<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Period Ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period
From ______________ to _________________
Commission file number 0-28652
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AMERICAN DISPOSAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3858494
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
745 McClintock - Ste 230
Burr Ridge, Illinois 60521
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(Address of principal executive offices) (Zip Code)
(630) 655-1105
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 24,351,888 shares as of August 12, 1998.
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998 (Unaudited) and
December 31, 1997
Condensed Consolidated Statements of Income - Three months ended June 30,
1998 and 1997 (Unaudited); Six months ended June 30, 1998 and 1997
(Unaudited)
Condensed Consolidated Statements of Cash Flows - Six months ended June 30,
1998 and 1997 (Unaudited)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,268 $ 2,426
Restricted cash held in escrow 1,499 337
Trade receivables, net 29,687 23,052
Prepaid expenses and other current assets 3,569 2,695
----------- ------------
Total current assets 56,023 28,510
Property, plant, and equipment, net 195,994 174,340
Other assets:
Cost over fair value of net assets of acquired businesses,
net of accumulated amortization of $6,535 and $3,635 296,351 157,304
Other assets 11,541 12,870
----------- ------------
$ 559,909 $ 373,024
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,638 $ 6,361
Accrued liabilities 19,093 13,283
Deferred revenues 7,035 5,785
Current portion of long-term debt and capital lease obligations 3,255 2,360
----------- ------------
Total current liabilities 39,021 27,789
Long-term debt and capital lease obligations, net of current portion 1,281 20,788
Accrued environmental and landfill costs 12,878 12,450
Deferred income taxes 2,577 2,577
Other long-term liabilities 15,844 12,045
Total stockholders' equity (24,351,888 and 19,323,100
shares of common stock issued and outstanding) 488,308 297,375
----------- ------------
$ 559,909 $ 373,024
=========== ============
</TABLE>
See accompanying notes.
3
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $52,625 $27,763 $97,655 $46,274
Cost of operations 29,393 15,188 54,159 25,080
Selling, general and administrative expenses 5,903 3,672 11,111 6,357
Depreciation and amortization 7,561 5,272 14,484 9,056
------- ------- ------- -------
Operating income 9,768 3,631 17,901 5,781
Net interest income (expense) 137 (1,906) (743) (3,458)
Other income 144 88 227 109
------- ------- ------- -------
Income before income taxes 10,049 1,813 17,385 2,432
Income tax expense 3,919 577 6,780 750
------- ------- ------- -------
Net income $ 6,130 $ 1,236 $10,605 $ 1,682
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE $ 0.27 $ 0.11 $ 0.49 $ 0.16
======= ======= ======= =======
DILUTED EARNINGS PER COMMON SHARE $ 0.26 $ 0.10 $ 0.47 $ 0.16
======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,605 $ 1,682
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 14,484 9,056
Provision for environmental and landfill costs 282 263
Gain on sale of fixed assets (209) (13)
Changes in operating assets and liabilities, net of effects
from acquisitions:
Trade receivables (4,051) (5,112)
Prepaid expenses and other assets (500) (2,559)
Accounts payable, accrued liabilities and accrued environmental
and landfill costs 910 2,093
Deferred revenue 754 908
Other long term liabilities 3,799 -
-------- --------
Net cash provided by operating activities 26,074 6,318
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (14,944) (9,416)
Cost of acquisitions (39,658) (60,607)
-------- --------
Net cash used in investing activities (54,602) (70,023)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 71,423 70,093
Exercise of common stock options 1,355 1
Proceeds from issuance of long-term debt 21,926 68,348
Repayments of indebtedness (47,334) (73,899)
Debt issuance costs - (973)
-------- --------
Net cash provided by financing activities 47,370 63,570
-------- --------
Net increase (decrease) in cash and cash equivalents 18,842 (135)
Cash and cash equivalents, at beginning of period 2,426 2,301
-------- --------
Cash and cash equivalents, at end of period $ 21,268 $ 2,166
======== ========
NONCASH ACTIVITIES:
Issuance of common stock for certain acquisitions $107,550 $ -
Issuance of notes payable for certain acquisitions - 2,598
Consideration held back or held in escrow for certain acquisitions 4,637 5,005
</TABLE>
See accompanying notes.
5
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
1. FORMATION AND BASIS OF PRESENTATION
American Disposal Services, Inc. (the "Company") is a regional,
integrated, non-hazardous solid waste services company that provides solid waste
collection, transfer and disposal services primarily in the Midwest and in the
Northeast.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1998. These financial
statements should be read in conjunction with the consolidated financial
statements, including the notes thereto, for the fiscal year ended December 31,
1997 included in the Company's Annual Report on Form 10-K/A.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. ENVIRONMENTAL MATTERS
See the Company's Annual Report on Form 10-K/A for a description of
environmental matters.
3. EARNINGS PER SHARE
The following table sets forth the computation of earnings per common
share (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 6,130 $ 1,236 $10,605 $ 1,682
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per
common share-weighted average
shares outstanding 22,856,152 11,531,842 21,709,012 10,209,494
Effect of dilutive securities:
Stock options and warrants 887,445 538,668 888,296 509,933
---------- ---------- ---------- ----------
Denominator for diluted earnings per
common share-adjusted weighted
average shares and assumed
conversions 23,743,597 12,070,510 22,597,308 10,719,427
========== ========== ========== ==========
</TABLE>
6
<PAGE>
4. PUBLIC OFFERINGS
In May 1997, the Company issued 4,600,000 shares of common stock at
$16.50 per share in a public offering. Proceeds from the offering, net of
underwriting commissions and related expenses, were $70.1 million. The offering
proceeds were used to finance acquisitions and pay down a portion of the
Company's Credit Facility.
In October 1997, the Company completed a public offering of 6,837,000
shares of common stock at $30.50 per share. Of the 6,837,000 shares, 4,325,000
shares were issued and sold by the Company and 2,512,000 shares were sold by
selling stockholders. Proceeds to the Company from the offering, net of
underwriting commissions and related expenses, were $123.8 million. The offering
proceeds were used to finance acquisitions and pay down a portion of the
Company's Credit Facility.
In April 1998, the Company completed a public offering of 4,600,000
shares of common stock of which approximately 2.1 million were issued and sold
by the Company and approximately 2.5 million were sold by certain selling
stockholders, at $36.50 per share. This resulted in net proceeds to the Company
of approximately $71.4 million. A portion of the offering proceeds were used to
pay down the Company's Credit Facility and the balance will be used to fund
future acquisitions.
5. ACQUISITIONS
The acquisitions below have been accounted for using the purchase
method of accounting and, accordingly, the results of their operations have been
included in the Company's results of operations from their respective
acquisition dates. The purchase prices have been allocated to the assets
acquired and liabilities assumed based on their fair values at their respective
acquisition dates with the residual allocated to cost over fair value of net
assets acquired.
During the first six months of 1998, the Company acquired 21
non-hazardous solid waste businesses, consisting of 21 hauling companies and 3
transfer stations. During 1997, the Company acquired 28 non-hazardous solid
waste businesses, consisting of 28 collection operations, seven transfer
stations, four landfills, and two beneficial reuse facilities.
The Company has not completed its valuation of certain of its 1998 and
1997 purchases and the purchase price allocations may be subject to change when
additional information concerning asset and liability valuations is completed.
The pro forma unaudited results of operations for the three and six
months ended June 30, 1998 and 1997, assuming each acquisition and the public
offerings in footnote 4 (above) had occurred on January 1, 1997, are as follows
(dollars in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $57,212 $56,821 $109,409 $105,853
Operating income 10,158 7,285 18,898 13,847
Net income 6,339 4,725 11,594 8,943
Proforma net income per diluted share of
common stock 0.25 0.19 0.46 0.36
Weighted average common stock
outstanding, assuming dilution 25,287,202 24,775,250 25,239,383 24,746,491
</TABLE>
The proforma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred on
January 1, 1997 nor are they necessarily indicative of future operating results.
7
<PAGE>
6. SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
7. SUBSEQUENT EVENT
The Company and Allied Waste Industries, Inc. ("Allied") entered into a
definitive merger agreement on August 10, 1998. Under the terms of the
agreement, the Company's shareholders will receive 1.65 shares of Allied common
stock for each share of the Company's common stock. Allied anticipates issuing
approximately 40.7 million shares in the transaction, based on the closing price
of its common stock on August 10, 1998. The merger is expected to be completed
in the fourth quarter 1998. See Item 5 of Part II.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited Condensed Consolidated Financial Statements and the related notes
thereto included elsewhere herein.
INTRODUCTION
The Company has adopted an acquisition-based growth strategy that focuses
on: (i) the identification and acquisition of solid waste landfills located in
secondary markets that are within approximately 125 miles of significant
metropolitan centers; and (ii) securing dedicated waste streams for such
landfills by the acquisition or development of transfer stations and the
acquisition of collection companies. The Company has completed 82 acquisitions
from January 1993 through June 1998, including 21 hauling companies and 3
transfer stations acquired in the six months ended June 30, 1998 (the "1998
Acquisitions"). All of these acquisitions were accounted for under the purchase
method of accounting for business combinations. Accordingly, the amortization of
goodwill reflects the fair market value of the Company's assets at the time of
their acquisition rather than their historical cost basis, and the results of
operations for such acquired businesses are included in the Company's financial
statements only from the applicable date of acquisition. As a result, the
Company believes its historical results of operations for the periods presented
are not directly comparable.
FORWARD LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation information appearing under Part I, Item 2,
"Managements' Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors set forth under the caption "Risk Factors" in the Company's
Annual Report on Form 10K/A could affect the Company's actual results and could
cause the Company's actual results to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company in this
Quarterly Report on Form 10-Q.
GENERAL
The Company's revenues are attributable primarily to fees charged to
customers for waste collection, transfer and disposal services. The Company'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 one to five years and commonly
have automatic renewal options. A relatively small portion of such agreements
also provide for the prepayment of certain fees, which are reflected as deferred
revenues. The table below shows for the periods indicated, the percentage of the
Company's total revenues attributable to services provided:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Collection (1) 60.0% 52.3% 60.5% 51.0%
Transfer 11.3 3.7 10.4 3.7
Landfill (1) 25.3 43.1 25.8 44.4
Other 3.4 0.9 3.3 0.9
-------- -------- -------- --------
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 the Company and disposed of at the Company's landfills has
been excluded from collection revenues and included in landfill revenues.
A component of the Company's business strategy is to maximize
internalization of the waste it collects and thereby realize higher margins
from its operations. By disposing of waste at Company-owned landfills, the
Company retains the margin generated through disposal operations that would
otherwise be earned by third-party landfills. For
9
<PAGE>
the three months ended June 30, 1998, approximately 73% of the total tonnage
collected by the Company was disposed of at Company-owned landfills. For the six
months ended June 30, 1998, approximately 75% of the total tonnage collected by
the Company was disposed of at Company-owned landfills. Excluding the New
England region where the Company does not own a landfill, approximately 88% and
90% of the total tonnage collected by the Company was disposed of at Company
owned landfills for the three and six months ended June 30, 1998, respectively.
During the three months ended June 30, 1998, the Company's captive waste
(consisting of waste collected by the Company and delivered to any of its
landfills and waste delivered to any of the Company's landfills by third-party
haulers under long-term collection contracts) constituted an average of
approximately 80% of the solid waste disposed of at its landfills.
The Company has estimated that, as of December 31, 1997, closure costs
expected to occur during the operating lives of these facilities and expensed
over these facilities' useful lives will approximate $17.3 million. In addition,
the Company has estimated that, as of December 31, 1997, total costs for
post-closure activities, including cap maintenance, groundwater monitoring,
methane gas control and recovery and leachate treatment/disposal for up to 30
years after closure in certain cases, will be approximately $54.4 million. The
accruals reflect relatively young landfills with estimated remaining lives,
based on current waste flows, that range from approximately three to 50 years,
and an estimated average remaining life of greater than 20 years.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's consolidated
statement of operations as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues...................................... 100.0% 100.0% 100.0% 100.0%
Cost of operations............................ 55.9 54.7 55.4 54.2
Selling, general and administrative expenses 11.2 13.2 11.4 13.7
Depreciation and amortization expenses........ 14.3 19.0 14.9 19.6
------ ------ ------ ------
Operating income.............................. 18.6 13.1 18.3 12.5
Net interest income (expense)................. 0.2 (6.9) (0.7) (7.5)
Other income.................................. 0.3 0.3 0.2 0.2
Income tax provision.......................... 7.5 2.1 6.9 1.6
------ ------ ------ ------
Net income.................................. 11.6% 4.4% 10.9% 3.6%
====== ====== ====== ======
EBITDA margin (1) 32.9% 32.1% 33.2% 32.1%
====== ====== ====== ======
</TABLE>
(1) EBITDA margin represents operating income plus depreciation and
amortization divided by revenues.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES. Revenues for the three months ended June 30, 1998 were $52.6
million compared to $27.8 million for the three months ended June 30, 1997. Of
the increase in revenues, $23.3 million is due primarily to the effects of
companies acquired during 1997 and the first two quarters of 1998, while
approximately $1.5 million is attributable to increases in revenues in
operations owned more than twelve months.
COST OF OPERATIONS. Cost of operations for the three months ended June 30,
1998 was $29.3 million compared to $15.2 million for the three months ended June
30, 1997. This increase in costs was attributable primarily to increases in the
Company's revenues described above. As a percentage of revenues, cost of
operations was 55.9% in
10
<PAGE>
the 1998 period compared to 54.7% in the 1997 period. The increased costs as a
percentage of the Company's overall revenue are due to the impact of more
substantial collection versus landfill operations in the 1998 period compared to
the same period in 1997. Collection operations generally have higher operating
costs than landfill operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.9
million for the three months ended June 30, 1998 compared to $3.7 million for
the three months ended June 30, 1997. This increase in costs was attributable
primarily to increases in the Company's revenues described above. As a
percentage of revenues, SG&A expenses decreased to 11.2% in the 1998 period from
13.2% in the 1997 period. The decrease in SG&A expenses as a percentage of
revenues is due primarily to a significant increase in revenue producing assets,
while corporate and other related administrative expenses increased moderately.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the three months ended June 30, 1998 was $7.6 million compared to $5.3 million
for the three months ended June 30, 1997. The increase in depreciation and
amortization expense is due primarily to the Company's growth through
acquisitions. As a percentage of revenues, depreciation and amortization expense
was 14.3% and 19.0% for the three months ended June 30, 1998 and 1997,
respectively. The decline as a percent of revenues in the three months ended
June 1998 compared to the three months ended June 1997 is due primarily to the
reduction in the relative concentration of landfill assets, which typically have
higher depreciation and amortization expense than collection operations.
NET INTEREST INCOME/EXPENSE. Net interest income was $137,000 for the three
months ended June 30, 1998 compared to net interest expense of $1.9 million for
the three months ended June 30, 1997. During the quarter, funds received from
the April 1998 common stock offering were used to pay off the Company's Credit
Facility borrowings and resulted in a net cash position which generated interest
income in excess of interest expense on the Company's remaining borrowings.
INCOME TAXES. The Company recorded an income tax provision of $3.9 million
for the three months ended June 30, 1998 compared to a provision of $577,000 for
the three months ended June 30, 1997, reflecting the increased taxable income
generated, partially offset by utilization of net operating loss carryforwards.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES. Revenues for the six months ended June 30, 1998 were $97.7
million compared to $46.3 million for the three months ended June 30, 1997. Of
the increase in revenues, $48.2 million is due primarily to the effects of
companies acquired during 1997 and the first two quarters of 1998, while
approximately $3.2 million is attributable to increases in revenues in
operations owned more than twelve months.
COST OF OPERATIONS. Cost of operations for the six months ended June 30,
1998 were $54.2 million compared to $25.1 million for the six months ended June
30, 1997. This increase was attributable primarily to the increase in revenues
described above. As a percentage of revenues, cost of operations was 55.4% in
the 1998 period compared to 54.2% in the 1997 period. The increased costs as a
percentage of the Company's overall revenues are due to the impact of more
substantial collection versus landfill operations in the 1998 period compared to
the same period in 1997. Collection operations generally have higher operating
costs than landfill operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to
$11.1 million for the six months ended June 30, 1998 compared to $6.4 million
for the six months ended June 30, 1997. As a percentage of revenues, SG&A
expenses decreased to 11.4% in the 1998 period from 13.7% in the 1997 period.
The decrease in SG&A expenses as a percentage of revenues is due primarily to a
significant increase in revenue producing assets, while corporate and other
related administrative expenses increased moderately.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the six months ended June 30, 1998 was $14.5 million compared to
$9.1 million for the six months ended June 30, 1997. The increase in
depreciation and amortization expense is due primarily to the Company's growth
through acquisitions. As a percentage of revenues, depreciation and amortization
expense was 14.9% and 19.6% for the six months ended June 30, 1998 and 1997,
respectively. The decline as a percentage of revenues in the June 1998 period
compared to the
11
<PAGE>
June 1997 period is due primarily to the diminished concentration of landfill
assets, which typically have higher depreciation and amortization expense than
collection operations.
NET INTEREST EXPENSE. Net interest expense was $743,000 for the six months
ended June 30, 1998 compared to $3.5 million for the six months ended June 30,
1997. This decrease is attributable lower borrowings outstanding during the
respective periods.
INCOME TAXES. The Company recorded an income tax provision of $6.8 million
for the six months ended June 30, 1998 and an income tax provision of $750,000
for the six months ended June 30, 1997, reflecting the increased taxable income
generated, partially offset by utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Due to the capital intensive nature of the solid waste industry and the
Company's focus on an acquisition-based growth strategy, the Company has used,
and expects to continue using, substantially all cash generated from operations
to fund acquisitions, capital expenditures and landfill development.
Historically, the Company has satisfied its acquisition, capital expenditure and
working capital needs primarily through equity and bank financings. There can be
no assurance that such financing will continue to be available.
