.
(C) Accruals are included in accrued liabilities and other liabilities.
These accruals represent transaction or deal costs, employee severance,
separation, and transitional costs and restructuring charges.
(D) Accruals for major maintenance expenditures at the Company's
waste-to-energy and independent power facilities.
<PAGE> 127
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of April 13, 1997,
by and among the Registrant, Riviera Acquisition
Corporation and United Waste Systems, Inc. [Incorporated
by reference to Appendix A in the Registrant's
Registration Statement on Form S-4, File No. 333-31979].
2.2 -- Agreement and Plan of Merger, dated March 10, 1998, by
and among the Registrant, Dome Merger Subsidiary, Inc.
and Waste Management, Inc. [Incorporated by reference to
Exhibit 99.1 of the Registrant's Current Report on Form
8-K dated March 10, 1998].
2.3 -- Agreement and Plan of Merger, dated as of February 16,
1998, by and among the Registrant, C&S Ohio Corp. and
American Waste Services, Inc. [Incorporated by reference
to Exhibit 10.70 to American Waste Services' Current
Report on Form 8-K, dated February 6, 1998].
2.4 -- Agreement and Plan of Merger, dated as of August 16,
1998, by and among the Registrant, Ocho Acquisition
Corporation and Eastern Environmental Services, Inc.
[Incorporated by reference to Annex A in the Registrant's
Registration Statement on Form S-4, File No. 333-64239].
2.5 -- Scheme of Arrangement between Waste Management
International plc and the Holders of the Scheme Shares
dated September 7, 1998 [Incorporated by reference to the
Registrant's Schedule 13E-3 Transaction Statement dated
September 7, 1998].
2.6 -- Agreement and Plan of Merger by and among the Registrant,
TransAmerican Acquisition Corp., and TransAmerican Waste
Industries, Inc. dated January 1998 [Incorporated by
reference to the Registrant's Registration Statement on
Form S-4, File No. 333-49253].
2.7 -- Agreement and Plan of Merger by and among Waste
Management, Inc., WMI Merger Sub, Inc. and Wheelabrator
Technologies Inc. dated December 8, 1997 [Incorporated by
reference to Exhibit A of WTI's Proxy Statement on
Schedule 14A filed on March 3, 1998].
3.1 -- Restated Certificate of Incorporation, as amended
[Incorporated by reference to Exhibit 3.2 of the
Registrant's current Report on Form 8-K dated July 16,
1998].
3.2 -- Bylaws [Incorporated by reference to Exhibit to
Registrant's Form 10-Q for the quarter ended June 30,
1999].
4.1 -- Specimen Stock Certificate [Incorporated by reference to
Exhibit 4.1 to the Registrants Annual Report on Form 10-K
for the year ended December 31, 1998].
4.2 -- Indenture for Subordinated Debt Securities dated February
1, 1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated February 7, 1997].
4.3 -- Indenture for Senior Debt Securities dated September 10,
1997, among the Registrant and Texas Commerce Bank
National Association, as trustee [Incorporated by
reference to Exhibit 4.1 of the Registrant's Current
Report on Form 8-K dated September 10, 1997].
10.1 -- 1990 Stock Option Plan [Incorporated by reference to
Exhibit 10.1 of the Registrant's Annual report on Form
10-K for the year ended December 31, 1990].
10.2 -- Conformed copy of 1993 Stock Incentive Plan, as amended
and restated. [Incorporated by reference to Exhibit 10.2
(and 10.3) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.]
10.3 -- Conformed copy of 1996 Stock Option Plan for Non-Employee
Directors, as amended. [Incorporated by reference to
Exhibit 10.2 (and 10.3) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.]
10.4 -- Envirofil, Inc. 1993 Stock Incentive Plan [Incorporated
by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, File No. 33-84990].
10.5 -- Western Waste Industries Amended and Restated 1983
Incentive Stock Option Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-02181].
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.6 -- Western Waste Industries 1983 Non-Qualified Stock Option
Plan [Incorporated by reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-8, File No.
333-02181].
10.7 -- Western Waste Industries 1992 Option Plan [Incorporated
by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8, File No. 333-02181].
10.8 -- Sanifill, Inc. 1994 Long-Term Incentive Plan
[Incorporated by reference to Exhibit 99.1 of the
Registrant's Registration Statement on Form S-8, File No.
333-08161].
10.9 -- Sanifill, Inc. 1989 Stock Option Plan [Incorporated by
reference to Exhibit 99.2 of the Registrant's
Registration Statement on Form S-8, File No. 333-08161].
10.10 -- Waste Management, Inc. 1997 Equity Incentive Plan
[Incorporated by reference to Exhibit A to Waste
Management Holdings' Proxy Statement for its 1997 Annual
Meeting of Shareholders].
10.11 -- WMX Technologies, Inc. 1996 Replacement Stock Option Plan
[Incorporated by reference to Exhibit 4.13 to Waste
Management Holdings' Registration Statement on Form S-8,
File No. 333-01325].
10.12 -- WMX Technologies, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.31 to Waste
Management Holdings' Registration Statement on Form S-1,
File No. 33-44849].
10.13 -- WMX Technologies, Inc. 1992 Stock Option Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.23 to Waste Management Holdings' 1996 Annual
Report on Form 10-K].
10.14 -- Waste Management, Inc. 1982 Stock Option Plan, as amended
to March 11, 1988 [Incorporated by reference to Exhibit
10.3 to Waste Management Holdings' 1988 Annual Report on
Form 10-K].
10.15 -- Wheelabrator Technologies Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.45 to the 1991
Annual Report on Form 10-K of Wheelabrator Technologies
Inc.].
10.16 -- Wheelabrator Technologies Inc. 1988 Stock Plan for
Executive Employees of WTI and its Subsidiaries
[Incorporated by reference to Exhibit 28.1 to Amendment
No. 1 to the Registration Statement of Wheelabrator
Technologies Inc. on Form S-8, File No. 33-31523].
10.17 -- Chemical Waste Management, Inc. 1992 Stock Option Plan
[Incorporated by reference to Exhibit 10.19 to the 1991
Annual Report on Form 10-K of Chemical Waste Management,
Inc].
10.18 -- 1991 Stock Option Plan for Non-Employee Directors of
Wheelabrator Technologies, Inc. [Incorporated by
reference to Exhibit 19.04 WTI's Quarterly Report for the
quarterly period ended June 30, 1991].
10.19 -- Amendments dated as of September 7, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.20 -- Amendment dated as of November 1, 1990 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.04 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.21 -- Amendment dated as of November 1, 1990 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.03 to
the 1990 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.22 -- Amendment dated as of December 6, 1991 to the WTI 1986
Stock Plan [Incorporated by reference to Exhibit 19.01 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
10.23 -- Amendment dated as of December 6, 1991 to the WTI 1988
Stock Plan [Incorporated by reference to Exhibit 19.02 to
the 1991 Annual Report on Form 10-K of Wheelabrator
Technologies Inc.].
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.24 -- 1997 Employee Stock Purchase Plan [Incorporated by
reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1997].
10.25 -- 401 (k) Restoration Plan [Incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997].
10.26 -- TransAmerican Waste Industries, Inc. Amended and Restated
1990 Stock Incentive Plan [Incorporated by reference to
Exhibit 99.1 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.27 -- TransAmerican Waste Industries, Inc. 1997 Non-Employee
Director Stock Option Plan [Incorporated by reference to
Exhibit 99.2 of the Registrant's Registration Statement
on Form S-8, File No. 333-51975].
10.28 -- Eastern Environmental Services, Inc. 1997 Stock Option
Plan [Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, File
No.333-70055].
10.29 -- Eastern Environmental Services, Inc. Amended and Restated
1996 Stock Option Plan [Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-8, File No. 333-70055].
10.30 -- Eastern Environmental Services, Inc. 1991 Stock Option
Plan [Incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8, File No.
333-70055].
10.31 -- Third Amended and Restated Revolving Credit Agreement,
dated as of December 15, 1999 among the Registrant, the
Guarantors Bank of America, N.A., Morgan Guaranty Trust
Company of New York and other financial institutions
[Incorporated by reference to Exhibit 10.32 of the
Registrant's Registration Statement on Form S-4, Reg. No.
333-87319].
10.32 -- Amended and Restated Loan Agreement dated as of December
15, 1999, among the Registrant, the Guarantors, Bank
Boston, N.A. Bank of America National Trust and Savings
Association, Chase Bank of Texas, N.A., Deutsche Bank AG,
New York Branch, Morgan Guaranty Trust Company of New
York and other financial institutions [Incorporated by
reference to Exhibit 10.33 of the Registrant's
Registration Statement on Form S-4, Reg. No. 333-87319].
10.33 -- 1998 Waste Management, Inc. Directors' Deferred
Compensation Plan [Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999].
10.34 -- 1999 Waste Management, Inc. Directors Deferred
Compensation Plan [Incorporated by reference to Exhibit
10.2 to the Registrants Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.]
10.35 -- Employment Agreement between the Company and A. Maurice
Myers, dated November 8, 1999.
10.36 -- Employment Agreement between the Company and Lawrence
O'Donnell, III, dated January 21, 2000.
10.37 -- Employment Agreement between the Company and William L.
Trubeck, dated February 16, 2000.
10.38 -- Term Sheet for Employment of Thomas L. Smith by the
Company.
10.39 -- Employment Agreement between the Company and Robert A.
Damico, dated December 17, 1998.
10.40 -- Employment Agreement between the Company and Charles A.
Wilcox, dated February 3, 1998.
10.41 -- Employment Agreement between the Company and Douglas G.
Sobey, dated May 7, 1997.
10.42 -- Employment Agreement between the Company and Miller J.
Mathews, Jr., dated October 1, 1998.
10.43 -- Employment Agreement between the Company and David R.
Hopkins, dated January 1, 1999.
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT NO.* DESCRIPTION
------------ -----------
<C> <S>
10.44 -- Employment Agreement between the Company and Robert G.
Simpson, dated October 15, 1998.
10.45 -- Employment Agreement and Amendment to Employment
Agreement between the Company and Susan J. Piller, dated
as of June 1, 1997 and December 7, 1997, respectively
[Incorporated by reference to Exhibits 10.19 and 10.20 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997]
10.46 -- Employment Agreement between the Company and Ronald H.
Jones, dated as of August 27, 1997 and December 7, 1997
[Incorporated by reference to Exhibits 10.25 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997]
10.47 -- Employment Agreement and Amendment to Employment
Agreement between the Company and William A. Rothrock,
dated as of October 7, 1997 and December 12, 1997,
respectively [Incorporated by reference to Exhibits 10.21
and 10.22 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997]
10.48 -- Employment Agreement and Amendment to Employment
Agreement between the Company and Bruce E. Snyder, dated
as of June 1, 1997 and December 1, 1997 [Incorporated by
reference to Exhibits 10.26 and 10.27 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1997]
10.49 -- 2000 Broad-Based Employee Plan
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the Registrant's file number under that Act
is 1-12154. Waste Management Holdings' file number under the Exchange Act is
1-7327, Chemical Waste Management, Inc.'s file number is 1-9253 and
Wheelabrator Technologies Inc.'s file number is 0-14246.
<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and A. Maurice Myers (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of November 8, 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
November 10, 1999 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 Chief Executive Officer and President of the
Company and shall serve as Chairman of 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 eight hundred fifty thousand
($850,000) dollars per
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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.
(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 100% of his Base Salary as in
effect for such year (the "Target Bonus"), and his actual annual bonus may
range from 0% to 200%, and will be determined based upon achievement of
performance goals established by the Compensation Committee of the Board
pursuant to such plan.
(c) 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:
(i) Cash Award. Within thirty (30) days after the Commencement Date, the
Company will pay Executive $650,000.
(ii) Restricted Stock Award. Effective as of November 11, 1999 (the
"Grant Date"), the Company will grant Executive an award of 265,000
restricted shares of the Company's common stock (the "Stock") under
the Waste Management, Inc. 1993 Stock Incentive Plan (the "Stock
Incentive Plan") that will vest in equal installments on each of the
first three 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).
(iii) Stock Options. Effective as of the Grant Date, Executive will be
granted a ten-year stock option award under the Stock Incentive Plan
to purchase 650,000 shares of Stock. The exercise price shall be the
fair market value as on the Grant Date, and the options shall vest
on the fifth anniversary of the Commencement Date, provided that the
options shall earlier vest as follows, if the average of the closing
price of the Stock on the New York Stock Exchange (or, if not listed
on the New York Stock Exchange, such primary exchange or market on
which the Stock is listed) for any continuous sixty trading-day
period exceeds the following: one-third shall vest if such average
closing price exceeds $21.50, an additional one-third shall vest if
such average closing price exceeds $27.00 and the remaining
one-third shall vest if
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such average closing stock price exceeds $34.00. Such closing
stock price targets shall be appropriately adjusted to reflect
any stock split, reverse stock split, extraordinary dividend
or other similar event with respect to the stock in each case,
subject (except as otherwise provided herein) to Executive's
continuous employment with the Company through the applicable
vesting date.
(d) LONG TERM INCENTIVE AWARD. Effective as of the Grant Date, Executive
will be granted a 10-year stock option award to purchase 1,000,000
shares of Stock. The exercise price of the options will be the fair
market value per share of Stock on the Grant Date. The option award
shall be divided into three equal tranches: The first tranche shall
vest one-third on the Grant Date, one-third on the second
anniversary of the Commencement Date and one-third on the third
anniversary; the second tranche shall vest in three equal annual
installments commencing on the second anniversary of the
Commencement Date; and the third tranche shall vest in three equal
annual installments commencing on the third anniversary of the
Commencement Date, in each case subject (except as otherwise
provided herein) to Executive's continuous employment with the
Company through the applicable vesting date. Notwithstanding the
foregoing, because of the maximum per individual per year grant
limits in the Stock Incentive Plan, 150,000 options of the third
tranche (the "Shortfall") will not be permitted to be granted until
January 1, 2000. Such options plus an Adjustment Amount, if
appropriate, will be granted on such date at the then fair market
value. The Adjustment Amount shall be granted only if the fair
market value is greater on January 1, 2000 than it is on the Grant
Date and shall be equal to the Shortfall multiplied by the
difference in fair market value between the two dates and further
multiplied by .7432. The Options under (c) and (d) shall be
transferable to family members in accordance with Section 9.2 of the
Stock Incentive Plan.
(e) OTHER COMPENSATION. Executive shall be entitled to participate in
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.
(f) 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.
During the Employment Period, Executive shall be entitled to
vacation each year in accordance with the Company's policies in
effect
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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.
(g) SUPPLEMENTAL RETIREMENT BENEFIT. Executive (or his surviving spouse) shall
be entitled to the supplemental retirement benefit payable by the Company
set forth below (the "Supplemental Retirement Benefit"). One Hundred
Thousand Dollars ($100,000) of such retirement benefit shall first become
payable on May 1, 2001 or, if earlier, the termination of Executive's
employment with the Company and the remainder upon the termination of
Executive's employment with the Company and shall be payable each year to
Executive through the remainder of his life in quarterly calendar
installments (with a prorated initial installment if necessary), with a
one hundred percent right of survivorship.
(i) Voluntary Termination. In the event Executive voluntarily terminates
his employment other than for Good Reason or is terminated for
Cause, the Supplemental Retirement Benefit shall be:
<TABLE>
<CAPTION>
Date of Employment Termination Supplemental Retirement Benefit
------------------------------------------------- ----------------------------------
<S> <C>
On or after the fifth anniversary of the
Commencement Date $ 600,000
On or after the fourth anniversary of the
Commencement Date $ 500,000
On or after the third anniversary of the
Commencement Date $ 400,000
On or after the 18-month anniversary of the
Commencement Date $ 100,000
Prior to the 18-month anniversary of the
Commencement Date none
</TABLE>
(ii) Certain Involuntary Terminations. In the event Executive's
employment terminates as a result of his death or Total Disability,
the Company terminates his employment other than for Cause or
Executive terminates his employment for Good Reason, the
Supplemental Retirement Benefit shall be (with proration between
specified dates based on the number of three-month
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periods in which he was employed compared to 4 and, in any event
$600,000 if after, at, or in contemplation of, a Change in Control):
<TABLE>
<CAPTION>
Date of Employment Termination Supplemental Retirement Benefit
------------------------------------------------ ----------------------------------
<S> <C>
On or after the fourth anniversary of the
Commencement Date $ 600,000
On or after the third anniversary of the
Commencement Date $ 500,000
On or after the second anniversary of the
Commencement Date $ 400,000
On or after the first anniversary of the
Commencement Date $ 300,000
Prior to the first anniversary of the
Commencement Date $ 200,000
</TABLE>
(h) WHOLE LIFE INSURANCE POLICY. During the Employment Period the Company
shall pay the premiums on the $1 million whole life insurance policy that
Executive's prior employer has heretofore paid in the amount of
approximately $2,400 per month.
(i) 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
$25,000 (or such greater amount as the parties may agree)) and (ii)
reimburse Executive (on a fully grossed up basis for any amounts taxable
to Executive) for reasonable 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 of 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.
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(j) SPECIAL LOAN. In the event Executive's stock options to purchase
securities of his prior employer would expire at a time that he could not
sell the stock issued on their exercise for security law reasons, at the
Executive's request, the Company shall lend or arrange to be loaned to the
Executive (until the earlier of six (6) months after such loan or sale of
the underlying corresponding stock) on an unsecured basis, but with
interest at the applicable federal rate, an amount sufficient to exercise
such option and to pay any necessary withholding on the income from such
exercise.
(k) SECURITY NEEDS. The Company will provide Executive and his family with
personal safety and security protection as appropriate and reasonable
under the circumstances.
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
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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 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 Chairman and Chief
Executive Officer of
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the ultimate parent entity; (2) removal of, or the nonreelection 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; (6) Executive's removal from or failure to
be elected or reelected to the Board; or (7) 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 (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.
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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
Section 4(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 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
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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
Section 4(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.
(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.
(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(f) 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.
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(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(f) 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:
(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(f) 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.
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(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) 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 of employment. 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.
(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.
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(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 and will be fully vested in the $600,000
retirement benefit provided under Section 4(g) hereof. 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
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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 U.S. federal income taxation in the
calendar year in which
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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
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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, including
but not limited to a consent solicitation, relating to
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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 on 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,
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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 not 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 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 Employee, 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.
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(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.
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.
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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 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
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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.
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
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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.
(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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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/ Ralph V. Whitworth
----------------------------------------
Name: Ralph V. Whitworth
--------------------------------------
Title: Chairman
-------------------------------------
Date: November 8, 1999
--------------------------------------
EXECUTIVE
A. Maurice Myers
- -------------------------------------------
Date: November 8, 1999
--------------------------------------
Address: 1111 Caroline, Apt. 2805
Houston, Texas 77010
23
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EXHIBIT 10.36
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
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<PAGE> 3
dividends paid therein (and non cash dividends being subject to
the same forfeiture provisions as the underlying Restricted Stock
Grant shares).
(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
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<PAGE> 10
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.
(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.
Page 15 of 19
<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
Page 16 of 19
<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.
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/ 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: 221 Bryn Mawr Circle
Houston, Texas 77024
Page 19 of 19
<PAGE> 1
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and WILLIAM L. TRUBECK (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as of February
16, 2000 (the "Agreement 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
March 13, 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 Chief Financial
Officer reporting to the Chief Executive Officer of the Company. 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 of Directors of the Company (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
(Bush Brothers & Company, Yellow Corporation and Vision Technologies)
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 five hundred thousand
($500,000) 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. The annual bonus will be paid within 30 days
following the Compensation Committee's first meeting following the year
end accounting close.
(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 two hundred thousand ($200,000)
dollars, to be paid within 30 days following the Compensation
Committee's first meeting following the year end accounting close in
2001.
(e) STOCK OPTIONS.
(i) As of the Agreement Date, Executive will be granted a ten-year
stock option award under the Company's Stock Incentive Plan to
purchase four hundred thousand (400,000) shares of common stock
of the Company ("Stock"). The exercise price shall be the fair
market value on the Agreement Date, and the options shall vest in
equal installments on each of the first four (4) anniversaries of
the Agreement Date.
(ii) At the February/March, 2001 meeting of the Compensation Committee
of the Board, Executive will, subject to approval by the
Compensation Committee, be granted a ten (10) year stock option
award under the Company's Stock Incentive Plan to purchase two
hundred thousand (200,000) shares of Stock. The exercise price
shall be the fair market value on the date the Compensation
Committee awards the options, and the options shall vest in equal
installments over four (4) years, commencing on the first
anniversary of the date of grant. 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.
(f) 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.
(g) 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
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<PAGE> 3
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 and health 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.
(h) 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, including tax preparation, 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.
(i) 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 and (ii) reimburse
Executive (on a fully grossed up basis for any amounts taxable to
Executive) for reasonable 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 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.
(j) REPLACEMENT AWARD. 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, eighty-five thousand
($385,000) dollars on the date of grant) under the Company's Stock Incentive
Plan that will vest in equal installments on each of the first four (4)
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<PAGE> 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).
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
Page 4 of 19
<PAGE> 5
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 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), the cessation
of Executive to report to the Chief Executive Officer of the
Company 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 Chief Financial Officer reporting to
the Chief Executive Officer 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
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<PAGE> 6
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 (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
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<PAGE> 7
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(f)-(h) 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.
(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(f)-(h) 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
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<PAGE> 8
(1) year from the date of termination by reason of Total
Disability to exercise all such options.
(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
Sections 4(f)-(h) 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(f)-(h) 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).
Page 8 of 19
<PAGE> 9
(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(f)-(h)
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.
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<PAGE> 10
(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 vested options, unless by virtue of the particular
stock option award, the option grant expires on an earlier date.
(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 (A) the entire amount calculated pursuant to Section
6(e)(iii) 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
Page 10 of 19
<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.
Page 11 of 19
<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. 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 provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive)
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<PAGE> 17
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: General Counsel
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
EXECUTIVE
/s/ William L. Trubeck
- -----------------------------------------------
William L. Trubeck
Social Security Number:
------------------------
Address: 3300 Fox Street
--------------------------------------
Longview, MN 55356
--------------------------------------
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<PAGE> 1
EXHIBIT 10.38
TERM SHEET
TOM SMITH
Position: Senior Vice President, Information Technology ("IT")
Reports to Chief Executive Officer or other Executive Vice President, as
designated by CEO.
Base Salary: $300,000 per year; next review to be in first quarter 2001
Incentive Compensation: Target of 50% of base salary, up to maximum of 100% of
base salary.
Stock Options: Upon the approval of the Compensation Committee of the Board of
Directors, an initial grant of 75,000 options. Eligible for next award in 2001.
Stock Options vest in five years (20% increments). Upon termination by reason of
retirement, Employee has 36 months to exercise all options vested as of date of
termination; otherwise 90 days to exercise all options vested as of the date of
termination.
Benefits: Health insurance; 401K after 90 day waiting; Employee Stock Purchase
Plan and Executive Deferral Plan
Severance: If terminated by the Company without cause, 3 years base pay and
continuation of benefits, including health insurance, stock option vesting over
severance period, and 401K participation.
<PAGE> 1
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and ROBERT P. DAMICO (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as of December
17, 1998, 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 begin as of
August 1, 1998, and shall be for continuously renewing three (3) year terms,
unless Executive's employment is terminated in accordance with Section 5 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Senior Vice President, Midwest Area. In such
capacity, Executive shall perform such duties as may be assigned to
Executive from time to time by the Board of Directors, the Chief
Executive or Chief Operating Officer of the Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and
energies to the business of the Company, and/or its affiliated
corporations, and perform the duties under this Agreement to the best
of Executive's abilities. 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.
(c) Executive shall (i) comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) comply with the
Company's rules, procedures, policies, requirements, and directions;
and (iii) not engage in any other business or employment without the
written consent of the Company except as otherwise specifically
provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of Four Hundred Thousand
($400,000) 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 executives.
(b) 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 executives, provided that
such expenses are incurred and accounted for in accordance with the
Company's policy.
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<PAGE> 2
(c) BENEFIT PLANS. 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, supplemental and/or incentive compensation plans, or
any other fringe benefit plan, generally made available by the Company
to executives working pursuant to this form of Agreement (hereinafter
referred to as "similarly situated executives."
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable
legal, accounting and other advisory fees) incurred by the Executive to
(i) defend the validity of this Agreement, (ii) contest any
determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Executive under this Agreement,
(iii) determine in any tax year of the Executive, the tax consequences
to the Executive of any amount payable (or reimbursable) under Section
7(b) or 7(c) hereof, or (iv) prepare responses to an Internal Revenue
Service audit of, and to otherwise defend, his personal income tax
return for any year which is the subject of any such audit, or an
adverse determination, administrative proceedings or civil litigation
arising therefrom that is occasioned by or related to any audit by the
Internal Revenue Service of the Company's income tax returns, are, upon
written demand by the Executive, to be promptly advanced or reimbursed
to the Executive, or paid directly, on a current basis, by the Company
or its successors.
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 is
physically or mentally incapacitated so as to render Executive
incapable of performing Executive's usual and customary duties under
this Agreement. Executive's receipt of disability benefits under the
Company's long-term disability plan or receipt of Social Security
disability benefits shall be deemed conclusive evidence of Total
Disability for purpose of this Agreement; provided, however, that in
the absence of Executive's receipt of such long-term disability
benefits or Social Security benefits, the Company's Board of Directors
may, in its reasonable discretion (but based upon appropriate medical
evidence), determine that Executive is Totally Disabled.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time after
providing written notice to Executive.
(i) For purposes of this Agreement, the term "Cause" shall mean
any of the following: (A) conviction of a crime (including
conviction on a nolo contendere plea) involving a felony or,
in the good faith judgment of the Company's Board of
Directors, fraud, dishonesty, or moral turpitude; (B)
deliberate and continual refusal to perform employment duties
reasonably requested by the Company or an affiliate after
thirty (30) days' written notice by certified mail of such
failure to perform, specifying that the failure constitutes
cause (other than as a result of vacation, sickness, illness
or injury); (C) fraud or embezzlement determined in accordance
with the Company's normal, internal investigative procedures
consistently applied in comparable circumstances; (D) gross
misconduct or gross negligence in connection with the business
of the Company or an affiliate which has substantial effect on
the
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<PAGE> 3
Company or the affiliate; or (E) breach of any of the
covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for
Cause if the Company determines that the individual engaged in
an act constituting Cause at any time prior to a payment date
for an award, regardless of whether the individual terminates
employment voluntarily or is terminated involuntarily, and
regardless of whether the individual's termination initially
was considered to have been for Cause.
(iii) Any determination of Cause under this Agreement shall be made
by resolution of the Company's Board of Directors adopted by
the affirmative vote of not less than a majority of the entire
membership of the Board of Directors at a meeting called and
held for that purpose and at which Executive is given an
opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice
to the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time after
providing written notice to Executive.
