<PAGE> 1
DRAFT OF: OCTOBER 10, 1996
THE INFORMATION CONTAINED
IN THIS DOCUMENT IS
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CONFIDENTIAL
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(LOGO)O
Bowne
of
Phoenix (602) 223-4455
FAX (602) 223-4456
<PAGE> 2
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
ALLIED WASTE INDUSTRIES, INC.
- - - --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
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2) Form, Schedule or Registration Statement No.: N/A
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3) Filing Party: N/A
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4) Date Filed: N/A
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<PAGE> 3
ALLIED WASTE INDUSTRIES, INC.
7201 EAST CAMELBACK ROAD, SUITE 375
SCOTTSDALE, ARIZONA 85251
OCTOBER, 1996
Dear Allied Stockholder:
You are invited to attend a special meeting of stockholders (the "Special
Meeting") of Allied Waste Industries, Inc. ("Allied") to be held at the Arizona
Club, 7150 East Camelback Road, Scottsdale, Arizona 85251, on [DAY], November
, 1996 at 10:00 a.m., Scottsdale, Arizona time.
At the Special Meeting, you will be asked to (i) approve in connection with
the Transactions (as defined in the next paragraph) the issuances (the
"Issuances") (a) at the closing (the "Closing") of the Transactions, of
14,600,000 shares (the "Stock Consideration") of Allied's common stock, par
value $.01 per share (the "Common Stock") and of a warrant (the "Warrant") to
purchase 20,400,000 shares of Common Stock and (b) at a time after the Closing,
of a currently indeterminate number of shares of Common Stock issuable on
exercise of the Warrant (the "Exercise Shares"), and of a currently
indeterminate number of shares of Common Stock (the "Debenture Shares") issuable
as payment of the principal of or interest on a 7% Junior Subordinated Debenture
of a subsidiary of Allied in the principal amount of $150,000,000 and on a Zero
Coupon Junior Subordinated Debenture of a subsidiary of Allied in the principal
amount of $168,300,000 (the two debentures are collectively referred to as the
"Debentures"); and (ii) approve an amendment to Allied's certificate of
incorporation which will increase the number of authorized shares of Common
Stock available for issuance from 100,000,000 to 200,000,000 shares (the
"Amendment").
You are being asked to approve and adopt the Issuances and the Amendment in
connection with Allied's recently announced agreement to acquire the
non-hazardous solid waste operations of Laidlaw Inc., a Canadian corporation
("Laidlaw"), pursuant to the Stock Purchase Agreement (such agreement, the
"Agreement" and the transactions contemplated by such Agreement, the
"Transactions") among Allied, Allied Holdings (United States), Inc., a Delaware
corporation and a wholly-owned subsidiary of Allied ("Allied U.S."), 3294862
Canada Inc., a Canadian corporation and a wholly-owned subsidiary of Allied U.S.
(to be renamed "Allied Waste Holdings (Canada) Ltd.," and hereinafter referred
to as "Allied Canada"; Allied, Allied U.S. and Allied Canada are collectively
referred to as the "Allied Parties") and Laidlaw, Laidlaw Transportation, Inc.,
a Delaware corporation and an indirect wholly-owned subsidiary of Laidlaw
("LTI"; Laidlaw and LTI are collectively referred to as the "Laidlaw Sellers"),
Laidlaw Waste Systems, Inc., a Delaware corporation and a wholly-owned
subsidiary of LTI ("LWSI"), Laidlaw Waste Systems (Canada) Ltd., a Canadian
corporation and a wholly-owned subsidiary of Laidlaw ("LWSC") and Laidlaw
Medical Services Ltd., a Canadian corporation and a wholly-owned subsidiary of
Laidlaw ("LMS"). The Agreement provides that the purchase price to be paid by
Allied will consist of $1,200,000,000 in cash, the Stock Consideration, the
Warrant and the Debentures (collectively, the "Acquisition Consideration"). The
Proxy Statement summarizes the material terms and conditions of the Agreement
which is attached to the Proxy Statement as Exhibit A. Please review and
consider the enclosed materials carefully.
Although Delaware law does not require stockholder approval for the
Issuances, the rules of the Nasdaq/NMS applicable to Allied require such
stockholder approval, and the closing of the Transactions is contingent on such
approval. Allied's Board of Directors (the "Board of Directors") and I have
carefully considered and have unanimously approved the terms and conditions of
the Agreement, the Issuances and the Amendment and hope you will give your
approval to the Issuances and the Amendment. In reaching its conclusion, the
Board of Directors considered, among other things, an opinion dated September
17, 1996 of Goldman, Sachs & Co., an investment banking firm engaged by Allied,
that, as of the date of such opinion, the Acquisition Consideration to be paid
to the Laidlaw Sellers by the Allied Parties pursuant to the Agreement was fair
to Allied, such opinion being attached to this Proxy Statement as Exhibit B.
<PAGE> 4
The respective obligations of the Allied Parties and the Laidlaw Sellers to
consummate the Transactions are conditioned upon, among other things, the
approval of the Issuances and the Amendment by the stockholders of Allied at the
Special Meeting. If either the Issuances or the Amendment is not approved, then
the Transactions cannot be consummated, notwithstanding that the other proposal
may have been approved by the stockholders of Allied.
In view of the importance of the actions to be taken at the Special Meeting
and since votes that are not cast are, in effect, counted as a vote "against"
the Amendment, we urge you to read the accompanying Proxy Statement carefully
and, regardless of the number of shares you own, we request that you complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope. You may, of course, attend the Special Meeting and vote in
person, even if you have previously returned your proxy card.
Sincerely,
ROGER A. RAMSEY
Chairman of the Board and
Chief Executive Officer
<PAGE> 5
ALLIED WASTE INDUSTRIES, INC.
7201 EAST CAMELBACK ROAD, SUITE 375
SCOTTSDALE, ARIZONA 85251
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER , 1996
------------------------------------
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of Allied Waste Industries, Inc., a Delaware corporation
("Allied"), will be held at the Arizona Club, 7150 East Camelback Road,
Scottsdale, Arizona 85251, on [DAY], November , 1996, at 10:00 a.m.,
Scottsdale, Arizona time, for the following purposes:
1. To approve the issuances (the "Issuances") of (i) at the closing (the
"Closing") of the Transactions (as defined below), 14,600,000 shares
(the "Stock Consideration") of Allied's common stock, par value $.01
per share (the "Common Stock"), and a warrant (the "Warrant") to
purchase 20,400,000 shares of Common Stock and (ii) at a time after the
Closing, a currently indeterminate number of shares of Common Stock on
exercise of the Warrants (the "Exercise Shares"), and a currently
indeterminate number of shares of Common Stock (the "Debenture Shares")
as payment of the principal of or interest on a 7% Junior Subordinated
Debenture of a subsidiary of Allied in the principal amount of
$150,000,000 and a Zero Coupon Junior Subordinated Debenture of a
subsidiary of Allied in the principal amount of $168,300,000 (the two
debentures are collectively referred to as the "Debentures"), in each
case in connection with the transactions (the "Transactions")
contemplated by the Stock Purchase Agreement (the "Agreement") dated as
of September 17, 1996, between Allied, Allied Holdings (United States),
Inc., a Delaware corporation and a wholly-owned subsidiary of Allied
("Allied U.S."), 3294862 Canada Inc., a Canadian corporation and a
wholly-owned subsidiary of Allied (to be renamed "Allied Waste Holdings
(Canada) Ltd.," and hereinafter referred to as "Allied Canada"; Allied,
Allied U.S. and Allied Canada are collectively referred to as the
"Allied Parties") and Laidlaw Inc., a Canadian corporation ("Laidlaw"),
Laidlaw Transportation, Inc., a Delaware corporation and an indirect
wholly-owned subsidiary of Laidlaw ("LTI"; Laidlaw and LTI are
collectively referred to as the "Laidlaw Sellers"), Laidlaw Waste
Systems, Inc., a Delaware corporation and a wholly-owned subsidiary of
LTI ("LWSI"), Laidlaw Waste Systems (Canada) Ltd., a Canadian
corporation and a wholly-owned subsidiary of Laidlaw ("LWSC") and
Laidlaw Medical Services Ltd., a Canadian corporation and a
wholly-owned subsidiary of Laidlaw ("LMS");
2. To consider and vote upon a proposal to approve an amendment to
Allied's certificate of incorporation, which will increase the number
of authorized shares of Common Stock from 100,000,000 to 200,000,000
shares (the "Amendment"); and
3. To consider and act on such other business as may properly be presented
at the Special Meeting.
The respective obligations of the Allied Parties and the Laidlaw Sellers to
consummate the Transactions are subject to, among other conditions, the approval
of the Issuances and the Amendment by the stockholders of Allied at the Special
Meeting. If either proposal is not adopted, then the Transactions cannot be
consummated, notwithstanding that the other proposal may have been approved by
the stockholders of Allied. Upon receipt of stockholder approval for these
proposals, Allied will proceed to consummate the Transactions.
A record of the stockholders has been taken as of the close of business on
October , 1996 (the "Record Date"), and only those stockholders of record on
the Record Date will be entitled to notice of and to vote at the Special
Meeting. A list of stockholders of Allied as of the Record Date will be
available commencing October , 1996, and may be inspected prior to the Special
Meeting during normal business hours at Allied's principal offices located at
7201 East Camelback Road, Suite 375, Scottsdale, Arizona 85251. This Notice of
Special Meeting, the Proxy Statement and the accompanying proxy card are being
mailed to stockholders of Allied as of the Record Date on or about October ,
1996.
<PAGE> 6
Delaware law does not require Allied's stockholders to approve the
Issuances contemplated by the Agreement. However, the Common Stock is quoted on
the National Market System of the Nasdaq Stock Market, Inc. (the "Nasdaq/NMS")
and as a condition to maintaining the Common Stock's designation as a Nasdaq/NMS
security and therefore its eligibility for quotation on the Nasdaq/NMS, Allied
is required to seek the approval of the stockholders of Allied for the
Issuances. Such approval is also a condition to closing the Transactions
contemplated by the Agreement. The approval of the Issuances must be approved by
the vote of the holders of a majority of the votes entitled to be cast thereon
present in person or by proxy at the Special Meeting, provided that a majority
of the votes entitled to be cast at the Special Meeting is present in person or
proxy at the Special Meeting. Delaware law requires that the Amendment be
approved by a majority of the shares of Common Stock outstanding and entitled to
vote at the Special Meeting.
Your participation in the Special Meeting is important. To ensure your
representation, if you do not expect to be present at the Special Meeting,
please sign and date the enclosed proxy and return it promptly in the enclosed
postage-prepaid envelope which has been provided for your convenience. The
prompt return of proxies will ensure a quorum and save the expense of further
solicitation.
By Order of the Board of Directors,
ROGER A. RAMSEY,
Chairman of the Board and
Chief Executive Officer
October , 1996
<PAGE> 7
ALLIED WASTE INDUSTRIES, INC.
7201 EAST CAMELBACK ROAD, SUITE 375
SCOTTSDALE, ARIZONA 85251
PROXY STATEMENT
REGARDING
THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
NOVEMBER , 1996
------------------------
This Proxy Statement is being mailed to stockholders commencing on or about
October , 1996, in connection with the solicitation by the Board of Directors
(the "Board of Directors") of Allied Waste Industries, Inc., a Delaware
corporation ("Allied"), of proxies to be voted at the special meeting of
stockholders (the "Special Meeting") to be held at the Arizona Club, 7150 East
Camelback Road, Scottsdale, Arizona 85251 on [DAY], November , 1996, at 10:00
a.m., Scottsdale, Arizona time and upon any adjournment thereof, for the
purposes set forth in the accompanying notice. Proxies will be voted in
accordance with the directions specified thereon and otherwise in accordance
with the judgment of the persons designated as the holders of the proxies.
Proxies marked as abstaining on any matter to be acted on by the stockholders
and broker non-votes will be treated as present at the Special Meeting. Any
proxy on which no direction is specified will be voted: (1) FOR the approval of
the Issuances; (2) FOR the approval of the Amendment; (3) otherwise in
accordance with the judgment of the person specified thereon. A stockholder may
revoke a proxy by: (1) delivering to Allied written notice of revocation, (2)
delivering to Allied a proxy signed on a later date or (3) appearing at the
Special Meeting and voting in person.
Certain capitalized terms used in this Proxy Statement without definition
have the meanings ascribed thereto in the Glossary of Terms.
October , 1996
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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<S> <C>
GLOSSARY OF TERMS..................................................................... 1
AVAILABLE INFORMATION................................................................. 4
SUMMARY............................................................................... 5
Allied.............................................................................. 5
The Acquired Subsidiaries........................................................... 5
The Transactions.................................................................... 5
Special Meeting..................................................................... 5
Reasons for the Transactions........................................................ 6
Opinion of Financial Advisor........................................................ 6
The Amendment....................................................................... 6
Recommendation of the Board of Directors............................................ 6
SUMMARY FINANCIAL INFORMATION......................................................... 6
THE SPECIAL MEETING................................................................... 8
Date, Time and Place of the Special Meeting......................................... 8
Purpose of the Special Meeting...................................................... 8
Record Date and Outstanding Voting Securities....................................... 8
Revocability of Proxy............................................................... 8
Vote Required For Approval.......................................................... 8
Solicitation of Proxies............................................................. 9
Expenses of Proxy Solicitation...................................................... 9
Board of Directors' Recommendations................................................. 9
THE TRANSACTIONS...................................................................... 10
General Description of the Transactions............................................. 10
Background of the Transactions...................................................... 10
Reasons for the Transactions........................................................ 12
Financing of the Transactions....................................................... 13
Opinion of Financial Advisor to Allied.............................................. 15
Board of Directors' Recommendations................................................. 18
Accounting Treatment................................................................ 18
Interests of Certain Persons in the Transactions.................................... 18
No Dissenter's Rights of Appraisal.................................................. 19
THE AGREEMENT......................................................................... 20
Acquisition Consideration........................................................... 20
Closing Date........................................................................ 23
Representations and Warranties...................................................... 23
Environmental Matters............................................................... 23
Conduct of Business Pending Closing................................................. 24
Other Conditions to the Consummation of the Transactions............................ 26
Government and Regulatory Approvals................................................. 27
Resales of Allied Securities by Laidlaw............................................. 28
Laidlaw Standstill.................................................................. 28
Laidlaw Guaranties.................................................................. 29
Tax Matters......................................................................... 30
Indemnification..................................................................... 31
Amendment and Waivers............................................................... 32
Termination; Termination Fee........................................................ 32
Non-Competition Obligations of Laidlaw.............................................. 32
PRO FORMA COMBINED FINANCIAL STATEMENTS............................................... 34
</TABLE>
i
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<TABLE>
<CAPTION>
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<S> <C>
SUPPLEMENTAL FINANCIAL INFORMATION.................................................... 38
ALLIED'S SELECTED FINANCIAL DATA...................................................... 39
ALLIED'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 41
BUSINESS OF ALLIED.................................................................... 51
Industry Background................................................................. 51
Strategy............................................................................ 52
Waste Collection, Transfer and Recycling Services................................... 53
Landfills........................................................................... 54
Marketing and Sales................................................................. 55
Competition......................................................................... 55
Liability Insurance and Bonding..................................................... 56
Environmental and Other Regulations................................................. 56
Employees........................................................................... 58
Facilities and Other Properties..................................................... 58
Legal Proceedings................................................................... 58
ACQUIRED SUBSIDIARIES' SELECTED FINANCIAL DATA........................................ 60
ACQUIRED SUBSIDIARIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................... 61
BUSINESS OF THE ACQUIRED SUBSIDIARIES................................................. 64
MARKET PRICE DATA..................................................................... 67
DIVIDEND POLICY....................................................................... 67
PRINCIPAL STOCKHOLDERS................................................................ 68
DESCRIPTION OF CAPITAL STOCK.......................................................... 69
Common Stock........................................................................ 69
Preferred Stock..................................................................... 69
Special Provisions of the Certificate of Incorporation and Delaware Law............. 70
PROPOSED AMENDMENT.................................................................... 71
Approval............................................................................ 772
Board of Directors' Recommendations................................................. 72
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING.............................................. 72
OTHER MATTERS......................................................................... 72
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
EXHIBIT A -- Stock Purchase Agreement dated September 17, 1996, between Allied, Allied
U.S., Allied Canada, Laidlaw, LTI, LWSI, LWSC and LMS............................... A-1
EXHIBIT B -- Opinion of Goldman, Sachs & Co........................................... B-1
</TABLE>
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<PAGE> 10
GLOSSARY OF TERMS
Unless the context otherwise requires, the following terms shall have the
meanings set forth below when used in this Proxy Statement. These defined terms
are not used in the financial statements attached hereto.
"Acquisition Consideration" means the Cash Consideration, the Stock
Consideration, the Warrant and the Debentures.
"Acquired Subsidiaries" means (i) LWSI, (ii) the direct and indirect
subsidiaries of LWSI identified in the Agreement, (iii) LWSC, (iv) the direct
and indirect subsidiaries of LWSC identified in the Agreement, (v) LMS, and (vi)
the 55% owned subsidiary of LMS identified in the Agreement.
"Acquired Subsidiaries' Financial Statements" means the Laidlaw Solid Waste
Management Group Financial Statements audited by Coopers & Lybrand and included
in this Proxy Statement.
"Agreement" means the Stock Purchase Agreement among Allied, Allied U.S.,
Allied Canada, Laidlaw, LTI, LWSI, LWSC and LMS dated as of September 17, 1996,
a copy of which is attached hereto as Exhibit A.
"Allied" means Allied Waste Industries, Inc., a Delaware corporation.
"Allied Canada" means 3294862 Canada Inc., a Canadian corporation and a
wholly-owned subsidiary of Allied U.S.
"Allied Finance" means 3294854 Canada Inc., a Canadian corporation and a
wholly-owned subsidiary of Allied.
"Allied Parties" means Allied, Allied U.S. and Allied Canada.
"Allied U.S." means Allied Holdings (United States), Inc., a Delaware
corporation and a wholly-owned subsidiary of Allied.
"Amendment" means the proposed amendment to the Certificate of
Incorporation to increase the authorized shares of Common Stock from 100,000,000
to 200,000,000 for which approval is being sought at the Special Meeting.
"Board of Directors" means the Board of Directors of the Company.
"Bylaws" means Allied's bylaws, as amended from time to time.
"Canadian Dollars" or "C$" means Canadian Dollars.
"Cash Consideration" means the payment of $1,200,000,000 in cash to the
Laidlaw Sellers at the Closing.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Certificate of Incorporation" means Allied's certificate of incorporation,
as amended from time to time.
"Closing" means the execution and delivery of the documents required to
effectuate the Transactions (as hereinafter defined) contemplated by the
Agreement and the closing of the Transactions (as hereinafter defined)
contemplated by the Agreement.
"Closing Date" means the date upon which the Closing takes place, that,
unless Allied and the Laidlaw Sellers agree otherwise, will be the fifth
business day after all necessary governmental and regulatory approvals regarding
the Transactions have been obtained.
"Common Stock" means the common stock, par value $0.01 per share, of
Allied.
"Damages" means all obligations, claims, liabilities, damages, penalties,
deficiencies, losses, investigations, proceedings, judgments, fines, and
reasonable costs and expenses (including, but not limited to, reasonable costs
and expenses incurred in connection with the performance of obligations,
interest, bonding
1
<PAGE> 11
and court costs and attorneys', accountants', engineers', consultants' and
investigators' fees and disbursements) and disbursements incurred in connection
with any investigation or defense of any of the foregoing.
"Debentures" means the 7% Debenture and the Zero Coupon Debenture.
"Debenture Shares" means the shares of Common Stock issued as payment of
the principal of or interest on the Debentures or pursuant to the redemption of
the Debentures.
"DGCL" means the Delaware General Corporation Law, as amended.
"DOJ" means the United States Department of Justice and all successors
thereto.
"EBITDA" means operating income plus depreciation and amortization.
"EPA" means the United States Environmental Protection Agency and all
successors thereto.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exercise Shares" means those certain shares of Common Stock to be issued
upon the exercise of the Warrant.
"FTC" means the United States Federal Trade Commission and all successors
thereto.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements of the
Financial Accounting Standards Board ("SFAS").
"Goldman Sachs" means Goldman, Sachs & Co., financial advisor to Allied.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Issuances" means the issuance of the Stock Consideration, the Warrant, the
Exercise Shares and the Debenture Shares for which approval is being sought at
the Special Meeting.
"IRC" means the United States Internal Revenue Code of 1986, as amended.
"Laidlaw" means Laidlaw Inc., a Canadian corporation.
"Laidlaw Parties" means Laidlaw, LTI, LWSI, LWSC and LMS.
"Laidlaw Sellers" means Laidlaw and LTI.
"LMS" means Laidlaw Medical Services Ltd., a Canadian corporation and a
wholly-owned subsidiary of Laidlaw.
"LTI" means Laidlaw Transportation, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of Laidlaw.
"LWSC" means Laidlaw Waste Systems (Canada) Ltd., a Canadian corporation
and a wholly-owned subsidiary of Laidlaw.
"LWSI" means Laidlaw Waste Systems, Inc., a Delaware corporation and a
wholly-owned subsidiary of LTI.
"Nasdaq/NMS" means the National Market System of the Nasdaq Stock Market,
Inc.
"Proxy Statement" means this proxy statement relating to the Special
Meeting (as hereinafter defined).
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"Record Date" means October , 1996.
"SEC" means the United States Securities and Exchange Commission or any
successor thereto.
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<PAGE> 12
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"7% Debenture" means the 7% Junior Subordinated Debenture of Allied Canada
in the principal amount of $150,000,000 to be issued to Laidlaw at the Closing
and the debenture with substantially similar terms issued by Allied Finance to
Laidlaw in exchange for the 7% Debenture issued by Allied Canada immediately
following the issuance of the 7% Debenture issued by Allied Canada.
"Special Meeting" means the special meeting of stockholders of Allied to be
held with respect to, among other things, approval by Allied's stockholders of
the Issuances and the Amendment.
"Stock Consideration" means the issuance of the 14,600,000 shares of Common
Stock to the Laidlaw Sellers pursuant to the Agreement.
"Subtitle D" means Subtitle D of RCRA.
"Transactions" means the transactions contemplated by the Agreement
including the Issuances.
"United States Dollars" or "$" means United States Dollars.
"Warrant" means the warrant to purchase 20,400,000 shares of Common Stock
to be issued to Laidlaw pursuant to the Agreement.
"Zero Coupon Debenture" means the Zero Coupon Junior Subordinated Debenture
of Allied Canada in the principal amount of $168,300,000 to be issued to Laidlaw
at the Closing and the debenture with substantially similar terms issued by
Allied Finance to Laidlaw in exchange for the Zero Coupon Debenture issued by
Allied Canada immediately following the issuance of the Zero Coupon Debenture
issued by Allied Canada.
3
<PAGE> 13
AVAILABLE INFORMATION
Allied is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the SEC. The reports, proxy statements and other information
filed by Allied with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10007 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material also can be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Information filed with the SEC can also be inspected at the SEC's site on
the World Wide Web at http://www.sec.gov. In addition, material filed by Allied
can be inspected at the offices of Nasdaq/NMS at 1735 K Street, N.W.,
Washington, D.C. 20006.
4
<PAGE> 14
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The information contained in this summary is qualified in
its entirety by and should be read in conjunction with more detailed information
contained in this Proxy Statement. Unless otherwise indicated, capitalized terms
used in this summary are defined in the Glossary of Terms or elsewhere in this
Proxy Statement.
Allied..................... Allied is a vertically-integrated solid waste
management company providing non-hazardous waste
collection, transfer, recycling and disposal
services to over 395,000 residential and commercial
customers located primarily in the midwestern,
southwestern and southeastern United States. Allied
conducts its operations through 42 collection
companies, 23 transfer stations, 20 landfills and 9
recycling facilities in 12 states. During the
fiscal year ended December 31, 1995, Allied had
revenues of $217.5 million and EBITDA (before
pooling costs) of $61.6 million.
The Acquired
Subsidiaries............... The Acquired Subsidiaries provide solid waste
collection, compaction, disposal, recycling,
resource recovery, transportation, and transfer
services to approximately 260,000 commercial,
industrial and apartment building customers, and
4.1 million residential customers. The Acquired
Subsidiaries conduct their operations through 18
transfer stations, 31 landfills and 36 recycling
facilities in 17 states and six Canadian provinces.
During the fiscal year ended August 31, 1996, the
Acquired Subsidiaries had revenues of $763.5
million and EBITDA of $180.8 million.
The Transactions........... Allied will acquire the Acquired Subsidiaries,
through which Laidlaw conducts substantially all of
its solid waste management operations, for
consideration of (i) $1,200,000,000 in cash, (ii)
14,600,000 shares of Common Stock, (iii) the 7%
Debenture, (iv) the Zero Coupon Debenture and (v)
the Warrant. The terms and conditions of the
Transactions are set forth in the Agreement and in
the exhibits to the Agreement. The Agreement and
selected exhibits to the Agreement are attached as
Exhibit A to this Proxy Statement. The description
in this Proxy Statement of the Agreement, the
Transactions and their terms and conditions is
qualified in its entirety by reference to the
Agreement and the pertinent exhibits thereto, and
is not, and does not purport to be, complete.
Special Meeting............ The Special Meeting will be held at the Arizona
Club, 7150 East Camelback Road, Scottsdale, Arizona
85251, on November , 1996, at 10:00 a.m.,
Scottsdale, Arizona time. The purpose of the
Special Meeting is to consider and act upon (i) a
proposal to approve the Issuances, (ii) a proposal
to approve the Amendment and (iii) such other
business as may be properly presented to the
Special Meeting. Only holders of record of shares
of Common Stock at the close of business on the
Record Date, are entitled to notice of, and to vote
at, the Special Meeting. The presence, in person or
by proxy, at the Special Meeting of the holders of
a majority of the votes entitled to be cast at the
Special Meeting is necessary to constitute a quorum
at the Special Meeting. The affirmative vote of the
holders of a majority of the votes present in
person or by proxy at the Special Meeting is
required to approve the Issuances. Adoption of the
Amendment requires the affirmative vote of the
holders of a majority of the shares of Common Stock
outstanding and entitled to vote at the Special
Meeting. The respective
5
<PAGE> 15
obligations of the Allied Parties and the Laidlaw
Sellers to consummate the Transactions are subject
to, among other conditions, the approval of the
stockholders of Allied of the Issuances and the
Amendment.
Reasons for the
Transaction................ The Board of Directors anticipates that the
Transactions will further Allied's strategic
objectives of becoming a national,
vertically-integrated solid waste management
company and will result in several important
benefits to Allied, among which are: (i) the
Transactions allow Allied to significantly expand
its revenues and the scope and geographic base of
its operations; (ii) the Transactions will better
position Allied to compete in the currently
consolidating solid waste management industry;
(iii) the Transactions will enable Allied to
compete in many markets it does not currently serve
and would otherwise be unable to enter without
substantial delay and expense; and (iv) the
Transactions will allow Allied to obtain
significant operating synergies and cost savings
with the Acquired Subsidiaries and improve the
performance of assets of the Acquired Subsidiaries
that Allied believes are currently underutilized.
Following the consummation of the Transactions,
Allied will be the fourth largest solid waste
management company in the United States and the
largest in Canada, measured by revenues.
Opinion of Financial
Advisor.................... Goldman Sachs has delivered a written opinion,
dated September 17, 1996, to the Board of Directors
of Allied that, as of the date of such opinion, the
Acquisition Consideration to be paid to the Laidlaw
Sellers by the Allied Parties pursuant to the
Agreement is fair to Allied. The full text of the
written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and
limitations on the review undertaken in connection
with the opinion, is attached hereto as Exhibit B
and is incorporated herein by reference.
Stockholders are urged to, and should, read such
opinion in its entirety. See "The
Transactions -- Opinion of Financial Advisor to
Allied."
The Amendment.............. At the Special Meeting, Allied stockholders will
also be asked to consider and act upon a proposal
to approve the Amendment which will increase the
number of authorized shares of Common Stock from
100,000,000 to 200,000,000 shares. The Board of
Directors believes that the Amendment is necessary
in order to ensure that (i) there will be
sufficient authorized, unissued and unreserved
shares of Common Stock available to effect the
Issuances and (ii) after the consummation of the
Transactions, Allied will have shares available for
issuance at the Board of Directors' discretion for
future acquisitions, stock splits, stock dividends,
equity financings, employee benefit plans and other
corporate purposes.
Recommendation of the Board
of Directors............. The Board of Directors believes that the terms and
conditions of the Agreement and the Transactions
thereunder are in the best interests of Allied and
its stockholders and the Board of Directors
unanimously recommends that the Allied stockholders
vote (i) FOR approval of the Issuances and (ii) FOR
approval of the Amendment.
6
<PAGE> 16
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below for the year ended
December 31, 1995 and as of and for the six months ended June 30, 1996 are
derived from Allied's Selected Financial Data, Allied's Consolidated Financial
Statements, the Acquired Subsidiaries Selected Financial Data, the Acquired
Subsidiaries Financial Statements and Pro Forma Combined Financial Statements
included elsewhere herein. This summary financial information should be read in
conjunction with "Allied's Management's Discussion and Analysis of Financial
Condition and Results of Operations," Allied's Consolidated Financial Statements
and the notes thereto, the "Acquired Subsidiaries' Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Acquired
Subsidiaries' Financial Statements and the notes thereto, the Pro Forma Combined
Financial Statements and the notes thereto and the Supplemental Financial
Information, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
------------------------------------- ----------------------------------------
ACQUIRED PRO ACQUIRED PRO
ALLIED SUBSIDIARIES FORMA(1) ALLIED SUBSIDIARIES FORMA(1)
------------ ----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................. $217,544 $756,215 $ 982,571 $ 118,958 $395,786 $515,956
Operating income before pooling
costs(2)............................... 34,319 84,362 145,322 19,387 49,300 81,578
EBITDA before pooling costs(3)........... 61,598 176,082 284,626 34,795 98,260 155,543
Net income to common shareholders........ 6,160 50,536 2,500 3,662 29,530 1,974
Income per share......................... 0.15 -- 0.03 0.06 -- 0.02
JUNE 30, 1996
----------------------------------------
ACQUIRED PRO
ALLIED SUBSIDIARIES FORMA(2)
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
PRO FORMA BALANCE SHEET DATA:
Total assets............................................................. $ 502,086 $918,327 $2,297,192
Long-term debt, net of current portion................................... 177,003 1,895 1,554,645
Stockholders' equity..................................................... 200,519 708,787 350,338
12 MONTHS ENDED
JUNE 30, 1996
SUPPLEMENTAL
FINANCIAL
INFORMATION(4)
---------------
(UNAUDITED)
SUPPLEMENTAL STATEMENT OF OPERATIONS DATA:
Revenues................................................................................... $ 995,366
Operating income before
pooling costs(2)......................................................................... 170,336
EBITDA before pooling costs(3)............................................................. 314,660
Net income to common shareholders.......................................................... 24,677
Income per share........................................................................... 0.31
</TABLE>
- - - ---------------
(1) The unaudited pro forma combined balance sheet gives effect to the
Transactions as if they had occurred on June 30, 1996. The unaudited pro
forma combined statements of operations for the year ended December 31, 1995
and the six months ended June 30, 1996 give effect to the Transactions and
certain other events described in more detail in "Pro Forma Combined
Financial Statements" included elsewhere in this Proxy Statement as if they
had occurred on January 1, 1995. See "Allied Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Disclosure
Regarding Forward Looking Statements."
(2) Pooling costs of $1.5 million and $6.7 million were incurred by Allied in
1995 and 1996, respectively, for transaction and integration costs related
to acquisitions accounted for using the pooling-of-interests method for
business combinations. See "Business of Allied -- Acquisitions."
(3) Allied has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors to determine Allied's
historical ability to service its indebtedness.
(4) The supplemental financial information includes the Allied unaudited
historical combined condensed statement of operations and balance sheet as
of and for the twelve month period ended June 30, 1996 and the Acquired
Subsidiaries' historical combined condensed statement of operations and
balance sheet as of and for the twelve month period ended August 31, 1996,
adjusted for certain cost and expense savings and other economic benefits
that are expected to be realized as a result of the Transactions and the
elimination of certain nonrecurring items. See "Pro Forma Combined Financial
Statements -- Supplemental Information" and "Allied Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Disclosure
Regarding Forward Looking Statements."
7
<PAGE> 17
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at the Arizona Club, 7150 East Camelback
Road. Scottsdale, Arizona 85251, on November , 1996, at 10:00 a.m.,
Scottsdale, Arizona time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and act upon (i) a
proposal to approve the Issuances, (ii) a proposal to approve the Amendment and
(iii) such other business as may be properly presented to the Special Meeting.
Allied anticipates that the representatives of Arthur Andersen LLP, independent
public accountants for Allied, will attend the Special Meeting, may make a
statement if they desire to do so and will also be available to respond to
appropriate questions concerning the financial statements of Allied.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
Only holders of record of the Common Stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting. As
of the Record Date, there were issued, outstanding and entitled to vote
shares of Common Stock. The DGCL and the Certificate of Incorporation,
as amended, prescribe that each share of Common Stock entitles the holder to one
vote on all matters presented at the Special Meeting.
REVOCABILITY OF PROXY
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the Special Meeting, by (i) delivering to Allied a written notice
stating that the proxy is revoked, (ii) signing and so delivering a proxy
bearing a later date or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, revoke a
proxy).
VOTE REQUIRED FOR APPROVAL
Pursuant to the rules of the Nasdaq/NMS, an issuer must obtain stockholder
approval of any potential issuance of common stock or securities convertible
into common stock pursuant to an acquisition, if such stock has or would have
upon issuance voting power equal to or in excess of 20% of the voting power
outstanding prior to such issuance. The Stock Consideration, together with the
Exercise Shares and the Debenture Shares, would represent over 20% of the voting
power of Allied outstanding immediately after such issuances (although the
Warrant cannot be exercised by Laidlaw except in certain circumstances). Thus,
approval by the Allied stockholders of the Issuances is required by the rules of
the NASDAQ/NMS. The Issuances must be approved by the vote of the holders of a
majority of the votes entitled to be cast thereon present in person or by proxy
at the Special Meeting, provided that a majority of the votes entitled to be
cast at the Special Meeting is present in person or by proxy. In addition,
receipt of such stockholder approval is a condition to the consummation of the
Transactions pursuant to the Agreement. Consequently, the Board of Directors is
hereby submitting the Issuances to the stockholders for their approval. Unless
such approval is obtained, the Transactions will not be consummated. As of the
date of this Proxy Statement, the Board of Directors anticipates consummating
the Transactions as soon as practicable but in no case later than December 31,
1996, assuming satisfaction or waiver of all other conditions to Closing.
The DGCL requires that any amendments to the Certificate of Incorporation
be approved by a majority of the shares of Common Stock outstanding and entitled
to vote at the Special Meeting as of the Record Date. In addition, receipt of
stockholder approval for the Amendment is a condition to the Closing of the
Transactions. Consequently, the Board of Directors is hereby submitting the
Amendment to the stockholders for their approval. Unless such approval is
obtained, the Transactions will not be consummated.
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the votes entitled to be cast at the Special Meeting is
necessary to constitute a quorum at the Special Meeting. Under the DGCL, the
Bylaws and the Certificate of Incorporation, shares as to which a stockholder
abstains or withholds from voting and shares as to which a broker indicates that
it does not have discretionary authority to vote ("broker non-votes") will be
treated as present at the Special Meeting for purposes of determining a quorum,
but will not be counted as votes cast on any matters. Proxies will be voted in
accordance with the directions specified thereon and otherwise in
8
<PAGE> 18
accordance with the judgment of the persons designated as proxies. Any proxy on
which no direction is specified will be voted in favor of the Issuances, in
favor of the Amendment and otherwise in accordance with the judgment of the
person specified thereon. Holders of Common Stock are entitled to one vote for
each share held as of the Record Date.
Under the Bylaws, no business may be transacted at the Special Meeting
except as set forth in the Notice of Special Meeting of Stockholders
accompanying this Proxy Statement or as properly brought before the Special
Meeting by or at the direction of the Board of Directors. If any other matters
are properly presented to the Special Meeting for consideration (such as
consideration of a motion to adjourn the Special Meeting to another time or
place, including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. As of
the date hereof, the Board of Directors knows of no such other matters.
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors for
use at the Special Meeting, to be held at the Arizona Club, 7150 East Camelback
Road, Scottsdale, Arizona 85251, on November , 1996 at 10:00 a.m., Scottsdale,
Arizona time. Only holders of record of Common Stock at the close of business on
the Record Date will be entitled to vote at the Special Meeting. On the Record
Date, there were shares of Common Stock outstanding and entitled to
vote. A majority of those shares, present in person or by proxy, will constitute
a quorum for the transaction of business at the Special Meeting. Abstentions and
broker non-votes will be considered to be present for purposes of a quorum but
will not be counted as votes cast on any matters. This Proxy Statement and the
accompanying form of proxy were first mailed to the Allied stockholders on or
about October , 1996.
EXPENSES OF PROXY SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
Allied. In addition to solicitations by mail, regular employees of Allied may,
if necessary to assure the presence of a quorum, solicit proxies in person or by
telephone. Allied will reimburse brokers or other persons holding stock in their
names or in the names of their nominees for their reasonable expenses in
forwarding proxy material to beneficial owners of stock. Allied has retained
Corporate Investor Communications, Inc. ("CIC") to perform solicitation services
in connection with this Proxy Statement. For such services, CIC will receive a
fee of up to $10,000 and will be reimbursed for certain out-of-pocket expenses
and indemnified against certain liabilities incurred in connection with this
solicitation.
BOARD OF DIRECTORS' RECOMMENDATIONS
Allied is constantly discussing potential acquisitions with a variety of
solid waste management and disposal companies to fulfill its objective of
becoming a national, vertically-integrated solid waste management company built
around landfills convenient to major sources of waste. Through the consummation
of the Transactions contemplated in the Agreement, Allied can further this
objective. For the reasons set forth in "The Transactions -- Reasons For the
Transactions," the Board of Directors believes that the terms and conditions of
the Agreement and the Transactions are in the best interests of Allied. The
Board of Directors has unanimously approved the Agreement and the Transactions
and recommends that the stockholders of Allied vote "FOR" the approval of the
Issuances and "FOR" the approval of the Amendment.
9
<PAGE> 19
THE TRANSACTIONS
The following summary of the Transactions is qualified in its entirety by
reference to the provisions in the Agreement and certain exhibits thereto, which
are included as Exhibit A to this Proxy Statement.
GENERAL DESCRIPTION OF THE TRANSACTIONS
Allied proposes to acquire the non-hazardous, solid waste management
business conducted by Laidlaw in the United States and Canada for consideration
comprised of (i) the Cash Consideration; (ii) the Stock Consideration; (iii) the
Warrant, and (iv) the Debentures. Laidlaw conducts substantially all its
non-hazardous solid waste management business through the Acquired Subsidiaries.
The Acquired Subsidiaries include subsidiaries which are direct or indirect
subsidiaries of LTI and subsidiaries owned directly or indirectly by Laidlaw
otherwise than through LTI. By acquiring (i) from Laidlaw, the stock of two of
its first-tier subsidiaries, LWSC and LMS, and (ii) from LTI, the stock of LWSI,
Allied proposes to acquire substantially all of the non-hazardous solid waste
management business conducted by Laidlaw.
To accomplish the proposed Transactions, Allied has formed three new
wholly-owned subsidiaries: (i) Allied U.S., (ii) Allied Canada, and (iii) Allied
Finance. The Agreement provides that Allied U.S. will acquire all of the stock
of LWSI from LTI, and that Allied Canada will acquire all of the stock of each
of LWSC and LMS from Laidlaw, in related and contemporaneous transactions
governed by the Agreement. The role of Allied Finance is discussed in "The
Agreement -- Acquisition Consideration."
BACKGROUND OF THE TRANSACTIONS
Allied's strategy is to develop a national, vertically-integrated solid
waste management company through the acquisition and internal development of
non-hazardous, solid waste collection and disposal operations. In keeping with
this strategy, since its formation in 1987, Allied has acquired over 90
companies in the waste management industry, and is constantly reviewing
acquisition opportunities. Due to Laidlaw's significant presence in the
industry, Allied considered Laidlaw's solid waste operations an attractive
potential acquisition candidate that could provide significant opportunities for
vertical integration, complement Allied's existing operations and enable Allied
to become the fourth largest U.S. company and the largest Canadian company in
the waste management industry by revenue.
In December 1993, Thomas H. Van Weelden, Allied's President and Chief
Operating Officer, met briefly with James R. Bullock, President and Chief
Executive Officer of Laidlaw, in Burlington, Ontario, to discuss the possibility
of a strategic alliance between Allied and Laidlaw, as Allied was continuing its
acquisition program in the solid waste management industry. No economic terms of
any potential combination were discussed at this meeting.
In June, 1996, Mr. Van Weelden and Roger A. Ramsey, Allied's Chairman of
the Board and Chief Executive Officer, met with Mr. Bullock to discuss a
possible acquisition by Allied of Laidlaw's solid waste operations, and the
possible terms of such a transaction. Laidlaw indicated that it would be
interested in considering a disposition of the Laidlaw solid waste operations if
terms could be agreed upon. Following this meeting, the parties began to discuss
in more detail certain financial and operating information about Laidlaw's solid
waste operations, and certain aspects of the synergies that could result from
such a transaction. The parties continued to exchange a limited amount of
information, met briefly in New York City on July 1, 1996, and executed a
confidentiality agreement on July 3, 1996. By a letter agreement dated as of
July 15, 1996, Allied engaged Goldman Sachs as its financial advisor regarding
this potential transaction.
Following these conversations, the parties conducted limited due diligence
investigations, and next met in Chicago on July 16 to begin to discuss potential
terms for the acquisition and related financing and tax issues. The parties
discussed tentative terms at this meeting, involving a combination of
consideration to be paid by Allied comprised of approximately $1,200,000,000 in
cash, a number of shares of Common Stock to be agreed on and some form of a
subordinated debt instrument, but agreed that additional due diligence and
negotiations of terms was necessary before a proposal could be finalized. After
the July 16 meeting, it was agreed that Allied and its advisors could conduct
certain due diligence procedures with a view to determining if an acceptable
acquisition structure could be developed. This due diligence effort continued
for several weeks. Messrs. Ramsey and Van Weelden also began to have a series of
individual conversations with members of Allied's Board of Directors, and with
Mr. Bullock and other officers of Laidlaw to develop a proposed structure and
financing strategy.
10
<PAGE> 20
On August 1, 1996, representatives of Allied and Laidlaw met in New York
City to further discuss tentative terms, financing and related issues, and a
tentative structure was developed for further review by the parties.
On August 5, the Board of Directors of Allied met by telephone to discuss
the status of negotiations and due diligence regarding the contemplated
transaction. The Board of Directors directed management to proceed with its due
diligence and decided to meet again on August 15 in New York City to discuss the
transaction in more detail. The parties continued their negotiations and due
diligence, and held meetings regarding structure, tax, accounting, and operating
issues.
On August 15, the Board of Directors of Allied met in New York City to
review the transaction, and to discuss the status of the analysis done to date
regarding the issues described above. Of particular importance was the status of
due diligence concerning operating synergies and cost savings for the combined
operations, as well as tax and accounting issues. The Board of Directors
directed management to proceed with discussions with Laidlaw based on a proposal
outlined at this meeting involving a combination of $1,200,000,000 in cash,
Common Stock, warrants and Allied subordinated debentures. The Board of
Directors also asked management to report back to the Board of Directors on
Sunday, August 18, regarding Laidlaw's response. Messrs. Ramsey and Van Weelden
discussed the proposal with Mr. Bullock in person in Toronto on August 16, and
reported to the Board of Directors on August 18 by telephone, that several key
issues remained outstanding and would require further due diligence by Allied
and negotiations with Laidlaw. Those meetings between the parties continued,
including meetings between Allied and proposed bank lenders to arrange financing
for the acquisition. Messrs. Ramsey and Van Weelden also continued to meet
individually with Allied directors to discuss the results of these meetings. The
parties began to exchange drafts of the stock purchase agreement at this time as
well. However, the terms of the warrant and the subordinated debentures were
still being discussed, as well as various diligence and financing issues.
The Board of Directors was updated on the status of the transaction by
means of a telephone meeting held on August 28, 1996. On August 28, 1996, Mr.
Bullock also discussed with Laidlaw's board of directors the possibility of a
transaction with Allied.
Discussions continued through the next two weeks, and the parties agreed to
meet in New York City beginning the week of September 9 in an effort to finalize
negotiations on the terms of the acquisition and the acquisition agreements. A
draft of the stock purchase agreement was circulated to Allied's Board of
Directors on September 12. The Board of Directors met by telephone on September
13 to discuss the current form of the transaction and the drafts of the
agreements. The Board of Directors concluded the meeting by instructing
management to proceed with final negotiations premised on certain changes in the
terms of the consideration. The Board of Directors also directed management to
obtain a "highly confident" letter regarding a senior subordinated debt offering
and a commitment letter regarding a bank financing.
New drafts of the acquisition agreements were distributed to the Board of
Directors during the next few days, and Allied and Laidlaw continued to
negotiate detailed terms of the agreements. On September 17, the Board of
Directors met twice to discuss the final proposal and definitive agreements,
which were provided to the Board of Directors in advance of the meeting.
Laidlaw's board of directors also met on September 17 to review and approve the
acquisition. After responding to questions regarding the final terms, due
diligence, financing commitments, and operating and management issues,
representatives of Goldman Sachs delivered its opinion that, as of the date of
such opinion, the Acquisition Consideration to be paid to the Laidlaw Sellers by
the Allied Parties pursuant to the Agreement was fair to Allied. Allied also
received a commitment letter regarding bank financing and a highly confident
letter regarding an offering of senior subordinated debt, the proceeds of which
would be used to fund the Cash Consideration, to refinance existing debt, and to
provide Allied with working capital, letter of credit and acquisition financing
after consummation of the Transactions. The Board of Directors and Laidlaw's
board of directors both voted to authorize management to execute the definitive
agreements in the form presented to their respective boards, assuming no
material changes were made prior to execution. Later that evening, the Agreement
was executed, and on September 18, the parties jointly announced the execution
of the Agreement.
11
<PAGE> 21
REASONS FOR THE TRANSACTIONS
In evaluating the Agreement and the Transactions, the Board of Directors of
Allied considered a variety of factors in the context of its strategic
objectives of developing a national, vertically-integrated solid waste
management company with a broad geographic base of operations. In approving the
Transactions and concluding that it is in the best interest of Allied and its
stockholders, the Board of Directors considered the following anticipated
benefits:
1. The Transactions are consistent with Allied's long-term objective
of delivering stockholder value by growth through acquisitions and internal
development.
2. Assuming that anticipated market integration initiatives are
completed and projected operating synergies and cost savings are realized,
the Transactions should be accretive to future earnings per share and cash
flow.
3. The Transactions will accelerate Allied's future growth by allowing
it to enter 17 new integrated markets not now served by Allied.
4. Allied anticipates that combining its operations with those of the
Acquired Subsidiaries will increase revenues and profits. Management
believes that there are opportunities for substantial cost savings
including the elimination of redundant overhead and operating expenses and
the realization of other valuable business synergies and operating
efficiencies. Allied expects to realize approximately $67,000,000 annually
in synergies and cost savings.
5. The Transactions will allow Allied to compete more effectively in
the consolidating solid waste industry.
6. Allied's ability to attract new capital will be enhanced by the
Transactions.
There can be no assurance, of course, that the benefits anticipated to
result from the Transactions will, in fact, be achieved.
In addition to the anticipated benefits of the Transactions, the Board of
Directors considered the following potential risks and disadvantages:
1. After consummation of the Transactions, Allied will be highly
leveraged with substantial debt service obligations, and will thus be
susceptible to adverse changes in its industry, the economy and the
financial markets generally. Allied's ability to complete additional debt
financing will be limited by restrictive covenants under the terms of the
financing for the Cash Consideration, and those limits on financing may
also limit Allied's ability to complete additional acquisitions. See
"-- Financing of the Transactions."
2. Any substantial delay in or reduction of expected operating
synergies and cost savings could adversely impact the value of Allied's
common stock and its ability to raise new capital.
3. Allied's success after the Transactions will be dependent in part
on Allied's ability to successfully integrate the operations of the
Acquired Subsidiaries, which are substantially larger than previous
acquisitions of Allied, into the operations of Allied.
4. Allied will acquire operations in Canada, where it has little
familiarity with the regulatory framework governing waste management
operations.
5. Allied has received indemnity from Laidlaw for potential contingent
liabilities relating to the Acquired Subsidiaries after Closing, including
tax and environmental liabilities, subject to certain limitations. See "The
Agreement -- Indemnification." While Laidlaw debt is currently
investment-grade rated, the failure of Laidlaw to perform under its
indemnification obligations when required to do so may have a material
adverse effect on the financial condition and results of operations of
Allied.
Other Factors. In addition to its potential benefits and risks, the Board
of Directors, in reaching its conclusion as to the Transactions, considered the
following factors: (i) the terms and conditions of the Agreement and the fact
that such terms and conditions were negotiated on an arm's length basis between
Allied and the Laidlaw Sellers, (ii) the opinion of Goldman Sachs, which acted
as financial advisor to Allied in connection with the Transactions, that, as of
the date of such opinion, the Acquisition Consideration to be paid to the
Laidlaw Sellers by the Allied
12
<PAGE> 22
Parties, is fair to Allied and (iii) presentations by management of Allied,
including management's review of the timing and amount of the operating
synergies and cost savings to be accomplished after the Closing. See "-- Opinion
of Financial Advisor to Allied."
In view of the nature and variety of factors considered in connection with
its evaluation of the Transactions, the Board of Directors did not find it
practicable to quantify or otherwise assign specific weights to specific
factors. Each anticipated advantage was deemed to support the conclusion of the
Board of Directors, and the anticipated advantages, considered as a whole, were
determined to outweigh the potential risks and disadvantages, considered as a
whole.
FINANCING OF THE TRANSACTIONS
Allied intends to finance the Cash Consideration in part with the proceeds
of a new senior bank financing and in part with the proceeds of a private
placement or public offering of senior subordinated notes (the "Senior
Subordinated Notes") of Allied U.S.
Senior Credit Facilities. In contemplation of the Transactions, Allied has
received a conditional commitment (the "Senior Financing Commitment") from
Goldman Sachs Credit Partners L.P., Credit Suisse and Citicorp USA, Inc.
(collectively the "Senior Lenders") to provide senior secured debt financing
(the "Senior Financing") to Allied U.S. in the aggregate amount of
$1,225,000,000, of which (x) up to $775,000,000 will be used by Allied U.S. to
pay the Cash Consideration and to pay transaction costs associated with the
Transactions, (y) approximately $200,000,000 will be used to refinance certain
existing indebtedness of Allied and its subsidiaries, and (z) $250,000,000 will
be available on a revolving basis for working capital purposes , of which up to
$100,000,000 would be available for the purpose of financing future
acquisitions.
Allied U.S. will be the borrower under the Senior Financing, and Allied and
all of its present and future direct and indirect subsidiaries will be
guarantors of the Senior Financing. The Senior Financing will be secured by the
stock of all Allied subsidiaries and by substantially all of the assets of
Allied and its subsidiaries. The Senior Financing will be divided into (i)
$975,000,000 of amortizing term loans with final maturities ranging from 5 1/2
years to 8 1/2 years after the Closing Date, and (ii) a $250,000,000 revolving
credit facility which will mature five and one-half years from the Closing Date
(except that any advances made under the revolving credit facility to finance
future acquisitions by Allied which remain outstanding three and one-half years
after the Closing Date will amortize from that date through the maturity of the
revolving credit facility). Interest on the revolving credit facility and on
$475 million of the term loan facility will initially be 1.50% above a
referenced base rate for non-eurodollar loans and 2.50% above Credit Suisse's
eurodollar rate for eurodollar borrowings. Beginning one year after Closing and
quarterly thereafter, the rate applicable to those loans may vary between 0.25%
and 1.50% above the referenced base rate for non-eurodollar loans and between
1.25% and 2.50% above Credit Suisse's eurodollar rate for eurodollar borrowings
depending upon the ratio of Allied's total debt to its EBITDA from time to time.
Interest on the remainder of the Senior Financing will vary from 1.75% to 2.25%
above a referenced base rate for non-eurodollar borrowings and from 2.75% to
3.25% above Credit Suisse's eurodollar rate for eurodollar borrowings, in each
case depending on the maturity of the respective amortization extended
facilities.
The Senior Financing Commitment is subject to a number of conditions which
include those customary for financing transactions of this type (such as the
preparation of loan documentation satisfactory to the Senior Lenders, receipt of
opinions of counsel, absence of material adverse changes, and receipt by the
Senior Lenders of an environmental assessment report satisfactory to the Senior
Lenders), as well as the following conditions: (i) the Senior Lenders shall have
completed and been satisfied with the results of their due diligence review of
the business, operations, condition (financial or otherwise), assets, properties
and prospects of both Allied and its subsidiaries and the Acquired Subsidiaries,
(ii) the Transactions shall have been consummated concurrently with the closing
of the Senior Financing on terms satisfactory to the Senior Lenders, and (iii)
Allied U.S.' receipt of at least $475,000,000 in gross cash proceeds from the
offering of the Senior Subordinated Notes.
The Senior Financing Commitment provides that the agreement pursuant to
which the Senior Financing will be issued will contain negative, affirmative and
financial covenants customarily found in the Senior Lenders' credit agreements
for financings such as the Senior Financing, including covenants (i) requiring
compliance with laws and performance of obligations, (ii) restricting
transactions with affiliates, (iii) requiring satisfactory levels of cash
interest coverage and fixed charge coverage and ratios of total debt to EBITDA,
(iv) limiting annual capital
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<PAGE> 23
expenditures, (v) requiring periodic reporting of financing information, and
(vi) restricting debt, liens, mergers and consolidations, sales of assets,
dividends or other distributions to shareholders, changes in the nature of the
business, changes in charter documents and other material contracts, redemption
of subordinated debt and negative pledge clauses in favor of other creditors.
The covenants referred to above will be subject to significant exceptions.
Senior Subordinated Notes. In contemplation of the Transaction, Allied has
received a letter (the "Highly Confident Letter") from Goldman Sachs and
Citicorp Securities, Inc. (the "Investment Banks") to the effect that, subject
to the assumptions and conditions therein, the Investment Banks are highly
confident that they can accomplish the private placement or public offering of
approximately $475 million principal amount of Senior Subordinated Notes of
Allied U.S., a portion of the net proceeds of which will be used by Allied U.S.
to pay the Cash Consideration and to pay costs associated with the Transactions.
The Highly Confident Letter is not a commitment by the Investment Banks to
purchase or place the Senior Subordinated Notes, but is instead an expression of
their high confidence that the private placement or public offering of
approximately $475 million aggregate principal amount of Senior Subordinated
Notes can be accomplished by the Investment Banks as part of the financing of
the Transactions, subject to the limits, assumptions and conditions stated in
such Highly Confident Letter. The terms and conditions of the Senior
Subordinated Notes, including amortization, maturity and interest rate, are yet
to be determined, and will be dependent upon a number of factors, including the
condition of the financial or capital markets generally and the market for new
issuances of high yield debt securities specifically, at the date of their
offering. The Senior Subordinated Notes will rank junior to the Senior Financing
and senior to the Debentures.
The private placement or public offering of the Senior Subordinated Notes
will be subject to certain conditions including (i) the terms and conditions of
the Senior Subordinated Notes and all other debt and equity financing for the
Transactions and all related documentation being satisfactory to the Investment
Banks; (ii) the purchase price and other terms and conditions of the
Transactions being satisfactory in form and substance to the Investment Banks;
(iii) the execution and delivery of documentation with respect to the Senior
Subordinated Notes and the offering and sale thereof that is satisfactory to the
Investment Banks; (iv) the execution and delivery of documentation with respect
to the Transactions, the Senior Financing, and all other transactions related to
the Transactions that are satisfactory to the Investment Banks; (v) the absence
of any adverse change in the business, condition (financial or otherwise),
results of operations or prospects of the Allied Parties or the Acquired
Subsidiaries that the Investment Banks, in their sole discretion, deem material;
(vi) the receipt of all necessary governmental, regulatory and third party
approvals and consents in connection with the Transactions; (vii) the
satisfactory completion of the due diligence investigation (including an
environmental audit) by the Investment Banks; (viii) the availability of audited
and unaudited historical financial statements of the Allied Parties and the
Acquired Subsidiaries (including pro forma financial statements) meeting the
requirements of Regulation S-X for Form S-1 registration statements; (ix) the
completion of a private placement memorandum, offering circular or prospectus
acceptable to the Investment Banks; (x) the absence of any disruption or adverse
change in financial or capital markets generally or in the market for new
issuance of high yield debt securities particularly, in either case that the
Investment Banks, in their sole discretion, deem material; (xi) the Investment
Banks' having reasonable time to market the Senior Subordinated Notes with the
assistance of management of the Allied Parties and the Acquired Subsidiaries,
based on the experience of the Investment Banks in comparable transactions sold
in comparable markets; (xii) satisfaction of all of the conditions precedent set
forth in the Agreement, the Senior Financing and all other documentation
relating to the Transactions; (xiii) there being at least $250 million of
available borrowings under the Senior Financing immediately after the
consummation of the Transactions; and (xiv) the absence of any change or
proposed change in United States or Canadian law having occurred that would
reasonably be expected to adversely affect the economic consequences, including
the tax treatment, that Allied or any of its subsidiaries contemplate deriving
from the Transactions.
Although the terms of the Senior Subordinated Notes have not been
finalized, it is anticipated that the indenture governing the Senior
Subordinated Notes will restrict, among other things, the ability of Allied U.S.
and its subsidiaries (i) to incur additional indebtedness, (ii) to make
distributions on and repurchases of its Common Stock, (iii) to have restrictions
on the ability of its subsidiaries to make dividend or other payments to Allied
U.S., (iv) to sell assets and to use the proceeds of asset sales, (v) to pledge
assets, (vi) to merge or consolidate with or transfer all or substantially all
of its assets to another entity, or (vii) to engage in transactions with
affiliates, all of which will be subject to certain significant exceptions.
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OPINION OF FINANCIAL ADVISOR TO ALLIED
On September 17, 1996, Goldman Sachs delivered its oral opinion to the
Board of Directors of Allied that as of the date of such opinion, the
Acquisition Consideration to be paid to the Laidlaw Sellers by the Allied
Parties pursuant to the Agreement was fair to Allied. Goldman Sachs subsequently
delivered its written opinion, dated September 17, 1996.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Exhibit B to this Proxy
Statement and is incorporated herein by reference. Stockholders of Allied are
urged to, and should, read such opinion in its entirety.
In connection with this opinion, Goldman Sachs reviewed, among other
things, the Agreement; Annual Reports to Stockholders and Annual Reports on Form
10-K of Allied for the five years ended December 31, 1995; Annual Reports to
Stockholders and Annual Reports on Form 10-K of Laidlaw for the five fiscal
years ended August 31, 1995; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of Allied and Laidlaw; certain other
communications from Allied and Laidlaw to their respective stockholders; the
unaudited historical financial statements of the Acquired Subsidiaries; and
certain internal financial analyses and forecasts for Allied and the Acquired
Subsidiaries prepared by the management of Allied. Goldman Sachs also held
discussions with members of the senior management of Allied regarding the past
and current business operations, financial condition and future prospects of
Allied and the Acquired Subsidiaries and of a combined business consisting of
Allied and the Acquired Subsidiaries; however, Goldman Sachs did not hold
discussions with the Laidlaw Sellers regarding the attainability of the
projections that the management of Allied furnished to Goldman Sachs. In
addition, Goldman Sachs reviewed the reported price and trading activity for the
capital stock of Allied, compared certain financial and stock market information
for Allied with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the solid waste industry specifically and in other
industries generally, and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. Goldman Sachs assumed that the information presents
fairly in all material respects the financial position and results of operations
of Allied and the Acquired Subsidiaries for the periods set forth therein and
that the reserves for environmental liabilities set forth in the financial
statements for the Acquired Subsidiaries are adequate. Management of Allied
advised Goldman Sachs that the foregoing projections reflect the best currently
available judgment and estimates by them, and Goldman Sachs assumed, with the
consent of Allied, that the results contemplated in such projections, including
without limitation, projected cost savings and operating synergies resulting
from the Transactions, will be realized in the amounts and at the times
contemplated therein. Goldman Sachs did not make an independent evaluation or
appraisal of the assets and liabilities of Allied or the Acquired Subsidiaries;
and Goldman Sachs has not been furnished with any such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the Board of
Directors on September 17, 1996 and in connection with providing the written
opinion attached hereto as Exhibit B.
(i) Stock Price Performance. As part of its analysis, Goldman Sachs
reviewed the recent stock market performance of Allied. Goldman Sachs also
compared the stock price performance of Allied with that of six publicly
traded corporations in the solid waste industry: (a) Browning Ferris
Industries, Inc. and WMX Technologies, Inc. (the "National Companies"), and
(b) Superior Services Inc., United Waste Systems, Inc., USA Waste Services,
Inc. and Republic Industries, Inc. (the "Mid-cap Companies," and together
with the National Companies, the "Selected Companies").
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Allied to corresponding financial
information, ratios and public market multiples for the Selected Companies.
The public market multiples and financial ratios for Allied and the
Selected Companies were calculated using the closing market prices as of
September 10, 1996. The multiples and ratios for Allied were further based
on information provided by Allied's management and the multiples for each
of the Selected Companies were based on the most recent publicly available
information. With respect to the Selected
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Companies, Goldman Sachs considered levered market capitalization (i.e.,
market value of common equity plus book value of debt less cash) as a
multiple of latest twelve months ("LTM") sales, and as a multiple of LTM
EBITDA. Goldman Sachs' analyses of the Selected Companies indicated levered
multiples of LTM sales, which ranged from 1.0x to 2.3x with a mean of 1.6x
(for the National Companies) and from 2.6x to 24.6x with a mean of 3.4x
(for the Mid-cap Companies, with the mean calculated excluding Republic
Industries, Inc.), and of LTM EBITDA, which ranged from 4.6x to 8.4x with a
mean of 6.5x (for the National Companies) and 7.9x to 100.8x with a mean of
10.1x (for the Mid-cap Companies, with the mean calculated excluding
Republic Industries, Inc.), compared to levered multiples of 3.9x and
11.9x, respectively, for Allied. Goldman Sachs also considered (i) calendar
year 1996 and 1997 price/earnings ratios based on earnings estimates
provided by Institutional Brokers Estimate system ("IBES"), which ranged
from 17.5x to 17.9x with a mean of 17.7x (for the National Companies) and
from 24.3x to 71.3x with a mean of 25.9x (for the Mid-Cap Companies, with
the mean calculated excluding Republic Industries, Inc.), in each case for
estimated calendar year 1996, and was 15.4x (for the National Companies)
and ranged from 18.7x to 44.1x with a mean of 20.5x (for the Mid-cap
Companies, with the mean calculated excluding Republic Industries, Inc.),
in each case for estimated calendar year 1997, compared to 25.4x and 16.7x,
for calendar years 1996 and 1997, respectively, for Allied; (ii) LTM EBITDA
margins, which ranged from 21.3% to 27.4% with a mean of 24.4% (for the
National Companies) and from 24.4% to 35.8% with a mean of 31.3% (for the
Mid-cap Companies), compared to 32.9% for Allied; (iii) LTM earnings before
interest and taxes ("EBIT") margins, which ranged from 11.1% to 21.3% with
a mean of 16.2% (for the National Companies) and from 16.3% to 23.9% with a
mean of 19.3% (for the Mid-cap Companies), compared to 18.8% for Allied;
(iv) LTM net margins, which ranged from 4.9% to 7.3% with a mean of 6.1%
(for the National Companies) and from 8.7% to 12.0% with a mean of 10.6%
(for the Mid-cap Companies), compared to 7.7% for Allied; (v) debt to total
capitalization ratios, which ranged from 53.2% to 59.9% with a mean of
56.6% (for the National Companies) and from 0.0% to 46.7% with a mean of
31.6% (for the Mid-cap Companies, with the mean calculated excluding
Republic Industries, Inc.), compared to 50.3% for Allied; and (vi)
estimated five-year EPS growth rates (provided by IBES) ranging from 10.0%
to 13.0% with a mean of 11.5% (for the National Companies) and from 8.5% to
23.0% with a mean of 21.0% (for the Mid-cap Companies, with the mean
calculated excluding Republic Industries, Inc.), compared to 25.0% for
Allied.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow sensitivity analysis of the Acquired Subsidiaries
based on Laidlaw and Allied management projections. Goldman Sachs
calculated the net present value of the free cash flows of the Acquired
Subsidiaries for the years 1997 through 2001 using discount rates ranging
from 10% to 14%. Goldman Sachs calculated terminal values of the Acquired
Subsidiaries in the year 2001 based on multiples ranging from 6.0x EBITDA
to 10.0x EBITDA. These terminal values were then discounted to present
values using discount rates ranging from 10.0% to 14.0%. Goldman Sachs also
calculated the present value of the tax benefits which Allied management
expects to be derived from the tax deductibility of goodwill created in the
transaction based on Allied management's estimates and using discount rates
of 8.0% and 10.0%.
Such analysis indicated that, assuming discount rates ranging from
12.0% to 13.0%, terminal values of the Acquired Subsidiaries in the year
2001 based on multiples ranging from 8.0x to 9.0x EBITDA and annual pre-tax
synergies ranging from $0 to $60 million, the net present value of the
future cash flows from the Acquired Subsidiaries ranged from $1,351 million
to $2,042 million.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the solid waste industry
since 1994, consisting of the acquisition by: (a) Browning Ferris
Industries, Inc. of Attwoods PLC in February 1995, (b) USA Waste Services
Inc. of the Solid Waste Division of Philip Environmental Inc. in September
1996, (c) USA Waste Services Inc. of Sanifill Inc. in September 1996, (d)
Republic Industries, Inc. of Addington Resources Inc., which was pending,
(e) Republic Industries, Inc. of Continental Waste Industries Inc., which
was pending, (f) USA Waste Services Inc. of Western Waste Industries in May
1996, (g) USA Waste Services Inc. of Chambers Development Company Inc. in
June 1995, and (h) USA Waste Services Inc. of Envirofil, Inc. in May 1994
(the "Selected Transactions"). However, with respect to such analysis
conducted as adjusted for synergies, information was available only for,
and the term Selected Transactions shall include only, transactions (a),
(c), (f) and (g) above. Synergy estimates used by Goldman Sachs in the
following analysis (i) with respect to the Transactions, were provided by
Allied management, and (ii) with respect to the Selected Transactions, were
derived from public announcements
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made by the parties thereto. Such analysis indicated that for the Selected
Transactions (i) levered aggregate consideration as a multiple of
annualized last quarter sales ranged from 1.2x to 5.5x, if not adjusted for
synergies, and from 1.2x to 4.9x, if adjusted for synergies, as compared to
(A) assuming a valuation of the Acquisition Consideration at $1,522
million, 2.0x for the Transactions, if not adjusted for synergies, and also
2.0x, if adjusted for synergies, (B) and assuming a valuation of the
Acquisition Consideration at $1,580 million, 2.1x, if not adjusted for
synergies, and also 2.1x, if adjusted for synergies, (ii) levered aggregate
consideration as a multiple of annualized last quarter EBITDA ranged from
6.6x to 17.3x, if not adjusted for synergies, and from 4.7x to 10.8x, if
adjusted for synergies, as compared to (A) assuming a valuation of the
Acquisition Consideration at $1,522 million, 8.7x for the Transactions, if
not adjusted for synergies, and 6.8x, if adjusted for synergies, and (B)
assuming a valuation of the Acquisition Consideration at $1,580 million,
9.0x, if not adjusted for synergies, and 7.1x, if adjusted for synergies,
(iii) levered aggregate consideration as a multiple of annualized last
quarter EBIT ranged from 9.1x to 30.6x, if not adjusted for synergies, and
from 7.8x to 15.6x, if adjusted for synergies, as compared to (A) assuming
a valuation of the Acquisition Consideration at $1,522 million, 18.5x for
the Transactions, if not adjusted for synergies, and 11.8x, if adjusted for
synergies, and (B) assuming a valuation of the Acquisition Consideration at
$1,580 million, 19.2x, if not adjusted for synergies, and 12.2x, if
adjusted for synergies, and (iv) aggregate consideration as a multiple of
annualized last quarter net income ranged from 26.0x to 44.1x, if not
adjusted for synergies, and from 12.0x to 23.7x, if adjusted for synergies,
as compared to (A) assuming a valuation of the Acquisition Consideration at
$1,522 million, 31.6x for the equity consideration to be paid in the
Transactions, if not adjusted for synergies, and 20.1x, if adjusted for
synergies, and (B) assuming a valuation of the Acquisition Consideration at
$1,580 million, 32.8x, if not adjusted for synergies, and 20.9x, if
adjusted for synergies.
(v) Pro Forma Analysis. Pro forma analyses of the financial impact of
the Transactions were prepared. Using earnings estimates for the combined
entity prepared by Allied management for the years 1997 and 1998, which
were based on earnings estimates for Allied and Laidlaw prepared by their
respective managements, the earnings per share ("EPS") of the Common Stock,
on a standalone basis, were compared to the EPS of the common stock of the
combined companies on a pro forma basis. This analysis was performed under
various synergies scenarios (from synergies of $15 million to $120 million,
in $15 million increments) and interest rate change scenarios (from an
interest rate decrease of 200 basis points to an increase of 200 basis
points, in 100 basis point increments). The Transactions would be, in the
years 1997 and 1998, (a) dilutive to Allied's stockholders, under such
analysis performed with synergies scenarios of $45 million or lower, and
accretive to Allied's stockholders, under such analysis performed with
synergies scenarios of $60 million or higher, and (b) dilutive, under such
analysis performed with an interest rate increase of 200 basis points in
the year 1997, and accretive, under such analyses performed with other
interest rate change scenarios for the years 1997 and 1998.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Allied or the Acquired Subsidiaries or the Transactions. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
Board of Directors of Allied as to the fairness of the Acquisition Consideration
to be paid to the Laidlaw Sellers by the Allied Parties pursuant to the
Agreement and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Allied, Laidlaw, Goldman Sachs or any other
person assumes responsibility if future results are materially different from
those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of
Allied was one of many factors taken into consideration by the Board of
Directors of Allied in making its determination to approve the Agreement and the
Transactions. The foregoing summary does not purport to be a complete
description of the analysis performed by Goldman Sachs and is qualified by
reference to the written opinion of Goldman Sachs set forth in Exhibit B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive
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biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. Allied
selected Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Transactions.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Allied and/or Laidlaw for its own account and for the account of
customers.
Pursuant to a letter agreement dated July 15, 1996 (the "Letter"), Allied
engaged Goldman Sachs to act as its financial advisor in connection with the
Transactions. Pursuant to the terms of the Letter, Allied agreed to pay Goldman
Sachs $250,000 (the "Minimum Fee") upon execution of the Letter and an
additional $750,000 upon execution of the Agreement, and agreed to pay Goldman
Sachs upon consummation of the Transactions a transaction fee of $7,000,000 less
any fees previously paid pursuant to the Letter (provided, however, that the
Minimum Fee will not be so credited if the Transactions are consummated more
than one year after the payment of the Minimum Fee). Allied has agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws. In addition,
the Letter provides that Goldman Sachs has the right, subject to certain
exceptions, to act (i) as lead manager or agent in the case of any offering or
placement of securities related to the financing of the Transactions, (ii) as
lead arranger and underwriter, and syndication agent in the case of a syndicated
bank loan, bridge loan commitment or any foreign exchange transactions, related
to the financing of the Transactions, (iii) as sole financial advisor in the
case of any disposition of assets of the Acquired Subsidiaries following the
consummation of the Transactions, or (iv) as financial advisor to assist Allied
in responding to any acquisition proposals it may receive or any other attempts
to acquire control of Allied by way of a merger, tender offer, purchase of all
or a portion of the assets or stock of Allied, any contested solicitation of
proxies or otherwise. Goldman Sachs will be acting as the lead managing
underwriter for the offering of the Senior Subordinated Notes. Goldman Sachs
Credit Partners L.P., an affiliate of Goldman Sachs, will be acting as the
Syndication Agent and one of the Co-Arrangers in connection with the Senior
Financing. See "-- Financing of the Transactions."
BOARD OF DIRECTORS' RECOMMENDATIONS
The Board of Directors of Allied believes the Transactions are in the best
interests of Allied and its stockholders and unanimously recommends that the
Allied stockholders vote "FOR" the Issuances.
ACCOUNTING TREATMENT
If the Transactions are consummated, the acquisition of the Acquired
Subsidiaries will be accounted for using the purchase method of accounting
described in Opinion No. 16 of the Accounting Principles Board. As a result, the
assets and liabilities of the Acquired Subsidiaries will be recorded on Allied's
books at their estimated fair market value, with any remaining purchase price to
be recorded as goodwill. The reported net income of Allied will include the
operations of the Acquired Subsidiaries after consummation of the Transactions.
See Supplemental Financial Information and Pro Forma Combined Financial
Statements.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Board Representation. The Agreement requires that Allied, promptly after
consummation of the Transactions, shall increase the size of its Board of
Directors to enable James R. Bullock, the President and Chief Executive Officer
of Laidlaw, and Ivan Cairns, the Senior Vice President and General Counsel of
Laidlaw, or two other officers of Laidlaw designated by Laidlaw and reasonably
acceptable to Allied, to be appointed to the Board of Directors. Until the
earliest to occur of (i) the fifth anniversary of the Closing Date or (ii) the
first date when the number of shares of Common Stock held by the Laidlaw Sellers
and their affiliates represents less than 10% of the number of shares of Allied
voting securities then issued and outstanding, Allied will be required by the
Agreement, subject to fiduciary obligations under applicable law, to use its
best efforts to cause such two designees of Laidlaw to be nominated for election
to the Board of Directors by the stockholders of Allied. Upon the occurrence of
either event specified in clauses (i) or (ii) in the preceding sentence,
Laidlaw's designees to the Board of Directors will be required to immediately
resign from the Board of Directors.
Attendance at Stockholders Meetings. The Agreement provides that until the
earliest to occur of the fifth anniversary of the Closing Date or the date when
the Laidlaw Sellers and all of their affiliates collectively
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beneficially own a number of shares of Allied voting securities which would
represent less than 10% of the then issued and outstanding voting securities of
Allied, the Laidlaw Sellers agree to cause all shares of Allied voting
securities from time to time owned of record or beneficially by either them or
any of their affiliates to be present at all stockholder's meetings of Allied at
which the vote of Allied's stockholders is sought, so that they may be counted
for the purpose of determining the presence of a quorum at such meetings.
TPG Agreement. On September 17, 1996, Allied entered into an agreement
(the "TPG Agreement") with TPG Partners, L.P. and TPG Parallel I, L.P.
(collectively, "TPG") , effective upon the Closing, which amends the Securities
Purchase Agreement between Allied and TPG dated October 27, 1994 (the "TPG
Purchase Agreement") and sets forth certain other agreements between Allied and
TPG. Pursuant to the TPG Agreement, Allied will amend its Bylaws to expand the
Board of Directors to 12 persons. TPG will be entitled to designate three
directors (the "TPG Designees"), Allied will designate four directors, Laidlaw
will designate two directors, and three new directors (the "Outside Directors")
that are not employees of Allied will be selected by a nominating committee of
the Board of Directors (the "Nominating Committee"). The initial Outside
Directors must be acceptable to TPG but subsequent Outside Directors shall not
be subject to approval by TPG. One TPG Designee will serve on the Nominating
Committee and the TPG Designees will have proportionate representation on the
other committees of the Board of Directors. TPG may fill any director position
vacated by any duly elected TPG Designee that fails to complete his term. The
TPG Agreement deletes the requirement contained in the TPG Purchase Agreement
that TPG vote in favor of the directors nominated by the Board of Directors and
the corresponding requirement that Allied use its best efforts to cause the TPG
Designees to be elected. TPG's right to nominate the TPG Designees to serve on
the Board of Directors will terminate if, at any time, TPG and its affiliates
own less than either (i) 6.5% of the Common Stock (calculated on a fully diluted
basis) or (ii) 5,888,637 shares of Common Stock.
Pursuant to the TPG Agreement, Allied will increase to three the number of
times that TPG can demand registration of its shares of Common Stock for resale
under the TPG Purchase Agreement. The provisions of the TPG Purchase Agreement
that limit TPG's actions regarding Allied and the Common Stock (the "Standstill
Provisions") shall terminate upon the earlier to occur of (x) the fifth
anniversary of the closing date of the TPG Agreement and (y) the time at which
TPG and its affiliates own less than either (i) 6.5% of the Common Stock
(calculated on a fully diluted basis) or (ii) 5,888,637 shares of Common Stock.
The provision contained in the TPG Purchase Agreement that terminates the
Standstill Provisions if any of the TPG Designees fails to be elected to the
Board of Directors will be replaced by a provision that the Standstill
Provisions will terminate if Allied fails to nominate any TPG Designee to the
Board of Directors. Finally, the TPG Agreement deletes the requirement in the
TPG Purchase Agreement that Allied maintain certain provisions in the Bylaws,
including the provisions that the Board of Directors have exactly 10 members and
that 66.67% of the Board of Directors approve certain corporate actions.
Management Agreement to Vote. Pursuant to a letter dated September 17,
1996, Roger A. Ramsey, Chairman of the Board and Chief Executive Officer of
Allied, and Thomas H. Van Weelden, President and Chief Operating Officer of
Allied, agreed to vote their shares of Common Stock in favor of the Issuances
and the Amendment. Messrs. Ramsey and Van Weelden have the right to vote 358,479
and 868,894 shares of Common Stock, respectively.
NO DISSENTER'S RIGHTS OF APPRAISAL
There are no rights of appraisal or similar rights of dissenters with
respect to any matter to be acted upon hereby. Delaware law does not require
that holders of Common Stock who object to the Agreement and the Transactions,
and who vote against or abstain from voting in favor of the Issuances and the
Amendment be afforded any appraisal or dissenters' rights or the right to
receive cash for their shares.
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THE AGREEMENT
The following summary of the Agreement is not complete and is qualified in
its entirety by reference to the provisions in the Agreement, or pertinent
exhibits, which are included as Exhibit A hereto.
ACQUISITION CONSIDERATION
Components of Consideration. Subject to adjustment after consummation of
the Transactions, the aggregate consideration to be paid by Allied for all of
the stock of the Acquired Subsidiaries consists of (i) the Cash Consideration,
(ii) the Stock Consideration, (iii) the 7% Debenture, (iv) the Zero Coupon
Debenture, and (v) the Warrant.
Cash Consideration. Allied intends to finance the Cash Consideration in
part with the proceeds of the Senior Financing and in part with the proceeds of
a private placement or public offering of Senior Subordinated Notes. See "The
Transactions -- Financing of the Transactions."
The Debentures. On the Closing Date, Allied Finance and Laidlaw will
execute and deliver a Debenture Exchange Agreement (the "Exchange Agreement")
under which Laidlaw will agree that immediately after the issuance of the
Debentures issued by Allied Canada, Laidlaw will exchange (the "Exchange") (i)
the 7% Debenture issued by Allied Canada for the 7% Debenture issued by Allied
Finance in the same principal amount and having the same terms and conditions as
the 7% Debenture issued by Allied Canada and (ii) the Zero Coupon Debenture
issued by Allied Canada for the Zero Coupon Debenture issued by Allied Finance
in the same principal amount and having the same terms and conditions as the
Zero Coupon Debenture issued by Allied Canada. Following consummation of the
Transactions and the Exchange, the Debentures issued by Allied Canada will
constitute the sole assets of Allied Finance, will be pledged as security for
the Senior Financing and the Senior Subordinated Notes and will be subordinated,
both structurally and expressly, to the Senior Financing and Senior Subordinated
Notes. Allied and Laidlaw have agreed to exchange the Debentures issued by
Allied Canada for Debentures issued by Allied Finance in order to facilitate the
Senior Financing under Canadian law. See "The Transactions -- Financing of the
Transactions."
The principal of the Debentures will be payable twelve years after the
Closing Date, subject to earlier mandatory or optional prepayment and any
acceleration of their maturity upon default.
The 7% Debenture will bear interest at the fixed rate of 7% per annum. For
the first three years after the Closing Date (the "Deferral Period"), interest
on the outstanding principal balance of the 7% Debenture will accrue at the 7%
rate, but its payment will be deferred. After the Deferral Period, at the
election of Allied Finance, the deferred interest may be paid at any time, and
(i) the unpaid amount of the interest deferred during the Deferral Period,
together with interest thereon at the rate of 7% per annum, will be payable in
eighteen equal semiannual installments beginning six months after the end of the
Deferral Period and continuing through the scheduled maturity date of the 7%
Debenture, and (ii) interest on the outstanding principal balance of the 7%
Debenture will be payable semiannually beginning six months after the end of the
Deferral Period and continuing through the scheduled maturity date of the 7%
Debenture. Under the terms of the Subscription Agreement (as hereinafter
defined), Allied has the option effectively to cause all interest on the 7%
Debenture to be paid in shares of Common Stock. See "-- Laidlaw Subscription
Agreement."
Before its maturity date, the Zero Coupon Debenture will not bear interest.
After its maturity date, all past due principal of the Zero Coupon Debenture
will bear interest at the rate of 9% per annum.
During the period commencing five years after the Closing Date and ending
ten years after the Closing Date, Allied Finance will have the option to prepay
the 7% Debenture, in whole or in part, at a discount from the face amount of the
7% Debenture. The prepayment amount varies according to the time of prepayment,
and ranges from $126,700,000 in the case of a prepayment made at end of year
five following the Closing Date, to $150,000,000 in the case of a prepayment
made at the end of year ten following the Closing Date, in each case assuming
prepayment in full. After ten years from the Closing Date, the prepayment
discount is eliminated, and the 7% Debenture will thereafter be optionally
prepayable at its full face amount.
If a "Change of Control" (as hereinafter defined) occurs, Allied Finance
will be obligated to offer to prepay the Debentures. In the case of the 7%
Debenture, if the offer to prepay is accepted, the prepayment amount will vary
according to when the prepayment occurs, with the prepayment amount ranging from
$126,700,000 in the case of a
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required offer to prepay made at or before the end of year five following the
Closing Date, to $150,000,000 in the case of a required offer to prepay made at
the end of year ten following the Closing Date. After ten years, an offer to
prepay the 7% Debenture triggered by a "Change of Control" (as hereinafter
defined) will be at the full face amount of the 7% Debenture. In the case of the
Zero Coupon Debenture, if the offer to prepay is accepted, the prepayment amount
will vary according to when the prepayment occurs. The prepayment amount ranges
from $33,200,000 in the case of an immediate offer to prepay, to $168,300,000 in
the case of an offer to prepay required to be made at the end of year twelve.
Under the terms of the Subscription Agreement (as hereinafter defined), Allied
has the option to effectively cause any prepayment of the Debentures required as
a result of a "Change of Control" (defined below) to be made in shares of Common
Stock. See "--Laidlaw Subscription Agreement."
For purposes of the Debentures (and for purposes of the Warrant), "Change
of Control" means a change resulting when any Unrelated Person or any Unrelated
Persons acting together that would constitute a Group together with any
Affiliates thereof (in each case also constituting Unrelated Persons) shall at
any time Beneficially Own more than 50% of the aggregate voting power of all
classes of Voting Stock of Allied; provided, however, that if at the date any
"Change of Control" would otherwise have occurred but for the fact that a person
was not an Unrelated Person because such person or an Affiliate of such person
acquired shares of Common Stock or all or any portion of the Warrant from
Laidlaw or from an Affiliate of Laidlaw within nine months prior to such date,
such shares of Common Stock acquired from Laidlaw or any Affiliate of Laidlaw,
or any shares of Common Stock issued upon exercise of the Warrant or any portion
thereof, shall at all times thereafter be excluded when calculating whether a
Change of Control has occurred. As used in such definition of Change of Control
(a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the
Exchange Act, or any successor provisions thereto; provided, however, that, for
purposes of such definition, a person shall not be deemed to Beneficially Own
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such person or any of such person's Affiliates until such tendered securities
are accepted for purchase or exchange; (b) "Group" means a "group" for purposes
of Section 13(d) of the Exchange Act; (c) "Affiliate" means, with respect to any
person, another person which would be an "affiliate" of such person for purposes
of Section 13(d) of the Exchange Act; (d) "Unrelated Person" means at any time
any person other than Laidlaw, any person to whom Laidlaw or any of its
Affiliates transfers, within nine months prior to such time, any shares of
Common Stock or all or any portion of the Warrant or any Affiliate of Laidlaw or
any such person; provided, however, that person (other than Laidlaw or its
Affiliates) to whom Laidlaw or any of its Affiliates transfers any shares of
Common Stock or all or any portion of the Warrant after five years from the
Closing Date shall not be deemed Unrelated Persons; and (e) "Voting Stock" of
any person shall mean capital stock of such person which ordinarily has voting
power for the election of directors (or persons performing similar functions) of
such person, whether at all times or only so long as no senior class of
securities has such voting power by reason of any contingency.
Subject to the subordination provisions of the Debentures, the maturity of
the Debentures may be accelerated if a "Default" occurs. Under the Debentures a
"Default" includes (i) a failure by Allied Finance to pay the principal amount
of the debenture in question on its maturity date, (ii) certain events involving
the voluntary or involuntary bankruptcy of Allied Finance or other insolvency
proceedings involving Allied Finance, and (iii) the acceleration of the maturity
of the Senior Financing as a result of a default thereunder. In the event the
Debentures are accelerated as the result of any acceleration of the Senior
Financing, the Debentures are subject to being de-accelerated if the Senior
Financing is de-accelerated or the related default under the Senior Financing is
waived.
Payment of the Debentures will be guaranteed by Allied. The Debentures and
Allied's guarantees thereof will rank junior in right of payment to the Senior
Financing and the Senior Subordinated Notes, and to essentially all other
indebtedness of Allied and Allied Finance, respectively, other than (i) amounts
owed (except to banks, insurance companies and other financing institutions and
except for obligations under capitalized leases) for goods, materials, services
or operating lease rental payments in the ordinary course of business or for
compensation to employees and (ii) any liability for federal, state, provincial,
local or other taxes owed or owing by Allied Finance and Allied, respectively.
Laidlaw Subscription Agreement. As provided in the Agreement, on the
Closing Date, Allied and Laidlaw will enter into a Subscription Agreement (the
"Subscription Agreement"), under which Laidlaw will be required to subscribe for
and purchase shares of Common Stock based on events related to the Debentures
described below. On each date when an installment of interest is payable under
the 7% Debenture (including an installment of interest which has been deferred
during the Deferral Period), Allied will have the right under the Subscription
Agreement to require Laidlaw to purchase a number of shares of Common Stock
equal to (i) the amount of the installment of
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interest payable on that date divided by (ii) the Current Market Price (defined
below) of the Common Stock as of the date the installment of interest is
payable, for an aggregate purchase price equal to the amount of the installment
of interest due on such date. If a Change of Control occurs, and if the
resulting offer by Allied Finance to prepay the Debentures is accepted, Allied
will have the right under the Subscription Agreement to require Laidlaw to
purchase a number of shares of Common Stock equal to (i) the amount which Allied
Finance will be required to prepay on the Debentures (or one of them if the
offer to prepay is accepted as to only one of them) as a result of the Change of
Control, divided by (ii) the Current Market Price (defined below) of the Common
Stock as of the date such prepayment is required to be made, for an aggregate
purchase price equal to the amount of the required prepayment. See "-- Debenture
Consideration."
Under the Subscription Agreement and the Warrant, "Current Market Price"
per share of Common Stock on any specified date means the average daily market
prices of the Common Stock for the twenty consecutive trading days ending on the
third trading day before that date.
Warrant Consideration. The Warrant is for the purchase of 20,400,000
shares of Common Stock at an exercise price of $8.25 per share. Both the number
of shares purchasable upon exercise of the Warrant and the exercise price are
subject to adjustment under certain circumstances described in the Warrant. The
Warrant will expire twelve years from the Closing Date.
Laidlaw and its Affiliates may exercise the Warrant only after the
occurrence of a Change of Control of Allied. In the Warrant, a "Change of
Control" is defined in the same manner as it is in the Debentures. Any holder of
the Warrant other than Laidlaw or any of its affiliates may exercise the Warrant
without regard to the Change of Control requirement. See "-- Debenture
Consideration."
Laidlaw is permitted to transfer the Warrant to any wholly-owned subsidiary
of Laidlaw, but not to any other Affiliate of Laidlaw unless the transferee
receives the Warrant (or Warrants issued upon any split-up of the Warrant)
pursuant to a pro rata distribution of Warrants to all stockholders of all
classes of Laidlaw's outstanding capital stock. Laidlaw is permitted to transfer
the Warrant to anyone other than one of its Affiliates, but only if, after the
transfer, the transferee and its Affiliates beneficially own 9% or less of the
total number of shares of Common Stock then outstanding.
If Allied distributes to the holders of Common Stock any rights to
subscribe for or to purchase Common Stock or any options for the purchase of
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (all of which are hereinafter referred to as "Convertible
Securities"), and the price per share for which shares of Common Stock are
issuable upon the exercise, conversion or exchange of such Convertible
Securities is less than the Current Market Price (as hereinafter defined) then
in effect, then the exercise price and the maximum number of shares of Common
Stock purchasable upon exercise of the Warrant will be reduced to protect the
holder of the Warrant against dilution. If Allied (i) declares a dividend on all
of its outstanding shares of Common Stock payable in shares of its capital
stock, (ii) subdivides the outstanding shares of Common Stock, (iii) combines
the outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of capital stock by reclassification or reorganization of the
Common Stock, then in each such case the exercise price under the Warrant and
the number of shares of Common Stock issuable upon exercise of the Warrant are
required to be proportionately adjusted. Similar adjustments are required to be
made if Allied distributes to holders of Common Stock evidence of Allied's
indebtedness or assets of Allied.
In the Warrant, "Current Market Price" per share of Common Stock on any
specified date means the average daily market prices of the Common Stock for the
twenty consecutive trading days ending on the third trading day before that
date.
Post-Closing Adjustment of Consideration. The Agreement provides that if
the Acquired Subsidiaries have a consolidated net working capital deficit
(defined as an excess of current liabilities over current assets) at the Closing
Date, the Acquisition Consideration will be adjusted downward by the amount of
the deficit, with the Laidlaw Sellers being required to pay the amount of the
deficit to Allied, in cash, once the existence and amount of any such deficit
has been determined pursuant to the applicable provisions of the Agreement.
Option Agreement. Allied and Laidlaw have entered into an agreement under
which, for up to four months after the Closing, Allied may elect to acquire from
Laidlaw, at Laidlaw's cost, two solid waste companies that were recently
acquired by Laidlaw and are not included in the Transactions, which have
aggregate annual revenues of approximately $14,800,000.
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CLOSING DATE
Unless Allied and the Laidlaw Sellers agree otherwise, the Transactions
will be consummated on the fifth business day after all necessary governmental
and regulatory approvals have been obtained, the Allied stockholders have
approved the matters submitted to them for approval in connection with the
Agreement, and all other conditions to the consummation of the Acquisition have
been satisfied or waived. It is currently expected that the Transactions will be
consummated on the fifth business day following the Special Meeting. See
"-- Governmental and Regulatory Approvals" and "-- Other Conditions to the
Consummation of the Transactions".
REPRESENTATIONS AND WARRANTIES
In the Agreement, the Allied Parties and the Laidlaw Sellers have made
various representations and warranties (subject in some cases to materiality and
knowledge qualifiers) relating to, among other things, their respective
businesses and financial condition, the parties' requisite corporate authority
to enter into and perform their obligations under the Agreement, the absence of
a breach or violation of or default under the parties' charter or bylaws or
internal rules or regulations governing conduct of corporate actions as a result
of the consummation of the Transactions, the accuracy of Allied's various
filings with the SEC, the accuracy of the respective parties' tax returns and
other filings with applicable taxing authorities, the satisfaction of certain
legal requirements, including the receipt of all governmental, regulatory and
other necessary consents or waivers for the Transactions and the absence of
certain changes in their respective businesses, including the absence of
undisclosed liabilities, environmental matters or labor matters having a
material adverse effect on the respective parties' business and material
litigation matters. In addition, the Laidlaw Sellers have made representations
and warranties relating to their employee benefit plans and the material
contracts of the Laidlaw Sellers. Allied has also made additional
representations and warranties that the issuance of Common Stock pursuant to the
terms of the Agreement will be duly authorized, validly issued, fully paid and
nonassessable and that no subscription, warrant, option, convertible security,
stock appreciation or other right (contingent or other) to purchase or acquire
any shares of any class of Allied capital stock exists, except as disclosed to
the Laidlaw Sellers, pursuant to the terms of the Agreement.