Net cash provided by operating activities was $26.1 million and $6.3
million for the six months ended June 30, 1998 and 1997, respectively. This
increase was due primarily to acquisition related activities which resulted in
an improvement in net income to $10.6 million in the six months ended June 30,
1998 compared to $1.7 million in the six months ended June 30, 1997. Additional
net cash was provided by non-cash depreciation and amortization expense
increasing $5.4 million and long term liabilities increasing $3.8 million over
the prior period.
Net cash used in investing activities was $54.6 million and $70.0 million
in the six months ended June 30, 1998 and 1997, respectively. The Company's
capital expenditures increased to $14.9 million from $9.4 million in the prior
year period due to a higher revenue producing asset base. While acquisition
spending increased as compared to the prior period, acquisitions funded with
cash decreased to $39.7 million from $60.6 million, for the six months ended
June 30, 1998 and 1997, respectively, as the Company increased its use of equity
to finance acquisitions. In fiscal year 1998, the Company expects to spend
approximately $29 million for capital expenditures, on operations owned as of
January 1, 1998, of which approximately $9 million is anticipated to be used for
cell development.
Net cash provided by financing activities totaled $47.4 million for the six
months ended June 30, 1998, compared to $63.6 million for the comparable prior
year period, reflecting borrowings of $21.9 million in 1998 under the Company's
Credit Facility to fund acquisitions. Repayments under the Company's Credit
Facility totaled $47.3 million, funded primarily by the net proceeds of $71.4
million from the April 1998 offering of common stock.
The Company currently has a $140 million revolving credit facility (the
"Credit Facility") with ING (U.S.) Capital Corporation, as administrative agent,
Morgan Guaranty Trust Company of New York, as syndication agent, Union Bank of
California, N.A., as documentation agent, and BHF-Bank Aktiengesellschaft and
Bank of America Illinois, as co-agents, for the lenders. The Credit Facility
provides the Company with a revolving line of credit of $140 million to be used
for acquisitions (of which $20 million may be used for working capital and
letter of credit purposes). The Credit Facility bears interest at rates per
annum equal to, at the Company's discretion, either: (i) the higher of (a) the
federal funds rate plus 0.5% and (b) the prime rate, plus an applicable margin
or (ii) the London Interbank Offered Rate ("LIBOR"), plus an applicable margin,
and matures in 2002. As of June 30, 1998 the Company had no outstanding
borrowings under the Credit Facility.
Effective April 3, 1998, the Company completed a public offering of 4.6
million shares of common stock of which approximately 2.1 million were issued
and sold by the Company and approximately 2.5 million were sold by certain
selling stockholders, at $36.50 per share. This resulted in net proceeds to the
Company of approximately $71.4 million. A portion of the offering proceeds were
used to pay down the Company's Credit Facility and the balance will be used to
fund future acquisitions.
12
<PAGE>
The Company intends to satisfy its interest obligations as well as future
capital expenditures and working capital requirements, with cash flows from
operations and borrowings under the Credit Facility. However, the Company may
need to raise additional capital to fund the acquisition and integration of
additional solid waste businesses. The Company may raise such funds through bank
financings or public or private offerings of its securities. There can be no
assurance that the Company will be able to secure such funding, if necessary, on
favorable terms, if at all. If the Company is not successful in securing such
funding, the Company's ability to pursue its business strategy may be impaired
and results of operations for future periods may be adversely affected.
The Company expects that Subtitle D and other regulations that apply to the
non-hazardous waste disposal industry will require the Company, 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.
Regulatory changes could accelerate expenditures for closure and post-closure
monitoring and obligate the Company to spend sums in addition to those presently
reserved for such purposes. The factors, together with the other factors
discussed above, could substantially increase the Company's operating costs.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's contracts
provide for a pass through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company therefore believes it
should be able to implement price increases sufficient to offset most cost
increases resulting from inflation. However, competitive factors may require the
Company to absorb at least a portion of these cost increases, particularly
during periods of high inflation. The Company is unable to determine the future
impact of a sustained economic slowdown.
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 23, 1998, the annual meeting of the stockholders of the Company was
held. The holders of 19,202,929 shares of common stock were present in person or
represented by proxy at the meeting. At the meeting, stockholders voted on the
following matters:
Election of Directors
The stockholders elected the following persons to serve as directors of the
Company until the next annual meeting of stockholders, and until their
successors are duly elected and qualified. Votes were cast as follows:
<TABLE>
<CAPTION>
VOTES
VOTES FOR WITHHELD
---------- --------
<S> <C> <C>
Richard De Young 18,860,179 342,750
Stephen P. Lavey 18,929,979 272,950
G.T. Blankenship 18,937,529 265,400
Robert S. Hillas 18,937,979 264,950
Douglas A. Pertz 18,937,979 264,950
Stephen W. Rubin 18,937,979 264,950
</TABLE>
Approval of the Amended and Restated 1996 Stock Option Plan
The Amended and Restated 1996 Stock Option Plan was approved by the
following vote: For, 13,743,733; Against, 4,618,384; and Abstain, 15,756.
Ratification of the reappointment of Ernst & Young LLP as independent
accountants
Ernst & Young LLP was reappointed as independent accountants by the
following vote: For, 19,189,179; Against, 265; and Abstain, 13,485.
Item 5. Other Events
On August 10, 1998, Allied Waste Industries, Inc., a Delaware corporation
("Allied"), AWIN II Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Allied ("AWIN"), and the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") which provides, among
other things, that on the terms and subject to the conditions thereof, AWIN
will be merged with and into the Company (the "Merger"), the Company will
become a wholly-owned subsidiary of Allied, and each outstanding share of
common stock of the Company ("ADS Common Stock") will be converted into 1.65
shares of common stock of Allied. In addition, Allied and the Company entered
into a Stock Option Agreement, dated August 10, 1998 (the "Option Agreement"),
pursuant to which Allied has been granted an option (the "Option") to purchase
4,000,000 shares of ADS Common Stock at a price of $40.00 per share
(representing approximately 16.23% of the shares of ADS Common Stock
outstanding as of June 30, 1998). The Option may be exercised only in the event
that the Merger Agreement is terminated and Allied becomes entitled to receive
a Termination Fee (as defined in the Merger Agreement).
Consummation of the Merger is subject to a number of conditions, including
obtaining the approval of the stockholders of Allied and the Company to the
Merger, as well as to the expiration or termination of the applicable
Hart-Scott-Rodino waiting period.
Copies of the Merger Agreement (without exhibits) and the Option Agreement
are filed herewith as exhibits and are incorporated herein by reference.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: The exhibits as filed as part of this report are listed in
the Exhibit Index hereto.
b. Reports on Form 8-K: none
15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN DISPOSAL SERVICES, INC.
Date: August 14, 1998 /s/ Stephen P. Lavey
------------------------------------------
Stephen P. Lavey
Vice President and Chief Financial Officer
16
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
EXHIBIT INDEX
Number and Description of Exhibit
2.1* Agreement and Plan of Merger, dated August 10, 1998, by and
among Allied, AWIN II, and the Company.
10.1 Stock Option Agreement, dated August 10, 1998, between Allied
and the Company.
27.1 Financial Data Schedule (filed electronically, only).
*The exhibits to the Agreement and Plan of Merger are not being filed
herewith because the Company believes that the information contained in such
exhibits should not be considered material to an investment decision in the
Company or such information is otherwise adequately disclosed in this Form 10-Q
or such Agreement and Plan of Merger. The Agreement and Plan of Merger
identifies internally the contents of all omitted exhibits. The Company agrees
to furnish supplementally (but not to "file") a copy of any such exhibit to the
Commission upon request.
17
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
Dated as of August 10, 1998
By and among
ALLIED WASTE INDUSTRIES, INC.
AWIN II Acquisition Corporation
and
AMERICAN DISPOSAL SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.................................................... 1
SECTION 1.1 The Merger.............................................. 1
SECTION 1.2 Effective Time of the Merger............................ 1
ARTICLE II THE SURVIVING AND PARENT CORPORATIONS........................ 1
SECTION 2.1 Certificate of Incorporation............................ 1
SECTION 2.2 Bylaws.................................................. 2
SECTION 2.3 Directors............................................... 2
SECTION 2.4 Officers................................................ 2
ARTICLE III CONVERSION OF SHARES........................................ 2
SECTION 3.1 Conversion of Company Shares in the Merger.............. 2
SECTION 3.2 Conversion of Subsidiary Shares......................... 2
SECTION 3.3 Exchange of Certificates................................ 3
SECTION 3.4 No Fractional Securities................................ 4
SECTION 3.5 Closing................................................. 4
SECTION 3.6 Closing of the Company's Transfer Books................. 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY..... 5
SECTION 4.1 Organization and Qualification.......................... 5
SECTION 4.2 Capitalization.......................................... 5
SECTION 4.3 Subsidiaries............................................ 6
SECTION 4.4 Authority; Non-Contravention; Approvals................. 7
SECTION 4.5 Reports and Financial Statements........................ 8
SECTION 4.6 Absence of Undisclosed Liabilities...................... 8
SECTION 4.7 Absence of Certain Changes or Events.................... 9
SECTION 4.8 Litigation.............................................. 9
SECTION 4.9 Registration Statement and Proxy Statement.............. 9
SECTION 4.10 No Violation of Law..................................... 9
SECTION 4.11 Compliance with Agreements.............................. 10
SECTION 4.12 Taxes................................................... 10
SECTION 4.13 Employee Benefit Plans; ERISA........................... 11
SECTION 4.14 Labor Controversies..................................... 12
SECTION 4.15 Environmental Matters................................... 12
SECTION 4.16 Non-competition Agreements.............................. 13
SECTION 4.17 Title to Assets......................................... 14
SECTION 4.18 Reorganization and Pooling of Interests................. 14
SECTION 4.19 Parent Stockholders' Approval........................... 14
SECTION 4.20 Brokers and Finders..................................... 14
SECTION 4.21 Opinion of Financial Advisor............................ 15
SECTION 4.22 Ownership of Company Common Stock....................... 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 15
i
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SECTION 5.1 Organization and Qualification.......................... 15
SECTION 5.2 Capitalization.......................................... 15
SECTION 5.3 Subsidiaries............................................ 16
SECTION 5.4 Authority; Non-Contravention; Approvals................. 16
SECTION 5.5 Reports and Financial Statements........................ 18
SECTION 5.6 Absence of Undisclosed Liabilities...................... 18
SECTION 5.7 Absence of Certain Changes or Events.................... 18
SECTION 5.8 Litigation.............................................. 18
SECTION 5.9 Registration Statement and Proxy Statement.............. 19
SECTION 5.10 No Violation of Law..................................... 19
SECTION 5.11 Compliance with Agreements.............................. 19
SECTION 5.12 Taxes................................................... 20
SECTION 5.13 Employee Benefit Plans; ERISA........................... 20
SECTION 5.14 Labor Controversies..................................... 22
SECTION 5.15 Environmental Matters................................... 22
SECTION 5.16 Non-competition Agreements.............................. 22
SECTION 5.17 Title to Assets......................................... 23
SECTION 5.18 Reorganization and Pooling of Interests................. 23
SECTION 5.19 Company Stockholders' Approval.......................... 23
SECTION 5.20 Brokers and Finders..................................... 23
SECTION 5.21 Opinion of Financial Advisor............................ 23
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER....................... 24
SECTION 6.1 Conduct of Business by the Company Pending the Merger... 24
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending
the Merger............................................ 26
SECTION 6.3 Control of the Company's Operations..................... 27
SECTION 6.4 Control of Parent's Operations.......................... 27
SECTION 6.5 Acquisition Transactions................................ 27
ARTICLE VII ADDITIONAL AGREEMENTS...................................... 29
SECTION 7.1 Access to Information................................... 29
SECTION 7.2 Registration Statement and Proxy Statement.............. 29
SECTION 7.3 Stockholders' Approvals................................. 30
SECTION 7.4 Compliance with the Securities Act...................... 30
SECTION 7.5 Exchange Listing........................................ 31
SECTION 7.6 Expenses and Fees....................................... 31
SECTION 7.7 Agreement to Cooperate.................................. 32
SECTION 7.8 Public Statements.......................................... 32
SECTION 7.9 Notification of Certain Matters......................... 32
SECTION 7.10 Directors' and Officers' Indemnification................ 33
SECTION 7.11 Corrections to the Joint Proxy Statement/Prospectus
and Registration Statement............................ 34
SECTION 7.12 Employment and Consulting Agreements.................... 34
ii
<PAGE>
ARTICLE VIII CONDITIONS................................................ 35
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................ 35
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger................................................ 36
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary
to Effect the Merger.................................. 36
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................... 37
SECTION 9.1 Termination............................................. 37
SECTION 9.2 Effect of Termination................................... 38
SECTION 9.3 Amendment............................................... 39
SECTION 9.4 Waiver.................................................. 39
ARTICLE X GENERAL PROVISIONS........................................... 39
SECTION 10.1 Non-Survival of Representations and Warranties.......... 39
SECTION 10.2 Notices................................................. 39
SECTION 10.3 Interpretation.......................................... 40
SECTION 10.4 Miscellaneous........................................... 40
SECTION 10.5 Counterparts............................................ 41
SECTION 10.6 Parties in Interest..................................... 41
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 10, 1998 (this
"Agreement"), is made and entered into by and among Allied Waste Industries,
Inc., a Delaware corporation ("Parent"), AWIN II Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("Subsidiary"), and
American Disposal Services, Inc., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Subsidiary and the Company
have approved the merger of Subsidiary with and into the Company on the terms
set forth in this Agreement (the "Merger"); and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to
qualify as a tax-free reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the General Corporation Law of the State of Delaware (the "DGCL"),
Subsidiary shall be merged with and into the Company and the separate existence
of Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."
SECTION 1.2 Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in a
certificate of merger, in a form mutually acceptable to Parent and the Company,
to be filed with the Secretary of State of the State of Delaware in accordance
with the DGCL (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5. The
parties acknowledge that it is their mutual desire and intent to consummate the
Merger as soon as practicable after the date hereof. Accordingly, the parties
shall, subject to the provisions hereof and to the fiduciary duties of their
respective boards of directors, use all reasonable efforts to consummate, as
soon as practicable, the transactions contemplated by this Agreement in
accordance with Section 3.5.
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 Certificate of Incorporation. The Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
after the Effective Time, and (subject to Section 7.10 hereof) thereafter may be
amended in accordance with its terms and as provided in the DGCL.
<PAGE>
SECTION 2.2 Bylaws. The Bylaws of the Company as in effect
immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation after the Effective Time and (subject to Section
7.10 hereof) thereafter may be amended in accordance with their terms
and as provided by the Certificate of Incorporation of the Surviving
Corporation and the DGCL.
SECTION 2.3 Directors. The directors of the Surviving Corporation shall
be as designated in Section 2.3 of the Parent Disclosure Schedule (as defined in
Article IV), and such directors shall serve in accordance with the Bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
SECTION 2.4 Officers. The officers of Subsidiary in office immediately
prior to the Effective Time shall be the officers of the Surviving Corporation
after the Effective Time, and such officers shall serve in accordance with the
Bylaws of the Surviving Corporation until their respective successors are duly
elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any capital stock of Parent or the Company:
(a) each share of the common stock, par value $.01 per share, of the
Company (the "Company Common Stock") shall, subject to Sections 3.3 and 3.4, be
converted into the right to receive, without interest, 1.65 shares of the common
stock, par value $.01 per share, of Parent ("Parent Common Stock") (the
"Exchange Ratio");
(b) each share of capital stock of the Company, if any, owned by Parent
or any subsidiary of Parent or held in treasury by the Company or any subsidiary
of the Company immediately prior to the Effective Time shall be canceled and no
consideration shall be paid in exchange therefor and shall cease to exist from
and after the Effective Time; and
(c) each unexpired warrant to purchase Company Common Stock that is
outstanding at the Effective Time, whether or not exercisable, shall
automatically and without any action on the part of the holder thereof be
converted into a warrant to purchase a number of shares of Parent Common Stock
equal to the number of shares of Company Common Stock that could be purchased
under such warrant multiplied by the Exchange Ratio, at a price per share of
Parent Common Stock equal to the per share exercise price of such warrant
divided by the Exchange Ratio.
SECTION 3.2 Conversion of Subsidiary Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent as the sole
stockholder of Subsidiary, each issued and outstanding share of common stock,
par value $.01 per share, of Subsidiary ("Subsidiary Common Stock") shall be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation.
2
<PAGE>
SECTION 3.3 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares of
Company Common Stock shall be entitled to receive in exchange therefor, upon
surrender thereof to an exchange agent reasonably satisfactory to Parent and
the Company (the "Exchange Agent"), a certificate or certificates representing
the number of whole shares of Parent Common Stock to which such holder is
entitled pursuant to Section 3.1(a). Notwithstanding any other provision of
this Agreement, (i) until holders or transferees of certificates theretofore
representing shares of Company Common Stock have surrendered them for exchange
as provided herein, no dividends or other distributions shall be paid with
respect to any shares represented by such certificates and no payment for
fractional shares shall be made, and (ii) without regard to when such
certificates representing shares of Company Common Stock are surrendered for
exchange as provided herein, no interest shall be paid on any dividends or
other distributions or any payment for fractional shares. Upon surrender of a
certificate which immediately prior to the Effective Time represented shares
of Company Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends or other distributions which theretofore became
payable, but which were not paid by reason of the foregoing, with respect to
the number of whole shares of Parent Common Stock represented by the
certificate or certificates issued upon such surrender.
(b) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate for shares of Company
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any applicable transfer or other taxes required by reason of such issuance.
(c) Within five days after the Effective Time, Parent shall make
available to the Exchange Agent the certificates representing shares of Parent
Common Stock required to effect the exchanges referred to in paragraph (a) above
and cash for payment of any fractional shares referred to in Section 3.4.