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; a pro-rata "bonus" or
incentive compensation payment to the extent payments are
awarded to similarly situated executives and paid at the same
time as similarly situated 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 referred to in Section
4(c) 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
until the end of the current Employment Term (three [3]
years). Such amount shall be paid in a single lump sum cash
payment within thirty (30) days after Executive's death.
(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:
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<PAGE> 4
(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. Executive shall also be
eligible for a bonus or incentive compensation payment to the
extent such awards are made to similarly situated executives,
pro-rated for the year in which Executive is terminated and
paid at the same time as similarly situated executives are
paid.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) 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
until the end of the current Employment Term (three [3]
years). 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.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
terminates employment pursuant to Section 5(d), and other than for a
resignation tendered pursuant to Section 7 of this Agreement, 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that Executive's
employment is terminated by the Company pursuant to Section 5(e) for
reasons other than death, Total Disability or 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.
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<PAGE> 5
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An annual amount equal to the greater of one hundred percent
(100%) of Executive's current base salary, or seventy-five
percent (75%) of the average of Executive's "Total Annual
Direct Compensation" for the two (2) highest of the three (3)
most recent calendar years prior to Executive's termination.
Such annual amount shall be paid during the three (3) 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. For purposes
of this Agreement, the term "Total Annual Direct Compensation"
means the total of the Base Salary and other cash compensation
payable to Executive attributable to a calendar year (A)
including any cash compensation which would have been payable
for such year but for Executive's election to defer payment of
such compensation and (B) excluding any amounts recognized as
compensation as a result of Executive's exercise of a stock
option or receipt of a stock award.
(iv) The Company completely at its expense will continue for
Executive and Executive's spouse and dependents, all health
benefit plans, programs or arrangements, whether group or
individual, 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 (3)
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.
(v) Except to the extent prohibited by law, 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, and stock option plans in which Executive was a
participant as of the date of termination. Executive shall
have one (1) year from the date of termination to exercise
stock options which have vested as a result of this section
(e). All options fully vested as of the date of termination
will remain exercisable pursuant to the terms of the
applicable Stock Option Plan. Executive shall also be eligible
for a bonus or incentive compensation payment, to the extent
payments are made to similarly situated executives, pro-rated
for the year in which the Executive is terminated, paid at the
same time as similarly situated executives are paid.
(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
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<PAGE> 6
other plan, arrangement or benefit, with respect to future periods
after such termination or resignation.
(g) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event
that the Company, in its sole discretion determines that, without the
Company's express written consent, Executive has
(i) directly or indirectly engaged in, assisted or have any active
interest or involvement whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public
company), partner, proprietor, or any type of principal
whatsoever, in any person, firm, or business entity which is
directly or indirectly competitive with the Company or any of
its affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm,
or business entity which is directly or indirectly competitive
with the Company or any of its affiliates (A) solicited or
accepted from any person or entity who is or was a client of
the Company during the term of Executive's employment
hereunder or during any of the twelve calendar months
preceding or following the termination of Executive's
employment any business for services similar to those rendered
by the Company, (B) requested or advised any present or future
customer of the Company to withdraw, curtail or cancel its
business dealings with the Company, or (C) requested or
advised any employee of the Company to terminate his or her
employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement.
Such suspension or termination of benefits shall be in addition to and
shall not limit any and all other rights and remedies that the Company
may have 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, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated (both
a "resignation" and "termination" being referred to as "termination"
for the purposes of this Section 7) from employment with the Company at
any time prior to the six (6) month anniversary of the date of the
Change in Control following the occurrence of any of the following
events:
(i) without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's
positions, duties, responsibilities and status with the
Company immediately before a Change in Control, or a change in
Executive's reporting, responsibilities, titles or offices as
in effect immediately before a Change in Control, or any
removal of Executive from, or any failure to re-elect
Executive to, any of such positions, except in connection with
the termination of Executive's employment as a result of
death, or by the Company for Disability or Cause, or by
Executive other than for the reasons described in this Section
7(a);
(ii) a reduction by the Company in Executive's Base Salary as in
effect immediately before a Change in Control plus all
increases therein subsequent thereto;
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<PAGE> 7
(iii) the failure of the Company substantially to maintain and to
continue Executive's participation in the Company's benefit
plans as in effect immediately before a Change in Control and
with all improvements therein subsequent thereto (other than
those plans or improvements that have expired thereafter in
accordance with their original terms), or the taking of any
action which would materially reduce Executive's benefits
under any of such plans or deprive Executive of any material
fringe benefit enjoyed by Executive immediately before a
Change in Control, unless such reduction or termination is
required by law;
(iv) the failure of the Company to provide Executive with an
appropriate adjustment to compensation such as a lump sum
relocation bonus, salary adjustment and/or housing allowance
so that Executive can purchase comparable primary housing if
required to relocate (it being the intention of this Section
7[a][iv] to keep the Executive "whole" if required to
relocate). In this regard, comparable housing shall be
determined by comparing factors such as location (taking into
account, by way of example, items such as the value of the
surrounding neighborhood, reputation of the public school
district, if applicable, security and proximity to Executive's
place of work), quality of construction, design, age, size of
the housing and the ratio of the monthly payments including
principle, interest, taxes and insurance to the Executive's
take home pay, to housing most recently owned by Executive
prior to, or as of the effective date of the change of
control;
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of
Executive's compensation deferred under any plan, agreement or
arrangement of or with the Company, within seven (7) days of
the date such compensation is due; or
(vi) the failure by the Company to obtain an assumption of, and
agreement to perform the obligations of the Company under this
Agreement by any successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates employment
pursuant to Section 7(a), 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section 4c
hereof, shall be determined and paid in accordance with the
terms of such plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times Executive's
"base amount" within the full meaning of Section 280G of the
Internal Revenue Code. Such amount shall be paid to Executive
in a single lump sum cash payment within five (5) business
days after the effective date of Executive's termination.
(iv) Executive will be 100% vested in all benefits, awards, and
grants (including stock options) 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
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<PAGE> 8
Executive was a participant as of the date of termination.
Executive shall also be eligible for 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. Employee shall have until the
expiration date shown on the stock option award in which to
exercise the options which have vested pursuant to this
section.
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.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
portion of the benefits payable under this Agreement, and any other
payments and benefits under any other agreement with, or plan of the
Company to or for the benefit of the Executive (in aggregate, "Total
Payments") constitute an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code (the "Code"), then the
Company shall pay the Executive as promptly as practicable following
such determination an additional amount (the "Gross-up Payment")
calculated as described below to reimburse the Executive on an
after-tax basis for any excise tax imposed on such payments under
Section 4999 of the Code. The Gross-up Payment shall equal the amount,
if any, needed to ensure that the net parachute payments (including the
Gross-up Payment) actually received by the Executive after the
imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes,
had the Total Payments not been subject to the taxes imposed by Section
4999. For purposes of this calculation, it shall be assumed that the
Executive's tax rate will be the maximum federal rate to be computed
with regard to Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as
to the amount of the Gross-up Payment, if any, the Company shall select
a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to a
Change-in-Control) by the Company regarding federal income tax matters
and such law firm or accounting firm shall determine the amount of
Gross-up Payment and such determination shall be final and binding upon
the Executive and the Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any
person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, of any securities of the
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming
the beneficial owner, directly or indirectly, of securities of
the Company representing 25 percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
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<PAGE> 9
(ii) As a result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were directors immediately
before the transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to 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 during
the period that payments are made to Executive pursuant to Section 6 of
this Agreement, 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 1% 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 engaged in
the same business as that conducted and carried on by the Company,
without the Company's specific written consent to do so. Executive
further agrees that for a period of one (1) year after the date
payments made to Executive pursuant to Section 6 of this Agreement
cease, or for a period of two (2) years following the date of
termination, whichever is later, Executive will not, directly or
indirectly, within seventy-five (75) miles of any operating location of
any affiliate of the Company, 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 1% 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 engaged in the same business
as that conducted and carried on by the Company or any of its
affiliated companies, without the Company's specific written consent to
do so.
(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 one (1) year after the date payments made to Executive
pursuant to Section 6 of this Agreement cease, or two (2) years after
the date of termination of the Executive's employment, whichever date
is later, whether such termination is voluntary or involuntary by
wrongful discharge, or otherwise, Executive will not directly or
indirectly (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) canvass,
solicit or accept any similar business from any customer of the Company
or corporations affiliated with the Company; (iii) directly or
indirectly 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; (iv) directly or indirectly
disclose to any other person, firm or corporation the names or
addresses of any of the customers of the Company or corporations
affiliated with the Company; or (v) individually or through any person,
firm, association or corporation with which Employee is now or may
hereafter become associated, cause, solicit, entice, or induce any
present or future employee of the Company, or any corporation
affiliated with the Company to leave the employ of the Company, or such
other corporation to accept employment with, or compensation from, the
Employee or any such person, firm, association or corporation without
the prior written consent of the Company.
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall
not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors,
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<PAGE> 10
allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of
the Company, its management, or of management of corporations
affiliated with the Company.
(d) 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 (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.
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive
agrees that any breach by Executive of any of the covenants set forth
in Section 8 hereof during Executive's employment by the Company, shall
be grounds for immediate dismissal of Executive and forfeiture of any
accrued and unpaid salary, bonus, commissions or other compensation of
such Executive as liquidated damages, which shall be in addition to and
not exclusive of any and all other rights and remedies the Company may
have against Executive.
(b) 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 will be inadequate. Therefore, in the event of breach of
anticipatory 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; (i) injunctions,
both preliminary and permanent, enjoining or restraining such breach or
anticipatory breach and Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent
jurisdiction; and (ii) recovery of all reasonable sums expended and
costs, including reasonable attorney's fees, incurred by the Company to
enforce the covenants set forth in this section.
(c) 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
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<PAGE> 11
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. 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, (a) provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to any dispute or
litigation arising under Sections 5c or 8 of this Agreement, or (b) regardless
of whether Executive is the prevailing party in a dispute or in litigation
involving any other provision of this Agreement, provided that the court in
which such litigation is first initiated determines with respect to this
obligation, upon application of either party hereto, Executive did not initiate
frivolously such litigation. Under no circumstances shall Executive be obligated
to pay or reimburse the Company for any attorneys' fees, costs or expenses
incurred by the Company. The provisions of this Section 10 shall survive the
expiration or termination of this Agreement and of Executive's employment
hereunder.
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement to
any third party other than Executive's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
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.
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<PAGE> 12
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, 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
(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.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Colorado applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. 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.
18. 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> 13
(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/ Rodney R. Proto
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date: March 31, 1999
----------------------------------
EXECUTIVE
/s/ Robert A. Damico
- ---------------------------------------
Address: 103 Falcon Hills Drive
-------------------------------
Highlands Ranch, CO 80126
- ---------------------------------------
Date: March 22, 1999
----------------------------------
Page 13 of 13
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
USA WASTE SERVICES, INC. (the "Company"), and CHARLES A. WILCOX (the
"Executive") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of 2-3-98, 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 begin as of
January 1, 1997, and shall be for continuously renewing three (3) year terms,
unless Executive's employment is terminated in accordance with Section 5 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Regional Vice President, and report to President
and Chief Operating Officer. In such capacity, Executive shall perform such
duties as may be assigned to Executive from time to time by the Board of
Directors of the Company, or the Chief Operating Officer of the Company, or
the Chief Executive Officer of the Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and energies
to the business of the Company, and/or its affiliated corporations, and
perform the duties under this Agreement to the best of Executive's
abilities. 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.
(c) Executive shall (i) comply with all applicable laws, rules and regulations,
and all requirements of all applicable regulatory, self-regulatory, and
administrative bodies; (ii) comply with the Company's rules, procedures,
policies, requirements, and directions; and (iii) not engage in any other
business or employment without the written consent of the Company except as
otherwise specifically provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay Executive a
base salary at the annual rate of three hundred ten thousand ($310,000)
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 executives.
<PAGE> 2
(b) 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 executives, provided that such expenses
are incurred and accounted for in accordance with the Company's policy.
(c) BENEFIT PLANS. 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, supplemental and/or incentive compensation plans, or any other
fringe benefit plan, generally made available by the Company to executives
working pursuant to this form of Agreement (hereinafter referred to as
"similarly situated executives."
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable legal,
accounting and other advisory fees) incurred by the Executive to (i) defend
the validity of this Agreement, (ii) contest any determination by the
Company concerning the amounts payable (or reimbursable) by the Company to
the Executive under this Agreement, (iii) determine in any tax year of the
Executive, the tax consequences to the Executive of any amount payable (or
reimbursable) under Section 7(b) or 7(c) hereof, or (iv) prepare responses
to an Internal Revenue Service audit of, and to otherwise defend, his
personal income tax return for any year which is the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to any audit
by the Internal Revenue Service of the Company's income tax returns, are,
upon written demand by the Executive, to be promptly advanced or reimbursed
to the Executive, or paid directly, on a current basis, by the Company or
its successors.
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 is physically
or mentally incapacitated so as to render Executive incapable of
performing Executive's usual and customary duties under this Agreement.
Executive's receipt of disability benefits under the Company's long-term
disability plan or receipt of Social Security disability benefits shall be
deemed conclusive evidence of Total Disability for purpose of this
Agreement; provided, however, that in the absence of Executive's receipt of
such long-term disability benefits or Social Security benefits, the
Company's Board of Directors may, in its reasonable discretion (but based
upon appropriate medical evidence), determine that Executive is Totally
Disabled.
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<PAGE> 3
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive's
employment hereunder for "Cause" at any time after providing written notice
to Executive.
(i) For purposes of this Agreement, the term "Cause" shall mean any of
the following: (A) conviction of a crime (including conviction on a
nolo contendere plea) involving a felony or, in the good faith
judgment of the Company's Board of Directors, fraud, dishonesty, or
moral turpitude; (B) deliberate and continual refusal to perform
employment duties reasonably requested by the Company or an affiliate
after thirty (30) days' written notice by certified mail of such
failure to perform, specifying that the failure constitutes cause
(other than as a result of vacation, sickness, illness or injury);
(C) fraud or embezzlement determined in accordance with the Company's
normal, internal investigative procedures consistently applied in
comparable circumstances; (D) gross misconduct or gross negligence in
connection with the business of the Company or an affiliate which has
substantial effect on the Company or the affiliate; or (E) breach of
any of the covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for Cause if
the Company determines that the individual engaged in an act
constituting Cause at any time prior to a payment date for an award,
regardless of whether the individual terminates employment
voluntarily or is terminated involuntarily, and regardless of
whether the individual's termination initially was considered to
have been for Cause.
(iii) Any determination of Cause under this Agreement shall be made by
resolution of the Company's Board of Directors adopted by the
affirmative vote of not less than a majority of the entire membership
of the Board of Directors at a meeting called and held for that
purpose and at which Executive is given an opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice to
the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time after providing
written notice to Executive.
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:
Page 3 of 15
<PAGE> 4
(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; a pro-rata "bonus" or incentive compensation
payment to the extent payments are awarded to similarly situated
executives and paid at the same time as similarly situated 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 referred to in Section 4(c) 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 until the end of the current
Employment Term (three [3] years). Such amount shall be paid in a
single lump sum cash payment within thirty (30) days after
Executive's death.
(iv) As of the date of termination by reason of Executive's death, stock
options awarded to Executive shall be fully vested. Executive's
estate or beneficiary shall have up to one (1) year from the date of
death to exercise all such options.
(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. Executive shall also be eligible for a bonus or
incentive compensation payment to the extent such awards are made to
similarly situated executives, pro-rated for the year in which
Executive is terminated and paid at the same time as similarly
situated executives are paid.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4(c) hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) 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 until the end of the
current Employment Term (three [3] years). 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. Executive shall have up to one (1)
Page 4 of 15
<PAGE> 5
year from the date of termination by reason of total disability to
exercise all such options.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), 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.
(ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements referred to in Section 4(c) hereof shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive terminates
employment pursuant to Section 5(d), and other than for a resignation
tendered pursuant to Section 7 of this Agreement, 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.
(ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements referred to in Section 4(c) hereof shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that Executive's
employment is terminated by the Company pursuant to Section 5(e) for
reasons other than death, Total Disability or 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.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4(c) hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An annual amount equal to 75 percent (75%) of the average of
Executive's "Total Annual Direct Compensation" for the two highest of
the three most recent calendar years prior to Executive's
termination. Such annual amount shall be paid during the three (3)
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. For
Page 5 of 15
<PAGE> 6
purposes of this Agreement, the term "Total Annual Direct
Compensation" means the total of the Base Salary and other cash
compensation payable to Executive attributable to a calendar year (A)
including any cash compensation which would have been payable for
such year but for Executive's election to defer payment of such
compensation and (B) excluding any amounts recognized as compensation
as a result of Executive's exercise of a stock option or receipt of a
stock award.
(iv) The Company completely at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans, programs
or arrangements, whether group or individual, 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 (3) 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.
(v) Except to the extent prohibited by law, 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, and stock option
plans in which Executive was a participant as of the date of
termination. Executive shall have one (1) year from the date of
termination to exercise stock options. Executive shall also be
eligible for a bonus or incentive compensation payment, to the extent
payments are made to similarly situated executives, pro-rated for the
year in which the Executive is terminated, paid at the same time as
similarly situated executives are paid.
(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) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event that
the Company, in its sole discretion determines that, without the Company's
express written consent, Executive has
(i) directly or indirectly engaged in, assisted or have any active
interest or involvement whether as an employee, agent, consultant,
creditor, advisor, officer, director, stockholder (excluding holding
of less than 1% of the stock of a public company),
Page 6 of 15
<PAGE> 7
partner, proprietor, or any type of principal whatsoever, in any
person, firm, or business entity which is directly or indirectly
competitive with the Company or any of its affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm, or
business entity which is directly or indirectly competitive with the
Company or any of its affiliates (A) solicited or accepted from any
person or entity who is or was a client of the Company during the term
of Executive's employment hereunder or during any of the twelve
calendar months preceding or following the termination of Executive's
employment any business for services similar to those rendered by the
Company, (B) requested or advised any present or future customer of
the Company to withdraw, curtail or cancel its business dealings with
the Company, or (C) requested or advised any employee of the Company
to terminate his or her employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement. Such
suspension or termination of benefits shall be in addition to and shall not
limit any and all other rights and remedies that the Company may have
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, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated (both a
"resignation" and "termination" being referred to as "termination" for the
purposes of this Section 7) from employment with the Company at any time
prior to the six (6) month anniversary of the date of the Change in Control
following the occurrence of any of the following events:
(i) without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Company immediately
before a Change in Control, or a change in Executive's reporting,
responsibilities, titles or offices as in effect immediately before a
Change in Control, or any removal of Executive from, or any failure
to re-elect Executive to, any of such positions, except in connection
with the termination of Executive's employment as a result of death,
or by the Company for Disability or Cause, or by Executive other than
for the reasons described in this Section 7(a);
(ii) a reduction by the Company in Executive's Base Salary as in effect
immediately before a Change in Control plus all increases therein
subsequent thereto;
(iii) the failure of the Company substantially to maintain and to continue
Executive's participation in the Company's benefit plans as in effect
immediately before a Change in Control and with all improvements
therein subsequent thereto (other than
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<PAGE> 8
those plans or improvements that have expired thereafter in
accordance with their original terms), or the taking of any action
which would materially reduce Executive's benefits under any of such
plans or deprive Executive of any material fringe benefit enjoyed by
Executive immediately before a Change in Control, unless such
reduction or termination is required by law;
(iv) the failure of the Company to provide Executive with an appropriate
adjustment to compensation such as a lump sum relocation bonus,
salary adjustment and/or housing allowance so that Executive can
purchase comparable primary housing if required to relocate (it being
the intention of this Section 7[a][iv] to keep the Executive "whole"
if required to relocate). In this regard, comparable housing shall be
determined by comparing factors such as location (taking into
account, by way of example, items such as the value of the
surrounding neighborhood, reputation of the public school district,
if applicable, security and proximity to Executive's place of work),
quality of construction, design, age, size of the housing and the
ratio of the monthly payments including principle, interest, taxes
and insurance to the Executive's take home pay, to housing most
recently owned by Executive prior to, or as of the effective date of
the change of control;
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of Executive's
compensation deferred under any plan, agreement or arrangement of or
with the Company, within seven (7) days of the date such
compensation is due; or
(vi) the failure by the Company to obtain an assumption of, and agreement
to perform the obligations of the Company under this Agreement by any
successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates employment
pursuant to Section 7(a), 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.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4c hereof,
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times Executive's "base
amount" within the full meaning of Section 280G of the Internal
Revenue Code. Such amount shall be paid to Executive in a single lump
sum cash payment within five (5) business days after the effective
date of Executive's termination.
Page 8 of 15
<PAGE> 9
(iv) Executive will be 100% vested in all benefits, awards, and grants
(including stock options) 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 be
eligible for 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. Employee shall have until
the expiration date shown on the stock option award in which to
exercise the options which have vested pursuant to this section.
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.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
portion of the benefits payable under this Agreement, and any other
payments and benefits under any other agreement with, or plan of the
Company to or for the benefit of the Executive (in aggregate, "Total
Payments") constitute an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code (the "Code"), then the
Company shall pay the Executive as promptly as practicable following
such determination an additional amount (the "Gross-up Payment")
calculated as described below to reimburse the Executive on an
after-tax basis for any excise tax imposed on such payments under
Section 4999 of the Code. The Gross-up Payment shall equal the amount,
if any, needed to ensure that the net parachute payments (including
the Gross-up Payment) actually received by the Executive after the
imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes,
had the Total Payments not been subject to the taxes imposed by
Section 4999. For purposes of this calculation, it shall be assumed
that the Executive's tax rate will be the maximum federal rate to be
computed with regard to Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as
to the amount of the Gross-up Payment, if any, the Company shall
select a law firm or accounting firm from among those regularly
consulted (during the twelve-month period immediately prior to a
Change-in-Control) by the Company regarding federal income tax matters
and such law firm or accounting firm shall determine the amount of
Gross-up Payment and such determination shall be final and binding
upon the Executive and the Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any person,
corporation or other entity, or group thereof, of the beneficial
ownership, within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, of any securities of the
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<PAGE> 10
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming the
beneficial owner, directly or indirectly, of securities of the
Company representing 25 percent (25%) or more of the combined
voting power of the Company's then outstanding securities; or
(ii) As a result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were directors immediately before
the transaction shall cease to constitute a majority of the Board
of Directors of the Company or any successor to 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 during the
period that payments are made to Executive pursuant to Section 6 of this
Agreement, 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 1% 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 engaged in the same business as that conducted
and carried on by the Company, without the Company's specific written
consent to do so. Executive further agrees that for a period of one (1)
year after the date payments made to Executive pursuant to Section 6 of
this Agreement cease, or for a period of two (2) years following the date
of termination, whichever is later, Executive will not, directly or
indirectly, within 75 miles of any operating location of any affiliate of
the Company, 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 that 1% 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
engaged in the same business as that conducted and carried on by the
Company or any of its affiliated companies, without the Company's specific
written consent to do so.
(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 one
(1) year after the date payments made to Executive pursuant to Section 6 of
this Agreement cease, or two (2) years after the date of termination of the
Executive's employment, whichever date is later, whether such termination
is voluntary or involuntary by wrongful discharge, or otherwise, Executive
will not directly or indirectly (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) canvass,
solicit or accept any similar business from any customer of the Company or
corporations affiliated with the Company; (iii) directly or indirectly
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 (iv) directly or indirectly disclose to any other
person, firm or corporation the names or addresses of any of the customers
of the Company or corporations affiliated with the Company.
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<PAGE> 11
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall not
engage in any pattern of conduct that involves the making or publishing of
written or oral statements or remarks (including, without limitation, the
repetition or distribution of derogatory rumors, allegations, negative
reports or comments) which are disparaging, deleterious or damaging to the
integrity, reputation or good will of the Company, its management, or of
management of corporations affiliated with the Company.
(d) 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 (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.
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive agrees
that any breach by Executive of any of the covenants set forth in Section 8
hereof during Executive's employment by the Company, shall be grounds for
immediate dismissal of Executive and forfeiture of any accrued and unpaid
salary, bonus, commissions or other compensation of such Executive as
liquidated damages, which shall be in addition to and not exclusive of any
and all other rights and remedies the Company may have against Executive.
(b) 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 will be
inadequate. Therefore, in the event of breach of anticipatory 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; (i) injunctions, both preliminary and permanent, enjoining or
retraining such breach or anticipatory breach and Executive hereby consents
to the issuance thereof forthwith and without bond by any court of
competent jurisdiction; and (ii) recovery of all reasonable sums expended
and costs, including reasonable attorney's fees, incurred by the Company to
enforce the covenants set forth in this section.
(c) 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
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<PAGE> 12
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. 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, (a) provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to any dispute or
litigation arising under Sections 5c or 8 of this Agreement, or (b) regardless
of whether Executive is the prevailing parry in a dispute or in litigation
involving any other provision of this Agreement, provided that the court in
which such litigation is first initiated determines with respect to this
obligation, upon application of either party hereto, Executive did not initiate
frivolously such litigation. Under no circumstances shall Executive be obligated
to pay or reimburse the Company for any attorneys' fees, costs or expenses
incurred by the Company. The provisions of this Section 10 shall survive the
expiration or termination of this Agreement and of Executive's employment
hereunder.
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
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<PAGE> 13
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement to
any third party other than Executive's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
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, 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
(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.
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.
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<PAGE> 14
17. 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:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive:
At the address for Executive set forth below.
18. 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> 15
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
USA WASTE SERVICES, INC.
By: /s/ [ILLEGIBLE] Date: 2/3/98
------------------------------ ----------------------
Name:
----------------------------
Title:
---------------------------
EXECUTIVE
/s/ CHARLES A. WILCOX Date: 2/3/98
- ---------------------------------- ----------------------
Address: 511 VALHALLA DR.
-------------------------
SEWICKLEY, PA 15143
-------------------------
Page 15 of 15
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
USA WASTE SERVICES, INC. (the "Company"), and DOUGLAS G. SOBEY (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as of 5/20/97,
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 begin as of
January 1, 1997, and shall be for continuously renewing three (3) year terms,
unless Executive's employment is terminated in accordance with Section 5 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Regional Vice President, and report to the
President/Chief Operating Officer. In such capacity, Executive shall
perform such duties as may be assigned to Executive from time to time by
the Board of Directors of the Company, or the Chief Executive Officer of
the Company, or Chief Operating Officer of the Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and energies
to the business of the Company, and/or its affiliated corporations, and
perform the duties under this Agreement to the best of Executive's
abilities. 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.