ENVIRONMENTAL MATTERS
In the Agreement, the Laidlaw Sellers have made representations to Allied
(subject to certain materiality qualifiers) to the effect that (i) the Acquired
Subsidiaries hold, and are in compliance with and have been in compliance with,
all required environmental permits and are otherwise in compliance and have been
in compliance with, all applicable environmental laws, and there is no condition
that could prevent or interfere with compliance by the Acquired Subsidiaries
with all environmental laws, (ii) no modification, revocation, reissuance,
alteration, transfer or amendment of any environmental permit, or any review by,
or approval of, any governmental entity or other person or entity of any
environmental permit is required in connection with the execution or delivery of
the Agreement, the consumation of the Transactions, or the operation of the
business of the Acquired Subsidiaries immediately after the consummation of the
Transactions, (iii) no Acquired Subsidiary had received any environmental claim,
nor has any environmental claim been threatened against any Acquired Subsidiary;
(iv) no Acquired Subsidiary has entered into, agreed to or is subject to any
outstanding judgment, decree, order or other directive issued by, or consent
arrangement with, any governmental entity under any environmental law, including
any such judgment, decree, order or other directive relating to compliance with
any environmental law or to the investigation, cleanup, remediation or removal
of hazardous substances (as defined in the Agreement), (v) to the knowledge of
the Laidlaw Sellers, there are no circumstances that could give rise to
liability under any agreement with any person or entity or by operation of law
by or under which any Acquired Subsidiary would be required to defend,
indemnify, hold harmless, or otherwise be responsible for any violation by or
other liability or expenses of such person or entity, or alleged violation by or
other liability or expense of such person or entity, arising under any
environmental laws, (vi) to the knowledge of the Laidlaw Sellers, there are no
other circumstances or conditions that could give rise to any liability or
obligation of any Acquired Subsidiary under any environmental law, and (vii) the
liabilities and reserves reflected in the financial statements delivered to
Allied under the Agreement (the "Environmental Reserves") adequately provide
for, in accordance with GAAP, (x) all future claims and costs for closure,
intermediate capping, post-closure monitoring, investigation and maintenance,
reclamation, remediation, restoration, and cleanup of all landfills now or
previously owned, occupied, leased or operated by, or under the management or
control of, any Acquired Subsidiary and (y) all environmental claims against all
Acquired Subsidiaries.
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It is a condition (the "Environmental Condition") to the obligations of
Allied to consummate the Transactions that the environmental representations
made by the Laidlaw Sellers in the Agreement are true and correct at the Closing
Date, except to the extent any breaches thereof (determined without regard to
any materiality or knowledge qualifications), in the judgment of Allied acting
reasonably, could not result in losses or damages which either (i) aggregate in
excess of $6,000,000 or (ii) during the first two years following the Closing
Date are in excess of the amount included in the Environmental Reserves in
respect of such two-year period.
Allied has engaged Emcon Environmental Services, Inc. ("Emcon"),
independent environmental consultants, to conduct environmental assessments of
each parcel of real property owned, or under the management or control of, or
operated, leased or occupied by, an Acquired Subsidiary, and to prepare a report
reflecting the findings and recommendations of such consultants concerning such
environmental assessments (the "Emcon Environmental Report"). Under the
Agreement, the Allied Parties are obligated to use their best efforts to cause
the Emcon Environmental Report to be prepared as soon as practicable and to
deliver a copy thereof to the Laidlaw Sellers. Within 20 business days after
their receipt of the Emcon Environmental Report, the Allied Parties are also
required to deliver to the Laidlaw Sellers a written notice stating whether in
the judgment of the Allied Parties, acting reasonably, one or more conditions
described in the Emcon Environmental Report constitute a breach of the
environmental representations made by the Laidlaw Sellers in the Agreement to
the extent that the Environmental Condition will not be met at or prior to the
Closing Date. If such notice states that the Environmental Condition will not be
met, then Laidlaw may elect at the time of consummation of the Transactions to
pay Allied an amount (which is based on the Emcon Environmental Report and is
reasonably acceptable to Allied) to cure the environmental defect, or to provide
Allied with an undertaking satisfactory to Allied that Laidlaw will assume and
pay all amounts, as they become due, relating to the environmental defect, in
which event the Environmental Condition will be deemed to have been satisfied.
The Agreement provides that the representations made by the Laidlaw Sellers
in the Agreement as to environmental matters shall (i) terminate on the Closing
Date as to all matters disclosed in writing to Allied at least five business
days prior to the Closing Date or disclosed with specificity in the Emcon
Environmental Report and (ii) terminate on the third anniversary of the Closing
Date as to all matters other than those described in the preceding clause (i)
and which are known to the Laidlaw Sellers on the Closing Date.
CONDUCT OF BUSINESS PENDING CLOSING
Pursuant to the Agreement, the Laidlaw Sellers have agreed that, prior to
the Closing Date, and except as otherwise agreed to in writing by Allied and
except as set forth in the Agreement or disclosed to Allied before the Closing
Date, they shall, and shall cause each of the Acquired Subsidiaries to: (a)
conduct their respective businesses in the ordinary and usual course of
business, consistent with past practice and shall notify Allied of (i) any
unexpected material emergencies or material changes in the business of the
Acquired Subsidiaries; (ii) the instigation of any significant developments in
any regulatory proceedings, governmental complaints, investigations or hearings
involving any Laidlaw Seller or any Acquired Subsidiary, where such instigation
or development could have a material adverse effect on the Acquired Subsidiaries
or the Laidlaw Sellers; (iii) decisions involving material properties of the
Acquired Subsidiaries; and (iv) any matter or event making any representation or
warranty previously given by any Laidlaw Seller untrue; (b) not (i) amend their
respective charter or bylaws; (ii) issue, sell, pledge, dispose of or encumber
any shares of capital stock or securities convertible into any such shares, or
enter into an agreement with respect to the issuance or purchase of any such
shares or securities; or (iii) in the case of LWSI, LWSC and LMS, pay any
dividend or other distribution payable in respect of any shares, except that
LWSI and LWSC may make the distributions required to be made by them under the
terms of the Agreement; (iv) incur indebtedness for borrowed money other than
intercompany indebtedness between any Acquired Subsidiary and Laidlaw; (v) make
or commit to make any capital expenditures for any acquisition of any assets or
businesses other than expenditures made in the ordinary course of business
consistent with Laidlaw's capital budget disclosed in its disclosure schedule
provided to Allied; (vi) enter into any compromise or settlement of any
litigation, proceeding or governmental investigation relating to the Acquired
Subsidiaries that impose restrictions on the operations of any or dispose of any
properties of any Acquired Subsidiary except in the ordinary course of business,
including settlements made with insurers and except in the event that such
payments do not exceed $1,500,000 unless such restrictions or disposition could
have a material adverse effect on any Acquired Subsidiary; (vii) sell real
property or any interest in or improvement upon real property or any other
capital asset with a book value or sales price in excess of $500,000; (viii)
amend any pension plan or employee benefit plan or make any statement relating
to any anticipated or
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proposed benefits under such plans for current, future or former employees of
the Acquired Subsidiaries other than in accordance with the terms of such plans
currently in existence; (ix) transfer, license, lease, sell, dispose, mortgage
or encumber any assets or properties other than in the ordinary course of
business; or (x) increase compensation, benefits or severance for employees of
the Acquired Subsidiaries except as required by any collective bargaining
agreements and except for matters disclosed to Allied; (c) give to Allied full
access during normal business hours to properties, books, records and personnel
of the Acquired Subsidiaries and cause Coopers & Lybrand to permit Arthur
Andersen LLP to review the workpapers of Coopers & Lybrand relating to the
Laidlaw Sellers and the Acquired Subsidiaries and provide Allied with all
information necessary to ensure that governmental filings made in connection
with the Transactions contain no untrue material facts or omit any material fact
necessary to make such filings not misleading; (d) furnish to Allied an
unaudited balance sheet of each Acquired Subsidiary, at August 31, 1995 and the
related unaudited separate statements of operations and stockholder's equity for
each Acquired Subsidiary for the year then ended, (e) furnish to Allied copies
of interim monthly financial statements for the Acquired Subsidiaries within 35
days after the end of each month or quarter; (f) furnish to Allied the combined
financial statements of the Acquired Subsidiaries for the three years ended
August 31, 1996 audited by Coopers & Lybrand; (g) give Emcon Environmental
Services, Inc. full access to the facilities, personnel and records of the
Acquired Subsidiaries as such consultants shall reasonably request in order to
conduct the environmental assessments; and (h) use their best efforts to perform
and fulfill their obligations under the Agreement to the end that such
Transactions may be consummated. Additionally, the Laidlaw Sellers have agreed
to advance the Acquired Subsidiaries during the period from the date of the
Agreement through the Closing Date, funds sufficient to maintain certain working
capital levels to continue to carry on their respective businesses in the
ordinary and usual course.
Pursuant to the Agreement, the Allied Parties have agreed that, prior to
the Closing Date, and except as otherwise agreed to in writing by Laidlaw, they
shall, and shall cause each of their subsidiaries to: (a) conduct their
respective businesses in the ordinary and usual course of business and
consistent with past practice and shall notify Laidlaw of (i) any unexpected
material emergencies or material changes in the business of Allied or its
subsidiaries, (ii) the instigation of any significant developments in any
regulatory proceedings, governmental complaints, investigations or hearings
involving Allied or any of its subsidiaries where such instigation or
development could have a material adverse effect on Allied and its subsidiaries,
(iii) decision involving material properties of Allied, and (iv) any matter or
event making any representation or warranty previously given by the Allied
Parties untrue; (b) not (i) amend or propose to amend their charter (except for
the amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock) or bylaws; (ii) issue any shares of Common
Stock or securities convertible into Common Stock, or enter into an agreement
with respect to the issuance or purchase of any such shares or securities,
except that Allied may issue (x) shares of Common Stock upon any exercise of
presently outstanding warrants or conversion of any presently outstanding shares
of convertible Allied Preferred Stock or convertible indebtedness which are
reflected in Allied SEC filings or (y) issue shares of Common Stock or options
pursuant to presently existing director or employee stock option plans and (z)
not more than 5,000,000 shares of Common Stock in connection with future
acquisitions of businesses as previously disclosed to Laidlaw; (iii) split,
combine or reclassify any outstanding shares of Common Stock; or (iv) declare,
pay or set aside any dividend for payment or other distribution in respect of
the outstanding shares of Common Stock; (c) give to Laidlaw full access during
normal business hours to properties, books, records and personnel of Allied and
its subsidiaries and to provide Laidlaw with all information necessary to ensure
that governmental filings made in connection with the Transactions contain no
untrue material facts or omit any material fact necessary to make such filings
not misleading; (d) furnish to Laidlaw a copy of any SEC filing by Allied on
Form 8-K, 10-Q or 10-K within five days of each SEC filing by Allied and shall
furnish Laidlaw with copies of Allied's interim monthly consolidated financial
statements within 35 days after the end of each month; (e) call a Special
Meeting of the holders of Common Stock to vote on the approval of the Stock
Consideration, the Warrant, the potential issuance of the Warrant Shares, the
potential issuance of the Debenture Shares and the Amendment within 40 days of
the mailing of the definitive proxy statement to be furnished to Allied
stockholders in connection with the Special Meeting; (f) cause the Emcon
Environmental Report to be prepared as soon as practicable after the date of the
Agreement and to deliver such report to Laidlaw; and (g) use their best efforts
to perform and fulfill their obligations under the Agreement to the end that
such Transactions may be consummated.
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OTHER CONDITIONS TO THE CONSUMMATION OF THE TRANSACTIONS
In addition to Allied stockholders' approval and the regulatory filings and
approvals (see " -- Governmental and Regulatory Approvals"), the respective
obligations of the Allied Parties and Laidlaw Sellers to consummate the
Transactions are subject to satisfaction or waiver of the following conditions:
(i) the respective representations and warranties of the Allied Parties and
Laidlaw Sellers being true and correct as of the Closing Date, except (x) to the
extent that breaches of such representations and warranties (determined without
regard to any materiality or knowledge qualifications) could not result in
Damages in excess of $25,000,000, and (y) as to certain representations of the
Laidlaw Sellers concerning environmental matters which Laidlaw may elect to cure
or remediate or pay for the cure or remediation described under the caption
"-- Environmental Matters"; (ii) the covenants of each of the parties to the
Agreement having been duly performed in all material respects or waived; (iii)
the absence of any event or series of events taken in the aggregate which could
have a material adverse effect on the financial condition, business, assets,
prospects or results of operations of the Acquired Subsidiaries taken as a whole
or Allied and its subsidiaries taken as a whole or on the ability of Allied or
the Laidlaw Sellers to perform their respective obligations under the Agreement;
(iii) the absence of any promulgation or enactment of any law, or of any
proceedings brought by any governmental or private person or entity, which seeks
to restrain, enjoin, prevent or materially delay or restructure the
Transactions; and (iv) the receipt by Allied and the Laidlaw Sellers,
respectively, of customary legal opinions from United States and Canadian
counsel.
The obligations of the Allied Parties to consummate the Transactions are
further subject to the satisfaction or waiver of the following conditions: (i)
receipt by Allied of audited combined financial statements of the Acquired
Subsidiaries, and the unqualified report thereon by Coopers & Lybrand, at August
31, 1995 and 1996 and for the years ended August 31, 1994, 1995 and 1996; (ii)
receipt by Allied of the Emcon Environmental Report described under the caption
"-- Environmental Matters"; (iii) indebtedness of the Acquired Subsidiaries not
having exceeded $4,900,000 at the Closing Date, exclusive of the Laidlaw
Guaranties (see "-- Laidlaw Guaranties") and purchase money indebtedness of
owner operators not to exceed C$8,600,000; and (iv) subject to certain rights of
Laidlaw to purchase a portion of the Senior Subordinated Notes, receipt by
Allied of the proceeds of the Senior Financing and the Senior Subordinated Notes
(or proceeds from other financing with respect to the Transactions which are
satisfactory to Allied, in an aggregate amount of at least $1,700,000,000). See
"The Transactions -- Financing of the Transactions."
If the Allied Parties determine that all conditions to their obligations to
consummate the Transactions can be satisfied except that some or all of the
Senior Subordinated Notes (the "Unsubscribed Notes") cannot be sold on terms
acceptable to Allied, and if the aggregate principal amount of the Unsubscribed
Notes is $150,000,000 or less, then Laidlaw has the right under the Agreement to
purchase the Unsubscribed Notes for the same price and on the same terms as the
Senior Subordinated Notes are being sold to third-party purchasers (net of any
discount otherwise payable to Goldman, Sachs & Co.). If Laidlaw exercises its
right to purchase the Unsubscribed Notes, then (i) Laidlaw shall be obligated to
purchase the Unsubscribed Notes on the Closing Date, and (ii) Allied shall be
obligated to pay to Laidlaw, on the Closing Date, a fee in the amount of
$10,000,000 regardless of the amount of Unsubscribed Notes purchased by Laidlaw.
Any Senior Subordinated Notes purchased by Laidlaw may not be sold, transferred
or assigned to any person for a period of 180 days after the purchase, unless
waived by Goldman Sachs. If all conditions to Allied's obligations to consummate
the Transactions can be satisfied except that the Unsubscribed Notes cannot be
sold on terms acceptable to Allied, and if either (i) the principal amount of
the Unsubscribed Notes is more than $150,000,000, or (ii) the principal amount
of the Unsubscribed Notes is $150,000,000 or less and Laidlaw elects not to
exercise its right to purchase the Unsubscribed Notes, and therefore the
Transactions are not consummated, then Allied shall be obligated under the
Agreement to pay to Laidlaw a fee in the amount of $10,000,000 within ten days
after the date Allied notifies Laidlaw that the Unsubscribed Notes cannot be
sold.
The condition to Allied's obligations that the representations and
warranties made by the Laidlaw Sellers with respect to environmental matters be
true at the Closing Date is subject to certain quantified materiality standards,
and Laidlaw has the right to cure or pay for the correction or remediation of
certain environmental conditions which would cause the representations and
warranties made by the Laidlaw Sellers in the Agreement with respect to
environmental matters to be untrue or inaccurate at the Closing Date. See
"-- Environmental Matters."
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GOVERNMENT AND REGULATORY APPROVALS
Hart-Scott-Rodino Matters. The Transactions are subject to the HSR Act.
The HSR Act requires prior notification of the FTC and the DOJ regarding certain
mergers and acquisitions prior to the consummation of the Transactions in order
to allow the FTC and DOJ (collectively, the HSR Agencies") an opportunity to
review the proposed Transactions, and, if deemed necessary, to oppose the
proposed Transactions for any anti-competitive effect. Following notification,
the parties are subject to a 30-day waiting period during which the HSR Agencies
will review the proposed Transactions and may request additional information.
The HSR Agencies may extend the waiting period for an additional period of not
more than 20 days. The parties to the Transactions may request early termination
of the initial waiting period, provided all notifications and responses to
requests for additional information have been submitted. On September 30, 1996,
Allied filed, and on October 1, 1996 Laidlaw filed, a Notification and Report
Form for Certain Mergers and Acquisitions under the HSR Act and requested early
termination of the waiting period. Allied and Laidlaw were granted early
termination of the waiting period on , 1996.
Canadian Competition Act. Many of the Acquired Subsidiaries are
incorporated under the laws of Canada or a Canadian province, and operate in
Canada. Under the Canadian federal Competition Act (the "Competition Act"), the
Transactions, insofar as they relate to the acquisition of such Canadian
subsidiaries, qualify as a "merger" and are of sufficient size to be subject to
the notification and waiting period requirements of the Competition Act. The
Competition Act is administered by the Canadian Director of Investigation and
Research appointed under the Competition Act (the "Competition Act Director").
On September 26, 1996, the Allied Parties filed, and on October 3, 1996, the
Laidlaw Sellers filed with the Competition Act Director the information required
by the notification provisions of the Competition Act, and the statutory waiting
expired on October 10, 1996.
Under separate "merger" provisions of the Competition Act, which operate
independently of its notification and waiting period requirements, if an
acquisition is likely to give rise to a substantial prevention or lessening of
competition in a market in Canada, the Competition Act Director may apply for a
remedial order (such as an injunction or an order to divest specified assets or
securities) to be issued by a quasi-judicial body (the "Competition Tribunal").
Where an acquisition is clearly unlikely to give rise to any substantial
lessening or prevention of competition in Canada, the acquiror may choose to
apply for an advance ruling certificate under the Competition Act. If the
Competition Act Director is satisfied that she would not have sufficient grounds
on which to apply to the Competition Tribunal under the "merger" provisions of
the Competition Act in respect of a proposed transaction, she may issue an
advance ruling certificate which has the effect of exempting the transaction
from the "notification" provisions of the Competition Act and barring the
Competition Act Director from applying to the Competition Tribunal under the
Competition Act's "merger" provisions solely on the grounds of the information
which served as a basis for issuing the certificate. On September 26, 1996,
Allied applied for such an advance ruling certificate with respect to the
Transactions, insofar as it involves the acquisition of Canadian subsidiaries of
Laidlaw, and an advance ruling certificate was issued by the Competition Act
Director on , 1996. The Competition Act Director has the power to
withdraw the advance ruling certificate issued with respect to the Transactions,
and he may otherwise apply to the Competition Tribunal for a remedial order of
the nature described above on the basis of new information obtained by him with
respect to the Transactions.
Investment Canada Act. The Investment Canada Act is the principal Canadian
legislation governing foreign investment in Canada generally (the "Investment
Canada Act"). The Transactions, insofar as they involve the acquisition of
Canadian subsidiaries of Laidlaw, are subject to review under the Investment
Canada Act by the Minister of the Canadian federal cabinet responsible for
administration of the Investment Canada Act (the "Minister"). Because the
Transactions are in part subject to review under the Investment Canada Act,
Allied may potentially be required to divest, or be prohibited from acquiring
the Acquired Subsidiaries which conduct business in Canada, if the Minister is
not satisfied that such Transactions are likely to be of "net benefit to
Canada." On October 2, 1996, Allied filed with the Minister an application for
review under the Investment Canada Act. On , 1996, Allied received
from the Minister a notice under subsection 21(1) of the Investment Canada Act
stating that the Transactions are likely to be of net benefit to Canada.
Other Regulatory Approvals. Allied is not aware of any other material
governmental or regulatory approvals required for consummation of the
Transactions, other than compliance with applicable securities laws.
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RESALES OF ALLIED SECURITIES BY LAIDLAW
Registration Rights. The Agreement provides that upon consummation of the
Transactions, Allied and the Laidlaw Sellers will enter into a Stock
Registration Agreement (the "Registration Agreement"), under which Allied will
make certain undertakings with respect to the registration of certain Allied
securities under United States federal and state and Canadian provincial and
territorial securities laws (collectively, the "Securities Laws"). Subject to
certain restrictions, the Registration Agreement will grant the Laidlaw Sellers
the right to demand on up to five (and potentially six) occasions, the
registration under the Securities Laws of (i) the shares of Common Stock
constituting the Stock Consideration, (ii) the Warrant and any shares of Common
Stock issued upon exercise of the Warrant, (iii) any shares of Common Stock
issued in payment of interest on or in redemption of the Debentures as provided
in the Subscription Agreement, and (iv) any shares of Common Stock issued in
connection with any stock dividend on, or any stock split, reclassification or
reorganization of shares of Common Stock referenced in the foregoing clauses
(i), (ii) and (iii) (collectively, the "Registerable Securities"). The Laidlaw
Sellers may exercise their demand registration rights by sending Allied a
written request for registration, whereupon Allied must (i) prepare and file
(and use its best efforts to cause to become effective) a registration statement
under the federal securities laws and (ii) use its reasonable efforts to effect
the qualification under Canadian securities laws, of the number of Registerable
Securities requested to be registered by the Laidlaw Sellers; provided, however,
that (x) the Laidlaw Sellers must request the registration of at least 5,000,000
shares of Common Stock and (y) all offerings contemplated by a demand for
registration shall be underwritten offerings involving either a distribution of
Registerable Securities to the public where no single buyer, acting individually
or with others, acquires more than 10% of such offering or a distribution by way
of dividend or other distribution to holders of Laidlaw stock where such
dividend or other distribution is made pro rata among the holders of all such
stock according to the number of shares held by each of them. In addition, the
Registration Agreement will grant unlimited incidental or "piggyback"
registration rights to the Laidlaw Sellers.
All expenses of any registrations under the Registration Agreement will be
borne by Allied, except that Laidlaw will reimburse Allied for any expenses
relating to registration in Canada. Allied will agree in the Registration
Agreement to indemnify the Laidlaw Sellers and others against certain Securities
Law liabilities.
Restrictions on Resales. In the Agreement, the Laidlaw Sellers have agreed
that until the earlier to occur of the fifth anniversary of the Closing Date or
the date on which the Laidlaw Sellers and all of their affiliates collectively
own a number of shares of Common Stock which would represent less than 5% of the
then issued and outstanding voting securities of Allied, neither Laidlaw Seller
will, and the Laidlaw Sellers will cause each of their affiliates not to,
directly or indirectly offer, sell or transfer any Common Stock or rights to
receive Common Stock (including the Stock Consideration, any shares of Common
Stock issued upon exercise of Warrant, and any shares of Common Stock issued in
payment of interest on or in prepayment of the Debentures under the Subscription
Agreement), except for (i) sales made in compliance with the Registration
Agreement, (ii) sales made in compliance with Rule 144 under the Securities Act
as in effect on the Closing Date, (iii) distributions or dividends of Common
Stock to the shareholders of Laidlaw on a pro rata basis to all shares of all
classes of Laidlaw's now outstanding capital stock, (iv) sales in a private
transaction if, following the sale, the purchaser and its affiliates will
beneficially own 9% or less of the total number of shares of Common Stock then
outstanding, and (v) sales made pursuant to an Allied Reorganization Transaction
(as hereinafter defined) on the terms and conditions of such Allied
Reorganization Transaction (as hereinafter defined).
By its terms, the Warrant may not be transferred to any affiliate of
Laidlaw (other than a wholly-owned subsidiary of Laidlaw), and may be
transferred to others subject to limitations restricting the amount of Common
Stock owned by the transferree. See "-- Acquisition Consideration."
LAIDLAW STANDSTILL
The Agreement provides that until the earlier to occur of the fifth
anniversary of the Closing Date or the date on which the Laidlaw Sellers and all
of their affiliates collectively own a number of shares of Common Stock which
would represent less than five percent of the then issued and outstanding voting
securities of Allied, neither Laidlaw Seller will, and the Laidlaw Sellers will
cause each of its affiliates not to: (i) acquire, offer to acquire, or agree to
acquire, directly or indirectly, by purchase or otherwise, any voting securities
or voting rights or direct or indirect rights or options to acquire any voting
securities of Allied or any of its affiliates other than as a result of a stock
split, stock dividend or similar recapitalization except the Allied Securities;
(ii) make or cause to be made any proposal
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for an Allied Reorganization Transaction (as hereinafter defined) except (x) as
expressly contemplated in the Agreement, or (y) proposals pursuant to customary
business transactions in the ordinary course of Allied's business; (iii) form,
join or in any way participate in a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any securities of Allied or its
affiliates; (iv) make, or in any way cause or participate in, any "solicitation"
of "proxies" to vote (as those terms are defined in Regulation 14A under the
Exchange Act) with respect to Allied or its affiliates, or communicate with,
seek to advise, encourage or influence any person or entity, in any manner, with
respect to the voting of, securities of Allied or its affiliates, or become a
"participant" in any "election contest" (as those terms are defined or used in
Rule 14a-11 under the Exchange Act) with respect to Allied or its affiliates;
(v) initiate, propose or otherwise solicit stockholders for the approval of one
or more stockholder proposals with respect to Allied or its affiliates or induce
or attempt to induce any other person or entity to initiate any stockholder
proposal, or seek election to or seek to place a representative on the Board of
Directors or its affiliates or seek the removal of any member of the Board of
Directors or its affiliates; (vi) in any manner, agree, attempt, seek or propose
(or make any request for permission with respect thereto) to deposit any
securities of Allied or its affiliates, directly or indirectly, in any voting
trust or similar arrangement or to subject any securities of Allied or its
affiliates to any other voting or proxy agreement, arrangement or understanding;
(vii) directly or indirectly offer, sell or transfer any Common Stock or rights
to receive Common Stock (including without limitation the Stock Consideration,
shares of Common Stock issued upon exercise of the Warrant, or rights to receive
Common Stock pursuant to the Subscription Agreement) except for (a) sales made
in compliance with the Registration Agreement, (b) sales made in compliance with
Rule 144 under the Securities Act as in effect on the Closing Date, (c)
distributions or dividends of Common Stock to the shareholders of Laidlaw on a
pro rata basis to all shares of all classes of Laidlaw's then outstanding
capital stock, (d) sales to a person in a private transaction if, following such
sale, such person and its affiliates will beneficially own (used herein as
defined in Rule 13d-3 under the Exchange Act) 9% or less of the total number of
shares of Common Stock then outstanding, and (e) sales to a person or entity who
makes a proposal for an Allied Reorganization Transaction on the terms and
conditions of any Allied Reorganization Transaction; (viii) directly or
indirectly offer, sell or transfer the Warrant except in compliance with the
terms of Section 3.1 of the Warrant; (ix) disclose any intention, plan or
arrangement, or make any public announcement (or request permission to make any
such announcement), or induce any other person to take any action, inconsistent
with the foregoing; (x) enter into any negotiations, arrangements or
understandings with any third party with respect to any of the foregoing; (xi)
advise, assist or encourage or finance (or assist or arrange financing to or
for) any other person in connection with any of the foregoing; or (xii)
otherwise act in concert with others, to seek to control or influence the
management, Board of Directors or policies of Allied or its affiliates;
provided, that such restrictions shall not restrict or inhibit the rights of LTI
or Laidlaw to exercise its voting rights as a stockholder of Allied; provided
further that, the provisions of clauses (i) through (xii), above, shall not
apply to any Allied Reorganization Transaction (as hereinafter defined) proposed
by Laidlaw within 30 days of the proposal of an Allied Reorganization
Transaction (as hereinafter defined) by a person or entity that is not
cooperating or acting in collusion with an affiliate of Laidlaw. See " -- Board
Representation and Attendance at Meetings."
As defined in the Agreement, "Allied Reorganization Transaction" means (i)
any merger, consolidation, recapitalization, liquidation or other business
combination transaction involving Allied; (ii) any tender offer or exchange
offer for any securities of Allied; or (iii) any sale or other disposition of
assets of Allied or any of its subsidiaries in a single transaction or in a
series of related transactions.
LAIDLAW GUARANTIES
Laidlaw and subsidiaries of Laidlaw other than the Acquired Subsidiaries
(the "Retained Subsidiaries") are secondarily, contingently or conditionally,
and in some cases, primarily, liable in respect of various present or future
liabilities and obligations of the Acquired Subsidiaries under various
guaranties, performance guaranties, bonds, performance bonds, letters of credit,
reimbursement agreements and other undertakings (each of which is herein called
a "Laidlaw Guaranty"), many of which secure obligations of Acquired Subsidiaries
with respect to claims, costs and expenses associated with the closure,
post-closure monitoring, reclamation, remediation or cleanup of solid waste
landfills. In the Agreement, the Allied Parties agree to use all commercially
reasonable efforts to cause each Laidlaw Seller and each Retained Subsidiary to
be released from all further liability in respect of all Laidlaw Guaranties,
within six months following the Closing Date. If at the end of six months
following the Closing Date, any Laidlaw Guaranty remains outstanding, then
Allied is obligated under the Agreement cause a letter of credit to
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be issued to Laidlaw by a commercial bank in the amount of, and for the purpose
of securing, the unreleased Laidlaw Guaranty.
TAX MATTERS
Section 338 Election and Goodwill Deduction. Allied, Allied U.S. and LTI
have agreed in the Agreement to join in elections under Section 338(h)(10) of
the IRC, with respect to the acquisition by Allied U.S. of the stock of those
Acquired Subsidiaries which are incorporated in the United States (the "Acquired
U.S. Subsidiaries"). Similar elections will be made for states where
permissible.
As a result of the elections, for United States federal income tax
purposes, each Acquired U.S. Subsidiary will be deemed to have (i) sold all of
its assets in a single taxable transaction on the Closing Date, and (ii)
purchased all of its assets as of the beginning of the day after the Closing
Date. The deemed purchase price will be equal to the consideration paid by
Allied U.S. for the stock of the Acquired U.S. Subsidiaries plus the assumed
liabilities of the Acquired U.S. Subsidiaries. Gain recognized on the deemed
sale will be reported by the LTI U.S. Consolidated Tax Group (defined below),
and not by the Allied Parties. The federal income tax bases in the respective
assets of each Acquired U.S. Subsidiary after Closing will be equal to the
deemed sales price for such assets, and thus, will be substantially identical to
the bases of such assets in Allied's financial statements after the Closing
Date.
Allied estimates that approximately $861 million of goodwill will be
generated by the acquisition of the Acquired U.S. Subsidiaries, which Allied
anticipates will be deductible for U.S. federal income tax purposes over a
period of 15 years following the Closing Date. Goodwill generated by the
acquisition of subsidiaries but which are incorporated under the laws of Canada
or any Canadian provinces (the "Acquired Canadian Subsidiaries") is not
deductible for Canadian tax purposes since the Canadian tax regime has no
equivalent to Section 338 of the IRC. However, at Allied's discretion, an
election under Section 338(g) of the IRC may be made for some or all of the
Acquired Canadian Subsidiaries, which may reduce Allied's United States income
tax liability in the future. See the notes to the Pro Forma Combined Financial
Statements included elsewhere in this Proxy Statement.
Responsibility for Income Taxes. Under the Agreement, the Laidlaw Sellers
are to be responsible for, and have agreed to indemnify, the Allied Parties and
the Acquired Subsidiaries against, all United States and Canadian federal,
state, provincial, territorial, local and foreign income tax liabilities of the
LTI U.S. Consolidated Tax Group and the Acquired Subsidiaries (and of any other
consolidated, combined or unitary group of corporations which includes or may
have included any of the Acquired Subsidiaries), for all taxable periods ending
on or before the Closing Date. Any tax on the gain from the sale of the Acquired
Subsidiaries (or gain from the deemed sale of assets under Section 338 of the
IRC) is the responsibility of the Laidlaw Sellers, and is covered by the
indemnity, under the Agreement.
Tax Controversy. The Acquired U.S. Subsidiaries are members of an
affiliated group of corporations within the meaning of Section 1504(c) of the
IRC, of which LTI is the common parent corporation (the "LTI U.S. Consolidated
Tax Group"). The LTI U.S. Consolidated Tax Group includes, in addition to LTI
and the Acquired U.S. Subsidiaries, other United States subsidiaries of LTI
which will not be acquired in the Transactions. The LTI U.S. Consolidated Tax
Group files a consolidated United States federal income tax return.
The Laidlaw Sellers have disclosed to Allied the existence of a tax
controversy in the amount of more than $385,000,000 with the United States
Internal Revenue Service (the "Tax Controversy") involving the consolidated
United States federal income tax liability of the LTI U.S. Consolidated Tax
Group for the fiscal years 1986 through 1991. See "Business of the Acquired
Subsidiaries -- Legal Proceedings." The LTI U.S. Consolidated Tax Group has also
received notice that fiscal years 1992, 1993 and 1994 will be examined regarding
this issue. The Acquired Subsidiaries could be directly liable for a substantial
portion of any tax and interest assessed if the disallowance of the deduction is
sustained. In addition, under Treasury Regulations promulgated under Section
1502 of the IRC, each member of the LTI U.S. Consolidated Tax Group including
each U.S. Acquired Subsidiary, is or could be severally liable for United States
federal income tax liabilities of the entire LTI U.S. Consolidated Tax Group,
including any taxes due on the deemed sale of assets by the Acquired U.S.
Subsidiaries pursuant to Section 338 of the IRC and all amounts at issue in the
Tax Controversy which are ultimately determined to be owed.
Any amounts at issue in the Tax Controversy and for which any Acquired U.S.
Subsidiary may ultimately be found liable, as well as any taxes on the sale of
the Acquired Subsidiaries, are included in and covered by the indemnity of the
Laidlaw Sellers described above under the caption "-- Responsibility for Taxes."
Further, the
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Agreement requires that upon consummation of the Transactions, the Laidlaw
Sellers, Allied and Allied Finance will enter into an agreement (the "Setoff
Agreement"), under which the Laidlaw Sellers will agree that if the Tax
Controversy results in any damage, liability or expense to any Acquired U.S.
Subsidiary, and if the Laidlaw Sellers fail to indemnify Allied, Allied U.S. and
the Acquired U.S. Subsidiaries against all such damages, liabilities or expenses
within 30 days of a demand for indemnification, then Allied Finance may set off
the amount of all such damages, liabilities and expenses against all amounts
then owed by Allied Finance under the Debentures. See "-- Acquisition
Consideration" for a discussion of the terms of the Debentures.
Other than to the extent contemplated in the Setoff Agreement, the
obligation of the Laidlaw Sellers to indemnify Allied, Allied U.S. and the
Acquired U.S. Subsidiaries in respect of amounts at issue in the Tax Controversy
is a general, unsecured obligation of the Laidlaw Sellers. The ability of the
Laidlaw Sellers to pay and fulfill such indemnification obligation, to the
extent it exceeds any amounts then owing to Laidlaw under the Debentures, will
depend on the financial condition of the Laidlaw Sellers at the time of any
required performance of such obligation, as to which the Allied Parties have no
assurance.
INDEMNIFICATION
The Agreement provides for various indemnification obligations of the
Laidlaw Sellers and Allied. Pursuant to the Agreement, the Laidlaw Sellers
agreed to jointly and severally indemnify and hold harmless, subject to certain
limitations, the Allied Parties and the Acquired Subsidiaries and their
respective subsidiaries and affiliates from and against any and all Damages
suffered by them resulting from or in respect of (i) various tax obligations and
liabilities, (ii) pre-closing insurance claims, (iii) liability arising out of
the activities, business, assets or operations of Laidlaw and its affiliates
other than the Acquired Subsidiaries, any claims by Laidlaw and its affiliates
against the Acquired Subsidiaries and their respective subsidiaries and
affiliates based on events or conditions prior to Closing, (iv) any breach or
default by any Laidlaw Seller of their covenants and agreements in the Agreement
or any related agreements, schedules and documents, and (v) any breach of
warranty or inaccurate or erroneous representation of any Laidlaw Seller for so
long as such warranties and representations survive the Closing; provided that
such indemnity under clauses (iv) and (v) with respect to representations and
warranties (other than those relating to authority for the Transactions, no
violations arising from the Transactions, required consents and approvals,
ownership of the Acquired Subsidiaries, title to properties, tax matters and
environmental matters) shall be limited to the amount by which the aggregate of
all such Damages exceed $25,000,000, and such indemnity under clause (v) with
respect to representations and warranties as to environmental matters shall be
limited to the amount by which the aggregate of all such Damages exceed
$1,000,000, in both cases without giving effect to any materiality
qualifications. Further, Allied has agreed to indemnify and hold harmless,
subject to certain limitations, each Laidlaw Seller and its affiliates from and
against any and all obligations, claims, liabilities, damages, penalties,
deficiencies, losses, investigations, proceedings, judgments, fines, and
reasonable costs and expenses suffered by them resulting from or in respect of
certain guaranties issued by Laidlaw or any of its affiliates to secure the
payment of any obligations of LWSI, LWSC and LMS and their subsidiaries and
affiliates, and any breach or default (including a breach of warranty or
erroneous representation) of any Allied Party under the Agreement; provided,
that such indemnity shall be limited by the amount by which the aggregate of all
such Damages exceed $25,000,000 without giving effect to any materiality
qualifiers. The indemnification obligations of Allied described in the preceding
sentence (other than the obligation to indemnify the Laidlaw Sellers with
respect to guaranties issued by Laidlaw or any of its affiliates) are expressly
subordinated to the obligations of Allied under the facilities issued pursuant
to the Senior Financing and under its guaranties of the Debentures. As long as
Senior Financing or the Senior Subordinated Notes are outstanding, Allied will
not be required to pay such indemnity to Laidlaw, but the amounts of any such
indemnity payments otherwise payable but for the foregoing will accrue interest
at 7% per annum. The Agreement further provides a procedure for third party
claims, pursuant to which any party that becomes aware of a claim owed by such
party to a third party shall notify the party obligated to provide indemnity
with respect to such third party claim. Provisions are made with respect to the
rights and obligations of the parties for giving notices, assuming the defense
or investigation, the retention of counsel, and the settlement of such third
party claims. Additionally, provisions are made with respect to notice of claims
between the parties, and for arbitration of claims when agreements cannot be
reached. All representations and warranties shall survive the Closing as
follows: (i) representations and warranties of the parties as to tax matters
shall survive until the expiration of appropriate statutes of limitation, (ii)
the representations and warranties of Allied as to environmental matters shall
survive for three years, (iii) the representations and warranties of the Laidlaw
Sellers as to environmental matters shall survive as described in
"-- Environmental Matters," and (iv) the other representations
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and warranties of the Laidlaw Sellers and Allied shall terminate 18 months after
the Closing, except for certain representations and warranties which shall
survive indefinitely after the Closing which are (x) made by Allied and the
Laidlaw Sellers regarding authority for the Transactions, no violations arising
from the Transactions and required consents and approvals, (y) made by Allied as
to issuances of the Allied Securities, and (z) made by the Laidlaw Sellers as to
the ownership of the Acquired Subsidiaries. In addition, Laidlaw has agreed to
indemnify Allied for any damages arising out of a breach of any noncompetition
agreements entered into by the Acquired Subsidiaries which results from Allied's
current operations being in conflict with such noncompetition agreements.
AMENDMENT AND WAIVERS
The Agreement may be amended by Allied and the Laidlaw Parties, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval by Allied's stockholders of the matters to be submitted
to them for approval at the Special Meeting. After such approval, no amendment
shall be made which materially increases the amount or materially alters the
terms of the Stock Consideration, the Warrant, the Debentures, or the Exercise
Shares and Debenture Shares without further approval of Allied's stockholders.
At any time on or before the Closing Date, the parties may (i) extend the
time for the performance of any of the obligations or other act of any of the
other parties, (ii) waive any inaccuracies in the representations and warranties
made in the Agreement or in a disclosure schedule of a party delivered pursuant
to the Agreement, (iii) waive compliance with any of the agreements or
conditions of the Agreement which may be legally waived, and (iv) grant consents
under the Agreement.
TERMINATION; TERMINATION FEE
The Agreement may be terminated at any time before consummation of the
Transactions by (i) the mutual consent of the Boards of Directors of Laidlaw and
Allied, (ii) by either Allied or Laidlaw if the Transactions have not been
consummated on or before the later to occur of December 31, 1996 or the 61st day
after the SEC has approved this Proxy Statement (or any later date which may be
mutually agreed to by Allied and Laidlaw); provided, however, that such right to
terminate the Agreement shall not be available to any party that has breached in
any material respect its obligations under the Agreement in any manner that has
proximately contributed to the failure of the Transactions to occur on or before
such date, or (iii) by either the Laidlaw Parties or Allied if the stockholders
of Allied shall have failed to approve at the Special Meeting the matters
submitted to them for approval at the Special Meeting.
If the Agreement is terminated under any of the provisions described above,
then subject to the payment of any termination fee which may be payable as
described below, and unless a party has breached its obligations under the
Agreement, the termination will be without further liability to any party.
If the Agreement is terminated solely because Allied's stockholders fail to
approve the matters submitted to them for approval at the Special Meeting, and
if such failure to obtain stockholder approval directly results from a
third-party offer to acquire at least 51% of Allied's stock or assets (whether
in the form of a tender offer, merger proposal, asset purchase or otherwise),
then Allied will be required by the Agreement to pay to Laidlaw, within ten days
following such termination, a fee in an amount determined by multiplying
5,000,000 by the excess of the price per share of the third-party offer over
$8.25.
Allied may be required under certain circumstances to pay a $10,000,000 fee
to Laidlaw if the Transactions are not consummated because all or some portion
of the Senior Subordinated Notes cannot be sold on terms acceptable to Allied.
See "-- Other Conditions to the Consummation of the Transactions."
NON-COMPETITION OBLIGATIONS OF LAIDLAW
The Agreement provides that upon consummation of the Transactions, Laidlaw,
and two of its retained subsidiaries, Laidlaw Environmental Services, Ltd.
("LESL") and Laidlaw Environmental Services, Inc. ("LESI"), and Allied, will
enter into a Waste Services Management Agreement (the "Waste Services Management
Agreement"), under which Laidlaw will agree that for a period of five years
following the Closing Date, it shall not, directly or indirectly through a
subsidiary, without the consent of Allied: (i) engage, whether as a corporation
on its own account, or as a shareholder, owner, partner, joint venturer, agent,
independent contractor, consultant or advisor, in the business of operating
material recycling facilities, processing curbside waste pickup, or performing
residential, commercial or curbside solid waste collection services, in the
United States and Canada;
32
<PAGE> 42
(ii) acquire, by purchase or otherwise, lease or enter into an agreement to
operate a "landfill" (as that term is defined in Subtitle D of RCRA); (iii)
solicit or contact in any manner, directly or indirectly, any person who is, at
that time, within the territory, a managerial employee of Allied's business for
the purposes or with the intent of enticing such employee away from or out of
the employ of Allied or its subsidiaries; (iv) disclose the identity of the
customers of Laidlaw's business at the Closing Date, to any person or entity for
any reason or purpose; or (v) promote or assist, financially or otherwise, any
person or entity to do any of the above; provided, however, that the foregoing
restrictions shall not prohibit Laidlaw from (x) acquiring as an investment not
more than ten percent of the capital stock of a competing business the stock of
which is traded on a national securities exchange or over-the-counter, (y)
purchasing a business which has a solid waste operation if Laidlaw complies with
the right-of-first-offer provisions of the Waste Services Management Agreement,
or (z) "continuing to do business in the ordinary course as presently
constituted."
The Waste Services Management Agreement further provides that if Laidlaw,
LESL or LESI acquires a business which has a solid waste operation, then the
acquiror, within 30 days after consummating the acquisition, must offer to sell
the acquired solid waste operation to Allied for a price and on terms specified
by the Laidlaw entity which has purchased the solid waste operation, in which
case Allied shall have 30 days to elect to purchase the offered solid waste
operation for the specified price and on the specified terms. If Allied does not
deliver a reply notice accepting the offer, then Laidlaw, LESL or LESI as the
case may be, may sell at any time thereafter (but is not obligated to sell and
may continue to operate) the solid waste operation which Allied elected not to
purchase, only for a sales price which is equal to or greater than the price at
which the solid waste operation was offered to Allied.
33
<PAGE> 43
PRO FORMA COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined balance sheet gives effect to
the Transactions as if each had occurred on June 30, 1996. The unaudited pro
forma combined statements of operations for the six months ended June 30, 1996
and the year ended December 31, 1995 give effect to (i) the acquisition of
companies accounted for using the purchase method for business combinations
completed in 1995 and 1996, which are considered to be significant, (ii) the
increase in the interest rate on the Notes from 10.75% to 12%, (iii) the
completion of the Transactions contemplated herein, (iv) the issuances of 11.7
million shares of Common Stock in a private placement and the application of the
net proceeds therefrom, (v) the conversion and exercise of certain convertible
securities and warrants into an aggregate of approximately 9.8 million shares of
Common Stock, and (vi) the completion of a public offering of 7.6 million shares
of common stock, and the application of the net proceeds therefrom, as if each
had occurred on January 1, 1995.
The pro forma adjustments related to the purchase allocation of the
Transactions are preliminary and do not give effect to an appraisal of the
assets of the Acquired Subsidiaries which Allied intends to obtain at or near
the closing date of the Transactions. The pro forma combined financial
statements do not reflect adjustments for certain cost and expense synergies and
other economic benefits and non-recurring items which are included in
"Supplemental Financial Information." These statements do not purport to be
indicative of the combined financial position or combined results of operations
of Allied and the Acquired Subsidiaries that might have occurred, nor are they
indicative of future financial position or results of operations.
The pro forma financial statements should be read in conjunction with the
Notes to Pro Forma Combined Financial Statements, the historical consolidated
financial statements of Allied and the notes thereto and the historical
financial statements of the Acquired Subsidiaries and the notes thereto. See
"Allied Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Disclosure Regarding Forward Looking Statements."
34
<PAGE> 44
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ACQUIRED RELATED TO
HISTORICAL SUBSIDIARIES(1) ACQUISITIONS(2) PRO FORMA
---------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 2,435 $ -- $ -- $ 2,435
Other current assets.................. 52,330 124,000 -- 176,330
-------- -------- ----------- ----------
Total current assets........ 54,765 124,000 -- 178,765
Property and equipment, net........... 330,112 566,560 100,000 996,672
Goodwill, net......................... 88,535 204,877 743,279 1,036,691
Other assets.......................... 28,674 22,890 33,500 85,064
-------- -------- ----------- ----------
Total assets................ $ 502,086 $ 918,327 $ 876,779 $2,297,192
======== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................... $ 50,507 $ 123,186 $ 50,000 $ 223,693
Current portion of long-term debt..... 28,746 2,675 -- 31,421
Long-term debt, net of current
portion............................. 177,003 1,895 1,375,747 1,554,645
Other long-term liabilities........... 45,311 81,784 10,000 137,095
Stockholders' equity.................. 200,519 708,787 (558,968) 350,338
-------- -------- ----------- ----------
Total liabilities and
equity.................... $ 502,086 $ 918,327 $ 876,779 $2,297,192
======== ======== =========== ==========
</TABLE>
- - - ---------------
(1) Reflects the historical balance sheet of the Acquired Subsidiaries.
(2) Reflects (i) the issuance of the Senior Subordinated Notes, Senior
Financing, and Debentures and the related commitment fees, and (ii) the
allocation of the purchase price of the Acquired Subsidiaries.
35
<PAGE> 45
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPLETED ACQUIRED RELATED TO FINANCING
HISTORICAL ACQUISITIONS(1) SUBSIDIARIES(2) ACQUISITIONS(3) TRANSACTIONS(4) PRO FORMA
---------- --------------- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 118,958 $ 1,212 $ 395,786 $ -- $ -- $ 515,956
Cost of operations.......... 65,699 618 273,924 (1,453) -- 338,788
Selling, general and
administrative expenses... 18,464 332 23,602 (20,773) -- 21,625
Depreciation and
amortization expense...... 15,408 101 48,960 9,496 -- 73,965
---------- ------ -------- ------- -------- ----------
Operating income before
pooling costs............. 19,387 161 49,300 12,730 -- 81,578
Pooling costs............... 6,690 -- -- -- -- 6,690
---------- ------ -------- ------- -------- ----------
Operating income.......... 12,697 161 49,300 12,730 -- 74,888
Interest income............. (142) -- (149) -- -- (291)
Interest expense............ 4,567 -- 232 (3,107) 71,564 73,256
---------- ------ -------- ------- -------- ----------
Income from continuing
operations before
income taxes........... 8,272 161 49,217 15,837 (71,564) 1,923
Income taxes................ 4,035 65 19,687 6,335 (28,626) 1,496
---------- ------ -------- ------- -------- ----------
Net income................ 4,237 96 29,530 9,502 (42,938) 427
Preferred dividends......... (575) -- -- -- (575)
Interest savings on assumed
conversions............... -- -- -- -- -- 2,122
---------- ------ -------- ------- -------- ----------
Net income to common
shareholders........... $ 3,662 $ 96 $ 29,530 $ 9,502 $ (42,938) $ 1,974
========== ====== ======== ======= ======== ==========
Net income per common
share..................... $ 0.06 $ 0.02
========== ==========
Weighted average common and
common equivalent
shares.................... 58,873,215 84,264,973
========== ==========
</TABLE>
- - - ---------------
(1) Reflects the results of operations of the companies acquired by Allied in
1996 for the period from January 1, 1996 to the date of acquisition.
(2) Reflects the results of operations of the Acquired Subsidiaries for the
period from March 1, 1996 through August 31, 1996.
(3) Reflects adjustments for the elimination of quantifiable expenses directly
related to the Transactions, amortization of goodwill and recognition of
additional capitalized interest.
(4) Reflects additions for additional net interest expense associated with the
Transactions.
36
<PAGE> 46
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPLETED ACQUIRED RELATED TO FINANCING
HISTORICAL ACQUISITIONS(1) SUBSIDIARIES(2) ACQUISITIONS(3) TRANSACTIONS(4) PRO FORMA
---------- --------------- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 217,544 $ 9,019 $ 756,215 $ (207) $ -- $ 982,571
Cost of operations...... 119,238 4,317 522,561 (3,113) -- 643,003
Selling, general and
administrative
expenses.............. 36,708 1,918 57,572 (41,256) -- 54,942
Depreciation and
amortization
expense............... 27,279 1,116 91,720 19,189 -- 139,304
----------- ------ -------- ------- --------- --------
Operating income before
pooling costs......... 34,319 1,668 84,362 24,973 -- 145,322
Pooling costs........... 1,531 -- -- -- -- 1,531
----------- ------ -------- ------- --------- --------
Operating income...... 32,788 1,668 84,362 24,973 -- 143,791
Interest income......... (716) -- (281) -- -- (997)
Interest expense........ 11,316 13 416 (8,519) 141,018 144,244
--------
Conversion fee on debt
securities
converted............. 56 -- -- -- -- 56
----------- ------ -------- ------- --------- --------
Income before taxes... 22,132 1,655 84,227 33,492 (141,018) 488
Income taxes............ 9,751 662 33,691 13,397 (56,408) 1,093
----------- ------ -------- ------- --------- --------
Net income............ 12,381 993 50,536 20,095 (84,610) (605)
Dividends............... (4,070) -- -- -- 2,743 (1,327)
Conversion fee on equity
securities
converted............. (2,151) -- -- -- -- (2,151)
Interest savings on
assumed conversions... -- -- -- -- -- 6,583
----------- ------ -------- ------- --------- --------
Net income to common
shareholders....... $ 6,160 $ 993 $ 50,536 $ 20,095 $ (81,867) $ 2,500
=========== ====== ======== ======= ========= ========
Net income per common
share................. $ 0.15 $ 0.03
=========== ========
Weighted average common
and common equivalent
shares................ 40,046,459 84,581,680
=========== ========
</TABLE>
- - - ---------------
(1) Reflects the results of operations of the companies acquired by Allied
during 1995 and 1996 for the period from January 1, 1995 through to the date
of acquisition, (or December 31, 1995 for acquisitions completed subsequent
to December 31, 1995).
(2) Reflects the results of operations of the Acquired Subsidiaries for the
period from March 1, 1995 through February 29, 1996.
(3) Reflects adjustments for the elimination of quantifiable expenses directly
related to the Transactions, amortization of goodwill and recognition of
additional interest expense and capitalized interest.
(4) Reflects adjustments for additional net interest expense associated with the
Transactions.
37
<PAGE> 47
SUPPLEMENTAL FINANCIAL INFORMATION
The Pro Forma Combined Financial Statements included elsewhere herein, give
effect to certain pro forma adjustments to historical amounts as described in
the notes to such information. In evaluating the Transactions, the Board of
Directors of Allied considered additional supplemental financial information
which is summarized below.
The supplemental financial information includes the Allied unaudited
historical combined condensed statement of operations for the twelve month
period ended June 30, 1996 and the Acquired Subsidiaries' historical combined
condensed statement of operations for the twelve month period ended August 31,
1996, adjusted for certain cost and expense savings and other economic benefits
that are expected to be realized as a result of the Transactions and the
elimination of certain non-recurring items (in thousands except per share
amounts). See "Allied Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Disclosure Regarding Forward Looking
Statements."
<TABLE>
<S> <C>
Revenues................................................................ $995,366
Operating income........................................................ 170,336
EBITDA(1)............................................................... 314,660
Net income to common shareholders....................................... 24,677
Income per common share................................................. 0.31
</TABLE>
- - - ---------------
(1) Allied has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors to determine Allied's
historical ability to service its indebtedness.
These adjustments to the historical combined condensed statements of
operations of Allied and the Acquired Subsidiaries give effect to the following:
- Certain cost savings and efficiencies of approximately $66.9 million that
may have been achieved if the Transactions had occurred as of July 1,
1995.
- Elimination of certain non-recurring historical transaction and
integration costs of approximately $8.2 million related to acquisitions
accounted for using the poolings-of-interests method of accounting for
business combinations completed during the quarters ended September 30,
1995 and March 31, and June 30, 1996.
- Elimination of certain non-recurring historical inducement conversion
fees of approximately $2.2 million paid on Allied debt securities
converted during the quarter ended December 31, 1995.
- The effects of capitalizing interest in accordance with the application
of SFAS No. 34 to the Acquired Subsidiaries.
38
<PAGE> 48
ALLIED'S SELECTED FINANCIAL DATA
The selected historical financial data presented below as of and for the
five years ended December 31, 1995 are derived from Allied's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The historical financial data as of and for the
six months ended June 30, 1995 and 1996 are derived from the unaudited financial
statements included elsewhere herein. The historical financial data for the six
months ended June 30, 1995 and 1996, in the opinion of management, include all
adjustments, consisting solely of normal recurring adjustments, necessary for a
fair presentation for such periods. The historical results of operations for the
six months ended June 30, 1996 are not necessarily indicative of results to be
expected for the entire year. The historical statement of operations, balance
sheet and other data have been restated to give effect to transactions accounted
for using the pooling-of-interests method for business combinations. See Note 2
to Allied's Consolidated Financial Statements. These selected financial data
should be read in conjunction with "Allied's Management Discussion and Analysis
of Financial Condition and Results of Operations," Allied's Consolidated
Financial Statements and the notes thereto and Allied's Pro Forma Combined
Financial Statements and the notes thereto, included elsewhere herein. Allied
has not paid dividends on its Common Stock, does not anticipate paying any
dividends on its Common Stock in the foreseeable future, and is prohibited under
the terms of certain of Allied's long-term indebtedness from paying such
dividends.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 17,230 $ 47,396 $ 108,948 $ 158,354 $ 217,544 $ 104,670 $ 118,958
Cost of operations................. 11,810 29,237 68,374 100,186 119,238 58,585 65,699
Selling, general and administrative
expenses......................... 3,090 8,789 18,278 32,564 36,708 16,607 18,464
Depreciation and amortization
expense.......................... 1,492 4,354 10,637 16,931 27,279 12,783 15,408
------- ------- ------- ---------- ---------- ---------- ----------
Operating income before pooling
costs............................ 838 5,016 11,659 8,673 34,319 16,695 19,387
Pooling costs(1)................... -- -- -- -- 1,531 -- 6,690
------- ------- ------- ---------- ---------- ---------- ----------
Operating income................... 838 5,016 11,659 8,673 32,788 16,695 12,697
Interest income.................... -- (54) (310) (1,073) (716) (474 ) (142 )
Interest expense................... 608 2,923 7,633 13,441 11,316 5,974 4,567
Conversion fee on debt securities
converted........................ -- -- -- -- 56 -- --
------- ------- ------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes............................ 230 2,147 4,336 (3,695) 22,132 11,195 8,272
Income tax expense (benefit)....... 50 717 1,694 (689) 9,751 4,642 4,035
------- ------- ------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
loss............................. 180 1,430 2,642 (3,006) 12,381 6,553 4,237
Extraordinary loss, net of income
tax benefit of $1,900 in 1994.... -- -- -- (3,029) -- -- --
------- ------- ------- ---------- ---------- ---------- ----------
Net income (loss).................. 180 1,430 2,642 (6,035) 12,381 6,553 4,237
Preferred dividends................ (238) (310) (927) (3,773) (4,070) (2,127 ) (575 )
Conversion fee on equity securities
converted........................ -- -- -- -- (2,151) -- --
------- ------- ------- ---------- ---------- ---------- ----------
Net income (loss) to common
shareholders..................... $ (58) $ 1,120 $ 1,715 $ (9,808) $ 6,160 $ 4,426 $ 3,662
======= ======= ======= ========== ========== ========== ==========
Net income (loss) per share:
Income (loss) before extraordinary
loss............................. $ (0.01) $ 0.09 $ 0.08 $ (0.27) $ 0.15 $ .11 $ .06
Extraordinary loss................. -- -- -- (0.12) -- -- --
------- ------- ------- ---------- ---------- ---------- ----------
Income (loss)...................... $ (0.01) $ 0.09 $ 0.08 $ (0.39) $ 0.15 $ .11 $ .06
======= ======= ======= ========== ========== ========== ==========
Weighted average common and common
equivalent shares................ 4,311,075 12,641,834 22,572,468 25,028,107 40,046,459 41,507,957 58,873,215
======= ======= ======= ========== ========== ========== ==========
</TABLE>
39
<PAGE> 49
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:(2)
EBITDA before pooling costs........ $ 2,330 $ 9,370 $ 22,296 $ 25,604 $ 61,598 $ 29,478 $ 34,795
EBITDA margin before pooling
costs............................ 13.5% 19.8% 20.5% 16.2% 28.3% 28.2 % 29.2 %
EBITDA after pooling costs......... $ 2,330 $ 9,370 $ 22,296 $ 25,604 $ 60,067 $ 29,478 $ 28,105
EBITDA margin after pooling
costs............................ 13.5% 19.8% 20.5% 16.2% 27.6% 28.2 % 23.6 %
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 3,782 $ 5,555 $ 3,812 $ 5,223 $ 4,016 $ 2,435
Working capital (deficit)............ 1,241 (508) 3,892 (13,491) (37,338) (24,488)
Property and equipment, net.......... 14,336 59,581 94,208 216,271 302,352 330,112
Total assets......................... 33,084 107,404 159,926 356,875 458,706 502,086
Long-term debt, net of current
portion............................ 9,285 41,098 61,019 166,253 186,373 177,003
Stockholders' equity................. 18,482 44,418 70,277 89,972 136,305 200,519
</TABLE>
- - - ---------------
(1) Pooling costs of $1.5 million and $6.7 million were incurred in 1995 and
1996, respectively, for transaction and integration costs related to
acquisitions accounted for using the pooling-of-interests method for
business combinations. Pooling costs incurred in 1992 for transaction and
integration costs related to acquisitions were immaterial. See "Business of
Allied -- Acquisitions."
(2) Allied has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors to determine Allied's
historical ability to service its indebtedness.
40
<PAGE> 50
ALLIED MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Pro Forma
Combined Financial Statements," "Allied's Selected Financial Data" and Allied's
Consolidated Financial Statements and the notes thereto, included elsewhere
herein.
INTRODUCTION
Allied has experienced significant growth, a substantial portion of which
has resulted from the acquisition of solid waste businesses. Since January 1,
1992, Allied has completed 86 acquisitions. In 1995, Allied acquired 18
businesses and it has acquired 14 businesses subsequent to 1995. Allied's
Consolidated Financial Statements have been restated to reflect the acquisition
of companies accounted for using the pooling-of-interests method for business
combinations. Many of the acquisitions were accounted for under the purchase
method for business combinations and, accordingly, the results of operations for
such acquired businesses are included in Allied's financial statements only from
the applicable date of acquisition. As a result, Allied believes its historical
results of operations for the periods presented are not directly comparable.
GENERAL
Revenues. Allied's revenues are attributable primarily to fees charged to
customers for waste collection, transfer, recycling and disposal services.
Allied's collection services are generally provided under direct agreements with
its customers or pursuant to contracts with municipalities. Commercial and
municipal contract terms, where used, generally range from 1 to 5 years and
commonly have automatic renewal options. Allied's landfill operations include
both Allied-owned landfills and those operated for municipalities for a fee.
Allied's strategy is to be vertically integrated in each geographic region in
which it is located as it provides collection, transfer and disposal services.
The table below shows for the periods indicated the percentage of Allied's total
revenues attributable to services provided and to geographic region (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------- SIX MONTHS ENDED
1993 1994 1995 JUNE 30, 1996
----- ----- ----- ----------------
<S> <C> <C> <C> <C>
Collection(1).............................. 76.8% 69.9% 64.7% 63.0%
Transfer................................... 2.8 8.4 9.5 8.1
Landfill(1)................................ 9.2 14.5 18.3 21.4
Other...................................... 11.2 7.2 7.5 7.5
----- ----- ----- -----
Total revenues............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Midwest.................................... 49.0% 48.7% 52.2% 49.4%
Southeast.................................. 28.8 30.2 28.0 30.5
Southwest.................................. 22.2 21.1 19.8 20.1
----- ----- ----- -----
Total revenues............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
- - - ---------------
(1) The portion of collection revenues attributable to disposal charges for
waste collected by Allied and disposed at Allied's landfills have been
excluded from collection revenues and included in landfill revenues.
Allied's strategy is to develop vertically integrated operations to ensure
internalization of waste it collects and thus realize higher margins from its
operations. By disposing of waste at Allied-operated landfills, Allied retains
the margin generated through disposal operations that would otherwise be earned
by third-party landfills. Approximately 68% of Allied-collected waste is
disposed of at Allied-operated landfills as measured using disposal costs in
1996. In addition, transfer stations are an integral part of the disposal
process. Allied locates its transfer stations in areas where its landfills are
outside of the population centers in which it collects waste. Such waste is
transloaded and economically transported to its landfills. The increase in
transfer and
41
<PAGE> 51
landfill revenues as a percentage of total revenues from 2.8% and 9.2% in 1993
to 8.1% and 21.4% in 1996, respectively, reflects the continued implementation
of Allied's strategy. Although transfer revenues typically generate lower
operating margins, the increase in transfer revenues as a percentage of total
revenues is not expected to have an adverse effect on the profitability of
Allied.
Expenses. Cost of operations include labor, maintenance and repairs,
equipment and facility rent, utilities and taxes, the costs of ongoing
environmental compliance, safety and insurance, disposal costs and costs of
independent haulers transporting waste to disposal sites. Disposal costs include
certain landfill taxes, host community fees, payments under agreements with
respect to landfill sites that are not owned, landfill site maintenance, fuel
and other equipment operating expenses and accruals for estimated closure and
post-closure monitoring expenses anticipated to be incurred in the future.
Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead, sales costs, community relations
expenses and provisions for estimated uncollectible accounts receivable and
potentially unrealizable acquisition costs.
Depreciation and amortization expense includes depreciation of fixed assets
and amortization of landfill airspace and goodwill and other intangible assets.
In connection with potential acquisitions, Allied incurs transaction and
integration costs which include stock registration, legal, accounting,
consulting, engineering and other direct costs. When an acquisition is accounted
for using the pooling-of-interests method for business combinations, these costs
are charged to the statement of operations as pooling costs. When potential
acquisitions are accounted for using the purchase method for business
combinations, these costs are capitalized. Allied routinely evaluates such
capitalized costs and expenses those costs which have no further value. Indirect
acquisition costs, such as executive salaries, general corporate overhead and
other corporate services, are expensed as incurred.
Direct landfill development costs, such as engineering, upgrading,
construction and permitting costs, are capitalized and amortized based on
consumed airspace. Allied believes that the costs associated with engineering,
owning and operating landfills will increase in the future as a result of
federal, state and local regulation and a growing community awareness of the
landfill permitting process. Although there can be no assurance, Allied believes
that it will be able to implement price increases sufficient to offset these
increased expenses. All indirect landfill development costs, such as executive
salaries, general corporate overhead, public affairs and other corporate
services, are expensed as incurred.
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned or operated by
Allied. Site specific closure and post-closure engineering cost estimates are
prepared annually for landfills owned or operated by Allied for which it is
responsible for closure and post-closure. Estimated costs are accrued based on
accepted tonnage as landfill airspace is consumed. Effective January 1, 1994,
Allied changed its accounting policy to discount its future closure and
post-closure obligations where Allied believes that both the amounts and timing
of related payments are reliably determinable. The cumulative effect of this
change in accounting policy, net of the effects relating to purchase accounting
for prior acquisitions, did not have a material effect on Allied's 1994 results
of operations. Allied periodically updates its estimates of future closure and
post-closure costs. The impact of changes which are determined to be changes in
estimates are accounted for on a prospective basis.
The net present value of the closure and post-closure commitment is
calculated assuming an inflation rate of 3.5% and a risk-free capital rate of
7.0%. Discounted amounts previously recorded are accreted to reflect the effects
of the passage of time. Based on these assumptions, Allied's current estimate of
total future payments for closure and post-closure costs is $165 million, while
the present value of such estimate is $55 million. At December 31, 1995 and June
30, 1996, respectively, accruals for landfill closure and post-closure costs
(including costs assumed through acquisitions) were approximately $10.5 million
and $10.3 million. The accruals reflect relatively young landfills with
estimated remaining lives, based on current waste flows, that range from 3 to
over 75 years, with an estimated average remaining life of greater than 25
years.
42
<PAGE> 52
During 1994, Allied's landfills became subject to the closure and
post-closure requirements of Subtitle D. Previously, Allied's landfills were
subject to local requirements. The principal changes under Subtitle D are an
extension of the post-closure monitoring period to 30 years and a requirement to
use clay or synthetic liners as capping materials. Allied updated its estimates
of future closure and post-closure costs in accordance with its interpretations
of Subtitle D.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------- --------------------------------
1994 1995 1996
COMPARED COMPARED COMPARED
TO 1993 TO 1994 TO 1995
% CHANGE % CHANGE % CHANGE
1993 1994 IN AMOUNTS 1995 IN AMOUNTS 1995 1996 IN AMOUNTS
----- ----- ---------- ----- ---------- ----- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ 100.0% 100.0% 45.3% 100.0% 37.4% 100.0% 100.0% 13.7%
Cost of operations...................... 62.8 63.3 46.5 54.8 19.0 56.0 55.2 12.1
Selling, general and administrative
expenses.............................. 16.8 20.6 78.2 16.9 12.7 15.9 15.5 11.2
Depreciation and amortization........... 9.7 10.6 59.2 12.5 61.1 12.1 13.0 20.5
----- -----
Operating income before pooling costs... 10.7 5.5 (25.6) 15.8 295.7 16.0 16.3 16.1
Pooling costs........................... -- -- -- 0.7 100.0 -- 5.6 N/A
----- -----
Operating income........................ 10.7 5.5 (25.6) 15.1 278.0 16.0 10.7 (23.9)
Interest expense, net................... 6.7 7.8 68.9 4.9 (14.3) 5.3 3.7 (19.5)
Income tax expense...................... 1.6 (0.4) (140.7) 4.5 1515.2 4.4 3.4 (13.1)
Extraordinary item, net of tax effect... -- 1.9 100.0 -- (100.0) -- -- --
----- -----
Net income (loss)..................... 2.4% (3.8)% (328.4)% 5.7% 305.2% 6.3% 3.6% (35.3)%
===== =====
OTHER DATA:
EBITDA before pooling costs(1).......... 20.5% 16.2% 14.8% 28.3% 140.6% 28.2% 29.2% 18.0%
EBITDA after pooling costs(1)........... 20.5% 16.2% 14.8% 27.6% 134.6% 28.2% 23.6% (4.7)%
</TABLE>
- - - ---------------
(1) Allied has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors and creditors to
determine Allied's historical ability to service its indebtedness.
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Revenues. Revenues in 1996 were $119.0 million compared to $104.7 million
in 1995, an increase of 13.7%. Approximately 6.1% of the increase in revenues is
attributable to acquisitions and 7.6% is attributable to internal growth.
Revenues of $6.3 million in the first six months of 1996 were generated from
companies acquired since December 1994, while increases in revenues attributable
to existing operations amounted to $8.0 million. Average price increases as a
percentage of revenue were approximately 3% of revenue while the remainder of
internal growth was from volume.
Cost of Operations. Cost of operations in 1996 was $65.7 million compared
to $58.6 million in 1995, an increase of 12.1%. The increase in cost of
operations was primarily attributable to the increase in revenues described
above. As a percentage of revenues, cost of operations decreased to 55.2% in
1996 from 56.0% in 1995. Operating cost margins were favorably impacted by a
decrease in disposal costs paid to third-parties measured as a percentage of
revenue and other operating efficiencies resulting from the integration of
businesses acquired in the past twelve months. Waste collected by Allied which
is disposed at Allied-operated landfills was 68% of revenue in 1996 compared to
52% in 1995.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses
increased to $18.5 million in 1996 compared to $16.6 million in 1995, an
increase of 11.2%. As a percentage of revenues, SG&A
43
<PAGE> 53
decreased to 15.5% in 1996 compared to 15.9% in 1995. The increase in SG&A
expense resulted from expenses associated with acquired companies and expenses
incurred in connection with Allied's increase in personnel and other expenses
related to the anticipated growth of Allied as it continues to acquire
companies. The decrease in SG&A as a percentage of revenues is attributable to a
moderate increase in corporate general and administrative expenses while the
percentage increase in revenues was greater.
Depreciation and Amortization. Depreciation and amortization in 1996 was
$15.4 million compared to $12.8 million in 1995, an increase of 20.5%. The
increase in depreciation and amortization expense is due to acquisitions and
capital expenditures. Fixed assets have increased from $302.5 million at June
30, 1995 to $407.2 million at June 30, 1996 and goodwill has increased from $83
million at June 30, 1995 to $98 million at June 30, 1996. As a percentage of
revenues, depreciation and amortization increased to 13.0% in 1996 from 12.1% in
1995. This increase is primarily because amortization of landfill airspace as a
percentage of revenue increased to 3.2% in 1996 from 2.4% in 1995 resulting from
an increase in the rate of waste internalization.
Pooling Costs. Costs of $6.7 million were incurred in 1996 for transaction
and integration costs directly related to acquisitions accounted for using the
pooling-of-interests method for business combinations. Transaction costs include
stock registration, legal, accounting, consulting, engineering and other direct
third-party costs incurred to complete the acquisitions. Integration costs
include uncollectible accounts receivable write-offs, employee termination and
relocation, write down of fixed assets, lease termination, and deferred repairs
and maintenance of vehicles and equipment. During the first six months of 1995,
no material pooling costs were incurred.
Net Interest Expense. Net interest expense was $4.4 million in 1996
compared to $5.5 million in 1995, a decrease of 19.5%. The decrease in the first
six months of 1996 compared to 1995 is partially due to the conversion of
subordinated debt into Common Stock in the fourth quarter of 1995 which resulted
in a reduction to annual interest charges of approximately $800,000. In
addition, the amount of capitalized interest for the six months increased to
$6.9 million in 1996 compared to $4.4 million in 1995. The amount of interest
capitalized increased in 1996 because of an increase in transfer stations under
construction and landfill airspace under development compared to the same period
in 1995. The decrease in net interest expense was offset by an increase in
interest bearing debt to approximately $205.7 million at June 30, 1996 from
approximately $198.7 million at June 30, 1995, due primarily to acquisitions and
capital expenditures.
Income Taxes. Allied's effective tax rate in 1996 and 1995 deviates from
the federal statutory rate of 35%, partially due to the effects of differences
in the treatment of goodwill for book and tax purposes, state income taxes, and
other permanent differences. Income taxes reflect a 49% effective income tax
rate in 1996 as compared to a 41% rate in 1995. The increase is primarily caused
by the accounting treatment of the conversion of an S-Corporation to a
C-Corporation when the pooling-of-interests method of accounting is used. This
resulted in a one-time impact on the 1996 income tax provision which does not
have recurring consequences after 1996 and had the effect of increasing the
total income tax provision by $313,000 but had little impact on cash taxes.
Without considering the effect of pooled companies, the 1996 effective tax rate
is 45%.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues. Revenues in 1995 were $217.5 million compared to $158.4 million
in 1994, an increase of 37.4%. The increase in revenues is due primarily to the
effects of acquisitions as well as price and volume increases attributable to
existing operations. Revenues of $34.4 million for 1995 were generated from
companies acquired since January 1994, while increases in revenue attributable
to existing operations amounted to $24.7 million. Average price increases as a
percentage of revenue were approximately 5.7%.
Cost of Operations. Cost of operations in 1995 was $119.2 million compared
to $100.2 million in 1994, an increase of 19.0%. This increase in costs was
attributable primarily to the increase in revenues described above. As a
percentage of revenues, cost of operations decreased to 54.8% in 1995 from 63.3%
in 1994. The resulting increase in margins was due primarily to better
internalization of waste flows in 1995 as compared to 1994 during which
Allied-collected waste disposed at Allied-owned and/or operated landfills, as
measured using disposal costs, was 34.8% of revenue compared to 62.0% for 1995.
As a percentage of revenue, gross
44
<PAGE> 54
profit increased because of increased operating efficiencies resulting from
improvements made to vehicles and equipment through capital expenditures made in
1994 and 1995.
Selling, General and Administrative Expenses. SG&A expenses increased to
$36.7 million in 1995 compared to $32.6 million in 1994, an increase of 12.7%.
As a percentage of revenues, SG&A decreased to 16.9% in 1995 from 20.6% in 1994.
The increase in SG&A expenses resulted from expenses associated with acquired
companies and expenses incurred in connection with Allied's increase in
personnel and other expenses related to the anticipated growth of Allied as it
continues to acquire companies. The decrease in SG&A as a percentage of revenues
can attribute to a significant increase in revenue producing assets while
corporate level personnel and other related expenses increased moderately.
Depreciation and Amortization Expense. Depreciation and amortization
expense in 1995 was $27.3 million compared to $16.9 million in 1994, an increase
of 61.1%. The increase in depreciation and amortization expense is due to
acquisitions and capital expenditures. Fixed assets increased to $366.6 million
at December 31, 1995 from $261.4 million at December 31, 1994 and goodwill
increased to $98.1 million at December 31, 1995 from $84.1 million at December
31, 1994. As a percentage of revenues, depreciation and amortization increased
to 12.5% in 1995 from 10.6% in 1994. This increase is primarily because
amortization of landfill airspace as a percentage of revenue increased to 2.7%
in 1995 from 1.0% in 1994 resulting from an increase in the rate of waste
internalization.
Pooling Costs. Costs of $1.5 million were incurred in September 1995 for
transaction and integration costs related to acquisitions accounted for using
the pooling-of-interests method for business combinations. During 1994, no
acquisitions were accounted for using this method.
Net Interest Expense. Net interest expense was $10.6 million in 1995
compared to $12.4 million in 1994, a decrease of 14.3%. Interest charges
decreased in 1995 compared to 1994 because of an increase in the amount of
capitalized interest to $11 million in the 1995 period compared to $3.5 million
in 1994. The amount of interest capitalized increased in 1995 because of an
increase in transfer stations and landfill airspace under development or under
application for development compared to 1994 and the acquisition of additional
landfills subsequent to 1994. The decrease in interest charges was offset by an
increase in the interest rate on the 1994 Notes, defined below, from 10.75% in
1994 to 12% in January 1995 and an increase in interest bearing debt to
approximately $223.9 million at December 31, 1995 from approximately $188.0
million at December 31, 1994, due primarily to acquisitions and capital
expenditures.
Conversion Fees. A non-cash conversion fee of $2.2 million was incurred in
the fourth quarter of 1995 as a result of an inducement offered by Allied to
holders of certain convertible securities to exercise their conversion option to
receive Common Stock. The inducement fee consisted of payment of dividends or
interest from the conversion date through the first call or redemption date of
each convertible security. Approximately 7.8 million shares of Common Stock were
issued for conversion and approximately 278,000 were issued for the conversion
fee.
Income Taxes. Income taxes reflect a 44.1% effective income tax rate in
1995 compared to a 18.6% effective rate in 1994. Allied's effective tax rate in
1995 and 1994 deviates from the federal statutory rate of 35% and 34%,
respectively, due primarily to the effects of differences in the treatment of
goodwill for book and tax purposes, state income taxes, and other permanent
differences.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenues. Revenues in 1994 were $158.4 million compared to $108.9 million
in 1993, an increase of 45.3%. The increase in revenues was due primarily to the
effects of acquisitions as well as price and volume increases attributable to
existing operations. Revenues of $26.7 million in 1994 were generated from
companies acquired during 1994, while increases in revenue attributable to
existing operations amounted to $22.8 million.
Cost of Operations. Cost of operations in 1994 was $100.2 million compared
to $68.4 million in 1993, an increase of 46.5%. This increase in costs was
attributable primarily to increases in Allied's revenues described above and the
provision of $2.1 million described below. As a percentage of revenues, cost of
operations was
45
<PAGE> 55
63.3% in 1994 compared to 62.8% in 1993. This increase was due primarily to (i)
a greater percentage of total revenues in 1994 resulting from transfer
operations, which typically generate lower operating margins than other solid
waste operations and (ii) the $2.1 million provision described below amounting
to 1.3% of revenues.
During 1994, in cooperation with the Nebraska Department of Environmental
Quality, Allied proposed interim groundwater monitoring measures for its Norfolk
landfill to define groundwater contamination, the area impacted and the possible
action needed. A provision of $2.1 million, in excess of the closure and post-
closure reserves recorded in the normal course of business, was made in Allied's
1994 Consolidated Financial Statements to recognize the estimated costs of
additional closure, post-closure and remedial measures.
Selling, General and Administrative Expenses. SG&A expenses were $32.6
million in 1994 compared to $18.3 million in 1993, an increase of 78.2%. The
increase was primarily due to expenses associated with acquired companies and
expenses incurred in connection with Allied's increase in personnel and other
expenses related to the anticipated growth of Allied as it continues its
acquisition strategy. SG&A expenses as a percentage of revenues were 20.6% in
1994 compared to 16.8% in 1993. This increase resulted primarily from unusual
charges recorded during the fourth quarter of 1994 which cumulatively
represented 2.2% of revenue. They were (i) $750,000 related to the capitalized
costs of an accounting system made obsolete by rapid growth, (ii) $1,241,000
related to employee termination and relocation and (iii) $1,454,000 for
acquisitions that are no longer being pursued.
Depreciation and Amortization Expense. Depreciation and amortization
expense in 1994 was $16.9 million compared to $10.6 million in 1993, an increase
of 59.2%. The increase in depreciation and amortization expense is due to
acquisitions and capital expenditures. Fixed assets increased to $261.4 million
in 1994 from $147.4 million in 1993 and goodwill increased to $84.1 million in
1994 from $40.6 million in 1993.
Net Interest Expense. Net interest expense increased to $12.4 million in
1994 from $7.3 million in 1993, an increase of 68.9%. This increase primarily
reflects increased indebtedness from the issuance of Senior Subordinated Notes
in January 1994, debt assumed or issued in connection with acquisitions, and
financed capital expenditures. Additionally, the negative interest spread on the
1994 Notes from their sale in January 1994 until the proceeds were fully
invested in income producing assets contributed to the effect the interest
expense had on net income during the year.
Income Taxes. Allied recorded an income tax benefit of $689,000 in 1994
and income tax expense of $1.7 million in 1993, resulting in effective tax rates
of 18.6% and 39.1%, respectively. Allied's effective tax rate in 1994 and 1993
deviates from the federal statutory rate of 34% due primarily to the effects of
differences in the treatment of goodwill for book and tax purposes, state income
taxes, and other permanent differences.
Extraordinary Items. In connection with the TPG Agreement, Allied
solicited and obtained consents from a majority of the holders of its 1994 Notes
causing modifications to the indenture agreement and the execution of a
supplemental indenture (the "Supplemental Indenture"). Among other things, the
Supplemental Indenture increased Allied's restricted borrowing capacity (with
certain limitations) under current and future revolving credit agreements and
lease lines from a total of $35 million to $120 million, deleted certain
borrowing restrictions, changed certain financial ratio covenants and increased
the per annum rate of interest from 10.75% to 12.0%. The execution of the
Supplemental Indenture, which was effective January 1995, was accounted for as
an early extinguishment of debt. Accordingly, capitalized deferred debt issuance
costs related to the original indenture were written off as of December 31, 1994
and an extraordinary charge of $4,595,000 ($2,823,000 net of income tax benefit)
was recorded. Additionally, in the first quarter of 1994, an extraordinary
charge of $334,000 ($206,000 net of income tax benefit) was recognized as a
result of the early extinguishment of various debt instruments from the
application of net proceeds from the 1994 Notes.
LIQUIDITY AND CAPITAL RESOURCES
Because of the capital intensive nature of the solid waste industry, Allied
has used, and during periods of rapid growth expects to continue using amounts
in excess of the cash generated from operations to fund
46
<PAGE> 56
acquisitions, capital expenditures and landfill development. In connection with
acquisitions, Allied has assumed or incurred indebtedness with relatively
short-term repayment schedules, thereby increasing its current and medium-term
liabilities. Additionally, operating equipment has been acquired using financing
leases which have short and medium-term maturities. As a result, Allied has
periodically had low levels of working capital or working capital deficits.
Historically, Allied has satisfied its acquisition, capital expenditure and
working capital needs primarily through bank financing, public offerings and
private placements of debt and equity securities. Between January 1, 1994 and
September 30, 1996, Allied completed a $100 million public offering of the 1994
Notes (defined below), a $50 million private placement of Common Stock, a $300
million senior revolving credit facility, and a $48 million public equity
offering.
During the three years ended December 31, 1995 and six months ended June
30, 1995 and 1996, Allied's cash flows for operating, investing and financing
activities were as follows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2.6 $ (6.0) $ 12.4 $ 6.6 $ 4.2
Extraordinary loss on early extinguishment of debt, net of
income tax benefit...................................... -- 3.0 -- -- --
Non-cash operating expenses(1)............................ 13.3 20.9 35.9 18.1 16.5
Loss on sale of fixed assets.............................. 0.1 0.7 0.3 -- 2.0
Increase in operating assets and liabilities, net......... (4.8) (1.7) (11.3) (12.5) (22.2)
------ ------
Cash provided by operating activities..................... 11.2 16.9 37.3 12.2 0.5
------ ------
INVESTING ACTIVITIES:
Cost of acquisitions, net of cash acquired................ (15.7) (49.2) (18.7) (9.9) (3.8)
Capital expenditures...................................... (16.0) (46.6) (55.6) (23.4) (22.0)
Proceeds from sale of fixed assets........................ 0.5 1.4 1.1 0.6 0.2
Other..................................................... (3.6) 2.0 (0.4) (0.7) 0.7
------ ------
Cash used for investing activities........................ (34.8) (92.4) (73.6) (33.4) (24.9)
------ ------
FINANCING ACTIVITIES:
Net proceeds from sale and redemption of preferred stock,
common stock, options and warrants...................... 24.6 15.0 30.6 29.3 48.3
Net proceeds from long-term debt.......................... 49.9 126.3 66.6 21.3 25.4
Payments of long-term debt................................ (47.8) (59.5) (55.8) (24.0) (51.2)
Other..................................................... (4.8) (4.9) (6.3) (3.5) 0.3
------ ------
Cash provided by financing activities..................... 21.9 76.9 35.1 23.1 22.8
------ ------
Increase (decrease) in cash............................... $ (1.7) $ 1.4 $ (1.2) $ 1.9 $ (1.6)
====== ======
</TABLE>
- - - ---------------
(1) Consists principally of provisions for depreciation and amortization,
landfill closure and post-closure costs, doubtful accounts, potentially
unrealizable acquisition costs, and deferred income taxes.
Allied's capital expenditure and working capital requirements have
increased significantly, reflecting Allied's rapid growth by acquisition and
development of revenue producing assets, and will increase further as Allied
continues to pursue its business strategy. During 1995, Allied acquired 18
businesses in 6 states for approximately $45.3 million of which approximately
$24.3 million of such consideration was paid in Common Stock and $7.8 million
was paid in seller notes. Total annualized revenues of those operations are
approximately $33 million. These amounts include one landfill acquired for
approximately $9.9 million with estimated annual revenues of $3.7 million.
Subsequent to December 31, 1995, Allied purchased 16 operating solid waste
businesses with estimated annual revenues of $65.1 million for an aggregate
purchase price of approximately $101.7 million of which approximately $72.7
million of such consideration was paid in Common Stock. These amounts include
one acquisition in a new market for approximately $82 million which
47
<PAGE> 57
accounted for approximately $42 million in annual revenues. For calendar year
1996, Allied estimates it will have an annual cash requirement of approximately
$1.2 million for preferred stock dividends and approximately $23 million for
interest costs. For the calendar year 1996, Allied expects to spend
approximately $58 million for capital expenditures, $40 million of which is
expected to relate to existing operations in order to maintain current revenue
streams and $18 million of which is expected to relate to operations anticipated
to result in growth in revenue streams. As Allied continues to acquire waste
operations, additional capital amounts will be required during 1996 for the
capital expenditure requirements related to those acquired businesses.
Allied is also required to provide financial assurances to governmental
agencies under applicable environmental regulations relating to its landfill
operations. These financial assurances include the use of a captive insurance
subsidiary, performance bonds, letters-of-credit and trust deposits required
principally to secure Allied's estimated landfill closure and post-closure
obligations and collection contracts. At June 30, 1996, Allied had outstanding
approximately $1.6 million in captive insurance contracts, $24 million of
performance bonds, approximately $20.3 million in letters-of-credit and
approximately $0.2 million of trust deposits. Allied expects that financial
assurance obligations will increase in the future as it acquires and expands its
activities and that a greater percentage of the financial assurances will be
provided through the captive insurance subsidiary and letters-of-credit.
In January 1994, Allied issued $100 million of its 10 3/4% senior
subordinated notes (the "1994 Notes"). The net proceeds from the sale of the
1994 Notes after underwriting discount and other expenses, were approximately
$95 million. On July 31, 1996, Allied completed a tender offer (the "Tender
Offer") and purchase of substantially all of the 1994 Notes at the redemption
price of $1,157.50 per $1,000 principal amount. In connection with the Tender
Offer, Allied estimates that it will recognize an extraordinary charge of $11
million ($18 million before income tax effect) in the third quarter of 1996.
Allied also received a consent from a majority of the holders of the 1994 Notes
to eliminate all substantive financial covenants associated with the remaining
1994 Notes.
Simultaneous with the redemption and consent on July 31, 1996, Allied
closed a new $300 million revolving credit facility (the "Credit Facility")
agented by Credit Suisse which added 11 new banks to its existing six-bank
Credit Agreement. The Credit Facility, subject to certain limitations, provides
for revolving loans up to $300 million based on certain financial ratios of
Allied and for standby letters-of-credit of up to $50 million. The revolving
credit facility may be used to repay existing debt, make acquisitions of solid
waste companies and for general corporate purposes. The letter-of-credit
facility may be used to provide financial assurances of landfill closure and
post-closure obligations. Loans outstanding under the revolving credit facility
are payable in July 1999, whereas letters-of-credit may expire no later than one
year after the maturity date, subject to certain provisions. The Credit Facility
contains a number of covenants that, among other things, require Allied to
maintain certain financial ratios, and limit Allied's ability to make
acquisitions and purchase fixed assets above certain amounts, incur additional
secured indebtedness, transfer or sell assets, create liens, pay dividends
except on certain preferred stock, make optional payments on certain
subordinated indebtedness (including the 1994 Notes), enter into certain
transactions with affiliates or enter into a merger, consolidation or sale of
substantially all its assets. The Credit Facility is secured by a pledge of the
stock of substantially all of Allied's subsidiaries and a lien on substantially
all of Allied's personal property.
During 1995, Allied offered to holders of all of its Series D, 9% and $90
convertible preferred stock and its 6% Convertible Subordinated notes an
inducement to exercise their conversion option to receive Common Stock. The
inducement consisted of the payment of dividends and interest that the holders
of these securities would have received from the date of conversion through the
first call or redemption date of each security. In total, 7,757,056 shares of
Common Stock were issued upon conversion. All of the $90 Preferred Stock was
converted, substantially all of the Series D Preferred Stock and 6% Convertible
Subordinated notes were converted, and all but 5,029 shares of the 9% Preferred
Stock was converted. Accordingly, Allied's annual dividend and interest
requirements decreased by approximately $2.7 million and $0.8 million,
respectively. The inducement resulted in a 1995 conversion fee charge of
approximately $2.2 million paid in 284,696 shares of Common Stock which was
charged to the 1995 statement of operations.
48
<PAGE> 58
On January 24, 1996, Allied completed a public offering of 7.6 million
shares of Common Stock for approximately $48 million net of $5.2 million in
underwriter discounts, commissions and offering costs. The net proceeds from the
offering were used to repay amounts outstanding under the Credit Agreement and
for other general corporate purposes.
Allied has lease facilities (the "Lease Facilities") that allow it to enter
into equipment leases at rates ranging from similar term treasury note rates
plus 2.5% to 3.5% for terms of 36 to 84 months. At June 30, 1996, Allied had
equipment leases outstanding of $37.5 million and available lease commitments of
approximately $9.6 million.
Allied expects that Subtitle D and other regulations that apply to the
non-hazardous waste disposal industry will require Allied, as well as others in
the industry, to alter operations and to modify or replace existing facilities.
Such expenditures have been and will continue to be substantial. Further
regulatory changes could accelerate expenditures for closure and post-closure
monitoring and obligate Allied to spend sums in addition to those presently
reserved for such purposes. These factors, together with the other factors
discussed above, could substantially increase Allied's operating costs and
impair Allied's ability to invest in its facilities.
Allied intends to meet its future capital expenditures and working capital
requirements with cash flow from operations, borrowings under the Credit
Facility and the Lease Facilities. Allied may need to raise additional capital
to fund the acquisition and integration of additional solid waste businesses.
Allied may raise such funds through lease financings, bank financings or public
or private offerings of its debt and equity securities. There can be no
assurance that Allied will be able to secure such funding, if necessary, on
favorable terms, if at all. If Allied is not successful in securing such
funding, Allied's ability to pursue its business strategy may be impaired and
results of operations for future periods may be negatively affected.
In connection with the consummation of the Transactions, Allied will enter
into the Senior Financing and will issue the Senior Subordinated Notes. See "The
Transaction -- Financing of the Transaction."