(d) Within five days after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Company Certificates") (i) a letter of transmittal
satisfactory to the Company (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon actual delivery of the Company Certificates to the Exchange Agent),
and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of Company Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall reasonably require, the holder of such
Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.1(a), and the Company Certificates so surrendered shall be
canceled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any shares of Parent Common Stock or dividends or distributions thereon
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
3
<PAGE>
(e) Promptly following the date which is twelve months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a Company
Certificate may surrender such Company Certificate to the Surviving Corporation
or Parent and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Parent Common Stock, together with cash
for the payment of any fractional shares referred to in Section 3.4, without
any interest thereon. Notwithstanding the foregoing, none of the Exchange
Agent, Parent, Subsidiary, the Company or the Surviving Corporation shall be
liable to a holder of shares of Company Common Stock for any shares of Parent
Common Stock, together with cash for the payment of any fractional shares
referred to in Section 3.4, delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Parent Common Stock deliverable in respect thereof determined in
accordance with this Article III, together with cash for the payment of any
fractional shares referred to in Section 3.4. When authorizing such issuance in
exchange therefor, the Board of Directors of the Surviving Corporation may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificate to give the
Surviving Corporation such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving Corporation with
respect to the Company Certificate alleged to have been lost, stolen or
destroyed.
SECTION 3.4 No Fractional Securities. Notwithstanding any other
provision of this Agreement, no certificates or scrip for fractional shares of
Parent Common Stock shall be issued in the Merger and no Parent Common Stock
dividend, stock split or interest shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
other rights of a security holder. In lieu of any such fractional shares, each
holder of shares of Company Common Stock who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock upon surrender of
Company Certificates for exchange pursuant to this Article III shall be entitled
to receive from the Exchange Agent a cash payment equal to such fraction
multiplied by the average closing price of Parent Common Stock on the Nasdaq
National Market, as reported by the Wall Street Journal, during the 20 trading
days immediately preceding the Effective Time (the "Parent Average Trading
Price").
SECTION 3.5 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to Parent and the Company as promptly as practicable (but in any event within
five business days) following the date on which the last of the conditions set
forth in Article VIII is fulfilled or waived, or at such other time and place as
Parent and the Company shall agree. The date on which the Closing occurs is
referred to in this Agreement as the "Closing Date."
SECTION 3.6 Closing of the Company's Transfer Books. At and after the
Effective Time, holders of Company Certificates shall cease to have any rights
as stockholders of the Company, except for the right to receive shares of Parent
Common Stock pursuant to Section 3.1 and the right to receive cash for payment
of fractional shares pursuant to Section 3.4. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time shall thereafter be made. If, after the Effective Time, subject to the
terms and conditions of this Agreement, Company Certificates formerly
representing shares of Company Common Stock are presented to the Surviving
Corporation, they shall be canceled and exchanged for shares of Parent Common
Stock in accordance with this Article III, together with cash for the payment of
any fractional shares referred to in Section 3.4.
4
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
Parent and Subsidiary jointly and severally represent and warrant to
the Company that, except as set forth in the Disclosure Schedule dated as of the
date hereof and signed by an authorized officer of Parent (the "Parent
Disclosure Schedule"), it being agreed that disclosure of any item on the Parent
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Parent Disclosure Schedule:
SECTION 4.1 Organization and Qualification. Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and Subsidiary is qualified to transact business and is in good standing
in each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of Parent and its subsidiaries, taken as a whole (a "Parent Material
Adverse Effect"). True, accurate and complete copies of each of Parent's and
Subsidiary's certificates of incorporation and bylaws, in each case as in effect
on the date hereof, including all amendments thereto, have heretofore been
delivered to the Company.
SECTION 4.2 Capitalization.
(a) As of July 31, 1998, the authorized capital stock of Parent
consisted of 200 million shares of Parent Common Stock and 10 million shares of
preferred stock ("Parent Preferred Stock"). As of July 31, 1998, (i)
124,869,130 shares of Parent Common Stock were issued and outstanding, all of
which were validly issued and are fully paid, nonassessable and free of
preemptive rights, (ii) no shares of Parent Preferred Stock were issued and
outstanding, (iii) 570,048 shares of Parent Common Stock and no shares of
Parent Preferred Stock were held in the treasury of Parent, (iv) 7,138,728
shares of Parent Common Stock were reserved for issuance upon exercise of
options issued and outstanding pursuant to the stock option plans of the
Parent, (v) 0 shares of Parent Common Stock were reserved for issuance upon
conversion of outstanding convertible debentures or notes of the Parent, and
(vi) 647,827 shares of Parent Common Stock were reserved for issuance upon
exercise of outstanding warrants. Assuming conversion of all outstanding
convertible debentures and outstanding convertible notes of the Parent and the
exercise of all outstanding options, warrants or rights to purchase Parent
Common Stock, as of July 31, 1998, there would be 132,655,685 shares of Parent
Common Stock issued and outstanding. In addition, as of July 31, 1998, no more
than 14,181,286 shares of Parent Common Stock were reserved for issuance in
connection with pending acquisitions. Since July 31, 1998, except as permitted
by the Agreement, (i) no shares of capital stock of Parent have been issued
except in connection with the exercise or conversion of the instruments
referred to in the second sentence of this Section 4.2(a) and (ii) no options,
warrants, securities convertible into, or commitments with respect to the
issuance of shares of capital stock of Parent have been issued, granted or
made.
(b) The authorized capital stock of Subsidiary consists of 1,000 shares
of Subsidiary Common Stock, of which 100 shares are issued and outstanding,
which shares are owned beneficially and of record by Parent.
5
<PAGE>
(c) Except as disclosed in the Parent SEC Reports (as defined in
Section 4.5) or in Section 4.2(a) or as otherwise contemplated by this
Agreement, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement and
also including any rights plan or other anti-takeover agreement, obligating
Parent or any subsidiary of Parent to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital stock of Parent or
obligating Parent or any subsidiary of Parent to grant, extend or enter into
any such agreement or commitment. Except as disclosed in the Parent SEC
Reports or as otherwise contemplated by this Agreement, there are no voting
trusts, proxies or other agreements or understandings to which Parent or any
subsidiary of Parent is a party or is bound with respect to the voting of any
shares of capital stock of Parent. The shares of Parent Common Stock issued to
stockholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid and nonassessable, free of preemptive
rights and will be issued in compliance with all applicable securities and
other laws.
SECTION 4.3 Subsidiaries. Each direct and indirect corporate subsidiary
of Parent is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted and each subsidiary of Parent is
qualified to transact business, and is in good standing, in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary; except in all cases
where the failure to be so qualified and in good standing would not reasonably
be expected to have a Parent Material Adverse Effect. All of the outstanding
shares of capital stock of each corporate subsidiary of Parent are validly
issued, fully paid, nonassessable and free of preemptive rights, and are owned
directly or indirectly by Parent, free and clear of any liens, claims,
encumbrances, security interests, equities and options of any nature whatsoever
except that such shares are pledged to secure Parent's credit facilities. There
are no subscriptions, options, warrants, rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights with respect to any shares of capital stock of any corporate
subsidiary of Parent, including any right of conversion or exchange under any
outstanding security, instrument or agreement. As used in this Agreement, the
term "subsidiary" shall mean, when used with reference to any person or entity,
any corporation, partnership, joint venture or other entity of which such person
or entity (either acting alone or together with its other subsidiaries) owns,
directly or indirectly, 50% or more of the stock or other voting interests, the
holders of which are entitled to vote for the election of a majority of the
board of directors or any similar governing body of such corporation,
partnership, joint venture or other entity.
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SECTION 4.4 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have full corporate power and authority
to enter into this Agreement and, subject to the Parent Stockholders' Approval
(as defined in Section 7.3(b)) and the Parent Required Statutory Approvals (as
defined in Section 4.4(c)), to consummate the transactions contemplated hereby.
This Agreement has been approved by the Boards of Directors of Parent and
Subsidiary and the sole stockholder of Subsidiary, and no other corporate
proceedings on the part of Parent or Subsidiary are necessary to authorize the
execution and delivery of this Agreement or, except for the Parent Stockholders'
Approval, the consummation by Parent and Subsidiary of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
of Parent and Subsidiary, and, assuming the due authorization, execution and
delivery hereof by the Company, constitutes a valid and legally binding
agreement of each of Parent and Subsidiary enforceable against each of them in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution, delivery and performance of this Agreement by each
of Parent and Subsidiary and the consummation of the Merger and the transactions
contemplated hereby do not and will not violate, conflict with or result in a
breach of any provision 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 or acceleration under, or result in the creation of any
lien, security interest or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective certificates of incorporation or bylaws of
Parent or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to Parent or any of its subsidiaries
or any of their respective properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Parent or any of its subsidiaries is now a party or by which Parent or any
of its subsidiaries or any of their respective properties or assets may be bound
or affected. The consummation by Parent and Subsidiary of the transactions
contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence, subject (x) in the case of the terms, conditions or provisions
described in clause (ii) above, to obtaining (prior to the Effective Time) the
Parent Required Statutory Approvals and the Parent Stockholder's Approval, and
(y) in the case of the terms, conditions or provisions described in clause (iii)
above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties as specified in Section
4.4(b) of the Parent Disclosure Schedule. Excluded from the foregoing sentences
of this paragraph (b), insofar as they apply to the terms, conditions or
provisions described in clauses (ii) and (iii) of the first sentence of this
paragraph (b) (and whether resulting from such execution and delivery or
consummation), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests or encumbrances that
would not reasonably be expected to have a Parent Material Adverse Effect.
(c) Except for (i) the filings by Parent required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Registration Statement and Joint Proxy Statement/
Prospectus (as such terms are defined in Section 4.9) with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration of the effectiveness thereof by the SEC
and filings with various state blue sky authorities, (iii) the making of
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the Merger Filing with the Secretary of State of the State of Delaware in
connection with the Merger, and (iv) any required filings with or approvals
from the Nasdaq National Market, applicable state environmental authorities,
public service commissions and public utility commissions (the filings and
approvals referred to in clauses (i) through (iv) are collectively referred to
as the "Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Parent or Subsidiary or the consummation by
Parent or Subsidiary of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.5 Reports and Financial Statements. Since January 1, 1996,
Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
required to be filed by it under each of the Securities Act, the Exchange Act
and the respective rules and regulations thereunder, all of which, as amended if
applicable, complied when filed in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
Parent has previously delivered or made available to the Company copies
(including all exhibits, post-effective amendments and supplements thereto) of
its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 1997
and for the immediately preceding fiscal year, as filed with the SEC, (b) proxy
and information statements relating to (i) all meetings of its stockholders
(whether annual or special) and (ii) actions by written consent in lieu of a
stockholders' meeting from January 1, 1996, until the date hereof, and (c) all
other reports, including quarterly reports, and registration statements filed by
Parent with the SEC since January 1, 1996 (other than registration statements
filed on Form S-8) (the documents referred to in clauses (a), (b) and (c) filed
prior to the date hereof are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements of Parent included in the Parent's
Annual Report on Form 10-K for the year ended December 31, 1997 (collectively,
the "Parent Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and fairly present the
financial position of Parent and its subsidiaries as of the dates thereof and
the results of their operations and changes in financial position for the
periods then ended.
SECTION 4.6 Absence of Undisclosed Liabilities. Except as disclosed in
the Parent SEC Reports or as heretofore disclosed to the Company in writing with
respect to acquisitions or potential transactions or commitments, neither Parent
nor any of its subsidiaries had at December 31, 1997, or has incurred since that
date and as of the date hereof, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except: (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Parent Financial Statements or reflected in the notes thereto, or
(ii) which were incurred after December 31, 1997, and were incurred in the
ordinary course of business and consistent with past practices; (b) liabilities,
obligations or contingencies which (i) would not reasonably be expected to have
a Parent Material Adverse Effect, or (ii) have been discharged or paid in full
prior to the date hereof; and (c) liabilities and obligations which are of a
nature not required to be reflected in the consolidated financial statements of
Parent and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
ordinary course of business.
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SECTION 4.7 Absence of Certain Changes or Events. Since the date of
the most recent Parent SEC Report that contains consolidated financial
statements of Parent, there has not been any Parent Material Adverse Effect,
except for changes that affect the industries in which Parent and its
subsidiaries operate generally.
SECTION 4.8 Litigation. Except as disclosed in the Parent SEC Reports,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of Parent, threatened against, relating to or affecting Parent or any of its
subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seek to restrain or enjoin
the consummation of the Merger or which if adversely determined would reasonably
be expected to have a Parent Material Adverse Effect. Except as set forth in the
Parent SEC Reports, neither Parent nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.9 Registration Statement and Proxy Statement. None of the
information to be supplied by Parent or its subsidiaries for inclusion in (a)
the Registration Statement on Form S-4 to be filed under the Securities Act
with the SEC by Parent in connection with the Merger for the purpose of
registering the shares of Parent Common Stock to be issued in the Merger (such
registration statement, together with any amendments thereof, being the
"Registration Statement"), or (b) the proxy statement to be distributed in
connection with the Company's and Parent's meetings of their respective
stockholders to vote upon this Agreement and the transactions contemplated
hereby (the "Proxy Statement" and, together with the prospectus included in the
Registration Statement, the "Joint Proxy Statement/Prospectus") will, in the
case of the Proxy Statement or any amendments thereof or supplements thereto,
at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the meetings of stockholders of the
Company and Parent to be held in connection with the transactions contemplated
by this Agreement, or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such meetings
of the stockholders of the Company and Parent, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement/ Prospectus will, as of its mailing date, comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Parent or Subsidiary with
respect to information supplied by the Company or the stockholders of the
Company for inclusion therein.
SECTION 4.10 No Violation of Law. Except as disclosed in the Parent SEC
Reports, neither Parent nor any of its subsidiaries is in violation of, or has
been given written notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance, or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for violations which would
not reasonably be expected to have a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports, as of the date of this Agreement, to the
knowledge of Parent, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, would not reasonably be expected to have a Parent Material Adverse
Effect. Parent and its subsidiaries have all permits, licenses, franchises,
variances, exemptions,
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orders and other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively, the "Parent
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which would not
reasonably be expected to have a Parent Material Adverse Effect. Parent and its
subsidiaries are not in violation of the terms of any Parent Permit, except for
delays in filing reports or violations which would not reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.11 Compliance with Agreements. Except as disclosed in the
Parent SEC Reports, Parent and each of its subsidiaries are not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, would result in a default under (a) the respective certificate of
incorporation, bylaws or other similar organizational instruments of Parent or
any of its subsidiaries, or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which Parent or any of its subsidiaries is a party or by which any
of them is bound or to which any of their property is subject, other than, in
the case of clause (b) of this Section 4.11, breaches, violations and defaults
which would not reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.12 Taxes.
(a) Parent and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined in Section
4.12(c)) required to be filed by them for all periods ending on or prior to the
Effective Time, other than those Tax Returns the failure of which to file would
not reasonably be expected to have a Parent Material Adverse Effect, and such
Tax Returns are true, correct and complete in all material respects and (ii)
duly paid in full or made adequate provision in accordance with generally
accepted accounting principles for the payment of all Taxes (as defined in
Section 4.12(b)) for all past and current periods which are due prior to the
date hereof. The liabilities and reserves for Taxes reflected in the Parent
balance sheet included in the latest Parent SEC Report to cover all Taxes for
all periods ending at or prior to the date of such balance sheet have been
determined in accordance with generally accepted accounting principles and
there is no material liability for Taxes for any period beginning after such
date other than Taxes arising in the ordinary course of business. There are no
material liens for Taxes upon any property or assets of Parent or any
subsidiary thereof, except for liens for Taxes not yet due or Taxes contested
in good faith and adequately reserved against in accordance with generally
accepted accounting principles. There are no unresolved issues of law or fact
arising out of a notice of deficiency, proposed deficiency or assessment from
the Internal Revenue Service (the "IRS") or any other governmental taxing
authority with respect to Taxes of the Parent or any of its subsidiaries which
would reasonably be expected to have a Parent Material Adverse Effect. Neither
Parent nor its subsidiaries has waived any statute of limitations in respect of
a material amount of Taxes or agreed to any extension of time with respect to a
material Tax assessment or deficiency other than waivers and extensions which
are no longer in effect. Neither Parent nor any of its subsidiaries is a party
to any agreement providing for the allocation or sharing of Taxes with any
entity that is not, directly or indirectly, a wholly-owned corporate subsidiary
of Parent other than agreements the consequences of which are fully and
adequately reserved for in the Parent Financial Statements. Neither Parent nor
any of its corporate subsidiaries has, with regard to any assets or property
held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall profits,
severance, customs, import, export, employment or similar taxes, charges, fees,
levies or other assessments imposed by the United States, or any state, local or
foreign government or subdivision or
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agency thereof, whether computed on a separate, consolidated, unitary,
combined, or any other basis, and such term shall include any interest, fines,
penalties or additional amounts of any interest in respect of any additions,
fines or penalties attributable or imposed or with respect to any such taxes,
charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document required to be supplied to a taxing
authority in connection with Taxes.