(c) Executive shall (i) comply with all applicable laws, rules and regulations,
and all requirements of all applicable regulatory, self-regulatory, and
administrative bodies; (ii) comply with the Company's rules, procedures,
policies, requirements, and directions; and (iii) not engage in any other
business or employment without the written consent of the Company except as
otherwise specifically provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay Executive a
base salary at the annual rate of two hundred seventy-five thousand
($275,000.00) 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
executives.
<PAGE> 2
(b) 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 executives, provided that such expenses
are incurred and accounted for in accordance with the Company's policy.
(c) BENEFIT PLANS. 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, supplemental and/or incentive compensation plans, or any other
fringe benefit plan, generally made available by the Company to executives
working pursuant to this form of Agreement (hereinafter referred to as
"similarly situated executives."
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable legal,
accounting and other advisory fees) incurred by the Executive to (i) defend
the validity of this Agreement, (ii) contest any determination by the
Company concerning the amounts payable (or reimbursable) by the Company to
the Executive under this Agreement, (iii) determine in any tax year of the
Executive, the tax consequences to the Executive of any amount payable (or
reimbursable) under Section 7(b) or 7(c) hereof, or (iv) prepare responses
to an Internal Revenue Service audit of, and to otherwise defend, his
personal income tax return for any year which is the subject of any such
audit, or an adverse determination, administrative proceedings or civil
litigation arising therefrom that is occasioned by or related to any audit
by the Internal Revenue Service of the Company's income tax returns, are,
upon written demand by the Executive, to be promptly advanced or reimbursed
to the Executive, or paid directly, on a current basis, by the Company or
its successors.
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 is physically
or mentally incapacitated so as to render Executive incapable of performing
Executive's usual and customary duties under this Agreement. Executive's
receipt of disability benefits under the Company's long-term disability
plan or receipt of Social Security disability benefits shall be deemed
conclusive evidence of Total Disability for purpose of this Agreement;
provided, however, that in the absence of Executive's receipt of such
long-term disability benefits or Social Security benefits, the Company's
Board of Directors may, in its reasonable discretion (but based upon
appropriate medical evidence), determine that Executive is Totally
Disabled.
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<PAGE> 3
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive's
employment hereunder for "Cause" at any time after providing written notice
to Executive.
(i) For purposes of this Agreement, the term "Cause" shall mean any of
the following: (A) conviction of a crime (including conviction on a
nolo contendere plea) involving a felony or, in the good faith
judgment of the Company's Board of Directors, fraud, dishonesty, or
moral turpitude; (B) deliberate and continual refusal to perform
employment duties reasonably requested by the Company or an affiliate
after thirty (30) days' written notice by certified mail of such
failure to perform, specifying that the failure constitutes cause
(other than as a result of vacation, sickness, illness or injury);
(C) fraud or embezzlement determined in accordance with the Company's
normal, internal investigative procedures consistently applied in
comparable circumstances; (D) gross misconduct or gross negligence in
connection with the business of the Company or an affiliate which has
substantial effect on the Company or the affiliate; or (E) breach of
any of the covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for Cause if
the Company determines that the individual engaged in an act
constituting Cause at any time prior to a payment date for an award,
regardless of whether the individual terminates employment
voluntarily or is terminated involuntarily, and regardless of whether
the individual's termination initially was considered to have been
for Cause.
(iii) Any determination of Cause under this Agreement shall be made by
resolution of the Company's Board of Directors adopted by the
affirmative vote of not less than a majority of the entire membership
of the Board of Directors at a meeting called and held for that
purpose and at which Executive is given an opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice to
the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time after providing
written notice to Executive.
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:
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<PAGE> 4
(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; a pro-rata "bonus" or incentive compensation
payment to the extent payments are awarded to similarly situated
executives and paid at the same time as similarly situated 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 referred to in Section 4(c) 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 until the end of the current
Employment Term (three [3] years). Such amount shall be paid in a
single lump sum cash payment within thirty (30) days after
Executive's death.
(iv) As of the date of termination by reason of Executive's death, stock
options awarded to Executive shall be fully vested. Executive's
estate or beneficiary shall have up to one (1) year from the date of
death to exercise all such options.
(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. Executive shall also be eligible for a pro-rata bonus or
incentive compensation payment to the extent such awards are made to
similarly situated executives for the year in which Executive is
terminated and paid at the same time as similarly situated executives
are paid.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4(c) hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) 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 until the end of the
current Employment Term (three [3] years). 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. Executive shall have up to one (1)
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<PAGE> 5
year from the date of termination by reason of total disability to
exercise all such options.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), 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.
(ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements referred to in Section 4(c) hereof shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive terminates
employment pursuant to Section 5(d), and other than for a resignation
tendered pursuant to Section 7 of this Agreement, 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.
(ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements referred to in Section 4(c) hereof shall be
determined and paid in accordance with the terms of such plans,
policies and arrangements.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that Executive's
employment is terminated by the Company pursuant to Section 5(e) for
reasons other than death, Total Disability or 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.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4(c) hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An annual amount equal to 75 percent (75%) of the average Executive's
"Total Annual Direct Compensation" for the two highest of the three
most recent calendar years prior to Executive's termination. Such
annual amount shall be paid during the three (3) 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
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<PAGE> 6
if Executive had remained in active employment until the end of such
period. For purposes of this Agreement, the term "Total Annual Direct
Compensation" means the total of the Base Salary and other cash
compensation payable to Executive attributable to a calendar year (A)
including any cash compensation which would have been payable for such
year but for Executive's election to defer payment of such
compensation and (B) excluding any amounts recognized as compensation
as a result of Executive's exercise of a stock option or receipt of a
stock award.
(iv) The Company completely at its expense will continue for Executive and
Executive's spouse and dependents, all health benefit plans, programs
or arrangements, whether group or individual, 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 (3) 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.
(v) Except to the extent prohibited by law, 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, and stock option
plans in which Executive was a participant as of the date of
termination. Executive shall have one (1) year from the date of
termination to exercise stock options. Executive shall also be
eligible for a bonus or incentive compensation payment, to the extent
payments are made to similarly situated executives, pro-rated for the
year in which the Executive is terminated, paid at the same time as
similarly situated executives are paid.
(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) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event that
the Company, in its sole discretion determines that, without the Company's
express written consent, Executive has
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<PAGE> 7
(i) directly or indirectly engaged in, assisted or have any active
interest or involvement whether as an employee, agent, consultant,
creditor, advisor, officer, director, stockholder (excluding holding
of less than 1% of the stock of a public company), partner,
proprietor, or any type of principal whatsoever, in any person, firm,
or business entity which is directly or indirectly competitive with
the Company or any of its affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm, or
business entity which is directly or indirectly competitive with the
Company or any of its affiliates (A) solicited or accepted from any
person or entity who is or was a client of the Company during the term
of Executive's employment hereunder or during any of the twelve
calendar months preceding or following the termination of Executive's
employment any business for services similar to those rendered by the
Company, (B) requested or advised any present or future customer of
the Company to withdraw, curtail or cancel its business dealings with
the Company, or (C) requested or advised any employee of the Company
to terminate his or her employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement. Such
suspension or termination of benefits shall be in addition to and shall not
limit any and all other rights and remedies that the Company may have
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, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated (both a
"resignation" and "termination" being referred to as "termination" for the
purposes of this Section 7) from employment with the Company at any time
prior to the six (6) month anniversary of the date of the Change in Control
following the occurrence of any of the following events:
(i) without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Company immediately
before a Change in Control, or a change in Executive's reporting,
responsibilities, titles or offices as in effect immediately before a
Change in Control, or any removal of Executive from, or any failure to
re-elect Executive to, any of such positions, except in connection
with the termination of Executive's employment as a result of death,
or by the Company for Disability or Cause, or by Executive other than
for the reasons described in this Section 7(a);
(ii) a reduction by the Company in Executive's Base Salary as in effect
immediately before a Change in Control plus all increases therein
subsequent thereto;
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<PAGE> 8
(iii) the failure of the Company substantially to maintain and to continue
Executive's participation in the Company's benefit plans as in effect
immediately before a Change in Control and with all improvements
therein subsequent thereto (other than those plans or improvements
that have expired thereafter in accordance with their original
terms), or the taking of any action which would materially reduce
Executive's benefits under any of such plans or deprive Executive of
any material fringe benefit enjoyed by Executive immediately before
a Change in Control, unless such reduction or termination is
required by law;
(iv) the failure of the Company to provide Executive with an appropriate
adjustment to compensation such as a lump sum relocation bonus,
salary adjustment and/or housing allowance so that Executive can
purchase comparable primary housing if required to relocate (it being
the intention of this Section 7[a][iv] to keep the Executive "whole"
if required to relocate). In this regard, comparable housing shall be
determined by comparing factors such as location (taking into
account, by way of example, items such as the value of the
surrounding neighborhood, reputation of the public school district,
if applicable, security and proximity to Executive's place of work),
quality of construction, design, age, size of the housing and the
ratio of the monthly payments including principle, interest, taxes
and insurance to the Executive's take home pay, to housing most
recently owned by Executive prior to, or as of the effective date of
the change of control;
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of Executive's
compensation deferred under any plan, agreement or arrangement of or
with the Company, within seven (7) days of the date such compensation
is due; or
(vi) the failure by the Company to obtain an assumption of, and agreement
to perform the obligations of the Company under this Agreement by any
successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates employment
pursuant to Section 7(a), 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.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4c hereof
shall be determined and paid in accordance with the terms of such
plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times Executive's "base
amount" within the full meaning of Section 280G of the Internal
Revenue Code. Such amount shall
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<PAGE> 9
be paid to Executive in a single lump sum cash payment within five (5)
business days after the effective date of Executive's termination.
(iv) Executive will be 100% vested in all benefits, awards, and grants
(including stock options) 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 be
eligible for 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. Employee shall have until
the expiration date shown on the stock option award in which to
exercise the options which have vested pursuant to this section.
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.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any portion
of the benefits payable under this Agreement, and any other payments and
benefits under any other agreement with, or plan of the Company to or for
the benefit of the Executive (in aggregate, "Total Payments") constitute an
"excess parachute payment" within the meaning of Section 280G of the
Internal Revenue Code (the "Code"), then the Company shall pay the
Executive as promptly as practicable following such determination an
additional amount (the "Gross-up Payment") calculated as described below to
reimburse the Executive on an after-tax basis for any excise tax imposed on
such payments under Section 4999 of the Code, The Gross-up Payment shall
equal the amount, if any, needed to ensure that the net parachute payments
(including the Gross-up Payment) actually received by the Executive after
the imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes, had
the Total Payments not been subject to the taxes imposed by Section 4999.
For purposes of this calculation, it shall be assumed that the Executive's
tax rate will be the maximum federal rate to be computed with regard to
Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as to
the amount of the Gross-up Payment, if any, the Company shall select a law
firm or accounting firm from among those regularly consulted (during the
twelve-month period immediately prior to a Change-in-Control) by the
Company regarding federal income tax matters and such law firm or
accounting firm shall determine the amount of Gross-up Payment and such
determination shall be final and binding upon the Executive and the
Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
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(i) Any transfer to, assignment to, or any acquisition by any person,
corporation or other entity, or group thereof, of the beneficial
ownership, within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, of any securities of the Company, which
transfer, assignment or acquisition results in such person,
corporation, entity, or group thereof, becoming the beneficial owner,
directly or indirectly, of securities of the Company representing 25
percent (25%) or more of the combined voting power of the Company's
then outstanding securities; or
(ii) As a result of a tender offer, merger, consolidation, sale of assets,
or contested election, or any combination of such transactions, the
persons who were directors immediately before the transaction shall
cease to constitute a majority of the Board of Directors of the
Company or any successor to 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 during the
period that payments are made to Executive pursuant to Section 6 of this
Agreement, 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 1% 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 engaged in the same business as that conducted
and carried on by the Company, without the Company's specific written
consent to do so. Executive further agrees that for a period of one (1)
year after the date payments made to Executive pursuant to Section 6 of
this Agreement cease, or for a period of two (2) years following the date
of termination, whichever is later, Executive will not, directly or
indirectly, within 75 miles of any operating location of any affiliate of
the Company, 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 that 1% 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
engaged in the same business as that conducted and carried on by the
Company or any of its affiliated companies, without the Company's specific
written consent to do so.
(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 one
(1) year after the date payments made to Executive pursuant to Section 6 of
this Agreement cease, or two (2) years after the date of termination of the
Executive's employment, whichever date is later, whether such termination
is voluntary or involuntary by wrongful discharge or otherwise Executive
will not directly or indirectly (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) canvass,
solicit or accept any similar business from any customer of the Company or
corporations affiliated with the Company;
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<PAGE> 11
(iii) directly or indirectly 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 (iv) directly or indirectly
disclose to any other person, firm or corporation the names or addresses of
any of the customers of the Company or corporations affiliated with the
Company.
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall not
engage in any pattern of conduct that involves the making or publishing of
written or oral statements or remarks (including, without limitation, the
repetition or distribution of derogatory rumors, allegations, negative
reports or comments) which are disparaging, deleterious or damaging to the
integrity, reputation or good will of the Company, its management, or of
management of corporations affiliated with the Company.
(d) 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 (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.
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive agrees
that any breach by Executive of any of the covenants set forth in Section 8
hereof during Executive's employment by the Company, shall be grounds for
immediate dismissal of Executive and forfeiture of any accrued and unpaid
salary, bonus, commissions or other compensation of such Executive as
liquidated damages, which shall be in addition to and not exclusive of any
and all other rights and remedies the Company may have against Executive.
(b) 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 will be
inadequate. Therefore in the event of breach of anticipatory 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; (i) injunctions, both preliminary and permanent, enjoining or
retraining such breach or anticipatory breach and
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Executive hereby consents to the issuance thereof forthwith and without
bond by any court of competent jurisdiction; and (ii) recovery of all
reasonable sums expended and costs, including reasonable attorney's fees,
incurred by the Company to enforce the covenants set forth in this section.
(c) 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. 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, (a) provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to any dispute or
litigation arising under Sections 5c or 8 of this Agreement, or (b) regardless
of whether Executive is the prevailing party in a dispute or in litigation
involving any other provision of this Agreement, provided that the court in
which such litigation is first initiated determines with respect to this
obligation, upon application of either party hereto, Executive did not initiate
frivolously such litigation. Under no circumstances shall Executive be obligated
to pay or reimburse the Company for any attorneys' fees, costs or expenses
incurred by the Company. The provisions of this Section 10 shall survive the
expiration or termination of this Agreement and of Executive's employment
hereunder.
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<PAGE> 13
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement to
any third party other than Executive's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
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, 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
(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> 14
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. 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:
USA Waste Services, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
To Executive: At the address for Executive set forth below
18. 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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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
USA WASTE SERVICES, INC.
By: /s/ ILLEGIBLE Date: 5/20/97
----------------------------------- ----------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUTIVE
/s/ ILLEGIBLE Date: 9/1/97
- --------------------------------------- ----------------------
Address: P.O. Box 3919, Incline Village
------------------------------
Nevada, NV 89450
- ---------------------------------------
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<PAGE> 1
EXHIBIT 10.42
AMENDED EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and MILLER J. MATHEWS, JR. (the
"Executive") hereby enter into this AMENDED EMPLOYMENT AGREEMENT
("Agreement") dated as of October 1, 1998, 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 term of Executive's employment shall conclude on December 31, 2000.
Employment after December 31, 2000, shall be of a part-time nature for three (3)
years and shall be at the option of the Executive, pursuant to the provisions of
Section 6(e) of this Agreement, as amended herein, unless employment is
terminated pursuant to one of the provisions contained in Section 5 of this
Agreement.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Senior Vice President, and report to President
and Chief Operating Officer. In such capacity, Executive shall perform
such duties as may be assigned to Executive from time to time by the
Board of Directors of the Company or the Chief Operating Officer of the
Company or the Chief Executive Officer of the Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and
energies to the business of the Company, and/or its affiliated
corporations, and perform the duties under this Agreement to the best
of Executive's abilities. 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.
(c) Executive shall (i) comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) comply with the
Company's rules, procedures, policies, requirements, and directions;
and (iii) not engage in any other business or employment without the
written consent of the Company except as otherwise specifically
provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of Four Hundred Thousand
($400,000) 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 executives.
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<PAGE> 2
(b) 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 executives, provided that
such expenses are incurred and accounted for in accordance with the
Company's policy.
(c) BENEFIT PLANS. 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, supplemental and/or incentive compensation plans, or
any other fringe benefit plan, generally made available by the Company
to executives working pursuant to this form of Agreement (hereinafter
referred to as "similarly situated executives").
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable
legal, accounting and other advisory fees) incurred by the Executive to
(i) defend the validity of this Agreement, (ii) contest any
determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Executive under this Agreement,
(iii) determine in any tax year of the Executive, the tax consequences
to the Executive of any amount payable (or reimbursable) under Section
7(b) or 7(c) hereof, or (iv) prepare responses to an Internal Revenue
Service audit of, and to otherwise defend, his personal income tax
return for any year which is the subject of any such audit, or an
adverse determination, administrative proceedings or civil litigation
arising therefrom that is occasioned by or related to any audit by the
Internal Revenue Service of the Company's income tax returns, are, upon
written demand by the Executive, to be promptly advanced or reimbursed
to the Executive, or paid directly, on a current basis, by the Company
or its successors.
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 is
physically or mentally incapacitated so as to render Executive
incapable of performing Executive's usual and customary duties under
this Agreement. Executive's receipt of disability benefits under the
Company's long-term disability plan or receipt of Social Security
disability benefits shall be deemed conclusive evidence of Total
Disability for purpose of this Agreement; provided, however, that in
the absence of Executive's receipt of such long-term disability
benefits or Social Security benefits, the Company's Board of Directors
may, in its reasonable discretion (but based upon appropriate medical
evidence), determine that Executive is Totally Disabled.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time after
providing written notice to Executive.
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<PAGE> 3
(i) For purposes of this Agreement, the term "Cause" shall mean
any of the following: (A) conviction of a crime (including
conviction on a nolo contendere plea) involving a felony or,
in the good faith judgment of the Company's Board of
Directors, fraud, dishonesty, or moral turpitude; (B)
deliberate and continual refusal to perform employment duties
reasonably requested by the Company or an affiliate after
thirty (30) days' written notice by certified mail of such
failure to perform, specifying that the failure constitutes
cause (other than as a result of vacation, sickness, illness
or injury); (C) fraud or embezzlement determined in accordance
with the Company's normal, internal investigative procedures
consistently applied in comparable circumstances; (D) gross
misconduct or gross negligence in connection with the business
of the Company or an affiliate which has substantial effect on
the Company or the affiliate; or (E) breach of any of the
covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for
Cause if the Company determines that the individual engaged in
an act constituting Cause at any time prior to a payment date
for an award, regardless of whether the individual terminates
employment voluntarily or is terminated involuntarily, and
regardless of whether the individual's termination initially
was considered to have been for Cause.
(iii) Any determination of Cause under this Agreement shall be made
by resolution of the Company's Board of Directors adopted by
the affirmative vote of not less than a majority of the entire
membership of the Board of Directors at a meeting called and
held for that purpose and at which Executive is given an
opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice
to the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause after December 31, 2000,
after providing written notice to Executive.
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; a pro-rata "bonus" or
incentive compensation payment to the extent payments are
awarded to similarly situated executives and paid at the same
time as similarly situated executives are paid; and any
vacation accrued to the date of death.
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<PAGE> 4
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) 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
until the end of the current Employment Term (i.e., either
December 31, 2000, or December 31, 2003). Such amount shall be
paid in a single lump sum cash payment within thirty (30) days
after Executive's death.
(iv) As of the date of termination by reason of Executive's death,
stock options awarded to Executive shall be fully vested.
Executive's estate or beneficiary shall have up to one (1)
year from the date of death to exercise all such options.
(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. Executive shall also be
eligible for a bonus or incentive compensation payment to the
extent such awards are made to similarly situated executives,
pro-rated for the year in which Executive is terminated and
paid at the same time as similarly situated executives are
paid.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) 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
until the end of the current Employment Term (i.e., either
December 31, 2000, or December 31, 2003). 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. Executive shall have up to one (1) year from
the date of termination by reason of total disability to
exercise all such options.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), the
Company shall pay the following amounts to Executive:
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<PAGE> 5
(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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
terminates employment pursuant to Section 5(d), and other than for a
resignation tendered pursuant to Section 7 of this Agreement, 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(e) TERMINATION OF FULL-TIME STATUS AFTER DECEMBER 31, 2000. In the event
that Executive elects to remain employed with the Company subsequent to
December 31, 2000, it is agreed that the employment shall be of a
part-time nature until December 31, 2003. Executive shall not be
required to work more than fifty percent (50%) of the three (3)
calendar years (2001, 2002 and 2003), and shall report to the President
of the Company or his designee. Provided the Executive is willing to
work and remains available to work as directed, the Company will pay to
the Executive the following amount(s) for the three (3) year part-time
period:
(i) An amount equal to seventy-five percent (75%) of Executive's
base pay for the highest year of the preceding three (3) year
period (1997, 1998 and 1999).
(ii) The Company will continue at its expense, for Executive and
Executive's spouse and dependents, all health-related benefit
plans, as more fully described in Section 6(e)(iv) of this
Agreement.
(iii) The Company completely at its expense will continue for
Executive and Executive's spouse and dependents, all health
benefit plans, programs or arrangements, whether group or
individual, 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 (3)
years after the date of termination of full-time status; (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
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<PAGE> 6
Executive would have been entitled to receive under such plan,
program, or arrangement, for such period.
(iv) If Executive is unavailable to work as described herein at
Section 6(e) above for a sixty (60) day period, the Company
will provide written notice of its intent to terminate the
Agreement. The Executive will be given thirty (30) days to
respond and to correct the situation. If the issue remains
unresolved, the Company may elect to terminate the Agreement
and will pay Executive through the end of the thirty (30) day
response period, as described 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) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event
that the Company, in its sole discretion determines that, without the
Company's express written consent, Executive has
(i) directly or indirectly engaged in, assisted or have any active
interest or involvement whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public
company), partner, proprietor, or any type of principal
whatsoever, in any person, firm, or business entity which is
directly or indirectly competitive with the Company or any of
its affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm,
or business entity which is directly or indirectly competitive
with the Company or any of its affiliates (A) solicited or
accepted from any person or entity who is or was a client of
the Company during the term of Executive's employment
hereunder or during any of the twelve calendar months
preceding or following the termination of Executive's
employment any business for services similar to those rendered
by the Company, (B) requested or advised any present or future
customer of the Company to withdraw, curtail or cancel its
business dealings with the Company, or (C) requested or
advised any employee of the Company to terminate his or her
employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement.
Such suspension or termination of benefits shall be in addition to and
shall not limit any and all other rights and remedies that the Company
may have against Executive.
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<PAGE> 7
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, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated (both
a "resignation" and "termination" being referred to as "termination"
for the purposes of this Section 7) from employment with the Company at
any time prior to December 31, 2000, or at any time prior to the six
(6) month anniversary of the date of the Change in Control, whichever
date occurs earlier, following the occurrence of any of the following
events:
(i) without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's
positions, duties, responsibilities and status with the
Company immediately before a Change in Control, or a change in
Executive's reporting, responsibilities, titles or offices as
in effect immediately before a Change in Control, or any
removal of Executive from, or any failure to re-elect
Executive to, any of such positions, except in connection with
the termination of Executive's employment as a result of
death, or by the Company for Disability or Cause, or by
Executive other than for the reasons described in this Section
7(a);
(ii) a reduction by the Company in Executive's Base Salary as in
effect immediately before a Change in Control plus all
increases therein subsequent thereto;
(iii) the failure of the Company substantially to maintain and to
continue Executive's participation in the Company's benefit
plans as in effect immediately before a Change in Control and
with all improvements therein subsequent thereto (other than
those plans or improvements that have expired thereafter in
accordance with their original terms), or the taking of any
action which would materially reduce Executive's benefits
under any of such plans or deprive Executive of any material
fringe benefit enjoyed by Executive immediately before a
Change in Control, unless such reduction or termination is
required by law;
(iv) the failure of the Company to provide Executive with an
appropriate adjustment to compensation such as a lump sum
relocation bonus, salary adjustment and/or housing allowance
so that Executive can purchase comparable primary housing if
required to relocate (it being the intention of this Section
7[a][iv] to keep the Executive "whole" if required to
relocate). In this regard, comparable housing shall be
determined by comparing factors such as location (taking into
account, by way of example, items such as the value of the
surrounding neighborhood, reputation of the public school
district, if applicable, security and proximity to Executive's
place of work), quality of construction, design, age, size of
the housing and the ratio of the monthly payments including
principle, interest, taxes and insurance to the Executive's
take home pay, to housing most recently owned by Executive
prior to, or as of the effective date of the change of
control;
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<PAGE> 8
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of
Executive's compensation deferred under any plan, agreement or
arrangement of or with the Company, within seven (7) days of
the date such compensation is due; or
(vi) the failure by the Company to obtain an assumption of, and
agreement to perform the obligations of the Company under this
Agreement by any successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates employment
pursuant to Section 7(a), 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section 4c
hereof, shall be determined and paid in accordance with the
terms of such plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times Executive's
"base amount" within the full meaning of Section 280G of the
Internal Revenue Code. Such amount shall be paid to Executive
in a single lump sum cash payment within five (5) business
days after the effective date of Executive's termination.
(iv) Executive will be 100% vested in all benefits, awards, and
grants (including stock options) 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 be eligible for 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. Employee shall have until the
expiration date shown on the stock option award in which to
exercise the options which have vested pursuant to this
section.
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.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
portion of the benefits payable under this Agreement, and any other
payments and benefits under any other agreement with, or plan of the
Company to or for the benefit of the Executive (in aggregate, "Total
Payments") constitute an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code (the "Code"), then the
Company shall pay the Executive as promptly as practicable following
such determination an additional amount (the "Gross-up
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<PAGE> 9
Payment") calculated as described below to reimburse the Executive on
an after-tax basis for any excise tax imposed on such payments under
Section 4999 of the Code. The Gross-up Payment shall equal the amount,
if any, needed to ensure that the net parachute payments (including the
Gross-up Payment) actually received by the Executive after the
imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes,
had the Total Payments not been subject to the taxes imposed by Section
4999. For purposes of this calculation, it shall be assumed that the
Executive's tax rate will be the maximum federal rate to be computed
with regard to Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as
to the amount of the Gross-up Payment, if any, the Company shall select
a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to a
Change-in-Control) by the Company regarding federal income tax maters
and such law firm or accounting firm shall determine the amount of
Gross-up Payment and such determination shall be final and binding upon
the Executive and the Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any
person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, of any securities of the
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming
the beneficial owner, directly or indirectly, of securities of
the Company representing 25 percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) As a result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were directors immediately
before the transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to 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 during
the period that payments are made to Executive pursuant to Section 6 of
this Agreement, 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 1% 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 engaged in
the same business as that conducted and carried on by the Company,
without the Company's specific written consent to do so. Executive
further agrees that for a period of one (1) year after the date
payments made to Executive pursuant to Section 6 of this Agreement
cease, or for a period of two (2)
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<PAGE> 10
years following the date of termination, whichever is later, Executive
will not, directly or indirectly, within 75 miles of any operating
location of any affiliate of the Company, 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 1% 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 engaged in
the same business as that conducted and carried on by the Company or
any of its affiliated companies, without the Company's specific written
consent to do so.