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Proxy Statement contains certain statements that are "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Those statements include, among other things, the
discussions of Allied's business strategy and expectations concerning market
position, future operations, margins, profitability, liquidity and capital
resources, as well as statements concerning the integration of the operations of
the Acquired Subsidiaries and achievement of cost and expense savings, synergies
and other economic benefits in connection therewith. (Forward looking statements
are included in "Summary," "Summary Financial Information," "the Transactions,"
"Pro Forma Combined Financial Statements," "Supplemental Financial Information,"
"Allied Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Acquired Subsidiaries' Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business of Allied," "Business
of the Acquired Subsidiaries" and elsewhere in this Proxy Statement.) Although
Allied believes that the expectations reflected in such Forward Looking
Statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Generally, these statements relate to business plans
or strategies, projected or anticipated benefits or other consequences of such
plans or strategies, number of acquisitions and projected or anticipated
benefits from acquisitions made by or to be made by Allied, or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures or other aspects of operating results. All phases of Allied
operations are subject to a number of uncertainties, risks and other influences,
many of which are outside the control of Allied and any one of which, or a
combination of which, could materially affect the results of Allied's operations
and whether the Forward Looking Statements made by Allied ultimately prove to be
accurate. Such important factors ("Important Factors") that could cause actual
results to differ materially from Allied's expectations are disclosed in this
section and elsewhere in this report. All subsequent written and oral Forward
Looking Statements attributable to Allied or persons acting on its behalf are
expressly qualified in their entirety by the Important Factors described below
that could cause actual results to differ from Allied's expectations.
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Competition. The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. Allied competes with
numerous waste management companies, a number of which have significantly larger
operations and greater resources than Allied. Allied also competes with those
counties and municipalities that maintain their own waste collection and
disposal operations. Forward Looking Statements assume that Allied will be able
to effectively compete with the other waste management companies.
Availability of Acquisition Targets. Allied's ongoing acquisition program
is a key element of its expansion strategy. In addition, obtaining landfill
permits has become increasingly difficult, time consuming and expensive. There
can be no assurance, however, that Allied will succeed in obtaining landfill
permits or locating appropriate acquisition candidates that can be acquired at
price levels that Allied considers appropriate and that reflect historical
prices. The Forward Looking Statements assume that a number of acquisition
candidates and landfill properties sufficient to meet Allied's goals will be
available for purchase and that Allied will be able to complete the acquisition
at prices that Allied has experienced in the past two years.
Integration. Allied's financial position and results of operations depend
to a large extent on the integration of the businesses of the Acquired
Subsidiaries, recently acquired businesses and other businesses to be acquired.
The Forward Looking Statements assume that integration of acquired companies,
including the internalization of waste and other synergies, will require up to
18 months from the date the acquisition closes. In preparing estimates regarding
the integration of businesses, assumptions have been made regarding the
elimination of certain operating costs and selling, general and administrative
expenses, the allocation of purchase price to assets acquired and the net book
value of assets subsequent to acquisition. Failure to achieve effective
integration and the estimated financial impact in the anticipated time period or
at all could have a material adverse effect on Allied's future results of
operations.
Ongoing Capital Requirements. To the extent that internally generated cash
and cash available under Allied's existing credit facilities and the Senior
Financings are not sufficient to provide the cash required for future
operations, capital expenditures, acquisitions, debt repayment obligations
and/or financial assurance obligations, Allied will require additional equity
and/or debt financing in order to provide such cash. The Transactions will cause
Allied to incur significant debt obligations and debt service costs. The Forward
Looking Statements assume that Allied will be able to generate cash and raise
the capital necessary to finance such requirements at rates that are as good as
or better than those currently available in the market place. There can be no
assurance, however, that such financing will be available or, if available, will
be available on terms consistent with the assumptions made by Allied.
Economic Conditions. Allied's business is affected by general economic
conditions. The Forward Looking Statements assume that Allied will be able to
achieve internal volume and price growth which is not impacted by an economic
downturn. There can be no assurance that an economic downturn will not result in
a reduction in the volume of waste being disposed of at Allied's facilities
and/or the price that Allied can charge for its services.
Weather Conditions. Protracted periods of inclement weather may adversely
affect Allied's operations by interfering with collection and landfill
operations, delaying the development of landfill capacity and/or reducing the
volume of waste generated by Allied's customers. In addition, particularly harsh
weather conditions may result in the temporary suspension of certain of Allied's
operations. The Forward Looking Statements assume that such weather conditions
will not occur.
Dependence on Senior Management. Allied is highly dependent upon its
senior management team. In addition, as Allied continues to grow, its
requirements for operations management with waste industry experience will also
increase. The availability of such experienced management is not known. The
Forward Looking Statements assume that experienced management will be available
when needed by Allied at compensation levels that are within industry norms. The
loss of the services of any member of senior management or the inability to hire
experienced operations management could have a material adverse effect on
Forward Looking Information.
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Influence of Governmental Regulation. Allied's operations are subject to
and substantially affected by extensive federal, state and local laws,
regulations, orders and permits, which govern environmental protection, health
and safety, zoning and other matters. These regulations may impose restrictions
on operations that could adversely affect Allied's results, such as limitations
on the expansion of disposal facilities, limitations on the disposal of
out-of-state waste or certain categories of waste or mandates regarding the
disposal of solid waste. Because of heightened public concern, companies in the
waste management business may become subject to judicial and administrative
proceedings involving federal, state or local agencies. These governmental
agencies may seek to impose fines or revoke or deny renewal of operating permits
or licenses for violations of environmental laws or regulations or to require
remediation of environmental problems at Allied facilities or nearby properties,
or resulting from transportation or predecessors' transportation and collection
operations, all of which could have a material adverse effect on Allied.
Liability may also arise from actions brought by individuals or community groups
in connection with the permitting or licensing of operations, any alleged
violations of such permits and licenses or other matters. The Forward Looking
Statements assume that there will be no materially negative impact on its
operations due to government regulation.
Potential Environmental Liability. Allied and the Acquired Subsidiaries
may incur liabilities for the deterioration of the environment as a result of
its operations. Any substantial liability for environmental damage could
materially adversely affect the operating results and financial condition of
Allied. Due to the limited nature of insurance coverage for environmental
liabilities for Allied and the Acquired Subsidiaries, if additional liabilities
were incurred for environmental damage, Allied's business and financial
condition could be materially adversely affected. The Forward Looking Statements
assume that Allied will not incur any material environmental liabilities other
than those for which a provision has been recorded in the consolidated financial
statements and disclosed in the notes thereto.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on Allied's operations.
Consistent with industry practice, most of Allied's contracts provide for a pass
through of certain costs, including increases in landfill tipping fees and, in
some cases, fuel costs. Allied therefore believes it should be able to implement
price increases sufficient to offset most cost increases resulting from
inflation. However, competitive factors may require Allied to absorb cost
increases, resulting from inflation. Allied is unable to determine the future
impact of a sustained economic slowdown.
SEASONALITY
Allied believes that its collection and landfill operations can be
adversely affected by protracted periods of inclement weather which could delay
the development of landfill capacity or transfer of waste and/or reduce the
volume of waste generated.
BUSINESS OF ALLIED
Allied is a vertically integrated solid waste management company providing
non-hazardous waste collection, transfer, recycling and disposal services to
over 395,000 residential and commercial customers located primarily in the
midwestern, southwestern and southeastern United States. Allied conducts its
operations through 42 collection companies, 23 transfer stations, 20 landfills,
and 9 recycling facilities in 12 states. Allied experienced significant
increases in revenues and operating income due primarily to the acquisition of
86 solid waste businesses since the beginning of 1992 through June 1996.
INDUSTRY BACKGROUND
According to the National Solid Wastes Management Association, the solid
waste industry was estimated to have had revenues of $32 billion in 1995. The
industry is highly fragmented, with the three largest companies accounting, in
1995, for approximately 33% of revenues, seven mid-sized public companies
accounting for approximately 4% of revenues, and several thousand municipalities
and independent collection firms accounting for approximately 63% of revenues.
The industry has been consolidating in recent years as a
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result of increased capital requirements arising primarily from stringent
environmental and other governmental regulations. Allied expects the trend
toward consolidation to continue as many independent landfill and collection
operators, including municipalities, lack the capital resources, management
skills and technical expertise necessary to operate in compliance with such
regulations.
According to trade group data, there were approximately 3,000 municipal
solid waste landfills in the United States in 1995. Allied believes that
approximately 80% of solid waste landfills are owned by municipalities, 15% by
private companies and 5% by the federal and state governments. These landfills
vary greatly in size and capacity. Allied believes that the estimated 800
privately owned landfills, of which approximately 300 are owned by the three
largest national solid waste companies, represent approximately 50% of disposal
capacity in the United States.
Subtitle D requires landfill operators to upgrade existing disposal
facilities by imposing requirements in the areas of facility design and
operating criteria, closure and post-closure requirements, financial assurance
standards and groundwater monitoring as well as corrective action standards.
As a result of these regulatory changes, a number of independent landfill
operators and municipalities are discontinuing or privatizing landfill and
collection operations. In some instances, industrial companies that had
previously operated landfills have decided to sell or close such landfills
rather than bring them into compliance with the new, more demanding regulations.
The increasing requirements for capital, skilled management and technical
expertise are, for small operators who cannot achieve economies of scale and
integration, reducing margins and causing them to sell or close existing
landfills. As a result, Allied expects continued availability of opportunities
to acquire solid waste collection and disposal businesses. However, there can be
no assurance of such continued availability.
STRATEGY
Allied's objective is to continue to develop vertically-integrated
operations centered around Allied-owned and/or operated landfills in selected
markets. Allied believes vertical integration is important since a collection
operation without a landfill could be subject to expensive third-party disposal
costs while a landfill services company without collection capability might not
be able to ensure a waste stream to its landfills. Landfill operations typically
generate higher margins than transfer and collection operations. Allied expects
to enhance profitability through acquisitions of complementary collection
companies and transfer stations and internalization of the related waste flows
to Allied-owned and/or operated landfills. Allied has formulated a strategy that
focuses on significant regional areas and major population centers in which
fundamental changes are anticipated to take place or in which landfill ownership
is likely to provide the key to market penetration and are characterized by one
or more of the following criteria: (i) the availability of permitted and
underutilized landfill capacity located either close to or outside of, but
within economic range of (50 to 150 miles), a major population center, (ii)
disposal fees that justify long transportation distances, (iii) near or
medium-term scheduled closures of close-in landfills, (iv) a shift in landfill
ownership from public to private and (v) rural landfills that are likely to
provide the opportunity to achieve a significant presence in the local/rural
market. Implementation of the following four-phase strategy enables Allied to
consolidate local collection and disposal operations and to supplement those
operations with waste streams from larger markets:
Phase One. Allied identifies a market that contains one or more landfills
that meets one or more of its initial criteria.
Phase Two. After a market has been identified, Allied seeks to acquire
waste collection companies serving the market with the objective of developing a
captive waste stream to increase utilization of the landfill. Generally, Allied
pursues the acquisition of collection companies that (i) have well-established
residential or commercial collection routes and accounts, (ii) own and operate
transfer stations and recycling facilities or (iii) do not own landfills and are
thus vulnerable to volatile landfill pricing in a changing regulatory
environment.
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Phase Three. Allied acquires "tuck-in" collection companies and transfer
stations to increase the waste stream directed to its landfills and seeks to
obtain permits to expand the capacity of its landfills or acquires additional
landfill capacity in adjacent markets to accommodate increasing volumes.
Phase Four. Immediately subsequent to acquisition, Allied begins to
integrate the acquired company into its operating and control systems by (i)
appointing a new board of directors and executive officers, (ii) establishing
new bank accounts and cash control procedures, (iii) executing an operating
plan, (iv) implementing Allied operating policies and procedures (including the
consolidation and rationalization of routes and pricing), (v) converting the
acquired company to common accounting, data processing and management reporting
systems and (vi) beginning to divert waste previously disposed at third-party
landfills to Company-owned and/or operated landfills. In the typical new market
entry Allied retains the principals and management of the companies it acquires
in order to benefit from the local operating knowledge and goodwill that have
been developed.
Allied acquired 12 businesses in 1992, 21 businesses in 1993, 21 businesses
in 1994, 18 businesses in 1995 and 14 businesses subsequent to 1995. Allied
seeks to acquire companies consistent with its business strategy. Included in
the 86 acquisition transactions are 78 collection operations, 12 landfills and
20 transfer stations and/or material recycling facilities located in 12 states.
Eight of the acquisitions represent new market entries whereas the remaining
acquisitions represent tuck-ins to markets in which Allied was present.
Allied also seeks to develop and expand its permitted landfill capacity.
Allied's goal is to maintain at least ten years of permitted air space capacity
in its landfills. Currently, Allied's landfills have a combined permitted
capacity of approximately 582 million gate yards with estimated remaining lives,
based on current waste flows, that range from 3 to over 75 years, and an
estimated average remaining life of greater than 25 years. Allied's landfills
and recent landfill expansion projects are located near large concentrations of
waste generation or waste collection operations owned by Allied.
WASTE COLLECTION, TRANSFER AND RECYCLING SERVICES
Allied provides waste collection services to approximately 265,000
residential and 130,000 commercial customers in Arizona, Colorado, Georgia,
Illinois, Indiana, Missouri, Nebraska, New Mexico, North Carolina, South
Carolina, Texas and Wyoming. Allied's waste collection operations involve
collecting and transporting non-hazardous waste from the point of generation to
the site of disposal. Allied's in-service waste collection fleet includes
approximately 660 trucks, with an average age estimated by Allied to be
approximately seven years. Vehicles are replaced, on average, every 9 to 12
years. In addition, Allied generally supplies each customer containers that it
uses to provide collection services.
The following table provides the percentage that each service line
contributes to total collection, transfer and recycling revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1993 1994 1995 JUNE 30, 1996
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Residential services......................... 11.6% 13.8% 18.0% 18.2%
Commercial services.......................... 80.8 70.9 63.7 66.9
Transfer services............................ 5.0 12.9 13.7 8.8
Recycling services........................... 2.6 2.4 4.6 6.1
----- ----- ----- -----
Total.............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Residential Services. Allied's residential operations involve curbside
collection and transportation of refuse to a landfill or transfer station.
Allied provides service to residential households pursuant to individual monthly
subscriptions or long-term contracts with municipal governments. Residential
subscription customers, which provided approximately 70% of Allied's residential
collection services revenues for the six months ended June 30, 1996 and
municipal contracts, which provided approximately 30% of Allied's residential
collection services revenues for the same period, provide Allied with a reliable
source of revenues. Allied
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generally seeks to obtain municipal contracts which enhance the efficiency and
profitability of Allied's operations as a result of the density of collection
customers within a given area.
Commercial Services. Allied provides commercial containers, ranging in
size from one to eight cubic yards, or "roll-off" containers, ranging in size
from 20 to 40 cubic yards, to commercial customers. Contracts for commercial
containers typically have terms of up to five years, generally may not be
terminated by the customer prior to the end of the term and commonly have
automatic renewal options. Fees relating to these contracts are determined by
such factors as collection frequency, type of equipment furnished and the type
and volume or weight of the waste collected. Contracts for roll-off containers
are negotiated on an individual contract basis and may provide for temporary
(such as the removal of waste from a construction site) or ongoing services.
Fees relating to Allied's roll-off containers are based on frequency of
collection, size or weight of the waste collected and the distance traveled to
the disposal site.
Transfer Services. Allied operates 23 transfer stations, of which 17 are
owned and the remaining 6 are leased or operated under long-term agreements.
Transfer stations are frequently used where landfills are located a
long-distance from collection routes. At transfer stations, solid waste
collected from customers by Allied and third parties is compacted and
transferred to larger vehicles and transported primarily to Allied-owned and/or
operated landfills. This procedure reduces collection costs by improving the
efficiency of collection personnel and equipment and increases the market area
that Allied's landfills can serve. It also substantially reduces the travel time
incurred by collection vehicles between the collection route to the landfill.
Fees are generally based on the type, volume or weight of the waste transferred
and the transport distance involved. Allied believes that as regulations result
in the closure of many landfills, transfer stations will increasingly be used as
an efficient means to transport waste over longer distances to available
landfills. Transfer stations are also used in providing waste reduction and
recycling services, which are being increasingly mandated by government
regulation.
Recycling Services. Allied provides curbside commercial collection of
recyclable material to customers and operates material recovery and waste
reduction facilities located in many states in which it conducts business. Such
operations have not constituted in the past, and do not presently constitute, a
material portion of Allied's business. Charges for such services are generally
made on the basis of the service provided and are generally not dependent on the
price, nature or content of the material to be recycled.
LANDFILLS
Operating Landfill Properties. Allied operates 20 non-hazardous solid
waste landfills, 13 of which it owns and seven of which it operates for
municipalities. Nineteen of these landfills accept municipal solid waste; one
landfill accepts construction and demolition materials only. Certain of the
landfills also accept lesser amounts of other non-hazardous special waste,
including utility ash, asbestos and non-hazardous contaminated soils.
Based on current waste volumes, and assuming no expansion of permitted
airspace, the Upper Rock Island, Brickyard, Taylor County, Pen-Rob, Butler
County, Show-Me and Northeast Nebraska Solid Waste Coalition landfills have a
permitted capacity that Allied estimates will allow them to remain in operation
for at least 30 years. The County Line, Archuleta County, Newton County,
Streator Area, RCS, Illinois Landfills, Inc. and Lemons landfills have permitted
capacity allowing them to remain in operation for approximately 10 to 30 years.
These 14 landfills and the Buckeye facility (which is currently under
development and is expected to begin accepting waste in 1997) comprise most of
Allied's permitted capacity of approximately 582 million gate yards. The
remaining Allied-owned landfill, Apache Junction, has a relatively small
permitted capacity (assuming no expansion) of approximately 3 years. The
remaining landfills are operated under agreement with the owner, usually a
municipality, and have either specific terms which in some cases include renewal
options. Based on current waste flows, Allied estimates that the average
remaining life of its landfills is greater than 25 years.
Other Landfill Properties. In addition to the landfills Allied owns and
currently operates, Allied is pursuing the development of landfills on four
sites. In April 1993, Allied entered into a lease agreement with Wayne County,
Missouri to lease landfill property owned by the county. The lease expires in
2023 and pertains
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to a 94 acre landfill site previously operated by the county. Although no waste
is currently delivered to the site, Allied is seeking a significant modification
permit from the Missouri Department of Natural Resources in order to increase
the efficiency of this facility. In December 1994, Allied entered into a lease
agreement with the Buckeye Pollution Control Corporation (a municipal
corporation) to lease landfill property in Buckeye, Arizona. The lease expires
in 2054 with an option to renew for another 60 years and pertains to a 305 acre
landfill site. Allied has begun construction and expects to begin accepting
waste in 1997. In June 1995, Allied entered into an option to acquire a landfill
property owned by a private party on a 225 acre site located in Lee County,
Illinois. Allied has received a siting permit from the county and is seeking a
permit from the Illinois Environmental Protection Agency. In June 1996, Allied
entered into an option agreement with a group of private parties to acquire a
fully permitted landfill property located on 854 acres in Brunswick County,
Virginia. The option can be exercised by Allied once the landfill commences
operations by accepting waste.
In October 1993, Allied closed two of its facilities located in Milford and
Donovan, Illinois. Each of the landfills reached permitted capacity, and Allied
instituted closure procedures prior to the implementation of Subtitle D. Allied
also stopped receiving waste at its Fremont and Norfolk, Nebraska landfills in
October 1993 and 1995, respectively, and instituted closure procedures.
MARKETING AND SALES
Each of Allied's ten districts has a staff responsible for sales and
marketing. Allied's policy is to visit each commercial account at least once,
and up to twelve times, each year depending upon its size. In addition to
calling on existing customers, each salesperson calls upon potential customers
within a specified territory in each service area.
In addition to its sales efforts directed at commercial and industrial
customers, Allied has or intends to hire a municipal marketing coordinator in
each service area in which it has municipal contracts. The municipal marketing
coordinators are responsible for interfacing with each municipality or community
to which Allied provides residential service to assure customer satisfaction. In
addition, the municipal coordinators organize and handle bids for new municipal
contracts in their service area.
COMPETITION
The non-hazardous waste collection and disposal industry is highly
competitive and requires substantial capital and human resources. The industry
is led by five national waste companies, WMX Technologies, Inc. ("Waste
Management"), Browning-Ferris Industries, Inc., Laidlaw Inc., Republic
Industries, Inc., and USA Waste Services, Inc. and includes numerous local and
regional companies of varying sizes and competitive resources such as United
Waste Systems, Inc., Superior Services, Inc. and Mid-American Waste Systems. The
national waste management companies and several large regional waste management
companies have significantly greater resources than Allied. Allied also competes
with those counties and municipalities that maintain their own waste collection
or disposal operations. These municipalities may have financial advantages
through their access to tax revenues and tax-exempt financing and their ability
to mandate the disposal of waste collected within the jurisdiction at the
municipal facility. Allied may also experience competition from companies using
alternative methods of managing solid waste streams, such as incineration.
Allied competes for collection accounts primarily by charging a competitive
price and offering quality service. Allied also believes that its tipping fees
and the location of its landfills provide competitive alternatives for solid
waste disposal.
The industry is undergoing significant consolidation, and Allied encounters
competition in its efforts to acquire independent collection operations,
landfills and transfer stations and to develop landfills. Accordingly, it may
become uneconomical for Allied to make further acquisitions, or Allied may be
unable to locate suitable acquisition candidates, particularly in markets Allied
does not already serve.
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LIABILITY INSURANCE AND BONDING
Allied carries general liability, comprehensive property damage, workers'
compensation, employer's liability, directors' and officers' liability and other
coverages it believes is customary to the industry. Allied also has
environmental impairment liability insurance for all of its landfills except one
owned and four operated sites. The environmental impairment insurance for all
but one landfill is in the amount of $5 million in excess of a $1 million
retention per claim made for the policy term. The remaining landfill coverage is
in the amount of $2 million in excess of $1 million. An uninsured or
underinsured claim could have a material adverse effect on Allied's financial
condition.
Allied is required to provide financial assurance to governmental agencies
under applicable environmental regulations relating to its landfill and
collection operations. These financial assurances include performance bonds,
letters-of-credit, insurance contracts and trust deposits required principally
to secure Allied's estimated landfill closure and post-closure obligations and
collection contracts. At June 30, 1996 Allied had outstanding approximately $1.6
million in captive insurance contracts, $24 million of performance bonds, $20.3
million in letters-of-credit and $0.2 million of trust deposits. Allied expects
that financial assurances will increase in the future as it acquires and expands
its activities and that a greater percentage of the financial assurances will be
comprised of letters-of-credit.
ENVIRONMENTAL AND OTHER REGULATIONS
Allied is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies, many
of which periodically examine Allied's operations to monitor compliance with
such laws and regulations. Allied believes that there will be increased
regulation and legislation related to the waste management industry and attempts
to anticipate such future regulatory requirements to ensure compliance.
Allied's operation of landfills subjects it to certain operational,
monitoring, site maintenance, closure, postclosure and other obligations which
could give rise to increased costs for monitoring and corrective measures. In
connection with Allied's acquisition of existing landfills, it is often
necessary to expend considerable time, effort and money to obtain permits
required to increase the capacity of these landfills. Governmental authorities
have the power to enforce compliance with these regulations and to obtain
injunctions or impose civil or criminal penalties in case of violations. During
the ordinary course of its landfill operations, Allied has from time to time
received citations or notices from such authorities that its operations are not
in compliance with applicable environmental regulations. Upon receipt of these
citations or notices, Allied works with the authorities to resolve the issues
raised by these citations or notices. Failure to correct the problems to the
satisfaction of the authorities could lead to curtailed operations or closure of
a landfill. Historically, Allied has satisfactorily addressed any issues or
violations raised by these citations or notices and no such citations or notices
have had a material adverse effect on Allied.
Allied's operations are subject to regulation, principally under the
following federal statutes:
The Resource Conservation and Recovery Act of 1976, as amended. RCRA
regulates the handling, transportation and disposal of hazardous and
non-hazardous wastes and delegates authority to states to develop programs to
ensure the safe disposal of solid wastes. On October 9, 1991, the EPA
promulgated Solid Waste Disposal Facility Criteria for nonhazardous solid waste
landfills under Subtitle D. Subtitle D includes location standards, facility
design and operating criteria, closure and post-closure requirements, financial
assurance standards and groundwater monitoring as well as corrective action
standards, many of which had not commonly been in place or enforced previously
at landfills. Subtitle D applies to all solid waste landfill cells that received
waste after October 9, 1991, and, with limited exceptions, all landfills were
required to meet these requirements by October 9, 1993. Landfills that were not
in compliance with the requirements of Subtitle D on the applicable date of
implementation were required to close. In addition, landfills that stopped
receiving waste before October 9, 1993 were not required to comply with the
final cover provisions of Subtitle D. Each state must comply with Subtitle D and
was required to submit a permit program designed to implement Subtitle D to the
EPA for approval by April 9, 1993. States may impose requirements for landfill
units that are more stringent than the requirements of Subtitle D. Once a state
has an approved program, it
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must review all existing landfill permits to ensure that they comply with
Subtitle D. Allied believes that all of its operating facilities comply with the
requirements of Subtitle D as implemented and enforced in the states in which
such facilities are located.
The Federal Water Pollution Control Act of 1972 (the "Clean Water Act"), as
amended. This act establishes rules regulating the discharge of pollutants into
streams and other waters of the United States (as defined in the Clean Water
Act) from a variety of sources, including solid waste disposal sites. If runoff
from Allied's landfills or transfer stations may be discharged into surface
waters, the Clean Water Act requires Allied to apply for and obtain discharge
permits, conduct sampling and monitoring and, under certain circumstances,
reduce the quantity of pollutants in those discharges. The permit program has
been expanded to include stormwater discharges from landfills that receive, or
in the past received, industrial waste. Allied has applied for the required
permits. In addition, if development may alter or affect "wetlands," a permit
may have to be obtained and certain mitigation measures may need to be
undertaken before such development may be commenced. This requirement is likely
to affect the construction or expansion of many solid waste disposal sites,
including some owned or being developed by Allied. The Clean Water Act provides
civil, criminal and administrative penalties for violations of its provisions.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended. CERCLA addresses problems created by the release or threatened
release of hazardous substances into the environment. As interpreted by the
courts, CERCLA's primary mechanism for remediating such problems is to impose
strict, joint and several liability for cleanup of disposal sites on current
owners and operators of the site, former site owners and operators at the time
of disposal, and waste generators and parties who arranged for disposal at the
facility. The costs of a CERCLA cleanup can be substantial. Liability under
CERCLA is not dependent on the existence or disposal of "hazardous wastes," but
can also be founded on the existence of even minute amounts of the more than 700
"hazardous substances" listed by the EPA.
The Clean Air Act, as amended. The Clean Air Act provides for increased
federal, state and local regulation of the emission of air pollutants. The EPA
has construed the Clean Air Act to apply to landfills. On May 30, 1991, the EPA
proposed a New Source Performance Standard and Emission Guidelines (the
"Emission Guidelines") for solid waste landfills. If promulgated, these
regulations would impose limits on air emissions from solid waste landfills. The
Emission Guidelines propose two sets of emissions standards, one of which is
applicable to all solid waste landfills that commence construction,
reconstruction or modification after the date of proposal, and another which is
applicable to all solid waste landfills that received waste or had the capacity
to receive waste after November 8, 1987. If the proposed Emission Guidelines are
adopted by the EPA, they must be implemented by the states. These guidelines,
combined with the new permitting programs established under the recent Clean Air
Act amendments, will likely subject solid waste landfills to new permitting
requirements and, in some instances, require installation of methane gas
recovery systems.
The Occupational Safety and Health Act of 1970 ("OSHA"), as amended. OSHA
establishes employer responsibilities, including maintenance of a workplace free
of recognized hazards likely to cause death or serious injury, compliance with
standards promulgated by the Occupational Safety and Health Administration, and
various recordkeeping, disclosure and procedural requirements. Various
standards, including standards for notices of hazards, safety in excavation and
demolition work, and the handling of asbestos, may apply to Allied's operations.
Proposed Federal Legislation. In the future, Allied's collection, transfer
and landfill operations may also be affected by legislation currently pending
before Congress that would authorize the states to enact legislation governing
interstate shipments of waste. Proposed federal legislation (passed by the U.S.
Senate in May 1995 but still pending in the U.S. House of Representatives) would
allow individual states to prohibit the disposal of out-of-state waste or to
limit the amount of out-of-state waste that could be imported for disposal and
would require states, under certain circumstances, to reduce the amounts of
waste exported to other states. If this or similar legislation is enacted,
states in which Allied operates landfills could act to limit or prohibit the
importation of out-of-state waste. Such state actions could adversely affect
landfills within these states that receive a significant portion of waste
originating from out-of-state.
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State Regulation. Each state in which Allied operates has laws and
regulations governing solid waste disposal and water and air pollution and, in
most cases, regulations governing the design, operation, maintenance and closure
of landfills and transfer stations. Allied believes that several states have
proposed or have considered adopting legislation that would regulate the
interstate transportation and disposal of waste in their landfills. Many states
have adopted, and Congress and the EPA are considering, legislative and
regulatory measures to mandate or encourage waste reduction at the source and
waste recycling.
Allied's collection and landfill operations may be affected by the current
trend toward laws requiring the development of waste reduction and recycling
programs. For example, California, Florida, Georgia, Illinois, Indiana,
Kentucky, Missouri, New Jersey, Pennsylvania, Ohio, South Carolina and West
Virginia have recently enacted laws that will require counties to adopt
comprehensive plans to reduce, through waste planning, composting and recycling
or other programs, the volume of solid waste deposited in landfills within the
next few years. A number of states have taken or propose to take steps to ban or
otherwise limit the disposal of certain wastes, such as yard wastes, beverage
containers, newspapers, unshredded tires, lead-acid batteries and household
appliances into landfills.
Allied has implemented its own environmental safeguards which respond to
these governmental requirements. Additionally, Allied's policy is to obtain an
environmental assessment prepared by an independent environmental consultant for
all real estate acquired. There have been no significant fines levied against
Allied for non-compliance with regulatory requirements, although two landfills,
which were obtained as part of acquired businesses, have been identified by the
EPA as potentially contaminated sites. Even though the EPA has not initiated
procedures to have the sites placed on the National Priorities List, the EPA or
the applicable state may require remedial action or seek recovery for remedial
or response work conducted at these potentially contaminated sites.
EMPLOYEES
Allied employs approximately 1,975 persons, 196 of whom are local managers
or corporate executives, 1,481 of whom are operational employees and 298 of whom
are clerical, data processing or other administrative employees. Certain
employees of Allied's Illinois and Indiana operations are covered by collective
bargaining agreements with the International Brotherhood of Teamsters and
International Union of Operating Engineers. Allied believes relations with its
employees are satisfactory.
FACILITIES AND OTHER PROPERTIES
Allied's executive offices are located at 7201 E. Camelback Road, Suite
375, Scottsdale, Arizona 85251, where it leases 9,400 square feet of office
space. Allied also maintains administrative offices in Arizona, Colorado,
Georgia, Indiana, Illinois, Missouri, Nebraska, New Mexico, North Carolina,
South Carolina, Texas and Wyoming. Allied owns or operates approximately 4,792
acres of landfill facilities, of which 1,835 acres have permits for use. Allied
owns 12 transfer facilities and 5 transfer/recycling facilities in Georgia,
Illinois, Indiana, Missouri, Nebraska and New Mexico. Allied also operates three
recycling processing facilities in Illinois, Indiana and New Mexico, and 6
transfer facilities in Georgia and Missouri.
LEGAL PROCEEDINGS
Allied is currently involved in certain routine litigation. Management
believes that all such litigation arose in the ordinary course of business and
that costs of settlements or judgments arising from such suits will not have a
material adverse effect on Allied's consolidated financial position or results
of operations.
In the normal course of its business and as a result of the extensive
governmental regulation of the nonhazardous waste industry, Allied may
periodically become subject to various judicial and administrative proceedings
involving federal, state or local agencies. In these proceedings, an agency may
seek to impose fines on Allied or to revoke, or to deny renewal of, an operating
permit held by Allied. From time to time, Allied also may be subject to actions
brought by citizens' groups or adjacent landowners in connection with the
permitting and licensing of its landfills or transfer stations, or alleging
environmental damage or violations of the permits and licenses pursuant to which
Allied operates.
58
<PAGE> 68
Prior to Allied's acquisition of CRX, an investigation of an unrelated
manufacturing facility led to allegations that hazardous wastes were transported
to and disposed of in CRX's Norfolk, Nebraska landfill. In January 1992, NDEQ,
as agent for the EPA, published a preliminary assessment of the Norfolk
landfill. The NDEQ recommended that the Norfolk landfill be referred to the
NDEQ's Waste Recovery Section for groundwater monitoring and assessment.
Subsequently, Allied, in cooperation with the NDEQ, agreed on a groundwater
monitoring program. The initial tests indicated organic levels sufficient to
warrant continued investigation to define the groundwater contamination, the
area impacted and the action needed, and such investigation is ongoing. Allied
has closed the Norfolk landfill, has proposed interim measures to mitigate
and/or control further dispersal of the organics and is awaiting NDEQ approval
of its proposal. A provision of $2,100,000, in excess of the closure and
post-closure reserves recorded in the normal course of business, was made in
Allied's 1994 Consolidated Financial Statements to recognize the estimated costs
of additional closure, post-closure and remedial measures. Allied does not
believe that the ultimate outcome of such action will require a material
increase in the provision recorded in 1994 or materially affect Allied's
consolidated financial position or results of operations.
A site investigation, including groundwater testing, of CRX's Fremont,
Nebraska landfill was performed in 1987 and 1988 by CRX and the NDEQ. At the
conclusion of the investigation and evaluation, the NDEQ determined that
groundwater was not sufficiently impacted to warrant further investigation. In
December 1989, the landfill resumed its preinvestigation groundwater monitoring
schedule, and, in addition, was required annually to sample and to analyze
groundwater to test for the presence of volatile organic compounds. Tests for
volatile organic compounds in December 1990 and quarterly groundwater sampling
to date have shown no parameters exceeding regulatory limits. Allied, in
cooperation with the NDEQ, closed the Fremont landfill in October 1993 and is
conducting post-closure monitoring. Allied cannot, at this time, anticipate
further actions of the NDEQ and, as a result, cannot determine if the NDEQ will
require Allied to perform any additional actions.
At this time, none of Allied's sites have been listed or proposed for
listing on the National Priorities List, and Allied is not aware of any action
or investigation by the EPA that would subject Allied to cleanup liability.
Sites listed on the National Priorities List are subject to priority remedial
action under the Superfund Program created by Congress as part of CERCLA. As a
consequence of prior investigations, the Fremont and Norfolk landfills have been
identified by the EPA as potentially contaminated sites. Before the EPA can
place any such sites on the National Priorities List, which is a list created
pursuant to CERCLA of sites needing long-term study and remedial action due to
their potential effect on public health or the environment, notice to the public
in the Federal Register and opportunity for public comment is required. The EPA
has not published such notice with the Federal Register and opportunity for
public comment is required. The EPA has not published such notice with respect
to either site, and Allied has no reason to believe, at this time, that such a
notice will be published. However, even absent listing on the National
Priorities List, the EPA or the applicable state agency may require remedial
action or seek cost recovery for remedial or response work conducted at a
contaminated site.
59
<PAGE> 69
ACQUIRED SUBSIDIARIES' SELECTED FINANCIAL DATA
The selected historical financial data presented below as of August 31,
1995 and 1996 and for the three years ended August 31, 1996 are derived from the
Acquired Subsidiaries' Financial Statements, which have been audited by Coopers
& Lybrand, independent auditors. These selected financial data should be read in
conjunction with "Acquired Subsidiaries' Management's Discussion and Analysis of
Financial Condition and Results of Operations," Acquired Subsidiaries' Financial
Statements and the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $714,765 $753,432 $763,534
Operating expenses(1).............................. 492,570 512,418 532,327
Selling, general and administrative(1)............. 56,851 59,541 50,362
Depreciation and amortization expense.............. 92,286 90,215 95,440
-------- -------- --------
Income from operations............................. 73,058 91,258 85,405
Interest expense................................... (876) (367) (464)
Interest, dividend and other income................ 91 264 298
-------- -------- --------
Income before income taxes......................... $ 72,273 $ 91,155 $ 85,239
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital deficit............................................ $(25,666) $ (1,861)
Fixed assets, net.................................................. 569,868 566,560
Total assets....................................................... 873,893 918,327
Long-term debt, net of current portion............................. 2,821 1,895
Net investment by Laidlaw Inc...................................... 641,937 708,787
</TABLE>
- - - ---------------
(1) Gives effect to the combination of the operations constituting the Acquired
Subsidiaries. See Note 1 to the Acquired Subsidiaries' Financial Statements.
60
<PAGE> 70
ACQUIRED SUBSIDIARIES' MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Pro Forma
Combined Financial Statements," "the Acquired Subsidiaries' Selected Financial
Data" and the Acquired Subsidiaries' Financial Statements and Notes thereto,
included elsewhere therein.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage change in dollar amounts for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
1995 COMPARED 1996 COMPARED
TO TO
1994 % CHANGE 1995 % CHANGE
1994 1995 IN AMOUNTS 1996 IN AMOUNTS
----- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. 100.0% 100.0% 5.4% 100.0% 1.3%
Operating expenses.................... 68.9 68.0 4.0 69.7 3.9
Selling, general and administrative
expenses............................ 8.0 7.9 4.7 6.6 (15.4)
Depreciation and amortization......... 12.9 12.0 (2.2) 12.5 5.8
------ ------ ------
Income from operations................ 10.2 12.1 24.9 11.2 (6.4)
Interest, dividends, and other........ -- -- -- -- --
------ ------ ------
Income before income taxes............ 10.2% 12.1% 26.1% 11.2% (6.4)%
====== ====== ====== ====== ======
OTHER DATA:
EBITDA(1)............................. 23.1% 24.1% 9.8% 23.7% --%
</TABLE>
- - - ---------------
(1) Allied has included EBITDA data (which are not a measure of financial
performance under generally accepted accounting principles) because it
understands such data are used by certain investors and creditors to
determine the Acquired Subsidiaries historical ability to service its
indebtedness.
YEARS ENDED AUGUST 31, 1996 AND 1995
Revenues. Revenues in 1996 were $763.5 million compared to $753.4 million
in 1995, an increase of 1.3%. The increase in revenues is due primarily to
acquisitions, partially offset by lower revenues from the recycling business,
due to a decline in commodity prices. Acquisitions added approximately $37
million of revenue while commodity price declines accounted for the majority of
the net reductions in revenues of approximately $27 million.
Cost of Operations. Cost of operations in 1996 was $532.3 million compared
to $512.4 million in 1995, an increase of 3.9%. The increase was due to
increased operating costs associated with acquisitions completed in the year. As
a percentage of revenues, operating expenses increased to 69.7% in 1996 from
68.0% in 1995. The increase is due primarily to a decrease in revenues as a
result of the sharp decline in commodity prices.
Selling, General, and Administrative Expenses. SG&A expenses in 1996 were
$50.4 million compared to $59.5 million in 1995. The decrease in SG&A is due
primarily to cost control measures that were implemented as a result of the
decline in commodity prices and a lower management fee allocation from the
Laidlaw Sellers. As a percentage of revenues, SG&A decreased to 6.6% in 1996
from 7.9% in 1995.
Depreciation and Amortization. Depreciation and amortization was $95.4
million in 1996 compared to $90.2 million in 1995. The increase is related to an
increase in fixed and other assets during 1995 and 1996 from both acquisitions
and capital expenditures. As a percentage of revenues, depreciation and
amortization increased to 12.5% in 1996 from 12.0% in 1995. This increase is due
primarily to the lower revenues associated with the decline in commodity prices.
61
<PAGE> 71
YEARS ENDED AUGUST 31, 1995 AND 1994
Revenues. Revenues in 1995 were $753.4 million compared to $714.8 million
in 1994, an increase of 5.4%. The increase in revenues is due primarily to an
increase in commodity prices and recycling volumes, and secondarily to
acquisitions. Increased recycling volumes and commodity prices accounted for
approximately $37 million of revenues growth while acquisitions accounted for
approximately $7 million. Offsetting this increase were revenue declines due to
divestitures and foreign exchange.
Cost of Operations. Cost of operations in 1995 was $512.4 million compared
to $492.6 million in 1994, an increase of 4.0%. The increases is due to the
increased costs associated with acquisitions and operational cost increases due
to inflation. As a percentage of revenues, operating expenses decreased to 68.0%
in 1995 from 68.9% in 1994. The decrease is due primarily to revenue increases
related to increased recycling volumes and commodity prices along with the
divestiture of certain low margin operations in 1994.
Selling, General and Administrative Expenses. SG&A expenses in 1995 were
$59.5 million compared to $56.9 million in 1994. The increase in SG&A is due
primarily to an increase in expenses associated with a larger sales force,
partially offset by a decrease in management fees from the Laidlaw Sellers. As a
percentage of revenues, SG&A remained relatively consistent at 7.9% in 1995 and
8.0% in 1994.
Depreciation and Amortization. Depreciation and amortization was $90.2
million in 1995 compared to $92.3 million in 1994. The decrease is due mainly to
the divestiture of certain some low margin operations in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Acquired Subsidiaries currently operate as a division of the Laidlaw
Sellers. Excess cash is routinely transferred to the Laidlaw Sellers and any
financing requirements are provided by the Laidlaw Sellers. Accordingly, no cash
or bank indebtedness balances are reported in the financial statements of the
Acquired Subsidiaries. The Acquired Subsidiaries have historically generated
sufficient cash flow from operating activities to service debt and lease
payments and to fund acquisitions and capital expenditures.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED IN):
Operating activities.......................................... $ 194,048 $ 196,695 $ 152,741
Investing activities.......................................... (55,743) (117,700) (131,272)
Financing activities.......................................... (138,305) (78,995) (21,469)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
OPERATING ACTIVITIES
Income before income taxes for the year....................... $ 72,273 $ 91,155 $ 85,239
Items not affecting cash:
Depreciation and amortization............................... 92,286 90,215 95,440
Other....................................................... 9,182 8,036 (5,431)
--------- --------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE FINANCING WORKING
CAPITAL..................................................... 173,741 189,406 175,248
Cash provided by (used in) financing working capital: ........ 20,307 7,289 (22,507)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... $ 194,048 $ 196,695 $ 152,741
========= ========= =========
INVESTING ACTIVITIES
Purchase of fixed assets...................................... $ (60,467) $(103,257) $ (79,572)
Proceeds from sale of fixed and other assets.................. 6,779 4,587 3,893
Purchase of other assets...................................... (187) -- (6,392)
Expended on acquisitions...................................... (2,213) (14,255) (49,226)
Net (increase) decrease in long-term investments.............. 345 (4,775) 25
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES......................... $ (55,743) $(117,700) $(131,272)
========= ========= =========
FINANCING ACTIVITIES
Repayment of long-term debt................................... $ (3,430) $ (2,655) $ (507)
Net change in investment by Laidlaw Inc....................... (134,875) (76,340) (20,962)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES......................... $(138,305) $ (78,995) $ (21,469)
========= ========= =========
</TABLE>
The Acquired Subsidiareis are required to provide financial assurances to
governmental agencies under applicable environmental regulations relating to its
landfill operations. The financial assurances include
62
<PAGE> 72
performance bonds, letters of credit and trust deposits required principally to
secure the Acquired Subsidiaries' landfill estimated closure and post-closure
obligations and collection contracts. At August 31, 1996, the Acquired
Subsidiaries had outstanding approximately $24.3 million in outstanding letters
of credit. Additionally, the Acquired Subsidiaries' parent and its affiliates
have provided financial assurances, guarantees and additional letters of credit
in the aggregate amount of approximately $180 million for closure and
post-closure activities and bid bonds. The Acquired Subsidiaries expect that
financial assurance obligations will increase in the future as they acquires and
expands their activities and landfills, and that a greater percentage of
financial assurances will be comprised of letters of credit and insurance.
FOREIGN CURRENCY TRANSLATION
A significant portion of the Acquired Subsidiaries' revenues are derived
from their Canadian operations and as such are collected in Canadian dollars.
The Acquired Subsidiaries report their financial condition in United States
dollars and therefore are subject to fluctuations in the exchange rates between
Canadian and US dollars. In the past three years, the Canadian dollar exchange
rate has been somewhat static changing less than 2% year over year. For assets
and liabilities, the Acquired Subsidiaries use the exchange rate as of the
balance sheet date. For revenues and expenses, the Acquired Subsidiaries use a
weighted monthly average exchange rate for the year.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Acquired
Subsidiaries' operations. Consistent with industry practice, most of the
Acquired Subsidiaries' contracts provide for a pass through of certain costs,
including increases in landfill tipping fees and in some cases, fuel costs. The
Acquired Subsidiaries therefore believes they should be able to implement price
increases sufficient to offset most cost increases resulting from inflation.
In 1996, the market for certain of the Acquired Subsidiaries' recycled
products, principally cardboard, aluminum and used office paper, experienced
dramatic declines in prices. The sharp declines were due primarily to an over
supply of material relative to demand. The imbalance with supply and demand is
due mainly to two factors: 1) increasing commodity prices in 1994 and 1995
encouraging many new business to enter the recycling business; 2) mandatory
recycling enacted by numerous municipalities and governments as part of their
solid waste management programs. The Acquired Subsidiaries have taken several
steps to mitigate their exposure to fluctuations in commodities prices. The
Acquired Subsidiaries have instituted a value sharing program whereby the
Acquired Subsidiaries are compensated for their collection, sorting, bailing and
marketing services, and share the value of the commodity with their customer.
SEASONALITY
Adverse winter weather moderately affects all of the Acquired Subsidiaries'
operations during the second quarter. The main reason for this is reduced
volumes of waste being received at Acquired Subsidiaries' facilities and higher
operating costs associated with operating in sub-zero degree weather and high
levels of snowfall.
63
<PAGE> 73
BUSINESS OF THE ACQUIRED SUBSIDIARIES
The Acquired Subsidiaries represent substantially all of the current
non-hazardous solid waste business of Laidlaw. The Acquired Subsidiaries provide
solid waste collection, compaction, disposal, recycling, resource recovery,
transportation, and transfer services to commercial, industrial and residential
customers in North America. Solid waste services are currently conducted
primarily under the name "Laidlaw Waste Systems."
COMMERCIAL AND INDUSTRIAL SERVICES
The Acquired Subsidiaries provide solid waste collection services from 118
terminals to approximately 260,000 commercial and industrial customers and
apartment buildings in 17 states and six Canadian provinces. Approximately 260
salesmen are engaged solely in the retention and solicitation of new customers
in the Acquired Subsidiaries' service areas.
Disposal Services. The Acquired Subsidiaries operate 24 solid waste
landfill sites in the United States and seven in Canada, of which 20 are owned,
three are leased under long-term agreements and eight are operated for local
government units. These landfills presently have unused permitted capacity of
approximately 170 million cubic yards. The Acquired Subsidiaries apply for
additional permits and increased acreage as the need arises, and management
believes that an additional capacity of approximately 73 million cubic yards
could be permitted in these sites.
Transfer Stations. The Acquired Subsidiaries operate 18 transfer stations,
three of which are operated under contract. Solid waste is collected and
deposited at these stations by the Acquired Subsidiaries and other private
haulers for compaction and loading into larger trailers for further transport by
the Acquired Subsidiaries to a sanitary landfill site. The use of a transfer
station reduces the cost of transporting waste from collection points to
disposal sites.
Residential Services. The Acquired Subsidiaries have contracts with
approximately 220 municipalities in 14 states and approximately 220
municipalities in six Canadian provinces providing for the collection and
transportation of solid waste from approximately 4.1 million residences. A
municipal contract provides the Acquired Subsidiaries with the exclusive right
to service all or a portion of that jurisdiction at contractually established
rates over a specified period of time. At the end of the term of most municipal
contracts, the Acquired Subsidiaries attempt to renegotiate the contract, and if
unable to do so, rebid the contract on a sealed bid basis.
Recycling and Resource Recovery. Usually in connection with its
residential solid waste collection services, the Acquired Subsidiaries collect
recyclable products at the curbside from approximately 2.9 million residences.
The Acquired Subsidiaries annually provide over 360,000 tons of consumer
newsprint to Avenor Inc. under a long term contract.
The Acquired Subsidiaries operate 36 material recovery facilities to sort
and bundle recyclables for sale to consumer products manufacturers using
recycled paper, metal, plastics and glass.
At 11 sanitary landfill sites, the Acquired Subsidiaries operate facilities
which collect methane gas generated by decomposing solid waste and use the gas
as a fuel to generate electricity, which is generally sold under long term
contracts to public utilities. At one sanitary landfill site, the Acquired
Subsidiaries collect and sell methane gas to third parties.
Medical Waste. The Acquired Subsidiaries provide medical waste collection
and disposal services to customers in four states and three provinces. To
provide these services, it operates four transfer stations, one incinerator and
one treatment facility.
COMPETITION
Current management believes that no customer accounts for a material
portion of the total solid waste services markets. The sources of the Acquired
Subsidiaries' competition vary by locality and by type of service rendered, with
competition coming from the other major waste services companies and the
thousands of privately owned firms in North America which offer waste services.
On a smaller scale, the Acquired
64
<PAGE> 74
Subsidiaries compete with municipalities and larger plants which provide their
own waste services. In acquiring new contracts and maintaining business, the
Acquired Subsidiaries experience competition primarily in the areas of pricing
and service.
REGULATION
The collection and disposal of solid and hazardous wastes and the operation
of sanitary landfills and transfer stations are subject to local, state,
provincial and federal requirements which regulate health, safety, the
environment, zoning and land-use. Operating permits are generally required for
landfills, transfer stations, treatment and storage facilities and certain
collection vehicles, and these permits are subject to revocation, modification
and renewal. State, provincial and local regulations vary, but generally govern
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize air and water pollution. In addition,
governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose fines in the case of violations.
The Acquired Subsidiaries' businesses, particularly its solid waste
landfill businesses, are significantly affected by federal, state, provincial
and local environmental laws, including RCRA, the Clean Water Act, Clean Air Act
and CERCLA, and similar state laws and related regulations and enforcement
practices. Safety standards under the OSHA are also applicable to the Acquired
Subsidiaries' businesses.
RCRA regulates the handling, transportation and disposal of hazardous and
nonhazardous wastes and delegates authority to states to develop programs to
ensure the safe disposal of solid wastes. Management believes that all of its
solid waste landfills are in compliance with these regulations.
CERCLA, among other things, imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators and transporters of the waste material, are
jointly and severally liable for remediation costs and environmental damages.
EMPLOYEES
The Acquired Subsidiaries engage approximately 5,700 employees and 220
owner/operators to provide its solid waste services. Approximately 1,550 of the
employees are executive, supervisory, clerical and sales personnel.
Approximately 57% of the remaining employees are represented by various
collective bargaining groups. Management believes that its relations with its
employees are excellent.
PROPERTIES
The Acquired Subsidiaries provide solid waste services from 81 facilities
in the United States and 89 in Canada, of which 36 and 32, respectively, are
owned and the balance are leased or operated under contract. To provide these
services, the Acquired Subsidiaries utilize approximately 2,900 waste collection
vehicles, 496,000 containers and 5,500 stationary compactors.
LEGAL PROCEEDINGS
The business of the Acquired Subsidiaries is continuously regulated by
federal, state, provincial and local provisions that have been enacted or
adopted, regulating the discharge of materials into the environment or primarily
for the purpose of protecting the environment. The nature of the Acquired
Subsidiaries' business results in it frequently becoming a party to judicial or
administrative proceedings involving all levels of governmental authorities and
other interested parties. The issues that are involved generally relate to
applications for permits and licenses by the Acquired Subsidiaries and their
conformity with legal requirements and alleged technical violations of existing
permits and licenses. At August 31, 1996, subsidiaries of the Acquired
Subsidiaries were involved in two proceedings of the latter type relating
primarily to activities at waste treatment, storage and disposal facilities
where management believes sanctions involved in each instance may exceed
$100,000.
65
<PAGE> 75
In the United States, CERCLA imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites, which release hazardous
substances, as well as generators and transporters of the waste material, are
jointly and severally liable for remediation costs and environmental damage. At
August 31, 1996, subsidiaries of the Acquired Subsidiaries had been notified
that they were potentially responsible parties in connection with 14 locations
under CERCLA. The Acquired Subsidiaries continually reviews its status with
respect to each location, taking into account the alleged connection to the
location and the extent of the contribution to the volume of waste at the
location, the available evidence connecting the subsidiary to that location and
the numbers and financial soundness of other potentially responsible parties at
the location. Based upon presently available information, the Acquired
Subsidiaries do not believe that potential liabilities arising from its
involvement with these locations will be material to the Acquired Subsidiaries'
operations or financial condition.
While the financial resolution of any of the above described matters may
have an impact on the Acquired Subsidiaries' consolidated financial results for
a particular reporting period, management believes that the ultimate disposition
of these matters will not have a materially adverse effect upon the consolidated
financial position of the Acquired Subsidiaries.
The consolidated federal income tax returns of the Acquired Subsidiaries
for the fiscal years ended August 31, 1986, 1987 and 1988 have been under audit
by the Internal Revenue Service. In March 1994, the Acquired Subsidiaries
received a Statutory Notice of Deficiency proposing that the Acquired
Subsidiaries pay additional taxes relating to disallowed deductions in those
income tax returns. The principal issue involved relates to the timing and the
deductibility for tax purposes of interest attributable to loans owing to
related foreign persons. The Acquired Subsidiaries have petitioned the United
States Tax Court (captioned as Laidlaw Transportation, Inc. & Subsidiaries et al
v. Commissioner of Internal Revenue, Docket Nos. 9361-94 and 9362-94) for a
redetermination of claimed deficiencies of approximately $50.3 million (plus
interest of approximately $67.6 million as of August 31, 1996). In August 1996,
the Acquired Subsidiaries received Revenue Agent's reports proposing that the
Acquired Subsidiaries pay additional taxes of approximately $161.3 million (plus
interest of approximately $105.7 million as of May 31, 1996) relating to
disallowed deductions in federal income tax returns for the fiscal years ended
August 31, 1989, 1990 and 1991 based on the same issues. The Acquired
Subsidiaries intend to vigorously contest these claimed deficiencies. Although
the final outcome cannot be predicted with certainty, Laidlaw management, based
upon a thorough review of the facts and the advice of counsel, believes that the
ultimate disposition of these issues will not have a materially adverse effect
upon the Acquired Subsidiaries' consolidated financial position or results of
operations.
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<PAGE> 76
MARKET PRICE DATA FOR THE COMMON STOCK
The Common Stock is listed on Nasdaq/NMS under the symbol "AWIN." The high
and low prices per share for the periods indicated were as follows:
<TABLE>
<CAPTION>
ALLIED
COMMON STOCK
------------
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1994
First Quarter.................................... 6 4 3/4
Second Quarter................................... 3 3/8
5 1/8
Third Quarter.................................... 3 1/4
4 1/8
Fourth Quarter................................... 3 5/8
5 1/2
Year ended December 31, 1995
First Quarter.................................... 5 3 3/4
Second Quarter................................... 4 3/4
7 1/4
Third Quarter.................................... 10 6 7/8
Fourth Quarter................................... 6 3/8
9 5/8
Year ended December 31, 1996
First Quarter.................................... 6 1/2
9 1/8
Second Quarter................................... 8 1/8
10 1/8
Third Quarter.................................... 6 13/16
9 1/2
Fourth Quarter (through , 1996)......
</TABLE>
All of the foregoing prices reflect interdealer quotations, without retail
markups, markdowns or commissions.
On October , 1996, the last reported sales price for the Common Stock, as
quoted by Nasdaq/NMS was $ per share. As of October , 1996, there
were approximately record holders of the Common Stock.
DIVIDEND POLICY
Allied has never paid dividends on its Common Stock and does not anticipate
paying any cash dividends in the foreseeable future. The payment of cash
dividends on the Common Stock is presently prohibited under the terms of certain
of Allied's long-term indebtedness.
67
<PAGE> 77
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at September 30, 1996 by: (i) each person who in
known by Allied to own beneficially more than five percent of the outstanding
shares of Common Stock, (ii) each of the director's names, (iii) each of
Allied's executive officers not included in the information regarding the Board
of Directors, and (iv) all Allied directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF PERSON OR IDENTITY OF GROUP(1) NUMBER PERCENT OF CLASS
- - - ----------------------------------------------------------------- ---------- ----------------
<S> <C> <C>
Roger A. Ramsey.................................................. 998,667(2) 1.7%
Thomas H. Van Weelden............................................ 1,309,013(3) 2.2%
TPG Partners, L.P................................................ 11,776,765 20.0%
TPG Parallel I, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
J.P. Morgan & Company............................................ 3,607,390 6.1%
8 West 67th Street
New York, New York 10018
Nolan Lehmann.................................................... 1,545,889(4) 2.6%
Brian A. O'Leary................................................. 5,898,561 10.0%
Daniel J. Ivan................................................... 99,836(5) *
Larry D. Henk.................................................... 224,687(6) *
H. Steven Uthoff................................................. 139,000(7) *
Robert G. Reedy.................................................. 70,326(8) *
Alan B. Shepard.................................................. 71,462(9) *
William K. Reilly................................................ 35,000(10) *
John M. Lewis.................................................... 35,000(10) *
James G. Coulter................................................. 11,821,765(11) 20.0%
Jeffrey A. Shaw.................................................. 35,000(10) *
All directors and executive officers as a group
(16 persons)(2)-(11)........................................... 17,745,353 29.1%
</TABLE>
- - - ---------------
* Does not exceed one percent.
(1) Unless otherwise indicated, the address of each person or group listed
above is 7201 East Camelback Road, Suite 375, Scottsdale, Arizona 85251.
(2) Includes (i) 75,694 shares of Common Stock that are beneficially owned by
an affiliate of Mr. Ramsey, and (ii) 640,188 shares of Common Stock that
may be acquired on the exercise of options.
(3) Includes 440,119 shares of Common Stock that may be acquired on the
exercise of options and warrants.
(4) Includes (i) 1,491,449 shares of Common Stock that are beneficially owned
by an affiliate of Mr. Lehmann, and (ii) 45,000 shares of Common Stock that
may be acquired on the exercise of options.
(5) Includes 96,500 shares of Common Stock that may be acquired on the exercise
of options.
(6) Includes 179,800 shares of Common Stock that may be acquired on the
exercise of options.
(7) Includes 137,500 shares of Common Stock that may be acquired on the
exercise of options and warrants.
(8) Includes 45,000 shares of Common Stock that may be acquired on the exercise
of options.
(9) Includes 45,000 shares of Common Stock that may be acquired on the exercise
of options.
(10) Represents shares of Common Stock that may be acquired on the exercise of
options.
(11) Includes (i) 35,000 shares of Common Stock that may be acquired on the
exercise of options and (ii) 11,776,765 shares of Common Stock which are
beneficially owned by TPG Partners, L.P.
68
<PAGE> 78
DESCRIPTION OF CAPITAL STOCK
Pursuant to the Certificate of Incorporation, as amended, the authorized
capital stock of Allied consists of 100,000,000 shares of Common Stock and
10,000,000 shares of preferred stock, par value $.10 per share. If the Amendment
is approved, the authorized Common Stock will be increased to 200,000,000
shares. The following description of certain of Allied's securities is a
summary, does not purport to be complete or to give effect to applicable
statutory or common law and is subject in all respects to the applicable
provisions of the Certificate of Incorporation and the information herein is
qualified in its entirety by this reference.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which the stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to cumulative voting
rights. Therefore, holders of a majority of the shares voting for the election
of directors can elect all the directors. Subject to the terms of any
outstanding series of Preferred Stock, the holders of Common Stock are entitled
to dividends in such amounts and at such times as may be declared by Allied's
Board of Directors out of funds legally available therefor. On liquidation or
dissolution, holders of Common Stock are entitled to share ratably in all net
assets available for distribution to stockholders after payment of any
liquidation preferences to holders of Preferred Stock. Holders of Common Stock
have no redemption, conversion or preemptive rights.
PREFERRED STOCK
9% Preferred Stock. At September 30, 1996, 5,029 shares of 9% Cumulative
Convertible Preferred Stock ("9% Preferred Stock") were outstanding, of 30,000
shares authorized. The remaining 9% Preferred Stock has been called for
redemption as of November 4, 1996. Pursuant to the 9% Preferred Certificate of
Designation, Preferences, Rights and Limitations (the "9% Certificate of
Designation") the 9% Preferred Stock has a liquidation preference of $1,000 per
share, subject to adjustment. In the event that dividends on the 9% Preferred
Stock are six or more quarters in arrears, the holders of the 9% Preferred Stock
may elect up to two directors to Allied's Board of Directors until dividends are
paid. Dividends on the 9% Preferred Stock are $90.00 per annum and are
cumulative and payable quarterly. On September 1, 1998 the dividends payable
will increase from $90 to $140 per annum and will continue to increase at a rate
of $2.50 per quarter thereafter. The 9% Preferred Stock is currently convertible
into shares of Common Stock at the conversion price of $4.77 per share of Common
Stock (209.644 shares of Common Stock per share of 9% Preferred Stock), subject
to adjustment in the event of stock splits, dividends and recapitalizations
involving the Common Stock.
In accordance with the 9% Certificate of Designation, Allied has the right
to redeem the 9% Preferred Stock on or after September 1, 1996, in whole or in
part, at $1,000 per share together with accrued but unpaid dividends. Between
September 1, 1996 and August 31, 1998 redemption may occur only if for 20 of the
30 consecutive trading days preceding Allied's notice of redemption, the closing
price of the Common Stock equaled or exceeded 125% of the conversion price which
is currently equal to $4.77.
7% Preferred Stock. In April 1994, Allied authorized 100,000 shares of 7%
Cumulative Convertible Preferred Stock ("7% Preferred Stock"), of which 9,914
shares were outstanding as of September 30, 1996. The shares of 7% Preferred
Stock were issued in connection with the acquisition of Southern States.
Pursuant to the 7% Preferred Certificate of Designation, Preferences, Rights and
Limitations (the "7% Certificate of Designation"), the 7% Preferred Stock has no
voting rights and ranks junior to the 9% Preferred Stock as to dividends and
liquidation preference. The 7% Preferred Stock has a liquidation preference of
$1,000 per share, subject to adjustment. Dividends on the 7% Preferred Stock are
$70.00 per annum and are cumulative and payable quarterly. The first 9,963
shares of 7% Preferred Stock are currently convertible into shares of the Common
Stock at the rate of $7.00 (142.857 shares of Common Stock per share of 7%
Preferred Stock) per share of Common Stock, subject to adjustment in the event
of stock splits, dividends and recapitalizations involving the Common Stock. The
unissued shares of 7% Preferred Stock will be convertible into shares of Common
Stock at 130% of the market price, as defined in the 7% Certificate of
Designation.
69
<PAGE> 79
Under the 7% Certificate of Designation, Allied may redeem any part, on a
pro rata basis, of the 7% Preferred Stock at any time after (i) April 27, 1997,
or (ii) the market price for the Common Stock for 22 of the 30 immediately
preceding trading days shall equal or exceed 200% of the conversion price.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND DELAWARE LAW
The provisions of the Certificate of Incorporation and Allied's Bylaws
summarized in the succeeding paragraphs may be deemed to have an anti-takeover
effect or may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by a stockholder.
Pursuant to the Certificate, the Board of Directors may by resolution
establish one or more series of preferred stock, having such number of shares,
designation, relative voting rights, dividend rates, liquidation or other
rights, preferences and limitations as may be fixed by the Board of Directors
without any further stockholder approval. Such rights, preferences, privileges
and limitations as may be established could have the effect of impeding or
discouraging the acquisition of control of Allied.
The Bylaws provide that stockholders' nominations for the Board of
Directors and proposals for other business to be transacted at stockholders'
meetings must be timely received by Allied and must comply with specified form
and content requirements. The Bylaws also provide that special meetings of
stockholders may be called only by the Board of Directors or by a specifically
authorized committee of the Board of Directors. The Certificate and the Bylaws
provide that the Bylaws may be altered, amended or repealed only by the Board of
Directors.
Limitation of Director Liability. Section 102(b)(7) of the DGCL ("Section
102(b)") authorizes corporations to limit or to eliminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of directors' fiduciary duty of care. Although Section 102(b) does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
limits the liability of directors to Allied or its stockholders to the fullest
extent permitted by Section 102(b). Specifically, directors of Allied will not
be personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Allied or its stockholders, (ii) for acts or omissions not in
good faith, or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Certificate
and the Bylaws provide for mandatory indemnification of directors, officers,
employees and agents of Allied against all expenses, liabilities and losses to
which they may become subject or which they may incur as a result of being or
having been a director, officer, employee or agent of Allied. In addition,
Allied must advance or reimburse directors and officers and may advance or
reimburse employees and agents for expenses incurred by them in connection with
indemnifiable claims.
Insofar as indemnification for liabilities arising out of the Securities
Act may be permitted to directors, officers and controlling person of Allied
pursuant to the foregoing provisions, Allied has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Delaware Anti-Takeover Law. Section 203 of the Delaware ("Section 203")
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an "Interested
Stockholder") but less than 85% of such stock may not engage in certain Business
Combinations (as defined in Section 203) with the corporation for a period of
three years after the date on which the stockholder became an Interested
Stockholder unless (i) prior to such date, the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination is
approved by the corporation's board of directors and authorized at a
stockholders' meeting by a vote of at least two-thirds of the corporation's
outstanding voting stock not owned by the Interested Stockholder. Under Section
203, these restrictions will not apply to certain Business Combinations proposed
by an Interested Stockholder following the earlier of the announce-
70
<PAGE> 80
ment or notification of one of certain extraordinary transactions involving the
corporation and a person who was not an Interested Stockholder during the
previous three years or who became an Interested Stockholder with the approval
of the corporation's board of directors, if such extraordinary transaction is
approved or not opposed by a majority of the directors who were directors prior
to such person becoming an Interested Stockholder during the previous three
years or were recommended for election or elected to succeed such directors by a
majority of such directors.
Section 203 defines the term Business Combination to encompass a wide
variety of transactions with or caused by an Interested Stockholder, including
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, such as mergers,
certain asset sales, certain issuances of additional shares to the Interested
Stockholder, transactions with the corporation which increase the proportionate
interest in the corporation directly or indirectly owned by the Interested
Stockholder or transactions in which the Interested Stockholder receives certain
other benefits.
The provisions of Section 203, coupled with the Board of Director's
authority to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
Allied. The provisions also could discourage, impede or prevent a merger, tender
offer or proxy contest, even if such event would be favorable to the interests
of stockholders. Allied's stockholders, by adopting an amendment to the
Certificate, may elect not to be governed by Section 203 effective 12 months
after such adoption. Neither the Certificate nor the Bylaws exclude Allied from
the restrictions imposed by Section 203.
PROPOSED AMENDMENT
The Board of Directors has adopted, and proposes that the stockholders of
Allied approve, the Amendment, which would increase the authorized number of
shares of Common Stock from 100,000,000 to 200,000,000. On , 1996,
there were shares of Common Stock issued and outstanding, and
shares reserved for future issuance on the exercise of Allied's
outstanding warrants and options and shares issuable on conversion of
Allied's outstanding convertible debt and preferred stock. The Transactions
involve the issuance or potential issuance of at least 35,000,000 shares of
Common Stock. Thus, after completion of the Transactions, Allied will have no
uncommitted shares of Common Stock available for future issuance. The Board of
Directors believes that it is in the best interests of Allied to have additional
shares of Common Stock available for issuance at its discretion for future
acquisitions, stock splits, stock dividends, equity financings, employee benefit
plans and other corporate purposes. Except with respect to the shares of Common
Stock issuable on the exercise of outstanding options and warrants or issuable
upon the exercise of the Exercise Shares, Allied has no present plans for
issuance of any of the additional shares of Common Stock to be authorized by the
Amendment.
The additional shares of Common Stock authorized by the Amendment will be
available for issuance at any time in the future without further stockholder
approval, unless such approval were required by law, as in the case of
consolidations and certain statutory mergers, or by the rules of any securities
exchanges on which the Common Stock were to be then listed. In the absence of
additional authorization of Common Stock, significant future issuances could not
be effected without the expense and delay associated with further action by
stockholders. Holders of Common Stock have no preemptive right to purchase or
otherwise acquire any shares of Common Stock that may be issued in the future.
The DGCL does not vest the stockholders of a Delaware corporation with
dissenter's rights with respect to the Transactions contemplated by the
Amendment.
If the Amendment is approved by the requisite vote, Allied will file a
certificate of amendment to its Certificate of Incorporation with the Delaware
Secretary of State promptly following the conclusion of the Special Meeting. The
proposed Amendment will fix the number of shares of authorized Common Stock at
200,000,000 and will become effective on the date of filing with the Delaware
Secretary of State.
71
<PAGE> 81
APPROVAL
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the Amendment.
BOARD OF DIRECTORS' RECOMMENDATIONS
The Board of Directors believes that the proposal to approve an amendment
to the Certificate of Incorporation is in the best interests of Allied
stockholders and unanimously recommends that Allied stockholders vote "FOR" the
Amendment.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Any stockholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to Allied's 1997 annual
meeting of stockholders is required to submit such proposals to Allied on or
before January 2, 1997.
OTHER MATTERS
The cost of soliciting proxies in the accompanying form will be borne by
Allied. In addition to solicitations by mail, a number of regular employees of
Allied may, if necessary to assure the presence of a quorum, solicit proxies in
person or by telephone. Allied will reimburse brokers or other persons holding
stock in their names or in the names of their nominees for their reasonable
expenses in forwarding proxy material to beneficial owners of stock. Allied has
retained Corporate Investor Communications, Inc. ("CIC") to perform solicitation
services in connection with this Proxy Statement. For such services, CIC will
receive a fee of up to $10,000 and will be reimbursed for certain out-of-pocket
expenses and indemnified against certain liabilities incurred in connection with
this solicitation.
The persons designated to vote shares covered by Board of Directors'
proxies intend to exercise their judgment in voting such shares on other matters
that may properly come before the Special Meeting. Management does not expect
that any matters other than those referred to in this Proxy Statement will be
presented for action at the Special Meeting.
By Order of the Board of Directors
ROGER A. RAMSEY
Chairman of the Board and Chief
Executive Officer
72
<PAGE> 82
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C> <C>
I. Allied Waste Industries, Inc.
Report of Independent Public Accountants.................................. F-3
Consolidated Balance Sheet -- December 31, 1994, 1995 and June 30,
1996(unaudited)......................................................... F-4
Consolidated Statements of Operations for the Three Years Ended December
31, 1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited).... F-5
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1995 and the Six Months Ended June 30, 1995 and 1996
(unaudited)............................................................. F-6
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1995 and Six Months Ended June 30, 1995 and 1996 (unaudited)........ F-7
Notes to Consolidated Financial Statements................................ F-8
II. Pro Forma Combined Financial Statements
Pro Forma Combined Balance Sheet -- June 30, 1996......................... F-27
Pro Forma Combined Statement of Operations for the Six Months Ended June
30, 1996................................................................ F-28
Pro Forma Combined Statement of Operations for the Year Ended December 31,
1995.................................................................... F-29
Notes to Pro Forma Combined Financial Statements.......................... F-30
III. Laidlaw Solid Waste Management Group
Auditors' Report to the Directors of Laidlaw Inc.......................... F-33
Balance Sheets as at August 31, 1996 and 1995............................. F-34
Statements of Operations for the Years Ended August 31, 1996, 1995 and
1994.................................................................... F-35
Statements of Cash Flows for the Years Ended August 31, 1996, 1995 and
1994.................................................................... F-36
Notes to Financial Statements............................................. F-37
IV. Financial Statements of Pen-Rob, Inc.
Report of Independent Public Accountants.................................. F-43
Balance Sheet -- December 31, 1994........................................ F-44
Statements of Operations for the Year Ended December 31, 1994............. F-45
Statement of Stockholders' Equity for the Year Ended December 31, 1994.... F-46
Statement of Cash Flows for the Year Ended December 31, 1994.............. F-47
Notes to Financial Statements............................................. F-48
V. Financial Statements of Illinois Development Corporation
Report of Independent Public Accountants.................................. F-51
Balance Sheets -- December 31, 1994 and May 31, 1995 (unaudited).......... F-52
Statements of Operations for the Period From Inception (September 26,
1994) to December 31, 1994 and the Five Months Ended May 31, 1995
(unaudited)............................................................. F-53
Statements of Stockholders' Equity for the Period From Inception
(September 26, 1994) to December 31, 1994 and the Five Months Ended May
31, 1995 (unaudited).................................................... F-54
Statements of Cash Flows for the Period From Inception (September 26,
1994) to December 31, 1994 and the Five Months Ended May 31, 1995
(unaudited)............................................................. F-55
Notes to Financial Statements............................................. F-56
VI. Financial Statements of Duckett Disposal, Inc.
Report of Independent Public Accountants.................................. F-58
Statements of Net Assets to be Sold -- December 31, 1994 and June 30, 1995
(unaudited)............................................................. F-59
Statements of Operating Revenues and Expenses for the Year Ended December
31, 1994 and the Six Months Ended June 30, 1995 (unaudited)............. F-60
Notes to Financial Statements............................................. F-61
</TABLE>
F-1
<PAGE> 83
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C> <C>
VII. Financial Statements of Brickyard Disposal and Recycling, Inc.
Report of Independent Public Accountants.................................. F-64
Balance Sheets -- September 30, 1993, 1994 and June 30, 1995
(unaudited)............................................................. F-65
Statements of Operations for the Year Ended September 30, 1993, 1994 and
the Nine Months Ended June 30, 1995 (unaudited)......................... F-66
Statements of Shareholder's Equity for the Year Ended September 30, 1993,
1994 and the Nine Months Ended June 30, 1995 (unaudited)................ F-67
Statements of Cash Flows for the Year Ended September 30, 1993, 1994 and
the Nine Months Ended June 30, 1995 (unaudited)......................... F-68
Notes to Financial Statements............................................. F-69
VIII. Financial Statements of L and M Disposal, Inc.
Report of Independent Public Accountants.................................. F-73
Balance Sheets -- December 31, 1994 and March 31, 1995 (unaudited)........ F-74
Statements of Operations for the Year Ended December 31, 1994 and the
Three Months Ended March 31, 1995 (unaudited)........................... F-75
Statements of Shareholders' Equity for the Year Ended December 31, 1994
and the Three Months Ended March 31, 1995 (unaudited)................... F-76
Statements of Cash Flows for the Year Ended December 31, 1994 and the
Three Months Ended March 31, 1995 (unaudited)........................... F-77
Notes to Financial Statements............................................. F-78
IX. Financial Statements of Service Waste, Inc.
Report of Independent Public Accountants.................................. F-81
Balance Sheet -- December 31, 1995........................................ F-82
Statement of Operations for the Year Ended December 31, 1995.............. F-83
Statement of Shareholders' Equity for the Year Ended December 31, 1995.... F-84
Statement of Cash Flows for the Year Ended December 31, 1995.............. F-85
Notes to Financial Statements............................................. F-86
X. Financial Statements of Clayco Sanitation Company, Inc.
Report of Independent Public Accountants.................................. F-88
Balance Sheets -- June 30, 1995 and December 31, 1995 (unaudited)......... F-89
Statements of Operations for the Year Ended June 30, 1995 and the Six
Months Ended December 31, 1995 (unaudited).............................. F-90
Statements of Shareholders' Equity for the Year Ended June 30, 1995 and
the Six Months Ended December 31, 1 995 (unaudited)..................... F-91
Statements of Cash Flows for the Year Ended June 30, 1995 and the Six
Months Ended December 31, 1995 (unaudited).............................. F-92
Notes to Financial Statements............................................. F-93
</TABLE>
F-2
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Allied Waste
Industries, Inc., (a Delaware Corporation) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allied Waste
Industries, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
February 26, 1996,
(except with respect to matters discussed
in Note 2 as to which the date is June 30, 1996).
F-3
<PAGE> 85
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets --
Cash and cash equivalents................................... $ 5,223 $ 4,016 $ 2,435
Accounts receivable, net of allowance of $2,326, $2,502 and
$2,464 (unaudited)....................................... 27,613 32,172 36,367
Prepaid and other current assets............................ 4,242 5,369 5,073
Current portion of landfills................................ 5,213 7,103 7,103
Inventories................................................. 1,531 1,960 2,107
Deferred income taxes....................................... 5,086 2,669 1,680
-------- -------- --------
Total current assets................................ 48,908 53,289 54,765
Property and equipment, net................................... 216,271 302,352 330,112
Goodwill, net................................................. 78,165 88,429 88,535
Other assets.................................................. 13,531 14,636 28,674
-------- -------- --------
Total assets........................................ $356,875 $458,706 $ 502,086
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
Current portion of long-term debt to related parties........ $ -- $ 121 $ 121
Current portion of long-term debt to unrelated parties...... 21,718 37,460 28,625
Accounts payable............................................ 18,842 23,750 20,419
Accrued interest............................................ 4,945 5,995 5,879
Other accrued liabilities................................... 9,423 14,028 13,900
Unearned income............................................. 7,471 9,273 10,309
-------- -------- --------
Total current liabilities........................... 62,399 90,627 79,253
Long-term debt to related parties, less current portion....... 1,000 1,862 1,804
Long-term debt to unrelated parties, less current portion..... 150,649 176,732 171,337
Convertible subordinated debt, net of discount, less current
portion..................................................... 14,604 7,779 3,862
Deferred income taxes......................................... 22,440 25,649 23,769
Accrued closure and post-closure costs........................ 6,902 10,530 10,280
Deferred royalties and other long-term obligations............ 8,911 9,222 11,262
Commitments and contingencies
Stockholders' Equity --
Preferred stock, aggregate liquidation preference of
$63,501, $15,052 and $14,943 (unaudited)................. 44 2 2
Common stock................................................ 252 474 585
Additional paid-in capital.................................. 92,735 134,326 194,380
Retained earnings (deficit)................................. (3,059) 1,503 5,552
-------- -------- --------
Total stockholders' equity.......................... 89,972 136,305 200,519
-------- -------- --------
Total liabilities and stockholders' equity.......... $356,875 $458,706 $ 502,086
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
F-4
<PAGE> 86
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 108,948 $ 158,354 $ 217,544 $ 104,670 $ 118,958
Cost of operations................... 68,374 100,186 119,238 58,585 65,699
Selling, general and administrative
expenses........................... 18,278 32,564 36,708 16,607 18,464
Depreciation and amortization........ 10,637 16,931 27,279 12,783 15,408
----------- ----------- ----------- ----------- -----------
Operating income before
pooling costs................... 11,659 8,673 34,319 16,695 19,387
Pooling costs........................ -- -- 1,531 -- 6,690
----------- ----------- ----------- ----------- -----------
Operating income................... 11,659 8,673 32,788 16,695 12,697
Interest income...................... (310) (1,073) (716) (474) (142)
Interest expense..................... 7,633 13,441 11,316 5,974 4,567
Conversion fee on debt securities
converted.......................... -- -- 56 -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................... 4,336 (3,695) 22,132 11,195 8,272
Income tax expense (benefit)......... 1,694 (689) 9,751 4,642 4,035
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
item............................ 2,642 (3,006) 12,381 6,553 4,237
Extraordinary loss due to early
extinguishment of debt, net of
income tax benefit................. -- (3,029) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss).................... 2,642 (6,035) 12,381 6,553 4,237
Dividends on preferred stock......... (927) (3,773) (4,070) (2,127) (575)
Conversion fee on equity securities
converted.......................... -- -- (2,151) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) to common
shareholders....................... $ 1,715 $ (9,808) $ 6,160 $ 4,426 $ 3,662
=========== =========== =========== =========== ===========
Income (loss) per share:
Income (loss) before extraordinary
item............................ $ 0.08 $ (0.27) $ 0.15 $ 0.11 $ 0.06
Extraordinary item................. -- (0.12) -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss)...................... $ 0.08 $ (0.39) $ 0.15 $ 0.11 $ 0.06
=========== =========== =========== =========== ===========
Weighted average common and common
equivalent shares.................. 22,572,468 25,028,107 40,046,459 41,507,957 58,873,215
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE> 87
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
---------------------------------------------------------------
9% $90 7% ADDITIONAL RETAINED TOTAL
SERIES SERIES CUMULATIVE CUMULATIVE CUMULATIVE SERIES COMMON PAID-IN EARNINGS STOCKHOLDERS'
C D CONVERTIBLE CONVERTIBLE CONVERTIBLE E STOCK CAPITAL (DEFICIT) EQUITY
------ ------ ---------- ---------- ---------- ------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1992.......... $ 29 $ 26 $-- $-- $-- $-- $201 $ 36,480 $ 7,682 $ 44,418
Common stock
issued,
net......... -- -- -- -- -- -- 12 2,872 -- 2,884
Stock options
exercised... -- -- -- -- -- -- 1 196 -- 197
9% cumulative
convertible
preferred
stock
issued,
net......... -- -- 3 -- -- -- -- 24,435 -- 24,438
Preferred
stock
converted... (6) (6) -- -- -- -- 4 8 -- --
Convertible
notes
converted... -- -- -- -- -- -- -- 40 -- 40
Dividends
declared on
preferred
stock....... -- -- -- -- -- -- -- -- (927 ) (927)
Equity
transactions
of pooled
companies... -- -- -- -- -- -- -- (12) (3,403 ) (3,415)
Net income.... -- -- -- -- -- -- -- -- 2,642 2,642
---- ---- --- --- --- --- ---- -------- ------- --------
Balance,
December 31,
1993.......... 23 20 3 -- -- -- 218 64,019 5,994 70,277
Common stock
issued,
net......... -- -- -- -- -- -- 33 8,123 -- 8,156
Stock options
exercised... -- -- -- -- -- -- -- 87 -- 87
Cumulative
convertible
preferred
stock
issued,
net......... -- -- -- -- 1 -- -- 3,490 -- 3,491
Series E
cumulative
convertible
preferred
stock
issued,
net......... -- -- -- -- -- -- -- 15,000 -- 15,000
Preferred
stock and
convertible
notes
converted... -- (4) -- 1 -- -- 1 5,930 -- 5,928
Dividends
declared on
preferred
stock....... -- -- -- -- -- -- -- (3,773) -- (3,773)
Equity
transactions
pooled
companies... -- -- -- -- -- -- -- (141) (3,019 ) (3,160)
Net loss...... -- -- -- -- -- -- -- -- (6,035 ) (6,035)
---- ---- --- --- --- --- ---- -------- ------- --------
Balance December
31, 1994...... 23 16 3 1 1 -- 252 92,735 (3,059 ) 89,972
Common stock
issued,
net......... -- -- -- -- -- -- 90 33,006 -- 33,096
Stock options
and warrants
exercised... -- -- -- -- -- -- 8 2,048 -- 2,056
Preferred
stock and
convertible
notes
converted... (23) (16) (2) (1) -- -- 124 6,523 -- 6,605
Dividends
declared on
preferred
stock....... -- -- -- -- -- -- -- -- (4,070 ) (4,070)
Conversion fee
on equity
securities
converted... -- -- -- -- -- -- -- -- (2,151 ) (2,151)
Equity
transactions
of pooled
companies... -- -- -- -- -- -- -- 14 (1,598 ) (1,584)
Net income.... -- -- -- -- -- -- -- -- 12,381 12,381
---- ---- --- --- --- --- ---- -------- ------- --------
Balance December
31, 1995...... -- -- 1 -- 1 -- 474 134,326 1,503 136,305
Common stock
issued,
net......... -- -- -- -- -- -- 96 54,739 -- 54,835
Stock options
and warrants
exercised... -- -- -- -- -- -- 8 1,727 -- 1,735
Convertible
notes
converted... -- -- -- -- -- -- 7 3,588 -- 3,595
Dividends
declared on
preferred
stock....... -- -- -- -- -- -- -- -- (575 ) (575)
Equity
transactions
of pooled
companies... -- -- -- -- -- -- -- -- 387 387
Net income.... -- -- -- -- -- -- -- -- 4,237 4,237
---- ---- --- --- --- --- ---- -------- ------- --------
Balance June 30,
1996
(unaudited)... $ -- $ -- $1 $-- $1 $-- $585 $194,380 $ 5,552 $200,519
==== ==== === === === === ==== ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE> 88
ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities --
Net income (loss)................................... $ 2,642 $ (6,035) $ 12,381 $ 6,553 $ 4,237
Adjustments to reconcile net income (loss) to cash
provided by operating activities --
Extraordinary loss on early extinguishment of debt,
net of income tax benefit........................ -- 3,029 -- -- --
Provisions for:
Depreciation and amortization.................... 10,637 16,931 27,280 12,783 15,408
Closure and post-closure costs................... 443 2,950 711 900 522
Doubtful accounts................................ 912 1,768 1,994 640 1,175
Deferred income taxes............................ 1,282 (779) 5,683 3,878 (637)
(Gain) loss on sale of fixed assets.............. 74 762 291 (64) 1,972
Write off intangible assets...................... -- -- 237 -- --
Change in operating assets and liabilities,
excluding the effects of purchase acquisitions --
Accounts receivable, prepaid expenses,
inventories and other.......................... (2,680) (20,029) (9,226) (5,981) (11,710)
Accounts payable, accrued liabilities, unearned
income, closure and post-closure costs and
other.......................................... (2,158) 18,305 (2,017) (6,546) (10,491)
-------- -------- -------- -------- --------
Cash provided by operating activities................. 11,152 16,902 37,334 12,163 476
-------- -------- -------- -------- --------
Investing Activities --
Cost of acquisitions, net of cash acquired.......... (15,696) (49,160) (18,715) (9,860) (3,852)
Capital expenditures................................ (16,068) (46,560) (55,633) (23,421) (21,998)
Proceeds from sale of fixed assets.................. 547 1,386 1,057 643 243
Increase in cash value of life insurance policies... (303) (243) (272) -- --
Change in deferred acquisition costs and notes
receivable....................................... (3,230) 2,150 (85) (715) 695
-------- -------- -------- -------- --------
Cash used for investing activities.................... (34,750) (92,427) (73,648) (33,353) (24,912)
-------- -------- -------- -------- --------
Financing activities --
Net proceeds from sale and redemption of preferred
stock............................................ 24,439 14,926 (316) -- --
Net proceeds from sale of common stock, stock
options and warrants............................. 197 83 30,911 29,300 48,330
Proceeds from long-term debt, net of issuance
costs............................................ 49,883 126,260 66,573 21,303 25,431
Payments of long-term debt.......................... (47,835) (59,472) (55,839) (23,976) (51,165)
Other long-term obligations......................... (879) 1,390 (1,040) (477) 486
Dividends paid...................................... (535) (3,091) (3,598) (1,639) (614)
Equity transactions of pooled companies............. (3,415) (3,160) (1,584) (1,398) 387
-------- -------- -------- -------- --------
Cash provided by financing activities................. 21,855 76,936 35,107 23,113 22,855
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents...... (1,743) 1,411 (1,207) 1,923 (1,581)
Cash and cash equivalents, beginning of period........ 5,555 3,812 5,223 5,223 4,016
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period.............. $ 3,812 $ 5,223 $ 4,016 $ 7,146 $ 2,435
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
<PAGE> 89
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allied Waste Industries, Inc. ("Allied" or the "Company") is incorporated
under the laws of the State of Delaware. Allied is a solid waste management
company providing non-hazardous waste collection, transfer, recycling and
disposal services in selected markets.
Principles of consolidation and presentation
The consolidated financial statements include the accounts of Allied and
its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The consolidated financial statements as of June
30, 1996 and for the 6 months ended June 30, 1995 and 1996 reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and results of
operations for such periods. The consolidated financial statements and
accompanying notes have also been restated to reflect acquisitions accounted for
as poolings-of-interests (See Note 2).
Certain reclassifications have been made in prior period financial
statements to conform to the current presentation.
Cash and cash equivalents
Cash equivalents are investments with original maturities less than ninety
days. Such instruments are stated at quoted market prices.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
The Company provides services to commercial and residential customers
primarily in the midwestern, southeastern and southwestern regions of the United
States. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base. The Company performs ongoing credit evaluations of its customers, but does
not require collateral to support customer receivables. The Company establishes
an allowance for doubtful accounts based on factors surrounding the credit risk
of specific customers, historical trends and other information.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market and consists principally of equipment parts, materials and supplies.
Property and equipment
Property and equipment are recorded at cost, which includes interest to
finance the acquisition and construction of major capital additions during the
development phase, primarily landfills and transfer stations. Management
periodically reviews the realizability of its investment in operating landfills.
Interest capitalized in the three years ended December 31, 1995 was $1,058,000,
$3,517,000 and $11,088,000, respectively. Depreciation is provided on the
straight-line method over the estimated useful lives of buildings (30-40 years),
vehicles and equipment (3-15 years), containers and compactors (5-10 years) and
furniture and office equipment (3-8 years). The cost of landfill airspace,
including original acquisition cost and incurred and projected landfill
preparation costs, is amortized based on tonnage as landfill airspace is
consumed. Other current assets include the current portion of landfill
amortization costs of $5,213,000 and $7,103,000 at December 31, 1994 and 1995,
respectively.
F-8
<PAGE> 90
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs which do not improve assets or extend
their useful lives are charged to expense as incurred. For the three years ended
December 31, 1995, maintenance and repair expenses charged to cost of operations
were $9,442,000, $12,917,000 and $14,741,000, respectively. When property is
retired, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized.
Goodwill
Goodwill is the cost in excess of fair value of identifiable assets of
acquired businesses and has been amortized on a straight-line basis along with
certain miscellaneous intangible assets over a blended life of twenty-five
years. Miscellaneous intangible assets previously classified with goodwill have
been reclassified as Other Assets. These miscellaneous intangible assets
continue to be amortized in accordance with the terms of the respective
agreements and contracts ranging from 3 years to 10 years, while goodwill
continues to be amortized on a straight-line basis over forty years.
The Company continually evaluates whether events and circumstances have
occurred subsequent to its acquisition, that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's discounted future cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
Goodwill amortization of $1,453,000, $2,203,000 and $3,679,000 is included
in depreciation and amortization for the three years in the period ended
December 31, 1995, respectively. Accumulated goodwill amortization was
$5,952,000 and $9,631,000 at December 31, 1994 and 1995, respectively.
Other assets
Other assets includes notes receivable, landfill closure deposits, deferred
charges and miscellaneous non-current assets. Deferred charges include costs
incurred to acquire businesses and to obtain equity and debt financing. Upon
consummation of an acquisition, deferred costs relating to acquired businesses
accounted for as purchases are allocated to goodwill or landfill airspace while
costs relating to acquired businesses accounted for as poolings-of-interests are
expensed. Direct costs related to acquisitions under evaluation are capitalized
and reviewed for realization on a periodic basis. These costs are expensed when
management determines that the capitalized costs provide no future benefit. Upon
funding of equity and debt offerings, deferred costs are charged to additional
paid-in capital or are capitalized as debt issuance costs and amortized using
the interest method over the life of the related debt. Miscellaneous assets
include consulting agreements which are being amortized in accordance with the
terms of the respective agreements and contracts.
Accrued closure and post-closure costs
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated. Site specific closure and post-closure engineering cost estimates are
prepared and updated annually for landfills owned and/or operated by the Company
for which it is responsible for closure and post-closure monitoring. Estimated
costs are accrued based on accepted tonnage as landfill airspace is consumed.
Effective January 1, 1994, the Company changed its accounting policy to discount
its future closure and post-closure obligations where the Company believes that
both the amounts and timing of related payments are reliably determinable. The
cumulative effect of this change in accounting policy, net of the effects
relating to purchase accounting, did not have a material effect on the Company's
1994 results of operations. The impact of changes that are determined to be
changes in estimates are accounted for on a prospective basis.
F-9
<PAGE> 91
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
the passage of time. The Company's current estimate of total future payments for
closure and post-closure is $165 million, as shown below, while the present
value of such estimate is $55 million. At December 31, 1994 and 1995,
respectively, accruals for landfill closure and post-closure costs (including
costs assumed through acquisitions) were approximately $6.9 million and $10.5
million. The accruals reflect relatively young landfills whose estimated
remaining lives, based on current waste flows, range from 3 to over 75 years,
with an estimated average remaining life of greater than 25 years.