SECTION 4.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the Parent SEC Reports, at the date hereof,
Parent and its subsidiaries do not maintain or contribute to or have any
obligation or liability to or with respect to any material employee benefit
plans, programs, arrangements or practices, including employee benefit plans
within the meaning set forth in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other similar material
arrangements for the provision of benefits (excluding any "Multi-employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the meaning of Section 413(c) of the Code) (such plans, programs,
arrangements or practices of Parent and its subsidiaries being referred to as
the "Parent Plans"). The Parent Disclosure Schedule lists all Multi-employer
Plans to which any of them makes contributions or has any obligation or
liability to make material contributions. Neither Parent nor any of its
subsidiaries maintains or has any material liability with respect to any
Multiple Employer Plan. Neither Parent nor any of its subsidiaries has any
obligation to create or contribute to any additional such plan, program,
arrangement or practice or to amend any such plan, program, arrangement or
practice so as to increase benefits or contributions thereunder, except as
required under the terms of the Parent Plans, under existing collective
bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the Parent SEC Reports, (i) there have been
no prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code with respect to any of the Parent Plans that could
result in penalties, taxes or liabilities which would reasonably be expected to
have a Parent Material Adverse Effect, (ii) except for premiums due, there is no
outstanding material liability, whether measured alone or in the aggregate,
under Title IV of ERISA with respect to any of the Parent Plans, (iii) neither
the Pension Benefit Guaranty Corporation nor any plan administrator has
instituted proceedings to terminate any of the Parent Plans subject to Title IV
of ERISA other than in a "standard termination" described in Section 4041(b) of
ERISA, (iv) none of the Parent Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
each of the Parent Plans ended prior to the date of this Agreement, (v) the
current present value of all projected benefit obligations under each of the
Parent Plans which is subject to Title IV of ERISA did not, as of its latest
valuation date, exceed the then current value of the assets of such plan
allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Parent SEC Reports as of December 31, 1997, based upon
reasonable actuarial assumptions currently utilized for such Parent Plan, (vi)
each of the Parent Plans has been operated and administered in accordance with
applicable laws during the period of time covered by the applicable statute of
limitations, except for failures to comply which would not reasonably be
expected to have a Parent Material Adverse Effect, (vii) each of the Parent
Plans which is intended to be "qualified" within the meaning of Section 401(a)
of the Code has been determined by the Internal Revenue Service to be so
qualified and such determination has not been modified, revoked or limited by
failure to satisfy any condition thereof or by a subsequent amendment thereto
or a failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such Parent
Plans, and the period for making any such necessary retroactive amendments has
not
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expired, (viii) with respect to Multi-employer Plans, neither Parent nor any of
its subsidiaries has made or suffered a "complete withdrawal" or a "partial
withdrawal," as such terms are respectively defined in Sections 4203, 4204 and
4205 of ERISA and, to the knowledge of Parent and its subsidiaries, no event
has occurred or is expected to occur which presents a material risk of a
complete or partial withdrawal under such Sections 4203, 4204 and 4205, (ix) to
the knowledge of Parent and its subsidiaries, there are no material pending,
threatened or anticipated claims involving any of the Parent Plans other than
claims for benefits in the ordinary course, (x) Parent and its subsidiaries
have no current material liability under Title IV of ERISA, and Parent and its
subsidiaries do not reasonably anticipate that any such liability will be
asserted against Parent or any of its subsidiaries, and (xi) no act, omission
or transaction (individually or in the aggregate) has occurred with respect to
any Parent Plan that has resulted or could result in any material liability
(direct or indirect) of Parent or any subsidiary under Sections 409 or
502(c)(i) or (l) of ERISA or Chapter 43 of Subtitle (A) of the Code. None of
the Parent Controlled Group Plans has an "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code) or is required to
provide security to a Parent Plan pursuant to Section 401(a)(29) of the Code.
(c) The Parent SEC Reports contain a true and complete summary or list
of or otherwise describe all material employment contracts and other employee
benefit arrangements with "change of control" or similar provisions and all
severance agreements with executive officers.
SECTION 4.14 Labor Controversies. Except as disclosed in the Parent SEC
Reports, (a) there are no significant controversies pending or, to the knowledge
of Parent, threatened between Parent or its subsidiaries and any representatives
of any of their employees, and (b) to the knowledge of Parent, there are no
material organizational efforts presently being made involving any of the
presently unorganized employees of Parent and its subsidiaries except for such
controversies and organizational efforts which would not reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.15 Environmental Matters. (a) Except as disclosed in the
Parent SEC Reports, (i) Parent and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws
(defined in Section 4.15(b)), including, without limitation, having all permits,
licenses and other approvals and authorizations necessary for the operation of
their respective businesses as presently conducted, (ii) none of the properties
owned by Parent or any of its subsidiaries contain any Hazardous Substance
(defined in Section 4.15(c)) as a result of any activity of Parent or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) since January 1, 1996, neither Parent nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity
indicating that Parent or any of its subsidiaries may be in violation of, or
liable under, any Environmental Law in connection with the ownership or
operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened, against Parent or any of its subsidiaries
relating to any violation, or alleged violation, of any Environmental Law, (v)
no Hazardous Substance has been disposed of, released or transported in
violation of any applicable Environmental Law from any properties owned by
Parent or any of its subsidiaries as a result of any activity of Parent or any
of its subsidiaries during the time such properties were owned, leased or
operated by Parent or any of its subsidiaries, and (vi) neither Parent, its
subsidiaries nor any of their respective properties are subject to any
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (vi) that would not reasonably be expected
to have a Parent Material Adverse Effect.
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(b) As used herein, "Environmental Law" means any Federal, state, local
or foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety, or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The term
"Environmental Law" includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Occupational Safety and Health Act of 1970,
each as amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance presently
or hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.16 Non-competition Agreements. Neither Parent nor any
subsidiary of Parent is a party to any agreement which (i) purports to restrict
or prohibit in any material respect any of them from, directly or indirectly,
engaging in any business involving the collection, interim storage, transfer,
recovery, processing, recycling, marketing or disposal of rubbish, garbage,
paper, textile wastes, chemical or hazardous wastes, liquid and other wastes or
any other material business currently engaged in by Parent or the Company, or
any corporations affiliated with either of them, and (ii) would restrict or
prohibit the Company or any subsidiary of the Company (other than the Company
and its subsidiaries that are currently so restricted or prohibited) from
engaging in any such business. None of Parent's officers, directors or key
employees is a party to any agreement which, by virtue of such person's
relationship with Parent, restricts in any material respect Parent or any
subsidiary of Parent from, directly or indirectly, engaging in any of the
businesses described above.
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SECTION 4.17 Title to Assets. Parent and each of its subsidiaries has
good and marketable title in fee simple to all its real property and good
title to all its leasehold interests and other properties as reflected in the
most recent balance sheet included in the Parent Financial Statements, except
for such properties and assets that have been disposed of in the ordinary
course of business since the date of such balance sheet, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any nature whatsoever,
except (i) the lien for current taxes, payments of which are not yet
delinquent, (ii) such imperfections in title and easements and encumbrances,
if any, as are not substantial in character, amount or extent and do not
materially detract from the value or interfere with the present use of the
property subject thereto or affected thereby, or otherwise materially impair
the Parent's business operations (in the manner presently carried on by the
Parent), or (iii) as disclosed in the Parent SEC Reports, and except for such
matters which would not reasonably be expected to have a Parent Material
Adverse Effect. All leases under which Parent leases any real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than failures to be in good standing, valid and effective and
defaults under such leases which would not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 4.18 Reorganization and Pooling of Interests. None of the
Parent, Subsidiary or, to their knowledge, any of their affiliates has taken or
agreed or intends to take any action or has any knowledge of any fact or
circumstance that would prevent the Merger from (a) constituting a
reorganization within the meaning of Section 368(a) of the Code or (b) being
treated for financial accounting purposes as a "pooling of interests" in
accordance with generally accepted accounting principles and the rules,
regulations and interpretations of the SEC (a "Pooling Transaction"). As of the
date hereof, other than directors and officers of Parent and certain of their
affiliates, to the knowledge of Parent, there are no "affiliates" of Parent, as
that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act.
SECTION 4.19 Parent Stockholders' Approval. The affirmative vote of
stockholders of Parent required for approval and adoption of this Agreement and
the Merger is a majority of the shares of Parent Common Stock outstanding and
entitled to vote at a meeting of stockholders (in order to approve an amendment
to the Articles of Incorporation of Parent to increase its authorized shares of
Parent Common Stock in addition to the issuance of shares pursuant to the
Merger).
SECTION 4.20 Brokers and Finders. Parent has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of Parent to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by Parent of any investment
banking fees, finder's fees, brokerage or agent commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, except for fees payable to
Credit Suisse First Boston Corporation.
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SECTION 4.21 Opinion of Financial Advisor. The financial advisor of
Parent, Credit Suisse First Boston Corporation, has rendered an opinion to the
Board of Directors of Parent to the effect that as of the date of this Agreement
the Exchange Ratio is fair to Parent from a financial point of view; it being
understood and acknowledged by the Company that such opinion has been rendered
for the benefit of the Board of Directors of Parent and is not intended to, and
may not, be relied upon by the Company, its affiliates or their respective
subsidiaries.
SECTION 4.22 Ownership of Company Common Stock. Neither Parent nor any
of its subsidiaries beneficially owns any shares of Company Common Stock as of
the date hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary that,
except as set forth in the disclosure schedule dated as of the date hereof and
signed by an authorized officer of the Company (the "Company Disclosure
Schedule"), it being agreed that disclosure of any item on the Company
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Company Disclosure Schedule:
SECTION 5.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business
as it is now being conducted. The Company is qualified to transact business and
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) or results of operations of the Company and its subsidiaries, taken as a
whole (a "Company Material Adverse Effect"). True, accurate and complete copies
of the Company's certificate of incorporation and bylaws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Parent.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 60,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock ("Company
Preferred Stock"). As of June 30, 1998, (i) 24,638,895 shares of Company Common
Stock were issued and outstanding, all of which were validly issued and are
fully paid, nonassessable and free of preemptive rights, and no shares of
Company Preferred Stock were issued and outstanding, (ii) no shares of Company
Common Stock and no shares of Company Preferred Stock were held in the treasury
of the Company, (iii) 1,908,759 shares of Company Common Stock were reserved for
issuance upon exercise of options issued and outstanding, and (iv) 48,788 shares
of Company Common Stock were reserved for issuance upon exercise of outstanding
warrants. Assuming the exercise of all outstanding options, warrants and rights
to purchase Company Common Stock, as of June 30, 1998, there would be 26,596,442
shares of Company Common Stock issued and outstanding. In addition, as of June
30, 1998, no more than 2,542,896 shares of Company Common Stock were reserved
for issuance in connection with pending acquisitions. Since June 30, 1998,
except as permitted by the Agreement, (i) no shares of capital stock of the
Company have been issued except in connection with the exercise of the
instruments referred to in the second sentence of this Section 5.2(a) and (ii)
no options, warrants, securities convertible into, or commitments with respect
to the issuance of shares of capital stock of the Company have been issued,
granted or made.
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(b) Except as disclosed in the Company SEC Reports (as defined in
Section 5.5) or as set forth in Section 5.2(b) of the Company Disclosure
Schedule or in Section 5.2(a), as of the date hereof there were no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and also including any rights plan or other anti-takeover agreement,
obligating the Company or any subsidiary of the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of the Company or obligating the Company or any subsidiary of the Company
to grant, extend or enter into any such agreement or commitment. Except as
disclosed in the Company SEC Reports or as otherwise contemplated by this
Agreement, there are no voting trusts, proxies or other agreements or
understandings to which the Company or any subsidiary of the Company is a party
or is bound with respect to the voting of any shares of capital stock of the
Company.
SECTION 5.3 Subsidiaries. Each direct and indirect corporate subsidiary
of the Company is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted and each subsidiary of the Company
is qualified to transact business, and is in good standing, in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary;
except in all cases where the failure to be so qualified and in good standing
would not reasonably be expected to have a Company Material Adverse Effect.
All of the outstanding shares of capital stock of each corporate subsidiary of
the Company are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by the Company free and
clear of any liens, claims, encumbrances, security interests, equities and
options of any nature whatsoever, except that such shares are pledged to
secure the Company's credit facilities. There are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to
any shares of capital stock of any corporate subsidiary of the Company,
including any right of conversion or exchange under any outstanding security,
instrument or agreement.
SECTION 5.4 Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to the Company Stockholders' Approval (as defined in
Section 7.3(a)) and the Company Required Statutory Approvals (as defined in
Section 5.4(c)), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Stockholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Subsidiary, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (b) general equitable
principles.
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(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger and the transactions contemplated
hereby do not and will not violate, conflict with or result in a breach of any
provision 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 or acceleration under, or result in the creation of any lien,
security interest or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective certificates of incorporation or bylaws of the
Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its subsidiaries is now a party or by which
the Company or any of its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by the Company of the
transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence, subject (x) in the case of the terms, conditions or provisions
described in clause (ii) above, to obtaining (prior to the Effective Time) the
Company Required Statutory Approvals and the Company Stockholders' Approval, and
(y) in the case of the terms, conditions or provisions described in clause
(iii) above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties as specified in Section
5.4(b) of the Company Disclosure Schedule. Excluded from the foregoing
sentences of this paragraph (b), insofar as they apply to the terms,
conditions or provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b) (and whether resulting from such execution and
delivery or consummation), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests or
encumbrances that would not reasonably be expected to have a Company Material
Adverse Effect.
(c) Except for (i) the filings by the Company required by the HSR Act,
(ii) the filing of the Joint Proxy Statement/Prospectus with the SEC pursuant to
the Exchange Act and the Securities Act, (iii) the making of the Merger Filing
with the Secretary of State of the State of Delaware in connection with the
Merger, and (iv) any required filings with or approvals from applicable state
environmental authorities, public service commissions and public utility
commissions (the filings and approvals referred to in clauses (i) through (iv)
are collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not
reasonably be expected to have a Company Material Adverse Effect.
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SECTION 5.5 Reports and Financial Statements. Since January 1, 1996,
the Company has filed with the SEC all material forms, statements, reports and
documents (including all exhibits, post-effective amendments and supplements
thereto) required to be filed by it under each of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder, all of which,
as amended if applicable, complied when filed in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. The Company has previously delivered or made available to Parent
copies (including all exhibits, post-effective amendments and supplements
thereto) of its (a) Annual Reports on Form 10-K for the year ended December 31,
1997, and for the immediately preceding fiscal year, as filed with the SEC, (b)
proxy and information statements relating to (i) all meetings of its
stockholders (whether annual or special) and (ii) actions by written consent in
lieu of a stockholders' meeting from January 1, 1996, until the date hereof,
and (c) all other reports, including quarterly reports, and registration
statements filed by the Company with the SEC since January 1, 1996 (other than
registration statements filed on Form S-8) (the documents referred to in
clauses (a), (b), and (c) filed prior to the date hereof are collectively
referred to as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements of the
Company included in the Company's Annual Report on Form 10-K for the twelve
months ended December 31, 1997 (collectively, the "Company Financial
Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
the Company and its subsidiaries as of the dates thereof and the results of
their operations and changes in financial position for the periods then ended.
SECTION 5.6 Absence of Undisclosed Liabilities. Except as disclosed in
the Company SEC Reports or as heretofore disclosed to Parent in writing with
respect to acquisitions or potential transactions or commitments, neither the
Company nor any of its subsidiaries had at December 31, 1997, or has incurred
since that date and as of the date hereof, any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto
or (ii) which were incurred after December 31, 1997, and were incurred in the
ordinary course of business and consistent with past practices, (b)
liabilities, obligations or contingencies which (i) would not reasonably be
expected to have a Company Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof, and (c) liabilities and
obligations which are of a nature not required to be reflected in the
consolidated financial statements of the Company and its subsidiaries prepared
in accordance with generally accepted accounting principles consistently
applied and which were incurred in the ordinary course of business.
SECTION 5.7 Absence of Certain Changes or Events. Since the date of the
most recent Company SEC Report that contains consolidated financial statements
of the Company, there has not been any Company Material Adverse Effect, except
for changes that affect the industries in which the Company and its subsidiaries
operate generally.
SECTION 5.8 Litigation. Except as referred to in the Company SEC
Reports, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seek to
restrain the consummation of the Merger or which if adversely determined would
reasonably be expected to have a Company Material Adverse Effect. Except as
referred to in the Company SEC Reports, neither the Company nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would reasonably be expected to have a
Company Material Adverse Effect.
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SECTION 5.9 Registration Statement and Proxy Statement. None of the
information to be supplied by the Company or its subsidiaries for inclusion in
(a) the Registration Statement or (b) the Proxy Statement will, in the case of
the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meetings of stockholders of the Company and
Parent to be held in connection with the transactions contemplated by
this Agreement or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such meetings
of the stockholders of the Company and Parent, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply, as of its mailing date, as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with respect to
information supplied by Parent, Subsidiary or any stockholder of Parent for
inclusion therein.
SECTION 5.10 No Violation of Law. Except as disclosed in the Company
SEC Reports, neither the Company nor any of its subsidiaries is in violation of
or has been given written notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for violations which would
not reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in the Company SEC Reports, as of the date of this Agreement, to the
knowledge of the Company, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, would not reasonably be expected to have a Company Material
Adverse Effect. The Company and its subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses
as presently conducted (collectively, the "Company Permits"), except for
permits, licenses, franchises, variances, exemptions, orders, authorizations,
consents and approvals the absence of which would not reasonably be expected
to have a Company Material Adverse Effect. The Company and its subsidiaries
are not in violation of the terms of any Company Permit, except for delays in
filing reports or violations which would not reasonably be expected to have a
Company Material Adverse Effect.
SECTION 5.11 Compliance with Agreements. Except as disclosed in the
Company SEC Reports, the Company and each of its subsidiaries are not in breach
or violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, would result in a default under, (a) the respective certificates of
incorporation, bylaws or similar organizational instruments of the Company or
any of its subsidiaries, or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which the Company or any of its subsidiaries is a party or by
which any of them is bound or to which any of their property is subject, other
than, in the case of clause (b) of this Section 5.11, breaches, violations and
defaults which would not reasonably be expected to have a Company Material
Adverse Effect.