(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 one (1) year after the date payments made to Executive
pursuant to Section 6 of this Agreement cease, or two (2) years after
the date of termination of the Executive's employment, whichever date
is later, whether such termination is voluntary or involuntary by
wrongful discharge, or otherwise, Executive will not directly or
indirectly (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) canvass,
solicit or accept any similar business from any customer of the Company
or corporations affiliated with the Company; (iii) directly or
indirectly 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 (iv) directly or
indirectly disclose to any other person, firm or corporation the names
or addresses of any of the customers of the Company or corporations
affiliated with the Company.
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall
not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors,
allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of
the Company, its management, or of management of corporations
affiliated with the Company.
(d) 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 (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.
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<PAGE> 11
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive
agrees that any breach by Executive of any of the covenants set forth
in Section 8 hereof during Executive's employment by the Company, shall
be grounds for immediate dismissal of Executive and forfeiture of any
accrued and unpaid salary, bonus, commissions or other compensation of
such Executive as liquidated damages, which shall be in addition to and
not exclusive of any and all other rights and remedies the Company may
have against Executive.
(b) 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 will be inadequate. Therefore, in the event of breach of
anticipatory 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; (i) injunctions,
both preliminary and permanent, enjoining or retraining such breach or
anticipatory breach and Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent
jurisdiction; and (ii) recovery of all reasonable sums expended and
costs, including reasonable attorney's fees, incurred by the Company to
enforce the covenants set forth in this section.
(c) 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. 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
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<PAGE> 12
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, (a) provided that
Executive shall repay any such amounts paid or advanced if Executive is not the
prevailing party with respect to any dispute or litigation arising under
Sections 5c or 8 of this Agreement, or (b) regardless of whether Executive is
the prevailing party in a dispute or in litigation involving any other provision
of this Agreement, provided that the court in which such litigation is first
initiated determines with respect to this obligation, upon application of either
party hereto, Executive did not initiate frivolously such litigation. Under no
circumstances shall Executive be obligated to pay or reimburse the Company for
any attorneys' fees, costs or expenses incurred by the Company. The provisions
of this Section 10 shall survive the expiration or termination of this Agreement
and of Executive's employment hereunder.
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement to
any third party other than Executive's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
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, 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
(the provisions of this sentence also being applicable to any successive such
transaction).
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<PAGE> 13
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.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Georgia applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.
17. 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.
18. 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.
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<PAGE> 14
(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/ Rodney R. Proto Date:
---------------------------------- ------------------------
Name:
--------------------------------
Title:
-------------------------------
EXECUTIVE
/s/ Miller J. Mathews, Jr. Date: October 1, 1998
- ------------------------------------- ------------------------
Address: 566 Gramercy Drive
-------------------------------
Marietta, GA 30068
-------------------------------
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<PAGE> 1
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC. (the "Company"), and DAVID R. HOPKINS (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as of January 1,
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 begin as of
January 1, 1999, and shall be for continuously renewing three (3) year terms,
unless Executive's employment is terminated in accordance with Section 5 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Sr. Vice President, and report to the Chief
Executive Officer. In such capacity, Executive shall perform such
duties as may be assigned to Executive from time to time by the Board
of Directors of the Company or the Chief Executive Officer of the
Company.
(b) Executive shall faithfully serve the Company, and/or its affiliated
corporations, devote Executive's full working time, attention and
energies to the business of the Company, and/or its affiliated
corporations, and perform the duties under this Agreement to the best
of Executive's abilities. 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.
(c) Executive shall (i) comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) comply with the
Company's rules, procedures, policies, requirements, and directions;
and (iii) not engage in any other business or employment without the
written consent of the Company except as otherwise specifically
provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of Two Hundred Seventy-Five
Thousand ($275,000) 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 executives.
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<PAGE> 2
(b) 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 executives, provided that
such expenses are incurred and accounted for in accordance with the
Company's policy.
(c) BENEFIT PLANS. 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, supplemental and/or incentive compensation plans, or
any other fringe benefit plan, generally made available by the Company
to executives working pursuant to this form of Agreement (hereinafter
referred to as "similarly situated executives".
(d) EMPLOYEE'S EXPENSES. All costs and expenses (including reasonable
legal, accounting and other advisory fees) incurred by the Executive to
(i) defend the validity of this Agreement, (ii) contest any
determination by the Company concerning the amounts payable (or
reimbursable) by the Company to the Executive under this Agreement,
(iii) determine in any tax year of the Executive, the tax consequences
to the Executive of any amount payable (or reimbursable) under Section
7(b) or 7(c) hereof, or (iv) prepare responses to an Internal Revenue
Service audit of, and to otherwise defend, his personal income tax
return for any year which is the subject of any such audit, or an
adverse determination, administrative proceedings or civil litigation
arising therefrom that is occasioned by or related to any audit by the
Internal Revenue Service of the Company's income tax returns, are, upon
written demand by the Executive, to be promptly advanced or reimbursed
to the Executive, or paid directly, on a current basis, by the Company
or its successors.
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 is
physically or mentally incapacitated so as to render Executive
incapable of performing Executive's usual and customary duties under
this Agreement. Executive's receipt of disability benefits under the
Company's long-term disability plan or receipt of Social Security
disability benefits shall be deemed conclusive evidence of Total
Disability for purpose of this Agreement; provided, however, that in
the absence of Executive's receipt of such long-term disability
benefits or Social Security benefits, the Company's Board of Directors
may, in its reasonable discretion (but based upon appropriate medical
evidence), determine that Executive is Totally Disabled.
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<PAGE> 3
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive's employment hereunder for "Cause" at any time after
providing written notice to Executive.
(i) For purposes of this Agreement, the term "Cause" shall mean any
of the following: (A) conviction of a crime (including conviction
on a nolo contendere plea) involving a felony or, in the good
faith judgment of the Company's Board of Directors, fraud,
dishonesty, or moral turpitude; (B) deliberate and continual
refusal to perform employment duties reasonably requested by the
Company or an affiliate after thirty (30) days' written notice by
certified mail of such failure to perform, specifying that the
failure constitutes cause (other than as a result of vacation,
sickness, illness or injury); (C) fraud or embezzlement
determined in accordance with the Company's normal, internal
investigative procedures consistently applied in comparable
circumstances; (D) gross misconduct or gross negligence in
connection with the business of the Company or an affiliate which
has substantial effect on the Company or the affiliate; or (E)
breach of any of the covenants set forth in Section 8 hereof.
(ii) An individual will be considered to have been terminated for
Cause if the Company determines that the individual engaged in an
act constituting Cause at any time prior to a payment date for an
award, regardless of whether the individual terminates employment
voluntarily or is terminated involuntarily, and regardless of
whether the individual's termination initially was considered to
have been for Cause.
(iii) Any determination of Cause under this Agreement shall be made by
resolution of the Company's Board of Directors adopted by the
affirmative vote of not less than a majority of the entire
membership of the Board of Directors at a meeting called and held
for that purpose and at which Executive is given an opportunity
to be heard.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder at any time after providing ninety (90) days' written notice
to the Company, or for good reason as described in Section 7 of this
Agreement.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Executive's employment hereunder without Cause at any time after
providing written notice to Executive.
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:
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<PAGE> 4
(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; a pro-rata "bonus" or
incentive compensation payment to the extent payments are
awarded to similarly situated executives and paid at the same
time as similarly situated 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 referred to in Section
4(c) 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
until the end of the current Employment Term (three [3]
years). Such amount shall be paid in a single lump sum cash
payment within thirty (30) days after Executive's death.
(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. Executive shall also be
eligible for a bonus or incentive compensation payment to the
extent such awards are made to similarly situated executives,
pro-rated for the year in which Executive is terminated and
paid at the same time as similarly situated executives are
paid.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) 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
until the end of the current Employment Term (three [3]
years). 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.
(c) TERMINATION FOR CAUSE. In the event that Executive's employment is
terminated by the Company for Cause pursuant to Section 5(c), the
Company shall pay the following amounts to Executive:
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<PAGE> 5
(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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
terminates employment pursuant to Section 5(d), and other than for a
resignation tendered pursuant to Section 7 of this Agreement, 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that Executive's
employment is terminated by the Company pursuant to Section 5(e) for
reasons other than death, Total Disability or 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.
(ii) Any benefits to which Executive may be entitled pursuant to
the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An annual amount equal to 75 percent (75%) of the average of
Executive's "Total Annual Direct Compensation" for the two
highest of the three most recent calendar years prior to
Executive's termination. Such annual amount shall be paid
during the three (3) 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. For purposes of this Agreement, the term "Total
Annual Direct Compensation" means the total of the Base Salary
and other cash compensation payable to Executive attributable
to a calendar year (A) including any cash compensation which
would have been payable for such year but for Executive's
election to defer payment of such compensation and (B)
excluding any amounts recognized as compensation as a result
of Executive's exercise of a stock option or receipt of a
stock award.
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<PAGE> 6
(iv) The Company completely at its expense will continue for Executive
and Executive's spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, 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 (3) 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.
(v) Except to the extent prohibited by law, 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, and stock
option plans in which Executive was a participant as of the date
of termination. Executive shall have one (1) year from the date
of termination to exercise stock options. Executive shall also be
eligible for a bonus or incentive compensation payment, to the
extent payments are made to similarly situated executives,
pro-rated for the year in which the Executive is terminated, paid
at the same time as similarly situated executives are paid.
(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) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the event
that the Company, in its sole discretion determines that, without the
Company's express written consent, Executive has
(i) directly or indirectly engaged in, assisted or have any active
interest or involvement whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public
company), partner, proprietor, or any type of principal
whatsoever, in any person, firm, or business entity which is
directly or indirectly competitive with the Company or any of its
affiliates, or
(ii) directly or indirectly, for or on behalf of any person, firm, or
business entity which is directly or indirectly competitive with
the Company or any of its affiliates (A) solicited or accepted
from any person or entity who is or was a client of the
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<PAGE> 7
Company during the term of Executive's employment hereunder or
during any of the twelve calendar months preceding or following
the termination of Executive's employment any business for
services similar to those rendered by the Company, (B) requested
or advised any present or future customer of the Company to
withdraw, curtail or cancel its business dealings with the
Company, or (C) requested or advised any employee of the Company
to terminate his or her employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement.
Such suspension or termination of benefits shall be in addition to and
shall not limit any and all other rights and remedies that the Company
may have 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, Executive will be paid the compensation
described in this Section 7 if Executive resigns or is terminated (both
a "resignation" and "termination" being referred to as "termination"
for the purposes of this Section 7) from employment with the Company at
any time prior to the six (6) month anniversary of the date of the
Change in Control following the occurrence of any of the following
events:
(i) without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Company immediately
before a Change in Control, or a change in Executive's reporting,
responsibilities, titles or offices as in effect immediately
before a Change in Control, or any removal of Executive from, or
any failure to re-elect Executive to, any of such positions,
except in connection with the termination of Executive's
employment as a result of death, or by the Company for Disability
or Cause, or by Executive other than for the reasons described in
this Section 7(a);
(ii) a reduction by the Company in Executive's Base Salary as in
effect immediately before a Change in Control plus all increases
therein subsequent thereto;
(iii) the failure of the Company substantially to maintain and to
continue Executive's participation in the Company's benefit plans
as in effect immediately before a Change in Control and with all
improvements therein subsequent thereto (other than those plans
or improvements that have expired thereafter in accordance with
their original terms), or the taking of any action which would
materially reduce Executive's benefits under any of such plans or
deprive Executive of any material fringe benefit enjoyed by
Executive immediately before a Change in Control, unless such
reduction or termination is required by law;
(iv) the change of Executive's principal place of employment to a
location more than fifty (50) miles from such principal place of
employment, except for required travel on the
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<PAGE> 8
Company's business to an extent substantially consistent with
Executive's business travel obligations immediately before a
Change in Control;
(v) the failure by the Company to pay Executive any portion of
Executive's current compensation, or any portion of Executive's
compensation deferred under any plan, agreement or arrangement of
or with the Company, within seven (7) days of the date such
compensation is due; or
(vi) the failure by the Company to obtain an assumption of, and
agreement to perform the obligations of the Company under this
Agreement by any successor to the Company.
(b) COMPENSATION PAYABLE. In the event that Executive terminates employment
pursuant to Section 7(a), 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.
(ii) Any benefits to which Executive may be entitled pursuant to the
plans, policies and arrangements referred to in Section 4c
hereof, shall be determined and paid in accordance with the terms
of such plans, policies and arrangements.
(iii) An amount equal to $1.00 less than three (3) times Executive's
"base amount" within the full meaning of Section 280G of the
Internal Revenue Code. Such amount shall be paid to Executive in
a single lump sum cash payment within five (5) business days
after the effective date of Executive's termination.
(iv) Executive will be 100% vested in all benefits, awards, and grants
(including stock options) 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 be eligible for 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. Employee
shall have until the expiration date shown on the stock option
award in which to exercise the options which have vested pursuant
to this section.
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.
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<PAGE> 9
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
portion of the benefits payable under this Agreement, and any other
payments and benefits under any other agreement with, or plan of the
Company to or for the benefit of the Executive (in aggregate, "Total
Payments") constitute an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code (the "Code"), then the
Company shall pay the Executive as promptly as practicable following
such determination an additional amount (the "Gross-up Payment")
calculated as described below to reimburse the Executive on an
after-tax basis for any excise tax imposed on such payments under
Section 4999 of the Code. The Gross-up Payment shall equal the amount,
if any, needed to ensure that the net parachute payments (including the
Gross-up Payment) actually received by the Executive after the
imposition of federal and state income, employment and excise taxes
(including any interest or penalties imposed by the Internal Revenue
Service), are equal to the amount that the Executive would have netted
after the imposition of federal and state income and employment taxes,
had the Total Payments not been subject to the taxes imposed by Section
4999. For purposes of this calculation, it shall be assumed that the
Executive's tax rate will be the maximum federal rate to be computed
with regard to Section 1(g) of the Code.
In the event that the Executive and the Company are unable to agree as
to the amount of the Gross-up Payment, if any, the Company shall select
a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to a
Change-in-Control) by the Company regarding federal income tax matters
and such law firm or accounting firm shall determine the amount of
Gross-up Payment and such determination shall be final and binding upon
the Executive and the Company.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any
person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, of any securities of the
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming
the beneficial owner, directly or indirectly, of securities of
the Company representing 25 percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) As a result of a tender offer, merger, consolidation, sale of
assets, or contested election, or any combination of such
transactions, the persons who were directors immediately
before the transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to 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 during
the period that payments are made
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<PAGE> 10
to Executive pursuant to Section 6 of this Agreement, 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 1% 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 engaged in the same business as that conducted and
carried on by the Company, without the Company's specific written
consent to do so. Executive further agrees that for a period of one (1)
year after the date payments made to Executive pursuant to Section 6 of
this Agreement cease, or for a period of two (2) years following the
date of termination, whichever is later, Executive will not, directly
or indirectly, within 75 miles of any operating location of any
affiliate of the Company, 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 1% 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 engaged in the same business
as that conducted and carried on by the Company or any of its
affiliated companies, without the Company's specific written consent to
do so.
(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 one (1) year after the date payments made to Executive
pursuant to Section 6 of this Agreement cease, or two (2) years after
the date of termination of the Executive's employment, whichever date
is later, whether such termination is voluntary or involuntary by
wrongful discharge, or otherwise, Executive will not directly or
indirectly (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) canvass,
solicit or accept any similar business from any customer of the Company
or corporations affiliated with the Company; (iii) directly or
indirectly 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; (iv) directly or indirectly
disclose to any other person, firm or corporation the names or
addresses of any of the customers of the Company or corporations
affiliated with the Company; or (v) individually of through any person,
firm, association or corporation with which Employee is now or may
hereafter become associated, cause, solicit, entice, or induce any
present or future employee of the Company, or any corporation
affiliated with the Company to leave the employ of the Company, or such
other corporation to accept employment with, or compensation from, the
Employee or any such person, firm, association or corporation without
the prior written consent of the Company.
(c) NON-DISPARAGEMENT. Executive covenants and agrees that Executive shall
not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors,
allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of
the Company, its management, or of management of corporations
affiliated with the Company.
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<PAGE> 11
(d) 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 (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.
9. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Executive
agrees that any breach by Executive of any of the covenants set forth
in Section 8 hereof during Executive's employment by the Company, shall
be grounds for immediate dismissal of Executive and forfeiture of any
accrued and unpaid salary, bonus, commissions or other compensation of
such Executive as liquidated damages, which shall be in addition to and
not exclusive of any and all other rights and remedies the Company may
have against Executive.
(b) 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 will be inadequate. Therefore, in the event of breach of
anticipatory 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; (i) injunctions,
both preliminary and permanent, enjoining or restraining such breach or
anticipatory breach and Executive hereby consents to the issuance
thereof forthwith and without bond by any court of competent
jurisdiction; and (ii) recovery of all reasonable sums expended and
costs, including reasonable attorney's fees, incurred by the Company to
enforce the covenants set forth in this section.
(c) 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
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<PAGE> 12
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. 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, (a) provided that Executive shall repay any such amounts paid or
advanced if Executive is not the prevailing party with respect to any dispute or
litigation arising under Sections 5c or 8 of this Agreement, or (b) regardless
of whether Executive is the prevailing party in a dispute or in litigation
involving any other provision of this Agreement, provided that the court in
which such litigation is first initiated determines with respect to this
obligation, upon application of either party hereto, Executive did not initiate
frivolously such litigation. Under no circumstances shall Executive be obligated
to pay or reimburse the Company for any attorneys' fees, costs or expenses
incurred by the Company. The provisions of this Section 10 shall survive the
expiration or termination of this Agreement and of Executive's employment
hereunder.
11. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
12. NON-DISCLOSURE OF AGREEMENT TERMS.
Executive agrees that Executive will not disclose the terms of this Agreement to
any third party other than Executive's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
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> 13
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, 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
(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.
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. 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.
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<PAGE> 14
18. 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.
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/ Susan J. Piller
-----------------------------------------
Name: Susan J. Piller
---------------------------------------
Title: Senior Vice President
--------------------------------------
Date: August 9, 1999
---------------------------------------
EXECUTIVE
/s/ David R. Hopkins
- --------------------------------------------
David R. Hopkins
Address: 1512-B Nantucket Drive
------------------------------------
Houston, TX 77057
-----------------------------------------
Date: August 9, 1999
---------------------------------------
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<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
WASTE MANAGEMENT, INC., for and on behalf of its affiliated corporations
(collectively referred to as the "Company") and ROBERT G. SIMPSON (the
"Employee") hereby enter into this EMPLOYMENT AGREEMENT ("Agreement") dated as
of October 15, 1998, as follows:
1. EMPLOYMENT.
The Company shall employ Employee, and Employee 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 Employee's employment under this Agreement shall begin as of
November 17, 1998, and shall continue for a period of three (3) years thereafter
(the "Initial Term") and shall be automatically renewed for successive one (1)
year periods thereafter, unless Employee's employment is terminated in
accordance with Section 6 below.
3. DUTIES AND RESPONSIBILITIES.
(a) Employee shall serve as Vice President, Taxation. In such capacity,
Employee shall perform such duties as may be assigned to Employee from
time to time by the Company.
(b) Employee shall faithfully serve the Company and/or its affiliated
corporations, devote Employee's full working time, attention and
energies to the business of the Company and/or its affiliated
corporations, and perform the duties under this Agreement to the best
of Employee's abilities.
(c) Employee shall (i) comply with all applicable laws, rules and
regulations, and all requirements of all applicable regulatory,
self-regulatory, and administrative bodies; (ii) comply with the
Company's rules, procedures, policies, requirements, and directions;
and (iii) not engage in any other business or employment without the
written consent of the Company, except as otherwise specifically
provided herein.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Company shall pay
Employee a base salary at the annual rate of Two Hundred Fifty Thousand
($250,000) 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 employees.
(b) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse
Employee for the ordinary and necessary business expenses incurred by
Employee
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<PAGE> 2
in the performance of Employee's duties hereunder in accordance with
the Company's customary practices applicable to employees, provided
that such expenses are incurred and accounted for in accordance with
the Company's policy.
(c) BENEFIT PLANS. Employee 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, supplemental and/or incentive compensation plans, or
any other benefit plan or arrangement generally made available by the
Company to employees of similar status and responsibilities
(hereinafter referred to as "similarly situated employees").
(d) INCENTIVE/BONUS. Employee shall be eligible for a bonus or
incentive compensation payment ("bonus") of up to fifty (50%) percent
of Employee's base pay. Qualification for the bonus shall be pursuant
to the applicable Bonus Plan in effect for the year in which the bonus
is earned. Employee is guaranteed a 1998 bonus in the amount of Fifty
Thousand ($50,000) Dollars, to be paid at the same time as other
corporate office bonuses are paid (in 1999, following the release of
earning for the 1998 calendar year).
(e) STOCK OPTIONS. Employee shall be awarded fifty thousand (50,000)
Waste Management stock options, subject to the approval of the
Compensation Committee of the Board of Directors. The award, vesting
and exercise of all options shall be subject to the provisions of the
Waste Management, Inc., 1993 Stock Incentive Plan.
5. TERMINATION OF EMPLOYMENT.
Employee's employment hereunder may be terminated under the following
circumstances:
(a) DEATH. Employee's employment hereunder shall terminate upon
Employee's death.
(b) TOTAL DISABILITY. The Company may terminate Employee's employment
hereunder upon Employee's becoming "Totally Disabled". For purposes of
this Agreement, Employee shall be "Totally Disabled" if Employee is
physically or mentally incapacitated so as to render Employee incapable
of performing Employee's usual and customary duties under this
Agreement. Employee's receipt of disability benefits under the
Company's long-term disability plan, or receipt of Social Security
disability benefits, shall be deemed conclusive evidence of Total
Disability for purpose of this Agreement; provided, however, that in
the absence of Employee's receipt of such long-term disability benefits
or Social Security benefits, the Company may, in its reasonable
discretion (but based upon appropriate medical evidence), determine
that Employee is Totally Disabled.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Employee's employment hereunder for "Cause" at any time after providing
written notice to Employee.
Page 2 of 11
<PAGE> 3
(i) For purposes of this Agreement, the term "Cause" shall
mean any of the following: (A) conviction of a crime
(including conviction on a nolo contendere plea) involving a
felony or, in the good faith judgment of the Company, fraud,
dishonesty, or moral turpitude; (B) deliberate and continual
refusal to perform employment duties reasonably requested by
the Company or an affiliate after thirty (30) days' written
notice by certified mail of such failure to perform,
specifying that the failure constitutes cause (other than as a
result of vacation, sickness, illness or injury); (C) fraud or
embezzlement determined in accordance with the Company's
normal, internal investigative procedures consistently applied
in comparable circumstances; (D) gross misconduct or gross
negligence in connection with the business of the Company or
an affiliate which has substantial effect on the Company or
the affiliate; or (E) breach of any of the covenants set forth
in Section 8 hereof.
(ii) An individual will be considered to have been terminated
for Cause if the Company determines that the individual
engaged in an act constituting Cause at any time prior to a
payment date for an award, regardless of whether the
individual terminates employment voluntarily or is terminated
involuntarily, and regardless of whether the individual's
termination initially was considered to have been for Cause.
(iii) Any determination of Cause under this Agreement shall be
made by the Company after giving Employee a reasonable
opportunity to be heard.
(d) VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate
employment hereunder at any time after providing ninety (90) days'
written notice to the Company.
(e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
Employee's employment hereunder without Cause at any time after
providing written notice to Employee.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Employee's employment hereunder is terminated, Employee shall
be entitled to the following compensation and benefits upon such termination:
(a) TERMINATION BY REASON OF DEATH. In the event that Employee's
employment is terminated by reason of Employee's death, the Company
shall pay the following amounts to Employee'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, and any vacation
accrued to the date of death.
Page 3 of 11
<PAGE> 4
(ii) Any benefits to which Employee may be entitled pursuant
to the plans, policies and arrangements referred to in Section
4(c) 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 Employee's death) which would have
been payable to Employee if Employee had continued in
employment until the end of the 12-month period beginning on
the date of Employee's death. Such amount shall be paid in a
single lump sum cash payment within thirty (30) days after
Employee's death.
(b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
Employee's employment is terminated by reason of Employee's Total
Disability as determined in accordance with Section 5(b), the Company
shall pay the following amounts to Employee:
(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. Employee shall also be
entitled to a bonus or incentive compensation payment to the
extent such awards are made to similarly situated executives,
pro-rated for the year in which Executive is terminated and
paid at the same time as similarly situated executives are
paid.
(ii) Any benefits to which Employee may be entitled pursuant
to the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) An amount equal to
(A) the Base Salary (at the rate in effect as of the
date of Employee's Total Disability) which would have
been payable to Employee if Employee had continued in
active employment until the end of the 12-month
period beginning on the date of Employee's
termination; reduced by
(B) the maximum annual amount of the long term
disability benefits payable to Employee under the
Company's long-term disability plan as determined
prior to the reduction of such benefits under the
terms of the plan for other disability income.
Payment shall be made at the same time and in the same manner
as such compensation would have been paid if Employee had
remained in active employment until the end of such period.
Page 4 of 11
<PAGE> 5
(c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION BY EMPLOYEE. In the
event that Employee's employment is terminated by the Company for Cause
pursuant to Section 5(c), or Employee terminates employment pursuant to
Section 5(d), the Company shall pay the following amounts to Employee:
(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.
(ii) Any benefits to which Employee may be entitled pursuant
to the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event that
Employee's employment is terminated by the Company pursuant to Section
5(e) for reasons other than death, Total Disability or Cause, the
Company shall pay the following amounts to Employee:
(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.
(ii) Any benefits to which Employee may be entitled pursuant
to the plans, policies and arrangements referred to in Section
4(c) hereof shall be determined and paid in accordance with
the terms of such plans, policies and arrangements.
(iii) The Base Salary (at the rate in effect as of the date of
Employee's termination) which would have been payable to
Employee if Employee had continued in active employment until
the later of: (A) the period ending on the last day of the
Initial Term; or (B) the end of the 12-month period beginning
on the date of Employee's termination. Payment shall be made
at the same time and in the same manner as such compensation
would have been paid if Employee had remained in active
employment until the end of such period. The Employee shall
also be eligible for a bonus or incentive compensation
payment, to the extent bonuses are paid to similarly situated
employees, pro-rated for the year in which the Employee is
terminated, and paid at the same time as similarly situated
employees are paid.