The Company's estimate of total future payments for closure and
post-closure liabilities for currently owned and operated landfills (in
thousands) is as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 3,868
1997.............................................................. 2,052
1998.............................................................. 2,501
1999.............................................................. 1,144
2000.............................................................. 2,165
Thereafter........................................................ 153,484
--------
$165,214
========
</TABLE>
During 1994, the Company's landfills became subject to the closure and
post-closure requirements of Subtitle D. Previously, the Company's landfills
were subject to local requirements. The principle changes under Subtitle D are
an extension of the post-closure monitoring period to 30 years and a requirement
to use clay or synthetic liners as capping materials. The Company updated its
estimates of future closure and post-closure costs in accordance with its
interpretations of Subtitle D.
During 1994, in cooperation with the Nebraska Department of Environmental
Quality, the Company proposed interim groundwater monitoring measures for its
Norfolk landfill to define groundwater contamination, the area impacted and the
possible action needed. A provision of $2.1 million, in excess of the closure
and post-closure reserves recorded in the normal course of business, was made in
the Company's 1994 consolidated financial statements to recognize the estimated
costs of additional closure, post-closure and remedial measures.
Deferred royalties and other long-term obligations
Other long-term obligations include non-competition agreements with former
owners of acquired companies and deferred royalty obligations. Guaranteed
minimum royalty obligations are recorded upon acquisition of the related asset
whereas royalty obligations dependent upon future waste accepted at landfills
are expensed as earned.
Revenue
Advance billings are recorded as unearned income, and revenue is recognized
as income when services are provided.
Extraordinary loss
In connection with the Securities Purchase Agreement between the Company
and TPG dated October 27, 1994, as amended, the Company solicited and obtained
consents from a majority of the holders of its 10.75% Senior Subordinated Notes
causing modifications to the indenture agreement and the execution of a
supplemental indenture (the "Supplemental Indenture"). Among other things the
Supplemental Indenture increased the Company's restricted borrowing capacity
(with certain limitations) under current and future
F-10
<PAGE> 92
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revolving credit agreements and lease lines from a total of $35 million to $120
million, deleted certain borrowing restrictions, changed certain financial ratio
covenants and increased the per annum rate of interest from 10.75% to 12.0%. The
execution of the Supplemental Indenture, which was effective January 30, 1995,
was accounted for as an early extinguishment of debt. Accordingly, capitalized
deferred debt issuance costs related to the original indenture were written of
as of December 31, 1994 and an extraordinary charge of $4,595,000, ($2,823,000
net of income tax benefit), was recorded. Additionally, in the first quarter of
1994, an extraordinary charge of $334,000, ($206,000 net of income for tax
benefit) was recognized as a result of the early extinguishment of various debt
instruments using the proceeds from the $100 million Senior Subordinated Notes.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liability,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Final settlement amounts could differ from those estimates.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value
of Financial Instruments". The Company's Financial Instruments as defined by
SFAS No. 107 include cash, money market funds, accounts receivable, accounts
payable, long-term debt and convertible subordinated debt. The estimated fair
value amounts have been determined by the Company at December 31, 1995 using
available market information and valuation methodologies described below.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts that could be realized in a current market exchange. The use of
different market assumptions or valuation methodologies could have a material
effect on the estimated fair value amounts.
The carrying value of cash, money market funds, accounts receivable and
accounts payable approximate fair values due to the short-term maturities of
these instruments.
The Company's Senior Subordinated Notes have a fair value of $108.3 million
at December 31, 1995 based upon quoted market prices. The convertible
subordinated debt has a fair value of approximately $15.7 million based upon the
conversion features of the related instruments and market price of the Company's
common stock at December 31, 1995. Management believes the carrying value of all
remaining long-term debt approximates fair value.
Accounting Pronouncements Not Yet Required to be Adopted
Management does not expect the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121 to have a material effect on the Company's
financial position or results of operations. In 1996 the Company is required to
adopt SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", issued by the Financial Accounting
Standards Board. SFAS No. 121 requires that long-lived assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) from an asset to be held and used in
operations is less than the carrying value of the asset, an impairment loss must
be recognized in the amount of the difference between the carrying value and the
fair value.
F-11
<PAGE> 93
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1996 the Company is also required to adopt SFAS No. 123,
"Accounting for Stock Based Compensation". As permitted by SFAS No. 123, the
Company will continue to account for transactions with its directors and
employees pursuant to Accounting Board Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS No. 123 requires companies which do not choose to
account for the effects of stock based compensation in the financial statements
to disclose the pro forma effects on earnings and earnings per share as if such
accounting had occurred. Management has not yet calculated the impact of these
pro forma adjustments, since it is not required to do so.
Statements of cash flows
The supplemental cash flow disclosures and non-cash transactions for the
three years ended December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental Disclosures --
Interest paid........................... $ 7,957 $12,229 $20,922 $9,129 $10,599
Income taxes paid....................... 290 980 2,942 1,088 5,641
Non-Cash Transactions --
Common or preferred stock issued in
acquisitions......................... $ 2,871 $11,231 $ 754 $ 380 $ 5,497
Common stock contributed to 401(k)
plan................................. -- 195 -- -- 219
Capital leases.......................... 5,257 12,077 20,480 8,645 8,020
Debt obligations for the purchase of
property and equipment............... 1,020 1,234 1,179 -- --
Debt and liabilities incurred or assumed
in purchase acquisitions............. 13,245 23,344 14,434 4,203 4,659
Debt converted to preferred stock....... -- 5,928 -- -- --
Debt converted to common stock.......... -- -- 6,802 385 3,595
Capitalized interest.................... 1,058 3,517 11,088 4,444 6,893
Dividends and interest paid in common
stock................................ -- -- 1,283 -- --
Conversion fee on debt and equity
securities converted paid in common
stock................................ -- -- 2,207 -- --
</TABLE>
2. BUSINESS COMBINATIONS
Acquisitions accounted for as purchases are reflected in the results of
operations since the date of purchase in Allied's consolidated financial
statements. The results of operations for acquisitions accounted for as
poolings-of-interests are included in Allied's consolidated financial statements
for all periods presented. Often the final determination of the cost of certain
of the Company's acquisitions is subject to resolution of certain contingencies.
Once such contingencies are achieved, the purchase price is adjusted. Shares
issued in connection with business acquisitions have been valued taking into
consideration certain restrictions placed on the stock.
F-12
<PAGE> 94
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes acquisitions for the three years ended
December 31, 1995 and the six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1993 1994 1995 1995 1996
------- --------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Number of businesses acquired
accounted for as:
Poolings-of-interests.......... -- -- 5 1 5
Purchases...................... 21 21 13 9 9
Total consideration (in
millions)...................... $22.1 $99.5(1) $45.3(2) $6.5 $101.3
Shares of stock issued:
Common stock................... 873,337 2,897,858 4,000,040 146,539 8,805,278(3)
Preferred stock................ -- 9,982 -- -- --
</TABLE>
- - - ---------------
(1) Includes $11.7 million paid for two landfills under development.
(2) Includes $9.9 million paid for the acquisition of an operating landfill.
(3) Includes 779,005 shares of contingently issuable Common Stock.
The following table shows the effect on reported revenue and net income of
using the pooling-of-interests method of accounting for business combinations
during the six months ended June 30, 1996. Revenues and net income as previously
reported have been restated as presented in the following table (in thousands):
<TABLE>
<CAPTION>
BEFORE EFFECT AFTER
POOLING OF POOLING
EFFECTS POOLINGS EFFECTS
-------- -------- --------
<S> <C> <C> <C>
Three months ended June 30, 1996 (unaudited)
Revenues......................................... $ 48,914 $ 13,107 $ 62,021
Net income....................................... 3,715 (2,284) 1,431
Six months ended June 30, 1996 (unaudited)
Revenues......................................... 93,544 25,414 118,958
Net income....................................... 6,532 (2,295) 4,237
Three months ended June 30, 1995 (unaudited)
Revenues......................................... 39,109 16,190 55,299
Net income....................................... 3,418 856 4,274
Six months ended June 30, 1995 (unaudited)
Revenues......................................... 72,855 31,815 104,670
Net income....................................... 5,124 1,429 6,553
Year ended December 31, 1995
Revenues......................................... 169,865 47,679 217,544
Net income....................................... 11,584 797 12,381
Year ended December 31, 1994
Revenues......................................... 114,814 43,540 158,354
Net loss......................................... (6,731) 696 (6,035)
Year ended December 31, 1993
Revenues......................................... 69,206 39,742 108,948
Net income....................................... 2,319 323 2,642
</TABLE>
F-13
<PAGE> 95
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pooling costs of $1.5 million and $6.7 million related to acquisitions
accounted for under the pooling-of-interests method for business combinations
were charged to expense during the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively. The after-tax impact of these expenses
on earnings per share was ($0.02) on the year ended December 31, 1995 and
($0.07) on the six months ended June 30, 1996. Pooling costs include legal,
accounting and consulting fees, stock registration costs, and integration and
other costs of business combination.
Unaudited pro forma statement of operations data
The following unaudited pro forma consolidated data for the year ended
December 31, 1995 and the six months ended June 30, 1996 presents the results of
operations of Allied as if the companies acquired using the purchase method of
accounting for business combinations in 1995 and through June 30, 1996, had all
occured as of January 1, 1995 (in thousands, except per share data). This data
does not purport to be indicative of the results of operations of Allied that
might have occurred nor which might occur in the future.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(UNAUDITED)
<S> <C> <C>
Revenues..................................................... $228,998 $119,242
Operating income............................................. 34,269 12,724
Net income................................................... 12,897 4,481
Net income to common shareholders............................ 6,676 3,906
Net income per common share.................................. 0.16 0.07
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and June 30, 1996 was
as follows (in thousands):
<TABLE>
<CAPTION>
1996
1994 1995 -----------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Land and improvements............................. $ 19,686 $ 16,449 $ 16,914
Land held for permitting as landfills(1).......... 10,321 5,640 6,686
Landfills......................................... 105,913 179,463 199,354
Buildings and improvements........................ 17,671 24,525 29,049
Vehicles and equipment............................ 68,889 88,410 96,572
Containers and compactors......................... 34,984 46,412 51,681
Furniture and office equipment.................... 3,912 5,735 6,921
-------- -------- --------
261,376 366,634 407,177
Accumulated depreciation and amortization......... (45,105) (64,282) (77,065)
-------- -------- --------
$216,271 $302,352 $ 330,112
======== ======== ========
</TABLE>
- - - ---------------
(1) These properties have been approved for use as landfills, and the Company is
currently in the process of obtaining the necessary permits.
F-14
<PAGE> 96
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 consists of the following (in
thousands):
To related parties
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Unsecured notes payable to stockholders, interest at 12%........... $ -- $1,983
Unsecured notes payable to stockholder, interest at 9%, paid June
30, 1995......................................................... 1,000 --
------ ------
1,000 1,983
Current portion.................................................. -- (121)
------ ------
$1,000 $1,862
====== ======
</TABLE>
The $2.0 million notes payable to related parties were issued in April 1995
in accordance with an agreement to acquire certain real estate. This agreement
was executed by one of the Company's subsidiaries prior to the Company's
acquisition of the subsidiary. The agreement required the payment of an
aggregate of $5.6 million to the previous owners upon issuance of a permit to
operate a landfill. Subsequent to execution of this agreement, the previous
owners became stockholders of the Company. These notes bear interest at 12% per
annum with monthly principal and interest payments through maturity in May 1999
and are guaranteed by the Company.
To unrelated parties
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Revolving Line of Credit, interest at prime, (8.5% at December
31, 1994), payable monthly, repaid in April 1995............. $ 10,250 $ --
Credit Agreement, interest at 9.25% at December 31, 1995
principal payable March 1998................................. -- 37,401
Notes payable to banks, finance companies and individuals,
interest (weighted average rate of 8.6%, and 8.0% at December
31, 1994, and 1995, respectively) and principal payable
through 2007, secured by vehicles, equipment, real estate,
accounts receivable or stock of certain subsidiaries......... 35,410 33,083
Notes payable to individuals, interest at 7%-14%, principal and
interest payable through 2003, unsecured..................... 10,302 10,382
Note payable to a commercial company, interest at 8.5% payable
monthly through June 1999, unsecured......................... 606 657
Senior Subordinated Notes, interest at 10.75% and 12% at
December 31, 1994 and 1995, respectively, unsecured.......... 100,000 100,000
Obligations under capital leases of vehicles and equipment,
(weighted average interest at 9.6% and 9.9% at December 31,
1994, and 1995, respectively), payable monthly............... 15,799 32,656
-------- --------
172,367 214,179
Current portion.............................................. (21,718) (37,447)
-------- --------
$150,649 $176,732
======== ========
</TABLE>
In March 1995, an $80 million credit agreement was executed between the
Company and NatWest Bank N.A., as agent, (the "Credit Agreement") and initial
funding occurred on April 24, 1995. The Credit Agreement, subject to certain
limitations, allows the Company to borrow funds under a stand-by revolving
credit facility up to $50 million based on certain financial ratios of the
Company. Additionally, the Credit
F-15
<PAGE> 97
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement allows the Company to request the issuance of up to approximately $30
million in stand-by-letters-of-credit under a letter-of-credit facility. The
revolving credit facility may be used to repay existing debt, make acquisitions
of solid waste companies and for general corporate purposes. The
letter-of-credit facility may be used to post surety bonds to secure performance
under landfill closure and post-closure obligations. All amounts outstanding
under the revolving credit facility are payable in March 1998, whereas
letters-of-credit will expire no later than five years from the date of
issuance. Interest is charged annually pursuant to the revolving credit facility
based upon either the prime rate published by NatWest or the London Interbank
Offer Rate plus a margin ranging from 0% to 2.75% which is dependent upon
certain financial ratios. Under the letter-of-credit facility, the Company pays
from 2.25% to 2.75% on outstanding letters-of-credit. The Company used the
revolving credit facility to refinance the Revolving Line of Credit on April 24,
1995 and intends to use the remainder to make strategic acquisitions and for
general corporate purposes. As of December 31 1995, the Company had $5.6 million
of additional borrowings available under the revolving credit facility and $7.4
million of additional borrowings available under the letter-of-credit facility.
The Senior Subordinated Notes were originally issued in January 1994. The
Senior Subordinated Notes are redeemable on or after February 1, 1999, in whole
or in part, at the option of the Company. As described in Note 1, the interest
rate was increased to 12% and certain other terms were modified in January 1995.
Principal is due at maturity on February 1, 2004 and interest is payable
semi-annually.
Convertible subordinated debt
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Convertible Subordinated Debentures, unsecured.................... $ 5,000 $ --
Senior Convertible Subordinated Debentures, unsecured............. 5,200 5,000
Convertible Subordinated Notes, unsecured......................... 3,604 1,992
Convertible note payable to an individual, unsecured.............. 800 800
------- ------
14,604 7,792
Current portion................................................. -- (13)
------- ------
$14,604 $7,779
======= ======
</TABLE>
During the fourth quarter of 1995 the $5.0 million Convertible Subordinated
Debentures were converted into 1,483,680 shares of Allied common shares.
The $5.0 million Senior Convertible Subordinated Debentures bear interest
at 8.5% per annum payable semi-annually, with principal payable in 2002. The
debentures are convertible into Allied common shares at $6.00 per share.
Warrants to purchase 195,000 common shares at $6.00 per share were issued in
connection with the sale of the debentures.
The 6% Convertible Subordinated Notes were issued at a discount of 20% from
the principal amount payable at maturity. The stated rate of interest and
original issue discount represent an annual yield to maturity of 9.09%.
Principal is due March 2003 and interest is payable semi-annually. The notes are
convertible into Allied common stock at $6.56 per share and are redeemable at
the option of the Company on or after February 1996. In January 1994,
approximately $6.5 million of the notes were converted into $90 Cumulative
Convertible Preferred Stock.
The 8% Convertible Note payable to an individual is payable quarterly
through September 1996. Beginning October 1996, principal and interest is
payable in equal monthly installments through October 2006. The note is
convertible into Allied common stock at $10.00 per share during the period of
January 1997 to December 1998.
F-16
<PAGE> 98
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt covenants
The Company's Credit Agreement, the indenture relating to the Senior
Subordinated Notes and certain subordinated convertible debt, contain warranties
and covenants, requiring the maintenance of certain tangible net worth, debt to
equity, and cash flow to debt ratios. Additionally, these covenants limit among
other things, the ability of the Company to incur additional secured
indebtedness, make acquisitions and purchase fixed assets above certain amounts,
transfer or sell assets, pay dividends except on certain preferred stock, make
optional payments on certain subordinated indebtedness including the Senior
Subordinated Notes or make certain other restricted payments, create liens,
enter into certain transactions with affiliates or consummate a merger,
consolidation or sale of all or substantially all of its assets. At December 31,
1995, Allied was in compliance with all applicable covenants, except for the
Credit Agreement. Subsequent to December 31, 1995, the Credit Agreement was
amended to eliminate the event of non-compliance existing at year-end.
Substantially all subsidiaries of the Company are jointly and severally
liable for the obligations under the Senior Subordinated Notes and the Credit
Agreement through unconditional guarantees issued by the subsidiaries which are
all, except in one minor case, wholly-owned by the Company. No significant
restrictions exist regarding the ability of the subsidiary companies to pay
dividends or make loans or advances to Allied.
Future maturities of long-term debt
Aggregate future maturities of long-term debt outstanding at December 31,
1995 (in thousands):
<TABLE>
<CAPTION>
MATURITY 1995
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $ 37,580
1997...................................................................... 12,879
1998...................................................................... 48,058
1999...................................................................... 9,646
2000...................................................................... 4,253
Thereafter................................................................ $111,538
--------
$223,954
========
</TABLE>
Future payments under capital leases, the principal amounts of which are
included above in future maturities of long-term debt, are as follows at
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
1995
------------------------------
MATURITY PRINCIPAL INTEREST TOTAL
----------------------------------------------------------- --------- -------- -------
<S> <C> <C> <C>
1996....................................................... $ 8,927 $ 2,711 $11,638
1997....................................................... 7,380 1,914 9,294
1998....................................................... 5,932 1,262 7,194
1999....................................................... 4,530 712 5,242
2000....................................................... 3,173 358 3,531
Thereafter................................................. 2,714 208 2,922
------- ------ -------
$ 32,656 $ 7,165 $39,821
======= ====== =======
</TABLE>
F-17
<PAGE> 99
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCKHOLDERS' EQUITY
The authorized, issued and outstanding shares of the Company's classes of
capital stock were as follows:
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
LIQUIDATION AT DECEMBER 31,
PREFERENCE AUTHORIZED -----------------------
PER SHARE SHARES 1994 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Preferred stock, $.10 par --
Series C Convertible.................. $ 10 800,000 236,000 --
Series D Convertible.................. 15 267,000 156,517 4,000
9% Cumulative Convertible............. 1,000 30,000 27,457 5,029
$90 Cumulative Convertible............ 1,000 20,000 6,354 --
7% Cumulative Convertible............. 1,000 100,000 9,982 9,963
Series E Cumulative Convertible....... 5,000 3,000 3,000 --
Common stock, $.01 par, net of 570,048
treasury shares....................... -- 100,000,000 25,805,179 48,031,528
</TABLE>
Dividends declared and accrued on the Company's classes of preferred stock
were as follows:
<TABLE>
<CAPTION>
DIVIDENDS DECLARED FOR ACCRUED
THE YEARS ENDED DECEMBER DIVIDENDS AT
31, DECEMBER 31,
-------------------------- -------------
1993 1994 1995 1994 1995
---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Series D Convertible....................... $285 $ 202 $ 184 $ 47 $ 41
9% Cumulative Convertible.................. 642 2,464 2,466 409 75
$90 Cumulative Convertible................. -- 526 560 93 --
7% Cumulative Convertible.................. -- 472 698 320 145
Series E Cumulative Convertible............ -- 109 162 109 --
---- ------ ------ ---- ----
$927 $3,773 $4,070 $978 $261
==== ====== ====== ==== ====
</TABLE>
On January 30, 1995, all Series E preferred was converted into common
stock. In December 1995, all of the Series C preferred stock and $90 preferred
stock was converted into common stock.
Series D preferred stock
Series D preferred stock has voting rights and is redeemable at the
Company's option for $15.00 per share plus accrued dividends. The stock is
convertible into five shares of common stock, subject to anti-dilution
provisions, at the option of the holder. Dividends are $1.20 per share per
annum, cumulative and payable quarterly. In December 1995, all but 4,000 shares
of Series D preferred stock was converted into common stock.
9% cumulative convertible preferred stock
In September 1993, Allied sold 27,300 shares of 9% cumulative convertible
preferred stock ("9% preferred") for net proceeds of $24,360,000. The stock has
no voting rights and is redeemable at the option of the Company under certain
conditions. The stock is convertible into common shares at an adjusted rate
equal to $4.77 per common share subject to anti-dilution provisions. Dividends
are $90.00 per share per annum, cumulative and payable quarterly. In connection
with the sale of the 9% preferred, warrants were issued to the Company's
placement agent to purchase 1,750 shares of the Company's 9% preferred stock at
a price of $1,000 per share, convertible into 363,071 common shares. In December
1995, all but 5,029 shares of 9% preferred was converted into common stock, and
all of the warrants issued in connection with the sale of the 9% preferred were
exercised and converted into common stock.
F-18
<PAGE> 100
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7% cumulative convertible preferred stock
In April 1994, Allied issued 9,982 shares of 7% cumulative convertible
stock ("7% preferred") in connection with the acquisition of Southern States
Environmental Services. The stock has no voting rights and is redeemable at the
option of the Company under certain conditions. The stock is convertible into
common stock at a rate equal to $7.00 per common share subject to anti-dilution
provisions. Dividends are $70.00 per share per annum, cumulative and payable
quarterly in common stock through April 15, 1995 and in cash thereafter.
Warrants to purchase common stock
Warrants to purchase common shares at December 31, 1994 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Number of shares.................................... 4,216,573 3,488,010
Purchase price per share............................ $3.00 - $13.50 $3.00 - $13.50
Expiration dates.................................... 1995 - 2003 1996 - 2005
</TABLE>
6. STOCK OPTION PLANS
The 1991 Incentive Stock Plan ("1991 Plan"), the 1993 Incentive Stock Plan
("1993 Plan") and the 1994 Incentive Stock Plan ("1994 Plan") provide for the
grant of non-qualified stock options, incentive stock options, shares of
restricted stock, shares of phantom stock and stock bonuses. The maximum number
of shares which may be granted under the 1991 Plan may not exceed the greater of
750,000 common shares or 7.5% of the number of common shares outstanding at the
end of a preceding fiscal quarter, 2,302,149 shares at December 31, 1995. An
additional 500,000 and 1,000,000 common shares may be granted under the 1993
Plan and the 1994 Plan, respectively. The exercise price, term and other
conditions applicable to each option granted are generally determined by the
Compensation Committee of the Board of Directors.
The 1994 Amended and Restated Non-Employee Director Stock Option Plan
provides for the grant of non-qualified options to each member of the Board of
Directors, who is not also an employee of the Company, at a price equal to the
fair market value of a common share on the date of grant. The maximum number of
shares which may be granted under the plan is 750,000 common shares. All options
granted under the plan are fully vested and exercisable on the date of grant and
expire ten years from the grant date.
F-19
<PAGE> 101
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option transactions under these plans are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Options outstanding, beginning of period................ 1,074,339 1,575,739
Options granted....................................... 528,700 1,493,469
Options exercised..................................... (15,000) (183,606)
Options terminated.................................... (12,300) (36,034)
-------------- --------------
Options outstanding, end of period...................... 1,575,739 2,849,568
============== ==============
Options exercisable, end of period...................... 902,152 1,774,456
Options available for future grants, end of period...... 1,671,120 1,324,199
Total option price of options outstanding, end of
period................................................ $ 8,110,440 $ 14,252,669
Option price range --
Options granted....................................... $3.75-$ 5.25 $4.27-$ 8.38
Options exercised..................................... $4.50-$ 4.88 $3.00-$ 5.25
Options terminated.................................... $4.50-$ 8.50 $4.27-$ 5.25
Options outstanding, end of period.................... $3.00-$11.50 $3.00-$11.50
</TABLE>
7. INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is calculated by dividing net income (loss),
less dividend requirements on preferred stock by the weighted average number of
common shares and common share equivalents outstanding during each period, as
restated, to reflect acquisitions accounted for as poolings-of-interests. The
computation of weighted average common and common equivalent shares used in the
calculation of income (loss) per common share is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Common shares outstanding... 22,410,184 25,805,179 48,031,528 38,397,373 58,466,227
Effect of using weighted
average common shares
outstanding during the
period.................... (181,813) (876,091) (10,428,172) (1,942,126) (2,554,392)
Effect of stock options and
warrants, assumed
exercisable............... -- -- 1,989,556 4,811,965 2,166,106
Effect of Series C preferred
stock, assumed
converted................. 234,820 -- 233,533 234,820 --
Effect of shares assumed
issued pursuant to
earn-out.................. 86,323 99,019 220,014 5,925 795,274
---------- ---------- ---------- ---------- ----------
22,549,514 25,028,107 40,046,459 41,507,957 58,873,215
========== ========== ========== ========== ==========
</TABLE>
Conversion has not been assumed for Series D preferred stock, 9% preferred
stock, 7% preferred stock and convertible subordinated notes for the years ended
December 31, 1993, 1994 or 1995 or the six months ended June 30, 1995 or 1996,
as the effect would not be dilutive. Additionally, conversion has not been
assumed for stock options and warrants and $90 preferred stock for the years
ended December 31, 1993 or 1994, conversion has not been assumed for Series C
preferred stock and Series E preferred stock for the years ended December 31,
1994, nor has conversion been assumed for Series E preferred stock and $90
preferred
F-20
<PAGE> 102
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock for the six months ended June 30, 1995, as the effects would not be
dilutive. Fully diluted earnings per common share have not been presented for
1993 and 1994, as the effect would not be dilutive.
8. INCOME TAXES
The Company accounts for income taxes using a balance sheet approach
whereby deferred tax assets and liabilities are determined based on the
differences in financial reporting and income tax basis of assets, other than
goodwill, and liabilities, and the differences are measured using the income tax
rate in effect in the year of measurement.
The Company and its subsidiaries file a consolidated federal income tax
return. As of December 31, 1995, Allied had a net operating loss carryforward
("NOLC") for federal income tax purposes and state income tax purposes of
approximately $7.2 and $2.3 million, respectively. The NOLCs, which expire
beginning in 2007, are available to offset future taxable income subject to
potential limitations. Included in the NOLCs are losses of acquired companies
which the Company believes are realizable after application of change of
ownership and separate return loss year limitation rules. The Company has placed
a valuation reserve on "other" NOLCs to reflect limitations from separate
Company filing rules. These "other" NOLCs are not included in the amounts above.
The components of the income tax provision (benefit) consist of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------ ------- ------
<S> <C> <C> <C>
Current tax provision................................... $ 411 $ 1,011 $4,724
Deferred provision (benefit)............................ 1,283 (1,700) 5,027
------ ------- ------
Total......................................... $1,694 $ (689) $9,751
====== ======= ======
</TABLE>
Reconciliation of the federal statutory tax rate to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
----- ----- ----
<S> <C> <C> <C>
Federal statutory tax rate................................... 34.0% (34.0)% 35.0%
Consolidated state taxes, net of federal benefit............. 4.5 4.6 5.0
Taxes of pooled companies.................................... (16.6) (4.1) (2.2)
Amortization of goodwill..................................... 17.1 9.3 3.8
Other permanent differences.................................. -- 5.7 2.4
----- ----- ----
Effective tax rate........................................... 39.0% (18.5)% 44.0%
===== ===== ====
</TABLE>
Tax benefits on the extraordinary item in 1994 were based on the Company's
then ordinary combined federal and state rate of 38.5%.
The net current deferred tax asset of $5.1 million and $2.7 million, as of
December 31, 1994 and 1995, respectively, consists of the current benefit
expected to be obtained from the utilization of the Company's NOLCs. These
amounts include a valuation allowance of $1.2 million, as of December 31, 1994
and 1995, to reflect possible limitations on the ability to use NOLCs for
separate company federal and state filing purposes. The decrease in the net
current deferred tax asset is due to a partial utilization of NOLCs in 1995.
F-21
<PAGE> 103
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net long-term deferred tax liability are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax liability relating to property basis differences
primarily consisting of landfill assets...................... $24,463 $28,606
------- -------
Deferred tax assets relating to:
Closure and post-closure reserves............................ 187 99
Other reserves and estimated expenses........................ 1,786 2,858
Alternative minimum tax credit............................... 50 --
------- -------
Deferred tax assets, net..................................... 2,023 2,957
------- -------
Net long-term deferred tax liability........................... $22,440 $25,649
======= =======
</TABLE>
The increase in the long-term deferred tax liability includes deferred
taxes related to 1995 acquisitions where the financial basis of assets acquired
exceeded the tax basis of those assets.
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive and evolving laws and regulations and
has implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of business, the Company provides for closure
and post-closure accruals to comply with applicable governmental regulations.
In the normal course of conducting its operations, Allied may become
involved in certain legal and administrative proceedings. Some of these actions
may result in fines, penalties or judgements against the Company which may have
an impact on earnings for a particular period. Management expects that such
matters in process at December 31, 1995 will not have a material adverse effect
on the Company's consolidated financial position, including its liquidity, or
its results from operations.
Prior to the Company's acquisition of CRX, an investigation of an unrelated
manufacturing facility led to allegations that hazardous wastes were transported
to and disposed of in CRX's Norfolk, Nebraska landfill. In January 1992, the
Nebraska Department of Environmental Quality ("NDEQ"), as agent for EPA,
published a preliminary assessment of the Norfolk landfill. The NDEQ recommended
that the Norfolk landfill be referred to the NDEQ's Waste Recovery Section for
groundwater monitoring and assessment. Subsequently, the Company in cooperation
with the NDEQ agreed on a groundwater monitoring program. The initial tests
indicated organic levels sufficient to warrant continued investigation to define
the groundwater contamination, the area impacted and the action needed, and such
investigation is ongoing. The Company has proposed interim measures to mitigate
and/or control further dispersal of the organics and is awaiting NDEQ approval
of its proposal. A provision of $2.1 million, in excess of the closure and
post-closure reserves recorded in the normal course of business, was made in the
Company's 1994 consolidated financial statements to recognize the estimated
costs of additional closure, post-closure and remedial measures. The Company
does not believes that the ultimate outcome of such action will require a
material increase in the provision recorded in 1994.
A site investigation, including groundwater testing, of the Company's
Fremont, Nebraska landfill was performed in 1987 and 1988 by CRX and NDEQ. At
the conclusion of the investigation and evaluation, the NDEQ determined that
groundwater was not sufficiently impacted to warrant further investigation. In
December 1989, the pre-investigation groundwater monitoring schedule was
resumed. The schedule required annual sampling and analysis of groundwater to
test for the presence of volatile organic compounds. Tests for volatile organic
compounds in December 1990 and quarterly groundwater sampling to date have shown
no parameters exceeding regulatory limits. Although the Company does not believe
additional groundwater monitoring will be required by the NDEQ, a groundwater
monitoring plan has been proposed by the Company and will be implemented in
1995. The costs of implementation are accrued in the accompanying financial
F-22
<PAGE> 104
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements. The Company cannot, at this time, anticipate further actions of the
NDEQ and, as a result, cannot determine if the NDEQ will require the Company to
perform additional actions, if any.
At this time, none of the Company's sites have been listed or proposed for
listing on the National Priorities List, and the Company is not aware of any
action or investigation by the EPA that would subject the Company to cleanup
liability. Sites listed on the National Priorities List are subject to priority
remedial action under the Superfund Program created by Congress as part of
CERCLA. As a consequence of prior investigations, the Fremont and Norfolk
landfills have been identified by the Environmental Protection Agency ("EPA") as
potentially contaminated sites. Before the EPA can place any such sites on the
National Priorities List, pursuant to certain federal government regulations of
sites needing long-term study and remedial action due to their potential effect
on public health or the environment, notice to the public in the Federal
Register and opportunity for public comment is required. The EPA has not
published such notice with respect to either site, and the Company has no reason
to believe, at this time, that such a notice will be published. However, even
absent listing on the National Priorities List, the EPA or the applicable state
agency, may require remedial action or seek cost recovery for remedial or
response work conducted at a contaminated site.
In connection with certain acquisitions, the Company has entered into
agreements to pay royalties based on waste tonnage disposed at specified
landfills. The royalties are payable quarterly and the current amounts due are
included in the accompanying consolidated balance sheets. Additionally, the
Company has entered into a deferred royalty agreement of which the liability may
be converted into an interest bearing note or common shares.
Allied has operating lease agreements for service facilities, office space
and equipment. Future minimum payments under non-cancelable operating leases
with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
1996......................................................... $ 2,684
1997......................................................... 2,416
1998......................................................... 1,937
1999......................................................... 1,239
2000......................................................... 381
Thereafter................................................... 549
</TABLE>
Rental expense under such operating leases was $1,126,000, $1,307,000 and
$2,775,000 for the three years ended December 31, 1995, respectively.
The Company has entered into employment agreements with certain of its
executive officers for periods up to five years. The Company has agreed to
severance pay amounts equal to a multiple of defined compensation under certain
circumstances. In the event of a material change in control or termination of
all executive officers under such agreements, Allied would be required to make
payments of approximately $3.3 million.
Allied carries a broad range of insurance coverage for protection of its
assets and operations from certain risks including environmental impairment
liability insurance for certain of its landfills.
The Company has issued bank letters-of-credit, performance bonds and other
guarantees in the aggregate amount of approximately $53.7 million. These
financial instruments are issued in the normal course of business and are not
reflected in the accompanying balance sheets. Such financial instruments are to
be valued based on the amount of exposure under the instrument and the
likelihood of performance being required. Management does not expect any
material losses to result from these off balance sheet instruments based on
historical results, and therefore, is of the opinion that the fair value of
these instruments is zero.
F-23
<PAGE> 105
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
Transactions with related parties are entered into only upon approval by a
majority of the independent directors of the Company and only upon terms
comparable to or better than those that would be available from unaffiliated
parties.
Allied has previously engaged Sunbelt Capital Management ("Sunbelt"), an
affiliate of a major stockholder, to assist the Company in obtaining sources of
investment capital. Allied paid Sunbelt $90,000 of transaction fees during the
year ended December 31, 1993.
The Company leases certain properties and equipment in Illinois from
related parties resulting from prior year acquisitions. In connection with these
leases, payments of $84,000, $89,000 and $69,000 for the three years ended
December 31, 1995, respectively, were made to officers of the Company.
In connection with certain acquisitions, previous owners are paid an agreed
upon amount not to compete with the Company. Payments of $113,000, $88,000 and
$88,000 were made to officers of the Company for the three years ended December
31, 1995, respectively, related to these non-compete agreements.
In connection with certain acquisitions, previous owners agreed to continue
their existing personal guarantees on assumed indebtedness for a fee. Payments
of $139,000 and $20,000 were made to an officer of the Company for the years
ended December 31, 1993 and 1994, respectively.
A director is a partner in the firm which serves as the Company's principal
legal counsel.
During 1994, the Company purchased real property from an officer for
approximately $1 million. The real property was subsequently exchanged for a
transfer station and a materials recovery facility in the Chicago area
previously owned by an unrelated party. No gain or loss was recognized on the
exchange.
The Company made payments of $191,000 and $254,000 in 1994 and 1995,
respectively, on a life insurance policy for a related party assumed in a 1994
acquisition. A trust of the related party is the beneficiary of the policy.
In connection with the receipt in April 1995 of all permits necessary to
develop a landfill on certain real estate acquired in July 1992, the Company was
obligated to pay $5.6 million to the previous owners of the real estate,
including current stockholders of the Company. In settlement of this obligation,
during the year ended December 31, 1995, the Company paid $924,000 to these
stockholders and has $2.0 million in promissory notes payable to stockholders
outstanding at December 31, 1995.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, an aggregate of 258,644 shares of common
stock were issued upon exercise of warrants for approximately $0.5 million.
Subsequent to December 31, 1995, the Company completed a public offering of
6.5 million shares of common stock at $6.875 per share (the "Public Offering").
In connection therewith, the underwriters exercised, in full, their option to
purchase an additional 1,106,282 shares of common stock to cover over
allotments, bringing the net proceeds after commissions, underwriters costs and
other costs of the Public Offering to approximately $48 million. The net
proceeds from the Public Offering have been used to repay outstanding
indebtedness and for general corporate purposes.
Subsequent to December 31, 1995, the Company purchased eight operating
solid waste businesses for a total of approximately $15.5 million of which
approximately $9.5 million was paid for with approximately 1.3 million shares of
the Company's common stock.
Subsequent to December 31, 1995, the Company paid off approximately $7
million in convertible debt related to acquisitions completed in 1995, releasing
approximately $7 million in related letters-of-credit.
On July 31, 1996, the Company completed a tender offer (the "Tender Offer")
and purchased substantially all of its $100 Million 12% Senior Subordinated
Notes due 2004 (the "Notes") at the redemption price of $1,157.50 per $1,000
note. An extraordinary change to earnings related to the Tender
F-24
<PAGE> 106
ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Offer of approximately $11 million ($18 million before income tax effect) will
be charged to earnings in the third quarter of 1996. The Company also received a
consent from a majority of the holders of the Notes to eliminate all substantive
financial covenants associated with the remaining Notes.
Simultaneous with the redemption and consent, the Company closed a new $300
million revolving credit facility (the "Credit Facility") agented by Credit
Suisse which added 11 new banks to its existing six-bank, $80 million Credit
Agreement. The Credit Facility, subject to certain limitations, provides for
revolving loans up to $300 million based on certain financial ratios of the
Company and for standby letters-of-credit of up to $50 million. The revolving
credit facility may be used to repay existing debt, make acquisitions of solid
waste companies and for general corporate purposes. The letter-of-credit
facility may be used to provide financial assurances of landfill closure and
post-closure obligations. Loans outstanding under the revolving credit facility
are payable in July 1999, whereas letters-of-credit may expire no later than one
year after the maturity date, subject to certain provisions. The Credit Facility
contains a number of covenants that, among other things, require the Company to
maintain certain financial ratios, and limit the Company's ability to make
acquisitions and purchase fixed assets above certain amounts, incur additional
secured indebtedness, transfer or sell assets, create liens, pay dividends
except on certain preferred stock, make optional payments on certain
subordinated indebtedness (including the Senior Subordinated Notes), enter into
certain transactions with affiliates or enter into a merger, consolidation or
sale of substantially all its assets. The Credit Facility is secured by a pledge
of the stock of substantially all of the Company's subsidiaries and a lien on
substantially all of the Company's personal property. Upon execution of the
Credit Facility, the Company had approximately $125 million of additional
borrowings available under the Credit Facility.
In September 1996, Allied entered into a definitive agreement to acquire
the non-hazardous solid waste management business conducted by Laidlaw in the
United States and Canada for consideration to be paid to the Laidlaw Sellers on
the Closing Date comprised of (i) $1,200,000,000 cash, (ii) 14,600,000 shares of
Common Stock, (iii) a 7% Debenture of Allied in the principal amount of
$150,000,000, (iv) a Zero Coupon Debenture of Allied in the principal amount of
$168,300,000, and (v) a Warrant for the purchase of 20,400,000 shares of Common
Stock at an initial exercise price of $8.25 per share.
F-25
<PAGE> 107
PRO FORMA COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined balance sheet gives effect to
the Transactions as if each had occurred on June 30, 1996. The unaudited pro
forma combined statements of operations for the six months ended June 30, 1996
and the year ended December 31, 1995 give effect to (i) the acquisition of
companies accounted for using the purchase method for business combinations
completed in 1995 and 1996, which are considered to be significant, (ii) the
increase in the interest rate on the Notes from 10.75% to 12%, (iii) the
completion of the Transactions contemplated herein, (iv) the issuances of 11.7
million shares of Common Stock in a private placement and the application of the
net proceeds therefrom, (v) the conversion and exercise of certain convertible
securities and warrants into an aggregate of approximately 9.8 million shares of
Common Stock, and (vi) completion of a public offering of 7.6 million shares of
common stock, and the application of the net proceeds therefrom, as if each had
occurred on January 1, 1995.
The pro forma adjustments related to the purchase allocation of the
Transactions are preliminary and do not give effect to an appraisal of the
assets of the Acquired Subsidiaries which Allied intends to obtain at or near
the closing date of the Transactions. The pro forma combined financial
statements do not reflect adjustments for certain cost and expense synergies and
other economic benefits and non-recurring items which are included in
Supplemental Financial Information. These statements do not purport to be
indicative of the combined financial position or combined results of operations
of Allied and the Acquired Subsidiaries that might have occurred, nor are they
indicative of future financial position or results of operations.
The pro forma combined financial statements should be read in conjunction
with the Notes to Pro Forma Combined Financial Statements, the historical
consolidated financial statements of Allied and the notes thereto and the
historical financial statements of the Acquired Subsidiaries and the notes
thereto. See "Allied Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Disclosure Regarding Forward Looking Statements."
F-26
<PAGE> 108
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ACQUIRED RELATED TO
HISTORICAL SUBSIDIARIES ACQUISITIONS
(NOTE 1) (NOTE 2) (NOTE 3) PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 2,435 $ -- $ 1,431,500(a) $ 2,435
(1,231,500)(b)
(200,000)(c)
Other current assets..................... 52,330 124,000 -- 176,330
-------- -------- ----------- ----------
Total current assets........... 54,765 124,000 -- 178,765
Property and equipment, net.............. 330,112 566,560 100,000(d) 996,672
Goodwill, net............................ 88,535 204,877 948,156(e) 1,036,691
(204,877)(f)
Other assets............................. 28,674 22,890 33,500(g) 85,064
-------- -------- ----------- ----------
Total assets................... $ 502,086 $918,327 $ 876,779 $2,297,192
======== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities...................... $ 50,507 $123,186 $ 50,000(h) $ 223,693
Current portion of long-term debt........ 28,746 2,675 -- 31,421
Long-term debt, net of current portion... 177,003 1,895 1,465,000(a) 1,554,645
110,747(i)
(200,000)(c)
Other long-term liabilities.............. 45,311 81,784 10,000(j) 137,095
Stockholders' equity..................... 200,519 708,787 783,279(k) 350,338
149,819(l)
(1,492,066)(m)
-------- -------- ----------- ----------
Total liabilities and equity... $ 502,086 $918,327 $ 876,779 $2,297,192
======== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined balance
sheet.
F-27
<PAGE> 109
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPLETED ACQUIRED RELATED TO FINANCING
HISTORICAL ACQUISITIONS SUBSIDIARIES ACQUISITIONS TRANSACTIONS
(NOTE 1) (NOTE 2) (NOTE 2) (NOTE 3) (NOTE 4) PRO FORMA
---------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 118,958 $1,212 $395,786 $ -- $ -- $ 515,956
Cost of operations........... 65,699 618 273,924 (526)(b) -- 338,788
(927)(c)
Selling, general and
administrative expenses.... 18,464 332 23,602 (2,149)(d) -- 21,625
(6,208)(b)
(12,416)(c)
Depreciation and amortization
expense.................... 15,408 101 48,960 9,496(e) -- 73,965
---------- ------ -------- ------- -------- ----------
Operating income before
pooling costs.............. 19,387 161 49,300 12,730 -- 81,578
Pooling costs................ 6,690 -- -- -- -- 6,690
---------- ------ -------- ------- -------- ----------
Operating income........... 12,697 161 49,300 12,730 -- 74,888
Interest income.............. (142) -- (149) -- -- (291)
Interest expense............. 4,567 -- 232 (3,107)(f) 2,189(c) 73,256
(409)(d)
(7,010)(f)
76,794(g)
---------- ------ -------- ------- -------- ----------
Income from continuing
operations before income
taxes................... 8,272 161 49,217 15,837 (71,564) 1,923
Income taxes................. 4,035 65 19,687 6,335 (28,626) 1,496
---------- ------ -------- ------- -------- ----------
Net income................. 4,237 96 29,530 9,502 (42,938) 427
Preferred dividends.......... (575) -- -- -- (575)
Interest savings on assumed
conversions................ -- -- -- -- -- 2,122
---------- ------ -------- ------- -------- ----------
Net income to common
shareholders............ $ 3,662 $ 96 $ 29,530 $ 9,502 $(42,938) $ 1,974
========== ====== ======== ======= ======== ==========
Net income per common
share...................... $ 0.06 $ 0.02
========== ==========
Weighted average common and
common equivalent shares... 58,873,215 84,264,973
========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined financial
statement.
F-28
<PAGE> 110
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
COMPLETED ACQUIRED RELATED TO FINANCING
HISTORICAL ACQUISITIONS SUBSIDIARIES ACQUISITIONS TRANSACTIONS
(NOTE 1) (NOTE 2) (NOTE 2) (NOTE 3) (NOTE 4) PRO FORMA
---------- ------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 217,544 $9,019 $756,215 $ (207)(a) $ -- $ 982,571
Cost of operations........ 119,238 4,317 522,561 (207)(a) -- 643,003
(1,051)(b)
(1,855)(c)
Selling, general and
administrative
expenses................ 36,708 1,918 57,572 (4,627)(d) -- 54,942
(11,800)(b)
(24,829)(c)
Depreciation and
amortization expense.... 27,279 1,116 91,720 19,189(e) -- 139,304
----------- ------ -------- ------- --------- --------
Operating income before
pooling costs........... 34,319 1,668 84,362 24,973 -- 145,322
Pooling costs............. 1,531 -- -- -- -- 1,531
----------- ------ -------- ------- --------- --------
Operating income........ 32,788 1,668 84,362 24,973 -- 143,791
Interest income........... (716) -- (281) -- -- (997)
Interest expense.......... 11,316 13 416 (8,912)(f) (125)(a) 144,244
393(g) 103(b)
4,379(c)
(4,927)(d)
(12,000)(f)
153,588(g)
Conversion fee on debt
securities converted.... 56 -- -- -- -- 56
----------- ------ -------- ------- --------- --------
Income before taxes..... 22,132 1,655 84,227 33,492 (141,018) 488
Income taxes.............. 9,751 662 33,691 13,397 (56,408) 1,093
----------- ------ -------- ------- --------- --------
Net income.............. 12,381 993 50,536 20,095 (84,610) (605)
Dividends................. (4,070) -- -- -- 2,743(e) (1,327)
Conversion fee on equity
securities converted.... (2,151) -- -- -- -- (2,151)
Interest savings on
assumed conversions..... -- -- -- -- -- 6,583
----------- ------ -------- ------- --------- --------
Net income to common
shareholders......... $ 6,160 $ 993 $ 50,536 $ 20,095 $ (81,867) $ 2,500
=========== ====== ======== ======= ========= ========
Net income per common
share................... $ 0.15 $ 0.03
=========== ========
Weighted average common
and common equivalent
shares.................. 40,046,459 84,581,680
=========== ========
</TABLE>
The accompanying notes are an integral part of this pro forma combined financial
statement.
F-29
<PAGE> 111
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. HISTORICAL
The historical balances represent the financial position and results of
operations of Allied for each of the indicated dates and periods as reported in
the historical consolidated financial statements of Allied included elsewhere in
this Proxy Statement. The historical consolidated financial statements have been
restated to reflect acquisitions accounted for as poolings-of-interests.
2. HISTORICAL AMOUNTS RELATED TO ACQUISITIONS
The amounts related to the Acquired Subsidiaries in the June 30, 1996 pro
forma combined balance sheet represent the historical combined balance sheet of
the Acquired Subsidiaries. The amounts in the pro forma combined statements of
operations represent the results of operations of the companies purchased in
1995 and 1996 ("Completed Acquisitions") and the results of operations of the
Acquired Subsidiaries contemplated in the Transactions, for the period prior to
acquisition date, for each period presented.
The following represents acquisitions included in these pro forma combined
financial statements (collectively referred to as the "Acquisitions").
January 1995 -- Allied acquired Pen-Rob, Inc. ("Pen-Rob") for total
consideration of approximately $1.5 million.
June 1995 -- Allied acquired Illinois Development Corporation ("IDC") for
total consideration of approximately $4.2 million.
September 1995 -- Allied acquired Duckett Disposal, Inc. and Brickyard
Disposal and Recycling, Inc. for total consideration of approximately $14.4
million.
January 1996 -- Allied acquired Service Waste, Inc. for total consideration
of approximately $6.2 million, including approximately 778,000 shares of Common
Stock.
February 1996 -- Allied acquired Clayco Sanitation Company, Inc. for total
consideration of approximately $2.9 million.
September 1996 -- Allied entered into a Stock Purchase Agreement with the
Laidlaw Sellers for total consideration of approximately $1.5 billion. (the
"Acquired Subsidiaries")
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the pro forma combined financial
statements give effect to the following:
PRO FORMA COMBINED BALANCE SHEET
(a) To reflect the completion of a $475 million private placement or
public offering of Senior Subordinated Notes and the funding of $990
million of Senior Financing.
(b) To reflect cash paid in connection with the Acquired Subsidiaries.
(c) To reflect repayment of debt in connection with the refinancings
contemplated in the Transactions.
(d) To reflect the allocation of purchase price to the property and
equipment of the Acquired Subsidiaries to reflect the estimated fair
value of such assets.
(e) To reflect goodwill recorded in connection with the Acquired
Subsidiaries.
(f) To remove goodwill recorded on the books of the Acquired
Subsidiaries.
(g) To reflect commitment fees paid in connection with the Senior
Financing and Senior Subordinated Notes contemplated in the
Transactions.
(h) To accrue for liabilities incurred related to the Acquired
Subsidiaries.
F-30
<PAGE> 112
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(i) To reflect the issuances of the 7% Debenture and the Zero Coupon
Debenture in connection with the Transactions.
(j) To reflect deferred taxes related to the Acquired Subsidiaries.
(k) To reflect investment in subsidiary in connection with the Acquired
Subsidiaries.
(l) To reflect issuances of 14.6 million shares of Common Stock and the
Warrant in connection with the Acquired Subsidiaries.
(m) To reflect elimination of investment in subsidiary in connection
with the Acquired Subsidiaries.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) To eliminate rent expense and rental revenue between Allied and IDC.
(b) To eliminate insurance costs charged to the Acquired Subsidiaries by
the Laidlaw Sellers and reflect insurance charges consistant with
market rates.
(c) To reflect the elimination of certain corporate and division
operating, administrative and sales costs.
(d) To reflect the elimination of a management fee charged to the
Acquired Subsidiaries by the Laidlaw Sellers.
(e) To reflect amortization on the goodwill recorded in connection with
the Acquisitions.
(f) To reflect a reduction of interest expense as a result of
capitalizing interest on landfill development costs in accordance
with the application of SFAS No. 34 to the Acquired Subsidiaries.
(g) To reflect interest expense on debt issued or assumed in connection
with the Acquisitions.
4. FINANCING TRANSACTIONS
In January 1994, the Company sold $100 million of the Notes due February 1,
2004 bearing interest at a rate of 10.75%. Proceeds were used to retire
indebtedness, fund proposed acquisitions, make capital expenditures and provide
working capital. In January 1995, the interest rate on the Notes increased from
10.75% to 12.0%. The pro forma combined financial statements assume that Allied
issued 11.7 million shares of Common Stock on January 1, 1995 in connection with
a private placement of equity which closed on January 31, 1995.
In 1995 and 1996, certain holders of preferred stock, convertible debt and
warrants converted their preferred stock or convertible debt into or exercised
their warrants for, an aggregate of approximately 9.8 million shares of Common
Stock. In addition, Allied completed a public offering of 6.5 million shares of
Common Stock in January 1996.
The adjustments related to the financing transactions reflected in the pro
forma combined financial statements give effect to the following:
(a) To reflect reduction of interest expense resulting from the
repayment of certain indebtedness of Allied from the proceeds of the
private placement of equity completed in 1996.
(b) To reflect the adjustment of interest expense on the Notes from
10.75% to 12%.
(c) To reflect amortization of commitment fees related to the Senior
Subordinated Notes and the Senior Financing contemplated in
connection with the Transactions.
(d) To reflect reduction of interest expense resulting from the
conversion of certain convertible subordinated debt into common
stock and the repayment of certain indebtedness from the
F-31
<PAGE> 113
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
proceeds of the sale of 7.6 million shares of Common Stock in a
public offering completed in 1996.
(e) To reflect reduction of dividends resulting from the conversion of
certain shares of preferred stock into Common Stock.
(f) To reflect the reduction of interest expense resulting from the
repayment of certain indebtedness with the proceeds from the Senior
Financing contemplated in connection with the Transactions.
(g) To reflect interest expense related to the Senior Financing, the
Senior Subordinated Debt, the 7% Debenture and the Zero Coupon
Debentures.
5. INCOME PER SHARE
Pro forma net income per common share is calculated by dividing pro forma
net income to common shareholders less requirements on Series D preferred stock,
7% preferred stock, and 9% preferred stock by the pro forma weighted average
common and common equivalent shares outstanding during the periods. Pro forma
weighted average common and common equivalent shares have been computed as
follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Historical weighted average common shares.......................... 37,823,370 56,707,109
Common stock equivalents --
Stock options and warrants....................................... 1,989,556 2,166,106
Warrants to be issued in connection with the Transactions.......... 11,184,173 9,429,600
Pro forma effect of issuing common shares for --
Service Waste acquired and accounted for as a purchase........... 889,445 151,499
The Acquired Subsidiaries contemplated to be acquired and
accounted for as a purchase................................... 14,600,000 14,600,000
Common shares issued pursuant to a private placement............. 962,433 --
Common shares issued in connection with the public offering...... 7,606,282 961,234
Conversion of convertible subordinated debt into common shares... 1,827,639 260,275
Conversion of Series C Preferred into common shares.............. 233,533 --
Conversion of Series D Preferred into common shares.............. 731,255 --
Conversion of 9% Preferred into common shares and issuances of
inducement conversion shares.................................. 4,859,991 --
Conversion of $90 Preferred into common shares and issuances of
inducement conversion shares.................................. 1,343,374 --
To remove the impact of contingently issuable shares............. (23,244) (23,244)
Exercise of warrants............................................. 553,873 12,394
---------- ----------
84,581,680 84,264,973
========== ==========
</TABLE>
F-32
<PAGE> 114
AUDITORS' REPORT TO THE DIRECTORS OF LAIDLAW INC.
September 30, 1996
We have audited the balance sheet of the Laidlaw Solid Waste Management
Group (as defined in Note 1) as at August 31, 1996 and 1995 and the statements
of operations and cash flows for the years ended August 31, 1996, 1995 and 1994.
These financial statements are the responsibility of the management of Laidlaw
Inc. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Laidlaw Solid Waste Management Group as
at August 31, 1996 and 1995 and the results of its operations and cash flows for
the years ended August 31, 1996, 1995 and 1994 in accordance with United States
generally accepted accounting principles.
Chartered Accountants
Hamilton, Canada
F-33
<PAGE> 115
LAIDLAW SOLID WASTE MANAGEMENT GROUP
BALANCE SHEETS AS AT AUGUST 31, 1996 AND 1995
(U.S. $000'S)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Trade and other accounts receivable (net of allowance for doubtful
accounts of $1,224; August 31, 1995 -- $1,182).................... $ 102,966 $ 95,124
Inventories......................................................... 8,008 7,592
Other current assets................................................ 13,026 14,382
---------- ----------
124,000 117,098
---------- ----------
Fixed Assets
Land, landfill sites and improvements............................... 460,051 443,721
Buildings........................................................... 73,261 64,414
Vehicles and other.................................................. 624,172 589,335
---------- ----------
1,157,484 1,097,470
Less: Accumulated depreciation and amortization..................... 590,924 527,602
---------- ----------
566,560 569,868
---------- ----------
Other Assets
Goodwill (net of accumulated amortization of $42,549; August 31,
1995 -- $37,825).................................................. 204,877 176,239
Deferred charges.................................................... 15,407 3,180
Other............................................................... 7,483 7,508
---------- ----------
227,767 186,927
---------- ----------
$ 918,327 $ 873,893
========== ==========
LIABILITIES
Current Liabilities
Accounts payable.................................................... $ 66,407 $ 78,212
Accrued liabilities................................................. 56,779 62,296
Current portion of long-term debt (Note 3).......................... 2,675 2,256
---------- ----------
125,861 142,764
Long-Term Debt (Note 3)............................................. 1,895 2,821
Environmental and Other Long-Term Liabilities (Note 4).............. 81,784 86,371
---------- ----------
209,540 231,956
---------- ----------
Commitments and Contingencies (Note 5)
Net Investment by Laidlaw Inc. ..................................... 708,787 641,937
---------- ----------
$ 918,327 $ 873,893
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-34
<PAGE> 116
LAIDLAW SOLID WASTE MANAGEMENT GROUP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
(U.S. $000'S)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue.................................................... $763,534 $753,432 $714,765
-------- -------- --------
Operating expenses (Note 6)................................ 532,327 512,418 492,570
Selling, general and administrative expenses (Note 6)...... 50,362 59,541 56,851
Depreciation and amortization.............................. 95,440 90,215 92,286
-------- -------- --------
Income From Operations..................................... 85,405 91,258 73,058
Interest expense........................................... (464) (367) (876)
Interest, dividend and other income........................ 298 264 91
-------- -------- --------
Income Before Income Taxes (Note 1)........................ $ 85,239 $ 91,155 $ 72,273
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements
F-35
<PAGE> 117
LAIDLAW SOLID WASTE MANAGEMENT GROUP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
(U.S. $000'S)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net Cash Provided By (Used In):
Operating activities.................................. $ 152,741 $ 196,695 $ 194,048
Investing activities.................................. (131,272) (117,700) (55,743)
Financing activities.................................. (21,469) (78,995) (138,305)
-------- --------- ---------
$ -- $ -- $ --
======== ========= =========
Operating Activities
Income before income taxes for the year................. $ 85,239 $ 91,155 $ 72,273
Items not affecting cash:
Depreciation and amortization......................... 95,440 90,215 92,286
Other................................................. (5,431) 8,036 9,182
-------- --------- ---------
Cash Provided By Operating Activities Before Financing
Working Capital....................................... 175,248 189,406 173,741
Cash provided by (used in) financing working capital:
Trade and other accounts receivable................... (7,842) (3,958) (1,825)
Inventories........................................... (416) (500) (279)
Other current assets.................................. 1,356 (4,042) 4,445
Accounts payable and accrued liabilities.............. (15,605) 15,789 17,966
-------- --------- ---------
Net Cash Provided By Operating Activities............... $ 152,741 $ 196,695 $ 194,048
======== ========= =========
Investing Activities
Purchase of fixed assets................................ $ (79,572) $(103,257) $ (60,467)
Proceeds from sale of fixed and other assets............ 3,893 4,587 6,779
Purchase of other assets................................ (6,392) -- (187)
Expended on acquisitions (Note 7)....................... (49,226) (14,255) (2,213)
Net (increase) decrease in long-term investments........ 25 (4,775) 345
-------- --------- ---------
Net Cash Used in Investing Activities................... $(131,272) $(117,700) $ (55,743)
======== ========= =========
Financing Activities
Repayment of long-term debt............................. $ (507) $ (2,655) $ (3,430)
Net change in investment by Laidlaw Inc. ............... (20,962) (76,340) (134,875)
-------- --------- ---------
Net Cash Used in Financing Activities................... $ (21,469) $ (78,995) $(138,305)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements
F-36
<PAGE> 118
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
(U.S. $000'S)
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
Under the terms of a Stock Purchase Agreement dated September 17, 1996 (the
"Agreement") among Allied Waste Industries, Inc. ("Allied") and certain
affiliates of Allied, and Laidlaw Inc. ("Laidlaw") and certain affiliates of
Laidlaw, Allied has offered to purchase the solid waste management business of
Laidlaw (the "Laidlaw Solid Waste Management Group" or the "Group"). The Group
provides solid waste collection, compaction, disposal, recycling, resource
recovery, transportation and transfer services to commercial, industrial and
residential customers in the United States and Canada. Laidlaw conducts this
solid waste management business directly or indirectly through its subsidiaries,
Laidlaw Waste Systems, Inc., Laidlaw Waste Systems (Canada) Ltd. and Laidlaw
Medical Services Ltd.
The Agreement provides that all assets and liabilities associated with
Laidlaw's solid waste management business are being sold with the exception of
income tax assets and liabilities arising prior to the date of sale and any
intercompany investments, advances and loans. The Agreement specifies that any
income tax liabilities and any income tax assets arising prior to the date of
sale are the responsibility or benefit of Laidlaw. All intercompany investments
are to be transferred to Laidlaw prior to closing, and all intercompany advances
and loans are to be repaid to Laidlaw and its affiliates prior to closing.
These special purpose financial statements give effect to the combination
of the operations constituting the Laidlaw Solid Waste Management Group, and the
exclusion of those assets and liabilities that will not be transferred from
Laidlaw to Allied under the terms of the Agreement. Accordingly, income tax
provisions and interest on intercompany loans and advances have been excluded
from the Group's statements of operations. Current and deferred income taxes
receivable and payable, and intercompany loans and advances have been excluded
from the balance sheets.
The surplus funds of the Group are regularly transferred to Laidlaw, and
any financing requirements are provided by Laidlaw. Accordingly, no cash or bank
indebtedness balances are reported in these financial statements.
A statement of stockholders' equity has not been provided as it would be
inconsistent with the basis of presentation described above.
Except for the exclusions described in the preceding paragraphs, these
financial statements have been prepared in accordance with United States
generally accepted accounting principles.
As these financial statements have not been prepared for general purposes,
users may require additional information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses, and disclosure of contingencies. Future events could alter such
estimates in the near term.
A summary of significant accounting policies followed in the preparation of
these financial statements is as follows:
(a) Inventories
Inventories are valued at the lower of cost, determined on a first-in,
first-out basis, and replacement cost.
F-37
<PAGE> 119
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Fixed assets
Landfill sites, preparation costs, and improvements are recorded at cost
and amortized on the basis of landfill capacity utilized during the year.
Depreciation and amortization of other property and equipment is provided
substantially on a straight-line basis over their estimated useful lives which
are as follows:
<TABLE>
<S> <C>
Buildings..................................................... 20 to 40 years
Vehicles and other............................................ 5 to 15 years
</TABLE>
Management periodically reviews the carrying values of its fixed assets to
determine whether such values are recoverable. Any resulting write downs are
charged against income.
(c) Other assets
Goodwill is amortized on a straight-line basis over forty years. The Group
reviews the value assigned to goodwill to determine if its recoverability has
been impaired by conditions affecting the Group. The amount of any impairment is
charged against income.
Deferred charges are amortized on a straight-line basis over a two to nine
year period depending on the nature of the deferred costs.
(d) Environmental liabilities
Environmental liabilities include accruals for costs associated with
closure and post-closure monitoring and maintenance of the Group's landfills,
remediation at certain of the Group's facilities and corrective actions at
Superfund sites. The Group accrues for closure and post-closure costs over the
life of the landfill site as airspace is consumed.
(e) Foreign currency translation
The Group's Canadian operations are all of a self-sustaining nature. The
accounts are translated to U.S. dollars on the following basis:
Assets and liabilities at the exchange rate in effect at the balance
sheet date and revenue and expenses at weighted monthly average exchange
rates for the year.
(f) Financial instruments
The Group's accounts receivable, accounts payable and long-term debt
constitute financial instruments. Based on available market information, the
carrying value of these instruments approximates their fair value as at August
31, 1996 and 1995. Concentrations of credit risk in accounts receivable are
limited, due to the large number of customers comprising the Group's customer
base throughout North America. The Group performs ongoing credit evaluations of
its customers, but does not require collateral to support customer accounts
receivable. Management establishes an allowance for doubtful accounts based on
the credit risk applicable to particular customers, historical trends and other
relevant information.
F-38
<PAGE> 120
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Notes due at various dates from 1997 to 2002 with interest rates from
5% to 10%.......................................................... $4,531 $4,961
Capital leases payable, due in 1997 with interest rates of 10%....... 39 116
------ ------
4,570 5,077
Less: Current portion................................................ 2,675 2,256
------ ------
$1,895 $2,821
====== ======
</TABLE>
The aggregate amount of minimum payments required on long-term debt in each
of the years indicated is as follows:
<TABLE>
<S> <C> <C>
Year ending August 31, 1997.......................................... $2,675
1998....................................... 846
1999....................................... 293
2000....................................... 111
2001....................................... 569
Thereafter................................. 76
------
$4,570
======
</TABLE>
4. ENVIRONMENTAL LIABILITIES
The Group has recorded liabilities for closure and post-closure monitoring
and environmental remediation costs as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Current portion of environmental liabilities, included in
accrued liabilities........................................... $22,461 $ 23,530
Non-current portion of environmental liabilities................ 76,240 79,888
------- --------
$98,701 $103,418
======= ========
</TABLE>
The Group, in the normal course of its business, expends funds for
environmental protection and remediation, but does not expect these expenditures
to have a materially adverse effect on its financial condition or results of
operations, since its business is based upon compliance with environmental laws
and regulations and its services are priced accordingly.
Closure and post-closure monitoring and maintenance costs for U.S.
landfills are estimated based on the technical requirements of the Subtitle D
Regulations of the U.S. Environmental Protection Agency or the applicable state
requirements, whichever are stricter, and the air emissions standards under the
Clean Air Act, and include such items as final capping of the site, methane gas
and leachate management, groundwater monitoring, and operation and maintenance
costs to be incurred during the period after the facility closes and ceases to
accept waste. Closure and post-closure costs for the Group's landfills in Canada
are based upon the local landfill regulations governing the facility.
The Group has also established procedures to routinely evaluate potential
remedial liabilities at sites which it owns or operated, or to which it
transported waste, including 14 sites listed on the Superfund National Priority
List (NPL). In the majority of situations, the Group's connection with NPL sites
relates to allegations that its companies (or their predecessors) transported
waste to the facilities in question, often prior to the acquisition of such
companies by the Group. The Group routinely reviews and evaluates sites
requiring
F-39
<PAGE> 121
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
remediation, including NPL sites, giving consideration to the nature (i.e.
owner, operator, transporter or generator), and the extent (i.e. amount and
nature of waste hauled to the location, number of years of site operation by the
Group, or other relevant factors) of the Group's alleged connection with the
site, the accuracy and strength of evidence connecting the Group to the
location, the number, connection and financial ability of other named and
unnamed potentially responsible parties and the nature and estimated cost of the
likely remedy. Where the Group concludes that it is probable that a liability
has been incurred, provision is made in the financial statements, based upon
management's judgement and prior experience, for the Group's best estimate of
the liability. Such estimates are subsequently revised as deemed necessary as
additional information becomes available.
Estimates of the extent of the Group'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. The ultimate
outcome of these items may differ from current estimates. Management believes
that its extensive experience in the environmental services business provides a
reasonable basis for making its estimates. However, these estimates may include
a range of possible outcomes. In such cases, management provides for the amount
within the range that constitutes its best estimate. It is less than likely but
more than remotely possible that the Group's potential liability could be at the
high end of such ranges, which would be approximately $15 million in the
aggregate higher than the estimates that have been recorded in these financial
statements. While the Group does not currently anticipate that any adjustment to
its estimates would be material to its financial statements, it is reasonably
possible that technological, regulatory or enforcement developments, the results
of environmental studies or other factors could necessitate the recording of
additional liabilities that could be material. The impact of such future events
cannot be estimated at the current time.
Where the Group 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 discounted to present value at 5%. Had the Group not
discounted any portion of its liability, the amount recorded would have been
increased by approximately $107 million at August 31, 1996 (1995 -- $99
million).
The majority of the Group's active landfill sites have estimated remaining
lives ranging from 2 to approximately 88 years based upon current site plans and
anticipated annual volumes of waste. As at August 31, 1996, the Group estimates
that during this remaining site life, it will provide for an additional $254
million (1995 -- $247 million) of closure and post-closure costs, including
accretion for the discount recognized to date. The change in the expected
aggregate undiscounted amount from 1995 to 1996 results primarily from changes
in available airspace.
Anticipated payments of environmental liabilities for each of the next five
years and thereafter are as follows:
<TABLE>
<S> <C>
Year ending August 31, 1997............................................... $ 22,461
1998............................................ 11,396
1999............................................ 14,320
2000............................................ 12,049
2001............................................ 12,276
Thereafter...................................... 280,286
--------
$352,788
========
</TABLE>
F-40
<PAGE> 122
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
(a) Lease commitments
Rental expense incurred under operating leases amounted to $8,968, $7,609
and $9,778 in the years ended August 31, 1996, 1995, and 1994 respectively.
Rentals payable under operating leases for premises and equipment are as
follows:
<TABLE>
<S> <C>
Year ending August 31, 1997........................................ $ 8,365
1998..................................... 4,896
1999..................................... 4,524
2000..................................... 4,009
2001..................................... 3,329
Thereafter............................... 20,063
-------
$45,186
=======
</TABLE>
(b) Legal proceedings
The Group is subject to extensive and evolving laws and regulations and has
implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of business, the Group provides for closure
and post-closure accruals to comply with all governmental regulations.
In the normal course of conducting its operations, the Group may become
involved in certain legal and administrative proceedings. Some of these actions
may result in fines, penalties or judgments against the Group which may have an
impact on the financial results for a particular period. Management expects that
such matters in process at August 31, 1996 will not have a materially adverse
effect on this Group's financial position or its results from operations.
(c) Letters of credit and guarantees
At August 31, 1996, the Group had $24,341 (1995 -- $41,101) in outstanding
letters of credit, of which the most significant are in support of the Group's
undertakings in respect of landfill closure and post-closure activities required
in obtaining regulatory operating permits. In addition, Laidlaw and its
affiliates have provided financial assurances, guarantees and additional letters
of credit in the aggregate amount of approximately $180 million for closure and
post-closure activities and bid bonds.
6. RELATED PARTY TRANSACTIONS
Included in operating expenses and selling, general and administrative
expenses are management fees, insurance premiums and rental charges paid to
affiliated companies as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Management fees............................... $ 4,297 $ 4,957 $ 6,862
====== ====== ======
Insurance premiums............................ $18,335 $17,098 $19,127
====== ====== ======
Rental charges................................ $ 198 $ 196 $ 199
====== ====== ======
</TABLE>
F-41
<PAGE> 123
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. ACQUISITIONS
A summary of the Group's acquisitions of solid waste management companies
in the periods indicated is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Assets acquired -- at fair value:
Fixed assets......................................... $11,906 $ 8,271 $ 715
Goodwill............................................. 37,056 6,960 1,553
Long-term investments and other assets............... 6,606 -- --
------ ------ ------
55,568 15,231 2,268
Long-term liabilities assumed.......................... 8,155 794 55
Working capital........................................ 1,813 (182) --
------ ------ ------
Expended on acquisitions............................... $49,226 $14,255 $2,213
====== ====== ======
Number of businesses acquired.......................... 9 11 7
====== ====== ======
Annualized revenue acquired............................ $41,000 $15,000 $4,000
====== ====== ======
</TABLE>
Pro forma data (unaudited)
Condensed pro forma statements of operations data, as if acquisitions each
year had occurred at the beginning of the previous year, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statements of Operations Data:
Revenue.......................................... $776,658 $805,202 $731,357
Income from operations........................... $ 87,019 $ 97,833 $ 74,794
</TABLE>
8. SEGMENTED GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
United States:
Revenue.......................................... $493,681 $484,858 $452,644
Income from operations........................... $ 60,420 $ 50,334 $ 34,514
Total identifiable assets........................ $578,542 $575,826 $554,498
Canada:
Revenue.......................................... $269,853 $268,574 $262,121
Income from operations........................... $ 24,985 $ 40,924 $ 38,544
Total identifiable assets........................ $339,785 $298,067 $280,177
</TABLE>
F-42
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheet of PEN-ROB, INC. (an Arizona
corporation) as of December 31, 1994, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 presents fairly, in
all material respects, the financial position of Pen-Rob, Inc. as of December
31, 1994, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 7, 1995.
F-43
<PAGE> 125
PEN-ROB, INC.
BALANCE SHEET
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2).............................................. $148,088
Certificate of deposit.......................................................... 9,960
Accounts receivable, net of allowance for doubtful accounts of $83,000.......... 341,794
Employee advances and other..................................................... 37,902
--------
Total current assets.................................................... 537,744
--------
PROPERTY AND EQUIPMENT, at cost (Note 2):
Landfill........................................................................ 794,178
Machinery and equipment......................................................... 333,738
Furniture and fixtures.......................................................... 17,606
--------
1,145,522
Less: Accumulated depreciation.................................................. (853,314)
--------
292,208
--------
$829,952
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 23,635
Accrued liabilities and other................................................... 87,885
Current portion of notes payable (Note 3)....................................... 25,152
Current portion of note payable to related party (Note 3)....................... 10,399
--------
Total current liabilities............................................... 147,071
--------
NOTES PAYABLE, less current portion (Note 3)...................................... 48,546
--------
NOTE PAYABLE TO RELATED PARTY, less current portion (Note 3)...................... 12,388
ACCRUED CLOSURE AND POST-CLOSURE COSTS (Note 2)................................... 185,000
--------
Total liabilities....................................................... 393,005
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized, 300 shares issued and
outstanding.................................................................. 9,200
Retained earnings............................................................... 427,747
--------
Total stockholders' equity.............................................. 436,947
--------
$829,952
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-44
<PAGE> 126
PEN-ROB, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
REVENUES......................................................................... $1,399,387
COST OF OPERATIONS............................................................... 572,975
------------
Gross profit........................................................... 826,412
GENERAL AND ADMINISTRATIVE EXPENSES.............................................. 446,011
------------
Income from operations................................................. 380,401
OTHER INCOME (EXPENSE):
Interest income................................................................ 2,764
Interest expense............................................................... (8,782)
------------
NET INCOME....................................................................... $ 374,383
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-45
<PAGE> 127
PEN-ROB, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
--------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......................... 300 $9,200 $ 233,364 $ 242,564
Net income......................................... -- -- 374,383 374,383
Stockholder distributions.......................... -- -- (180,000) (180,000)
--- ------ --------- ---------
BALANCE AT DECEMBER 31, 1994......................... 300 $9,200 $ 427,747 $ 436,947
=== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-46
<PAGE> 128
PEN-ROB, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 374,383
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization............................................... 201,486
Increase in accounts receivable............................................. (193,133)
Increase in employee advances and other..................................... (33,756)
Increase in accounts payable................................................ 12,221
Increase in accrued liabilities............................................. 80,741
Increase in accrued closure and post-closure costs.......................... 32,000
---------
Net cash provided by operating activities.............................. 473,942
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................... (215,921)
---------
Net cash used in investing activities.................................. (215,921)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder distributions...................................................... (180,000)
Repayment of long-term debt.................................................... (29,982)
---------
Net cash used in financing activities.................................. (209,982)
---------
NET INCREASE IN CASH............................................................. 48,039
CASH AND CASH EQUIVALENTS, beginning of year..................................... 100,049
---------
CASH AND CASH EQUIVALENTS, end of year........................................... $ 148,088
=========
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Interest paid.................................................................. $ 8,782
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-47
<PAGE> 129
PEN-ROB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) NATURE OF OPERATIONS:
Pen-Rob, Inc. (the Company) was incorporated under the laws of the State of
Arizona in February 1988 and owns and operates a landfill operation in Joseph
City, Arizona.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in high
credit quality institutions. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the Company's
customer base. The Company provides services to waste industry customers in the
Southwestern region of the United States and performs initial and ongoing credit
evaluations of its customer's financial condition, but does not require
collateral to support customer receivables. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Revenue Recognition
The Company recognizes revenue as services are provided.
Property and Equipment
Property and equipment are recorded at cost, which includes the
construction of major capital additions during the development phase, primarily
the landfill. Management periodically reviews the realizability of its
investment in the operating landfill. The cost of landfill airspace, including
original acquisition cost and incurred and projected landfill preparation costs,
is amortized based on accepted tonnage as landfill airspace is consumed.
Depreciation on property and equipment other than the landfill is provided on
the straight-line method over the estimated lives of the assets (5-7 years).
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives are charged to expense as incurred. For the year ended
December 31, 1994, maintenance and repair expenses charged to cost of operations
were approximately $38,000.
Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligations associated with closure and post-closure
monitoring of the Company's solid waste landfill. Specific closure and
post-closure engineering cost estimates are prepared annually for the
landfill.Estimated costs are accrued based on accepted tonnage as landfill
airspace is consumed. The Company periodically updates its estimate of future
closure and post-closure costs. The impact of changes determined to be charges
in estimates are accounted for on a prospective basis.
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
passing time. The Company's current estimate of total future payments for
closure and post-closure
F-48
<PAGE> 130
PEN-ROB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
is $2,124,118, as described below, while the present value of such estimate is
$691,851. At December 31, 1994, the accrual for landfill closure and
post-closure costs was approximately $185,000. The accrual reflects the fact
that the landfill is early into the expected life of approximately 90 years.
The Company's current estimate of total future payments for closure and
post-closure liabilities is as follows:
<TABLE>
<S> <C>
1995..................................................................... $ 218,052
1996..................................................................... 34,172
1997..................................................................... 37,046
1998..................................................................... 41,697
1999..................................................................... 44,666
Thereafter............................................................... 1,748,485
----------
$2,124,118
==========
</TABLE>
(3) NOTES PAYABLE:
Notes payable to unrelated parties consist of the following as of December
31, 1994:
<TABLE>
<S> <C>
Obligations under capital leases of equipment, weighted average interest at
13 percent, payable monthly through 1997................................. 73,698
Less: Current maturities................................................... 25,152
-------
$48,546
=======
</TABLE>
Note payable to related party as of December 31, 1994:
<TABLE>
<S> <C>
Penrod Partnership, interest at 12 percent, principal and interest payable
monthly through 1996 and secured by land................................. $22,787
Less: Current maturities................................................... 10,399
-------
$12,388
=======
</TABLE>
Future Payments Under Capital Leases
Future payments under capital leases, the principal amounts of which are
included above in notes payable to unrelated parties at December 31, 1994, are
as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
--------- -------- -------
<S> <C> <C> <C>
1995.................................................. $ 25,152 $ 9,580 $34,732
1996.................................................. 33,181 6,310 39,491
1997.................................................. 15,365 1,997 17,362
--------- -------- -------
$ 73,698 $ 17,887 $91,585
======= ======= =======
</TABLE>
(4) INCOME TAXES:
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code. Under these provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the individual stockholders are liable for
income taxes on their respective shares of the Company's taxable income.
F-49
<PAGE> 131
PEN-ROB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) RELATED PARTY TRANSACTIONS:
The Company rents office space on a month-to-month basis from one of its
stockholders. Rents paid to the stockholder totaled $5,803 during the year ended
December 31, 1994.
(6) SUBSEQUENT EVENT:
Effective January 1, 1995, Pen-Rob sold all of its stock to Allied Waste
Industries, Inc. for consideration of approximately $1.5 million.
F-50
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheet of ILLINOIS DEVELOPMENT
CORPORATION (an Illinois corporation) as of December 31, 1994, and the related
statements of operations, stockholders' equity, and cash flows for the period
from inception (September 26, 1994) to December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial position of Illinois Development
Corporation as of December 31, 1994, and the results of its operations and its
cash flows for the period from September 26, 1994 to December 31, 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 8, 1995.
F-51
<PAGE> 133
ILLINOIS DEVELOPMENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1994 AND MAY 31, 1995
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------ MAY 31,
1995
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 47,543 $ 5,923
Accounts receivable.............................................. 175,440 175,440
---------- ----------
Total current assets..................................... 222,983 181,363
PROPERTY AND EQUIPMENT, at cost:
Land............................................................. 180,000 180,000
Buildings........................................................ 320,000 320,000
Machinery and equipment.......................................... 1,918,300 1,918,300
---------- ----------
2,418,300 2,418,300
Less -- Accumulated depreciation................................. (97,712) (260,788)
---------- ----------
2,320,588 2,157,512
OTHER ASSETS, net.................................................. 1,556,700 1,515,032
---------- ----------
$4,100,271 $ 3,853,907
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deferred revenue................................................. $ 249,913 $ --
Accrued liabilities.............................................. 20,977 20,977
---------- ----------
Total liabilities........................................ 270,890 20,977
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 10,000 shares authorized,
4,000 issued and outstanding.................................. 4,000,000 4,000,000
Accumulated deficit.............................................. (170,619) (167,070)
---------- ----------
Total stockholders' equity............................... 3,829,381 3,832,930
---------- ----------
$4,100,271 $ 3,853,907
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-52
<PAGE> 134
ILLINOIS DEVELOPMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 26, 1994)
TO DECEMBER 31, 1994
AND THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
MAY 31,
1995
DECEMBER 31, -----------
1994
------------ (UNAUDITED)
<S> <C> <C>
REVENUE:
Rental revenue.................................................... $131,444 $ 229,998
Lease origination revenue......................................... 68,860 206,880
-------- --------
Total revenue............................................. 200,304 436,878
DEPRECIATION........................................................ 97,712 163,076
AMORTIZATION AND OTHER EXPENSE...................................... 46,244 41,775
-------- --------
Total expenses............................................ 143,956 204,851
NET INCOME.......................................................... $ 56,348 $ 232,027
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE> 135
ILLINOIS DEVELOPMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 26, 1994)
TO DECEMBER 31, 1994
AND THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE at September 26, 1994................ 4,000 $4,000,000 $ -- $4,000,000
Net income................................. -- -- 56,348 56,348
Distributions.............................. -- -- (226,967) (226,967)
------ ------ ---------- ---------
BALANCE at December 31, 1994................. 4,000 $4,000,000 $(170,619) $3,829,381
Net income (Unaudited)..................... -- -- 232,027 232,027
Distributions (Unaudited).................. -- -- (228,478) (228,478)
------ ------ ---------- ---------
BALANCE at May 31, 1995
(Unaudited)................................ 4,000 $4,000,000 $(167,070) $3,832,930
====== ====== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-54
<PAGE> 136
ILLINOIS DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 26, 1994)
TO DECEMBER 31, 1994
AND THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
MAY 31,
1995
DECEMBER 31, -----------
1994
------------ (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 56,348 $ 232,027
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization expense......................... 122,712 204,744
Increase (decrease) in deferred revenue....................... 249,913 (249,913)
Increase in accounts receivable............................... (175,440) --
Increase in other assets...................................... (1,581,700) --
Increase in accrued liabilities............................... 20,977 --
----------- ---------
Net cash provided by (used in) operating activities...... (1,307,190) 186,858
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (2,418,300) --
----------- ---------
Net cash used in investing activities.................... (2,418,300) --
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend distributions........................................... (226,967) (228,478)
Capital contributions............................................ 4,000,000 --
----------- ---------
Net cash provided by (used in) financing activities...... 3,773,033 (228,478)
----------- ---------
NET INCREASE (DECREASE) IN CASH.................................... 47,543 (41,620)
CASH, September 26, 1994 (inception), beginning of year,
respectively..................................................... -- 47,543
----------- ---------
CASH, end of year.................................................. $ 47,543 $ 5,923
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 137
ILLINOIS DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) ORGANIZATION:
Illinois Development Corporation ("IDC" or the "Company") was incorporated under
the laws of the State of Illinois on September 26, 1994. The Company's assets
were purchased from Groen Waste Services ("Groen") upon original capitalization.
Subsequent to the formation of IDC, Allied Waste Industries, Inc. ("Allied")
acquired Groen and entered into an operating lease agreement with IDC to lease
the property and equipment used for non-hazardous waste transfer and recycling
services in the Chicago metropolitan market.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over 40 years for buildings and 5 years for machinery and equipment.
Other Assets
Other assets includes a lifetime transfer station operating permit issued by the
Illinois Environmental Protection Agency that is used to operate a transfer
station facility. The facility handles general solid waste excluding special and
hazardous waste. Amortization of $25,000 and $41,668 (unaudited) was recorded
for the period from inception to December 31, 1994, and for the five months
ended May 31, 1995, respectively. Accumulated amortization was $25,000 and
$66,668 (unaudited) at December 31, 1994 and May 31, 1995, respectively.
Revenue Recognition
Revenue is recognized from lease payments in the period in which the service is
provided. Fees associated with the origination of the lease are recognized
ratable over the term of the lease. Upon cancellation of the lease due to the
sale of the Company to Allied (see Note 4), IDC recognized the remaining
deferred origination revenue in accordance with Statement of Financial
Accounting Standards No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring loans and Initial Costs of Leases".
Income Taxes
IDC has elected S Corporation status under the Internal Revenue Code. Therefore,
the tax effects of IDC's operations will be reflected in the individual tax
returns of the shareholders.
Concentration of Credit Risk
Financial instruments which subject the Company to concentration of credit risk,
consist principally of trade receivables which are concentrated with one
customer, Allied. As of December 31, 1994 and May 31, 1995, the Company had
uncollateralized receivables from Allied approximating $175,000. During 1994 and
the five months ended May 31, 1995, 100% of the Company's revenues were
generated from Allied. The Company performs initial and ongoing credit
evaluations of its customer's financial condition but does not require
collateral to support customer receivables. See subsequent event in Note 4
regarding the sale of the Company to Allied.
Interim Financial Information
In management's opinion, the financial statements for the five-month period
ended May 31, 1995, include all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows as of and for the period then ended.
F-56
<PAGE> 138
ILLINOIS DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(3) COMMITMENTS AND CONTINGENCIES:
Lease Commitment
The Company has entered into a one-year operating lease agreement with Allied
for the rental of certain property and equipment.
(4) SUBSEQUENT EVENT:
Effective June 1, 1995, IDC sold all of its net assets to Allied for
approximately $4.2 million.
F-57
<PAGE> 139
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying statement of net assets to be sold of
DUCKETT DISPOSAL, INC. (an Illinois corporation) as of December 31, 1994, and
the related statement of operating revenues and expenses for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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.
The accompanying statements have been prepared pursuant to the letter of
intent as described in Note 1 between Duckett Disposal, Inc. and Allied Waste
Industries, Inc. dated July 31, 1995, and are not intended to be a complete
presentation of the entity's financial position or results of operations in
conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets to be sold of Duckett Disposal, Inc. as
of December 31, 1994, and the operating revenues and expenses for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 10, 1995.
F-58
<PAGE> 140
DUCKETT DISPOSAL, INC.
STATEMENTS OF NET ASSETS TO BE SOLD
DECEMBER 31, 1994 AND JUNE 30, 1995
<TABLE>
<CAPTION>
1995
1994 -----------
---------- (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)............................... $ 28,654 $ 48,788
Accounts receivable, less allowance for doubtful accounts of
$29,900....................................................... 207,761 247,666
Prepaid expenses and other....................................... 4,654 28,712
---------- ----------
Total current assets..................................... 241,069 325,166
---------- ----------
PROPERTY AND EQUIPMENT, at cost (Note 3)........................... 1,891,599 1,915,232
Less -- Accumulated depreciation................................. (925,441) (1,009,597)
---------- ----------
966,158 905,635
---------- ----------
Total Assets............................................. 1,207,227 1,230,801
---------- ----------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable................................................. 45,486 117,184
Accrued expenses................................................. 39,981 23,084
Current portion of notes payable (Note 4)........................ 130,000 40,073
Notes payable to stockholder (Note 5)............................ 49,335 47,650
Unearned revenue................................................. 7,823 7,823
---------- ----------
Total current liabilities................................ 272,625 235,814
---------- ----------
NET ASSETS......................................................... $ 934,602 $ 994,987
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE> 141
DUCKETT DISPOSAL, INC.
STATEMENTS OF OPERATING REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
1994 ----------
---------- (UNAUDITED)
<S> <C> <C>
REVENUES (Note 2)................................................... $1,938,784 $1,211,545
---------- ----------
COST OF OPERATIONS
Unrelated parties................................................. 554,176 536,099
Related parties (Note 6).......................................... 242,000 126,000
---------- ----------
Gross profit.............................................. 1,142,608 549,446
GENERAL AND ADMINISTRATIVE EXPENSES................................. 773,385 273,910
---------- ----------
EXCESS OF REVENUES OVER EXPENSES.................................... $ 369,223 $ 275,536
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 142
DUCKETT DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1995
(1) ORGANIZATION AND BASIS OF PRESENTATION:
NATURE OF BUSINESS
Duckett Disposal, Inc. ("Duckett" or the "Company"), is incorporated under
the laws of the State of Illinois. Duckett primarily provides solid waste
management services, consisting of collection, disposal and recycling services
to municipal, commercial, industrial and residential customers. The Company also
operates a farm.
SUBSEQUENT EVENT
The Company has signed a letter of intent with Allied Waste Industries,
Inc. ("AWI") effective July 31, 1995 for the sale of its nonhazardous solid
waste operations.
BASIS OF PRESENTATION
The accompanying financial statements represent the nonhazardous solid
waste operations of the Company. The operations of the farm and assets not
involved in the waste disposal operations have been excluded. All significant
intercompany accounts and transactions have been eliminated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided.
INCOME TAXES
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code. Under these provisions, the Company does not pay corporate income
taxes on its taxable income. The shareholder of the Company is liable for income
taxes on the earnings of the Company.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in high
credit quality institutions. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the Company's
customer base. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
INTERIM UNAUDITED FINANCIAL INFORMATION
In management's opinion, the financial statements for the six-month period
ended June 30, 1995, include all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations as of and for the period then ended for nonhazardous solid
waste operations. Operating results for the six-month period ending June 30,
1995, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1995.
F-61
<PAGE> 143
DUCKETT DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements............................... 7-39 years
Vehicles and equipment................................... 3-10 years
Containers............................................... 5-7 years
Furniture and fixtures................................... 5-10 years
</TABLE>
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
For the year ended December 31, 1994, and the six months ended June 30, 1995,
maintenance and repair expenses charges to cost of operations were approximately
$81,000 and $37,000, respectively. When assets are disposed of, the related cost
and accumulated depreciation thereon are removed from the accounts and any
resulting gain or loss is included in operations.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
DECEMBER 31, ------------
1994
------------ (UNAUDITED)
<S> <C> <C>
Land.............................................. $ 18,000 $ 18,000
Buildings and improvements........................ 492,477 492,478
Vehicles and equipment............................ 978,224 996,614
Containers........................................ 374,918 380,160
Furniture and fixtures............................ 27,980 27,980
---------- ----------
1,891,599 1,915,232
Less -- Accumulated depreciation.................. (925,441) (1,009,597)
---------- ----------
$ 966,158 $ 905,635
========== ==========
</TABLE>
(4) NOTES PAYABLE:
Notes payable consist of notes to a bank with interest at 8.5% and
principal and interest due in December 1995. The notes are guaranteed by the
Company's Stockholder.
Future principal payments of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------------
<S> <C>
1995.................................................. $131,906
1996.................................................. 26,036
--------
$157,942
========
</TABLE>
F-62
<PAGE> 144
DUCKETT DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE TO STOCKHOLDER:
Notes payable to stockholder consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
DECEMBER 31, ------------
1994
------------ (UNAUDITED)
<S> <C> <C>
Unsecured note payable, interest at 7.25%,
principal and interest paid in January 1995..... $ 1,685 $ --
Unsecured note payable, interest at 6%, principal
and interest due December 1995.................. 47,650 47,650
-------- -------
$ 49,335 $ 47,650
======== =======
</TABLE>
(6) RELATED PARTY TRANSACTIONS:
In 1994 and for the six months ended June 30, 1995, the Company paid
approximately $242,000 and $126,000, respectively to a landfill owned in part by
the stockholder of the Company for disposal fees.