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SECTION 5.12 Taxes. The Company and its subsidiaries have (i) duly
filed with the appropriate governmental authorities all Tax Returns required to
be filed by them for all periods ending on or prior to the Effective Time, other
than those Tax Returns the failure of which to file would not reasonably be
expected to have a Company Material Adverse Effect, and such Tax Returns are
true, correct and complete in all material respects, and (ii) duly paid in full
or made adequate provision in accordance with generally accepted accounting
principles for the payment of all Taxes for all past and current periods which
are due prior to the date hereof. The liabilities and reserves for Taxes
reflected in the Company balance sheet included in the latest Company SEC Report
to cover all Taxes for all periods ending at or prior to the date of such
balance sheet have been determined in accordance with generally accepted
accounting principles, and there is no material liability for Taxes for any
period beginning after such date other than Taxes arising in the ordinary course
of business. There are no material liens for Taxes upon any property or asset of
the Company or any subsidiary thereof, except for liens for Taxes not yet due or
Taxes contested in good faith and adequately reserved against in accordance with
generally accepted accounting principles. There are no unresolved issues of law
or fact arising out of a notice of deficiency, proposed deficiency or assessment
from the IRS or any other governmental taxing authority with respect to Taxes of
the Company or any of its subsidiaries which would reasonably be expected to
have a Company Material Adverse Effect. Neither the Company nor its subsidiaries
has waived any statute of limitations in respect of a material amount of Taxes
or agreed to any extension of time with respect to a material Tax assessment or
deficiency other than waivers and extensions which are no longer in effect.
Neither the Company nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of Company other
than agreements the consequences of which are fully and adequately reserved for
in the Company Financial Statements. Neither the Company nor any of its
corporate subsidiaries has, with regard to any assets or property held, acquired
or to be acquired by any of them, filed a consent to the application of Section
341(f) of the Code.
SECTION 5.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the Company SEC Reports, at the date hereof,
the Company and its subsidiaries do not maintain or contribute to or have any
obligation or liability to or with respect to any material employee benefit
plans, programs, arrangements or practices, including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar material
arrangements for the provision of benefits (excluding any "Multi-employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the meaning of Section 413(c) of the Code) (such plans, programs,
arrangements or practices of the Company and its subsidiaries being referred to
as the "Company Plans"). The Company Disclosure Schedule lists all
Multi-employer Plans to which any of them makes contributions or has any
obligation or liability to make material contributions. Neither the Company nor
any of its subsidiaries maintains or has any material liability with respect to
any Multiple Employer Plan. Neither the Company nor any of its subsidiaries has
any obligation to create or contribute to any additional such plan, program,
arrangement or practice or to amend any such plan, program, arrangement or
practice so as to increase benefits or contributions thereunder, except as
required under the terms of the Company Plans, under existing collective
bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the Company SEC Reports, (i) there have been
no prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code with respect to any of the Company Plans that could
result in penalties, taxes or liabilities which would reasonably be expected to
have a Company Material Adverse Effect, (ii) except for premiums due, there is
no outstanding material liability, whether measured alone or in the aggregate,
under Title IV of ERISA with respect to any of the Company Plans, (iii) neither
the Pension Benefit Guaranty Corporation nor any plan administrator has
instituted proceedings to terminate any of the Company Plans subject to Title IV
of ERISA other than in a "standard termination" described in Section 4041(b) of
ERISA, (iv) none of the Company Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA
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and Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each of the Company Plans ended prior to the date
of this Agreement, (v) the current present value of all projected benefit
obligations under each of the Company Plans which is subject to Title IV of
ERISA did not, as of its latest valuation date, exceed the then current value
of the assets of such plan allocable to such benefit liabilities by more than
the amount, if any, disclosed in the Company SEC Reports as of December 31,
1997, based upon reasonable actuarial assumptions currently utilized for such
Company Plan, (vi) each of the Company Plans has been operated and
administered in accordance with applicable laws during the period of time
covered by the applicable statute of limitations, except for failures to
comply which would not reasonably be expected to have a Company Material
Adverse Effect, (vii) each of the Company Plans which is intended to be
"qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and such
determination has not been modified, revoked or limited by failure to satisfy
any condition thereof or by a subsequent amendment thereto or a failure to
amend, except that it may be necessary to make additional amendments
retroactively to maintain the "qualified" status of such Company Plans, and
the period for making any such necessary retroactive amendments has not
expired, (viii) with respect to Multi-employer Plans, neither the Company nor
any of its subsidiaries has made or suffered a "complete withdrawal" or a
"partial withdrawal," as such terms are respectively defined in Sections 4203,
4204 and 4205 of ERISA and, to the best knowledge of the Company and its
subsidiaries, no event has occurred or is expected to occur which presents a
material risk of a complete or partial withdrawal under such Sections 4203,
4204 and 4205, (ix) to the knowledge of the Company and its subsidiaries,
there are no material pending, threatened or anticipated claims involving any
of the Company Plans other than claims for benefits in the ordinary course,
(x) the Company and its subsidiaries have no current material liability under
Title IV of ERISA, and the Company and its subsidiaries do not reasonably
anticipate that any such liability will be asserted against the Company or any
of its subsidiaries, and (xi) no act, omission or transaction (individually or
in the aggregate) has occurred with respect to any Company Plan that has
resulted or could result in any material liability (direct or indirect) of the
Company or any subsidiary under Sections 409 or 502(c)(1) or (l) of ERISA or
Chapter 43 of Subtitle (A) of the Code. None of the Company Controlled Group
Plans has an "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code) or is required to provide security to a
Company Plan pursuant to Section 401(a)(29) of the Code.
(c) The Company SEC Reports contain a true and complete summary or list
of or otherwise describe all material employment contracts and other employee
benefit arrangements with "change of control" or similar provisions and all
severance agreements with executive officers.
(d) Except as disclosed in Section 7.12(b) of the Company Disclosure
Schedule, there are no agreements which will or may provide payments to any
officer, employee, stockholder, or highly compensated individual which will be
"parachute payments" under Code Section 280G that are nondeductible to the
Company or subject to tax under Code Section 4999 for which the Company or any
ERISA Affiliate would have withholding liability.
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SECTION 5.14 Labor Controversies. Except as disclosed in the Company
SEC Reports, (a) there are no significant controversies pending or, to the
knowledge of the Company, threatened between the Company or its subsidiaries and
any representatives of any of their employees, and (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, except for such controversies and organizational efforts, which
would not reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.15 Environmental Matters. Except as disclosed in the Company
SEC Reports, (i) the Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws,
including, without limitation, having all permits, licenses and other approvals
and authorizations necessary for the operation of their respective businesses as
presently conducted, (ii) none of the properties owned by the Company or any of
its subsidiaries contain any Hazardous Substance as a result of any activity of
the Company or any of its subsidiaries in amounts exceeding the levels permitted
by applicable Environmental Laws, (iii) since January 1, 1996, neither the
Company nor any of its subsidiaries has received any notices, demand letters or
requests for information from any Federal, state, local or foreign governmental
entity indicating that the Company or any of its subsidiaries may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened, against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no Hazardous Substance has been disposed of, released or
transported in violation of any applicable Environmental Law from any properties
owned by the Company or any of its subsidiaries as a result of any activity of
the Company or any of its subsidiaries during the time such properties were
owned, leased or operated by the Company or any of its subsidiaries, and (vi)
neither the Company, its subsidiaries nor any of their respective properties are
subject to any material liabilities or expenditures (fixed or contingent)
relating to any suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any Environmental Law,
except for violations of the foregoing clauses (i) through (vi) that would not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.16 Non-competition Agreements. Except as disclosed in the
Company SEC Reports, neither the Company nor any subsidiary of the Company is a
party to any agreement which (i) purports to restrict or prohibit in any
material respect any of them or any corporation affiliated with any of them
from, directly or indirectly, engaging in any business involving the
collection, interim storage, transfer, recovery, processing, recycling,
marketing or disposal of rubbish, garbage, paper, textile wastes, chemical or
hazardous wastes, liquid and other wastes or any other material business
currently engaged in by Parent or the Company, or any corporations affiliated
with either of them, and (ii) would restrict or prohibit Parent or any
subsidiary of the Parent (other than the Company and its subsidiaries that are
currently so restricted or prohibited) from engaging in such business. None of
the Company's officers, directors or key employees is a party to any agreement
which, by virtue of such person's relationship with the Company, restricts in
any material respect the Company or any subsidiary or affiliate of the Company
from, directly or indirectly, engaging in any of the businesses described
above.
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SECTION 5.17 Title to Assets. The Company and each of its subsidiaries
has good and marketable title in fee simple to all its real property and good
title to all its leasehold interests and other properties, as reflected in the
most recent balance sheet included in the Company Financial Statements, except
for properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's business
operations (in the manner presently carried on by the Company), or (iii) as
disclosed in the Company SEC Reports, and except for such matters which would
not reasonably be expected to have a Company Material Adverse Effect. All leases
under which the Company leases any real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event which with
notice or lapse of time or both would become a default other than failures to be
in good standing, valid and effective and defaults under such leases which would
not reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.18 Reorganization and Pooling of Interests. Neither the
Company nor, to the knowledge of the Company, any of its affiliates has taken or
agreed or intends to take any action or has any knowledge of any fact or
circumstance that would prevent the Merger from (a) constituting a
reorganization within the meaning of Section 368(a) of the Code or (b) being
treated for financial accounting purposes as a Pooling Transaction. As of the
date hereof, other than directors and officers of the Company, to the knowledge
of the Company, there are no "affiliates" of the Company, as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act.
SECTION 5.19 Company Stockholders' Approval. The affirmative vote of
stockholders of the Company required for approval and adoption of this Agreement
and the Merger is a majority of the outstanding shares of Company Common Stock
entitled to vote thereon.
SECTION 5.20 Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by the Company of any
investment banking fees, finder's fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby other than fees payable
to CIBC Oppenheimer & Co., as disclosed in the Company Disclosure Schedule.
SECTION 5.21 Opinion of Financial Advisor. The financial advisor of the
Company, CIBC Oppenheimer & Co., has rendered an opinion to the Board of
Directors of the Company to the effect that, as of the date thereof, the
Exchange Ratio is fair from a financial point of view to the holders of
Company Common Stock; it being understood and acknowledged by Parent and
Subsidiary that such opinion has been rendered for the benefit of the Board of
Directors of the Company and is not intended to, and may not, be relied upon
by Parent, its affiliates or their respective subsidiaries.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this Agreement or disclosed in Section 6.1
of the Company Disclosure Schedule, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless Parent shall
otherwise agree in writing, the Company shall, and shall cause its subsidiaries
to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective certificates of
incorporation or bylaws, (ii) split, combine or reclassify their outstanding
capital stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, except for the payment of
dividends or distributions to the Company by a wholly-owned subsidiary of the
Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, except that (i) the Company may issue shares upon conversion of
convertible securities and exercise of options and warrants outstanding on the
date hereof, (ii) the Company may issue shares of Company Common Stock (or
warrants or options to acquire Company Common Stock) in connection with
acquisitions of assets or businesses pursuant to the proviso of Section 6.1(d)
and (iii) the Company may issue shares of Company Common Stock pursuant to
earnouts from previously completed transactions in accordance with the existing
terms of the agreements relating thereto;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business (other than pursuant to credit facilities) or borrowings under the
existing credit facilities of the Company or any of its subsidiaries as such
facilities may be amended in a manner that does not have a material adverse
effect on the Company (the "Existing Credit Facilities") up to the existing
borrowing limit on the date hereof, (B) borrowings to refinance existing
indebtedness on terms which are reasonably acceptable to Parent, or (C)
borrowings in connection with acquisitions as set forth in the proviso in this
Section 6.1(d), (ii) redeem, purchase, acquire or offer to purchase or acquire
any shares of its capital stock or any options, warrants or rights to acquire
any of its capital stock or any security convertible into or exchangeable for
its capital stock, (iii) take any action that would jeopardize the treatment of
the Merger as a pooling of interests under Opinion No. 16 of the Accounting
Principles Board ("APB No. 16"), (iv) take or fail to take any action which
action or failure to take action would cause the Company or its stockholders
(except to the extent that any stockholders receive cash in lieu of fractional
shares and except to the extent of stockholders in special circumstances) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger or would otherwise cause the Merger not to qualify as
a reorganization under Section 368(a) of the Code, (v) make any acquisition of
any assets or businesses other than expenditures for current assets in the
ordinary course of business and expenditures for fixed or capital assets in
the ordinary course of business and other than as set forth in the proviso in
this Section 6.1(d), (vi) sell, pledge, dispose of or encumber any material
assets or businesses other than (A) sales of businesses or assets in the
ordinary course of business, (B) sales of businesses or assets disclosed in
Section 6.1 of the Company Disclosure Schedule, (C) sales of businesses or
assets with aggregate 1997 revenues of less than $5 million, and (D) pledges
or encumbrances pursuant to Existing Credit Facilities or other permitted
borrowings, or (vii) except as contemplated by the following proviso, enter
into any binding contract, agreement, commitment or arrangement with respect
to any of the foregoing; provided, however, that notwithstanding the foregoing
(other than subsections (iii) and (iv) of this Section 6.1(d)), the Company
shall not be prohibited from acquiring any assets or businesses or incurring
or assuming indebtedness in connection with acquisitions of assets or
businesses so long as (A) such acquisitions are disclosed in Section 6.1 of
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the Company Disclosure Schedule, or (B) the aggregate value of consideration
paid or payable in connection with any such acquisition (other than those
acquisitions disclosed in Schedule 6.1 of the Company Disclosure Schedule)
including any funded indebtedness assumed and any Company Common Stock issued
in connection with such acquisitions (valued for purposes of this limitation
at a price per share equal to the price of the Company Common Stock on the
date the agreement in respect of any such acquisition is entered into) does
not exceed $10 million and such acquisition is accretive to the earnings per
share of the Company. For purposes of the foregoing, any contingent, royalty
and similar payments made in connection with acquisitions of businesses or
assets shall be included as acquisition consideration and shall be deemed to
have a value equal to their present value assuming a 8% per annum discount
rate and assuming that all amounts payable for the first five years following
consummation of the acquisitions (but not thereafter) are paid.
Notwithstanding anything herein to the contrary: (A) the Company will not
acquire or agree to acquire any assets or businesses if such acquisition or
agreement may reasonably be expected to delay the consummation of the Merger;
(B) the Company will not acquire or agree to acquire any assets or businesses
if such assets or businesses are not in industries in which the Company
currently operates, unless such assets or businesses are acquired incidental
to an acquisition of businesses or assets that are in industries in which the
Company currently operates and it is reasonable to acquire such incidental
businesses or assets in connection with such acquisition; and (C) the Company
will not acquire or agree to acquire all or substantially all of the business,
assets, properties or capital stock of any entity with securities registered
under the Securities Act or the Exchange Act;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) subject to restrictions imposed by applicable law, confer with one
or more representatives of Parent to report operational matters of materiality
and the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice; provided, however,
that the Company and its subsidiaries shall in no event enter into or amend any
written employment agreements providing for annual base salary in excess of
$100,000 per annum;
(h) not adopt, enter into or amend any pension or retirement plan,
trust or fund, except as required to comply with changes in applicable law and
not adopt, enter into or amend in any material respect any bonus, profit
sharing, compensation, stock option, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employees or retirees generally, other than
in the ordinary course of business, except (i) as contemplated by Section
6.1(c), (ii) as required to comply with changes in applicable law, (iii) any
of the foregoing involving any such then existing plans, agreements, trusts,
funds or arrangements of any company acquired after the date hereof, or (iv)
as required pursuant to an existing contractual arrangement or agreement;
(i) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice; and
(j) not make, change or revoke any material Tax election or make any
material agreement or settlement regarding Taxes with any taxing authority.
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SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending the
Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent shall, and shall
cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective certificates of
incorporation (except for any amendments by Parent of its Certificate of
Incorporation to increase the number of authorized shares of Parent Common Stock
to not more than 400 million) or bylaws, (ii) split, combine or reclassify
(whether by stock dividend or otherwise) their outstanding capital stock, or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions to Parent by a wholly-owned subsidiary of Parent;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, except that (i) Parent may issue shares upon conversion of convertible
securities and exercise of options and warrants outstanding on the date hereof,
(ii) Parent may issue options with an exercise price per share of Parent Common
Stock no less than the fair market value of a share of Parent Common Stock on
the date of grant thereof (and shares upon exercise of such options) pursuant to
its employee stock option plans in effect on the date hereof, and (iii) Parent
may issue shares of capital stock (or warrants or options to acquire capital
stock) in connection with acquisitions of assets or businesses;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or borrowings under the existing credit facilities of Parent or any
of its subsidiaries, (B) borrowings to refinance existing indebtedness on terms
which are reasonably acceptable to the Company, (C) as set forth in the proviso
in this Section 6.2(d), (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or rights to
acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) take any action that would jeopardize
the treatment of the Merger as a pooling of interests under APB No. 16, (iv)
take or fail to take any action which action or failure to take action would
cause Parent or its stockholders to recognize gain or loss for federal income
tax purposes as a result of the consummation of the Merger or would otherwise
cause the Merger not to qualify as a reorganization under Section 368(a) of the
Code, (v) pledge or encumber any material assets or businesses other than
pledges or encumbrances pursuant to existing or future credit facilities, or
(vi) enter into any binding contract, agreement, commitment or arrangement
with respect to any of the foregoing; provided, however, that notwithstanding
the foregoing (other than subsections (iii) and (iv) of this Section 6.2(d)),
Parent shall not be prohibited from acquiring any assets or businesses or
incurring or assuming indebtedness in connection with acquisitions of assets
or businesses. Notwithstanding anything herein to the contrary: (A) Parent
will not acquire or agree to acquire any assets or businesses if such
acquisition or agreement may reasonably be expected to delay the consummation
of the Merger; and (B) Parent will not acquire or agree to acquire any assets
or businesses if such assets or businesses are not in industries in which
Parent currently operates, unless such assets or businesses are acquired
incidental to an acquisition of businesses or assets that are in industries in
which Parent currently operates and it is reasonable to acquire such
incidental businesses or assets in connection with such acquisition;
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(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) subject to restrictions imposed by applicable law, confer with one
or more representatives of the Company to report operational matters of
materiality and the general status of ongoing operations; and
(g) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are consistent
with past practice.