(iv) The Company, completely at its expense, will continue for
Employee and Employee's spouse and dependents, group health
plans, programs or arrangements, in which Employee was
entitled to participate at any time during the twelve-month
period prior to the date of termination, until the earlier of:
(A) last day of period during which Employee receives payment
in
Page 5 of 11
<PAGE> 6
accordance with clause (iii) above; (B) Employee's death
(provided that benefits payable to Employee's beneficiaries
shall not terminate upon Employee's death); or (C) with
respect to any particular plan, program or arrangement, the
date Employee becomes covered by a comparable benefit provided
by a subsequent employer.
(e) 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 Employee at the time of
Employee's termination or resignation of employment, Employee 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.
(f) SUSPENSION OR TERMINATION OF BENEFITS AND COMPENSATION. In the
event that the Company, in its sole discretion determines that, without
the Company's express written consent, Employee has
(i) directly or indirectly engaged in, assisted or have any
active interest or involvement whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder
(excluding holding of less than 1% of the stock of a public
company), partner, proprietor, or any type of principal
whatsoever, in any person, firm, or business entity which is
directly or indirectly competitive with the Company or any of
its affiliates, or
(ii) directly or indirectly, for or on behalf of any person,
firm, or business entity which is directly or indirectly
competitive with the Company or any of its affiliates (A)
solicited or accepted from any person or entity who is or was
a client of the Company during the term of Employee's
employment hereunder or during any of the twelve calendar
months preceding or following the termination of Employee's
employment any business for services similar to those rendered
by the Company, (B) requested or advised any present or future
customer of the Company to withdraw, curtail or cancel its
business dealings with the Company, or (C) requested or
advised any employee of the Company to terminate his or her
employment with the Company;
the Company shall have the right to suspend or terminate any or all
remaining benefits payable pursuant to Section 6 of this Agreement.
Such suspension or termination of benefits shall be in addition to and
shall not limit any and all other rights and remedies that the Company
may have against Employee.
7. RESTRICTIVE COVENANTS
(a) COMPETITIVE ACTIVITY. Employee covenants and agrees that at all
times during Employee's period of employment with the Company, and
while Employee is receiving payments pursuant to Section 6 of this
Agreement, Employee will not,
Page 6 of 11
<PAGE> 7
directly or indirectly, 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
1% 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 engaged in the same business as that
conducted and carried on by the Company, without the Company's specific
written consent to do so. Furthermore, for a period of one (1) year
after the date of termination of Employee's employment, whether such
termination is voluntary or involuntary, by wrongful discharge, or
otherwise, or one (1) year following the cessation of payments made
pursuant to Section 6 of this Agreement, or for a period of one (1)
year following the date of termination, whichever date is later,
Employee will not directly or indirectly, within 75 miles of the
principal place of business of the Company, the principal place of
business of any corporation or other entity owned, controlled by (or
otherwise affiliated with) the Company by which Employee may also be
employed or served by Employee, or any other geographic location in
which Employee has specifically represented the interests of the
Company or such other affiliated entity, during the twelve (12) months
prior to the termination of Employee's employment, 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 1% 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 engaged in
the same business as that conducted and carried on by the Company,
without the Company's specific written consent to do so.
(b) NON-SOLICITATION. Employee covenants and agrees that at all times
during Employee's period of employment with the Company, and for a
period of one (1) year after the date of termination of Employee's
employment, whether such termination is voluntary or involuntary by
wrongful discharge, or otherwise, or the date of the cessation of
payments made to the Employee pursuant to Section 6 of this Agreement,
whichever date is later. Employee will not directly or indirectly (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) canvass, solicit or accept any
similar business from any customer of the Company or corporations
affiliated with the Company; (iii) directly or indirectly 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; (iv) directly or indirectly disclose to any other person,
firm or corporation the names or addresses of any of the customers of
the Company or corporations affiliated with the Company; or (v)
individually of through any person, firm, association or corporation
with which Employee is now or may hereafter become associated, cause,
solicit, entice, or induce any present or future employee of the
Company, or any corporation affiliated with the Company to leave the
employ of the Company, or such other corporation to accept employment
with, or compensation from, the Employee or any such person, firm,
association or corporation without the prior written consent of the
Company.
Page 7 of 11
<PAGE> 8
(c) NON-DISPARAGEMENT. Employee covenants and agrees that Employee
shall not engage in any pattern of conduct that involves the making or
publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors,
allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of
the Company, its management, or of management of corporations
affiliated with the Company.
(d) PROTECTED INFORMATION. Employee recognizes and acknowledges that
Employee 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 business opportunities, marketing or
business diversification plans, business development and bidding
techniques, methods and processes, financial data and the like
(collectively, the "Protected Information"). Employee therefore
covenants and agrees that Employee 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.
8. ENFORCEMENT OF COVENANTS.
(a) TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION. Employee
agrees that any breach by Employee of any of the covenants set forth in
Section 7 hereof during Employee's employment by the Company, shall be
grounds for immediate dismissal of Employee and forfeiture of any
accrued and unpaid salary, bonus, commissions or other compensation of
such Employee as liquidated damages, which shall be in addition to and
not exclusive of any and all other rights and remedies the Company may
have against Employee.
(b) RIGHT TO INJUNCTION. Employee acknowledges that a breach of the
covenants set forth in Section 7 hereof will cause irreparable damage
to the Company with respect to which the Company's remedy at law for
damages will be inadequate. Therefore, in the event of breach of
anticipatory breach of the covenants set forth in this section by
Employee, Employee 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; (i) injunctions,
both preliminary and permanent, enjoining or retraining such breach or
anticipatory breach and Employee hereby consents to the issuance
thereof forthwith and without bond by any court of competent
jurisdiction; and (ii) recovery of all reasonable sums
Page 8 of 11
<PAGE> 9
expended and costs, including reasonable attorney's fees, incurred by
the Company to enforce the covenants set forth in this section.
(c) SEPARABILITY OF COVENANTS. The covenants contained in Section 7
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 7
exceed the time, geographic, or occupational limitations permitted by
applicable laws, Employee 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. Employee and the
Company further agree that the covenants in Section 7 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
Employee 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 7.
9. WITHHOLDING OF TAXES.
The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.
10. NON-DISCLOSURE OF AGREEMENT TERMS.
Employee agrees that Employee will not disclose the terms of this Agreement to
any third party other than Employee's immediate family, attorney, accountants,
or other consultants or advisors or except as may be required by any
governmental authority.
11. 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. Employee 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.
Page 9 of 11
<PAGE> 10
12. 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 Employee.
13. ENTIRE AGREEMENT; AMENDMENT.
This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Employee and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Employee's
employment by the Company. It may not be amended except by a written agreement
signed by both parties.
14. 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.
15. 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 Employee: At the address for Employee set forth below.
16. 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 8 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 10 of 11
<PAGE> 11
(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/ Earl E. DeFrates
--------------------------------------------
Name: Earl E. DeFrates
------------------------------------------
Title: Executive Vice President & CFO
-----------------------------------------
Date: October 15, 1998
------------------------------------------
EMPLOYEE
/s/ Robert G. Simpson
- -----------------------------------------------
Date: October 15, 1998
------------------------------------------
Address: 5627 Palisade Falls Trail
---------------------------------------
Kingwood, TX 77345
- -----------------------------------------------
Page 11 of 11
<PAGE> 1
EXHIBIT 10.49
WASTE MANAGEMENT, INC.
2000 BROAD-BASED EMPLOYEE PLAN
FEBRUARY 28, 2000
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I. GENERAL...................................................1
Section 1.1. Purpose..........................................1
Section 1.2. Administration...................................1
Section 1.3. Eligibility for Participation....................2
Section 1.4. Types of Awards Under Plan.......................2
Section 1.5. Aggregate Limitation on Awards...................2
Section 1.6. Effective Date and Term of Plan..................3
ARTICLE II. STOCK OPTIONS............................................4
Section 2.1. Award of Stock Options...........................4
Section 2.2. Stock Option Agreements..........................4
Section 2.3. Stock Option Price...............................4
Section 2.4. Term and Exercise................................4
Section 2.5. Manner of Payment................................4
Section 2.6. Delivery of Shares...............................5
Section 2.7. Death, Retirement and Termination of
Employment of Optionee..........................5
Section 2.8. Tax Election.....................................5
Section 2.9. Effect of Exercise...............................6
ARTICLE III. INCENTIVE STOCK OPTIONS.................................6
Section 3.1. Award of Incentive Stock Options.................6
Section 3.2. Incentive Stock Option Agreements................6
Section 3.3. Incentive Stock Option Price.....................6
Section 3.4. Term and Exercise................................6
Section 3.5. Maximum Amount of Incentive Stock Option Grant...7
Section 3.6. Death of Optionee................................7
Section 3.7. Retirement or Disability.........................7
Section 3.8. Termination for Other Reasons....................7
Section 3.9. Applicability of Stock Options Sections..........7
ARTICLE IV. RELOAD OPTIONS...........................................8
Section 4.1. Authorization of Reload Options..................8
Section 4.2. Reload Option Amendment..........................8
Section 4.3. Reload Option Price..............................8
Section 4.4. Term and Exercise................................8
Section 4.5. Termination of Employment........................8
Section 4.6. Applicability of Stock Options Sections..........9
ARTICLE V. ALTERNATE APPRECIATION RIGHTS.............................9
Section 5.1. Award of Alternate Appreciation Rights...........9
i
<PAGE> 3
Section 5.2. Alternate Appreciation Rights Agreement..........9
Section 5.3. Exercise.........................................9
Section 5.4. Amount of Payment................................9
Section 5.5. Form of Payment..................................9
Section 5.6. Effect of Exercise...............................10
Section 5.7. Termination of Employment, Retirement,
Death or Disability.............................10
ARTICLE VI. LIMITED RIGHTS...........................................10
Section 6.1. Award of Limited Rights..........................10
Section 6.2. Limited Rights Agreement.........................10
Section 6.3. Exercise Period..................................10
Section 6.4. Amount of Payment................................10
Section 6.5. Form of Payment..................................11
Section 6.6. Effect of Exercise...............................11
Section 6.7. Retirement or Disability.........................11
Section 6.8. Death of Optionee or Termination for
Other Reasons...................................11
Section 6.9. Termination Related to a Change in Control.......11
ARTICLE VII. SUBSTITUTION AWARDS.....................................12
ARTICLE VIII. BONUS STOCK AWARDS.....................................12
Section 8.1. Award of Bonus Stock.............................12
Section 8.2. Stock Bonus Agreements...........................12
ARTICLE IX. MISCELLANEOUS............................................12
Section 9.1. General Restriction..............................12
Section 9.2. Non-Assignability................................13
Section 9.3. Withholding Taxes................................13
Section 9.4. Right to Terminate Employment....................13
Section 9.5. Non-Uniform Determination........................13
Section 9.6. Rights as a Shareholder..........................13
Section 9.7. Definitions......................................14
Section 9.8. Leaves of Absence................................15
Section 9.9. Newly Eligible Employees.........................15
Section 9.10. Adjustments......................................15
Section 9.11. Changes in the Company's Capital Structure.......16
Section 9.12. Change in Control................................17
Section 9.13. Amendment of the Plan............................18
Section 9.14. Effective Date...................................18
ii
<PAGE> 4
WASTE MANAGEMENT, INC.
2000 BROAD-BASED EMPLOYEE PLAN
ARTICLE I. GENERAL
Section 1.1. Purpose. The purposes of this Broad-Based Employee Plan (the
"Plan") are to: (1) closely associate the interests of the employees and
consultants of Waste Management, Inc. and its Subsidiaries and Affiliates
(collectively referred to as the "Company") with the shareholders to generate an
increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide employees and consultants with a proprietary ownership
interest in the Company commensurate with Company performance, as reflected in
increased shareholder value; (3) maintain competitive compensation levels
thereby attracting and retaining highly competent and talented employees and
consultants; and (4) provide an incentive to employees and consultants for
continuous employment with or services to the Company.
Section 1.2. Administration.
(a) The Plan shall be administered by a committee of non-employee
directors appointed by the Board of Directors of the Company (the "Committee"),
as constituted from time to time.
(b) The Committee shall have the authority, in its sole discretion and
from time to time to:
(i) designate the employees and consultants or classes of employees
of and consultants to the Company eligible to participate in the Plan;
(ii) grant awards ("Awards") provided in the Plan in such form and
amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions, not
inconsistent with this Plan, upon any such Award as the Committee shall
deem appropriate; and
(iv) interpret the Plan and any agreement, instrument, or other
document executed in connection with the Plan; adopt, amend, and rescind
rules and regulations relating to the Plan; and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
1
<PAGE> 5
(c) Decisions and determinations of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be final, conclusive, and
binding upon all persons, including the Company, any participant, any
stockholder of the Company, and any employee or consultant. A majority of the
members of the Committee may determine its actions and fix the time and place of
its meetings. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award thereunder.
Section 1.3. Eligibility for Participation. Participants in the Plan
("Participants") shall be selected by the Committee from the employees of and
consultants to the Company who are responsible for or contribute to the
management, growth, success and profitability of the Company and who are not
officers of the Company. In making this selection and in determining the form
and amount of Awards, the Committee shall consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to the
Company, and past and potential contributions to the Company's profitability and
growth.
Section 1.4. Types of Awards Under Plan. Awards under the Plan may be in
the form of any one or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options, as described in Article IV;
(iv) Alternate Appreciation Rights, as described in Article V;
(v) Limited Rights, as described in Article VI;
(vi) Substitution Awards, as described in Article VII; and/or
(vii) Stock Bonus Awards, as described in Article VIII.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Committee, and not inconsistent with this Plan.
2
<PAGE> 6
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be authorized
and unissued or treasury shares of Common Stock $.01 par value, of the Company
("Common Stock"). Subject to the further provisions of this Section 1.5 and
Section 9.10, the maximum number of shares of Common Stock which may be issued
under the Plan shall be 3,000,000.
(b) For purposes of calculating the maximum number of shares of Common
Stock that may be issued under the Plan:
(i) all the shares issued (including the shares, if any, withheld
for tax withholding requirements) shall be counted when cash is used as
full payment for shares issued upon exercise of a Stock Option, Incentive
Stock Option, or Reload Option;
(ii) only the shares issued (including the shares, if any, withheld
for tax withholding requirements) as a result of an exercise of Alternate
Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when shares of
Common Stock or another Award under the Plan are used or withheld as full
or partial payment for shares issued upon exercise of a Stock Option,
Incentive Stock Option, or Reload Option;
provided, however, in all events the maximum number of shares of Common Stock
that may be issued pursuant to Incentive Stock Options is 3,000,000.
(c) In addition to shares of Common Stock actually issued pursuant to the
exercise of Stock Options, Incentive Stock Options, Reload Options, or Alternate
Appreciation Rights, there shall be deemed to have been issued a number of
shares equal to the number of shares of Common Stock in respect of which Limited
Rights (as described in Article VI) shall have been exercised.
(d) Shares tendered by a Participant or withheld as payment for shares
issued upon exercise of a Stock Option, Incentive Stock Option, or Reload Option
shall be available for issuance under the Plan. Any shares of Common Stock
subject to a Stock Option, Incentive Stock Option, or Reload Option that for any
reason is terminated unexercised or expires shall again be available for
issuance under the Plan, but shares subject to a Stock Option, Incentive Stock
Option, or Reload Option that are not issued as a result of the exercise of
Limited Rights shall not again be available for issuance under the Plan.
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(e) The maximum number of shares of Common Stock with respect to which any
Participant may receive Awards in any calendar year is 500,000.
Section 1.6. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date it is approved by the
Board of Directors of the Company.
(b) No Awards shall be made under the Plan after the tenth anniversary of
the effective date of this Plan; provided, however, that the Plan and all Awards
made under the Plan prior to such date shall remain in effect until such Awards
have been satisfied or terminated in accordance with the Plan and the terms of
such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Committee may from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any Participant in the Plan one or more
options to purchase the number of shares of Common Stock ("Stock Options")
allotted by the Committee. The date a Stock Option is granted shall mean the
date selected by the Committee as of which the Committee allots a specific
number of shares to a Participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall be
evidenced by a written Award Agreement, executed by the Company and the holder
of the Stock Option (the "Optionee"), stating the number of shares of Common
Stock subject to the Stock Option evidenced thereby, and in such form as the
Committee may from time to time determine.
Section 2.3. Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. Term and Exercise. A Stock Option shall not be exercisable
prior to six months from the date of its grant unless a shorter period is
provided by the Committee or by another Section of this Plan, and may be
exercised during the period established by the Committee, but not after ten
years from the date of grant thereof (the "Option Term"). No Stock Option shall
be exercisable after the expiration of its Option Term.
Section 2.5. Manner of Payment. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of
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Common Stock subject thereto, the Optionee shall pay to the Company, in full,
the Option Price for such shares with cash, which may be pursuant to a
"cashless-broker" exercise pursuant to procedures established by the Committee
from time to time, or with previously owned Common Stock, or at the discretion
of the Committee, in whole or in part with, the surrender of another Award under
the Plan, the withholding of shares of Common Stock issuable upon exercise of
such Stock Option, other property, or any combination thereof (each based on the
Fair Market Value of such Common Stock, Award or other property on the date the
Stock Option is exercised as determined by the Committee).
Section 2.6. Delivery of Shares. As soon as practicable after receipt of
payment, the Committee shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
Section 2.7. Death, Retirement and Termination of Employment of Optionee.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:
(a) Upon the death of the Optionee, any rights to the extent exercisable
by the Optionee on the date of termination of employment or consulting, as the
case may be, may be exercised by the Optionee's estate, or by a person who
acquires the right to exercise such Stock Option by bequest or inheritance or by
reason of the death of the Optionee, provided that such exercise occurs within
both the remaining effective term of the Stock Option and one year after the
Optionee's death. The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death.
(b) Upon termination of the Optionee's employment by reason of retirement
or permanent disability (as each is determined by the Committee), the Optionee
may, within 36 months from the date of termination, exercise any Stock Options
to the extent such Stock Options are exercisable on the date of such termination
of employment.
(c) Except as provided in Subsections (a) and (b) of this Section 2.7, or
except as otherwise determined by the Committee, all Stock Options shall
terminate three months after the date of the termination of the Optionee's
employment or consulting, as the case may be, and shall be exercisable during
such period only to the extent exercisable on the date of termination of
employment or consulting.
Section 2.8. Tax Election. Recipients of Stock Options who are directors
or executive officers of the Company or who own more than 10% of the Common
Stock of the Company ("Section 16(a) Option Holders") at the time of exercise of
a Stock Option may elect, in lieu of paying to the Company an amount required to
be withheld under
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applicable tax laws in connection with the exercise of a Stock Option in whole
or in part, to have the Company withhold shares of Common Stock having a fair
market value equal to the amount required to be withheld. Such election may not
be made prior to six months following the grant of the Stock Option, except in
the event of a Section 16(a) Option Holders's death or disability. The election
may be made at the time the Stock Option is exercised by notifying the Company
of the election, specifying the amount of such withholding and the date on which
the number of shares to be withheld is to be determined ("Tax Date"), which
shall be either (i) the date the Stock Option is exercised or (ii) a date six
months after the Stock Option was granted, if later. The number of shares of
Common Stock to be withheld to satisfy the tax obligation shall be the amount of
such tax liability divided by the fair market value of the Common Stock on the
Tax Date (or if not a business day, on the next closest business day). If the
Tax Date is not the exercise date, the Company may issue the full number of
shares of Common Stock to which the Section 16(a) Option Holders is entitled,
and such option holder shall be obligated to tender to the Company on the Tax
Date a number of such shares necessary to satisfy the withholding obligation.
Certificates representing such shares of Common Stock shall bear a legend
describing such Section 16(a) Option Holders obligation hereunder.
Section 2.9. Effect of Exercise. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock purchased
pursuant to said option unless otherwise agreed by the Committee in an Award
Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Committee may, from
time to time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any employee of the Company
or a Subsidiary one or more "incentive stock options" (intended to qualify as
such under the provisions of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Stock Options") to purchase the number of
shares of Common Stock allotted by the Committee. The date an Incentive Stock
Option is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of shares to a participant pursuant to the
Plan.
Section 3.2. Incentive Stock Option Agreements. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.
Section 3.3. Incentive Stock Option Price. The Option Price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
at
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least 100% of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted; provided, however, the Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company and its subsidiaries shall be at least 110% of
the fair market value of a share of Common Stock on the date the Incentive Stock
Option is granted.
Section 3.4. Term and Exercise. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant unless a shorter
period is provided by the Committee or another Section of this Plan, and may be
exercised during the period established by the Committee, but not after ten
years from the date of grant thereof (the "Option Term"). No Incentive Stock
Option shall be exercisable after the expiration of its Option Term.
Section 3.5. Maximum Amount of Incentive Stock Option Grant. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options granted are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans of
the Company and its parent and subsidiary corporations exceeds $100,000, such
Incentive Stock Options shall be treated as Options which do not constitute
Incentive Stock Options.
Section 3.6. Death of Optionee. Unless otherwise provided in an Award
Agreement:
(a) Upon the death of the Optionee, any Incentive Stock Option exercisable
by the Optionee on the date of termination of employment may be exercised by the
Optionee's estate or by a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance or by reason of the death of
the Optionee, provided that such exercise occurs within both the remaining
option term of the Incentive Stock Option and one year after the Optionee's
death.
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement, upon the termination of the Optionee's employment by reason of
permanent disability or retirement (as each is determined by the Committee), the
Optionee may, within 36 months from the date of such termination of employment,
exercise any Incentive Stock Options to the extent such Incentive Stock Options
were exercisable at the date of such termination of employment. Notwithstanding
the foregoing, the tax treatment available pursuant to Section 422 of the Code
upon the exercise of an Incentive Stock Option will not be available to an
Optionee who exercises any Incentive Stock Options more than (i) 12 months after
the date of termination of employment due to
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permanent disability or (ii) three months after the date of termination of
employment due to retirement.
Section 3.8. Termination for Other Reasons. Except as provided in Sections
3.6 and 3.7 or except as otherwise determined by the Committee, all Incentive
Stock Options shall terminate three months after the date of the termination of
the Optionee's employment and shall be exercisable during such period only to
the extent exercisable on the date of termination of employment.
Section 3.9. Applicability of Stock Options Sections. Sections 2.5, Manner
of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect of
Exercise, applicable to Stock Options, shall apply equally to Incentive Stock
Options. Such Sections are incorporated by reference in this Article III as
though fully set forth herein.
ARTICLE IV. RELOAD OPTIONS
Section 4.1. Authorization of Reload Options. Concurrently with or
subsequent to the award of Stock Options to any Participant in the Plan, the
Committee may authorize reload options ("Reload Options") to purchase shares of
Common Stock. The number of Reload Options shall equal (i) the number of shares
of Common Stock used to pay the exercise price of the underlying Stock Options
or Incentive Stock Options and (ii) to the extent authorized by the Committee,
the number of shares of Common Stock withheld by the Company in payment of the
exercise price underlying the Stock Option or Incentive Stock Option or used to
satisfy any tax withholding requirement incident to the exercise of the
underlying Stock Options or Incentive Stock Options. The grant of a Reload
Option will become effective upon the exercise of underlying Stock Options,
Incentive Stock Options, or Reload Options through the use of shares of Common
Stock held by the Optionee or the withholding of shares by the Company in
payment of the exercise price of the underlying Stock Option or Incentive Stock
Option held by the Optionee. Notwithstanding the fact that the underlying option
may be an Incentive Stock Option, a Reload Option is not intended to qualify as
an "incentive stock option" under Section 422 of the Code.
Section 4.2. Reload Option Amendment. Each Award Agreement shall state
whether the Committee has authorized Reload Options with respect to the Stock
Options and/or Incentive Stock Options covered by such Award Agreement. Upon the
exercise of an underlying Stock Option, Incentive Stock Option, or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Award Agreement in such form as the Committee shall approve.
Section 4.3. Reload Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the Fair Market
Value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
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Section 4.4. Term and Exercise. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Stock Option
and/or Incentive Stock Option.
Section 4.5. Termination of Employment. Unless otherwise determined by the
Committee in an Award Agreement or otherwise, no additional Reload Options shall
be granted to Optionees when Stock Options, Incentive Stock Options, and/or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
Section 4.6. Applicability of Stock Options Sections. Sections 2.5, Manner
of Payment; 2.6 Delivery of Shares; 2.7, Death, Retirement and Termination of
Employment of Optionee; 2.8, Tax Elections; and 2.9, Effect of Exercise,
applicable to Stock Options, shall apply equally to Reload Options. Such
Sections are incorporated by reference in this Article IV as though fully set
forth herein.
ARTICLE V. ALTERNATE APPRECIATION RIGHTS
Section 5.1. Award of Alternate Appreciation Rights. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option, or Reload
Option to purchase one or more shares of Common Stock, the Committee may,
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share of
Common Stock covered by an Option, a related alternate appreciation right
permitting the Optionee to be paid the appreciation on the Option in lieu of
exercising the Option ("Alternate Appreciation Right").
Section 5.2. Alternate Appreciation Rights Agreement. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 5.3. Exercise. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Section 5.4 and 5.5. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
Section 5.4. Amount of Payment. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Alternate Appreciation Right shall
be equal to
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100% of the amount, if any, by which the Fair Market Value of a share of Common
Stock on the exercise date exceeds the Option Price per share on the Option
related to such Alternate Appreciation Right. A Section 16(a) Option Holder may
elect to withhold shares of Common Stock issued under this Section to pay taxes
as described in Section 2.8.
Section 5.5. Form of Payment. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 5.4
by the Fair Market Value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
Section 5.6. Effect of Exercise. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, Reload Options, and Limited Rights, if any, related to said
Alternate Appreciation Rights.
Section 5.7. Termination of Employment, Retirement, Death or Disability.
Unless otherwise provided in an Award Agreement or agreed to by the Committee:
(a) Upon termination of the Optionee's employment (including
employment as a director of the Company after an Optionee terminates
employment as an employee of the Company) by reason of permanent
disability or retirement (as each is determined by the Committee) or
consulting, the Optionee may, within six months from the date of such
termination, exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such six-month
period.
(b) Except as provided in Section 5.7(a), all Alternate Appreciation
Rights shall terminate three months after the date of the termination of
the Optionee's employment, consulting or upon the death of the Optionee.