F-63
<PAGE> 145
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheets of BRICKYARD DISPOSAL AND
RECYCLING, INC. (an Illinois corporation) as of September 30, 1993 and 1994, and
the related statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brickyard Disposal and
Recycling, Inc. as of September 30, 1993 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
August 11, 1995
F-64
<PAGE> 146
BRICKYARD DISPOSAL AND RECYCLING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1993 1994 1995
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 282,954 $ 248,300 $ 23,692
Investments.......................................... 116,095 111,789 111,789
Accounts receivable, net of allowance of $-0-, 25,000
and 25,000 in 1993, 1994 and 1995, respectively... 481,192 386,232 380,808
Other accounts receivable -- related parties......... 436,709 50,875 52,280
Prepaid expenses..................................... 34,130 15,816 25,850
---------- ---------- ----------
Total current assets......................... 1,351,080 813,012 594,419
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Land................................................. 17,020 17,020 17,020
Landfills............................................ 947,710 2,386,831 3,710,104
Buildings and improvements........................... 98,566 98,566 98,566
Machinery and equipment.............................. 1,111,237 1,415,848 1,317,053
Office equipment..................................... 24,771 24,771 17,510
---------- ---------- ----------
2,199,304 3,943,036 5,160,253
Less: Accumulated depreciation and amortization...... (622,462) (930,007) (1,229,918)
---------- ---------- ----------
1,576,842 3,013,029 3,930,335
OTHER ASSETS........................................... 103,952 111,996 113,905
---------- ---------- ----------
$3,031,874 $3,938,037 $4,638,659
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit....................................... $ -- $ -- $ 264,000
Accounts payable..................................... 214,423 602,047 178,157
Accounts payable -- related parties.................. 11,480 57,394 180,406
Accrued waste fees................................... 86,117 61,327 58,710
Other current liabilities............................ 41,714 15,499 29,457
---------- ---------- ----------
Total current liabilities.................... 353,734 736,267 710,730
ACCRUED CLOSURE AND POST-CLOSURE COSTS................. 3,458,759 3,730,101 3,796,329
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 250,000 shares
authorized, 20,000 shares issued and 15,000 shares
outstanding....................................... 20,000 20,000 20,000
Retained earnings (deficit).......................... (735,619) (483,331) 176,600
---------- ---------- ----------
(715,619) (463,331) 196,600
Treasury stock: 5,000 shares at cost................. (65,000) (65,000) (65,000)
---------- ---------- ----------
Total shareholders' equity (deficit)......... (780,619) (528,331) 131,600
---------- ---------- ----------
$3,031,874 $3,938,037 $4,638,659
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-65
<PAGE> 147
BRICKYARD DISPOSAL AND RECYCLING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
SEPTEMBER 30, NINE MONTHS
------------------------- ENDED
1993 1994 JUNE 30,
---------- ---------- 1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Third party disposal service income.................. $2,487,778 $2,638,569 $1,783,362
Related party disposal service income................ 378,090 431,196 420,446
---------- ---------- ----------
2,865,868 3,069,765 2,203,808
COST OF OPERATIONS..................................... 1,706,142 2,095,475 1,172,876
---------- ---------- ----------
Gross profit...................................... 1,159,726 974,290 1,030,932
GENERAL AND ADMINISTRATIVE EXPENSES:
Consulting fees...................................... 140,677 205,021 49,377
Legal and accounting................................. 127,841 120,393 114,603
Office salaries...................................... 96,537 140,036 77,473
Clerical and administrative services................. 97,585 109,367 81,866
Other................................................ 73,813 84,065 36,401
---------- ---------- ----------
536,453 658,882 359,720
OTHER INCOME (EXPENSE), net............................ 25,368 11,880 (11,281 )
---------- ---------- ----------
NET INCOME............................................. $ 648,641 $ 327,288 $ 659,931
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE> 148
BRICKYARD DISPOSAL AND RECYCLING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- TREASURY STOCK RETAINED
SHARES ----------------- EARNINGS
AMOUNT OUTSTANDING AMOUNT SHARES (DEFICIT) TOTAL
------- ----------- -------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1992...... $20,000 15,000 $(65,000) 5,000 $(1,129,260) $(1,174,260)
Dividends...................... -- -- -- -- (255,000) (255,000)
Net income..................... -- -- -- -- 648,641 648,641
------- ------ -------- ----- ----------- -----------
BALANCE, September 30, 1993...... 20,000 15,000 (65,000) 5,000 (735,619) (780,619)
Dividends...................... -- -- -- -- (75,000) (75,000)
Net income..................... -- -- -- -- 327,288 327,288
------- ------ -------- ----- ----------- -----------
BALANCE, September 30, 1994...... 20,000 15,000 (65,000) 5,000 (483,331) (528,331)
Net income (unaudited)......... -- -- -- -- 659,931 659,931
------- ------ -------- ----- ----------- -----------
BALANCE, June 30, 1995
(Unaudited).................... $20,000 15,000 $(65,000) 5,000 $ 176,600 $ 131,600
======= ====== ======== ===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE> 149
BRICKYARD DISPOSAL AND RECYCLING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
SEPTEMBER 30, NINE MONTHS
----------------------- ENDED
1993 1994 JUNE 30,
--------- ----------- 1995
------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................. $ 648,641 $ 327,288 $ 659,931
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization....................... 117,289 306,971 404,119
Bad debt expense.................................... -- 25,565 --
Change in assets and liabilities --
Accounts receivable............................... (78,826) 455,229 4,019
Prepaid expenses.................................. 14,656 18,314 (10,034 )
Accounts payable.................................. 7,714 433,538 (242,168 )
Other current liabilities and accrued waste
fees........................................... 7,847 (51,005) (47,369 )
Accrued closure and post-closure costs............ 264,013 263,298 64,319
--------- ----------- -----------
Net cash provided by operating activities...... 981,334 1,779,198 832,817
--------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures................................... (952,378) (1,743,158) (1,360,660 )
Disposals of property and equipment.................... -- -- 39,235
Investment purchases................................... (6,095) (3,852) --
Investment redemptions................................. -- 8,158 --
--------- ----------- -----------
Net cash used in investing activities.......... (958,473) (1,738,852) (1,321,425 )
--------- ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from line of credit....................... -- -- 264,000
Dividends paid......................................... (255,000) (75,000) --
--------- ----------- -----------
Net cash provided by (used in) financing
activities................................... (255,000) (75,000) 264,000
--------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS.................... (232,139) (34,654) (224,608 )
CASH AND CASH EQUIVALENTS, beginning of period........... 515,093 282,954 248,300
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................. $ 282,954 $ 248,300 $ 23,692
========= =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest............... $ -- $ -- $ 21,806
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE> 150
BRICKYARD DISPOSAL AND RECYCLING, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Brickyard Disposal and Recycling, Inc. (the Company) was incorporated under
the laws of the State of Illinois as H/L Disposal Company, Inc. on August 20,
1971. Effective July 2, 1991, the Company formally changed its name to Brickyard
Disposal and Recycling, Inc. The Company operates a landfill in the Danville,
Illinois area.
REVENUE
Revenue is recognized as disposal services are provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent all cash on hand, in the bank, and in
investments with original maturities of less than 90 days.
INVESTMENTS
Investments consist primarily of marketable nonequity securities carried at
market which approximates cost at September 30, 1993 and 1994 and June 30, 1995.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, which includes construction of
major capital additions during the development phase, primarily landfills.
Management periodically reviews the realizability of its investment in operating
landfills. The cost of landfill airspace, including original acquisition costs
and incurred and projected landfill preparation costs, is amortized based on
accepted tonnage as landfill airspace is consumed. Depreciation is provided on
the straight-line method over the estimated useful lives of buildings and
improvements (10-30 years), machinery and equipment (3-10 years) and office
equipment (5 years).
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs which do not improve assets or extend
their useful lives are charged to expense as incurred. For the two years ended
September 30, 1994, and the nine months ended June 30, 1995, maintenance and
repair expenses charged to cost of operations were $324,350, $344,076 and
$257,037, respectively. When property is retired, the related cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized.
OTHER ASSETS
Other assets consist of a closure contingency trust fund held for financial
assurance purposes in connection with Illinois Environmental Protection Agency
requirements. The amount is stated at cost, which approximates market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivable. The Company places its cash and cash equivalents with high quality
financial institutions.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base. The
Company performs ongoing credit evaluations of its customers, but does not
require collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends, and other information.
F-69
<PAGE> 151
BRICKYARD DISPOSAL AND RECYCLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) INCOME TAXES:
The Company with the consent of its shareholders, has elected to be taxed
as an S Corporation under the Internal Revenue code and a similar section of
state income tax law. These provide that, in lieu of corporate income taxes, the
shareholders are taxed on the Company's taxable income. Therefore, the financial
statements do not include any provision for corporate income taxes.
(3) PENSION PLAN:
The Company has a non-contributory defined benefit pension plan for all
employees over 21 years of age having one year of service, who are not covered
by a separate collective bargaining agreement. The plan is funded by the
purchase of insurance contracts and investments in a separate investment fund
administered by the Massachusetts Mutual Life Insurance Company. Upon
retirement, such investments shall provide for level monthly premium payments to
each participant for the remainder of their life, with 120 payments guaranteed.
Premium payments are calculated as one-twelfth of 20% of average annual
compensation plus 20% of average annual compensation in excess of amounts
defined in the plan agreement. Company contributions to the plan were $18,988,
$23,957 and $6,381 in fiscal years 1993, 1994 and the nine months ended June 30,
1995, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the balance sheet at September 30, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation....................... $ 57,930 $ 51,323
======== ========
Vested benefit obligation............................ $ 54,516 $ 48,298
======== ========
Projected benefit obligation for service rendered to
date................................................. $(75,373) $(58,508)
Plan assets at fair value.............................. 51,943 69,368
-------- --------
Projected benefit obligation (greater)/less than plan
assets............................................... (23,430) 10,860
Additional liability resulting from minimum liability
provisions........................................... (2,010) --
Unrecognized (gain)/loss............................... 16,612 (5,970)
Unrecognized transition obligation..................... 2,841 2,724
-------- --------
(Accrued)/prepaid pension cost......................... $ (5,987) $ 7,614
======== ========
</TABLE>
Net pension expense included the following components:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Service cost -- benefits earned for the year........... $ 12,679 $ 12,113
Interest cost on projected benefit obligation.......... 4,374 3,097
Actual return on plan assets........................... 1,824 6,532
Net amortization and deferral.......................... (4,831) (11,386)
-------- --------
Net pension expense.................................... $ 14,046 $ 10,356
======== ========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation used in determining the actuarial present value of the projected
benefit obligation was 7.5% and 5.0%, for September 30, 1993 and 1994. The
expected long-term rate of return on assets was 7.5% for each year.
F-70
<PAGE> 152
BRICKYARD DISPOSAL AND RECYCLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED CLOSURE AND POST-CLOSURE COSTS:
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of solid waste landfills. Site specific closure and post-closure
engineering cost estimates are prepared and updated annually for landfills owned
or operated by the Company for which it is responsible for closure and
post-closure monitoring. Estimated costs are accrued based on accepted tonnage
as landfill airspace is consumed. The Company discounts its future closure and
post-closure costs where the Company believes that both the amounts and timing
of related payments are reliably determinable. The impact of changes determined
to be charges in estimates are accounted for on a prospective basis.
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
passing time. The Company's current estimate of total future payments for
closure and post-closure is approximately $17.6 million, as described below,
while the present value of such estimate is $9.7 million. At September 30, 1993
and 1994 and June 30, 1995, the accrual for landfill closure and post-closure
costs was approximately $3,459,000, $3,730,000 and $3,783,000, respectively.
The Company's current estimate of total future payments for closure and
post-closure liabilities for currently owned and operated landfills is as
follows:
<TABLE>
<S> <C>
1995.................................................... $ 1,518,000
1996.................................................... 381,000
1997.................................................... 336,000
1998.................................................... 311,000
1999.................................................... 316,000
Thereafter.............................................. 14,701,000
-----------
$17,563,000
===========
</TABLE>
(5) LINE OF CREDIT:
On October 28, 1994, the Company established a $1,000,000 line of credit
agreement with a bank secured by virtually all business assets. The agreement
expires on October 28, 1995. As of June 30, 1995, the Company had $736,000
available and $264,000 outstanding on the line of credit.
(6) RELATED PARTY TRANSACTIONS:
The Company provided services to certain entities which have related
ownership interests. Additionally, clerical and administrative services have
been provided by an entity controlled by one of the shareholders. Payments of
approximately $97,000, $109,000 and $82,000 for the years ended September 30,
1993 and 1994, and the nine months ended June 30, 1995, were made related to
these services.
The Company pays royalties to a related party based on volume accepted at
the landfill. Payments of $154,000, $140,000 and $108,000 for the years ended
September 30, 1993 and 1994 and the nine months ended June 30, 1995, were made
related to this agreement. Additionally, the company pays insurance premiums to
an entity controlled by a shareholder. Payments of $30,000, $136,000 and $73,000
for the years ended September 30, 1993, 1994 and the nine months ended June 30,
1995, were made to the related party.
F-71
<PAGE> 153
BRICKYARD DISPOSAL AND RECYCLING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES:
The Company is subject to extensive and evolving laws and regulations and
has implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of business, the Company provides for closure
and post-closure accruals to comply with applicable governmental regulations.
In the normal course of conducting its operations, the Company may become
involved in certain legal and administrative proceedings. Some of these actions
may result in fines, penalties or judgments against the Company which may have
an impact on earnings for a particular period. Management expects that such
matters in process at June 30, 1995, will not have a material adverse effect on
the Company's financial position, including its liquidity, or its result from
operations.
The Company has issued bank letters-of-credit in the amount of
approximately $2.2 million. These financial instruments are issued in the normal
course of business and are not reflected in the accompanying balance sheets.
Such financial instruments are to be valued based on the amount of exposure
under the instrument and the likelihood of performance being required.
Management does not expect any material losses to result from these off balance
sheet instruments based on historical results and, therefore, is of the opinion
that the fair value of these instruments is zero.
(8) UNAUDITED INTERIM FINANCIAL INFORMATION:
In management's opinion, the consolidated financial statements for the
nine-month period ended June 30, 1995, includes all adjustments, consisting of
normal recurring adjustments, necessary to present fairly, the Company's
financial position, results of operations and cash flows as of and for the
periods then ended. Operating results for the nine-month period ending June 30,
1995, are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1995.
(9) SUBSEQUENT EVENT:
In July 1995, the Company entered into a letter of intent with Allied Waste
Industries, Inc. (Allied) to exchange all outstanding shares of the Company's
common shares for Allied shares of common stock.
F-72
<PAGE> 154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheet of L AND M DISPOSAL, INC. (a
Colorado corporation) as of December 31, 1994, and the related statements of
operations, shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial position of L and M Disposal, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Phoenix, Arizona
March 6, 1996
F-73
<PAGE> 155
L AND M DISPOSAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1995
DECEMBER 31, -----------
1994
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 44,982 $ 32,388
Accounts receivable............................................... 21,034 8,109
--------- ---------
Total current assets...................................... 66,016 40,497
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Land.............................................................. 13,000 13,000
Buildings......................................................... 37,685 37,685
Office equipment.................................................. 4,095 4,095
Containers........................................................ 80,123 81,203
Vehicles and equipment............................................ 93,276 94,326
--------- ---------
228,179 230,309
Less: Accumulated depreciation.................................... (111,221) (120,514)
--------- ---------
116,958 109,795
--------- ---------
OTHER ASSETS........................................................ 23,119 23,531
--------- ---------
INTANGIBLE ASSETS, net.............................................. 8,944 3,579
--------- ---------
$ 215,037 $ 177,402
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. $ 8,439 $ 7,223
Accrued liabilities............................................... 19,513 3,111
Current portion of long-term debt................................. 27,896 21,146
--------- ---------
Total current liabilities................................. 55,848 31,480
--------- ---------
LONG-TERM DEBT, net of current portion.............................. 31,718 26,962
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 100,000 shares authorized;
1,000 shares issued and outstanding............................ 83,333 83,333
Retained earnings................................................. 44,138 35,627
--------- ---------
Total shareholders' equity................................ 127,471 118,960
--------- ---------
$ 215,037 $ 177,402
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-74
<PAGE> 156
L AND M DISPOSAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE MARCH 31,
YEAR ENDED 1995
DECEMBER 31, -------------
1994
------------ (UNAUDITED)
<S> <C> <C>
REVENUE.......................................................... $497,941 $ 140,744
COST OF OPERATIONS............................................... 230,601 65,105
-------- --------
Gross profit........................................... 267,340 75,639
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................... 154,507 61,419
-------- --------
Income from operations................................. 112,833 14,220
OTHER INCOME (EXPENSE):
Other income (expense)......................................... (2,873) 402
Interest expense............................................... (10,468) (1,633)
-------- --------
(13,341) (1,231)
-------- --------
NET INCOME....................................................... $ 99,492 $ 12,989
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-75
<PAGE> 157
L AND M DISPOSAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
------- --------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................................ $83,333 $ (29,062) $ 54,271
Net income................................................ -- 99,492 99,492
Distributions to shareholders............................. -- (26,292) (26,292)
------- --------- --------
BALANCE AT DECEMBER 31, 1994................................ 83,333 44,138 127,471
Net income (unaudited).................................... -- 12,989 12,989
Distributions to shareholders (unaudited)................. -- (21,500) (21,500)
------- --------- --------
BALANCE AT MARCH 31, 1995 (unaudited)....................... $83,333 $ 35,627 $118,960
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-76
<PAGE> 158
L AND M DISPOSAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE
FOR THE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1995
1994 ------------
------------ (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 99,492 $ 12,989
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................................ 51,602 14,658
Change in assets and liabilities --
Accounts receivable.......................................... (9,701) 12,925
Other assets................................................. (23,119) (412)
Accounts payable............................................. 822 (1,216)
Accrued liabilities.......................................... 7,663 (16,402)
Loss on disposal of property and equipment................... 6,672 --
-------- --------
Net cash provided by operating activities............... 133,431 22,542
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................. (38,706) (2,130)
Proceeds from sale of property and equipment.................... 2,000 --
-------- --------
Net cash used in investing activities................... (36,706) (2,130)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders................................... (26,292) (21,500)
Repayment of long-term debt..................................... (71,517) (11,506)
-------- --------
Net cash used in financing activities................... (97,809) (33,006)
-------- --------
NET DECREASE IN CASH.............................................. (1,084) (12,594)
CASH, beginning of period......................................... 46,066 44,982
-------- --------
CASH, end of period............................................... $ 44,982 $ 32,388
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest..................................................... $ 10,468 $ 1,633
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-77
<PAGE> 159
L AND M DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND MARCH 31, 1995 (UNAUDITED)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS:
L and M Disposal, Inc. ("L&M" or "the Company") is engaged in the
nonhazardous solid waste management business consisting of collection, transfer,
disposal and recycling services to municipal, commercial, industrial and
residential customers in Archuletta County, Colorado.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Building......................................................... 30 years
Office equipment................................................. 5 years
Containers....................................................... 5-10 years
Vehicles and equipment........................................... 5 years
</TABLE>
Expenditures of major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are charged to expense as incurred.
For the year ended December 31, 1994, and the three-months ended March 31,
1995, maintenance and repair expense was approximately $30,471 and $6,786,
respectively. When property is retired, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized.
Intangible Assets
Intangible assets consists of noncompete agreements and customer lists that
are amortized on a straight-line basis over their estimated useful lives.
Accumulated amortization was $98,363 and $103,728 at December 31, 1994 and May
31, 1995, respectively.
Income Taxes
The Company has elected S Corporation status under the Internal Revenue
Code. Therefore, the tax effects of the Company's operations will be reflected
in the individual tax returns of the shareholders.
Revenue Recognition
The Company recognizes revenues as services are provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and accounts receivable. The Company places its
cash with high quality financial institutions.
F-78
<PAGE> 160
L AND M DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base. The Company performs ongoing credit evaluations of its customers, but does
not require collateral to support customer receivables.
(3) LONG-TERM DEBT:
Long-term debt balances consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------ MARCH 31,
1995
-----------
(UNAUDITED)
<S> <C> <C>
Note payable to a bank, interest at 9.5%, payable monthly
through June 1997, secured by vehicles, equipment, real
estate and accounts receivable and guaranteed by a
shareholder of the Company................................ $ 52,864 $48,108
Note payable to a bank, interest at 10%, payable monthly
through May 1995, secured by vehicles, equipment, real
estate and accounts receivable and guaranteed by a
shareholder of the Company................................ 6,750 --
------- -------
59,614 48,108
Current portion............................................. 27,896 21,146
------- -------
$ 31,718 $26,962
======= =======
</TABLE>
Future Maturities of Long-term Debt
Aggregate future maturities of long-term debt outstanding at December 31,
1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING:
-----------------------------------------------------------
<S> <C>
1995....................................................... $27,896
1996....................................................... 21,146
1997....................................................... 10,572
-------
$59,614
=======
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES:
The Company has an agreement with Archuletta County to operate the County's
landfill for approximately $7,500 per month, plus reimbursement of operating
expenses. This agreement expires in June 1998 but is renewable for three year
terms at the County's option.
(5) RELATED PARTY TRANSACTIONS:
The Company leases equipment from an officer of the Company on a
month-to-month basis for approximately $2,300 per month.
(6) UNAUDITED INTERIM FINANCIAL INFORMATION:
In management's opinion, the financial statements for the three-month
period ended March 31, 1995, include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows as of and for the period then
ended. Operating results for the three-month period ended March 31, 1995, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1995.
F-79
<PAGE> 161
L AND M DISPOSAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) SUBSEQUENT EVENT:
On May 31, 1995, all of the outstanding stock of L&M was sold to Allied
Waste Industries, Inc. ("Allied") for consideration aggregating approximately
$518,000, including 8,333 shares of Allied common stock in a transaction
accounted for as a purchase.
F-80
<PAGE> 162
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheet of SERVICE WASTE, INC. (an
Indiana corporation) as of December 31, 1995, and the related statements of
operations, shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial position of Service Waste, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Phoenix, Arizona
March 11, 1996
F-81
<PAGE> 163
SERVICE WASTE, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................... $ 46,651
Accounts receivable, less allowance for doubtful accounts of $10,000.......... 535,195
Prepaid expenses and other current assets..................................... 114,437
-----------
Total current assets.................................................. 696,283
-----------
PROPERTY AND EQUIPMENT, AT COST:
Automotive equipment.......................................................... 1,309,841
Containers and compactors..................................................... 1,121,621
Other fixed assets............................................................ 137,668
Leasehold improvements........................................................ 75,666
Buildings..................................................................... 64,714
-----------
2,709,510
Less: Accumulated depreciation................................................ (1,969,199)
-----------
740,311
-----------
OTHER ASSETS, net of $199,000 accumulated amortization.......................... 2,274
-----------
$ 1,438,868
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 31,623
Accrued liabilities........................................................... 137,560
Unearned revenue.............................................................. 30,541
-----------
Total current liabilities............................................. 199,724
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares authorized;
1,000 shares issued and 520 shares outstanding............................. 1,000
Retained earnings............................................................. 1,281,102
Treasury stock................................................................ (42,958)
-----------
Total shareholders' equity............................................ 1,239,144
-----------
$ 1,438,868
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-82
<PAGE> 164
SERVICE WASTE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE.......................................................................... $2,862,713
COST OF OPERATIONS............................................................... 1,523,138
----------
Gross profit................................................................... 1,339,575
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................................... 1,052,218
----------
Income from operations......................................................... 287,357
OTHER INCOME (EXPENSE)........................................................... 59,046
----------
NET INCOME....................................................................... $ 346,403
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-83
<PAGE> 165
SERVICE WASTE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK TOTAL
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994.................. $1,000 $1,379,945 $(42,958) $1,337,987
Net income.................................. 346,403 346,403
Distributions to shareholders............... (445,246) (445,246)
------ ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995.................. $1,000 $1,281,102 $(42,958) $1,239,144
====== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-84
<PAGE> 166
SERVICE WASTE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 346,403
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation and amortization............................................... 224,628
Gain on sale of assets...................................................... (53,000)
Change in assets and liabilities --
Accounts receivable......................................................... 73,888
Prepaid expenses and other current assets................................... 35,907
Accounts payable............................................................ (30,783)
Accrued liabilities......................................................... 50,452
Unearned revenue............................................................ (1,229)
---------
Net cash provided by operating activities.............................. 646,266
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (256,088)
Proceeds from sale of property and equipment................................... 53,000
---------
Net cash used in investing activities.................................. (203,088)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders.................................................. (445,246)
Repayment of debt.............................................................. (2,738)
---------
Net cash used in financing activities.................................. (447,984)
---------
NET DECREASE IN CASH............................................................. (4,806)
CASH, beginning of period........................................................ 51,457
---------
CASH, end of period.............................................................. $ 46,651
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-85
<PAGE> 167
SERVICE WASTE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS:
Service Waste, Inc. (the Company) was incorporated under the laws of the
state of Indiana in August 1982. The Company operates a waste transfer station
and provides waste removal service for residential and commercial properties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Automotive equipment............................................ 3-5 years
Containers and compactors....................................... 5 years
Other fixed assets.............................................. 3-7 years
Leasehold improvements.......................................... 10-13 years
Buildings....................................................... 30 years
</TABLE>
Expenditures of major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are charged to expense as incurred.
For the year ended December 31, 1995, maintenance and repair expense was
approximately $353,000. When property is retired, the related cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized.
Income Taxes
The Company has elected S Corporation status under the Internal Revenue
Code. Therefore, the tax effects of the Company's operations will be reflected
in the individual tax returns of the shareholders.
Revenue Recognition
The Company recognizes revenues as services are provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and accounts receivable. The
Company places its cash with high quality financial institutions.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base. The Company performs ongoing credit evaluations of its customers, but does
not require collateral to support customer receivables. The Company established
an allowance for doubtful accounts based on factors surrounding the credit risk
of specific customers, historical trends, and other information.
F-86
<PAGE> 168
SERVICE WASTE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) COMMITMENTS AND CONTINGENCIES:
The Company has received a notice from the Indiana Department of
Environmental Management that it may be required to share in the cost of cleanup
of the Four County Landfill which is separately owned by a third party. Based on
the Company's proportional liability and current estimates of the total
remediation and administrative costs, approximately $18,000 has been reserved in
the Company's financial statements to cover these related costs.
The Company has a month-to-month lease with a related party for their
office building.
The Company also has an operating lease agreement for certain equipment.
Future minimum payments under this noncancelable operating lease are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1996.................................................... $ 6,843
1997.................................................... 5,703
-------
$ 12,546
=======
</TABLE>
Rental expense under such operating leases was approximately $71,000 for
the office building and approximately $6,000 for the equipment for the year
ended December 31, 1995.
(4) EMPLOYEE BENEFIT PLAN:
The Company has a qualified noncontributory profit sharing plan that covers
substantially all employees who have completed one year of employment. The plan
provides for discretionary contributions, payable in cash, at an amount
determined by the Board of Directors. For the year ended December 31, 1995, the
Company made contributions of $12,000.
(5) SUBSEQUENT EVENT:
Effective January 1996, the Company was acquired by Allied Waste
Industries, Inc. (Allied) for 819,000 shares of Allied common stock, of which
approximately 41,000 shares are held pending resolution of certain
contingencies, in a transaction accounted for as a purchase.
F-87
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allied Waste Industries, Inc.:
We have audited the accompanying balance sheet of CLAYCO SANITATION
COMPANY, INC. (a Georgia corporation) as of June 30, 1995, and the related
statements of operations, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 financial position of Clayco Sanitation Company,
Inc. as of June 30, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Phoenix, Arizona
March 1, 1996
F-88
<PAGE> 170
CLAYCO SANITATION COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
JUNE 30, ------------
1995
---------- (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 349,953 $ 315,267
Accounts receivable, less allowance for doubtful accounts of
$11,280....................................................... 28,940 30,767
Notes receivable................................................. 31,266 88,403
Other current assets............................................. 20,387 20,387
Deferred tax asset, net.......................................... 80,583 75,689
---------- ----------
Total current assets..................................... 511,129 530,513
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land and improvements............................................ 196,085 --
Buildings and improvements....................................... 77,617 --
Office equipment................................................. 15,904 15,904
Vehicles and equipment........................................... 1,102,589 1,246,231
---------- ----------
1,392,195 1,262,135
Less: Accumulated depreciation................................... (635,229) (660,383)
---------- ----------
756,966 601,752
---------- ----------
NOTE RECEIVABLE.................................................... 44,250 22,125
---------- ----------
$1,312,345 $1,154,390
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 99,041 $ 24,656
Accrued liabilities.............................................. 19,287 20,775
Income tax payable............................................... 10,224 28,539
Deferred revenue................................................. 211,848 225,180
---------- ----------
Total current liabilities................................ 340,400 299,150
---------- ----------
DEFERRED TAX LIABILITY, net........................................ 69,784 47,048
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized;
500 shares issued and outstanding............................. 500 500
Retained earnings................................................ 901,661 807,692
---------- ----------
Total shareholders' equity............................... 902,161 808,192
---------- ----------
$1,312,345 $1,154,390
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-89
<PAGE> 171
CLAYCO SANITATION COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE DECEMBER 31,
YEAR ENDED 1995
JUNE 30, ------------
1995
---------- (UNAUDITED)
<S> <C> <C>
REVENUE........................................................... $1,841,963 $992,299
COST OF OPERATIONS................................................ 1,313,556 674,680
---------- --------
Gross profit................................................. 528,407 317,619
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...................... 407,353 179,358
---------- --------
Income from operations....................................... 121,054 138,261
OTHER INCOME, net................................................. 47,179 12,483
---------- --------
Income before taxes.......................................... 168,233 150,744
INCOME TAX EXPENSE................................................ 62,759 35,324
---------- --------
NET INCOME........................................................ $ 105,474 $115,420
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-90
<PAGE> 172
CLAYCO SANITATION COMPANY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ --------- ---------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1994................................... $500 $ 796,187 $ 796,687
Net income............................................... -- 105,474 105,474
---- --------- ---------
BALANCE AT JUNE 30, 1995................................... 500 901,661 902,161
Net income (unaudited)................................... -- 115,420 115,420
Distributions to shareholders (unaudited)................ -- (209,389) (209,389)
---- --------- ---------
BALANCE AT DECEMBER 31, 1995 (unaudited)................... $500 $ 807,692 $ 808,192
==== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-91
<PAGE> 173
CLAYCO SANITATION COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
YEAR ENDED MONTHS ENDED
JUNE 30, DECEMBER 31,
1995 1995
---------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 105,474 $ 115,420
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation.................................................. 153,024 89,467
Provision for doubtful accounts............................... 5,640 --
Change in assets and liabilities --
Accounts receivable........................................... 7,098 (1,827)
Other assets.................................................. 15,257 --
Notes receivable.............................................. (9,141) (35,012)
Deferred taxes, net........................................... (10,799) (17,842)
Income taxes payable.......................................... 9,986 18,315
Deferred revenue.............................................. 57,217 13,332
Accounts payable.............................................. 12,277 (74,385)
Accrued liabilities........................................... 13,831 1,488
--------- ---------
Net cash provided by operating activities................ 359,864 108,956
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (208,298) (143,642)
--------- ---------
Net cash used in investing activities.................... (208,298) (143,642)
--------- ---------
NET INCREASE (DECREASE) IN CASH.................................... 151,566 (34,686)
CASH, beginning of period.......................................... 198,387 349,953
--------- ---------
CASH, end of period................................................ $ 349,953 $ 315,267
========= =========
CASH PAID FOR:
Income taxes..................................................... $ 52,773 $ 17,009
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-92
<PAGE> 174
================================================================================
STOCK PURCHASE AGREEMENT
among
Allied Waste Industries, Inc., Allied Holdings (United States), Inc.
and 3294862 Canada Inc.
and
Laidlaw Inc., Laidlaw Transportation, Inc.,
Laidlaw Waste Systems, Inc.,
Laidlaw Waste Systems (Canada) Ltd., and
Laidlaw Medical Services Ltd.
dated as of
September 17, 1996
================================================================================
<PAGE> 175
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 2
1.2 Interpretation . . . . . . . . . . . . . . . . . . . . 16
1.3 Knowledge . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II
THE ACQUISITIONS . . . . . . . . . . . . 17
2.1 Sales and Purchases of Shares . . . . . . . . . . . . 17
2.2 Consideration for LWSI Shares . . . . . . . . . . . . 17
2.3 Consideration for LWSC and LMS Shares . . . . . . . . 17
2.4 Post-Closing Adjustment of Working Capital . . . . . . 18
ARTICLE III
THE CLOSING AND RELATED MATTERS . . . . . . . . 19
3.1 The Closing . . . . . . . . . . . . . . . . . . . . . 19
3.2 Actions in Contemplation of Closing . . . . . . . . . 19
3.3 Other Actions at the Closing . . . . . . . . . . . . . 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LAIDLAW SELLERS . . . . 22
4.1 Organization of Laidlaw Sellers . . . . . . . . . . . 22
4.2 Authority Relative to this Agreement . . . . . . . . . 22
4.3 No Violations . . . . . . . . . . . . . . . . . . . . 22
4.4 Consents and Approvals . . . . . . . . . . . . . . . . 23
4.5 Acquired Subsidiaries . . . . . . . . . . . . . . . . 23
4.6 No Other Subsidiaries . . . . . . . . . . . . . . . . 24
4.7 Conduct of Solid Waste Business . . . . . . . . . . . 24
4.8 Financial Statements . . . . . . . . . . . . . . . . . 25
</TABLE>
i
<PAGE> 176
<TABLE>
<S> <C> <C> <C>
4.9 Absence of Certain Changes . . . . . . . . . . . . . . 26
4.10 No Undisclosed Liabilities . . . . . . . . . . . . . . 26
4.11 Acquired Subsidiary Properties . . . . . . . . . . . . 26
4.12 Landfills . . . . . . . . . . . . . . . . . . . . . . 26
4.13 Taxes and Tax Returns . . . . . . . . . . . . . . . . 27
4.14 Litigation . . . . . . . . . . . . . . . . . . . . . . 28
4.15 Environmental Matters . . . . . . . . . . . . . . . . 28
4.16 Governmental Licenses and Permits; Compliance
with Laws . . . . . . . . . . . . . . . . . . 29
4.17 Labor Matters . . . . . . . . . . . . . . . . . . . . 30
4.18 Employee Benefit Plans . . . . . . . . . . . . . . . . 30
4.19 Material Contracts . . . . . . . . . . . . . . . . . . 32
4.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . 34
4.21 Officers and Directors . . . . . . . . . . . . . . . . 34
4.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ALLIED PARTIES . . . . 34
5.1 Organization of Allied Parties . . . . . . . . . . . . 34
5.2 Authority Relative to this Agreement . . . . . . . . . 34
5.3 Status of Allied Common Shares . . . . . . . . . . . . 35
5.4 No Violations . . . . . . . . . . . . . . . . . . . . 35
5.5 Consents and Approval . . . . . . . . . . . . . . . . 36
5.6 Allied Capitalization . . . . . . . . . . . . . . . . 36
5.7 Allied Subsidiaries . . . . . . . . . . . . . . . . . 37
5.8 SEC Filings . . . . . . . . . . . . . . . . . . . . . 37
5.9 Allied Financial Statements . . . . . . . . . . . . . 38
5.10 Absence of Certain Changes . . . . . . . . . . . . . . 38
5.11 No Undisclosed Liabilities . . . . . . . . . . . . . . 38
5.12 Allied Properties . . . . . . . . . . . . . . . . . . 38
5.13 Taxes and Tax Returns . . . . . . . . . . . . . . . . 39
5.14 Litigation . . . . . . . . . . . . . . . . . . . . . . 39
5.15 Environmental Matters . . . . . . . . . . . . . . . . 40
5.16 Governmental Licenses and Permits; Compliance
with Laws . . . . . . . . . . . . . . . . . . 41
5.17 Labor Matters . . . . . . . . . . . . . . . . . . . . 41
5.18 Opinion of Financial Advisor . . . . . . . . . . . . . 41
5.19 Financing . . . . . . . . . . . . . . . . . . . . . . 42
5.20 Letter from Stockholders . . . . . . . . . . . . . . . 42
5.21 Brokers . . . . . . . . . . . . . . . . . . . . . . . 42
5.22 Aggregation . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ii
<PAGE> 177
<TABLE>
<S> <C> <C> <C>
ARTICLE VI
LAIDLAW AGREEMENTS PENDING CLOSING . . . . . . . . 42
6.1 Conduct of Business . . . . . . . . . . . . . . . . . 42
6.2 Forbearance by the Acquired Subsidiaries . . . . . . . 44
6.3 Access and Information . . . . . . . . . . . . . . . . 45
6.4 Supplemental Information . . . . . . . . . . . . . . . 45
6.5 Audit of Financial Statements . . . . . . . . . . . . 46
6.6 Access for Environmental Report . . . . . . . . . . . 46
6.7 Confidentiality . . . . . . . . . . . . . . . . . . . 47
6.8 Consummation of Acquisitions . . . . . . . . . . . . . 47
ARTICLE VII
ALLIED COVENANTS PENDING CLOSING . . . . . . . . 47
7.1 Conduct of Allied's Business . . . . . . . . . . . . . 47
7.2 Forbearance by Allied . . . . . . . . . . . . . . . . 48
7.3 Access and Information . . . . . . . . . . . . . . . . 49
7.4 Supplemental Information . . . . . . . . . . . . . . . 49
7.5 Allied Stockholders' Meeting . . . . . . . . . . . . . 49
7.6 Emcon Environmental Report . . . . . . . . . . . . . . 50
7.7 Confidentiality . . . . . . . . . . . . . . . . . . . 50
7.8 Consummation of Acquisitions . . . . . . . . . . . . . 50
ARTICLE VIII
MUTUAL CONDITIONS . . . . . . . . . . . . 50
8.1 No Adverse Proceedings . . . . . . . . . . . . . . . . 50
8.2 HSR Waiting Period . . . . . . . . . . . . . . . . . . 50
8.3 Allied Stockholder Approval . . . . . . . . . . . . . 51
8.4 Competition Act Matters . . . . . . . . . . . . . . . 51
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF ALLIED PARTIES . . . . . 51
9.1 Representations True at Closing . . . . . . . . . . . 51
9.2 No Adverse Changes . . . . . . . . . . . . . . . . . . 52
9.3 Opinion of Laidlaw U.S. Counsel . . . . . . . . . . . 52
9.4 Opinion of Laidlaw Canadian Counsel . . . . . . . . . 52
9.5 Investment Canada Act . . . . . . . . . . . . . . . . 52
9.6 Competition Act Matters . . . . . . . . . . . . . . . 52
</TABLE>
iii
<PAGE> 178
<TABLE>
<S> <C> <C> <C>
9.7 Audited Financial Statements . . . . . . . . . . . . . 53
9.8 Emcon Environmental Report . . . . . . . . . . . . . . 53
9.9 Acquisitions Financing . . . . . . . . . . . . . . . . 53
9.10 Outstanding Indebtedness . . . . . . . . . . . . . . . 53
ARTICLE X
CONDITIONS TO LAIDLAW'S OBLIGATIONS . . . . . . . 53
10.1 Representations True at Closing . . . . . . . . . . . 53
10.2 No Adverse Changes . . . . . . . . . . . . . . . . . . 54
10.3 Opinion of Allied's U.S. Counsel . . . . . . . . . . . 54
10.4 Opinion of Allied's Canadian Counsel . . . . . . . . . 54
ARTICLE XI
ADDITIONAL AGREEMENTS . . . . . . . . . . . 54
11.1 HSR Act Filings . . . . . . . . . . . . . . . . . . . 54
11.2 Competition Act Filings . . . . . . . . . . . . . . . 54
11.3 Investment Canada Act Filings . . . . . . . . . . . . 55
11.4 Other Consents and Approvals . . . . . . . . . . . . . 55
11.5 Publicity . . . . . . . . . . . . . . . . . . . . . . 55
11.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . 55
11.7 Securities Law Matters . . . . . . . . . . . . . . . . 55
11.8 Rule 144 Reports . . . . . . . . . . . . . . . . . . . 57
11.9 Use of Laidlaw Name . . . . . . . . . . . . . . . . . 57
11.10 Environmental Remediation . . . . . . . . . . . . . . 58
11.11 Laidlaw Guaranties . . . . . . . . . . . . . . . . . . 58
11.12 Laidlaw Board Representation . . . . . . . . . . . . . 60
11.13 Attendance at Stockholder Meetings . . . . . . . . . . 60
11.14 Laidlaw Standstill . . . . . . . . . . . . . . . . . . 60
11.15 Transition Agreement . . . . . . . . . . . . . . . . . 62
ARTICLE XII
TAX MATTERS . . . . . . . . . . . . . 63
12.1 Section 338 Election . . . . . . . . . . . . . . . . . 63
12.2 Future Tax Returns . . . . . . . . . . . . . . . . . . 64
12.3 Tax Covenants . . . . . . . . . . . . . . . . . . . . 66
12.4 Other Tax Matters, Post-Closing Cooperation . . . . . 67
</TABLE>
iv
<PAGE> 179
<TABLE>
<S> <C> <C> <C>
12.5 Tax Controversies . . . . . . . . . . . . . . . . . . 67
12.6 Certain Pending Tax Controversies . . . . . . . . . . 69
ARTICLE XIII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . 69
13.1 Nature of Statements . . . . . . . . . . . . . . . . . 69
13.2 Survival of Representations and Warranties . . . . . . 69
ARTICLE XIV
INDEMNIFICATION . . . . . . . . . . . . 70
14.1 Indemnification by the Laidlaw Sellers . . . . . . . . 70
14.2 Indemnification by Allied . . . . . . . . . . . . . . 73
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . 74
ARTICLE XV
AMENDMENT AND TERMINATION . . . . . . . . . . 77
15.1 Amendment . . . . . . . . . . . . . . . . . . . . . . 77
15.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . 77
15.3 Termination . . . . . . . . . . . . . . . . . . . . . 77
15.4 Substitute Financing . . . . . . . . . . . . . . . . . 78
15.5 Consequences of Termination . . . . . . . . . . . . . 79
ARTICLE XVI
GENERAL PROVISIONS . . . . . . . . . . . . 79
16.1 Non-Business Days . . . . . . . . . . . . . . . . . . 79
16.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 79
16.3 Entire Agreement . . . . . . . . . . . . . . . . . . . 80
16.4 Assignment; Binding Effect . . . . . . . . . . . . . . 80
16.5 Counterparts. . . . . . . . . . . . . . . . . . . . . 80
16.6 Governing Law; Jurisdiction. . . . . . . . . . . . . . 80
16.7 Severability of Provisions . . . . . . . . . . . . . . 81
16.8 Specific Performance . . . . . . . . . . . . . . . . . 81
16.9 Joint Drafting. . . . . . . . . . . . . . . . . . . . 81
16.10 Captions . . . . . . . . . . . . . . . . . . . . . . . 81
16.11 No Third-Party Beneficiaries. . . . . . . . . . . . . 81
</TABLE>
v
<PAGE> 180
List of Exhibits
Exhibit A-1 Form of Allied Canada 7% Debenture
Exhibit A-2 Form of Allied Canada Zero Coupon Debenture
Exhibit B-1 Form of Allied Finance 7% Debenture
Exhibit B-2 Form of Allied Finance Zero Coupon Debenture
Exhibit C Form of Allied Warrant
Exhibit D Form of Laidlaw Subscription Agreement
Exhibit E Form of Stock Registration Agreement
Exhibit F Form of Waste Services Management Agreement
Exhibit G Form of Release Agreement
Exhibit H-1 Form of Guaranty [Allied Finance 7% Debenture]
Exhibit H-2 Form of Guaranty [Allied Finance Zero Coupon Debenture]
Exhibit I Form of Opinion of Laidlaw's Counsel
Exhibit J Form of Opinion of Laidlaw's Canadian Counsel
Exhibit K Form of Opinion of Allied's Counsel
Exhibit L Form of Opinion of Allied's Canadian Counsel
Exhibit M Form of Debenture Exchange Agreement
Exhibit N Form of Offset Letter Agreement
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List of Schedules
Acquired Subsidiaries -- Schedule I
Retained Subsidiaries -- Schedule II
Intercompany Waste Agreements -- Schedule III
Retained Land -- Schedule IV
Leased Assets -- Schedule V
Allied Disclosure Schedule
Laidlaw Disclosure Schedule
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of
September 17, 1996, among Allied Waste Industries, Inc., a Delaware corporation
("Allied"), Allied Holdings (United States), Inc., a Delaware corporation and a
wholly owned subsidiary of Allied ("Allied U.S.") and 3294862 Canada Inc., a
Canadian corporation and a wholly owned subsidiary of Allied U.S. ("Allied
Canada"), all of which are collectively referred to in this Agreement as the
"Allied Parties," and Laidlaw Inc., a Canadian corporation ("Laidlaw"), Laidlaw
Transportation, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of Laidlaw ("LTI"), Laidlaw Waste Systems, Inc., a Delaware
corporation and a wholly owned subsidiary of LTI ("LWSI"), Laidlaw Waste
Systems (Canada) Ltd., a Canadian corporation and a wholly owned subsidiary of
Laidlaw ("LWSC"), and Laidlaw Medical Services Ltd., a Canadian corporation and
a wholly owned subsidiary of Laidlaw ("LMS"), all of which are collectively
referred to in this Agreement as the "Laidlaw Parties."
W I T N E S S E T H:
WHEREAS, Laidlaw, exclusively through LWSI, LWSC, LMS and their
respective direct and indirect subsidiaries, is engaged in the solid waste
management business in the United States and Canada; and
WHEREAS, Laidlaw wishes to sell all of its United States and Canadian
solid waste management operations; and
WHEREAS, Allied, through the acquisition by Allied U.S. of all of the
issued and outstanding capital stock of LWSI and the acquisition by Allied
Canada of all of the issued and outstanding shares of the share capital of each
of LWSC and LMS, wishes to purchase, all of the United States and Canadian
solid waste management operations of Laidlaw;
NOW, THEREFORE, the Allied Parties and the Laidlaw Parties
(collectively, the "Parties") agree as follows:
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ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement:
"Acquired Canadian Subsidiaries" means those Acquired
Subsidiaries which are incorporated under the laws of Canada or a
Canadian province.
"Acquired Subsidiaries" means (i) LWSI, (ii) the direct and
indirect wholly owned Subsidiaries of LWSI listed and identified on
the attached Schedule I, (iii) LWSC, (iv) the direct and indirect
wholly owned Subsidiaries of LWSC listed and identified on the
attached Schedule I, (v) LMS, and (vi) the 55% owned Subsidiary of LMS
identified on the attached Schedule I, collectively.
"Acquired U.S. Subsidiaries" means those Acquired Subsidiaries
which are incorporated under the laws of a state of the United States.
"Acquisitions" mean the U.S. Acquisition and the Canadian
Acquisitions, collectively.
"Additional Allied Common Shares" means shares of Allied
Common Stock which may be issued after the Closing (i) in payment of
interest on, or in redemption of, Allied Finance Debentures pursuant
to the Laidlaw Subscription Agreement or (ii) pursuant to the Allied
Warrant.
"Advance Ruling Certificate" means an advance ruling
certificate issued by the Competition Act Director under Section 102
of the Competition Act.
"Affiliate" means, with respect to any Person, another Person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person
with the terms "control" and "controlled" meaning for purposes of this
definition, the power to direct the management and policies of a
Person, directly or indirectly, whether through the ownership of
voting securities or partnership or other ownership interests, or by
contract or otherwise.
"Allied Canada Debentures" means the Allied Canada 7%
Debenture and the Allied Canada Zero Coupon Debenture.
"Allied Canada 7% Debenture" means the 7% Junior Subordinated
Debenture Due [twelve years after the Closing Date] of Allied Canada,
in
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substantially the form of Exhibit A-1 attached to this Agreement
which, is to be issued by Allied Canada to Laidlaw under Section 2.3.
"Allied Canada Zero Coupon Debenture" means the Zero Coupon
Junior Subordinated Debenture Due [twelve years after the Closing
Date] of Allied Canada, in substantially the form of Exhibit A-2
attached to this Agreement, which is to be issued by Allied Canada to
Laidlaw under Section 2.3.
"Allied Common Shares" means the shares of Allied Common Stock
issuable to Laidlaw and LTI under Sections 2.2 and 2.3 as partial
consideration for the LWSC Shares and the LWSI Shares.
"Allied Common Stock" means the Common Stock, $.01 par value
per share, of Allied.
"Allied Disclosure Schedule" means the Disclosure Schedule
signed for identification purposes only by the respective Presidents,
Chief Executive Officers or Chief Financial Officers of the respective
Allied Parties, which the Allied Parties have delivered to the Laidlaw
Sellers on or before the date of this Agreement, and which contains
information relevant to the representations and warranties made by the
Allied Parties in Article V.
"Allied Fairness Opinion" means the opinion of Goldman, Sachs
& Co. referred to in Section 5.18.
"Allied Finance" means 3294854 Canada, Inc., a Canadian
corporation and a wholly owned subsidiary of Allied.
"Allied Finance Debentures" means the Allied Finance 7%
Debenture and the Allied Finance Zero Coupon Debenture.
"Allied Finance 7% Debenture" means the 7% Junior Subordinated
Debenture Due [twelve years after the Closing Date] of Allied Finance,
in substantially the form of Exhibit B-1 attached to this Agreement,
which is to be issued by Allied Finance to Laidlaw pursuant to the
Debenture Exchange Agreement.
"Allied Finance Zero Coupon Debenture" means the Zero Coupon
Junior Subordinated Debenture Due [twelve years after the Closing
Date] of Allied Finance, in substantially the form of Exhibit B-2
attached to this Agreement, which is to be issued by Allied Finance to
Laidlaw pursuant to the Debenture Exchange Agreement.
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"Allied Proxy Statement" has the meaning specified in Section
7.5.
"Allied Reorganization Transaction" means: (i) any merger,
consolidation, recapitalization, liquidation or other business
combination transaction involving Allied; (ii) any tender offer or
exchange offer for any securities of Allied; or (iii) any sale or
other disposition of assets of Allied or any of its Subsidiaries in a
single transaction or in a series of related transactions.
"Allied Securities" means, collectively, the Allied Common
Shares, the Allied Canada Debentures, the Allied Finance Debentures,
the Allied Warrant, the Allied Warrant Shares and the Additional
Allied Common Shares.
"Allied SEC Filings" has the meaning specified in Section 5.8.
"Allied Stockholders' Meeting" means the meeting of Allied's
stockholders referred to in Section 7.5, as it may be continued
following any temporary adjournment or adjournments thereof.
"Allied Warrant" means the warrant for the purchase of shares
of Allied Common Stock, to be issued by Allied to Laidlaw under
Section 2.3 which shall be in substantially the form of Exhibit C
attached to this Agreement.
"Allied Warrant Shares" means the shares of Allied Common
Stock which may be issued upon any exercise of the Allied Warrant.
"Ancillary Agreements" means, collectively, the Stock
Registration Agreement, the Allied Canada Debentures, the Allied
Finance Debentures, the Waste Services Management Agreement, the
Release, the Guaranties, the Laidlaw Subscription Agreement, the
Debenture Exchange Agreement and the Offset Letter Agreement.
"Antitrust Division" means the Antitrust Division of the
United States Department of Justice.
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in Toronto, Ontario or New York, New York
are authorized or obligated to close.
"Canadian Acquisitions" means the respective acquisitions by
Allied Canada of the LWSC Shares and the LMS Shares from Laidlaw as
contemplated in Section 2.1.
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"C$" or "Canadian dollars" refers to lawful currency of Canada.
"Canadian GAAP" means Canadian generally accepted accounting
principles consistently applied throughout the specified period and,
if applicable, the immediately preceding comparable period.
"Closing" has the meaning specified in Section 3.1.
"Closing Date" means (a) the fifth Business Day immediately
following the earliest date upon or by which (i) the waiting period
under the HSR Act shall have expired or otherwise been terminated,
(ii) the Competition Act Director shall have issued and not
subsequently withdrawn or threatened to withdraw, an Advance Ruling
Certificate relating to the Acquisitions, (iii) the Allied Parties
shall have received the advice from the Competition Act Director
specified in Section 9.7, (iv) the ICA Minister shall have made the
determination, or shall have been deemed to have made the
determination, specified in Section 9.6, and (iv) all other conditions
to the respective obligations of the Parties set forth in Articles
VIII, IX and X shall have been satisfied or waived, or (b) such other
date as Allied and Laidlaw may agree.
"Closing Date Working Capital" means the positive or negative
amount obtained by subtracting (i) the amount which would be reflected
as current liabilities on a combined balance sheet of the Acquired
Subsidiaries dated as of the Closing Date and prepared in accordance
with U.S. GAAP on a consistent basis with the SWM Group May 31
Combined Financial Statement from (ii) the amount which would be
reflected on such a balance sheet as current assets.
"Code" means the United States Internal Revenue Code of 1986,
as amended.
"Commitment Letter" means the letter dated September 17, 1996,
addressed to Allied, relating to senior credit facilities in an
aggregate principal amount of $1,225,000,000 to be provided by Goldman
Sachs Credit Partners L.P., Citicorp USA, Inc. and Credit Suisse, as
initial lenders, in connection with, and conditioned upon consummation
of, the Acquisitions, subject to the satisfaction of other conditions
and upon the terms set forth therein including attachments thereto.
"Competition Act" means the Canadian federal Competition Act,
R.S.C. 1985, c. C-34, as amended.
"Competition Act Director" means the Canadian Director of
Investigation and Research appointed under the Competition Act.
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"Confidentiality Agreement" means the confidentiality
agreement dated as of July 3, 1996, as amended, between Allied and
Laidlaw.
"Current Market Price" per share of Allied Common Stock on any
specified date means the average daily market prices (determined as
set forth below in this definition), of the Allied Common Stock for
the 20 consecutive Trading Days ending on the third Trading Day before
that date. The market price for each such Trading Day shall be the
average of the last sale prices on such Trading Day on all stock
exchanges and the Nasdaq Stock Market on which the Allied Common Stock
may then be listed or admitted for quotation, respectively; provided,
that if no sale takes place on any such Trading Day on any such
exchange or the Nasdaq Stock Market, the average of the closing bid
and asked prices on such day as officially quoted thereon shall be
used, or, if Allied Common Stock is not then listed or admitted for
quotation on any stock exchange or the Nasdaq Stock Market, the market
price for each Trading Day shall be the average of the reported bid
and asked prices on such day on the over-the-counter market, or, if
Allied Common Stock is not quoted on the over-the- counter market, the
market price for each Trading Day shall be the average of the bid and
asked prices furnished by any member of the National Association of
Securities Dealers selected by Allied.
"Damages" means all obligations, claims, liabilities, damages,
penalties, deficiencies, losses, investigations, proceedings,
judgments, fines, and reasonable costs and expenses (including, but
not limited to, reasonable costs and expenses incurred in connection
with the performance of obligations, interest, bonding and court costs
and attorneys', accountants', engineers', consultants' and
investigators' fees and disbursements) and disbursements incurred in
connection with any investigation or defense of any of the foregoing.
"Debenture Exchange Agreement" means the Debenture Exchange
Agreement entered into by Laidlaw and Allied Finance in substantially
the form of Exhibit M to this Agreement.
"Emcon Environmental Report" has the meaning specified in
Section 6.6.
"Environmental Claim" means any claim by a Person alleging or
imposing actual or potential liability (including potential liability
for any investigatory cost, containment or oversight cost, control
cost, prevention cost, remediation cost, cleanup cost, governmental
response cost, natural resources damage, toxic tort claim, property
damage, personal injury, or penalty) arising out of, based on,
resulting from or relating to (i) the presence, storage, transport,
disposal, use, discharge, release or threatened release of any
Hazardous Substance at any location, whether or not owned by the
Person against which
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the claim is made, or (ii) circumstances forming the basis for any
liability under, or any violation or alleged violation of, any
Environmental Law.
"Environmental Laws" means all applicable U.S. or Canadian
federal, state, provincial, local and other foreign Laws, including
common Laws and administrative or judicial interpretations of those
Laws by any Governmental Entity, and published non-legally binding
policies and guidelines of any Canadian Governmental Entity, relating
to the preservation of natural resources, pollution or the protection
of human health and safety from the effects of pollution or the
environment (which includes its ambient air, surface water, ground
water, land surface or subsurface strata), including Laws relating to
emissions, discharges, releases or threatened releases of Hazardous
Substances, or otherwise relating to the manufacture, processing,
distribution, use, existence, treatment, storage, disposal, transport,
recycling, reporting or handling of Hazardous Substances, but not
including zoning and land use Laws.
"Environmental Permits" means all permits, licenses,
registrations, certifications, exemptions, approvals and other
authorizations of or by any Governmental Entity required under any
Environmental Law for any Acquired Subsidiary, or Allied or any of its
Subsidiaries, as the case may be, to conduct its or their operations
as presently conducted.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means, with respect to any Person, any trade
or business, whether or not incorporated, which together with that
Person would be deemed a single employer within the meaning of Section
4001 of ERISA or Section 414 of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated under
such Act.
"FTC" means the United States Federal Trade Commission.
"Governmental Entity" means any U.S., Canadian, state,
territorial, federal, provincial, local or foreign court, executive
office, legislature, governmental agency or ministry, commission, or
administrative, regulatory or self-regulatory authority or
instrumentality.
"Guaranties" means the guaranties of the Allied Finance
Debentures which are to be entered into by Allied in substantially the
form of Exhibits H-1 and H-2, respectively, attached to this
Agreement.
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"Hazardous Substances" means chemicals, pollutants,
contaminants, wastes (including ambient wastes, hazardous wastes and
liquid industrial wastes), or other substances (including toxic,
deleterious or hazardous substances), as defined, listed or regulated
pursuant to Environmental Laws, including, asbestos or
asbestos-containing materials, polychlorinated biphenyls, pesticides
and oils, and petroleum and petroleum products (as those exemplary
terms are defined in or regulated under the United States National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
Sections 300.1 et seq. and other Environmental Laws).
"High Yield Event Notice" has the meaning specified in Section
15.4.
"Highly Confident Letter" means the letter dated September 17,
1996, from Goldman, Sachs & Co. and Citicorp Securities, Inc. to
Allied, in which Goldman, Sachs & Co. and Citicorp Securities, Inc.
represent that they are highly confident of their ability to complete
the sale in a private placement or public offering of unsecured
subordinated promissory notes of Allied U.S. in an aggregate principal
amount of at least $475,000,000 in connection with, and conditioned
upon consummation of, the Acquisitions, subject to the satisfaction of
the other conditions and upon the terms set forth therein.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"ICA Minister" means the Minister responsible for
administering the Investment Canada Act.
"Income Tax Act" means the Canadian federal Income Tax Act,
R.S.C. 1985 c. 1, as amended.
"Indebtedness" means with respect to any Person at any date,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond,
debenture, letter of credit or similar instrument, (c) all obligations
of such Persons with respect to guarantees, (d) all obligations of
such Person under leases of property which are required to be
capitalized under U.S. GAAP, (e) all obligations of such Person in
respect of acceptances issued or created for the account of such
Person (other than endorsements in the ordinary course of business),
(f) all obligations in respect of interest rate swaps or other
interest rate hedging products or foreign currency exchange agreements
or exchange rate hedging arrangements, (g) all obligations in respect
of reimbursement obligations
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under letters of credit, and (h) all liabilities of the type referred
to in clauses (a) through (g) above that are secured by any lien,
charge, security interest or encumbrance on any property owned by such
Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Intercompany Agreements" means all contracts, agreements,
policies, practices and understandings, whether written or oral,
between any one or more of the Acquired Subsidiaries, on the one hand,
and any one or more members of the Laidlaw Group other than the
Acquired Subsidiaries, on the other hand, relating to any sharing or
allocation of expenses, personnel, services or facilities, including
the Tax Allocation Agreements but specifically excluding the
Intercompany Waste Agreements.
"Intercompany Indebtedness" means, at any date, all amounts
owed on that date by an Acquired Subsidiary, or any obligation of an
Acquired Subsidiary, contingent or otherwise on that date, to Laidlaw
or any other member of the Laidlaw Group other than the Acquired
Subsidiaries, including under any Tax Allocation Agreement or other
Intercompany Agreement, but excluding all amounts owed by any Acquired
Subsidiary to any member of the Laidlaw Group under any Intercompany
Waste Agreement.
"Intercompany Investment" means, at any date, any equity
interests in any Acquired Subsidiary, except the LWSI Shares, the LWSC
Shares, the LMS Shares and the common or ordinary shares of each other
Acquired Subsidiary.
"Intercompany Receivable" means, at any date, all amounts owed
on that date to an Acquired Subsidiary by Laidlaw or any other member
of the Laidlaw Group other than the Acquired Subsidiaries, including
under any Tax Allocation Agreement or other Intercompany Agreement.
"Intercompany Waste Agreements" means those certain agreements
relating to the handling of waste by certain of the Acquired
Subsidiaries as described on Schedule III attached to this Agreement.
"Investment Canada Act" means the Investment Canada Act,
R.S.C. 1985, c. C-28, as amended.
"Laidlaw Disclosure Schedule" means the Disclosure Schedule
signed for identification purposes only by the respective Presidents,
Chief Executive Officers or Senior Vice Presidents of each of the
Laidlaw Sellers, which the Laidlaw Sellers have delivered to the
Allied Parties on or before the date of this Agreement, and which
contains information relevant to the representations and warranties
made by the Laidlaw Sellers in Article IV.
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"Laidlaw Group" means, at any date, Laidlaw and all of its
Affiliates at that date (but excluding after the Closing, the Acquired
Subsidiaries), and "member of the Laidlaw Group" refers to Laidlaw or
any such Affiliates.
"Laidlaw Guaranty" means any guaranty, performance guaranty,
bond, performance bond, suretyship arrangement, surety bond, credit,
letter of credit, reimbursement agreement or other undertaking,
deposit commitment or arrangement by which any member of the Laidlaw
Group is or may be primarily, secondarily, contingently or
conditionally liable for or in respect of (or which creates,
constitutes or evidences a Lien on any of the assets or properties of
any member of the Laidlaw Group which secures the payment or
performance of) any present or future liability or obligation of any
Acquired Subsidiary as set forth on in Section 4.19 (viii) of the
Laidlaw Disclosure Schedule.
"Laidlaw Issuer Bank" means any bank or other financial
institution which is the issuer of a letter of credit which is a
Laidlaw Reclamation Guaranty.
"Laidlaw Sellers" means Laidlaw and LTI, together.
"Laidlaw Subscription Agreement" means the agreement among
Allied, Allied Finance, Laidlaw and LTI pursuant to which LTI has
agreed to subscribe for shares of the Allied Common Stock upon certain
conditions therein set forth, which shall be in substantially the form
of Exhibit D.
"Latest Allied Balance Sheet" has the meaning specified in
Section 5.9.
"Law" means a law, statute, ordinance, rule, code or
regulation enacted or promulgated, or order, directive, instruction or
other legally binding guideline or policy issued or rendered by, any
Governmental Entity.
"Leased Assets" means those assets described on Schedule V to
this Agreement which are owned by Laidlaw or another member of the
Laidlaw Group (other than the Acquired Subsidiaries) and leased to the
Acquired Subsidiaries.
"LESL" means Laidlaw Environmental Services Ltd., an Ontario
corporation, a wholly owned subsidiary of Laidlaw and a Retained
Subsidiary.
"Lien" means a lien, mortgage, deed of trust, deed to secure
debt, pledge, hypothecation, assignment, deposit arrangement,
easement, preference, priority, assessment, security interest, lease,
sublease, charge, claim, adverse claim, levy,
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interest of other Persons, or other encumbrance of any kind (including
any conditional sale or other title retention agreement having the
same economic effect as any of the foregoing).
"LMS Shares" means all of the common or ordinary shares in the
issued and outstanding share capital of LMS which are 100% owned by
Laidlaw.
"LMT" means Laidlaw Med Trade Medical Services Inc., a British
Columbia corporation, an Acquired Canadian Subsidiary, and a 55% owned
Subsidiary of LMS.
"LTI U.S. Consolidated Tax Group" means the affiliated group
of corporations within the meaning of Section 1504(c) of the Code, of
which LTI is the common parent corporation, which files a consolidated
Tax Return for U.S. federal income Tax purposes, and which includes
LTI, the Acquired U.S. Subsidiaries, and certain of the Retained
Subsidiaries.
"LWSC Group Subsidiaries" means LWSC and all of its
Subsidiaries which are Acquired Subsidiaries.
"LWSC Shares" means all of the common or other shares, C$1.00
par value, in the issued and outstanding share capital of LWSC.
"LWSI Group Subsidiaries" means LWSI and all of its
Subsidiaries which are Acquired Subsidiaries.
"LWSI Shares" means all of the issued and outstanding shares
of Common Stock, $1.00 par value per share, of LWSI, which are all
owned by LTI.
"Mailing Date" has the meaning specified in Section 7.5.
"Material Adverse Effect" means (i) when used with reference
to the Acquired Subsidiaries, a material adverse effect on the
financial condition, business, assets, prospects or results of
operations of the Acquired Subsidiaries taken as a whole, (ii) when
used with reference to the Laidlaw Sellers, a material adverse effect
on their ability to perform their obligations under this Agreement or
any Ancillary Agreement to which any of them is a party, (iii) when
used with reference to Allied and its Subsidiaries, a material adverse
effect on the financial condition, business, assets, prospects or
results of operations of Allied and its Subsidiaries (including from
and after the Closing, the Acquired Subsidiaries) taken as a whole,
and (iv) when used with reference to the Allied Parties, a material
adverse effect on their ability to perform their obligations
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under this Agreement or any Ancillary Agreement to which any of them
is a party.
"Medical Waste" means waste generated by health care or
health care related facilities that is or may be contaminated with a
potentially infectious agent or other potentially hazardous material.
"Offset Letter Agreement" means the letter agreement dated the
Closing Date among Allied, Allied Finance, Laidlaw and LTI, in
substantially the form of Exhibit N attached to this Agreement, to be
executed and delivered pursuant to Section 3.3.
"Ontario Securities Act" means the Securities Act (Ontario),
R.S.O. 1990, c.S.5, as amended.
"Option Assets" means those assets which are the subject of
the letter agreement relating to the option to purchase certain assets
granted to Allied by Laidlaw referred to in Section 16. 3 of this
Agreement.
"Permitted Liens" means (i) those Liens set forth in Section
4.11 of the Laidlaw Disclosure Schedule or Section 5.12 of the Allied
Disclosure Schedule, as applicable, (ii) those Liens reflected in the
Allied SEC Filings, in the case of the Allied Parties and their assets
or properties, (iii) any Lien that is set forth in the title reports
or title insurance binders that have been made available to the Allied
Parties by the Laidlaw Sellers relating to any interest in real
property owned by an Acquired Subsidiary, (iv) Liens for water and
sewer charges and current taxes not yet due and payable or being
contested in good faith, and (v) other Liens (including, mechanics',
couriers', workers', repairers', materialmen's, warehousemen's and
other similar Liens) arising in the ordinary course of business as
would not in the aggregate materially adversely affect the value of,
or materially adversely interfere with the use of, the property
subject thereto.
"Person" means an individual, corporation, partnership,
association, joint stock company, limited liability company,
Governmental Entity, business trust, unincorporated organization, or
other legal entity.
"Post-Closing Tax Period" means any Tax period (or portion
thereof) beginning after the close of business on the Closing Date.
"Pre-Closing Laidlaw Insurance Claims" means any U.S.
liability, personal injury, property damage, workers compensation or
other similar claim (other than health and welfare insurance claims)
made against any Acquired Subsidiary by any Person with respect to a
loss, damage, claim, incident or
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occurrence which occurred before the time of Closing, including any
such matter which was incurred but not reported on or before the time
of Closing.
"Pre-Closing Tax Period" means any Tax period (or portion
thereof) ending on or before the close of business on the Closing
Date.
"Release" means the Release Agreement required to be delivered
to the Acquired Subsidiaries as provided in Section 3.3 (iv).
"Remainder High Yield Securities" has the meaning specified
in Section 15.4.
"Retained Land" means the real property owned by LWSC, more
specifically identified on Schedule IV attached to this Agreement.
"Retained Subsidiaries" means (i) Laidlaw Chem-Waste, Inc., a
Delaware corporation and a wholly owned Subsidiary of LWSI, (ii) all
of the direct and indirect Subsidiaries of Laidlaw Chem-Waste, Inc.
(all of which are specifically listed and identified on the attached
Schedule II), (iii) LESL, and (iv) all of the direct and indirect
Subsidiaries of LESL (all of which are specifically listed and
identified on the attached Schedule II).
"Revenue Canada" means Revenue Canada, Customs, Excise and
Taxation, the Canadian federal Taxing Authority.
"SEC" means the United States Securities and Exchange
Commission or any successor agency.
"Securities Act" means the United States Securities Act of
1933, as amended, and the rules and regulations of the SEC promulgated
thereunder.
"Senior Subordinated Debentures" means the senior subordinated
debentures to be issued by Allied U.S. in connection with the
financing contemplated by the Highly Confident Letter.
"SFAS 109" means the United States standard on accounting for
income taxes effective September 1, 1993 promulgated by the Financial
Accounting Standards Board.
"Solid Waste" means any waste which can be lawfully disposed
of in a landfill regulated under Subtitle D of the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA").
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"Solid Waste Business" means (i) the collection, compaction,
transportation, resource recovery, storage, recycling or disposal of
Solid Waste and Medical Waste, and (ii) the methane gas collection and
electricity generation and distribution operations related to the
disposal of Solid Waste.
"Stock Registration Agreement" means the Stock Registration
Agreement to be entered into at the Closing among Allied, Laidlaw and
LTI as provided in Section 3.3.
"Subsidiary" of a Party means an Affiliate of that Party more
than 50% of the aggregate voting power (or of any other form of voting
equity interest in the case of a Person that is not a corporation) of
which is beneficially owned by that Party directly or indirectly
through one or more other Persons.
"Substitute Financing Election" has the meaning specified in
Section 15.4.
"Substitute Financing Notice" has the meaning specified in
Section 15.4.
"Substitute Financing Purchase Price" has the meaning
specified in Section 15.4.
"SWM Group Financial Statements" means all financial
statements of the Acquired Subsidiaries or specified groups of
Acquired Subsidiaries delivered to the Allied Parties under Sections
4.8 and 6.4, the terms "SWM Group Consolidated Financial Statements,"
"SWM Group Combined Financial Statements," "SWM Group May 31 Combined
Financial Statements," and "SWM Group Separate Company Financial
Statements" have the meanings specified in Sections 4.8 and 6.4 and
the term "SWM Group Audited Combined Financial Statements" is defined
in Section 6.5.
"SWM Group Income Taxes" means all Taxes, including United
States and Canadian federal, state, provincial and local Taxes for
which any Acquired Subsidiary is or may be directly or indirectly
liable (and including interest and penalties thereon), based on or
measured by the income or profits of any Acquired Subsidiary or the
LTI U.S. Consolidated Tax Group.
"SWM Group Landfill" means any landfill owned, occupied,
leased or operated by, or under the management or control of, an
Acquired Subsidiary as set forth in Schedule 4.12 of the Laidlaw
Disclosure Schedule.
"Tax" means any tax of any kind, however denominated,
including any interest, penalties, fines or other additions to tax
that may become payable in
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respect thereof or in respect of a failure to comply with any
requirement relating to any Tax Return, imposed by any United States
or Canadian federal, territorial, state, provincial, local or
non-United States or non- Canadian Governmental Entity, including all
income, gross income, gross receipts, profits, goods and services,
social security, health, old age security, Canadian Pension Plan,
Quebec Pension Plan, sales and use, ad valorem, excise, custom,
franchise, business license, property, occupation, real property
gains, payroll and employee withholding, unemployment or employment
insurance, real and personal property, stamp, environmental, transfer,
workers' compensation, payroll, severance, alternative minimum,
windfall, and capital taxes, premiums, surtaxes, charges, levies,
assessments, reassessments, and other obligations of the same or a
similar nature to any of the foregoing.
"Tax Allocation Agreements" means all contracts, agreements,
policies, practices, intercompany procedures and understandings,
whether written or oral, between any Acquired Subsidiary and any other
Person (including another Acquired Subsidiary) by which all or any
portion of any U.S. or Canadian federal, state, provincial or local
income Tax is allocated to or shared or required to be paid by any
Acquired Subsidiary.
"Tax Returns" means all tax returns, declarations, reports,
estimates, information returns and statements required to be filed
with any Taxing Authority, or provided to any partner, shareholder,
joint venturer or member under U.S. or Canadian federal, state,
provincial, local or foreign Laws (including reports with respect to
backup withholding and payments to Persons other than Taxing
Authorities), and annual tax returns or information returns on behalf
of employee benefit plans sponsored by Laidlaw or Allied, as the case
may be, or any of their respective ERISA Affiliates.
"Taxing Authority" means any Governmental Entity responsible
for the imposition, assessment, enforcement or collection of any Tax.
"Trading Day" means any day during the course of which the
principal securities exchange (or the Nasdaq Stock Market), as the
case may be, on which the Allied Common Stock is listed or admitted
for quotation is open for the exchange of securities.
"Unadjusted LMS Consideration" has the meaning specified in
Section 2.3.
"Unadjusted LWSC Consideration" has the meaning specified in
Section 2.3.
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"Unadjusted LWSI Consideration" has the meaning specified in
Section 2.2.
"U.S. Acquisition" means the acquisition by Allied U.S. of the
LWSI Shares from LTI as contemplated in Section 2.1.
"$" or "U.S. dollars" refers to lawful currency of the United
States.
"U.S. GAAP" means United States generally accepted accounting
principles consistently applied throughout the specified period and
the immediately preceding comparable period.
"Wages" has the meaning given such term by Section 3401(a) of
the Code.
"WARN Act" means the United States Worker Adjustment and
Retraining Notification Act of 1988.
"Waste Services Management Agreement" means the Waste Services
Management Agreement, substantially in the form attached hereto as
Exhibit F, to be entered into at the Closing between Laidlaw, Laidlaw
Environmental Services, Inc., LESL and Allied as provided in Section
3.3(iii).
1.2 Interpretation. Capitalized terms defined in this Agreement
are equally applicable to both their singular and plural forms. References to
a designated "Article" or "Section" refer to an Article or Section of this
Agreement, unless otherwise specifically indicated. In this Agreement,
"including" is used only to indicate examples, without limitation to the
indicated examples, and without limiting any generality which precedes it.
1.3 Knowledge. When a representation and warranty in Article IV
or Article V is made to the "knowledge" of a Party, it means receipt of notice
by, or actual knowledge, of any of the following officers of that Party: the
Chief Executive Officer, Chief Financial Officer, and General Counsel (or
Vice-President-Legal in the case of Allied). The "knowledge" of any Laidlaw
Party shall also be deemed to include such "knowledge" of the Chief Executive
Officer and Chief Financial Officer of each of LTI, LWSI, LWSC, LMT and LMS,
and the Chief Compliance Officer for environmental matters and the Director of
Human Resources of Laidlaw. The "knowledge" of any Allied Party shall also be
deemed to include such "knowledge" of the Chief Compliance Officer for
environmental matters and the Director of Human Resources of Allied. No
representation or warranty made by a Party may be qualified or limited by
reference to the "knowledge" of such Party unless due inquiry has actually been
made by the above referenced officers of such Party.
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ARTICLE II
THE ACQUISITIONS
2.1 Sales and Purchases of Shares. On the terms and subject to
the conditions of this Agreement:
(i) LTI agrees to sell, free of all Liens, and Allied
U.S. agrees to purchase, the LWSI Shares; and
(ii) Laidlaw agrees to sell, free of all Liens, and Allied
Canada agrees to purchase, the LWSC Shares and the LMS Shares.
2.2 Consideration for LWSI Shares. Subject to adjustment after
the Closing as provided in Section 2.4, the consideration payable by Allied
U.S. for the LWSI Shares (the "Unadjusted LWSI Consideration") shall be:
(i) $1,200,000,000 payable in cash at the Closing; and
(ii) 7,225,000 shares of Allied Common Stock to be issued
and delivered by Allied to LTI at the Closing.
2.3 Consideration for LWSC and LMS Shares. Subject to adjustment
after the Closing as provided in Section 2.4:
(i) the consideration payable by Allied Canada for the
LWSC Shares (the "Unadjusted LWSC Consideration") shall be (x) the
Allied Canada Debentures, (y) the Allied Warrant, and (z) 5,500,000
shares of Allied Common Stock; and
(ii) the consideration payable by Allied Canada for the
LMS Shares (the "Unadjusted LMS Consideration") shall be 1,875,000
shares of Allied Common Stock.
Pursuant to the Debenture Exchange Agreement, immediately following the
delivery by Allied Canada of the Unadjusted LWSC Consideration, Allied Finance
will purchase from Laidlaw, and Laidlaw will sell and transfer to Allied
Finance, the Allied Canada Debentures in exchange for the Allied Finance
Debentures.
2.4 Post-Closing Adjustment of Working Capital. The consideration
payable pursuant to Sections 2.2 and 2.3 shall be subject to adjustment after
the Closing as provided in this Section 2.4. On or before 20 Business Days
following the Closing, the
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Laidlaw Parties shall calculate and deliver to the Allied Parties a written
statement (the "Laidlaw Settlement Statement") setting forth the amount of the
Closing Date Working Capital.
The Laidlaw Settlement Statement shall be calculated by Laidlaw and
certified in writing by the Chief Financial Officer of Laidlaw. In preparing
the Laidlaw Settlement Statement, Laidlaw shall use U.S. GAAP, consistent with
the SWM Group May 31 Combined Financial Statements and the SWM Group Audited
Combined Financial Statements in all respects. Allied will grant to Laidlaw
reasonable access to the books and records of the Acquired Subsidiaries after
the Closing for the purpose of determining the Laidlaw Settlement Statement.
The Laidlaw Settlement Statement shall be final and binding on the
Allied Parties unless, within 30 Business Days following the date of delivery
to them of the Laidlaw Settlement Statement, Allied notifies Laidlaw in writing
(a "Notice of Objection") that Allied does not accept as correct the amount of
any calculation reflected in the Laidlaw Settlement Statement. If Allied
timely delivers a Notice of Objection to Laidlaw, then Allied and Laidlaw shall
respectively instruct Arthur Andersen L.L.P. and Coopers & Lybrand to attempt
to reach mutual agreement as to each disputed calculation made in the Laidlaw
Settlement Statement. If within ten Business Days after the matter has been
referred to such accounting firms, they have not reached agreement as to all
disputed calculations, then Arthur Andersen L.L.P. and Coopers & Lybrand shall
be promptly instructed by Allied and Laidlaw, respectively, to designate a
third accounting firm of internationally recognized standing, which (acting as
experts and not as arbitrators) shall be instructed to make, as soon as
practicable after the matter is referred to such firm, all calculations which
are in dispute, and the determination of such third accounting firm in the
matter shall be final and binding on all Parties.
Once all amounts required to be calculated under the preceding
provisions of this Section 2.4 have been finally determined under this Section
2.4, and if the Closing Date Working Capital is a deficit, then the Laidlaw
Parties shall pay to Allied in the manner described below the amount of such
deficit, which payment shall be accounted for, as a reduction of the Unadjusted
LWSI Consideration, the Unadjusted LWSC Consideration, the Unadjusted LMS
Consideration or a combination thereof, as the case may be. The payments
required by this Section 2.4 shall be made in cash, within two Business Days
after the amount or amounts of the adjustment or adjustments have been finally
determined as provided in this Section 2.4, by wire transfers to Allied (to
accounts designated by it in writing at least one Business Day before the day
on which the transfer is required to be made), of U.S. dollar immediately
available funds. The fees of all accounting firms engaged to make any
calculations under this Section 2.4 shall be paid by (i) Laidlaw if the effect
of all disputed calculations made by such accounting firms results in
adjustments in favor of Allied by $250,000 or more in
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comparison to the adjustments which would have been made had Allied accepted
the Laidlaw Settlement Statement or (ii) Allied in all other cases.
ARTICLE III
THE CLOSING AND RELATED MATTERS
3.1 The Closing. The respective sales and purchases of the LWSI
Shares, the LWSC Shares and the LMS Shares (the "Closing") shall take place
concurrently at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New
York, New York at 10:00 a.m. local time on the Closing Date. At the Closing:
(i) LTI shall deliver to Allied U.S. the certificates
evidencing the LWSI Shares, duly endorsed in blank or accompanied by
duly executed stock powers, and in proper form for registration in the
name of Allied U.S., against delivery by Allied U.S. of the Unadjusted
LWSI Consideration;
(ii) Laidlaw shall deliver to Allied Canada the
certificates evidencing the LWSC Shares, duly endorsed in blank or
accompanied by duly executed stock powers, and in proper form for
registration in the name of Allied Canada, against payment by Allied
Canada of the Unadjusted LWSC Consideration; and
(iii) Laidlaw shall deliver to Allied Canada the
certificates evidencing the LMS Shares, duly endorsed in blank or
accompanied by duly executed stock powers, and in proper form for
registration in the name of Allied Canada, against payment by Allied
Canada of the LMS Consideration.
All cash amounts payable by Allied U.S. at the Closing shall be
payable by wire transfers, to accounts designated in writing by Laidlaw at
least two Business Days before the Closing Date, of U.S. dollar funds
immediately available in Toronto.
3.2 Actions in Contemplation of Closing. On or before the Closing
Date, and in any event not later than immediately before the Closing:
(i) LWSI shall transfer to LTI, as a dividend on the LWSI
Shares, all of the issued and outstanding capital stock of Laidlaw
Chem-Waste, Inc., a Retained Subsidiary;
(ii) LWSC shall transfer to Laidlaw, by means of a
purchase, all of the issued and outstanding capital stock of LESL;
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(iii) the Acquired Subsidiaries which own the Retained Land
and the Option Assets shall transfer to Laidlaw, by means of a
purchase, the Retained Land and the Option Assets;
(iv) Laidlaw or LTI will contribute to the capital of each
of the Acquired Subsidiaries any and all Intercompany Indebtedness of
each of the Acquired Subsidiaries (net of any Intercompany Receivables
of each of the Acquired Subsidiaries) as of the Closing Date;
(v) all Tax Allocation Agreements shall be terminated as
to all Acquired Subsidiaries without any further liability thereunder
on the part of any Acquired Subsidiaries;
(vi) all Intercompany Agreements shall be terminated as to
all Acquired Subsidiaries without any further liability thereunder on
the part of any Acquired Subsidiary;
(vii) the Liens in favor of Laidlaw International Finance
Corporation described in Section 4.11 of the Laidlaw Disclosure
Schedule shall be terminated and released of record to the
satisfaction of the Allied Parties and title to the related assets
will be transferred to the Acquired Subsidiary which owns the
equitable title to such assets;
(viii) Laidlaw will transfer to an Acquired Canadian
Subsidiary designated at the Closing, the Leased Assets, at no cost to
Allied;
(ix) all remaining Intercompany Investments shall be
eliminated except as specifically agreed to by Allied; and
(x) Laidlaw shall cause to be delivered to Allied the
resignation of Kenneth L. Lyons as sole director and President of the
Acquired Subsidiaries, and shall assume and perform in full all
obligations, agreements and commitments of any type relating to the
resignation or the employment of Mr. Lyons arising before the Closing.
3.3 Other Actions at the Closing. In addition to the consummation
of the Acquisitions, the following actions shall take place at the Closing:
(i) Allied, Allied Finance, Laidlaw and LTI shall enter
into the Laidlaw Subscription Agreement in substantially the form
attached as Exhibit D to this Agreement;
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(ii) Allied, Laidlaw and LTI shall enter into a Stock
Registration Agreement in substantially the form of Exhibit E attached
to this Agreement, pertaining to the registration of the Allied Common
Shares, the Additional Allied Common Shares, the Allied Warrant and
the Allied Warrant Shares;
(iii) Allied and Laidlaw shall enter into a Waste Services
Management Agreement in substantially the form of Exhibit F attached
to this Agreement;
(iv) the Laidlaw Sellers, the Retained Subsidiaries, the
Allied Group and the Acquired Subsidiaries shall enter into a Release
in substantially the form of Exhibit G attached to this Agreement, by
which the Laidlaw Sellers will release each Acquired Subsidiary from
all claims and causes of action other than those specified in Exhibit
G;
(v) Laidlaw and Allied Finance shall enter into the
Debenture Exchange Agreement in substantially the form of Exhibit M
attached to this Agreement;
(vi) Allied shall execute and deliver to Laidlaw the
Guaranties, which shall be in substantially the form of Exhibits H-1
and H-2 attached to this Agreement, by which Allied will guaranty the
payment of the Allied Finance Debentures; and
(vii) Allied, Allied Finance, Laidlaw and LTI shall execute
and deliver the Offset Letter Agreement in substantially the form of
Exhibit N attached to this Agreement, by which Laidlaw will agree to
certain offsets against the Allied Finance Debentures.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
LAIDLAW SELLERS
The Laidlaw Sellers jointly and severally represent and warrant to the
Allied Parties that:
4.1 Organization of Laidlaw Sellers. Each Laidlaw Seller is a
corporation duly organized and validly existing under the Laws of Canada, in
the case of Laidlaw, or duly organized, validly existing and in good standing
under the Laws of the State of Delaware, in the case of LTI.
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4.2 Authority Relative to this Agreement. Each Laidlaw Party has
the requisite corporate power to enter into and perform its obligations under
this Agreement and each Ancillary Agreement to which it will be a party. The
execution and delivery of this Agreement and each Ancillary Agreement to which
the respective Laidlaw Parties will be parties, the consummation of the
Acquisitions, in the case of the Laidlaw Sellers, and the other transactions
contemplated in Articles II and III, in the case of all Laidlaw Parties, have
been duly authorized by the respective Boards of Directors of the Laidlaw
Parties, and no other corporate proceedings on the part of any Laidlaw Party,
including any approval by the stockholders of Laidlaw, are necessary to
authorize this Agreement, any Ancillary Agreement to which any Laidlaw Party
will be a party, the consummation of the Acquisitions, or the other
transactions contemplated in Articles II and III. This Agreement has been duly
executed and delivered by each Laidlaw Party. Each Ancillary Agreement
required to be executed and delivered by a Laidlaw Party at the Closing will
be, upon its execution and delivery as provided in Section 3.3 or elsewhere in
this Agreement, duly executed and delivered by such Laidlaw Party. Assuming
the valid authorization, execution and delivery of this Agreement (and each
Ancillary Agreement to which an Allied Party will be a party) by each Allied
Party, this Agreement is, and each Ancillary Agreement to which a Laidlaw Party
is a party will be, upon its execution and delivery at the Closing as provided
in Section 3.3 or elsewhere in this Agreement, a valid and binding obligation
of such Laidlaw Party, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting creditors' rights generally
or by equitable principles.
4.3 No Violations. The execution, delivery and performance of
this Agreement and the applicable Ancillary Agreements by the respective
Laidlaw Sellers and the consummation of the Acquisitions and the other
transactions contemplated in Articles II and III will not:
(i) constitute a breach or violation of or default under
the charter or bylaws (or similar organizational documents) or
internal rules or regulations governing the conduct of corporate
actions of any Laidlaw Party or any Acquired Subsidiary or any Law
applicable to any Laidlaw Party or any Acquired Subsidiary; or
(ii) except as accurately reflected in Section 4.3 of the
Laidlaw Disclosure Schedule, violate or conflict with, or result in a
breach of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or
result in a right of termination under, or result in the creation of
any Lien upon the LWSI Shares, the LWSC Shares, the LMS Shares or any
of the assets or properties of any Acquired Subsidiary under, any
contract, indenture, loan document, license, permit, order, decree or
instrument
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to which any Laidlaw Seller or any Acquired Subsidiary is a party or
by any of them or their assets or properties are bound.
4.4 Consents and Approvals. No consent, order, approval, waiver
or authorization of, or registration, application, declaration or filing with,
any Governmental Entity or other Person is required with respect to any Laidlaw
Party or any Acquired Subsidiary in connection with the execution and delivery
of this Agreement or any Ancillary Agreement, the consummation of the
Acquisitions, or the other transactions contemplated in Articles II and III,
except for:
(i) the HSR Act, Competition Act and Investment Canada
Act filings and approvals contemplated in this Agreement;
(ii) the consents and approvals described on Schedule 4.4
of the Laidlaw Disclosure Schedule; and
(iii) other cases, considered individually and in the
aggregate, in which any failure to make any such registration,
application, declaration or filing or obtain any such consent, order,
approval, waiver or other authorization could not have a Material
Adverse Effect on the Acquired Subsidiaries or the Laidlaw Sellers.
4.5 Acquired Subsidiaries. Section 4.5 of the Laidlaw Disclosure
Schedule sets forth with respect to each Acquired Subsidiary (i) its
jurisdiction of incorporation, (ii) each jurisdiction in which it is qualified
to do business as a foreign corporation, (iii) its authorized, issued and
outstanding shares of capital stock, and (iv) the holder or holders of all of
its issued and outstanding shares of capital stock. Each Acquired Subsidiary
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has full authority and
corporate power to conduct its business as it is currently being conducted.
Each Acquired Subsidiary is duly qualified to do business, and in good
standing, in each jurisdiction where the nature of its properties or business
requires such qualification, except for failures to be so qualified which could
not, individually or in the aggregate, have a Material Adverse Effect on the
Acquired Subsidiaries.
All of the issued and outstanding shares of capital stock of each
Acquired Subsidiary are validly issued, fully paid and nonassessable, and are
owned of record and beneficially, and free of any Liens, by Laidlaw, LTI or
another Acquired Subsidiary (as reflected in Schedule 4.5 of the Laidlaw
Disclosure Schedule), except as otherwise noted in Section 4.5 of the Laidlaw
Disclosure Schedule with respect to LMT (as to which all other stockholders,
and their percentage share of ownership, are identified in Section 4.5 of the
Laidlaw Disclosure Schedule). There are no preemptive rights or outstanding
subscriptions, options, warrants, calls, rights, convertible securities,
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obligations to make capital contributions or advances, voting trust
arrangements, shareholders' agreements (other than as noted in Section 4.5 of
the Laidlaw Disclosure Schedule with respect to LMT) or other agreements,
commitments or understandings relating to the capital stock of any Acquired
Subsidiary.
The Laidlaw Sellers will deliver to the Allied Parties prior to
Closing true and correct copies of the charter and bylaws (or similar
organizational documents) of each Acquired Subsidiary. Each Acquired Canadian
Subsidiary is a "private company" within the meaning of Ontario Securities Act.
4.6 No Other Subsidiaries. No Acquired Subsidiary has any
Subsidiary which is not another Acquired Subsidiary or a Retained Subsidiary.
Except as described in Section 4.6 of the Laidlaw Disclosure Schedule, and
except for other Acquired Subsidiaries and Retained Subsidiaries, no Acquired
Subsidiary owns or is obligated to acquire any investment in any other
corporation, partnership, joint venture or other business entity.
4.7 Conduct of Solid Waste Business. The Laidlaw Group is engaged
in the Solid Waste Business only through the Acquired Subsidiaries, and neither
Laidlaw, any Retained Subsidiary, nor any other member of the Laidlaw Group
conducts any operations associated with, or owns any assets or properties used
in, or holds any permits or licenses used in, the Solid Waste Business, except
for operations which after the Closing Date will be conducted only as permitted
under the Waste Management Services Agreement. None of the Acquired
Subsidiaries is or has been engaged in any business other than the Solid Waste
Business or owns or has owned any assets or properties which are used in any
business other than the Solid Waste Business.
4.8 Financial Statements. The Laidlaw Sellers have delivered to
the Allied Parties:
(i) unaudited consolidated balance sheets of the LWSI
Group Subsidiaries (prepared for the LWSI Group Subsidiaries as a
separate consolidated group of corporations for financial reporting
purposes) at August 31, 1995 and May 31, 1996, and the related
unaudited consolidated statements of operations, stockholder's equity
and cash flows for the LWSI Group Subsidiaries (similarly prepared)
for the respective years ended August 31, 1994 and 1995 and the nine
months ended May 31, 1996;
(ii) unaudited combined balance sheets of the LWSC Group
Subsidiaries and LMS and its Subsidiary (prepared for the LWSC Group
Subsidiaries and LMS and its Subsidiary as a separate combined group
of corporations for financial reporting purposes) at August 31, 1995
and May 31, 1996, and the related unaudited combined statements of
operations, stockholder's
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equity and cash flows for the LWSC Group Subsidiaries and LMS and its
Subsidiary (similarly prepared) for the respective years ended August
31, 1994 and 1995 and the nine months ended May 31, 1996; and
(iii) unaudited combined balance sheets of the LWSI Group
Subsidiaries, the LWSC Subsidiaries and LMS and its Subsidiary at
August 31, 1994, August 31, 1995 and May 31, 1996, and the related
unaudited combined statements of operations, stockholder's equity and
cash flows of the LWSI Group Subsidiaries, the LWSC Group Subsidiaries
and LMS and its Subsidiary for the respective years ended August 31,
1994 and 1995 and the nine months ended May 31, 1996, together with
the related notes thereto.