SECTION 6.3 Control of the Company's Operations. Nothing contained in
this Agreement shall give to Parent, directly or indirectly, rights to control
or direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.4 Control of Parent's Operations. Nothing contained in this
Agreement shall give to the Company, directly or indirectly, rights to control
or direct Parent's operations prior to the Effective Time. Prior to the
Effective Time, Parent shall exercise, consistent with the terms and conditions
of this Agreement, complete control and supervision of its operations.
SECTION 6.5 Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to, initiate, solicit, negotiate, encourage or provide
confidential information to facilitate, and the Company shall, and shall use its
reasonable efforts to cause any officer, director or employee of the Company, or
any attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries, not to initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate, any
proposal or offer to acquire all or any substantial part of the business,
properties or capital stock of the Company, whether by merger, purchase of
assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as an "Acquisition Transaction").
(b) Notwithstanding the provisions of paragraph (a) above, (i) the
Company may, in response to an unsolicited written offer or proposal with
respect to a potential or proposed Acquisition Transaction ("Acquisition
Proposal") which the Company's Board of Directors determines, in good faith
and after consultation with its independent financial advisor, would result
(if consummated pursuant to its terms) in an Acquisition Transaction more
favorable to the Company's stockholders than the Merger (any such
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offer or proposal being referred to as a "Superior Proposal"), furnish
(subject to the execution of a confidentiality agreement substantially similar
to the confidentiality provisions of this agreement), confidential or
non-public information to a financially capable corporation, partnership,
person or other entity or group (a "Potential Acquirer") and negotiate and,
upon termination of this Agreement in accordance with Section 9.1(a)(iv) and
after payment to Parent of the fee pursuant to Section 7.6(b), enter
agreements with such Potential Acquirer if the Board of Directors of the
Company, after consulting with its outside legal counsel, determines in good
faith that consideration of the Superior Proposal is reasonably necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
or that the failure to provide such confidential or non-public information to
or negotiate with such Potential Acquirer would be reasonably likely to
constitute a breach of its fiduciary duty to the Company's stockholders, and
(ii) the Company's Board of Directors may take and disclose to the Company's
stockholders a position contemplated by Rule 14e-2 under the Exchange Act. It
is understood and agreed that negotiations and other activities conducted in
accordance with this paragraph (b) shall not constitute a violation of
paragraph (a) of this Section 6.5.
(c) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, indication of interest or request for non-public
information relating to the Company or its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company or any subsidiary by any person or entity that informs the Board of
Directors of the Company or such subsidiary that it is considering making, or
has made, an Acquisition Proposal. Such notice to Parent shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
(d) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Parent shall promptly notify the Company
after receipt of any proposal or offer to acquire all or any substantial part of
the business, properties or capital stock of Parent, whether by merger, purchase
of assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as a "Parent Acquisition Transaction"), and shall indicate in reasonable
detail the identity of the offeror or Person and the terms and conditions of
such proposal or offer.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information.
(a) Subject to applicable law, the Company and its subsidiaries shall
afford to Parent and Subsidiary and their respective accountants, counsel,
financial advisors and other representatives (the "Parent Representatives") and
Parent and its subsidiaries shall afford to the Company and its accountants,
counsel, financial advisors and other representatives (the "Company
Representatives") reasonable access during normal business hours with reasonable
notice throughout the period prior to the Effective Time to all of their
respective properties, books, contracts, commitments and records (including, but
not limited to, Tax Returns) and, during such period, shall furnish promptly to
one another (i) a copy of each report, schedule and other document filed or
received by any of them pursuant to the requirements of federal or state
securities laws or filed by any of them with the SEC in connection with the
transactions contemplated by this Agreement, and (ii) such other information
concerning their respective businesses, properties and personnel as Parent or
Subsidiary or the Company, as the case may be, shall reasonably request;
provided, however, that no investigation pursuant to this Section 7.1 shall
amend or modify any representations or warranties made herein or the conditions
to the obligations of the respective parties to consummate the Merger. Parent
and its subsidiaries shall hold and shall use their reasonable best efforts to
cause the Parent Representatives to hold, and the Company and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all nonpublic documents and
information furnished to Parent and Subsidiary or to the Company, as the case
may be, in connection with the transactions contemplated by this Agreement,
except that (i) Parent, Subsidiary and the Company may disclose such information
as may be necessary in connection with seeking the Parent Required Statutory
Approvals and Parent Stockholders' Approval, the Company Required Statutory
Approvals and the Company Stockholders' Approval, and (ii) each of Parent,
Subsidiary and the Company may disclose any information that it is required by
law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver to the other all nonpublic
written material provided pursuant to this Section 7.1 and shall not retain any
copies, extracts or other reproductions in whole or in part of such written
material. In such event, all documents, memoranda, notes and other writings
prepared by Parent or the Company based on the information in such material
shall be destroyed (and Parent and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to similarly
destroy their documents, memoranda and notes), and such destruction (and
reasonable best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
(c) At least 60 days prior to the Closing, the Company shall deliver to
the Parent a complete copy of each agreement which requires the Company to
register any shares of Company Common Stock under the Securities Act and which
would require the Parent to register any shares of Parent Common Stock under the
Securities Act upon or after the Closing.
SECTION 7.2 Registration Statement and Proxy Statement. Parent and the
Company shall file with the SEC as soon as is reasonably practicable after the
date hereof the Registration Statement and shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC as promptly as
practicable. Parent also shall take any action required to be taken under
applicable state blue
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sky or securities laws in connection with the issuance of Parent Common Stock
pursuant hereto. Parent and the Company shall promptly furnish to each other
all information, and take such other actions, as may reasonably be requested
in connection with any action by any of them in connection with the preceding
sentence. The information provided and to be provided by Parent and the
Company, respectively, for use in the Joint Proxy Statement/Prospectus shall
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
SECTION 7.3 Stockholders' Approvals.
(a) The Company shall, as promptly as practicable, submit this
Agreement and the transactions contemplated hereby for the approval of its
stockholders at a meeting of stockholders and, subject to the fiduciary duties
of its Board of Directors, shall use its reasonable best efforts to obtain
stockholder approval and adoption (the "Company Stockholders' Approval") of this
Agreement and the transactions contemplated hereby. Such meeting of stockholders
shall be held as soon as practicable following the date upon which the
Registration Statement becomes effective. The Company shall, through its Board
of Directors, recommend to its stockholders approval of the transactions
contemplated by this Agreement.
(b) Parent shall, as promptly as practicable, submit this Agreement and
the transactions contemplated hereby for the approval of its stockholders at a
meeting of stockholders and, subject to the fiduciary duties of its Board of
Directors, shall use its reasonable best efforts to obtain stockholder approval
and adoption (the "Parent Stockholders' Approval") of this Agreement and the
transactions contemplated hereby. Such meeting of stockholders shall be held as
soon as practicable following the date on which the Registration Statement
becomes effective. Parent shall, through its Board of Directors, (i) recommend
to its stockholders approval of the transactions contemplated by this Agreement,
and (ii) authorize and cause an officer of Parent to vote Parent's shares of
Subsidiary Common Stock for adoption and approval of this Agreement and the
transactions contemplated hereby, and shall take all additional actions as the
sole stockholder of Subsidiary necessary to adopt and approve this Agreement and
the transactions contemplated hereby.
SECTION 7.4 Compliance with the Securities Act. . Parent and the
Company shall each use its commercially reasonable efforts to cause each
officer, each director and each other person who is an "affiliate," as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Parent or the Company, as the case may be, to deliver to Parent and the Company
on or prior to the Effective Time a written agreement (an "Affiliate Agreement")
to the effect that such person will not offer to sell, sell or otherwise dispose
of any shares of Parent Common Stock issued in the Merger, except, in each case,
pursuant to an effective registration statement or in compliance with Rule 145,
as amended from time to time, or in a transaction which, in the opinion of legal
counsel reasonably satisfactory to Parent, is exempt from the registration
requirements of the Securities Act and, in any case, until after the results
covering 30 days of post-Merger combined operations of Parent and the Company
have been filed with the SEC, sent to stockholders of Parent or otherwise
publicly issued. The Company shall use its commercially reasonable efforts to
cause each of its officers, directors and "affiliates" to vote all shares of
Company Common Stock held by them in favor of the Merger.
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SECTION 7.5 Exchange Listing. Parent shall use its reasonable best
efforts to effect, at or before the Effective Time, authorization for listing on
the Nasdaq National Market of the shares of Parent Common Stock to be issued
pursuant to the Merger or to be reserved for issuance upon exercise of stock
options or warrants or the conversion of convertible securities.
SECTION 7.6 Expenses and Fees.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that those expenses incurred in connection with printing
and filing the Joint Proxy Statement/Prospectus and the reasonable expenses of
the Company in connection with any HSR Act review or proceedings shall be shared
equally by Parent and the Company.
(b) The Company agrees to pay to Parent a fee equal to $32 million if:
(i) the Company terminates this Agreement pursuant to
clause (iv) or (v) of Section 9.1(a);
(ii) Parent terminates this Agreement pursuant to clause (iv)
of Section 9.1(b); or
(iii) this Agreement is terminated for any reason at a time
at which Parent was not in material breach of its covenants contained in this
Agreement and was entitled to terminate this Agreement pursuant to clause (vi)
of Section 9.1(b), and (i) prior to the time of such termination a proposal
relating to an Acquisition Transaction had been made, and (ii) on or prior to
the nine month anniversary of the termination of this Agreement (x) the Company
or any of its subsidiaries or affiliates enters into an agreement or letter of
intent (or resolves or announces an intention to do) with respect to an
Acquisition Transaction involving a person, entity or group if such person,
entity, group (or any member of such group, or any affiliate of any of the
foregoing) made a proposal with respect to an Acquisition Transaction on or
after the date hereof and prior to the termination of this Agreement and such
Acquisition Transaction is consummated or (y) an Acquisition Transaction shall
otherwise occur with any person who shall have made a proposal with respect to
an Acquisition Transaction within 90 days after termination of this Agreement.
Such fee shall be payable upon the first occurrence of any such event.
(c) Parent agrees to pay to the Company a fee equal to $32 million if
(i) this Agreement is terminated for any reason at a time at which the Company
was not in material breach of its covenants contained in this Agreement and was
entitled to terminate this Agreement pursuant to clause (vii) of Section 9.1(a),
(ii) prior to the time of such termination a proposal relating to a Parent
Acquisition Transaction had been made, and (iii) on or prior to the nine month
anniversary of the termination of this Agreement (x) Parent or any of its
subsidiaries or affiliates enters into an agreement or letter of intent (or
resolves or announces an intention to do) with respect to a Parent Acquisition
Transaction or a merger, acquisition or other business combination involving a
person, entity or group if such person, entity, group (or any member of such
group, or any affiliate of any of the foregoing) made a proposal with respect to
a Parent Acquisition Transaction on or after the date hereof and prior to the
termination of this Agreement and such Parent Acquisition Transaction is
consummated or (y) a Parent Acquisition Transaction shall otherwise occur. Such
fee shall be payable upon the first occurrence of any such event.
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SECTION 7.7 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided and subject to
the fiduciary duties of the respective boards of directors of the Company and
Parent, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents or approvals of third parties required in order to preserve
material contractual relationships of Parent and the Company and their
respective subsidiaries, all necessary or appropriate waivers, consents and
approvals and SEC "no-action" letters to effect all necessary registrations,
filings and submissions and to lift any injunction or other legal bar to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible).
(b) Without limitation of the foregoing, each of Parent and the Company
undertakes and agrees to file as soon as practicable, and in any event prior to
15 days after the date hereof, a Notification and Report Form under the HSR Act
with the FTC and the Antitrust Division. Each of Parent and the Company shall
(i) respond as promptly as practicable to any inquiries received from the FTC or
the Antitrust Division for additional information or documentation and to all
inquiries and requests received from any State Attorney General or other
governmental authority in connection with antitrust matters, and (ii) not extend
any waiting period under the HSR Act or enter into any agreement with the FTC or
the Antitrust Division not to consummate the transactions contemplated by this
Agreement, except with the prior written consent of the other parties hereto.
Parent shall take all reasonable steps necessary to avoid or eliminate
impediments under any antitrust, competition, or trade regulation law that may
be asserted by the FTC, the Antitrust Division, any State Attorney General or
any other governmental entity with respect to the Merger so as to enable the
Closing to occur as soon as reasonably possible. Without limiting the foregoing,
Parent shall propose, negotiate, commit to and effect, by consent decree, hold
separate order, or otherwise, the sale, divestiture or disposition of such
assets or businesses of Parent or, effective as of the Effective Time, the
Surviving Corporation as may be required in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order or other
order in any suit or proceeding, which would otherwise have the effect of
preventing or delaying the Closing. Each party shall promptly notify the other
party of any written communication to that party from the FTC, the Antitrust
Division, any State Attorney General or any other governmental entity and
permit the other party to review in advance any proposed written communication
to any of the foregoing.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including any
Acquisition Transaction, Parent shall have the right, at its own expense, to
participate therein, and the Company will not settle any such litigation without
the consent of Parent, which consent will not be unreasonably withheld.
SECTION 7.8 Public Statements. The parties shall consult with each
other prior to issuing any press release or any public statement with respect to
this Agreement or the transactions contemplated hereby and shall not issue any
such press release or public statement prior to such consultation.
SECTION 7.9 Notification of Certain Matters. Each of the Company,
Parent and Subsidiary agrees to give prompt notice to each other of, and to use
commercially reasonable efforts to remedy, (i) the occurrence or failure to
occur of any event which occurrence or failure to occur would be likely to cause
any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at the Effective Time, and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 7.9 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
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SECTION 7.10 Directors' and Officers' Indemnification.
(a) The indemnification provisions of the certificate of incorporation
and bylaws of the Surviving Corporation as in effect at the Effective Time shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors, officers,
employees or agents of the Company. Parent shall assume, be jointly and
severally liable for, and honor, guaranty and stand surety for, and shall cause
the Surviving Corporation to honor, in accordance with their respective terms
each of the covenants contained in this Section 7.10 and each of the
indemnification agreements listed on Section 7.10 of the Company Disclosure
Schedule without limit as to time.
(b) Without limiting Section 7.10(a), after the Effective Time, each of
Parent and the Surviving Corporation shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present and former
director, officer, employee and agent of the Company or any of its subsidiaries
(each, together with such person's heirs, executors or administrators, an
"Indemnified Party" and collectively, the "Indemnified Parties") against any
costs or expenses (including attorneys fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
actual or threatened claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of, relating to or
in connection with any action or omission occurring or alleged to occur prior to
the Effective Time (including, without limitation, acts or omissions in
connection with such persons serving as an officer, director or other fiduciary
in any entity if such service was at the request or for the benefit of the
Company) and the Merger and the other transactions contemplated by this
Agreement or arising out of or pertaining to the transactions contemplated by
this Agreement. In the event of any such actual or threatened claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), (i) the Company or Parent and the Surviving Corporation, as the case may
be, shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Parent and the Surviving Corporation, promptly after statements therefor are
received and shall pay all other reasonable expenses in advance of the final
disposition of such action, (ii) the Parent and the Surviving Corporation will
cooperate and use all reasonable efforts to assist in the vigorous defense of
any such matter, and (iii) to the extent any determination is required to be
made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the DGCL and the Parent's or the Surviving
Corporation's respective certificate of incorporation or bylaws, such
determination shall be made by independent legal counsel acceptable to the
Parent or the Surviving Corporation, as the case may be, and the Indemnified
Party; provided, however, that neither Parent nor the Surviving Corporation
shall be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld) and, provided further, that if
Parent or the Surviving Corporation advances or pays any amount to any person
under this paragraph (b) and if it shall thereafter be finally determined by a
court of competent jurisdiction that such person was not entitled to be
indemnified hereunder for all or any portion of such amount, to the extent
required by law, such person shall repay such amount or such portion thereof,
as the case may be, to Parent or the Surviving Corporation, as the case may be.
The Indemnified Parties as a group may not retain more than one law firm to
represent them with respect to each matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors
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and assigns of the Surviving Corporation or Parent shall assume the obligations
of the Surviving Corporation or the Parent, as the case may be, set forth in
this Section 7.10.
(d) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company and its subsidiaries
(provided that Parent may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are no less
advantageous to the Indemnified Parties, and which coverages and amounts shall
be no less than the coverages and amounts provided at that time for Parent's
directors and officers) with respect to matters arising on or before the
Effective Time.
(e) Parent shall pay all reasonable expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided in this Section 7.10.
(f) The rights of each Indemnified Party hereunder shall be in addition
to, and not in limitation of, any other rights such Indemnified Party may have
under the charter or bylaws of the Company, any indemnification agreement, under
the DGCL or otherwise. The provisions of this Section 7.10 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
SECTION 7.11 Corrections to the Joint Proxy Statement/Prospectus and
Registration Statement. Prior to the date of approval of the Merger by their
respective stockholders, each of the Company, Parent and Subsidiary shall
correct promptly any information provided by it to be used specifically in the
Joint Proxy Statement/Prospectus and Registration Statement that shall have
become false or misleading in any material respect and shall take all steps
necessary to file with the SEC and have declared effective or cleared by the SEC
any amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Joint Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders of
the Company and Parent, in each case to the extent required by applicable law.