ARTICLE VI. LIMITED RIGHTS
Section 6.1. Award of Limited Rights. Concurrently with or subsequent to
the award of any Stock Option, Incentive Stock Option, Reload Option, or
Alternate Appreciation Right, the Committee may, subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock covered by an
Option, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the Option in lieu of
exercising the Option ("Limited Right").
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Section 6.2. Limited Rights Agreement. Limited Rights granted under the
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
Section 6.3. Exercise Period. Limited Rights are exercisable in full for a
period of seven months following the date of a Change in Control of the Company
(the "Exercise Period"); provided, however, that Limited Rights may not be
exercised under any circumstances until the expiration of the six-month period
following the date of grant.
Section 6.4. Amount of Payment. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Limited Right shall be equal to 100%
of the amount, if any, which is equal to the difference between the Option Price
per share of Common Stock covered by the related Option and the Market Price of
a share of such Common Stock. "Market Price" is defined to be the greater of (i)
the highest price per share of the Company's Common Stock paid in connection
with any Change in Control and (ii) the highest price per share of the Company's
Common Stock reflected in the consolidated trading tables of The Wall Street
Journal (presently the New York Stock Exchange - Composite Transactions) during
the 60-day period prior to the Change in Control.
Section 6.5. Form of Payment. Payment of the amount to which an Optionee
is entitled upon the exercise of Limited Rights, as determined pursuant to
Section 6.4, shall be made solely in cash.
Section 6.6. Effect of Exercise. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, Reload Options, and Alternate
Appreciation Rights, if any, related to such Limited Rights shall cease to be
exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Stock
Options, Incentive Stock Options, Reload Options, and Alternate Appreciation
Rights, if any, related to such Limited Rights, the Limited Rights granted with
respect thereto terminate to the extent of the number of shares as to which the
related options and Alternate Appreciation Rights were exercised or terminated.
Section 6.7. Retirement or Disability. Upon termination of the Optionee's
employment (including employment as a director of the Company after an Optionee
terminates employment as an employee of the Company) by reason of permanent
disability or retirement (as each is determined by the Committee) or consulting,
the Optionee may, within six months from the date of such termination, exercise
any Limited Right to the extent such Limited Right is exercisable during such
six-month period.
Section 6.8. Death of Optionee or Termination for Other Reasons. Except as
provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all
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Limited Rights granted under the Plan shall terminate upon the termination of
the Optionee's employment, consulting or upon the death of the Optionee.
Section 6.9. Termination Related to a Change in Control. The requirement
that an Optionee be terminated by reason of retirement or permanent disability
or be employed by the Company at the time of exercise pursuant to Sections 6.7
and 6.8, respectively, is waived during the Exercise Period as to an Optionee
who (i) was employed by the Company at the time of the Change in Control and
(ii) is subsequently terminated by the Company other than for just cause or who
voluntarily terminates if such termination was the result of a good faith
determination by the Optionee that as a result of the Change in Control he is
unable to effectively discharge his present duties or the duties of the position
which he occupied just prior to the Change in Control. As used herein "just
cause" shall mean willful misconduct or dishonesty or conviction of or failure
to contest prosecution for a felony, or excessive absenteeism unrelated to
illness.
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ARTICLE VII. SUBSTITUTION AWARDS
Section 7.1. Awards may be granted under the Plan from time to time in
substitution for stock options held by individuals employed by corporations who
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company, or the acquisition by the Company of the
assets of the employing corporation, or the acquisition by the Company of stock
of the employing corporation with the result that such employing corporation
becomes a Subsidiary or an Affiliate.
ARTICLE VIII. BONUS STOCK AWARDS
Section 8.1. Award of Bonus Stock. The Committee may from time to time,
and subject to the provisions of this Plan and such other terms and conditions
as the Committee may prescribe, grant to any Participant in the Plan shares of
Common Stock ("Stock Bonus"). A Stock Bonus shall vest (i) in the case of
performance-based vesting criteria, no sooner than one year following the date
of the Stock Bonus grant, and (ii) in the case of time-based vesting criteria,
no sooner than one-third of the grant on each subsequent anniversary of the date
of grant. Notwithstanding the foregoing, the Committee may grant a fully vested
Stock Bonus in lieu of an earned cash bonus.
Section 8.2. Stock Bonus Agreements. The grant of a Stock Bonus shall be
evidenced by a written Award Agreement, executed by the Company and the
recipient of a Stock Bonus, in such form as the Committee may from time to time
determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
ARTICLE IX. MISCELLANEOUS
Section 9.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject to or related thereto upon any securities exchange or under any
state or federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the grantee of an Award with respect
to the disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
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Section 9.2. Non-Assignability. Except as provided below, no Award under
the Plan shall be assignable or transferable by the recipient thereof, except by
will or by the laws of descent and distribution, and during the life of the
recipient, such Award shall be exercisable only by such person or by such
person's guardian or legal representative.
Notwithstanding the foregoing, as provided by the Committee in an Award
Agreement, Awards (other than Incentive Stock Options) may be transferred (in
whole or in part in a form approved by the Company) by a Participant to (i) the
spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of the Immediate
Family Members and, if applicable, the Participant, or (iii) a partnership in
which such Immediate Family Members and, if applicable, the Participant are the
only partners. Following any such transfer, the Award shall continue to be
subject to the same terms and conditions as were applicable to the Award
immediately prior to the transfer. A transferee of an Award may not transfer the
Award except to an Immediate Family Member or the Participant.
Section 9.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificates for such shares.
Alternatively, the Company may issue or transfer such shares of the Company net
of the number of shares sufficient to satisfy the withholding tax requirements.
For withholding tax purposes, the shares of Common Stock shall be valued on the
date the withholding obligation is incurred.
Section 9.4. Right to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the employment of, or consulting to, the Company or
effect any right which the Company may have to terminate the employment or
consulting relationship of such Participant.
Section 9.5. Non-Uniform Determination. The Committee's determinations
under the Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
Section 9.6. Rights as a Shareholder. The recipient of any Award under the
Plan shall have no right as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued to him.
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Section 9.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Subsidiary" means any corporation of which, at the time more
than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by the Company or any
subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(c) "Fair Market Value" as of any date and in respect or any share
of Common Stock means the lowest reported trading price on such date or on
the next business day, if such date is not a business day, of a share of
Common Stock reflected in the consolidated trading tables of The Wall
Street Journal (presently the New York Stock Exchange - Composite
Transactions) or any other publication selected by the Committee, provided
that, if shares of Common Stock shall not have been quoted on the New York
Stock Exchange for more than 10 days immediately preceding such date or if
deemed appropriate by the Committee for any other reason, the fair market
value of shares of Common Stock shall be as determined by the Committee in
such other manner as it may deem appropriate. In no event shall the Fair
Market Value of any share of Common Stock be less than its par value.
(d) "Option" means Stock Option, Incentive Stock Option, or
Reload Option.
(e) "Option Price" means the purchase price per share of the Common
Stock deliverable upon the exercise of a Stock Option, Incentive Stock
Option, or Reload Option.
(f) "Change in Control" means the occurrence, at any time during the
specified term of an Option granted under the Plan, of any of the
following events:
(i) The Company is merged or consolidated or reorganized into
or with another corporation or other legal person (an "Acquiror")
and as a result of such merger, consolidation or reorganization less
than 75% of the outstanding voting securities or other capital
interests of the surviving, resulting or acquiring corporation or
other legal person are owned in the aggregate by the stockholders of
the Company, directly or indirectly, immediately prior to such
merger, consolidation or reorganization, other than the Acquiror or
any corporation or other legal person controlling, controlled by or
under common control with the Acquiror;
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(ii) The Company sells all or substantially all of its
business and/or assets to an Acquiror, of which less than 75% of the
outstanding voting securities or other capital interests are owned
in the aggregate by the stockholders of the Company, directly or
indirectly, immediately prior to such sale, other than any
corporation or other legal person controlling, controlled by or
under common control with the Acquiror;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that any person or group
(as the terms "person" and "group" are used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act and the rules and regulations
promulgated thereunder) has become the beneficial owner (as the term
"beneficial owner") is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of 20% or
more of the issued and outstanding shares of voting securities of
the Company; or
(iv) During any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of
the Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director of the Company was
approved by a vote of at least two-thirds of such directors of the
Company then still in office who were directors of the Company at
the beginning of any such period.
Section 9.8. Leaves of Absence. The Committee shall be entitled to make
such rules, regulations, and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
Section 9.9. Newly Eligible Employees. The Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in the Plan or
any portion thereof after the commencement of an award or incentive period.
Section 9.10. Adjustments. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distributions, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may
16
<PAGE> 20
appropriately adjust the number of shares of Common Stock that may be issued
under the Plan, the number of shares of Common Stock subject to Options
theretofore granted under the Plan, and any and all other matters deemed
appropriate by the Committee.
Section 9.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options, Alternative Appreciation
Rights, or Limited Rights shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then (i)
in the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder shall
be proportionately increased; and (ii) in the event of a decrease in the
number of such shares outstanding the number of shares then available for
Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of stock or other securities to which
such holder would have been entitled to receive pursuant to the terms of
the agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as to which
such Option had been exercisable.
(d) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company sells or otherwise disposes
of substantially all of its assets to another corporation or other entity
while unexercised Options remain outstanding, then the Committee may
direct that any of the following shall occur:
17
<PAGE> 21
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or securities after the
effective date of the merger, consolidation or sale of assets, as
the case may be, each holder of an outstanding Option shall be
entitled to receive, upon the exercise of such Option and payment of
the Option Price, in lieu of shares of Common Stock, such shares of
stock or other securities as the holder of such Option would have
been entitled to receive had such Option been exercised immediately
prior to the consummation of such merger, consolidation or sale, and
any related Alternate Appreciation Right and Limited Right
associated with such Option shall apply as nearly as practicable to
the shares of stock or other securities purchasable upon exercise of
the Option following such merger, consolidation or sale of assets.
(ii) The Committee may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to
such Option and any related Alternate Appreciation Right or Limited
Option such that such Option and related Alternate Appreciation
Right and Limited Right shall become exercisable prior to the record
or effective date of such merger, consolidation or sale of assets.
(iii) The Committee may cancel all outstanding Options and
Alternate Appreciation Rights (but not Limited Rights) as of the
effective date of any such merger, consolidation, or sale of assets
provided that prior notice of such cancellation shall be given to
each holder of an Option at least 30 days prior to the effective
date of such merger, consolidation, or sale of assets, and each
holder of an Option shall have the right to exercise such Option and
any related Alternate Appreciation Right in full during a period of
not less than 30 days prior to the effective date of such merger,
consolidation, or sale of assets. No action taken by the Committee
under this subsection shall have the effect of terminating, and
nothing in this subsection shall permit the Committee to terminate,
any Limited Right held by an Optionee.
(c) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or services convertible into
shares of capital stock, for cash property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
then subject to outstanding Options.
Section 9.12. Change in Control. Any Award granted under the Plan prior to
the date of a Change in Control shall be immediately exercisable in full on such
date, without regard to any times of exercise established under its Award
Agreement; provided,
18
<PAGE> 22
however, in no event shall Stock Options or Incentive Stock Options be
exerciseable after the tenth anniversary of their respective grant dates.
Section 9.13. Amendment of the Plan.
(a) The Committee may without further action by the shareholders and
without receiving further consideration from the Participants, amend this
Plan or condition or modify Awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect. The termination or any
modification or amendment of the Plan, except as provided in subsection
(a), shall not, without the consent of a Participant, affect his or her
rights under an Award previously granted to him or her.
Section 9.14. Effective Date. The Plan shall become effective as of
February 29, 2000.
19
<PAGE> 1
EXHIBIT 12.1
Waste Management, Inc.
Computation of Ratio Earnings to Fixed Charges
(In Thousands, Except Ratios)
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations before income
taxes, undistributed earnings from affiliated
companies, and minority interest $(138,551) $(678,919) $(609,024)
--------- --------- ---------
Fixed charges deducted from income:
Interest expense 769,655 681,457 555,576
Implicit interest in rents 75,219 79,108 58,869
--------- --------- ---------
844,874 760,565 614,445
--------- --------- ---------
Earnings available for fixed charges $ 706,323 $ 81,646 $ 5,421
========= ========= =========
Interest expense $ 769,655 $ 681,457 $ 555,576
Capitalized interest 34,284 41,501 51,376
Implicit interest in rents 75,218 79,108 58,869
--------- --------- ---------
Total fixed charges $ 879,157 $ 802,066 $ 665,821
========= ========= =========
Ratio of earnings to fixed charges n/a(1) n/a(2) n/a(3)
========= ========= =========
</TABLE>
- --------------------
(1) The ratio of earnings to fixed charges for 1999 was less than a one-to-one
ratio. Additional earnings available for fixed charges of $172.8 million
were needed to have a one-to-one ratio. The earnings available for fixed
charges were negatively impacted by merger cost of $44.6 million primarily
related to the merger between Waste Management, Inc. and Waste Management
Holdings, Inc. during July 1998 and asset impairments and unusual items of
$738.8 million (see Note 15 to the financial statements).
(2) The ratio of earnings to fixed charges for 1998 was less than a one-to-one
ratio. Additional earnings available for fixed charges of $720.4 million
were needed to have a one-to-one ratio. The earnings available for fixed
charges were negatively impacted by merger cost of $1.8 billion and
unusual items of $864.1 million related primarily to the mergers between
Waste Management, Inc. and Waste Management Holdings, Inc. during July
1998, and Waste Management, Inc. and Eastern Environmental Services, Inc.
during December 1998.
(3) The ratio of earnings to fixed charges for 1997 was less than a one-to-one
ratio. Additional earnings available for fixed charges of $660.4 million
were needed to have a one-to-one ratio. The earnings available for fixed
charges were negatively impacted by merger costs of $112.7 million
(primarily related to the United Waste Systems, Inc. merger in August
1997), and asset impairments and unusual items of $1.8 billion. The asset
impairment and unusual items of $1.8 billion primarily related to a
comprehensive review performed by Waste Management Holdings, Inc. of its
operating assets and investments.
<PAGE> 1
EXHIBIT 21.1
WASTE MANAGEMENT, INC. SUBSIDIARIES
3368084 Canada Inc.
635952 Ontario Inc.
709292 Alberta Ltd.
730810 Alberta Ltd.
740922 Alberta Ltd.
762570 Alberta Ltd.
A. Smith & Sons (Waste Disposal) Ltd.
A.C.T.S. B.V.
A.S.P.I.C.A. S.r.1.
A-1 Compaction, Inc.
Dba United Waste Systems of West Michigan
Acaverde S.A. de C.V.
Acaverde Servicios, S.A. de C.V.
Action Portables, Inc.
Advanced Environmental Technical Services L.L.C.
Advanced Environmental Technical Services, Inc.
Afvalstoffen Terminal Moerdijk B.V.
Ahren's Container Service, Inc.
Akron Regional Landfill, Inc.
Allens United Septic Tank Services (Manawtu) Ltd
Allens United Septic Tank Services (Whangarei) Ltd.
Alliance Sanitary Landfill, Inc.
All-Waste Recycling, Inc.
All-Waste Systems, Inc.
American Canyon Disposal Service, Inc.
American Landfill Gas Co.
American Landfill, Inc.
American Waste Control of New York, Inc.
Anchorage Refuse, Inc.
Andersen, Incorporated
Anderson Landfill, Inc.
Anderson-Cottonwood Disposal Services, Inc.
APEX Waste Services, Inc.
Arden Landfill, Inc.
Arklin Brothers Enterprises
Arrow Refuse, Inc.
Aseo S.A.
Ashira
Atascadero Waste Alternatives, Inc.
Page 1 of 36
<PAGE> 2
Atlantic Waste Disposal, Inc.
ATM Entsorgung GmbH
Automated Recycling Technologies, Inc.
Automated Salvage Transport, Inc.
Auxiwaste Services SA
Avenal Waste Alternatives, Inc.
AW Bryant Ltd.
AW Disposal, Inc.
Azusa Land Reclamation Company, Inc.
B&B Landfill, Inc.
B&E Cartage, Inc.
B&L Disposal Co.
B. Holmes (Graded Paper) Ltd.
B.J.:s Tankrengoring AB
Bad Bins Ltd.
Baltimore Environmental Recovery Group, Inc.
Baltimore Refuse Energy Systems Company, Limited Partnership
Bargningsjouren I Soderhamn AB
Bayside of Marion, Inc.
Bentofix Technologies (CANADA), Inc.
Bentofix Technologies (USA), Inc.
Besco Bins Limited
Best Recycling and Disposal, Inc.
Bestan Inc.
BFI (NZ) Limited
BFI Waste Care Ltd
Big Valley Transport, Inc.
Bio Gro Corporation
Bisig Disposal Services, Inc.
Block Disposal, Inc.
Bluegrass Containment, L.L.C.
Bolton Road Landfill, Inc.
Boone Waste Industries, Inc.
Boothscreek Sanitation, Inc.
Bos Container BV
Bosarge & Edmonds Contractors, Inc.
Dba Robo
Boudin's Waste & Recycling, Inc.
Braddon Enterprises, Inc.
Brazoria County Recycling Center, Inc.
BCRC
Brazoria County Recycling Center
USA Brazoria County Landfill
WRS Transfer Station
Page 2 of 36
<PAGE> 3
Brem-Air Disposal, Inc.
Bridgeport Resco Company L.P.
Britannia Crest Recycling Ltd.
Briteway Limited
Broderna Hedblom AB
Browning Ferris Industries (Superannuations) Pty Ltd Budget Bins Ltd Builders
Bins Pty Ltd Burnsville Sanitary Landfill, Inc.
Buy-In, Inc.
BV Van Vliet Groep Milieundienstverleners
C&L Disposal Company, Inc.
C.D.M. Sanitation, Inc.
C.I.D. Landfill, Inc.
C.I.D. MRRF, Inc.
C.I.D. Refuse Service, Inc.
Caire's CKC Enterprises, Inc.
Cal Sanitation Services, Inc.
Cal Sierra Disposal, Inc.
Cal Sierra Transfer, Inc.
California Asbestos Monofill, Inc.
CAM
California Waste Recycling, Inc.
Campbell Wells Norm Corporation
Canadian Waste Services Holdings, Inc.
Canadian Waste Services, Inc.
Canterbury Waste Services Ltd.
Capital Sanitation Company
Capitol City Disposal, Inc.
Capitol Disposal, Inc.
Caramella-Ballardini, Ltd.
Cardinal Ridge Development, Inc.
Carmel Marina Corporation
Carolina Grading, Inc.
Carver Transfer & Processing, L.L.C.
Cedar Hammock Refuse Disposal Corporation
Waste Management of Manatee County
Waste Management of Sarasota County
Cedar Ridge Landfill, Inc.
Central Disposal Systems, Inc.
Central Missouri Landfill, Inc.
Central Valley Waste Services, Inc.
Ceriani Cave Srl
Chadwick Road Landfill, Inc.
Dba Chadwick Road Landfill
Page 3 of 36
<PAGE> 4
Chambers Clearview Environmental Landfill, Inc.
Chambers Development Company, Inc.
Monroeville Landfill
North Huntington Hauling
Chambers Development of Ohio, Inc.
Chambers of Mississippi, Inc.
Chambers of West Virginia, Inc.
Chambers Services, Inc.
Charlotte Landscaping & Sanitation, Inc.
Chastang Landfill, Inc.
Chemical Waste Management de Mexico, S.A. de C.V.
Chemical Waste Management Ltd.
Chemical Waste Management of Indiana, L.L.C.
Chemical Waste Management of the Northwest, Inc.
Chemical Waste Management, Inc.
Trade Waste Incineration
Chem-Nuclear of Canada, Inc.
Chem-Nuclear Systems, LLC
Chesser Island Road Landfill, Inc.
Chicago Suppliers, Inc.
Chiquita Canyon Landfill, Inc.
Chuck's Portable Services, Inc.
City Disposal Systems, Inc.
City Disposal Systems Corporation, Inc.
City Environmental Services Landfill, Inc. of Florida
City Environmental Services Landfill, Inc. of Hastings
City Environmental Services of West Michigan
City Express
Hastings Sanitary Service
Lubbers Resource Systems
City Environmental Services Landfill, Inc. of Lapeer
Pioneer Rock Landfill
City Environmental Services Landfill, Inc. of Panama City
City Environmental Services Landfill, Inc. of Saginaw
Saginaw Valley Landfill
City Environmental Services, Inc. of Mid-Michigan
CES-Saginaw
CES- West Branch
City Express
City Environmental Services, Inc. of Waters
City Management Corporation
Adam Refuse
Brent Run
CES - Montrose
City Disposal System
City Environment
City Environmental Contracting
City Environmental
Page 4 of 36
<PAGE> 5
City Environmental Services East
City Environmental Services of Montrose
City Environmental Services of Joilet
City Equipment Company
City Express
City Liquid Treatment and Processing
City Municipal Services
City Recycling Center City Sand & Landfill
City Waste Systems
D&J Refuse Company
G&G Disposal
Gary's Disposal
J.L. Smith Refuse Service
M&M Contracting of Michigan
M&M Holding Company, Inc.
Metro Waste Systems
Michigan City Management Corporation
Moore's Disposal
People's Garbage
People's Garbage Disposal
People's Garbage Disposal of Midland/Gladwin
Pollard Disposal
Premier Steel
Raska Disposal
Seymour Road Demolition
Seymour Road Landfill
Soave-Volpe Hauling
Trashbusters Transfer Station, Ltd.
United Machinery Movers and Erectors
Universal Waste & Transit
Whitefeather Development Company
Clarfield Recycling Ltd.
Clayton-Ward Company, Inc.
CleanSoils of Fairless Hills, Inc.
Cleburne Landfill Company Corp.
Cleburne Landfill Corporation
Clements Waste Services, Inc.
Cloverdale Disposal, Inc.
CNS Holdings, Inc.
CNSI Sub, Inc.
Coast Waste Management, Inc.
Cocopah Landfill, Inc.
Colorado Landfill, Inc.
Columbia County Drop Off Box, Inc.
Forest Grove Disposal Service
AC Trucking
Columbia County Recycling & Garbage Services, Inc.
Columbia Geosystems Ltd.
Columbia Nehalem Sanitary Service, Inc.
Page 5 of 36
<PAGE> 6
Colusa Solid Waste & Recycling, Inc.
Connecticut Valley Sanitary Waste Disposal, Inc.
Conservation Services, Inc.
Container Recycling Alliance, L.P.
Contractor Container Corporation
Copper Mountain Landfill, Inc.
Corning Disposal Service, Inc.
Coshocton Landfill, Inc.
Cougar Landfill, Inc.
Countryside Landfill, Inc.
County-Wide Disposal, Inc.
Credi Control I Sandviken AB
CWM Chemical Services, L.L.C.
CWM Resource Recovery, Inc.
Dafters Sanitary Landfill, Inc.
Dakota Landfill, Inc.
Dakota Resource Recovery, Inc.
United Waste Transfer
Dauphin Meadows Landfill, Inc.
Decker Disposal, Inc.
Deep Valley Landfill, Inc.
Deer Track Park Landfill, Inc.
Advance Service Corp.
DeLand Landfill, Inc.
Delaware Recyclable Products, Inc.
Dickinson Landfill, Inc.
Disposal Service, Inc.
Disposal Services, Inc.
Disposal Services Medical Waste
Diversified Scientific Services, Inc.
Dollar Trucking, Inc.
Donno Company, Inc.
Drake's Sanitation, Inc.
Duluth Waste Marketing, Inc.
Durachem Limited Partnership
Eager Beaver Sanitary Service, Inc.
Eagle River Refuse, Inc.
Earthcorp, L.L.C.
Earthmovers Landfill, L.L.C.
East Liverpool Landfill, Inc.
Eastern Development Services, Inc.
Eastern Disposal of Georgia, Inc.
Eastern Environmental Services of Florida, Inc.
Eastern Environmental Services of the Northeast, Inc.
Eastern Transfer of New York, Inc.
Page 6 of 36
<PAGE> 7
Eastern Waste of New York, Inc.
Eastern Waste of West Virginia, Inc.
EC Waste, Inc.
Ecoadda Srl
Ecol S.A.
Econergy Moerdijk BV
Ecopi Srl
Ecoserve Limited
Ecovision B.V.
Eksjo Rehallning AB
El Coqui de San Juan
El Coqui Landfill Company, Inc.
El Coqui Waste Disposal, Inc.
El Dorado Disposal Service, Inc.
Elk River Landfill, Inc.
EMICA S.r.1.
Englewood Disposal Company, Inc.
Envirofil of Illinois, Inc.
Envirofil, Inc.
Enviroland, Incorporated
Environmental Control, Inc.
Environmental Technologies China Limited
Enviropace Limited
Equipment Credit Corporation
ESG Entsorgungswirtschaft Soest GmbH
Evergreen Landfill, Inc.
Evergreen Recycling & Disposal Facility, Inc.
F.L.I. International Ltd.
Fall River Recycling Company, Inc.
Farmer's Landfill, Inc.
Feather River Disposal, Inc.
Fernley Disposal, Inc.
Churchill County Refuse Service
Fernley Sanitation
FFF, Inc.
Fibre Fuel Limited
First Waste Ltd. (Guernsey)
Freeth & Brocks Bins Ltd.
Front Range Landfill, Inc.
Best Trash
City Disposal
ERD Landfill
Franklin Street Transfer
Frontier Environmental, Inc.
Future-Tech Environmental Services, Inc.
Page 7 of 36
<PAGE> 8
G.C. Environmental, Inc.
G.I. Industries, Inc.
GA Landfills, Inc.
Gallia Landfill, Inc.
Garnet of Maryland, Inc.
Gastriklands Atervinnings AB
General Rubbish Collection
General Sanitation Corporation
Geolining Abdichtungstechnik GmbH
Georgia Waste Systems, Inc.
B.J. Recycling and Disposal Facility
Chapman Waste Disposal
Rolling Hills Recycling and Disposal Facility
Waste Management of Augusta- Aiken
Waste Management of Atlanta
Waste Management of Macon
GES Gesallschaft zur Entdorgung von Sekundaerrohstoffen mbH
Gesam Gestione Servizi Ambientali S.p.A.
Gestion Des Rebuts D.M.P.
WMI Mauricie Bois- Franc
WMI Parc Hirondelles
Gestioni Ambientali, Srl
GI Industries, Inc.
Glenn County Disposal Service, Inc.
Glen's Sanitary Landfill, Inc.
Golden State Debris Box
Graham Road Recycling & Disposal Facility, Inc.
Grand Central Sanitary Landfill, Inc.
Grand Central Sanitation, Inc.
Greater Manchester Sites Ltd.
Green Valley Disposal - Burbank Company, Inc.
Green Valley Disposal - District-1, Inc.
Green Valley Disposal - San Jose Company, Inc.
Green Valley Disposal Company, Inc.
Green Valley Landfill Limited
Green Valley Recycling Company, Inc.