The SWM Group Financial Statements described in clauses (i) and (ii)
above are collectively referred to in this Agreement as the "SWM Group
Consolidated Financial Statements," the SWM Group Financial Statements
described in clause (iii) above are referred to in this Agreement as the "SWM
Group Combined Financial Statements" and the SWM Group Combined Financial
Statements at May 31, 1996 and for the nine months then ended are referred to
in this Agreement as the "SWM Group May 31 Combined Financial Statements." All
SWM Group Financial Statements are stated in U.S. dollars.
The SWM Group Consolidated Financial Statements have been prepared in
accordance with U.S. GAAP, except for compliance with SFAS 109 and the omission
of explanatory footnote disclosures. The SWM Group Combined Financial
Statements and the SWM Group May 31 Combined Financial Statements have been
prepared by combining the relevant SWM Group Consolidated Financial Statements
in accordance with U.S. GAAP applicable to the preparation of combined
financial statements.
All SWM Group Financial Statements fairly present in all material
respects the separate company, consolidated or combined, as the case may be,
financial position of the respective Acquired Subsidiaries or groups of
Acquired Subsidiaries covered thereby at the respective dates thereof, and the
results of their separate company or consolidated or combined, as the case may
be, operations, stockholder's equity and (except as to the SWM Group Separate
Company Financial Statements) cash flows for the respective Acquired
Subsidiaries or groups of Acquired Subsidiaries covered thereby for the
respective periods indicated, in accordance with U.S. GAAP except for
compliance with SFAS 109 and the omission of explanatory footnote disclosures
as noted above.
4.9 Absence of Certain Changes. Except as set forth in Section
4.9 of the Laidlaw Disclosure Schedule, since May 31, 1996, the Acquired
Subsidiaries have conducted their businesses only in the ordinary course,
consistent with past practice, and there has not occurred a Material Adverse
Effect with respect to the Acquired
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Subsidiaries or any event that could result in a Material Adverse Effect with
respect to the Acquired Subsidiaries.
4.10 No Undisclosed Liabilities. Except as disclosed in the SWM
Group Financial Statements or as set forth in Sections 4.10 and 4.14 of the
Laidlaw Disclosure Schedule, no Acquired Subsidiary has any liabilities or
obligations, known or unknown, fixed or contingent, other than (i) those
liabilities and obligations (other than for borrowed money) arising since May
31, 1996 in the ordinary course of its business and consistent with its past
practice, (ii) liabilities and obligations other than for borrowed money
arising after the date of this Agreement without violation of Sections 6.1 and
6.2, or (iii) liabilities and obligations that, individually or in the
aggregate, could not result in a Material Adverse Effect on the Acquired
Subsidiaries.
4.11 Acquired Subsidiary Properties. The Acquired Subsidiaries
have good and marketable title to their respective properties and assets,
including those reflected in the SWM Group May 31 Combined Financial Statements
(other than properties and assets disposed of in the ordinary course of
business since May 31, 1996, which in the aggregate are not material), free of
all Liens except Permitted Liens and Liens disclosed in Section 4.11 of the
Laidlaw Disclosure Schedule.
4.12 Landfills. Section 4.12 of the Laidlaw Disclosure Schedule
lists each SWM Group Landfill and accurately describes each such landfill by
its city or county and state or province of location, total acreage, permitted
acreage, estimated remaining permitted capacity in tons, estimated or mandated
closure date, and estimated closure, post-closure and reclamation liability at
its projected or mandated closure date (computed at the closure date with and
without discount to present value) and any other recorded or unrecorded
accruals, contingent or otherwise, or reserves related to landfill liabilities
of any type. Section 4.12 of the Laidlaw Disclosure Schedule also lists each
landfill not owned or operated by an Acquired Subsidiary, but to which any
Acquired Subsidiary hauls solid waste.
4.13 Taxes and Tax Returns. Except as described in Section 4.13 of
the Laidlaw Disclosure Schedule:
(i) all Tax Returns required to be filed with any Taxing
Authority with respect to any Pre-Closing Tax Period by or on behalf
of the Acquired Subsidiaries (including the U.S. consolidated income
Tax Returns of LTI) have been duly filed on a timely basis in
accordance with all applicable Laws, or will be timely filed in
accordance with Section 12.2;
(ii) at the time of their filings all such Tax Returns
were or will be complete and correct;
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(iii) there are no Liens for Taxes upon any assets of any
Acquired Subsidiary, except Liens for Taxes not yet due for current
Tax periods ending on or after the Closing Date;
(iv) there are no outstanding deficiencies, assessments or
written proposals for the assessment of Taxes proposed, asserted or
assessed against any Acquired Subsidiary, or for which any Acquired
Subsidiary could be directly or indirectly liable and there is no
basis for any additional assessment or reassessment for any Taxes for
which adequate provision has not been made in the books and records of
the Acquired Subsidiaries;
(v) no extension of the statute of limitations or waiver
of normal reassessment periods on the assessment of any Taxes has been
granted to or on behalf of any Acquired Subsidiary;
(vi) no LWSC Group Subsidiary is or has ever been a
controlled foreign corporation as defined by Code Section 957;
(vii) each Acquired U.S. Subsidiary will be a member of the
LTI U.S. Consolidated Tax Group on the Closing Date;
(viii) Laidlaw and its Affiliates have never owned and do
not now own any shares of Allied, any of its Affiliates or any
predecessor thereof;
(ix) no Acquired Canadian Subsidiary has had a permanent
establishment or income effectively connected with the conduct of a
trade or business in the United States, and no Acquired U.S.
Subsidiary has had a permanent establishment or income effectively
connected with the conduct of a trade or business in Canada; and
(x) no Acquired Subsidiary is a member of any unitary or
combined group for state or provincial tax purposes.
4.14 Litigation. Except as disclosed in Section 4.14 of the
Laidlaw Disclosure Schedule, there is no suit, action, investigation or
proceeding pending or, to the knowledge of the Laidlaw Sellers, threatened
against any of the Acquired Subsidiaries at law or in equity before or by any
Governmental Entity or before any arbitrator or mediator of any kind, that
could have a Material Adverse Effect on the Acquired Subsidiaries, and there is
no judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator or mediator to which any Acquired Subsidiary (or any of its assets
or properties) is subject that could have a Material Adverse Effect on the
Acquired Subsidiaries. There is no suit, action, investigation or proceeding
pending or, to the knowledge of the Laidlaw Sellers, threatened against either
Laidlaw Seller at law
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or in equity before or by any Governmental Entity or before any arbitrator or
mediator of any kind, that could have a Material Adverse Effect on the Laidlaw
Sellers, and there is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator or mediator to which either Laidlaw Seller is
subject that could have a Material Adverse Effect on the Laidlaw Sellers.
Neither Laidlaw Seller has knowledge of any grounds on which any suit, action,
investigation or proceeding of the nature referred to in this Section 4.14
might be commenced with any reasonable likelihood of success.
4.15 Environmental Matters. Except as described in Section 4.15 of
the Laidlaw Disclosure Schedule (as may be updated on or before 5 Business Days
before the Closing), and except to the extent that the inaccuracy of any of the
following, individually or in the aggregate, could not have a Material Adverse
Effect on the Acquired Subsidiaries:
(i) the Acquired Subsidiaries hold, and are in compliance
with and have been in compliance with, all Environmental Permits, and
are otherwise in compliance and have been in compliance with, all
applicable Environmental Laws, and there is no condition that could
prevent or interfere with compliance by the Acquired Subsidiaries with
all Environmental Laws;
(ii) no modification, revocation, reissuance, alteration,
transfer or amendment of any Environmental Permit, or any review by,
or approval of, any Governmental Entity or other Person of any
Environmental Permit is required in connection with the execution or
delivery of this Agreement or any Ancillary Agreement, the
consummation of the Acquisitions, or the operation of the business of
the Acquired Subsidiaries immediately after the Closing;
(iii) no Acquired Subsidiary has received any Environmental
Claim, nor has any Environmental Claim been threatened against any
Acquired Subsidiary;
(iv) no Acquired Subsidiary has entered into, agreed to or
is subject to any outstanding judgment, decree, order or other
directive issued by, or consent arrangement with, any Governmental
Entity under any Environmental Law, including any such judgment,
decree, order or other directive relating to compliance with any
Environmental Law or to the investigation, cleanup, remediation or
removal of Hazardous Substances;
(v) to the knowledge of the Laidlaw Sellers, there are no
circumstances that could give rise to liability under any agreement
with any Person or by operation of law by or under which any Acquired
Subsidiary would be required to defend, indemnify, hold harmless, or
otherwise be
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responsible for any violation by or other liability or expense of such
Person, or alleged violation by or other liability or expense of such
Person, arising under any Environmental Law;
(vi) to the knowledge of the Laidlaw Sellers, there are no
other circumstances or conditions that could give rise to liability or
obligation of any Acquired Subsidiary under any Environmental Law; and
(vii) the liabilities and reserves reflected on the SWM
Group May 31 Combined Financial Statements adequately provide for, in
accordance with U.S. GAAP (x) all future claims and costs for closure,
intermediate capping, post-closure monitoring, investigation and
maintenance, reclamation, remediation, restoration and cleanup of all
SWM Group Landfills (or any landfill or other facility previously
owned, occupied, leased or operated by, or previously under the
management or control of, any Acquired Subsidiary or any landfill to
which an Acquired Subsidiary has transported waste), and (y) all
Environmental Claims against the respective groups of Acquired
Subsidiaries covered by the SWM Group May 31 Combined Financial
Statements.
4.16 Governmental Licenses and Permits; Compliance with Laws.
Except as described in Section 4.16 of the Laidlaw Disclosure Schedule, no
Acquired Subsidiary has received any notice of any revocation or modification
or any license, certification, tariff, permit, registration, exemption,
approval or other authorization by any Governmental Entity, the revocation or
modification of which has had or is reasonably likely to have a Material
Adverse Effect on the Acquired Subsidiaries. The business of each Acquired
Subsidiary complies and has been conducted in compliance with all applicable
Laws, except for violations or failure to comply, if any, that, individually or
in the aggregate, could not have a Material Adverse Effect on the Acquired
Subsidiaries.
4.17 Labor Matters. Section 4.17 of the Laidlaw Disclosure
Schedule lists and describes each collective bargaining agreement covering
employees of any Acquired Subsidiary. Except as disclosed in Section 4.17 of
the Laidlaw Disclosure Schedule, (i) no Acquired Subsidiary is a party to or
bound by any collective bargaining or similar agreement with any labor
organization applicable to employees of any Acquired Subsidiary, (ii) there is
no labor strike, dispute, slowdown, work stoppage, unresolved material labor
union grievance or labor arbitration proceedings pending or, to the knowledge
of the Laidlaw Sellers, threatened against any Acquired Subsidiary, and (iii)
to the knowledge of the Laidlaw Sellers, there are no current union organizing
activities among employees of any Acquired Subsidiary.
Since the enactment of the WARN Act, no Acquired Subsidiary has
effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment
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or one or more facilities or operating units within any site of any employment
or facility of an Acquired Subsidiary. No Acquired Subsidiary has been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar Canadian federal,
state, provincial or local Law. Except as set forth in Section 4.17 of the
Laidlaw Disclosure Schedule, no employees of any Acquired Subsidiary have
suffered an "employment loss" (as defined in the WARN Act) since December 31,
1995.
4.18 Employee Benefit Plans. Section 4.18 of the Laidlaw
Disclosure Schedule sets forth each retirement, pension, bonus, stock purchase,
profit sharing, stock option, deferred compensation, severance or termination
pay, insurance, medical, hospital, dental, vision care, drug, sick leave,
disability, salary continuation, legal benefits, unemployment benefits,
vacation, incentive or other compensation plan or arrangement or other employee
benefit which is maintained, or otherwise contributed to or required to be
contributed to, by any of the Acquired Subsidiaries, any member of the Laidlaw
Group or any ERISA Affiliate of Laidlaw for the benefit of employees or former
employees and directors or former directors of any of the Acquired Subsidiaries
and their spouses, dependents or beneficiaries (the "Laidlaw Employee Plans").
True and correct copies of each of the Laidlaw Employee Plans have been made
available to the Purchaser, along with the most recent annual report for the
Plan, any trust agreement relating to the Plan and the most recent summary plan
description, actuarial report and determination letter for the Plan. Each of
the Acquired Subsidiaries has complied, and currently is in compliance, both as
to form and operation, in all material respects, with the applicable provisions
of ERISA and each other Law or regulation imposed or administered by any
Governmental Entity with respect to each of the Laidlaw Employee Plans. Except
as set forth in Section 4.18 of the Laidlaw Disclosure Schedule, none of the
Acquired Subsidiaries has at any time maintained, adopted, established,
contributed to or been required to contribute to, otherwise participated in or
been required to participate in, or had any liability with respect to, any
"employee benefit plan" within the meaning of section 3(3) of ERISA. All
Laidlaw Employee Plans providing pension or retirement benefits or obligations
to current or former employees or their spouses, dependents and beneficiaries
are referred to collectively as "Laidlaw Pension Plan" and identified on the
Laidlaw Disclosure Schedule. Except as set forth in Section 4.18 of the
Laidlaw Disclosure Schedule, no provision concerning the Laidlaw Pension Plan
is contained in any collective bargaining agreement affecting any current or
former employees of any Acquired Subsidiary. Each Laidlaw Pension Plan that is
required to be qualified under Section 401(a) and Section 501(a) of the Code
has received a determination letter to such effect and no event has occurred
which is reasonably likely to result in the disqualification of any such
Laidlaw Pension Plan. The Laidlaw Pension Plan is registered under, and is in
material compliance with, applicable Law. All contributions to, and payments
from, each Laidlaw Employee Plan which may have been required to be made in
accordance with the terms of any such Laidlaw Employee Plan and, where
applicable, the Laws which
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govern such Laidlaw Employee Plan, have been made in a timely manner, and each
Laidlaw Employee Plan has otherwise at all times been administered in
accordance with its terms and applicable Law in all material respects. All
material reports, Tax Returns and similar documents with respect to any Laidlaw
Employee Plan required to be filed with any Governmental Entity or distributed
to any Laidlaw Employee Plan participant have been duly filed on a timely basis
or distributed. There are no pending investigations by any Governmental Entity
involving or relating to an Laidlaw Employee Plan, no threatened or pending
claims (except for claims for benefits payable in the normal operation of the
Laidlaw Employee Plans), suits or proceedings against any Laidlaw Employee Plan
or asserting any rights or claims to benefits under any Laidlaw Employee Plan
which could give rise to a liability nor, to the knowledge of the Laidlaw
Sellers, are there any facts that could give rise to any liability in the event
of any such investigation, claim, suit or proceeding. No notice has been
received by either of the Laidlaw Sellers or any of the Acquired Subsidiaries
of any complaints or other proceedings of any kind involving any of the
Acquired Subsidiaries or any of the employees of any of the Acquired
Subsidiaries or other potential claimants before any Governmental Entity
relating to any Laidlaw Employee Plan or to any of the Acquired Subsidiaries
and to the knowledge of the Laidlaw Sellers, there is no basis for any such
claims. Except as set forth in Section 4.18 of the Laidlaw Disclosure
Schedule, the assets of each Laidlaw Employee Plan are at least equal to the
liabilities, contingent or otherwise, of such Laidlaw Employee Plan on a plan
termination basis, and each Laidlaw Pension Plan is fully funded on a going
concern and solvency basis in accordance with its terms, applicable actuarial
recommendations and applicable Law. Neither Laidlaw nor any of the Acquired
Subsidiaries contribute to or have an obligation to contribute to, and, to the
knowledge of Laidlaw, have not within 6 years prior to the date of this
Agreement contributed to or had an obligation to contribute to, a
multi-employer plan within the meaning of Section 3(37) of ERISA. No event has
occurred and, to the knowledge of the Laidlaw Sellers, there exists no
condition or set of circumstances in connection with which Allied, any of its
affiliates or the Acquired Subsidiaries could be subject to any liability under
the terms of each Laidlaw Employee Plan or under any applicable law of any
Governmental Entity, other than any condition or set of circumstances that
could not have a Material Adverse Effect on the Acquired Subsidiaries. In
connection with the consummation of the transactions contemplated by this
Agreement, no payments have or will be made under a Laidlaw Employee Plan
which, in the aggregate, would be nondeductible under Section 280G of the Code.
The beneficiaries under all Laidlaw Employee Plans shall consist only
of employees or former employees and directors or former directors of any of
the acquired subsidiaries and their spouses, dependents or beneficiaries. No
acquired subsidiary shall have any liability under the Laidlaw Employee Stock
Option Plan. The amount to fund the Supplemental Executive Retirement Plan
shall not exceed $300,000.00
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4.19 Material Contracts. Section 4.19 of the Laidlaw Disclosure
Schedule lists all of the following written or oral contracts, agreements and
commitments (collectively, the "SWM Group Contracts"):
(i) all employment, consulting or personal services
agreements or contracts with any present or former officer, director
or employee of any Acquired Subsidiary who has an annual salary of
$125,000 or more (determined by using the currency in which they are
paid;
(ii) all solid waste management agreements and contracts
(including those relating to the receipt, transport, disposal or other
management of waste) between any Acquired Subsidiary and any
municipality or other Governmental Entity or Person which call for
annual payments to or by any Acquired Subsidiary of $1,000,000 or
more, which list includes the term of such agreements or contracts;
(iii) all contracts, agreements, agreements in principle,
letters of intent and memoranda of understanding which call for or
contemplate the future disposition (including restrictions on transfer
and rights of first offer or refusal) or acquisition of (or right to
acquire) any interest in any business enterprise, and all contracts,
agreements and commitments relating to the future disposition of a
material portion of the assets and properties of any Acquired
Subsidiary other than in the ordinary course of business;
(iv) all contracts, agreements with, or commitments to,
any Person containing any provision or covenant relating to the
indemnification or holding harmless by any Acquired Subsidiary of any
Person which could result in a liability to an Acquired Subsidiary of
$500,000 or more;
(v) all leases or subleases of real property used in the
conduct of business of any Acquired Subsidiary providing for annual
rental payments to be paid by or on behalf of an Acquired Subsidiary
of more than $500,000 in each case;
(vi) all contracts or agreements committing any Acquired
Subsidiary to make a capital expenditure in excess of $500,000;
(vii) all guaranties or other commitments or undertakings
under which any Acquired Subsidiary may be primarily, secondarily,
contingently or conditionally liable for or in respect of (or which
creates, constitutes or evidences a Lien on any of the assets or
properties of any Acquired Subsidiary which secures the payment or
performance of) any present or future liability or
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obligation of or to any member of the Laidlaw Group or any officer or
director of the Laidlaw Group;
(viii) all Laidlaw Guaranties;
(ix) all contracts, agreements and undertakings with any
Governmental Entity or other Person which contain any provision or
covenant limiting (x) the ability of any Acquired Subsidiary to engage
in any line of business, to compete with any Person, to do business
with any Person or in any location or to employ any Person or (y) the
ability of any Person to compete with or obtain products or services
from any Acquired Subsidiary;
(x) all outstanding proxies, powers of attorney or
similar delegations of authority granted by any Acquired Subsidiary to
any member of the Laidlaw Group or any other Person; and
(xi) all Intercompany Agreements.
The Laidlaw Parties shall deliver to the Allied Parties within 15 days
of the Closing a true and correct copy of each SWM Group Contract. Each of the
SWM Group Contracts is in full force and effect and constitutes a legal, valid
and binding obligation of the Acquired Subsidiary which is a party to it, and,
to the knowledge of the Laidlaw Sellers, of each other Person that is a party
to it. Except as set forth in Section 4.19 of the Laidlaw Disclosure Schedule,
no Acquired Subsidiary is, and, to the knowledge of the Laidlaw Sellers, no
other party to any SWM Group Contract is, in violation, breach or default of
such SWM Group Contract or, with or without notice or lapse of time or both,
would be in violation, breach or default of any such SWM Group Contract, except
for any violation, breach or default which, individually or in the aggregate,
could not result in a Material Adverse Effect on the Acquired Subsidiaries.
Except as set forth in Section 4.19 of the Laidlaw Disclosure Schedule, no SWM
Group Contract provides that any party thereto other than an Acquired
Subsidiary may terminate such SWM Group Contract by reason of the execution of
this Agreement or the consummation of the Acquisitions.
4.20 Bank Accounts. Section 4.20 of the Laidlaw Disclosure
Schedule lists each bank, trust company or similar institution with which any
Acquired Subsidiary maintains an account or safe deposit box, and accurately
identifies each such account or safe deposit box by its number or other
identification and the names of all individuals authorized to draw thereon or
have access thereto.
4.21 Officers and Directors. Section 4.5 of the Laidlaw Disclosure
Schedule accurately lists by name and title all officers and directors of each
Acquired Subsidiary.
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4.22 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission from any Allied Party or
any Acquired Subsidiary in connection with this Agreement or the Acquisitions
based upon arrangements made by or on behalf of any Laidlaw Party.
4.23 Aggregation. The imperfections, defects, orders, actions,
defaults, liabilities, inaccuracies and other items omitted from disclosure in
connection with the representations and warranties made in Sections 4.1 through
4.22 on grounds of immateriality, lack of knowledge or failure to have a
Material Adverse Effect do not and could not, taken as a whole, constitute a
Material Adverse Effect on the Laidlaw Sellers or the Acquired Subsidiaries.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF
ALLIED PARTIES
The Allied Parties jointly and severally represent and warrant to the
Laidlaw Sellers that:
5.1 Organization of Allied Parties. Each Allied Party is a
corporation duly organized, validly existing and in good standing under the
Laws of the State of Delaware, or, in the case of Allied Canada, the Laws of
Canada. Each Allied Party has full authority and corporate power to conduct
its business as it is currently being conducted and as to be conducted
following consummation of the Acquisitions. Each Allied Party is duly
qualified to do business, and in good standing, in each jurisdiction where the
nature of its properties or business requires such qualification.
5.2 Authority Relative to this Agreement. Each Allied Party has
the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and each Ancillary Agreement to which it will
be a party, and, in the case of Allied, the Allied Warrant, and in the case of
Allied Canada, the Allied Canada Debentures. The execution and delivery of
this Agreement and each Ancillary Agreement to which the respective Allied
Parties will be parties, the consummation of the Acquisitions, the issuance or
delivery of Allied Securities, and the other transactions contemplated in
Articles II and III have been duly authorized by the respective Boards of
Directors of the Allied Parties, and except for the approval by Allied's
stockholders of the issuance by Allied of the Allied Common Shares in
connection with the U.S. Acquisition, the issuance of Allied Warrant Shares
upon any exercises of Allied Warrant in accordance with its terms and the
issuance of the Additional Allied Common Shares, no other corporate proceedings
on the part of any Allied Party are necessary to
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authorize this Agreement, any Ancillary Agreement to which any Allied Party
will be a party, the issuance and delivery of the Allied Securities, the
consummation of the Acquisitions, or the other transactions contemplated in
Articles II and III. This Agreement has been duly executed and delivered by
each Allied Party. The Allied Debentures, the Allied Warrant and each
Ancillary Agreement required to be executed and delivered by an Allied Party at
the Closing will be, upon its or their execution and delivery as provided in
Section 3.3, duly executed and delivered by such Allied Party. Assuming the
valid authorization, execution and delivery of this Agreement (and each
Ancillary Agreement to which a Laidlaw Party will be a party) by each Laidlaw
Party, this Agreement is, and upon their issuance and delivery at the Closing,
the Allied Debentures and the Allied Warrant will be, and upon its execution
and delivery by an Allied Party, each Ancillary Agreement to which an Allied
Party is a party will be, valid and binding obligations of each Allied Party
(or Allied in the case of the Allied Warrant or Allied Canada in the case of
the Allied Canada Debentures), enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other law relating to or affecting creditors'
rights generally or by equitable principles.
5.3 Status of Allied Common Shares. Upon their issuance as
provided in Sections 2.2 and 2.3, the Allied Common Shares will be, and upon
any issuance thereof by the Company in accordance with the Allied Warrant or
the Laidlaw Subscription Agreement, the Additional Allied Common Shares will
be, duly authorized, validly issued, fully paid and nonassessable.
5.4 No Violations. The execution, delivery and performance of
this Agreement and the applicable Ancillary Agreements by the respective Allied
Parties, the issuance and delivery by Allied of the Allied Securities, and the
consummation of the Acquisitions and the other transactions contemplated in
Articles II and III will not:
(i) constitute a breach or violation of or default under
the charter or bylaws (or similar organizational documents) or
internal rules or regulations governing the conduct of corporate
actions of any Allied Party or any of their respective Subsidiaries or
any Law applicable to any Allied Party or any of their respective
Subsidiaries; or
(ii) except as accurately reflected in Section 5.4 of the
Allied Disclosure Schedule, violate or conflict with or result in a
breach of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under or result in
the termination of, or accelerate the performance by, or result in a
right of termination under, or result in the creation of any Lien upon
the assets or properties of Allied or any of its Subsidiaries under,
any contract, indenture, loan document, license, permit, order, decree
or
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instrument to which any Allied or any of its Subsidiaries is a party
or by which any of them or their assets or properties are bound.
5.5 Consents and Approval. No consent, order, approval, waiver,
authorization of, or registration, application, declaration or filing with, any
Person is required with respect to any Allied Party or any Subsidiary of Allied
in connection with the execution and delivery of this Agreement, the issuance
of the Allied Securities, the consummation of the Acquisitions, and the other
transactions contemplated in Articles II and III, except for:
(i) the HSR Act, Competition Act, and Investment Canada
Act filings and approvals contemplated in this Agreement;
(ii) the consents and approvals described on Section 5.5
of the Allied Disclosure Schedule;
(iii) the approval by Allied's stockholders, as
contemplated in Section 7.5; and
(iv) other cases, considered individually and in the
aggregate, in which any failure to make such registration,
application, declaration or filing or to obtain any such consent,
order, approval, waiver or other authorization could not have a
Material Adverse Effect on Allied and its Subsidiaries.
5.6 Allied Capitalization. The authorized capital stock of Allied
consists of (i) 100 million shares of Allied Common Stock, and (ii) 10 million
shares of Preferred Stock, $.10 par value, of Allied ("Allied Preferred
Stock"). At September 10, 1996, 58,859,811 shares of Allied Common Stock, and
14,943 shares of Allied Preferred Stock, were issued and outstanding, all of
which were duly and validly issued, fully paid and nonassessable. Except as
set forth in the Allied SEC Filings or Section 5.6 of the Allied Disclosure
Schedule, no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent or other) to purchase or acquire any
shares of any class of capital stock of Allied or any of its Subsidiaries is
authorized or outstanding and there is not outstanding any commitment of Allied
or any of its Subsidiaries to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets. Except as set forth in the Allied SEC
Filings, neither Allied nor any of its Subsidiaries has any contingent or other
obligation to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as set forth in the Allied SEC
Filings, Allied is not a party to any voting agreement, voting trust or similar
agreement or arrangement relating to its capital stock or any agreement or
arrangement relating to or providing for registration rights with respect to
its capital stock.
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5.7 Allied Subsidiaries. Each Subsidiary of Allied is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full authority and corporate
power to conduct its business as it is presently being conducted. Each
Subsidiary of Allied is duly qualified to do business, and in good standing, in
each jurisdiction where the nature of its properties or business requires such
qualification, except for failures to be so qualified which could not,
individually or in the aggregate, have Material Adverse Effect on Allied and
its Subsidiaries. Except as accurately disclosed in the Allied SEC Filings,
all of the outstanding shares of capital stock of each Subsidiary of Allied are
validly issued, fully paid and nonassessable and are owned of record and
beneficially by Allied or a wholly owned direct or indirect Subsidiary of
Allied. Except as set forth in the Allied SEC Filings, there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities, obligation to make capital contributions or advances, voting trust
arrangements, shareholder's agreements or other agreements, commitments or
understandings relating to the issued and outstanding capital stock of any
Subsidiary of Allied. Except as described in Section 5.7 of the Allied
Disclosure Schedule, Allied does not, directly or indirectly, have any equity
investment in any corporation, partnership or joint venture or other business
entity.
5.8 SEC Filings. Allied has filed all forms, reports and
documents required to be filed with the SEC since May 15, 1996, the date on
which Allied's registration statement on Form S-4 (No. 333-5585) (the "Allied
Registration Statement") became effective, and Allied has made available to the
Laidlaw Sellers true and complete copies of (i) the Allied Registration
Statement, (ii) Allied's Annual Report on Form 10-K for the year ended December
31, 1995, and (iii) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by Allied with the SEC since
December 31, 1995 (collectively, the "Allied SEC Filings"). The Allied SEC
Filings (including all financial statements or schedules included in them) (i)
were prepared in compliance in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time of filing (or if amended, supplemented or superseded by a later
filing, on the date of the later filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.9 Allied Financial Statements. The consolidated balance sheets
and consolidated statements of operations, stockholder's equity and cash flows
of Allied and its Subsidiaries included in the Allied SEC Filings fairly
present in all material respects the consolidated financial position of Allied
and its Subsidiaries at their respective dates and the consolidated results of
operations of Allied and its Subsidiaries for the respective periods then
ended, in accordance with U.S. GAAP, subject, in the case of unaudited interim
financial statements, to year-end adjustments (which consist of normal
recurring accruals) and the absence of explanatory footnote disclosures
required by U.S.
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GAAP. Allied's unaudited consolidated balance sheet at June 30, 1996 included
in the Allied SEC Filings is herein called the "Latest Allied Balance Sheet."
5.10 Absence of Certain Changes. Except as set forth in Section
5.10 of the Allied Disclosure Schedule, since June 30, 1996, Allied and its
Subsidiaries have conducted their businesses only in the ordinary course,
consistent with past practice, and there has not occurred a Material Adverse
Effect with respect to Allied and its Subsidiaries or any event that could
result in a Material Adverse Effect on Allied and its Subsidiaries.
5.11 No Undisclosed Liabilities. Except as disclosed in the Latest
Allied Balance Sheet or in Sections 5.11 and 5.14 of the Allied Disclosure
Schedule, Allied and its Subsidiaries have no liabilities or obligations, known
or unknown, fixed or contingent, other than (i) those arising since June 30,
1996 in the ordinary course of business and consistent with past practice, (ii)
liabilities and obligations arising after the date of this Agreement without
violation of Sections 7.1 and 7.2, or (iii) liabilities and obligations that,
individually or in the aggregate, could not result in a Material Adverse Effect
on Allied and its Subsidiaries.
5.12 Allied Properties. Allied and its Subsidiaries have good and
marketable title to the properties and assets used in the conduct of their
business including those reflected in the Latest Allied Balance Sheet (other
than properties and assets disposed of in the ordinary course of business since
June 30, 1996, which, in the aggregate, are not material), free of all Liens
except Permitted Liens and Liens disclosed in Section 5.12 of the Allied
Disclosure Schedule. Section 5.12 of the Allied Disclosure Schedule lists each
landfill owned or operated by Allied and its Subsidiaries and accurately
describes each such landfill by its city or county and state or province of
location, total acreage, permitted acreage, estimated remaining permitted
capacity in tons, estimated or mandated closure date, and estimated closure,
post-closure and reclamation liability at its projected or mandated closure
date (computed at the closure date with and without discount to present value).
Section 5.12 of the Allied Disclosure Schedule also lists each solid waste
landfill not owned or operated by Allied and its Subsidiaries, but to which
Allied and its Subsidiaries hauls solid waste.
5.13 Taxes and Tax Returns. Except as described in Section 5.13 of
the Allied Disclosure Schedule:
(i) all Tax Returns required to be filed with any Taxing
Authority with respect to any Pre-Closing Tax Period by or on behalf
of Allied and its Subsidiaries have been or will be duly filed on a
timely basis in accordance with all applicable laws;
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(ii) at the time of their filings all such Tax Returns
were or will be complete and correct;
(iii) the reserves for Taxes reflected in the Latest Allied
Balance Sheet are adequate to cover all Taxes that have not been paid,
but which under U.S. GAAP were accruable, through the date of the
Latest Allied Balance Sheet.
(iv) there are no Liens for Taxes upon any assets of
Allied or any of its Subsidiaries, except Liens for Taxes not yet due
for current Tax periods ending with or after the Closing Date;
(v) there are no outstanding deficiencies, assessments or
written proposals for the assessment of Taxes proposed, asserted or
assessed against Allied or any Subsidiary of Allied and there is no
basis for any additional assessments or reassessments for any Taxes
for which adequate provision has not been made in the books and
records of Allied or its Subsidiaries, as the case may be; and
(vi) no extension of the statute of limitations or waiver
of normal reassessment periods on the assessment of any Taxes has been
granted to Allied or any Subsidiary of Allied.
5.14 Litigation. Except as disclosed in the Allied SEC Filings or
in Section 5.14 of the Allied Disclosure Schedule, there is no suit, action,
investigation or proceeding pending or, to the knowledge of the Allied Parties,
threatened against Allied or any of its Subsidiaries at law or in equity before
or by any Governmental Entity or before any arbitrator or mediator of any kind,
that could have a Material Adverse Effect on Allied and its Subsidiaries, and
there is no judgment, decree, injunction, rule or order of any Governmental
Entity, arbitrator or mediator to which Allied or any Allied Subsidiary is
subject that could have a Material Adverse Effect on Allied and its
Subsidiaries. No Allied Party has knowledge of any grounds on which any suit,
action, investigation or proceeding of the nature referred to in this Section
5.14 might be commenced with any reasonable likelihood of success.
5.15 Environmental Matters. Except as reflected in the Allied SEC
Filings or as described in Section 5.15 of the Allied Disclosure Schedule (as
may be updated on or before 5 Business Days before the Closing), and except to
the extent that the inaccuracy of any of the following, individually or in the
aggregate, could not have a Material Adverse Effect on Allied and its
Subsidiaries:
(i) Allied and its Subsidiaries hold, and are in
compliance with and have been in compliance, all Environmental
Permits, and are otherwise in compliance and have been in compliance
with, all applicable Environmental
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Laws, and there is no condition that could prevent or interfere with
compliance by the Allied or any of its Subsidiaries with any
Environmental Law;
(ii) no modification, revocation, reissuance, alteration,
transfer or amendment of any Environmental Permit, or any review by,
or approval of, any Governmental Entity or other third party of any
Environmental Permit is required in connection with the execution or
delivery of this Agreement or any Ancillary Agreement, the
consummation of the Acquisitions or the operation of the business of
Allied and its Subsidiaries on the Closing Date;
(iii) neither Allied nor any of its Subsidiaries has
received any Environmental Claim, nor has any Environmental Claim been
threatened against Allied or any of its Subsidiaries;
(iv) neither Allied nor any of its Subsidiaries has
entered into, agreed to or is subject to any outstanding judgment,
decree, order or other directive issued by, or consent arrangement
with, any Governmental Entity under any Environmental Law, including
any such judgment, decree, order or other directive relating to
compliance with any Environmental Law or to the investigation,
cleanup, remediation or removal of Hazardous Substances;
(v) to the knowledge of the Allied Parties, there are no
circumstances that could give rise to liability under any agreements
with any Person under which Allied or any of its Subsidiaries would be
required to defend, indemnify, hold harmless, or otherwise be
responsible for any violation by or other liability or expense of such
Person, or alleged violation by or other liability or expense of such
Person, arising under any Environmental Law;
(vi) to the knowledge of the Allied Parties, there are no
other circumstances or conditions that could give rise to liability or
obligation of Allied or any of its Subsidiaries under any
Environmental Law; and
(vii) the liabilities and reserves for closure,
post-closure monitoring and maintenance and environmental remediation
reflected on the Latest Allied Balance Sheet adequately provide for,
in accordance with U.S. GAAP, all future claims and costs for closure,
post-closure monitoring, investigation and maintenance, reclamation,
remediation, restoration and cleanup of all landfills now or
previously owned, occupied or leased or operated by Allied or any of
its Subsidiaries (or now or previously under the management or control
of Allied or any of its Subsidiaries) and all Environmental Claims
against Allied or any of its Subsidiaries.
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5.16 Governmental Licenses and Permits; Compliance with Laws.
Except as described in the Allied SEC Filings or Section 5.16 of the Allied
Disclosure Schedule, neither Allied nor any of its Subsidiaries has received
notice of any revocation or modification of any license, certification, tariff,
permit, registration, exemption, approval or other authorization by any
Governmental Entity, the revocation or modification of which could have a
Material Adverse Effect on Allied and its Subsidiaries. The conduct of the
business of Allied and its Subsidiaries complies and has been conducted in
compliance with all applicable Laws, except for violations or failures to
comply, if any, that, individually or aggregate, could not have a Material
Adverse Effect on Allied and its Subsidiaries.
5.17 Labor Matters. There is no labor strike, dispute, slowdown,
work stoppage, unresolved material labor union grievance or labor arbitration
proceedings pending or, to the knowledge of Allied, threatened against Allied
or any of its Subsidiaries, and no material current union organizing activities
among employees of Allied or its Subsidiaries. Since the enactment of the WARN
Act, neither Allied nor any of its Subsidiaries has effectuated (i) a "plant
closing" (as defined in the WARN Act) affecting any site of employment or one
or more facilities or operating units within any site of any employment
facility or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of Allied or any of its Subsidiaries. Neither
Allied nor any of its Subsidiaries has been affected by any transaction or
engaged in any layoffs or employment terminations sufficient in number to
trigger application of any similar state, provincial or local law. No
employees of Allied or any of its Subsidiaries have suffered an "employment
loss" (as defined in the WARN Act) since December 1, 1995.
5.18 Opinion of Financial Advisor. On the date of this Agreement,
Allied has received the opinion of Goldman, Sachs & Co. to the effect that on
the basis of the assumptions referred to therein, the consideration payable by
the Allied Parties in connection with the Acquisitions, taken as a whole, is
fair to Allied.
5.19 Financing. The Allied Parties have delivered to the Laidlaw
Sellers copies of the Commitment Letter and the Highly Confident Letter. The
Commitment Letter and the Highly Confident Letter remain in effect at the date
of this Agreement. The funds committed to be made available to the Allied
Parties under the Commitment Letter and the funds to be sought by Allied
through the sale of the securities described in the Highly Confident Letter,
together with Allied's funds and funds otherwise available to Allied, are
sufficient to consummate the Acquisitions.
5.20 Letter from Stockholders. On or before the date of this
Agreement, Allied has received, and has delivered to the Laidlaw Parties copies
of, a letter from Roger A. Ramsey and Thomas H. Van Weelden, expressing their
agreement to vote all shares of Allied Common Stock held by them for approval
of the matters to be
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submitted to Allied's stockholders for approval pursuant to Section 7.5 of this
Agreement.
5.21 Brokers. Except for Goldman, Sachs & Co., which has acted as
financial advisor to Allied in connection with the Acquisitions, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with this Agreement or the Acquisitions based upon
arrangements made by or on behalf of any Allied Party.
5.22 Aggregation. The imperfections, defects, orders, actions,
defaults, liabilities, inaccuracies and other items omitted from disclosure in
connection with the representations and warranties made in Sections 5.1 through
5.21 on grounds of immateriality, lack of knowledge or failure to have a
Material Adverse Effect do not and could not, taken as a whole, constitute a
Material Adverse Effect on the Allied Parties.
ARTICLE VI
LAIDLAW AGREEMENTS PENDING CLOSING
The Laidlaw Sellers jointly and severally agree that pending the
Closing, without the prior written consent of Allied:
6.1 Conduct of Business. Each Acquired Subsidiary shall conduct
its operations according to its ordinary and usual course of business, comply
with applicable Laws, comply with the terms of Laidlaw Employee Plans
(including by making all contributions required by the terms of the Laidlaw
Pension Plan, applicable actuarial recommendations and applicable Law), and use
its best efforts to preserve intact its business organization, keep available
the services of its officers and employees and maintain normal business
relationships with customers, suppliers and others having business
relationships with it. The Laidlaw Parties shall confer on a regular and
frequent basis with one or more designated representatives of Allied to report
on operational matters of materiality and to report the general status of
on-going operations of the Acquired Subsidiaries. The Laidlaw Parties shall
notify Allied of:
(i) any unexpected material emergency or other material
change in the normal course of business or in the operation of the
properties of the Acquired Subsidiaries;
(ii) the instigation of or any significant development in
any regulatory proceedings, governmental complaints, investigations or
hearings (or communications indicating that any may be contemplated)
involving either
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Laidlaw Seller, or any Acquired Subsidiary, which instigation or
development could have a Material Adverse Effect on the Acquired
Subsidiaries or the Laidlaw Sellers;
(iii) proposed budgets, capital expenditures, acquisitions
and dispositions of assets and other decisions involving material
properties of the Acquired Subsidiaries; and
(iv) any matter or event which comes to the knowledge of
the Laidlaw Sellers and which makes or could make any representation
and warranty made by the Laidlaw Sellers in Article IV untrue or
inaccurate.
The Laidlaw Parties shall keep Allied fully informed of such events
and permit Allied's representatives access to all materials prepared in
connection with such events.
The Laidlaw Sellers agree to advance to the Acquired Subsidiaries
during the period from the date of this Agreement through the Closing Date
funds sufficient to allow the Acquired Subsidiaries to maintain their working
capital at levels sufficient to support their continued operations in the
ordinary course of their business and consistent with past practices. The
Laidlaw Sellers further agree, without limiting the generality of the preceding
sentence, to (i) maintain and continue their customer billing, receivable
collection and payables payment practices in a manner consistent with past
practices and in the ordinary course of business, and (ii) make the capital
expenditures at the times and in the amounts included in the schedule of
capital expenditures included in Section 6.2 to the Laidlaw Disclosure
Schedule.
6.2 Forbearance by the Acquired Subsidiaries. The Laidlaw Parties
shall not cause or permit any Acquired Subsidiary to, and no Laidlaw Party
which is an Acquired Subsidiary shall:
(i) amend its charter or bylaws (or other similar
organizational documents);
(ii) issue, sell, pledge, dispose of or encumber any
shares of its capital stock or securities convertible into any such
shares, or enter into any agreement or commitment with respect to the
issuance or purchase of any such shares or securities;
(iii) in the case of LWSI, LWSC and LMS only, pay any
dividend or other distribution in respect of the LWSI Shares, the LWSC
Shares or the LMS Shares, or redeem purchase or acquire any LWSI
Shares, the LWSC Shares or the LMS Shares, except that LWSI and LWSC
may make the distributions required to be made by them under Section
3.2;
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(iv) incur any indebtedness for borrowed money other than
Intercompany Indebtedness;
(v) make or commit to make any capital investment,
capital expenditure, capital addition or capital improvement, except
to the extent that any single capital expenditure made or committed to
be made by any Acquired Subsidiary and all capital expenditures made
or committed to be made by all Acquired Subsidiaries do not exceed the
amounts set forth in the budget of capital expenditures included in
Section 6.2 of the Laidlaw Disclosure Schedule.
(vi) except in the ordinary course of business, and except
for settlements made by insurers, enter into any compromise or
settlement of any litigation, proceeding or governmental investigation
relating to such Acquired Subsidiary or its respective properties
which requires such Acquired Subsidiary to make a payment in excess of
$1.5 million or which would result in the imposition of any
restriction upon the operations of such Acquired Subsidiary, or the
disposition of any of its properties, except for restrictions or
dispositions which could have a Material Adverse Effect on the
Acquired Subsidiaries;
(vii) sell real property or any interest in or improvement
upon real property (other than the real property, interests in and
improvements upon real property described in Section 6.2 of the
Laidlaw Disclosure Schedule) or any other capital asset the book value
or sales price of which is more than $500,000;
(viii) amend the Laidlaw Pension Plan or Laidlaw Employee
Plans or make any statement relating to any anticipated or proposed
increase in benefits under the Laidlaw Pension Plan or Laidlaw
Employee Plans for current, future or former employees of any of the
Acquired Subsidiaries other than strictly in accordance with the terms
of the Laidlaw Pension Plan or Laidlaw Employee Plans as currently
constituted;
(ix) transfer, license, lease, sell, dispose, mortgage or
encumber any assets or properties other than in the ordinary course of
business; or
(x) increase compensation, benefits or severance for
employees of any Acquired Subsidiary except as required by any
collective bargaining agreements entered into by the Acquired
Subsidiaries as in effect on the date of this Agreement, and except as
set forth in Section 6.2 of the Laidlaw Disclosure Schedule.
6.3 Access and Information. The Laidlaw Parties shall give to
Allied and its representatives (including its lenders and their
representatives) full access during normal business hours to all the
properties, books, contracts, commitments, records, Tax
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Returns, personnel and advisors of Laidlaw and the Acquired Subsidiaries so
that Allied may have full opportunity to make such investigation of the
Acquired Subsidiaries as it shall reasonably request in advance. The Laidlaw
Parties will cause Coopers & Lybrand to permit Arthur Andersen L.L.P. to review
and examine the work papers of Coopers & Lybrand relating to Laidlaw and the
Acquired Subsidiaries. The Laidlaw Parties will promptly furnish to Allied all
information with respect to the Acquired Subsidiaries which Allied may
reasonably request. Additionally, the Laidlaw Parties will furnish Allied all
information concerning the Acquired Subsidiaries required for inclusion in any
application, filing statement or notice to be made by any Allied Party to, or
filed or joined in by any Allied Party with, any Governmental Entity in
connection with this Agreement or the Acquisitions, including the Allied Proxy
Statement, and none of such information shall, at the date furnished, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Laidlaw Parties
shall prior to the Mailing Date promptly inform Allied on becoming aware that
any information concerning any of the Acquired Subsidiaries furnished to Allied
pursuant to this Section 6.3 contains any such material misstatement or
omission.
6.4 Supplemental Information. (a) As soon as practicable after
the date of this Agreement and in no event later than October 1, 1996, the
Laidlaw Sellers shall furnish to Allied an unaudited separate balance sheet
(prepared on a company only basis) of each Acquired Subsidiary at August 31,
1995, and the related unaudited separate statements of operations and
stockholder's equity (similarly prepared) for each Acquired Subsidiary for the
year then ended (the "SWM Group Separate Company Financial Statements"). The
SWM Group Separate Company Financial Statements will be prepared in accordance
with U.S. GAAP, except for compliance with SFAS 109 and the omission of
explanatory footnote disclosures.
(b) The Laidlaw Parties shall furnish to Allied copies of interim
monthly financial statements for the Acquired Subsidiaries (prepared using the
format customarily used by Laidlaw for such internal reports and, no less
frequently than each fiscal quarter, prepared for the Acquired Subsidiaries for
such fiscal quarter on a combined basis) as soon as practicable but in any
event within 35 days after the end of each month or quarter, as the case may
be, together with any information ordinarily prepared in connection with such
financial statements. All such interim financial statements shall fairly
present in all material respects in accordance with such accounting principles
the separate company, combined or consolidated, as the case may be, financial
position of the respective Acquired Subsidiaries or groups of Acquired
Subsidiaries covered thereby at the respective dates thereof, and the results
of their separate company or consolidated, as the case may be, operations,
stockholders' equity and cash flows for the respective Acquired Subsidiaries or
groups of Acquired Subsidiaries covered thereby for the respective periods
covered thereby, subject to year-
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end adjustments (consisting of normal recurring accruals) and the omission of
explanatory footnote materials required by U.S. GAAP and Canadian GAAP.
6.5 Audit of Financial Statements. The Laidlaw Parties shall
cause Coopers & Lybrand to conduct an audit of the Acquired Subsidiaries on a
combined basis and to issue their unqualified report thereon, which audit will
include combined balance sheets at August 31, 1995 and August 31, 1996, and the
related combined statements of operations, stockholder's equity and cash flows
for the years ended August 31, 1994, 1995 and 1996 ("SWM Group Audited Combined
Financial Statements"). The Laidlaw Parties shall deliver the SWM Group
Audited Combined Financial Statements, together with the unqualified report
thereon by Coopers & Lybrand, to the Allied Parties as soon as practicable
after the date of this Agreement and in no event later than October 1, 1996.
The SWM Group Audited Combined Financial Statements shall be prepared in
accordance with U.S. GAAP and the rules of the SEC relating to the preparation
of financial statements. The Laidlaw Parties shall cause Coopers & Lybrand to
consent to the inclusion of the SWM Group udited Combined Financial statements
in any proxy statement, registration statement or other SEC filings of Allied
or any subsidiary of Allied.
6.6 Access for Environmental Report. The Laidlaw Parties shall
cause the Acquired Subsidiaries to give to Emcon Environmental Services, Inc.
("Emcon"), independent environmental consultants engaged by and at the expense
of the Allied Parties, full access to the facilities, personnel and records of
the Acquired Subsidiaries as such consultants shall reasonably request
(including for physical inspection of sites and the drilling of wells and the
conducting of soil borings and other Phase II investigatory techniques) in
order to conduct Phase I and II environmental assessments of each parcel of
real property owned, or under the management or control of, or operated, leased
or occupied by, an Acquired Subsidiary, and to prepare a report reflecting the
findings and recommendations of such consultants concerning such Phase I and
Phase II environmental assessments (the "Emcon Environmental Report"). The
Laidlaw Parties shall use their best efforts to ensure that all information
provided to Emcon in the course of its conduct of such environmental
assessments is accurate, complete and not misleading (including by omissions).
The Laidlaw Parties will provide, and will cause the Acquired Subsidiaries to
provide, upon written request therefor, all consents, approvals and directions
(and waivers of privacy, freedom of information and similar Laws) so as to
permit such consultants to have prompt and unrestricted access to all relevant
information in the possession or under the control of Governmental Entities.
6.7 Confidentiality. All information and data furnished by the
Allied Parties to the Laidlaw Sellers under Section 7.3 or any other provision
of this Agreement shall be received, held, treated and, if applicable, returned
to the Allied Parties, in accordance and compliance with the Confidentiality
Agreement.
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6.8 Consummation of Acquisitions. The Laidlaw Parties shall use
their best efforts to perform and fulfill, and shall use their best efforts to
cause the Laidlaw Sellers and the Acquired Subsidiaries to perform and fulfill,
all conditions and obligations on their part to be performed and fulfilled
under this agreement, to the end that the Acquisitions shall be consummated.
ARTICLE VII
ALLIED COVENANTS PENDING CLOSING
The Allied Parties agree that pending the Closing, without the prior
written consent of Laidlaw:
7.1 Conduct of Allied's Business. Allied and its Subsidiaries
shall conduct their operations according to their ordinary and usual course of
business, and shall use their best efforts to preserve intact their business
organization, keep available the services of their officers and employees and
maintain normal business relationships with customers, suppliers and others
having business relationships with it. The Allied Parties shall confer on a
regular and frequent basis with one or more designated representatives of
Laidlaw to report on operational matters of materiality and to report the
general status of on-going operations of Allied. The Allied Parties shall
notify Laidlaw of:
(i) any unexpected material emergency or other material
change in the normal course of business or in the operation of the
properties of Allied and its Subsidiaries;
(ii) the instigation of or any significant development in
any regulatory proceedings, governmental complaints, investigations or
hearings (or communication indicating that any may be contemplated)
involving Allied and its Subsidiaries, which instigation or
development could have a Material Adverse Effect on Allied and its
Subsidiaries;
(iii) material acquisitions and dispositions of assets; and
(iv) any matter or event which comes to the knowledge of
the Allied Parties and which makes or could make any representation
and warranty made by the Allied Parties in Article V untrue or
inaccurate.
The Allied Parties shall keep Laidlaw fully informed of such events
and permit Laidlaw's representatives access to all materials prepared in
connection with such events.
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7.2 Forbearance by Allied. Allied shall not:
(i) amend or propose to amend its Certificate of
Incorporation (except to increase the number of shares of Allied
Common Stock it is authorized to issue) or bylaws;
(ii) issue any shares of Allied Common Stock or securities
convertible into or exchangeable for shares of Allied Common Stock, or
enter into any agreement or commitment with respect to the issuance or
purchase of any such shares or securities, except that Allied may (x)
issue shares of Allied Common Stock upon any exercise of any presently
outstanding warrants or any conversion of any presently outstanding
shares of convertible Allied Preferred Stock or any presently
outstanding convertible indebtedness of Allied which are, in each such
case, described in the Allied SEC Filings, (y) issue employee and
director stock options under presently existing director and employee
stock option plans and shares of Allied Common Stock issuable upon any
exercise of any options granted under any such plan, and (z) issuances
of not more than an aggregate of five million shares of Allied Common
Stock in connection with future acquisitions of other business
enterprises inclusive of those acquisitions set forth on Section 5.10
of the Allied Disclosure Schedule;
(iii) split, combine or reclassify any outstanding shares
of Allied Common Stock; or
(iv) declare, pay or set aside for payment any dividend or
other distribution in respect of any outstanding shares of Allied
Common Stock.
7.3 Access and Information. Allied shall give the Laidlaw Sellers
and their representatives full access during normal business hours to all the
properties, books, contracts, commitments and records of Allied and its
Subsidiaries so that the Laidlaw Sellers may have full opportunity to make such
investigation of Allied and its Subsidiaries as they shall reasonably request
in advance. Allied will furnish each Laidlaw Seller all information concerning
Allied and its Subsidiaries required for inclusion in any application, filing,
statement or notice made by any Laidlaw Party to, or filed or joined in by any
Laidlaw Party with, any Governmental Entity in connection with this Agreement
or the Acquisitions, and none of such information shall, at the date furnished,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
7.4 Supplemental Information. Allied shall, within five days
following each such filing, furnish Laidlaw with a copy of each Current Report
on Form 8-K, each Quarterly Report on Form 10-Q and each Annual Report on Form
10-K filed by Allied
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with the SEC. Allied shall also furnish Laidlaw copies of Allied's interim
monthly consolidated financial statements as soon as practicable but in any
event within 35 days after the end of each month, together with any information
ordinarily prepared in connection with such financial statements. All
financial statements included in each such Quarterly Report on Form 10-Q and
Annual Report on Form 10-K shall be prepared in conformity with U.S. GAAP,
shall present fairly in all material respects, in accordance with U.S. GAAP,
the consolidated financial position of Allied and its Subsidiaries at the end
of the periods covered thereby and the results of their consolidated operations
for the periods covered thereby, subject, in the case of unaudited interim
financial statements, to year-end adjustments (consisting of normal recurring
accruals) and the omission of explanatory footnote materials required by U.S.
GAAP.
7.5 Allied Stockholders' Meeting. Allied shall call a special
meeting of the holders of Allied Common Stock to be held to vote to approve the
issuance of the Allied Common Shares, the Additional Allied Common Shares, the
Allied Warrant, and the Warrant Shares, and to approve the authorization of
additional shares of authorized Allied Common Stock. Allied will use its best
efforts to hold the Allied Stockholders' Meeting no later than 40 days
following the date of mailing of the definitive proxy statement to be furnished
to its stockholders in connection with such meeting (the "Allied Proxy
Statement"). Subject to fiduciary duties under applicable Law, Allied will
recommend approval of the matters referred to above, and agrees to use its best
efforts to obtain a favorable vote thereon. In connection with the Allied
Stockholders' Meeting, Allied shall prepare and file with the SEC, as soon as
practicable following the delivery to Allied of the SWM Group Audited
Consolidated Financial Statements, a preliminary copy of the Allied Proxy
Statement. As soon as practicable thereafter, Allied will cause to be mailed
to each holder of Allied Common Stock a copy of the Allied Proxy Statement
complying in all material respects with the Exchange Act. All information
concerning Allied or any of its Subsidiaries included in the Allied Proxy
Statement will be, on the date of commencement of the mailing of the Allied
Proxy Statement (the "Mailing Date"), true and correct in all material respects
without omission of any material fact required to be stated to make the
information set forth therein not misleading.
7.6 Emcon Environmental Report. The Allied Parties shall use
their best efforts to cause the Emcon Environmental Report to be prepared as
soon as practicable after the date of this Agreement, and the Allied Parties,
promptly upon their receipt of such Report, shall deliver a copy of the Report
to the Laidlaw Parties.
7.7 Confidentiality. All information and data furnished by the
Laidlaw Sellers to the Allied Parties under Section 6.3 or any other provision
of this Agreement shall be received, held, treated and, if applicable, returned
to the Laidlaw Sellers, in accordance and compliance with the Confidentiality
Agreement.
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7.8 Consummation of Acquisitions. The Allied Parties shall use
their best efforts to perform and fulfill, and shall use its best efforts to
cause the Allied Parties to perform and fulfill, all conditions and obligations
on their part to be performed and fulfilled under this Agreement, to the end
that the Acquisitions shall be consummated.
ARTICLE VIII
MUTUAL CONDITIONS
The respective obligations of all Parties to consummate the
Acquisitions and to take the other actions called for under Articles II and III
are subject to the fulfillment of each of the following conditions on or before
the Closing Date:
8.1 No Adverse Proceedings. No order entered or Law promulgated
or enacted by any Governmental Entity shall be in effect which would prevent
consummation of the Acquisitions, and no proceeding brought by a Governmental
Entity or any other Person shall have been commenced and be pending which seeks
to restrain, enjoin, prevent or materially delay or restructure any
Acquisition.
8.2 HSR Waiting Period. The waiting period under the HSR Act
shall have expired or otherwise been terminated.
8.3 Allied Stockholder Approval. The matters to be submitted to
the stockholders as set forth in Section 7.5 of this Agreement shall have been
approved by the requisite vote of the holders of Allied Common Stock.
8.4 Competition Act Matters. Either (i) the Competition Act
Director shall have issued an Advance Ruling Certificate in respect of the
Acquisitions and shall not have subsequently withdrawn the Advance Ruling
Certificate or indicated that he has obtained new information as result of
which the Competition Act Director is no longer satisfied that he would not
have sufficient grounds on which to make an application under Section 92 of the
Competition Act with respect to the Acquisitions, or (ii) the applicable time
period under Section 123 of the Competition Act shall have expired.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF ALLIED PARTIES
The respective obligations of the Allied Parties to consummate the
Acquisitions and to take the other actions called for under Articles II and III
are subject to the fulfillment of each of the following conditions on or before
the Closing Date:
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9.1 Representations True at Closing. (a) The Laidlaw Parties
shall have performed and complied in all material respects with all obligations
and agreements required to be performed or complied with by them under this
Agreement at or prior to the Closing, and the representations and warranties of
the Laidlaw Sellers contained in this Agreement (other than those set forth in
Section 4.15) shall be true and correct when made and at and as of the Closing
as if made at and as of such date and time, except to the extent that any
breaches of such representations and warranties (such breaches being determined
individually or in the aggregate and as if references to "Material Adverse
Effect", "in all material respects" and "knowledge of the Laidlaw Sellers" were
deleted in their entirety and the effect of any such references were eliminated
altogether) could not result in Damages in excess of $25,000,000; and the
Allied Parties shall have received certificates, each dated the Closing Date,
of the President or a Vice President of each of the Laidlaw Sellers, to the
effect set forth in this Section 9.1(a).
(b) The representations and warranties of the Laidlaw Sellers
contained in Section 4.15 hereof shall be true and correct as of the Closing,
except to the extent that any breaches of such representations and warranties
(such breaches being determined individually or in the aggregate and as if
references to "Material Adverse Effect", "in all material respects", and
"Knowledge of the Laidlaw Sellers" were deleted in their entirety and the
effect of any such references were eliminated altogether), in the judgment of
the Allied Parties, acting reasonably in accordance with Section 11.10, could
not result in Damages (y) in the aggregate in excess of $6,000,000 or (z)
during the first two years following the Closing Date in excess of the amounts
to be expended during those years as calculated in determining the liabilities
and reserves referred to in Section 4.15(vii); and the Allied Parties shall
have received certificates, each dated the Closing Date, of the President or a
Vice President of each of the Laidlaw Sellers, to the effect of this Section
9.1(b); provided, however, that if the Laidlaw Sellers shall have timely made
the election to pay or provide an acceptable undertaking as provided for in
Section 11.10 and performed their obligations in compliance with Section 11.10,
then the condition stated in this Section 9.1(b) shall be deemed to be
satisfied. For the purposes of this Section 9.1(b), calculation of Damages
with respect to periods after the first two years after the Closing Date shall
be made on a discounted basis calculated on the same basis as amounts are
discounted in connection with the calculation of the liabilities and reserves
referred to in Section 4.15(vii).
9.2 No Adverse Changes. Since the date of this Agreement, no
event or series of events taken in the aggregate shall have occurred which
could have a Material Adverse Effect on the Acquired Subsidiaries or the
Laidlaw Sellers.
9.3 Opinion of Laidlaw U.S. Counsel. The Allied Parties shall
have received an opinion, dated the Closing Date, of Katten Muchin & Zavis,
U.S. counsel to the Laidlaw Sellers, in the form attached as Exhibit I to this
Agreement.
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9.4 Opinion of Laidlaw Canadian Counsel. The Allied Parties shall
have received an opinion, dated the Closing Date, of Ivan Cairns, Senior Vice
President and General Counsel of Laidlaw, to the effect set forth in Exhibit J
attached to this Agreement.
9.5 Investment Canada Act. The Allied Parties shall have received
from the ICA Minister a notice, satisfactory in form and substance to the
Allied Parties, under subsection 21(1) of the Investment Canada Act, stating
that the Acquisitions are likely to be of net benefit to Canada, or the ICA
Minister shall have been deemed, under Section 21(2) of the Investment Canada
Act, to be satisfied that the Acquisitions are likely to be of net benefit to
Canada and the Allied Parties shall have received a notice from the ICA
Minister to that effect.
9.6 Competition Act Matters. Either (i) the Competition Act
Director shall have issued an Advance Ruling Certificate in respect of the
Acquisitions and shall not have subsequently withdrawn the Advance Ruling
Certificate or indicated that he has obtained new information as a result of
which the Competition Act Director is no longer satisfied that he would not
have sufficient grounds on which to make an application under Section 92 of the
Competition Act in respect of the Acquisitions, or (ii) the Competition Act
Director or his representative shall have advised the Allied Parties (on terms
and in form satisfactory to them) that the Competition Act Director does not
currently intend to make an application under Section 92 of the Competition Act
in respect of the Acquisitions, and such advice shall not have been amended or
rescinded.
9.7 Audited Financial Statements. The Allied Parties shall have
received the SWM Group Audited Combined Financial Statements (and related
footnotes) and the report thereon by Coopers & Lybrand, which report shall have
been unqualified.
9.8 Emcon Environmental Report. The Allied Parties shall have
received the Emcon Environmental Report.
9.9 Acquisitions Financing. The Allied Parties shall have
received the proceeds of the financings contemplated in the Commitment Letter
and the Highly Confident Letter, or proceeds from other financing with respect
to the Acquisitions which are satisfactory to the Allied Parties, in an
aggregate amount of at least $1,700,000,000.
9.10 Outstanding Indebtedness. The Indebtedness of the Acquired
Subsidiaries, in the aggregate, will not exceed $4,900,000, excluding the
Laidlaw Guaranties and guaranties of purchase money indebtedness of owner
operators not to exceed C$8,600,000.
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ARTICLE X
CONDITIONS TO LAIDLAW'S OBLIGATIONS
The respective obligations of the Laidlaw Parties to consummate the
Acquisitions and to take the other actions called for under Articles II and III
are subject to the fulfillment of each of the following conditions on or before
the Closing Date:
10.1 Representations True at Closing. The Allied Parties shall have
performed and complied in all material respects with all obligations and
agreements required to be performed or complied with by them under this
Agreement at or prior to the Closing and the representations and warranties of
the Allied Parties contained in this Agreement shall be true and correct when
made and at and as of the Closing as if made at and as of such date and time,
except to the extent that any breaches of such representations and warranties
(such breaches being determined individually or in the aggregate, and as if
references to "Material Adverse Effect", and "knowledge of the Allied Parties"
were deleted in their entirety and the effect of any such references were
eliminated altogether) could not result in Damages in excess of $25,000,000 and
the Laidlaw Sellers shall have received certificates, each dated the Closing
Date, of the President or Vice President of each of the Allied Parties, to the
effects set forth in this Section 10.1.
10.2 No Adverse Changes. Since the date of this Agreement, no
event or series of events taken in the aggregate shall have occurred which
could have a Material Adverse Effect on Allied and its Subsidiaries.
10.3 Opinion of Allied's U.S. Counsel. The Laidlaw Sellers shall
have received an opinion, dated the Closing Date, of Porter & Hedges, L.L.P.,
U.S. counsel to the Allied Parties, in the form attached as Exhibit K to this
Agreement.
10.4 Opinion of Allied's Canadian Counsel. The Laidlaw Parties
shall have received an opinion, dated the Closing Date, of Davies, Ward & Beck,
Canadian solicitors for the Allied Parties, to the effects set forth in Exhibit
L attached to this Agreement.
ARTICLE XI
ADDITIONAL AGREEMENTS
11.1 HSR Act Filings. Within 10 Business Days after the date of
this Agreement, Laidlaw and Allied shall file notification and report forms
under the HSR Act with the FTC and the Antitrust Division, and shall use their
best efforts to respond
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as promptly as practicable to all requests received from the FTC or the
Antitrust Division for additional information or documentation.
11.2 Competition Act Filings. The Allied Parties and the Laidlaw
Sellers agree to file with the Competition Act Director, within 10 Business
Days after the date of this Agreement, the information set out in Section 121
of the Competition Act, certified in accordance with Section 118 of the
Competition Act. If the Competition Act Director, before the expiration of
seven days after the date of filing of such information, requires the
information set out in Section 122 of the Competition Act, the Allied Parties
and the Laidlaw Sellers shall file the required information with the
Competition Act Director within 10 Business Days after the date the information
is required by him. The Allied Parties shall prepare and file with the
Competition Act Director, and the Laidlaw Sellers shall cooperate with the
Allied Parties in their preparation and filing of, an Advance Ruling
Certificate in respect to the Acquisitions, and all Parties will provide to the
Competition Act Director all information requested by him in connection with
the Advance Ruling Certificate application.
11.3 Investment Canada Act Filings. The Allied Parties agree to
prepare and file with the ICA Minister, within 10 Business Days after the date
of this Agreement, an application for review under the Investment Canada Act in
connection with the Acquisitions, and the Laidlaw Sellers agree to cooperate
with the Allied Parties in connection with such application.
11.4 Other Consents and Approvals. All Parties shall use their
best efforts to obtain before the Closing, in addition to the approvals and
consents referred to in Section 8.2, 8.3, 8.4, 9.5, and 9.6, and all other
consents and approvals listed and disclosed in Section 4.4 of the Laidlaw
Disclosure Schedule, Section 4.19 of the Laidlaw Disclosure Schedule or Section
5.5 of the Allied Disclosure Schedule; provided, however, that nothing in this
Section 11.4 or Sections 11.1, 11.2, or 11.3 shall require any Allied Party or
any Acquired Subsidiary to (i) dispose of or to hold separately all or any
material portion of the assets, properties or businesses of the Acquired
Subsidiaries or the assets, properties or business of Allied and its
Subsidiaries or agree to the imposition of any material limitation on the
ability of Allied and its Subsidiaries after the Closing (including the
Acquired Subsidiaries) to conduct their business and own their assets and
properties after the Closing in substantially the same manner as before the
Closing, or (ii) in the case of Section 11.3 and the application referred to
therein, make any undertaking relating to any Acquired Canadian Subsidiary or
its assets, properties, business, operations, employees or practices, which in
the reasonable judgment of the Allied Parties, would or could have, after the
Closing, a Material Adverse Effect on the Acquired Subsidiaries.
11.5 Publicity. No Party other than Allied or Laidlaw shall issue
any press release or public announcement pertaining to the Acquisitions.
Allied and Laidlaw shall
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consult with each other concerning any such press release or public
announcement and shall use their best efforts to agree on its text before its
public dissemination and before making any filings with any Governmental Entity
or national securities exchange with respect to any such press release or
public announcement. In cases where Allied and Laidlaw are unable to agree on
a press release or public announcement, the Party proposing it will not issue
or make it unless the proposing Party is required to do so by Law, in which
case the Party so obligated shall use its reasonable efforts to provide a copy
of the press release or public announcement to the other Party before its
filing or public dissemination.
11.6 Expenses. Except as otherwise provided in Section 2.4 or
Article XII, each Party shall pay its own costs and expenses incurred in
connection with the Acquisitions, whether or not the Acquisitions are
consummated. No such costs or expenses shall be paid by or charged to any
Acquired Subsidiary.
11.7 Securities Law Matters. The Laidlaw Parties represent and
warrant to the Allied Parties that the Allied Securities to be issued to the
Laidlaw Parties under this Agreement are being acquired, and any Allied Warrant
Shares issued upon any exercise of the Allied Warrant, Allied Common Stock
issued pursuant to the Laidlaw Subscription Agreement or Additional Allied
Common Shares will be acquired, by the Laidlaw Parties for investment, for
their own account and not with a view to, or for resale in connection with, any
distribution of Allied Securities within the meaning of the Securities Act. No
Allied Securities may be sold, transferred, or otherwise disposed of without
registration under the Securities Act and any applicable state or provincial
securities laws, rules, regulations or policies. Notwithstanding such
representations, and subject to the provisions of this Agreement and the terms
of such securities, the Allied Parties agree to permit a sale or transfer of
such securities if Allied obtains satisfactory assurances that the sale or
transfer may be made without registration under the Securities Act and related
rules and regulations (and all applicable state or provincial securities laws,
rules, regulations or policies) including, without limitation receipt by the
Allied of an opinion to such effect from counsel reasonably satisfactory to
Allied, or compliance by the Laidlaw Parties with the requirements Rule 144(k)
or Rule 144A under the Securities Act.
Laidlaw agrees that all Allied Canada Debentures and all Allied
Finance Debentures may be inscribed with the respective legends set forth on
the respective forms thereof attached as Exhibits to this Agreement, that the
Allied Warrant may be inscribed with the legend set forth on the form of Allied
Warrant attached as an Exhibit to this Agreement, and that all certificates
evidencing Additional Allied Common Shares, Allied Common Shares and all Allied
Warrant Shares, but only if required under the Securities Act and applicable
state or provincial securities laws at the time of their issuance, will be
inscribed with the following restrictive legend:
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"The shares represented by this certificate
have not been registered (or qualified by
prospectus) under the United States Securities Act
of 1933, as amended, or the securities laws of any
state of the United States or any province of
Canada. Such shares may not be offered, sold,
transferred, pledged, hypothecated or otherwise
disposed of in the absence of such a
registration thereunder other than pursuant to an
exemption from such registration or prospectus
requirements and delivery to Allied Waste
Industries, Inc. of an opinion of counsel
reasonably satisfactory to it to the effect that
such transfer is exempt from registration under
those laws."
11.8 Rule 144 Reports. For as long as the Laidlaw Parties or any
Affiliate of Laidlaw owns shares of Allied Common Stock or the Allied Warrant
representing at least 10% of total number of shares of Allied Common Stock
issued and outstanding from time to time, Allied will
(i) make and keep "current public information"
"available" (as both those terms are defined in Rule 144) at all
times;
(ii) timely file with the SEC in accordance with all
applicable rules and regulations, all reports and other documents (x)
required of Allied for Rule 144, as it may be amended from time to
time (or any rule, regulation, or statute replacing Rule 144) to be
available and (y) required to be filed under Section 15d of the
Exchange Act even if Allied's duty to file those reports or documents
is suspended or otherwise terminated under the terms of Section 15d;
and
(iii) furnish the Laidlaw Parties a written statement by
Allied that it has complied with the reporting requirements of the
Exchange Act and Rule 144, together with a copy of the most recent
annual or quarterly report of Allied and such reports and documents
filed by Allied with the SEC as may reasonably be requested by the
Laidlaw Parties.
11.9 Use of Laidlaw Name. As soon as practicable, and in any event
within 90 days after the Closing Date, the Allied Parties shall cause to be
amended the Articles or Certificate of Incorporation or Organization (or
comparable document) of each Acquired Subsidiary which has the name "Laidlaw"
in its corporate name, to remove the name "Laidlaw" from its corporate name.
As soon as practicable, and in any event within two years after the Closing
Date, the Allied Parties shall cause the name
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"Laidlaw" to be removed from (i) all advertising and marketing materials used
by the Acquired Subsidiaries, (ii) all stationery, purchase orders and other
business forms used by the Acquired Subsidiaries, (iii) all motor vehicles
owned or operated by the Acquired Subsidiaries, (iv) all signs at any location
owned or operated by any Acquired Subsidiary, and (iv) all bank accounts
maintained by any Acquired Subsidiary. From and after the second anniversary
of the Closing Date, no Allied Party will, or will cause or permit any Acquired
Subsidiary or any other Subsidiary or Affiliate of any Allied Party to, use or
employ any name, trade name, assumed name, slogan, logo, trademark or
advertising or marketing materials which contain the name "Laidlaw;" provided
however, that nothing in this Section 11.09 shall require any amendment to or
reissuance of any contract or agreement to which any Acquired Subsidiary is a
party or any permit, license, franchise or other authorization issued to any
Acquired Subsidiary, before the expiration of its current term. For as long
during the respective 90-day and two-year periods specified above in this
Section 11.09 as the Allied Parties are diligently pursuing their obligations
under this Section 11.09, the Laidlaw Parties grant (i) to those Acquired
Subsidiaries which now have in their corporate names the "Laidlaw" the right to
continue using their corporate names, logos and trademarks, and (ii) to all
Acquired Subsidiaries the right to use the name "Laidlaw" in all of the other
applications described above in this Section 11.09.
11.10 Environmental Remediation. Within twenty Business Days after
their receipt of the Emcon Environmental Report, the Allied Parties shall
deliver to the Laidlaw Parties a written notice (the "Environmental Notice")
stating whether in the judgment of the Allied Parties, acting reasonably, one
or more conditions described in the Emcon Environmental Report (each an
"Environmental Defect") constitutes a breach of the representations and
warranties made by the Laidlaw Parties in Section 4.15 to the extent that the
condition to the obligations of Allied to close set forth in Section 9.1(b)
will not be met. If the Environmental Notice states that such condition in
Section 9.1(b) will not be met, then Laidlaw may elect at the Closing pay to
Allied an amount (which is based on the Emcon Environmental Report and is
reasonably acceptable to Allied) sufficient to cure the Environmental Defect,
or provide Allied with an undertaking satisfactory to Allied that Laidlaw will
assume and pay as it becomes due all amounts relating to the Environmental
Defect, in which event the condition in Section 9.1(b) will be met.
11.11 Laidlaw Guaranties. The Allied Parties and those Acquired
Subsidiaries which are Laidlaw Parties agree to use all commercially reasonable
efforts, and to cause all other Acquired Subsidiaries to use all commercially
reasonable efforts, to cause each member of the Laidlaw Group to be fully and
finally released and discharged from all further liability or obligation in
respect of all Laidlaw Guaranties in respect of which such member of the
Laidlaw Group is an obligated party, within six months following the Closing
Date. To that end, the Allied Parties and those Acquired Subsidiaries which
are Laidlaw Parties agree to use all commercially reasonable efforts to:
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(i) cause all liabilities and obligations of each
Acquired Subsidiary which are guaranteed or secured by a Laidlaw
Guaranty to be fully and faithfully performed on a timely basis and in
accordance with their terms;
(ii) secure the surrender of and the return to each
Laidlaw Issuer Bank of each letter of credit which is a Laidlaw
Guaranty which is outstanding at the Closing Date, without draw
thereon by any beneficiary thereof;
(iii) secure the cancellation and return to Laidlaw or to
the issuer thereof, as appropriate, without payment thereunder, of all
Laidlaw Guaranties which are performance, suretyship or other bonds;
and
(iv) cause to be delivered to the respective members of
the Laidlaw Group written releases, duly executed by all necessary
releasing parties, evidencing the full and final release of each
member of the Laidlaw Group liable thereon or thereunder, from all
liabilities and obligations under each Laidlaw Guaranty which is a
guaranty or other direct undertaking or commitment on the part of such
member of the Laidlaw Group.
For purposes of this Section 11.12, "all commercially reasonable
efforts" on the part of any Allied Party includes:
(i) the offering of a substitution of a like guaranty of
Allied for any Laidlaw Guaranty which is a guaranty of Laidlaw; and
(ii) the offering to the beneficiary or beneficiaries of
any letter of credit which is a Laidlaw Guaranty a substitute letter
of credit having an expiry date no earlier than the expiry date of
such Laidlaw Guaranty and issued by a bank having credit ratings by
each of Standard & Poors Rating Group and Moody's Investor Service,
Inc. which are at least as high as the credit ratings given by such
credit rating organizations for the Laidlaw Issuer Bank which is the
issuer of such Laidlaw Guaranty.
If at the end of six months following the Closing Date any Laidlaw
Guaranty remains outstanding, then no later than the fifth Business Day
following the expiration of such six-month period, the Allied Parties shall
cause to be delivered to Laidlaw a letter of credit which shall:
(i) name Laidlaw as the beneficiary thereof;
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(ii) be in an amount at least equal to the aggregate
outstanding and undrawn balances of all such outstanding Laidlaw
Guaranties;
(iii) be issued by a bank having credit ratings by each of
Standard & Poors Rating Group and Moody's Investor Service, Inc. which
are at least as high as the credit ratings given by such credit rating
organizations for the Laidlaw Issuer Banks;
(iv) have an expiry date no earlier than the expiry date
of the last to expire of the Laidlaw Guaranties; provided, however,
that if the letter of credit to be obtained by the Allied Parties for
the benefit of Laidlaw pursuant hereto is to be issued with respect to
more than one Laidlaw Guaranty, the amount of such letter of credit
will reduce automatically and without any action by any party upon the
expiring date of each Laidlaw Guaranty by the amount thereof or upon
the acceptance by the beneficiary of such Laidlaw Guaranty of a
substitute letter of credit provided by the Allied Parties; and
(v) be payable at sight to Laidlaw upon presentation of a
written, sworn affidavit of an officer of Laidlaw stating that the
Laidlaw Reclamation Credit issued by such Laidlaw Issuer Bank has been
drawn upon by the beneficiary thereof in an amount not less than the
draw being made by Laidlaw on such letter of credit.
11.12 Laidlaw Board Representation. Promptly after the Closing,
Allied shall increase the size of its Board of Directors to enable James R.
Bullock and Ivan Cairns, or two other individuals who are officers of Laidlaw
designated by Laidlaw and reasonably acceptable to Allied, to be appointed to
Allied's Board of Directors. Until the earliest to occur of (i) the fifth
anniversary of the Closing Date or (ii) the first date when the number of
Allied Common Shares held by the Laidlaw Parties and all other Affiliates of
Laidlaw represents less than ten percent of the number of shares of Allied
voting securities then issued and outstanding, Allied shall, subject to
fiduciary obligations under applicable Law, use its best efforts to cause such
two designees of Laidlaw to be nominated for election to Allied's Board of
Directors by the stockholders of Allied. Upon the occurrence of either event
specified in clauses (i) and (ii) set forth in the preceding sentence, the
designees of Laidlaw to Allied's Board of Directors shall immediately resign
from the Board of Directors.
11.13 Attendance at Stockholder Meetings. Until the earlier to
occur of the fifth anniversary of the Closing Date or the date on which the
Laidlaw Sellers and all of their Affiliates collectively beneficially own a
number of shares of Allied voting securities which would represent less than
ten percent of the then issued and outstanding voting securities of Allied
voting securities, the Laidlaw Sellers agree to cause all shares of Allied
voting securities from time to time owned of record or
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beneficially by either of them or any of their Affiliates to be present at all
stockholders meetings of Allied at which the vote of Allied's stockholders is
sought so that they may be counted for the purpose of determining the presence
of a quorum at such meetings.
11.14 Laidlaw Standstill. Until the earlier to occur of the fifth
anniversary of the Closing Date or the date on which the Laidlaw Sellers and
all of their Affiliates collectively own a number of shares of Allied Common
Stock which would represent less than five percent of the then issued and
outstanding voting securities of Allied, neither Laidlaw Seller will, and the
Laidlaw Sellers will cause each of its Affiliates not to:
(i) acquire, offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any voting
securities or voting rights or direct or indirect rights or options to
acquire any voting securities of Allied or any of its Affiliates other
than as a result of a stock split, stock dividend or similar
recapitalization except the Allied Securities;
(ii) make or cause to be made any proposal for an Allied
Reorganization Transaction, except (x) as expressly contemplated in
this Agreement, or (y) proposals pursuant to customary business
transactions in the ordinary course of Allied's business;
(iii) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any securities of Allied or its Affiliates;
(iv) make, or in any way cause or participate in, any
"solicitation" of "proxies" to vote (as those terms are defined in
Regulation 14A under the Exchange Act) with respect to Allied or its
Affiliates, or communicate with, seek to advise, encourage or
influence any Person, in any manner, with respect to the voting of,
securities of Allied or its Affiliates, or become a "participant" in
any "election contest" (as those terms are defined or used in Rule
14a-11 under the Exchange Act) with respect to Allied or its
Affiliates;
(v) initiate, propose or otherwise solicit stockholders
for the approval of one or more stockholder proposals with respect to
Allied or its Affiliates or induce or attempt to induce any other
Person to initiate any stockholder proposal, or seek election to or
seek to place a representative on the Board of Directors of Allied or
its Affiliates or seek the removal of any member of the Board of
Directors of Allied or its Affiliates;
(vi) in any manner, agree, attempt, seek or propose (or
make any request for permission with respect thereto) to deposit any
securities of Allied
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or its Affiliates, directly or indirectly, in any voting trust or
similar arrangement or to subject any securities of Allied or its
Affiliates to any other voting or proxy agreement, arrangement or
understanding;
(vii) directly or indirectly offer, sell or transfer any
Allied Common Stock or rights to receive Allied Common Stock
(including without limitation the Allied Common Shares, the Allied
Warrant Shares, Additional Allied Common Shares and any Allied Common
Stock, or rights to receive Allied Common Stock, pursuant to the
Laidlaw Subscription Agreement) except for (v) sales made in
compliance with the Stock Registration Agreement, (w) sales made in
compliance with Rule 144 under the Securities Act as in effect on the
Closing Date, (x) distributions or dividends of Allied Common Stock to
the shareholders of Laidlaw on a pro rata basis to all shares of all
classes of Laidlaw's then outstanding capital stock, (y) sales to a
Person in a private transaction if, following such sale, such Person
and its Affiliates will beneficially own (used herein as defined in
Rule 13d-3 under the Exchange Act) 9% or less of the total number of
shares of Allied Common Stock then outstanding, and (z) sales to a
Person who makes an Allied Reorganization Transaction on the terms and
conditions of such Reorganization Transaction;
(viii) directly or indirectly offer, sell or transfer the
Allied Warrant except in compliance with the terms of Section 3.1 of
the Allied Warrant;
(ix) disclose any intention, plan or arrangement, or make
any public announcement (or request permission to make any such
announcement), or induce any other Person to take any action,
inconsistent with the foregoing;
(x) enter into any negotiations, arrangements or
understandings with any third party with respect to any of the
foregoing;
(xi) advise, assist or encourage or finance (or assist or
arrange financing to or for) any other Person in connection with any
of the foregoing; or
(xii) otherwise act in concert with others, to seek to
control or influence the management, Board of Directors or policies of
Allied or its Affiliates;
provided, that this Section 11.14 shall not restrict or inhibit the rights of
LTI or Laidlaw to exercise its voting rights as a stockholder of Allied
(subject to Section 11.13 hereof); provided further that, the provisions of
paragraphs (i) through (xii), above, shall not apply to any Allied
Reorganization Transaction proposed by Laidlaw within 30 days
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of the proposal of an Allied Reorganization Transaction by a Person that is not
cooperating or acting in collusion with or an Affiliate of Laidlaw.
11.15 Transition Agreement. Prior to the Closing, Laidlaw and
Allied agree to use their best efforts to enter into a transition agreement
(the "Transition Agreement") that will provide that each of them will, on
mutually agreeable terms, assist the other in providing for an orderly
transition regarding the ownership and operation of the business conducted by
the Acquired Subsidiaries at the Closing. The Transition Agreement will
provide that each of them will make available to the other management services
including information processing, billing, payroll and payables management,
cash management and leases or subleases of office space, all of which will be
for a term of no more than one year. The Transition Agreement will further
provide that effective on the time of the Closing, Laidlaw will terminate all
insurance coverage of any type relating to the Acquired Subsidiaries and Allied
will obtain insurance coverage regarding the Acquired Subsidiaries effective on
the time of the Closing. Allied shall have the right to amend, modify or
terminate any and all Laidlaw Employee Plans (including the Laidlaw Pension
Plans) to the extent allowed by law and relevant collective bargaining
agreements.
ARTICLE XII
TAX MATTERS
12.1 Section 338 Election.
(i) Allied U.S. and LTI shall join in an election to have
the provisions of Section 338(h)(10) of the Code and similar
provisions of federal, state, local or foreign law (where
permissible) ("Section 338(h)(10)Election") apply to the acquisition
of the stock of each Acquired U.S. Subsidiary described herein
whereby (i) each Acquired U.S. Subsidiary will be treated as having
sold all of its assets in a single transaction as of the close of
business on the Closing Date while a member of the LTI U.S.
Consolidated Tax Group and (ii) no gain or loss will be recognized by
LTI or any Acquired U.S. Subsidiary with respect to the sale of its
shares of any Acquired U.S. Subsidiary. The election will include the
execution and subsequent filing of Internal Revenue Service Form
8023-A pursuant to the requirements stated therein. Allied U.S.
shall, within 120 days of the Closing Date, provide to LTI an
allocation of the deemed purchase price among the assets of the
Acquired U.S. Subsidiaries in accordance with Code Sections 338 and
1060 and any comparable provisions of state, local or foreign law, as
appropriate (including copies of detailed workpapers and proposed
attachments to Form 8023-A). Such allocation shall be deemed
acceptable to LTI unless it notifies Allied U.S. of any objections
within 60 days
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of receipt of such allocation. If LTI and Allied are unable to agree
on such allocation within 210 days of the Closing Date, then Arthur
Andersen L.L.P. or some other independent accounting firm mutually
acceptable to the parties hereto shall make a binding determination
with respect to such allocation, the fees and expenses of which shall
be paid equally by LTI and Allied U.S.
(ii) The Allied Parties may, at their election, make
elections under Section 338(g) of the Code with respect to one or more
of the Acquired Canadian Subsidiaries.
(iii) For purposes of the Section 338(h)(10) Election,
value equal to 7,225,000 shares of Allied Common Stock shall be
allocated to the LWSI Group Subsidiaries which are Acquired Canadian
Subsidiaries, and the remainder to the Acquired U.S. Subsidiaries.
(iv) Within 60 days of delivery to LTI of the allocation
schedule described in Section 12.1(i) above, Laidlaw and LTI shall
properly execute and deliver to Allied IRS Form 8023-A (together with
attachments) and other forms that are required to be submitted to any
federal, state, county, or local taxing authority in connection with
the Section 338(h)(10) Election for each Acquired U.S. Subsidiary, and
in connection with the Section 338(g) election for each Acquired
Canadian Subsidiary. In the event the parties have not yet agreed on
the allocation described in Section 12.1(i), the Section 338 Forms
shall still be delivered to Allied, and all Tax Returns filed on a
basis consistent with the binding determination of an accounting firm
described in Section 12.1(i).
(v) After the date of this Agreement, none of the Allied
Parties, any Acquired Subsidiary, nor the Laidlaw Sellers shall take,
or fail to take, any action which may cause the acquisition of the
Acquired Subsidiaries to not be eligible for the Sections 338(g) and
338(h)(10) elections set forth herein.
12.2 Future Tax Returns.
(i) LTI shall prepare and file in a timely fashion, its
federal, state and local corporate income Tax Returns of the Acquired
U.S. Subsidiaries for the periods ended August 31, 1996 and August 31,
1997 (which shall include the income of the Acquired U.S. Subsidiaries
for the periods ended August 31, 1996 and the Closing Date). The Tax
Return for the period ended August 31, 1997 shall include the results
of operations of the Acquired U.S. Subsidiaries for the Pre-Closing
Tax Period beginning September 1, 1996, and ending on the Closing
Date, and all income recognized as a result of all election(s) under
Code Sections 338(h)(10) and 338(g). LTI shall pay or discharge any
and all U.S. Tax reflected on such Tax Returns, including the tax
liability of any member or
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former member of the Laidlaw Sellers, however measured, for which any
Acquired Subsidiary is or may be held liable. Each such payment shall
be made on or before the date any such payment is due. LTI shall
receive any tax refunds reflected on such returns. The Acquired
Subsidiaries will promptly provide the information to LTI to prepare
such returns.
(ii) Laidlaw shall prepare and file in a timely fashion,
all corporate federal and provincial income Tax Returns of the
Acquired Canadian Subsidiaries for the periods ended August 31, 1996
and the day preceding the Closing Date. Such returns shall include
the results of operations of Acquired Canadian Subsidiaries for the
period ending on the close of business on the day preceding the
Closing Date. Laidlaw shall directly pay or discharge any and all
Taxes reflected on such Tax Returns, including the tax liability of
each Acquired Canadian Subsidiary and any member or former member of
the Laidlaw Sellers, however measured, for which any Acquired
Subsidiary is or may be held liable. Each such payment shall be made
on or before the date any such payment is due. Laidlaw shall receive
any tax refunds reflected on such returns. The Acquired Subsidiaries
will promptly provide the information to Laidlaw to prepare such
returns.
(iii) (A) Allied shall timely prepare and file, or cause
the Acquired Subsidiaries to timely prepare and file, all other
applicable Tax Returns for SWM Group Income Taxes for taxable periods
ending subsequent to the Closing Date, including any such returns
which relate to periods which commenced on or prior to the Closing
Date.
(B) The Acquired Subsidiaries shall pay or cause to be
paid any and all Taxes (and applicable penalties and interest, if any)
due as a result of the Tax Returns required to be filed pursuant to
the preceding clause (A).
(C) Prior to filing the Tax Returns referred to in
Section 12.2(iii)(A), the Laidlaw Sellers shall reimburse the Acquired
Subsidiaries or the Allied Parties for any SWM Group Income Taxes to
be paid in connection with Tax Returns filed pursuant to this Section
12.2(iii)(A) attributable to SWM Group Income Taxes accrued or
recognized prior to or including the Closing Date, including the
deemed sale of the assets of the Acquired Subsidiaries on the Closing
Date pursuant to the Section 338(h)(10) Election for the Acquired U.S.
Subsidiaries, any Section 338(g) election for the Acquired Canadian
Subsidiaries, and any liability that arises because one or more of the
Acquired Subsidiaries ceased on the Closing Date to be an Affiliate of
the Laidlaw Sellers. Allied or the Acquired Subsidiaries shall
reimburse LTI for any payment made in excess of Laidlaw' pro rata
share of tax computed based on the income in (iv) below.
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(D) Allied shall provide the Laidlaw Sellers or their
representatives a copy of the Tax Returns prepared pursuant to this
Section 12.2(iii), and the documentation related thereto, prior to
filing such Tax Returns.
(E) State, provincial and local Tax Returns shall be
prepared on a basis reasonably consistent with prior Tax Returns of
the Acquired Subsidiaries and the Code Section 338 allocations set
forth herein.
(iv) With respect to all taxable periods including any
Pre-Closing Tax Period, the Laidlaw Sellers, Allied, and the Acquired
U.S. Subsidiaries will make all computations, allocations,
determinations and elections affecting the Laidlaw Sellers, the
Acquired U.S. Subsidiaries and Acquired Canadian Subsidiaries in
accordance with the provisions of the Treasury regulations promulgated
under Section 338 and 1502 of the Code, the provisions of the Income
Tax Act and state, provincial and local income tax rules.
12.3 Tax Covenants.
(i) Without the prior written consent of Allied, neither
of the Laidlaw Sellers nor any Affiliate of the Laidlaw Sellers shall,
to the extent it may affect or relate to any of the Acquired
Subsidiaries, make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file
any amended Tax Return, enter into any closing agreement, settle any
Tax claim, assessment or proposed assessment, surrender any right to
claim a Tax refund, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment or take or
omit to take any other action, if any such action or omission would
have the effect of increasing any post-closing Tax liability of any
Acquired Subsidiary, Allied or any Affiliate of Allied.
(ii) Without the prior written consent of Laidlaw, neither
Allied nor its Affiliates shall, to the extent it may affect or relate
to any of the Acquired Subsidiaries, make or change any tax election,
file any amended Tax Return, enter into any Closing Agreement, settle
any Tax claim, assessment or proposed assessment, surrender any right
to claim a Tax refund, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment or take or
omit to take any other action, if any such action or omission would
affect a Pre-Closing Tax Period.