SECTION 7.12 Employment and Consulting Agreements. (a) Parent and
Subsidiary agree that the Surviving Corporation will recognize existing
seniority with full credit for prior service and will provide benefits to the
Company's employees that are in the aggregate comparable to the benefits
provided to Parent employees with comparable prior service as if such employees
had been employed by Parent for the period for which they were employed by the
Company; provided, however, that nothing contained herein shall be considered as
requiring Parent or the Surviving Corporation to continue any specific plan or
benefit or as precluding amendments to any specific plan or benefit other than
as provided in Section 7.12(b) below; and provided further that nothing
expressed or implied in this Agreement shall confer upon any employee or any
beneficiary, dependent, legal representative or collective bargaining agent of
such employee any right or remedy of any nature or kind whatsoever under or by
reason of this Agreement, including without limitation any right to employment
or continued employment for any specified period, at any specified location or
under any specified job category.
(b) From and after the Effective Time, Parent shall, and shall cause
the Surviving Corporation and its subsidiaries to, honor in accordance with
their terms, the employment, severance, and other compensation contracts listed
in Section 7.12 of the Company Disclosure Schedule between the Company or one of
its subsidiaries and certain current or former directors, officers or employees
thereof (true and correct copies of which have been delivered by the Company to
the Parent). Parent, Subsidiary and the Company each hereby acknowledge and
agree that: (i) upon the consummation of the Merger,
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each of the executives listed in Section 7.12 of the Company Disclosure
Schedule will be deemed to have terminated his employment with the Company;
(ii) each such executive will be entitled to receive the severance pay and
benefits required by the contracts listed in Section 7.12 of the Company
Disclosure Schedule (the amounts payable in connection therewith have
previously been accurately provided to Parent), and (iii) any cash payments to
which such executives are entitled shall be made at Closing and simultaneously
therewith.
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of the
Company and Parent under applicable law and applicable listing requirements;
(b) the shares of Parent Common Stock issuable in the Merger and those
to be reserved for issuance upon exercise of stock options or warrants or the
conversion of convertible securities shall have been authorized for listing on
the Nasdaq National Market;
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(d) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any state
regulatory authorities;
(e) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
(f) no statute, rule or regulation shall have been enacted by any state
or federal government or governmental agency in the United States which would
prevent the consummation of the Merger or make the Merger illegal;
(g) Arthur Andersen L.L.P., certified public accountants for Parent,
shall have delivered a letter, dated the Closing Date, addressed to Parent, in
form and substance reasonably satisfactory to Parent, to the effect that the
Merger will qualify for a pooling of interests accounting treatment if
consummated in accordance with this Agreement; and
(h) each of the parties to the Agreement shall have received a letter
dated the Closing Date, addressed to the Company, from Ernst & Young, LLP
regarding such firm's concurrence with the Company's management's conclusions
that no conditions exist related to the Company that would preclude the Parent's
accounting for the Merger with the Company as a pooling of interests under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
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SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed their agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of Parent and Subsidiary contained
in this Agreement shall be true and correct on and as of the date made and
(except to the extent that such representations and warranties speak as of an
earlier date) on and as of the Closing Date as if made at and as of such date,
except for such failures to perform or to be true and correct that would not
reasonably be expected to have a Parent Material Adverse Effect, and the Company
shall have received a certificate of the Chief Executive Officer, the President
or a Vice President of Parent and of the Chief Executive Officer, the President
or a Vice President of Subsidiary to that effect; and
(b) the Company shall have received an opinion of Proskauer Rose LLP,
in form and substance reasonably satisfactory to the Company, dated the Closing
Date, substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, which are consistent with the state
of facts existing at the Effective Time: (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; (ii) no gain or
loss will be recognized by Parent, the Company or Subsidiary as a result of the
Merger; and (iii) no gain or loss will be recognized by the holders of Company
Common Stock upon the exchange of their Company Common Stock solely for shares
of Parent Common Stock (except with respect to cash received in lieu of
fractional shares of Parent Common Stock). In rendering such opinion, such
counsel may rely upon representations contained in certificates of officers and
certain stockholders of Parent, the Company and Subsidiary.
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to
Effect the Merger. Unless waived by Parent and Subsidiary, the obligations of
Parent and Subsidiary to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date made and (except to the extent that
such representations and warranties speak as of an earlier date) on and as of
the Closing Date as if made at and as of such date, except for such failures to
perform and to be true and correct that would not reasonably be expected to have
a Company Material Adverse Effect, and Parent shall have received a Certificate
of the Chief Executive Officer, the President or a Vice President of the Company
to that effect; and
(b) Parent shall have received an opinion of Fried, Frank, Harris,
Shriver & Jacobson (or such other counsel selected by Parent), in form and
substance reasonably satisfactory to Parent, dated the Closing Date,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, which are consistent with the state of
facts, existing at the Effective Time: (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; and (ii) Parent
and Subsidiary will recognize no gain or loss for federal income tax purposes as
a result of consummation of the Merger. In rendering such opinion, such counsel
may rely upon representations contained in certificates of officers and certain
stockholders of Parent, the Company and Subsidiary.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the stockholders
of the Company or Parent, by the mutual written consent of the Company and
Parent or as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of
Parent contained in this Agreement which has not been cured in all material
respects and which has caused any of the conditions set forth in section 8.2(a)
to be incapable of being satisfied by the Termination Date;
(ii) if the Merger is not completed by January 31, 1999 (the
"Termination Date") (unless due to a delay or default on the part of the
Company);
(iii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company and if the
Company shall have used reasonable efforts to prevent the entry of such order;
(iv) if the Company receives a Superior Proposal, resolves to
accept such Superior Proposal, and the Company shall have given Parent two days'
prior written notice of its intention to terminate pursuant to this provision;
provided, however, that such termination shall not be effective until such time
as the payment required by Section 7.6(b) shall have been received by Parent;
(v) if (A) a tender or exchange offer is commenced by a
Potential Acquirer (excluding any affiliate of the Company or any group of which
any affiliate of the Company is a member) for all outstanding shares of Company
Common Stock, (B) the Company's Board of Directors determines, in good faith and
after consultation with an independent financial advisor, that such offer
constitutes a Superior Proposal and resolves to accept such Superior Proposal or
recommend to the stockholders that they tender their shares in such tender or
exchange offer, and (C) the Company shall have given Parent two days' prior
written notice of its intention to terminate pursuant to this provision;
provided, however, that such termination shall not be effective until such time
as the payment required by Section 7.6(b) shall have been received by Parent;
(vi) if Parent or Subsidiary (A) fails to perform in any
material respect any of its material covenants in this Agreement, and (B) does
not cure such default in all material respects within 30 days after written
notice of such default specifying such default in reasonable detail is given to
Parent and Subsidiary by the Company; or
(vii) if the stockholders of Parent fail to approve the Merger
at a duly held meeting of stockholders called for such purpose or any
adjournment or postponement thereof.
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(b) Parent shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of
the Company contained in this Agreement which has not been cured in all
material respects and which has caused any of the conditions set forth in
Section 8.3(a) to be incapable of being satisfied by the Termination Date;
(ii) if the Merger is not completed by January 31, 1999
(unless due to a delay or default on the part of Parent);
(iii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent and if Parent
shall have used reasonable efforts to prevent the entry of such order;
(iv) if the Board of Directors of the Company shall have
resolved to accept a Superior Proposal or shall have recommended to the
stockholders of the Company that they tender their shares in a tender or an
exchange offer commenced by a third party (excluding any affiliate of Parent or
any group of which any affiliate of Parent is a member); provided that the
Parent may not so terminate until three days after receipt of the notice of the
Company of such Superior Proposal;
(v) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement, and (B) does not cure
such default in all material respects within 30 days after written notice of
such default specifying such default in reasonable detail is given to the
Company by Parent; or
(vi) if the stockholders of the Company fail to approve the
Merger at a duly held meeting of stockholders called for such purpose or any
adjournment or postponement thereof.
(c) As used in this Section 9.1, (i) "affiliate" has the meaning
assigned to it in Section 7.4, and (ii) "group" has the meaning set forth in
Section 13(d) of the Exchange Act and the rules and regulations thereunder.
SECTION 9.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no liability
or further obligation on the part of the Company, Parent, Subsidiary or their
respective officers or directors (except in this Section 9.2, in the second
sentence of Section 7.1(a) and in Sections 7.1(b), 7.6 and 10.4, all of which
shall survive the termination). Nothing in this Section 9.2 shall relieve any
party from liability for any willful and intentional breach of any covenant or
agreement of such party contained in this Agreement.
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SECTION 9.3 Amendment. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law. Such amendment
may take place at any time prior to the Closing Date, and, subject to applicable
law, whether before or after approval by the stockholders of the Company, Parent
or Subsidiary.
SECTION 9.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto, or (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and Warranties. No
representations, warranties or agreements in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger, and after
effectiveness of the Merger neither the Company, Parent, Subsidiary or their
respective officers or directors shall have any further obligation with respect
thereto except for the agreements contained in Articles II, III and X, Section
7.10, Section 7.12 and Section 9.2.
SECTION 10.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Parent or Subsidiary, to:
Allied Waste Industries, Inc.
15880 N. Greenway-Hayden Loop
Suite 100
Scottsdale, AZ 85260
Attention: Steven Helm, Esq.
Vice President, Legal
with a copies to:
Fennemore Craig
3003 North Central Avenue
Phoenix, AZ 85012-2913
Attention: Karen C. McConnell, Esq.
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Peter Golden, Esq.
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If to the Company, to:
American Disposal Services, Inc.
745 McClintock Drive
Suite 305
Burr Ridge, IL 60521
Attention: Ann Straw, Esq.
Vice President, General Counsel and Secretary
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Steven Rubin, Esq.
SECTION 10.3 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision. For purposes of
determining whether any fact or circumstance involves a material adverse effect
on the results of operations of a party, the following shall not be considered:
(i) any special transaction charges incurred by such party as a result of the
consummation of acquisitions accounted for under the pooling of interests method
of accounting, and (ii) any non-cash, non-recurring charges resulting from (A)
the write-down of non-material assets, the value of which are impaired as the
result of an order of a governmental or regulatory body or authority, or (B) the
sale of non-material assets.
SECTION 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
and (b) shall not be assigned by operation of law or otherwise, except that
Subsidiary may assign this Agreement to any other wholly-owned subsidiary of
Parent. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. THE EXCLUSIVE
VENUE FOR THE ADJUDICATION OF ANY DISPUTE OR PROCEEDING ARISING OUT OF THIS
AGREEMENT OR THE PERFORMANCE THEREOF SHALL BE THE COURTS LOCATED IN THE STATE OF
DELAWARE AND THE PARTIES HERETO AND THEIR AFFILIATES EACH CONSENT TO AND HEREBY
SUBMIT TO THE JURISDICTION OF ANY COURT LOCATED IN THE STATE OF DELAWARE.
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SECTION 10.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and except as set forth in
Sections 2.1, 2.2, 3.3, 7.9, 7.10 and 7.12 (which are intended to and shall
create third party beneficiary rights if the Merger is consummated), nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement. The rights of any third party beneficiary hereunder are not subject
to any defense, offset or counterclaim.
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IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective officers as of the date first
written above.
ALLIED WASTE INDUSTRIES, INC.
By:______________________________
Name:____________________________
Title:___________________________
AWIN II ACQUISITION
CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
AMERICAN DISPOSAL SERVICES, INC.
By:______________________________
Name:____________________________
Title:___________________________
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Exhibit 10.1
STOCK OPTION AGREEMENT, dated as of the 10th day of August, 1998
(this "Agreement"), between American Disposal Services, Inc., a Delaware
corporation ("Issuer"), and Allied Waste Industries, Inc., a Delaware
corporation ("Grantee").
WHEREAS, contemporaneously with the execution of this Agreement,
the Grantee, a wholly-owned subsidiary of Grantee ("Merger Sub"), and Issuer
are entering into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), pursuant to which Grantee and Issuer intend to
effect a merger of Merger Sub with and into Issuer (the "Merger"); and
WHEREAS, as an inducement and condition to Grantee's willingness
to enter into the Merger Agreement, and in consideration thereof, the Board of
Directors of Issuer has approved the grant to Grantee of the option pursuant
to this Agreement; provided, that such grant was expressly conditioned upon,
and made of no effect until after, execution and delivery of the Merger
Agreement by Issuer, Grantee and Merger Sub.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 4,000,000 fully paid and nonassessable shares of common
stock, having a par value of .01 per share ("Common Stock"), of Issuer at a
price per share in cash equal to $40.00 (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 19.9% of the shares of Common Stock issued and outstanding
at the time of exercise (without giving effect to the shares of Common Stock
issued or issuable under the Option) (the "Maximum Applicable Percentage").
The number of shares of Common Stock purchasable upon exercise of the Option
and the Option Price are subject to adjustment as set forth in this Agreement.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement), the aggregate number of shares of Common
Stock purchasable upon exercise of the Option (inclusive of shares, if any,
previously purchased upon exercise of the Option) shall automatically be
increased (without any further action on the part of Issuer or Grantee being
necessary) so that, after such issuance, it equals the Maximum Applicable
Percentage. Any such increase shall not affect the Option Price.
<PAGE>
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or a part of the Option in accordance
with the terms of this Agreement (each such person, including Grantee, being
referred to as the "Holder") may exercise the Option, in whole or in part,
after the occurrence of a Triggering Event by delivering a written notice as
provided in Section 2(d) within 180 days of the occurrence of a Triggering
Event (as defined in Section 2(b)). The Option shall terminate upon either (i)
the occurrence of the Effective Time (as defined in the Merger Agreement) or
(ii) (A) if the Notice Date (as hereinafter defined) has not previously
occurred, the close of business on the earlier of (x) the day 180 days after
the date that Grantee becomes entitled to receive the Termination Fee (as
defined in the Merger Agreement) and (y) the date that Grantee is no longer
potentially entitled to receive the Termination Fee, in each case under
Section 7.6(b) of the Merger Agreement, and (B) if the Notice Date has
previously occurred, one year after the Notice Date (the events in (i) or (ii)
being referred to as "Exercise Termination Events".)
(b) Triggering Event. A "Triggering Event" shall have occurred
if the Merger Agreement is terminated and Grantee then or thereafter becomes
entitled to receive the Termination Fee pursuant to Section 7.6(b) of the
Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event, it
being understood that the giving of the notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled
to and wishes to exercise the Option, it shall send to Issuer a written notice
(the date on which it is given, as defined in Section 16, is referred to as
the "Notice Date") specifying (i) the total number of shares that the Holder
will purchase pursuant to the exercise and (ii) a place and date (a "Closing
Date") not earlier than three business days nor later than 60 business days
from the Notice Date for the closing of the purchase (a "Closing"); provided,
that if a filing is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") or prior notification to
or approval of any other authority is required in connection with this
purchase, the Holder or Issuer, as required, promptly after the giving of the
notice shall file the notice or application for approval and shall
expeditiously process the same and the period of time referred to in clause
(ii) shall commence on the date on which the Holder furnishes to Issuer a
supplemental written notice setting forth the Closing Date, which notice shall
be furnished as promptly as practicable after all required notification
periods shall have expired or been terminated and all required approvals shall
have been obtained and all requisite waiting periods shall have passed. Each
of the Holder and the Issuer agrees to use all reasonable efforts to cooperate
with and provide information to Issuer or Holder, as the case may be, for the
purpose of any required notice or application for approval.
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(e) Payment of Purchase Price. At each Closing, the Holder
shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by Issuer;
provided, that failure or refusal of Issuer to designate a bank account shall
not preclude the Holder from exercising the option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously
with the payment of the purchase price by the Holder, Issuer shall deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall be exercised in
part only, a new option evidencing the rights of the Holder to purchase the
balance (as adjusted pursuant to Section l(b)) of the shares then purchasable
hereunder.
(g) Restrictive Legend. Certificates for Common Stock delivered
at a Closing may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between the
registered holder and Issuer, a copy of which agreement is on file
at the principal office of Issuer, and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of the
aforementioned agreement will be mailed to the holder without
charge promptly after receipt by Issuer of a written request."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without this
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the Securities and Exchange Commission, or a written opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that this legend is not required for purposes of the Securities Act;
(ii) the reference to the provisions of this Agreement in the above legend
shall be removed by delivery of substitute certificate(s) without this
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) both are
satisfied. In addition, the certificates shall bear any other legend as may be
required by applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses.