Greenfield WMI Transfer Limited
Greenhills Landfill Restoration Limited
Ground, Sea, Air International Forwarder Inc.
Grupo WMX, S.A. De C.V.
Guadalupe Rubbish Disposal Co., Inc.
Guangzhou Guang Jia Environmental Protection Co. Ltd.
Gulf Disposal, Inc.
Guyan Transfer and Sanitation Service, Inc.
H.B.J.J., Incorporated
Page 8 of 36
<PAGE> 9
Hamm's Sanitation, Inc.
Hangzhou Zhong Jia Environmental Technology Co. Limited
Harris Disposal Service, Inc.
Harris Sanitation, Inc.
Harwood Landfill, Inc.
Hillsboro Landfill, Inc.
Hillside Recycling Corporation
Hite Construction, Inc.
Hollander Industriediensten BV
Hollister Disposal, Inc.
Holyoke Sanitary Landfill, Inc.
Hopper Services Ltd
Hudson Jersey Sanitation Co.
IBKA Miljoservice A/S
IBKA UK Ltd
Ichochema B.V.
Icopower B.V.
Icosloop B.V.
Icotech B.V.
Icova B.V.
Icova Maltha Glascollecting B.V.
IN Landfills, L.L.C.
Independent Disposal Services, Inc.
Independent Sanitation Company
Incline Sanitation
Interport Paper Limited
Intersan Inc.
Location Sanico Ltee
Dechex Ltee
Centre de Tri Transit (1) Inc./Transit
IRA S.r.1.
J Bar J Land, Inc.
J. Aberg Forvaltning AB
J. van Loenen en Zonen B.V.
J.H.:s Miljo & Transport AB
J.R. McKeen Contractors Ltd.
Jaarstveld Groen En Milieu B.V.
Jahner Sanitation, Inc.
Jay County Landfill, L.L.C.
Jennings Environmental Services Pty Ltd (50%)
Jennings Liquid Waste Pty Ltd. (50%)
JFS (UK) Limited
John Smith Landfill, Inc.
Johnson Canyon Road Disposal Site, Inc.
Page 9 of 36
<PAGE> 10
Jones Disposal Service, Inc.
Jones Sanitation, L.L.C.
Jumbo Bins Ltd
Junker Sanitation Services, Inc.
United Waste Systems of Minnesota
K and W Landfill, Inc.
Kahle Landfill, Inc.
Keene Road Landfill, Inc.
Kelly Run Sanitation, Inc.
Ken's Pickup Service, Inc.
United Waste Systems of Northern Michigan
Kershaw County, Landfill, Inc.
Key Disposal Ltd.
Kimmins Recycling Corporation
King George Landfill, Inc.
Klamath Disposal, Inc.
Klok Containers B.V.
Knutson Material Recovery Facility, Inc.
Knutson Services, Inc.
Knutson Kleen Sweep
L&K Debris Box Service
L & K Disposal
L&M Landfill, Inc.
L.A. de Kleijn B.V.
Land Reclamation Company, Inc.
Kestrel Hawk Park Landfill
Landfill of Pine Ridge, Inc.
Landfill Services of Charleston, Inc.
Landfill Systems, Inc.
Landfill Systems
Larry's Sanitary Service, Inc.
Lassen Waste Lines, Inc.
Lassen Waste Systems, Inc.
Laurel Highlands Landfill, Inc.
Laurel Ridge Landfill, L.L.C.
LCS Services, Inc.
LCS Landfill
North Mountain Landfill
Lewis Road Disposal Site, Inc.
LFG Production (Partnership)
LG-Garnet of Maryland JV
DC U line Transfer Liberty Landfill, L.L.C.
Liberty Lane West Owner's Association Corp.
Liquid Waste Management, Inc.
Living Earth Joint Venture Company Ltd.
Local Sanitation of Rowan County, L.L.C.
Page 10 of 36
<PAGE> 11
Lo-Cost Waste Disposal, Inc.
Lodi Sanitary City Disposal Co., Inc.
Longview of Mercer County I, Inc.
Longview of Mid-Missouri, Inc.
Longview of Ocean County, Inc.
Longview of Pettis County, Inc.
Longview of St. Joseph, Inc.
Loristan Services Limited
M.P.S. Medical Package Service Srl
M.S.T.S., Inc.
Mac's Garbage Services, Inc.
Madison Lane Properties, Inc.
Mahoning Landfill, Inc.
Manliba SA
Maplewood Landfill, Inc.
Marangi Brothers, Inc.
Maraoil OY
Marius Pedersen Odense
Mashor & Reym Charters Sdn Bhd
Mashor Reym Sdn. Bhd.
Mashor WM Brunei Sdn Bhd
Mass Gravel, Inc.
Massachusetts Refusetech, Inc.
McDaniel Landfill, Inc.
McGill Landfill, Inc.
McGinnes Industrial Maintenance Corp.
Meadowfill Landfill, Inc.
Megastock, Ltd.
Michigan Environs, Inc.
United Waste Systems of Menominee
UWS of Menominee
Mid Valley Portable Storage, Inc.
Middle Island Enterprises, Inc.
Midwest Transport, Inc.
Miljoarbetarna AB
Miller's Sanitary Service, Inc.
M-L Commercial Garbage Service, Inc.
Modesto Garbage, Inc.
Mohave Disposal, Inc.
Moor Refuse, Inc.
Mountain Indemnity Insurance Company
Mountain Waste, Inc.
Mountainview Landfill, Inc.
Page 11 of 36
<PAGE> 12
Mountainview Landfill, Inc.
MSTS. Lizenz GmbH
Mull Entsorgung West GmbH & Co. KG
Mull Entsorgung West Verwaltungs GmbH
Napa Garbage Service, Inc.
Napa Valley Disposal Service, Inc.
Nassjo Renhallning AB
National Guaranty Insurance Company
Neal Road Landfill Corporation
Nevada City Garbage Service, Inc.
Nevada County Transfer, Inc.
New England CR, Inc.
New Milford Landfill, L.L.C.
New York Organic Fertilizer Company
NH/VT Energy Recovery Corporation
Nichols Sanitation, Inc.
Lake Placid Sanitation
North Hennepin Recycling & Transfer Corporation
North Valley Disposal Service, Inc.
Northern Recycling, Inc.
Northwestern Landfill, Inc.
Norwaste Ltd.
NSC Sales Corp
Nu-Way Live Oak Landfill, Inc.
NYOFCO Holdings, Inc.
O.V.E.R. s.r.1.
Oak Grove Landfill, Inc.
Oakridge Landfill, Inc.
Oakwood Landfill, Inc.
Ocean Combustion Service, B.V.
OCS NV
Oil & Solvent Process Company
Okeechobee Landfill, Inc.
Olson's Sanitation Service, Inc.
Olympic View Sanitary Landfill, Inc.
Orange County Landfill, Inc.
Orange Disposal Services, Inc.
Orange Resource Recovery Systems, Inc.
Orbit AB
Pacific Environmental Partners Ltd
Pacific Waste Alternatives, Inc.
Pacific Waste Management Holdings Pty. Limited.
Pacific Waste Management Ltd.
Pacific Waste Management Ltd.
Page 12 of 36
<PAGE> 13
Pacific Waste Management Pty Limited
Pacific Waste Management, Inc.
Palo Alto Sanitation Company
Paper Recycling International, L.P.
Pappy, Inc.
Paradise Solid Waste Systems
Pearl Delta WMI Limited
Pecan Grove Landfill, Inc.
Peerless Landfill Company
Peninsula Sanitation, Inc.
Penn Warner Club, Inc.
Pen-Rob, Inc.
Penuelas Valley Landfill, Inc.
People's Landfill, Inc.
Peterson Demolition, Inc.
Phillipps & Cypher, Inc.
Superior Portables
Phoenix Resources, Inc.
Photodigit Ltd.
Pikes Point Transportation Ltd.
Pilmuir Waste Disposal Limited
Pine Bluff Landfill, Inc.
Pine Grove Landfill, Inc.
Pine Grove Landfill, Inc.
Pine Ridge Landfill, Inc.
Pine Tree Acres, Inc.
S&V Disposal
Plantation Oaks Landfill, Inc.
Poly-Jon of Savannah, Inc.
PPK Environmental & Infrastructure Pty. Ltd.
Practical Recycling Systems Ltd.
Prairie Bluff Landfill, Inc.
Premier Cart Service, Inc.
Progesam Ecosistemi Srl
PT Prasada Pamunah Limbah Industri
PT Waste Management Indonesia
Public Sanitary Service, Inc.
Pulaski Sanitation, L.L.C.
Pullman Chimney of Canada Ltd.
Pullman Power Products Corporation
Pullman Power Products International Corporation
Pullman Power Products of Ohio, Inc.
Page 13 of 36
<PAGE> 14
PWM (ACT) Pty Ltd
PWM (Central Coast) Pty Ltd
PWM (Lyndhurst) Pty Ltd
PWM (NSW) Pty Ltd
PWM (SA) Pty Ltd
PWM (Victoria) Pty Ltd
PWM (WA) Pty Ltd
PWM Affiliates Superannuation Fund Pty Limited
PWM Waste Services Pty Ltd.
Quail Hollow Landfill, Inc.
Quality Waste Control, Inc.
Questquill Ltd.
R&B Landfill, Inc.
R&R Disposals, Inc.
R.S.W. Recycling, Inc.
RA Johnson (Haulage) Ltd.
Rail Cycle North Ltd.
Rail-Cycle L.P.
RCC Fiber Company, Inc.
RCI Hudson, Inc.
United Waste Systems of Hudson
Recuperi Piemontesi Srl
Recycle & Recover, Inc.
Recycle America, Inc.
Recycle Minnesota Resources, Inc.
Recycle New Zealand Ltd.
Re-Cy-Co, Inc.
United Waste Transfer
Red Bluff Disposal, Inc.
Redwood Landfill, Inc.
Refuse Disposal, Inc.
Refuse Energy Systems Company J.V.
Refuse Services, Inc.
Clay County Recycling and Disposal Facility
Jacksonville Waste Control
Refuse, Inc.
Sage Street Transfer Station
Stead Street Transfer Station
Regin B.V. (20%)
Regional Recycling Corporation
Regular Rubbish Removal
REI Holdings, Inc.
Reliable Landfill, L.L.C.
Reliable Trash Hauling, Inc.
Remote Landfill Services, Inc.
Page 14 of 36
<PAGE> 15
Reno Disposal Co.
Reno Sanitation Company
Sparks Sanitation
Renovadan Miljoservice A/S
Rent-a-Weld (Wirral) Ltd.
Resco Holdings, Inc.
Residuals Processing, Inc.
Residuos Industriales Multiquim, S.A. de C.V.
Resource Control Composting, Inc.
Resource Control, Inc.
Reuter Recycling of Florida, Inc.
Reym B.V.
Richland County Landfill, Inc.
Ridge Generating Station Limited Partnership
RIH Inc.
Riley Energy Systems of Lisbon Corporation
RIS Risk Management Inc.
Riverbend Landfill, Inc.
Rolling Meadows Landfill, Inc.
RRT Design & Construction Corp
RRT Empire Returns of Monroe County, Inc.
RRT of New Jersey, Inc.
RRT of Pennsylvania, Inc.
RTS Landfill, Inc.
Del Mar Virginia District
Plant Atkinson Transfer Station
South Side Sanitation
Starr Tranfer Station
Rural Dispos-all Service, Inc.
Rust Capital Corporation
Rust Controldua, S.A. De C.V.
Rust Engineering & Construction Inc.
Rust International Holdings Inc.
Rust International Inc.
S&J Landfill, Limited Partnership
S&S Grading, Inc.
S.A.P. s.p.a.
S.P.E.M. S.p.A.
S.V. Farming Corp.
Sacramento Valley Environmental Waste Company
Saframa S.A.
SAH Transportation, Inc.
Sakab Batteri AB
Salinas Disposal Service, Inc.
Salutec, S.A.
Page 15 of 36
<PAGE> 16
San-Co Disposal Service, Inc.
Sanifill de Mexico (US), Inc.
Sanifill de Mexico, S.A. de C.V.
Sanifill Forest Products, Inc.
Sanifill of Florida, Inc.
Sanifill of Hawaii, Inc.
Sanifill of San Juan, Inc.
Sanifill Power Corporation
San-I-Pak
SASA Ltda
SC Holdings, Inc.
L&D Landfill
Sanitary Landfill
SCS Contractors Ltd.
Serrot Corporation GmbH
Serrot International, Inc. (f.k.a. National Seal Company)
Serubam Servicos Urbanos E Ambientais Ltda
Servizi Piemonte S.r.1.
SES Bridgeport, L.L.C.
SES Connecticut Inc.
SF, Inc.
Shade Landfill, Inc.
Shereg Schleswig Holstein Entsorgung Recycling GmbH
Shore Disposal, Inc.
Shoreline Disposal Co., Inc.
Sierra Estrella Landfill, Inc.
Signal Capital Sherman Station Inc.
Signal RESCO, Inc.
Sirmas Srl
Skaraborgs Energi-Och Mijo AB
SMC Smaltimenti Controllati S.p.a.
Smyrna Landfill, Inc.
Soaring Vista Properties, Inc.
Sokins Enterprises, Inc.
Sonoma Marin Waste Management, Inc.
Sonoma West Marin Recycling, Inc.
South China WMI Transfer Limited
Southern Alleghenies Landfill, Inc.
Altoona Transfer Station
American Recycling
Southern Plains Landfill, Inc.
Southern Waste Services, L.L.C.
Spruce Ridge Landfill, Inc.
Star Sanitation Services, Inc.
Page 16 of 36
<PAGE> 17
Stockton Scavengers Association
Stony Hollow Landfill, Inc.
Storey County Sanitation, Inc.
Suburban Landfill, Inc.
Sun Waste Alternatives, Inc.
Super Cycle, Inc.
Super Kwik, Inc.
Svensk Avfallskonvertering AB
Swindell-Dressler Energy Supply Company
Swindell-Dressler Leasing Company
Sylvan & Qvibelius AB
Sylvans Kemiteknik AB
T. R. Walters Investments, Inc.
Tabulator AB
Tabulator Forvaltning AB
The Waste Management Charitable Foundation
The Woodlands of Van Buren, Inc.
Three River Disposal, Inc.
Tidy Up Australia Pty
Tidy Up Holdings Pty
TNT Sands, Inc.
Tonitown Landfill, Inc.
Town & Country Refuse, Inc.
Port-O-Let
Tra. S.E. s.p.a.
Trade & Domestic Ltd.
Trade Domestic (1997) Ltd.
Trail Ridge Landfill, Inc.
Transamerican Waste Central Landfill, Inc.
Transamerican Waste Industries of Southeast, Inc.
Transamerican Waste Industries, Inc.
Transmetro SA
Transportbedrijf Van Bliet B.V.
TransWaste, Inc.
Trash Hunters of Tunica, Inc.
Trash Hunters, Inc.
Tri-County Sanitary Landfill, L.L.C.
TVG Transport und Verwertungsgesellschaft Darmstadt-Dieburg mbH
Twin City Sanitation, Inc.
Tyneside Waste Paper Co Ltd.
UK Waste Management Ltd.
United Waste Systems Leasing, Inc.
United Waste Systems of Gardner, Inc.
Page 17 of 36
<PAGE> 18
United Waste Systems of Minneapolis, Inc.
United Waste Systems of Minnesota, Inc.
Bellaire Sanitation
Gallagher's Service
J.J. Young Rubbish
Lake Sanitation
Mike's Disposal and Recycling Service
UWS
UWT
United Waste Systems of Onaway, Inc.
United Waste Systems of Trinity County, Inc.
United Waste Systems, Inc.
Mike's Disposal & Recycling Service
United Waste Transfer, Inc.
USA Crinc, Inc.
USA South Hills Landfill, Inc.
USA Valley Facility, Inc.
USA Waste Arizona Landfill, Inc.
USA Waste Geneva Landfill, Inc.
USA Waste of Ashtabula
USA Waste Industrial Services, Inc.
USA Environmental Services
USA Waste Landfill Operations and Transfer, Inc.
USA Waste-Management Resources, L.L.C.
USA Waste of Alaska, Inc.
USA Waste of California, Inc.
Castaic Disposal
Newhall Ranch Waste and Recycling Services
Stevenson Ranch Disposal
USA Waste of San Jose
Waste Management of Orange
Waste Management of Palmdale
Waste Management of Antelope Valley
G I Rubbish
USA Waste of DC, Inc.
USA Waste of Fairless Hills, Inc.
USA Waste of Kentucky, L.L.C.
USA Waste of Maryland, Inc.
A.R.D. Equipment, Inc.
ARD Equipment Leasing Co., L.L.C.
Debris Disposers, Ltd.
Lowery's Trash Removal & Services
USA Waste of Minnesota, Inc.
Kato Sanitation Northwest Valley
Meeker County Transfer Station
West Side Hauling
USA Waste of Mississippi, Inc.
USA Waste of New Jersey, Inc.
Atlantic City Hauling
Bergen County Transfer Station
Burlington County Landfill
Page 18 of 36
<PAGE> 19
USA Waste of New York City, Inc
Marshall's Refuse, Inc.
North Hempstead Transfer
USA Waste of Ohio, Inc.
Johnson Disposal
Johnson Disposal Transfer & Recycling Facility
Mound Transfer Station
Northern Ohio Waste Systems
Reliable Sanitation
Sanitary Commercial Services
USA Waste of Oregon, Inc.
Alpine Disposal & Recycling
Energy Reclamation
Forest Grove Transfer Station
Klamath Disposal
Metropolitan Disposal & Recycling
Mt. Hood Refuse
Sandy Transfer Station
USA Waste of Pennsylvania, Inc.
Helmick's Sanitation and General Hauling
Kittinning Transfer Station
LeHigh Hauling
Mainline Sanitation
Tri-Valley Recycling
Tri-Valley Waste Systems
USA Waste of Harrisburg
USA Waste of Pennsylvania, L.L.C.
USA Waste of Texas Landfills, Inc.
USA Waste of Virginia Landfills, Inc.
Bethel Landfill
Bushrod Disposal Service
James City County Transfer
Qualla Road Landfill
USA Waste of Virginia, Inc.
USA Waste Services North Carolina Landfills, Inc.
Anson Road Landfill
Coble Road Landfill
USA Waste Services of Nevada, Inc.
USA Waste Services of NYC, Inc.
USA Waste Services-Hickory Hills, L.L.C.
UWS Barre, Inc.
UWS of Rhode Island, Inc.
Truk-Away of R.I.
V&W Investments, Inc.
VAI VA Projekt AB
Vallery Commericial Disposal Co., Inc.
Valley Garbage and Rubbish Company, Inc.
Heath Sanitation Service
Valley Garbage Service, Inc.
Van Handal Disposal, Inc.
Van Loenen Milieu B.V.
Van Loenen Recycling Beheer B.V.
Page 19 of 36
<PAGE> 20
Van Loenen Transport en Verhuur B.V.
VAR Projekt AS
VDL Plus Two, Inc.
VE-Part S.r.1.
Vern's Refuse Service, Inc.
Vickery Environmental, Inc.
WMI Medical Services- Dayton
Vliko B.V.
Voyageur Disposal Processing, Inc.
Voyageur Leasing, Inc.
Voyageur Services, Inc.
W/W Risk Management, Inc.
Walters and Vann, Inc.
Winton Disposal
Warner Company
Warner West
Warner East
Wasco Landfill, Inc.
Washington Waste Systems, Inc.
Wasilla Refuse, Inc.
Waste Away Group, Inc.
Environmental Waste Systems
LaGrange Transfer Station
Montgomery Transfer Station
Phoenix City Transfer
Springhill Landfill
Waste Management of Alabama-Central
Waste Management of Alabama-East
Waste Management of Alabama-North
Waste Management of Alabama-South
Waste Care Ltd.
Waste Care Medisafe Ltd
Waste Clearance (Holdings) Ltd.
Waste Control Systems, Inc.
Waste Disposal Services Limited
Waste Management (Auckland) Ltd
Waste Management (Land) Limited
Waste Management (UK) Holdings Ltd.
Waste Management (W.M.) Israel Limited
Waste Management Austria mbH
Waste Management Collection and Recycling, Inc.
American Waste Systems
Empire Waste Management
Great Western Reclamation
Recycle America
SAWDCO Collection
Sunset Environment
Valley Waste Management
Waste Management of Inland Valley
Page 20 of 36
<PAGE> 21
Waste Management of Orange County
Waste Management of Sacramento
Waste Management of San Gabriel/Pomona Valley
Waste Management of Santa Cruz County
Waste Management of the Central Valley
Waste Management of Woodland
Waste Management Controladora, S.A. de C.V.
Waste Management Danmark A/S
Waste Management Development B.V.
Waste Management Disposal Services of Arizona, Inc.
Waste Management Disposal Services of Colorado, Inc.
Central Weld Sanitary Landfill
Colorado Springs Recycling and Disposal Facility
County Line Recycling and Disposal Facility
Denver/Arapahoe Disposal Site
East Weld Sanitary Landfill
North Weld Sanitary Landfill
Waste Management of Colorado-Landfill Division
Waste Management Disposal Services of Maine, Inc.
Waste Management Disposal Services of Maine-Crossroads
Waste Management Disposal Services of Maryland, Inc.
Sandy Hill
Waste Management Disposal Services of Massachusetts, Inc.
Waste Management Disposal Services of Oregon, Inc.
Columbia Ridge Landfill and Recycling Center
Oregon Waste Systems
Waste Management Disposal Services of Pennsylvania, Inc.
Burlington County Resource Recovery Facilities Complex
G.R.O.W.S. Landfill
Meadowlands Baler Facility
Meadowland Recycling and Disposal Facility
Northwest Sanitary Landfill
Pottstown Landfill and Recycling Center
Waste Management Disposal Services of Virginia, Inc.
Middle Peninsula Landfill and Recycling Facility
Waste Management Disposal Services of Washington, Inc.
Greater Wenatchee Regional Landfill and Recycling Center
Waste Management of Washington
Waste Management Environmental Services B.V.
Waste Management Environmental, L.L.C.
Waste Management Federal Services of Hanford, Inc.
Waste Management Federal Services of Idaho, Inc.
Waste Management Federal Services, Inc.
Waste Management Financing Corp.
Waste Management Geotech, Inc.
Waste Management Greece AAE
Waste Management Holdings, Inc.
Waste Management Inc., of Florida
Atlantic Waste Management
Broward Disposal
Central Disposal
Environmental Waste Systems
Page 21 of 36
<PAGE> 22
Florida Environmental Waste
Florida Disposal
Florida Resource Management
Gulf Coast Recycling and Disposal Facility
Hillsborough Heights Recycling and Disposal Facility
Medly Landfill & Recycling Center
Rubbish Gobbler
Southeast recycling and Disposal Facility
Southern Sanitation Service
South Florida Service Center
United Sanitation Recycling and Disposal Facility
Waste Management of Bay County
Waste Management of Collier County
Waste Management of Dade County
Waste Management of Monroe County
Waste Management of Pasco County
Waste Management of Tampa
Waste Management International BV
Waste Management International Services Ltd.
Waste Management International, Inc.
Waste Management International, Ltd.
Waste Management Italia SpA
Waste Management Ltd.
Waste Management Municipal Services of California, Inc.
Waste Management N.Z. Ltd.
Waste Management Nederland B.V.
Waste Management of Alameda County, Inc.
Altamont Landfill and Resource Recovery Facility
Central Division
Davis Street Station for Material Recovery and Transfer
East Bay Disposal Co.
Livermore Dublin Disposal
Northern Division
Recycle America of Northern California
Southern Division
Sunnyvale Recycling and Disposal Facility
Tri-Cities Recycling and Disposal Facility
Waste Management of Arizona, Inc.
Asset Recovery Group
Butterfield Station Recycling and Disposal Facility Industrial Services
Division Sky Harbor regional Transfer & Recycling Center 27th Avenue
Recycling and Disposal Facility Waste Management of Northern Arizona
Waste Management of Phoenix- North Waste Management of Phoenix -
Recycle America Waste Management of Phoenix- South Waste Management of
Tucson Waste Management of Tucson- Recycle America Waste Management of
Verde Valley WMI Services- Phoenix
Waste Management of Arkansas, Inc.
Brushy Island Recycling and Disposal Facility
Page 22 of 36
<PAGE> 23
Jefferson County Recycling and Disposal Facility
Shannon Road Recycling and Disposal Facility
Union County Recycling and Disposal Facility
Waste Management of Arkansas North
Waste Management of Arkansas South
Waste Management of California, Inc. Kirby Canyon recycling and Disposal
Facility Lancaster Recycling and Disposal Facility Simi Valley
Recycling and Disposal Facility Universal Refuse Removal of El Cajon
Waste Management of Fresno County Waste Management of Lancaster Waste
Management of Los Angeles Waste Management of Los Angeles- South Waste
Management of North County Waste Management of San Diego Waste
Management of San Fernando Valley Waste Management of Santa Clara
County Waste Management of the Desert WMI Services
Waste Management of Carolinas, Inc.
Piedmont Landfill and Recycling Center
Waste Management of Asheville
Waste Management of Carolinas
Waste Management of Central Carolina
Waste Management of Eastern Carolina
Waste Management of the Piedmont
Waste Management of Raleigh/Durham
Waste Management of Wilmington
Waste Management of the Triad
Waste Management of Central Florida, Inc.
Aluchua Waste Management
Waste Management of Colorado, Inc.
Canon City Disposal and Recycling
Colorado Springs Transfer Station
Englewood Transfer Station
Port-O-Let
Waste Management of Aurora
Waste Management of Colorado - Aurora Facility
Waste Management of Colorado - North Facility
Waste Management of Colorado - Recycle Facility
Waste Management of Colorado - South Facility
Waste Management of Colorado Springs-Recycle America
Facility
Waste Management of Denver
Waste Management of Denver - Recycle America
Processing Facility
Waste Management of Northern Colorado
Waste Management of Pueblo
Waste Management of the Rockies
WMI Medical Services
Waste Management of Connecticut, Inc.
(fka USA Waste of Connecticut, Inc.)
Waste Management of Delaware, Inc.
Waste Management of Delaware - Wilmington
Waste Management of Delmarva
Page 23 of 36
<PAGE> 24
Waste Management of Five Oaks Recycling and Disposal, Inc.
Waste Management of Florida Holding Company, Inc.
Waste Management of Georgia, Inc.
Live Oak Landfill
Superior Sanitation Landfill
Waste Management of Savannah
Waste Management of the Tennessee Valley
Waste Management of Grass Valley, Inc.
Waste Management of Hawaii, Inc.
Waimanalo Gilch Recycling and Disposal Facility
West Hawaii Landfill
Waste Management of Idaho, Inc.
Waste Management of Illinois, Inc.