(iii) Allied and the Laidlaw Sellers agree that so long as
any books, records and files retained by the Laidlaw Sellers and their
Affiliates relating to the business of the Acquired Subsidiaries, or
the books, records and files delivered to the control of Allied
pursuant to this Agreement to the extent they
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relate to the operations of the Acquired Subsidiaries prior to the
Closing Date, remain in existence and available, each party (at its
own expense) shall have the right upon prior notice to inspect and to
make copies of the same at any time during business hours for any
proper purpose. Allied and the Laidlaw Sellers and their Affiliates
shall use reasonable efforts not to destroy or allow the destruction
of any such books, records and files without first providing 60 days'
written notice of intention to destroy to the other, and allowing such
other party to take possession of such records.
(iv) Allied will make its personnel or that of the
Acquired Subsidiaries available to answer requests related to Tax
Proceedings as defined in Section 12.5(ii). Allied will either
provide documents needed to respond to federal, state and provincial
information requests or queries for such proceedings within 30 days or
allow Laidlaw to take possession of records necessary to answer such
requests. Unless one of the preceding provisions requires otherwise,
the Laidlaw Seller's share of income to be reported on such Acquired
Subsidiaries' return will be computed as of the Closing Date.
12.4 Other Tax Matters, Post-Closing Cooperation.
(i) If the Allied Parties receive any Tax Refund
(including interest and penalties refunded) for a Pre-Closing Tax
Period of an Acquired Subsidiary, other than any such Tax Refund
arising from the application of a loss or Tax credit arising in a
Post-Closing Tax Period, then such persons shall pay to the Laidlaw
Sellers the actual amount of such Tax Refund as and when received, on
an after-tax basis.
(ii) If the Allied Parties realize any Tax Benefit in a
Post-Closing Tax Period arising from the application of a loss
incurred or Tax credit earned by an Acquired Subsidiary in a
Pre-Closing Tax Period, then such persons shall pay to the Laidlaw
Sellers the actual amount of such Tax Benefit realized 183 days
following the end of the particular Post-Closing Tax Period during
which such Tax Benefit was realized, on an after-tax basis.
(iii) All transfer, documentary, sales, use, stamp,
registration, goods and services, value added and other such Taxes and
fees (including any penalties and interest) incurred in connection
with the sale of the stock of LWSI, LMS, LWSC or any of their
subsidiaries, or otherwise in connection with the transactions
effected pursuant to this Agreement (collectively, the "Transfer
Taxes") shall be borne and paid by the Laidlaw Sellers. To the extent
permissible under Tax law or regulations, the Laidlaw Sellers shall
undertake all actions and file such Tax Returns or other forms or
instruments as may be
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necessary to make payment of any Transfer Taxes due prior to or on the
Closing Date, and present evidence of such payment at the Closing Date
to Allied.
(iv) Any payment to be made to any party under Section 12
shall be made within 15 days of demand (or receipt in the event of a
refund of any overpayment). Payment after that time shall bear
interest (y) if for the U.S. at the rate of interest prescribed by IRC
Sec 6621(a)(1) and (z) if for Canada as prescribed by Income Tax
Regulation 4301(b).
12.5 Tax Controversies.
(i) Allied and Laidlaw shall each use reasonable efforts
to keep the other advised as to the status of Tax audits and
litigation involving any direct, indirect or contingent Taxes which
could give rise to a liability of the Laidlaw Sellers to Allied under
this Agreement for any pre-closing period (a "Tax Liability Issue").
Such efforts shall include attorney comfort letters provided to
Allied's independent auditors and discussions with the Laidlaw
attorneys representing the Allied Subsidiaries as requested by Allied.
Laidlaw agrees to timely notify Allied regarding any proposed written
communication (i.e., communications not relating to inquiries or
requests for information) by Laidlaw to any such Taxing Authority with
respect to a Tax Liability Issue to the extent that the issue would
impact a post-closing period of Allied or the Acquired Subsidiaries.
Allied shall have the right to consult with Laidlaw regarding any
response to such communications.
(ii) Laidlaw shall have full responsibility for and
discretion in handling any Tax Controversy including, without
limitation, an audit, a protest to the appeals division of the IRS, or
similar state or local appellate division, an objection to Revenue
Canada or any provincial tax authority and litigation in the U.S. Tax
Court, the Tax Court of Canada or any other court of competent
jurisdiction (a "Tax Proceeding") for any pre-closing period. Allied
or the Acquired Subsidiaries shall give the Laidlaw Sellers the
ability to handle any Tax Controversy whether by power of attorney or
as otherwise required by the Taxing Authority. Unless the Laidlaw
Sellers tender payment of any tax owed, with penalty and interest, to
Allied or the Tax Authority, final settlement of any Tax Controversy
will require Allied approval. However, upon request by Allied and
with the consent of Laidlaw, Allied at its own expense shall have full
responsibility and discretion in handling any Tax Proceeding for any
Pre-closing tax period.
(iii) In the event that any one of the Acquired
Subsidiaries is required or elects to pay any Tax, file any bond or
deposit any amount in connection with a Tax Proceeding (or pay any
Canadian Tax it may decide to object to or
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otherwise contest), Laidlaw shall loan to Allied no later than three
(3) Business Days before such payment is required to be made, without
interest and until a final determination with respect to such Tax has
occurred, one hundred percent of the amount to be paid or deposited by
Allied. Within three (3) Business Days of the receipt by Allied of a
refund of any amount loaned to it by Laidlaw (including any interest
received by Allied), Allied shall pay such refunded amount to Laidlaw
net of any Tax cost incurred by Allied and its Affiliates as a result
of such refund.
(iv) If the completion or settlement of any Tax Proceeding
relating to a Pre-Closing Tax Period, tax controversy or amended Tax
Return gives rise to a tax benefit for any Post-Closing Tax Period to
the Allied Parties, the Acquired Subsidiaries and any Affiliates, then
such persons shall pay to Laidlaw the actual amount of such tax
benefit realized by such persons as it relates to such Pre-Closing Tax
Period as and when received on an after tax basis. No payment will be
made under this paragraph for less than $50,000 per period or for a
period of more than ten years.
(v) If the completion or settlement of any Tax Proceeding
relating to a Pre-Closing Tax Period, tax controversy or amended Tax
Return gives rise to a tax liability for any Post-Closing Tax Period
to the Allied Parties, the Acquired Subsidiaries and any Affiliates,
then Laidlaw shall pay to such persons the actual amount of such tax
liability on an after-tax basis as and when paid. No payment will be
made under this paragraph for less than $50,000 per period or for a
period of more than ten years.
(vi) By written notice to Laidlaw, Allied shall have the
right to instruct Laidlaw to forego proceedings with respect to one or
more items for which Laidlaw may be liable to indemnify Allied. Such
notice shall constitute a waiver of the right of Allied to
indemnification for any Taxes arising out of such item for the period
or periods involved, but shall not otherwise waive any rights of
Laidlaw to any refund of a deposit under Section 12.5(iii).
12.6 Certain Pending Tax Controversies.
(i) C$27,421,816 is on deposit with Revenue Canada and
the Provincial tax authorities with respect to the Canlea controversy.
Such deposit shall be treated as a loan from Laidlaw to PWSL made
pursuant to Section 12.5(iii) and returned to Laidlaw in accordance
with that provision.
(ii) Allied and its Subsidiaries shall not cause the debt
payable by PWSL to 635952 Ontario Ltd. (a wholly owned subsidiary of
PWSL, and an Acquired Canadian Subsidiary) in the amount of
C$37,847,056, to be settled or
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extinguished by way of payment in whole or in part, canceled, settled
by way of corporate reorganization, converted or exchanged for some
other property, or do any such thing (or fail to do any such thing)
which would cause the debt to be unenforceable in law, without the
written consent of Laidlaw.
ARTICLE XIII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
13.1 Nature of Statements. All, but only those, statements
contained in this Agreement or any Disclosure Schedule or certificate delivered
or by on behalf of a Party under this Agreement shall be deemed representations
and warranties made by that Party in connection with the transactions
contemplated by this Agreement.
13.2 Survival of Representations and Warranties. Regardless of any
investigation made at any time by or on behalf of any Party or of any
information any Party may have as a result of any such investigation, all
representations and warranties made in or pursuant to this Agreement (including
in any Disclosure Schedule or certificate delivered under this Agreement)
shall, except as otherwise provided in this Section 13.2, survive the Closing
and shall continue in effect indefinitely thereafter unless and until
terminated as provided in this Section 13.2. The representations and
warranties made by the Laidlaw Sellers in Article IV (other than in Sections
4.2, 4.3, 4.4, 4.5, 4.11, 4.13 and 4.15 of Article IV) and the representations
and warranties made by the Allied Parties in Article V (other than in Sections
5.2, 5.3, 5.4, 5.5, the first sentence of Section 5.12, 5.13 and 5.15 of
Article V) shall terminate on the date which is 18 months following the Closing
Date. The representations and warranties made by the Laidlaw Sellers in
Sections 4.2, 4.3, 4.4, 4.5 and 4.11, and the representations and warranties
made by Allied in Sections 5.2, 5.3, 5.4, 5.5 and the first sentence of Section
5.12 shall survive the Closing indefinitely. The representations and
warranties made by the Laidlaw Sellers in Section 4.13, the representations and
warranties made by the Allied Parties in Section 5.13, and the covenants,
obligations and agreements set forth in Article XII shall terminate on the date
the statute of limitations and times for assessment (giving effect to any
waiver, mitigation or extension thereof) with respect to any Tax liability in
question has run in favor of all Acquired Subsidiaries and the LTI-US
Consolidated Tax Group, or Allied and its Subsidiaries, as the case may be,
against the U.S. federal, Canadian federal, state provincial, or local
government, as the case may be. The representations and warranties by the
Laidlaw Sellers in Section 4.15 shall (i) terminate on the Closing Date as to
all matters that are disclosed in writing to the Allied Parties at least 5
Business Days prior to the Closing pursuant to Section 4.15 of this Agreement
or disclosed with specificity in the Emcon Environmental Report or are
otherwise disclosed by Laidlaw in writing to Allied at least 5 Business Days
before the Closing, and (ii) terminate on the third anniversary of the Closing
Date as to all
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matters other than those described in the preceding clause (i) which are known
to the Laidlaw Sellers on the Closing Date. The representations and warranties
made by the Allied Parties in Section 5.15 shall terminate on the third
anniversary of the Closing. If a bona fide claim is asserted before the
expiration of the survival period of a representation or warranty, such
representation, warranty, covenant, obligation or agreement shall continue in
effect until the claim is settled, adjudicated or otherwise resolved. With
respect to this Section 13.2, "known" means with respect to any matter referred
to in clause (ii) above that (x) the matter is known to any Person who is or
was an officer, director, employee or agent of, or consultant to, any member of
the Laidlaw Group (including the Acquired Subsidiaries) on or before the
Closing Date or (y) any such Person is aware of facts which would have led a
reasonable Person to have conducted an investigation or inquiry likely to have
led to discovery of such matter.
ARTICLE XIV
INDEMNIFICATION
The respective indemnification obligations of the Laidlaw Sellers and
Allied are as follows:
14.1 Indemnification by the Laidlaw Sellers. The Laidlaw Sellers
jointly and severally agree to pay and to indemnify and hold harmless each
Allied Party and each Acquired Subsidiary and their respective Affiliates (but,
in the case of the Acquired Subsidiaries, only their respective Affiliates
after the Closing), successors and assigns from and against any and all Damages
suffered by the Allied Parties or the Acquired Subsidiaries which are caused
by, arising out of or in respect of:
(i) any U.S. federal income Tax liability of the LTI US
Consolidated Tax Group for all taxable periods ending before, on or
after the Closing Date;
(ii) all other SWM Group Income Taxes attributable to any
Pre-Closing Tax Period (including any transaction consummated in such
Pre-Closing Tax Period);
(iii) any Tax resulting from or attributable to the
distribution of the Retained Subsidiaries and the Retained Land;
(iv) any Tax on or attributable to the elimination,
reversal, release, satisfaction, distribution, or discharge of
Intercompany Indebtedness and Intercompany Investments of the Acquired
Subsidiaries (including any intercompany items solely between the
Acquired Subsidiaries, as well as items between Laidlaw and other
Laidlaw Affiliates), and any other reorganization
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steps or other actions taken by Laidlaw and its Affiliates in placing
the Acquired Subsidiaries in the condition required for Closing
(including, without limitation, the actions set forth in Section 3.2);
(v) any obligation of Allied or the Acquired Subsidiaries
to contribute to the payment of any SWM Group Income Taxes determined
on a consolidated, combined or unitary basis allocable to any
Pre-Closing Period with respect to a group of corporations that
includes or included the Acquired Subsidiaries;
(vi) any (x) Pre-Closing Laidlaw Insurance Claims, and (y)
liability (including any Environmental Claim relating to any
Environmental Law) arising out of the activities, business, assets or
operations of any member of the Laidlaw Group other than the Acquired
Subsidiaries (excluding the Option Assets), including their
predecessors, affiliates, successors and assigns;
(vii) any claim by any member of the Laidlaw Group against
any Acquired Subsidiary based on any event occurring or condition
existing on or before the Closing Date;
(viii) any breach or default in the performance by either
Laidlaw Seller of any covenant or agreement made by such Laidlaw
Seller in this Agreement or in any Ancillary Agreement to which either
Laidlaw Seller is a party;
(ix) any breach of warranty or inaccurate or erroneous
representation made by either Laidlaw Seller in Article IV of this
Agreement (other than the representations and warranties set forth in
Sections 4.2, 4.3, 4.4, 4.5, 4.11, 4.13 and 4.15 of this Agreement) or
in the Laidlaw Disclosure Schedule or in any certificate delivered by
or on behalf of the Laidlaw Sellers under, or concerning the
representations and warranties made in Article IV of this Agreement
(other than the representations and warranties set forth in Sections
4.2, 4.3, 4.4, 4.5, 4.11, 4.13 and 4.15);
(x) any breach of warranty or inaccurate or erroneous
representation made by either Laidlaw Seller in Sections 4.2, 4.3,
4.4, 4.5, 4.11 and 4.13 of this Agreement or the Laidlaw Disclosure
Schedule related to such representations and warranties or the
certificate delivered by or on behalf of the Laidlaw Sellers under, or
concerning such representations and warranties; and
(xi) any breach of warranty or inaccurate or erroneous
representation made by either Laidlaw Seller in Section 4.15 of this
Agreement or the Laidlaw Disclosure Schedule related to such
representation or warranties or the certificate delivered by or on
behalf of the Laidlaw Seller under, or concerning such
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representations and warranties, but only to the extent any such
warranty or representation survives the Closing pursuant to Section
13.2 of this Agreement.
provided, however, that the amount of any Damages in respect of which the
Laidlaw Parties shall be required to indemnify the Allied Parties under clauses
(viii) and (ix) above (but not under clauses (i) through (vii), clause (viii)
(to the extent such clause relates to performance by the Laidlaw Parties of the
covenants and agreements contained in clause (ii) of the final paragraph of
Section 6.1) inclusive, and clauses (x) and (xi) of this Section 14.1) shall be
limited to the amount by which the aggregate of all such Damages exceeds
$25,000,000; and provided further that no claim for Damages against either
Laidlaw Seller made under clauses (i) through (vii), inclusive, and clauses (x)
and (xi) of this Section 14.1 shall be reduced, modified or impaired by virtue
of the fact that any representation and warranty made by the Laidlaw Sellers in
Sections 4.2, 4.3, 4.4, 4.5, 4.11, 4.13 and 4.15 shall have been breached or
inaccurate or erroneous in any respect. The amount of any Damages in respect
of which the Laidlaw Parties shall be required to indemnify the Allied Parties
under clause (xi) above will be limited to the amount by which the aggregate of
all such Damages exceeds $1,000,000. For purposes of this Section 14.1, the
representations and warranties shall be read as if references therein to the
materiality to the Laidlaw Sellers and the Acquired Subsidiaries or any of them
of any condition, fact, statement, event or act (including all references to
"Material Adverse Effects" and "in all material respects") were deleted and the
effect of any such references were deleted altogether. Thus, for example: (i)
any representation that a statement is true and correct in all material
respects shall be read as a representation that the statement is true and
correct; (ii) any representation that a condition exists except to the extent
that its failure to exist would not have a Material Adverse Effect on the
Laidlaw Sellers or the Acquired Subsidiaries, as the case may be, shall be read
as a representation that such condition exists; and (iii) any representation
that no incidents of a specific nature have occurred that would have a Material
Adverse Effect on the Laidlaw Sellers or the Acquired Subsidiaries, as the case
may be, shall be read as a representation that no incidents of such nature have
occurred. For purposes of this Section 14.1, the representations and
warranties shall be read as if references therein to the "knowledge of the
Laidlaw Sellers" were deleted in their entirety.
14.2 Indemnification by Allied. Allied agrees to pay and to
indemnify and hold harmless and defend each Laidlaw Seller and its Affiliates
(but not any Acquired Subsidiary after the Closing), and their respective
successors and assigns from and against any and all Damages suffered by the
Laidlaw Parties which are caused by or arising out of or in respect of:
(i) the Laidlaw Guaranties which are listed and
identified in Section 4.19 of the Laidlaw Disclosure Schedule;
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(ii) any breach or default in the performance by any
Allied Party of any covenant or agreement of such Allied Party
contained in this Agreement or any Ancillary Agreement to which any
Allied Party is a party;
(iii) any breach of warranty or inaccurate or erroneous
representation made by such Allied Party in Article V of this
Agreement (other than the representations and warranties set forth in
Sections 5.2, 5.3, 5.4, 5.5 and the first sentence of 5.12; and
(iv) any breach of warranty or inaccurate or erroneous
representation made by such Allied Party in Sections 5.2, 5.3, 5.4,
5.5 and the first sentence of 5.12 of this Agreement;
provided, however, that the amount of any Damages in respect of which Allied
shall be required to indemnify the Laidlaw Sellers under clauses (ii) and (iii)
of this Section 14.2 shall (but not clauses (i) and (iv) of this Section 14.2)
be limited to the amount by which the aggregate of all such Damages exceeds
$25,000,000. For purposes of this Section 14.2, the representations and
warranties shall be read as if references therein to materiality to the Allied
Parties or any of them of any condition, fact, statement, event or act
(including all references to "Material Adverse Effects" and "in all material
respects") were deleted and the effect of any such references were deleted
altogether. Thus, for example: (i) any representation that a statement is true
and correct in all material respects shall be read as a representation that the
statement is true and correct; (ii) any representation that a condition exists
except to the extent that its failure to exist would not have a Material
Adverse Effect on the Allied Parties shall be read as a representation that
such condition exists; and (iii) any representation that no incidents of a
specific nature have occurred that would have a Material Adverse Effect on the
Allied Parties shall be read as a representation that no incidents of such
nature have occurred. For purposes of this Section 14.2, the representations
and warranties shall be read as if references therein to the "knowledge of the
Allied Parties" were deleted in their entirety.
The obligations of Allied under this Section 14.2 (other than the
obligation to indemnify and hold harmless the Laidlaw Sellers with respect to
the Laidlaw Guarantees referred to in clause (i) above) shall be subordinated
to the obligations of Allied and its subsidiaries under the Credit Facility (as
defined in the Guaranties) and the Senior Subordinated Debentures to the same
extent and with the same extent as the obligations of Allied under the
Guaranties are subordinated to Senior Indebtedness (as such term is defined in
the Guaranties). If so requested by Allied or by any holder of any
Indebtedness incurred pursuant to the Credit Facility or by any holder of any
of the Senior Subordinated Debentures, the Laidlaw Sellers shall execute such
additional documents and agreements as may be requested from time to time to
evidence the subordination contemplated hereby. Nothing contained in this
Section 14.2 will be
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deemed to subordinate the obligation of the Allied Parties or the Acquired
Subsidiaries to pay to the Laidlaw Seller any amounts received by them as a
refund of taxes pursuant to Section 12.6. Allied shall not make any payments
under this Section 14.2 to the Laidlaw Sellers (other than payments pursuant to
the obligation to indemnify and hold harmless the Laidlaw Sellers with respect
to the Laidlaw Guaranties referred to in clause (i) above) as long as the
Credit Facility (as defined in the Guaranties) and the Senior Subordinated
Debentures are in place and in effect, provided that any payment that would
have been required to be paid pursuant to this Section 14.2 but for this
paragraph will accrue interest at 7% from the date such amount would have been
paid, and such amount together with accrued interest shall become due 91 days
following the termination of the Credit Facility and after the Indebtedness
incurred pursuant to the Credit Facility referred to in the Commitment Letter
and the Indebtedness evidenced by the Senior Subordinated Debentures have been
indefeasibly paid in full in cash.
14.3 Third Party Claims. If any Party (for purposes of this Section
14.3, an "Indemnified Party") becomes aware of a fact, circumstance, claim,
situation, demand or other matter for which it or any other Indemnified Party
has been indemnified under this Article XIV and which has resulted or could
result in a liability owed by the Indemnified Party to a third party or a claim
otherwise advanced by a third party against the Indemnified Party (any such
item being herein called a "Third Party Claim"), the Indemnified Party, shall
give prompt written notice of the Third Party Claim to the Party obligated to
provide indemnity with respect to such Third Party Claim (for purposes of this
Section 14.3, the "Indemnifying Party"), requesting indemnification therefor,
specifying the nature of and specific basis for the Third Party Claim and the
amount or estimated amount thereof to the extent then feasible; provided,
however, a failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
actually materially prejudiced by such failure. The Indemnifying Party shall
have the right to assume the defense or investigation of such Third Party Claim
and to retain counsel and other experts to represent the Indemnified Party and
shall pay the fees and disbursements of such counsel and other experts. If
within 30 days after receipt of the request (or five days if litigation is
pending) the Indemnifying Party fails to give notice to the Indemnified Party
that the Indemnifying Party assumes the defense or investigation of the Third
Party Claim, an Indemnified Party may retain counsel and other experts (whose
fees and disbursements shall be at the expense of the Indemnifying Party) to
file any motion, answer or other pleading and take such other action which the
Indemnified Party reasonably deems necessary to protect its interests or those
of the Indemnifying Party until the date on which the Indemnified Party
receives such notice from the Indemnifying Party. If an Indemnifying Party
assumes the defense or investigation and retains such counsel and other
experts, any Indemnified Party shall have the right to retain its own counsel
and other experts, but the fees and expenses of such counsel and other experts
shall be at the expense of the Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party mutually agree to the retention of such
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counsel and other experts or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party and representation of both parties by the same counsel would,
in the opinion of counsel retained by the Indemnifying Party, be inappropriate
due to actual or potential differing interests between them.
If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any
Third Party Claim which the Indemnifying Party defends, or, if appropriate and
related to the Third Party Claim in question, in making any counterclaim
against the person asserting the Third Party Claim, or any cross-complaint
against any person. No Third Party Claim may be settled by the Indemnified
Party without the consent of the Indemnifying Party, which consent will not be
unreasonably withheld. Unless the Indemnifying Party agrees in writing that
the Damages to the Indemnified Party resulting from such settlement are fully
covered by the indemnities provided herein and that such Damages are fully
compensable in money, no Third Party Claim may be settled without the consent
of the Indemnified Party, which consent will not be unreasonably withheld.
Except with respect to settlements entered without the Indemnified Party's
consent pursuant to the immediately preceding sentence, to the extent it is
determined that the Indemnified Party has no right under this Article XIV to be
indemnified by the Indemnifying Party, the Indemnified Party shall promptly pay
to the Indemnifying Party any amounts previously paid or advanced by the
Indemnifying Party with respect to such matters pursuant to this Article XIV.
After the delivery of a notice of a Third Party Claim hereunder, at
the reasonable request of the Indemnifying Party the Indemnified Party shall
grant the Indemnifying Party and its representatives full and complete access
to the books, records and properties of the Indemnified Party to the extent
reasonably related to the matters to which the notice relates. The
Indemnifying Party will not disclose to any third person (except its
representatives) any information obtained pursuant to the preceding sentence
which is designated as confidential by the Indemnified Party and which is not
otherwise generally available to the public, except as may be required by
applicable law. The Indemnifying Party shall request its representatives not
to disclose any such information (except as may be required by applicable law).
All such access shall be subject to the normal safety regulations of the
Indemnified Party, and shall be granted under conditions which will not
unreasonably interfere with the business and operations of the Indemnified
Party.
14.4 Claims Between the Parties. If any Party (for purposes of
this Section 14.4, an "Indemnified Party") becomes aware of a fact,
circumstance, claim, situation, demand or other matter (other than an Third
Party Claim) for which it or any other Indemnified Party has been indemnified
under this Article XIV and which has resulted or could result in a liability
(any such items being herein called a "Claim") being owed
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to the Indemnified Party by another Party (the "Indemnifying Party"), the
Indemnified Party shall give prompt written notice to the Indemnifying Party of
the Claim, stating the nature and basis of the Claim and the amount claimed
thereunder, together with supporting information to the Claim, if any. If the
Indemnifying Party does not notify the Indemnified Party within 30 days from
the date such Claim notice is given that it disputes the Claim, the amount of
the Claim shall conclusively be deemed to be a liability of the Indemnifying
Party hereunder.
14.5 Arbitration. If an Indemnified Party and an Indemnifying
Party cannot reach agreement with respect to the validity or amount of any
Third Party Claim or a Claim within 60 days after notice thereof is first
given, the validity and amount thereof, as the case may be, shall be finally
settled by arbitration in Chicago, Illinois in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto) then in effect (to the extent such rules do not conflict
with the terms hereof), by a panel consisting of three arbitrators, each being
qualified to make evaluations of the kind under dispute. Each of the two
parties to such arbitration shall appoint one arbitrator and the two
arbitrators so appointed shall select the third neutral arbitrator within 30
days after their appointment. If the arbitrators appointed by the parties are
unable or fail to agree upon the third arbitrator, the third arbitrator shall
be selected by the American Arbitration Association. Each arbitrator shall be
unaffiliated with each of the parties hereto. The parties hereto agree to be
bound by whatever procedural and evidentiary rules are established by the panel
of arbitrators. The arbitrators shall render their written decision and award,
upon the concurrence of at least two of their members, within 90 days of the
appointment of the third arbitrator. The decision of the arbitrators shall be
binding on the parties, final and nonappealable. Any arbitration award may be
enforced in any court having jurisdiction over the party against which
enforcement is sought. The party designated by the arbitrators as the
unsuccessful party shall pay the fees and expenses (including attorneys' fees)
incurred in connection with the arbitration by all parties thereto; provided
that if the arbitrators do not designate either party as the unsuccessful
party, Allied shall bear 50% and Laidlaw shall bear 50% of such fees and
expenses.
14.6 Payment. Payments of all amounts owing hereunder with respect
to any Third Party Claim shall be made within 30 days after (i) the settlement
of the Third Party Claim, or (ii) if arbitration has been commenced pursuant to
Section 14.5, the final resolution of such arbitration. Payments of all
amounts owing hereunder with respect to any Claim shall be made within ten days
after (i) the expiration of the 60-day Claim notice period without delivery of
a notice of dispute, or (ii) if arbitration has been commenced pursuant to
Section 14.5, the final resolution of such arbitration.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment. This Agreement may be amended by the Parties, by
or pursuant to action taken by their respective Boards of Directors, at any
time before or after approval by Allied's stockholders of the matters specified
in Section 7.5, but after such approval, no amendment shall be made which
materially increases the amount or materially alters terms of the Allied
Securities without the further approval of Allied's stockholders. This
Agreement may be amended only by a written instrument executed by all of the
Parties.
15.2 Waiver. At any time on or before the Closing Date, each of
the Parties may (i) extend the time for the performance of any of the
obligations or other act of any of the other Party or Parties, (ii) waive any
inaccuracies in the representations and warranties made in this Agreement or in
a Disclosure Schedule of a Party, (iii) waive compliance with any of the
agreements or conditions of this Agreement which may be legally waived, and
(iv) grant consents under this Agreement. Any such extension, waiver or grant
shall be valid only if evidenced by a written instrument executed by the Party
giving it.
15.3 Termination. This Agreement may be terminated at any time
before the Closing by:
(i) the mutual consent of the Boards of Directors of
Laidlaw and Allied;
(ii) by either Allied or Laidlaw if the Acquisitions have
not been consummated on or before the later to occur of December 31,
1996 or the 61st day after the SEC has approved the Allied Proxy
Statement (or any later date which may be agreed to by the mutual
written consent of Allied and Laidlaw); provided, however, that such
right to terminate this Agreement shall not be available to any Party
that has breached in any material respect its obligations under this
Agreement in any manner that has proximately contributed to the
failure of the Acquisitions to occur on or before such date; or
(iii) by either the Laidlaw Parties or the Allied Parties
if the stockholders of Allied shall have failed to approve at the
Allied Stockholders' Meeting the matters specified in Section 7.5.
15.4 Substitute Financing. Between the date hereof and the
Closing, the Allied Parties shall, from time to time, advise Laidlaw as to the
status of the private placement
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or public offering of the Senior Subordinated Debentures. In the event the
Allied Parties determine that all conditions contained in Articles VIII and IX
to the Allied Parties obligation to consummate the Acquisitions and to take the
other actions called for under Articles II and III can be satisfied at the
Closing except that some or all of the Senior Subordinated Debentures cannot be
sold on terms acceptable to Allied, the Allied Parties shall give notice to
Laidlaw thereof (the "High Yield Event Notice"). The High Yield Event Notice
shall specify the amount of such Senior Subordinated Debentures (the "Remainder
Senior Subordinated Debentures") which cannot be sold to third party purchasers
on terms acceptable to Allied. If the aggregate principal amount of the
Remainder Senior Subordinated Debentures is $150,000,000 or less, on or before
noon on the first Business Day following Laidlaw's receipt of the High Yield
Event Notice, Laidlaw may give notice (the "Substitute Financing Notice") to
the Allied Parties of Laidlaw's election and agreement (the "Substitute
Financing Election") to purchase the Remainder Senior Subordinated Debentures
on the same price and terms as are applicable to purchases of Senior
Subordinated Debentures by third party purchasers (net of the discount
otherwise payable to Goldman, Sachs & Co.) (the price payable pursuant to
clauses (i) or (ii) above) the "Substitute Financing Purchase Price"). Upon
giving the Substitute Financing Notice, Laidlaw will be obligated to purchase
the Remainder Senior Subordinated Debentures on the Closing Date for the
Substitute Financing Purchase Price, and upon Laidlaw's payment of the
Substitute Financing Purchase Price at the Closing, the condition contained in
Section 9.9 to the effect that the Allied Parties shall have received the
proceeds of the financing contemplated by the Highly Confident Letter will be
deemed satisfied to the extent of the funding provided by Laidlaw. Any Senior
Subordinated Debentures purchased by Laidlaw may not be sold, transferred or
assigned to any Person for a period of 180 days after the purchase, unless
waived by Goldman, Sachs & Co. Upon the giving of the High Yield Event Notice,
the Allied Parties will be obligated to pay $10,000,000 to Laidlaw on the
Closing Date or (if the Closing does not occur because the aggregate principal
amount of the Remainder Senior Subordinated Debentures exceeds $150,000,000 or
Laidlaw decides not to make the Substitute Financing Election) within ten
Business Days after the date the High Yield Event Notice is given. Such amount
will be payable even if the Acquisitions are consummated on the Closing Date as
a result of Laidlaw's purchase of the Remainder Senior Subordinated Debentures.
15.5 Consequences of Termination. If this Agreement is terminated
as provided in Section 15.3, it shall forthwith become void and, except as
otherwise provided in Sections 5.14 and 15.5, there shall be no liability or
obligation on the part of any Party or their respective officers or directors.
Notwithstanding the foregoing, the Confidentiality Agreement shall also survive
such a termination. Nothing in this Section 15.5 shall, however, relieve any
Party from any liability for any breach of this Agreement.
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If this Agreement is terminated solely because the stockholders of
Allied fail to approve the matters referred to in Section 7.5 hereof, and the
failure to receive such stockholder approval directly results from the
existence of a third party offer to acquire at least 51% of Allied's stock or
assets (whether in the form of a tender offer, merger proposal, asset purchase
or otherwise) then Allied will pay to Laidlaw within 10 days of such
termination of this Agreement an amount equal to the product obtained by
multiplying 5,000,000 times the difference between (i) the price per share of
the third party offer (as in effect at the time of such stockholders' meeting)
and (ii) $8.25.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Non-Business Days. If the date on which any action (including
the delivery of notices) to be taken under this Agreement is to occur falls on
a day which is not a Business Day, such action will be deemed timely taken if
taken on the first Business Day following.
16.2 Notices. All notices or other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by
telecopier (with receipt confirmed) to a Party at the address or telecopy
number, as applicable, set forth below (as any such address or telecopier
number may be changed from time to time by notice similarly given):
(1) if to any Laidlaw Party, to:
Laidlaw Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3Y8
Attention: Ivan R. Cairns
Telecopy No.: (905) 332-6550
(2) if to any Allied Party, to:
Allied Waste Industries, Inc.
7201 East Camelback Road, Suite 375
Scottsdale, Arizona 85251
Attention: Roger A. Ramsey
Telecopy No.: (602) 481-9347
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with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana Street, Suite 3500
Houston, Texas 77002
Attention: Robert G. Reedy
Telecopy No.: (713) 228-1331
16.3 Entire Agreement. This Agreement, its Exhibits, the
Disclosure Schedules, all documents delivered under this Agreement, the
Confidentiality Agreement and the letter agreement dated the date hereof
relating to the option to purchase the Option Assets of Laidlaw granted to
Allied constitute, and together with the Ancillary Agreements upon their
execution and delivery as herein provided will constitute, the entire
agreement, and supersede all of the prior agreements and undertakings, both
written and oral, among the Parties, or any of them, with respect to the
subject matter of this Agreement.
16.4 Assignment; Binding Effect. This Agreement may not be
assigned by any of its Parties. Subject to the preceding sentence, this
Agreement shall be binding upon the Parties and their respective successors and
assigns.
16.5 Counterparts. This Agreement may be executed in counterparts
which together shall constitute a single agreement.
16.6 Governing Law; Jurisdiction. This Agreement and the rights
and obligations of the parties created hereby shall be governed by the internal
Laws of the State of Delaware without regard to its conflict of law rules. The
Parties irrevocably consent to the non-exclusive jurisdiction of the courts of
the State of Delaware in connection with any dispute between or among them
arising under this Agreement or any Ancillary Agreement.
16.7 Severability of Provisions. If a provision of this Agreement
or its application to any Person or circumstance, is held invalid or
unenforceable in any jurisdiction, to the extent permitted by law, such
provision or the application of such provision to Persons or circumstances
other than those as to which it is held invalid or unenforceable and in other
jurisdictions, and the remaining provisions of this Agreement, shall not be
affected.
16.8 Specific Performance. Each Party agrees that one or more
other Parties would be irreparably damaged if any provision of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. Therefore, the Parties agrees that each Party shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement or any of
its provisions and to specifically enforce this
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Agreement its terms and provisions in any action instituted in any court of the
United States or Canada or any state or province thereof having subject matter
jurisdiction, in addition to any other remedy to which a Party may be entitled,
at law or in equity.
16.9 Joint Drafting. This Agreement and its Exhibits have been
jointly drafted by the Parties and their counsel. Neither this Agreement nor
any of its Exhibits shall be construed against any Party based on its
authorship.
16.10 Captions. The article and section headings in this Agreement
are for convenience only, and shall not affect the meaning or interpretation of
this Agreement.
16.11 No Third-Party Beneficiaries. There are no third-party
beneficiaries of this Agreement, except that the respective Affiliates of the
Parties are entitled to the benefits of the respective indemnification
obligations of the Parties under Section 11.10 and Article XIV.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement, all
as of the date first written above.
LAIDLAW INC.
By: /s/ IVAN R. CAIRNS
------------------------------------
Title: Senior Vice President
---------------------------------
LAIDLAW TRANSPORTATION, INC.
By: IVAN R. CAIRNS
------------------------------------
Title: Senior Vice President
---------------------------------
LAIDLAW WASTE SYSTEMS, INC.
By: IVAN R. CAIRNS
------------------------------------
Title: Authorized Officer
---------------------------------
LAIDLAW WASTE SYSTEMS (CANADA) LTD.
By: IVAN R. CAIRNS
------------------------------------
Title: Authorized Officer
---------------------------------
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LAIDLAW MEDICAL SERVICES LTD.
By: IVAN R. CAIRNS
------------------------------------
Title: Authorized Officer
---------------------------------
ALLIED WASTE INDUSTRIES, INC.
By: /s/ ROGER A. RAMSEY
------------------------------------
Title: Chairman
---------------------------------
ALLIED HOLDINGS (UNITED STATES), INC.
By: /s/ ROGER A. RAMSEY
------------------------------------
Title: President
---------------------------------
3294862 (CANADA), INC.
By: /s/ ROGER A. RAMSEY
------------------------------------
Title: President
---------------------------------
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EXHIBIT B-1
THIS DEBENTURE HAS NOT BEEN REGISTERED (OR QUALIFIED BY PROSPECTUS) UNDER THE
SECURITIES ACT (DEFINED BELOW), THE CANADIAN SECURITIES LEGISLATION (DEFINED
BELOW), OR THE LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA, AND THIS
DEBENTURE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS HEREOF AND THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT, THE
CANADIAN SECURITIES LEGISLATION AND SUCH STATE LAWS OTHER THAN PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS AND UPON
DELIVERY TO ALLIED FINANCE OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ALLIED FINANCE TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION AND
THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THOSE LAWS.
THIS DEBENTURE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"). THE HOLDER
OF THIS DEBENTURE SHOULD BE AWARE THAT SUCH HOLDER WILL BE REQUIRED TO INCLUDE
OID IN SUCH HOLDER'S GROSS INCOME FOR INCOME TAX PURPOSES IN ADVANCE OF THE
RECEIPT OF CASH ATTRIBUTABLE TO SUCH INCOME. WITH RESPECT TO OID, THE ISSUE
DATE OF THIS DEBENTURE IS _________________, 199_, THE ISSUE PRICE IS
[$_________], THE AMOUNT OF OID IS [$_________], AND THE YIELD TO MATURITY IS
[______]%.
7% JUNIOR SUBORDINATED DEBENTURE DUE 200_(1)
$150,000,000 _________________, 199_
FOR VALUE RECEIVED, 3294854 CANADA INC., a Canadian corporation ("Allied
Finance"), promises to pay to Laidlaw Inc., a Canadian corporation ("Laidlaw"),
or its registered assigns, the principal amount of $150,000,000 on the
Maturity Date, with interest on the principal balance outstanding from time to
time at the rate and payable at the times and in the manner hereinafter set
forth.
- - - -------------------------------
(1) The due date will be 12 years after the date of issuance.
<PAGE> 266
1. Definitions.
(a) For all purposes of this Debenture:
"Affiliate" means, with respect to any Person, another Person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person
with the term "control," including the terms "controlling" and
"controlled," meaning for purposes of this definition, the power to
direct the management and policies of a Person, directly or indirectly,
whether through the ownership of voting securities or partnership or
other ownership interests, or by contract or otherwise.
"Allied" means Allied Waste Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Allied Common Stock" means the Common Stock, $.01 par value per
share, of Allied.
"Allied Finance" means 3294854 Canada Inc., a Canadian
corporation, and its successors and assigns.
"Allied U.S." means Allied Holdings (United States), Inc., a
Delaware corporation, and its successors and assigns.
"Allied Warrant" means the warrant for the purchase of shares of
Allied Common Stock to be issued by Allied to Laidlaw under Section 2.3
of the Stock Purchase Agreement.
"Bankruptcy or Insolvency Proceeding" is defined in Subsection
5(b) of this Debenture.
"Blockage Period" means any period when a default or an event of
default or an event which, with the giving of notice or the lapse of
time or both, would constitute a default or an event of default has
occurred and is continuing under the terms of the Credit Facility or the
Senior Subordinated Debentures or under the terms of any agreement or
instrument pursuant to which any other Designated Senior Indebtedness is
created, issued, evidenced, secured or guaranteed.
"Business Day" means a day other than Saturday, Sunday or any day
on which banks located in Toronto, Ontario or New York, New York are
authorized or obligated to close.
"Canadian Securities Legislation" means the Securities Act of the
Province of Ontario (R.S.O. 1990, c. S.5, as amended) and similar
provincial legislation, and the regulations and rules promulgated
thereunder.
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"Change of Control" means a change resulting when any Unrelated
Person or any Unrelated Persons acting together that would constitute a
Group together with any Affiliates thereof (in each case also
constituting Unrelated Persons) shall at any time Beneficially Own more
than 50% of the aggregate voting power of all classes of Voting Stock of
Allied; provided, however, that if at the date any "Change of Control"
would otherwise have occurred but for the fact that a Person was not an
Unrelated Person because such Person or an Affiliate of such Person
acquired shares of Allied Common Stock or all or any portion of the
Allied Warrant from Laidlaw or from any Affiliate of Laidlaw within nine
months prior to such date, such shares of Allied Common Stock acquired
from Laidlaw or any Affiliate of Laidlaw, or any shares of Allied Common
Stock issued upon exercise of the Allied Warrant or any portion thereof,
shall at all times thereafter be excluded when calculating whether a
Change of Control has occurred. As used in this definition of Change of
Control (a) "Beneficially Own" means "beneficially own" as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provisions thereto; provided, however,
that, for purposes of this definition, a Person shall not be deemed to
Beneficially Own securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates until such tendered securities are accepted for purchase or
exchange; (b) "Group" means a "group" for purposes of Section 13(d) of
the Exchange Act; (c) "Affiliate" means, with respect to any Person,
another Person which would be an "affiliate" of such Person for purposes
of Section 13(d) of the Exchange Act; (d) "Unrelated Person" means at
any time any Person other than Laidlaw, any Person to whom Laidlaw or
any of its Affiliates transfers, within nine months prior to such time,
any shares of Allied Common Stock or all or any portion of the Allied
Warrant or any Affiliate of Laidlaw or any such Person; provided,
however, that Persons (other than Laidlaw or its Affiliates) to whom
Laidlaw or any of its Affiliates transfers any shares of Allied Common
Stock or all or any portion of the Allied Warrant after five years from
the date hereof shall not be deemed Unrelated Persons; and (e) "Voting
Stock" of any Person shall mean capital stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by
reason of any contingency.
"Credit Facility" means the Credit Agreement dated as of
_____________, 199_, among Allied U.S., as borrower, Allied, Goldman
Sachs Credit Partners L.P., as syndication agent, Citibank, N.A., as
documentation agent, Credit Suisse, as administrative agent, Goldman
Sachs Credit Partners L.P., Citicorp USA, Inc. and Credit Suisse, as
initial lenders, and the other financial institutions now or hereafter
parties thereto (as the same may be renewed, amended, modified,
increased, extended, refinanced, or otherwise supplemented from time to
time).
"Debenture" means this 7% Junior Subordinated Debenture due
200__.
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"Default" is defined in Section 8.
"Default Rate" means an annual interest rate equal to 9% per
annum.
"Deferral Period" is defined in Subsection 3(b).
"Designated Senior Indebtedness" means (i) the Senior
Indebtedness incurred with respect to the Credit Facility, (ii) the
Senior Indebtedness evidenced by the Senior Subordinated Debentures and
(iii) any other Senior Indebtedness which is incurred pursuant to an
agreement (or series of related agreements simultaneously entered into)
providing for Indebtedness, or commitments to lend, of at least
$10,000,000 at the time of determination and is specifically designated
in the instrument evidencing such Senior Indebtedness or the agreement
under which such Senior Indebtedness arises as "Designated Senior
Indebtedness."
"$" means U.S. dollars, the lawful currency of the United States
of America.
"Financing Lease" means any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with generally accepted accounting principles to be
capitalized on a balance sheet of the lessee.
"Governmental Entity" means any U.S. or Canadian, territorial,
federal, state, provincial or local court, executive office,
legislature, governmental agency, department, ministry, commission, or
administrative, regulatory or self-regulatory authority or
instrumentality.
"Guarantee" means with respect to any Person any obligation,
contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
and including any obligation of such Person, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment
of ) such Indebtedness or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such Indebtedness, (b)
to purchase or lease property, securities or services for the purpose of
assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any
other financial statement condition or liquidity of the primary obligor
so as to enable the primary obligor to pay such Indebtedness; provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business.
"Indebtedness" means with respect to any Person at any date, (a)
all indebtedness of such Person for borrowed money or for the deferred
purchase
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price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance
with customary practices), (b) any other indebtedness of such Person
which is evidenced by a note, bond, debenture, letter of credit or
similar instrument, (c) all obligations of such Persons with respect to
Guarantees, (d) all obligations of such Person under Financing Leases,
(e) all obligations of such Person in respect of acceptances issued or
created for the account of such Person (other than endorsements in the
ordinary course of business), (f) all obligations in respect of
interest rate swaps or other interest rate hedging products or foreign
currency exchange agreements or exchange rate hedging arrangements, (g)
all obligations in respect of reimbursement obligations under letters of
credit, and (h) all liabilities of the type referred to in clauses (a)
through (g) above that are secured by any lien, charge, security
interest or encumbrance on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment
thereof.
"Indenture" means the Indenture dated _____________, 199_,
between Allied U.S. and the Trustee pursuant to which the Senior
Subordinated Debentures are issued.
"Laidlaw" means Laidlaw Inc., a Canadian corporation.
"LTI" means Laidlaw Transportation, Inc., a Delaware corporation.
"Maturity Date" means _______________ ___, 200_ [12 years after
the date hereof].
"Offset Letter Agreement" means the letter agreement dated the
Closing Date among Allied, Allied Finance, Laidlaw and LTI, in
substantially the form of Exhibit N attached to this Agreement, to be
executed and delivered pursuant to Section 3.3.
"Person" means an individual, corporation, partnership,
association, joint stock company, limited liability company,
Governmental Entity, business trust, unincorporated organization, or
other legal entity.
"Representative" means at any date, with respect to the Credit
Facility, the Person or Persons then acting as the administrative agent
under the Credit Facility, with respect to the Senior Subordinated
Debentures, the Trustee, and with respect to any other Designated Senior
Indebtedness, the holders of such Designated Senior Indebtedness or any
Person acting as agent of such holders at such date.
"Section 4(b) Prepayment Date" is defined in Subsection 4(b) of
this Debenture.
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"Section 4(b) Prepayment Fraction" means, with respect to any
prepayment pursuant to Section 4(b) of this Debenture, the fraction
obtained by dividing the principal amount of the Debenture to be prepaid
by $150 million.
"Section 4(b) Prepayment Notice" is defined in Subsection 4(b) of
this Debenture.
"Section 4(b) Prepayment Option" is defined in Subsection 4(b) of
this Debenture.
"Section 4(b) Prepayment Price" means (i) at any date set forth
in the table below (the "Section 4(b) Value Date"), the amount set forth
opposite such Section 4(b) Value Date, and (ii) at any other date (the
"Section 4(b) Determination Date"), the amount equal to the sum of (y)
the Section 4(b) Prepayment Price as of the Section 4(b) Value Date
immediately preceding such Section 4(b) Determination Date plus (z) an
amount equal to the product of (A) the difference between the Section
4(b) Prepayment Price as of the Section 4(b) Value Date immediately
following such Section 4(b) Determination Date minus the Section 4(b)
Prepayment Price as of the Section 4(b) Value Date immediately preceding
such Section 4(b) Determination Date multiplied by (B) a fraction, the
numerator of which is the number of days elapsed from (and including)
such preceding Section 4(b) Value Date to (but excluding) such Section
4(b) Determination Date and the denominator of which is the number of
days from (and including) such preceding Section 4(b)Value Date to (but
excluding) the immediately following Section 4(b)Value Date.
<TABLE>
<CAPTION>
Section 4(b) Section 4(b) Section 4(b) Section 4(b)
Value Date (2) Prepayment Price Value Date Prepayment Price
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
___________, ____ $126,700,000 ___________, ____ $144,700,000
___________, ____ $130,400,000 ___________, ____ $150,000,000
___________, ____ $134,600,000 ___________, ____ $150,000,000
___________, ____ $139,400,000 ___________, ____ $150,000,000
</TABLE>
"Section 9 Prepayment Date" is defined in Section 9(b) of this
Debenture.
"Section 9 Purchase Price" means (i) at any time prior to five
years from the date hereof, $126,700,000, (ii) at any date set forth in
the table below (the "Section 9 Value Date"), the amount set forth
opposite such Section 9
- - - ----------------------------
(2) The initial Section 4(b) Value Date shall be the date five years after
the date of the Debenture, and succeeding Section 4(b) Value Dates
shall occur annually thereafter until the Maturity Date.
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<PAGE> 271
Value Date, and (iii) at any other date (the "Section 9 Determination
Date"), the amount equal to the sum of (y) the Section 9 Purchase Price
as of the Section 9 Value Date immediately preceding such Section 9
Determination Date plus (z) an amount equal to the product of (A) the
difference between the Section 9 Purchase Price as of the Section 9
Value Date immediately following such Section 9 Determination Date minus
the Section 9 Purchase Price as of the Section 9 Value Date immediately
preceding such Section 9 Determination Date multiplied by (B) a
fraction, the numerator of which is the number of days elapsed from (and
including) such preceding Section 9 Value Date to (but excluding) such
Section 9 Determination Date and the denominator of which is the number
of days from (and including) such preceding Section 9 Value Date to (but
excluding) the immediately following Section 9 Value Date.
<TABLE>
<CAPTION>
Section 9 Section 9 Section 9 Section 9
Value Date (3) Prepayment Price Value Date Prepayment Price
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
___________, ____ $126,700,000 ___________, ____ $144,700,000
___________, ____ $130,400,000 ___________, ____ $150,000,000
___________, ____ $134,600,000 ___________, ____ $150,000,000
___________, ____ $139,400,000 ___________, ____ $150,000,000
</TABLE>
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means principal of, and premium, if any,
and interest on (including interest that, but for the filing of a
petition initiating any Bankruptcy or Insolvency Proceeding, would
accrue on such obligations at the rate provided in the agreements or
instruments creating or evidencing the respective obligations, whether
or not such claim is allowed or allowable in such Bankruptcy or
Insolvency Proceeding) and all other amounts of every kind or nature
(including, but not limited to, fees, indemnities and expenses) due on
or in connection with any Indebtedness of Allied Finance, whether
outstanding on the date of this Debenture or thereafter created,
incurred, assumed or Guaranteed by Allied Finance (including all
renewals, extensions or refundings of, or amendments, modifications or
supplements to, the foregoing) unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant
to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to this Debenture.
Without limiting the generality of the foregoing, "Senior Indebtedness"
shall include (a) all obligations and liabilities of every kind and
nature (including, but not limited to, fees, expenses and indemnities)
under the Credit Facility, the Senior
- - - ---------------------------
(3) The initial Section 9 Value Date shall be the date five years after
the date of the Debenture, and succeeding Section 9 Value Dates shall
occur annually thereafter until the Maturity Date.
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Subordinated Debentures or the Indenture, (b) all obligations and
liabilities of every kind and nature (including, but not limited to,
fees, expenses and indemnities) in respect of any interest rate swaps or
other interest rate hedging product entered into in connection with
Indebtedness incurred or to be incurred pursuant to the Credit Facility,
and (c) any renewal, extension, refinancing or rearrangement of any
Indebtedness incurred or to be incurred pursuant to the Credit Facility,
the Senior Subordinated Debentures or the Indenture. Notwithstanding
the foregoing, Senior Indebtedness shall not include (i) amounts owed
(except to banks, insurance companies and other financing institutions
and except for obligations under Financing Leases) for goods, materials,
services or operating lease rental payments in the ordinary course of
business or for compensation to employees of Allied Finance, (ii) any
liability for federal, state, provincial, local or other taxes owed or
owing by Allied Finance and (iii) Indebtedness with respect to Allied
Finance's Zero Coupon Junior Subordinated Debenture due 200_ dated the
date hereof.
"Senior Subordinated Debentures" means the ___% Senior
Subordinated Debentures due 200__(4) in the aggregate original principal
amount of at least $475,000,000 issued by Allied U.S. pursuant to the
Indenture.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of September 17, 1996, among Allied, Allied Finance, Laidlaw
and certain other parties named therein.
"Subordinated Obligations" is defined in Subsection 5(a).
"Subscription Agreement" means the Subscription Agreement dated
the date hereof among Allied, Allied Finance, Laidlaw and LTI.
"Subsidiary" of a Person means an Affiliate of that Person more
than 50% of the aggregate voting power (or of any other form of voting
equity interest in the case of a Person that is not a corporation) of
which is beneficially owned by that Person directly or indirectly
through one or more other Subsidiaries.
"Trustee" means ________________________________, a national
banking association, in its capacity as trustee under the Indenture, and
its successors in such capacity.
(b) Capitalized terms defined in this Debenture are equally
applicable to both their singular and plural forms. References to a
designated "Section" or "Subsections" refer to a Section or Subsection of this
Debenture, unless otherwise specifically
- - - ---------------------------
(4) The due date of the Senior Subordinated Debentures will be 10 years
after the date of issuance.
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<PAGE> 273
indicated. In this Debenture, "including" is used only to indicate examples,
without limitation to the indicated examples, and without limiting any
generality which precedes it.
2. Interest Rate; Default Rate. From (and including) the date of
this Debenture through (but not including) the earlier of the Maturity Date or
the date the maturity of this Debenture is accelerated pursuant to Section
8(a), interest shall accrue on the unpaid principal balance of this Debenture
at an annual fixed rate equal to 7% per annum. All past due principal and
interest shall accrue interest at the Default Rate from (and including) the day
after the date such principal or interest is payable hereunder through (but not
including) the date of payment. Interest will be calculated on the basis of
the actual number of days elapsed over a year composed of 365 days (or 366
days, as the case may be).
3. Payment Terms. Subject to Section 5:
(a) The outstanding principal balance of this Debenture and
all accrued and unpaid interest thereon shall be due and payable on the
Maturity Date.
(b) During the period beginning on the date hereof and ending
three years thereafter (the "Deferral Period"), interest on the
outstanding principal balance of this Debenture will accrue but will be
deferred. During the Deferral Period, interest will be compounded
semi-annually. After the Deferral Period, at the election of Allied
Finance, the deferred interest may be paid at any time, and (i) the
aggregate unpaid amount, if any, of interest deferred during the
Deferral Period, together with interest thereon at the rate of 7% per
annum, will be payable in eighteen equal (or as nearly equal as
possible) installments on the ___ day of each _______ and _______ of
each year (beginning __________, __), and on the Maturity Date and (ii)
interest on the outstanding principal balance of this Debenture will be
due and payable in arrears on the _____ day of each ___________ and
_____________ of each year (beginning ___________, ____), and on the
Maturity Date for the period commencing on (and including) the later of
the date following the last day of the Deferral Period or the date to
which interest hereon has been paid, as the case may be, and ending on
(but excluding) the date of payment.(5)
(c) Each payment or prepayment hereunder shall be made in cash
by wire transfer to an account located in Canada designated by Laidlaw.
(d) Any payment or action that is due hereunder on a day which
is not a Business Day shall be deferred until the next succeeding
Business Day
- - - ---------------------------
(5) Installments of interest will be payable on a semi-annual basis
commencing six months after the last day of the Deferral Period.
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(but interest shall continue to accrue on any applicable payment until
such payment is made).
(e) Pursuant to Article II of the Subscription Agreement, LTI
has agreed to subscribe for shares of Allied Common Stock from time to
time. Reference is made to the Subscription Agreement for a complete
statement of the terms and conditions pursuant to which such shares are
to be issued.
4. Optional Redemption.
(a) Except to the extent provided in Section 9, this Debenture
may not be redeemed or prepaid, in whole or in part, on or before the
date which is five years after the date hereof.
(b) Thereafter, except as otherwise provided in Section 5,
Allied Finance shall have the right and option (the "Section 4(b)
Prepayment Option") to redeem and prepay this Debenture, in whole or in
part, at a discount, on the terms and subject to the conditions of this
Section 4(b). Allied Finance may exercise the Section 4(b) Prepayment
Option at any time by giving the holder of this Debenture written notice
(the "Section 4(b) Prepayment Notice") of its election to exercise the
Section 4(b) Prepayment Option and by specifying in the Section 4(b)
Prepayment Notice the date on which Allied Finance will prepay this
Debenture pursuant to this Section 4(b) (the "Section 4(b) Prepayment
Date") and the principal amount of this Debenture to be prepaid. The
Section 4(b) Prepayment Date shall be at least 10 Business Days, and not
more than 20 Business Days, after the date of the Section 4(b)
Prepayment Notice. Upon the Section 4(b) Prepayment Date, Allied
Finance shall prepay this Debenture to the extent specified in the
Section 4(b) Prepayment Notice, by payment of an amount equal to the
product obtained by multiplying the Section 4(b) Prepayment Price as of
the Section 4(b) Prepayment Date times the Section 4(b) Prepayment
Fraction.
5. Subordination.
(a) The indebtedness evidenced by, and all obligations in
respect of, this Debenture (including the obligations under Section 9)
and the payment of principal of, premium and interest, if any, on and
all other obligations in respect of, this Debenture (collectively, the
"Subordinated Obligations") are expressly subordinate to all Senior
Indebtedness to the extent and in the manner set forth herein. For
purposes hereof, the term "subordinate" means that, unless and until the
Senior Indebtedness has been indefeasibly paid in full in cash, Laidlaw
will not have the right under any circumstances to, and will not, take,
demand, commence any suit or any other proceeding for collection, pursue
any other judicial or non-judicial remedy or receive from Allied Finance
or any of its Subsidiaries or Affiliates, and Allied Finance will not
and will not permit any of its Subsidiaries or Affiliates to, make,
give, or permit, directly or indirectly,
10
<PAGE> 275
by set-off, redemption, purchase or in any other manner, any payment of
or on account of the Subordinated Obligations; provided, however, that
at any time, except during a Blockage Period, Allied Finance shall make,
and Laidlaw may receive, and Laidlaw may commence any suit or other
proceeding for collection of, scheduled payments of principal or
interest on this Debenture in accordance with the terms hereof and,
provided, further, that at any time, except during a Blockage Period,
Allied Finance may prepay this Debenture so long as such prepayment
would not cause the occurrence of a Blockage Period. Upon the
termination of any Blockage Period, the right of Laidlaw to receive
payments (including payments not made during the Blockage Period) shall
be reinstated, and Allied Finance shall resume making such payments to
Laidlaw in accordance with the terms hereof. In no event shall Allied
Finance be obligated to make, and Allied Finance shall not make, and
shall not permit any of its Subsidiaries or Affiliates to make, directly
or indirectly, by set-off, redemption, purchase or in any other manner,
any payments or prepayments of, or on account of, any of the
Subordinated Obligations during any Blockage Period or if such payment
or prepayment would cause the occurrence of a Blockage Period.
(b) Upon any payment or distribution of any kind or character
to creditors of Allied Finance (whether in cash, property or securities)
in (x) a total or partial liquidation, winding up or dissolution of
Allied Finance (whether voluntarily or involuntarily) or (y) in a
bankruptcy, reorganization, insolvency, receivership or similar
proceeding (including a proceeding under the Canadian Companies'
Creditors Arrangement Act) relating to Allied Finance or its property,
or in an assignment for the benefit of creditors or any marshaling of
Allied Finance's assets and liabilities (any of the foregoing in clauses
(x) and (y) being referred to herein as a "Bankruptcy or Insolvency
Proceeding"), the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of all the principal of and interest on
and other amounts payable in respect of such Senior Indebtedness
(including interest accruing after the commencement of any such
proceeding at the rate specified in the agreements or instruments
creating or evidencing the applicable Senior Indebtedness and whether
or not such interest is an allowed or allowable claim under applicable
law) before Laidlaw will be entitled to receive any payment with respect
to this Debenture (whether in cash, property or securities); and until
all obligations with respect to Senior Indebtedness are indefeasibly
paid in full in cash, any distribution received by Laidlaw or to which
Laidlaw would be entitled shall be paid over or made to the holders of
Senior Indebtedness. Upon the occurrence of any Bankruptcy or
Insolvency Proceeding relating to Allied Finance, the holders of the
Senior Indebtedness are authorized and empowered to (i) demand, sue for,
collect and receive every payment or distribution on account of the
Subordinated Obligations payable or deliverable in connection with such
event or proceeding and give acquittance therefor, and (ii) file claims
and proofs of claim in any statutory or non- statutory proceeding and
take such other actions as may be necessary or desirable for the
enforcement of the subordination provisions of this
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<PAGE> 276
Debenture. Promptly after taking any action provided in clauses (i) or
(ii) above, Allied Finance shall give written notice thereof to the
holder of this Debenture; provided, however, that failure to give such
notice shall in no event affect the validity of any action so taken.
(c) In the event that, notwithstanding the occurrence of any
of the events described in Subsections 5(a) and (b), any such payment or
distribution of assets of Allied Finance of any kind or character,
whether in cash, property or securities, shall be received by the holder
of this Debenture which is not permitted hereby such payment or
distribution shall be held in trust for the ratable benefit of, and
shall be paid over or delivered to, the holders of the Senior
Indebtedness.
(d) The holders of the Senior Indebtedness shall have no duty
or obligation to the holder of this Debenture in any manner whatsoever
and may, at any time and from time to time, in their sole discretion,
without the consent of or notice to the holder of this Debenture and
without impairing or releasing any rights of the holders of the Senior
Indebtedness or any of the obligations of the holder of this Debenture
hereunder, take any or all of the following actions:
(i) change the amount, manner, place, terms of payment
or interest rate, change or extend the time of payment of, or
renew or alter, any of the Senior Indebtedness, or amend or
supplement or waive any of the terms of any instrument or
agreement now or hereafter executed pursuant to which any of the
Senior Indebtedness is issued or incurred;
(ii) sell, exchange, release, surrender, relend, realize
upon or otherwise deal with in any manner and in any order, any
property (or the income, revenues, profits or proceeds therefrom)
by whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, any Senior Indebtedness;
(iii) release any person liable in any manner for the
payment or collection of the Senior Indebtedness;
(iv) exercise or refrain from exercising any rights and
remedies against Allied Finance or others, or otherwise act or
refrain from acting or, for any reason, fail to file, record or
otherwise perfect any security interest in or lien on any
property of Allied Finance or any other Person; and
(v) apply any sums received by the holders of the
Senior Indebtedness, by whomsoever paid and however realized, to
payment of the Senior Indebtedness in such manner as the holders
of the Senior Indebtedness, in their sole discretion, may deem
appropriate.
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<PAGE> 277
(e) Laidlaw and any future holder of this Debenture, by
acceptance of this Debenture, agree to provide to any holder of Senior
Indebtedness, at any time and from time to time, upon the written
request of Allied Finance or such holder of Senior Indebtedness an
agreement signed by Laidlaw or such future holder of this Debenture
addressed to the holder of such Senior Indebtedness in substantially the
form of, and on substantially the terms set out in, Exhibit A attached
hereto to the effect that such holder is a holder of Senior
Indebtedness, that the holder or holders of such Senior Indebtedness are
entitled to the benefits of Sections 5, 6 and 13 of this Debenture and
that the holder or holders of such Senior Indebtedness may enforce the
terms and provisions thereof to the same extent Allied Finance would be
able to do so, provided, however, that prior to furnishing such
agreement, Laidlaw has received from Allied Finance or such holder such
information as Laidlaw may reasonably request demonstrating to Laidlaw's
reasonable satisfaction that such holder is a holder of Senior
Indebtedness. Laidlaw, and each subsequent holder of this Debenture, by
acceptance of this Debenture, irrevocably appoint Allied Finance (with
full power of substitution) as its agent and attorney in fact (which
appointment is coupled with an interest and shall be irrevocable so long
as any Senior Indebtedness is outstanding) to execute and deliver on
behalf and in the name of Laidlaw or such holder, as the case may be, an
agreement in substantially the form of, and on substantially the terms
set out in, Exhibit A hereto in favor of each such holder of Senior
Indebtedness and to take such further action as may be necessary or
appropriate to effectuate the subordination as provided herein.
Promptly after exercise of any such power, Allied Finance will give
written notice thereof to the holder of the Debenture; provided,
however, that failure to give such notice shall in no event affect the
validity of any power so exercised.
(f) If a Default shall have occurred and be continuing (other
than a Default pursuant to Subsection 7(b) or (c)) and the holder of
this Debenture elects to accelerate this Debenture pursuant to Section
8, Laidlaw shall give the Representative under the Credit Facility 30
days' prior written notice before accelerating this Debenture, which
notice shall state that it is a "Notice of Intent to Accelerate";
provided, however, that Laidlaw shall not be required to give such
notice if at such time payment of any Indebtedness incurred pursuant to
the Credit Facility shall have been accelerated. If payment of this
Debenture is accelerated because of a Default, the holder shall promptly
notify the Representatives under the Designated Senior Indebtedness and
the holders of all other Senior Indebtedness of the acceleration.
(g) Until all Senior Indebtedness has been indefeasibly paid
in full in cash, the holders of this Debenture shall not be entitled to
assert, enforce or otherwise exercise any right of subrogation against
Allied Finance or any other Person obligated on the Subordinated
Obligations. After all Senior Indebtedness has been indefeasibly paid
in full in cash, and until the Subordinated Obligations have been so
paid in full, the holder of this Debenture shall be subrogated to the
rights of holders of Senior Indebtedness to receive distributions
applicable to
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<PAGE> 278
Senior Indebtedness. A distribution made under this Section 5 to
holders of Senior Indebtedness which otherwise would have been made to
the holder of this Debenture is not, as between Allied Finance and the
holder of this Debenture, a payment by Allied Finance on Senior
Indebtedness.
(h) This Section 5 defines the relative rights of the holder
of this Debenture and holders of Senior Indebtedness. Nothing in this
Debenture shall:
(i) impair, as between Allied Finance and such holder,
the obligation of Allied Finance, which is absolute and
unconditional, to pay principal of and, premium and interest, if
any, on this Debenture in accordance with its terms; or
(ii) except as otherwise set forth in this Section 5,
prevent the holder of this Debenture from exercising its
available remedies upon a Default, subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise
payable to such holder.
6. No Impairment. Section 5, this Section 6, the proviso to
Subsection 8(a), and Section 13 (and all defined terms used in such sections)
shall constitute a continuing offer to all Persons who become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders from time to time of Senior Indebtedness, and such
Persons are conclusively presumed to have relied upon such provisions; and such
holders are made obligees hereunder, and they or each of them may enforce such
provisions. No right of any present or future holder of any Senior
Indebtedness to enforce the subordination or other provisions referred to in
this Section 6 shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of Allied Finance or Laidlaw, or by any
non-compliance by Allied Finance or Laidlaw with the terms, provisions and
covenants of this Debenture, regardless of any knowledge thereof any such
holder may have or otherwise be charged with. Section 5, this Section 6 and
the subordination and other provisions referred to in this Section 6 may not be
amended or modified in any manner which might terminate or impair the
subordination or such other provisions except with the prior written consent of
the Representatives of all the Designated Senior Indebtedness.
7. Events of Default. "Default" means the occurrence of one or more
of the following:
(a) Payment. Allied Finance fails to pay the outstanding
principal amount of this Debenture on the Maturity Date.
(b) Voluntary Bankruptcy. Allied Finance (i) files a petition
initiating a voluntary Bankruptcy or Insolvency Proceeding, (ii) seeks,
consents to, or does not contest the appointment of a receiver or
trustee for itself or for all or any substantial part of its property,
(iii) is voluntarily adjudicated a bankrupt or
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<PAGE> 279
insolvent, (iv) makes a general assignment for the benefit of its
creditors, or (v) admits in writing its inability to pay its debts as
they mature.
(c) Involuntary Bankruptcy. A petition is filed against
Allied Finance seeking to initiate a Bankruptcy or Insolvency Proceeding
and such petition is not dismissed within 180 days after being filed, or
a court of competent jurisdiction enters an order, judgment or decree
appointing a receiver or trustee for Allied Finance, or for all or
substantially all of its property, and such order, judgment or decree is
not discharged or stayed within 180 days after its entry.
(d) Acceleration of Other Indebtedness. An event of default
occurs and is continuing under the Credit Facility and, as a result
thereof, the Indebtedness outstanding pursuant to the Credit Facility is
accelerated; provided, however, that in the event the holders of such
Indebtedness elect to waive such event of default or to otherwise
de-accelerate such Indebtedness, no Default shall subsist hereunder.
8. Remedies of Laidlaw. Upon the occurrence and during the
continuance of a Default, Laidlaw shall have the following rights:
(a) Acceleration. Subject to the provisions of Section 5
hereof, Laidlaw may, at its option, declare the entire principal balance
of this Debenture, together with the accrued and unpaid interest
thereon, immediately due and payable without notice of Default, notice
of intent to accelerate, notice of acceleration, or any other notice,
presentment, protest, demand or action of any kind or nature whatsoever
(each of which is hereby expressly waived by Allied Finance), whereupon
the entire Indebtedness under this Debenture shall become immediately
due and payable; provided, however, that no such acceleration (except
for an acceleration upon the occurrence of a Default specified in
Subsection 7(d)) shall be effective or of any force whatsoever and the
holder of this Debenture may not take any action against Allied Finance
with respect to a Default hereunder if made during a Blockage Period, or
if such acceleration would result in a Blockage Period; provided,
further, that in the event the Indebtedness under this Debenture is
accelerated upon the occurrence of a Default specified in Subsection
7(d) and the holders of the Indebtedness outstanding pursuant to the
Credit Facility elect to waive the event of default giving rise to the
acceleration thereunder or otherwise elect to de-accelerate such
Indebtedness, Laidlaw shall de-accelerate the obligations hereunder.
(b) Other Rights. Except as otherwise modified hereby,
Laidlaw shall have all rights and remedies available at law or equity
and the same (i) shall be cumulative and concurrent, (ii) may be pursued
separately, successively, or concurrently against Allied Finance, (iii)
may be exercised as often as occasion therefor shall arise, it being
agreed by Allied Finance that the exercise or failure to exercise any of
the same shall in no event be construed as a waiver or release
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<PAGE> 280
thereof or of any other right or remedy, and (iv) are intended to be,
and shall be, nonexclusive.
9. Offer of Prepayment upon Change of Control.
(a) Allied Finance will, within thirty business days after any
executive officer of Allied Finance has knowledge of the occurrence of a
Change of Control, give written notice of such Change of Control to the
holder of this Debenture. Subject to the provisions of Section 5, such
notice shall contain and constitute an offer to prepay this Debenture as
described in Subsection 9(b).
(b) The offer to prepay this Debenture contemplated by
Subsection 9(a) shall be an offer to prepay, in accordance with and
subject to this Section 9, all, but not less than all, of this Debenture
at the Section 9 Purchase Price, together with all interest accrued and
unpaid hereon, on a date specified in such offer (the "Section 9
Prepayment Date") which date shall be not less than 45 days and not more
than 60 days after the date of such offer (if the Section 9 Prepayment
Date shall not be specified in such offer, the Section 9 Prepayment Date
shall be the first business day after the 45th day after the date of
such offer).
(c) The holder of this Debenture may accept the offer to
prepay made pursuant to this Section 9 in whole but not in part by
causing a notice of such acceptance to be delivered to Allied Finance
within ten business days after receipt of the written notice to be given
pursuant to Subsection 9(a). A failure by a holder of this Debenture to
respond within such time period to an offer to prepay made pursuant to
this Section 9 shall be deemed to constitute a rejection of such offer.
(d) Prepayment of this Debenture pursuant to this Section 9
shall be at the Section 9 Purchase Price. The prepayment shall be made
on the Section 9 Prepayment Date.
(e) Notwithstanding any provision hereof to the contrary, in
no event shall Allied Finance prepay (or be obligated to prepay) this
Debenture pursuant to this Section 9 until 91 days after Allied Finance
shall have prepaid the Senior Indebtedness incurred pursuant to the
Credit Facility and the Senior Subordinated Debentures, and all other
Senior Indebtedness which is entitled to be prepaid upon the occurrence
of a Change of Control, unless the holder or holders of such Senior
Indebtedness have waived or otherwise failed to enforce their rights to
receive a prepayment of the Senior Indebtedness held by them to which
they are entitled in connection with such Change of Control.
10. Captions. The captions, headings, and arrangements used in this
Debenture are for convenience only and do not affect or modify the terms of
this Debenture.
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11. Notices. All notices or other communications which are required
or may be given under this Debenture shall be in writing and shall be deemed to
have been duly given when delivered in person or transmitted by telecopier
(with receipt confirmed) at the address or telecopy number set forth below (as
any such address or telecopier number may be changed from time to time by
notice similarly given):
(1) if to Laidlaw, to:
Laidlaw Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3Y8
Attention: Ivan R. Cairns
Telecopy No.: (905) 332-6550
(2) if to Allied Finance, to:
3294854 CANADA INC.
c/o Allied Waste Industries, Inc.
7201 East Camelback Road, Suite 375
Scottsdale, Arizona 85251
Attention: Roger A. Ramsey
Telecopy No.: (602) 481-9347
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana Street, Suite 3500
Houston, Texas 77002
Attention: Robert G. Reedy
Telecopy No.: (713) 228-1331
12. Applicable Law. This Debenture shall be governed by and
construed in accordance with the laws of the State of Delaware and the laws of
the United States of America applicable therein (without reference to the
conflicts of law principles thereof).
13. Transfer Restriction. This Debenture may not be sold, assigned,
transferred, pledged or hypothecated in any manner, directly or indirectly, by
Laidlaw or any other holder, unless the assignee, transferee, pledgee or
hypothecate has agreed in writing to be bound by the provisions of this
Debenture applicable to Laidlaw, including but not limited to the provisions of
Section 5(e) and Section 14 hereof. Any transfer of this Debenture shall be of
the entire Debenture and not of any part of the indebtedness evidenced hereby
or of at least $75,000,000 of the principal amount thereof.
17
<PAGE> 282
14. OFFSET. THE OBLIGATIONS OF ALLIED FINANCE HEREUNDER ARE, IN ALL
RESPECTS, SUBJECT TO OFFSET AS MORE FULLY SET FORTH IN THE OFFSET LETTER
AGREEMENT. THE OFFSET RIGHTS SET FORTH IN THE OFFSET LETTER AGREEMENT SHALL BE
EFFECTIVE NOTWITHSTANDING THE ASSIGNMENT OR TRANSFER OF THIS DEBENTURE BY
LAIDLAW AND ANY TRANSFEREE SHALL TAKE THIS DEBENTURE SUBJECT TO THE TERMS
THEREOF.
NOTICE: THE RIGHTS AND OBLIGATIONS OF ALLIED FINANCE AND LAIDLAW SHALL
BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND INSTRUMENTS, AND
ANY PRIOR ORAL AGREEMENTS BETWEEN ALLIED FINANCE AND LAIDLAW ARE SUPERSEDED BY
AND MERGED INTO SUCH WRITINGS. THIS DEBENTURE (AS AMENDED IN WRITING FROM TIME
TO TIME) REPRESENTS THE FINAL AGREEMENT BETWEEN ALLIED FINANCE AND LAIDLAW AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL AGREEMENTS
BY ALLIED FINANCE AND LAIDLAW. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
ALLIED FINANCE AND LAIDLAW.
3294854 CANADA, LTD.
a Canadian corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Agreed and Accepted:
LAIDLAW INC.
a Canadian corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
18
<PAGE> 283
EXHIBIT A
to the 7% Junior Subordinated
Debenture Due 200__ Issued by
3294854 Canada, Ltd.
in favor of Laidlaw Inc.
[Date]
- - - --------------------
- - - --------------------
- - - --------------------
Gentlemen:
Reference is made to the 7% Junior Subordinated Debenture Due 200__
dated __________, 199_ (the "Subordinated Debenture"), in the original
principal amount of $150 million issued by 3294854 CANADA INC., a Canadian
corporation ("Allied Finance"), in favor of Laidlaw Inc., a Canadian
corporation, and the [describe Senior Indebtedness] (the "Subject
Indebtedness"), being issued contemporaneously herewith by Allied Finance in
favor of [identity of holder or holders of Subject Indebtedness] (whether one
or more, the "Senior Creditor"). Hereinafter, capitalized words and phrases
used herein which are defined in the Subordinated Debenture are used herein as
therein defined.
The undersigned (the "Subordinated Creditor") hereby represents and
warrants to the Senior Creditor that the Subordinated Creditor is the owner and
holder of the Subordinated Debenture and that the Subordinated Creditor is
entitled to make the agreements herein contained. The Subordinated Creditor
hereby acknowledges and agrees that the principal of, and premium, if any, and
interest on (including interest that, but for the filing of a petition
initiating any Bankruptcy or Insolvency Proceeding would accrue on such
obligations at the time provided in the agreements or instruments creating or
evidencing the respective obligations, whether or not such claim is allowed in
such Bankruptcy or Insolvency Proceeding) and all other amounts of every kind
or nature (including, but not limited to, fees, indemnities and expenses and
any interest rate swaps or other interest rate hedging products entered into in
connection with the Subject Indebtedness) due on or in connection with the
Subject Indebtedness, whether outstanding on the date hereof or hereafter
created, incurred or assumed, guaranteed or in effect guaranteed by Allied
Finance (including all renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing) are in all respects Senior
Indebtedness, that the Senior Creditor (and any other Person who from time to
time is a holder of the Subject Indebtedness) is entitled to the benefits of
Sections 5, 6 and 13 of the Subordinated Debenture and that the Senior Creditor
(and any other Person who from time to time is a holder of the Subject
Indebtedness) may enforce the
A-1
<PAGE> 284
terms and provisions of the Subordinated Debenture to the same extent that
Allied Finance or any other holder of Senior Indebtedness would be able to do
so.
The Subordinated Creditor hereby agrees that the Subordinated Debenture
will not be sold, assigned, transferred, pledged or hypothecated in any manner,
directly or indirectly, by the Subordinated Creditor, unless the assignee,
transferee, pledgee or hypothecate has agreed in writing to be bound by the
provisions of this agreement.
The Subordinated Creditor has executed this agreement in the space
provided below in order to induce the Senior Creditor to advance funds or
extend credit to Allied Finance, and this agreement is intended by the
Subordinated Creditor to be a binding and enforceable undertaking by the
Subordinated Creditor in favor of the Senior Creditor.
The rights credited hereby of the Senior Creditor and of any subsequent
holder of the Senior Indebtedness will be assigned automatically, and without
any further act, by the Senior Creditor or such holder upon any sale,
assignment, conveyance or other transfer of all or any part of the Senior
Indebtedness to the extent of the interest sold, assigned, conveyed or
otherwise transferred, unless and to the extent the Senior Creditor or such
holder expressly provides otherwise in the instrument pursuant to which such
interest is conveyed.
Very truly yours,
[NAME OF SUBORDINATED CREDITOR]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Accepted and agreed to as of
the date first above written:
[NAME OF SENIOR CREDITOR]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
A-2
<PAGE> 285
EXHIBIT B-2
THIS DEBENTURE HAS NOT BEEN REGISTERED (OR QUALIFIED BY PROSPECTUS) UNDER THE
SECURITIES ACT (DEFINED BELOW), THE CANADIAN SECURITIES LEGISLATION (DEFINED
BELOW), OR THE LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA, AND THIS
DEBENTURE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS HEREOF AND THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT, THE
CANADIAN SECURITIES LEGISLATION AND SUCH STATE LAWS OTHER THAN PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION AND PROSPECTUS REQUIREMENTS AND UPON DELIVERY
TO ALLIED FINANCE OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ALLIED
FINANCE TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION AND THE
PROSPECTUS DELIVERY REQUIREMENTS UNDER THOSE LAWS.
THIS DEBENTURE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"). THE HOLDER
OF THIS DEBENTURE SHOULD BE AWARE THAT SUCH HOLDER WILL BE REQUIRED TO INCLUDE
OID IN SUCH HOLDER'S GROSS INCOME FOR INCOME TAX PURPOSES IN ADVANCE OF THE
RECEIPT OF CASH ATTRIBUTABLE TO SUCH INCOME. WITH RESPECT TO OID, THE ISSUE
DATE OF THIS DEBENTURE IS _________________, 199__, THE ISSUE PRICE IS
[$_________], THE AMOUNT OF OID IS [$_________], AND THE YIELD TO MATURITY IS
[______]%.
ZERO COUPON JUNIOR SUBORDINATED DEBENTURE DUE 200__(1)
$168,300,000 _________________, 199__
FOR VALUE RECEIVED, 3294854 CANADA INC., a Canadian corporation
("Allied Finance"), promises to pay to Laidlaw Inc., a Canadian corporation
("Laidlaw"), or its registered assigns, the amount of $168,300,000 on the
Maturity Date.
- - - ----------------------------------
(1) The due date will be 12 years after the date of issuance.
<PAGE> 286
1. Definitions.
(a) For all purposes of this Debenture:
"Accreted Value" means (i) at any date set forth in the table
below (the "Value Date"), the amount set forth opposite such Value
Date, and (ii) at any other date (the "Determination Date"), the
amount equal to the sum of (y) the Accreted Value as of the Value Date
immediately preceding such Determination Date plus (z) an amount equal
to the product of (A) the difference between the Accreted Value as of
the Value Date immediately following such Determination Date minus the
Accreted Value as of the Value Date immediately preceding such
Determination Date multiplied by (B) a fraction, the numerator of
which is the number of days elapsed from (and including) such
preceding Value Date to (but excluding) such Determination Date and
the denominator of which is the number of days from (and including)
such preceding Value Date to (but excluding) the immediately following
Value Date.
<TABLE>
<CAPTION>
Value Date (2) Accreted Value Value Date Accreted Value
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
___________, ____ $ 33,200,000 ___________, ____ $ 85,500,000
___________, ____ $ 38,000,000 ___________, ____ $ 98,500,000
___________, ____ $ 43,500,000 ___________, ____ $112,100,000
___________, ____ $ 49,800,000 ___________, ____ $128,400,000
___________, ____ $ 57,000,000 ___________, ____ $147,000,000
___________, ____ $ 65,300,000 ___________, ____ $168,300,000
___________, ____ $ 74,700,000 ___________, ____
</TABLE>
"Affiliate" means, with respect to any Person, another Person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such
Person, with the term "control," including the terms "controlling" and
"controlled," meaning for purposes of this definition, the power to
direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities or
partnership or other ownership interests, or by contract or otherwise.
"Allied" means Allied Waste Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Allied Common Stock" means the Common Stock, $.01 par value
per share, of Allied.
2
- - - ----------------------------------
(2) The initial Value Date shall be the date of the Debenture, and
succeeding Value Dates shall occur each year thereafter until the
Maturity Date.
<PAGE> 287
"Allied Finance" means 3294854 Canada Inc. a Canadian
corporation, and its successors and assigns.
"Allied U.S." means Allied Holdings (United States), Inc., a
Delaware corporation, and its successors and assigns.
"Allied Warrant" means the warrant for the purchase of shares
of Allied Common Stock to be issued by Allied to Laidlaw under Section
2.3 of the Stock Purchase Agreement.
"Bankruptcy or Insolvency Proceeding" is defined in Subsection
4(b) of this Debenture.
"Blockage Period" means any period when a default or an event
of default or an event which, with the giving of notice or the lapse
of time or both, would constitute a default or an event of default has
occurred and is continuing under the terms of the Credit Facility or
the Senior Subordinated Debentures or under the terms of any agreement
or instrument pursuant to which any other Designated Senior
Indebtedness is created, issued, evidenced, secured or guaranteed.
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in Toronto, Ontario or New York, New York
are authorized or obligated to close.
"Canadian Securities Legislation" means the Securities Act of
the Province of Ontario (R.S.O. 1990, c. S.5, as amended) and similar
provincial legislation, and the regulations and rules promulgated
thereunder.
"Change of Control" means a change resulting when any
Unrelated Person or any Unrelated Persons acting together that would
constitute a Group together with any Affiliates thereof (in each case
also constituting Unrelated Persons) shall at any time Beneficially
Own more than 50% of the aggregate voting power of all classes of
Voting Stock of Allied; provided, however, that if at the date any
"Change of Control" would otherwise have occurred but for the fact
that a Person was not an Unrelated Person because such Person or an
Affiliate of such Person acquired shares of Allied Common Stock or all
or any portion of the Allied Warrant from Laidlaw or from any
Affiliate of Laidlaw within nine months prior to such date, such
shares of Allied Common Stock acquired from Laidlaw or any Affiliate
of Laidlaw, or any shares of Allied Common Stock issued upon exercise
of the Allied Warrant or any portion thereof, shall at all times
thereafter be excluded when calculating whether a Change of Control
has occurred. As used in this definition of Change of Control (a)
"Beneficially Own" means "beneficially own" as defined in Rule 13d-3
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provisions thereto; provided, however, that,
for purposes of this definition, a Person shall not be deemed to
Beneficially Own securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates until such tendered
3
<PAGE> 288
securities are accepted for purchase or exchange; (b) "Group" means a
"group" for purposes of Section 13(d) of the Exchange Act; (c)
"Affiliate" means, with respect to any Person, another Person which
would be an "affiliate" of such Person for purposes of Section 13(d)
of the Exchange Act; (d) "Unrelated Person" means at any time any
Person other than Laidlaw, any Person to whom Laidlaw or any of its
Affiliates transfers, within nine months prior to such time, any
shares of Allied Common Stock or all or any portion of the Allied
Warrant or any Affiliate of Polaris or any such Person; provided,
however, that Persons (other than Polaris or its Affiliates) to whom
Laidlaw or any of its Affiliates transfers any shares of Allied Common
Stock or all or any portion of the Allied Warrant after five years
from the date hereof shall not be deemed Unrelated Persons; and (e)
"Voting Stock" of any Person shall mean capital stock of such Person
which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all
times or only so long as no senior class of securities has such voting
power by reason of any contingency.
"Credit Facility" means the Credit Agreement dated as of
___________, 199_ among Allied U.S., as borrower, Allied, Goldman
Sachs Credit Partners L.P., as syndication agent, Citibank, N.A., as
documentation agent, Credit Suisse, as administrative agent, Goldman
Sachs Credit Partners L.P., Citicorp USA, Inc. and Credit Suisse, as
initial lenders, and the other financial institutions now or hereafter
parties thereto (as the same may be renewed, amended, modified,
increased, extended, refinanced, or otherwise supplemented from time
to time).
"Debenture" means this Zero Coupon Junior Subordinated
Debenture due 200_.
"Default" is defined in Section 6.
"Default Rate" means an annual interest rate equal to 9% per
annum.
"Designated Senior Indebtedness" means (i) the Senior
Indebtedness incurred with respect to the Credit Facility, (ii) the
Senior Indebtedness evidenced by the Senior Subordinated Debentures
and (iii) any other Senior Indebtedness which is incurred pursuant to
an agreement (or series of related agreements simultaneously entered
into) providing for Indebtedness, or commitments to lend, of at least
$10,000,000 at the time of determination and is specifically
designated in the instrument evidencing such Senior Indebtedness or
the agreement under which such Senior Indebtedness arises as
"Designated Senior Indebtedness."
"$" means U.S. dollars, the lawful currency of the United
States of America.
"Financing Lease" means any lease of property, real or
personal, the obligations of the lessee in respect of which are
required in accordance with generally accepted accounting principles
to be capitalized on a balance sheet of the lessee.
4
<PAGE> 289
"Governmental Entity" means any U.S. or Canadian, territorial,
federal, state, provincial or local court, executive office,
legislature, governmental agency, department, ministry, commission, or
administrative, regulatory or self-regulatory authority or
instrumentality.
"Guarantee" means with respect to any Person any obligation,
contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
and including any obligation of such Person, direct or indirect, (a)
to purchase or pay (or advance or supply funds for the purchase or
payment of ) such Indebtedness or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness of
the payment of such Indebtedness or (c) to maintain working capital,
equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course
of business.
"Indebtedness" means with respect to any Person at any date,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond,
debenture, letter of credit or similar instrument, (c) all obligations
of such Persons with respect to Guarantees, (d) all obligations of
such Person under Financing Leases, (e) all obligations of such Person
in respect of acceptances issued or created for the account of such
Person (other than endorsements in the ordinary course of business),
(f) all obligations in respect of interest rate swaps or other
interest rate hedging products or foreign currency exchange agreements
or exchange rate hedging arrangements, (g) all obligations in respect
of reimbursement obligations under letters of credit, and (h) all
liabilities of the type referred to in clauses (a) through (g) above
that are secured by any lien, charge, security interest or encumbrance
on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Indenture" means the Indenture dated _____________, 199__,
between Allied U.S. and the Trustee pursuant to which the Senior
Subordinated Debentures are issued.
"Laidlaw" means Laidlaw Inc., a Canadian corporation.
"LTI" means Laidlaw Transportation, Inc., a Delaware
corporation.
"Maturity Date" _________________, 200__ [12 years after the
date hereof].
5
<PAGE> 290
"Offset Letter Agreement" means the letter agreement dated the
date hereof among Allied, Allied Finance, Laidlaw and LTI, in
substantially the form of Exhibit N to the Stock Purchase Agreement.
"Person" means an individual, corporation, partnership,
association, joint stock company, limited liability company,
Governmental Entity, business trust, unincorporated organization, or
other legal entity.
"Representative" means at any date, with respect to the Credit
Facility, the Person or Persons then acting as the administrative
agent under the Credit Facility, with respect to the Senior
Subordinated Debentures, the Trustee, and with respect to any other
Designated Senior Indebtedness, the holders of such Designated Senior
Indebtedness or any Person acting as agent of such holders at such
date.
"Section 8 Prepayment Date" is defined in Section 8(b) of this
Debenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means principal of, and premium, if any,
and interest on (including interest that, but for the filing of a
petition initiating any proceeding pursuant to any Bankruptcy or
Insolvency Proceeding, would accrue on such obligations at the rate
provided in the agreements or instruments creating or evidencing the
respective obligations, whether or not such claim is allowed or
allowable in such Bankruptcy or Insolvency Proceeding) and all other
amounts of every kind or nature (including, but not limited to, fees,
indemnities and expenses) due on or in connection with, any
Indebtedness of Allied Finance, whether outstanding on the date of
this Debenture or thereafter created, incurred, assumed or Guaranteed
by Allied Finance (including all renewals, extensions or refundings
of, or amendments, modifications or supplements to, the foregoing)
unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be
senior in right of payment to this Debenture. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall include (a)
all obligations and liabilities of every kind and nature (including,
but not limited to, fees, expenses and indemnities) under the Credit
Facility or the Senior Subordinated Indebtedness, (b) all obligations
and liabilities of every kind and nature (including, but not limited
to, fees, expenses and indemnities) in respect of any interest rate
swaps or other interest rate hedging product entered into in
connection with Indebtedness incurred or to be incurred pursuant to
the Credit Facility, and (c) any renewal, extension, refinancing or
rearrangement of any indebtedness incurred or to be incurred pursuant
to the Credit Facility or the Senior Subordinated Indebtedness.
Notwithstanding the foregoing, Senior Indebtedness shall not include
(i) amounts owed (except to banks, insurance companies and other
financing institutions and except for obligations under Financing
Leases) for goods, materials, services or operating lease rental
payments in the ordinary course of business or for compensation to
employees of Allied Finance, (ii) any liability for federal, state,
provincial, local or other taxes owed or owing by Allied Finance and
(iii) Indebtedness with respect to Allied Finance's 7% Junior
6
<PAGE> 291
Subordinated Debentures due 200_ dated the date hereof and the
Guaranty thereof by the Guarantor.
"Senior Subordinated Debentures" means the ___% Senior
Subordinated Debentures due 200__(3) in the aggregate original
principal amount of at least $475,000,000 issued by Allied U.S.
pursuant to the Indenture.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of September 17, 1996, among Allied, Allied Finance, Laidlaw
and certain other parties named therein.
"Subordinated Obligations" is defined in Subsection 4(a).
"Subscription Agreement" means the Subscription Agreement,
dated the date hereof among Allied, Allied Finance, Laidlaw and LTI.
"Subsidiary" of a Person means an Affiliate of that Person
more than 50% of the aggregate voting power (or of any other form of
voting equity interest in the case of a Person that is not a
corporation) of which is beneficially owned by that Person directly or
indirectly through one or more other Subsidiaries.
"Trustee" means ________________________________, a national
banking association, in its capacity as trustee under the Indenture,
and its successors in such capacity.
(b) Capitalized terms defined in this Debenture are equally
applicable to both their singular and plural forms. References to a
designated "Section" or "Subsections" refer to a Section or Subsection of this
Debenture, unless otherwise specifically indicated. In this Debenture,
"including" is used only to indicate examples, without limitation to the
indicated examples, and without limiting any generality which precedes it.