Upon the giving by the Holder to Issuer of a written notice of exercise
referred to in Section 2(e) and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed
or that certificates representing such shares of Common Stock shall
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not have been delivered to the Holder. Issuer shall pay all expenses, and any
and all United States federal, state and local taxes (other than income taxes
payable by Holder) and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this Section 2
in the name of the Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to purchase
shares of Common Stock from Issuer, or to issue the appropriate number of
shares of Common Stock pursuant to the terms of this Agreement;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger, issuance
of rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions to
be observed or performed hereunder by Issuer and not to take any action which
would cause any of its representations or warranties not to be true; and
(c) Further Assurances. Promptly after the date hereof to take
all actions as may from time to time be required (including (i) complying with
all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that prior approval of or
notice to any other regulatory authority is necessary under any applicable
federal, state or local law before the Option may be exercised, cooperating
fully with the Holder in preparing and processing the required applications or
notices) in order to permit each Holder to exercise the Option and purchase
shares of Common Stock pursuant to such exercise and to take all action
necessary to protect the rights of the Holder against dilution.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee that Issuer has all requisite corporate
power and authority and has taken all corporate action necessary to authorize,
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby; this Agreement has been duly
and validly authorized, executed and delivered by Issuer and constitutes a
valid and binding agreement of Issuer enforceable against Issuer in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles. Issuer
hereby further represents and warrants to Grantee that it has taken all
necessary corporate action to authorize and reserve for issuance upon exercise
of the Option the shares of Common
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Stock issuable upon exercise of the Option and that all shares of Common
Stock, upon issuance pursuant to the Option, will be delivered free and clear
of all claims, liens, encumbrances, and security interests (other than those
created by this Agreement) and not subject to any preemptive rights. There are
no agreements, instruments, securities, arrangements, or plans which would
create any additional cost or burden on any exercise of the Option. Issuer has
taken all action necessary to make inapplicable to Grantee any state takeover,
business combination, control share or other similar statute and any charter
provisions which would otherwise be applicable to Grantee or any transaction
involving Issuer and Grantee by reason of the grant of the Option, the
acquisition of beneficial ownership of shares of Common Stock as a result of
the grant of the Option, or the acquisition of shares of Common Stock upon
exercise of the Option, except for statutes or provisions which by their terms
cannot be waived or rendered inapplicable by any action of the Board of
Directors of the Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that Grantee has all requisite corporate
power and authority and has taken all corporate action necessary in order to
authorize, execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby; this Agreement has
been duly and validly authorized, executed and delivered by Grantee and
constitutes a valid and binding agreement of Grantee enforceable against
Grantee in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
6. Exchange; Replacement. This Agreement and the Option granted
hereby are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable at such time hereunder, subject to
corresponding adjustments in the number of shares of Common Stock purchasable
upon exercise so that the aggregate number of such shares under all Stock
Option Agreements issued in respect of this Agreement shall not exceed the
Maximum Applicable Percentage. Unless the context shall require otherwise, the
terms "Agreement" and "Option" as used in this Agreement include any Stock
Option Agreements and related options for which this Agreement (and the option
granted hereby) may be exchanged. Upon (i) receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation
of this Agreement, (ii) receipt by Issuer of reasonably satisfactory
indemnification in the case of loss, theft or destruction and (iii) surrender
and cancellation of this Agreement in the case of mutilation, Issuer will
execute and deliver a new Agreement of like tenor and date. Any new Agreement
executed and delivered shall constitute an additional contractual obligation
on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by any person other than the
holder of the new Agreement.
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7. Adjustments. In addition to the adjustment to the total
number of shares of Common Stock purchasable upon exercise of the Option
pursuant to Section l(b), the total number of shares of Common Stock
purchasable upon the exercise and the Option Price shall be subject to
adjustment from time to time as follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or the like, the type and number of shares of Common Stock purchasable
upon exercise of the Option shall be appropriately adjusted, and proper
provision shall be made in the agreements governing any such transaction, so
that (i) any Holder shall receive upon exercise of the Option the number and
class of shares, other securities, property or cash that such Holder would
have received in respect of the shares of Common Stock purchasable upon
exercise of the option if the Option had been exercised and such shares of
Common Stock had been issued to such Holder immediately prior to such event or
the record date therefor, as applicable; and (ii) in the event any additional
shares of Common Stock are to be issued or otherwise become outstanding as a
result of any such change (other than pursuant to an exercise of the Option),
the number of shares of Common Stock purchasable upon exercise of the Option
shall be increased so that, after such issuance and together with shares of
Common Stock previously issued pursuant to the exercise of the Option (as
adjusted on account of any of the foregoing changes in the Common Stock), the
number of shares so purchasable equals the Maximum Applicable Percentage of
the number of shares of Common Stock issued and outstanding immediately after
the consummation of such change; and
(b) Whenever the number of shares of Common Stock purchasable
upon exercise hereof is adjusted as provided in this Section 7, the Option
Price shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which is equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which is equal to
the number of shares of Common Stock purchasable after the adjustment.
8. Registration. (a) At any time after the occurrence of a
Triggering Event prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered in the written notice of exercise of the option
provided for in Section 2(e), as promptly as practicable prepare, file and
keep current a shelf registration statement under the Securities Act covering
any or all shares issued and issuable pursuant to the Option and shall use its
best efforts to cause such registration statement to become effective and
remain current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of the Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee;
provided, however, that Issuer may postpone filing a registration statement
relating to a registration request by Grantee under this Section 8 for a
period of time (not in excess of 90 days) if in its judgment such filing would
require the disclosure of material information that Issuer has a bona fide
business
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<PAGE>
purpose for preserving as confidential. Issuer will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for 365 days after the later of the (i) day the registration
statement first becomes effective or until such earlier date as all shares
registered shall have been sold by Grantee or the Holders and (ii) the Closing
Date. In connection with any such registration, Issuer and Grantee shall
provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registrations. If
requested by Grantee in connection with such registration, Issuer shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating Issuer in respect of representations,
warranties, indemnities, contribution and other agreements customarily made by
issuers in such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the
sale or other disposition of the Common Stock or other securities pursuant to
a registration statement filed pursuant to Section 8(a) shall occur
substantially simultaneously with the exercise of the Option.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event prior to an Exercise Termination Event, (i) at the request of
a Holder, delivered in writing within 180 days of this occurrence (or such
later period as provided in Section 2(d) with respect to any required notice
or application or in Section 10), Issuer shall repurchase the Option from the
Holder, in whole or in part, at a price (the "Option Repurchase Price") equal
to the number of shares of Common Stock then purchasable upon exercise of the
Option (or such lesser number of shares as may be designated in the Repurchase
Notice (as defined below)) multiplied by the amount by which the market/offer
price (as defined below) exceeds the Option Price and (ii) at the request of a
Holder or any person who has been a Holder (for purposes of this Section 9
only, each such person being referred to as a "Holder"), delivered in writing
within 180 days of this occurrence (or such later period as provided in
Section 2(d) with respect to any required notice or application or in Section
10), Issuer shall repurchase such number of Option Shares from such Holder as
the Holder shall designate in the Repurchase Notice at a price (the "Option
Share Repurchase Price") equal to the number of shares designated multiplied
by the market/offer price. The term "market/offer price" shall mean the
highest of (w) the Option Price plus $2.00, (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock has been made after
the date of this Agreement and prior to the delivery of the Repurchase Notice
and which offer has either been consummated or has not been withdrawn or
terminated as of the date payment of the Repurchase Price is made, (y) the
price per share of Common Stock to be paid by any third party pursuant to an
agreement with Issuer for a merger, share exchange, consolidation or
reorganization entered into after the date hereof and on or prior to the
delivery of the Repurchase Notice and (z) the average closing price for shares
of Common Stock on the NYSE (or, if the Common Stock is not then listed on the
NYSE,
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any other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted) for the twenty consecutive trading
days immediately preceding the delivery of the Repurchase Notice. In the event
that a tender or exchange offer is made for the Common Stock or an agreement
is entered into for a merger, share exchange, consolidation or reorganization
involving consideration other than cash, the value of the securities or other
property issuable or deliverable in exchange for the Common Stock shall be
determined in good faith by a nationally recognized investment banking firm
selected by Issuer and reasonably acceptable to Grantee.
(b) Method of Repurchase. A Holder may exercise its right to
require Issuer to repurchase the Option, in whole or in part, and/or any
Option Shares then owned by such Holder pursuant to this Section 9 by
surrendering for this purpose to Issuer, at its principal office, this
Agreement or certificates for Option Shares, as applicable, accompanied by a
written notice or notices stating that the Holder elects to require Issuer to
repurchase the Option and/or such Option Shares in accordance with the
provisions of this Section 9 (each such notice, a "Repurchase Notice"). Within
two business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of the Repurchase Notice, Issuer
shall deliver or cause to be delivered to the Holder the applicable Option
Repurchase Price and/or the Option Share Repurchase Price or, in either case,
the portion that Issuer is not then prohibited under applicable law and
regulation from so delivering. In the event that the Repurchase Notice shall
request the repurchase of the Option in part, Issuer shall deliver with the
Option Repurchase Price a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of Common Stock purchasable
pursuant to the Option at the time of delivery of the Repurchase Notice minus
the number of shares of Common Stock represented by that portion of the Option
then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase.
To the extent that, upon or following the delivery of a Repurchase Notice,
Issuer is prohibited under applicable law or regulation from repurchasing the
Option (or a portion) and/or any Option Shares subject to such Repurchase
Notice (and Issuer hereby undertakes to use its reasonable best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish this repurchase),
Issuer shall immediately so notify the Holder in writing and thereafter
deliver or cause to be delivered, from time to time, to the Holder the portion
of the option Repurchase Price and the Option Share Repurchase Price that
Issuer is no longer prohibited from delivering, within 2 business days after
the date on which it is no longer so prohibited; provided, however, that upon
notification by Issuer in writing of this prohibition, the Holder may, within
5 days of receipt of this notification from Issuer, revoke in writing its
Repurchase Notice, whether in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
that portion of the option Repurchase Price and/or the Option Share Repurchase
Price that Issuer is not prohibited from delivering; and (ii) deliver to the
Holder, as appropriate, (a) with respect to the Option, a new Stock
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Option Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the Repurchase Notice less the number
of shares as to which the Option Repurchase Price has theretofore been
delivered to the Holder, and/or (b) with respect to Option Shares, a
certificate for the option Shares as to which the Option Share Repurchase
Price has not theretofore been delivered to the Holder. Notwithstanding
anything to the contrary in this Agreement, including, without limitation, the
time limitations on the exercise of the Option, the Holder may exercise the
Option for 180 days after a notice of revocation has been issued pursuant to
this Section 9(c).
(d) Acquisition Transactions. In addition to any other
restrictions covenants, Issuer hereby agrees that, in the event that a Holder
delivers a Repurchase Notice, it shall not enter or agree to enter into any
Acquisition Transaction unless the other party or parties thereto agree to
assume in writing Issuer's obligations under Section 9(a) and, notwithstanding
any notice of revocation delivered pursuant to the proviso to Section 9(c), a
Holder may require such other party or parties to perform Issuer's obligations
under Section 9(a) unless such party or parties are prohibited by law or
regulation from such performance, in which case such party or parties shall be
subject to the obligations of the Issuer under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for
exercise of certain rights under Sections 2 and 9 shall be extended in each
such case at the request of the Holder to the extent necessary to avoid
liability by the Holder under Section 16(b) of the Exchange Act by reason of
this exercise.
11. Standstill. Upon an exercise of the Option which results in
Grantee or any Holder owning in excess of 9.9% of the then outstanding shares
of Common Stock, the person who would own in excess of 9.9% of such shares
shall be subject to the following restrictions:
(a) it and its affiliates will not (and will not assist, provide
or arrange financing to or for others or encourage other to), directly or
indirectly, acting alone or as part of a group, (i) propose to Issuer or to
any of Issuer's security holders or any other person any merger, consolidation
or similar transaction, acquisition of a substantial portion of Issuer's
business or assets, an acquisition of any of Issuer's securities or any other
transaction involving any of Issuer's securities, in any such case involving
it and the Issuer or the Issuer and any third party, (ii) acquire by purchase
or otherwise, or agree, propose or offer to acquire any of the securities of
Issuer or any interest therein (other than pursuant to exercises of the
Option, stock dividends or other distributions by the Issuer or offerings by
Issuer made available to holder of shares of Common Stock generally), (iii)
otherwise seek to influence or control, in any manner whatsoever, (including
proxy solicitation, becoming a "participant" in any "election contest," or
otherwise), the management or policies of the Issuer or (iv) enter into
discussions, negotiations, arrangements or understandings with, or solicit or
encourage, any third party
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with respect to any of the foregoing or make public disclosure in respect of
any of the foregoing or request permission to do any of the foregoing. (As
used in this Agreement, the term "affiliate" shall have the meaning set forth
in Rule 12b-2 of the Securities Exchange Act of 1934.) (Notwithstanding the
foregoing, any employee benefit, pension or similar plan of such person or the
Company, as the case may be, may own, acquire or transfer up to 1% of any
class of securities of an Issuer in the ordinary course of business, solely
for investment.); and
(b) it shall not sell, transfer or dispose of the Option Shares
(a "Transfer") except:
(i) to affiliated or associated persons who agree to
become subject to this Agreement on the same terms
as such person;
(ii) in connection with a bona fide pledge, after default
in the obligation secured by the pledge;
(iii) an offering or distribution of the Shares in
compliance with the Securities Act in which
reasonable efforts are made not to knowingly sell 5%
or more of the then outstanding shares of Common
Stock to any one person (including its affiliates
and other members of a "group" within the meaning of
Rule 13(d)(3) of the Securities Exchange Act of
1934);
(iv) in compliance with the requirements of Rule 144
under the Securities Act;
(v) in privately negotiated transactions which would
not, to the reasonable knowledge of such person
after reasonable inquiry, after giving effect to the
Transfer result in the acquiror's ownership of 5% or
more of the outstanding shares of Common Stock;
(vi) pursuant to a tender or exchange offer (as such
terms are used in the Securities Exchange Act of
1934 and the rules and regulations promulgated
thereunder) made by a party not affiliated or
associated with such person for all outstanding
Shares as to which offer a majority of the directors
of the Issuer then in office have not recommended
that stockholders not tender or exchange their
Shares; or
(vii) pursuant to a tender or exchange offer by the Issuer
or in a merger or other transaction pursuant to an
agreement with the Issuer.
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These restrictions shall expire upon the earlier of (i) five years
from the date of this Agreement and (ii) the date upon which such person owns
less than 5% of the outstanding shares of Common Stock so long as this person
continues to own less than 5% of the outstanding shares of Common Stock for
the next twelve consecutive months and, if its ownership is 5% or more of the
outstanding shares during this twelve month period, then these restrictions
shall once again apply to that person.
12. Assignment. Neither party hereto may assign any of its
rights or obligations under this Agreement or the Option to any other person
without the express written consent of the other party except that Grantee may
assign its rights in whole or in part to any of its affiliates and, in the
event that a Triggering Event shall have occurred, Grantee may assign the
Option, in whole or in part to one or more third parties, provided that the
affiliate and any third party shall execute this Agreement and become subject
to its terms. Any attempted assignment in contravention of the preceding
sentence shall be null and void.
13. Filings; Other Actions. Each of Grantee and Issuer will use
its best efforts to make all filings with, and to obtain consents of, all
third parties and govern mental authorities necessary for the consummation of
the transactions contemplated by this Agreement.
14. Specific Performance. The parties acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
and that the obligations of the parties shall be specifically enforceable
through injunctive or other equitable relief.
15. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for any
reason a court or regulatory agency determines that the Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 9, the full number of shares of Common Stock provided in Section l(a)
hereof (as adjusted pursuant (b) and 7 hereof), it is the express intention of
Issuer to allow Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification of this Agreement.
16. Notices. All notices, requests, instructions, or other
documents to be given hereunder shall be in writing and shall be deemed given
(i) three business days following sending by registered or certified mail,
return receipt requested, postage prepaid, (ii) when sent if sent by
facsimile, provided that the fax is promptly confirmed by telephone
confirmation, (iii) when delivered, if delivered personally to the intended
recipient, and (iv) one business day later, if sent by overnight delivery via
a national
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courier service, in each case at the respective addresses of the parties set
forth in the Merger Agreement.
17. Governing Law. This Agreement shall be deemed to be made in
and in all respects shall be interpreted, construed and governed by and in
accordance with the law of the State of Delaware, without regard to the
conflict of law principles thereof.
18. Expenses. Except as otherwise expressly provided in this
Agreement or in the Merger Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring the expense, including fees and
expenses of its own financial consultants, investment bankers, accountants,
and counsel.
19. Entire Agreement, Etc. This Agreement and the Merger
Agreement constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, between the parties, with respect to the subject matter of this
Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties, and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
20. Limitation on Profit. (a) Notwithstanding any other
provision of this Agreement, in no event shall the Grantee's Total Profit (as
hereinafter defined) plus any Termination Fee paid to Grantee pursuant to
Section 7.6(b) of the Merger Agreement exceed in the aggregate $40 million
and, if it otherwise would exceed this amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to the Issuer for cancellation Option Shares
previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv) any
combination thereof, so that Grantee's realized Total Profit, when aggregated
with the Termination Fee so paid to Grantee shall not exceed $40 million after
taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) which, together
with any Termination Fee theretofore paid to Grantee would exceed $40 million;
provided, that nothing in this sentence shall restrict any exercise of the
Option permitted hereby on any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall
mean the aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee and any other Holder pursuant to Issuer's repurchase of
the Option (or any portion thereof) or any Option Shares pursuant to Section
9, less, in the case of any repurchase of
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Option Shares, (y) the Grantee's and any other Holder's purchase price for
such Option Shares, as the case may be, (ii) (x) the net cash amounts (and the
fair market value of any other consideration) received by Grantee and any
other Holder pursuant to the sale of Option Shares (or any other securities
into which such Option Shares are converted or exchanged) to any unaffiliated
party, less (y) the Grantee's (or any other Holder's) purchase price of the
Option Shares, and (iii) the net cash amounts (and the fair market value of
any other consideration) received by Grantee (or any other Holder) on the
transfer of the Option (or any portion thereof) to any unaffiliated party. In
the case of clauses (ii)(x) and (iii) above, the Grantee and any Holder agrees
to furnish as promptly as reasonably practicable after any disposition of all
or a portion of the Option or Option Shares a complete and correct statement,
certified by a responsible executive officer or partner of the Grantee or
Holder, of the net cash amounts (and the fair market value of any other
consideration) received in connection with any sale or transfer of the Option
or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee and any other Holder
may propose to exercise this Option shall be the Total Profit determined as of
the date of this proposal assuming that this Option were exercised on such
date for this number of shares and assuming that such shares, together with
all other Option Shares held by Grantee and any other Holders and their
respective affiliates as of such date, were sold for cash at the closing
market price for the Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
21. Captions. The Article, Section and paragraph captions in
this Agreement are for convenience of reference only, do not constitute part
of this Agreement and shall not be deemed to limit or otherwise affect any of
the provisions of this Agreement.
-13-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
AMERICAN DISPOSAL SERVICES, INC.
By: ____________________________________
Name:
Title:
ALLIED WASTE INDUSTRIES, INC.
By: ____________________________________
Name:
Title:
- 14 -
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