Banner/Western Disposal Service
Chain of Rocks Recycling and Disposal Facility
CID
DeKalb County Recycling and Disposal Facility
Durbin Paper Stock Company
Five Oaks Recycling and Disposal Facility
Greene Valley Recycling and Disposal Facility
Kankakee recycling and Disposal Facility
Laraway Recycling and Disposal Facility
McLean County Disposal and recycling Services
Milam Recycling and Disposal Facility
Prairie Hill Recycling and Disposal Facility
Settler's Hill recycling and Disposal Facility
Tazewell Recycling and Disposal Facility
TCD Services United
Waste Systems Waste Management - Metro
Waste Management- North Waste Management - Northwest
Waste Management- West
Waste Management of Metro East
Waste Management of Peoria
Waste Management of the South Suburbs
Wheatland Prairie Recycling and Disposal Facility
Woodland Recycling and Disposal Facility
Waste Management of Indiana Holdings One, Inc.
Waste Management of Indiana Holdings Two, Inc.
Waste Management of Indiana LLC
Deercroft Recycling and Disposal Facility
Glenwood Ridge Recycling and Disposal Facility
Oak Ridge recycling and Disposal Facility
Prairie View recycling and Disposal Facility
Superior Waste Systems Twin Bridges Recycling and Disposal Facility
Waste Management of Central Indiana Waste Management of Evansville
Waste Management of Fort Wayne Waste Management of Indianapolis
Waste Management of Indianapolis - Hamilton County
Transfer
Waste Management of Kokomo
Page 24 of 36
<PAGE> 25
Waste Management of Lafayette
Waste Management of Muncie
Waste Management of Northwest Indiana
Waste Management of Warsaw
Wheeler Recycling and Disposal Facility
Waste Management of Iowa, Inc.
Solid Waste Systems
Waste Management of Kansas, Inc.
Forest View recycling and Disposal Facility
Rolling Meadows recycling & Disposal facility
Solid Waste Systems
Topeka Waste Systems
Waste Management of Wichita
Waste Management - Refuse Control
Waste Management of Kentucky Holdings, Inc.
Waste Management of Kentucky L.L.C.
Blue Ridge Recycling and Disposal Facility Kramer Lane Recycling and
Disposal Facility Lexington recycling and Disposal Facility Outer Loop
recycling and Disposal Facility Waste Management of Kentucky - Gray
Disposal Waste Management of Kentucky - Lexington Waste Management of
Kentucky - Louisville Waste Management of Kentucky - Madison Disposal
Waste Management of Kentucky - Stevens Dispos- All Service
Waste Management of Leon County, Inc.
Waste Management of Louisiana Holdings One, Inc.
Waste Management of Louisiana L.L.C.
Acadiana Recycling and Disposal Facility
Acadia Parish Sanitary Landfill
Alexandria Recycling and Disposal Facility
American Waste and Pollution Control-Algiers Residential
American Waste and Pollution Control-Eastern New Orleans
Residential
American Waste and Pollution Control-Kelvin Recycling
and Disposal Facility
American Waste and Pollution Control-St. Bernard Parish
Residential
American Waste and Pollution Control-Slidell
American Waste and Pollution Control-West Jefferson
Residential
Jefferson Davis Recycling and Disposal Facility
Kelvin Recycling and Disposal Facility
Magnolia Recycling and Disposal Facility
Pelican Recycling and Disposal Facility
Pelican State Environmental Services
Waste Management of Acadiana
Waste Management of Baton Rouge
Waste Management of the Bayous
Waste Management of Central Louisiana
Waste Management of Lake Charles
Waste Management of New Orleans
Waste Management of Northeast Louisiana
Waste Management of Northwest Louisiana
Page 25 of 36
<PAGE> 26
Waste Management of the Pines
Waste Management of St. Landry
Waste Management of St. Tammany
Waste Management of South Louisiana
Woodside Recycling and Disposal Facility
Waste Management of Maine, Inc.
Waste Management of Maine-Portland
Waste Management of Maryland, Inc.
Mobile Offices of Maryland
Waste Management of Cambridge
Waste Management of Greater Washington
Waste Management of Maryland, Baltimore
Waste Management of Southern Maryland
WMI Medical Services
WMI Services of Maryland
Waste Management of Massachusetts, Inc.
Somerville Transfer Station
Waste Management-Container Services
Waste Management of Boston-North
Waste Management of Central Massachusetts
Waste Management of Massachusetts-Gloucester
Waste Management of Massachusetts-South Shore
Waste Management of Michigan, Inc.
Autumn Hills Recycling and Disposal Facility
Cedar Ridge Recycling and Disposal Facility
Eagle Valley Recycling and Disposal Facility
Efficient Sanitation
Northern Oaks Recycling and Disposal Facility
Recycle America-Metro Detroit Valley
Rubbish Venice Park recycling and Disposal Facility
Waste Management of Detroit-Residential
Waste Management - Metro Detroit
Waste Management of Michigan-Alma Transfer and Recycling
Facility
Waste Management of Michigan-Area Disposal
Waste Management of Michigan-Burr Oak
Waste Management of Michigan-Central
Waste Management of Michigan-Detroit East Recycling
Transfer Facility
Waste Management of Michigan-Detroit Transfer and Recycling
Facility
Waste Management of Michigan-Detroit MRF/Transfer
Waste Management of Michigan-Dowagiac Transfer and Recycling
Facility
Waste Management of Michigan- Holland
Waste Management of Michigan- Holland Transfer and Recycling
Facility
Waste Management of Michigan-Mideast
Waste Management of Michigan-Mideast/Port Huron
Waste Management of Michigan-Midwest
Waste Management of Michigan-Northern
Waste Management of Michigan-Recycle
America/Grand Rapids
Waste Management of Michigan-Southwest
Waste Management of Michigan-Western
Page 26 of 36
<PAGE> 27
Westside Recycling and Disposal Facility
WMI Services-Eastern Michigan/Northwest Ohio
Woodland Meadows Recycling and Disposal Facility
Waste Management of Minnesota, Inc.
Anoka Recycling and Disposal Facility
Dietman Sanitation & Recycling
Northern Waste Systems
Recycle America of Minnesota
Sun Prairie Recycling and Disposal Facility
Waste Management- Blaine
Waste Management- LeSeur
Waste Management- Rochester
Waste Management- Savage
Waste Management- St. Cloud
Waste Management of Hastings
WMI Services of Minnesota
Waste Management of Mississippi, Inc.
Pecan Grove Landfill
Pine Ridge Landfill
Plantation Oaks Landfill
Prairie Bluff Landfill
Waste Management of Central Mississippi-Jackson
Waste Management of Central Mississippi-Kosciusko
Waste Management of Central Mississippi-Meridian
Waste Management of Central Mississippi-Vicksburg
Waste Management of North Mississippi-Clarksdale
Waste Management of North Mississippi-Columbus
Waste Management of North Mississippi-Corinth
Waste Management of North Mississippi-Greenville
Waste Management of North Mississippi-Grenada
Waste Management of North Mississippi-Tupelo
Waste Management of South Mississippi-Gulfport
Waste Management of South Mississippi-McComb
Waste Management of South Mississippi-Natchez
Waste Management of South Mississippi-Pine Belt
Waste Management of Missouri, Inc.
Black Oak and Disposal Facility
Environmental Industries
Kahle Recycling and Disposal facility
Meramec Hauling
Pezold Hauling
Rumble Recycling and Disposal Facility
Waste Management of Kansas City
Waste Management of Springfield
Waste Management of St. Louis
Waste Management of the Ozarks
Waste Management of Montana, Inc
Waste Management of Great Falls
Waste Management of Nebraska, Inc.
Douglas County Recycling and Disposal Facility
Waste Management of Nevada, Inc. (fka USA Waste of Nevada, Inc.)
Waste Management of New Hampshire, Inc.
Turnkey Recycling and Environmental Enterprises
Waste Management of New Hampshire- Londonberry
Waste Management of New Hampshire- New Hampton
Waste Management of New Hampshire- Rochester
Page 27 of 36
<PAGE> 28
Waste Management of New Hampshire- Peterborough
Waste Management of New Jersey, Inc.
Avenue A Transfer & Recycling Center
Middle Martee Landfill
Recycle America
Waste Management of Camden
Waste Management of New Mexico, Inc.
Environmental Waste Equipment Company
Hobbs Recycling and Disposal Facility
Landfill Hauling Systems
Landfill Systems
R&B Rubbish Removal
Rio Rancho Recycling and Disposal Facility
San Juan Recycling and Disposal Facility
Seay Brothers Rolloff Tijeras Disposal
United Waste Systems
Waste Management of Albuquerque-Recycle America
Processing Facility
Waste Management of Four Corners
Waste Management of Southeast New Mexico
Waste Management of the Southwest
Waste Management of New York, L.L.C.
High Acres Landfill and Recycling Facility
Waste Management of Eastern New York
Waste Management of Hudson Valley
Waste Management of New York-Albion
Waste Management of New York-Buffalo
Waste Management of New York-Rochester
Waste Management of New York-Syracuse
Waste Management of New York-Utica
Waste Management of Southwestern New York W
MI Services of New York
Waste Management of North Dakota, Inc.
Northern Waste Systems
Waste Management of Ohio, Inc.
Countywide Recycling and Disposal Facility
ELDA Recycling and Disposal Facility
Evergreen Recycling and Disposal Facility
Herrick Valley Recycling and Disposal Facility
Lake County Recycling and Disposal Facility
Pinnacle Road Recycling and Disposal Facility
Seneca East Recycling and Disposal Facility
Stony Hollow Recycling and Disposal facility
Suburban Recycling and Disposal Facility
Waste Management of Ohio-Akron
Waste Management of Ohio-Blaylock
Waste Management of Ohio-Cleveland Transfer and Recycling Facility
Waste Management of Ohio-Cleveland West
Waste Management of Ohio-Columbus
Waste Management of Ohio-Columbus Transfer and Recycling Facility
Waste Management of Ohio-Findlay
Waste Management of Ohio-IWD
Waste Management of Ohio-Koogler
Page 28 of 36
<PAGE> 29
Waste Management of Ohio-Lima
Waste Management of Ohio-Lima Transfer and Recycling Facility
Waste Management of Ohio-M&M Sanitation
Waste Management of Ohio-Newark
Waste Management of Ohio-Northwest
Waste Management of Ohio-Recycle America/Toledo
Waste Management of Ohio-S.E.M.
Waste Management of Ohio-Shelby County Transfer
Waste Management of Ohio-Suburban Sanitation Service
Waste Management of Ohio-Western Reserve
Waste Management of Ohio-Youngstown
WMI Services-Ohio
Waste Management of Oklahoma, Inc.
East Oak Recycling and Disposal Facility
Muskogee recycling and Disposal Facility
Quarry Recycling and Disposal Facility
Waste Management of Oklahoma City
Waste Management of Tulsa
Waste Management of Oregon, Inc.
Metro South Transfer Station
Port-O-Let
Waste Management of Vancouver U.S.A.
Zero Garbage
Waste Management of Pennsylvania, Inc.
Alderfer & Frank
Lake View Landfill (Northern)
Mid-Atlantic Recycling and Distribution Center
Milton Grove Demolition and Tire Recycling
Philadelphia Transfer and Recycling Station
Pottsville Transfer Station Recycle America
River Road Landfill Steel Valley Transfer Station
The Forge Recycling and Resource Recovery Center
Tully Town Resource Recovery Facility
Waste Automation Waste Management - Allentown
Waste Management- Dixon Recycling
Waste Management of Camp Hill
Waste Management of Delaware Valley-North
Waste Management of Delaware Valley-South
Waste Management of Erie
Waste Management of Greater Lancaster
Waste Management of Greencastle
Waste Management of Greenville
Waste Management of Indian Valley
Waste Management of Laurel Valley
Waste Management of Northeast Pennsylvania
Waste Management of Pennsylvania-Hauling
Waste Management of Pittsburgh
Waste Management of Pottstown
Waste Management of Wilkinsburg
WMI Medical Services of New Jersey
WMI Medical Services of New York
WMI Medical Services of Pennsylvania
Page 29 of 36
<PAGE> 30
WMI Medical Services of West Virginia
Waste Management of Rhode Island, Inc.
Waste Management of Rhode Island- Newport
Waste Management of South Carolina, Inc.
Charleston Landfill
Hickory Hill Sanitary Landfill
Palmetto Landfill
Sandy Pines Landfill
Waste Management of South Carolina
Waste Management of the Low Country
Waste Management of South Dakota, Inc.
Waste Management of Sioux Falls
Waste Management of the Black Hills
Waste Management of Texas, Inc.
All Waste Paper Recycling
Atascosita Recycling and Disposal Facility
Austin Community Disposal
Co. Bluebonnet Recycling and Disposal Facility
Centex Waste Management
Coastal Plains Recycling and Disposal Facility
Comal County Recycling and Disposal Facility
Covell Gardens Landfill DFW Recycling and Disposal Facility
Fogle Garbage Service Garbage
Gobbler Hillside recycling and Disposal Facility
Kingwood Garbage Service
Lacy Lakeview Recycling and Disposal Facility
Longhorn Disposal Northwest Transfer Station
Oak Hill Recycling and Disposal Facility
Pecan Prairie Recycling and Disposal Facility
Recycle America-Dallas Bulk grade Division
Recycle America-Dallas High Grade Division
S&B trucking & Sanitation
Security Landfill
Skyline Recycling and Disposal Facility
Texas Waste Management
Waste Management of Fort Worth Recycling and Disposal Facility
Waste Management - Golden Triangle
Waste Management of Dallas-East
Waste Management of Dallas Recycle America Processing Facility
Waste Management of Dallas-West
Waste Management of East Texas
Waste Management of Fort Worth
Waste Management of Fort Worth Recycling and Disposal Facility
Waste Management of Houston
Waste Management of Northeast Texas
Waste Management of Southeast Texas
Waste Management of Southeast Texas-Angleton
Waste Management of Southeast Texas-Dickinson
Waste Management of South Texas
Page 30 of 36
<PAGE> 31
Waste Management of West Texas Westside
Recycling and Disposal Facility
Williamson County Recycling and Disposal Facility
WMI Services of Dallas
WMI Services of North Texas
WMI Services of Texas
Waste Management of Utah, Inc.
Waste Management of Northern Utah
Reliable Waste Systems
Waste Management of Salt Lake
Waste Management of Varick Avenue, Inc.
Waste Management of Virginia, Inc.
Manassas Transfer Station
Waste Management of Hampton Roads
Waste Management of Northern Virginia
Waste Management of Northern Virginia-Crown Disposal
Waste Management of the Outer Banks
Waste Management of Richmond/Fiber Fuels
Waste Management of Richmond Port-O-Let
Waste Management of Richmond
Recycle America
Waste Management of Virginia-Blue Ridge
WMI Services of Hampton Roads
WMI Services of Virginia
Waste Management of Washington, Inc.
Mountain Group-Northwest Office
Port-O-Let
Recycle America
Valley Topsoil
Waste Management-Northwest
Waste Management of Ellensburg
Waste Management of Greater Wenatchee
Waste Management of Kennewick
Waste Management of Seattle
Waste Management of Spokane
Waste Management of Yakima
Waste Management-SnoKing
Waste Management-Rainier
WMI Services
Waste Management of West Virginia, Inc.
Waste Management of Shenandoah Valley
Waste Management of Wisconsin, Inc.
Best Disposal
DSI of Shawano County, Inc.
Mallard Ridge Recycling and Disposal Facility
Metro/Stone Ridge Recycling and Disposal Facility
Orchard Ridge Recycling and Disposal Facility
Parkview Recycling and Disposal Facility
Parkway Container Services, Inc.
Pheasant Run Recycling and Disposal Facility
Ridgeview Recycling and Disposal Facility
Timberline Trail Recycling and Disposal Facility
UWS Transportation
Valley Trail Recycling and Disposal Facility
Waste Management-Northeast Wisconsin
Waste Management of Fox Valley
Waste Management of La Crosse
Page 31 of 36
<PAGE> 32
Waste Management of Madison
Waste Management of Milwaukee
Waste Management of Muskego
Waste Management of Rockford
Waste Management of Wisconsin-East
Waste Management Southwest
Waste Management of St. Croix Valley
Waste Management - Tri County
WMI Services of Wisconsin
Waste Management of Wyoming, Inc.
Waste Management Operations Ireland
Waste Management Paper Stock Company, Inc.
Southern Sanitation Southeast-Recycle America
Waste Management of Florida-Recycle America
Waste Management of Sarasota-Recycle America
Waste Management of Tampa- Recycle America
Waste Management Partners, Inc.
American Refuse Systems, Inc.
Ocmulgee Disposal, Inc.
Waste Management Plastic Products, Inc.
Waste Management Project Services B.V.
Waste Management Queensland Pty Ltd.
Waste Management Recycling & Services Limited
Waste Management Recycling and Disposal Services of California, Inc.
Waste Management of San Fernando Valley
Waste Management Recycling of New Jersey, Inc.
Safety Recycling
Waste Management Remediation Services B.V.
Waste Management Roxby Ltd.
Waste Management Services SA
Waste Management Siam Holdings Ltd
Waste Management Siam Ltd
Waste Management South America B.V.
Waste Management Stendhal GmbH
Waste Management Technical Services, Inc.
Waste Management Technology Center, Inc.
Waste Management Thailand B.V.
Waste Management Transfer of New Jersey, Inc.
Waste Management, Inc.
Waste Management, Inc. of Tennessee
Chestnut Ridge Landfill and Recycling Center
Nashville Hauling Nashville Transfer
Waste Management of Tennessee - Clarksville
Waste Management of Tennessee - Jackson
Waste Management of Tennessee - Knoxville
Waste Management of Tennessee - Memphis
Waste Management of Tennessee - Nashville
West Camden Sanitary Landfill
Waste Resource Technologies, Inc.
Page 32 of 36
<PAGE> 33
Waste Resources of Tennessee, Inc.
Wastech, Inc.
Waterblast Ltd.
Webster Parish Landfill, L.L.C.
WESI Baltimore Inc.
WESI Capital Inc.
WESI Peekskill Inc.
WESI Westchester Inc.
Wessex Waste Gas to Energy Ltd.
Wessex Waste Management Limited
West Australian Landfill Services Pty Limited (50%)
West Essex Disposal Co., Inc.
Westchester Resco Associates, L.P.
Westchester Resco Company, L.P.
Westchester Waste Services Co., L.L.C.
Western El Dorado Recovery Systems, Inc.
Western Land Acquisition, Inc.
Western U.P. Landfill, Inc.
Western Waste Industries
Conroe Industrial Transportation
Conroe Landfill #7
Conroe Landfill Administration
Fresno Transfer Station
Inland Empire
Redondo Beach Recycling
Sunnydale Transfer Station
Western Beaumont Landfill
Western Longmont Landfill
WW/Chino Transfer Station
WW/Conroe Processing Plant
WW/EL Sobrante Landfill
Nassau Landfill
WW/Southern California Processing
Westlake Truck Leasing, Inc.
Westley Trading Ltd.
Wheelabrator Baltimore, L.L.C.
Wheelabrator Canada Inc.
Wheelabrator Carteret Inc.
Wheelabrator Cedar Creek Inc.
Wheelabrator Claremont Company, L.P.
Wheelabrator Clean Water New Jersey Inc.
Wheelabrator Coal Services Company
Wheelabrator Concord Company, L.P.
Wheelabrator Concord Inc.
Wheelabrator Connecticut Inc.
Wheelabrator Culm Services Inc.
Page 33 of 36
<PAGE> 34
Wheelabrator Energy Leasing Company
Wheelabrator Environmental Systems Inc.
Wheelabrator Falls Inc.
Wheelabrator Frackville Energy Company Inc.
Wheelabrator Frackville Properties Inc.
Wheelabrator Fuel Services Company
Wheelabrator Fuels Service Corp.
Wheelabrator Gloucester Company, L.P.
Wheelabrator Gloucester Inc.
Wheelabrator Guam Inc.
Wheelabrator Hudson Energy Company Inc.
Wheelabrator Land Resources Inc.
Wheelabrator Lassen Inc.
Wheelabrator Martell Inc.
Wheelabrator McKay Bay Inc.
Wheelabrator Millbury Inc.
Wheelabrator New Hampshire Inc.
Wheelabrator New Jersey, Inc.
Wheelabrator NHC Inc.
Wheelabrator North Broward Inc.
Wheelabrator North Shore Inc.
Wheelabrator Norwalk Energy Company Inc.
Wheelabrator Penacook Inc.
Wheelabrator Pinellas Inc.
Wheelabrator Polk Inc.
Wheelabrator Putnam Inc.
Wheelabrator Ridge Energy Inc.
Wheelabrator Saugus Inc.
Wheelabrator Shasta Energy Company Inc.
Wheelabrator Sherman Station Energy Company, G.P.
Wheelabrator Sherman Station One Inc.
Wheelabrator Sherman Station Two Inc.
Wheelabrator Shrewsbury Inc.
Wheelabrator South Broward Inc.
Wheelabrator Spokane Inc.
Wheelabrator Technologies Inc.
Wheelabrator Technologies International, Inc.
Wheelabrator Water Technologies Baltimore L.L.C.
Wheelabrator Water Technologies Canada Inc.
Wheelabrator Water Technologies Inc.
White Lake Landfill, Inc.
William Hepworth Landfill
Williams Disposal Service, Inc.
Page 34 of 36
<PAGE> 35
Williams Landfill, L.L.C.
Williwaw Services, Inc.
WINZ Bins Ltd.
WM Asia BV
WM International Holdings, Inc.
WM Landfills of Georgia, Inc.
WM Landfills of Michigan, Inc.
WM Landfills of Ohio, Inc.
WM Landfills of Tennessee, Inc.
WM Miljoservice A/S
WM Partnership Holdings, Inc.
WM Resources, Inc.
WM Selbergs AB
WM Services S. A.
WM Transportation Services, Inc.
WM Umwelttechnik GmbH
WM Vedenkierratys OY
WM Ymparistopalvelut OY
WMD Bockmann Fritz Ohlig GmbH
WMD Just Wertstoffe GmbH
WMD Knab GmgH
WMD Knab Zwischenlager GmbH
WMD Knoss & Anthes GmbH
WMD Schreiber GmbH
WMD Waste Management Deutschland Holding GmbH
WMI Medical Services of Indiana, Inc.
WMI Mexico Holdings, Inc.
WMI Sverige AB
WMI Waste Management of Canada Inc.
TCL Waste Systems
Waste Management Big Bear Services
Waste Management Fraser Valley
Waste Management Halton/Hamilton
Waste Management Materials Processing-Recycle Canada
Waste Management Materials Processing-Toronto Transfer
Waste Management McLellan Disposal
Waste Management of Oxford/Perth
Waste Management of Calgary
Waste Management of Edmonton
Waste Management of Greater Toronto
Waste Management of Greater Vancouver
Waste Management of Southwestern Ontario
Waste Management of the Okanagan
Waste Management York/Simcoe
West Edmonton Recycling and Disposal Facility
WMI du Quebec
WMI - Hull/Ottawa
Page 35 of 36
<PAGE> 36
WMI Recyclage Quebec
WMI Rive - Sud
WMI Waste Management DuCanada
WMI Waste Management of Halton, Hamilton, Niagara Inc.
WMNA Container Recycling, Inc.
WMNA Rail-Cycle Sub, Inc.
WR Pollard and Son Limited
WTI Air Pollution Control Inc.
WTI China Holdings I, Inc.
WTI China Holdings II, Inc.
WTI International Holdings Inc.
WTI Qicheng LLC
WTI Rust Holdings, Inc.
WTI Taicang LLC.
WTI Yingkou LLC.
Wynne's Rubbish & Recycling, Inc.
Yell County Landfill, Inc.
Zenith/Kremer Material Recovery, Inc.
Suburban Recycling Service
Zenith/Kremer Waste Systems, Inc.
Cecil Shykes Sanitary Service
Home Town Garbage Service
Kremer Disposal
Kremer Recycling
Suburban Sanitation Service
Zenith Recycling
Page 36 of 36
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Annual Report on Form 10-K into the Company's
previously filed Registration Statements on Form S-8 (Registration Nos.
33-43619, 33-72436, 33-84988, 33-84990, 33-59807, 33-61621, 33-61625, 33-61627,
333-02181, 333-08161, 333-14115, 333-14613, 333-34819, 333-51975, 333-64239,
333-70055, 333-59247, 333-56113), previously filed Registration Statements on
Form S-3 (Registration Nos. 333-00097, 333-08573, 333-32471, 333-33889,
333-52197, 333-80063, 333-21035, 333-17453, 333-17421, 33-63143, 33-62547,
33-85018, 33-42988, 33-76226, 333-63893, 333-21035, 33-76224), and previously
filed Registration Statements on Form S-4 (Registration Nos. 333-31979 and
333-32805, 333-63981, 333-60103, 333-14109).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Waste Management, Inc. on Form S-3 (File Nos. 333-00097,
333-08573, 333-32471, 333-33889, 333-52197, 333-80063, 333-21035, 333-17453,
333-17421, 33-63143, 33-62547, 33-85018, 33-42988, 33-76226, 333-63893,
333-21035 and 33-76224), on Form S-4 (File Nos. 333-31979, 333-32805, 333-63981,
333-60103 and 333-14109), and on Form S-8 (File Nos. 33-43619, 33-72436,
33-84988, 33-84990, 33-59807, 33-61621, 33-61625, 33-61627, 333-02181,
333-08161, 333-14115, 333-14613, 333-34819, 333-51975, 333-64239, 333-70055,
333-56113, and 333-59247), of our report dated March 16, 1998, on our audit of
the consolidated financial statements of operations, stockholders' equity and
cash flows of USA Waste Services, Inc. for the year ended December 31, 1997,
which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WASTE MANAGEMENT, INC. FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 181,357
<SECURITIES> 0
<RECEIVABLES> 2,239,647
<ALLOWANCES> 289,499
<INVENTORY> 107,222
<CURRENT-ASSETS> 6,220,545
<PP&E> 16,469,276
<DEPRECIATION> 6,165,473
<TOTAL-ASSETS> 22,681,424
<CURRENT-LIABILITIES> 7,489,455
<BONDS> 11,498,088
0
0
<COMMON> 6,273
<OTHER-SE> 4,396,339
<TOTAL-LIABILITY-AND-EQUITY> 22,681,424
<SALES> 0
<TOTAL-REVENUES> 13,126,920
<CGS> 0
<TOTAL-COSTS> 12,586,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 268,379
<INTEREST-EXPENSE> 769,655
<INCOME-PRETAX> (162,732)
<INCOME-TAX> 232,319
<INCOME-CONTINUING> (395,051)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,513)
<CHANGES> 0
<NET-INCOME> (397,564)
<EPS-BASIC> (0.65)
<EPS-DILUTED> (0.65)
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