2. Interest; Default Rate. From (and including) the date of this
Debenture through (and including) the Maturity Date, no interest shall accrue
or be payable with respect to this Debenture. All past due principal of this
Debenture shall accrue interest at the Default Rate from (but not including)
the Maturity Date through (but not including) the date of payment. From and
after the Maturity Date, interest will be calculated on the basis of the actual
number of days elapsed over a year composed of 365 days (or 366 days, as the
case may be).
3. Payment Terms. Subject to Section 4:
(a) The outstanding principal balance of this Debenture
and all accrued and unpaid interest thereon shall be due and payable
on the Maturity Date.
7
- - - ----------------------------------
(3) The due date of the Senior Subordinated Debentures will be 10 years
after the date of issuance.
<PAGE> 292
(b) No interest is payable with respect to the principal
amount of this Debenture prior to the Maturity Date. After the
Maturity Date, interest will be payable in arrears on the ________ day
of each ___________ and ____________ of each year on the principal
balance of this Debenture outstanding from time to time.(4)
(c) Each payment or prepayment hereunder shall be made by
wire transfer to an account located in Canada designated by Laidlaw.
(d) Any payment or action that is due hereunder on a day
which is not a Business Day shall be deferred until the next
succeeding Business Day (but interest shall continue to accrue on any
applicable payment until such payment is made).
(e) Pursuant to Article II of the Subscription Agreement, LTI
has agreed to subscribe for shares of Allied Common Stock from time to
time. Reference is made to the Subscription Agreement for a complete
statement of the terms and conditions pursuant to which such shares
are to be issued.
4. Subordination.
(a) The indebtedness evidenced by, and all obligations in
respect of, this Debenture (including the obligations under Section 8)
and the payment of principal of, premium and interest, if any, on and
all other obligations in respect of, this Debenture (collectively, the
"Subordinated Obligations") are expressly subordinate to all Senior
Indebtedness to the extent and in the manner set forth herein. For
purposes hereof, the term "subordinate" means that, unless and until
the Senior Indebtedness has been indefeasibly paid in full in cash,
Laidlaw will not have the right under any circumstances to, and will
not, take, demand, commence any suit or any other proceeding for
collection, pursue any other judicial or non-judicial remedy or
receive from Allied Finance or any of its Subsidiaries or Affiliates,
and Allied Finance will not and will not permit any of its
Subsidiaries or Affiliates to, make, give, or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner,
any payment of or on account of the Subordinated Obligations;
provided, however, that at any time, except during a Blockage Period,
Allied Finance shall make, and Laidlaw may receive, and Laidlaw may
commence any suit or other proceeding for collection of, scheduled
payments of principal or interest on this Debenture in accordance with
the terms hereof and, provided, further, that at any time, except
during a Blockage Period, Allied Finance may prepay this Debenture so
long as such prepayment would not cause the occurrence of a Blockage
Period. Upon the termination of any Blockage Period, the right of
Laidlaw to receive payments shall be reinstated, and Allied Finance
shall resume making such payments to Laidlaw in accordance with the
terms hereof. In no event shall Allied Finance be obligated to make,
and Allied Finance shall not make, and shall not permit any of its
Subsidiaries or Affiliates to make, directly or indirectly, by
set-off, redemption, purchase or in any other manner, any payments or
prepayments of,
8
- - - ----------------------------------
(4) Interest will be payable each six months after the Maturity Date.
<PAGE> 293
or on account of, any of the Subordinated Obligations during any
Blockage Period or if such payment or prepayment would cause the
occurrence of a Blockage Period.
(b) Upon any payment or distribution of any kind or
character to creditors of Allied Finance (whether in cash, property or
securities) in (x) a total or partial liquidation, winding up or
dissolution of Allied Finance (whether voluntarily or involuntarily)
or (y) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding (including a proceeding under the Canadian
Companies' Creditors Arrangement Act) relating to Allied Finance or
its property, or in an assignment for the benefit of creditors or any
marshaling of Allied Finance's assets and liabilities (any of the
foregoing in clauses (x) and (y) being referred to herein as a
"Bankruptcy or Insolvency Proceeding"), the holders of Senior
Indebtedness will be entitled to receive payment in full in cash of
all the principal of and interest on and other amounts payable in
respect of such Senior Indebtedness (including interest accruing after
the commencement of any such proceeding at the rate specified in the
agreements or instruments creating or evidencing the applicable
Senior Indebtedness and whether or not such interest is an allowed or
allowable claim under applicable law) before Laidlaw will be entitled
to receive any payment with respect to this Debenture (whether in
cash, property or securities); and until all obligations with respect
to Senior Indebtedness are paid in full in cash, any distribution
received by Laidlaw or to which Laidlaw would be entitled shall be
paid over or made to the holders of Senior Indebtedness. Upon the
occurrence of any Bankruptcy or Insolvency Proceeding relating to
Allied Finance, the holders of the Senior Indebtedness are authorized
and empowered to (i) demand, sue for, collect and receive every
payment or distribution on account of the Subordinated Obligations
payable or deliverable in connection with such event or proceeding and
give acquittance therefor, and (ii) file claims and proofs of claim in
any statutory or non-statutory proceeding and take such other actions
as may be necessary or desirable for the enforcement of the
subordination provisions of this Debenture. Promptly after taking any
action provided in clauses (i) or (ii) above, Allied Finance shall
give written notice thereof to the holder of this Debenture; provided,
however that failure to give such notice shall in no event affect the
validity of any action so taken.
(c) In the event that, notwithstanding the occurrence of
any of the events described in Subsections 4(a) and (b), any such
payment or distribution of assets of Allied Finance of any kind or
character, whether in cash, property or securities, shall be received
by the holder of this Debenture which is not permitted hereby such
payment or distribution shall be held in trust for the ratable benefit
of, and shall be paid over or delivered to, the holders of the Senior
Indebtedness.
(d) The holders of the Senior Indebtedness shall have no
duty or obligation to the holder of this Debenture in any manner
whatsoever and may, at any time and from time to time, in their sole
discretion, without the consent of or notice to the holder of this
Debenture and without impairing or releasing any rights of the holders
of the Senior Indebtedness or any of the obligations of the holder of
this Debenture hereunder, take any or all of the following actions:
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(i) change the amount, manner, place, terms of
payment or interest rate, change or extend the time of payment
of, or renew or alter, any of the Senior Indebtedness, or
amend or supplement or waive any of the terms of any
instrument or agreement now or hereafter executed pursuant to
which any of the Senior Indebtedness is issued or incurred;
(ii) sell, exchange, release, surrender, relend,
realize upon or otherwise deal with in any manner and in any
order, any property (or the income, revenues, profits or
proceeds therefrom) by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, any Senior
Indebtedness;
(iii) release any person liable in any manner for
the payment or collection of the Senior Indebtedness;
(iv) exercise or refrain from exercising any
rights and remedies against Allied Finance or others, or
otherwise act or refrain from acting or, for any reason, fail
to file, record or otherwise perfect any security interest in
or lien on any property of Allied Finance or any other Person;
and
(v) apply any sums received by the holders of the
Senior Indebtedness, by whomsoever paid and however realized,
to payment of the Senior Indebtedness in such manner as the
holders of the Senior Indebtedness, in their sole discretion,
may deem appropriate.
(e) Laidlaw and any future holder of this Debenture, by
acceptance of this Debenture, agree to provide to any holder of Senior
Indebtedness, at any time and from time to time, upon the written
request of Allied Finance or such holder of Senior Indebtedness, an
agreement signed by Laidlaw or such future holder of this Debenture
addressed to the holder of such Senior Indebtedness in substantially
the form of, and on substantially the terms set out in, Exhibit A
attached hereto to the effect that such Person is a holder of Senior
Indebtedness, that the holder or holders of such Senior Indebtedness
are entitled to the benefits of Sections 4, 5 and 12 of this Debenture
and that the holder or holders of such Senior Indebtedness may enforce
the terms and provisions thereof to the same extent Allied Finance
would be able to do so, provided, however, that prior to furnishing
such agreement, Laidlaw has received from Allied Finance or such
holder such information as Laidlaw may reasonably request
demonstrating to Laidlaw' reasonable satisfaction that such Person is
a holder of Senior Indebtedness. Laidlaw, and each subsequent holder
of this Debenture, by acceptance of this Debenture, irrevocably
appoint Allied Finance (with full power of substitution) as its agent
and attorney in fact (which appointment is coupled with an interest
and shall be irrevocable so long as any Senior Indebtedness is
outstanding) to execute and deliver on behalf and in the name of
Laidlaw or such holder, as the case may be, an agreement in
substantially the form of, and on substantially the terms set out in,
Exhibit A hereto in favor of each such holder of Senior Indebtedness
and to take such further action as may be necessary or appropriate to
effectuate the subordination as provided herein. Promptly after
exercise of any such power, Allied Finance will give written
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notice thereof to the holders of the Debenture; provided, however,
that failure to give such notice shall in no event affect the validity
of any power so exercised.
(f) If a Default shall have occurred and be continuing
(other than a Default pursuant to Section 6(b) or (c)) and the holder
of this Debenture elects to accelerate this Debenture pursuant to
Section 7, Laidlaw shall give the Representative under the Credit
Facility 30 days' prior written notice before accelerating this
Debenture, which notice shall state that it is a "Notice of Intent to
Accelerate;" provided, however, that Laidlaw shall not be required to
give such notice if at such time payment of any Indebtedness incurred
pursuant to the Credit Facility shall have been accelerated. If
payment of this Debenture is accelerated because of a Default, the
holder shall promptly notify the Representatives under the Designated
Senior Indebtedness and the holders of all other Senior Indebtedness
of the acceleration.
(g) Until all Senior Indebtedness has been indefeasibly
paid in full in cash, the holders of this Debenture shall not be
entitled to assert, enforce or otherwise exercise any right of
subrogation against Allied Finance or any other Person obligated on
the Subordinated Obligations. After all Senior Indebtedness has been
indefeasibly paid in full in cash, and until the Subordinated
Obligations have been so paid in full, the holder of this Debenture
shall be subrogated to the rights of holders of Senior Indebtedness to
receive distributions applicable to Senior Indebtedness. A
distribution made under this Section 4 to holders of Senior
Indebtedness which otherwise would have been made to the holder of
this Debenture is not, as between Allied Finance and the holder of
this Debenture, a payment by Allied Finance on Senior Indebtedness.
(h) This Section 4 defines the relative rights of the
holder of this Debenture and holders of Senior Indebtedness. Nothing
in this Debenture shall:
(i) impair, as between Allied Finance and the
holder of this Debenture, the obligation of Allied Finance,
which is absolute and unconditional, to pay principal of and
premium and interest, if any, on this Debenture in accordance
with its terms; or
(ii) except as otherwise set forth in this Section
4, prevent the holder of this Debenture from exercising its
available remedies upon a Default, subject to the rights of
holders of Senior Indebtedness to receive distributions
otherwise payable to such holder.
5. No Impairment. Section 4, this Section 5, the proviso to
Section 7(a), and Section 12 (and all defined terms used in such sections)
shall constitute a continuing offer to all Persons who become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders from time to time of Senior Indebtedness, and such
Persons are conclusively presumed to have relied upon such provisions; and such
holders are made obligees hereunder, and they or each of them may enforce such
provisions. No right of any present or future holder of any Senior
Indebtedness to enforce the subordination or other provisions referred to in
this Section 5 shall at any time in any way be
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<PAGE> 296
prejudiced or impaired by any act or failure to act on the part of Allied
Finance or Laidlaw, or by any non-compliance by Allied Finance or Laidlaw with
the terms, provisions and covenants of this Debenture, regardless of any
knowledge thereof any such holder may have or otherwise be charged with.
Section 4, this Section 5 and the subordination and other provisions referred
to in this Section 5 may not be amended or modified in any manner which might
terminate or impair the subordination or such other provisions except with the
prior written consent of the Representatives of all the Designated Senior
Indebtedness.
6. Events of Default. "Default" means the occurrence of one or
more of the following:
(a) Payment. Allied Finance fails to pay the outstanding
principal amount of this Debenture on the Maturity Date.
(b) Voluntary Bankruptcy. Allied Finance (i) files a
petition initiating a voluntary Bankruptcy or Insolvency Proceeding,
(ii) seeks, consents to, or does not contest the appointment of a
receiver or trustee for itself or for all or any substantial part of
its property, (iii) is voluntarily adjudicated a bankrupt or
insolvent, (iv) makes a general assignment for the benefit of its
creditors, or (v) admits in writing its inability to pay its debts as
they mature.
(c) Involuntary Bankruptcy. A petition is filed against
Allied Finance seeking to initiate a Bankruptcy or Insolvency
Proceeding and such petition is not dismissed within 180 days after
being filed, or a court of competent jurisdiction enters an order,
judgment or decree appointing a receiver or trustee for Allied
Finance, or for all or substantially all of its property, and such
order, judgment or decree is not discharged or stayed within 180 days
after its entry.
(d) Acceleration of Other Indebtedness. An event of
default occurs and is continuing under the Credit Facility and, as a
result thereof, the Indebtedness outstanding pursuant to the Credit
Facility is accelerated; provided, however, that in the event the
holders of such Indebtedness elect to waive such event of default or
to otherwise de-accelerate such Indebtedness, no Default shall subsist
hereunder.
7. Remedies of Laidlaw. Upon the occurrence and during the
continuance of a Default, Laidlaw shall have the following rights:
(a) Acceleration. Subject to the provisions of Section 4
hereof, Laidlaw may, at its option, declare the entire principal
balance of this Debenture, together with the accrued and unpaid
interest thereon, immediately due and payable without notice of
Default, notice of intent to accelerate, notice of acceleration, or
any other notice, presentment, protest, demand or action of any kind
or nature whatsoever (each of which is hereby expressly waived by
Allied Finance), whereupon the entire Indebtedness under this
Debenture shall become immediately due and payable; provided, however,
that no such acceleration (except for an acceleration upon the
occurrence of a Default specified in Subsection 7(d)) shall be
effective or of any force whatsoever and the holder of this
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<PAGE> 297
Debenture may not take any action against Allied Finance with respect
to a Default hereunder if made during a Blockage Period, or if such
acceleration would result in a Blockage Period; provided, further,
that in the event the Indebtedness under this Debenture is accelerated
upon the occurrence of a Default specified in Subsection 7(d) and the
holders of the Indebtedness outstanding pursuant to the Credit
Facility elect to waive the event of default giving rise to the
acceleration thereunder or otherwise elect to de-accelerate such
Indebtedness, Laidlaw shall de-accelerate the obligations hereunder.
(b) Other Rights. Except as otherwise modified hereby,
Laidlaw shall have all rights and remedies available at law or equity
and the same (i) shall be cumulative and concurrent, (ii) may be
pursued separately, successively, or concurrently against Allied
Finance, (iii) may be exercised as often as occasion therefor shall
arise, it being agreed by Allied Finance that the exercise or failure
to exercise any of the same shall in no event be construed as a waiver
or release thereof or of any other right or remedy, and (iv) are
intended to be, and shall be, nonexclusive.
8. Offer of Prepayment upon Change of Control.
(a) Allied Finance will, within thirty business days
after any executive officer of Allied Finance has knowledge of the
occurrence of a Change of Control, give written notice of such Change
of Control to the holder of this Debenture. Subject to the provisions
of Section 5, such notice shall contain and constitute an offer to
prepay this Debenture as described in subsection (b) of this Section
8.
(b) The offer to prepay this Debenture contemplated by
subsection (a) of this Section 8 shall be an offer to prepay, in
accordance with and subject to this Section 8, all, but not less than
all, of this Debenture on a date specified in such offer (the "Section
8 Prepayment Date") which date shall be not less than 45 days and not
more than 60 days after the date of such offer (if the Section 8
Prepayment Date shall not be specified in such offer, the Section 8
Prepayment Date shall be the first business day after the 45th day
after the date of such offer).
(c) The holder of this Debenture may accept the offer to
prepay made pursuant to this Section 8 in whole but not in part by
causing a notice of such acceptance to be delivered to Allied Finance
within ten business days after receipt of the written notice to be
given pursuant to subsection (a) of this Section 8. A failure by a
holder of this Debenture to respond within such time period to an
offer to prepay made pursuant to this Section 8 shall be deemed to
constitute a rejection of such offer.
(d) Prepayment of this Debenture pursuant to this Section
8 shall be at the Accreted Value of the Debenture at the Section 8
Prepayment Date. The prepayment shall be made on the Section 8
Prepayment Date.
(e) Notwithstanding any provision hereof to the contrary,
in no event shall Allied Finance prepay (or be obligated to prepay)
this Debenture pursuant to this
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Section 8 until 91 days after Allied Finance shall have prepaid the
Senior Indebtedness incurred pursuant to the Credit Facility and the
Senior Subordinated Debentures, and all other Senior Indebtedness
which is entitled to be prepaid upon the occurrence of a Change of
Control, unless the holder or holders of such Senior Indebtedness have
waived or otherwise failed to enforce their rights to receive a
prepayment of the Senior Indebtedness held by them to which they are
entitled in connection with such Change of Control.
9. Captions. The captions, headings, and arrangements used in
this Debenture are for convenience only and do not affect or modify the terms
of this Debenture.
10. Notices. All notices or other communications which are
required or may be given under this Debenture shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by
telecopier (with receipt confirmed) at the address or telecopy number set forth
below (as any such address or telecopier number may be changed from time to
time by notice similarly given):
(1) if to Laidlaw, to:
Laidlaw Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3Y8
Attention: Ivan R. Cairns
Telecopy No.: (905) 332-6550
(2) if to Allied Finance, to:
3294854 Canada Inc.
c/o Allied Finance, Inc.
7201 East Camelback Road, Suite 375
Scottsdale, Arizona 85251
Attention: Roger A. Ramsey
Telecopy No.: (602) 481-9347
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana Street, Suite 3500
Houston, Texas 77002
Attention: Robert G. Reedy
Telecopy No.: (713) 228-1331
11. Applicable Law. This Debenture shall be governed by and
construed in accordance with the laws of the State of Delaware and the laws of
the United States of America applicable therein (without reference to the
conflicts of law principles thereof).
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12. Transfer Restriction. This Debenture may not be sold,
assigned, transferred, pledged or hypothecated in any manner, directly or
indirectly, by Laidlaw or any other holder, unless the assignee, transferee,
pledgee or hypothecate has agreed in writing to be bound by the provisions of
this Debenture applicable to Laidlaw, including but not limited to the
provisions of Section 4(e) and Section 13 hereof. Any transfer of this
Debenture shall be of the entire Debenture and not of any part of the
indebtedness evidenced hereby or of at least $75,000,000 of the principal
amount thereof.
13. OFFSET. THE OBLIGATIONS OF ALLIED FINANCE HEREUNDER ARE, IN
ALL RESPECTS, SUBJECT TO OFFSET AS MORE FULLY SET FORTH IN THE OFFSET LETTER
AGREEMENT. THE OFFSET RIGHTS SET FORTH IN THE OFFSET LETTER AGREEMENT SHALL BE
EFFECTIVE NOTWITHSTANDING THE ASSIGNMENT OR TRANSFER OF THIS DEBENTURE BY
LAIDLAW AND ANY TRANSFEREE SHALL TAKE THIS DEBENTURE SUBJECT TO THE TERMS
THEREOF.
NOTICE: THE RIGHTS AND OBLIGATIONS OF ALLIED FINANCE AND LAIDLAW
SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND INSTRUMENTS,
AND ANY PRIOR ORAL AGREEMENTS BETWEEN ALLIED FINANCE AND LAIDLAW ARE SUPERSEDED
BY AND MERGED INTO SUCH WRITINGS. THIS DEBENTURE (AS AMENDED IN WRITING FROM
TIME TO TIME) REPRESENTS THE FINAL AGREEMENT BETWEEN ALLIED FINANCE AND LAIDLAW
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL
AGREEMENTS BY ALLIED FINANCE AND LAIDLAW. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN ALLIED FINANCE AND LAIDLAW.
3294854 CANADA INC.
a Canadian corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Agreed and Accepted:
LAIDLAW INC.
a Canadian corporation
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
15
<PAGE> 300
EXHIBIT A
to the Zero Coupon Junior Subordinated
Debenture Due 200__ Issued by
3294854 Canada Inc.
in favor of Laidlaw Inc.
[Date]
- - - ----------------
- - - ----------------
- - - ----------------
Gentlemen:
Reference is made to the Zero Coupon Junior Subordinated Debenture Due
200__ dated __________, 199__ (the "Subordinated Debenture"), in the original
principal amount of $________________ issued by 3294862 Canada Inc., a Canadian
corporation ("Allied Finance"), in favor of Laidlaw Inc., a Canadian
corporation, and the [describe Senior Indebtedness] (the "Subject
Indebtedness"), being issued contemporaneously herewith by Allied Finance in
favor of [identity of holder or holders of Subject Indebtedness] (whether one
or more, the "Senior Creditor"). Hereinafter, capitalized words and phrases
used herein which are defined in the Subordinated Debenture are used herein as
therein defined.
The undersigned (the "Subordinated Creditor") hereby represents and
warrants to the Senior Creditor that (a) the Subordinated Creditor is the owner
and holder of the Subordinated Debenture and that the Subordinated Creditor is
entitled to make the agreements herein contained. The Subordinated Creditor
hereby acknowledges and agrees that the principal of, and premium, if any, and
interest on (including interest that, but for the filing of a petition
initiating any Bankruptcy or Insolvency Proceeding would accrue on such
obligations at the rate provided in the agreements or instruments creating or
evidencing the respective obligations, whether or not such Bankruptcy or
Insolvency Proceeding and all other amounts of every kind or nature (including,
but not limited to, fees, indemnities and expenses and any interest rate swaps
or other interest rate hedging products entered into in connection with the
Subject Indebtedness) due on or in connection with, the Subject Indebtedness,
whether outstanding on the date hereof or hereafter created, incurred or
assumed, guaranteed or in effect guaranteed by Allied Finance (including all
renewals, extensions or refundings of, or amendments, modifications or
supplements to, the foregoing) are in all respects Senior Indebtedness, (b) the
Senior Creditor (and any other Person who from time to time is a holder of the
Subject Indebtedness) is entitled to the benefits of Sections 4, 5 and 12 of
the Subordinated Debenture, and (c) the Senior Creditor (and any other Person
who from time to time is a holder of the Subject Indebtedness) may enforce the
terms and provisions of the Subordinated Debenture to the same extent that
Allied Finance or any other holder of Senior Indebtedness would be able to do
so.
A-1
<PAGE> 301
The Subordinated Creditor hereby agrees that the Subordinated
Debenture will not be sold, assigned, transferred, pledged or hypothecated in
any manner, directly or indirectly, by the Subordinated Creditor, unless the
assignee, transferee, pledgee or hypothecate has agreed in writing to be bound
by the provisions of this agreement.
The Subordinated Creditor has executed this agreement in the space
provided below in order to induce the Senior Creditor to advance funds or
extend credit to Allied Finance, and this agreement is intended by the
Subordinated Creditor to be a binding and enforceable undertaking by the
Subordinated Creditor in favor of the Senior Creditor.
The rights created hereby of the Senior Creditor and of any subsequent
holder of the Senior Indebtedness will be assigned automatically, and without
any further act, by the Senior Creditor or such holder upon any sale,
assignment, conveyance or other transfer of all or any part of the Senior
Indebtedness to the extent of the interest sold, assigned, conveyed or
otherwise transferred, unless and to the extent the Senior Creditor or such
holder expressly provides otherwise in the instrument pursuant to which such
interest is conveyed.
Very truly yours,
[NAME OF SUBORDINATED CREDITOR]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Accepted and agreed to as of
the date first above written:
[NAME OF SENIOR CREDITOR]
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
A-2
<PAGE> 302
EXHIBIT C
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED (OR QUALIFIED BY PROSPECTUS)
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY PROVINCE OF CANADA. THIS WARRANT
AND THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS WARRANT MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION (OR QUALIFICATION BY PROSPECTUS) THEREUNDER OTHER
THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION AND PROSPECTUS
REQUIREMENTS AND DELIVERY TO ALLIED WASTE INDUSTRIES, INC. OF AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT TO THE EFFECT THAT SUCH TRANSFER IS
EXEMPT FROM SUCH REGISTRATION AND PROSPECTUS REQUIREMENTS UNDER THOSE LAWS.
No. ___________ __________________, 1996
WARRANT
to Purchase Common Stock of
ALLIED WASTE INDUSTRIES, INC.
Expiring on _____________, 2008
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received and subject to the terms hereof, Laidlaw (as hereinafter
defined) is entitled to subscribe for and purchase from Allied (as hereinafter
defined), in whole or in part, 20,400,000 shares of Common Stock (as
hereinafter defined) at the Exercise Price (as hereinafter defined), subject to
and upon the terms and conditions hereinafter set forth. The number of shares
of Common Stock purchasable hereunder, and the Exercise Price therefor are
subject to adjustment as hereinafter set forth. This Warrant and all rights
hereunder shall expire at 5:00 p.m., Scottsdale, Arizona time, on __________,
2008 (the "Expiration Date").
<PAGE> 303
ARTICLE I
Definitions
As used herein, the following terms shall have the meanings set forth
below:
1.1 "Affiliate"means, with respect to any Person, another Person
which would be an "affiliate" of such Person for purposes of Section 13(d) of
the Exchange Act or Section 197(f)(9)(c) of the United States Internal Revenue
Code of 1986, as amended, respectively.
1.2 "Allied" shall mean Allied Waste Industries, Inc., a Delaware
corporation, and any successor by merger, consolidation or otherwise.
1.3 "Change of Control" means a change resulting when any
Unrelated Person or any Unrelated Persons acting together that would constitute
a Group together with any Affiliates thereof (in each case also constituting
Unrelated Persons) shall at any time beneficially own more than 50% of the
aggregate voting power of all classes of Voting Stock of Allied; provided,
however, that if at the date any "Change of Control" would otherwise have
occurred but for the fact that a Person was not an Unrelated Person because
such Person or an Affiliate of such Person acquired shares of Allied Common
Stock or all or any portion of the Allied Warrant from Laidlaw or from any
Affiliate of Laidlaw within nine months prior to such date, such shares of
Allied Common Stock acquired from Laidlaw or any Affiliate of Laidlaw, or any
shares of Allied Common Stock issued upon exercise of the Allied Warrant or any
portion thereof, shall at all times thereafter be excluded when calculating
whether a Change of Control has occurred. As used in this definition of Change
of Control (a) "Group" means a "group" for purposes of Section 13(d) of the
Exchange Act; (b) "Unrelated Person" means at any time any Person other than
Laidlaw, any Person to whom Laidlaw or any of its Affiliates transfers, within
nine months prior to such time, any shares of Allied Common Stock or all or any
portion of the Allied Warrant or any Affiliate of Laidlaw or any such Person;
provided, however, that Persons (other than Laidlaw or its Affiliates) to whom
Laidlaw or any of its Affiliates transfers any shares of Allied Common Stock or
all or any portion of the Allied Warrant after five years from the date hereof
shall not be deemed Unrelated Persons; and (c) "Voting Stock" of any Person
shall mean capital stock of such Person which ordinarily has voting power for
the election of directors (or persons performing similar functions) of such
Person, whether at all times or only so long as no senior class of securities
has such voting power by reason of any contingency.
1.4 As used herein, "beneficially own" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act, provided that, for purposes of this
definition, a Person shall not be deemed to beneficially own securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates until such tendered securities are
accepted for purchase or exchange.
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1.5 "Common Stock" shall mean and include the Common Stock of
Allied, par value $.01 per share, authorized on the date of the original issue
of this Warrant and shall also include (i) in case of any reorganization,
reclassification, consolidation, merger, share exchange or sale, transfer or
other disposition of assets, the stock or other securities provided for herein,
and (ii) any other shares of common stock of Allied into which such shares of
Common Stock may be converted.
1.6 "Current Market Price" per share of Common Stock on any
specified date means the average daily market prices (determined as set forth
below in this definition), of the Common Stock for the 20 consecutive Trading
Days ending on the third Trading Day before that date. The market price for
each such Trading Day shall be the average of the last sale prices on such
Trading Day on all stock exchanges and the Nasdaq Stock Market on which the
Common Stock may then be listed or admitted for quotation, respectively;
provided, that if no sale takes place on any such Trading Day on any such
exchange or the Nasdaq Stock Market, the average of the closing bid and asked
prices on such day as officially quoted thereon shall be used, or, if Common
Stock is not then listed or admitted for quotation on any stock exchange or the
Nasdaq Stock Market, the market price for each Trading Day shall be the average
of the reported bid and asked prices on such day on the over-the-counter
market, or, if Common Stock is not quoted on the over-the-counter market, the
market price for each Trading Day shall be the average of the bid and asked
prices furnished by any member of the National Association of Securities
Dealers selected by Allied.
1.7 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.8 "Exercise Price" shall mean $8.25, as adjusted from time to
time pursuant to the provisions hereof.
1.9 "Outstanding," when used with reference to Common Stock, shall
mean (except as otherwise expressly provided herein) at any date as of which
the number of shares thereof is to be determined, all issued and outstanding
shares of Common Stock, except shares then beneficially owned or held by or for
the account of Allied and its direct or indirect wholly-owned subsidiaries.
1.10 "Person" means an individual, corporation, partnership,
association, joint stock company, limited liability company, governmental
entity, business trust, unincorporated organization, or other legal entity.
1.11 "Laidlaw" shall mean Laidlaw Inc., a Canadian corporation.
1.12 "Securities Act" means the United States Securities Act of
1933, as amended.
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1.13 "Trading Day" shall mean any days during the course of which
the principal securities exchange or the Nasdaq National Market, as the case
may be, on which the Common Stock is listed or admitted to trading is open for
the exchange of securities.
1.14 "Warrant Shares" shall mean the shares of Common Stock
purchased or purchasable upon the exercise of the Warrant by the holder
entitled to exercise the Warrant.
ARTICLE II
Exercise of Warrant
2.1 Method of Exercise. The Warrant may be exercised in whole or
in part by (i) Laidlaw and its Affiliates only after the occurrence of a Change
of Control of Allied, or (ii) by any holder hereof other than Laidlaw and its
Affiliates, at any time and from time to time on or after the date hereof,
until 5:00 p.m., Scottsdale, Arizona time on the Expiration Date. To exercise
the Warrant, the holder hereof shall deliver to Allied, at the Warrant Office
designated herein, (i) a written notice substantially in the form of the
Subscription Notice attached as an exhibit hereto, stating therein the election
of the holder hereof to exercise the Warrant in the manner provided in the
Subscription Notice; (ii) payment in full of the Exercise Price, by certified
check or by wire transfer of immediately available funds for all Warrant Shares
purchased hereunder; and (iii) the Warrant. The Warrant shall be deemed to be
exercised on the date of receipt by Allied of the Subscription Notice,
accompanied by payment for the Warrant Shares and surrender of the Warrant (the
"Exercise Date"). Upon such exercise, Allied shall, as promptly as practicable
and in any event within five business days, issue and deliver to the holder
hereof a certificate or certificates for the full number of the Warrant Shares
purchased by the holder hereof, and shall, unless the Warrant has expired,
deliver to the holder hereof a new Warrant representing the portion of the
Warrant, if any, that shall not have been exercised, in all other respects
identical to the Warrant. The holder hereof shall be deemed to have become a
holder of record of such Common Stock on the Exercise Date and shall be
entitled to all of the benefits of such holder on the Exercise Date, including
without limitation the right to receive dividends and other distributions for
which the record date falls on or after the Exercise Date and to exercise
voting rights.
2.2 Expenses and Taxes. Allied shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the issuance or
exercise of the Warrant and to the issuance, possession or disposition of the
Warrant Shares.
2.3 Reservation of Shares. Allied shall reserve at all times so
long as the Warrant remains outstanding, free from preemptive rights, out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the Warrant, as adjusted pursuant to
Article IV hereof.
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2.4 Valid Issuance. All Warrant Shares will, upon issuance by
Allied, be duly and validly issued, fully paid and nonassessable.
2.5 Other Agreements. Laidlaw, Allied and certain other parties
have entered into a Stock Purchase Agreement (the "Purchase Agreement") dated
September __, 1996. Laidlaw, Allied and certain parties named therein have
also entered into a Stock Registration Agreement (the "Registration Agreement")
dated September __, 1996. The Warrant is the warrant to purchase Common Stock
issued to Laidlaw pursuant to the Purchase Agreement. Laidlaw, or any
transferee of rights to registration under the Registration Agreement, shall be
entitled to the rights to registration under the Securities Act and any
applicable state securities or blue sky laws to the extent set forth in the
Registration Agreement. The terms of the Purchase Agreement and Registration
Agreement are incorporated herein for all purposes and shall be considered a
part of the Warrant as if they had been fully set forth herein; provided, that
the rights to registration in the Registration Agreement shall be transferable
only as provided for therein. Notwithstanding the previous sentence, in the
event of any conflict between the provisions of the Purchase Agreement or the
Registration Agreement and of the Warrant, the provisions of the Warrant shall
control.
2.6 No Fractional Shares. Allied shall not be required to issue
fractional shares of Common Stock on the exercise of the Warrant. If a portion
of the Warrant shall be presented for exercise, the number of full shares of
Common Stock which shall be issuable upon such exercise shall be computed on
the basis of the aggregate number of whole shares of Common Stock purchasable
on exercise of the portion of the Warrant so presented. If any fraction of a
share of Common Stock would, except for the provisions of this Section, be
issuable on the exercise of the Warrant, Allied shall pay an amount in cash
calculated by it to be equal to the Current Market Price of one share of Common
Stock at the time of such exercise multiplied by such fraction computed to the
nearest whole cent.
ARTICLE III
Transfer
3.1 Restrictions on Transfer of the Warrant. The Warrant may be
sold, assigned or transferred to any Person other than Laidlaw and its
Affiliates (except that this Warrant may be transferred to a wholly owned
subsidiary of Laidlaw) and may also be sold, assigned or transferred pursuant
to the exercise by the holder hereof of rights, if any, to register and sell
the Warrant pursuant to the Registration Agreement; provided, that no sale,
assignment or transfer of this Warrant will be permitted if the transferee of
this Warrant and its Affiliates, collectively, shall beneficially own after
said sale, assignment or transfer, more than 9% of the total number of shares
of Common Stock then outstanding, unless such transferee receives such Warrants
pursuant to a pro-rata distribution of Warrants to all stockholders of all
classes of Laidlaw's outstanding capital stock.
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3.2 Warrant Office. Allied shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 7201 East Camelback Road, Suite 375, Scottsdale,
Arizona 85251 and may subsequently be such other office of Allied or of any
transfer agent retained by Allied in the continental United States as to which
written notice has previously been given to the holders hereof Allied shall
maintain, at the Warrant Office, a register for the Warrant in which Allied
shall record the name and address of the holders hereof. Upon any public
distribution of the Warrants, Allied shall retain a transfer agent for the
Warrants and the business address of such transfer agent shall be the Warrant
Office from the date of such public distribution.
3.3 Split Up, Combination, Exchange and Transfer of Warrants.
Subject to the provisions of Section 3.1, the Warrants may be split up,
combined or exchanged for other Warrants representing a like aggregate number
of Warrants. Any holder desiring to split up, combine or exchange shall make
such request in writing delivered to the Warrant Office and shall surrender the
Warrants to be so split up, combined or exchanged. Subject to (i) any
applicable laws, rules or regulations of the United States or Canada
restricting transferability, (ii) any restriction on transferability that may
appear on a Warrant in accordance with the terms hereof, or (iii) any
"stop-transfer" instructions Allied may give to the Warrant Office to implement
any such restrictions (which instructions Allied is expressly authorized to
give), transfer of outstanding Warrants may be effected by the Warrant Office
from time to time upon the books of Allied to be maintained by the Warrant
Office for that purpose, upon a surrender of the Warrants to the Warrant Office
with the assignment form set forth in the Warrants duly executed and with
Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Office shall execute and deliver to the
person entitled thereto Warrants as so requested. the Warrant Office may
require the holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split up, combination,
exchange or transfer of Warrants prior to the issuance of any new Warrants.
3.4 Cancellation of Warrants. Any Warrants surrendered upon the
exercise of Warrants or for split up, combination, exchange or transfer, or
purchased or otherwise acquired by Allied, shall be cancelled and shall not be
reissued by Allied; and, except as provided (i) in Section 2.1, in case of the
exercise of less than all of the Warrants, or (ii) in Section 3.3, in case of a
split up, combination, exchange or transfer of the Warrants, no Warrants shall
be issued hereunder in lieu of such cancelled Warrants. Any Warrants so
cancelled shall be destroyed by the Warrant Office unless otherwise directed by
Allied.
3.5 Compliance with Securities Laws. Subject to the terms of the
Registration Agreement and notwithstanding any other provisions contained in
the Warrant, the holders hereof understand and agree that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act or
applicable securities legislation, regulations and rules of the provinces and
territories of Canada:
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3.5.1 The Warrant Shares may not be sold or otherwise
transferred unless the Warrant Shares are registered (or qualified by
prospectus) under the Securities Act and applicable state or provincial or
territorial securities or blue sky laws or are exempt from such requirements.
3.5.2 A legend in substantially the following form will be
placed on the certificate(s) evidencing the Warrant Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED BY PROSPECTUS UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY PROVINCE OR TERRITORY OF CANADA. SUCH SHARES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH A REGISTRATION (OR QUALIFICATION)
THEREUNDER OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
AND QUALIFICATION REQUIREMENTS AND DELIVERY TO ALLIED WASTE
INDUSTRIES, INC. OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IT TO THE EFFECT THAT TRANSFER IS EXEMPT FROM REGISTRATION AND
QUALIFICATION REQUIREMENTS UNDER THOSE LAWS."
3.5.3 Stop transfer instructions will be imposed with
respect to the Warrant Shares so as to restrict resale or other transfer
thereof.
ARTICLE IV
Adjustment
4.1 Adjustment. The Exercise Price shall be subject to adjustment
from time to time as provided herein. Upon each adjustment of the Exercise
Price, the holder hereof shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
4.2 Adjustment of Exercise Price
4.2.1 In case at any time after the date hereof Allied
shall distribute to all holders of Common Stock any rights to subscribe for or
to purchase Common Stock or any options for the purchase of Common Stock or any
stock or securities convertible into or
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exchangeable for Common Stock (such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
shares of Common Stock are issuable upon the exercise of such rights or options
or upon conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by Allied as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to Allied upon
the exercise of such rights or options, or plus, in the case of such rights or
options that relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or options)
shall be less than the Current Market Price in effect as of the date of
granting such rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights or options shall be deemed to be outstanding as of the
date of the granting of such rights or options and to have been issued for such
price per share, and the Exercise Price shall be reduced (but not increased,
except as otherwise specifically provided herein) to the price (calculated to
the nearest one-tenth of a cent) determined by dividing (x) an amount equal to
the sum of (1) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by then existing Exercise
Price plus (2) the consideration received by Allied upon such issue or sale by
(y) the aggregate number of shares of Common Stock outstanding immediately
after such issue or sale. Except as provided herein, no further adjustment of
the Exercise Price shall be made upon the actual issuance of such Common Stock
or of such Convertible Securities upon exercise of such rights or options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
4.2.2 If: (i) the purchase price provided for in any right
or option distributed to all holders of Common Stock, (ii) the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities distributed to all holders of Common Stock or (iii) the
rate at which any Convertible Securities distributed to all holders of Common
Stock are convertible into or exchangeable for Common Stock shall be decreased
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price then in effect shall be decreased to the Exercise
Price that would have been in effect had such rights, options or Convertible
Securities provided for such changed purchase price, additional consideration
or conversion rate at the time initially issued.
4.2.3 In case at any time Common Stock or Convertible
Securities or any rights or options to purchase Common Stock or Convertible
Securities shall be issued or sold to all holders of Common Stock for cash, the
total amount of cash consideration shall be deemed to be the amount received by
Allied. If at any time any Common Stock, Convertible Securities
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or any rights or options to purchase any such Common Stock or Convertible
Securities shall be issued or sold to all holders of Common Stock for
consideration other than cash, the amount of the consideration other than cash
received by Allied shall be deemed to be the fair market value of such
consideration, as determined reasonably and in good faith by the Board of
Directors of Allied. If at any time any Common Stock, Convertible Securities
or any rights or options to purchase any Common Stock or Convertible Securities
shall be issued to all holders of Common Stock in connection with any merger or
consolidation, the amount of consideration received therefor shall be deemed to
be the fair market value, as determined reasonably and in good faith by the
Board of Directors of Allied, of such portion of the assets and business of the
nonsurviving corporation as such Board of Directors may determine to be
attributable to such Common Stock, Convertible Securities, rights or options as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued to all holders
of Common Stock in connection with any issuance and sale of other securities of
Allied, together consisting of one integral transaction in which no
consideration is allocated to such rights or options by the parties, such
rights or options shall be deemed to have been issued without consideration.
4.2.4 In case Allied shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then such record date shall be deemed
to be the date of the issuance or sale of the Common Stock or Convertible
Securities deemed to have been issued or sold as a result of the date of the
granting of such right of subscription or purchase, as the case may be.
4.2.5 The number of shares of Common Stock outstanding at
any given time shall not include shares owned directly by Allied in treasury,
and the disposition of any such shares shall be considered an issuance or sale
of Common Stock.
4.2.6 In case Allied shall at any time after the date
hereof (i) declare a dividend on all the outstanding shares of Common Stock
payable in shares of its capital stock, (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of capital stock by reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger), then, in each case, the Exercise
Price in effect, and the number of shares of Common Stock issuable upon
exercise of the Warrants outstanding, at the time of the record date for such
dividend or of the effective date of such subdivision, combination,
reclassification or reorganization, shall be proportionately adjusted so that
the holders of the Warrants after such time shall be entitled to receive the
aggregate number and kind of shares which, if such Warrants had been exercised
immediately prior to such time, such holders would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination, reclassification or reorganization. Such adjustment shall be made
successively whenever any event listed above shall occur.
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4.2.7 In case Allied shall distribute to all holders of
Common Stock (including any such distribution made to the shareholders of
Allied in connection with a consolidation or merger) evidences of its
indebtedness or assets (other than distributions and dividends payable in
shares of Common Stock) then, in such case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of shareholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of Common Stock on such record date, less the fair market value
(as determined in good faith by the Board of Directors of Allied, in its sole
discretion) of the portion of the evidences of indebtedness or assets so to be
distributed, applicable to one share, and the denominator of which shall be
such Current Market Price per share of Common Stock on such record date. Such
adjustment shall become effective at the close of business on such record date.
4.3 Tender Offer. If a purchase, tender or exchange offer (a
"Tender Offer") is made to and accepted by holders of 51 percent or more of the
outstanding shares of Common Stock, Allied shall not effect any consolidation,
merger, share exchange or sale, transfer or other disposition of all or
substantially all of Allied's assets (an "Extraordinary Transaction") with the
Person having made such Tender Offer or with any Affiliate of such Person,
unless prior to the consummation of such Extraordinary Transaction the holder
hereof shall have been given a reasonable opportunity to elect to receive, upon
the exercise of the Warrant, either: (i) the capital stock, securities, assets
or cash then issuable with respect to the Common Stock upon consummation of the
Extraordinary Transaction; or (ii) the capital stock, securities, assets or
cash issued to previous holders of the Common Stock upon acceptance of such
Tender Offer.
4.4 De Minimis Adjustments. No adjustment in the number of shares
of Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of the Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.10 in the Exercise Price; provided, however, that any
adjustments that are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest full share or nearest one hundredth of a dollar, as applicable.
4.5 Notifications to Holders. In case at any time Allied
proposes:
(i) to declare any dividend upon its Common Stock payable
in capital stock or make any special dividend or other distribution
(other than cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the
holders of its Common Stock any additional shares of capital stock of
any class or other rights;
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(iii) to effect any capital reorganization, or
reclassification of the capital stock of Allied, or consolidation,
merger or share exchange of Allied with another Person, or sale,
transfer or other disposition of all or substantially all of its
assets; or
(iv) to effect a voluntary or involuntary dissolution,
liquidation or winding up of Allied,
then, in any one or more of such cases, Allied shall give the holder hereof (a)
at least 10 days (but not more than 90 days) prior written notice of the date
on which the books of Allied shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition,
dissolution, liquidation or winding up, and (b) in the case of any such
issuance, reorganization, reclassification, consolidation, merger, share
exchange, sale, transfer, disposition, dissolution, liquidation or winding up,
at least 10 days (but not more than 90 days) prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the date on which the holders of
Common Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock, as the case may be, for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, as the case may be.
4.6 Notice of Adjustment. Whenever the Exercise Price or the
number of Warrant Shares issuable upon the exercise of the Warrant shall be
adjusted as herein provided, or the rights of the holder hereof shall change by
reason of other events specified herein, Allied shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare and mail to the holder hereof a certificate
setting forth the adjusted Exercise Price as of the date of such event and the
adjusted number of Warrant Shares issuable upon the exercise of the Warrant or
specifying the other shares of stock, securities, assets or cash receivable as
a result of such change in rights, and showing in reasonable detail the facts
and calculations upon which such adjustments or other changes are based.
ARTICLE V
Miscellaneous
5.1 Entire Agreement. The Warrant, together with the Purchase
Agreement and the Registration Agreement, contain the entire agreement between
the holder hereof and Allied with respect to the Warrant and the Warrant Shares
purchasable upon exercise hereof and the
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related transactions and supersedes all prior arrangements or understandings
with respect thereto.
5.2 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of Delaware.
5.3 Waiver and Amendment. Any term or provision of the Warrant
may be waived at any time by the party which is entitled to the benefits
thereof and any term or provision of the
Warrant may be amended or supplemented at any time by agreement of the holder
hereof and Allied, except that any waiver of any term or condition, or any
amendment or supplementation, of the Warrant shall be in writing. A waiver of
any breach or failure to enforce any of the terms or conditions of the Warrant
shall not in any way effect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or condition of
the Warrant.
5.4 Severability. In the event that any one or more of the
provisions contained in this Warrant shall be determined to be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of the Warrant shall not, at the election of the party for whom the
benefit or the provision exists, be in any way impaired.
5.5 Notice. Any notice or other document required or permitted to
be given or delivered to the holder hereof shall be in writing and delivered
at, or sent by certified or registered mail to the holder hereof at, the last
address shown on the books of Allied maintained at the Warrant Office for the
registration of the Warrant or at any more recent address of which the holder
hereof shall have notified Allied in writing. Any notice or other document
required or permitted to be given or delivered to Allied, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the offices of Allied
at 7201 East Camelback Road, Suite 375, Scottsdale, Arizona 85251 or such other
address within the continental United States of America as shall have been
furnished by Allied to the holder hereof.
5.6 Limitation of Liability; Not Stockholders. No provision of
the Warrant shall be construed as conferring upon the holder hereof the right
to vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of Allied or any other matter whatsoever as a stockholder of Allied
prior to exercise of the Warrant. No provision hereof, in the absence of
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of the holder hereof for the purchase price of
any shares of Common Stock or as a stockholder of Allied, whether such
liability is asserted by Allied or by creditors of Allied.
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5.7 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence reasonably satisfactory to Allied of the loss, theft, mutilation or
destruction of the Warrant, and in the case of any such loss, theft or
destruction upon delivery of an appropriate affidavit in such form as shall be
reasonably satisfactory to Allied and include reasonable indemnification of
Allied, or in the event of such mutilation upon surrender and cancellation of
the Warrant, Allied will make and deliver a new Warrant of like tenor, in lieu
of such lost, stolen, destroyed or mutilated Warrant. A Warrant issued under
the provisions of this Section in lieu of a Warrant alleged to be lost,
destroyed or stolen, or in lieu of a mutilated Warrant, shall constitute an
original contractual obligation on the part of Allied. The Warrant shall be
promptly canceled by Allied upon the surrender hereof in connection with any
exchange or replacement. Allied shall pay all taxes (other than securities
transfer taxes or capital gains or income taxes) and all other expenses and
charges payable in connection with the preparation, execution and delivery of a
Warrant pursuant to this Section.
5.8 Specific Performance. Each party hereto agrees that one or
more other parties would be irreparably damaged if any provision of the Warrant
was not performed in accordance with its specific terms or was otherwise
breached. Therefore, the parties hereto agree that each party shall be
entitled to an injunction or injunctions to prevent breaches of the Warrant or
any of their provisions and to specifically enforce the Warrant, its terms and
provisions in any action instituted in any court of the United States or Canada
or any state or province thereof having subject matter jurisdiction, in
addition to any other remedy to which a party may be entitled, at law or in
equity.
5.9 Headings. The Article and Section and other headings herein
are for convenience only and are not a part of this Warrant and shall not
affect the interpretation thereof.
IN WITNESS WHEREOF, Allied has caused this Warrant to be signed in its name.
Dated: _______________, 1996
ALLIED WASTE INDUSTRIES, INC.
------------------------------------
By:
---------------------------------
Title:
------------------------------
RECEIVED AND ACKNOWLEDGED
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LAIDLAW TRANSPORTATION, INC.
- - - ---------------------------------------------------
By:
------------------------------------------------
Title:
---------------------------------------------
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FORM OF SUBSCRIPTION NOTICE
The undersigned hereby elects to exercise purchase rights represented
thereby for, and to purchase thereunder, ____________ shares of the Common
Stock covered by Warrants to purchase Common Stock, and herewith makes payment
in full for such shares, and requests (a) that certificates for such shares
(and any other securities or other property issuable upon such exercise) be
issued in the name of, and delivered to, ____________________ and (b), such
shares shall not include all of the shares issuable as provided in such
Warrant, that a new Warrant of like tenor and date for the balance of the
shares issuable thereunder be delivered to the undersigned.
-----------------------------------------
By:
--------------------------------------
Title:
-----------------------------------
Date:
--------------------------------------
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EXHIBIT E
STOCK REGISTRATION AGREEMENT
This Stock Registration Agreement dated _____________, 199__ (this
"Registration Agreement"), is among Allied Waste Industries, Inc., a Delaware
corporation ("Allied"), Laidlaw Inc., a Canadian corporation ("Laidlaw"), and
Laidlaw Transportation, Inc., a Delaware corporation ("LTI"), both of which are
together referred to in this Registration Agreement as the "Laidlaw Parties."
W I T N E S S E T H:
WHEREAS, under a Stock Purchase Agreement dated as of September 17, 1996
(the "Stock Purchase Agreement"), among Allied, the Laidlaw Parties and others,
Allied is this date issuing to the Laidlaw Parties (i) 14,600,000 shares (the
"Initial Common Shares") of Common Stock, $.01 par value per share ("Common
Stock"), of Allied, (ii) the Warrants (the "Warrants") for the purchase of
20,400,000 shares of Common Stock (subject to adjustment as provided in the
Warrants), a Zero Coupon Subordinated Debenture which may be redeemed using
Common Stock in certain events (the "Zero Coupon Debenture"), and a 7%
Subordinated Debenture which provides for the payment of interest at Allied's
option using shares of Common Stock and may be redeemed using Common Stock in
certain events (the "7% Debenture"); and
WHEREAS, the Stock Purchase Agreement requires that this Registration
Agreement be entered into among Allied and the Laidlaw Parties upon the
issuance to the Laidlaw Parties of such securities of Allied.
NOW, THEREFORE, Allied and the Laidlaw Parties (collectively, the
"Parties") agree that:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Registration Agreement:
"Canadian Securities Acts" means the applicable securities legislation
of each of the provinces and territories of Canada, and the regulations, rules
and policies made thereunder or issued by the Commissions administering such
legislation, as the same may hereafter be amended or replaced.
<PAGE> 318
"Commissions" means the securities commissions or similar regulatory
authorities of each of the provinces and territories of Canada and any
successor regulatory authorities having similar powers.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended, and the rules and regulations of the SEC promulgated under such
Act.
"Offering Expenses" means all expenses incidental to Allied's
performance of or compliance with its obligations under Section 2.2 in
connection with the qualification by prospectus of Registrable Securities under
any of the Canadian Securities Acts, including, without limitation, all filing
fees, all fees and expenses of complying with the applicable Canadian
Securities Acts, all printing and translation expenses, all fees and
disbursements of counsel to any Laidlaw Party and all fees and disbursements of
counsel to Allied and its auditors, including the expenses of any special
audits required by or incidental to such performance and compliance, and any
underwriting fees and commissions and applicable transfer taxes, if any,
relating to the distribution of the Registrable Securities.
"Registrable Securities" means (i) the Initial Common Shares, (ii) the
Warrant to purchase 20,400,000 shares of Common Stock issued by Allied to
Laidlaw (the "Allied Warrant") and any shares of Common Stock issued upon any
exercise or exercises of the Allied Warrant (the "Allied Warrant Shares"),
(iii) any shares of Common Stock issued pursuant to the Laidlaw Subscription
Agreement entered into by Allied and the Laidlaw Parties of even date herewith,
and (iv) any shares of Common Stock issued in connection with any stock
dividend on, or any stock split, reclassification or reorganization of, shares
of Common Stock referenced in subparagraphs (i), (ii) and (iii) above.
"SEC" means the United States Securities and Exchange Commission or any
successor agency.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated under such Act.
ARTICLE II
REGISTRATION RIGHTS
2.1. Incidental Rights. If at any time or from time to time Allied
proposes to file (i) with the SEC a registration statement (whether on Form
S-1, S-2, or S-3, or any equivalent form then in effect) for the registration
under the Securities Act of any shares of Common Stock for sale, or (ii) file a
prospectus under any of the
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Canadian Securities Acts in order to qualify a distribution under any of the
Canadian Securities Acts of any securities, for cash consideration, to the
public by Allied or on behalf of one or more shareholders of Allied (excluding
any sale of securities convertible into or exercisable for Common Stock, and
any shares of Common Stock issuable by Allied upon the exercise of employee
stock options, or to any employee stock ownership plan, or in connection with
any acquisition made by Allied, any securities exchange offer, dividend
reinvestment plan, employee benefit plan, corporate reorganization, or in
connection with any amalgamation, the merger or consolidation of Allied with
one or more other corporations if Allied is the surviving corporation), Allied
shall give the Laidlaw Parties at least 20 days' prior written notice of the
proposed filing (or if 20 days' notice is not practicable, a reasonable shorter
period to be not less than 7 days), which notice shall outline the nature of
the proposed distribution and the U.S. and Canadian jurisdictions in which
Allied proposes to qualify and offer such securities (the "Elected
Jurisdictions"). On the written request of a Laidlaw Party received by Allied
within 15 days after the date of Allied's delivery to the Laidlaw Parties of
the notice of intended registration (which request shall specify the
Registrable Securities sought to be disposed of by each Laidlaw Party and the
intended method or methods by which dispositions are intended to be made),
Allied shall, under the terms and subject to the conditions of this Article II,
(i) at its own expense as provided in Section 4.1, include in the coverage of
such U.S. registration statement (or in a separate U.S. registration statement
concurrently filed) and qualify for sale under the blue sky or securities laws
of the various states, and (ii) at the expense of the requesting Laidlaw
Parties as provided in section 4.2, use its best efforts to effect the
qualification of under the Canadian Securities Acts, in the Elected
Jurisdictions the number of Registrable Securities (herein called the
"Specified Securities") held by such Laidlaw Party, or which such Laidlaw Party
is entitled to purchase upon exercise of Warrant, and which such Laidlaw Party
has so requested to be registered or qualified for distribution, to the extent
requisite to permit the distribution (in accordance with the intended method or
methods thereof as aforesaid) in the Elected Jurisdictions requested by such
Laidlaw Party of such Registrable Securities.
If the distribution proposed to be effected by Allied involves an
underwritten offering of the securities being so distributed by or through one
or more underwriters, and if the managing underwriter of such underwritten
offering indicates in writing its reasonable belief that including all or part
of the Specified Securities in the coverage of such registration statement or
in the distribution to be effected by such prospectus will materially and
adversely affect the sale of securities proposed to be sold (which statement of
the managing underwriter shall also state the maximum number of shares, if any,
which can be sold by the Laidlaw Party requesting registration under this
Section 2.1 without materially adversely affecting the sale of the shares
proposed to be sold), then the number of Specified Securities which the
requesting Laidlaw Party shall have the right to include in such
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registration statement or to have qualified by such prospectus shall be reduced
to the maximum number of shares specified by the managing underwriter. In all
cases, priority shall be afforded to securities covered by a registration
statement and/or qualified for distribution by a prospectus filed in response
to the exercise of a demand registration or qualification right by another
holder of Common Stock and no securities proposed to be sold by such other
holder shall be so reduced until all securities proposed to be sold by all
other parties have been entirely eliminated. As to all other proposed selling
shareholders of Common Stock, including the Laidlaw Party requesting to include
Registrable Securities in the coverage of such a registration statement or
prospectus, any such reduction in the number of shares of Common Stock proposed
to be sold by the selling shareholders shall be effected on a pro rata basis in
accordance with the relationship which the number of shares of Common Stock
proposed to be sold by each selling shareholder bears to the number of shares
of Common Stock proposed to be sold by all selling shareholders. Until the
first anniversary of the date of this Registration Agreement, the Laidlaw
Parties agree that they will not exercise registration rights under this
Section 2.1 regarding any registration statement filed on behalf of TPG
Partners, L.P. or TPG Parallel I, L.P. by Allied pursuant to the Securities
Purchase Agreement by and between Allied and TPG dated October 27, 1994.
Allied shall have the sole right to select any underwriters, including
the managing underwriter, of any public offering of shares of Common Stock
subject to this Section 2.1. Nothing in this Section 2.1 shall create any
liability on the part of Allied to a Laidlaw Party if Allied for any reason
decides not to file or to delay or withdraw a registration statement or
preliminary prospectus or (final) prospectus (which Allied may do in its sole
discretion).
Each Laidlaw Party may request to have Common Stock included in an
unlimited number of registrations, and qualified by an unlimited number of
prospectuses, under this Section 2.1.
2.2. Mandatory Rights. Upon written request of a Laidlaw Party made
at any time after six months following the date of this Registration Agreement,
Allied shall, under the terms and subject to the conditions set forth in this
Section 2.2 and Sections 2.4 and 2.5, (i) file (and use its reasonable efforts
to cause to become effective) a U.S. registration statement covering, and use
its reasonable efforts to qualify for sale under the blue sky or securities
laws of the various U.S. states as may be requested by such Laidlaw Party
(except any such state in which, in the opinion of the managing underwriter of
the offering, the failure to so qualify would not materially and adversely
affect the proposed offering), and (ii) use its reasonable efforts to effect
the qualification for distribution under the Canadian Securities Acts, in
accordance with the intended method or methods of disposition set forth in that
notice, of such number of Registrable Securities, but not less than five
million
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shares, as may be designated by such Laidlaw Party in its request, or that
portion thereof designated in said request for registration or qualification in
each of the Designated Jurisdictions (as defined below). A request for
registration under this Section 2.2 shall specify the number of shares to be
registered, the United States and Canadian jurisdiction in which such
registration or qualification is to be effected (the "Designated
Jurisdictions") and the proposed manner of sale, including the name and address
of any proposed underwriter; provided, that all offerings contemplated by a
request for registration under this Section 2.2 shall be underwritten offerings
involving either a distribution of Registrable Shares to the public where no
single buyer, acting individually or with others, acquires more than 10% of
such offering, or a distribution by way of dividend or other distribution to
holders of Common Stock in the capital of Laidlaw where such dividend or other
distribution is made pro rata between the holders of all such classes of shares
according to the number of shares of either class held by each of them. The
principal underwriter or underwriters for any such offering shall be selected
by the Laidlaw Party requiring registration, subject to Allied's approval,
which may not be unreasonably withheld.
If the distribution proposed to be effected pursuant to this Section 2.2
involves an underwritten offering of the securities being so distributed by or
through one or more underwriters, and if the managing underwriter of such
underwritten offering indicates in writing its reasonable belief that including
all or part of the Registrable Securities in the coverage of such registration
statement or in the distribution to be effected by such prospectus will
materially and adversely affect the sale of the securities proposed to be sold,
then the number of securities proposed to be sold shall be reduced to the
maximum number of securities specified by the managing underwriter. In such a
case, priority shall be afforded to Registrable Securities and the securities
that are not Registrable Securities shall be completely eliminated before the
number of Registrable Securities is reduced.
Allied may delay the filing of any registration statement, or any
preliminary prospectus or (final) prospectus required to effect a qualification
for distribution, requested under this Section 2.2, or delay its effectiveness,
for a reasonable period (but not longer than 120 days) if, in the sole judgment
of Allied's Board of Directors, (i) a delay is necessary in light of pending
financing transactions, corporate reorganizations, or other major events
involving Allied, or (ii) filing at the time requested would materially and
adversely affect the business or prospects of Allied in view of disclosures
that may be thereby required. Once the cause of the delay is eliminated,
Allied shall promptly notify the Laidlaw Parties requiring registration or
qualification, and promptly after a Laidlaw Party notifies Allied to proceed,
Allied shall, as required in connection with the Designated Jurisdictions
selected by the relevant Laidlaw Parties, file a registration statement or a
preliminary prospectus and/or (final) prospectus and begin performance of its
other obligations under this Section 2.2.
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The Laidlaw Parties shall be entitled to request not more than five
registrations or qualifications under this Section 2.2 (provided that the
filing of a registration statement and a preliminary prospectus or (final)
prospectus in more than one Designated Jurisdictions in connection with a
concurrent or substantially concurrent distribution shall be deemed for the
purposes hereof to be a single registration and qualification); provided that
the Laidlaw Parties will be entitled to one more request under this Section 2.2
if they receive shares of Common Stock in payment of the principal amount of
the Allied Zero Coupon Junior Subordinated Debenture due 200__ and the Allied
7% Junior Subordinated Debenture due 200__; and provided further that only
three of such distributions may be used to register or qualify distributions of
the Warrants. However, if a Laidlaw Party requests a registration under this
Section 2.2, but no registration statement or (final) prospectus becomes
effective with respect to the Registrable Securities covered by such request,
then such request shall not count as a request for purposes of determining the
number of requests for registration or qualification the Laidlaw Parties may
make under this Section 2.2.
2.3. Registration Conditions. Notwithstanding any other provision of
this Registration Agreement, Allied shall not be required to effect a
registration or qualification of any securities under this Article II, or file
any post-effective amendment to such a registration or a prospectus relating to
such a qualification:
(a) unless the requesting Laidlaw Party agrees to (x) sell and
distribute a portion or all of its Registrable Securities in accordance
with the plan or plans of distribution adopted by and through
underwriters, if any, acting for Allied, and (y) bear a pro rata share
of underwriter's discounts and commissions;
(b) if a registration or qualification requested under Section
2.2, or any post-effective amendment to the registration statement
and/or prospectus filed in connection therewith, requires, under
applicable statutes and rules, a special audit (other than a normal
fiscal year-end audit) of any financial statements, unless the
requesting Laidlaw Party agrees to pay its proportionate share
(determined by the number of shares to be sold by such Laidlaw Party in
the offering in proportion to the total number of shares to be sold by
Allied and all other participants in such offering) of the reasonable
fees and expenses of accountants incurred in connection with the special
audit and which would otherwise not be incurred;
(c) if, in the case of a request for registration or
qualification under Section 2.1 or 2.2, in the opinion of counsel for
Allied and counsel for the Laidlaw Party requesting the registration or
qualification, as applicable, (i) the Registrable Securities for which
registration under the Securities Act has been
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requested may be disposed of without adversely affecting the market
price of such Registrable Securities within a comparable time frame
without registration under the Securities Act and (ii) upon such
disposition all legends on certificates representing such shares which
restrict their transfer under the Securities Act and applicable state
securities laws may be removed, and the sale by the applicable Laidlaw
Party of any Registrable Securities for which qualification for
distribution under any Canadian Securities Acts has been requested (i)
will not constitute a "distribution" (or the corresponding term) under
the applicable Canadian Securities Acts, or (ii) may be effected in the
method requested (or in a method having a substantially similar economic
effect, as to which such counsel may make any reasonable assumption for
the purposes of such opinion) without qualification by prospectus,
provided that the first trade of such Registrable Securities by the
purchaser thereof from the Laidlaw Party in such sale would not
constitute a "distribution" (or the corresponding term) under the
applicable Canadian Securities Acts (but for (A) any unusual effort made
to prepare the market or to create a demand for such securities made by
or on behalf of such purchaser, (B) any extraordinary commission or
consideration paid or to be paid in respect of such first trade, or (C)
such purchaser being a person described in clause (C) of the definition
of "distribution" set forth in section l(1) of the Securities Act
(Ontario) in relation to Allied (or any corresponding provision of any
other applicable Canadian Securities Act);
(d) if, in the case of a request for registration under
Section 2.2, (x) any registration statement or prospectus covering
securities regarding which a Laidlaw Party could have exercised
registration rights under Section 2.1 of this Registration Agreement has
become effective under the Securities Act or, with respect to a (final)
prospectus, a receipt has been issued therefor under the applicable
Canadian Securities Acts within six months preceding the date of such
request, (y) a registration statement or prospectus requested by a
Laidlaw Party pursuant to Section 2.2 has become effective under the
Securities Act or, with respect to a (final) prospectus, a receipt has
been issued therefor under the applicable Canadian Securities Acts
within twelve months preceding the date of such request, or (z) Allied
has given notice under Section 2.1 of its intention to file a
registration statement under the Securities Act or a prospectus under
any Canadian Securities Acts and has not completed or abandoned the
proposed offering; and
(e) unless Allied has received from the Laidlaw Party
requesting registration or qualification all information Allied has
reasonably requested concerning such Laidlaw Party and its method of
distribution of its Registrable Securities, so as to enable Allied to
include in the registration statement or prospectus all facts required
to be disclosed in it.
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2.4. Covenants and Procedures. If Allied becomes obligated under this
Article II to effect a registration or qualification of Registrable Securities
on behalf of a Laidlaw Party requesting registration or qualification under
this Article II (hereinafter called a "Selling Laidlaw Party"), then (as
applicable to the jurisdictions for which such registration or qualification is
to be made):
(a) Allied, (i) at its expense as provided in Section 4.1,
shall prepare and file with the SEC a registration statement covering
and, as applicable, (ii) at the expense of the requesting Laidlaw
Parties as provided in section 4.2, prepare and file with the applicable
Commissions (in the English and French languages, as applicable) a
preliminary prospectus qualifying, such securities and such other
related documents as may be necessary or appropriate relating to the
proposed distribution, and shall use reasonable efforts to cause the
registration statement to become effective and (with respect to Canadian
jurisdictions) to, after any comments of the Commissions have been
satisfied with respect thereto, prepare and file in accordance with the
relevant Canadian Securities Acts, a (final) prospectus in the English
and French languages, as appropriate, and receive receipts therefor and
shall take all other steps and proceedings that may be necessary in
order to qualify the applicable Registrable Securities for distribution
under such Canadian Securities Acts by registrants who comply with the
relevant provisions of such Canadian Securities Acts. Allied will also
(i) with respect to any U.S. registration statement, file such
post-effective amendments to the registration statement (and use
reasonable efforts to cause them to become effective) and such
supplements as are necessary so that current prospectuses are at all
times available for a period of at least 90 days after the effective
date of the registration statement or for such longer period, not to
exceed 180 days, as may be required under the plan or plans of
distribution set forth in the registration statement, and (ii) with
respect to any Canadian prospectus, file with the Commissions such
amendments and supplements to such preliminary prospectus and (final)
prospectus as may be necessary to comply with the provisions of the
Canadian Securities Acts applicable to the proposed distribution until
the earlier of (A) such time as all of Registrable Securities proposed
to be sold thereunder have been disposed of in accordance with the
intended method or methods of disposition by the seller or sellers
thereof, and (B) the expiration of a period of at least 90 days after
the issuance by the Commissions in all applicable Canadian jurisdictions
for the (final) prospectus or such longer period, not to exceed 180
days, as may be required under the plan or plans of distribution set
forth in such (final) prospectus. Each Selling Laidlaw Party shall
promptly provide Allied with such information with respect to such
Selling Laidlaw Party's Registrable Securities to be so registered and
qualified and, if applicable, the proposed terms of their offering, as
is required for the registration or qualification. If
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the Registrable Securities to be covered by the registration statement
and/or prospectus are not to be sold to or through underwriters acting
for Allied, Allied shall:
(x) deliver to each Selling Laidlaw Party, as promptly
as practicable, as many copies of preliminary prospectuses as
each Selling Laidlaw Party may reasonably request (in which case
each Selling Laidlaw Party shall keep a written record of the
distribution of the preliminary prospectuses and shall refrain
from delivery of the preliminary prospectuses in any manner or
under any circumstances which would violate the Securities Act,
the applicable Canadian Securities Acts or the securities laws of
any other jurisdiction, including the various states of the
United States);
(y) deliver to each Selling Laidlaw Party, as soon as
practicable after the effective date of the U.S. registration
statement, or, as applicable, the date on which all applicable
Commissions shall have issued a receipt for the Canadian (final)
prospectus, and from time to time thereafter during the
applicable period described in paragraph 2.4(a)(i) or (ii), as
many copies of the relevant prospectuses (including any (final)
prospectus as such Selling Laidlaw Party may reasonably request;
and
(z) in case of the happening, after the effective date
of the registration statement and during the applicable 90 or 180
day period described in the second sentence of paragraph 2.4(a),
of any event or occurrence as a result of which the prospectus
(including any preliminary prospectus or (final) prospectus), as
then in effect, would include an untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make any statement therein not misleading
in the light of the circumstances in which it was made, give each
Selling Laidlaw Party written notice of the event or occurrence
and prepare and furnish to each Selling Laidlaw Party, in such
quantities as it may reasonably request, copies of an amendment
of or a supplement to such prospectus as may be necessary so that
the prospectus, as so amended or supplemented and thereafter
delivered to purchasers of the securities, will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
it was made, not misleading.
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(b) Allied will notify the Laidlaw Parties of any action by
the SEC or any Commission to suspend the effectiveness of any
registration statement or prospectus filed pursuant hereto or the
initiation or threatened initiation of any proceeding for such purpose
or the receipt by Allied of any notification with respect to the
suspension of the qualification of the securities for sale in any
jurisdiction. Immediately upon receipt of any such notice, the Laidlaw
Parties shall cease to offer or sell any Registrable Securities pursuant
to the registration statement or prospectus in the jurisdiction to which
such order or suspension relates. Allied will also notify the Laidlaw
Parties promptly of the occurrence of any event or the existence of any
state of facts that, in the judgment of Allied, should be set forth in
such registration statement or prospectus. Immediately upon receipt of
such notice, the Laidlaw Parties shall cease to offer or sell any
Registrable Securities pursuant to such registration statement or
prospectus, cease to deliver or use such registration statement or
prospectus and, if so requested by Allied, return to Allied at Allied's
expense all copies of such registration statement or prospectus. Allied
will as promptly as practicable take such action as may be necessary to
amend or supplement such registration statement or prospectus in order
to set forth or reflect such event or state of facts and provide copies
of such proposed amendment or supplement to the Laidlaw Parties.
(c) On or before the date on which the registration statement
is declared effective, or a receipt is issued by all Commissions for the
(final) prospectus, Allied shall use its reasonable efforts to:
(i) register or qualify (and cooperate with each
Selling Laidlaw Party, the underwriter or underwriters, if any,
and their counsel, in connection with the registration or
qualification of) the securities covered by the registration
statement for offer and sale under the securities or blue sky
laws of each state and other U.S. or Canadian jurisdiction as any
Selling Laidlaw Party or underwriter reasonably requests;
(ii) use its reasonable efforts to keep each such
registration or qualification effective, including through new
filings, or amendments or renewals, during the period the
registration statement or prospectus is required to be kept
effective; and
(iii) do any and all other acts or things necessary or
advisable to enable the disposition in all such jurisdictions of
the Common Stock covered by the applicable registration statement
or prospectus, provided that Allied will not be required to
qualify
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generally to do business in any jurisdiction where it is not then
so qualified.
(d) Allied shall use its reasonable efforts to cause all
Registrable Securities of a Selling Laidlaw Party included in the
registration statement or qualified by prospectus to be listed, by the
date of the first sale of such shares pursuant to such registration
statement or prospectus, on each securities exchange on which the
securities is then listed or proposed to be listed, if any.
(e) Allied shall make generally available to each Selling
Laidlaw Party and any underwriter participating in the offering
conducted pursuant to the registration statement an earnings statement
satisfying Section 11(a) of the Securities Act no later than 45 days
after the end of the 12-month period beginning with the first day of
Allied's first fiscal quarter commencing after the effective date of the
registration statement. The earnings statement shall cover such
12-month period. This requirement will be deemed to be satisfied if
Allied timely files complete and accurate information on Forms 10-Q,
10-K, and 8-K under the Exchange Act, and otherwise complies with Rule
158 under the Securities Act as soon as feasible. In addition, in the
event that Allied shall have become a reporting issuer (or have the
corresponding status) under any of the Canadian Securities Acts, Allied
shall comply with the continuous disclosure obligations of a reporting
issuer (or the obligations attendant upon such corresponding status)
prescribed by each Canadian Securities Act under which it has such
status.
(f) Allied shall cooperate with each Selling Laidlaw Party and
the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be sold
under the registration statement or prospectus, and to enable such
securities to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or the Selling Laidlaw
Party, may request, subject to the underwriters' obligation to return
any certificates representing unsold securities.
(g) Allied shall use its reasonable efforts to cause
Registrable Securities covered by the registration statement or
prospectus to be registered with or approved by such other governmental
agencies or authorities in the U.S. or Canada (including the
registration of Registrable Securities under the Exchange Act) as may be
necessary to enable the Selling Laidlaw Parties or the underwriter or
underwriters, if any, to consummate the disposition of such securities.
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(h) Allied shall, during normal business hours and upon
reasonable notice, make available for inspection by each Selling Laidlaw
Party, any underwriter participating in any offering pursuant to the
registration statement or prospectus, and any attorney, accountant or
other agent retained by a Selling Laidlaw Party or any such underwriter
(collectively, the "Inspectors"), all nonconfidential financial and
other records, pertinent corporate documents, and properties of Allied,
as shall be reasonably necessary to enable the Inspectors to exercise
their due diligence responsibilities and as they may reasonably consider
to be necessary for the purpose of establishing their due diligence
defense (as applicable) as contemplated by the Canadian Securities Acts
and in order to enable any such underwriters to execute the certificate
on any prospectus required pursuant to any Canadian Securities Acts to
be executed by them. Allied shall also cause its officers, directors,
and employees to supply all nonconfidential information reasonably
requested by any Inspector in connection with the registration
statement.
(i) Allied shall use its reasonable efforts to obtain a "cold
comfort" letter and, as applicable, a "long-form comfort letter" from
Allied's independent public accountants, and an opinion of counsel for
Allied, each in customary form and covering such matters of the type
customarily covered by cold comfort letters and long form comfort
letters and legal opinions in connection with public offerings of
securities, as the Selling Laidlaw Party reasonably requests, and
consents from all parties from whom such consents would be required
under the applicable Canadian Securities Acts.
(j) Upon any public distribution of Allied Warrants (as
defined in the Purchase Agreement), Allied (i) shall make such changes
to the Allied Warrants as are reasonably necessary to effect such public
distribution and (ii) shall file a U.S. registration statement covering
the continuous offering of the Allied Warrant Shares pursuant to the
Allied Warrants.
ARTICLE III
INDEMNIFICATION
3.1. Indemnification by Allied. In the event of any registration or
qualification under the Securities Act or any Canadian Securities Act by any
registration agreement or prospectus pursuant to rights herein granted of
Registrable Securities held by a Laidlaw Party who becomes a Selling Laidlaw
Party, Allied will hold harmless such Selling Laidlaw Party and each
underwriter of such securities and each other person, if any, who controls such
Selling Laidlaw Party or such underwriter within the meaning of the Securities
Act, against any losses, claims,
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damages, or liabilities (including legal fees and costs of court), joint or
several, to which such Selling Laidlaw Party or such underwriter or controlling
person may become subject under the Securities Act, the applicable Canadian
Securities Acts or otherwise, insofar as such losses, claims, damages, or
liabilities (or any actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained, on its effective date, in any registration statement under which
such securities were registered under the Securities Act, or in any related
preliminary or (final) prospectus, or in any preliminary prospectus or (final)
prospectus under which such securities were qualified for distribution under
any Canadian Securities Act, or any amendment or supplement to any of the
foregoing, or which arise out of or are based upon the omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse such Selling
Laidlaw Party and each such underwriter and each such controlling person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, or liability;
provided, however, that Allied shall not be liable to such Selling Laidlaw
Party or its underwriters or controlling persons in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary or (final) prospectus, or such
amendment or supplement, in reliance upon and in conformity with information
furnished to Allied through a written instrument duly executed by such Selling
Laidlaw Party or such underwriter specifically for use in the preparation
thereof or results from any improper conduct of such Selling Laidlaw Party or
any such underwriter or controlling person.
3.2. Indemnification by Selling Laidlaw Parties. It shall be a
condition precedent to the obligation of Allied to include in any registration
statement or to qualify by prospectus any Registrable Securities of a Selling
Laidlaw Party that Allied shall have received from such Selling Laidlaw Party
an undertaking, reasonably satisfactory to Allied and its counsel, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
Section 3.1) Allied, each director of Allied, each officer of Allied who shall
sign the registration statement or prospectus, and any person who controls
Allied within the meaning of the Securities Act, (i) with respect to any
statement or omission from such registration statement, any related preliminary
or (final) prospectus, or any amendment or supplement to it, if such statement
or omission was made in reliance upon and in conformity with information
furnished to Allied through a written instrument duly executed by such Selling
Laidlaw Party specifically for use in the preparation of such registration
statement, preliminary or (final) prospectus, or amendment or supplement, and
(ii) with respect to compliance by such Selling Laidlaw Party with applicable
laws in effecting the sale or other disposition of the securities covered by
such registration statement.
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3.3. Indemnification Procedures. Promptly after receipt by an
indemnified party of notice of the commencement of any action involving a claim
referred to in the preceding Sections of this Article III, the indemnified
party will, if a resulting claim is to be made or may be made against an
indemnifying party, give written notice to the indemnifying party of the
commencement of the action. If any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense of the action with counsel reasonably satisfactory to
the indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume defense of the action, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses incurred by the latter in connection with the action's
defense. An indemnified party shall have the right to employ separate counsel
in any action or proceeding and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such indemnified party's expense
unless (a) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, which authorization shall not be
unreasonably withheld, (ii) the indemnifying party has not assumed the defense
and employed counsel reasonably satisfactory to the indemnified party within 30
days after notice of any such action or proceeding, or (iii) the named parties
to any such action or proceeding (including any impleaded parties) include the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnified party that are different from or additional to
those available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action or proceeding on
behalf of the indemnified party), it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to all local counsel which is necessary, in the good faith opinion of
both counsel for the indemnifying party and counsel for the indemnified party
in order to adequately represent the indemnified parties) for the indemnified
party and that all such fees and expenses shall be reimbursed as they are
incurred upon written request and presentation of invoices. Whether or not a
defense is assumed by the indemnifying party, the indemnifying party will not
be subject to any liability for any settlement made without its consent. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term the giving by the
claimant or plaintiff, to the indemnified party, of a release from all
liability in respect of such claim or litigation.
3.4. Contribution. If the indemnification required by this Article
III from the indemnifying party is unavailable to or insufficient to hold
harmless an indemnified party in respect of any indemnifiable losses, claims,
damages, liabilities,
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or expenses, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities, or expenses in such proportion as is appropriate to reflect (i)
the relative benefit of the indemnifying and indemnified parties and (ii) if
the allocation in clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect the relative benefit referred to in
clause (i) and also the relative fault of the indemnified and indemnifying
parties, in connection with the actions which resulted in such losses, claims,
damages, liabilities, or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or relates to information
supplied by, such indemnifying party or parties, and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damage, liabilities, and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding. Allied and the Laidlaw
Parties agree that it would not be just and equitable if contribution pursuant
to this Section 3.4 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the prior provisions of this Section 3.4.
Notwithstanding the provisions of this Section 3.4, no indemnifying
party shall be required to contribute any amount in excess of the amount by
which the total price at which the securities were offered to the public by the
indemnifying party exceeds the amount of any damages which the indemnifying
party has otherwise been required to pay by reason of an untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act or the Criminal Code (Canada)) shall be
entitled to contribution from any person who was not guilty of such a
fraudulent misrepresentation.
ARTICLE IV
OTHER AGREEMENTS
4.1. Other Registration Rights. Allied agrees that it will not grant
to any party registration rights which would allow such party to limit
Laidlaw's priority for the sale or distribution of Registrable Securities upon
the exercise of a mandatory registration right pursuant to Section 2.2.
4.2. Expenses. All expenses incurred by Allied in connection with any
U.S. registration statement covering Registrable Securities offered by a
Laidlaw
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Party, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel
(except for the fees and disbursements of counsel for such Laidlaw Party) and
of the independent certified public accountants (except, in the case of any
special audits, if required in connection with any such registration, such
Laidlaw Party's proportionate share of their expense as provided in Section
2.4), and the expense of qualifying such shares under state blue sky laws,
shall be borne by Allied; provided, however, that Allied shall not be required
to pay for any expenses of any registration proceeding begun pursuant to
Section 2.2 if the registration request is subsequently withdrawn at the
request of a Laidlaw Party (in which case such Laidlaw Party shall bear such
expenses), unless the Laidlaw Parties agree to forfeit their right to one
demand registration pursuant to Section 2.2; provided further, however, that if
at the time of such withdrawal, such Laidlaw Party has learned of a material
adverse change in the condition, business, or prospects of the Allied from that
known at the time of its request, then such Laidlaw Party shall not be required
to pay any of such expenses and shall retain its rights pursuant to Section
2.2. Allied's obligations under this Section 4.1 shall apply to each
registration under the Securities Act or state blue sky legislation pursuant to
Section 2.2. However, all underwriting expenses incurred by such Laidlaw
Party, including underwriter's discounts and commissions, shall be borne by
such Laidlaw Party.
4.3. Offering Expenses. The Laidlaw Party selling any Registrable
Securities pursuant to any prospectus filed with any Commission in connection
with the satisfaction by Allied of its obligations under Section 2.2 shall
reimburse Allied for all Offering Expenses reasonably incurred by or on behalf
of Allied upon receipt by such Laidlaw Party of a written request from Allied
in respect of same, together with invoices outlining in reasonable detail the
expenses to be borne by the Laidlaw Party or Laidlaw Parties. In addition, the
relevant Laidlaw Parties shall be responsible for any additional expenses
reasonably incurred by Allied as a result of such Laidlaw Parties'
participation in any offering proposed to be completed by Allied in any
Canadian jurisdiction as contemplated in Section 2.1 upon receipt by the
relevant Laidlaw Parties of a written request from Allied in respect of the
same, together with appropriate documentation outlining all expenses incurred
by Allied in respect of that distribution and the proportion of the same to be
borne by the relevant Laidlaw Parties, together with a brief explanation as to
the reasons why the expenses so charged to the Laidlaw Parties would not have
been incurred by Allied in the absence of the participation by the Laidlaw
Parties in that distribution.
4.4. Dispositions During Registration. The Laidlaw Parties and their
Affiliates hereby agree that from the date of receipt of written notice (the
"Offering Notice") from Allied that Allied intends to file a registration
statement or prospectus (the "Offering Registration Statement") covering shares
of Common Stock or
16
<PAGE> 333
securities convertible into or exercisable for Common Stock until the Offering
Termination Date (defined below), the Laidlaw Parties and their Affiliates will
not sell or otherwise dispose of any securities owned by such Laidlaw Party or
Affiliate except for Registrable Shares included in the Offering Registration
Statement. As used herein, the "Offering Termination Date" shall occur on (i)
the lapse of 60 days from the date of receipt of the Offering Notice if the
Offering Registration Statement is not declared effective (or, if the Offering
Registration Statement is a (final) prospectus to be filed under any Canadian
Securities Act, a receipt is not issued therefor by the applicable Commissions)
before such lapse, (ii) the lapse of 180 days from the date of effectiveness of
the Offering Registration Statement (or, if the Offering Registration Statement
is a (final) prospectus to be filed under any Canadian Securities Act, the date
a receipt has been issued therefor by all applicable Commissions) if any
Registrable Shares are included in the Offering Registration Statement, or
(iii) the lapse of 90 days from the date of effectiveness of the Offering
Registration Statement (or, if the Offering Registration Statement is a (final)
prospectus to be filed under any Canadian Securities Act, the date a receipt
has been issued therefor by all applicable Commissions) if no Registrable
Shares are included in the Offering Registration Statement.
4.5. Transfer of Rights. The incidental registration and
qualification rights or benefits of this Registration Agreement and no more
than one mandatory registration or qualification right, including
indemnification by Allied, shall be transferable by the Laidlaw Parties only
(i) in a transaction which is not a public offering or public distribution of
Common Stock or the Allied Warrant; (ii) if the transferee is not an Affiliate
of Laidlaw and (iii) if the transferee receives at least an aggregate of
2,000,000 shares of Common Stock or Warrants. In the case of any assignment,
the party or parties who have the rights and benefits of an assigning Laidlaw
Party under this Registration Agreement shall become parties to and be subject
to this Registration Agreement, and shall not, as a group, have the right to
request any greater number of registrations or qualifications than the
assigning Laidlaw Party would have had if no assignment had occurred. Upon any
transfer of the registration and qualification rights or benefits of this
Registration Agreement, the assigning Laidlaw Party shall give Allied written
notice prior to or promptly following such transfer stating the name and
address of the transferee and identifying the securities with respect to which
such rights are being assigned. Such notice shall include or be accompanied by
a written undertaking by the transferee to comply with the obligations imposed
hereunder. In the event any registration and qualification rights are
transferred in accordance with the terms hereof, any actions required to be
taken by the Laidlaw Parties will be taken with the approval of the holders of
such registration and qualification rights who hold a majority of the
Registrable Securities, whose actions shall bind all such holders of such
registration and qualification rights.
17
<PAGE> 334
4.6. Termination of Registration Rights. The Laidlaw Parties and
their permitted assigns shall be entitled to exercise any right provided for in
this Registration Agreement until six months after the twelfth anniversary of
the date of this Registration Agreement.
4.7. Multijurisdictional Disclosure System. Nothing in this
Registration Agreement shall be construed to limit or restrict in any manner
whatsoever the ability of Allied to make use of the Multijurisdictional
Disclosure System (as set forth in National Policy No. 45 of the Canadian
Securities Administrators) with respect to the qualification, distribution or
sale in Canada of any securities of Allied, including pursuant to request made
pursuant to Section 2.1 or Section 2.2 hereof.
ARTICLE V
MISCELLANEOUS
5.1. Notices. All notices or other communications which are required
or may be given under this Registration Agreement shall be in writing and shall
be deemed to have been duly given when delivered in person or transmitted by
telecopier (with receipt confirmed) to a party at the address or telecopy
number, as applicable, set forth below (as any such address or telecopier
number may be changed from time to time by notice similarly given):
(a) if to any Laidlaw Party, to:
Laidlaw Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3Y8
Attention: Ivan R. Cairns
Telecopier No.: (905) 332-6550
(b) if to Allied, to:
Allied Waste Industries, Inc.
7201 East Camelback Road, Suite 375
Scottsdale, Arizona 85251
Attention: Roger A. Ramsey
Telecopier No.: (602) 481-9347
18
<PAGE> 335
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana Street, 35th Floor
Houston, Texas 77002-2764
Attention: Robert G. Reedy
Telecopier No.: (713) 228-1331
5.2. Section Headings. The article and section headings in this
Registration Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Registration Agreement. References in this
Registration Agreement to a designated "Article" or "Section" refer to an
Article or Section of this Registration Agreement unless otherwise specifically
indicated.
5.3. Governing Law. This Registration Agreement shall be construed
and enforced in accordance with and governed by the law of Delaware.
5.4. Amendments. This Registration Agreement may be amended only by
an instrument in writing executed by all of its parties.
5.5. Entire Agreement. This Registration Agreement constitutes the
entire agreement between its parties concerning its subject matter.
5.6. Severability. The invalidity or unenforceability of any specific
provision of this Registration Agreement shall not invalidate or render
unenforceable any of its other provisions. Any provision of this Registration
Agreement held invalid or unenforceable shall be deemed reformed, if
practicable, to the extent necessary to render it valid and enforceable and to
the extent permitted by law and consistent with the intent of the parties to
this Registration Agreement.
5.7. Counterparts. This Registration Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute the same instrument.
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<PAGE> 336
IN WITNESS WHEREOF, the Parties have executed this Registration
Agreement as of the date first above written.
ALLIED WASTE INDUSTRIES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LAIDLAW INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LAIDLAW TRANSPORTATION, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
20
<PAGE> 337
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
CURRENT REPORT
Pursuant to Section 13 of 15(d)
of the Securities and Exchange Act of 1934
_______________________
Date of Report: October 7, 1996
CONTINENTAL CIRCUITS CORP.
(Exact name of registrant as specified in its charter)
Delaware 0-25554 86-0267198
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
3502 East Roeser Road, Phoenix, Arizona 85040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 268-3461
<PAGE> 338
Item 5. Other Events.
This Report contains forward-looking statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from the forward-looking
material. Factors which could cause or contribute to such differences include,
but are not limited to, the uncertainties associated with the ability of
management to integrate the two companies successfully, the timing and volume
of orders, product mix and capacity utilization. These factors are fully
discussed in the Companies' regular financial filings with the Securities and
Exchange Commission.
1. Sigma Acquisition Announced. Continental Circuits Corp. and Sigma
Circuits Inc. jointly signed a letter of intent whereby Continental Circuits
will acquire all the outstanding shares of Sigma Circuits in exchange for
Continental Circuits stock. Under the terms of the exchange, Sigma shareholders
would receive 0.70 shares of Continental Circuits stock for each share of Sigma
stock. For the fiscal year ended June 30, 1996, Sigma reported revenues of
$87.7 million while Continental reported revenues of $108.3 million for its
fiscal year ended July 31, 1996.
Located in Santa Clara, Calif., Sigma Circuits is a leading quick-turn
manufacturer of electronic interconnect products including multilayer printed
circuit boards ("PCBs"), backplane assemblies and flexible circuits.
Continental Circuits is a leading high-volume, high-technology manufacturer of
complex, multilayer PCBs. Each company's products are used by original
equipment manufacturers and contract manufacturing customers engaged in the
data communications, telecommunications, computer, peripherals, instrumentation
and medical segments of the electronics industry.
Drawing from a consolidated, complementary customer base, the combined
entity is expected to be well positioned to serve as a "one-stop" provider of
electronic interconnect products and services, offering both quick-turn and
volume PCB production, flexible circuits, backplane assemblies, sub-assemblies,
and complete systems. The combined entity is also expected to benefit from
enhanced technological, production and cost synergies. Subject to the execution
of a definitive agreement and regulatory and shareholder approval, the
acquisition is scheduled for completion by early calendar year 1997.
<PAGE> 339
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
CONTINENTAL CIRCUITS CORP.
Date: October 7, 1996 By: /s/Joseph G. Andersen
------------------------
Joseph G. Andersen
Chief Financial Officer
<PAGE> 340
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ALLIED WASTE INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS NOVEMBER ____, 1996
The undersigned hereby appoints Roger A. Ramsey and Thomas H. Van Weelden
as Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and vote, as designated below, all shares of Common Stock of
Allied Waste Industries, Inc. (the "Company") held of record by the undersigned
on October ____, 1996, at the Special Meeting of Stockholders to be held on
November ____, 1996 (the "Special Meeting") or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE.)
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
Please mark your
/ X / votes as in this
example.
1. Proposal to approve the Stock Purchase Agreement between the Company and
Laidlaw Inc., among others, dated September 17, 1996 and the transactions
contemplated thereby.
FOR AGAINST ABSTAIN
/ / / / / /
2. Proposal to approve the amendment to the Certificate of Incorporation of the
Company which increases the authorized number of shares of the Company's
common stock to 200 million.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, upon such other business as may properly come
before the Special Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES.
SIGNATURES: Date:
--------------------------------------------------- ----------
NOTE: Please sign exactly as name or names appear on stock
certificate (as indicated hereon.)
- - - --------------------------------------------------------------------------------
